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Skating on thin ice


The word "conservative" comes from a Latin word meaning "to preserve." The Bush administration bills itself as conservative, but it's anything but.

            It's unprecedented for a country, under conservative leadership or otherwise, to propel itself from financial health to possible collapse as fast as the US has over the past five years. When George W. Bush took office, the Congressional Budget Office projected a 10-year surplus of $5.6 trillion. Three years, later the 10-year projection was a deficit of $6.0 trillion: a negative swing of an astounding $11.6 trillion. And there's no end in sight.

            Our eyes tend to glaze over when we're looking at dry economic statistics, but these days we do so at our peril. Never before in American history have deficits been this big and projected for this long.

            We are entering uncharted territory.

            Others around the world have noticed, and they're watching us closely. Foreign countries now have a hand in our financial future, and they're capable of taking actions that could have huge impacts. The dollar is the world's reserve currency, and thanks to our growing trade deficits, many foreign governments and financial institutions hold enormous sums of dollars.

            About 30 percent of our national debt is now owned by foreign governments and institutions. Japan and China in particular hold approximately 20 percent of this debt and large amounts of US currency.

            Paralleling the financial mismanagement in the US, the dollar has declined in recent years compared to virtually every other currency. And for foreigners who hold dollars or US government obligations, these declines have been costly. How long will they continue to hold on to US financial instruments? What are the consequences if they stop doing it?

But never mind. The Bush administration, in a delusional state of neocon triumphalism, apparently believes that permanent American hegemony can be attained by American military power alone. We continue to be as belligerent as we please with almost anyone --- including China. That's a curious way to behave toward a major creditor. As economist William Greider recently noted, the US "is blind to the adverse balance of power accumulating against us."

            Larry Summers, who was treasury secretary in the Clinton administration, said, with a dry reference to FDR, that "the only thing to fear is the lack of fear itself."

            We bestride the world, rejecting international treaties, ignoring the opinion of others, using our power where and when we want, making appointments to powerful positions seemingly designed to antagonize others, and generally behaving as an immature and irresponsible superpower. The international resentment is building.

            Domestically, we have the world's lowest savings rate. In fact, it's almost non-existent. We refuse to pay for our worldwide adventures. We make no personal or governmental sacrifices: Our leaders don't ask for any, because that may be politically costly. And we generally ignore the financial consequences.

            And how do we pay for all this? By putting it off to the next generation and financing it by selling bonds and currency to foreigners. The wonder is how this scheme has lasted this long without a collapse. A sage economist once said that if something is unsustainable it will eventually come to an end. It sounds like a Yogi Berra witticism, but obviously, it's true.

How will it end? Foreigners will eventually and reluctantly conclude that the US is not fiscally responsible. And to protect their own interests, they'll begin to dump dollars and bonds. This will usher in a financial crunch for the United States. The value of the dollar will drop, equity markets will undoubtedly fall, interest rates will rise sharply, and a more or less severe recession will occur. With the huge deficits already built into the system, the usual tools for fighting a recession --- tax cuts and spending increases --- will be difficult or impossible to implement.

            The only way out for us is to quickly take steps to rebalance the national priorities. That will require both fiscal measures and foreign-policy restructuring. In foreign policy, we simply cannot continue to act and be viewed as an arrogant bully. That will only make others savor our national day of reckoning, and they'll do little or nothing to help alleviate it.

            The fiscal measures we need to take will be harder. The American people have not been asked to make sacrifices for the "war on terror." We've just been asked to go shopping, which is the opposite of what's needed. We must enact selected tax increases, and we must rein in spending. Even though we are in a "war," defense spending is the obvious place to cut. We spend more on defense than the rest of the world combined. Ours is a defense establishment designed for world hegemony and to fight nation state wars. To fight a war on terrorism is more akin to a police action. Instead of finding Osama bin Laden with special forces, we invaded Iraq in a military operation a hundred times more expensive.

            Increasing taxes or eliminating those mandated cuts in coming years are anathema to the Bush administration --- as is asking for energy conservation. That would hurt the oil-industry pals of Bush, Cheney, et al. And making a dent in the military-industrial complex is even more doubtful. So we are bound to watch deficits of $600 billion a year grind away at our national strength. Unfortunately, the political leadership in power shows no indication of changing course.

Correcting ourselves

In his April 13 column "Our Real Crisis," Laurence Britt stated that the US is the only developed country that allows consumer advertising for prescription drugs. New Zealand also permits such advertising. The US is the only member of the G8 --- the world's major industrial nations --- to allow consumer advertising for prescription drugs.