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Superpower. This term was first applied to the United States in 1945, after a victorious end to World War II. In the decades that followed, that label stuck. America had a powerful military, the strongest economy in the world, immense international political power and the ability to defend and enforce its interests globally. It was also the world leader in science and technology.
We all know the rest of the story. Over the years, the United States faced some "bumps in the road"-the Korean and Vietnam Wars, the Cuban Missile Crisis, the oil crisis of the 1970s, the 1973-74 and 1980-82 recessions, the Persian Gulf War and the horrors of 9/11 to name a few-but nothing it couldn't get through. Its superpower status was never threatened. That is, until recently.
Since the summer of 2007, the country has been grappling with one economic disaster after another. First came the burst of the housing bubble and the mortgage crisis. From there, the government has had a steady stream of bank failures and auto industry bailouts to contend with. Now there are concerns about the state budget shortfalls and the rising unemployment rate. This is in addition to the mounting federal debt and trade deficit.
It all has the world community talking. How can a nation hang onto the title of "world superpower" if its economy is in shambles? Many experts are saying it can't. Several world leaders have recently made public pronouncements to that effect. They say American preeminence is coming to an end. And some believe the nation has already lost its superpower status.
"The general perception of the United States as the key base of the world economy is shaken badly right now," observes Alan Porter, professor emeritus of the School of Public Policy at Georgia Tech University. "That will spiral into foreigners being less inclined to put their money into our government and companies. And that will lead to less investment and production."
To be a superpower, a nation needs to have a strong economy, Porter says. That's the only way a nation will be able to maintain extensive armed services, finance military operations, fund scientific and technological research, and have the political clout to be able to influence other nations-all of which are necessary to be a true superpower.
"Military might depends upon economic wherewithal," Porter says. "We are now so stretched that this is certainly slipping."
The Congressional Research Service estimates the 2010 costs for the war in Iraq to be $746 billion and for the war in Afghanistan $300 billion more. Porter and others don't see how military spending can continue at that level. Sooner or later the U.S. government is going to have to face the reality of balancing its budget, and that is going to require spending cuts, most likely in the military. Furthermore, if the dollar continues its decline, oil could become so expensive that the nation could no longer fuel its military forces.
The U.S. government will probably have to reduce its scientific funding as well. This, too, will have a detrimental effect on America's standing in the world.
Newsweek journalist Daniel Lyons summed up the situation after attending a scientific conference in Washington, D.C., last fall: "I came away convinced that the United States, which for decades has been the world leader in science and technology, will soon be eclipsed by China and other countries. Alternative energy is the next tidal wave in tech innovation. If we miss it, we will not only weaken our economy and harm our national security-we will turn ourselves into a second-rate nation...
"The rest of the world is racing past us. In solar energy, the leaders are Japan, Germany, and China. In wind, it's Germany, Spain, and Denmark. In nuclear, it's France. 'You can go up and down the list-in some cases we're players, but we're no longer leading,' says Ralph Cicerone, president of the National Academy of Sciences.
"The current administration has boosted spending on energy research. But to really catch up, Cicerone says we'll need 'a sustained commitment the likes of which are hard to see in American history'" ("An SOS for Science," Newsweek, Oct. 12, 2009).
True, some of these predictions might not happen right away. There could be some positive fluctuations in the economy, at least for the short-term, in the months or years ahead.
But realistically, the long-term outlook is bleak. Many financial experts doubt the U.S. economy will regain enough of its former strength to be able to maintain superpower status. There are just too many factors working against it. Let's consider here the four factors that are probably hurting the U.S. economy the most.
Nov. 16 marked a milestone for the U.S. national debt: It topped the
$12 trillion mark. The exact calculation as of that day was $12,031,299,186,290.07-a "16-digit
tongue twister," as several news agencies referred to it. Divided evenly
among the U.S. population, this amounts to $38,974.34 for every
man, woman and child in America.
