It would seem an irrevocable change to America's economy has taken place. And its economy's (and to a large extent the global economy's) lifeblood, the dollar, is so diseased that the whole of the world's economy, especially its financial system, is precariously close to breaking down.
America accounts for about a third of the global economy; but now everything attached to its fundamental monetary system is wobbly. That country now produces far less actual goods than services; its manufacturing might is fast becoming history as foreigners snap up billions of American assets; its housing market has all but melted; while government, sinking in un-repayable debt of its own, scrambles to bail out financial institutions that are crumbling with frightening speed.
Since March 7, the US Federal Reserve has been throwing around billions of dollars - US$200 billion first, then another US$200 billion after 5 days just to juice up the money supply another 17 percent. But investors still questioned the viability of the US economy. The latest attempt at preventing a cardiac seizure of the US financial system is President Bush's plan to inject a colossal US$700 billion into the financial sector to support ailing financial institutions.
This new bailout is expected to be borne by the US taxpayer. However, captains of industry in Ghana, just like investors elsewhere in the world, are questioning the truth in this assertion even as they question the viability of the US economy.
The President of the Association of Ghana Industries has lately been questioning the prudence in maintaining the dollar as Ghana's preferred currency for its foreign trade transactions and reserves.
The worries of Ghanaian industrialists are that the continued deterioration of the dollar will undermine their returns, as well as dissipating the country's foreign reserves. And, to them, that amounts to bearing the woes of the ailing American economy - not the US taxpayer.
President Kufuor, on a recent official trip to the US, appealed – indeed, almost begged for President Bush to shore up the dollar since Ghana's US$11 billion economy was taking a hard hit from the declining dollar. The country's over US$2 billion foreign reserves provide it a 2.7 month import cover; but this has been reducing in recent months, to under 2.5 months in June.
Ghana, which has received billions of dollars of debt relief since 2005, was warned by the IMF in July that a widening fiscal deficit and inflation “could jeopardise Ghana's significant and hard earned achievements earlier in the decade."
Much overspending was due to power shortages and surging oil import costs as crude futures spiked to over US$147 a barrel in July and Ghana's inflation rose to 18.4 percent in June, from 12.8 percent in January, and the cedi fell 17 percent to the dollar in the first seven months of the year.
Those risks appear to be easing now. Inflation has dropped for the last two months to 18.1 percent and the cedi has levelled out against the dollar, but volatility in crude prices is still a risk as the commodity has experienced upward pressures in recent weeks since it dropped nearer to US$100 million about a month ago.
But the greater worry of the Ghanaian government and business community is the continuing decline of the dollar. Its value has plunged by over 57 percent since the US Dollar Index's peak, in 1985. And since the late 1990s, the ratio of dollars held by foreign nations as reserves has also been declining. As dollar values continue to erode, so does its status as a global reserve currency.
To flee or not
The downward trend in the US economy doesn't seem like easing anytime soon. Compared to the rest of the world, US economic growth is anaemic. While more than 30 African countries grew over four percent and China and India grew at 10 percent, the US recorded a 2.2 percent growth in 2007 and US growth this year has been less than last year's.
US government debts are out of control. Federal liabilities exceed US$59 trillion (the total budget for 2008 was only US$2.9 trillion) and US government debt levels are estimated to be proportional to a family with a US$50,000 annual income owing over US$1million.
America's banking system now has a stained reputation and, if truth be told, might be largely insolvent. Were it not for massive bailouts by Singapore, Dubai, United Arab Emirates and Saudi Arabia last year, American banks including Merrill Lynch and Morgan Stanley would have died earlier. Now a largely insolvent government is bent on printing US$700 billion (total over a trillion considering the US$400 bailout of AIG earlier) to resuscitate an ailing financial sector that is estimated to require two to three times that much to revive.
With so many billions being thrown into the American meltdown, the scare now is that the dollar faces further deterioration in value as the global economic downturn readies to spread like wildfire, giving rise to fear of a major flight from the dollar to a more stable euro.
A country like China, with over a trillion dollars in reserves held in US assets, may not have dumped the dollar yet for the euro because by so doing the US Fed will be forced to jack up interest rates to attract more foreign investments, creating an opportunity for European countries to make healthy returns by investing in US assets, thereby turning China's loss into their gain. China can't dump the dollar, it is hooked and it knows it. China needs a stable global economic environment to make good use of its "period of strategic opportunity” till 2020 for the country to pass through a turbulent zone between per capita incomes of US$1,000 to US$3,000.
But once a smaller though significant economy, like South Korea for example, dumps the dollar, the still unsold US Treasuries in the asset column of central banks of other countries will collapse. In the stampede to get out everybody will get hurt – not least Ghana, which could see its entire U$$2.3 billion reserves vaporise in a matter of hours.
The billion dollar question is: should Ghana continue to exercise supreme faith in the US economy, hoping that it will safely maneuver through the current dire straits, or do we wait for the inevitable crash and then drown with the rest?
This is certainly one for only the politicians to decide on - and take the credit or face the consequences as the eventual outcome may determine. That is why they lead.