Message From: "John
Gelles"
To: "William Greider" <wgreider@att.net>;
"Cyberspace Society"
Cc: "President Bush" <president@whitehouse.gov>;
"robert searle"
Sent: Tuesday, July 19, 2005 12:55 AM
Subject: William Greider and Me
.
On Monday the 18th I
suggested you read William
Greider in the NY Times Op Ed
section on the topic of truth on America's role as buyer
of last resort. (See www.tiea.us/7185a )
The buyer of last resort—i.e., a buyer whose money
is used a reserve currency by many nations—is likely
to record huge trade deficits as vendors around the globe
ship that buyer far more than they he can sell to them.
Greider writes on the matter—taking the position
that sooner than any nation suspects, sellers will no
longer be willing to hold on to their hoards of reserve
currency. They will spend that currency and hoard instead
a basket of other currencies (or no currency but only
gold, etc.).
Greider writes:
"The United
States is heading for yet another record trade
deficit in 2005, possibly 25 percent larger than last
year's. Our economy's international debt
position—accumulated from many years of
tolerating larger and larger trade
deficits—began compounding ferociously in the
last five years. Our net foreign indebtedness is now
more than 25 percent of gross domestic product and at
the current pace will reach 50 percent in four or
five years ."
.
The
devil's advocate says, "so what."
Assume America's foreign indebtedness reached 10 times
its GDP or higher. How would that hurt
anyone--especially the USA?
The foreign debt of the world's "banker/buyer
of last resort" has no obvious limit. It
is as though America had found an endless reservoir of
gold and nations were hoarding it in their central bank
vaults.
You may object and say gold would not cost America
interest. But neither do our dollars cost us
interest—except in dollars.
The eventual spending of foreign central bank held
dollars will be to buy American products that are worth
every cent of what they cost.
I agree that America must be able to deliver value for
its money. And this means it must invest in its
systems of production—including systems that rely on
foreign labor more than its own. China and India
seem to agree that they will furnish a lot of that labor.
What about the effect on the minimum standard of living
in the USA. Does the role of
"banker/buyer of last resort"
threaten to turn American producers into share
croppers? The answer is no. Share croppers
never bothered to vote.
American producers
vote; and they will not be allowed to reduce their
influence in foreign affairs if they keep
buying— and others keep selling into their
markets in exchange for dollars.
So suppose China or India
reach parity with the USA in military and financial
systems? Suppose they trade with each other and
ignore the USA? There is every reason to think that
in such events they will be full partners with the
USA. There will be no cause for war relating to the
trade deficit.
I agree with Greider that the American worker, middle
class and total population must look to
government—and not to free trade—to protect
their standard of living. Enormous sums must be
spent on education and training, infrastructure,
environment, and all the good things money can buy.
And these things must be produced before they can
be bought.
Free trade may indeed be a non-issue. Industrial
decay is the issue. So the question becomes how
will the USA pay for the above education, etc., which at
this point it appears to be neglecting? What will
we do about the education deficit, etc. ?
I have said we must pay for it by producing it. I
have said we can afford in fiat money anything we can
produce. I have said debt is not the problem, real
deficits are the problem. Debt we can pay with
numbers. Real deficits can only be paid with real
products.
Free trade is not the
problem.
The
absence of strategic economic systems is the problem.
Such systems can use trade to advantage; but they
must include objectives, plans and corrective action:
if enslaved to doctrine that fails to work
they meet defeat.
When
creating a winning economic system, price must
sustain motivation and production. Doctrine that
demands that price be free of systematic purpose is
useless for all but transactions with parties willing
to see you lose.
Economic
systems are essentially the same as strategic
military systems—but they ask
us to use our heads—not fists,
pikes, guns or bombs.
John Gelles
.
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