These numbers were not unexpected, considering that in October the Congressional Budget Office had just issued a report estimating the 2009 budget deficit would hit an all-time high at $1.42 trillion. That's about 10 percent of gross domestic product (GDP) and more than triple the previous year's record high.
Of the $12 trillion national debt, $4.4 trillion is owed to intra-governmental holdings (Social Security, Medicare, federal employees retirement funds, etc.) and $7.6 trillion is "held by the public" (money loaned by nongovernment sources such as banks, insurance companies, mutual and pension funds, U.S. savings bonds, foreign and international institutions, etc.).
Budget deficits-the difference each year between government revenue and spending-are projected to average nearly $1 trillion per year over the next decade, pushing the federal debt (the accumulated borrowing necessary to finance years of annual budget deficits) to even higher levels.
A November 2009 report by the International Monetary Fund predicted that in 2014, America's debt-to-GDP ratio (a measure of a nation's debt burden against its capacity to generate sufficient funds to repay its creditors) will reach 108 percent. This means the total amount of federal, state and local government debt will be an amount that is more than a full year's GDP.
That's a steep rise from 2007's pre-economic crisis ratio of 62 percent. Once the United States crosses the 100 percent threshold, it will be joining a very small handful of nations-such as Zimbabwe, Lebanon and Jamaica-with alarmingly high debt-to-GDP ratios.
Of course, these are just estimates of future debt levels. The numbers could be even higher, depending on what interest rates do. Interest rates were low in 2009, adding up to $202 billion in interest payments in 2009, compared to $260 billion for 2008. If interest rates rise, that could make it considerably more expensive to finance America's debt, economists warn.
But even if interest rates stayed relatively low, the Congressional Budget Office predicts that by 2019 payments on the federal debt will still rise to $799 billion.
Truly, it is the interest on the federal debt that makes America's future unstable.
The Wall Street Journal ran an article that stated: "The exploding size of that burden suggests that, short of devaluing the dollar and taking a large bite out of the middle class through inflation and taxation, there is no way to ever pay down that bill.
"Unless Americans are made aware of this financial crisis and demand accountability, the very fabric of our society will be destroyed. Interest rates and interest costs will soar and government revenues will be devoured by interest on the national debt. Eventually, most of what we spend on Social Security, Medicare, education, national defense and much more may have to come from new borrowing, if such funding can be obtained.
"Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation" (Lawrence Kadish, "Taking the National Debt Seriously," The Wall Street Journal, Oct. 12, 2009).
The situation is even more serious when we take into account everyone this money is owed to. According to Treasury Department reports, foreign countries own about 50 percent of the publicly held federal debt. China and Japan are the United States' two biggest creditor nations by far, holding $798.9 billion and $751.5 billion worth of U.S. Treasury securities, respectively, as of November 2009.
These loans represent an accumulating claim on future output of the United States. Lender nations could call for payments on these loans at any time. If the U.S. couldn't pay up, that could bring about a spike in interest rates or a collapse of the U.S. dollar. America would be at the mercy of those nations holding its debt obligations, with little room to maneuver. Ultimately, it could bring about a loss of national independence.
Between 1991 and 2006, the U.S. trade deficit soared from zero to $763.3
billion-an amount equal to 6.5 percent of America's gross domestic
product.
True, with the recent recession, there's been some relief in terms of the trade deficit. Consumer spending and imports went down. The declining dollar made American products more affordable overseas and boosted U.S. exports. Oil prices declined sharply. As a result, the trade gap narrowed to $711.6 billion in 2007 and $695.9 billion in 2008. However, this is probably a short-lived trend, economists say.
As the recession comes to an end, economists predict the trade gap will widen again. It could even explode, say experts at the Peterson Institute for International Economics, especially if the U.S. debt rises as expected.
Economist Fred Bergsten explained how higher budget deficits lead to higher trade deficits: "The additional debt that the government takes on to finance the budget imbalance increases U.S. interest rates...High interest rates attract large inflows of foreign capital, which work to push up the value of the dollar.
