by Patrick J. Buchanan – September 30, 2002
As Americans debate the wisdom â€“ or folly â€“ of war on Iraq, someone had best look in on the global economy. For it has taken on a sickly pallor. Five years after the IMF bailouts of the 1990s, some of the rescued regimes are swooning again. And America appears in no condition to conduct new global bailout operations.
When we rescued Mexico in 1995 and Thailand, Indonesia, the Philippines, South Korea, Russia, Brazil and Argentina in 1997-98, America was enjoying boom times. The government was about to project budget surpluses all the way out to the horizon.
A few of us argued then that it would be better if we let the debtors default and the Big Banks take their hit. Get it over with, we said. But by Y2K, the bailouts seemed to have worked. Clinton and Robert Rubin were miracle workers.
Now, the chickens are coming home to roost. For as one looks around our world, scarcely a region seems free of economic crisis.
Last winter, Argentina cut its peso loose from the dollar and defaulted. Argentina is today a failed state, with its wealthy and middle class fleeing the country. Brazil, ninth largest economy on earth, $264 billion in debt, is teetering on the brink of default and about to elect Marxist “Lula” da Silva. Banks like Citicorp, Fleet Boston and J.P. Morgan Chase have $27 billon in loans at risk. The regime’s bonds are going on the open market for 50 cents on the dollar. Investors are hedging against an early Brazilian default.
Colombia is in the grip of an endless war with narcoterrorists, and a senior official lately told the legislature the economy is “a Titanic headed for the iceberg.” Venezuela’s middle class seems ready for a second coup against Hugo Chavez, who has run his oil-rich country into the ditch. Mexico’s boom is over. NAFTA factories are moving to China in search of even cheaper labor. And looking at the First World, the picture ranges from glum to grim.
Leading U.S. indicators point to a second recession in two years. The Nasdaq has lost 75 percent of its value since its peak, and the Dow a third of its value. With the United States running a trade deficit in goods nearing $500 billion and a budget deficit near $200 billion, and preparing to launch a war inside the world’s gas station that could cost $100 billion to $200 billion, America is in no position to be bundling up tens of billions for new bailouts.
The world’s second-largest economy, Japan’s, is in the middle of the third recession in a decade. Its stock market has given up 75 percent of its value since 1989. Japan’s debt is now 140 percent of GDP, and the Bank of Japan believes the nation’s financial institutions are in so deep a crisis it has taken the desperate step of buying shares to provide banks with the cash to deal with their huge bad debts.
Germany, the world’s third-largest economy, is flagging, and Germans have just re-elected a Red-Green alliance to deal with an economic crisis that same alliance could not resolve in four years. Most of the European markets last week were hitting five- and six-year lows.
Who keeps the global economy upright? America’s consumers, as they go deeper and deeper into debt buying up the world’s goods. If old reliable, the American consumer, goes on strike, the global economy goes down the tubes. No wonder Wall Street brokers await those monthly reports of “consumer confidence” the way heart patients await the results of their electrocardiograms.
Where are America’s consumers getting the cash to keep on invading the malls? Many are spending all they earn and more with plastic credit cards. Others are borrowing on their homes at the lowest interest rates in decades, refinancing and spending the equity piled up over the years.
If there is a housing bubble â€“ as there was a stock market bubble â€“ and housing prices collapse, the lately knighted Sir Alan Greenspan may have to begin creating new money. And if he does, and the dollar begins to fall against world currencies, Americans will no longer be able to afford all those imported goods that keep millions of Europeans, Asians and Latin Americans employed.
And should the war on Iraq cause an interruption of oil shipments, or a run-up in price to $50 a barrel, we could be headed for interesting times.
How did we get here? Were avoidable mistakes made by the mandarins of the American economy, the locomotive of the global economy? Had we taken our medicine of debt default and write-offs years ago, would the world today be sunk in unpayable debt?
Probably not. But this much seems apparent. The combination of corporate corruption and greed in America, and failed free-market experiments in Latin America and around the world, have given capitalism a pair of black eyes from which it may not recover for years.