Was he reading my posts...

[miko2d]

Was he reading my posts on US monetary policies here, or just the same economy textbooks?

Ron Paul in the US House of Representatives, April 1, 2003

Madam Speaker, this week we will be working on the $75 billion supplemental appropriations to pay for the war. Financing the war is not as simple as it appears. It involves more than just passing a piece of legislation labeled as support for the troops.

It has now been fashionable to bash France and Germany and other friends if they are less enthusiastic for the war than we think they should be. Yet foreign corporations provide millions of jobs for American citizens. French companies alone employ over 400,000. There is a practical reason why offending the French and others may backfire on us.

In 2002 we earned $11.9 billion less from our investments overseas than foreigners did here. This is not a sign of financial strength. A negative balance on the income account contributes to the $500 billion annual current account deficit. Since 1985 when we became a deficit nation, we have acquired a foreign debt of approximately $2.8 trillion, the world's largest. No nation can long sustain a debt that continues to expand at a rate greater than 5 percent of the GDP. This means we borrowed more than $1.4 billion every day to keep the borrowing binge going. This only can be maintained until foreigners get tired of taking and holding our dollars and buying our debt. Bashing the French and others will only hasten the day that sets off the train of economic events that will please no one.

In thinking about providing funds for the war and overall military expenditures, not only must every dollar be borrowed from overseas, but an additional $150 billion each year as well. The current account deficit is now 44 percent greater than the military budget and represents the amount we must borrow to balance the accounts. The bottom line is that our international financial condition is dire and being made worse by current international events.

It is true that military might gives a boost to a nation's currency; but this is not permanent if fiscal and monetary policies are abused. Currently, our budget deficits are exploding, as there is no restraint on spending.

No one can guarantee permanent military superiority.

The dollar has already significantly weakened this past year, and this trend will surely continue. A weaker dollar requires that we pay more for everything we buy overseas. Foreign borrowing will eventually become more difficult, and this will in time cause interest rates to rise. Be assured that domestic price inflation will accelerate. Economic law dictates that these events will cause the recession to linger and deepen.

My humble advice: consider being nicer to our friends and allies. We need them more than we can imagine to finance our war efforts. There is more to it than passing the supplemental appropriation. Besides, we need time to get our financial house in order. Antagonizing our trading partners can only make that task that much more complicated.

The day will come when true monetary reform will be required. Printing money to finance war and welfare can never be a panacea.

Dr. Ron Paul is a Republican member of Congress from Texas.

[Saurdaukar]

Im not an economist, but is it safe to assume this is just more of the usual from you?

[miko2d]

Saurdaukar: Im not an economist, but is it safe to assume this is just more of the usual from you?

 I wouldn't say so - usually I am trying to present my case on it's merits rather than referring to authority.
 That often results in people insisting that I am the only idiot to believe such silly things.
 This post is a proof that there are at least two such idiots.

 miko

[ygsmilo]

That was a good read miko and it has merit.

The one thing I would say is that markets and economys tend to move in tandem, thus if the US GNP would go stagent, Europe and Asia would follow which would make their bonds less stable and effect the currency.  Just my thoughts

[miko2d]

ygsmilo: which would make their bonds less stable and effect the currency.  Just my thoughts

 Right - and it's a good thing when that happens. The weakening of the currency during the normal free-market adjustment process helps exporters while reducing imports, it allows the country to stop bleeding good jobs to markets with cheaper workforce, attracts capital, curbs excesses of economic boom, causes reallocation of the capital towards more productive and competitive uses.

 Unfortunately, USA is the only country that cannot benefit from such a natural self-adjustment since our currency is not allowed to free float by market means but is supported by US and foreign governments via political means.

 So while our consumer is enjoying unearned addition to our GDP in the form of plentifull cheap foreign-made products bought with borrowed or printed money and our welfare state runs amok showering money on wastefull projects, our industries bleed jobs, lose expertise, etc.

 I was actually not considering that offending people who loan us money so that we could keep buying their products could hasten the eventual crisis. Maybe rightly so. Ron Paul is too worried here. The bulk of our balance is with China, Japan and countries other than France.
 The government lapdog media is very carefull calling for boycott of only French products even though the other countries are as opposed to our war plans as France. We only need to look at the trade balance with individual countries to understand why.

 miko

[Pongo]

So in effect.
the Billions to fight the iraq war are going to have to be borrowed from other coutries?

[miko2d]

Pongo: So in effect. the Billions to fight the iraq war are going to have to be borrowed from other coutries?

 First, you can hardly distinguish which billions go where. We have one budget.

 Second, "borrowed" is a euphemism. We "borrow" by giving them paper dollars for their stuff that can supposedely be redeemed later for valuable american products - or we exchange those paper dollars for another kind of paper in the form of US treasury bonds - that are redeemable back for the paper dollars and pay interest with paper dollars.
 In reality, there is no chance any those dollars - stored in their central bank vaults as "currency reserve" or as US bonds - are ever going to be redeemed at anything close to the current value. If there was anything to buy in US besides what we already sell, we would not have that $500 billion a year trade deficit to start with.

 So it is not really "borrowing" but accepting tribute. It all hinges on foreign governments continuing to support the dollar and depress their currencies by buying the dollar and accumulating it in one of the two ways described.

 The $2.8 trillion of foreign debt number is misleading - it does not include the trillions of dollars that are held around the world and are really an obligation to provide something of a value on our part in exchange for products paid for by those dollars.

 miko