Opinion / Columnist
Why Zimbabweans should follow the American Debt Crisis: Next Time
17 Oct 2013 at 08:08hrs | Views
"Of all the constraints on new government, it is the market that proves most confining-and this in a way is the genius of unfettered capitalism: it is self-enforcing. Once countries have opened themselves up to the global markets' temperamental moods, any departure from free market doctrine is instantly punished by traders in New York and London who bet against the offending country's currency, causing a deeper crisis and the need for more loans, with more conditions attached."
Naomi Klein "Shock Doctrine"
As the American Congress limps from one debt ceiling crisis to another, bickering over ideological platforms, the rest of the global world far withdrawn from the financial world simply shake their heads and "tut tut" on how the Americans can't get along. Just recently having passed a bill to raise its debt ceiling and reopen its government, this saga of crisis has been put on pause till next year January.
What does this mean to you?
For Zimbabweans reading this article I strongly suggest you pay attention to the theatre going on in America along with who the protagonists involved on all sides of the issue are, and what they will probably stand for when it comes to Zimbabwe issues from a fiscal perspective. Whether you choose to know it or not, Zimbabwe's fortunes are also somewhat tied to the situations occurring within the United States legislature. Ask yourself this, if the American economy collapses, and the cherry picking begins, which struggling nations are going to be used as a crutch or a global crisis watering hole to sustain the slow recovery sure to occur for the Western world?
The current $17 trillion deficit is mainly held in bonds and loans from foreign countries chief amongst those being China and the Arab nation states. The availability for the United States to raise its debt ceiling effectively is based amongst other things the fact that it is the reserve currency of the world predicated on the FAITH that it will always pay its bills. The United States currency has not been backed by anything besides the words "trust us", ever since they got off the gold standard during the Nixon Presidency. The 17 trillion dollar debt talked about in U.S media is actually floating around in other nations coffers such as Zimbabwe backed by nothing but simple faith in the United States being capable of paying its bills.
How Does this trickle-down to Zimbabwean policy?
The manner, in which these loans are purchased have mainly been through financial vehicles called sovereign wealth funds otherwise known as SWF's. According to the IMF, sovereign wealth funds are:
"A special purpose investment funds or arrangements, owned by a general government for macroeconomic purposes that include investing in foreign financial assets"
In simple form, foreign nations such as China or Abu Dhabi take some of the profits and surpluses from their countries' balance sheet and create government owned multinational business corporations that buy up assets in other countries. The same investment companies buying up American debt are the same companies investing within Zimbabwe albeit for different reasons {resources}. All this investment and production going on globally is always guided by the "invisible hand", of American debt and its twin, the Federal Reserve of America creating money out of thin air but don't worry "trust us".
To make matters worse countries such as Russia and China have adopted a form of capitalism called "state capitalism"
"State capitalism is a system in which the state dominates the markets, primarily for political gain…..this is more a set of governing principles than a coherent political ideology"
The United States and the European Union showed the global world; a working example of this variant capitalistic system with the 2008 economic bailout of failed businesses, that they helped out. This was a huge departure from the free market policies they espoused and showed the rest of the developing world, that all bets are called off and should be called off, when it comes to economic theory,………. if your own house is on fire.
Should we care if the United States defaults?
As a Zimbabwean I ask you to look at the facts and why an American default is bad regardless of whether you like the States or not.
First and foremost the United States is in a Catch-22, due to its 17 trillion dollar debt: raising taxes {Democrats} or cutting spending {Republicans} would trigger another recession. Furthermore; having the Federal Reserve Bank, create more money out of thin air as the U.S government usually has done would this time result in inflation because more people are now up on the scam. So the United States has a house of cards that will soon come crumbling down. Are you still trying to figure out where Zimbabwe fits in all this?
Unfortunately directly or indirectly the United States holds all of Zimbabwe's debts and ability to borrow. The ZDERA act of 2001 passed into law by the U.S Congress, basically requires Zimbabwe to always approach the United States, bowl in hand to the Treasury Secretary {not the U.S President} whenever it needs a loan. Whether or not President Mugabe remains as the leader of Zimbabwe, this law will still be there. Inadvertently meaning us, as Zimbabweans are going to suffer the consequences regardless of whichever political party is in power.
Taking a look at the current dysfunction occurring within the U.S Congress, Zimbabweans can scratch off the thought that this law will ever be repealed soon. To make matters worse the Senator who actually sponsored a bill to repeal the ZDERA act is considered one of the "Tea-Party Crazies" within Congress; the current bill is languishing within a committee with nobody willing to vote on it.
What about China or Russia?
