Do Americans Deserve the Republicans?

It all sounds so insane.   A country awash in debt extending tax cuts for the rich, cuts that have to be made up with even more money borrowed from foreign lenders.  A country whose people's longevity and health are third rate wanting to scrap universal healthcare.   A country where the white and blue collar classes are reeling from a market gone mad from deregulation now fiercely opposed to regulation.  A country whose people believe that "socialism" means totalitarianism and state ownership of all property.   A nation whose people believe, as pointed out by Andrew Bacevich, that liberty means affluence.

If it must be, then let it be.  What can possibly be done with a people driven mad through the deliberate infliction of fear, frustration and anger?   Better yet, what can possibly be done for them?  Either way the answer is not very much.   If they want to transform America into a Thelma & Louise act, the rest of us just have to make sure we don't jump into the back seat.   If they want the Republican vision of America, the delusion, then they're going to deserve what they've got coming. 

What about us?   There are going to be problems.   Our economy is slaved to theirs and, when they reach for that handle, we all get flushed.  

Krugman predicts a Republican win will trigger at least a "double dip recession," perhaps even a full blown depression.  It is widely assumed that America is charting a path to stagflation and a Japanese-style "lost decade."  Except it won't be "Japanese-style" at all.   Japan endured a decade of flat economic growth and deflation but - and it's a very big but - Japan was and remained a creditor nation.   Japan still holds almost as much American debt as does China.   America faces tumbling into its own lost decade still heavily reliant on foreign credit.

An unstable, even insolvent America presents foreign lenders with a bouquet of problems.  It's one thing to lend a guy money but if you begin to suspect he's planning on paying you back just 60-cents on the dollar, the value of his business plummets.  Japan and China each hold more than a trillion dollars of U.S. debt.  One thing that's made that bearable for the United States is that this debt is in U.S. dollars.  Today, not only is America heavily in hock to the Chinese but it is demanding the Chinese revalue their currency, the Yuan, the effect of which is to devalue the American debt China holds.

So if you're getting the shake down from the guy who still wants you to keep lending you're going to be very tempted to look for a more stable medium of exchange than the U.S. dollar.   You might write new debt for another, more stable currency or basket of currencies.   Dropping the greenback as the world's 'reserve currency' would be devastating for the United States.   The confidence in the U.S. dollar would be undermined and the Americans would face the prospect of having to repay debt in other nations' currencies that might be very disadvantageous.

If America wasn't so heavily indebted and utterly dependent on foreign lenders, a devalued greenback might be a blessing.  It would certainly make imports more expensive while making American exports more competitive.   But America is heavily indebted and is dependent on foreign borrowings and there's no sign that the American people are willing to bear what changing that would mean.   They truly believe they have the right to live beyond their means - in perpetuity.  And once you're able to believe that, you're perfectly able to swallow everything else the Republicans are dishing up.

And so that big, blue Thunderbird convertible just keeps racing for the cliff.