2. In 1916, at the start of World War I, the public debt was 1 Billion, rising to a peak of 26 Billion in 1919 to finance the war( WARS DO THAT)
The stagnation of real wages ?- wages adjusted for inflation ?- actually goes back more than 30 years. The real wage of nonsupervisory workers reached a peak in the early 1970's, at the end of the postwar boom. Since then workers have sometimes gained ground, sometimes lost it, but they have never earned as much per hour as they did in 1973.
The Looming Dangers of American Debt
Wednesday, June 7, 2006
America has become a nation of debtors. Increasingly, that debt is held by foreign nations?-some of which are enemies.
What does the term serf bring to mind? Poor, indebted, landless, forced labor?-perhaps even medieval. Shockingly, serfdom is a reality many Americans may face in the future. Here is why.
The U.S. national debt now stands at more than $8.3 trillion, of which more than $2 trillion is owned by foreigners. Since 2000, the percentage of U.S. public debt owed to foreigners has doubled.
Take China for example. As of March of this year, China held over $321 billion worth of U.S. Treasuries, up from the $60 billion it owned at the end of 2000. Similarly, Japan now owns $640 billion worth of U.S. Treasuries, up from $317.7 billion in December 2000. Lately, however, America has also borrowed heavily from oil exporter nations (as defined by the Department of the Treasury), which include many nations that despise America. Luminaries such as Venezuela, Ecuador, Iran, Libya, Algeria, Indonesia and Iraq, and several other primarily Middle Eastern nations, now own $98 billion worth of U.S. debt.
According to Brad Setser, director of research at Roubini Global Economics, "The irony is that the three countries in the world adding to reserves the fastest and thus buying the most U.S. debt now are China, Saudi Arabia and Russia, none of them democracies. We are increasingly counting on a group of creditors who are not our closest friends but have a bigger and bigger stake in America," he says.
So America's debt is growing, and a greater amount is in less reliable hands.
This creates two problems.
First, the value of the dollar is increasingly dependent upon foreigners. This makes the U.S. vulnerable to coercion and blackmail.
In commenting on this radical shift in holders of U.S. debt, Frederick Kempe of the Wall Street Journal says, "The more closely economists study that data, the more they worry," especially over America's "decrease[d] influence over the world's largest market, the $2 trillion in foreign exchange that changes hands daily. The dollar forex market can increasingly be shifted by decisions that foreign governments make about selling dollar assets. What's also at stake is leverage on matters as diverse as U.S. home mortgage rates and America's global political clout" (May 9).
For example, remember what happened on June 23, 1997, when former Japanese Prime Minister Ryutaro Hashimoto wondered aloud about what would happen to the U.S. economy if Japan diversified and began to sell some of its, at that time, $300 billion in U.S. Treasury securities (remember Japan now owns more than $640 billion worth). Following Hashimoto's remarks, the Dow Jones Industrial Average plunged by the largest single day amount (at that time) since the Crash of 1987. Aids to Hashimoto were quick to say that the comments were not intended as a threat. Since then, other foreigners have wondered aloud about dumping U.S. debt (Treasuries), also causing ripple effects through global markets (Moscow Times, May 11).
But what if, at some point, our debtors did want to influence American policy? In a potential conflict between China and Taiwan, would China stand idly by, holding $321 billion in U.S. debt, if the United States was to interfere to protect democratic Taiwan? Would Taiwan simply hold its $68.9 billion if China attacked it and America did not come to its aid?
What if China and Taiwan were to peacefully reunite? Together they would control $389.9 billion worth of U.S. debt. Since China also controls Hong Kong, you can add in an additional $46.6 billion worth of U.S. debt, for a grand total of $436.5 billion.
That is a huge chunk of potential economic or political influence. So much influence that if China even "reduces its Treasury purchases, the U.S. would run into difficulties" financing its debts, says the Nikkei Weekly. That same publication says Chinese leaders have boasted that because China is such an important lender to America, "Beijing is holding a dagger to Washington's throat" (May 1).
The second problem with having foreigners hold so much U.S. debt is the risk that foreigners may choose to stop accumulating it and start spending it. As with any person, the more money you have, the greater the pull to spend. If foreign nations begin to spend their dollars, the increased supply of U.S. greenbacks in circulation would probably drive the value of the dollar down, making American possessions less expensive relative to assets in other currencies. Consequently, American corporations and businesses could increasingly become targets of foreign acquisitions.
There are signs that some of America's top corporations are already being snapped up.
Last week, American-owned Engelhard Corporation, a strategic manufacturer of catalytic converters and precious metals processing, announced that it would succumb to German-owned basf's $5.6 billion hostile takeover?-the largest-ever hostile takeover of an American company by a German corporation. Engelhard employs approximately 7,000 people worldwide.
In April, France's telecommunications giant Alcatel sa announced it would acquire American telecom equipment maker Lucent Technologies Inc. for $13.4 billion. Since then, thousands of American workers have been laid off.
