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There is a way America can have a viable market economy again (3)

09:14, June 02, 2010

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The American economy was not designed to be able to cope with more than a 3 percent drop in its housing sectors market value according to a leading American investment bank's advice to some of its clients before America's Federal Reserve Chairman and Treasury Secretary made publicly admitted their initial estimate of US 800 billion dollar scope of the losses in America's financial crisis. By the end of 2009 at least 23 percent of American homeowners with mortgages owe more on them than their homes market value. The total can reach 50 percent or more. Unemployment in America has reached 10 percent nationally. It is much higher in some states. America's national unemployment rate has been rising as much as 3 percent per quarter. Consumer spending, which accounted for 70 percent of the American economy and created 20% of Chinese exports to America impacted by the crises. American municipal, state and federal government tax revenues are being reduced by the crises spiral impact. Many America states and national governments' debt and deficits are growing unsupportable. The scope of the economic crises and type of social unrest seen in Greece can proliferate and spread as the European Union's members nations' perceived individual self-interest and resulting political crises indicate. Such difficulties in governing modern societies abroad and at home increasingly will affect America, China and all nations.

In the early stages of the interrelated and spiraling financial, economic and unemployment crises, the American dollar and American government's ability to borrow in capital markets are being held up by China's support of American government debt and the US dollar and the specter of European Union nations and Euro's instability.

Individual European Union nations cannot print unlimited amounts of Euros. The instability of the Euro makes the US dollar and American debt look safer than their alternatives. But, the entire global economy depends of their being confidence in government's currencies. The American government's monopoly on and seemingly unlimited ability to print US dollars will increasingly be what tries to instill confidence. Some American investors already refer to America printing vast amounts of its currency as "deleveraging." Some assert that the America government's monopoly on printing US dollars means that America has no creditors. That kind of thinking is delusional.

But the unthinkable is becoming reality. The simultaneous financial, economic, social and political crises impacting America and its trading partners are already a spiral. The world faces not a "V," "U," "W" or "L" of gradual economic recovery. It faces an "X" or spiral of interacting crises in which the global financial, economic and trade patterns that all modern nation's economies depend upon can collapse serially or simultaneously. Initially the press investors communicate with each other in explored this. Mainstream opinion leaders, such as Martin Wolf, and media such as the Financial Times discuss the previously almost unimaginable danger of a global economic collapse we all face. Twenty months after the world learned of America's financial crisis, the entire world hopes that the American financial, economic and political systems can somehow manage to recover from what Alan Greenspan has admitted is "the worst financial crisis in one hundred years."

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The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.

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John Milligan-Whyte and Dai Min are the executive producers and co-hosts of the Collaboration of Civilizations television series adapted by the eight books they wrote in the America-China Partnership Book Series published in English and Mandarin in 2009-2010. They founded the America-China Partnership Foundation and Forum in 2008 and the Center for America-China Partnership in 2005. E-mail: [email protected]