China Tells America to Cut Military and Social Spending

The Obama administration and Republican Congress in the past week was engaged in a very difficult negotiation regarding raising the US debt limit. US debt reached the $14.3 trillion limit by Aug 2. If the Obama administration and the Republican Congress did not reach an agreement to raise the debt limit by then, the US government would have for the first time defaulted on its financial obligation to its own people as well as international creditors.

As the largest world economy and manipulator of world financial and economic system, US default would have had a huge impact on the American economy as well as on the world economy and financial system. As Mayor Bloomberg of New York commented on July 12, the default would have a catastrophic effect on US financial system and on US credibility around the world.

Our world is still operating in a post-WWII world order. The US emerged on the ashes of WWII as the unparalleled superpower. At the time, it produced 50 percent of the world’s GDP, and controlled 75 percent of the world’s gold. It was also the biggest creditor in the world at the time.

After WWII, the US used its unique financial assets and powerful economy to its advantage. By manipulating the Breton Woods Institutions of IMF, World Bank and GATT, which was later replaced by WTO, the US harvested tremendous benefit from its control of international financial and trade systems.

However, the US government squandered its financial power and assets during the Cold War because of its military adventures and expansion. During the Cold War, the US fought more wars than any other country in the world. Currently the US military budget accounts for over 40 percent of the total military spending in the world. It also maintains the largest network of military bases around the world. At the moment it is also engaged in three military operations, in Libya, Iraq and Afghanistan.

The potential US default threatened the stability of world financial and economic systems. It should be a wake-up call for the American people. It should also be a wake-up call for the Chinese people because China holds the biggest US Treasury bonds. A default would have called into question the American ability to pay what it owes the Chinese people and the people of other creditor nations.

The Obama administration and the Republican Congress however did find a way to avert the potential US default at the last minute. The reason is very simple: The American government cannot afford such a default. The current stalemate in the negotiation is caused by both parties trying to get the most gain out of the current debt crisis. They have no interest in wrecking the boat.

The Republicans want to use the current debt crisis to force the Obama administration to cut spending on medical care, social security and other social programs. The Obama administration wants to force the Republicans to accept a higher tax rate for the rich.

Even though a US default was averted this time, long-term financial and economic woes in the US system remain. Any sensible solution to the US financial illness will require a two-way strategy: cut spending and increase revenue. The US cannot afford to cut more spending on its social programs. The reason is very simple. In the current economic slowdown, the poor segments of American society need the social program to survive. Any more cuts in social programs will lead to social instability.

What the US can afford to cut is its military spending. The American elite should realize that the age of imperialism and colonialism is over. Maintaining the current high-level military spending is a senseless stupidity and is beyond US means. The American people should force its government to come to its senses. America should give up its role as the world bully. Stop using military action to tell other people how to live. Stop bombing Libya. Let the Libyan people decide their own future without outside interference. Supporting any rebels in this world will only lead to more violence and more human tragedies.

In the long run, the American government will need to increase its revenue in order to pay back its foreign debts. When the Third World countries were faced with financial crises, the US Treasury in collaboration with the IMF developed and imposed structural adjustment programs on Third World countries to deal with their financial crises. It is time that IMF and creditor nations develop and impose some structural adjustment programs for the US. A tentative list of this program should include raising the tax rate on the top richest one percent, because they are the people that can best afford it. Privatize nonessential national assets, which is the quickest and most sensible way to raise revenue.

These are bitter but effective pills. As the old Chinese saying goes: liangyao kukou liyu bing (bitter medicine is often the most effective). American people and American government are used to their easy and comfortable lifestyle. It will be a hard choice to make, but there will be no other way out. The longer the American people postpone dealing with their financial problems, the harder will be the fall for the American economy.

Nobody in this world can really threaten the US politically or militarily. In a way, the US, the only remaining superpower in the world, is its own worst enemy. Its own arrogance and its own desire to mess with other people’s internal affairs will eventually lead to its own demise. As the old saying goes, duoxing buyi bizibi, only one’s own wrongdoings will bury oneself in the end.