China is sitting on a mountain of money, whilst the US is sitting on a mountain of debt exceeding $14 trillion and 100% of its GDP. The Chinese are the largest foreign holder of the US federal debt with $1.2 trillion in treasuries, and in addition approximately two-thirds of $3.2 trillion in foreign exchange reserves is estimated to be in dollars. It’s rational to expect the poor to get into debt, but not the rich, and certainly not the largest economy in the world. After the historic down grading of the US government's credit rating by Standard & Poor, China as the leading creditor raised concern, demanded that the US should "cure its addiction to debts" and "learn to live within its means".

This is a strange paradox; China as a socialist nation has become wealthy using the Capitalist free market model, whereas the leading capitalist nation has gone into severe debt, as if they were managed by some inefficient communist regime. It is even more ironic that the capitalist US is in debt to socialist China.

Like an untreated disease, sustained debts can become fatal, and lead to bankruptcy. In ancient societies, bankruptcy meant enslavement to the creditor, one of the ways human chattels came into existence. However, it would be premature to predict the US going into bankruptcy at this stage. Nevertheless, just being in debt is a form of slavery, and given that the US upholds the values of ‘freedom’, it is surprising that successive governments have allowed the national debt to creep up over the years.

Whatever the causes of debt, the consequences are clear. For sure, the US cannot maintain its position as a superpower, unless it deals with this problem. They are forced to reduce government expenditure, and increase tax revenue through economic growth, which looks unlikely as the recent figures show the US economy is slowing down, dangerously heading towards another recession. The US is planning to cut its defence budget by $1 trillion. This is already visible; it has started to withdraw its troops from Iraq and Afghanistan, and has taken a back seat over Libya and Syria; an indication of its decline of power and influence in the region. Concurrently, other nations like China, India and Brazil continue to grow in strength, all experiencing economic and demographic growth. But, will this lead to the US being dislodged from its position as the sole super power. If so, will it mean a return to the bipolar world of the 20th century or the multipolar world of the 19th century?

Economic strength is paramount for any nation, least of all a superpower. The rise of any nation is partly indicated by its economic success; with increasing economic wealth it builds up its reserve, some of that translates to enhancing military capabilities. However, economic and military strength is not sufficient to take long term leadership. For example, the Mongols led by Genghis Khan, came and conquered, then more or less died with his demise; whereas an empire like Rome, built on ideas and principles with a system in place, lasted for centuries. Hence, ideological conviction based on a philosophy, coupled with flourishing cultural values is another essential factor for maintaining leadership.

The US offers democracy, liberalism, and dominates the word culturally; the spread of English language and popularity of American technology, food, music and clothes are obvious. And unlike the US, China has offered very little: it’s gradually abandoning communism, it embraced the free market economy in the 80s, and it’s only a matter of time before it succumbs to the popular demand for democracy and the liberal values of the west. Eventually, the world will witness a Chinese-Spring or a Chinese Gorbachev, and China will become another capitalist state.

The US debt may be short term in the scale of things. It has plenty of spare capacity having one of the lowest levels of taxation. A country with vast natural resources and continues to lead the world in innovation and technology. Many multinationals have grown from the entrepreneurship of individuals with foresight and very little capital. The US can balance the books and maintain its leadership.

Moreover, the fundamental problem of US debt is much more due to political factors than economics; many are blaming the recent wrangling over raising the US debt ceiling as an example of that. Another example is the knee-jerk response to 9/11, causing the debt to grow. The US launched two full scale invasions of Afghanistan and Iraq, costing billions. It was Al-Qaeda’s strategy to get the US dragged into a Vietnam like quagmire, and drain its resources. Just compare the figures for launching a cruise missile and firing some light armoured weapon, the difference is huge. In some sense Al-Qaeda has succeeded, as the US capitulation in the Middle East has started, but this may be temporary. The American century may be receding, but it has certainly not vanished from the radar.

OK - YOU KNOW WHAT TO DO - READ - RATE - COMMENT & SHARE