Administration budget officials last week projected that the deficit will reach $455 billion this year. What was truly frightening about the announcement is that previous projections by these same people have proven to be wildly optimistic. When the Bushies say we’re going to have a half trillion in debt, what might the real number be?
If you’re an American over the age of -let’s say, five – you can remember a time when our federal government had budget surpluses. In fact, given the steep rate of our economy’s slide since George Bush took office, the only reason the American economy has not yet completely fallen apart is because Bill Clinton – yes, the much-maligned Bill Clinton – had our national finances in excellent order when he left office.
While the Bush government has been running deficits in the billions, Americans have been losing jobs by the millions. Unemployment, which used to be at a six-year high, is now at a nine-year high. Our trade deficit, like our dollar deficit, is booming. All these factors interact with a maleficent synergy. As our economy shrinks and people lose their jobs, our deficit represents a larger and larger percentage of our Gross Domestic Product. Paul Krugman of the New York Times says our deficit-GDP ratio is worse than Argentina’s was when that country descended into economic and social turmoil. Unlike Argentina – or Japan, for that matter – if the American economy goes into a full nosedive, it will take much of the world’s economy with it.
There are many reasons why an American economic calamity would spread further than an Argentine one – the size of our economy, the number and complexity of our economic relations with other continents and our currency. Since it surpassed the pound after World War Two, the American dollar has been the currency against which all others have been measured. For the last 50 years, the dollar has been the most stable currency and, again, there are a number of mutually-reinforcing factors that have made that the case.
Because the dollar represents the largest single economy in the world, the U.S. Treasury prints many dollars and dollars became the medium of exchange for international transactions. Other currencies – the Dutch guilder for example – have also been stable, but there were never that many guilders to go around.
Oil transactions are conducted in dollars, which makes sense, as Americans are big in oil and oil-related services. Think Halliburton. Dollar supremacy in the oil business is yet another reason the White House was so eager to get its hands on the Iraqi oil fields; the Bush people wanted to ensure Iraqi crude stayed on the dollar standard.
There’s a public sentiment at work here, too. People all over the world, rich and poor, don’t trust their own currencies and stash dollars in bank vaults and under mattresses. It is estimated that some 300 billion American dollars are hidden out there somewhere. This amounts to a $300 billion interest-free loan foreigners are making to the American government.
All of that is beginning to change. There’s a new kid in town and his name is euro. Sure, everyone made fun of him when he first showed up, but he’s getting more and more popular. The euro combines the strengths of several European economies under one currency and Europe has a population and industrial vitality than equals, if not exceeds, America’s.
Imagine what happens if all those people out there decide the American economy is getting too dangerous and haul their dollars out from under the mattress and exchange them for euros. Imagine what happens to the strength of the dollar when 300 billion of them suddenly show up on the market.
Think about world politics today, not so much as east versus west, but dollar versus euro. Reconsider the George Bush-Tony Blair relationship in light of the fact that England is still holding out against the euro. Dollar v. euro is a big reason why the UK joined our Iraq coalition and France and Germany did not.
When all is said and done, George Bush’s most profound influence on our economy might not be his staggering deficits. George Bush might be remembered as the man who lost the dollar.
Sound As a Dollar
Administration budget officials last week projected that the deficit will reach $455 billion this year. What was truly frightening about the announcement is that previous projections by these same people have proven to be wildly optimistic. When the Bushies say we’re going to have a half trillion in debt, what might the real number be?
If you’re an American over the age of -let’s say, five – you can remember a time when our federal government had budget surpluses. In fact, given the steep rate of our economy’s slide since George Bush took office, the only reason the American economy has not yet completely fallen apart is because Bill Clinton – yes, the much-maligned Bill Clinton – had our national finances in excellent order when he left office.
While the Bush government has been running deficits in the billions, Americans have been losing jobs by the millions. Unemployment, which used to be at a six-year high, is now at a nine-year high. Our trade deficit, like our dollar deficit, is booming. All these factors interact with a maleficent synergy. As our economy shrinks and people lose their jobs, our deficit represents a larger and larger percentage of our Gross Domestic Product. Paul Krugman of the New York Times says our deficit-GDP ratio is worse than Argentina’s was when that country descended into economic and social turmoil. Unlike Argentina – or Japan, for that matter – if the American economy goes into a full nosedive, it will take much of the world’s economy with it.
There are many reasons why an American economic calamity would spread further than an Argentine one – the size of our economy, the number and complexity of our economic relations with other continents and our currency. Since it surpassed the pound after World War Two, the American dollar has been the currency against which all others have been measured. For the last 50 years, the dollar has been the most stable currency and, again, there are a number of mutually-reinforcing factors that have made that the case.
Because the dollar represents the largest single economy in the world, the U.S. Treasury prints many dollars and dollars became the medium of exchange for international transactions. Other currencies – the Dutch guilder for example – have also been stable, but there were never that many guilders to go around.
Oil transactions are conducted in dollars, which makes sense, as Americans are big in oil and oil-related services. Think Halliburton. Dollar supremacy in the oil business is yet another reason the White House was so eager to get its hands on the Iraqi oil fields; the Bush people wanted to ensure Iraqi crude stayed on the dollar standard.
There’s a public sentiment at work here, too. People all over the world, rich and poor, don’t trust their own currencies and stash dollars in bank vaults and under mattresses. It is estimated that some 300 billion American dollars are hidden out there somewhere. This amounts to a $300 billion interest-free loan foreigners are making to the American government.
All of that is beginning to change. There’s a new kid in town and his name is euro. Sure, everyone made fun of him when he first showed up, but he’s getting more and more popular. The euro combines the strengths of several European economies under one currency and Europe has a population and industrial vitality than equals, if not exceeds, America’s.
Imagine what happens if all those people out there decide the American economy is getting too dangerous and haul their dollars out from under the mattress and exchange them for euros. Imagine what happens to the strength of the dollar when 300 billion of them suddenly show up on the market.
Think about world politics today, not so much as east versus west, but dollar versus euro. Reconsider the George Bush-Tony Blair relationship in light of the fact that England is still holding out against the euro. Dollar v. euro is a big reason why the UK joined our Iraq coalition and France and Germany did not.
When all is said and done, George Bush’s most profound influence on our economy might not be his staggering deficits. George Bush might be remembered as the man who lost the dollar.