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Weekend Edition
January 26 / 27, 2008
The Profile of a Third World Country
How Bush Destroyed the Dollar
By PAUL CRAIG ROBERTS
It is difficult to know where Bush has accomplished the most
destruction, the Iraqi economy or the US economy.
In the current issue of Manufacturing & Technology News, Washington
economist Charles McMillion observes that seven years of Bush has
seen the federal debt increase by two-thirds while US household debt
doubled.
This massive Keynesian stimulus produced pitiful economic results.
Median real income has declined. The labor force participation rate
has declined. Job growth has been pathetic, with 28% of the new jobs
being in the government sector. All the new private sector jobs are
accounted for by private education and health care bureaucracies,
bars and restaurants. Three and a quarter million manufacturing jobs
and a half million supervisory jobs were lost. The number of
manufacturing jobs has fallen to the level of 65 years ago.
This is the profile of a third world economy.
The "new economy" has been running a trade deficit in advanced
technology products since 2002. The US trade deficit in manufactured
goods dwarfs the US trade deficit in oil. The US does not earn
enough to pay its import bill, and it doesn't save enough to finance
the government's budget deficit.
To finance its deficits, America looks to the kindness of foreigners
to continue to accept the outpouring of dollars and dollar-
denominated debt.
The dollars are accepted, because the dollar is the world's reserve
currency.
At the meeting of the World Economic Forum at Davos, Switzerland,
this week, billionaire currency trader George Soros warned that the
dollar's reserve currency role was drawing to an end: "The current
crisis is not only the bust that follows the housing boom, it's
basically the end of a 60-year period of continuing credit expansion
based on the dollar as the reserve currency. Now the rest of the
world is increasingly unwilling to accumulate dollars."
If the world is unwilling to continue to accumulate dollars, the US
will not be able to finance its trade deficit or its budget deficit.
As both are seriously out of balance, the implication is for yet
more decline in the dollar's exchange value and a sharp rise in
prices.
Economists have romanticized globalism, taking delight in the myriad
of foreign components in US brand name products. This is fine for a
country whose trade is in balance or whose currency has the reserve
currency role. It is a terrible dependency for a country such as the
US that has been busy at work offshoring its economy while
destroying the exchange value of its currency.
As the dollar sheds value and loses its privileged position as
reserve currency, US living standards will take a serious knock.
If the US government cannot balance its budget by cutting its
spending or by raising taxes, the day when it can no longer borrow
will see the government paying its bills by printing money like a
third world banana republic. Inflation and more exchange rate
depreciation will be the order of the day.
Paul Craig Roberts was Assistant Secretary of the Treasury in the
Reagan administration. He was Associate Editor of the Wall Street
Journal editorial page and Contributing Editor of National Review.
He is coauthor of The Tyranny of Good Intentions.He can be reached
at:
PaulCraigRoberts@yahoo.com <mailto:PaulCraigRo
berts%40yahoo.com>
--
"The most violent element in society is ignorance.": Emma Goldman
"Reading is the food, light, lamp, refuge, solace of the soul, the spice of all natural flavors. It feeds the hungry, gives light to the one sitting in darkness, offers bread to the one fleeing shipwreck or war, comforts the contrite heart." Peter of Celle, Quoted in Essential Monastic Wisdom, by Hugh Feiss.
"Only a life lived in the service of others is worth living. Service to
others is the rent you pay for your room here on earth." Albert Einstein
NOOR V. GILLANI, D.Sc.
Principal Research Scientist Adjunct Professor
Nat'l Space Science & Technol Ctr. Atmospheric Science Dept
(NSSTC, NASA-AL) U. of AL in Huntsville (UAH)
Tel. 256 961-7942 email: gillani@nsstc.uah.edu
Fax. 256 961-7755
Shipping Address Mailing Address
NSSTC Atm. Science Dept.
320 Sparkman Dr U. of Alabama in Huntsville
Huntsville AL 35805 Huntsville AL 35899
