Commentary: Bad news Americans don't want to hear: Party's over

Endy M. Bayuni ,  The Jakarta Post ,  Maclean, Virginia   |  Tue, 10/14/2008 10:15 AM  |  Headlines

The writing is not so much on the wall as on the "Sale" signboards being put up in the housing market, telling you something is seriously wrong with America today. In this town just inside the Washington political beltway, one finds the signboards in almost every other street you drive through.

"That house went for two million two years ago, and after renovation, the new proud owners paid $2.4 million in all," says our host, an eight-year resident of Maclean, who, like many middle-class Americans, follows the real estate market closely.

"They will be lucky to recover even their initial investment, let alone the extra money they have spent," she says of one of those properties for sale.

The owners, whose children go to the same school as hers, are in debt up to their necks; they are scaling back on their once lavish lifestyle, she adds.

Their condition reflects the dire situation not only many Americans face today, but really, the entire United States economy.

Never mind the crash in stock prices or the collapse of big banks and insurance companies. These are symptoms of a much bigger problem with the American economy.

The root cause of today's economic crisis, but one that Americans don't really want to hear and no politician, including both presidential candidates, are prepared to say publicly, is that Americans, and therefore the U.S. economy too, have been living way beyond their means.

Americans have led such an unsustainable lifestyle all these years that sooner or later it was bound to snap. And this is exactly what is happening now. The bubble has burst.

They've been getting away all these years by simply allowing not only the Republican administration to run a huge budget deficit, but also by accumulating huge trade deficits with just about every country in the world, including in particular Asian and Middle Eastern states.

Americans have lived so well these last few years, courtesy not only of their future income but also courtesy of Asians, who faithfully continued to accept American dollars in return for the privilege of exporting goods and services to the market with the world's biggest spending habits.

How else do you explain President George W. Bush's ability to cut income taxes even as he launched a major budget-busting war in Iraq, were it not for Asians' continued loyalty to and trust (or rather hope) in the dollar -- even as the currency slid in value these last five years.

Bush's solution to financing the war while keeping Americans happy was by printing more and more dollars, and letting Asians absorb the surplus and therefore the inflationary pressures that normally come with printing too much money in the economy.

Basking in lower taxes, Americans spent like they had never done before. Then enter the innovative Wall Street, which created more wealth by coming out with new instruments to leverage what little wealth Americans had in order to engage in this spending binge.

When it came to owning property, the adage seemed to be "no family left behind, no matter their income". Every family could now own a house, thanks to the geniuses on Wall Street. Wouldn't you wish that they were just as innovative at getting the nation out of trouble as well as at creating wealth?

This endless orgy of consumerism continued even as the nation was engaged in an expensive and unwinnable war. Not surprisingly, young Americans returning from Iraq were dismayed to find their nation still very much in a party mood while they risked their lives in a war whose rationale is now very much in doubt.

Someone must be paying for America's war and continued excessive spending. It's not the American taxpayers for sure who are getting generous tax cuts from their president.

The budget deficit and the trade deficit (and the sliding dollar) tell you that it is being paid in part from future income streams of Americans, as well as by Asian and Middle Eastern countries. They have inadvertently become members of the coalition of the unwilling in America's war in Iraq.

Since no one is talking about the root cause of America's economic crisis (that is, that America is living beyond its means), inevitably, no one is talking about finding the right solution.

Instead, the solutions proposed seek to treat the symptoms: The bailout of collapsing banks, the state buying out toxic assets, spending hundreds of billions in taxpayers' money, cutting interest rates, reining in Wall Street, and for good measure, perhaps later send one or two "greedy" Wall Street CEOs to jail. Someone must take the rap.

The Republican presidential candidate, John McCain, trailing desperately behind in all polls, is even talking about cutting more taxes, sending the wrong message to Americans to continue to party.

One solution now being bandied about is for China, with its huge currency reserves mostly, denominated in U.S. greenbacks, to step in and lend money to America. This means that China, whose exports and thus double-digit growth are now in jeopardy because of the recession in the U.S., would essentially be helping itself by bailing America out of its present predicament.

All the solutions on the table essentially propose to return to the old ways, that is for Americans to live the way they have always been these last eight years, beyond their means, hoping somehow someone will pick up the tab, either their children (or grandchildren), or other nations, particularly in Asia.

No one, not the politicians, and not even China or other Asian countries, have the ability to tell Americans to their face that, hey guys, the party's over. You need to start living within your means.

Asian economies, tragically, are too integrated with the U.S. thanks to globalization (or rather, dollarization) that they have too much to lose -- probably more so than Americans themselves -- in letting America fail or even change its wild spending habits.

Oh well, as the saying goes, if you can't beat them, join them. If you happen be one of the few Indonesians with large sums of spare money, this would be a good time to buy one of those houses in Maclean, or anywhere else in the U.S. for that matter. They are a real bargain.

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