The 2012 US elections were more than just a choice of candidates for President, Congress and state houses, they were a referendum on America's future. They were like the last fork in the road, with one sign pointing to "Oblivion" and the other one saying "Long Road Back". The American people chose to follow the first sign. Of course, the sign didn't say "Oblivion", it actually said "More Hope and Change". It was a seductive slogan when it was first seen four years ago, but this time no one should have been fooled.
The past four years have seen the Obama administration borrow an additional six trillion dollars to fund spending that resulted in $905 billion in economic growth. The federal debt increased by around 15% per year during Obama's first term and the Democratic Senate Majority Leader, Harry Reid, has already announced plans to extend the federal debt ceiling by another $2.4 trillion before Christmas. At this rate the US federal government debt will reach $30 trillion before Obama leaves office. If that doesn't strike you as a rather excessive amount, consider that the entire world's GDP is only about $70 trillion.
The President appeared on Letterman during the election campaign and claimed he couldn't remember how much he'd borrowed during his first term, which made him look either very stupid or very dishonest, but that didn't seem to matter to the American voters. They wanted more of the good stuff and, like the Greeks, they didn't care who pays for it.
The problem with comparing the United States to Greece is that the similarities extend only to the nature of the problem, not the scale of it. Greece has an economy not much bigger than New Zealand's and that means it can be bailed out by its larger neighbours like Germany (should the German taxpayers choose to do so). No one can bail out America. Forget China - that country has already stopped lending to America at the levels it had previously. In fact, the biggest lender to the US Government today is...the US Government! Over 60% of US Treasury bonds last year were bought by the US Federal Reserve. Where does the Federal Reserve get the money from? It creates it at the stroke of a computer keyboard. This is what they used to call printing money.
When a government prints money at the rates the US Government is now doing so, sooner or later it starts to significantly devalue its own currency - that's why the US Dollar has fallen against other currencies like the New Zealand Dollar. And sooner or later that translates into inflation, which pushes up interest rates, and that means the government has to print even more money to repay its loans. The end game of all this is the sort of hyperinflation they had in Germany in the 1920s and in Zimbabwe today.
This cannot end well for the United States, but Americans have made their choice - they have chosen to ignore reality and carry on snorting the fiscal crystal - and they will have to live with the consequences.
Those consequences can be seen again and again throughout history - from the fall of the Roman Empire through to Britain's decline in the first half of the 20th Century. Great nations are sustained by great economies and are destroyed by economic decline. I greatly admire the idea of America - a republic of the people where individual aspirations and liberty are enshrined in its founding documents - and I am saddened by its decline. Perhaps the American people still have time to change course and avoid oblivion, but I suspect that after another four years of the Obama administration it will be too late.
