American Profligancy, Fiscal Theology

More evidence from the Economist that Bush's stewardship of the economy isn't of the conservative variety:

[T]he World Bank and the International Monetary Fund (IMF) seem to be trying to stage an intervention. This week, both have come out with reports on the global financial situation—and both reports give warning that America’s fiscal irresponsibility poses serious risks to the world economy.

Neither organisation issues the kind of scathing indictment that might offend its most powerful constituent. Nonetheless, both make it pointedly clear that America’s copious spending is a real, and growing, problem for the rest of the world. America’s 12-month current-account deficit now stands at $665.9 billion, or 5.7% of GDP. Since a negative balance in the current account must be complemented by a positive balance in the capital account, this means that foreign funds are streaming in. America is mortgaging its future to pay for current spending

Who's buying these Treasury bonds you might ask? Asia, which essentially is waging economic warfare against the American dollar to ensure it's over priced.

The natural adjustment mechanism for America’s rapidly growing foreign liabilities would be a declining dollar, which would lower demand for imports and make America’s exports more attractive on foreign markets. But the Asian central banks are stalling this process because they want to keep their currencies from appreciating against the dollar and thus becoming less competitive—and buying sackloads of dollars and then dumping them into US Treasuries achieves just that. This simply enables America to borrow more, making the inevitable adjustment sharper when it comes. That risk, of course, makes dollar-denominated assets less attractive, meaning that the Asian central banks have to go to ever-greater lengths to keep their currencies from appreciating.

As the Economist notes, there's virtually no political will to tackle deficits, i.e. it's not on the Bush Administration's radar. This speaks to the heart of the administration's theological way of doing policy. When the U.S. should be reining in spending to pay off debts, Bush still seeks to make his ill-advised tax cuts permanent as we hemorrhage money to pay for our wars.

Something's got to give, and if we're not careful, it may just be our economy.