BIDLACK | Colorado, U.S. ignore international debt crisis to their own peril
Author: Hal Bidlack - September 7, 2018 - Updated: September 6, 2018
Like most of you, when I get my morning edition of the Colorado Springs Gazette, I quickly turn to the business section to check on my vast empire of investments.
Ok, pretty much everything in that last sentence was a lie. Usually, I turn to the Op/Ed page to see if the Gazette has chosen to run one of my columns. If they had, as they do from time to time, people wrapping fish that day have the opportunity to put my words to good use. But last Wednesday, there was a story on the business page that caught my eye, as it was the main story with the biggest font, proclaiming “New fears as global debt soars.” The story was first reported in the Washington Post, and it explores the burgeoning pile of debt that appears to be inextricably growing to a size that concerns lots of folks who know lots of stuff about international finance.
I don’t like to brag, but 38 years ago I minored in economics, and what are the odds that the international economic system has changed much since then? I read the article with interest (see? a banking joke!) and frankly, with increasing alarm.
The authors offer compelling evidence that several countries, to include Turkey, Brazil, South Africa, Russia, and Indonesia, are facing imminent financial crisis due to poor lending decisions by banks and other financial corporations. They report that total debt has risen from $97 trillion before our Great Recession to a staggering $169 trillion today. Countries and companies have lent billions, often due to low interest rates. Many of these debts are coming due, and it’s not clear that those that owe the money have the resources to repay the loans. Thus, entire national economic systems may be at risk.
So what, right? What do we care in Colorado about a bunch of foreign people spending stupidly?
Back in the time of Jefferson and Hamilton, international finance was much less significant to the American economy than it is now. And the concept of debt itself is not a bad one. Hamilton lauded the value of what he called a “well-managed debt” as an engine of the economy. An example of such a debt is the typical mortgage. Most folks don’t have the cash on hand to buy a house outright, so by working with a bank to get a mortgage (a “well-managed debt”), you get a house, and you help employ builders, roofers, architects, stone masons, and many more.
But those days of little international interconnectedness are long gone. We breathe at the bottom of a global atmosphere, we purchase goods and services in a global economy, and we ignore those connections at our peril.
The problem for us in Colorado and for the U.S. in general is the simple fact that we need foreign markets to sell us the stuff we want and to buy the stuff we want to sell. Colorado businesses exported over $7 billion worth of goods in 2015. And Colorado sells manufactured goods mostly to Canada, China, Japan, and South Korea. Our agricultural exports, especially beef, add up quickly too.
Add to this background the rumbling of President Trump regarding NAFTA. He claims to have basically redone the agreement with Mexico (though in fact, he hasn’t really changed too much) and he left Canada out of the deal entirely. A Colorado Politics story from last November noted that the U.S. Chamber of Commerce – not what one would all a “liberal” organization – estimated that withdrawal from NAFTA would hit a number of states very hard (ironically, the hardest hit dozen states, including my old home state of Michigan, all voted for Mr. Trump). Colorado would fare better than some, but we’d still see up to 225,000 jobs at risk with billions in trade lost.
So, we have an international debt crisis, which the U.S. seems to be largely ignoring, and we have a president who is muddling around with trade agreements he does not seem to fully understand. What could go wrong?
The new administration seems to have forgotten, if they ever knew, the lessons of our own Great Recession. Nations around the world seem to be teetering toward another economic abyss; we have a choice as a state and as a nation. Ignore and hope for the best or address the challenge head on. I vote for option 2.