It was a positive surprise how many people reacted and commented on my thoughts on Europe. One question, however, came up more than others: What’s at present happening in the USA. Is it all same same like in Europe? Is it even worse? Reason enough to take closer look: Looking at US budget figures is indeed no walk in the park and requires no academic background to get the picture. Spending roughly four trillion dollars a year and having an income of a little more than two trillion dollars won’t work in the long run. In the past no problem as banks, companies and even foreign governments like the Chinese had been buying US bonds and therefore included the United States into their prayers.
Lately, this is changing, the trust of creditors to get paid back in non-inflated dollars is almost destroyed, but as long as Uncle Sam comes up with interest payments the show goes on. Not long ago total US debt passed the mark of 14,000,000,000,000 trillion dollars, what equals the entire GDP of the United States. The US Government is in a classic catch 22 situation. If they cut spending, US citizens have less to spend. Increasing taxes on the other hand to solve the problem is –as a figure of speech- not exactly the American way. Only easy way out: Print money!
This is what we see for some time now. The facts are painful, but undisputed. Even, if the US cut all government spending, there would still be a deficit (!). No suspense there. But what are the consequences? How to get out of this vicious circle? Is hyperinflation in the US really the only way out? Will this necessarily trigger a global economic collapse as many experts foresee? I don’t think so, because that would be the worst alternative for the whole world. Sure, we will see more inflation than in the past. But let crisis day X come. I would assume in the light of an acute crisis Democrats and Republicans might find a way to agree on both, substantial tax raises on the one hand and spending cuts on the other.
Maybe even a controlled haircut of all debt (enough to get out of the hopeless end of the scale, but not as much to upset the whole world) in combination with substantially increased income figures from e.g. gas exports, might do the trick. My point is, don’t count out the United States too early. Comparing the States to Europe, it is true that debt is a huge problem in both worlds. But let’s not overlook, the US are in trouble, because they lived beyond their means for too long. Their system itself, however, is working properly. All States like California, Arizona, etc. clear their debt once a year. No accumulation of problems at this level! If a haircut should become necessary one day, those who lent the money lose in the first place.
In Euroland on the other hand, the system itself doesn’t work. Competitive nations in the North share one currency with less competitive nations in the South and have consequently to finance their deficits one way or the other. The day the system bounces, the European taxpayer will directly pay for losses the EZB has socialized without having a mandate to do so. Big difference! At the end of the day, I am less concerned about the United States than about Europe. Let’s see what happens. Winner takes it all! Courtesy of Christian Rasp – Director CRMC (Thailand)Co.Ltd. – Mail: crprivate@netvigator.com Editor Note : Khun Chris is a well known international banker and businessman with interests in China – Hong Kong, Europe and Thailand, he is also the owner of Beach Café & Restaurant in Hua Hin.
