Home About Topplebush.com Contact Us Links
Topple Bush Store Articles about George Bush Bush Resume Bush Humor Contribute

Bush Articles

Record as President

Support
Topplebush.com!

Bush coin button
Please also visit our own Store to find lots of interesting, unusual, and funny politically-themed products

Topplebush Books
Find all the progressive books featured on our site plus DVDs, and CDs.


Support our web site using PayPal!
Contact Elected Officials

- Write to Congress
- Write to Congress by State
- Write to Senate by state
- White House switchboard: 1-202-224-3121
- Capitol tollfree: 1-888-355-3588
- Complete White House telephone directory

Recommended Reading

View Cart/Checkout

Don't Look Down
by Paul Krugman
New York Times
October 14, 2003

During the 1990's I spent much of my time focusing on economic crises around the world - in particular, on currency crises like those that struck Southeast Asia in 1997 and Argentina in 2001. The timing of such crises is hard to predict. But there are warning signs, like big trade and budget deficits and rising debt burdens.

And there's one thing I can't help noticing: a third world country with America's recent numbers - its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world - would definitely be on the watch list.

I'm not the only one thinking that. Lehman Brothers has a mathematical model known as Damocles that it calls "an early warning system to identify the likelihood of countries entering into financial crises." Developing nations are looking pretty safe these days. But applying the same model to some advanced countries "would set Damocles' alarm bells ringing." Lehman's press release adds, "Most conspicuous of these threats is the United States."

O.K., let's run through some reassuring counterarguments.

First, economists are very good at devising models that would have predicted past crises, but each new crisis tends to happen where and when they didn't expect it. So even though our budget deficit is bigger relative to the economy than Argentina's in 2000, and our trade deficit is bigger relative to the economy than Indonesia's in 1996, our experience needn't be the same.

Second, nasty crises in third world countries have a lot to do with the fact that their debt is in foreign currency, usually dollars. As a result, when the peso or the rupiah plunges, debts explode while assets don't, and balance sheets collapse. By contrast, thanks to the special international role of the dollar, America's burgeoning foreign debt is in our own currency.

Finally, financial markets are generally willing to give advanced countries the benefit of the doubt. Even when an advanced country seems to be deep in a financial hole, lenders usually assume that it will somehow find the resources and political will to climb back out.

So is America safe, despite its scary numbers?

Third world countries typically suffer from institutional weaknesses. They have poor corporate governance: you can't trust business accounting, and insiders often enrich themselves at stockholders' expense. Meanwhile, cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse. Luckily, in America we don't have any of these weaknesses. Oh, wait. . . . (Isn't that all history? No. According to The Wall Street Journal, we are again hearing warnings that "optimism is based on massaged earnings.")

Still, there's no question that the U.S. has the resources to climb out of its financial hole. The question is whether it has the political will.

There is now a huge structural gap - that is, a gap that won't go away even if the economy recovers - between U.S. spending and revenue. For the time being, borrowing can fill that gap. But eventually there must be either a large tax increase or major cuts in popular programs. If our political system can't bring itself to choose one alternative or the other - and so far the commander in chief refuses even to admit that we have a problem - we will eventually face a nasty financial crisis.

The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

But at a certain point we'll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

I know: it all sounds unbelievable. But would you have believed, three years ago, that the U.S. budget would plunge so quickly from a record surplus to a record deficit? And would you have believed that, confronted with that plunge, our leaders would offer excuses rather than solutions.

PreviousNext

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, economic, democratic, domestic and international issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

< / 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10 / 11 / 12 / 13 / 14 / 15 / 16 / 17 / 18 / 19 / 20 / 21 / 22 / 23 / 24 / 25 / 26 / 27 / 28 / 29 / 30 / 31 / 32 / 33 / 34 / 35 / 36 / 37 / 38 / 39 / 40 / 41 / 42 / 43 / 44 / 45 / 46 / 47 / 48 / 49 / 50 / 51 / 52 / 53 / 54 / 55 / 56 / 57 / 58 / 59 / 60 / 61 / 62 / 63 / 64 / 65 / 66 / 67 / 68 / 69 / 70 / 71 / 72 / 73 / 74 / 75 / 76 / 77 / 78 / 79 / 80 / 81 / 82 / 83 / 84 / 85 / 86 / 87 / 88 / 89 / 90 / 91 / 92 / 93 / 94 / 95 / 96 / 97 / 98 / 99 / 100 / 101 / 102 / 103 / 104 / 105 / 106 / 107 / 108 / 109 / 110 / 111 / 112 / 113 / 114 / 115 / 116 / 117 / 118 / 119 / 120 / 121 / 122 / 123 / 124 / 125 / 126 / 127 / 128 / 129 130 / 131 / 132 / 133 / 134 / 135 / 136 / 137 / 138 / 139 / 140 / 141 / 142 / >
Back to Index Category Index

Main Sections:
/ Home / About Us / Contact Us / Links / Topple Bush Store / Bush Articles / Bush Resume / Bush Humor / Contribute /

Topple Bush Submenus:
Topplebush Store: / T-shirts / Bush Coins / Bumper Stickers / Peace Magz / Obama08 / Blow-out clearance sale / T-shirt sale / Bumper Sticker sale / Bush Legacy Gear /
Bush Articles: / Past Business Dealings / Military Record / Family History / Record as Governor of TX / Stealing the Florida Election / George G. W. Bush / Record as President / Dick Cheney /
Bush Humor: / Jokes / Cartoons / Photos 1 / Photos 2 / Photos 3 / Animation / Other / Trump Jokes / Trump Limericks /
Contribute: / Candidates / Topple Bush Site /

Other Sections:
/ Books / DVDs / CDs / MP3 Music for Free Download / Free flyers to Print Out & Distribute / Election Fraud Information /

Fun Topplebush Projects:
/ Remove Condi Rice from the Football Playoff Committee /
Find New Slogan for Fox News / Send Pills to Rush / Find a New Slogan for the GOP / Create Better Language for Dems and Progressives / Blame Reagan / What military recruiters say to fill their quotas / Photo Caption Contest - Win a Free Prize! /

Share this web page with like-minded people:
/ digg / reddit / del.icio.us / stumbleupon / google web history /