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Expect major changes before 2012 US presidential election

13:47, February 22, 2011

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John Milligan-Whyte and Dai Min 2011 All Rights Reserved

We must prepare for a new stage in the international economic crisis more serious than experienced to date. US News & World Reports warned on Jan. 21, 2010 that American "state governments are in a huge hole, and they're still digging.

Thanks to the “Great Recession,” their tax receipts have suffered the greatest decline since the Great Depression. They are now 12 percent below pre-recession levels (adjusted for inflation). Federal assistance had mitigated deficits of the previous year but there is now only about 40 billion U.S. dollars left in the program. Some 30 states face a structural budget gap, where ongoing expenses are not covered by revenues. California, for instance, projects a structural budget gap of more than 20 billion U.S. dollars in fiscal year 2012, 22.4 billion U.S. dollars in 2013, and 20.4 billion U.S. dollars in 2014. New York's projected gap is 9 billion U.S. dollars in 2012, 14.6 billion U.S. dollars in 2013, and 17.2 billion U.S. dollars in 2014.

States have shied away from making unpopular cuts in core services. This is a fiscal disaster in the making. The global capital markets do not have confidence or reason to believe that the "Great Recession" is ending. U.S. municipal and state finance crises are expected to trigger a bond market crisis with instant global consequences during the next two years.

Many in China do not see how serious the economic and unemployment crises and resulting social and political crises in the United States will become because their size, speed and seriousness are so inconsistent with the United States’ past success. Optimism is essential in dealing with crises. However, realistically the question must be faced: What if solutions to U.S. government and consumer debt crises are not found?

The possibility that the U.S. economy could implode like the USSR's is unthinkable. President Carter's National Security advisor, Dr. Zbigniew Brzezinski, was one of the few American experts on the USSR who foresaw it. Similarly, few warned before 2008 that America's state and federal governments would be facing insolvency. The status quo of the U.S. Federal Reserve printing money and China buying U.S. government debt is not sustainable in the capital markets. It also cannot create enough sustainable jobs or economic recovery in the United States.

Brezenski foresaw in a Jan. 2, 2011 New York Times article, titled "How to Stay Friends with China," that a new relationship between the United States and China is essential. He wrote, "Presidents Obama and Hu should make a serious effort to codify in a joint declaration the historic potential of productive American-Chinese cooperation. They should outline the principles that should guide it. They should declare their commitment to the concept of American-Chinese cooperation. They should declare that their commitment to the concept that American-Chinese partnership should have a wider mission than national self-interest. That partnership should be guided by the moral imperatives of the 21st century's unprecedented global interdependence. The declaration should set in motion a process for defining common political, economic and social goals. It should acknowledge frankly the reality of some disagreements as well as register a shared determination to seek ways of narrowing the ranges of such disagreements. It should also take note of potential threats to security in areas of mutual concern and commit both sides to enhanced consultations and collaboration in coping with them. Such a joint charter should, in effect, provide the framework not only for avoiding what under some circumstances could become a hostile rivalry but also for expanding a realistic collaboration between the United States and China. This would do justice to a vital relationship between two great nations of strikingly different histories, identities and cultures yet both endowed with a historically important global role"

That joint charter is not the existing U.S.-China joint communiqué. It exists in a proposed China-US Grand Strategy Executive Agreement Between Presidents Hu and Obama, which provides that to balance U.S.-China investment, trade and economic development, Chinese companies will invest in US companies. In its self-interest, the United States must accept Chinese companies’ investments in distressed states and companies selected by President Obama, U.S. governors and business leaders in collaboration with their Chinese counterparts in order to create at least 12 million jobs in 30 US states suffering the most. In its self-interest, China must reciprocate the foreign direct investment U.S. companies made, which have created desperately needed jobs, economic recovery and growth in China since 1978. Few in the US and China today believe that such a sudden change in U.S.-China relations is possible. But we should prepare for it to occur either before or quickly after a literally overnight global bond market collapse and its worldwide consequences because it is required to restore confidence in the worlds capital markets and capital cities that the United States is able to economically and politically manage its crises and the two largest economies have taken effective steps to balance their trade, investments and economic recovery that all nations' economies depend upon for stability and growth.

John Milligan-Whyte has been called the "new Edgar Snow" and "21st century Kissinger" and is the first non-Chinese winner of the Social Responsibility Award from the China Business Leaders' Summit. John and Dai Min Milligan-Whyte are the executive producers and co-hosts of the Collaboration of Civilizations television series, founders of the Center for America-China Partnership, which is recognized as "the first American think tank to combine and integrate American and Chinese perspectives providing a complete answer for America and China's success in the 21st century," and authors of the America-China Partnership Book Series, which created a "New School of America-China Relations".

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]