US economic policies and the dollar

Does Bush have a hidden agenda in his fiscal policy?

In recent weeks, we have seen the euro registering new record highs against the US dollar. Given the presidential election due in less than a year from now, both President Bush's re-election politics, and economic forces, will influence the exchange rate.

Bush is nicknamed "Dubya". One is not sure whether the origin is in the word "dubious", with which Bush has had a long and well-documented connection "" the dubious way in which he earned his fortune, the dubious way in which he got elected (remember the Florida scam), the dubious, if not completely false, justifications for the aggression and regime change in Iraq and so on.

He would hardly have forgotten the general consensus of the pundits that his father lost the re-election campaign because of a weak economy.

He, perhaps, sees winning the re-election as the fulfilment of a filial duty "" like the removal of the Iraqi president from power, also a job left unfinished by Bush senior.

As far as the economy is concerned, Bush junior is on a strong wicket. GDP grew at a China-like 8.2 per cent annual rate in the third quarter of 2003 "" a 20-year high.

Corporate earnings, equity markets, consumer confidence, productivity and so on are all high. The weak point is, of course, jobs "" under Bush's stewardship 3 million jobs have been lost, with few signs of picking up.

Even The Economist, a loyal supporter of Bush, acknowledged: "Poverty has grown worse, median household incomes are falling, the number of Americans without health insurance is soaring."

With huge tax cuts for Bush's wealthy supporters, there has been a turnaround of 6 per cent of GDP in the fiscal balance in just about three years "" from a surplus of 2.3 per cent in 2000 to a deficit of 3.6 per cent in the current year, which works out to be more than $ 600 billion.

The spending priorities are evident by a defense budget equal to the fiscal deficit (defense against whom?), $ 100 billion for Iraq and Afghanistan, and $ 100 million for aid for Africa's malaria eradication programme "" as one US commentator pointed out, if terrorists killed 3,000 people in the attacks on the World Trade Centre, more African children die of easily preventable malaria every day, no less tragically, if less spectacularly.

One wonders whether there is a hidden agenda to the fiscal policy "" as professor J Bradford DeLong argued, "The aim clearly has been to sharpen the financial crisis of the social-welfare state and bring about a permanent reduction in government wealth redistribution," in other words, increase the fiscal deficit to such an extent as to frighten the legislators into cutting social programmes even more drastically.

The true scale of the fiscal deficit is, of course, much higher than the projected number of $ 400 billion. Like most governments, the US budget numbers are calculated on a cash basis, not accrual basis like corporate accounts.

If Bush was a thinking man, he would be frightened at the true extent of the shortfall in resources "" in particular, the present value of the pension and social security obligations.

Economists Jagadeesh Gokhale and Kent Smetters of the American Enterprise Institute, a right wing think tank, estimate that "the money the government is promising to spend outstrips the taxes it can expect to collect by $ 44 trillion "" 20 times that of today's federal budget, and four times more than America's GDP."

But, of course, he is not a thinking man; he is a man of faith, whose inner voice, or a communication directly from the Almighty, gives him the answers, leaving it to others to find justifications, however convoluted, to support the decisions already reached at.

The best example is, of course, the justifications for the change in the Iraqi regime. First, it was weapons of mass destruction (none found), then its supposed connections with the attacks on the World Trade Centre (allegation since retracted by Bush himself), and now, it is the institution of democracy in the country (with the help of great democracies like Kuwait and Saudi Arabia).

As Jeffrey Sachs wrote in the Financial Times a couple of months ago, the true objective is "to create a long-term military and political base to protect the flow of Middle East oil....

Decade after decade has seen these two powers (the US and the UK) oppose democratic rule, topple popular governments and side with autocratic and corrupt rulers, always in the interest of oil."

Would all the blatant lies, the jobless recovery and the transfer of resources from welfare to the super rich create problems for Bush's re-election?

It seems unlikely "" with the massive resources being collected for the election campaign ($ 200 million), the candidate will be "sold" to the voting public following the tried and tested methods of marketing soaps and fast food.

As Gerard Baker acknowledged in the Financial Times, Bush's re-election in the face of his economic record, would be a "travesty of unusual proportions".

Is there a weak point? Yes, the issue of unemployment. Scapegoats will have to be found. One of the more popular candidates will surely be China, and the exchange rate of the US dollar. But more about that next week.

Email: avrco@vsnl.com