You and Jim Devine criticized United for Peace and Justice literature about "War and Globalization" that came out of the UFPJ "Global Justice" working group -- the criticism that I share. If you were asked to draft a 2-page flyer (or 8-page leaflet) on "Financing the Empire" to educate anti-war/anti-occupation activists, what would it look like?
BTW, I thought that the following items were interesting. Thoughts?
***** New York Times September 12, 2003 FLOYD NORRIS Foreigners May Not Have Liked the War, but They Financed It
The Bush administration is not very popular overseas, at least if you believe the opinion polls. But if money could talk, it would tell a different story.
For most of this year's second quarter, the United States was waging a war in Iraq, with help from the British and not very many others. There were demonstrations around the world against the war.
But guess who was financing it? The world was. Figures released this week showed that private foreign citizens bought an unprecedented $129 billion in United States government and agency securities. Official accounts, mostly central banks, added $43 billion more.
All told, foreigners bought almost 80 percent of the net increase in Treasury and agency debt during the quarter. They now own 38 percent of outstanding Treasuries, more than double the figure of a decade ago.
Those numbers came from the Federal Reserve this week, in its quarterly flow of funds report. That report tends to be ignored because it is late, voluminous and complicated. But the foreign aspect of it is extraordinarily important these days because the United States must attract so much capital from the rest of the world.
We need that capital because of the huge current account deficit this country is running. That deficit - largely reflecting the trade deficit - went above 5 percent of gross domestic product in the first quarter for the first time in history. The second-quarter number, when it is released Monday, is likely to be about the same.
Such deficits can be financed only by investment flows. If they are not large enough, then currency values must adjust. A few years ago, it was fashionable in some circles to argue that the growing current account deficit was a sign of American strength because it reflected just how attractive American investments were to foreigners.
That argument does not work now. In the late 1990's, most of the foreign money was going into investments that were a bet on the vibrancy of the American economy: corporate stocks and direct investment, meaning foreigners were buying companies or building plants.
A lot of those investments went bad when the bubble burst, reflecting the fact that foreigners often tend to come a bit late to parties. Someone has to buy at the top.
The really big overseas accumulations of American stocks started in 1999 and continued into 2001. The overseas investors did not turn into net sellers until the first quarter of this year, after stocks hit bottom and started to recover. In the second quarter, they bought $21 billion worth of shares, a big gain but less than a third of the amount they bought in early 2000, when the market was peaking.
The second-quarter surge in private purchases of Treasuries may reflect a bit of bubble buying as well, as plunging bond yields and rising prices attracted speculators. John Vail, senior strategist of Mizuho Securities USA, notes that Japanese investors appear to have sold Treasuries in July, as rates were rising and prices were falling.
But speculators aside, much of the foreign investment reflects the need for a place to park the dollars foreigners receive when they sell all those toys, textiles and Toyotas.
It's a nice situation while it lasts. We get cheap imports, which hold down inflation and enable consumers to buy more. The flood of foreign money helps to keep interest rates low while supporting the dollar. The war can be financed relatively cheaply at those low rates.
But borrowers may eventually need to pay attention to the views of the lenders. It would not be fun if foreigners began to invest the way they talk.
<http://www.nytimes.com/2003/09/12/business/12NORR.html> *****
**** Is the U.S. an Empire in Denial? A Lecture by Niall Ferguson Source: FPA Event Author: Niall Ferguson September 17, 2003
. . . One of the most striking differences between Britain's empire of a century ago and the United States today is that a century ago Britain really was the world's banker. Its net capital exports to the rest of the world were on a colossal scale between 5 and as much as 9 percent of Britain's national income. Today, as you know, the United States is far from being the world's banker. It is the world's great borrower. Its balance of payment deficit so large that it is between 5 and 6 percent of gross domestic product. Its huge and burgeoning federal debt relies ever more on foreigners to finance it. At the last count, foreign holdings of the federal debt amount to close to half of all federal treasury bonds in public hands. . . .
<http://www.fpa.org/topics_info2414/topics_info_show.htm?doc_id=193437> *****
***** Balanced atop a chasm of debt By Päivi Munter Published: September 19 2003 16:43 | Last Updated: September 19 2003 16:43
A rapid deterioration in US public finances has led to a sharp fall in Treasury bond prices against other dollar debt.
The size of the US budget deficit is also raising concerns at credit ratings agencies, although the Federal government's Triple A rating is not considered under near-term threat because federal debts are still relatively low. . . .
Government debt usually commands a premium to bonds issued by companies and other entities because the risk of default is much lower, but investors have recently marked down US Treasuries because of worries over the deficit.
In bond markets, swap spreads - or yield differentials reflecting the relative values of Treasuries against other dollar debt - have fallen from about 130 basis points in 2000 to a recent low of 30bp.
The US Federal budget deficit could reach 6 per cent of gross domestic product next year - after being in surplus just two years ago - compared with about 4 per cent for Germany, the eurozone benchmark
Germany, which is also rated Triple A, earlier this year faced a ratings scare over its budget deficit.
While it is extremely rare for benchmark issuers to lose their top rating, there is a precedent. In the late-1990s Japan, the world's second biggest economy, was dropped off the exclusive triple A club because of spiralling deficits.
Few expect the US economy to follow Japan's path, but the speed of the US budget turnround is striking.
Lionel Price, chief economist at Fitch Ratings, said: "What is worrying is that the administration has been cutting taxes but hasn't detailed where it will cut expenditure."
In an attempt to stimulate a flagging economy, President George W.Bush earlier this year pushed through $350bn in tax cuts, coinciding with planned extra spending of $87bn next year in the aftermath of the Iraq war.
In the government bond markets, the soaring US borrowing needs are an immediate worry.
"Once the deficit is above 5 per cent, you're clearly in danger territory," said Ciaran O'Hagan, strategist at Lehman Brothers.
Mr O'Hagan estimated that the net issuance of US Treasury bonds would rise from the current monthly average of $40bn to $50bn next year. This compares with net issuance, or issuance minus redemptions, of about $10bn in the eurozone, where the figure is falling.
The scale of the funding required to finance the US budget shortfall relies on huge flows of foreign investment. A record 46 per cent of US government bonds is now held by foreigners.
"This is a macro issue for the whole world economy - $600bn is a massive amount of money," said Mr O'Hagan.
Ian Douglas, global fixed-income strategist at UBS, said: "What matters is who buys your debt, and how dependent you are on the buyers that you have no control over.
"Japan has been able to run about 10 per cent deficits, because it has de facto control over a lot of the investors in the JGB [Japanese government bond] market. In the US, the situation is very different, and the deficits are likely to become a problem at an earlier stage."
<http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1059479973112> ***** -- Yoshie
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