It's Not Just Me - US economic imbalance noticed

In this long, hot summer, my manic net preachery took a pause. As there is an ever-deteriorating situation in Iraq, Afghanistan, Palestine/Israel, Chechnya and elsewhere; as the ABB virus swept over the leftist press including the anti-Iraq-war Blogosphere; and anti-public-transport and anti-regenerative-energies policies progressed across Europe, even I got wondering at the futility of stating the truth.

But recently, some encouraging signs have built upon each other. Some people are waking from their liberal hypocrisy of caring for the Troops but caring only in words for the involuntary war participants (i.e. the natives). Spot-on criticisms of US Democrats with a look beyond the elections by Jonathan Steele and - with a different twist - Naomi Klein in The Guardian, as well as a longer piece in Lenin's Tomb. The dogmatically neoliberal Danish government giving up on its project to kill one of its main export industries by re-committing to the expansion of wind power, while Canada's ruling Liberals finally committing themselves to massive regeneratives expansion, despite a more conservative new leader.

And also this article in, of all places, the Business Week: The Unbearable Costs of Empire by one Mark Weisbrot. The theme is an old one, that the US can't afford the Empire its political establishment daydreams of:

The bottom line is that the American empire just isn't affordable. Within a decade or so, the U.S. will be forced to be much less preemptive and outward-looking and to engage in scaled-back foreign policy -- even if the foreign-policy Establishment never changes its views or ambitions.

What is more interesting is a description of US deficits, and their financing through borrowing from foreign banks, as a global economic imbalance ripe for a self-correction.

I'll quote some of it - first on hidden parts of the budget:

...the U.S. is entering this new age of empire with a gross federal debt that is the highest in more than 50 years as a percentage of gross domestic product. For fiscal 2005, which begins in October, the U.S. gross federal debt is projected to be $8.1 trillion, or 67.5% of GDP. By the time 100,000 U.S. troops were in Vietnam in 1965, it was 46.9% and falling.

...the most commonly reported estimate of the annual federal budget deficit is $478 billion for 2004. But this number is misleading, because it doesn't include borrowing from federal trust funds -- mostly Social Security and Medicare.

But the money the government is borrowing from Social Security and other trust funds will, with nearly 100% certainty, be paid back -- just like the money it borrows when it sells bonds to Bill Gates or the Chinese government. The [underlying] annual federal budget deficit is, therefore, $639 billion, according to the numbers from the Congressional Budget Office. This is 5.6% of GDP, a near-record level for the post-World War II era.

May I add, the deficit as percentage of GDP would be even higher, would US GDP be calculated without HPI and other tricks (see earlier posts of mine). The article next makes a point about the FED rates and the debt:

...the interest burden on the debt is currently manageable because of extremely low interest rates. But the Fed is expected to raise short-term rates to 2% by yearend. More important, long-term rates will almost certainly rise even more because inflation has accelerated to 4.9% over the last six months -- a big jump from 2003's 1.9%.

The article goes on to outline how this deficit is financed - by foreign cental banks and investors - and points out that this can't be sustained. And here I can read one of my vailings in the wind, for the first time from someone else - that bursting the bubble now is not the worse possibility:

Sometime within a decade, and most likely in the next couple of years, foreign investors will see that a steep decline of the dollar is unavoidable and will begin to unload them and U.S. Treasury securities. As with any bubble, it will be better if this one bursts sooner rather than later, when it would be even bigger. But adjustment and pain will still occur, including higher interest rates and consequently slower growth.

Finally, the author mentions a housing bubble:

Slower growth will also mean larger federal budget deficits. And one event that will certainly slow growth and increase federal government borrowing well beyond current projections is the bursting of the housing bubble. Housing prices have seen an unprecedented run-up since 1995 of more than 35 percentage points above the rate of inflation. That has created more than $3 trillion in paper wealth that –- just like the illusory wealth of the stock-market bubble -- is programmed to disappear. This, too, is almost certain to happen in the next few years.

I'm a bit sceptical here; 35% real value growth doesn't seem all too much, Britain seems a better candidate for a severe housing bubble burst. In the USA, the burst of the house bubble seems more likely as a lesser part of a private debt crisis.

Now, if only a major player in the Kerry team - or, indeed, any major power's government - would have Chirac's critical vision, not just towards secret services but economists who "intoxicate each other" with obvious, self-blinding stuff, too.