Global Crisis

The American Ship IS Sinking – Ask Jeff Garten!     By Shlomo Maital

  In 2005, I wrote an article for the Israeli business daily Globes; the heading was “The American ship is sinking!”.  It was mostly ignored, except for a handful of financial services managers who attacked me for  raining on their picnic.

   It is now 2010.  The American ship IS sinking.  But don’t take my word for it.  Listen to Jeff Garten, whose scary article “Toward a post-dollar world” was recently circulated by McKinsey Global Research Institute

   Jeffrey  Garten   was the Undersecretary of Commerce for International Trade under the Clinton administration and former Dean of the Yale School of Management. Before this, Garten served on the White House Council on International Economic Policy under the Nixon administration and on the policy planning staffs of Secretaries of State Henry Kissinger and Cyrus Vance of the Ford and Carter administrations. He is the author of five books.

   Here is a summary of his argument.

1. Massive deficits and debts of the United States, and the shift of economic power from West to East, have led (and will lead in future) to a massive decline in the U.S. dollar.  This will change everything. The world will be radically altered, with a new distribution of winners and losers.

2.  Within a decade, the U.S. could be borrowing close to $750 b. a year just to pay the interest on its massive debt.  To close the gaps, while keeping the dollar at its current strength, taxes would have to be raised to sky-high levels and spending brutally slashed.  No US leader will have the courage to even begin to do this, including Obama.

3.  Washington therefore will have little choice but to take the time-honored course for big-time debtors: Print more dollars, devalue the currency and service the debt in ever-cheaper greenbacks.    The U.S. will thus camouflage a slow-motion default.  It’s the easiest way out.

4.  By 2020 China India Indonesia Korea and Vietnam together could generate more wealth than the U.S., Europe, Japan and the EU combined.  Intra-Asian trade is booming and Asian currencies will become widely used in trade and investment.

5.  A much cheaper dollar is a sad development for the US, it will make its citizens poorer and they will pay higher prices for everything they buy abroad.

6.  A weaker dollar will make the US a bargain basement for foreign direct investors, allowing them to pick off  America’s most prized corporate assets. It will diminish the political influence and prestige the US had while the dollar has been king.

7. A weak dollar will bring higher interest rates.  This will bring American overspending to a screeching halt.

8. The decline of the dollar will lead to an era of competitive devaluations — the competitive battlefield will encompass agriculture, alternative energy and other technologies.

9.  An alternative to a global monetary system based on the dollar is the new imperative.  That means a multicurrency framework, including the euro, yen, renminbi.

10.  Companies and investors everywhere ought to be planning for this new world.  A world in which the dollar has lost a good deal of its strength will have profound impact on geopolitics, the global economy and global trade and finance.  It marks the end of the American empire.  LITTLE THINKING HAS BEEN DONE ABOUT WHAT ALL THIS WILL MEAN AND HOW IT IS BEST HANDLED. IT IS TIME THAT CHANGED!

 

   Food for thought?  Have you and your company worked out Item 10?  What will you do to prepare for a rapid 30 per cent fall in the dollar? 

     It’s one thing when an obscure Israeli writes that the American ship is sinking. It is quite another, when a top AMERICAN expert who helped shape the current global economy says it.