- In his famous book, The Collapse of British Power (1972),
Correlli Barnett reports that in the opening days of World War II Great
Britain only had enough gold and foreign exchange to finance war expenditures
for a few months. The British turned to the Americans to finance their
ability to wage war. Barnett writes that this dependency signaled the end
of British power.
- From their inception, America's 21st century wars against
Afghanistan and Iraq have been red ink wars financed by foreigners, principally
the Chinese and Japanese, who purchase the US Treasury bonds that the US
government issues to finance its red ink budgets.
- The Bush administration forecasts a $410 billion federal
budget deficit for this year, an indication that, as the US saving rate
is approximately zero, the US is not only dependent on foreigners to finance
its wars but also dependent on foreigners to finance part of the US government's
- Foreign borrowing is paying US government salaries--perhaps
that of the President himself--or funding the expenditures of the various
cabinet departments. Financially, the US is not an independent country.
- The Bush administration's $410 billion deficit forecast
is based on the unrealistic assumption of 2.7% GDP growth in 2008, whereas
in actual fact the US economy has fallen into a recession that could be
severe. There will be no 2.7% growth, and the actual deficit will be substantially
larger than $410 billion.
- Just as the government's budget is in disarray, so is
the US dollar which continues to decline in value in relation to other
currencies. The dollar is under pressure not only from budget deficits,
but also from very large trade deficits and from inflation expectations
resulting from the Federal Reserve's effort to stabilize the very troubled
financial system with large injections of liquidity.
- A troubled currency and financial system and large budget
and trade deficits do not present an attractive face to creditors. Yet
Washington in its hubris seems to believe that the US can forever rely
on the Chinese, Japanese and Saudis to finance America's life beyond its
means. Imagine the shock when the day arrives that a US Treasury auction
of new debt instruments is not fully subscribed.
- The US has squandered $500 billion dollars on a war that
serves no American purpose. Moreover, the $500 billion is only the out-of-pocket
costs. It does not include the replacement cost of the destroyed equipment,
the future costs of care for veterans, the cost of the interests on the
loans that have financed the war, or the lost US GDP from diverting scarce
resources to war. Experts who are not part of the government's spin machine
estimate the cost of the Iraq war to be as much as $3 trillion.
- The Republican candidate for President said he would
be content to continue the war for 100 years. With what resources? When
America's creditors consider our behavior they see total fiscal irresponsibility.
They see a deluded country that acts as if it is a privilege for foreigners
to lend to it, and a deluded country that believes that foreigners will
continue to accumulate US debt until the end of time.
- The fact of the matter is that the US is bankrupt. David
M. Walker, Comptroller General of the US and head of the Government Accountability
Office, in his December 17, 2007, report to the US Congress on the financial
statements of the US government noted that "the federal government
did not maintain effective internal control over financial reporting (including
- and compliance with significant laws and regulations
as of September 30, 2007." In everyday language, the US government
cannot pass an audit.
- Moreover, the GAO report pointed out that the accrued
liabilities of the federal government "totaled approximately $53 trillion
as of September 30, 2007." No funds have been set aside against this
mind boggling liability.
- Just so the reader understands, $53 trillion is $53,000
- Frustrated by speaking to deaf ears, Walker recently
resigned as head of the Government Accountability Office.
- As of March 17, 2008, one Swiss franc is worth more than
$1 dollar. In 1970, the exchange rate was 4.2 Swiss francs to the dollar.
In 1970, $1 purchased 360 Japanese yen. Today $1 dollar purchases less
than 100 yen.
- If you were a creditor, would you want to hold debt in
a currency that has such a poor record against the currency of a small
island country that was nuked and defeated in WW II, or against a small
landlocked European country that clings to its independence and is not
a member of the EU?
- Would you want to hold the debt of a country whose imports
exceed its industrial production? According to the latest US statistics
as reported in the February 28 issue of Manufacturing and Technology News,
in 2007 imports were 14 percent of US GDP and US manufacturing comprised
12% of US GDP. A country whose imports exceed its industrial production
cannot close its trade deficit by exporting more.
- The dollar has even collapsed in value against the euro,
the currency of a make-believe country that does not exist: the European
Union. France, Germany, Italy, England and the other members of the EU
still exist as sovereign nations. England even retains its own currency.
Yet the euro hits new highs daily against the dollar.
- Noam Chomsky recently wrote that America thinks that
it owns the world. That is definitely the view of the neoconized Bush administration.
But the fact of the matter is that the US owes the world. The US "superpower"
cannot even finance its own domestic operations, much less its gratuitous
wars except via the kindness of foreigners to lend it money that cannot
- The US will never repay the loans. The American economy
has been devastated by offshoring, by foreign competition, and by the importation
of foreigners on work visas, while it holds to a free trade ideology that
benefits corporate fat cats and shareholders at the expense of American
labor. The dollar is failing in its role as reserve currency and will soon
- When the dollar ceases to be the reserve currency, the
US will no longer be able to pay its bills by borrowing more from foreigners.
- I sometimes wonder if the bankrupt "superpower"
will be able to scrape together the resources to bring home the troops
stationed in its hundreds of bases overseas, or whether they will just