US ECONOMIC OVERSTRETCH & IMPERIAL MILITARY/POLITICAL BLOWBACK?

IN RE: Jay Moore on  The gathering gloom From The Economist Global Agenda      
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                    ANDRE  GUNDER  FRANK
Department of History                      Home
University of Nebraska Lincoln [UNL]       4440 North 7th Street 
612 Oldfather                              Apt. 107 
P.O. Box 880327                            Lincoln, NE 68521 USA
Lincoln, NE 68588-0327                     Tel: 1-402-742 7931
Tel: 1-402-472 3251=direct 2414=Dpt        Fax: 1-402-742 7932 
Fax: 1-402-472 8839
E-Mail: franka@fiu.edu          Web Page: csf.colorado.edu/agfrank/
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Jay Moore <pieinsky@igc.org> writes in a-list on 16th November 

and  

ANDRE GUNDER FRANK <<quotes>> and comments:
       
>>If the IMF is right, a global economic recovery could start sometime
around the middle of next year. But for the world's second-largest
economy, Japan, the prognosis is far worse. Japan is now in its fourth
recession in a decade, and a prolonged one at that, with GDP expected to
contract both this year and next. Economists agree that Japan's [and other
''national'' economies'] problems are much more serious and will require
much more radical policy action than the authorities there have yet
delivered.<<

The IMF forecasters, and also those of the OECD and the U.S. government
ARE and HAVE NEVER BEEN RIGHT, as demonstrated by comparison between their
published [also their internal un-published?] estimates and subsequent
real world events. They have ALWAYS BEEN OVER-OPTIMISTIC, because
over-optimism is BUILT IN-to their estimation mechanisms, if only because
POLITCAL economic reasons mandate them to AVOID ANY REALISM and make
UN-realistic prognoses that are meant to act as self-fullfilling
propheses, which are also designed to maintain political SUPPORT FOR THEIR
CONTINUED EXISTENCE. The IMF -which de facto is an arm of the US Treasury
Dept but is NOT accountable to anyone other than the US Treasury - does
have some power to make propheses that are in part self-FULLFILLING FOR
AMERICAN and some other BIG BUISINESS INTERESTS by sinking currencies,
economies and income especially in the ''Third'' and now also the former
''Second'' world at whose costs the economies in the FIRST world - that
yes IS FIRST first but in another sense - rest much of their own relative
prosperity [see below].

>> Nobody is yet suggesting America is suffering from deflation, which can
trigger a downward spiral of falling prices, shrinking demand and
financial distress: a vicious circle America last experienced in the 1930s
depression. Wise policymakers will not ignore the risk, however.<<

I and James Tobin [ author of the ''Tobin Tax'' proposal] already in the
mid-1980s published and predicted DE-flation, and ''wise'' policy makers
DID IGNORE this risk [not really risk, but necessary consequence] while
continuing their policies designed to fight IN-flation. Nonetheless, since
then commodity prices have fallen sharply and consistently. Moreover in
WORLD economic terms, high inflation in terms of their national currencies
[pesos,rubles, etc.] and their sharp DEVALUATION against the DOLLAR world
currency has been an effective de facto major DE-flation in the rest of
the world.  That has REDUCED their prices and made their exports CHEAPER
to those who buy their currencies WITH DOLLARS, primarily of course
consumers, producers and investors IN - AND FROM ! - THE UNITED STATES.
These additionally, which is hardly ever mentioned!, can and do buy up the
rest of the world with dollars that ''cost'' only their printing and
distribution, which for Americans have virtually NO COST. [The $ 100
dollar bill is the world's most used cash currency on which runs the
entire Russian economy, and there are two to [now?] three times as many of
them circulating OUTSIDE as inside the US]. The American boom and welfare
and then ''balanced'' federal budget 1992-2000 Clinton adminstration,
contrary to its populist claims, only happened to coincide with this boom
and the also same 8 year long PROSPERITY OF THE UNITED STATES WAS ENTIRELY
BUILT ON THE BACKS OF THE TERRIBLE DEPRESSION, DEFLATION AND THUS
GENERATED MARKED INCREASE IN POVERTY IN THE REST OF THE WORLD [during this
one decade, life expectancy in Russia DECLINED BY 10 - TEN - years, infant
mortality, drunkenness, crime and suicide increased as never before in
peacetime. Since 1997, income in Indonesia DECLINED BY HALF and generated
itds ongoing political crisis].

