Author and Harvard’s Tisch Professor of History, Niall Ferguson, writes what I view as a brilliant analysis in the March/April 2010 “Foreign Affairs” magazine, which prides itself on publishing diverse views. Right or wrong, Ferguson’s thesis is that our current economic challenges are not long-term, rather more likely around the corner. Pointing out that large political units are effectively very complex systems, he rigorously describes how such complexity at least partially explains the rise and fall throughout history of major political units. For example, Rome’s fall was very sudden and dramatic, spanning about 60 years between 406 and 468; the Ming Dynasty which was a most sophisticated civilization, began in 1368 but collapsed quickly in the mid-17th century; a similar fate for the Bourbon monarchy in France in the late 18th century and in modern times, the British Empire disintegrated over a span of 12 years after World War II, and of course the Soviet Union severely declined over just a five-year period immediately preceding 1991.
Most of the cases, even the ancient ones, have involved expenditures greatly exceeding revenues, combined with debt financing issues. This is frightfully similar to our country’s position today, with its very own forecasts of large future increases in public debt, perhaps more than doubling in 10 years with debt interest payments alone exceeding 15% of revenues. Our ability to deal with crises has been eroding, and the world is beginning to express concern about our fiscal policies, with some even questioning aspects of our viability. My post in the “Future of America” Economy category refers to similar concerns about “possible” rampant inflation, let alone defaults.
The Ferguson article also worries about declining U.S. credibility world-wide, considering the budget cuts which will be required as our national expenses (like interest) increase as a % of revenues. One example is our huge military budget which may have to be severely cut even in the face of international challenges such as dealing with Iran.
This week’s Republican vs.Democrat fiasco in Congress, a rapid acceleration of long-term and negative political trends which have been in place for at least eight years now, bodes poorly for our ability in dealing with today’s let alone tomorrow’s crises.
You can read the entire article on www.foreignaffairs.com by clicking here. The summary reads: A combination of fiscal deficits and military overstretch suggests that the United States may be the next empire on the precipice.
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