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The Fall of the American Empire?

Too high aspirations may at times make for a sobering feed-back often cruel for those people already hurt by the reduction in social spending and really disappointing for many of us who believe in capitalism but in one without such panache.

At the beginning it was Reagan. He thought his friend Laffer right and decided to cut tax rates. These lower tax rates together with deregulation should have brought such a big spout of activity that total fiscal receipts could be expected to be higher than before. That was the gospel. Who knows! This simplistic scheme might have worked but the construction of the intelligent shield against the communist missiles did in fact produce, not only the fall of the Berlin wall, but also a huge budgetary deficit and a substantial depreciation of the USA dollar. At that time -you ought to remember- Spanish tourists flooded New York and quickly learned to say “give me two” referring to any gadget that could be carried back. Some currency rearrangements hade to be made at the famous Plaza talks in Paris and apparently nothing happened including in this nothingness the easy to forget performance of 41st, as “dobya” dubbed his father.

The New Economy propelled the Clinton two terms and the budget, even at the new tax rates, soon exhibited a negative deficit which should have been enough for Gore to pave the Information Highway towards long and sustained prosperity. But alas! 43rd came to power -whether he had won the election or not- and down were the tax rates once more against the expert opinion of a long list of well known economists. This time military spending had , in principle, no reason to increase, but 9/11 made it a priority which nobody would dare to oppose. Back to the eighties but without a semi-respectable Laffer to hang on. The phoney justification for increasing the deficit was the “starve the beast” argument with public spending playing indeed the “beast“. But it did not work during 43rd first term. And he walked into his second staying at the Whitehouse with the confident allure of a miniature John Wayne.

The last G-7 meeting sounds boringly repetitive: would please China and Japan voluntarily accompany the free devaluation of the euro?. The polite answer was “thank you for the suggestion but we’d rather not“. Greenspan reassuring comments and a supposedly austere 2005 budget are not enough to curb expectations and the dollar might fall further down, this time without any meeting at a fancy hotel in Paris.

But if it does fall it may fall freely and central Banks around the world may hasten to replace euros for dollars in their vaults. Could then oil contracts or soy beans futures be written in euros? When and if this happens the American empire will feel threatened because, as my friend Cesar Molinas says, it is based on the international currency role of the dollar . It will not collapse like the twin towers. The fall will take its time or perhaps be even avoided thanks to productivity, effort and less private spending. Or because finally nobody wants it to collapse as Cesar would say. But while events evolve let us recall that it all began with an increase in military spending beyond any real need and probably deployed just in order to export democracy according to neoconservative ambitions.

Too high aspirations may at times make for a sobering feed-back often cruel for those people already hurt by the reduction in social spending and really disappointing for many of us who believe in capitalism but in one without such panache.

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