George W. Bush has weakened America's economic and political standing while strengthening the hand of our enemies. As Iowans caucus today, it remains to be seen whether a leader will emerge this year who can reverse the forces Bush set in motion before America loses its leadership position in the world.
What forces did Bush set in motion? Bush created an enormous federal budget deficit through his $1.6 trillion tax cut. He increased government borrowing to a record $9.1 trillion. His wars in Afghanistan and Iraq have contributed to global instability which has helped drive the price of oil up four-fold from $24 a barrel to nearly $100. The dollar has lost 60% of its value -- for example, the Euro has climbed from 92 cents to to $1.47. And his drive to increase home ownership -- supported by subprime mortgage lenders like Ameriquest -- has contributed to tens of billions of write-downs by banks that bought securities backed by those liar loans.
This is not the first time global leadership has changed hands in world history. According to Niall Ferguson, in the 1870s, the Ottoman empire lost its lead in the world as its over-extended empire sought to cope with an external debt crisis by selling off revenue streams to foreign investors. Then, the Ottoman empire sold off its shares of the Suez Canal as well as its tax revenues to pay off the debts it incurred to finance the Crimean War, railway and canal construction and conspicuous consumption. Back then the beneficiaries of those cheap asset sales were western Europeans.
Today the shift is from the US to the autocracies of the Middle East -- remember that Saudi Arabia supplied 15 of the 19 9/11 hijackers -- as well as to China and Russia. This shift is taking place in two waves. First, there's the annual wave of wealth -- $15.4 billion -- flowing from the U.S. to OPEC -- 154 million barrels a year at about $100 a barrel. Then there's the selling chunks of our banking system to Sovereign Wealth Funds (SWFs) in the Middle East and Asia since Bush seems happy to let other governments bail out the U.S..
As we pick our next President, it's worth considering whether we want to continue Bush's policies or change them. I'd prefer a candidate who would reverse those policies by doing the following:
- Turn Iraq over to the Iraqis and drastically reduce U.S. exposure there
- Balance the federal budget and cut federal borrowing
- Push a coordinated program to reduce drastically U.S. dependence on oil and gas
I recall in the 1980s, Americans feared that Japan was taking over the world as it began buying prime Manhattan real estate. It turned out that Japan's economic power was due to excess borrowing -- using its rising land prices to buy its stocks. Is the threat we face from Middle Eastern and Asian countries far greater than the Japanese threat appeared then?
Unless we can get our own financial and energy houses in order, we could be in the middle of losing our global lead to the reckless policies of a singular U.S. president. Let's hope it's not too late to reverse the damage.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
1-03-2008 @ 4:42PM
Rex said...
Please keep your snotty, anti-bush insults to yourself. Thanks!
1-03-2008 @ 7:23PM
Dave said...
Hey Peter:
We're still waiting for you to correct your astoundingly inaccurate post on Alesco Financial.
http://www.bloggingstocks.com/2007/12/30/short-stories-is-alesco-financial-headed-for-the-dumpster/
Also tagging this as "International markets, Rants and raves, Competitive strategy, Politics" is at best 50% accurate.
It's becoming difficult to take you seriously.