Feb. 15, 2005

Shooting Up With George

Thanks to a new federal law credit rating agencies must provide consumers with a free credit report once a year. Might I suggest that President Bush avail himself of this freebie right now and see how the credit markets feel about America’s credit worthiness?

For those of you, who like Bush, slept through Econ 101, here’s how the lending business operates: the higher the risk lenders perceive in a borrower’s financial future, the higher the rate of interest they charge. It’s Rule One of economics – the higher the risk, the higher the rate of return, and visa versa. It’s what makes capitalism, capitalism.

If Bush pulled a free credit report for his US of A this morning here’s what he would discover:

WASHINGTON (AP) -- Interest rates on short-term Treasury bills rose in Monday's auction to the highest levels in more than three years. The Treasury Department auctioned $20 billion in three-month bills at a discount rate of 2.540 percent, up from 2.480 percent last week. Another $17 billion in six-month bills was auctioned at a discount rate of 2.760 percent, up from 2.710 percent…. the highest since they averaged 2.560 percent on Sept. 17, 2001. The six-month rate was the highest since 3.120 percent on Sept. 10, 2001.

Clearly those with the money to lend do not agree with Dick Cheney’s view that, “deficits don’t matter.” They may not matter to him or Bush since they will be long out of office when the loans they are taking out now to cover tax cuts, deficits and war come due. But the lenders – who these days is largely China – care a lot.

What they see when John Snow comes around, like he did this week, shaking his tin cup, is a nation living far beyond its means, and not about to change. So, they hike the interest they demand on the money we borrow to mitigate the risk of default.

Of course default is unlikely since the US can always print more money, spark inflation and devalue the dollar allowing us to screw our lenders by repaying old obligations with dirt-cheap dollars. But even former commies like the Chinese understand that and, by charging higher rates they mitigate against that as well.

Then there is the final reason rates go up for debt-junkie nations. It’s the same reason a heroin addict’s supplier starts the user out with free and then cheap fixes until he is good and hooked. After that the price charged is determined by degree of need – “So, just how much do you need a fix today, son?”

China and other nations that buy US bonds, (which you can accurately see as our communal credit card debt.) are only too aware of the Bush administration’s drunken-sailor-on-leave spending habits. They watched as he turned a projected $5 trillion budget surplus when they took office into a $4 trillion budget deficit. Most of that money went to buying votes from the rich with tax cuts and the elderly with drug benefits and two foreign wars. Eeeeeeeeeha!

So, it has come this. “Well, George, how much do you need a fix today,” ask our inscrutable Chinese lenders as they gauge the amount of sweat on his brow, the trembling hands, rambling references to God and democracy, incomprehensible mumbles about gays and marriage, and occasional outbursts about how he needs the money to help old people invest their retirement savings wisely.

And the interest rate on our national credit debt goes up.

Today’s news of higher rates on the bonds that fund the Bush deficits is just the beginning folks. This week Bush goes to Congress for another $82 billion to fund the war in Iraq. That’s $107 billion so far this year and it’s only Feb. Estimates are that little extravagance will cost us at least $400 billion.

Let’s be clear. He is not asking Congress for the $82 billion, because there is no $82 billion in the Treasury to give him. He is asking that Congress allow him to borrow another $82 billion for the war.

And, if Congress agrees, as it will, he will be sending poor old Treasury Secretary Snow back to China with his tin cup to borrow the money.

Am I crazy or is that crazy?

Speaking of Crazy
I have seen examples of denial before, but none as potentially deadly as this one.

Seoul Doubts N.Korea Has Nukes, Despite Claim
Mon Feb 14 -- South Korea's top policymaker on North Korea said Monday North Korea's claim to have nuclear weapons was unproven and Seoul's controversial engagement policy with the North would remain, at least for now.

While the North Koreans live in a delusional Communist paradise, their cousins down south are living in capitalist denial heaven. They see war or threats of war as bad for business. The South Koreans fear a bad business climate more than they do a possible nuclear winter from the North.

It’s incomprehensible, but true. They fear slumping foreign investment in S. Korea more than they fear nukes in the hands of the whack job up north who just ordered every male in his country to get their hair cut exactly like his. (That’s true.)

Meanwhile the US continues to protect the South with US troops, so they can go on living in denial and selling cheap crap merchandise to Wal-Mart.

What the US should do in the wake of this week’s admission by the north that they have nukes and don’t want to talk about it anymore, is launch a full-scale embargo, air and sea. And then, pressure China to seal its boarder with N. Korea and to stop providing them food and energy until they cough up the nukes. If the Chinese get testy about that, tell them the other alternative is we put nukes in South Korea and Japan to balance the nuclear threat from N. Korea. And, we will only remove them once N. Korea’s nukes are gone for good. (See also Tony's take on this in today's SetonnoteS)

Without support form China, N. Korea would collapse within six months. No bombing, no troops, no invasion necessary. The country is a rotten hollow tree and the only thing holding it up is China.

Of course, it’s kinda hard to get butch with the same country that’s lending you the big bucks you need to pay for war while cutting taxes at home and provide grandpa with his Viagra, isn’t it !

By Stephen Pizzo

Raconteur at Large