Its politicking season in the U.S., a European financial crisis blossoms, Chinese domestic turmoil escalates, Japan is lapsing into catatonia, India is returning to torpidity - not an easy time to call on common sense. But nothing is more necessary when examining the roller-coaster markets and, even more, the pronunciamentos of talking heads who have burned out their synapses.
No, it is not by any means the first nor the most notorious time when American politicians have called each other nearly unprintable names, contradicted themselves, misquoted their opponents and played “dirty tricks.” (How about Thomas Jeffersons lieutenants “leaking” details of Secretary of the Treasury Alexander Hamiltons 1792 adulterous affair with the wife of a Treasury employee, a blow in the contest between two Founders?)
Nor is the debate over current issues (and they are indeed arguments over fundamentals, not just partisan squabbling as President Obama sanctimoniously pretends) any clearer or less critical to the republic than other arguments over the last 200 years. Although debate had begun, for example, during the Civil War and the financial panic of the 1890s, the four-year fight over adopting an income tax brought out every rampaging political, economic and regional complaint and interest before the constitutional amendment authorizing the tax was shakily ratified in 1913.
Cutting to that other but unfortunately linked chase, we find the euro crisis is also about fundamental European politics, not just economics. The euro, like the European Union itself, was concocted from the top down by visionary politicians and industrious bureaucrats. The EU and its currency did not arise from studied compromises among Europes incredibly diverse societies, as the American union did in the 1787 Philadelphia convention. Now those differences have reasserted themselves because nanny governments chose to take on burdens even their remarkable economies could not afford.
European opinion is divided mainly between those who want further economic integration and the majority who want to continue Band-Aid approaches. The latest quick fix is moving national indebtedness into eurobonds, which is, in effect, a sugar-coated way of creating a “commonwealth” in which reluctant Germans and other northern Europeans would pick up the tab for their lesser endowed neighbors to the south.
A third position, abandoning the euro, at least for bankrupt southern members of the common currency, is still largely seen as unthinkable. But it grows closer - if for no other reason than that the fierce austerity now forced on the Greeks from Brussels is not sustainable by any Athens government for the time needed to solve the country’s basic problem: a 15-to-20 percent gap between consumption (including public services) and the productivity of Greek workers. Coming down the road could well be a choice between abandoning the euro - with growing implications for the grander EU structure - and rising social tensions in the Mediterranean countries which could lead, as in the 1930s, to authoritarianism.
The latest fairy tale, of course, is that the Chinese, sitting on more than $3 trillion in foreign reserves, are going to bankroll Europe. (Its good to remember that this, too, is a pot of accumulated American debt.) Yes, it is true Beijing is looking for an alternative world reserve currency to the American dollar. Yes, the Chinese are motivated in part by the dollar’s eroding purchasing power, a product of the “quantitative easing” of Federal Reserve Chairman Ben S. Bernanke and an Obama administration whose appetite for stimulus spending is restrained only by a Republican House of Representatives.
However, the just-announced emergency three-month dollar lending plan by the world’s top central banks to rescue European lenders, meant to calm markets fearing a possible Greek default, confirms the fact that Beijing doesnt really have a choice. If you were overseeing the Chinese dollar hoard, would you now look to the euro as a viable alternative to the dollar, even if Europe’s coffers were large enough to handle such a “dump”?
Picking up equity bargains among old, threatened European luxury brands - Club Med appeals to the new Chinese kleptocrats - is great fun, though risky at times. But the fact that U.S. Treasuries are bringing their lowest returns in 70 years tells you what the Chinese and the rest of the world know: Even with the circus in Washington, the U.S. and its dollar remain the last, faint hope of the international investor.
So, as old Rudyard said:
“If you can keep your head when all about you
“Are losing theirs and blaming it on you,
“If you can trust yourself when all men doubt you,
“But make allowance for their doubting too…”
• Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at solsanders@cox.net.
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