Since 1945, America has been the world’s economic superpower. Dire predictions that it would cede that supremacy to the Soviet Union, Germany or Japan never came true, and the greenback became the world’s primary reserve currency. But the US is in danger of losing this privileged position. In his recent book America the Broke, University of Arizona economist Gerald J. Swanson argues that runaway government and personal spending are priming the richest and most powerful society in history for “fiscal Armageddon.”

In just 30 years, America has gone from being the world’s biggest creditor nation to its biggest debtor. As of 2003, the US national debt stood at $7.3 trillion, roughly $25,000 per citizen. When you add on consumer debt, real-estate loans and the nation’s future financial obligations, the total rises to $44.2 trillion, or $182,000 owed by each American.

The Bush administration slashed taxes, increased spending, and launched two wars, leading to a 2004 deficit of more than six percent of Gross Domestic Product (GDP); meanwhile, the ostensibly socialist European Union caps its member countries’ deficits at three percent of GDP. Ordinary Americans dutifully followed George Bush’s post-9/11 instructions to go to the mall – and the car dealer, and the mortgage broker – with an abandon that has pushed personal savings below two percent of income.

Like a teenager with dad’s ‘borrowed’ credit card, Americans continue to spend, helped out by a torrent of foreign capital, largely from Asian banks keen to see their countries’ US-aimed exports continue. Americans now import more than they export. China, India and other investors use much of the cash earned from this lopsided arrangement to buy US Treasury securities at $40 billion per month, keeping the country from bankruptcy.

“The current trend can continue for a while,” wrote Christopher Wood, of CLSA Hong Kong, in March 2003, “but the longer American excesses are financed, the more inevitable will be the collapse of the US-paper dollar standard.”

The nightmare scenario: the overseas money dries up, as Asian banks realize the return on their investment is near worthless. Washington starts printing money to pay the interest, the dollar plunges and inflation surges. Everyone trades in their greenbacks for pounds or euros, the world’s biggest economy collapses taking the rest of us down with it.

Swanson concedes that this chain of events is unlikely. But with the dollar sinking against other unlikely. But with the dollar sinking against other currencies – since 2002, it’s down 30 percent versus the euro – he believes exasperated lenders will inevitably start dumping their Benjamins. And there’s another scenario, that of opec replacing the weak dollar as reserve oil currency with the stronger euro, which would lead to a devastating currency devaluation. According to Goldman Sachs chief economist Jim O’Neill, Asian nations will have an epiphany: their neighbors are a more vital export market than America, so who needs to buy all that US debt? The Dow Jones Index will collapse. And while American consumers continue to spend, spend, spend, a crash to make the Great Depression look like a mild economic case of the sniffles becomes ever more likely.

Nick Rockel