In September of 2001 Islamic terrorists murdered 3000 innocent people and caused enormous damage to Wall Street, the heart of the American economy. Seven years later we are seeing great economic damage taking place again. It also happens in the area of the Wall Trade Center. But this time it is not foreign terrorists but the combination of irresponsible US banks and poor US government regulatory oversight who are responsible for tremendous economic losses. And while Americans are still the most creative and hard working people on earth and the US economy is still the biggest in the world, this year the US has gone from being the world´s growth locomotive to slamming the brakes on world´s growth. This is not the emerging markets crisis, this is not the Asian flu, this is not Russia´s default. This is the first time America is sinking the world.

A blog is not a place for extensive analysis. Attention spans on the internet are very short and I am the CEO of a company so I have to be brief. What I am going to do is to outline what could be a more in depth article about the main reasons for the decline of the US as a global power. I will also explain as to why after being away from the dollar during the Bush era and moving back to the dollar this summer I may go back to the euro again. I love America and as an investor I want to trust it. But after another crazy weekend in which two of the largest investment banks in America, Lehman Brothers and Merrill Lynch, disappeared I am beginning to wonder.

What is wrong with America:

The 2 wars in Irak and Afghanistan have cost over a trillion dollars and appear to have no clear exit strategy. Moreover with McCain continously talking about expanding military spending and American voters not yet satisfied in spending already half of what the world spends in the military it is not clear that America will not make the same mistake as the Soviet empire and spend its way into bankruptcy. Obama by the way is not much better because even though his instincts tell him that America´s military is embarked in useless expensive missions unfortunately American voters do not understand that the solution is not to win every conflict but to pick conflicts that you can win or else not get involved. Afghanistan was reasonable. Irak was not. Saddam Hussein was not more dangerous to USA than Iran now. A trillion was spent and USA is not in a better position than it was in 2000.

Americans keeps accumulating budget deficits at federal, state and city levels and trade deficits in spite of the dollar being extremely weak. Americans spend more than what they make and survive thanks to the savings of the Asians and now the Arab countries. America owes to China more money than the GDP of Alaska. America may have won the cold war but China and Russia now own a lot of the US economy as huge creditors.

American overspending is not only seen in the perennial budget and trade deficits but in the last years it reached historical heights with the absurd secondary mortgage market that is bringing the US banking system to its knees. Bear Stearns is gone, Lehman is bankrupt, AIG is shaking, Citigroup is 75% down, Merrill was just rescued by Bank of America and is also 50% down from its peak. USA is paying dearly for the combination of the desire of US elected politicians to please voters and overspend and the desire of the average American to live beyond his/her means and take unpayable mortgages and overspend.

The desire of Americans to have tailor made justice and tailor made medicine has made American businesses weak. American legal and medical costs are so much higher than those of other economies that the tremendous advantage that US businesses have in terms of the drive and creativity of its people is lost in legal uncertainties, lack of standards, and a medical system that is both unfair and tremendously expensive. Moreover the results are appalling: USA is a less just society than Europe or Japan and a less healthy nation. US longevity is trailing way behind that of the EU and Japan.

America has the best universities in the world and that is true. But Alexa Varsavsky, the eldest of my four kids, just entered Columbia University and the whole incoming class was 1200 students. Of course I am a proud father knowing that out of 1000 kids who may want to get into Columbia University, 200 who can get in dare to apply and then only 16 get in. But what happens to the other 984 kids? When is America going to realize that it can´t have an education system geared to excel at the extremes and not to raise the mean. Because while USA has the most Nobel prizes it scores very poorly in standardized tests. In general USA is a nation focused on Oscars, Olympic Medals, Nobel Prizes, Pulitzers, which is fine. But if there are 4 million high school graduates in the country and the top 50 schools only take 1000 incoming students each what happens to the other 3.95 million students?

