December 15, 2003	Monday	Shawwal 20, 1424

According to The Economist (November 29th - December 5th, 2003), there has been a surge in American growth in the 3rd quarter up from an annual rate of 7.2 percent to 8.2 per cent, the fastest for 20 years. For 2003, the GDP forecast by The Economist is 2.8 percent and for 2004 3.9 per cent.

Business investment posted its biggest increase since the start of 2000, rising at an annual rate of 14 per cent. Conference Board’s confidence index reflecting consumers optimism rose by 10 points to 91.7 in November, its highest for over a year. New jobless claims fell to their lowest for almost three years to 351,000 last week. New orders for durable goods jumped by 3.3 per cent in October.

All this should provide ample cheer to the White House occupant who has spent all the past three years campaigning for the next four. His campaign chest is bulging with over $200 million, all donations from his rich friends and nothing from the Federal Government, because that would have set a limit on the expenditure on his reelection effort and constricted his freedom of action. The President has been holding about two functions a week trying to increase his war chest. If money was the determining factor the President has already won. But the good news ends there.

The optimism does not square with anecdotal evidence on employment. Unemployment is higher than is admitted. There is hidden unemployment ‘besides the 6 per cent admitted by the government’.The decline in jobless claims does not merit much cheer. Chances of finding a job are as good as of finding weapons of mass destruction in Iraq. Unless there are jobs and there is buying power with the consumers, the recovery will be hollow or simply statistical. People are living off their savings. Housing stocks have been increasing in value and people are borrowing at very low rates to finance consumption against the inflated value of their assets. When the bubble bursts the borrowers will be on the streets.

According to Austan Goolsbee, a Professor of Economics at the University of Chicago, writing the in the New York Times, the government has cooked the books. The current jobless recovery is puzzling. In a typical recovery like in 1983 unemployment fell 2.5 percentage points and another full percentage point the next year. So why not this time? According to him, the United States is in deep recession. A large number of people have been shifted into the disability system, which is a kind of an invisible unemployment. Number of people in this category has grown by one million from 1999 to 2003. Social security data on disability applications shows that 200,000 people applied in October - up 20 percent from the previous month.

Exploding federal debt is another drag on recovery. It will undermine its revival. Unprecedented federal borrowing drives up the interest rate and choke off the job creation. The unchecked appetite of the federal government to borrow will crowd out smaller and weaker borrowers. The present administration has to its credit converting a surplus of dollar 236 billion in 2000, when it took over, into a budget deficit of dollar 500 billion or more. Tax rebates allowed to the rich over the next decade running into one trillion dollars in the name of supply side economics and the new Medicare bill, which is a huge subsidy for drug and insurance companies, the energy bill for the corporate mafia all add to the costs. Ballooning defence expenditure will only aggravate the brewing crisis.

The United States has a current trade deficit of $ 543 billion, which is 5.1 per cent of the GDP. This is forecast to increase to 5.3 per cent next year. Living beyond its means, the US is spending $ 500 billion more per year then it produces. It needs to attract about 2 billion dollars of foreign capital every business day. Most of the capital comes from Europe and East Asia. They may start having second thoughts. In September instead of investing, Europe withdrew $ 403 million, because Europe’s dollar investment is worth less than in their own money.

Asian Central Banks buy dollar assets to keep their own currencies competitive. We are familiar with the phenomenon. Our State Bank of Pakistan (SBP) in its attempt to keep the dollar from falling helps keep the rupee over-valued so as to encourage exports and discourage imports. It is the same all over Asia. Japan alone spent $ 120b this year to keep Yen overvalued. Same goes for China, soon to become the 2nd largest economy in the world. Americans instead of looking inward prefer to blame Asian currency manipulators for any large-scale withdrawals, but according to experts it is the Asians who are sustaining the dollar at the present level. Otherwise, its fall would be steeper. Ironically it is China and Japan, which are controlling the policy on dollar rather than the US.

Protectionist impulses of the US further reinforce the negative trends in the economy. The US has only recently withdrawn its illegal duties on import of steel before WTO-recommended retaliatory duties could be imposed by Europe. In case the United States continues with its protectionist policies on trade, it may not be long before Asia also decides to withdraw its dollars.

Euro is emerging as a counterpoise to dollar and might pose a serious challenge to the latter. Dollar has lost its value worldwide and is no more almighty. Euro is worth $ 1.20, having risen from as low as 83 cents in 2000. Euro’s strength ironically reflects more on the weakness of the US economy rather than Europe’s own strength.

The United States is passing through an aberrant imperial phase and the costs of imperialism may be very high indeed. Its misadventure both in Afghanistan and Iraq are imposing another huge drain on its resources. It has allocated $87 billion this year to keep the military in occupation of Iraq as well as to be able to carry out some reconstruction in both the countries. Its hopes of financing its adventure in Iraq through oil resources have not been realized mainly on account of lack of security manifesting in frequent explosions of the pipelines, and poor infrastructure caused by vengeful sanctions extending over 12 years imposed by the United States itself courtesy the United Nations.

There is no gainsaying that this administration is far too dangerous for a peaceful world to stop it from misadventures that might extend to Syria and Iran and may be North Korea with devastating consequences. American commitment to democratic ideals has come under serious strain in the wake of 9/11. Unfortunately, the administration comprises of Christian fundamentalists, who bear the same mindset as Taliban.

Dubious circumstances surrounding the judicial “election” of the President of the United States have imposed a greater burden on him to prove himself. He has given full rein to its jingoism. But he has failed to come up with any plan to pay for the huge deficit in the budget. He has compounded the problem by cutting taxes. The federal spending suffers a gap of 25 per cent even with recovery. There is no tomorrow, it seems.

The US appears to have advanced its schedule of transfer of power to the Iraqis to June/July 2004. Ironically the Americans are resisting elections, which the Iraqis say are possible to hold on the basis of universal adult franchise relying on their census or on the ration cards, which every family possesses. One of the stated reasons for invasion of Iraq was the spread of democracy. The US is resisting attempts by Iraqis to democratize. It wants a ‘loi jirga’ a la Afghanistan and a Karzai returned on the same basis. But Iraqis are not Afghans. They are the best educated amongst the Arabs.

Iraqis are under occupation and they are not allowed under the terms prescribed by Washington Talibans even to protest. Their only weapon is to strike at the occupation forces with whatever means they have in order for the US to bleed and to leave Iraqis alone. Their only hope is either a regime change in 2004 or any economic collapse. There is a downword spiral in governance and in the words of Paul Krugman the hijacking of public policy by private interests has come to define this administration. In the final analysis it is the quality of governance which will determine the outcome. With profligate spending and heavy outstretch abroad, misplaced optimism arising out of cheerful third quarter growth rate, will not square well with harsh realities.

There is some hope if there is a regime change in the next presidential elections. In case the Democrats who represent the decency and respect for law among the majority Americans mount a serious challenge to the incumbent, the world may yet return to its peaceful existence under international law. Otherwise, the fragility ofthe US economy is the other hope for American withdrawal from occupied territories. This process may further be helped if Europe, Japan and China shift their investments from the Dollar into Euro. This will seal the fate of the sole superpower and will bring about its decline, yielding place to a bi-polar world of Europe and China. In the interest of world peace let us pray and wait.