Beware of American Economic Problems Leading to a Military Challenge

Recently the U.S. has conducted military activities around Chinese waters; the intention to point its might at China is more than apparent. According to Chinese military sources, the U.S. is still engaging in policies of American hegemony, unilateralism and gunboat diplomacy; it wants to continue dominating the world and suppressing the rise of China. The U.S. had previously sweet talked China into strengthening mutual cooperation in order to promote the ideas of “the stakeholder” and G2; in reality, there is little benefit for China in this — the U.S. is just trying to lure China into a trap. As China did not fall for the trap, the U.S. has consequently revealed its ugly side.

Contrary to its military show of force, the U.S. economy is deteriorating. Performance is on a downward trend in terms of employment, the housing market and export and domestic consumption; various players have also lowered their expectations of GDP growth. The expectation of a double dip recession has reached 20 to 30 percent. American economists and politicians cannot find a good solution to the economic problem. Moreover, they have differing opinions, resulting in a chaotic situation. Academic and business representatives have contrasting opinions toward government policies of fiscal expansion, a second stimulus plan and loosening monetary policy by the Federal Reserve. Despite the divergence of opinion, it is a reality that the U.S. does not have the ability to strengthen its currency or continue its fiscal expansion. At the same time, politicians cannot compromise on funds appropriation, tax increases or tax decreases. Slow reaction to problems is the current major drawback of U.S. economic policy.

The difficult U.S. economic environment is a result of a long-term accumulation of trends, so the situation will not improve without a radical readjustment. However, the U.S. is trying to delay this by depending on the increased printing of money. In contrast, under the leadership of Germany, Europe has implemented thorough readjustment through monetary contraction and debt reduction. Europe will be able to reemerge after a few years of hardship. On the contrary, the U.S. has been dragging its feet, and will be unable to pull itself out of its economic problems without reform.

In reality, the U.S. economy is encountering various deep crises. First is its high national debt — total sovereign debt exceeds 14 trillion, almost equivalent to its GDP, and it continues to rise. Second is the housing market. Despite various government policies to support the housing market, default and repossession rates continue to increase; housing prices are highly likely to fall again. National enterprises such as Fannie Mae and Freddie Mac will require a second intervention by the Department of the Treasury for support. The Federal Reserve has already purchased over a trillion of mortgage-backed securities in order to prop up the housing market. These are difficult to dispose of, so it cannot purchase more of those securities in the second round of quantitative easing policy.

Third is the high unemployment rate. Recovery after this recession has been exceptionally slow, according to some analysts; it may even take ten years to recover. Apart from the 15 million unemployed, there are 6 million people who want to work but stop looking for jobs out of despair, as well as 8 million people who are underemployed by working part-time.

Fourth is the aging infrastructure and the lack of investment. According to the American Society of Civil Engineers, 2 trillion USD is required to maintain and improve current infrastructure. Only 800 billion USD was appropriated for such purposes in the stimulus plan.

In light of economic hardship, the U.S. should tone down its ambitions and focus on domestic reform. With its solid foundations, the U.S. should be able to weather the storm. However, it is not choosing this path but, instead, military expansion by challenging China at its front door. This is irrational, but it is the pirate logic: it is better to invade others when one does not do well domestically. The history of the last century has taught us a lesson. When capitalism falls into a deep crisis, war will occur. Some Western experts, including American ones, have warned that economic depression will lead to socio-political crisis, which may cultivate fascism and other extreme ideologies. However, it looks like China is prepared for this military challenge. China has recently arranged various military exercises. The Chinese military has even given the warning of, “I shall not invade if others are not invading, but I shall fight back if somebody fights first.” Hopefully the expansionists will wake up and not take military risks.