The Real National Security Threat: The Bush Economy

By Ian Williams, AlterNet. Posted January 13, 2004.

A lot of liberals accuse George Bush of cowardice. It's a preposterous accusation to level at a president who is running at least two staggeringly expensive wars at the same time, even as he threatens to take on more, not to mention planning an invasion of Mars and cutting taxes on all your rich friends. And all this in the face of the world's biggest ever trade and budget deficits. Now that takes cojones ... unless, of course, you think that the president keeps his brains in the same general area of his anatomy.

Most Americans, who have been hearing endless reports about the so-called economic "boom" on TV, may not realize that the country is, in fact, worth a third less than it was a few years ago. With the dollar plummeting in value, the U.S. economy is far poorer when measured in terms of Euros or pounds.

For 30 years, wealth inside America has been shifted from the working poor to the stock-optioned rich, and the White House and the media expect us to celebrate -- as though a booming stock market is going to cheer up the single mother who has been thrown off welfare and forced to look for a minimum wage job. But with the dollar falling so precipitously, it's time to pay close attention to just how badly our economy has gone awry.

The secret to the looming catastrophe is our bloated deficits, trade and budget. Last year, for example, we bought over $100 billion more stuff from China than we sold them. China took a leaf from Japan's book and bought U.S. treasury bonds with the surplus. This in turn kept our external payments in balance, and gave George W. the money he needed for the Iraq war and beloved tax cuts. Neat, huh?

It is not just China and Japan, but also South Korea, Hong Kong, and Taiwan that are reinvesting their trade surplus in treasury bonds. In other words, fast as you can sing "the West is in the Red," the U.S. budget deficit is now entirely dependent on Asian capital flows.

Here's the catch: What flows in could just as easily flow out.

In the long term, it does not make sound economic sense for these nations to keep their money in low-interest dollar bonds that annually lose ten percent of their value for every percent they earn in interest. It's the reason why most of the Asian central banks have publicly endorsed the idea of balancing their currency reserves by investing in Euros. Some of their analysts think even old-fashioned gold is a better bet as it continues steadily to gain value against the dollar.

Any shift in this pattern hinges on investor confidence. Across the world, people buy dollars because they think the U.S. economy is basically sound, and that the U.S. government is stable and rational in its management of its economy and currency. Given the Bush administration's policies in recent years, both assumptions look shakier than ever.

The most ominous sign of trouble came from an unlikely source, the International Monetary Fund, which in the good old days was the sharp crusading edge of Washington's export of capitalism. Yet it is the IMF that is now crying foul at the administration's economic plans. Last week, a team of economists from the fund predicted that the U.S. could owe 40 percent of its total economy within a few years -- a statistic that will take the United States to an Argentinean scale of indebtedness. Quite apart from the effect of this massive debt on the U.S., the IMF is worried about what will happen to the world economy when things come unstuck. The economists do not envisage a soft landing with a deficit on this scale.

Indeed, the United States' position is worse than it looks since its problems run deeper than the national level. Thanks to a federal system of government, much of the money that central governments control in other countries is spent in this country by state, county and city governments. And they are all facing growing deficits. It all adds up to a fiscal nightmare.

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