The financial news has been full of bad news lately. It seems like everyone from U.S. consumers to international traders are doing what they've been told to do by the economic and financial experts for the last decade or so in order to secure America's long-term future. And who would want a thing like that?
Take the worrisome trend deplored in last Thursday's Wall Street Journal. "Drought of Credit Hampers Recovery," read the front page headline. The story beneath it took off from the Federal Reserve's statistical release the day before that showed a $12-billion drop in consumer borrowing, down to a trifling $1.563 trillion. This on the heels of still larger declines in previous months. The Journal worried that banks and lenders increased scrutiny of would-be borrowers, coupled with "a reluctance by American to hold big loads of debt at a time" given the weak job and housing markets, may continue to thin the crowds at shopping malls and car dealerships. Good heavens! Financially responsibility rampant in America? Where will it all end?
Similar bad news came earlier in the week on Tuesday with a sell off of the U.S. dollar on international exchange markets. By Friday, the Wall Street Journal editorial page had begun to worry that the dollar's downward slope on international exchange markets might turn into a prolonged dive. Of course, as the Journal's news pages point out, the high-priced dollar has long been a boon to Asian exporters who have prospered by enabling Americans to feed their addiction to modestly priced imported goods. And, by the same token, the over-valued greenback hasn't been good at all for U.S. manufacturers -- although many of these have now moved operations overseas to take advantage of the cheap labor and artificially cheap currencies promoted by the dollar-hoarding policies of these countries' governments. The resulting deficits in America's trading accounts led us to pile up nearly $2 trillion in debt owed to foreigners by the end of last year.
Now while it is true that, as the saying goes in today's dollars, if you owe the bank say $30,000, it owns you. Whereas if you owe the bank $3 billion, you own it. And our foreign creditors have a vested interest in keeping the value of their dollar hordes healthy. But standard economic theory -- not to mention commonsense -- dictates that this can't go on forever if only because ultimately decent-paying American jobs will become so scarce that the U.S. market for Asian and European imports will collapse. Of course by then it may be hard for the U.S. to rebuild its production base (outside of the still-flourishing arms-building sector) to the extent that research and innovation tend to flourish best among those who observe the production process first hand. (Ideas tend to grow up around the assembly line, as my one-time boss Lee Iacocca used to say.)
Asian and European Central Bankers joined by hedge fund operators, corporate executives with large overseas holdings and the like, have been quick to complain to reporters about their fears that America may be abandoning the "strong dollar" policy before which U.S. officials have long genuflected. And no doubt, having neglected these imbalances for so long, correcting them now will inevitably involve some pain. Should oil producers decide to stop setting their prices in dollars, as they increasingly mumble about doing, U.S. consumers will face higher prices at the pump. But hey, aren't we supposed to start consuming less oil, what with climate change and all?
No doubt, the medicine needed to cure a chronically ailing economy can be mighty bad tasting. But hanging tough can often yield fast and substantial results. Take the new difficulty that Somalis pirates are having in turning a buck these days. According to USAToday, the number of pirate-captured ships has plummeted in the last couple of months not only because more warships are now deployed in the area but because merchant vessels have started to defend themselves more strenuously. "People are acting differently, behaving differently, than they were just six months ago," U.S. Rear Adm. Scott Sanders, commander of an anti-piracy task force in the region told the newspaper. Could the American people be beginning to demonstrate a similar toughness?
The history of those who pray for a stay of execution for their sins surely long predates St. Augustine's appeal to the Almighty. But perhaps average Americans are deciding that, despite many second thoughts among those who used to counsel otherwise, it's time to get up off their knees, stiffen their upper lips and start rebuilding their future.