sovereign debt crisis and economic sustainability

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IS IT THE END OF THE WORLD? No, this time it is the end of American Hegemony

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The concept of market economy is in trouble. Economies based on Anglo-American model prospered for centuries under the concept of ‘laissez faire’, thanks to Adam Smith. Although the application of the concept did overcome some challenges in the past, the recent credit crunch the following financial crisis and the prolonged recession have become the biggest threat that we ever had to face. Some even in the pioneer nations such as the UK and USA have begun to question the continuity of the free market concept. The core principles and philosophy of the concept of market economy are, however, not to be ditched. It simply needs to be transformed to suit the emerging needs of the new century. The market economy model still has great potentials if its application is effectively regulated, particularly in the areas of credit and debt factors that essentially fuel the overall operation of the economy. Author would like to see the arrival of Regulated Market Economy (RME).

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Page 1: Sovereign Debt Crisis and Economic Sustainability

IS IT THE END OF THE WORLD?

No, this time it is the end of American Hegemony

Page 2: Sovereign Debt Crisis and Economic Sustainability

YES, IT DID GIVE BIRTH TO THE WESTERN HEGEMONY THAT DATES BACK TO THE POST RENAISSANCE PERIOD IN EUROPE

Didn’t We Have a Revolution in The West?

Page 3: Sovereign Debt Crisis and Economic Sustainability

POST-RENAISSANCE PERIOD: SOME DISRUPTIVE BUT

BENEFICIAL DEVELOPMENTS

• Industrial Revolution in Europe • New Technology and Railways• Protestant Movement• Colonial Enterprises• Revolt Against Establishments • Political Liberalization• Adoption of Democratic Values

Page 4: Sovereign Debt Crisis and Economic Sustainability

WHAT BROUGHT ABOUT THE AMERICAN HEGEMONY?

Advanced Production and Process Technology.

Bretton Woods Treaty and the Reserve Currency Status of US Dollar.

Economic Liberalization and International Trade.

Growth of the US Military Machine. Expansion of the US Multinational

Companies. Free Market Capitalism and Growth of

Credit. Individual Freedom to Earn and Spend. Marketing Innovation and Birth of

Consumerism. Revolution in Education

7/20/2014Please read 'Sovereign. Debt Crisis

and Economic Sustainability'

Page 5: Sovereign Debt Crisis and Economic Sustainability

Please read 'Sovereign Debt Crisis and Economic Sustainability'

MATURING AMERICAN HEGEMONIC LIFECYCLE

Post-war Political and Economic Leadership.

Primacy of the US Dollar (BW Treaty). Financial (market) Deregulation and

Innovation. Export of Free Market Capitalism Abroad. Growth of the Housing, Automobile and

Other Service Sectors. Defence-led Economy and Military Exports. European and Japanese Economic

Resurgence .7/20/2014

Page 6: Sovereign Debt Crisis and Economic Sustainability

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WHAT DID THE WEST GAIN?

Employment Opportunity and Income Growth. Enviable Public and Essential Services

Provision. Adequate and Quality Infrastructure

Development. Affordable Housing Provision for the Majority. Public Housing, Free National Health Service,

and State Pension in Europe. Parliamentary Democracy, Independent

Judiciary, and Bill of Rights.

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Page 7: Sovereign Debt Crisis and Economic Sustainability

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WHAT DID THE WEST GAIN? (continued)

Safety Net Such as Unemployment Benefit and Income Support.

State Pension, Medicare, Medicaid, or Free Health Care as in Britain.

Unprecedented Boost to Quality of Life. Free or Affordable Education for All. Growth of Discretionary Income and

Spending Power. Freedom to Choose, Speak and Gather.

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Page 8: Sovereign Debt Crisis and Economic Sustainability

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EMERGING THREAT: CAN THE WEST SUSTAIN THE STATUS QUO? The Goodtime is Over? It Seems Difficult to

Sustain (fifty-fifty chance) the Status Quo. The Prolonged Crisis and Economic Stagnation

is a Real Threat. With all the Textbook Measures Taken, the

Economy is Still Struggling to Regenerate. Free Market Capitalism has Reached its

Saturation Point in the West. Sustaining the Status Quo Requires Innovation

and Restructuring of the Market System itself and How We Generate Wealth in the Economy.

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Page 9: Sovereign Debt Crisis and Economic Sustainability

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IS THE WESTREN LIFESTYLE ITSELF IN DANGER?

End to the Lavish Credit-led Consumerism. Unemployment, Consumer Debt Burden,

and Growth in Personal Bankruptcies. Substandard Public Services Provision. Soaring House Prices, Unaffordable Higher

Education and Crumbling National Health Services.

Crumbling Infrastructure (highways & bridges).

Ageing Population with a Meagre Pension and Uncertain Future in the Horizon.

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Page 10: Sovereign Debt Crisis and Economic Sustainability

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WHAT MUST HAVE GONE WRONG WITH THE NEOLIBERALISM?

