Fiscal Crisis and World Order

Sound Bite

The crisis facing the United States is both economic and political, and its effects are felt both at home and abroad. The author presents a detailed look at how the present world order is or could be affected by a total global economic collapse.

He asks whether a world governance system is feasible and desirable, and explores what forms such a system might take, depending upon whether such players as China, the Russian Federation and the Islamic nations continue to make economic progress or suffer setbacks.

About the Book

The book begins by approaching the fiscal crisis that hit the United States and the global economy starting in 2008 with a short historical background.

It details various aspects of the economic and fiscal crisis, in relation to congressional efforts to produce a solution, and it predicts what success can be expected from these efforts.

Secondly, the book looks (from several points of view) at what effects will be seen in the global world order if the United States fails to resolve its issues at the national level. Lastly, the author looks at what the effect could be if the current system of nationalism (Westphalian system) fails in relation to international cooperation. The book gives readers access, in one place, to most of the issues involved in the 2008 recession, the current fiscal crisis, and the possible double-dip recession.

Introduction

The crisis facing the United States is both economic and political, and its effects are felt both at home and abroad. The following chapters present a detailed look at how the present world order is being or could be affected by a total global economic collapse.

The recession of 2008 and the fiscal crisis that followed brought about a clear recognition of two major themes. First, economic recessions/depressions are not capable of being contained within a single national economy or a small number of national economies. The current state of economic inter-relatedness is truly global. Second, as a result of this globalization, economic distress experienced by one or more nation states will rapidly spread throughout the global market.

Globalization of economic activities means that international cooperation is imperative to remedy any real problems within the economic structure. Regardless of whether the current fiscal crisis, for example, is the result of mismanagement on the part of national governments or the activities of an unregulated and parasitic financial community, only cooperation on a global scale appears capable of producing a solution.

The current fiscal crisis is being handled by an attempt to return to solutions that were developed when such economic matters could be directly remedied on a national level. The Keynesian approach to stagnant economic growth patterns, high unemployment, etc., pioneered during the Great Depression, was to infuse the economy with massive government spending. Such spending in times past was successful in stimulating both private sector spending and capital investment. This in turn was successful in bringing the economy back to a rather robust rate of growth, lowering unemployment and increasing government revenue to pay for the stimulus. In the current situation, the cost of stimulating the economy in this manner tends to depress the economy even more and to produce the opposite effect, that is, a slowing of economic growth through consumer austerity and withdrawal of capital investment from the economy.

This in turn deepens the unemployment problem and tends to make permanent the high levels of budget deficits and long-term debt. This has resulted in a lack of liquidity available to bail out the national economies heading for default or to pay the interest and maintenance of the current private and public debt.

Two schools of thought have developed around the above scenario. One is that the fiscal crisis will result in the forced default of a number of weaker national economies, such as Greece, Ireland, Portugal and Spain among others. This school believes that the national governments of the wealthier nation states will be forced to stop bailing out local financial and industrial communities as has been the practice of the United States and the European Union. A second school believes that the various national economies can be returned to liquidity through a combination of regulation of the financial community on a global basis, a reduction in the burden of social welfare transfer payments in the industrialized economies, and a series of austerity programs designed to reduce budget deficits and national long-term debt. If the first group is correct, the current economic problems will deepen into either a recession equivalent to the one that broke in 2008 or in the worst case a depression that would equal that of the 1930s.

If the second group is correct, the worst effects of a deepening recession/depression could be avoided although large scale economic restructuring might be required. Either result is probably beyond the control of any single nation-state (the US, Japan, etc.) or any group of nation states (the EU, the Russian Federation, China, etc.). The worst case scenario would entail the partial or total dismemberment of the European Union, a significant reduction of economic growth in China and India, and the failure of a large number of weak economies. It would also include a serious reduction of the standard of living globally, including in the United States.There is growing concern over the seeming impossibility of finding a workable solution....