The US went on a spending spree during the Vietnam War which led to trade and budget deficits. Nixon had to close the gold window, devalue the dollar and turn it into a fiat currency with no backing. Carter put the foolish and equally ambitious of world domination, Soviet Union, in a position of forced error of invading Afghanistan. His and Saudi financing of fanatic Islamic radicals with the logistic encouragement of Pakistan desiring strategic depth in Afghanistan and deniable haven for terrorism against India led to the blowback of 9-11. The Saudi ruling princes wanted to export their salafists and deflect their discontent to preserve their illegitimate rule. America wanted to give the tottering Soviet Union its Vietnam. Pakistan wanted Afghanistan as a haven for training terrorists with deniability. Now Bin Laden is a headache for the Saudis, Afghanistan has become the newest quagmire for the US after Iraq and Pakistan is falling apart. America which cast a blind eye towards Pakistan's clandestine nuclearization is now worried about the nuclear weapons falling into the hands of Taliban or Al Qaeda and making furious plans of how to combat that.
Reagan, the Bushes and Clinton have de-industrialized the US and idiot Bush Jr. has pushed it to the brink of bankruptcy. The Republicans who have no brains and the Democrats who have no spine removed all regulatory authority and with their fanatic free market fantasy, allowed the greedy bankers and Wall Street types to create toxic securities which like a cancer have spread throughout the entire global financial system. Treasury Secretary Paulson blackmailed the idiotic rubber-stamping congress to sanction a 750 billion boondoggle after allowing Bear Stearns and Lehman to fail. He saved AIG which had dealings with his former firm Goldman Sachs. As the Saturday New York Times highlights, AIG had indulged in regulatory arbitrage by writing over 500 billion dollars of credit default swaps without adequate risk assessment or putting aside reserves.
The taxpayer has put up 150 billion dollars to rescue Paulson's pals and contributors to the campaigns of house, senate and presidency. Half of the 750 billion dollar bailout has been used and 75 billion dollars of it already lost. AIG is likely to report a 60 billion dollar loss for the fourth quarter of 2008 and will probably need another 100 billion dollars. In addition a new stimulus package of 787 billion dollars is signed into law and two trillion more will be needed for banks. The FDIC has just increased its premium for member banks and levied an urgent surcharge. It will need more taxpayer funds as will the pension benefit guarantee fund. Fannie Mae and Freddie Mac have been nationalized and given 500 billion dollars. The auto companies are begging for taxpayer money. So far the taxpayer through the Federal Government has taken on an added liability of nine trillion dollars and spent nearly three trillion dollars. In the meantime unemployment has soared and is likely to touch 10% and remain high till 2011 or longer. Obama's budget projections while not outright lies like those of his predecessors, are unrealistically optimistic as other economists are projecting a less than 3% growth in the US economy in 2012 and 2013. Thus the budget deficits will be trillion dollars a year for years.
In the meantime layoffs are spiraling upwards and the economy spiraling downwards. House prices, home sales and home construction are in a free fall and loan defaults are spreading to prime and jumbo borrowers, credit cards and auto loans. The market has fallen by over 50% and is ready for a dead cat bounce in a week or two before it resumes its downward trajectory. What is worse is that with the new debt added to the nation, its ability to service the debt would be seriously jeopardized if the interest rates rise sharply. Ten and thirty year rates are rising and the Federal Reserve has desperately announced that it may buy the bonds by printing more money to keep interest rates low to stabilize home prices, service the debt and revive the economy. The real solution is to sharply devalue the dollar but the worse mess of sinking economies of the Asian exporters like Korea, Taiwan, Singapore etc. and Europe facing a demise of the euro because of Greece, Pain, Portugal, Ireland, Belgium and even Netherlands, and the feeding frenzy of speculators are making the dollar go up. The sorry state of East Europe and Russia, which borrowed huge amounts of dollars, is sinking their currencies. Russian oligarchs borrowed to leverage and pyramid their bets for greater ill gotten gains and East Europe ordinary citizens for reduced interest rates and to go on a spending spree like Americans did with their credit cards and home equity lines of credit. American consumers are tapped out, over their head in debt, afraid of losing their jobs and their credit has been curtailed by de-leveraging of banks with shrinking capital. The US economy is 70% dependent on consumer spending and financing by Japan, China and the petro-states of the Gulf. All three have lost enough dollars and have more dollars than they want or need. OPEC wants to reduce oil output to keep prices high and some members want to be paid in euros for their oil.
The rising dollar prevents the US trade deficit from shrinking and makes the earnings and balance sheets of US multinationals worse. Korea has already markedly shrunk its dollar reserve holdings but because its corporations have borrowed large dollar amounts its currency the won has fallen 40% in a year. Ditto for many other Asian currencies. Even the mighty Japanese yen is reversing as export dependent Japan's economy falls sharply. China with its huge dollar reserves is up a creek It cannot use its dollars to buy American companies as it found out with Unocal. It cannot buy military technology because of the US embargo. It receives no interest because short term treasury rates are zero to quarter percent. Its plight is worse than the noveau riche person who bought a masterpiece at inflated prices considering it to be a store of value, and now finds that it is unsaleable and unusable. That is why it gave tens of billions of dollars to the Russian oil giant Rosneft to help it repay its dollar debt in return for energy supplies from the Russian east and trumped Japan's bid. Sooner or later China will dump its dollars or demand Taiwan. That is why Hilary Clinton was silent on human rights when she went to China on her first trip as Secretary of State. America's descent in the world can be summed up as 'Rich man (pre-Reagan), poor man (Reagan deficits), beggar man (Bush Sr. -Gulf War One and Clinton-de-industrialization and NAFTA), thief (Bush Jr.-Iraq) The rising dollar is due for a major and prolonged fall in two weeks or less.
As though our troubles are not bad enough, in two years a large cohort of baby boomers are due to retire and put a greater stress on Medicare which has an unfunded deficit of nearly 50 trillion dollars. From Reagan to Bushes via Clinton, it was like simians in charge and that too intoxicated with the heady brew of global dominance, stung by the scorpions of disastrous mismanaged wars in Grenada, Lebanon, Iraq, Somalia, Serbia, Afghanistan and again Iraq. Now Obama wants to sink us deeper into Afghanistan and wants to extend the policy of folly to Pakistan and Iran. Truly as the Greeks may have said, 'Those whom the gods wish to destroy, they first make mad'. American foreign policy is like Hindu mythology. The stupid gods invariably give boons to undeserving demons making them invincible. Then one of the trinity has to use subterfuge to defeat the demon that his stupid troika fellow has created. Examples are Shah's Iran, Saddam's Iraq and rulers and nuclear weapons of Pakistan