The Frailty of America’s Economy

The Frailty of America’s Economy

America is the greatest country in the world. It is extremely prosperous and dominant compared to other countries. Its citizens feel safe and comfortable. And they should feel safe, because it would take more than a little debt to cause a crisis, right? The beliefs that most Americans hold dear and take solace in, could become splintered before their eyes. It is difficult to be certain where power truly lies in today’s world. Economists have been warning for years of a potentially devastating loss of power and funding, in the United States. Lately, some analysts are saying that a depression in America is not a matter of “if,” but, “when.” Several groups threaten to disrupt American dominance, including, but not exclusively, The European Union, China and south-east Asia, and Brazil. America could be living out its last years as world superpower due to foreign prosperity, and national overspending.

The US has an 829.1 Billion dollar trade deficit (CIA). This means that the total value of imported goods to the US is 829.1 billion dollars more than the value of its exports and was a total of 202 billion just last year (Hall). Trade deficit is common in many technology and service based countries. Small trade deficits can even be beneficial, if balanced out with years of trade surplus. The reason that an 829.1 billion dollar trade deficit is dangerous is because it is the total amount of capital that is moving out of the country. Even though 829.1 billion dollars is relatively small compared to the federal government’s request of 840 billion dollars for this year’s budget, it can not be made up by having good trade within the United States (Office). The only way to make up the deficit is for more money to come into the US than what goes out through import and export.

The reason that it is possible to have a trade deficit in the first place, is because the US also has a large amount of debt. This means that countries and individuals buy up national debt and collect yearly interest on the amount. As long as US debt is continually bought up, citizens can continue their overspending. There is a total 8.837 trillion dollars of external debt in the US. The reason that the external debt is higher than the trade deficit is because funds borrowed from other countries are used for projects in the US. For example, A Chinese businessman invests 500 million dollars into a US construction firm for building houses. 1,000 houses are built and 1000 mortgages are taken out for 700,000 dollars apiece. The same businessman invests 700 million dollars into mortgage companies. He is 1.2 billion dollars poorer at the moment. However, he has made a sound investment. The construction company will make more than 500 million dollars on the houses. The business man can now sell all of his stock in the construction firm for possibly 600 million dollars or more. He also will slowly collect the 700 million dollars he invested into the mortgage at a higher interest rate than he could possibly earn by buying bonds or using high yield savings accounts. Suppose he ultimately make 900 million dollars from the mortgages. He earned at least 300 million dollars total from the operation, which he can use to buy up more American debt at a high interest rate. The man used existing debt and investments in the United States to transfer funds to himself without moving a single product to or from his home.

The external debt in this figure is a total number of how much money is owed by the United States and its citizens to out-of-country investors. Internal debt is also high, but has little impact on the power of the US abroad.