Reverse Impact of Globalization (negative impacts). Deregulation Impact of the Financial Sector. High Cost of Labour and Manufacturing Leading to

Outsourcing Production Elsewhere. Adverse Impact of Creative Marketing that

Perpetuates ‘Destroy and Build’ Mentality. Credit-led Over-consumption . Reckless Spending by the State Using Borrowed

Money (31% of total spending in the US is borrowed). Growth of the Military (war) Machine. High Cost of Welfare Budget (including a costly state

pension system).

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Page 11: Sovereign Debt Crisis and Economic Sustainability

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THE WORST IS STILL TO COME

The Hegemonic (economic) Lifecycle Flirts with Decline (downward trend).

The Treasury is Empty (USA, UK, Japan, etc.) Unprecedented Level of Sovereign Debt (almost

100% of the GDP in USA & UK and 230% in Japan). Widening Current Budget Deficits (6%of the GDP). Huge Debt Service Payment Even with Low

Interest Rates (reaches 50% of Revenue in Japan). Widening Gap in the Balance of Trade (deficit). Failing Monetary Policy Measures and Huge QE or

Asset Buying-spree.

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Page 12: Sovereign Debt Crisis and Economic Sustainability

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STATE OF THE ECONOMY AND THE POLICY MEASURES TAKEN

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Zeroing Interest Rates (lowest in history) and Still Being Ineffective.

Obsession with Inflation Targeting. Still High Consumer and Business Lending

Rates. Proliferation of Financial Services Products

and the Lack of Regulatory Oversight. Open and Global Financial System Affecting

the Nation-State Economy. Central Banks Churning out Stimulus

Packages, Including ‘Quantitative Easing’.

Page 13: Sovereign Debt Crisis and Economic Sustainability

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POLITICAL MANOEUVRING OF FISCAL POLICY

High Tax Burden on the Average Wage-Earner. Difficulty in Balancing the Current Budget. High Rates of Value Added Tax in Europe. The Highest Income Tax Rate in EU Countries

Exceed 75%. Complex and Difficult to Comprehend Corporate

Tax Codes (thousands of pages). Corporate Tax Loopholes: Tax Fraud and Evasion

with the Help of Clever Accountants and Lawyers. The US still Boasts One of the Highest

Corporation Tax but Legislative Loopholes Helps Tax Evasion.

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Page 14: Sovereign Debt Crisis and Economic Sustainability

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THE AMERICAN BIG BANG

An American Big Bang? How? There is a Fifty-Fifty Chance the Economy will Collapse Soon.

With the Banking and Sub-prime Bail out, Economists Estimate the Real US Public Debt to be $25 T (not $17.5 Trillions). With Unpaid Obligations, it Can Reach $80 Trillions by 2040.

Banks Have Written Off Over $2 Trillions as Unrecoverable Since the Banking Crisis.

The Federal Reserve’s ‘Quantitative Easing’ or Printing Money has exceeded $4 Trillion So far.

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Page 15: Sovereign Debt Crisis and Economic Sustainability

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THE BIG BANG (continued)

The US Government Spending was $3.5 T in 2013 With a Current Deficit of $642 Billions.

As the Economy Stagnates, it Can Reach $1 T Again Before 2020 (Deficit was $1.1 T in 2012).

31% of all US Gov Spending was Borrowed. The US Spends 15% of the GDP on Mandatory

Expenditure (Medicare, Social Security, Interest Payment), a Staggering $1.5 Trillions in 2012.

The US Trade Deficit is also Hovering Around Half a Trillion Dollar a Year.

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Page 16: Sovereign Debt Crisis and Economic Sustainability

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WHAT CAN CAUSE THE ECONOMY TO COLLAPSE

Slowly Declining Value of Dollar (real worth of $1= 3.5 cents). Other currencies are slowly replacing the dollar as the currency for international payments and China has concluded currency(Renimbi) exchange treaties with several leading economies.

Sudden Collapse in the Value of Dollar-Dominated Assets Along with the Crashing of Dow Jones index.

Unsustainable Level of US Sovereign Debt leading to defaulting on Interest Payment.

Depreciating Value of the Corporate Equity Leading to Defaulting the Debt Payments.

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Page 17: Sovereign Debt Crisis and Economic Sustainability

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THE BIG QUESTION: IS THERE A WAY OUT?

Fortunately, the Answer is Big Yes, but How? There is an Innovative but Unorthodox Way to

Generate Public Revenue without Recourse to Further Borrowing or Taxing the Already Burdened Taxpayers.

Consider the Economy as a Virtual Company and Commoditize the Economic Potentials to Create National Equity to be Sold in the Share Market. Make the Taxpayer an Investor.

Even the Foreign Investors would Love to Hold US Inc. Share Rather than Treasury Bills.

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Page 18: Sovereign Debt Crisis and Economic Sustainability

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NEED TO KNOW MORE?Check with AMAZON

7/20/2014