Friday, November 05, 2010
The Golden Rule and the G20
He who has the gold, rules. We're beginning to see that Golden Rule applied to our trade umbilical, the United States, and we can expect to see more of it whether we like that or not.
At various times in recent years outfits as diverse as China and OPEC have pondered the merits of dumping the United States dollar as the world's reserve currency. In a world in which trade is tied to one country's currency, that nation can reap significant advantages from its fiscal and monetary policies. When everybody holds your debt in greenbacks but you have the greenback printing press, you see there's a certain leverage there. But if they start writing up your borrowing in Euros or Yen or Yuan and you can only print greenbacks, everybody is in a really different position.
America isn't the same country it was before Ronald Reagan ushered in the Age of Ruin. America previously ran on well balanced books. Every president from the end of World War II to the arrival of Reagan, Democrat and Republican, had actually reduced America's debt as a percentage of its GDP. The halfwitted movie star still beloved to this day by the American people actually sold his country into today's penury. Rightwing America is so damned dumb they haven't figured that out yet. Well, dinner's over, their wallet is empty and the waiter is coming over with the bill.
When Carter left office the United States was still the world's greatest lending/creditor nation. That was the U.S.A. inherited by Ronald Reagan. By the time he left, eight years later, Reagan had transformed America into the world's largest debtor nation. There are those who claim Reagan undid the Soviet Union. In fact, he probably did more damage to his own country although the effects were slower in arriving. They're certainly here now.
Harvard economics professor Benjamin Friedman puts it this way:
"Again and again, it has always been the world's leading lending country that has been the premier country in terms of political influence, diplomatic influence, and cultural influence. It's no accident that we took over the role from the British at the same time that we took over... the job of being the world's leading lending country. Today we are no longer the world's leading lending country. In fact we are now the world's biggest debtor country, and we are continuing to wield influence on the basis of military prowess alone."
Which brings us to Bush/Cheney. They played America's last ace, it's unrivaled military power, in Iraq and Afghanistan, counting on 'shock & awe' to bring the Middle East and the rest of the world firmly into line with American policy. The world had a decade to watch as America's unrivaled power unravelled.
The hyper-aggressive "Bush Doctrine" threatened the pre-emptive use of American military might against any country or group of countries that dared rival America's military or even its economic dominance. Think about that. "If your economy gets bigger than ours, I'm sending in the bombers." Yet that's exactly what was proposed by the neo-conservatives in the manifesto of the Project for the New American Century.
Which brings us to next week's G20 summit. Both China and Germany are already taking swipes at Washington. From Reuters:
China rebuffed on Friday a U.S. plan to set limits for trade imbalances and Germany dubbed the Fed's money-printing policy "clueless," setting the stage for what could be a fractious G20 summit next week.
The waters of the debate have been muddied by the Federal Reserve's decision to buy $600 billion in long-term bonds with new money in an effort to revive the flagging U.S. economy.
Resentment is rumbling worldwide that the initiative will generate even more instability by ramping up currencies against the dollar, inflating asset bubbles and increasing inflation.
"With all due respect, U.S. policy is clueless," German Finance Minister Wolfgang Schaeuble told a conference.
"(The problem) is not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market, and now to say let's pump more into the market is not going to solve their problems."
The Euros and the Chinese are afraid the hillbillies are going for the printing press. It's hard to see how this one ends but then again this is just one chapter in a book that's not yet half written.