I thought the Yen was supposed to be the death of America. Oh, that was the 80s.

Worried? Hell, no.
Look, the very reason you've not seen this comparison before is simple enough; To make such a comparison waould be to tacitly admit that Carter was a complete failure in terms of the economy. He was of course exactly that, but to get the Democrats to admit it, they must feel there's a great need, to expose themselves thus. A need to create worry, thus gettng the political benefits of that worry.

However; If there's one thing Mr. Bush's naysayers have been invariably, it's wrong, opting to consistantly under-estimate his ability to finnese any given situation.

I'm watchful, but given this history, less than worried.

The ability to finesse political problems and the skill needed to avoid policy disasters are unfortunately not the same thing.

Key to the second but not to the first is the willingness to acknowledge publicly and act on facts that the general public is likely to find disagreeable. There is no political gain in prospect for a President who decides to recognize that trade and budget deficits of the size we have now place the American economy at unnecessary and undesirable risk. Americans do not want spending cuts, they do not want tax increases, they absolutely do not want to consume less and save more. They will resent a politician who tells them they are wrong about any of these things -- and resent much more a politican who tells them they are wrong about all of them -- unless he can persuade them that his proposals only affect other people.

Of course it sometimes happens that even unpopular steps have to be taken. I confess I don't see how we can continue to borrow huge amounts of money indefinitely without risking an economic calamity, and do not see how we stop borrowing huge amounts of money if the government only follows policies that are popular. Whoever is in the White House when our trade and fiscal chickens come home to roost, though, invidious comparisons with Jimmy Carter will be the least of his problems.

The ability to finesse political problems and the skill needed to avoid policy disasters are unfortunately not the same thing.

True; Which is another reason I'm not worried.

Bill Clinton was adept at dealing with the former. Mr Bush, with the latter. How else would some of the better policies Bush has enacted good as they've been, be so politically costly?

American declinism is going to be the fastest growing meme of the year, I predict.

Replace the Japanese with Chinese as the "yellow peril" and 2005 is going to feel a lot like early 90's. Remember Micheal Chrichton book "Rising Sun" and the widespread belief that we were 'finished' as a first world nation?

Through in a little 70's style delinism (as referenced above) and you're ready for the perfect storm of despair and defeat. It'll be just as accurate this time as it was the last two times, too.

I'm not looking forward to reading about the future in the next two years (as opposed to living it, which won't be bad at all.)

I don't want to reprint the entire article, but one troubling comparison in the piece is a section that compares the current moment with "the last dollar crisis, in the late 1970s."

Shorter Dan: the sky is falling! the sky is falling!

I'm sorry to tell Dan that the reason that the comparison to the '70s is being made has nothing to do with whether the comparison is apt. Rather, it has everything to do with the "dollar crisis" being the latest left-wing MSM anti-Bush meme.

After all, the left-wing MSM anti-Bush foreign policy writers all have their "Iraq = a Vietnam quagmire" meme, so the economic writers need something catchy too. And since the prior left-wing MSM anti-Bush meme (you might have heard it, Dan; it was "all our jobs are being outsourced to India") failed to really do the trick in damaging Bush, the left-wing MSM anti-Bush economic writers are moving on to the "dollar is going to crash and the US will turn into a Banana Republic" meme.

Congrats on buying into the meme so thoroughly, Dan.

Interstingly the same omens are being seen on the other side of the atlantic:-

http://economicsuk.com/blog/

Considering the possibility of some difficulties with China over Taiwan, has anyone done a real assessment on how much economic damage China could do to the US with its reserves if it was so inclined?

While this would also severely damage China, I can easily imagine the importance of reunification dwarfing economic growth to some older members of the party.

Certainly the leverage has got to be severe: "Interfere in our internal affairs (=invasion of Taiwan) and we'll sell every US dollar in our reserves we have at once..."

What would be the effect? Are there more effective ways China could harm the US with its reserves? Enough to make a US president to opt out of helping to defend Taiwan?

BTW, I'd just like to point out that the dollar remains about 9% ABOVE the halcyon days of 1997, when you look at its exchange rate with respect to the basket of currencies of major U.S. trading partners used by the Fed.

That's right, 9 PERCENT ABOVE 1997.

Now, I know, I know. I certainly remember all that talk in 1997 about a dollar crisis that was just like the 1970s. Hmmm, on second thought, I DON'T remember that. Wonder why that could be? Oh, right. A Democrat was in the office. Ergo, everything was hunky-dory, according to the MSM.

Al, there are OTHER differences between 1997 and 2005 than the party affiliation of the main occupant of the White House. But don't let economic realities get in the way of a chance to throw another log onto the "liberal media" fire. You think that historically high budget and current account deficits and a seemingly interminable military presence in Iraq may make 2005 just a tad different from 1997? What a tool.

