The end of ‘shutdown’ on October 16, after running for 16 days, might have undoubtedly given a big relief to the Barack Obama administration and the 8,00,000 furloughed employees. But the scar it left is scary and its effect is not confined just to the US alone following the $ 24 billion estimated loss to its economy.
It may, prima facie, appear that the American economy has been sinking and consequently its role on world stage is waning and therefore the effect of the shutdown is unlikely to pour outside the American borders.
True, the US economy has been in a turmoil since the 2007-08 financial crisis. The recovery has been slow with below optimal output and there is a high, 7.3 per cent unemployment which means 11.3 million people without work as of September 2013. There are several other indicators which show its poor performance.
Despite all this, the US economy continues to be the world's largest single national economy while the country accounts for only 4.45 per cent of the world’ population resulting in a high per capita income. Its nominal GDP, as of June 2013, of $16.6 trillion, equals to a quarter of the world GDP as per the International Monetary Fund’s estimate. Similarly, the country has abundant natural resources and a well-built infrastructure.
There is an assumption that the Chinese economy will overtake America’s by 2018 since it has been growing at a fast pace of more than 10 per cent a year for the past three decades against the American economic growth limping at lower than 2 per cent a year.
No doubt the Chinese economic growth is splendid. Its fast growth has enabled it to raise its contribution to the world GDP from a small 1.8 per cent in 1991 to about 10 per cent now. Occupying 9.6 million square km, China is the fourth largest country in terms of geographical area. But its arable land is only 10 per cent of the world against 20 per cent population share; per capita arable land availability in the USA is 6.37 times higher than that of China.
Nevertheless, China has achieved self-sufficiency in food grains and is the second largest economy in the world now. But the second in the race is very far behind the first and the real distance is greater than the apparent one. China’s $ 7.2 trillion GDP in 2011 was less than the half of the US GDP of $14.99 trillion, the same year.
More pertinent, China’s population is a huge 1.36 billion which makes its per capita income very low. It ranks 93rd in per capita income terms among 188 countries listed by the IMF in 2012. So, China’s strength and fast growth may not moderate the global evil effect of America’s mismanagement. Rather, China cannot remain unaffected by it.
Importnat currency
The US dollar still dominates the world currency reserves. As per the IMF’s data, 61.94 per cent ($3.76 trillion) of the world’s official reserves (worth $ 6.07 trillion) are held in American dollars as of second quarter of 2013. Euro, the second important currency, accounts for 23.72 per cent and pound sterling and Japanese yen 3.79 per cent each. The currencies of the rest of the world apportion among themselves the remaining 6.76 per cent.
The external trade – in goods and services - of the US is the largest in the world; it was of the order of $ 2.2 trillion in 2012. The US has the dubious distinction of having highest external debt of about $ 16 trillion by 2012.
So, how can the countries that have lent to the US remain unaffected by the trouble in the US economy? The interest of all those trading with the US too cannot avoid receiving the shocks. The ripples are palpable worldwide. But the big brother is not behaving in tune with the power he is wielding. No feeling of disgrace is observable in the persons responsible for causing the trouble.
The shutdown has brought to light the existence of a terrible flaw in American system which enables the vested interests to misuse some provisions of the Constitution put in place in the interest of democracy.
The framers of the Constitution wanted the control of the people - through their deputies to the Congress - on the government’s expenditure in order to check its reckless behaviour. They, therefore, mandated the legislative approval for the government expenditure through the instruments of budget and appropriation bills. This authority is supposed to exercise to secure the public interest, not against it.
The shutdown was forced by the Congress members using this tool in their hands and which was not approved by majority of the people as evidenced in several opinion polls conducted thereafter. The executive too behaved with equal irresponsibility and helplessness. Although it was known much in advance that the Republicans who dominate the House of Representatives were going to cause shutdown, no concrete measures were worked out to stall it. And, this is not the first time such things have happened; 17 such shutdowns have taken place since 1976.
More worrisome is that this is not likely to be the last shutdown and another imbroglio is not unlikely after January 15 when the present arrangement ends. The nightmare is not over. The shutdown which has inter-alia caused serious damage to the American reputation has also given clear warning to the entire world to be on its own guard against the irresponsible behaviour of big brothers on the economic front too.
Somebody being powerful in itself is not a threat, but misusing that power is.
