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American Budget Impasse Leads to Loss of Power

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

The shenanigans in Washington over the budget and debt ceiling legislation throw up some important questions about the changing role of the USA and where Australia's best interests lie in establishing its international relationships. Has the USA passed the point at which it can be expected to act for the betterment of the world? And however harsh a question it may appear, is the US legislature now home to a form of terrorism more dangerous to the world than any armed cell operating out of Somalia?

For close to a century, a basically Anglo Saxon world grouping made up of Britain and its former colonies and the USA was motivated by opposition to what it saw as manifest evil whether that was Hitler, communism in its various forms or sundry malevolent dictators. Over time, the USA came to lead this group. It quickly gained a political, economic and cultural ascendency never seen before. Perhaps the closest model was the Roman empire.

For much of the world, the US ascendency was welcomed. Its economic power and access to the world's reserve currency made it the logical alternative when it came to shouldering the weight of geopolitical heavy lifting. It, more or less willingly, eased the burden on everyone else.

Underpinning acceptance of the US role was the idea that it was on the side of right and justice; that its people were well motivated. Even if policies were at times controversial there was no doubting its good intentions. To be sure, there were those with a contrary view but they were always on the fringes of western democracies.

US political, military and economic dominance came with a pervasive cultural influence. Young Chinese people copying the images of urban American youth in their dress styles, language and music point to a cultural revolution far greater than any Chinese leader would have imagined thirty of forty years ago.

With the rise of China, demise of the Soviet Union and widening evidence of the limitations of its military power, the US has been in a quandary about its role in the world notwithstanding such unqualified cultural dominance.

US administrations have lost interest in Europe as the Soviet tanks have withdrawn and the importance of its military influence has dimmed. It has pivoted to Asia in a half hearted strategic realignment but the symbolism of the Obama absence from last week's meetings of Asian leaders was telling about the extent of its engagement.

Obama was forced to stay in Washington because the US government was becoming ever more dysfunctional. His decision to stay home did not result in progress toward a solution in Washington. His influence was limited at home, too. But he had to stay because domestic constituencies regard impotence at home more favourably than engagement with the rest of the world.

The rest of the world is now being sucked into the vortex of a system of government designed to fail. The founders of the American republic so distrusted government they made sure that it would prove ineffective. There is no US government in the way we know that concept in Australia, the UK or China. There are centres of influence capable of pursuing their own interests each with a potential veto on the other. It is a system designed to produce stalemate.

As the world watches the US descend into political chaos, inch by inch, it loses its moral, political and economic leadership.

The US will not default on its debt. That is the consensus on which markets are proceeding. US politicians are not that reckless. The saner leaders in Washington will recognise they are edging toward the brink of disaster and haul the idiots among their colleagues into line at the last moment. Markets will rise in response perhaps even going higher than they had been.

Despite such a favourable anticipated outcome, the unintended effects are the risk to be feared. Accidents can happen if you let children play with guns however much everyone agrees the guns should be taken away before anyone is hurt. This is a dumb way to run a country. It is an intolerable way for a global leader to behave.

The dangers being imposed on the world economy by the US legislative stalemate are akin to those that aggravated the great depression. That experience and the more recent shock in 2008 illustrate how quickly economies unravel once they are destabilised.

Recently, a new US ambassador was appointed to Australia. He posted a video on the internet expressing how much he and his partner were looking forward to experiencing the delights of Australia. He seemed a thoroughly friendly individual who will charm the many thousands he will meet during his Australian sojourn.

Like most appointments to the position in recent years, the new ambassador is untrained in global politics because Australia is seen as an easy posting to a friendly country. Meanwhile, the new Australian government set about pursuing its international agenda in other directions.

There were hard issues to deal with in Indonesia and with leaders from China, Malaysia, Japan and even PNG. Foreign Minister Julie Bishop represented Australia at the United Nations. When questioned later about the importance of Obama missing the leaders meetings in Asia, Bishop was little concerned. After all, she said, she already had her picture taken with Obama in New York. The US leader has become an excuse for a celebrity photo opportunity while the important business is being done elsewhere.

This is the evolving role of the USA: something for the scrapbook. The impotence of the US in Egypt and Syria is indicative. Russia and Iran came out from the diplomatic covers recently to take initiatives to bolster their international standing. They are likely to enjoy the accolades and seek more. China is gradually beginning to exert influence more commensurate with its economic size.

The role the USA used to play as leader of the free world is becoming redundant. The historical left-right divide no longer applies. The advanced-developing distinction has been blurred. The north-south characterisation is no longer worthwhile. Choosing between democracies like the USA and one party states like China as the basis for international dealings is no longer a guidepost worth retaining.

Australians would not leave uncriticised any other regime which so frequently threatened to inflict so much damage as the US Congress is now threatening. Australians will be reluctant to explicitly reject American influence. Like the British monarchy which once so dominated Australian political and cultural life, the USA will linger as a vestige of the nation's historical experience. It will not be repudiated aggressively. Some will look on it fondly. Others will see it as irrelevant as it withers. A few will be openly hostile. But change is happening and the Americans are making it easier for Australia to drift away.

As the new American ambassador is welcomed around the country in this newly forming world order, he should be informed that Australia needs to reappraise the nature of its connection with the USA. This is not because Australians want to reject the USA but because the USA is showing such disregard for the well being of the rest of the world that Australia, in common with others, is being given little choice.

(John Robertson is a director of E.I.M. Capital Managers, a Melbourne-based funds management group. He has worked as a policy economist, corporate business strategist and investment market professional for over 30 years after starting his career as a federal treasury economist in Canberra. His daily Market Diary - Brief Thoughts on Current Issues is available at

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