US WATCH: CAN THE USA PAY ITS DEBTS?

Erle Frayne Argonza

Just exactly at what level had the totality of US debts had reached is practically anybody’s guess. So complex is America’s financial system and the mess created by the ‘bubble economy’ over the last three (3) decades, that it takes an enormous amount of research efforts led by top economists and financial consultants to undertake.

One thing is clear though: whoever will be the USA’s next execs must never fail to measure, comprehend, and reverse the debt trends. The estimates today, using combined data from the Fed, the Bank for International Settlements or BiS, and independent researches would put the figure at $50 Trillion.

Measured against the GDP, which stood at around $12.5 Trillion more or less last year, indicates that America doesn’t have the money to pay debts at all, assuming that the bubble bursts and the economy crashes to depression level. Well, the burst began last year yet, the recession is now on, and we need to observe events more closely to determine whether a depression will be at hand.

To say that US savings will salve America’s debt problems is baloney. The savings rate is barely 1%, which accounts for the need for large doses of foreign direct investments and portfolios to cover up for the lack of investible savings. Compare this to East Asia’s average of 30% savings rate, which makes this region’s economy verdantly robust for years to come amid US-EU economic collapse.

On the other hand, to bank on gross international reserves as the source of salvation would likewise bring guffaws. America’s reserves could never exceed $90 Billion at any given time (in real value), which couldn’t even suffice to buy for 1 month’s imports. Compare this to East Asia’s reserves, which range from 4 months imports in RP’s case to at least a year’s for China’s.

So, let us repeat the question, where and how will the US source its funds for salving the debt crisis? What concrete steps will be taken to reverse the debt trap? Who among the political bigwigs in America today possesses the soundest theory and practice for solving the gargantuan debt crisis?

Those questions remain to be answered. Let us hope that the two bigwigs McCain and Obama will do their homework well. The electorates’ expectations are enormously high, and meeting those expectations using traditional, flawed approaches and practices would only endanger both the economic and political stability of this once mighty giant.

[Writ 05 June 2008, Quezon City, MetroManila]