[News] The Collapse of American Power

[Anti-Imperialist News]

http://www.counterpunch.org/

March 18, 2008


A Bankrupt Superpower


The Collapse of American Power

By PAUL CRAIG ROBERTS

In his famous book, 
<http://www.amazon.com/exec/obidos/ASIN/0862990742/counterpunchmaga>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.

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 
<http://www.amazon.com/exec/obidos/ASIN/0307396061/counterpunchmaga>The 
Tyranny of Good Intentions.He can be reached at: 
<mailto:PaulCraigRoberts at yahoo.com>PaulCraigRoberts at yahoo.com




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