In February, Japan's Toshiba Corp announced that it had purchased Pennsylvania-based Westinghouse Electric, the manufacturer of nuclear reactor technology, for $5.4 billion (Chicago Sun Times, February 7). Westinghouse had previously been purchased by a British-owned company.
That same month, Dubai Ports World, a United Arab Emirates company, announced it was trying to purchase the right to manage six of America's largest port complexes, including those of New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia, from another British company. That deal later fell through due to national security concerns and congressional resistance.
During 2005, congressional opposition blocked another high-profile foreign takeover when Chinese-owned oil company cnooc proposed to buy out U.S. oil company Unocal for $18.5 billion (Financial Times, London, February 9). Slightly more than a month prior to the attempted Unocal deal, China's Lenovo Group bought ibm's personal computer unit for $1.75 billion.
Unfortunately, American companies increasingly look like a smorgasbord ready to be gobbled up.
But what if Congress continues to block foreign acquisitions, as it did with cnooc and Dubai Ports World? Foreign investors might become less willing to lend money to the United States. If foreigners are prevented from spending their American dollars on American acquisitions, they might begin to ask themselves why they are purchasing and holding so many U.S. Treasuries?-and decide to dump them. Not good news for an already weak dollar.
America's indebtedness is endangering the nation. Edwin Truman, who directed the Federal Reserve System's Division of International Finance for 20 years, is not a doomsayer, but even he is warning America that there is now a 10 to 15 percent probability of a "catastrophic collapse of the financial system." Never mind about the regular-type collapses: He is warning about a "catastrophic" disaster on the scale of the Great Depression or worse (Wall Street Journal, op. cit.).
Overspending has indebted America to the rest of the world. We owe the world so much that the threat of other nations inducing a U.S. economic disaster by just refusing to lend us more money is now a reality. As such, as America's indebtedness grows, America is less able to protect strategic industries from foreign takeovers.
Who is a serf? A serf is one whose destiny is owned by others. Someone else owns the land he slaves on. Someone else owns the profits and technology he develops. All the fruits of his labor flow to his owners.
Debt is turning America into a serfdom.
the dismal science
The Last Laffer
Bush's Treasury admits that tax cuts aren't free.
By Jason Furman
Posted Monday, July 31, 2006, at 1:16 PM ET
In Washington, as in fairy tales, be careful what you wish for. In a February speech, Vice President Cheney said, "It's time to re-examine our assumptions and to consider using more dynamic analysis to measure the true impact of tax cuts on the American economy." Calling for "dynamic analysis" or "dynamic scoring" can be supply-side code language for the view that tax cuts pay for much or all of themselves through stronger economic growth. Cheney proposed creating a new unit within Treasury to conduct this dynamic analysis and confidently predicted that it would find that tax cuts increase government revenues.
Six months later, Treasury's first dynamic analysis of the president's policies is out. It belies the claim that the Bush proposal to make his tax cuts permanent will either pay for itself or galvanize the economy.
There has long been a conflict between responsible conservative economists who make carefully hedged claims about the relatively modest economic effects of tax cuts and Laffer curve lovers, who think that tax cuts always spur enormous gains. And lately, emboldened by the large jump in tax revenues in 2005 and 2006 (and conveniently overlooking the nearly unprecedented three consecutive years of declining tax revenues that preceded it), Laffer disciples have widened their separation from mainstream economists into a chasm.
On one side of the divide is the supply-sider in chief, who recently abandoned six years of somewhat more cautious statements on the subject to proclaim that tax cuts really do raise revenues:
Some in Washington think the choice is between cutting taxes and cutting the deficit. This week's numbers show that this is a false choice. The economic growth fueled by tax relief has helped send tax revenues soaring.
On the other side are the intellectually rigorous, professional economists who sit across the street from the White House at the Treasury Department, who were tasked with carrying out Cheney's "dynamic analysis" of President Bush's proposal to make the tax cuts permanent. "An important feature of this model is that a permanent reduction in taxes, as compared to baseline, would lead to an unsustainable accumulation of debt," they write.
In place of a false choice of tax cuts magically paying for themselves and not costing anything, the Treasury offered a very real and painful one: The tax cuts need to be paid for by "either cutting future government spending or raising future taxes." And even if you take the path of cutting government programs?-which is not the path the country is on today?-Treasury found only minuscule economic effects from the tax cuts: a mere 0.7 percent increase in the size of the economy after many years.
To put that number in perspective, averaged over 20 years, an increase in the economy of 0.7 percent is equivalent to a 0.04 percent increase in the average annual growth rate. So, instead of limping along at a mere 3 percent growth rate, the economy would charge ahead at a 3.04 percent growth rate.
