week Congress will be working on the $75 billion supplemental appropriations
to pay for the war. Financing the war is not as simple as it appears.
It involves more than just passing a piece of legislation labeled as
support for the troops.
It has now been fashionable to bash France and Germany
and other friends if they are less enthusiastic for the war than we
think they should be. Yet foreign corporations provide millions of jobs
for American citizens. French companies alone employ over 400,000. There
is a practical reason why offending the French and others may backfire
In 2002 we earned $11.9 billion less from our investments
overseas than foreigners did here. This is not a sign of financial strength.
A negative balance on the income account contributes to the $500 billion
annual current account deficit. Since 1985 when we became a deficit
nation, we have acquired a foreign debt of approximately $2.8 trillion,
the world's largest. No nation can long sustain a debt that continues
to expand at a rate greater than 5 percent of the GDP. This means we
borrowed more than $1.4 billion every day to keep the borrowing binge
going. This only can be maintained until foreigners get tired of taking
and holding our dollars and buying our debt. Bashing the French and
others will only hasten the day that sets off the train of economic
events that will please no one.
In thinking about providing funds for the war and overall
military expenditures, not only must every dollar be borrowed from overseas,
but an additional $150 billion each year as well. The current account
deficit is now 44 percent greater than the military budget and represents
the amount we must borrow to balance the accounts. The bottom line is
that our international financial condition is dire and being made worse
by current international events.
It is true that military might gives a boost to a nation's
currency; but this is not permanent if fiscal and monetary policies
are abused. Currently, our budget deficits are exploding, as there is
no restraint on spending.
No one can guarantee permanent military superiority.
The dollar has already significantly weakened this past
year, and this trend will surely continue. A weaker dollar requires
that we pay more for everything we buy overseas. Foreign borrowing will
eventually become more difficult, and this will in time cause interest
rates to rise. Be assured that domestic price inflation will accelerate.
Economic law dictates that these events will cause the recession to
linger and deepen.
My humble advice, consider being nicer to our friends and allies. We
need them more than we can imagine to finance our war efforts. There
is more to it than passing the supplemental appropriation. Besides,
we need time to get our financial house in order. Antagonizing our trading
partners can only make that task that much more complicated.
The day will come when true monetary reform will be
required. Printing money to finance war and welfare can never be a panacea.