The Decline of a Super Power?

It appears to be a slow news Saturday, so everyone is doing reviews of where we are, where we've been, where we're going. Perhaps the most important issue facing the US today is the state of the economy, something everyone seems to ignore, maybe because things are so bad, no one wants to look at it.
Harry Hutton has a very interesting list of prices. There is a hidden inflation factor in packaging with astonishing consequences.

Barrel of crude- $59
Barrel of Evian water- $500
Barrel of orange juice (London prices)- $927
Barrel of Hewlett-Packard printer ink- $470,638

Perhaps we have more income, but the marketplace has found even more ways to eat it up. So effectively the US middle class income has stagnated. We have more expensive tastes and toys, but we're less able to find time to express our new preferences, because we're working longer hours, and commuting longer distances.
Worldwide, the US economy seems to be teetering on the edge of some sort of fundamental change. Brad DeLong's Semi-Daily Journal quotes from the NY Times.

The United States trade deficit widened by a surprisingly large 11 percent in September, reflecting both a surge in energy imports after Hurricane Katrina and a steep drop in airplane exports because of a strike, the government reported yesterday. The trade gap with China also set a record. The United States imported $66.1 billion more in goods and services than it exported in the month, breaking the record of $60.4 billion set in February, the Commerce Department reported. The trade deficit in the first nine months of the year totaled $529.8 billion, about 18 percent higher than in the first nine months of 2004. That figure itself was up 21 percent over the period in 2003.... "One-third of the widening of the deficit is the oil bill, and aircraft sales explains most of the rest," said Carl Weinberg, chief global economist at High Frequency Economics, a research firm.

"Only with very weak U.S. growth or a major drop in the U.S. dollar will the trade deficit improve on a sustained basis," said Ethan Harris, chief United States economist for Lehman Brothers. "The reason you need these dramatic movements is that the U.S. has, according to almost every study, an incredible appetite for imports."... "If the Chinese abandon our Treasury market, we would see an enormous jump in interest rates," Mr. Harris said, "and, of course, if we stop buying their products their economy is going to go into recession." The Chinese government reported yesterday that its October trade surplus with the rest of the world jumped to a record $12 billion in October. It had a total trade surplus of $80.4 billion for the first 10 months of the year, 2.5 times the figure for the period last year

The time we have to get the U.S. trade account unwedged is limited. We don't know how long we have before we enter the webzone, but we have a year less than we had last November.

It's not clear what DeLong means by the "webzone", but one of his commenters suggests a scenario I've been writing about and referencing for a time.

The slow decline of the US I see as inevitable. The graceful acceptance I see as highly unlikely. One could view Iraq as exactly what this sort of process might look like. Consider Suez in 1956. If Britain had not been through WW2, that's the sort of thing they might have gone to war over. And, of course, they would have won the war, but at some cost. Likewise I imagine the US will just keep over extending itself, occasionally kicking the sh_t out of some small country to make itself feel good, while, every day, the rest of the world gets on with the business of building a world that does not require, and is protected from, the US. (cf China doing booming business with Iran.)

I think that the risk of further aggressive actions in the face of decline is very high. Ronald Reagon tapped on the dissastisfaction of the middle class, and Bush renewed that link. Americans are frustrated for very complex reasons. My own personal beliefs focus on the creation of greed and product demand by advertising, combined with the shifting of wealth to the upper class. We are no longer as well off as many of our parents, despite having dramatically increase our income in this baby boomer generation. So the support for living on credit is massive.
The excess and chaos continues. King of Zembla posts on the biggest debtor nation in the world:

Our eminent colleague Richard Cranium of the All Spin Zone toasts the Bush administration for passing a couple of extraordinary milestones:

President George W. Bush and the current administration have now borrowed more money from foreign governments and banks than the previous 42 U.S. presidents combined, which the Blue Dog Coalition in the House of Representatives called “astounding.”


Throughout the first 224 years (1776-2000) of our nation’s history, 42 U.S. presidents borrowed a combined $1.01 trillion from foreign governments and financial institutions according to the U.S. Treasury Department. In the past four years alone (2001-2005), the Bush Administration has borrowed a staggering $1.05 trillion.

And:

The Commerce Department reported Thursday that September's trade deficit was a record $66.1 billion, 11.4 percent higher than August and much worse than economists had been forecasting. Analysts blamed much of the rise on hurricanes Katrina and Rita, which shut down production at Gulf Coast refineries and pushed oil prices to record highs. The trade deficit so far this year is running at a record annual rate of $706 billion, putting it on track to far surpass the old record of $617.6 billion set last year.


Critics say the deficit is the result of the Bush administration pushing free trade agreements that reduce the cost of products for U.S. consumers but send American jobs overseas, where labor costs are lower. The United States has lost 3 million manufacturing jobs since mid-2000.

We'd like to join the celebration too, if we may by saluting President Bush for achieving a downright gaudy 36% approval rating in the latest Fox News Poll.

Bush's popularity crash seems to be the only good news.