Why is the American economy susceptible to a sudden collapse in any time in light of the current political turmoil ?
The American economy is always in a state of debt . Total yearly spending amount to 3.967 trillion dollars , total income is 3.11 trillion dollars , so how does the government cover the difference ? Yes , they do exactly what every textbook capitalist system does , they borrow .
These loans are usually in the form of bonds which individuals can buy , banks – whose money happen to be also individuals’ money – can also buy such bonds . The government has to pay those loans plus interest , what does it do next ?
You guessed it , they borrow again to pay the first loan , then they borrow again to pay the second , and so on ..
The total debt for USA government is 17 trillion dollars while the total GDP is 17.4 trillion , which means that all what Americans are producing in a year can barely cover the debt .
How does the government deal with this predicament knowing that it’s becoming more and more difficult to borrow under the current circumstances ? 1- The difficult way :
Either reduce spending on education , health , infrastructure and other public services and utilities such as transportation and janitorial services while building awareness through media campaigns , or raise taxes which is always unpopular among the American people who are aware of their rights .
2- The easy way , printing money :
The FED simply prints more money to cover the deficit and therefore solving the problem mathematically on paper , yet the country will face a tougher problem which is inflation that affects the purchasing power of the dollar and it’s a snowball from there to a much bigger problem .
Going back to the point of borrowing money there is another face to the coin that also harms the economy which is that the countries that lend money to USA will face a problem of reduced monetary reserves “liquidity problem “ because their money goes to USA in the form of loans , so the American economy will appear to be richer with more liquidity “also on paper” with higher salary rates than creditor countries . These countries can produce and export products to USA with lower costs because of the difference in expenses and salaries and materials .. etc . The logical way for this crisis is for the Americans to build factories and plants in such countries to benefit from the reduced costs .
But here the Americans will face another problem once again since that American manufacturer who outsourced operations abroad will have to expand his market share as much as he can but up to a certain limit otherwise his products will just sit in his warehouses with no one to buy them . So he will have to layoff labor to reduce costs regardless of the social circumstances of such blue collar workers which is one of the worst aspects of capitalism since it’s in the corporation’s best interest to hire workers at the lowest salaries possible . Therefore the American worker will lose his job to some worker in Vitenam or Philipine for example , at such point unemployment in the US will increase to record levels as we can see today.
When unemployment increases the government will have to provide welfare payment and unemployment support plus the health care expenses and the rest of citizens’ rights that the government is obligated to fulfill , or they can abandon such commitments all together which will lead violent revolt and strong backlash .
The collapse of the Debt Chain :
The overwhelming majority of world governments are in debt to their citizens since most of them are service-based economies with nothing to produce , they borrow from the people in return for certain interests that are paid in due time and this practice is common because of the trust people have in the government’s promise to pay back the debt plus interest .
Creditor countries usually don’t lend money out of their surplus but from the original invested capital so they expect a return on investment and such interest is later spent on their people .
If the US defaults on paying the interest those creditor countries won’t be able to fulfill their commitments towards local banks in such countries , consequently resulting in those banks not being able to fulfill their own commitments towards their creditors who happen to be normal citizens , then local companies won’t be able to fulfill their commitments towards their employees and other companies , and that’s what we call (the collapse of global economy ) .
This scenario has never happened before so far but it happened on smaller scale , but despite being small the world is still reeling from the effects of such small-scale collapses and most countries are still suffering from debt .
I don’t think this will happen in a short time frame or in the short run , but the precoursers for such a collapse are clearly present , and the solution is fairly simple , to rely mainly on Gold as vessel to preserve value and as a safe place for wealth .
The political effects :
A country such as Iran while facing the fiercest pressure to stop its nuclear program was taking a stronger stance , issuing statements that the US isn’t capable of waging a war against Iran under the dire economic circumstance the US is facing , such a statement wasn’t even thinkable 10 years before . A jihadi organization such ISIS is clearly in defying the US to launch ground operations at this time and is questioning its ability to do so while acknowledging the fact that the US will eventually have to be involved in ground operations to defend its political and economic interests which will definitely be affects otherwise .
The economic effects :
A country like China for example which provides 1.2 trillion dollars of loans to the US and occasionally threatens to the US with these loans , hinting that they will withdraw Chinese money from the US every time the US speaks about Chinese currency devaluation , is a clear example of the economic effects of the current crisis in the American economy .
This defiance from such countries as china and iran and even from newly born organizations such as isis would never have happened if wasn’t for the American vulnerable position .
All these matters are logical and anyone who casually follows international economy won’t find an surprise there , everybody knows that the economy is suffering and the only thing that keeps it going is the support of creditors and the continuous flow of capital to the American system in the form of investments in government bonds .
Most economist believe this chain will break sooner or later and the US foreign policy will be a decisive factor in this since the US is involved in worldwide commitments and expansion policies to preserve its status a the world’s most powerful country with activities such as building military bases overseas with all the ensuing financial costs for building and maintain such bases .
From all the above we can see clearly that the American economy is weakened and that it’s house of cards built by it’s creditors on top of which are china and arab gulf states from Saudi Arabia to Kuwait . Just think about it , the cost of printing a 100 dollar bill is around 6 cents , while u buy it in Egyptian local currency for 888 pound or 1080 in the black market just because you trust in the dollar , nothing more .
Finally , what makes us certain that collapse will come and that it’s only a matter of time is Godly rule that nothing remains the same and permenance ıs only for Allah . All countries and empires through history go through phases similar to a great extent to that of a human being . It starts weak , becomes stronger as time passes , then it reaches a peak , then gradually it starts shrinking either due to corruption and decay or due to administrative difficulties , or due to the overwhelming cost of maintaining its leading role in the world which we can see clearly in the case of the US .