"This has an adverse effect on the competitiveness of U.S. companies that export goods or compete with imports on the U.S. market, and it expands the United States' trade deficit" ("The Dollar and the Deficits," Foreign Affairs, Nov. 1, 2009).
If policymakers do not take action to reduce the size of the budget deficits, Peterson economists predict that by 2030 the trade deficit will soar to more than 15 percent of GDP or more than $5 trillion annually.
Of course, even if the trade deficit doesn't get that high, any kind of ongoing trade gap is still very detrimental to the United States because it is financed with loans, adding to America's external debt.
The other issue with trade imbalances is what they do to American industry. If American consumers continue to purchase certain types of imported products, U.S. companies will gradually stop making these items, economists say. Eventually there won't be any American manufacturers with the equipment or expertise to make these products, and the country will lose its ability to compete in these product lines in the world marketplace. That means job losses and decline in exports.
This has happened in many product categories over the years, but most notably the automobile industry. The success of Asian automobile manufacturers over the last few decades all but destroyed American automotive giants General Motors and Chrysler. Economists believe the country is now at risk of having the same thing happening to its computer, semiconductor and aerospace industries-which each year are losing a greater amount of market share to foreign manufacturers.
Two and a half years after the housing bust and subprime credit crisis,
the rising tide of foreclosures remains a huge threat to the U.S. economy.
Industry experts predict that the number of home foreclosures will total
3.5 million for 2009. That's up from 800,000 foreclosures in 2005, at
the height of the housing bubble.
But nowadays, it's not just subprime loans and it's not just California and Florida real estate that are defaulting, said Mark Zandi of Moody's Economy.com: "Foreclosures are taking place coast to coast. They're high-end homes, low-end homes, prime mortgages, jumbo loans, you name it."
An increasing number of people are actually willingly defaulting on their home loans. An estimated 588,000 people did so in 2008, double the number in 2007. These are people whose mortgages are now "upside down"-meaning the amount they owe is higher than the value of the homes.
Financially, it doesn't make sense to hold on to their homes. As of November 2009, Moody's Economy.com estimated that the mortgages of 16 million Americans were upside down. Economists are concerned about just how many of these people may simply walk away from their homes.
According to Citigroup's mortgage division, one in five borrowers who defaults does so willingly, even though they're able to pay the mortgage. These "strategic defaults," as they're being referred to, are now driving the foreclosure crisis, economists say.
But if that wasn't bad enough, economists are now worried about an impending commercial real estate bust. Similar to what happened with the housing market, commercial mortgages were extended, based on certain assumptions-in this case, that occupancy rates and rents on office buildings, hotels, stores and other commercial property would keep rising.
But with the economic downturn, that hasn't been the case. Now an increasing number of commercial properties aren't generating enough cash to make principal and interest payments.
In normal times these property owners might try refinancing or increasing the size of their mortgages-just to try to stay in business. But that's not an alternative anymore, not with how much real estate values have plummeted. Moody's Investors Service says the value of U.S. commercial real estate has fallen from the 2007 peak by an average of 35 percent.
As a result, many commercial property owners are finding themselves foreclosed. According to credit-rating agency Realpoint LLC, the commercial mortgage delinquency rate is now more than six times the level it was a year ago.
The continuing number of foreclosures are fueling the number of bank failures. A recent Time article stated, "In the next week or so, the U.S. will reach a somber milestone: 100 banks down the drain in 2009." The number had climbed to 133 by Dec. 11.
The article continues: "The worst is far from over. The FDIC says 416 banks are at risk of failure, up from 117 a year ago. Soured commercial real estate loans alone may generate a fresh $600 billion in losses by 2013. Veteran bank analyst Gerard Cassidy of RBC Capital Markets expects as many as 1,000 lenders to go bust in total" (Stephen Gandel, "Spotlight: Bank Failures," Oct. 26, 2009). The nation's real estate and banking crisis is anything but over.
