It’s too early to write off US as key global force

It seems like the world will be watching breathlessly how the US politicians will handle the looming financial crisis.
Already a shut-down has forced US President Barack Obama to cancel his trips to Indonesia and Brunei. He has also canceled stopovers in Malaysia and the Philippines.
The cancellation is seen as a blow to Obama’s Asia strategy that calls for putting more emphasis in that part of the world given its resources and potential at the expense of other regions, including the Middle East.
Still, that is a domestic issue though it includes missing two summits in the Asian region, but the world’s real worry is focused on what could happen on Oct. 17 if the Republicans and Democrats fail to reach a deal, whereby the national debt ceiling could be raised beyond the $16.7 trillion borrowing cap.
That was an alarming signal raised by the International Monetary Fund (IMF) Managing Director Christine Lagarde, who warned that if such an eventuality were to happen it might result in a similar financial crisis that hit the world five years, or worse.
The Americans have the privilege of printing their green dollars, which has been accepted worldwide as an international currency and collateral. Given the fact it is a superpower with the biggest economy, the dollar simply becomes the last resort for dealers around the world.
The worrying aspect of the recent showdown is that it comes at a time where others notably China are challenging the US as the biggest economy in the world.
More seriously, the whole fight is based on narrow political gains.
The Republicans wanted to extend a cooperative hand and had been asking the Democrats at the same time to help kill the Obama plan for health care. That plan is Obama’s most important achievement so far and it is hard to expect that the Democrats will give in for pressure on this point.
If a default is to take place and the US fails to pay at least for its interest, a domino effect is expected to follow starting with increasing cost of borrowing and more important weakening of confidence in the US economy and its ability to act as the last resort for the world economy.
That may not be a disaster in itself, but it will make a dent in confidence. After all, economy is based on perception to some degree just like politics. And if the American politicians are seen as not taking their business seriously, that will not augur well for the rest of the world.
This will add to a number of factors shaping the new image of the US: a country getting more isolationist, about to lose its rank as the world’s largest economy and less innovation and leadership in the businesses, and all that could be attributed to the fact that the political system is getting more dysfunctional, where party and sometimes personal politics gets into the way at the expense of national interest. That is why lobby and pressure groups call the shots.
But it is too early to write off the US as one of the key global players politically as well as economically. For one, the competing powers like China are not in the mood yet to step forward and assume the leadership role. And a good sign of this is that Beijing has resisted so far all attempts to internationalize its national currency. After all, leadership comes with responsibilities that China seems not ready yet to step into that quagmire.
However, this gray period calls on others to review their option.
For instance, most Gulf currencies are tied to the US dollar and OPEC has used the American currency to price its crude oil. At one point in the 1970s and in face of the mounting inflation, OPEC tried to use a basket of currencies instead of the dollar but that was a short-lived experiment that nobody felt the need to repeat.
But with the emergence of a number of centers of powers in today’s world, other economies are competing with US neck and neck in terms of volume; a fresh look seems to be a necessity at a time when other options maybe available.
It is better to act when there is a room to maneuver, and not under stress.

Email: [email protected]