All this has among others the following CONSEQUENCES: The US EXPORTS from
here to elswhere the INFLATION that would otherwise be generated by this
high supply of currency at home, whose low rate of inflation in the 1990s
was therefore no miracle result of domestic ''appropriate'' Fed monetary
policy. The US has been able to cover twin its balance of trade and budget
DEFICITS with cheap money, AND the deflation/devaluation elsewhere in the
world has like a magnet ATTRACTED speculative financial CAPITAL from the
rest of the world - both American owned and foreign owned - which has
BOUGHT US TREASURY CERTIFICATES [ stopping up the US budget deficit] and
INTO WALL STREET this feeding and supporting its 1990s BULL MARKET, which
in turn has increased, supported and spread wider a speculative and
illusory in increase in wealth for American and other stock holders and
through this also ILLUSIORY ''WEALTH effect'' has supported higher
consumption and investment. The subsequent and present bear market
decline in stock prices nonethless is a still a profit boon for
enterprises who issued and sold their stocks at bull market high and
rising stock prices and are now BUYING back their OWN stocks at what for
them are bargain basement low prices, which represent an enormous profit
for them at the expense of small stock holders who are now selling these
stocks at low and declining prices.

The US ''prosperity'' now rests on the knife edge not only of an unstable
enormous domestic corporate and consumer [credit card, mortgage and other]
debt. The US is also vastly OVER-INDEBTED to FOREIGN OWNERS of US Treasury
certificates, Wall Street stock and other assets, which can be called in
by foreign central banks who have been keeping reserves in US dollars and
other foreign owners of US debt. Indeed, it is the very US POLICY that has
contributed so much to DESTABILIZATION elsewhere in the world [eg.through
the destabilization of Southeast Asia that undermined the Japanese economy
and financial system even more than it would otherwise have been] that now
threatens and now soon makes much more likely that especially Japanese and
European holders of US debt must cash it in to shore up their own ever
more unstable unstable economic and financial systems.  

Another major consequence is that the US - and world! - economy is now in
a bind from which it most probably can NOT extricate itself by resorting
to Keynesian pump priming and much less to full scale macro-economic plicy
and suypport of the Us and Western/Jpanese economy, as the Carter and
Reagan administrations did.  Miltary Keynesianism,  disguised as
Friedman/Volker Montarism and Laffer Curve Supply-Sideism, was begun by
Carter in 1977 and put into high gear in 1979, when Carter the
Fed was run by Carter appointee Paul Volker, who in October 1979 switched
Fed minetary policy from high money creation / low interest price thereof
to attempted low money creation / high interest [ to 20 percent
monetary! ] to rescue the dollar from its 1970s tumble and attract
foreign capital to the poor US. In that he then succeded. At the same
time, Carter began Military Keynesianism  in June 1979 by un-doing the
Nixon-Brezhnev detente and starting the Second Cold War with a NATO member
countries'  real 3 percent a year [adjusted for inflation] increase in
miltary spending [at the same time he began the ''two-track'' policy of
stationiung high altitude Pershing missiles in Germany and low altitude
Cruise missiles as well to bargain with greater strenght with the Soviet
Union. The alleged re-initiation of the Cold war by the Soviet invasion
of Afghanistan in December 1979 has been a US myth from the beginning,
since Carter re-initated the Clld war in June and the Soviets did
not invade Afghanistan until  December 1979. Personally, I have always
argued that the latter was a Soviet response based in part on the - it
turned out mistaken - supposition that the US had already escalated about
as much as it could. The US super-escalation response was unexpected but
desinged - I argued - in part, as was also the new shift to a right wing
economic policy strategy, in order  to take the wind out of Ted
Kennedy's challenge to Carter for the coming Democratic Party nomination.
Brzinsky now reveals that HE deliberatly reved up Afghanistan in order to
provoke Soviet reprisal and permit a US counter-reprisal, in which he
succeeded. In a word, the Second Cold War and Military Keyensianism were
launched by Carter [in the UK Thacherism was launched in 1976 by Labour
PM Callaghan],  and  Star Wars  Reaganomics were only its continuation/
futher escalation. The former was designed to force the SU into bankrupty
and the latter to support not only the US but the entire Western -
also European and Japenese - world economy after the 1979-1982 recession. 
Both policies succeded, but they avoided bankrupting the US as well only
because  the resulting US twin trade & budget deficits were shored up by
capital inflows from forced Latin American debt service [ a result
again of Volker''s creation of the Debt Crisis by pushing the interest
rate from nothing to 20 percent] and by massive capital inflows from
Europe and Japan - especially into Treasury Certificates - after the US
switched from b eing the world's largest creditor still in 1985 to
becomeing its largest debtor ever since 1986. Otherwise, the US would have
gone bankrupt with endless inflation, just as the SU did, which however
had no one to bail it out as the US did. Morevoer, the SU external account
was wiped out in the 1980s after the 1981 sharp decline in the world price
of both oil and gold from which the SU derived 90 percent of its foreign
exhange.As a net importer of oil, the US - although not its oil interests
- benefited instead.

