Dean Baker writes a fabulous new post on the skanky tactics of the Deficit Hawks.

Jingoism and the Budget Deficit: Using Any Tactic to Advance the Budget Cutting Agenda

The deficit hawks apparently believe that their case is so weak that they must resort to crass jingoism to push their agenda. NBC apparently intends to run a piece on the evening news on Tuesday that talks about the portion of the government debt that is owned foreigners, highlighting the role of China.

This is incredibly dishonest. The extent to which foreigners hold U.S. assets is determined by the trade deficit, not the budget deficit. (Actually, the causation largely goes the other way. The decision of foreign governments and/or investors to buy dollar assets raises the value of the dollar, leading to a larger trade deficit.) Insofar as there is an issue of U.S. indebtedness, it is the holding of U.S. assets in general by foreigners. This represents claims against future U.S. output that will be paid out to foreigners rather than being available for domestic consumption. Whether foreigners hold shares of General Electric and Microsoft or U.S. government bonds makes no difference, especially since one can be readily sold to buy the other any day of the week.

A serious discussion of this issue would focus on the value of the dollar. That is the relevant factor in the story of foreign indebtedness. Given the current value of the dollar, at the same level of GDP, we would be building up just as much foreign debt if the government were running a budget surplus rather than a $1.3 trillion deficit. Economists all know this.

However, the deficit hawks are not interested in a serious discussion. They are pushing their agenda of cutting Social Security and Medicare. And they are apparently willing to appeal to crude jingoism to make their case.

Can we ever have an honest debate in this country over such a serious topic as this? The College Republicans headed by Norquist, Reed and Abramoff in the '80s, along with the rise of Newt Gingrich in 1994, rendered the political environment in America toxic, and it has never recovered.

Krugman cites a 2005 speech Ben Bernanke made as the best explanation for the global economic crisis. In his speech, Bernake said in the mid-1990s, the emerging economies of Asia were major importers of capital, borrowing from other countries to finance their development. After their own financial crisis in 1997-98, Asian countries began protecting themselves by acquiring foreign assets, "in effect exporting capital to the rest of the world."

The result was a world awash in cheap money, looking for somewhere to go.

Most of that money went to the United States — hence our giant trade deficit, because a trade deficit is the flip side of capital inflows. But as Mr. Bernanke correctly pointed out, money surged into other nations as well. In particular, a number of smaller European economies experienced capital inflows that, while much smaller in dollar terms than the flows into the United States, were much larger compared with the size of their economies.

Still, much of the global saving glut did end up in America. Why?

Mr. Bernanke cited “the depth and sophistication of the country’s financial markets (which, among other things, have allowed households easy access to housing wealth).” Depth, yes. But sophistication? Well, you could say that American bankers, empowered by a quarter-century of deregulatory zeal, led the world in finding sophisticated ways to enrich themselves by hiding risk and fooling investors.

And wide-open, loosely regulated financial systems characterized many of the other recipients of large capital inflows. This may explain the almost eerie correlation between conservative praise two or three years ago and economic disaster today. “Reforms have made Iceland a Nordic tiger,” declared a paper from the Cato Institute. “How Ireland Became the Celtic Tiger” was the title of one Heritage Foundation article; “The Estonian Economic Miracle” was the title of another. All three nations are in deep crisis now.

For a while, the inrush of capital created the illusion of wealth in these countries, just as it did for American homeowners: asset prices were rising, currencies were strong, and everything looked fine. But bubbles always burst sooner or later, and yesterday’s miracle economies have become today’s basket cases, nations whose assets have evaporated but whose debts remain all too real. And these debts are an especially heavy burden because most of the loans were denominated in other countries’ currencies.

Nor is the damage confined to the original borrowers. In America, the housing bubble mainly took place along the coasts, but when the bubble burst, demand for manufactured goods, especially cars, collapsed — and that has taken a terrible toll on the industrial heartland. Similarly, Europe’s bubbles were mainly around the continent’s periphery, yet industrial production in Germany — which never had a financial bubble but is Europe’s manufacturing core — is falling rapidly, thanks to a plunge in exports.

If you want to know where the global crisis came from, then, think of it this way: we’re looking at the revenge of the glut.

And the saving glut is still out there. In fact, it’s bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust.

One way to look at the international situation right now is that we’re suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.

