The inevitable has happened...

Peter Wu

8 August 2011

The credit worthiness of the US as a country has just been downgraded, as doubts are being cast on its financial soundness.

Not one to mince his words, Russia’s Vladimir Putin labeled it ‘a parasite of the world’ while China’s Wen Jiabao demanded that Washington defuses its ‘debt bomb’ and lectured it on its global fiscal irresponsibility. He has no choice but to say this because China is US’s the biggest creditor. If Washington were to default on its bond payments, it will do immeasurable damage to China’s economy and its wisdom in buying its bonds.

The change in fortunes for the US and China in recent years cannot be more stark – the former on a one-way trip to financial oblivion while the other on the inexorable rise to global domination. I put this down to one thing – something which I learn from our venerable Sifu Bob Choi – everything in this world is cyclical. Look at it closely, this is one of the three guiding principals of Economics, the other two being supply and demand and what goes up must come down and vice versa (a derivative from the axiom ‘everything is cyclical’).

With the US seemingly on a slide to oblivion, I question its ability to get out of this slide (at least in the medium term) for one and only one reason: the working of a democratic government. Unlike a communist state where you go when the government tells you to go, a democracy does not allow this. It relies on consensus and the policy makers must listen to the will of the people. It is this very principal which nearly caused paralysis in the US government last week and for once, lays bare the inherent limitations of the working of a democracy in the event of a national fiscal emergency.

The other reason why I doubt the US can defuse this debt bomb is its lack of ability to grind and bear it, or knuckle down to get on with the job. Life in the States has been too cushy and too easy for too long. Over time, it breeds a whole generation of people whose psyche is very much having fun, minimizing work and maximizing pay, becoming welfare-dependent, dodging tax and, being the epitome of a laissez-faire capitalistic economy, every man (and dog) for himself.

The Chinese, on the other hand, are known for the ability to confront hardship and ‘eat bitterness’. I have no doubt this is because of our fondness for eating Bitter Melons. Being a communist state, China can order mobilizations and implement one-, three- or five-year plans without having to be accountable to its citizens. As we have seen in recent events, Chinese also have a ‘can do’ attitude which is pragmatic and which delivers. We as a race are not afraid of getting our hands dirty.

In a private telephone call to President Obama, Premier Wen Jiabao offers the US ‘voluntary administration’ of its economy, with the Chinese being the administrator.

Sick of the grandstanding by the Republicans, President Obama is highly receptive to the idea but he baulks at the thought of having to move out of the White House. He is fully aware that the vacating of the White House is as much an international embarrassment as a total capitulation. In the final analysis, he may not have the choice. Beggars cannot be chooser so he might just have to move out to make way for Wen Jiabao.

Watch out for the hoisting of the Chinese flag at the White House soon and get used to seeing Wen Jiabao sitting in the Oval Office.