Post Hillary era

Comments on Ernest Bower “‘After Hillary’ era concerns Southeast Asia”, 30/03/2011, http://www.eastasiaforum.org/2011/03/30/after-hillary-era-concerns-southeast-asia/

It is interesting to see that Ernest Bower talks as if deficits are not part of the national interests!

Deficits, especially government ones, are a deep problem for the US, potentially for a number of reasons.

1. Should international investors lose faith on the ability of the US government to manage its deficits, then problems, not quite to the scale of Greece, and some other countries in the euro zone but nevertheless could be serious enough, will emerge.

2. Once international issues arise, then gradually it will turn to domestic political and monetary problems, because it will become difficult even for the Fed to use its QE tools.

3. The current abnormally unusually low interest rates cannot continue, and once interest rates return to their more normal levels, the burden of large government deficits will show and further exacerbate the deficit problems.

4. When the US government is forced to tackle budget deficit and cut it, services will be reduced and the Americans public will experience pains and how they will react to those pains will affect the US economy as well.

The point is that the US has enough problems at hand and the recent hesitations of the US president in dealing with the recent unrests in the Middle East and the Arab world, while criticised by many, is likely to be reflection of the constraints he has or foresees while others feel unburdened by any of those constraints can say the US should do this or that.

That is not too dissimilar to the situation in Australia where the Greens can be very radical and extreme in their views because they are not government and don’t need to balance the budget or face voter’s revolt over pains that would arise out of those extreme policy proposals.

The world has changed significantly and is having rapid and profound changes now and over the coming decades. In a changing and changed world, it is unlikely that the US will continue to have both the economic power and influence to continue its role as it has had so far.

It is a matter of wish and ability or capacity.

Whether that will be good or not so good for the world depends on two things: a. how the US behaves and b. how other big players behave in such a changed and changing environment.