Has the US Become a 'Failed State' ?

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By Len Hart (about the author) Page 1 of 2 page(s)

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Is the US a 'failed state'? The CIA monitors the 'current account balance' of the world's nations. The 'current account' measures the value of US imports vis a vis its exports. The ratio often reflects the financial health of a nation, in this case, the US. According to the CIA, the US 'current account balance puts the US at the very bottom of a list of nations with a NEGATIVE balance of $-731,200,000,000. That's NEGATIVE 731 BILLION dollars. China tops the list in the black with $ 372 billion. The US position mirrors that of China but more so! [See: Rank Order - Current Account Balance.]

This is not the first time the US has turned up at the bottom of the CIAs list of 'net debtor nations'. It is hard to remember a time when the US did not pull up the rear. The difference now is the exponential rate at which the national debt is increasing. Has the US crossed the event horizon into an economic black hole from which there is now no pulling back? It is now, perhaps, beyond the ability of the Heritage Foundation to put a smiley face on it as it did predictably in the 1980s during the Reagan administration.

Yet this "indebtedness" actually results from a massive vote of confidence in the American economy by foreign investors. Strangely, when a business is actively pursued by willingly investors, it is taken as a sign of strength. When foreigners put their money in American industry, however, there is concern that the U.S. has become a "debtor nation."
--Heritage Foundation

It was the Heritage Foundation that took issue with my article exposing the fact that 'terrorism' is consistently worse under GOP regimes. [See: Terrorism is Worse Under GOP Regimes ] Heritage, I think, has often confused 'analysis' with 'PR'.

Since Heritage issued its predictable apologia on behalf of Ronald Reagan, the nation has enjoyed but one fiscally responsible administration sandwiched between two incompetent Bushes. Things have changed precipitously.

If the U.S. net investment position continues to turn more negative, prospects increase that the positive U.S. net income receipts will turn negative as U.S. income payments overwhelm U.S. income receipts. In such a case, the U.S. economy will experience a net economic drain as income that could be used to finance new U.S. businesses and investments will be sent abroad to satisfy foreign creditors. Such a drain likely will be small at first relative to the overall size of the CRS-14 10 Weisman, Steven R., A Fear of Foreign Investments. The New York Times, August 21, 2007. economy, but it could grow rapidly if the economy continues to import large amounts
of foreign capital.
--CRS Report for Congress, The United States as a Net Debtor Nation: Overview of the International Investment Position [PDF]

Though China's position seems secure, the US could drag China past the event horizon, into the economic black hole! China's position is largely the result of its having dumped it's national product primarily in the US market via Wal-Mart.

China is motivated to keep US bucks afloat. A worthless dollar means that China may be slugging it out with the US for dead last when US consumers can no longer afford to buy Chinese crap at Wal-Mart.

Of 188 nations on the CIA list, only 67 are in the black. It must be pointed out that China willingly entered into its dysfunctional relationship with the US. The rough outlines of this Faustian bargain are most certainly traceable to the Senior Bush trip to China, laying the ground work for the famous and operatic Nixon visit to the Forbidden City in 1972. Without the US consumer, China may become just another sinking ship --a Titanic!

The possibility that the only factor keeping the US off the 'failed nation' list is the fact that a Titanic America will swamp and sink every other ship in its wake is sobering and frightful.

5. Uneven economic development along group lines: determined by group-based inequality, or perceived inequality, in education, jobs, and economic status. Also measured by group-based poverty levels, infant mortality rates, education levels.[9]
6. Sharp and/or severe economic decline: measured by a progressive economic decline of the society as a whole (using: per capita income, GNP, debt, child mortality rates, poverty levels, business failures.) A sudden drop in commodity prices, trade revenue, foreign investment or debt payments. Collapse or devaluation of the national currency and a growth of hidden economies, including the drug trade, smuggling, and capital flight. Failure of the state to pay salaries of government employees and armed forces or to meet other financial obligations to its citizens, such as pension payments.[10]
--Failed state

There may be some confusion about the CIA numbers. What the CIA calls the 'current balance' is commonly called the 'balance of trade deficit' or, simply, the 'trade deficit'. The 'deficit' indicates that the US is importing much more than it sells abroad. Deficits are always expressed as negative numbers.

The current account balance is one of two ways that a nation's foreign trade is assessed. The other is the 'net capital outflow', which is fairly self-descriptive. The 'current account' is one of two components of the 'balance of payments'. The other is the 'capital account', the sum of the balance of trade, in other words, the value of all exports MINUS imports of goods and services abroad, interest and dividends, and net transfer payments like foreign aid. A current account surplus is the opposite of a negative current account balance or negative trade deficit. A current account surplus may result from an increase in a nation's net foreign assets; a current account deficit is the reverse, a 'decrease'.

The cure for a negative trade deficit is to manufacture and sell more goods abroad. With the rise of Ronald Reagan and the GOP, however, the US --to its chagrin and shame --began to think differently about 'exports', 'productivity' and 'the current account'. I've already written reams about the fraud called 'supply side economics'. There are yet other trends begun under Reagan that must not be ignored.

It was a combination of factors --primarily 'monetary tightness' and a strong dollar --in the early 1980s that resulted in a big decline in net exports. China is in 'positive' territory now because it sells to us. What will China do when we can no longer afford to buy? China will go broke just as the US has done. Following is an example of the kind of flawed thinking that has helped put the US on its knees.

Under Reagan, business and investor optimism increased because it was expected that the tax cut would stimulate economic growth, which indeed turned out to happen.
Under Clinton, business and investor optimism increased after 1994, when the Republicans gained control of Congress, because of expectations that the reductions in government spending would stimulate economic growth, which was also the case. Note that the dollar declined during the first two years of the Clinton Administration, as the initial tax increases did not boost confidence.
--The Mundell-Fleming Model

In fact, Reagan's 'tax cut' did not stimulate economic growth. It was, in fact, followed by a depression of some two years --the longest and deepest since Hoover's 'Great Depression' of the 30s. Secondly, I am amazed that 'businessmen' --expected to be somewhat knowledgeable about economics --would fall for the mythology that GOP tax cuts stimulate growth. [See: The GOP --a Parasite That Murdered Its Host]

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Len Hart is a Houston based film/video producer specializing in shorts and full-length documentaries. He is a former major market and network correspondent; credits include CBS, ABC-TV and UPI. He maintains the progressive blog: more...)

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