http://www.washingtonpost.com/wp-dyn/articles/A10805-2004Jul24.html At the same time, the image the United States is presenting to global investors is increasingly tainted by our apparent disregard for both economic and diplomatic fundamentals. The message we have conveyed in recent years is that there is no economic problem we confront today -- from gigantic deficits to huge under-funded liabilities -- that we wouldn't prefer to have our children solve tomorrow. So, it should not be surprising that other important measures of investor interest have also taken a dramatic turn for the worse in recent months.
For example, foreign purchases of Treasury bonds and other government securities are up, because the way the government finances higher budget deficits is by selling more paper. But the percentage of those foreign purchases made by private investors -- people with confidence in the U.S. economy -- is falling sharply. Instead, foreign governments, which bought only 47 percent of such securities in the first quarter of 2003, bought 86 percent in the first quarter in the same period this year. Almost all the government buyers were Asian, and the effect of their purchases was to prop up the value of the dollar and make U.S. exports less competitive with foreign products. Given their motivation and America 's growing dependence on such investors, this is an ominous turn of events.
Yet our economic leadership seems to be looking the other way. Two weeks after the OECD report came out, Treasury Secretary John Snow told a Cleveland audience, "There is no more serious threat to our economy than the threat of terrorist attacks on our soil."
It is hard to assess the number of ways in which this statement is wrong, but let's try.
Let's start with the biggest domestic economic problems. Almost any one of them is a greater threat to the economy than virtually any imaginable form of terrorism. There is the record-breaking budget deficit that is likely to amount to $5 trillion over the next decade. Then there's the burgeoning trade deficit. And the $72 trillion in unfunded future retirement and health care obligations to our own citizens. And a record low savings rate, which suggests that we will need even more help with retirement funding. And the hemorrhaging of manufacturing jobs and the cost of fixing our dysfunctional health care and energy systems. Every one of these is a gigantic problem on its own. Taken together, they represent a series of bombs placed at the foundations of our society, and they are capable of exploding in ways that would touch more Americans than anything even the most sophisticated terrorists could devise.
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