Sun about to set on US empire: Expert

Country pushing out day of reckoning

Liam Dann

editor-at-large liam.dann@nzherald.co.nz year he ran for the US Presidency as a write-in candidate.

He’s also a New York Times selling author.

While he has a strong reputation his ideas definitely sit outside the mainstream political views in the US.

“The global population is absolutely exploding, we’re adding a China in the next 20 years and then until the end of the century we’re adding three Chinas in terms of population,” he says. “And most of that population is going to be concentrated in subSaharan Africa and the Middle East.”

Kotlikoff argues that if we see productivity move up towards US levels in these regions — as we have seen in China in the past few decades — then we will see them dwarf the US economy by the end of the century.

“The biggest economies by the end of the century would be subSaharan Africa, followed by India, followed by the Middle East, followed by China,” he says. “The US would go from about 15 per cent of GDP down to about 5 per cent.”

Exacerbating US woes is the fact the country is effectively broke and is pushing the day of reckoning on to future generations by running enormous fiscal deficits, Kotlikoff argues.

He is no fan of President Trump’s new tax reforms, but in the broader context of America’s multi-trillion dollar deficits he doesn’t think they will make much difference.

“Each president is kicking the ball here and nobody is facing the reality of what’s coming. It’s going to end very badly for older people and younger people.”

It will become increasingly difficult for the US to maintain its dominant global position and be “the policeman of the world”, he says.

“I think the US is going to be forced to take a back seat. And we may not take that very well.”

Kotlikoff says the only way to address the deficits will be to raise they did prior to 2007, pushing up house prices and creating potential for a big crash.

Kotlikoff advocates mutual fund banking, or what he calls “limited purpose banking”.

“It’s 100 per cent equity, mutual fund-financed banking. So the entire finance system would just run through mutual funds.”

While he accepts that the big banks wouldn’t like it, he argues that with the right regulation it would remove risk from the system and ensure that financial institutions couldn’t fail.

In the current system the global economy is constantly swinging “from irrational exuberance to irrational pessimism,” he says. “It’s kind of like a bi-polar person. There’s no inherent reason for an economy to have anything but steady growth.”

Professor Kotlikoff