The day we lose America

The rest of the world watches America a whole lot more closely than we watch them. It’s always interesting to see what they’re thinking. From The Age, one of Australia’s leading newspapers, an assessment of the Bush administration’s real intentions in Iran -- and the implications. If you don’t read the entire quote, please read the last half, in boldface:

...If force is used, it will come in the form of air strikes, as US land forces are already overstretched in the occupation of neighboring Iraq.

One question still to be confronted is the impact such a strike would have on the US economy and how that would affect the global economy, particularly Australia, which is, after the US, the largest-deficit country in the advanced industrial world.

At the very least, a broadening of the war in the Middle East would be certain to push up interest rates in the US and Australia, because the central banks there would have to protect the currencies' value by increasing yields. How far and fast would depend on judgments about the likely outcome of the military intervention.

An air strike against Iranian nuclear facilities is unlikely to be surgical. There are about 50 sites associated with nuclear development in Iran and they are mainly sited in towns where civilian populations would be at risk. An attack would be certain to inflame the Islamic world against the US, almost certainly lead to a full-scale civil war in Iraq with the support of the predominantly Shiite Iranian people, and the US fleet in the shallow and narrow Persian Gulf would have to withdraw or be vulnerable to Iranian missile attack.

Worse, any air strike against Iran is unlikely to get the support of the United Nations Security Council, given that China and Russia would likely veto any resolution put up by the US.

Why would the Bush Administration risk widening Gulf War II to include Iran when it still has the chance to limit its losses to Iraq? The most popular explanation is that the US wants to pre-empt the Iranian decision to set up a Tehran oil bourse to facilitate the selling and buying of oil in euros instead of US dollars.

The idea is that this would cause a chain reaction in which more and more oil producers and their customers would trade in euros and eventually force the US to pay for its oil in euros too. This would mean the US would have to do what every other country in the world has to do, namely earn foreign exchange through exports in order to pay for its oil imports.

Last year the US trade deficit for petroleum products was about $300 billion. While the $US remains the international reserve currency and oil continues to be traded in dollars, the US can pay for its oil simply by printing more IOUs in the form US treasury bills.

If the US had to find euros (or yuan) to pay for its oil, it would have to increase taxes, cut consumption and increase exports. In short, according to this scenario, the US could no longer afford to be a military superpower and would have to cut back its global adventures.

In the process, the $US would collapse, wiping out the accumulated financial assets of America's major creditors and probably causing a depression of 1930s dimensions. More generally, such a development opens up the question of whether the reserve status of the $US is supporting US superpower status, or whether US military power is propping up the reserve currency status of the $US.

Our economic position hasn’t been this brittle since 1929. This is where we stand, thanks in large part to five years of catastrophic Bush administration policies.

If the rest of the world finally abandons the dollar, and the house of cards collapses, we’ll discover for the first time what we’ve lost and cannot regain. But tens of millions of people will have no idea what’s happened to them, or why. They’ll blame Democrats, liberals, immigrants, Jews, blacks. The minions of Michael Savage, Ann Coulter, and their ilk will take to the streets. And that’s the day we’ll lose the last vestiges of the America we loved.

It took the extraordinary creativity, clarity, and subtlety of Franklin D. Roosevelt for America to survive the Great Depression without falling victim to the Father Coughlins, Lindberghs, Mussolinis, Hitlers, Francos, or their equivalent on the Communist Left. But this time around we are not blessed with such leadership. From now until January 20, 2009, our President will be George W. Bush.

(For some sobering insights into the risks of nascent American fascism, visit Orcinus and spend some time with David Neiwert's essay, Rush, Newspeak, and Fascism.)