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: Trainee Vehicle Inspectors / Purchasers

£20000 - £40000 per annum: Recruitment Genius: Trainee Vehicle Inspectors / Pu...

Recruitment Genius: Vehicle Broker / Purchaser

£18000 - £45000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Sales Executive - OTE £45,000

£18000 - £45000 per annum: Recruitment Genius: A Sales Executive is required t...

Recruitment Genius: Call Centre Manager - OTE £50,000

£25000 - £50000 per annum: Recruitment Genius: This innovative online car purc...

Day In a Page

Read Next
The possibility of Corbyn winning has excited some Conservatives  

Labour leadership: The choice at the heart of the leadership campaign

Jeremy Corbyn
Pablo Iglesias, the leader of Spain’s anti-austerity party Podemos  

Greece debt crisis: Trouble is, if you help the Greeks, everyone will want the same favours

Charlotte McDonald-Gibson Charlotte McDonald-Gibson
Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

EU 'family' needs to forgive rather than punish an impoverished state

An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

Gaza, a year on from Operation Protective Edge

The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
How to survive electrical storms: What are the chances of being hit by lightning?

Heavy weather

What are the chances of being hit by lightning?
World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

World Bodypainting Festival 2015

Bizarre and brilliant photos celebrate 'the body as art'
alt-j: A private jet, a Mercury Prize and Latitude headliners

Don't call us nerds

Craig Mclean meets alt-j - the math-folk act who are flying high
How to find gold: The Californian badlands, digging out crevasses and sifting sludge

How to find gold

Steve Boggan finds himself in the Californian badlands, digging out crevasses and sifting sludge
Singing accents: From Herman's Hermits and David Bowie to Alesha Dixon

Not born in the USA

Lay off Alesha Dixon: songs sound better in US accents, even our national anthem
10 best balsamic vinegars

10 best balsamic vinegars

Drizzle it over salad, enjoy it with ciabatta, marinate vegetables, or use it to add depth to a sauce - this versatile staple is a cook's best friend
Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

Greece referendum

Greeks say 'No' to austerity and plunge Europe into crisis
Ten years after the 7/7 terror attacks, is Britain an altered state?

7/7 bombings anniversary

Ten years after the terror attacks, is Britain an altered state?
Beautiful evening dresses are some of the loveliest Donatella has created

Versace haute couture review

Beautiful evening dresses are some of the loveliest Donatella has ever created
No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

No hope and no jobs in Gaza

So the young risk their lives and run for it
Fashion apps: Retailers roll together shopping and social networking for mobile customers

Fashion apps

Retailers roll together shopping and social networking for mobile customers
The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'