President George Bush’s bold economic experiment continues to enthrall. You have to admit it’s quite a trick simultaneously running the world’s highest-ever budget deficit and the world’s biggest-ever trade deficit, waging several expensive foreign wars while gearing up for even more, and still having the courage to give record tax cuts to your friends. This is not a combination for the faint-hearted.
It has been said that this is the price we have to pay to maintain American supremacy over the looming threat of resurgent Asian powers like China and Japan. Interestingly enough, though, these potential rivals for global hegemony own almost half of all US Treasury bonds. In fact, if there was a meeting of shareholders for US Inc, they could fire the president.
Japan and China run big trade surpluses with the US, and then lend the money back to the federal government to pay for the huge American trade and budget deficits that Washington is running up to finance military spending – to ensure that China (including Hong Kong) and Japan don’t get ideas above their station.
One wonders at the stunning sound of silence from Federal Reserve chairman Alan Greenspan, who had so much to say about deficits and the dollar in times past. Having taken credit for the economy on the way up, he seems surprisingly reticent to draw attention to himself as it heads back down.
So is there a cunning plot here – or even two cunning plots running simultaneously? Could the deep strategic thinkers in the Pentagon and the US Treasury have decided that when debtors owe so much they, in effect, control the creditors? Because as long as the US Treasury holds the currency reserves of its rivals in Beijing and Tokyo, China and Japan have a deeply vested interest in maintaining the creditworthiness and solvency of the United States.
On the other hand, maybe China has decided that the threat to ditch its T-bonds is an economic anti-neutron bomb, one that could destroy the US economy but leave the people intact. For example, if China decided to invade Taiwan, which currently benefits from an informal US security guarantee, could the US make any credible military threat knowing that Beijing and Hong Kong out-credit Taiwan several times over? If the US moved against North Korea, the financial fallout from a disapproving Beijing could be far more devastating than any inaccurate Korean missiles.
So are these two ‘plots’ contradictory? Or are they actually the same plot, run by Chinese communist infiltrators in the highest reaches of our government in Washington? Britain once forced China to accept massive amounts of opium, draining the declining empire’s bullion in return. So this could be revenge, with China forcing the decadent US to buy huge quantities of addictive consumer goods made by cheap Chinese labor, in order to drain the US treasury.
The US government spends billions trying to stop the trade in cocaine and marijuana – the net effect of which has been to drive up the price for their users and, in the best protectionist spirit, to boost domestic production of marijuana both in potency and quantity. UN figures suggest that the drug trade is worth over $40 bn a year in the US, most of which is pure profit compared with the cost of production.
Legalizing, regulating and taxing the drug trade would reduce much of the harm currently done by criminally enterprising citizens. It would yield significant revenue for the Treasury, free up lots of trained personnel – police, prison staff and DEA agents – for foreign wars and guarding against terrorism, and even stabilize the economies of areas like the Caribbean and Latin America by boosting their exports.
Another alternative is to increase gasoline taxes. If the US were to follow Tony Blair’s example, gasoline taxes would rise from around 18 cents a gallon to over $4 a gallon, which, at a stroke, would solve the deficit problem, reduce our dependence on terrorist-prone parts of the world for fuel supplies, and incentivize American carmakers to produce better and more exportable engineering. Somehow, though, I think that legalizing euthanasia of retired folks to solve the alleged social security deficit would be more politically acceptable.
