Topic: Commentary
For all of the Bush administration's talk about national security, what this administration has really doen is make America dramatically less secure. While many people recognize that things such as global warming and dependence on foreign oil also represent national security threats, it seems that people have failed to recognize the greatest threat of all, our national debt.
The Bush administration has argued that they have made America safer by carrying on these wars in Iraq and Afghanistan, but just ignoring the direct ways in which these wars have actually made us less safe, by actually contributing to global terrorism and increasing anti-American sentiment abroad, these wars have done something even more dangerous, which is dig America deeper into debt.
So, has the Bush administration made America more safe? Not at all, in fact it has made us many times more vulnerable and has dramatically increased our economic, and thus security, risk.
What people need to start recognizing is that our debt is a risk factor and that the increasing debt poses a direct threat to the security of this country.
Think about it. If you had a house with no security system, no dog, no guns, etc., you may not feel too safe. You may decide that you want to increase your security by buying a dog and an alarm system, etc. Okay.
Now, what if your income is $50,000 a year and you decide that you feel so insecure that you want to spend $400,000 on a super-duper state of the art ultra-max security system, including body guards, etc.
Now that you have spent more money than you can possibly afford and you have an additional $400,000 in debt, are you really "more secure"? No, in fact you are less secure.
Guess what, when you take on so much debt, now you are constantly worried about losing your job, now creditors are calling, now you have weaknesses that can easily be exploited financially, etc. No one may break into your house or rob you, but now your chance of being extorted by others or driven into bankruptcy has increased by far more than the chance of you being invaded was before.
This is effectively what the Republicans have done to America since the 1980s, but especially within the past 7 years of the Bush administration.
There are now fundamental problems with our economy that have no easy solutions. With essentially 30 years of Republican tax cutting and deficit spending, we are now at a point where we must raise taxes, probably significantly, in order to balance the budget and pay down the debt. Yet, our economy is in such a state that tax increase will surely have a negative impact, yet not paying down the debt will also have a negative impact. When this happens to your average person, this is usually the road to bankruptcy. Unless incomes go up dramatically, then there is no real solution here.
Additionally, interest rates also need to go up. Interest rates are too low, and have been too low ever since the large cuts from the 2001 recession. American's rate of personal savings is at an all time low. The average rate of Americans savings in now negative. Compare this to an average 40% savings rate of people in China.
The interest rate has a direct impact on savings. The lower the interest rate is the less incentive there is to save, because borrowing is cheap and there is little return on savings. As the interest rate goes up, the incentive to put money into savings and money market accounts goes up.
The falling value of the dollar hurts us even more. Now that the value of the dollar is dropping, even if you put money into savings its value is globaly falling faster than the interest can keep up. Even if you are getting 5% return on your money market account, the dollar is falling compared to other values of measure, such as gold, oil, and foreign currencies, at a higher rate than 5%. So right now, with the low interest rates, you are losing money even if you save money anyway.
All of the Americans with big money started moving their assets into gold and foreign currencies about 5 years ago at least. In addition, due to several factors, including new restrictions on foreign investment in America, foreigners have been increasingly investing outside of America, even pulling resources out of American markets.
Let's not even get into the issue of the aging baby boomers and the future cost of medical care and entitlement programs.
So what does all this mean? Well, it means that there is no easy way forward.
Cutting taxes always sounds appealing. The problem for the Republicans is that they have made "cutting taxes" a central plank of their platform, yet you can't cut taxes forever. You can always run on cutting taxes. Sometimes its appropriate to cut taxes and sometimes it isn't. Right now it isn't. Giuliani is once again running on cutting taxes. Well, then what. What if he were to win and cuts taxes. What will the next Republican run on, cutting taxes also? When does it stop? Meanwhile the debt is ballooning out of control.
Interest rates need to increase significantly, yet everyone knows that doing so would initially hurt the economy by reducing spending and investment. Actually, I don't think that increasing interest rates would hurt as bad as many people claim, because corporations are flush with cash at this point, unlike the American public, so investment would still go forward even with higher interest rates, there is plenty of cash on hand in the hands of the wealthy and corporations.
Still, increasing interest rates will have a negative short-term effect. A positive effect of increasing interest rates though is that it would bring more foreign investment into America and help to stabilize the value of the dollar.
The two things that need to happen are not going to be easy to do. Likewise, due to the international economic environment, doing the "right thing" is going to become increasingly difficult for every country, especially the United States. The reason for this is that there is growing economic competition between nations and it is becoming increasingly easy for capital to move from nation to nation. This means that international competition is going to drive down things like taxation, labor laws, and banking regulations down, because any country that tries to enact appropriate levels of taxation and regulation is going to see a flight of capital to other markets, and nations will lower their restrictions and taxation in order to attract foreign investment.
We already see this in Europe where Switzerland basically uses "predatory taxation" to draw in capital from the surrounding countries. The Swiss have implemented a regressive taxation system that has higher tax rates for the poor and working classes than for the wealthy. Taxation on wage income is much higher than taxation on capital income. Why do they do this? Because it allows them to attract money from all over Europe. In effect, the Swiss are stealing from everyone in Europe, depriving all of them of the ability to properly set their own domestic taxation policy and dramatically robbing them of taxation revenue. Why does this work for the Swiss? The Swiss can get by with very low taxes on the wealthy because it attracts so much money from around Europe and the world that the massive influx of capital from foreign markets more than offsets that lower tax rate.
In other words, if the Swiss system were a closed system it would fail miserably, it only works because it has an outside source of revenue. The problem is that this prevents other countries, where the wealth is actually created, from being able to properly tax their citizenry. The result is that the countries that have to pay for things like infrastructure and education and healthcare which make it possible for the wealthy to become wealthy in the first place are unable to actually get a return on their investment, because the wealthy move their money outside of the country where it isn't taxable.
This Swiss system is likely just the beginning of what is going to become a large international problem.
So, not only is it already going to be hard for America to balance its budget and pay down its debt, but the growing international climate is going to make this increasingly more difficult. The debt situation that has developed in America over the past 30 years, since the "Reagan Revolution", will increasingly become this nation's greatest point of insecurity and our greatest vulnerability. Through this debt the American economy, and thus America itself, will become increasingly vulnerable to foreign interests. Our debt is the biggest hole in our national security.
Updated: Sunday, November 11, 2007 10:32 AM EST

