Goodbye, Dollar—and Empire
Whoever wins Nov. 2, two predictions seem solid: the mighty U.S. dollar has begun an inexorable decline, and the American empire is coming to an end. For whether George W. Bush wins or loses, America is headed for a political gridlock that will rule out any bipartisan assault on our “twin deficits.”
No matter who wins, the House Republicans of Tom DeLay will retain the numbers to veto any tax increase, while Democrats will retain the strength to prevent any serious cuts in entitlements.
Thus no successful assault will be made in the next four years on a fiscal deficit of $415 billion (4 percent of GDP) before the first wave of 77 million Baby Boomers reaches early retirement in 2008. After that, goodbye balanced budgets forever.
Our trade deficit is now $600 billion a year, with a deficit in goods near $700 billion. To finance our binge buying overseas, we borrow $2 billion a day from abroad. Foreigners are using the dollars to snap up our stocks, bonds, and real estate, gaining a permanent lien on the future rents, interest, and dividends of U.S. enterprises. We have mortgaged our children’s future to enjoy the good times today.
The Baby Boomers, celebrated by liberals in the 1960s as the “finest young generation we have ever produced,” will likely go down in U.S. history as the most self-indulgent and selfish.
To sustain our appetite for foreign goods, the world is being flooded with dollars. But there are signs that world is growing weary of financing our consumption. The price of oil, denominated in dollars, has soared to $55 a barrel. The price of gold has risen from $260 an ounce to $420. The dollar has lost a third of its value against the euro under Bush. The world is betting against us.
The only question seems to be: will the dollar’s decline be gradual or will there be a run on the dollar, as with the Mexican peso? If the latter, the Fed would have to raise U.S. interest rates to bring investors back into the market to buy the Treasury bonds to finance our budget deficit. Then, bye-bye recovery.
A sinking dollar also means rising prices for imports, which are now near a two-century high at 15 percent of our entire economy.
The deindustrialization of America could be reversed if we were willing to return to Hamiltonian economics, rewrite our tax and trade laws, and dump the WTO into the Atlantic. But the transnational corporations that finance both parties will not allow it, for their executives have grown royally rich transferring factories out of the United States into the low-wage countries of Asia and the Third World.
The dirty little secret of our era is that the interests of Middle America are now in conflict with the interests of America’s corporate elites. They are anxious to get out of the United States and shed their American work force.
In sustaining the empire, we are suffering from a separate deficit—of imperial troops. With an army of only 480,000, only a fraction of them combat troops, we cannot both defeat the rising Iraqi insurgency and credibly threaten Iran and North Korea with a preventive war to achieve regime change. And Iran and North Korea know it.
Any attack on Iran’s nuclear facilities would invite Iranian support for Shia insurgents in Iraq and acts of terror against American installations across the Middle East. U.S. casualties would rise, oil prices would hit $80 a barrel, and the war of civilizations could be upon us. Any attack on North Korea’s nuclear facilities could ignite a peninsular war and risk atomic retaliation on U.S. troops.
Where would we get the troops to fight such a war? Should a President Bush or Kerry ask for a draft to fight another land war in Asia, Congress would turn him down or be turned out of office.
Walter Lippmann described a credible foreign policy as one that “consists in bringing into balance, with a comfortable surplus of power in reserve, the nation’s commitments and the nation’s power.” By that standard, U.S. foreign policy is bankrupt. Under the Bush Doctrine, we are committed to fight until we pacify and democratize Iraq, and to be prepared to wage preventive wars on Iran and North Korea to deny them nuclear weapons.
Yet we do not have the troops to guarantee these goals. Moreover, we lack the military, if challenged, to honor all the guarantees we have given to the NATO nations, Japan, South Korea, Taiwan, the Philippines, Australia, and Thailand.
The Dow is falling, the dollar is sinking, our dependency on imported oil is growing, our country goes billions deeper into debt every day, and U.S. forces are stretched to the limit containing a medium-sized insurgency in a medium-sized Arab country.
An American empire? Who are we kidding?