Friday, February 24, 2006


Is America for Sale?

David Ignatius concludes today’s column in the Washington Post with a clichéd ‘if only’:

“They would require political leadership instead of quick-hit news conferences. What a quaint idea, that members of Congress actually might want to solve problems rather than make headlines.”

Of course this follows a sequence of quick hits whereby he generally lambastes for racism, xenophobia and, of course, “the reckless tax-cutting, deficit-ballooning fiscal policies that Congress and the White House have pursued.”

He even passes on the idea that soon foreign interests could own our national parks, should we continue to attract such large amounts of foreign investment. Left out of such a cogent analysis is why the US attracts so much foreign investment. To be fair, Mr. Ignatius does correctly point out that the terrorist concerns over the proposed Dubai port deal are over hyped. But the gist of his column is a generic economic warning based on unsupported assertions.  

Mr. Ignatius flatly states:

“Greater foreign ownership of U.S. assets is an inevitable consequence of the reckless tax-cutting, deficit-ballooning fiscal policies that Congress and the White House have pursued.”

Why is that inevitable? Why would foreign investors want to invest here if Congress and the White House have put the nation on the path to economic ruin? He follows up with:

“By encouraging the United States to consume more than it produces, these fiscal policies have sucked in imports so fast that the nation is nearing a trillion-dollar annual trade deficit. Those are IOUs on America's future, issued by a spendthrift Congress.”

He then approvingly refers to the work of an NYU professor in explaining that “the United States has been financing its trade deficit through debt -- namely, by selling U.S. Treasury securities to foreign central banks.”

Let’s think about that. If an oil refinery buys a barrel of oil from Saudi Arabia for $64; it’s the refinery that owes the Saudis the $64 – not the US government. Saudi Arabia, in agreeing to sell, has decided that they have uses for the money that are preferable to holding onto that barrel of oil. One of the alternatives may be T-Bills. So, I guess Mr. Ignatius is correct that we are financing our trade deficit in this manner only if we accept the premise that the Saudis are selling us oil as part of a complicated scheme to lend us money. And if, as Mr. Ignatius suggests, Saudi Arabia decides to unload these reserves, well, where do the Saudis go? They’ll still be holding US dollars.

Also left out of his column is exactly what he has in mind? While I continue to support past and future cuts in the tax rates, I probably join him in lamenting our “deficit-ballooning fiscal policies”. I say “probably” because I’m not all worked up about a deficit that is tied to an improved infrastructure. This is a capital investment that presumably adds to the nation’s wealth. But I’m willing to cut and slash if we’re talking about farm subsidies and the Department of Education.

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