A Better Future?

 

What if: Al Qaeda (or whoever) succeeds in restricting or shutting down Arab oil supplies? Uncorrected, this puts the entire world into Deep Depression in less than 90 days. Does anyone doubt this would bring on a United States military invasion of the affected countries? The trouble is, here are the consequences ...

Since the U.S. doesn't have a sufficient on-the-ground army, the invasion would have to be carried out on a piece work basis. In a case like this, the US would probably get some help from Europe and Japan. By "piece work," I mean it will be a princess-and-pea problem: putting down insurgents here, and then rushing there. The U.S. cannot be everywhere.   The U.S. would have to re-institute the draft virtually overnight. There is a high probability the country would be under martial law, if the problem was not solved in 60-90 days. This is because the entire economic structure of the country would begin to fade away without Arab oil imports.   The Cold War plans offered by the Dr Strangeloves advising the military will be useless. The Bomb is ineffective against terrorists and guerrillas, and would only destroy what we need to preserve. Thus, most American military power would be on the sidelines. This will prove to other enemies that the U.S. is just a paper tiger. It's the same as what happened to the Russians after Afghanistan.   All those who started this blow against the First World would have to do is keep the oil mostly shut down for 90 days or more. That's all; a long war of attrition is not required. After that, the Colossus will start to crumble of its own.

 

What if: China decides to repossess what we conceded long ago is hers: Taiwan? Is Taiwan worth a nuclear war? If so, are we willing to lose at least Seattle, San Francisco and, maybe, Los Angeles, too? Those cities are within range of Chinese ICBMs, even if America's East Coast cities are not. Does nuclear war ever make any sense?

If we destroy Taiwan to prevent a Chinese takeover, consider the very severe effects that would have on the U.S. economy. Most of our high-tech electronic equipment is made there, or outsourced to Chinese mainland factories.   If war, or even Cold War, breaks out with China, how does the United States replace the huge volume of goods imported from China? That includes things like bras and underwear, critical automobile engine parts, radio and TV sets, computer parts, transistors and portions of Boeing airplanes. Without the Chinese trade, the United States is faced with years of depression.   If the United States does not defend Taiwan, as promised, then it is a paper tiger. America's global hegemony would be over. (see above)

 

What if: The Japanese, Chinese and Europeans have had enough of the United States, and want their money back? In other words, what happens if they refuse to finance the huge Federal deficit, and the current account (trade) deficit? This has already begin to happen in small ways with Europeans, but so far Asians are still buying American notes.

The most immediate result of increased foreign asset sales would be a decrease in the value of the dollar. The dollar has already declined 20% or more against the Euro during the last 2 years, and about 10% against the Yen during the last year. A decline in the value of the dollar would make American goods less expensive overseas; foreign goods would become more expensive in the United States. This amounts to putting America on sale, which eventually reduces wages and benefits of American workers.   A decline in the dollar is one of the reasons oil prices have been rising, because oil is dollar-denominated. Oil sellers do business all over the world, so it is not advantageous to hold dollars that are losing their value. It is advantageous for oil sellers to use their dollars immediately to purchase Euro- and Yen-denominated assets. The net effect is a drain on U.S. wealth which gradually impoverishes the country.   Historically, the strength of an international currency has been linked to the power and dominance of its issuer. The U.S. has been a net recipient of foreign investment because of its hegemony. If the Pax Americana declines or disappears, so will the value of the dollar.   A couple of hundred years ago, Dutch guilders were the strongest currency. The Dutch lent to the world, and helped finance the American Revolution. All that changed with the ascendancy of England in the 19th century, which grabbed the spice and other trade from the Dutch, and made the  the international reserve currency. The Netherlands went into decline and lost its Empire. However, the Dutch made a soft landing, because they did not aspire to continue to be something they were not and could not be.

 

 

 

What if: Thanks to the cynical efforts of conservatives in undermining Social Security and Medicare, the United States actually becomes unable to pay the promised benefits? Right now, there is no reason this scenario should ever happen. Curiously, believing in the system makes it work; disbelieving will make it fail.

Here's the way it works. There is no way anyone - not even the U.S. government - can "layaway" provisions for anyone's retirement 30 or 50 years from now. The food and clothing you will need when you're 64 will have long ago rotted away, if you stored them when you were 25. Moreover, the clothes probably won't fit. So, planning for retirement comes down to the refrain in the old Beatles song: "Will you still need me, / Will you still feed me, / When I'm Sixty-Four?"

Note: The Federal government has been collecting more FICA and Medicare taxes than needed to pay benefits for decades. I understand the system will remain in surplus until 2017. Social Security was originally set up as a pay-as-you-go (PAYGO) system in 1935, but has been a means of collecting ever more taxes from lower class working people at least since 1983. Alan Greenspan is the inventor of the increased taxes we now pay, and reduced benefits we receive.

The FICA/Medicare taxes now collected exceed the present cost of the system, so they are considered "savings" meant to pay your future Social Security and Medicare benefits. These "savings" are loaned out, usually to the U.S. government as Treasury Notes and Bills (= IOUs). This helps to reduce the current deficit, which keeps interest rates down.   Supposedly, in the future, the Social Security Trust Fund can "call" the IOUs. This forces the Federal government to pay off the IOUs (with interest, now around 1%), which gives the Social Security system cash to pay you. If the Federal government doesn't happen to have any cash hanging around, it must find it or go bankrupt. This unpleasantness is avoided by (a) selling U.S. bonds at the going rate, (b) printing money or (c) raising taxes, all of which raise cash.   While it is considered fiscally responsible to sell bonds, this forces interest rates up and drains money from the private sector. Printing money pays the debt, effectively by devaluing the currency. More taxes also drains money from the economy, mostly by reducing household incomes.   Conservatives favor raising taxes rather than increasing debt or printing money, as this impacts the lower classes the most. Of course, increased taxes has a sharply counter-cyclical effect: it tends to put the economy into recession.   Selling bonds is a way of deferring debt. The effects of the declining dollar will be most devastating later on, when the Boomers are retired and the Treasury is most in need of bond buyers. Increasing interest rates tend to reduce corporate investment, thus slow the rate of GDP growth. As the debt and rates go higher, the economy dies from slow strangulation.   Printing money is unacceptable to conservatives. By devaluing the currency - that's the same as inflating prices - the value of debt is decreased. In other words, printing money relieves debtors of their obligations, which is why the rentier class - which includes all senior citizens on the dole - hates this solution. Printing money to pay Social Security amounts to abolishing the program because of the ensuing inflation. However, in this case the wealthy get burned as well, not just the poor.