The last year has also not been good for the U.S. dollar. In the last
12 months, the greenback dropped 18 percent against the euro, 11 percent
against the British pound and 40 percent against the South African rand-as
the U.S. government printed more money and lowered interest rates to
try to keep the economy afloat. Analysts say the economic downturn would
have been much more severe if it hadn't been for the diluted dollar.
Of course, even before the 2008-09 recession, the dollar was on a downward trend, declining in value by 15 percent from 2000 to 2007 (according to historical data from the U.S. Dollar Index, a measure of the value of the U.S. dollar relative to other major currencies).
What's causing the dollar's demise? A recent Washington Post article stated: "Analysts say the fall of the dollar reflects a basic economic truth: The U.S. financial situation is no longer as solid as it once was. Rather than being undervalued, many argue that the dollar has room to fall further.
"'The dollar is weaker not so much because people are buying yen because they think Japan is suddenly going to be the next hot thing again,' said Stephen King, chief economist at HSBC in London. 'Instead, there is a sense that in some very defined and critical way, the dollar and the U.S. have lost their way.
"The U.S. has borrowed so much from foreigners. They've got a rising budget deficit and few ways to bring it under control that investors see as viable. Those are things that affect the value of a currency'" (Anthony Faiola, "The Dollar's Fall Is Felt Overseas," Oct. 29, 2009).
Put another way, other countries are losing confidence in the U.S. economy. They think that if they continue to hold their wealth in U.S. dollars, they will lose their investment. Creditor nations see the falling dollar and have been gradually changing their assets to other currencies to stem their losses.
"The reputation of our nation's money is being severely compromised," wrote Judy Shelton in The Wall Street Journal. "The U.S. has long represented the virtues of democratic capitalism. To be 'sound as a dollar' is to be deemed trustworthy, dependable, and in good working condition...
"It used to mean all that, anyway. But as the dollar is increasingly perceived as the default mechanism for out-of-control government spending, its role as a reliable standard of value is destined to fade" ("The Message of Dollar Disdain," Oct. 14, 2009).
As the dollar weakens, America's purchasing power shrinks and the U.S. share of global GDP declines. Everything the United States imports, from petroleum to electronics, becomes more expensive. Because Americans import the vast majority of things they need, this could result in higher inflation and interest rates in the future. Ultimately, a weak dollar could cause living standards in America to decline.
The dollar's status as world reserve currency could also be in jeopardy. Recently, the United Nations, China, Russia and other nations have questioned that status, advocating replacing the dollar with another currency or a basket of strong regional currencies.
Even the American-born World Bank president, Robert Zoellick, warned in a speech this past September that "the United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency." He said that in the years ahead, "there will increasingly be other options to the dollar."
Losing reserve currency status would be a huge blow to the U.S. dollar. A Foreign Policy article explained: "The greenback's function as the world's leading reserve currency has been one of the key features of Washington's privileged place in the world since World War II.
"For decades the dollar has been the currency the world's countries tend to use when they do business with each other. Most central banks around the world have held the lion's share of their foreign exchange reserves in dollars, while most globally traded commodities (like oil) have been priced in the U.S. currency, too.
"It's an arrangement that translates into many benefits for the United States, most notably lower borrowing costs (because there's always more demand for the reserve currency than others). And then there are the myriad political and cultural knock-on effects-the power and the prestige-that accrue to the currency at the top of the economic pecking order" (Christian Caryl, "Decline of the Dollar," Oct. 16, 2009).
If and when the dollar will be ousted as world reserve currency is the subject of much speculation. Right now, the greenback is still the most used for international transactions and constitutes more than 60 percent of other countries' official foreign-exchange reserves.
However, that percentage is steadily slipping. Several ideas are being bantered about regarding what currency could replace the dollar. The euro, Chinese yuan and a completely new international reserve currency appear to be top contenders. And while Europe or China may not be quite ready to take the lead as economic superpower right now, they are definitely moving in that direction.
