Global pneumonia

After presiding over a totally American induced economic disaster and mindless wars and occupation, the G20 meet is lame duck president George Bush's last hurrah

Mohan Guruswamy Delhi

As his last hurrah, lame duck US President George Bush has convened a meeting in Washington DC of G20 leaders on November 15 to discuss the current economic crisis and possibly even find a way to halt the US contagion from spreading any further. The crisis is entirely one of American origin and a consequence of the prolonged mismanagement and under-management of both, the US economy and its financial system.

When Bill Clinton handed over power to George Bush in 2001, he left him with a budget surplus and a robustly growing economy. Since then, the US government's finances have deteriorated sharply because of its vengeful and senseless war on Iraq and another misadventure in Afghanistan. Both wars are without UN sanction and due to US delusions of omnipotence. So, financially, things ended up worse than before Clinton.

This year the US had a budget deficit of about $455 billion. The US has had a balance of trade deficit for decades now and this has now grown to $847 billion in 2007 and is still growing. Traditionally, it has been quite simple for the US to bridge the ever widening gaps because the rest of the world constantly hungered for US securities. China has almost $1 trillion in US securities and India too has over $120 billion. Consequently, the US had an external debt exceeding $12.5 trillion in 2007 and this is growing by $500 billion since 2003. If you add future outgoes like Medicare, pensions etc. the US has another $42 trillion due for payment.

The irony is that the world and even relatively poor countries like India saw lending to the US by buying US securities as a sound investment instead of the pyramiding scam it had actually become. That India still sees it as a sound investment is amply reflected by the fact that there have been no withdrawals even when the rupee came under pressure due to the flight of FII dollars.

What now compounds this problem is that the US accounts for about 20 per cent of the Gross World Product (GWP) which is the sum of all national GDPs. So when the US sneezes, many others catch a cold, which might even turn into pneumonia for some. If it was some third world country that was caught in this situation it would have been taken into hand by the IMF and the finances set right with all the attendant pains it would have entailed. If you didn't accept the IMF conditionalities you were threatened with a foreclosure and shut down, as happened to India in 1991. This has happened to Brazil, Argentina and even Great Britain.

Now you can't do that to the US of A. It practically owns the IMF. And there is no one among the G20 who has the gumption or even the clarity of vision to tell the Americans that it can't go on with spending and borrowing as usual, and if it doesn't set its house in order the rest will have to act.

Not only is the US the world's greatest debtor, most of its citizens are just as profligate borrowers. The credit card debt in the US is now in excess of $365 billion and of this $91 billion is considered as bad debt. This debt is bigger than most national debts of even good sized economies like India. This now threatens to be the next big blowback.

The US crisis is two crises morphing into one.  The economic crisis which has been festering for long and the financial crisis which came to a boil a couple of months ago resulting in the failure of giants like AIG, Lehman Brothers and Bear Stearns etc. Chinese Prime Minister Wen Jiabao has succinctly described them as the crises in real and fictitious economies.