I.O.U.S.A - Addison Wiggin [36]
The bottom line: The United States is not manufacturing goods the way that it used to. And this is having a very real and very serious effect on the economy and on the citizens ’ — especially the working class ’ s — quality of life. A recent study by the Economic Policy Institute showed that between 2001 and 2007, the United States lost 2.3 million jobs, including 1.5 million manufacturing jobs. As the China story is illustrating, part of being seen as a strong nation is showing that you bring something to the table. Production in the United States is dwindling, and with it goes the strength of the U.S. economy.
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Chapter 4 The Trade Defi cit 69
Likewise, as trillions of dollars have been shipped overseas to buy goods, a different, more ominous threat has arisen.
The Nuclear Option
Given the stagnant pool of savings in the United States, every year that we run budget or trade defi cits, we have to borrow that money from somewhere.
In the past, when we ran large budget defi cits, for example, our government turned to Americans to borrow that money.
After World War II, almost all the federal debt was owed to Americans. Today, with our extremely low national savings rate, we have no choice but to turn to foreigners to fi nance our debt.
U.S. debt held by foreigners totaled $ 2.5 trillion as of March 2008, the Concord Coalition recently told the Mankato, Minnesota, Free Press, and we borrow $ 711 billion more from the rest of the world than we lend to it. Just as the citizens of Thriftville became wary as their amount of Squanderbonds began to pile up, foreign investors are becoming increasingly concerned with the U.S. debt that they hold — especially as the dollar falls in value.
During World War I, the U.S. government (and, occasionally, celebrities) turned to its citizens to help fi nance the country ’ s debt that had been incurred during the war through the purchase of war savings bonds. While popular decades ago, savings bonds have become all but obsolete in recent years, and direct investments in the United States provide only about a tenth of what is needed to fi nance the country ’ s debt. This said, the U.S. government has become increasingly dependent on overseas investment and the foreign purchase of U.S.
Treasury bonds to fi nance their burgeoning debt.
Foreign ownership of U.S. debt and foreign investment in U.S. companies in and of itself is not harmful — it is what the free market theory is based on. However, as a larger and larger percentage of U.S. assets are owned abroad, combined with a c04.indd 69
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70 The
Mission
low or negative national savings rate, this situation becomes
Free Market
Theory: A market
problematic.
is governed by the
Former Treasury Secretary Robert Rubin explains that laws of supply
although this occurrence is a side effect of the United States ’
and demand, and
current fi scal situation, as more and more of these Treasury not by regulation
or government
bonds pile up in other countries, “ it will create unease abroad interference.
and in foreign capital markets, which would then translate back into higher interest rates in this country and a lower currency than would be the case if we were dealing only with our own domestic markets. The bottom line is that it creates a somewhat greater risk of adverse interest rate effects and currency effects than if the debt was domestically held. ” (See Figure 4.2a and 4.2b. )
“ There ’ s nothing inherently wrong with this in the short -
term, ” says David Walker, “ and the truth is America lends money to other countries. However, as our reliance on foreign lenders increases every year, one might ask, what are the longer - term consequences? ”
In August 2007, the United States almost found out the answer to that question, when China threatened to liquidate SOURCE: President’s 2009 Budget
Figure 4.2a Public, Private Debt: Debt Held by Foreigners — 1945
Source: President ’ s 2008 budget.
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Chapter 4 The Trade Defi cit 71
SOURCE: President