The Bush economy gets a one-two punch from both sides of the political spectrum in columns published today in the NYT and Washington Post. Liberal
Paul Krugman hits Bush from the left on our unwieldy federal deficit. Conservative
David Ignatius whacks Bush on our burgeoning trade deficit and Bush's foolhardy weak dollar policy. Together, these columns are a great reminder of why we urgently need to add Bush to the ranks of the unemployed in 2004. Thankfully, we have
George Soros' help.
Krugman's column is nothing new for him, but he once again writes in worrying fashion:
In the early months of the Bush administration, one often heard that "the grown-ups are back in charge." But if being a grown-up means planning for the future -- in fact, if it means anything beyond marital fidelity -- then this is the least grown-up administration in American history. It governs like there's no tomorrow.
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Recent good economic news doesn't change the verdict. These aren't temporary measures aimed at getting the economy back on its feet; they're permanent drains on the budget. Serious estimates show a long-term budget gap, even with a recovery, of at least 25 percent of federal spending. That is, the federal government -- including Medicare, which Mr. Bush has given new responsibilities without new resources -- is nowhere near solvent.
Then there's international trade policy .... the U.S. has squandered its credibility: it is now seen as a nation that honors promises only when it's politically convenient.
What really makes me wonder whether this republic can be saved, however, is the downward spiral in governance, the hijacking of public policy by private interests.
Ignatius' column dovetails nicely with Krugman's criticism of Bush's trade policy:
Something ominous is happening when the United States reports its biggest surge in productivity in 20 years, as it did Wednesday, and yet the dollar plunges to an all-time low against the euro.
The dollar is sinking these days on good news and bad, and the explanation is pretty simple: Investors around the world are worried that the Bush administration's policies are eroding the value of the U.S. currency. So they're rushing to unload greenbacks, in what could soon become a full-blown financial crisis.
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So long as global investors believed that U.S. authorities were ready to protect the dollar as a reserve currency, they kept adding to their stashes of greenbacks, despite the trade deficit. But that confidence may finally be disappearing.
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Hence the nightmare scenario: Between them, China and Japan now hold more than $1 trillion in U.S. Treasury bonds, the trader estimates. But with the declining dollar, the Asian giants have suffered severe losses on these portfolios. If they decided to hedge just 20 percent of their dollar exposure, they could drive the dollar down from this week's low of about $1.21 against the euro to $1.35, contends the trader, and other sellers would trigger a further weakening to $1.45 or so. Facing that sort of decline, the Fed would have to boost interest rates to protect the currency. And higher rates, in turn, would drive down the U.S. stock market.
Ignatius concludes "To prevent a full-blown crisis, the administration must take prompt action. It should pledge to cut the deficit; it should stop playing politics with free trade; and it should signal that it will intervene in currency markets when necessary to protect the dollar's value. Those steps might convince global investors that somebody at the White House is at least minding the store."
Krugman ends, "Everything we know suggests that Mr. Bush's people have given as little thought to running America after the election as they gave to running Iraq after the fall of Baghdad. And they will have no idea what to do when things fall apart."
The rising stock market and stabilizing employment might feel good right now -- good enough to perhaps make people feel comfortable with a second Bush term (shudder to think). All of Bush's policies are geared toward maintaining U.S. consumptiom, thereby bolstering our fumbling economy (~2/3 of GDP is consumer spending), but his irresponsible dealings with our domestic and foreign economic policies are a disaster waiting to happen. Our economic implosion will likely not occur until after the beginning of a second Bush term or he's gone from office.
Bush's choice of short-term politics over long-term policy is a trap that will spring after he no longer can be caught along with the rest of us.