â,"I still don't understand,â, writes a dear reader.
â,"What does it mean, please, when you write, â,˜money leaves home a servant and comes back a master?â," I've wracked my brain to get that.â,
The reader refers to the trade deficit. We hate to think of her wracking her brain over so trivial a matter, so we will attempt to explain what we mean in plain prose.
First, a lamentation: the trouble with public life in this great empire is that people donâ,"t have the proper disrespect for it. They read the news and take it seriously. They listen to politicians and forget to laugh. They put books by economists in the non-fiction section. They buy magazines about celebrities such as Paris Hilton and Hilary Clinton. They want to discuss â,"public policyâ, with their friends.
Rare is the citizen who tries to figure out what the trade deficit is all about, and that poor soul has our sympathy.
We offer her a bit of recent history.
Back in the Land Before Internet, there was a group of voters known as â,"Republicans.â, These people bemoaned deficits, bewailed debts in all forms, and bedeviled the ruling party - known as â,"Democratsâ, - with their constant complaints and warnings. Then, the â,"Republicansâ, found a champion - a former radio announcer named Ronald Reagan - and with him at the head of their legions they were able to smite the â,"Democratsâ, and drive them from office.
But once in power themselves, these â,"Republicansâ, fell under the spell of the Lorelei, known as â,"new conservatives,â, or â,"neoconservatives,â, who argued that the group needed an activist agenda similar to the one that served the Roman Empire - bread and circuses at home, wars overseas.
â,"But how can we afford such things,â, asked the old â,"Republicans?â,
â,"Donâ,"t worry,â, said the new conservatives, â,"deficits donâ,"t matter.â,
And so, the new conservatives did what no conservatives had ever done before - they became big spenders, worse than the â,"Democratsâ, who preceded them. By the reign of George Bush the Younger, the new conservatives were running up more debt every 18 months than all the presidents and all the administrations had since the republic was founded 204 years previously.
Those were just the fedsâ," public debts, but their pocket economists applied the same thinking to the nationâ,"s private accounts. â,"Donâ,"t worry about the trade deficit,â, they said, â,"it is really a sign of economic health, not weakness.â,
Another George - George Gilder, he of un-hedged faith in Global Crossing, whose spectacular collapse epitomized the tech meltdown - argues that the trade deficit is no problem because the dollars eventually come back to us. We buy things from Asia, and then the Asians take the money and reinvest it again in our economy. What could be better than that?
And that is what has prompted our essay today: yes, the dollars come back, but they went out as servants and they come back now as masters. When they are spent, they are doing our bidding. When they come back, we must do theirs, for they are our new patrons...owners of our factories, our mortgages, our national debt. To them, we owe our jobs, and even our national security.
Most of the foreign debt, for instance, is in the hands of the Japanese and Chinese. Without their support, the United States can afford neither its bread and circuses at home, nor its wars overseas.
But no true superpower can be beholden to its foreign creditors, says Paul Craig Roberts. No real empire has ever been in such a compromising position, adds Niall Ferguson. He who pays the piper, we note, eventually calls the tune.
And, no Daily Reckoning reader should miss the financial implication: the dollar is doomed. Yesterday, June contracts on euros rose to $1.26. Gold went up to $660.
The dollar is doomed for the simple reason that there is no one left to protect it. The old â,"Republicansâ, may wrench themselves around in their graves restlessly, but what can they do? Everything degrades, degenerates, and destabilizes - even political parties. And the Republican Party is now in the hands of big spenders, activists, dreamers, and schemers. The Fed is now run by a man who believes he can â,"targetâ, inflation, and keep the economy booming.
The authorities can control the quantity of the dollar or its quality - but not both. Those who might have controlled its quality have disappeared from public life. What would you expect? The quantity is running wild. For the â,"New Republicans,â, what had once been a matter of principle has now become a matter of convenience. And soon, the destruction of the currency will become a matter of fact.
*** Hereâ,"s another ridiculous idea thatâ,"s been brought up to help ease consumers' worries over prices at the pump...
Last week, the Republicans assembled an energy package after public complaints about high gas prices were heard nationwide. The centerpiece of this â,"leadership proposalâ, is - $100 rebate check to compensate taxpayers for higher gasoline prices.
â,"Political anxiety in an election year is to blame for a lot of the bad bills Congress passes,â, said Representative Jeff Flake, Republican of Arizona, who on Monday called the rebate a â,"knee-jerk populist ideaâ, that voters would see through.
*** Crude futures gained $1.82 on Monday, pushing the price back up over $74 a barrel. Most think that the price isnâ,"t going to stop there...
â,"Deputy Iranian oil minister M.H. Nejad Hosseinian told a news conference in New Delhi that oil prices will spike to $100 a barrel this winter because supply cannot be increased to meet higher demand,â, reports MarketWatch.
And the crude craziness continues...Iran still wonâ,"t budge on their nuclear ambitions; everyone still has their watchful eyes on Nigeria, anticipating more attacks on their foreign oil pipelines, and the Bolivian government has announced that they are moving to nationalize oil and gas assets.
While Bolivia's move "has not immediately removed product from the marketplace, another Latin American leader whose populist intentions may prove inimical to the global economy can only add to wall of worry about potential supply threats," said John Kilduff, an analyst at Fimat USA
Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.
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