Tuesday, February 27, 2007

"You Are Not Free, And You Are Not Safe"

In 1900, the United States was a creditor nation: we loaned money to others, and invested both at home and overseas. We exported far more than we imported, in both raw and finished commodities. And we were on our way to becoming the most powerful nation on earth -- economically, militarily, and morally.

Fast forward 100 years. We are the world's largest debtor nation. We import far more than we export, with China being our largest source of overseas imports. And our entire economy is based on borrowing from other nations, with China being our second largest foreign creditor.

If you'd like to lie awake tonight, ask yourself: what would happen if China declined to buy any U.S. bonds whatsoever at the next bond auction, effectively declining to continue refinancing the national debt? Answer: our economy would collapse, Great Depression-style.

Or, for a less extreme example, ask yourself: what would happen if China unilaterally decided to discourage investment in its own stock market, depressing Chinese stock prices? It would be pretty to think that a slide in the internal stock market of a nominally insular, Communist country would be largely irrelevant to the capitalist West. But the truth is harsher, as demonstrated by today's worldwide slide in stock prices. China's government makes a decision about its own stock market, and our stock market takes a slide. Tomorrow, things will either continue to deteriorate, or China will take steps to reassure Western investors -- but which way things go will mainly be up to China, not to us.

Essayist and poet Wendell Berry, in his excellent collection of essays Sex, Economy, Freedom and Community, wrote this: "If you are dependent on people who do not know you, who control the value of your necessities, you are not free, and you are not safe." Until we can become self-reliant again -- not isolationist, but self-reliant, capable of controlling our own destiny as a nation -- we will remain unfree, and we will remain fundamentally unsafe, no matter how many nukes we possess. And that, in large part, is why free-trade, DLC Democrats are nearly as dangerous to America's well-being as the free-trade, corporatist Republicans they are copying.

UPDATE, MARCH 3: Next-day rise in US indexes notwithstanding, it's not over yet....

UPDATE, MARCH 4: Still not over... Others are acknowledging that China's woes are the world's woes (so is it "protectionist" to want to loosen that connection?)... And as Treasury yields decline, there'll be less incentive for people to buy them (i.e. to finance the continual expansion of the national debt), which means the face yield of G-bonds will need to increase, which will increase the national debt even more (just like your credit card balance will go up if the interest rate rises but you keep just paying minimums), and pressure will increase on our policymakers to eventually allow higher inflation to artificially reduce our debt load in real dollars. You can't take away just one card from a house of cards...
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5 comments:

Lewis said...

I can't imagine where you have come up with the idea that China could create a great depression in America by not buying treasuries. This is patently untrue. Also, as a protectionist, isn't China not buying US debt exactly what you want? Where did you receive your education in macroeconomics?
Also, it's very childish to complain about America as the nation's largest debtor nation. We are the world's largest economy by far, so whether we are a debtor or creditor, we are liable to be the largest of whatever designation we hold. I bet you do understand this, but as a blabbering propagandist, the truth is probably irrelevant to you.
Finally, what leads you to believe that if America closed its economy, people would know the people who make their goods. Even in a closed economy, in a 300 million person nation no one has any chance of knowing the guys who make x or y.

Thersites D. Scott said...

Lewis:

I'll set aside your ad hominem attacks, and try to address the more substantive points in your comment:

1. I can't imagine where you have come up with the idea that China could create a great depression in America by not buying treasuries. This is patently untrue. Actually, I can't imagine where you came up with the idea that China COULDN'T do so. Imagine you're living on credit cards, using one card to pay the minimum due on another, month by month. That's what the U.S. is doing, borrowing (largely from foreign investors) to pay the interest on the national debt; every T-bill auction largely generates money to pay the older T-bills that are now coming due. We're borrowing all the time to pay the minimum due on the national debt, auction by auction. Now image that all your credit cards got closed, and you had no cash on hand to pay your bills as they came due. What would happen? You'd crash, that's what you'd do. And that's what would happen if foreign investors decided to stop buy U.S. treasuries: we'd lose the income stream we're currently using to pay our minimums. And we'd crash. If you were a true conservative -- a fiscal conservative -- you'd both know this as a visceral truth, and you'd be joining the ranks of true conservatives who are fighting the fiscal non-conservatives who are denying it.

