Political Wrangles Forestalling American Economic Recovery.

One of America’s foremost business moguls, Warren Buffet, did compare the 2008 financial crisis to the 1945 Pearl Harbor due to its devastating effect on the US economy. Some economic indicators that do provide a glimpse into the state of the current US financial debacle are a write-off of about $885 billion worth of bad loans, a government debt spiking to over 100% of the Gross Domestic Product (GDP), over 5 million Americans have been laid off and over $2000 being slashed off from the average GDP. If not for the fact that the global economy is anchored to the US economy, the despair and ruin caused by the financial crisis would have been much more severe, especially if one were to also consider the collapse of significant financial titans such as AIG and the Lehman Brothers.

However, there is a ray of hope for the American economy if the current projections are true. These most significant of these projections are that the unemployment rates and the fiscal deficit would fall significantly by 2015, and that the US economy would be single most significant contributor to global growth in 2014. These projections are based on the current trends in the market whereby the stock market is back on track and the S&P reports shows that companies are recording profits in excess of their expectations, thus allowing eight American companies to make it to the prestigious list of the ten largest companies in the world.

The economy affects the political life, and this in turn affects the strategic interests and the underlying policy formulations of the US. American primacy is one of the pillars of foreign policy. American primacy is thus pegged on the state of the economy as is exemplified by the following facts; a military budget cut does adversely affect American hegemony, and that the economy determines the short-term outlook. Fortunately for America, its brand of capitalism reigns supreme as embodied by its preeminence as a powerhouse of global business and the superiority of its cutting-edge IT sector. However, this can be attributed to the intrinsic self-renewal property of capitalism.

On the other hand, incessant political wrangles have slowed the pace of economic recovery because they forestall any agreeable compromise. Such a compromise is needed to restructure the government debt, uphold open-market values and increase the competitive edge of the American economy. The supremacy of the dollar as the preeminent reserve currency gives the US an advantage in that it could finance a strategic contingency despite the downgrading of its debt ratings to AA+. Thus the inability to finance the deficit can be adduced to a political deadlock in Congress. This is illustrated by the inability of the government to prepare a balance sheet and an economic blueprint that would ensure that the available limited financial resources are used to their optimum, and in the process prevent the American economy from falling over the fiscal cliff. To make matters worse, such a political deadlock damages the image that America projects of itself to its allies who have relied on US strategies to alleviate global problems.

Fortunately, the international market is more reassuring with the stability and sustainability of the established economic order maintaining viable capital flows across the world despite some protectionist measures instituted by various countries. Such instances of protectionism further call for the stabilization of the US financial market and policy in order to prevent further erosions of the economic order. This would enable the US to bolster and leverage the two main strategic regional trade agreements: Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership. These two trade agreements do cover over half of the global trade. Such consolidation of these regional trade agreements would stymie the efforts of countries such as China which are opposed to trade liberalization. Nonetheless, these trade agreements face some setbacks which are outlined hereafter.

The Trans-Pacific Partnership is likely to be impeded by the efforts of individual lobby groups in several Asian countries that are actively campaigning against certain clauses in the agreements. Also, the domestic politics in Japan does slow the pace of conclusion of the partnership. Moreover, the insistence by the American congress of the inclusion of clauses pertaining to currency manipulation in the agreement does erode US-Japan Bilateral and Trade relations. Another major hindrance to the adoption of the two regional trade agreements is reservations of the partner nations to the fact that the US Congress would attempt to totally revise the clauses thus preventing them from becoming laws. This fear is further compounded by the bad blood that exists between congress and the US president, thus not assuring the trade partners that the promises and terms stated by the Obama administration would be upheld by the Congress.

However, there is a ray of hope for the American economy if the following corrective measures are instituted. To begin with, economic policymaking must be restored to its appropriate place in the foreign policy framework. This would involve the removal of balance-of-power dealers who currently have as inordinate influence in foreign policy formulation. This would lead to a shift in strategic relations of the US with entities such as NAFTA. Consequently, this would necessitate the formation of a National Economic Council which would guide America to its path to recovery.

Reference.

Staff Reporter. “Time to Pay the Piper." The Economist 23 Nov. 2013, Special Report. Print.