Sunday, May 4, 2008

There will be NO ‘Iraq savings’

Nicholas von Hoffman gives Hillary Clinton and Barack Obama a well-deserved smackdown on this issue. Instead, in and of itself, all that the end of the Iraq War will offer is a lessening of our Chinese borrowing, he says.

Even if you rescind all the Bush tax cuts, which he doesn’t number-crunch, we would be lucky, lucky indeed to get back to a balanced budget.

Imagine three well-dressed people on a sidewalk: a white-haired man in his early 70s, a woman in a pantsuit, and a young, spaghetti-thin African-American man. They are absorbed in a dispute, but they carry on in polite, moderated tones.

Across the street, a building is collapsing, another one is on fire, and a woman is jumping from the roof of a third structure. Others kneel, gasping for air near inert human forms, more dead than alive. The police, hands clapped to their heads, run to and fro like ants after a squirt of insecticide. Firefighters arrive, jump out of their glistening red machines, and attach their hoses to the hydrants. But no water comes out.

Not so many feet away, the three well-dressed people continue their disagreement, oblivious to the tumult.

Thus the presidential campaign soldiers on, all but ignoring the largest economic upheaval since the disaster of 1929. Given the chaotic state of no-longer-so-high finance in America, they have good reason to stay as far away from the daily debacle flooding out of Wall Street and, inch by foot, putting the nation under water.

But whoever wins the White House will enter it under conditions undreamed of when this long presidential season began. Long-held delusional assumptions have ceased to be tenable, owing to the catastrophic brew mixed up by Wall Street.

Now that you’ve got the intro, you know the tenor of the whole column.

Von Hoffman notes “the dollar isn’t the dollar anymore,” the next president will have to offer “the castor oil of austerity” and tell America to “man up”

As for just how bad the borrowing situation is, well foreigners are starting to get skittish, von Hoffman says:
Owing to the ever shrinking dollar bill, foreigners are ceasing to buy U.S. government securities. Last year they bought $126 billion less than in 2006.

What’s the solution?

Von Hoffman says inflation is the only likely way to get out of this — real inflation. It’s either that or a possible crash, he says.

And, the last time we used “crash” and “economy” in the same sentence to talk about America was back in October 1929.