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
domestic expenditures. 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 percent 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 percent 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 safeguarding assets) and compliance with significant laws
and regulations as of September 30, 2007.� In everyday language, the US
government cannot pass
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
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 percent 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 be repaid.
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 be abandoned.
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 be abandoned.
Craig Roberts [email him] was
Assistant Secretary of the Treasury during President Reagan�s first term. He
was Associate Editor of the Wall Street Journal. He has held numerous academic
appointments, including the William E. Simon Chair, Center for Strategic
and International Studies, Georgetown University, and Senior Research Fellow,
Hoover Institution, Stanford University. He was awarded the Legion of Honor by
French President Francois Mitterrand. He is the author of Supply-Side
Revolution : An Insider's Account of Policymaking in Washington; Alienation
and the Soviet Economy and Meltdown:
Inside the Soviet Economy, and is the co-author with Lawrence M. Stratton
Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the
Constitution in the Name of Justice. Click here for Peter
Brimelow�s Forbes Magazine interview with Roberts about the recent epidemic of