Note: This essay was written by former Apple CEO Michael Spindler. It was originally published on March 20, 2006.
The following points are snippets from an economic conference in Europe, organized by the Brookings Institute, the National University of Singapore and the London Center of Economic Policy.
These points are ranked in descending order of importance (e.g. threats):
• oil supply
• terrorism
• US dollar, public deficit
• worsening shortage of raw materials
• China
• regional conflicts
• world trade
• trade deficits
• environment
• hedge funds
• worldwide diseases
In terms of US-related issues, the following statements were made:
• since President Bush has taken office, there is a steady (and irresponsible) increase in the US public deficit
• $319 billion in 2005
• $359 billion in 2006
• the US trade deficit is now $725 billion a year and is primarily fueled by consumer spending
• US taxpayers spend $6 billion a day to finance this debt (further increasing the debt)
In order to halve the trade deficit, the US dollar needs to weaken by 20%-25%
• if the dollar weakening happens instantly, the world will plunge into economic chaos
• if the dollar weakening happens gradually, the US risks stagflation (e.g. double digit inflation coupled with interest rate spikes)
Further, Japan and China are the largest holders of US public debt
• the foreign holding of US public debt creates a set of strategic issues (particularly with China)
• the US needs to come to terms with China (currency, military, trade etc); however, President Bush is mishandling the situation
To date, the US economy has survived the increase in oil prices. If the world transitions from petrodollars to Eurodollars, then the result will be an instant shock (actually, an earthquake) leading to a further devaluation of the US dollar. Robert Hormats of Goldman Sachs commented that President Bush (and his successors) should immediately initiate a program to reduce the deficit gradually while there is still some positive growth in the US economy.
Unfortunately, I do not foresee deficit reduction happening, since Joe Sixpack is obtuse and out-of-touch with reality.
On the horizon, I do not see any changes in habits and behaviors, since people do not change their habits and behaviors unless they are shell-shocked. Despite the warnings of savvy senators, Rome went down in flames; Rome fell despite the obvious signs of social and intellectual decay.
In the US, the present situation is much worse than most people believe.
• the US cannot continue to fund an extravagant military, since public debt is owned by strategic adversaries
• the US cannot simply tell the voting public “to keep spending”
Unfortunately, President Bush, his cohorts and his successors ignore the fundamental problems of the US economy and the unrealistic habits and behavior of its citizens; these political leaders focus on abortion, religion (e.g. Christianity), gay marriage, and their desire to “export democracy.”
In the long-term, the US must increase its savings pool.
This long-term path is not simply a popularity contest for any individual politician, but this long-term path is an imperative for future generations.
If not, the lights will go out.
History will view President Bush as one of the worst US presidents in history (if not the worst in the last 150 years); Bush will be viewed as a man who led the US into an economic decline of gigantic proportions.
President Bush accomplished this economic decline by (i) initiating irresponsible tax cut to appease his cronies, (ii) standing fast on a naive and messianic strategy to “democratize” the world, (iii) bungling an excessively costly war that nobody wanted and produced no tangible results
. . . and the list goes on.
Source: Michael Spindler