So that’s how we got into this mess. And we’re still looking for the way out.

3 quarks daily: The vast majority of people now see Guantánamo as so illegitimate that it approaches absurdity.

Brad Setser: At least we know how the U.S. financed it's trade deficit in April (and March).

The Washington Independent: The Pentagon's numerous, pricey, high-tech failures triggered bipartisan disgust at a House hearing.

Respectful Insolence: Anti-vaccinational activism versus measles in the U.S.

Tennessee Guerilla Women: While misogyny rules in America, gender equality is a top priority in Spain

Catsandbeer: One of the most delusional denizens of Wingnuttia, Glenn Beck, has a simple request.

This is what I've been saying for months...

David Sirota:

A simple question: Why is politics the only arena where those who turned out to be right still get flayed as outcasts, while those who are known to be utterly wrong get rewarded as visionaries? In business, if you make the wrong calls, you lose money and, most often, lose your job. If you make the right call, you make a lot of money, and you usually get promoted. There are exceptions to this axiom, of course - but it generally works this way. In politics, it generally works the opposite way. The people who make the right call on the big issues are punished with elite vitiriol, and those who repeatedly make the wrong calls on such issues are vaulted into the highest echelons of the Establishment.

Nowhere was this more obvious than on the Iraq War. As Jebediah Reed at Radar Magazine has shown in detail, most of the major pundits who led the cheering section for the war have been rewarded with promotions, while those writers who actually accurately predicted the war as a disaster have been cast aside like pieces of garbage.
This has also happened when it comes to "free" trade. Despite the fact that NAFTA and China PNTR have helped destroy American wages and jobs; have increased our trade deficit to crisis proportions; and have been a key weapon in preventing global environmental and human rights standards, the people who predicted such outcomes are still regarded with contempt and berated with false attacks, while the people who championed such awful policies are considered the legitimate voices of reason. Jeff Faux spells this out particularly well today over at TPM Cafe

All Things Democrat: Help prevent voter fraud on election day...meanwhile, the Missouri Supreme Court has declared team GOP's Photo ID legislation unconstitutional, and go read the interview with Rice University computer science professor and electronic voting machine expert, Dan Wallach, at Kuff's World. (h/t Avedon)

Mad Kane’s Political Madness: Trade deficit, budget deficit, truth deficit

Sensen No Sen: The Disappeared

Sadly, No! Let me through; I speak Hinderaker!

Brad DeLong: Ben Domenech, meet your Dad...

Whiskey Bar: Trusting the marketplace

Pensito Review: You think Abramoff's bad? Check out the Israel lobby...

THE BRAD BLOG: Daily Voting News is a comprehensive listing of reports each day concerning issues related to election and voting news around the country regardless of quality or political slant.

Scrutiny Hooligans: Fed Chair Bernanke-- "the possibility of a future disruptive correctionof the U.S. trade deficit cannot be ruled out."

d r i f t g l a s s: At his core Dubya is a coward. An effete weakling, bred to sneering privilege who has always had a massive and pricey buffer between him and the ruin he inflicts.

Scrutiny Hooligans: Fed Chair Bernanke-- "the possibility of a future disruptive correctionof the U.S. trade deficit cannot be ruled out."

d r i f t g l a s s: At his core Dubya is a coward. An effete weakling, bred to sneering privilege who has always had a massive and pricey buffer between him and the ruin he inflicts.

The Rude Pundit's pitch to blog for the Washington Post

Even Ari Fleischer and Marlin Fitzwater are piling on the pudgy, Nam-avoiding, tough guy. Plus, it turns out Katharine Armstrong--whose family owns the ranch where the vice-president capped that dude--is a lobbyist whose father helped Karl Rove set up his first business. Cheney must be stopped....there are so many ways he can kill you!

Body and Soul: Bastards...

Booman Tribune: More Abu Ghraib photos released

Shakespeare's Sister: Question of the Day

MaxSpeak, You Listen! Don't call it a trade deficit

must be stopped....there are so many ways he can kill you!

Body and Soul: Bastards...

