America has changed a lot over the last 30 years in terms of its economic performance. Ian Rainey, managing director of Belfast based MSL Search and Selection and a former vice president of a major US bank reflects on how the American dream has become the ultimate nightmare
I had the good fortune to spend five days in my old ‘alma mater’ Philadelphia in December.
While it was great to see old friends again I got a real eye opener to a city where I had spent
eight of my fifteen years with Philadelphia National Bank (now part of Wells Fargo Bank – the
second largest and best capitalised Bank in the U.S). Not only did I witness a city which has
changed greatly and not for the better, I was also meeting very smart people who were very
confused and very concerned not only about the Banking sector but where the United States as
a whole was fitting into the world in the 21st Century.
My timing was excellent in that I arrived very soon after President Obama was elected to a
second term in Government and the debate on the impending “fiscal cliff” was in full flow. The
big question dominating everyone’s mind was how Obama was going to manage to stay under
the $16.4 trillion deficit. On one side Obama was railing against what he called “the empathy
deficit” of the Republicans, who were in his eyes, unconcerned about the plight of the less well
off in society. On the other side were those who were trying to find a way to stop Obama and
the Democrats from spending like it was going out of fashion and creating what they saw as
“big government” which was totally out of control.
The Philadelphia I arrived into in 1976 captivated me with its vitality and drive; what I saw in
December was an eerie darkness. My time with the bank was at a time when America led
the world economically and militarily. The staff I worked with were mainly graduates out of
Wharton, Harvard and the George Washington School of International Studies and they worked
every hour God gave them in pursuit of “the American dream.” Promotion came quickly
and we were opening offices around the world in such places as Iran, Thailand, Philippines,
Venezuela, Argentina and Brazil. To come back to find a people who were confused and
concerned about, not only their place in the world, but also about their place in America was
disconcerting. They had just experienced an election where Obama had carried the day, yet
he garnered only 31 percent of the “White” vote. He won the election because he had the
overwhelming support of the Blacks, Asians, Latinos and the under 29 year olds. They were
very conscious of the monstrous debt burden and could see no way to avoid the impending
“fiscal cliff”. Legislation precluded the $16.4 trillion deficit being exceeded on 1 st January 2013
– and for the first time America was finding itself in a “European bear pit”. While America
probably isn’t as “broke” as Europe financially it was looking into a very dark abyss and not
unlike the Europeans, chose on the 1st January to “kick the can down the road” and to buy a
couple of months leeway. As someone put it to me starkly “it is a frightening thought that the
United States has to pay $16.4 trillion in debt before it can get back to having nothing.”
America existed for more than 2 centuries, from 1776 to 1982, before it ran up its first Trillion
Dollars of debt. When President Clinton finished his two terms in 2001 he left the country
with a balanced budget and no debt. Two wars later under George Bush Jr and with President
Obama spending like crazy and adding a Trillion of debt per annum ($1.56 trillion in the fiscal
year 2011) the country is now in danger of metaphorically being demoted to second division in
the world ratings.
You might ask how can you add $1.56 trillion in spending in one year? Apparently the largest
portion of the increase is on entitlement spending on pensions and healthcare and other
welfare related schemes. In 1979 only 7 per cent of Americans received means tested government
benefits. By 2009 this figure had risen to 30 per cent. In the first three years of Obama government
2.6 million people signed on with new employers but 3.1 million signed on for disability
benefits. Put another way during Bush Jr’s Presidency federal spending averaged 19.6% of
GDP while Obama has now cranked this up to 25 per cent of GDP. The Congressional Budget Office
projections show that by 2020 America will be spending more on “Debt interest” than it does
on Defence. The Federal Government is issuing 100 billion of Treasury Bonds per month under
Obama, which if annualised equates to the GDP of Canada or India. By 2020 that debt burden
will have grown to 19% of the rest of the worlds GDP. The big question is will China continue to
pick up the tab and at what rate?
From a sovereign risk analysis perspective America’s debt lost its Triple ‘A’ debt rating in 2012
and its major creditors are China, Russia and Saudi Arabia; not people American’s likes to be
beholden to. Indeed the US superpower which I first visited in 1976 has, as one wag put it in a
couple of generations, evolved from “a nation of aircraft carriers to a nation of debt carriers”.
As Europe has failed to deal with the single currency its standing in the world has crumbled.
At the same time America’s leaders are fast making Washington look like “Brussels on the