America's financial crisis: The winners, the losers and the spin

Posted on: 08 August 2011 by Alexander Hay

Beyond bare economic data, this has been a momentous period as America loses its AAA status and China angles for advantage

As the world economy churns, few come out unscathed

It was the best of times; it was the worst of times... Well, actually it's just the worst of times, as the stock markets crumble, America loses its AAA credit rating, China scents vulnerability and also starts making noises about a new international reserve currency.

It's tempting to blame the Tea Party and its congressional representatives. Certainly their howling bigotry and refusal to abandon dogma almost destroyed the US economy. Fortunately, a deal was done that allowed the three wings of the US government to reach a deal and raise America's debt ceiling.

Tellingly, though, it was veteran politicians who drew up that deal. The new batch of Tea Party politicians found themselves on the sidelines with the left of the Democrat party in voting against the final agreement that, nonetheless, passed anyway. Belatedly wiser heads prevailed, but not before a great deal of damage was done.

The real villains of the piece, however, are the American electorate, or at least that part of it that gave into hysteria and propaganda funded by billionaires with their own agendas. In venting their frustration by voting in line with the Tea Party and so invoking the worst political traits of their nation, they have given power to those who could yet ruin America and have certainly wounded it.

'When in a hole...' as the old cliché goes, but there are far too many in America who stubbornly keep shovelling. Good intentions are no substitute for good deeds.

Is President Obama wounded? To a degree. He should have raised the debt ceiling in November 2010, when he still had a (lame duck) majority in congress. His lack of killer instinct may be his undoing, which is a situational irony, given how the elimination of Osama Bin Laden took place under his command.

Yet, some have argued that the budget cuts the deal will 'force' on him are precisely what he wanted in the first place, allowing him to present himself as a sensible fiscal pragmatist in next year's 2012 election.

The no doubt fortuitous release of data that reveals America gained almost 120000 jobs during July may suggest a recovery of sorts, though Obama will sell himself no longer as a fiscal saviour but the man to keep America from destitution.

In some ways, this is already paying off. Obama's job approval ratings are only 44.6%, but Congress and its influx of new zealots has fared worse, with only 18.5% approval. In other words, it is the right that is getting most of the blame here.

China's smug pronouncements that America should get its house in order are not what they seem either. China may well own a trillion dollars of US debt, but America is also China's biggest export market. Chinese calls for a new world currency to replace the dollar should be seen for what it is - mischief making and banging the jingo drum back home. It is also China sending a coded warning to America - we are all in this together, contrary to all the Tea Party doggerel about rugged individualism.

It is also a mask. The dangers of a Chinese bubble - political, economic, and social - are gathering, with homes being built and goods being made that no one's buying, and growing pressure from below to raise wages. Beijing's well-timed kicking of its American neighbour may therefore be a calculated distraction.

The loss of the credit rating may not be all it seems in any case. While Standard & Poor have stuck the knife in and lowered the rating, one of the other two great global credit rating houses, Fitch, has yet to draw its conclusions.

The real loss for America is its prestige. Finally, its culture wars have moved from being something foreigners poke fun at to something that threatens the stability of the world as well as the USA.

Instead, America has demonstrated itself to be divided, dysfunctional, riven with petty tribalism and politically shortsighted. The real cost of the current crisis may be that America is no longer taken seriously - a terrible fate for the world's only superpower.

And what of Britain? Its banks and government no longer have the resources for a 2008 bail-out. We would not be able to weather any further economic havoc. Instead, we face ever greater austerity and hardship. If there is uncertainty over who the winners are in this fiasco, if indeed there are any, it seems we will be amongst the losers in any case.

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Alexander Hay

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