by Eric Margolis
(Editor’s Note: The drooling dolts of DC are thumbing their noses at the Chinese, the very nation that has floated the American economy for the last 20 years. But know this: the Chinese are much more astute than the idiots in DC. Beijing…for all intents and purposes…owns Washington. Remember the Solomonic proverb “The borrower is the servant of the lender?” China will patiently watch Washington destroy the dollar and the American economy, and then China will replace the Dollar with the Yuan as the world reserve currency.)
One day, the emperor of ancient Babylon summoned his treasury overseer and exclaimed, “I need more money to wage war on those filthy Hittite terrorists!
“But I looked in my great treasure chest and it’s nearly empty. There are hardly any gold coins left,” he thundered.
“Oh Light of the Euphrates,” groveled his terrified minister, “we are out of gold. Your wars have become too expensive.”
“But I have a solution, your celestial greatness. We will quietly trim the amount of gold in our imperial gold coins to make them go further. No one will notice.”
Fast forward to Washington, 2010. It’s no longer called “clipping coins.” Today, the name for debauching a nation’s currency is called “quantitative easing(QE),” but it’s still the same old fraud committed by financial flim-flam men.
Washington is flooding financial markets with $600 billion of worthless dollars, hoping a rising tide of Monopoly money will somehow lift America out of recession. The Fed’s first QE effort was a fizzle. Welcome to QE2. In high finance, hope springs eternal.
The US government is stoking worldwide inflation in order to lower its outstanding debt by repaying creditors with depreciated dollars. The rest of the world is boiling angry at Washington.
Just before last week’s G20 economic summit in South Korea, China’s state credit agency publicly downgraded America’s credit rating and questioned US leadership of the world’s economy.
In an unprecedented, stinging rebuke, China scolded Washington for “deteriorating debt repayment capability,” and predicted quantitative easing would lead to “fundamentally lowering the national solvency.”
This was a real slap in the face heard around the globe – particularly coming from a bunch of commies! China is the largest holder of US government debt.
I remember the day when my father, a New York financier, used to sneer at iffy stock or bond issues as, “Chinese paper.” Now, it’s “American paper.” How the world has turned.
Washington has been blasting China for manipulating its currency to keep the value low – which is quite true. Embarrassingly, Germany and Brazil just accused the US of being as big a currency manipulator as China – which is also quite true. The EU refused to join the US in alone blaming China for world financial and currency instability.
A depreciated dollar boosts US exports and hurts nations exporting to the US. Economists call it, “beggar thy neighbor,” a destructive trade practice that played a key role in the 1930’s world depression.
This money flood is eroding the value of the dollar, the world’s premier medium of exchange. In the past two months, the US dollar has dropped 6% against other major currencies. Frightened investors are piling into gold, now up 17% in 60 days.
The Obama administration, just “shellacked” by voters in mid-term elections, and desperate to lower unemployment, is gambling more debt shock therapy will spark the economy back to life. But massive, unsustainable debt caused the US financial meltdown in 2008.
The US public debt has hit a stratospheric $14 trillion. You don’t treat a poisoning victim with more poison. Spending one’s way to prosperity with borrowed money is a dangerous chimera.
But panicky politicians are ready to try any sort of economic snake oil remedy to save their skins. Before 2007, America was living high on phony financial froth. Finance had become America’s leading business. Those days are over but no one dares to tell the voters.
Besides destabilizing world exchange rates and trade, Washington’s money flood is pouring into emerging markets as American investors seek higher returns than the miserable pittance available at home, creating highly volatile capital flows.
The so-called financial rescue package brought in by Presidents Bush and Obama have been a bonanza for Wall Street and the banks, and a catastrophe for savers and ordinary citizens.
During the 1980’s, we saw fragile Asian economies battered as investment from the US flooded in, then out. This is happening again, boosting currencies of many nations, making their exports uncompetitive. Investments barriers are going up from China to Brazil.
President Barack Obama inherited a horrible mess from the Bush administration. However, his wrongheaded economic response is undermining the world’s economic order. A nation’s currency is more a symbol of its strength and good name than its flag. Running down the US dollar, which ruled world finance since 1945, could mark the beginning of the end of the American era.
That’s what the American delegation to the G20 economic summit in Seoul, South Korea and Yokohama, Japan, heard last weekend. Obama’s economic policies, notably his attempts to stimulate the US economic with the steroids of more deficit spending, were roundly rejected and criticized by other G20 members. No decisions were reached on exchange rates.
However, there was an uncommon flash of common sense in Washington last week. A special bipartisan presidential panel on reducing the national deficit proposed $4 trillion in federal spending cuts.
All political sacred cows were targeted. The biggest: the monstrous $700 billion military budget. A third of US worldwide military bases would close. There would be cuts to social security, mortgage deductions, delays in retirement age, an end to politician’s local pet projects. Taxes would rise.
The howling has already begun. Unfortunately, such unpopular, drastic spending cuts seem highly unlikely, particularly in the new US Congress where Republicans and Democrats will be deadlocked. America would need an economic dictator to implement the panel’s full plan.
China has one – the Communist Party. America does not and is rudderless. More empires have been undone by financial collapse than invasion or battlefield defeats. The once mighty United States is staggering in this direction.
Eric Margolis is the author of War at the Top of the World and the new book, American Raj: Liberation or Domination?: Resolving the Conflict Between the West and the Muslim World. See his website.
Copyright © 2010 Eric Margolis