America the next Great Banana Republic

[Judi Lynn]

October 7, 2007 at 12:31:28
America the next Great Banana Republic
by Bacchus


After 30 years trying to defy economic gravity, the US is well on the way to becoming the world's largest banana republic. If the current level of government mismanagement continues, within 20 years the US economy will be comparable to that of Mexico. With a more modest level of mismanagement, this will occur in less than 10 years but under much better economic circumstances. This article will disclose the uncanny (but to be expected) similarities between the circumstances preceding the downfall of Mexico during its periodic crashes over the last 50 years with similar circumstances prevalent in the US today. The government of the US, unfortunately, does not seem to believe that all countries are subject to the discipline of the marketplace, regardless of their demonstrative wealth and seeming invulnerability. The sad part is that the bigger the country is, the harder it will fall. The US will drag down the entire world with it if it persists in its current flagrant economic profligacy.

First I will explain how the Mexican people (as well as the people of many other Latin American peoples) ended up in their current poor economic conditions of low income and general poverty. The term "Banana Republic" was used to describe a country with a low level national production whose sole foreign exchange earnings came from only a few products. The resulting lack of export earnings combined with a considerable level of imports inevitably lead to a drain of the assets from the banking system. The imports of essential goods not locally produced from the rest of the world, accompanied by luxury goods of a non-essential character procured by the small percentage of rich, overwhelmed the amount of exports. This results in a current account deficit, which is the amount of money leaving the country consequent to shortfalls in trade, services, and returns on asset purchases/loans incurred during previous current account deficits. If the Mexican government did not want to completely lose control of its money supply, resulting in a devaluation of the peso and drastic fall in the living standard of the working classes, it had to modify its policies.
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But here is the kicker. If the US government takes no action while these asset transfers are occurring, within 20 years essentially all US assets will be under foreign control or ownership. So I suggest that if the US government is just able to mismanage the economy a little better it will, as Mexico tried to do, preserve US ownership of a major portion of our assets. By preventing substantial capital asset transfers to foreigners, the US government will shorten the time for the draining of bank assets and the eventual massive devaluation of the dollar. Citizens of the US will suffer a drastic drop in their standard of living but will at least not be completely poverty stricken. They will also have avoided the need in the future to pay the substantial interest payments on foreign-owned assets which is causing so much pain for the Mexican public today. The US government will also avoid being in the unenviable position of having to petition or coerce foreign owners to support the US in times of international troubles.

But wait, why not avoid the major consequences of these unfortunate circumstances? Why not adopt the austerity policies that the US(via the IMF) has so enthusatically imposed upon other countries? If the US still wants "free trade" then it should be willing to adopt those "austerity" measures that the IMF forced upon Mexico. All it has to do is adjust federal expenditures in a way to effectively decrease excess spending on foreign-made goods. The government could accomplish this by imposing the very graduated income taxes which had served us so well in the past. And downsizing the federal government by laying off many in our current bloated bureaucracy whose inflated salaries and pensions have played and will in the future play havoc with federal budgets. While they are at it, why not stop the subsidies to those "special friends" like the big farm groups. And the big government "no bid" contracts to their corporate cronies. And last but not least, stop subsidizing the education and salaries of those "lucky ones" who manage to get into medical schools. These measures would go a long way toward correcting the foreign trade deficits, with an added bonus of rationalizing our budget deficit. But the beneficiaries of this government largess are all well connected politically so there is no hope of that happening. So, hello recession.
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http://www.opednews.com/articles/opedne_bacchus_071007_america_the_next_gre.htm