The Coming End of the American Superpower

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Tue, 8 Mar 2005 01:03:12 -0500

The Coming End of the American Superpower

 

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http://www.counterpunch.org/roberts03012005.html

 

 

The Coming End of the American Superpower

By PAUL CRAIG ROBERTS

 

The US economy is headed toward crisis, and the political leadership of

the country--if it can be called leadership--is preoccupied with

nonexistent weapons of mass destruction in the Middle East. The US

economy is failing. The afflictions are serious. They could be fatal even

if diagnosed and treated. America is losing the purchasing power of its

currency and its ability to create middle class jobs. The dollar's sharp

decline and projections of continuing trade and budgetary red ink are

undermining the dollar's role as reserve currency. A number of central

banks have announced that they will be diversifying their currency

holdings and will not be buying dollars at the same rate as in the past.

 

This will put more pressure on the dollar. At some point the flight will

 

begin. Instead of buying fewer dollars, central banks will sell dollars

hoping to get out before the dollar hits bottom.

 

Suddenly, the advantage of being the reserve currency becomes a nightmare

as the world's accumulations of dollars are brought to market. An

enormous supply and weak demand mean a very low exchange rate for the

once almighty US dollar.

 

Overnight those cheap goods in Wal-Mart, which are the no-think

economist's facile justification for Wal-Mart's decimation of

communities, small businesses and employment, shoot up in price.

 

Interest rates will escalate as the government struggles to finance its

endless red ink. Heavily indebted Americans with adjustable rate

mortgages will attempt to sell homes just as rising mortgage rates reduce

buyers. Real estate assets, the rising value of which have been keeping

the economy going, will give back gains.

 

The US has lost its ability to create middle class jobs or for that

matter any jobs. During the last four years the US has experienced a net

loss of 760,000 private sector jobs (January 2001 - January 2005). Think

what this means for graduating classes and people coming of age to enter

the work force.

 

Moreover, the composition of jobs has changed away from high-value-added,

high-productivity jobs in tradable goods and services toward lower

productivity domestic service jobs that cannot be outsourced.

 

Even here in this last remaining area of employment for Americans, the US

work force is losing job opportunities to foreign nurses and school

teachers brought in on H-1b work visas as a result of budgetary pressures

on local school budgets and hospitals.

 

No-think economists and politicians continue to propose unemployment

insurance and education as remedies for the jobs problem. These proposals

are mindless to say the least. The same incentive to outsource holds for

all tradable skills. If truth be known, job outsourcing and offshore

production sound the death bell for US higher education.

 

Americans unable to find jobs in export and import-competitive sectors

find themselves searching for jobs in nontradable domestic services,

where their inflow into those labor markets is augmented by illegal

immigrants and foreigners on H-1b visas. Obviously, the pressure on wages

is downward.

 

No-think economists explain away the difficulties as a " globalization

adjustment " that will require Americans to curtail their consumption of

imported goods. These economists are ignorant of American's dependence on

imported manufactured goods. Even American brand name goods are made

abroad in whole or in part. Tightening the belt will mean much more than

cutting out foreign made luxuries.

 

The dollars' decline will drive up the price of all inputs except US

labor which is being substituted out of production functions and replaced

with foreign labor.

 

Oblivious to reality, the Bush administration has proposed a Social

Security privatization that will cost $4.5 trillion in borrowing over the

next 10 years alone! America has no domestic savings to absorb this debt,

and foreigners will not lend such enormous sums to a country with a

collapsing currency--especially a country mired in a Middle East war

running up hundreds of billions of dollars in war debt.

 

A venal and self-important Washington establishment combined with a

globalized corporate mentality have brought an end to America's rising

living standards. America's days as a superpower are rapidly coming to an

end. Isolated by the nationalistic unilateralism of the neoconservatives

who control the Bush administration, the US can expect no sympathy or

help from former allies and rising new powers.

 

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan

administration. He was Associate Editor of the Wall Street Journal

editorial page and Contributing Editor of National Review. He is coauthor

of The Tyranny of Good Intentions.He can be reached at:

 

pcroberts