Driving merrily over the cliff of economics

The New York Times > Business > Your Money > Whoops! It's 1985 All Over Again

A longish NYT article. Nothing new, but a good overview. We've been here before -- with the last president who was a deluded ideologue.

In broad schematic terms, the United States imports and the rest of the world exports; the United States borrows and the rest of the world lends. Financial flows are so lopsided that last year America soaked up nearly three-fourths of the surplus savings in the entire world.

Not surprisingly, this state of affairs is adding to the country's foreign debt. At the end of last year, the nation's financial deficit - what the United States owes the rest of the world, minus what the rest of the world owes the United States - amounted to more than $3 trillion, about 30 percent of the country's annual economic output. And it is growing. In the 12 months through October, foreigners acquired nearly $885 billion of new United States government and corporate debt.

THAT wouldn't be a problem if the world were comfortable lending ever-larger sums to the United States to pay for American investment and consumption. But this is unlikely.

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If the trend were to continue, it would require foreigners to lend the US about $1 trillion a year. That's about 75% of the savings of the entire world.

I don't care how good Bush is at defining reality and rejecting rationality. He can't define away mathematics.

I can see why they couldn't find a new treasury secretary. Who could stomach this leadership?

PS. Later in the article, this quote appears explaining how the Reagan administration blinked on the 'no new taxes' promise.

...So as he started his second term, Mr. Reagan changed course. Mr. Regan left the Treasury to become the president's chief of staff, while James A. Baker III, the chief of staff, moved to the Treasury.

One of Mr. Baker's first statements was that the Treasury's policy of nonintervention was "obviously something to be looked at." By February 1985, the United States had started intervening in the currency markets to weaken the dollar.

I think James A. Baker III, in several different ways, rescued America and the world from the disaster that was Ronald Reagan. I don't see a James Baker in this administration.