Wednesday, March 25, 2009

How a Budget Can Lead to War, Or, the Next Great Conflict

While we are all distracted with the current economic crisis, there is one thing that we should consider that can have destructive consequences for stability in the international system. Today, the Czech president of the European Union called the U.S. budget a ‘Way to Hell’ and we have heard China state vocally that there needs to be another currency to replace the dollar (yes, these statements are linked). What is the problem with the budget? While most Americans do not know, we have the privilege of being the only country in the world that can simply print money and export the inflationary costs. We have funded the Vietnam War and the current Iraq War by simply printing money. This is an easy process for Americans, because we get to export the costs of our policy choices. Instead of having to pay higher taxes to finance the war, we print money and devalue the dollar reserves held by every other country in the world. We are able to tax the reserves or savings of foreign states, whether they wish to pay the costs or not, by lowering the value of their savings. This is great for the United States because we can fight wars without having to make sacrifices. It is not true that no one pays, it is just that we are able to export the costs to foreign states. This can only serve to alienate us from our allies and provides otherwise neutral governments with a reason to oppose U.S. foreign policy.

The present U.S. budget is designed to stimulate the economy by printing enough money to improve the market. It is ironic that if we are in such dire environment that the American people have not been asked to sacrifice for the greater good of our country. We have not been asked to pay higher taxes for a few years so that our country can recover. Instead, we are asked to continue to enjoy life and not give up anything that could serve the common good and improve our nation’s future. We are living in an imaginary world where our actions do not have any consequences, and as long as we can keep other states paying our bar tab, we remain in a drunken state. This response to the crisis is wholly inadequate for a nation that preserves in a special way the freedom of the world. Our responsibility in dealing with this crisis extends not only to the U.S. population but carries with it the entire world. If we fail to exercise our position on the global state with justice, what will happen when another state succeeds us? It will only be worse for freedom.

Now we have to look at the consequences of our budget to other states and see who will suffer the most. China has systematically undervalued its currency and relied on exports for growth. Through these policies it has accumulated the world’s largest supply of U.S. dollars. What will their response be to the current U.S. budget that seeks to fund the government through printed dollars that will significantly lower the value of China’s greatest asset? A reasonable person can see that this financial crisis has the potential to initiate an international conflict. As an outsider to the offices of government, I have no inside information. There are several approaches China may take. First, it could call our bluff by moving to temporarily lower the value of the dollar as a warning to our government. If we did not react the way they liked, they could reduce the value of the dollar overnight by releasing their reserves on the global market. Second, they could make a military move. I do not know when or where, but this is a real possibility. Third, they could systematically reinvest their dollars in the United States by purchasing everything that was for sale with in our economy. This option would resemble a military occupation except that it would be economic. And the consequences would be that China would own our country. Fourth, China could do nothing and let the U.S. systematically destroy its greatest asset. While this is a possibility, it is the least likely scenario. However, it seems to be the plan that our government is counting on.

We should realize that our budget may be viewed as an act of war by those states that are most affected and our media has not examined why other states view the U.S. budget as a source of conflict. We are passing the costs of our policy choices to other states and such action may produce strong, negative reactions. The risk to us is that we are destroying the value of China’s greatest asset and we think they will be passive and ignore a policy that destroys the currency reserves they have accumulated for decades. The real risk is that we are forcing China to react and their movement will directly oppose us. The conflict that emerges can only worsen our domestic condition and it is unrealistic to think that we will receive no opposition. There is a lot at stake in our current policies and we should not believe that others will passively the costs of running our government.

2 comments:

lightbadger said...

China is feeling betrayed, and who else is unhappy? Are the African, South/Central American and other nations suffering? Who can explain these things to the American public, and where can these explanations be responded to most powerfully?

A Catholic Thinker said...

These are good questions. People outside our borders are suffering, and the American public is unaware. I do not believe that it is our task to change the perception of everyone, or to open the eyes of the general population. Our task is to educate those we encounter personally.