No matter what some agency may say," President Obama declared on Monday, "we've always been and always will be a triple-A country."
Right and wrong, Mr President. The world, let there be no doubt, should be grateful to the United States for a AAA protection of its liberties over the last century – two world wars, plus the Cold War, and in many UN-sanctioned actions from Korea to Bosnia to today in Afghanistan. When Libya blew up, what did Cameron, Sarkozy and Berlusconi do? They phoned Washington, of course. America spends far more on defence than all the nations sheltering under her wing combined. During the financial crisis America has also led the efforts to prevent recession turning into a slump. That was a AAA-rated performance. These commitments have contributed to her huge national debt, now unsustainable.
That, unfortunately, is the point. For America has also over-consumed for many, many years. Or, in layman's terms, she has spent more than she has earned. The government has done so – hence the budget deficit – but households have as well – hence the trade deficit and the housing bubble and crash. The President's contemptuous dismissal of the Standard & Poor's credit rating agency is an understandable reassertion of national pride, but it does not alter the fact that S&P are not alone in thinking the US finances are in poor shape – many Americans think so too. The President's remarks smacked a little of a sense of entitlement: too many in America believe that, as she has always enjoyed the highest standard of living in the world – her space and freedoms as well as her per capita income – then she always should. They're unwilling to see welfare programmes cut or taxes rise. That is not tenable.
As Britain found some time ago, once you fall behind your peers in industrial supremacy then it necessarily follows you will enter a relative decline, which can easily become absolute. America still boasts world-class companies, but too many of their activities are undertaken overseas. America, it might be said, has lost an economic empire, and not yet found a new role.
One reason for that is a lack of political leadership. For what the rest of the world has witnessed in Washington is a nation lacking a AAA political system. The immobilisme between the White House and Congress took America to the brink, and not for the first time. It happened during the wrangles between President Clinton and Newt Gingrich in 1995 and 1996, which saw the federal government shut down. Her constitution and electoral system are working against America's interests, the checks and balances the founding fathers designed have become obstacles to the pursuit of happiness. Political risk has become a significant factor for investors, simply because America has still not come up with a credible plan to cut her borrowings (and indeed rebalance her economy more widely).
To stay a AAA nation you need a AAA economy and some AAA leaders. Mr Obama shouldn't have shot the messenger, but stated an economic mission of his own. I still think "yes, he can", but time is running out.
The invisible damage of the riots
Lenin had "Peace, Bread, Land". The French Revolution had "Liberté, Egalité, Fraternité". The rioters in London, according to one clip I heard on the news, are inspired by the call "Let's get some watches, man". The unrest has little to do with unemployment or deprivation, and everything to do with theft. These are materialistic, envious "bling riots", not some sort of scream of anguish from the poor. It is no accident that the stores targeted stock electronics, jewellery and trainers.
Still, the economic damage to businesses and communities is obvious. There is a large question-mark over whether some of those firms will ever return to places where they have been burnt out. Why should Carpetright go back to Tottenham High Road? After the Brixton riots in 1981 it took a good deal of ministerial pressure to get big retailers to invest there again.
Far more destructive even than the visible damage would be if foreign investors misinterpret the riots as signs of serious social and political resistance to the Government's spending cuts. The lightest suspicion that the unrest might lead the Government to abandon its deficit reduction programme would cost the nation far more than a few burnt-out buses, cars and shops. Even a tiny increase in the rate of interest demanded by investors to lend money to the UK would cost the exchequer – and thus taxpayers – billions in extra interest on our £944bn national debt. When the smoke has cleared, that is how we all may have to pay for these riots.
The Bank's duty is now clear
The Bank of England unveils its latest outlook for inflation and growth today, and no one will faint if they follow the Office for Budget Responsibility in admitting they were too optimistic on both earlier in the year. They ought not be criticised for that – economics is a very uncertain pseudo-science.
What they ought to be pressed on is what they now propose to do. I would hope they signal very clearly a willingness to support the weakening economy by injecting more money into it, so-called "quantitative easing".
Talking warmly about it would be almost as effective as actually printing the money. I hope the Governor, Sir Mervyn King, will rise to the occasion.Reuse content