Booman Tribune: More Abu Ghraib photos released

Shakespeare's Sister: Question of the Day

MaxSpeak, You Listen! Don't call it a trade deficit

The Daily Sandwich

This article was brought to my attention by my favorite red-state Republican-- let's call this individual "X." The story, in Newsweek, is called "Does the Future Belong to China?" Now, economists have been taking seriously the decline of America for well over a decade now (Japan was the first country to scare us). The economic boom under Clinton assuaged the fear for a while, but many factors have contributed to a new concern.
Here are a few of them:
1. The falling dollar
2. The rise of the EU, China and India
3. The amazing colossal trade deficit
4. The amount of dollar reserves held by other countries (e.g., Saudi Arabia and China)
5. Outsourcing of American jobs

These have put the US in an awkward position, and all of them have gotten worse under Bush. Strange, considering that the above concepts are often the meat and potatoes of Republicans-- a strong America, national self-sufficiency, xenophobia, and a continued position as the world's only superpower.

In short, this should be a golden opportunity for Democrats. Not only does it have appeal in terms of the economic betterment of America's working class, but it's a chance to talk tough on American strength in the international community. You'd think the "tax and spend" left would be the ones to get us leveraged up to our eyeballs with loans from communist and totalitarian regimes. Nope, it's the GOP.  Read on...

Sibel Edmonds to Supreme Court     Global News Matrix

An FBI contract employee who was fired after alleging national security breaches within the bureau's translation service plans to appeal to the Supreme Court

to lift a gag order that she has been under for almost three years.

Here are a few of them:
1. The falling dollar
2. The rise of the EU, China and India
3. The amazing colossal trade deficit
4. The amount of dollar reserves held by other countries (e.g., Saudi Arabia and China)
5. Outsourcing of American jobs

These have put the US in an awkward position, and all of them have gotten worse under Bush. Strange, considering that the above concepts are often the meat and potatoes of Republicans-- a strong America, national self-sufficiency, xenophobia, and a continued position as the world's only superpower.

In short, this should be a golden opportunity for Democrats. Not only does it have appeal in terms of the economic betterment of America's working class, but it's a chance to talk tough on American strength in the international community. You'd think the "tax and spend" left would be the ones to get us leveraged up to our eyeballs with loans from communist and totalitarian regimes. Nope, it's the GOP. Read on...

Fun with the trade deficit

From via Blogenlust

Mark of the Beast

News item: Trade deficit hits record $665.9B in 2004

Why the .9?   Because otherwise the deficit, in round numbers, is $666 billion.

Could it be Satan?

DEAR ABBY: My husband has a long record of money problems. He runs up huge credit card bills and at the end of the month, if I try to pay them off, he shouts at me, saying I am stealing his money.  He says pay the minimum and let our kids worry about the rest, but already we can hardly keep up with the interest.

Also he has been so arrogant and abusive toward our neighbors that most of them no longer speak to us. The few that do are an odd bunch, to whom he has been giving a lot of expensive gifts, running up our bills even more.

Also, he has gotten religious in a big way, although I don't quite
understand it. One week he hangs out with Catholics and the next with people who say the Pope is the Anti-Christ. And now he has been going to the gym an awful lot and is into wearing uniforms and cowboy outfits, and I  hate to think what that means.

Finally, the last straw. He's demanding that before anyone can be in the
same room with him, they must sign a loyalty oath. It's just so horribly
creepy!  Can you help?

Signed, Lost in DC

Blogenlust

Mark of the Beast

News item: Trade deficit hits record $665.9B in 2004

Why the .9? Because otherwise the deficit, in round numbers, is $666 billion.

Could it be Satan?

Jim Hightower's Weblog 

The chances that the decline of the U.S. dollar will turn into a rout that triggers a worldwide financial crisis are “one in four and rising,” a U.S. economist said Wednesday.

“I think there is a reasonable risk that there is some kind of brief global financial crisis,” Mark Zandi, chief economist and co-founder of Economy.com Inc. of West Chester, Pa., said in an interview in Toronto, after a presentation on the U.S. and world economic outlook. “How brief and how severe will depend on how global policy makers respond to it.”

The U.S. dollar has fallen about 15 per cent on a broad trade-weighted basis since peaking three years ago, driven by growing concern about the United States' massive and growing current account and trade deficits, and helping to push up the Canadian dollar, the euro and the yen in the process. If the decline remains orderly, Mr. Zandi expects the greenback to fall another 10 per cent or so over the next three years.

However, the stresses that could trigger a disorderly plunge are “evident and they're growing,” he said.

The key issue is the “increasingly unhealthy” ...More

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