The US Congressional Joint Economic Committee's monthly memorandum for June 2005 stated, "Without an increase in national saving, any reduction in the current account deficit would be accompanied by reduced national investment that would harm future growth." Among the committee's recommendations was the suggestion of reducing the US budget deficit. Instead, US budget deficits, inflated by military spending, have got worse.
For the moment, with their massive holdings of US government debt, China, Hong Kong, Japan, South Korea, Taiwan and European countries continue to help the US government operate large budget deficits without high interest rates. Since United States savings have been so low for so long, the US authorities rely on foreign savings for investment to sustain growth. Currently, sustaining any level of US economic growth depends on the country's huge current account deficit.
In January 2007 representatives of the influential Peterson Institute said in testimony to the Budget Committee of the House of Representatives, "we have become so dependent on additional inflows of very large amounts of foreign funds that any significant setback therein would have substantial consequences for our economy." Those consequences are stagflation and recession, which are showing up already. The foreign policy response of both the US government and the rest of the two-headed single-party plutocracy in the US has been to balloon the budget deficit with increased military spending.
Accompanying that militarism, monetary policy has stoked inflation by devaluing the dollar, perhaps in the hope of shrinking the trade deficit. But even as the trade deficit diminishes thanks to the depreciating dollar, although exports may increase, imports may not fall much in the medium and long term. As foreign capital buys up US assets, that foreign investment should stimulate activity, increasing imports. Conversely, inward foreign investment to the US implies lower levels of investment in the countries originating that investment, which may adversely affect US exports.
In "Why a Dollar Depreciation May Not Close the U.S. Trade Deficit" Linda Goldberg and Eleanor Wiske Dillion note that 92.8% of US imports are invoiced in dollars rather than foreign currency. They observe that foreign companies may hold prices low so as to maintain market share. They also note that since imported goods' marketing and distribution costs in the US are in dollars, that too will diminish the effect on import prices of a cheaper dollar.
They write, "Together, these three factors suggest that, all else equal, we may not see the sort of significant escalation in import prices that would prompt U.S. consumers to curtail their demand for foreign goods and switch their purchases to equivalent goods produced at home. Improvement in the trade balance following a dollar depreciation will most likely be achieved instead through increased foreign purchases of newly affordable U.S. goods. Nevertheless, if the nation's consumption patterns are not "rebalanced" away from imports, then the total adjustment in U.S. trade following the depreciation of the dollar could still fall markedly short of expectations."
The trade deficit is sustainable as part of the current account deficit - so long as foreigners keep buying the requisite amounts of US debt. As the US dollar declines, the value of US assets overseas, mostly in Europe, increases. Income from those assets makes it easier to manage the country's external debt, but perhaps not enough to keep up with reaction against, among other things, the failure of the Doha trade round and Western Bloc military campaigns in Iraq and Afghanistan.
US and European imperialist hypocrisy over domestic subsidies has made other countries less inclined to open up their economies further and sell off their assets to Western Bloc corporations if they can avoid doing so. Outside the Western Bloc countries and their regional proxies, attitudes to those countries' hypocrisy on trade policy and on debt range from scepticism to contempt. Cuba, Iran and Venezuela are perhaps the most obvious examples of that.
This contributes to the obscure imperialist logic leading the US to sustain the blockade against Cuba, threaten Iran, foment regional conflict in South America and provoke Russia by trying to build military installations on its borders. The US is unlikely to leave Iraq or Afghanistan until its troops are eventually forced out. In South America, the US authorities have already signalled, via the now well-known Plan Balboa, they intend to use Colombia's army and paramilitaries as footsoldiers for an attack on Venezuela with US air and naval support. In eastern Europe, they have provoked Russia into a military build-up with echoes of the Cold War.
If it comes, an attack on Venezuela will be seen rightly as a new imperialist assault to make Latin America's resources and economies serve the economic needs of the United States and its Western Bloc allies. It will be a reckless gamble on how far Latin America's international relations and politics have been transformed over the last decade. The reaction is likely to be different to the impotent resignation that tended to greet US aggression in the 1980s, but perhaps not different enough to thwart the imperialist double-or-quits attack.
The US domestic economy is in much worse shape now. The threats against Iran and the menaces towards Venezuela, seem to be aimed ultimately at China, a major energy client of both Venezuela and Iran. The US plutocracy may have calculated that the benefits of outright aggression against energy suppliers to China outweigh the drawbacks. They may calculate, probably correctly, that Chinese - and Brazilian - leaders will prioritise maintaining the economic status quo over anti-imperialist solidarity.
The US plutocracy supports the militarist, uniformly cynical and sadistic Bush regime. Together they are clearly preparing for war against Iran and Venezuela, regardless of the damage to the people of the United States. Their unprecedented military spending and international network of military bases show they have given up any serious rational attempt to manage US deficits so as to benefit the ordinary people of the United States.
Like true fascists they seem committed to the idea of a violent aggressive breakthrough that will sweep away problems, leaving King Juan Carlos W. Bush and his retinue, like Balboa on that peak in Darien, unhindered masters of all they survey. Compromise and negotiation, like piggy banks and saving, are beneath corporatist supermen like them. Bush and his fellow warmongers seem intent on bombing their way to ensure the necessary and sufficient conditions for sustaining the US current account deficit.
It is of little comfort to remember that Pedrarias Davila executed Balboa for conspiracy. Corporate globalization for the benefit of Western Bloc multinational business is the decisive motive driving US foreign and domestic policy. Supposing the US elections go ahead as scheduled in November, whichever faction of the single-party US plutocracy wins will still be locked into the anti-sovereign nation state corporate globalization dynamic. Even without the insistent Israeli lobbying, fears of war against Iran are all too well- founded. A move against Venezuela is unlikely to be far behind.
toni writes for tortillaconsal.com