On top of this America´s environmental policies are horrendous and America´s energy efficiency as measured by energy use per unit of output are pathetic. I read somewhere that if Americans drove the same cars that we drive over here in Europe America´s oil deficit would be practically wiped out. And we do have a lot of SUV´s in Europe as well. So why is offshore drilling such a big part of the Republican platform? How many hits does Texas have to take until Americans change their habits and begin behaving responsibly? In one of those weird twists of environmental justice hurricanes don´t happen in Europe but global warming is a certainty now and the quickest way to slow it down is energy conservation.

So this is what is wrong with America. But as Bill Clinton said, there´s nothing that is wrong with America that can´t be fixed by what is right in America. And I hope that Americans once more show that they can turn this enormous mess around. They have a lot of work to do: they have to change their energy consumption habits, their spending habits, accept that an open ended ability to litigate can be harmful to the economy, accept that a little less quality in medical care for some can result in better health care for all, they have to make it harder to sue medical professionals, they have to spend less in the military and more in foreign aid, they have to act less alone and build lasting friendships around the world, they have to accept that sometimes it is government and not banks or corporations that have to set policy, they have to restrict lobbying, they have to focus less on the exceptional people and more on the average person who has not seen his/her income rise in 30 years. In short, there´s a lot of work to do in the States and with all my love for the country that I called home for 18 years I sincerely hope it reforms. As opposed to what most people now think around the world I think that overall America has been a force of mostly good in the world during the last century and I hope that it can overcome its failed policies and continue in that role for the next century.

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Tamás Locher on September 15, 2008  · 

Dear Martin,

a very interesting blogpost. I am wondering how power and influence will rearrange in future.
Although I am a big fan and supporter of the European model I am also sure that we will not be able to take over the leading role in the world due to fragmented opinions on how Europe should develope. For the sake of western values we therefore need a strong America more than ever.

How do you see it?


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Mariano Marcos on September 16, 2008  · 

Ask the guys at Bilderberg and invest according to what they tell you. And then come back here and share it, please 😉

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Martin Varsavsky on September 16, 2008  · 

@ Tamás Locher:

I am still hoping that America will use its entrepreneurialism and creativity to figure out that it´s been doing things very poorly in the last years and turn around.

Dani Santi on September 16, 2008  · 

“they have to spend less in the military and more in foreign aid, they have to act less alone and build lasting friendships around the world”.
Their problem is they have done more enemies in these last years than friendships, with the wars, lack of aids and other similar actions.
They will have to change if they want to have the same role in this century.

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charles on September 16, 2008  · 

If I understand USA should become more like Europe… Then we may propose USA to Join EU, and then western countries are ready for the 21th century. >_<

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Martino Sabia on September 16, 2008  · 

A great post, I really subscribe anything in it and hopefully some American will read this an subscribe it too.

And if it’s right that for a better America and world, they have to change, it’s also right that Europe has to change, a lot.

A stronger Europe, politically and economically, will force USA to change, and will help to change the World too.

As we see in the Russia-Georgia affair, the weakness of Europe is really scary. As we depend on them, for oil and gas, we can’t take actions against the way Russia is acting.

If i then watch the situation of my country, Italy, well…

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Elena on September 17, 2008  · 

Apparently, Spain’s economy (regardless of what Zapatero says) is in just as bad or worse of a crisis than that of the U.S.

Does that mean that Spain’s success will remain very much a thing of the past?

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Martin Varsavsky on September 17, 2008  · 


Most likely Spain’s next 10 yrs will be worse as Spain’s last 10 years.

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Luis on September 19, 2008  · 

Great post.

The idea of raising the mean instead among students is interesting. However, in Spain, this mean might be too high for certain jobs according to recent statistics, that cite a large percentage of young workers as overqualified for their current jobs (that is if they have one)…

Maybe the reason for this could be a lower job generation capacity in Spain, compared to the US, aside from small entrepreneurial spirit.

Maybe this gearing towards extremes in education could apply to pretty much everything. Why drive a small car when you can drive a SUV? Why open one restaurant when you can have a franchise? etc.

Or maybe education serves labor demands, and we should just focus on raising the mean among students. haha

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