2. as a protectionist, isn't China not buying US debt exactly what you want? I don't want China to have the power to pull the plug. I do want the U.S. to change its policies so that we borrow less and less money every week, to the point that we wouldn't NEED China to keep borrowing from us. That would restore a measure of fiscal sovereignty that we currently lack.

3. Where did you receive your education in macroeconomics? The University of California, Davis.

4. it's very childish to complain about America as the nation's largest debtor nation. We are the world's largest economy by far, so whether we are a debtor or creditor, we are liable to be the largest of whatever designation we hold. This is a specious argument. It would be nice to be the biggest democracy; it would be bad to be the biggest dictatorship. It's nice to be the biggest genius; it's bad to be the biggest idiot. And while it's good to be the biggest creditor nation in the world, as we used to be, it's terrible to be the biggest debtor nation, as we now are.

5. what leads you to believe that if America closed its economy, people would know the people who make their goods Straw man: I didn't say anything about "knowing the people who make our goods." I don't care a whit about whether my next door neighbor makes my television, or someone across the country. What I DO care about is that the profits from my TV's manufacture remain more or less in my community, and the first definition of "my community" in economic terms is "my nation": I want the profits from American economic activity to remain, as much as possible, in America. Up to about 1980, the U.S. imported raw materials and exported finished goods, and the profit created prosperity here at home. Today, we mainly export raw materials and import finished goods, and the profit goes to people in other countries. Is it "protectionist" to want to keep my blood in my body, or my nation's wealth in my nation? I personally donate blood regularly, and I believe in having BALANCED foreign trade, but I don't believe in unbalanced policies that bleed our wealth to foreign investors and slowly kill our own middle class.

Take care.

lucretia said...

Theresites:
Since Lewis is literal lets cut tothe chase. China has billions in treasuries and only has to call them in to set up an American Depression. But they won't now because they heavily need American consumers. However,how tempting it must be when the Chinese hear American braggert leaders talking about "morals", how bad China is etc., as these American leaders go about screwing the world!

Think I made it on to your blog. My old computer went out a month ago,but now have new one, laptop since yesterday, and love it.

The Hillary DLC's are loaded with money and power meaning they can launch a huge campaign influencing voters more than anyone wlse can. All these people care about is ads, no substance, just short stuff. Of course they will continue in Iraq and through the OPEC countries for American hegemony in oil. control of world energy and therefore control of the world. That's always been it with the fascist Bush group, and the Al From DLC Demos see it that way also. We've sacrificed 3000 of our youth for this purpose and thousands of Iraqi lives. This is sickening to me beyond reason. War on Terror---the terror is right here at home, meet your enemy!

i.m.small said...

EXECUTIVE WORTH

Soon I shall be a homeless man
Because I took on debt
To pay my taxes--this with an
Income than which to get
Smaller is very hard--
You understand me, pard?

Nor am I but the only one:
Why, up and down the ´hood
My neighbors suffer, while is done
Less than perhaps as could
By those in government,
Rascals all self-content.

I never took on debt before
But lived within my means--
While taxes go to pay for war
While I am counting beans:
Black beans and rice to eat
Tonight--forget the meat!

The representatives as put
In Washington, like leeches,
Seem to be rather full in gut
However that one preaches
Restraint and abstinence:
It doesn´t make good sense.

But Scooter Libby, O he was
A family man, and to
Be granted jail time for the laws
He broke his crew all rue:
Those several months away
As though calamity!

The lesson is, if one must be
A thug, the better climbers
Are all executives, you see,
While balladeering rhymers
Complain their lot. Still, listen:
They are not worth the pissin´.

fred said...

The U.S. "friends" will one day no longer wish to buy our debt. We will print more money. Inflation will turn into Hyper inflation. A loaf of bread will be $20. Then the Europrean union will step in and offer to buy up our debt (at a discount of course) if we adopt the eurodollar as our national currency. Americans will give up anything in order to keep our standard of living. Hello socialism (Obama). Hello a Global "New Financial Order". Hello one world government. The bible predicts it and we will most likely live to see it come to pass.