Notably missing from the Treasury report was the variable of greatest public interest: revenues. Although Treasury's model almost certainly estimated the degree to which the added growth helped pay for the tax cuts, officials there appear to have chosen not to report the number. But some simple arithmetic can fill in this gap: About one in every five dollars of national output is collected by the federal government in taxes. If that same ratio applies to the output added by the economic effects of the tax cuts, then the added revenues produced by the increased economic growth would be enough to offset less than one-tenth of the official "static" estimate of the tax cuts' cost.
Furthermore, all these barely perceptible benefits rest on the assumption that starting in 2017, the tax cuts would be fully paid for with cuts of unprecedented depth in federal programs?-totaling about a 50 percent reduction in all domestic spending other than entitlements like Social Security and Medicare. If such cuts were not made?-and not even President Bush has proposed making them?-then the resulting deficits, debt, and eventual tax increases would eliminate even these modest economic benefits.
If we believe that spending cuts of this magnitude are unrealistic, then the Treasury economists have another important finding: The sooner we get rid of the tax cuts, the better it will be for the economy. Specifically, they found that national output would be 0.9 percent higher in the long run if we let them expire in 2010 rather than allowing them to continue along, forcing us to face even bigger tax increases in the future to make up for all of the added deficits and debt.
The Treasury report probably won't change the minds of supply-siders, coming as it does on top of 25 years of similar findings by economists. But it should help convert Democrats into true believers in dynamic analysis.
Jason Furman is a visiting scholar at New York University's Wagner Graduate School of Public Administration.
Article URL: http://www.slate.com/id/2146868/
Dumb and Dumber on 'Bulls and Bears'
Reported by Judy - September 2, 2006 - 54 comments
Brenda Buttner, after pleading with folks to watch her show, delivered one of the dumbest business shows to come along in a long time in Saturday's (September 2, 2006) edition of "Bulls and Bears.".
Buttner not only cobbled together two premises for her show that had nothing to do with business, she also let her unqualified regulars show their incredible ignorance.
She began, for yet another week, with the question of whether Iran's nuclear enrichment plans matter to Wall Street. Charles Payne, of wstreet.com, began with the first of several pretty silly comments, saying this week's deadline was a good thing because it means the U.S. is closer to doing something and that's why the stock market went up last week. Huh?
Nobody else followed the logic in that remark either, with Tobin Smith, of Changewave Research, saying the market doesn't care about Iran right now.
A few minutes later, Payne was back into the mix, saying that the problem in dealing with Iran lies with U.S. allies. "We want to bring Germany and France closer to the fold," he said.
Germany and France? Even Scott Bleier, of hybridinvestors.com, knew that was wrong, correcting Payne that it is China and Russia that appear to want to block sanctions on Iran.
Then it was Tobin Smith's turn to put his foot in the mouth. Pretending he was on his cell phone, Smith said he had just gotten a phone call from Islamabad and that the rulers of Iran were happy that they were the main topic on "Bulls and Bears."
Sorry Toby. As Pat Dorsey, of morningstar.com, pointed out, Islambad is not in Iran, but Pakistan.
Then Tracy Byrnes, New York Post business writer, caught the dumb bug, advocating that the U.S. attack both North Korea and Iran. "We just need to take all these people out, and then we can pretty much go on from there," she said, drawing some murmurs of concern from the regulars.
The show was barely half over and already this bunch had embarrassed itself pretty badly, but Buttner went on to her next segment, which also had absolutely nothing to do with business news. This segment asked whether Wall Street believed Democrats would be better than Republicans in fighting terror.
Democratic strategist Susan Estrich laid out a pretty good case for why people should give up on Republicans as the party to handle national security. "They've given them six years and what have they got? They got a 9/11 commission that the Republicans fought and then the Republicans haven't implemented the recommendations. They've gotten a war in Iraq which is against the wrong enemy, turned the whole world against us. They've got a Department of Homeland Security that can't deal with the mess of Katrina. So I think the idea is when you got a party that can't do the job, you might as well look to the other party for an improvement," she said.
Then Buttner turned the Republicans on the panel loose on her.
Payne noted, "Homeland Security and Katrina -- I don't know that that is necessarily their department." Since when? Did Bush outsource that to Halliburton, too?
Tobin Smith backed up Payne with, "The bottom line is where's the attack? We've probably stopped 15 or 20 that we haven't heard of." I doubt that. Bush wouldn't miss a chance to crow. Look at the publicity over that hapless bunch they arrested in Florida.
Estrich countered with, "The fact that we don't know about it means we should trust the people even though everything we know they've done, they've done wrong? They've bungled the war in Iraq, bungled the response to Katrina, bungled the response to the 9/11 commission, but because of what we don't know about, we should trust them?"
A decent response, but too complicated for this bunch of dummies to understand.
Bush is claiming a big turn towards victory with the arrest of a high official of al-Qaida in Iraq. However, al-Qaida is a sideshow in Iraq, where things are rapidly going down hill. Military experts, including many at the Pentagon, think that Bush is nuts with mental deterioration.
http://www.capitolhillblue.com/content2/2006/09/bush_diddles_while_iraq_burns.html