Those looking to China or Russia, for a "biblical-Moses" leading the global world to the Promised Land are sadly mistaken. Looking at the facts alone neither China nor Russia can sustain taking on the burden of being the reserve currency of the world. Geopolitically Russia has systemic weaknesses, it has a declining population like most developed nations furthermore it relies heavily on its resources as the source of its strength. With no robust immigration policy it is highly unlikely Russia wants more than to be a regional power.
China on the flipside has an underdeveloped interior that houses millions of Chinese who do not share in the wealth of their nation, instead living on wages comparable to under-developed nations. China's politics and geography force it to be an inward thinking country, hence the partial rationale behind a devalued currency.
None of these so-called emerging superpowers have the current wherewithal to take it all the way in overthrowing the United States, for now. Nevertheless, left on its own the United States has a good chance of self-destructing unaided by external forces; which however is not a good thing for Zimbabwe. Better to deal with a limping and floundering giant than a wounded beast with nothing to lose.
Will America overcome its financial problems?
The blunt truth is NO; America will not clear its problems anytime soon until the political parties ideologies start reflecting the changing demographics within America, this may take a decade or two. Most of its programs are hemorrhaging money with no solution in sight
"Beyond 2017, social security will no longer be able to help the U.S government pay its bills Deficts in Medicare and most likely Obamacare, besides other federal spending will only serve to make the situation worse."
The legislature is too fractured to achieve any cohesive legislation without a huge blow that galvanizes the nation, such as an act of war on the United States, and trust me the American government would thank any nation foolish enough to take up that offer, which is why it is palatable to goad Iran or China in the right circumstances {how better to write off debt than through war}. Domestically investment will continue to lag behind other nations regardless of how this debt crisis is handled.
As a Zimbabwean reading this piece, it is obvious that all roads lead to foreign policy for the United States to solve its ills. The one muscle the United States will continue to exert will be foreign policy simply because
1. They are the reserve currency of the global world.
2. They control all the sea lanes and transport routes globally.
3. They have the largest military in the world that can exert enough pressure regionally through proxies.
4. They are geographically one of the few nations in the world that can get away with a protectionist and isolationist stance if the global economy collapses.
As history has shown time and time again, whenever "shit hits the fan" within the "Civilized world", Africa has always been that couch/sofa that a person goes searching for "spare change", superpowers searching for that money and resources buried in-between the cushions of under-development.
Zimbabwe is almost too easy a target to get whipped up in the blender of global recovery once the crisis hits, without however having benefited anything in the process but having its resources and human-talent population stripped by anyone who can.
Tsungai Chipato is a Journalist and blogger within Toronto Canada
Contact him @: mugaradzakasungwa@gmail.com
Naomi Klein "Shock Doctrine"
As the American Congress limps from one debt ceiling crisis to another, bickering over ideological platforms, the rest of the global world far withdrawn from the financial world simply shake their heads and "tut tut" on how the Americans can't get along. Just recently having passed a bill to raise its debt ceiling and reopen its government, this saga of crisis has been put on pause till next year January.
What does this mean to you?
For Zimbabweans reading this article I strongly suggest you pay attention to the theatre going on in America along with who the protagonists involved on all sides of the issue are, and what they will probably stand for when it comes to Zimbabwe issues from a fiscal perspective. Whether you choose to know it or not, Zimbabwe's fortunes are also somewhat tied to the situations occurring within the United States legislature. Ask yourself this, if the American economy collapses, and the cherry picking begins, which struggling nations are going to be used as a crutch or a global crisis watering hole to sustain the slow recovery sure to occur for the Western world?
The current $17 trillion deficit is mainly held in bonds and loans from foreign countries chief amongst those being China and the Arab nation states. The availability for the United States to raise its debt ceiling effectively is based amongst other things the fact that it is the reserve currency of the world predicated on the FAITH that it will always pay its bills. The United States currency has not been backed by anything besides the words "trust us", ever since they got off the gold standard during the Nixon Presidency. The 17 trillion dollar debt talked about in U.S media is actually floating around in other nations coffers such as Zimbabwe backed by nothing but simple faith in the United States being capable of paying its bills.
How Does this trickle-down to Zimbabwean policy?
The manner, in which these loans are purchased have mainly been through financial vehicles called sovereign wealth funds otherwise known as SWF's. According to the IMF, sovereign wealth funds are:
"A special purpose investment funds or arrangements, owned by a general government for macroeconomic purposes that include investing in foreign financial assets"
In simple form, foreign nations such as China or Abu Dhabi take some of the profits and surpluses from their countries' balance sheet and create government owned multinational business corporations that buy up assets in other countries. The same investment companies buying up American debt are the same companies investing within Zimbabwe albeit for different reasons {resources}. All this investment and production going on globally is always guided by the "invisible hand", of American debt and its twin, the Federal Reserve of America creating money out of thin air but don't worry "trust us".
