A Bankrupt Superpower

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan
administration. He was Associate Editor of the Wall Street Journal editorial
page and Contributing Editor of National Review. He is coauthor of The
Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@xxxxxxxxx

A Bankrupt Superpower
The Collapse of American Power

By PAUL CRAIG ROBERTS

http://www.counterpunch.org/roberts03182008.html

In his famous book, The Collapse of British Power (1972), Correlli Barnett
reports that in the opening days of World War II Great Britain only had
enough gold and foreign exchange to finance war expenditures for a few
months. The British turned to the Americans to finance their ability to wage
war. Barnett writes that this dependency signaled the end of British power.

From their inception, America's 21st century wars against Afghanistan and
Iraq have been red ink wars financed by foreigners, principally the Chinese
and Japanese, who purchase the US Treasury bonds that the US government
issues to finance its red ink budgets.

The Bush administration forecasts a $410 billion federal budget deficit for
this year, an indication that, as the US saving rate is approximately zero,
the US is not only dependent on foreigners to finance its wars but also
dependent on foreigners to finance part of the US government's domestic
expenditures. Foreign borrowing is paying US government salaries--perhaps
that of the President himself--or funding the expenditures of the various
cabinet departments. Financially, the US is not an independent country.

The Bush administration's $410 billion deficit forecast is based on the
unrealistic assumption of 2.7% GDP growth in 2008, whereas in actual fact
the US economy has fallen into a recession that could be severe. There will
be no 2.7% growth, and the actual deficit will be substantially larger than
$410 billion.

Just as the government's budget is in disarray, so is the US dollar which
continues to decline in value in relation to other currencies. The dollar is
under pressure not only from budget deficits, but also from very large trade
deficits and from inflation expectations resulting from the Federal
Reserve's effort to stabilize the very troubled financial system with large
injections of liquidity.

A troubled currency and financial system and large budget and trade deficits
do not present an attractive face to creditors. Yet Washington in its hubris
seems to believe that the US can forever rely on the Chinese, Japanese and
Saudis to finance America's life beyond its means. Imagine the shock when
the day arrives that a US Treasury auction of new debt instruments is not
fully subscribed.

The US has squandered $500 billion dollars on a war that serves no American
purpose. Moreover, the $500 billion is only the out-of-pocket costs. It does
not include the replacement cost of the destroyed equipment, the future
costs of care for veterans, the cost of the interests on the loans that have
financed the war, or the lost US GDP from diverting scarce resources to war.
Experts who are not part of the government's spin machine estimate the cost
of the Iraq war to be as much as $3 trillion.

The Republican candidate for President said he would be content to continue
the war for 100 years. With what resources? When America's creditors
consider our behavior they see total fiscal irresponsibility. They see a
deluded country that acts as if it is a privilege for foreigners to lend to
it, and a deluded country that believes that foreigners will continue to
accumulate US debt until the end of time.

The fact of the matter is that the US is bankrupt. David M. Walker,
Comptroller General of the US and head of the Government Accountability
Office, in his December 17, 2007, report to the US Congress on the financial
statements of the US government noted that "the federal government did not
maintain effective internal control over financial reporting (including
safeguarding assets) and compliance with significant laws and regulations as
of September 30, 2007." In everyday language, the US government cannot pass
an audit.

Moreover, the GAO report pointed out that the accrued liabilities of the
federal government "totaled approximately $53 trillion as of September 30,
2007." No funds have been set aside against this mind boggling liability.

Just so the reader understands, $53 trillion is $53,000 billion.

Frustrated by speaking to deaf ears, Walker recently resigned as head of the
Government Accountability Office.

As of March 17, 2008, one Swiss franc is worth more than $1 dollar. In 1970,
the exchange rate was 4.2 Swiss francs to the dollar. In 1970, $1 purchased
360 Japanese yen. Today $1 dollar purchases less than 100 yen.

If you were a creditor, would you want to hold debt in a currency that has
such a poor record against the currency of a small island country that was
nuked and defeated in WW II, or against a small landlocked European country
that clings to its independence and is not a member of the EU?

Would you want to hold the debt of a country whose imports exceed its
industrial production? According to the latest US statistics as reported in
the February 28 issue of Manufacturing and Technology News, in 2007 imports
were 14 percent of US GDP and US manufacturing comprised 12% of US GDP. A
country whose imports exceed its industrial production cannot close its
trade deficit by exporting more.

The dollar has even collapsed in value against the euro, the currency of a
make-believe country that does not exist: the European Union. France,
Germany, Italy, England and the other members of the EU still exist as
sovereign nations. England even retains its own currency. Yet the euro hits
new highs daily against the dollar.

Noam Chomsky recently wrote that America thinks that it owns the world. That
is definitely the view of the neoconized Bush administration. But the fact
of the matter is that the US owes the world. The US "superpower" cannot even
finance its own domestic operations, much less its gratuitous wars except
via the kindness of foreigners to lend it money that cannot be repaid.

The US will never repay the loans. The American economy has been devastated
by offshoring, by foreign competition, and by the importation of foreigners
on work visas, while it holds to a free trade ideology that benefits
corporate fat cats and shareholders at the expense of American labor. The
dollar is failing in its role as reserve currency and will soon be
abandoned.

When the dollar ceases to be the reserve currency, the US will no longer be
able to pay its bills by borrowing more from foreigners.

I sometimes wonder if the bankrupt "superpower" will be able to scrape
together the resources to bring home the troops stationed in its hundreds of
bases overseas, or whether they will just be abandoned.


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