Tuesday, 2 August 2011

When America sneezes...

dollar sign vectorOn Monday, the American Government voted through a deal to allow an increase on their country’s debt limit. On the plus side, it means the US can now pay its bills for a little longer, public servants will get their wages and the poor will still be able to access welfare.

It also means the debt increases to far more than the country can hope to repay, interest payments will rise to amounts most of us cannot even imagine, and there has been postponement of, rather than reprieve from, the final moment of reckoning.

Americans are waking up to the cold hard fact that they are broke. Their debt, as a percentage of GDP, is on a par with Italy’s, a country that was told to tackle its economic crisis as a matter of urgency. But America’s debt crisis has much further reaching consequences than does Italy’s. America’s problems affect us all.

America is a society of consumers. Many Americans live well, surrounded by the best products that money can buy, and that has been essential to the economies of the rest of the world, where those products are made. If Americans have no money, they stop buying, and if they stop buying, the rest of the world goes into decline. Germany has already experienced a 14.4% rate of decline, while in Japan the fall was 15.2%.

Developing countries suffer most harshly. Cambodia’s growth has declined, from 10% in 2007, to zero today, and Kenya’s rate of growth has halved.

These declines come from shrinking demand, drops in commodity prices and investments, plus the fact that migrant workers, stripped of their jobs, are unable to send so much money home. As growth stutters, unemployment rises, and with it, levels of malnutrition and other ills associated with poverty. Families struggling to eat and pay rents have nothing left to pay for things such as education, thus condemning the next generation to the same hardships.

Loss of income for the worker also means loss of tax revenue for the country, so they’re unable to fund schools, hospitals, infrastructure and other essentials.

Someone once said, “If America sneezes, the rest of the world catches cold.” They were wrong. When America sneezes, it starts a plague.

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