As sobering as all of this is, it was foretold in the Bible many centuries ago. Though most do not realize it, the startling truth is that America's heritage can be traced back to the ancient nation of Israel with its 12 tribes. Long ago, God prophesied that the people who came to inhabit America would rise to become a great nation-and, conversely, that America's superpower status would eventually come to an end due to the nation's rejection of Him. (To learn more, see "Does the United States Appear in Bible Prophecy?")
Leviticus 26:19 states: "I will break the pride of your power." Unquestionably, with the U.S. national debt and trade gap as huge as they are, and the dollar and banking system edging toward collapse, national prestige is being taken away.
God warned ancient Israel again and again what would happen if they did not follow Him. Deuteronomy 28:43-44 states: "The alien who is among you shall rise higher and higher above you, and you shall come down lower and lower. He shall lend to you, but you shall not lend to him." Only a generation ago the United States was the world's greatest lending nation. Today it is the most indebted nation in world history.
In Jeremiah 17:3-4, God told Israel they would serve their enemies if they did not obey Him: "I will give as plunder your wealth, all your treasures, and your high places of sin within all your borders. And you, even yourself, shall let go of your heritage which I gave you; and I will cause you to serve your enemies in the land which you do not know; for you have kindled a fire in My anger which shall burn forever" (Jeremiah 17:3-4).
In Habakkuk 2:6-8, Israel is warned specifically about getting overloaded in debt: "Will not all these take up a proverb . . . and say, 'Woe to him who increases what is not his-how long? And to him who loads himself with many pledges'? Will not your creditors rise up suddenly? Will they not awaken who oppress you? And you will become their booty. Because you have plundered many nations, all the remnant of the people shall plunder you." These warnings applied to ancient Israel, and they apply to the modern-day descendants of Israel too.
Of course, no one knows how close we are to the final fulfillment of these prophecies. Perhaps real estate values will start appreciating again, and maybe the GDP will bounce back. But as long as the United States continues to maintain the world's largest mountain of debt, these positive economic upswings are likely to be only a temporary reprieve. We are getting closer to many of the end-time events foretold in the Bible.
One thing is for certain: Prophecy will be fulfilled. The good news that we can and must focus on is that the Bible also tells us that someday Israel-the people of the United States and other nations descended from the 12 tribes-will once again constitute a very prosperous nation and a blessing to the rest of the world. It will be a wonderful future! That is what we need to remember as we face the uncertain times ahead. GN
The United States
and Britain in Bible Prophecy
Where does the United States of America appear in Bible prophecy? Does Bible
prophecy neglect to mention major nations such as the United States, Canada
and the United Kingdom? In fact, many prophecies do mention these nations.
A major shift in world financial power centers is on the horizon. America is on the decline, while Asia and Europe are on the rise.
What advice does the Bible offer about wealth and our attitude toward it? Is
money really the root of all evil? Do you know what God thinks about bankruptucy?
What does the Bible say about charitable contributions? How much should we
give?
Are We
Living in a '9/10' Economy?
Global financial markets were rocked recently following rising defaults affecting
mortgage-backed securities. What does this mean for the world’s money
supply and confidence in Western financial institutions? Are we on the verge
of a major upheaval in the world economy?
Will
Global Economic Turmoil Precede Jesus Christ's Return?
What possible connection could the global marketplace have with Jesus Christ's
return? Do you understand the Bible's prophetic links?
Coping
With a Growing Economic Crisis
Last year was the worst year for U.S. home foreclosures since 1932, at the
height of the Great Depression. The economy may be in trouble, but you can
take steps to prepare for the growing downturn.
Beyond
Today: Surviving an Economic Crisis
How can you get control of your life, behavior and money? The answer comes
from a surprising, yet very wise source.
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Keywords: U.S. economy U.S. leadership science in U.S. U.S. trade U.S. debt
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