America's Decline – Israel's Trouble
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MARKETPLACE SHLOMO MAITAL America’s decline – Israel’s trouble YOU ECONOMISTS! You always see the Americans reach the age of collecting Social ture interest rates in response. This inverted tunnel at the end of the light! President Trump Security and Medicare, the federal govern- yield curve has signaled recessions in the past says the US economy is stronger than it has ment will be unable to fund much else.” but it also sounds false alarms at times. ever been. And the numbers back him up. It is not only the US federal government Summing it all up, The New York Times’s Numbers, shmumbers – America is sink- that is drowning in debt, with a budget deficit Binyamin Appelbaum notes, “Emerging ing. One consequence is that Israel is in trou- of $1 trillion. US companies, too, are sunk signs of weakness in major economic sectors, ble. Here is why. in debt they piled up during the decade-long including auto manufacturing, agriculture It is true that US unemployment was 3.7% zero-interest rate orgy. As a result, CNBC and home building, are prompting some fore- of the labor force in October, a 50-year low. predicts that a recession worse than that of casters to warn that one of the longest periods Third quarter GDP growth was 3.5%. The 2008 may be on the way. of economic growth in American history may economic expansion is in its tenth year. Con- According to a report by the Internation- be approaching the end of its run.” sumer confidence is strong. But there is a al Monetary Fund, summarized by CNN: General Motors recently announced it is dark side. “Historically, peaks in corporate borrowing closing five of its plants, including a large There may be a stock market bubble. US have been followed by recessions. In the first one in Oshawa, Ontario, laying off many stock markets have tripled in value since quarter of 2018, US companies held a total of thousands of its workers. 2010, while all other stock markets in the $29.6 trillion in debt, more than ever before. Is that it? A recession is coming? Reces- world have risen by only an average of 50%. More importantly, that figure as a share of the sions are a familiar part of healthy capital- The last time such an imbalance happened economy is only slightly off its all-time peak ism. Do you know how many recessions the was in 1999, just before the dot.com bubble in the last quarter of 2017. For almost the past US has had since World War II and then burst. And before that? 1929. decade, that debt has been essentially free, as bounced back? US stock markets have been extremely the Federal Reserve kept interest rates near Yes, eleven. From 1945 to 2001, there were jittery lately. Tuesday, December 4 saw an zero to spur growth. 10 business cycles. Recessions lasted an av- 800-point skid in the Dow Jones Industrial “Companies used the money to invest in erage of 10 months and expansions lasted an Average. After closing on Wednesday, De- equipment and research, as well as to gobble average of 57 months. The 2008 downturn cember 5, for President George H. W. Bush’s up other companies and buy back their own was far more serious, but the US bounced funeral, the stock market opened for trading stock. Now, however, interest rates are on the back. But there is far more to the “America in on Thursday and quickly fell by 500 points, rise again, which could mean that owing lots decline” analysis than just the economy. and finally closed the day with a 1,500-point of money will get more expensive. And it’s Once, there was national unity in the US. tumble in two sessions. not just the quantity of the debt outstanding Just read the Latin slogan on US coins: E plu- Morgan Stanley’s Ruchir Sharma has — it’s also the quality. In 2017, according to ribus unum, meaning out of many, one. But pointed out that the global economy looks as a recent note by Citibank, $1.6 trillion in new this unity is long gone. And a country divided if it’s at “peak America.” He argues forceful- debt issued in the United States went to bor- from within cannot lead the world or make ly that America may at this moment be at its rowers with less-than-stellar credit ratings. peace in the Middle East or even try to. Nor peak of economic and financial power – and That’s the highest since the years leading up can it thrive, prosper and build a future for heading downward. to the 2008 financial crisis, and 2018 is on its children. US stocks have outperformed the rest of track to almost match it.” How divided is the United States political- the world for a decade, and that sort of trend It is not only government and businesses ly? Data from the Cooperative Congressional rarely lasts. The current recovery is now the that are highly leveraged, i.e., deep in debt. Election Studies based on validated voters second-longest in US history and it is due for Consumers, too, owe huge amounts. Total tell the story. a downturn. Interest rates are rising, corpo- credit, including student and auto loans, is In the November 6 election for the US rate profit growth is slowing and budget defi- above its pre-2008 peak, according to the House of Representatives, two-thirds of cits are surging. Even President Trump seems Federal Reserve Bank of New York. If the women voted Democrat, but only 50% of aware of the likelihood of a dip; this may be US economy tanks and unemployment soars, men. Two-thirds of those aged 18-39 voted why he has been preparing the ground for it, how will people pay back their loans? Democrat but only 45% of those aged 65 and blaming the Federal Reserve for raising in- There is a highly technical signal that has older. Two-thirds of college-educated women terest rates. riled capital markets – the so-called invert- voted Democrat; and only 37% of non-col- Writing in The Washington Post, Fareed ed yield curve. That means, interest rates on lege-educated men. Zakharia adds, “The US government now long-term US Treasury bonds are lower than America is split down the middle by geog- spends $1.4 billion a day on its debt, 10 short-term rates. Normally, it is the opposite. raphy (the east and west coasts vs. the heart- times more than the next major industrialized The reason – people think a recession is com- land), gender, age, education, income and country does. As interest rates rise and more ing, hence the Federal Reserve will lower fu- race. And the split has grown substantially, 32 THE JERUSALEM REPORT JANUARY 7, 2019 BRENDAN MCDERMID / REUTERS / MCDERMID BRENDAN A trader works on the floor of the New York Stock Exchange in early December according to the same data, since the 2008 November. With elections looming, OECD The United States has simply subcontracted elections. Moreover, as President Trump ac- experts urge Israeli leaders to restrain their its policy to Riyadh, encouraging the Sau- tively runs for reelection in 2020, the toxic, spending – but pre-election populism may dis’ reckless behavior and resulting in the abrasive them-or-us tribal politics he brings bring the opposite. world’s gravest humanitarian crisis, the war may get even worse. I can see that the US may have a problem – in Yemen, where 12 million people are on the The eminent Jewish historian Arthur M. but why does it impact Israel? verge of famine.” Schlesinger, Jr. once wrote, in his book “The It is pretty simple, actually. The US is Isra- Russia has become the dominant Middle Disuniting of America”: “The new ethnic el’s strongest supporter. We have your back, East power. When America retreats, and gospel’s … underlying philosophy is that … the Americans constantly tell Israeli leaders. when the American president declares, I am a ethnicity is the defining experience for most We moved our embassy to Jerusalem. But the nationalist, global chaos results. Americans … and that division into ethnic bigger America’s internal social and econom- Technion students learn the Second Law communities establishes the basic structure ic woes, the less engaged it is in the Middle of Thermodynamics – the state of entropy of American society...[This] reverses the his- East and the world. When Israel does need (disorder) of the entire universe will always toric theory of America as one people – the someone at its back, there may be nobody increase over time. With America in decline, theory that has thus far managed to keep there. this has never been truer. American society whole … The historic idea Fareed Zakharia notes, “Anywhere one Israel, an open economy, lives by trade. If of a unifying America is now in peril…” goes in the world these days, leaders talk the US economy slows, with China’s econ- He wrote those words in 1991. They have about the United States’ retreat from the omy slowing, and with the European Union turned out to be prophetic, 25 years later. world stage. They note that it began before in turmoil over migrants, Brexit, Italy’s debts Israel cannot gloat that it is doing better Trump. Most date it to the aftermath of the and French demonstrations, Israel’s foreign than America in decline. Here, too, there are Iraq War, spanning the administrations of markets may decline. dark clouds.