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FRED
10-14-06, 11:17 PM
Debt saps world power of America (http://www.timesonline.co.uk/article/0,,2095-2404009,00.html)
October 15, 2006 (Times Online)

NORTH KOREA’s ability and willingness to set off a nuclear device of some sort is being blamed on a failure of American diplomacy. Never mind that Kim Jong Il’s survival depends on the continued support of China, or that Russia has consistently refused to support moves to pressure North Korea to end its bid to become a nuclear supplier to the world’s jihadists. When it comes to failed diplomacy, there is blame enough to go around.

But when it comes to failed economic policies that produce failed diplomacy, the buck stops in Washington. It is the economic policy of the Bush administration that has hobbled its efforts to veto North Korea’s application to join the nuclear club.

Let’s start with fiscal policy. It is indeed true that the Bush tax cuts were key to ending the recession the Republicans inherited from the Clinton administration. And it is also true that some of the tax cuts have proved to be revenue generators for the Treasury. That has enabled the administration to gloat over a 22% reduction in the budget deficit from last year's $319 billion. But in a booming economy, a continued deficit of $248 billion is hardly chopped liver, as the analysts in New York’s delis are inclined to say. And when those deficits result in stacks of IOUs held by China, America’s diplomats are forced to walk softly lest they antagonise so large a creditor.

It is this fiscal situation, this unwillingness to rein in spending so that the boom in tax receipts can be used to provide support for American diplomacy, that has made it impossible for America to have an effective foreign policy. Indeed, it is arguable that George Bush has presided over the largest decline in America’s ability to influence world events since ... well, since the 1920s, when we decided it was in the nation’s interests to let the world take care of itself while we partied at that era’s equivalents of today’s discos — the jazz joints and speakeasies that offered solace to the Wall Street crowd after a hard day of share-price manipulation.

North Korea was confident that America would not use force to eliminate its nuclear facilities, or to bring its long-range missile programme to a halt, or to stop its counterfeiting of $100 bills — counterfeits so good that they are dubbed “superdollars” and can be detected only when they turn up at Federal Reserve banks. After all, even that country’s cloistered politicians can see that the Bush team is unwilling to commit the resources needed to bring the Iraq intervention to a successful conclusion.

Rather than call on the American people to make some sacrifices, in the form of higher taxes, the president invited them to visit the shopping malls more often. And if consumers didn’t have the cash to buy that new flat-screen television set, the Federal Reserve chairman was keeping interest rates so low that borrowing was easy and it was irrational to build up equity in your house rather than remortgage to fund shopping sprees.

So America is already stretched, not beyond its capacity to implement Bush’s vision of a democratic and reconstructed Iraq, or to act on North Korea if tough talking fails, but beyond what the same president is willing to call upon our citizens to sacrifice. Unlike Thomas Jefferson, who pledged millions for defence but not a cent for tribute when our commerce was threatened by pirates, Bush has pledged billions for prescription drugs for well-off elderly Americans, and more billions for congressmen’s wasteful pet projects, but little for the military he asks to back his diplomatic drive to spread democratic values.

There is worse. The president’s energy policy consists of begging Opec not to cut back on oil production so that petrol prices will ease. Meanwhile, he has allowed America’s addiction to oil to weaken his diplomatic hand in Latin America and the Middle East. Revenues from American oil consumption are funding Hugo Chávez’s campaigns to elect anti-American politicians in Ecuador and Nicaragua, and his trips to meet his old pal Fidel Castro and his new friend Mahmoud Ahmadinejad. Revenues go from American petrol stations to Caracas and to Saudi sheiks, who fund madrasas where anti-Western bile is poured into the ears of potential terrorists.

Experts agree that the best way to reduce this source of terrorist financing would be a swingeing tax on petrol, but that would require the president to demand sacrifice of the American people, something he is unprepared to do.

Meanwhile, the American economy continues to tick along, unfazed by the failures of US diplomacy. If markets are indeed all-knowing machines that correctly appraise future risk, then the robust performance of share prices tells us not to fret unduly over a nuclear North Korea, an Iraq descending into murderous civil war, an Iran that is preparing to acquire its own nuclear weapon as part of its stated plan to eliminate Israel, or a cooling of the housing market.

AntiSpin: When you owe money to the mob, it's hard to take firm action when the nutter in The Family starts acting up. The political implications of the USA's reckless fiscal policies have only begun to come home to roost. In addition to expending most of the nation's moral authority–squandered on a horrifically botched War in Iraq and impending failure in Afghanistan–to bring thugs and fascists to heel, USA, Inc. has lost an even more important critical policy tool in the short term: financial leverage.

Demand that China reign in North Korea? "What are you going to do?" the Chinese will ask the US, "Threaten not to borrow more from us?"

This is a tough piece. Unfortunately, we have to agree with every word.

akrowne
10-15-06, 10:54 AM
And of course the piece doesn't mention that public, federal debt expansion is around twice the level of the budget deficit.

When you add in private debt growth, state government, and government agency debt, the situation is far far worse. And it all rests on a shaky foundation of these foreign creditors.

FRED
10-15-06, 01:16 PM
Debt saps world power of America (http://www.timesonline.co.uk/article/0,,2095-2404009,00.html)
October 15, 2006 (Times Online)

NORTH KOREA’s ability and willingness to set off a nuclear device of some sort is being blamed on a failure of American diplomacy. Never mind that Kim Jong Il’s survival depends on the continued support of China, or that Russia has consistently refused to support moves to pressure North Korea to end its bid to become a nuclear supplier to the world’s jihadists. When it comes to failed diplomacy, there is blame enough to go around.

Sweet dreams...(PDF) (http://ann.sagepub.com/cgi/reprint/607/1/78.pdf)

BK
10-16-06, 11:01 AM
Ed,

So,do you believe the Democrats would have taken a different course of aciton than the current Administration?
The spending in DC is out of control. But, the spending is out of control in every local and state government in the USA. Doesn't seem to matter if they are democrats of Republican - the Voters like politicians who Spend - I mean Invest in the community (preferrably for the sake of the children)
I strongly believe that both parties have the same strategy - spend -spend -spend - and borrow - borrow - borrow - I mean Invest.
American voters love spenders - Americans like to spend.

Total Liabities for State and Local (and this doesn't include the overly generous retirement obligations)
1999 $1,457 Billion
1st Qtr 2006 $2,255 Billion

Increase of 55%

http://www.federalreserve.gov/releases/Z1/20060608/accessible/l211.htm