If you're a reader who's put little stock in my continuing assertions that our "relationship" with China and gargantuan current account deficits are the larger part of America's current financial crisis, perhaps you'll give the acclaimed historian Niall Ferguson some credence. He does have much more impressive credentials than I can muster. Though that shouldn't convince you of anything if what he has to say is nonsense. But it isn't. All one really need do is to think rationally about the issues without resorting to trite economic assertions about "free trade" and the picture paints itself. As Mr. Ferguson says in his September Standpoint article "The End of Chimerica":
Needless to say, it was not just the United States that was borrowing, and it was not just the Chinese who were lending. All over the English-speaking world, as well as in countries like Spain, household indebtedness increased and conventional forms of saving were abandoned in favor of leveraged plays on real estate markets. Meanwhile, not only China but other Asian economies adopted currency pegs and accumulated international reserves, thereby financing Anglosphere deficits as well as keeping their exports affordable. Middle Eastern and other energy exporters also found themselves running surpluses and recycling petrodollars to the Anglosphere and its satellites. But it was Chimerica that was the real engine of the world economy.
The real question is: Why should prudent American taxpayers foot the housing-bubble-bust-plus tab? And if we don't substantially reduce the "twin deficit" problem, won't we again be faced with precisely the same set of issues another ten years or so down the road? If even that long? Therefore, isn't it time for the United States to declare Chapter 11? Essentially, aren't we already there? Should we cancel our foreign debt? Or do we spend the next fifty years laboring under its burden? Wouldn't it be better to "restructure" right now? Rather than kick the fiscal can down the road for future generations? After all, it seems that's what we'll insist the auto companies do. If such is really the best medicine for Detroit, perhaps the entire country should consider a stiff dose. If you're one of those who believe we can "inflate" our way out of our current dilemma, from the mouth of the Red Dragon's den in Hong Kong comes Christopher Wood who warns in today's Wall Street Journal: The growing risk of falling prices raises a challenge for one of the conventional wisdoms of the modern economics profession, and indeed modern central banking: the belief that it is impossible to have deflation in a fiat paper-money system. Yet U.S. core CPI fell by 0.1% month-on-month in October, the first such decline since December 1982.
The origins of the modern conventional wisdom lies in the simplistic monetarist interpretation of the Great Depression popularized by Milton Friedman and taught to generations of economics students ever since. This argued that the Great Depression could have been avoided if the Federal Reserve had been more proactive about printing money. Yet the Japanese experience of the 1990s -- persistent deflationary malaise unresponsive to near zero-percent interest rates -- shows that it is not so easy to inflate one's way out of a debt bust.
The fiscal flood of debt is ten trillion high and rising. It should be up by about another trillion in fiscal '09,"they" say. So, at the end of September next the debt clock should read about $11,500,000,000,000. And if that doesn't scare you, well, let's get back together next year at this time and see how you feel.
Whether or not President-elect Obama qualifies for this nation's highest office citizenshipwise, as the current kerfuffle does query, is of absolutely no consequence when it comes to America's debt issue. Never let yourself forget that it was a Republican of unquestioned origin who's been running us lemmings towards the cliff for the past eight years. When things were perking one didn't hear many squeaks along the way. Let's not get hung up on the Constitutional fine print when that guide has already been trashed to a large extent. I hope the Obamaman is Jesus Christ. He's probably the only one who could save us anyway. Though it's more likely that this time we'll be the ones crucified. It's a great legacy we're leaving our grandkids. We'll be cursed in our graves. Or they'll dig us up and smash our bones.
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