Which international affairs issue should the next U.S. president address first after he takes office?
The next president of the United States cannot avoid tackling this economic earthquake. This is not a mere domestic bank bust and it is not going to go away any time soon. It will take a long time to clean up the scene and a strategic rethink is urgently required.
Recent haphazard rounds of improvised rescues, along with reactive, short-sighted bailouts are merely postponing a complete collapse to another day in the same fashion of the Weimar Republic. The Global Age now demands a new economic order and a reform of a hefty economic contestant, where the basic Greenspan Doctrine of self-correcting markets has destroyed its own existential argument about stability, spread of risk, hedging, control of exposure and a cool-headed analysis.
Nothing is more important than security to any country. Therefore, the most crucial component to international order is a sound financial system and preservation of capital at home and by trusted partners and allies. Conflicts over resources have been the historical root of instability, disputes, wars and destruction. The Roman salt trade, the Napoleonic Wars, the breakdown of Somalia and the Afghan-Pakistan scuffle over control of drug trade are some examples.
The next American president will find himself on the uncomfortable, explaining side of the negotiating table. The rest of the world will keenly pay attention to, and challenge, the economic plans of the new American president. Dialogue must replace lectures and given the roots of the current problems, the American president will have to listen as he will enter his presidency in the midst of the process. America and its next elected leader can not afford to continue its unilateral approach or dismiss calls for change. The EU model of convergence of commonalities will serve as a format. Thus, akin to France or UK as part of a larger EU, the aircraft carriers, ballistic missiles and nuclear warheads must be stored on muscle beach in Hollywood. They are of no use at the bank borrowing window.
The efforts of European and other developed countries and the $2.8 trillion aggregate flood of funding, nationalization and unlimited state guarantees help an ally to temporarily stabilize, but not solve, problems with roots in Wall Street. Europeans will probably frame it as the homecoming of the Marshall Plan and a concurrent defensive move to protect their investment interests in America. The call of Mr. Jean-Claude Trichet (the governor of the European Central Bank) for return to the “discipline of the Bretton Woods agreements” is a polite preview of forthcoming demands.
It is inevitable that the rest of the world shall join demands for political and systemic reforms in American policies. The agenda will include calls for transparent and simplified regulatory systems, an unbiased international early warning system for the financial markets away from hype and flashy exaggerations, and internationally acceptable accounting standards. As part of a serious grand bargain, there must be compliance with common understandings about regulators, rating agencies, licensing disclosures, centralized monitoring of systemic risks to world markets, and coordinated, interactive rules on international business transactions and business ethics. Universal interpretation of international treaties will certainly be part of the process. And it will be inevitable to put the right to veto in the freezer.
This may well be a tall order for the next president of the United States. But a projected 2009 budget deficit of at least 12% GDP (prior to additional stimulus deals and spending), a total projected debt of more than 90% of GDP (far in excess of preaching of the American-driven IMF) and almost unquantifiable, unfunded Medicare and Medicaid liabilities (estimated to be anywhere between 50% to 250% of GDP), a change of heart and a redefinition of fundamental principles (markets, power, stability and compliance) will serve as essential elements if not the precursor and enticement, for the next leader of America. Concurrently, the rest of the world shall demand America to abandon its go-it-alone strategy. Chances are that, in a few rapid but unmistakable steps, the American president will have to negotiate a way back into the mainstream. Who knows? Uncle Sam may even surprise us all and settle its past-due UN fees. He has very few alternatives.
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