To make matters worse countries such as Russia and China have adopted a form of capitalism called "state capitalism"
"State capitalism is a system in which the state dominates the markets, primarily for political gain…..this is more a set of governing principles than a coherent political ideology"
The United States and the European Union showed the global world; a working example of this variant capitalistic system with the 2008 economic bailout of failed businesses, that they helped out. This was a huge departure from the free market policies they espoused and showed the rest of the developing world, that all bets are called off and should be called off, when it comes to economic theory,………. if your own house is on fire.
Should we care if the United States defaults?
As a Zimbabwean I ask you to look at the facts and why an American default is bad regardless of whether you like the States or not.
First and foremost the United States is in a Catch-22, due to its 17 trillion dollar debt: raising taxes {Democrats} or cutting spending {Republicans} would trigger another recession. Furthermore; having the Federal Reserve Bank, create more money out of thin air as the U.S government usually has done would this time result in inflation because more people are now up on the scam. So the United States has a house of cards that will soon come crumbling down. Are you still trying to figure out where Zimbabwe fits in all this?
Unfortunately directly or indirectly the United States holds all of Zimbabwe's debts and ability to borrow. The ZDERA act of 2001 passed into law by the U.S Congress, basically requires Zimbabwe to always approach the United States, bowl in hand to the Treasury Secretary {not the U.S President} whenever it needs a loan. Whether or not President Mugabe remains as the leader of Zimbabwe, this law will still be there. Inadvertently meaning us, as Zimbabweans are going to suffer the consequences regardless of whichever political party is in power.
Taking a look at the current dysfunction occurring within the U.S Congress, Zimbabweans can scratch off the thought that this law will ever be repealed soon. To make matters worse the Senator who actually sponsored a bill to repeal the ZDERA act is considered one of the "Tea-Party Crazies" within Congress; the current bill is languishing within a committee with nobody willing to vote on it.
What about China or Russia?
Those looking to China or Russia, for a "biblical-Moses" leading the global world to the Promised Land are sadly mistaken. Looking at the facts alone neither China nor Russia can sustain taking on the burden of being the reserve currency of the world. Geopolitically Russia has systemic weaknesses, it has a declining population like most developed nations furthermore it relies heavily on its resources as the source of its strength. With no robust immigration policy it is highly unlikely Russia wants more than to be a regional power.
China on the flipside has an underdeveloped interior that houses millions of Chinese who do not share in the wealth of their nation, instead living on wages comparable to under-developed nations. China's politics and geography force it to be an inward thinking country, hence the partial rationale behind a devalued currency.
None of these so-called emerging superpowers have the current wherewithal to take it all the way in overthrowing the United States, for now. Nevertheless, left on its own the United States has a good chance of self-destructing unaided by external forces; which however is not a good thing for Zimbabwe. Better to deal with a limping and floundering giant than a wounded beast with nothing to lose.
Will America overcome its financial problems?
The blunt truth is NO; America will not clear its problems anytime soon until the political parties ideologies start reflecting the changing demographics within America, this may take a decade or two. Most of its programs are hemorrhaging money with no solution in sight
"Beyond 2017, social security will no longer be able to help the U.S government pay its bills Deficts in Medicare and most likely Obamacare, besides other federal spending will only serve to make the situation worse."
The legislature is too fractured to achieve any cohesive legislation without a huge blow that galvanizes the nation, such as an act of war on the United States, and trust me the American government would thank any nation foolish enough to take up that offer, which is why it is palatable to goad Iran or China in the right circumstances {how better to write off debt than through war}. Domestically investment will continue to lag behind other nations regardless of how this debt crisis is handled.
As a Zimbabwean reading this piece, it is obvious that all roads lead to foreign policy for the United States to solve its ills. The one muscle the United States will continue to exert will be foreign policy simply because
1. They are the reserve currency of the global world.
2. They control all the sea lanes and transport routes globally.
3. They have the largest military in the world that can exert enough pressure regionally through proxies.
4. They are geographically one of the few nations in the world that can get away with a protectionist and isolationist stance if the global economy collapses.
As history has shown time and time again, whenever "shit hits the fan" within the "Civilized world", Africa has always been that couch/sofa that a person goes searching for "spare change", superpowers searching for that money and resources buried in-between the cushions of under-development.
Zimbabwe is almost too easy a target to get whipped up in the blender of global recovery once the crisis hits, without however having benefited anything in the process but having its resources and human-talent population stripped by anyone who can.
Tsungai Chipato is a Journalist and blogger within Toronto Canada
Contact him @: mugaradzakasungwa@gmail.com
Source - Tsungai Chipato
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