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Fixing the U.S. by Making the Chinese Into Debtors

Karl Marx once commented, "History repeats itself, the first time as tragedy, the second time as farce." The Bush administration may bear the dubious distinction of being the first government in history to compact both stages into a single cycle. 

John Snow, Secretary of the U.S. Treasury, was in China last week lecturing the Chinese that they need to borrow more. Snow is pushing the expansion of American-style credit for China's budding consumer class, managed, of course, by American credit card companies. Noting the western-style hotels dotting China's cities, Snow commented, "They've imported their hotels. What we're saying is you can do the same thing in finance." 

This is the same John Snow who presides over the largest budget deficits in U.S. history. It is the same Snow whose economy and government live so far beyond their means they must borrow over $2 billion a day just to keep the lights on. 

This is the same John Snow who, earlier this year, had to all but beg the Chinese to revalue their currency so as to lessen China's competitive advantage over the U.S. And it is the same John Snow whose administration in only four years has added twice as much debt to the nation's books as were run up in its first two hundred years COMBINED. 

By comparison, China is a virtual paragon of economic vibrancy. While the U.S. economy grew at an average rate of 2.5% per year for the past 20 years, China's grew at over 9%. And while the U.S. economy saves less than one percent of its income, China saves over 40%. 

The results of these differences as they play out in long-term economic growth are jolting. U.S. GDP doubled over the last 20 years. China's GDP grew 10-fold. 

It is China that loans much of the money to the U.S. that allows it to continue merrily down its path of fiscal folly. If (when?) China decides to shut off the financial oxygen, the U.S economy will sink like the stock market in 1929. In fact, that is exactly what happened the last time a big foreign lender pulled the plug on U.S. borrowing. 

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Between 1980 and 1992, Ronald Reagan and George Bush I pushed their supply side economic agenda, quadrupling the U.S. national debt. But in October 1987, the Japanese, who were the Chinese of the 1980s-which is to say our lenders-sat out the Treasury auction where the government was raising the money to cover those debts. The result was the greatest one-day stock market crash in U.S. history. 

So, John Snow condescending to the Chinese about the virtues of debt is like Typhoid Mary lecturing Florence Nightingale on the proper procedures for public health. One can only marvel at the Chinese's restraint to not burst out laughing. 

We should be clear: the Republicans' orgy of debt is a cancer on the U.S. economy. First, it puts the economy's fate into the hands of potentially hostile foreigners. Then, to inoculate itself against economic blackmail, the government must raise interest rates, hoping other lenders will step in. But this puts a knife into the heart of the already tenuous debt-based expansion. This scenario is literally playing out before our eyes. 

Alan Greenspan has raised interest rates 11 times since early last year, partly to help fund Bush's record government debts. Economist Steven Roach has predicted a cascading series of defaults by an already over-extended public, culminating in what he calls, "economic Armageddon." Roach, far from being a bomb-thrower, is chief economist at investment banking giant Morgan Stanley, a cardinal in the Vatican of financial capitalism. 

And Snow's (which is to say, Bush's) massive debts make it impossible for the U.S. to invest in its aging infrastructure or to lead the next generation of technological revolutions-biotechnology, nanotechnology, energy efficiency, etc. It was investments into earlier such revolutions-railroads, automobiles, chemicals, electronics, and aviation-that made the U.S. the economic superpower it is today. 

But more and more, it is a faltering superpower. We are living off of our capital, hemorrhaging debt and literally consuming the fruits of past prosperity to fund a lifestyle we cannot afford but will not surrender. Meanwhile, the only thing sacrosanct in Republican economic policy is tax cuts for the wealthy and still more tax cuts for the wealthy, exacerbating the debt and all but assuring the decline. 

Ideological zealotry is typically impervious to nuance so John Snow probably misses the irony of a grievously indebted capitalist finance minister hectoring his flush communist creditors to borrow more so that his own country might borrow less. It is like a heroin addict lecturing his pusher on the redemptive value of dignity and discipline, even as he begs the pusher to front him another dime bag. It is tragedy and farce rolled into one. Karl Marx would be laughing his head off.

Robert Freeman

Robert Freeman

Robert Freeman is the author of The Best One Hour History series, which includes World War I, The French Revolution, The Vietnam War, and other titles.  He is the founder of One Dollar For Life, a nonprofit that builds infrastructure projects in the developing world from donations as small as one dollar.

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