The Afghan War Is Over and Other Economic Tales

This doesn't have anything to do with the talks with the Taliban and certainly not with the desires of General Petraeus, who wants our sons to continue fighting there. No, it's the international financial community has had about all its going to take from the United States and we have to show we are a serious country again and will have until the summer to start wrapping things up. That is different from Barack Obama's plan that coincides with about the same time.

You can also forget about the so-called military option in Iran because here the international community has a greater say than ever before. The true legacy of the neo-conservatives and the last Administration may be the destruction of the United States. That's not an exaggeration. Once you wrack up $12 trillion to the national debt and borrow from foreign countries, especially after a period when you bragged about going it alone, it should not come as a surprise when the international financial community won't tolerate your games any longer.

What we are about to see is reminiscent of the period when young democracies were forced by the IMF to adopt austerity programs, even at a great expense to their stability. The teabaggers haven't a clue. Marco Rubio said today that "the United States has a God-given Status." this remark was dutifully reported by the Guardian.

While we have been occupied with our own elections, the United Kingdom's inquiry into the Iraq war has been winding down and it concludes that the United States planned to invade Iraq almost immediately after taking office. Also, that the CIA commandeered private planes from a businessmen in Britain to transport Muslim prisoners around the world to its private Gulag for the purpose of torture. And these things still matter over in Europe. The days of tolerating America's conceit of being the world's only superpower are over. The price other allies have paid for their cooperation is seen as too high for the benefits.

Then add the global economic situation. Europe widely sees the collapse of the global economic system as a result for our mortgage crisis. Europe has since sent bankers to prison and adopted tougher reform laws that our Congress. It's the perception of the latter that concerns the world community. There is one strain of thought that is very concerned about whether our democracy can come to grips with the problems at hand. President Obama would have held the commanding position if his programs had passed through Congress faster. The effect of the obstructionism of the Republicans in Congress only reinforced the European view that Americans can not cope with the seriousness of the problem--the world's and our own. There is a growing feeling that if this election creates a stalemate in Washington, almost guaranteed than the international financial community will put greater demands on America to get its fiscal house in order.

While President Obama tried to get ahead of the curve with his Deficit Commission, the international financial community is concerned that the American economy simply is not bouncing back fast enough. New doubts have been created by the new foreclosure crisis and the renewed pressures on the banks. The Federal Reserve is almost out of all options to jump start the economy. Economists view our unemployment rate as around 20% (counting the U-6 rate),our annual deficit mounting and our cumulative national debt as mounting. The American consumer looks like he or she are out of the picture as any economic force in the near term. Also, outsiders view our tax rates as amusingly low, creating concerns about the widening of the income gulf, which is a sign of instability. Almost all the international concerns about the American economy have no relationship to our private sectors complaints against the Obama Administration. Their goal is to maximize their short-term profits without improving the general situation in the country.

I've written before about why the $12 trillion debt naturally inhibited Obama's reconstruction effort and why he could not become FDR. Our nation had no external debt during the Depression. The new situation in my view will call for a radical reorientation of our own domestic economy and our relationship with the world. Almost all talk in Washington, even from those advocating severe cuts in the military budget,only deal with the periphery of the core issues.

The Obama Administration has torn some pages out of the Clinton playbook with the restoration of the PayGo rules and the creation of a bipartisan deficit commission. Part of the problem as the President admitted to the Times today was he triangulated the simulus (my words) and included too many tax breaks, which diluted its effect. But a major inhibitor of any American recovery is the price of oil, which is several times higher than the Clinton years and which will continue to have a negative economic impact for the foreseeable future. The Bush years put a torque in the economic system that only new thinking will be able to unravel. Once the Bush people charged two wars and tax-breaks for the wealthy on the national credit card, it deliberately allowed the American people to expect low taxes as the wave of the future. Certainly, our current debate reflects that.

The Administration's plan for $50 billion in infrastructure spending is a logical step to lowering the unemployment rate. From a global economic point of view, America's infrastructure looks like a wreck. From ports, to airports, to sanitation systems, to water supplies, we rate a D and look like we are deteriorating into the Third World. Bonddad on his website of the same name explained yesterday the very detailed logic of infrastructure spending and its multiplier effect on the economy and on investment. But he slams the attack on these projects by Teabaggers and Republicans. Normally, all of this would be a matter of national pride but as I explained yesterday the American Exceptionalists do not think a country has to continuing improve.

This is all perceived by the outside world. The pro-American element in the global community is deeply concerned that Americans are no longer serious and this teabaggers thing may be amusing; it's also disturbing. The International business community is moving on to Asia, Brazil and other countries. And remember as these countries make the investments in modernizing they become more atractive as places to lend money to. There is a point that the United States is sucking up too much of the world's capital to fund its own debt when such capital can be more effectively spent elsewhere.

The overdependence on military power has in fact made our situation less secure, not more secure. The United States is no longer viewed as the most stable country in the world and a secure investment environment. And virtually none of this has to do with President Obama.

Once elections happen, the perception of gridlock in Washington will trigger increased pressure on the Government from outside. Normally, the Fed could inflate in order to dissipate our debt but this then risks alienating our creditors, who will be loathe to purchase more treasuries. Also almost at the time of a new Congress, oil prices should be hitting about $100 per barrel, which will slow the economic recovery even further.

To make this more concrete, the stimulus was a raving success--it preserved or created 3.5 million jobs as advertised, the TARP program was a success, even turning a profit for the taxpayer, the auto rescure plan was a success, saving 17% of our economy. And yet,look where we stand today. Almost every economist of note advocates more stimulus for the economy and they patiently explain how government revenues increase as people are employed,etc. But politically, Congress has no will for any more of this and probably won't go for Obama's infrastructure projects. At best, we look at an economy that we will tell ourselves has 8% unemployment but will really be more like 16%.

Then can you imagine the effect on the international community if Republicans try to repeal any of the Wall Streetreform bill, which Europeans thought weak in the first place. To protect themselves, the European Community will have to create mechanisms to defend themselves from any further financial meltdown. Also, most developed countries felt our health care debate was humorous but any repeal effort will cement the perception that we aren't serious people.

Even if I am half-right, one can not imagine a unilateralist and American exceptionalist getting out of such a box. Can we? Yes, but we have to start examining our first assumptions and rediscovering how we relate to the world.