[GLOBAL EYE]Living beyond your meansWhether you are a household or a company, you have to take out a loan if you are running a financial deficit. If a person with a monthly income of 3 million won ($3,000) has spent 4 million won, he would be 1 million won in debt. If you don’t want to owe money, you need to keep spending less than you earn. If you spend money lavishly without considering your income, you will find yourself deeply in debt and end up going bankrupt.
A country is no different. A government needs to get a loan to make up for a financial deficit when its expenditures are greater than its revenues. As a result, the national debt will increase.
In the aftermath of devastating Hurricane Katrina, the national debt of the United States as of Sept. 4 exceeded $7.9 trillion. Logging on to the Web site, “U.S. National Debt Clock,” you can check the constantly increasing national debt like a population clock. At present, the national debt of the United States is growing by $1.68 billion every day.
Even if its deficit keeps growing, a household economy can be maintained as long as you can keep getting loans to make up for the deficit. That’s how the United States is operating right now. The United States is selling its Treasury bonds, which are guaranteed by the U.S. government, to countries that profit from trade with the United States. The budget deficit is plugged with the dollars generated from selling Treasuries.
Last year, China’s trade surplus with the United States was $162 billion. Japan and Korea had surpluses of $75 billion and $14 billon respectively, from trade with the United States. The three East Asian nations are making up for the U.S. budget deficit with the money earned from selling goods to the United States. As of the end of June, Japan was the largest U.S. Treasuries holder, with $680.2 billion. China was second with $243.2 billion, and Korea was sixth, with $59.7 billion.
Imagine what would happen if the three countries decided to sell their holdings or refuse to buy any more? It is no exaggeration to say that the security of the U.S. economy is in the hands of the three countries. As the floodwaters drain out of the areas devastated by Hurricane Katrina, the ugly features of the United States that have been hidden under a fancy mask are revealed. The United States is spending $5.6 billion every month on the war in Iraq, but the $105 million budget plan for a flood prevention system for New Orleans had been cut to $40 million. Lavishly spending on unnecessary areas but being stingy on what is necessary is a short cut to bankruptcy.
After sending 140,000 troops to Iraq, the United States is suffering from a shortage of military forces to maintain public security and has to watch a devastated city turn to lawlessness. The desperately poor, who could not afford to evacuate the city before the hurricane hit, make up 12.7 percent of the population, but Washington reiterates the mantra that tax cuts are the best policy and generously lowers taxes for the rich.
When dead bodies are floating around after the worst flood in history, the president of the United States has said that he didn’t think anybody had anticipated the breach of the levees, as if it was other people’s business. New York Times columnist Maureen Dowd has called America the “United States of Shame.”
The crisis the United States is facing in the aftermath of Hurricane Katrina is a crisis of trust. After people lament in shock that such mayhem could happen in the United States, they begin to question the governing system of the United States. The underlying psychology of continuing to lend money to the United States while the U.S. budget deficit is constantly growing is that the countries doubt the prospect that the United States will collapse. Countries have vague confidence in the world’s unchallenged superpower.
However, people are reconsidering the substance of the United States as they watch the country reeling from the hurricane’s blow. The global economy rolling on the premise of the astronomical twin deficits of the United States is nothing but a dangerous tightrope feat. If anything goes wrong, the unstable cycle of coexistence can turn into a cycle of destruction for all, at any time. The collapse can be ignited by a burst of the real estate bubble or high oil prices. It could also easily be a second Sept. 11-style terror attack.
Unless the United States reforms its lax and crooked financial program and recovers the confidence in its system that has been lost, Hurricane Katrina might be an omen of a catastrophe that is pulling the world into bankruptcy along with the United States.
* The writer is an international affairs writer for the JoongAng Ilbo.
by Bae Myung-bok