Why do I now recount this ancient history? Because today and tomorrow the
US would need to do the same for itself and its allies, now BUT IT CAN NOT
do so!  The US may [should? must ??] now attempt a repeat performance to
spend itself and its allies [now minus Japan but plus Russia?] out of the
present and much deeper world recession and threatening depression. The US
would then again resorting to massive Keyenesian deficit [ using September
11 as a pretext for probably military] RE-flationary spending.  Moreover,
to settle its now enormous and ever growing foreign debt, the US may chose
also to resort to IN-flationary reduction of the burden to itself of that
debt and its also ever growing foreign debt service. But even the latter
could - in contrast to the above summarized previous period- NOT avoid
generating a further SUPER trade balance particularly if market demand
falls further and pressure increases abroad to export to the US demand/er
of last resort.  But this time, there will be NO capital inflows from
abroad to rescue the US economy. On the contrary, the now downward
pressure to devalue the US dollar against other currencies would spark a
CAPITAL FLIGHT from the US, both from US Government bonds and from Wall
Street where significant stock price declines generate further price
declines and deflation in world terms even if the US attempts domestic
inflation.

The price of oil is yet another fly in the political economic ointment,
whose dimension and importance is inversely proportional to the health or
illness of the ointment itself. And today that is quite sick and
deteriorating already. The world price of oil has always been a two edged
sword whose double cutting edges can be de-sharpened with the help of
successful alternative economic and price policies. On the one hand, oil
producing economies and states and their interests need a minimum price
floor to produce and sell their oil instead of leaving it underground and
also postponing further oil productive investment while waiting for better
times. Thus, a high oil price is economically and politically essential
for important states like Russia, Iran and especially Saudi Arabia, as
well as US oil interests. On the other hand, a low price of oil is good
for oil importing countries, their consumers including oil consuming
producers of other products, and supports state macro economic policy, eg
in the US. These days, the high/low price line between the two seems to be
around US$ 20 a barrel - at the present value price of the dollar!  But
nobody seems to be able to rig the price of oil at that level. The present
conflict, long since no longer within OPEC, is primarily between OPEC that
now sells only about 40 percent of the world supply and other producers
that supply 60 percent, today especially Russia but also including the US
itself as both a significant producer and a major market, although that is
increasingly shifting to East Asia. Recession in both and the resultant
decline in demand for oil drags its price downward. 

But US Keynesian spending re-flation as well as in-flation can no longer
put the floor under the price of oil needed today and tomorrow. Only a
recovery generated demand that economic policy can not now provide and a
future world economic recovery and limitations in the supply of oil could
again raise, or even prevent a further fall, in the price of oil - and of
its deflationary pull on other prices.  And further deflation in turn will
increase the burden of the already vastly over-indebted US, Russian and
East Asian, not to mention some European and Third World, economies.

Thus the political economy of oil is likely to add to further deflationary
pressure. That would - indeed already does - again significantly weaken
oil export dependent Russia.  But this time it would also weaken US oil
interests and their partners abroad, especially in Saudi Arabia and the
Persian Gulf. Indeed, the low price of oil during the 1990s has already
transformed the Saudi economy from erstwhile boom to a bust. That has
already generated middle class unemployment and a significant decline in
income that has also already generated widespread dissatisfaction and now
threatens to do so even more at precisely the time when the Saudi monarchy
is already facing destabilizing generational transition problems of its
own. Moreover a low oil price would also make new investment unattractive
and postpone both new oil production and eliminate potential profits from
laying new pipelines in Central Asia.

