The rating agency Standard & Poor's downgraded the U.S. government's credit rating last week. In addition to wreaking havoc on global stock markets, the downgrade raised many uncomfortable questions about America's future.
At the very least, America's economic dominance and influence in the world has now been directly and unceremoniously called into question. The government's inability to manage its finances has put its prospects in doubt. S&P has even warned that further downgrades might be necessary during the next two years.
The Obama administration, which has been criticized across the political spectrum for its awkward mishandling of the negotiation process, has attempted to dispute S&P's calculations. Regardless, the damning indictment laid out by the rating agency, criticizing the combination of mounting debt and lack of political will, is a slap in the face of American leaders. Some Democrats have tried to blame a small number of Republican activists for the unprecedented downgrade, but S&P has insisted that its decision was nonpartisan.
What does the downgrade mean to everyday Americans?
Every American, whether they realize it or not, benefits from U.S. dollar's role as the global reserve currency. When push comes to shove, everyone around the world (even the Iranians and North Koreans) will accept dollars.
More than 60 percent of the foreign currency reserves held by governments and central banks are U.S. dollars. Each holding operates as an interest-free loan to America that lowers our costs of borrowings and enables us to maintain a degree of control over our economic affairs that no other country currently enjoys. When we have to pay back our creditors or buy commodities in the international marketplace, America can conveniently use the money it prints.
But there is no guarantee that this beneficial state of affairs must continue indefinitely.
In fact, America's largest creditor, also the world's second-largest economy, took the opportunity of the downgrade to play victim and voice its unhappiness with recent developments. China's official state news agency, Xinhua, promptly issued a scathing condemnation, demanding that the U.S. address its structural debt problems. Importantly, China's concern is not for the prosperity of future American generations, but the continued safety of its massive investment in the U.S.
Currently, China has pumped most of its savings surplus, approximately $1 trillion, into U.S. government debt. Their currency, the renminbi, is not-yet freely convertible, but if the U.S. dollar is ultimately dethroned as the global reserve currency, Chinese officials hope that the renminbi will have a key role in whatever mechanism or proxy eventually follows.
Who, ultimately, is responsible for the downgrade?
This question is being noisily debated in editorials and talking-head commentaries. Whether the time has come to "downgrade" President Obama, who oversaw the loss of a credit rating that withstood the Great Depression and the stagflation that followed the Vietnam war, certain relentless global trends will continue affect the U.S., its economy and citizens.
America must come to terms with the real possibility that, within our children's lifetimes, its role in the world could become significantly limited.
The U.S. may be relegated to a role similar to Britain's since the Second World War II – namely, as a country that, due to historical, cultural and linguistic reasons, was able to have a disproportionate influence on the leading country of an era. In Britain's case, that country was the U.S. In the future, Americans may aspire to play that role with China, once it assumes its position as the largest economy, as well as largest country, in the world.
Perhaps, then, the most difficult and unappetizing question for Americans to face will be, what is the point of an America without prosperity?
Although much of the national rhetoric has painted this country as a beacon for generation after generation of immigrants searching for freedoms they lacked at home, the harsh reality reveals that the majority of them were, in fact, principally driven by hopes for material gains and economic prosperity.
What happens when that promise of prosperity can no longer be assured?
Americans daily accept numerous compromises and sacrifices in exchange for the prospect of future wealth. When that promise can no longer be fulfilled, will these Americans be as willing to accept the superficial consumer culture, the shallow and isolated cultural life, the shrill echo chamber of dissent that takes the place of in-depth political debate, the long-term disinvestment from education, the fear-driven approach to policing and national security?
A post-prosperity America will be a country that must necessarily look at itself with a cold and judgmental glare. There then would be no way to cloak our moral shortcomings, to disguise our collective faults.
What we decide to do then with ourselves and our country will be the most difficult decision that we have faced since we tore ourselves apart during the four bloody years of the Civil War.
Without the security and moral certainty provided by centuries of wealth creation – part crutch and part shield – we will have a very difficult question to answer and very little wiggle room to fudge our response: What does America mean, and what does it mean to be American?