OPINION:
The bounty of oil has made many developing countries initially rich but undemocratic and corrupt, and now the growing global reliance on the dollar threatens the same for America.
Black gold permits national leaders to engage in wild socialist giveaways, placate elites by padding their bank accounts and consolidate dictatorial power without implementing tough reforms that beget lasting prosperity. Venezuela is collapsing as the money runs out and Saudi Arabia will eventually too.
Decadent politics and dysfunctional economic policies in Europe and Asia are making the euro, yen and yuan unattractive as long term investments. Money managers and pensioners are smart to hedge their portfolio with solid U.S. securities and if they can, American real estate.
Theresa May — who did not support leaving during the Brexit campaign — has carefully maneuvered Britons into a Sophie’s choice. Accept colonial status inside the EU — remain permanently in the customs union with no say about the rules — or a hard break with no plan to manage it.
The ultimate EU victory over Brexit will intimidate Italy and other victims of its maddening macroeconomic, currency and immigration policies from demanding systemic change or eventually bolting. Germany, which ultimately dictates the rules, will continue to arrogantly profit while Europe’s southern underbelly remains in permanent recession and growth overall remains anemic.
Japan’s population and labor force are aging and shrinking. Like elsewhere in the West, young Japanese women are pursuing careers before turning attention to establishing their families, having too few babies and denying womankind’s most essential role within society. A civilization cannot continue unless women accomplish a minimum fertility rate of 2.1 or populations are backfilled by immigration, which the Japanese culturally abhor.
Prime Minister Abe can strengthen banks, break up industrial cartels and reform labor markets but without boosting the birthrate, Japan collapses. The yen one day becomes worthless and investors are smart to buy U.S. Treasuries and Hawaiian real estate — not California property, because most Golden State residents want out.
President Xi has fashioned himself president for life and imposed tougher state orchestration of private firms, central planning and electronic monitoring and ideological conformity on ordinary citizens. Investing in the yuan would be akin to buying Mussolini war bonds in 1939.
Businesses follow suit. King Dollar’s share of cross-border debt financing has jumped to 62 percent even though the United States is one fifth of the global economy. Forty percent of all cross border trade is denominated in dollars — 23 percent of German exports even though only 6 percent are headed for America.
All this permits Americans to borrow increasing sums from foreigners and sell U.S. real estate and other assets at handsome prices. The federal deficit has more than doubled since 2015 without long-term U.S. interest rates rising very much by historical standards. The 30-year Freddie Mac mortgage rate is 4.4 percent whereas it peaked at 6.8 percent before the financial crisis and above 9 percent in the mid-1990s.
Slow growth abroad has inspired other large economies to turn to protectionism and imposed a $620 billion trade deficit on the United States, devastated interior American communities once reliant on manufacturing and put Donald Trump and America First in the White House.
The ultimate bottom line is that liberal economists’ New Monetary Theory is partially right — the United States can pay for significantly more public spending.
Not on the merits of growth and a tax dividend but on the good luck of green gold. The global appetite for dollars permits Uncle Sam to run the printing presses but that is not an unlimited warrant. And like black gold, green gold can be misused.
Mayor de Blasio and Gov. Cuomo subject New Yorkers to a third world subway system. Eight hundred million dollars is being spent on modernization but $40 billion is needed to bring the system up to par with Paris or London.
Yet those politicians recently found the money for free pre-school child care and paid family leave. New York’s taxing capacity is huge because its financial district is the engine underneath the green gold printing press.
Nationally, artificial intelligence is driving innovation and growth. China has a well-financed program but the U.S. budget does not finance the same. Instead more Americans are on the dole than before the financial crisis, and that’s Alexandria Ocasio Cortez’s recipe for turning America into a socialist paradise like Venezuela.
• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.
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