Sean O'Grady: Obama shouldn't have shot the messenger

Economic Studies

Share
Related Topics

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.

s.ogrady@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Account Manager

£20000 - £35000 per annum: Recruitment Genius: This full service social media ...

Recruitment Genius: Data Analyst - Online Marketing

£24000 - £35000 per annum: Recruitment Genius: We are 'Changemakers in retail'...

Austen Lloyd: Senior Residential Conveyancer

Very Competitive: Austen Lloyd: Senior Conveyancer - South West We are see...

Austen Lloyd: Residential / Commercial Property Solicitor

Excellent Salary: Austen Lloyd: DORSET MARKET TOWN - SENIOR PROPERTY SOLICITOR...

Day In a Page

Read Next
RIP Voicemail?  

Voicemail has got me out of some tight corners, so let's not abandon it

Simon Kelner
A sculpture illustrating the WW1 Christmas Truce football match in Liverpool  

It's been 100 years since the Christmas Truce, but football is still changing the world

Jim Murphy and Dan Jarvis
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there