by Patrick J. Buchanan – February 23, 1999
Now, it’s official. The United States is the last great economy firing on all eight cylinders in a global collapse. America is the last domino.
In 1997, Thailand, Indonesia and South Korea had to be bailed out with $115 billion in International Monetary Fund loans. Last year, Russia, beneficiary of a $22 billion bailout, devalued its currency and defaulted. In January, Brazil devalued.
Comes now yet more disquieting news. The European Union is flagging. Germany’s economy shrank in the fourth quarter, as industrial production fell in France. Japan is in recession, with a deficit at 11 percent of gross domestic product. Riots have broken out among China’s unemployed. Even Taiwan, the Tiger that seemed immune, has lately taken to bed.
Yet, behold America! The U.S. economy grew at almost 6 percent in the fourth quarter; the Dow is well above 9000; and the American consumer is still drawing down savings to continue the greatest spending binge in history.
But can it last? Is the United States still a powerful enough locomotive to pull Japan, China, Korea, Russia and Brazil out of the ditch if the European locomotive is idle?
Even if the economic answer is yes, a political question arises: Can the United States remain the importer of only resort for a world in depression in the face of our awesome and exploding trade deficit?
Last week, the final numbers for ’98 came in. The U.S. trade deficit in manufactures alone, $197 billion, was 12 times our trade surplus in farm goods. America’s families are borrowing to buy foreign goods. Historically, that has been the road to imperial decline. Now, the U.S. economy is showing the first symptoms of the global sickness.
Farm income was down 25 percent in 1998; U.S. manufacturing lost another 200,000 jobs. Our steel industry is drowning in imports. The oil industry is laying off workers in the thousands, as falling prices force a shutdown of wells that cannot produce for $10 a barrel. Gasoline prices are at all-time lows, but U.S. oil dependency is now at a record high. The loss of our economic independence is the price of our present policy.
The Alfred E. Newman Conservative Club is still burbling, “Happy days are here again.” Yet even Al Gore showed at the global gabfest in Davos, Switzerland, that he knows there is no painless way out.
The root cause of the global crisis is over-production. After the United States and IMF bailed out Mexico, huge quantities of capital poured into Asia for factories, plants and mines, creating a capacity to produce far more than the nations of the world had cash to consume. With prices falling, the countries that greedily gobbled up the capital cannot repay their debts.
In a national economy, when there is a problem of over-production, the market solves it. Weak companies go under, and stronger companies downsize or merge to cut excess capacity, until demand catches up. And banks, sadder but wiser, write off their bad debts to experience.
But how do you tell the IMF and World Bank to write off hundreds of billions in loans? How do you tell Brazil to go Chapter 11? How do you tell Russia to downsize? How do you tell Korea to merge with Taiwan? You cannot. Unlike companies, nations do not go gently into that good night, nor do they happily merge themselves out of existence.
So, a mad scramble has begun in Japan, China, East Asia, Russia and Brazil to dump goods in the only great market still open, the U.S.A. In a Darwinian war, they intend to save their factories by taking down ours.
For America, here is the rub: If we let them do it, they can eviscerate virtually every U.S. industry. If we don’t let them do it, they will have to default and perhaps break the banks of Japan, Europe and maybe the United States.
Only three factors today prevent dozens of nations from defaulting: 1) a U.S. current account deficit that will shovel $300 billion overseas this year; 2) endless IMF and World Bank bailouts; 3) foreign aid.
At Davos, Gore declared: We must not let the financial crisis of 1998 become the trade crisis of 1999. So, we face a choice: Do we allow imports to destroy our industries and kill American jobs, so other nations can earn the dollars to restart their economies and pay back their debts to Western banks? Or do we tell the world that, as much as we would like to help, we cannot sacrifice our industries and our workers?
Eventually, it comes down to this: Do we give up our independence — in the name of interdependence? Do we sacrifice the U.S. economy to the Global Economy? On this, Davos Republicans and Clintonites concur, but populists, patriots and true conservatives will put America first.
Those who should pay the price of the foolish investments in Asia, Russia and Latin America are the foolish investors themselves.
We face today the moral dilemma of the overcrowded and sinking raft. Justice and patriotism argue: Save America, and shove the IMF off. After all, that crowd got us into this.