All of these present problems and developments now threaten to [will?]
pull the rug out from under US domestic and international political
economy and finance. The only protection still available to the United
States still derive from its long since and still also only two pillars of
the ''NEW WORLD ORDER'' established by President Bush father after
''Bush's Gulf War" against Iraq and the dissolution of the Soviet Union in
1991. President Bush son is now trying to consolidate his father's new
world order [no doubt with the latter still as a power behind the throne]
beginning with the WAR AGAINST AFGHANISTAN [and perhaps once again against
Iraq] and the Bush-Putin effort now also to construct a US-Russian Entente
-- or is it Axis. 

The two pillars of this new world order remain the same: 1] the dollar as
the international reserve currency and medium of payment and 2] the US
military might is right to lord it over the rest of the world. The US does
so cover using such pretexts as ''defending humanitarianism'' to trample
on and destroy it as in the NATO WAR against Yugoslavia, '' defending
civilization'' by destroying two of its most precious achievements,
international law and institutions abroad and liberal democracy and civil
rights at home, on pretext of ''fighting terrorism'' by using and
generating still more terrorism.

However, the dollar pillar is now threatening to crumble,as it already
did after the Vitnam War but has so far remained standing through three
decades of remedial patch work. But as we have seen, the US is now
running out of further economic remedies to maintain the dollar pillar
upright. It's only protection would be to generate serious inflation in
the short run by printing still more US dollars to service its debt,
which would then undermine its strength and crack the dollar pillar
and weaken the support it affords still more. 

That would leave only the US military pillar to support US political
economy and society. But it and reliance on it also entails dangers of its
own. Visibly, that is the case for such as Iraq, Yugoslavia, and
Afghanistan and of course all others who are thereby deliberately put on
notice to play ball by US rules in its new world order on pain of
eliciting the same fate for themselves. But the political blackmail to
participate in the new world order on US terms also extends to US -
especially NATO - allies and Japan. It was so excercised in the Gulf War
[other states paid US expenses so that the US made a net profit from that
war], the US war against Yugoslavia in which NATO and its member states
were cajoled to participate, and now by the War against Afghanistan as
part of President Bush's policy PRO-nouncement [using the early Cold WAR
terminolgy of John Foster Dulles] that ''You Are Either With Us Or Against
Us"]. But US reliance on this, the then only remaining, strategy of  
military political blackmail can also lead the US to bankruptcy as the
failing dollar pillar fails to support it as well; and it can come
also  to entail US ''OVERSTREETCH'' in Paul Kennedy terms and ''BLOWBACK'' 
in CIA and Chalmers Johnson terms. 

 
In summary and plain English, the US has only two assets left to rely on,
both admitedly of world importance, but perhaps even so insufficient. They
are dollar and its military political assets. For the first, THE ECONOMIC
CHICKENS IN THE U.S. PONZI SCHEME PYRAMID OF CARDS ARE NOW COMING HOME TO
ROOST EVEN IN THE UNITED STATES ITSELF. 

The second pillar is now in use to prop up the new order the world over.
Most importantly perhaps is the now proposed US/Russia entente
against China instead of [or to achieve?] a US defense against a
Russia/China[and India?] entente [the NATO War against Yugoslavia
generated moves toward the latter, and the US War against
Afghanistan promotes the former]. God/Allah forbid that any of these nor
their Holy War against Islam blow us all up or provoke others to do so.
However that may be,  US IMPERIAL POLITCAL MILTARY BLACKMAIL may still
BLOWBACK ON THE UNITED STATES ALSO, thus NOT OUT OF STRENGTH BUT
OUT OF WEAKNESS.


   ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

                    ANDRE  GUNDER  FRANK
Department of History                      Home
University of Nebraska Lincoln [UNL]       4440 North 7th Street 
612 Oldfather                              Apt. 107 
P.O. Box 880327                            Lincoln, NE 68521 USA
Lincoln, NE 68588-0327                     Tel: 1-402-742 7931
Tel: 1-402-472 3251=direct 2414=Dpt        Fax: 1-402-742 7932 
Fax: 1-402-472 8839
E-Mail: franka@fiu.edu          Web Page: csf.colorado.edu/agfrank/