A consolidation of global economic might by diminishing Asian (esp. China & Japan) and European savings I say. Much as America imported Japanese deflation in 97-98 through Asian competitive devaluation, America is importing the savings of foreigners, as Stephan Roach said in the NYT (27/11/04):

"Lacking in domestic savings, the United States must import foreign savings to finance the growth of its economy. And it runs huge current-account and trade deficits to attract such capital from overseas."

The Chinese and Degaullian French clearly see this as a huge foreign policy problem, which is exactly the context the Administration uses to justify an otherwise bad economic policy- good foreign economic policy. The righties are right on this geopolitical move and the textbook economists are marginalized on the sidelines because monopolistic power matters.

At the risk of sounding "declinist," the parrallel that worries me is the 1920's. Americans bought German bonds so the Germans could pay reparations and keep their economy afloat. I'm sure there were a lot of Germans back then who thought the Americans wouldn't call their loans because it would hurt America too.

Of course this probably won't happen, but why take the chance? To give the Chinese gov't such power over our economy is madness, and certainly not "conservative" by any definition I'm aware of.

You think that historically high budget and current account deficits and a seemingly interminable military presence in Iraq may make 2005 just a tad different from 1997? What a tool.

Tell; me do you even recall what the situation was with our military in 1997, mrjauk ? THe Clinton misadministration had sent them to more theatres than any other president in the hsistroy of the country, and yet found it needful to cut their funding. Most of the current budget, and under-equipping stems directly from this.

And of course, you don't know about this, or don't remember, because the liberal media won't TELL you that it's there, much less what to think about it.

For the benefit of the majority of posters on this thread, let us stipulate that George W. Bush is indeed a hero, visionary and model for us all; that no criticism of him direct or implied is in any way fair comment; that all his policies whatever they happen to be at any given moment are self-evidently right and just; and that it is deeply shocking and outrageous that the vast left-wing conspiracy in the liberal media should be picking on him and being so mean.

With that out of the way, can we manage to agree that annual deficits exceeding $400 billion dollars with no end in sight are undesirable and must be drastically reduced? And perhaps also that allowing so much potential influence over the American economy and American government policy to slide into the hands of Asian central banks is something we ought not do?

"And perhaps also that allowing so much potential influence over the American economy and American government policy to slide into the hands of Asian central banks is something we ought not do?"

Especially since one of these central banks is under the control of one of the worst, most despotic governments in the world ...

Why was the dollar decline from 106.1 in Sept 1977 to 91.1in Oct 1978 under Carter in 1978 a crises while an even larger drop from 104.5 to 87.6 from late 1986 to early 1988 under Reagan not a crises?

This is especially hard to understand since the 1987 dollar crash was in the face of almost a 300 basis point increase in the spread between US T Bonds and foreign T bonds while interest rates spreads hardly budged in 1978.
Moreover, in 1978 the stock market rose almost constantly thru the dollar drop while the dollar was the thing that triggered -- not caused -- the 1987 market crash.

Since Ip says 1987 was the last dollar crises ould someone tell me why 1978 was a crisis and 1987 was not. .

Mostly because in the overall the economy was far more promising, and the probems were demonstrably far more short-term.

Two points: (1) one can debate ad nausam whether the Carter years were really that bad economically as compared to the current situation with its weak labor market, fiscal mismanagement, etc.; but more to the article's contention: (2) how does Ip conclude that the late 1970's was a dollar crisis? The extent of dollar devaluation? Didn't the dollar devalue a lot in the late 1980's and wasn't that something economists welcomed? Aren't economists looking at the current account deficit now praying for dollar devaluation?

Yes and no, as far as I can tell. The theory is that a cheaper dollar will help redress trade deficits by making imports more expensive and exports less. But since the United States is running the largest trade deficits with China and Japan a weakening dollar with respect to the euro doesn't really meet the need. The other major component of the trade deficit -- petroleum imports -- is also something of a two-edged sword, as a cheaper dollar drives up the cost to consumers of products everyone uses and that are central to economic growth. Energy taxes imposed years ago when the dollar's strength was unquestioned could have forestalled this problem somewhat, by gradually making Americans less vulnerable to spikes in the cost of gasoline and other petroleum products. But that ship has sailed, or so it appears.

Someone nailed it above. The reason you talk about the 70's is that if you talked about 1995, when the dollar was lower then it is today,and STILL claim that the sky is falling, you look like an idiot.

As a note on one "reality" claimed here. The dastardly "MSM" will not tell us that the current small size of the US army is Clinton's fault, because the curret administration has 3 years since 9/11 to change this, significant funds to do so and has chosen not to. In this way the situation differs from that of earlier times such as the difference between 1916 and 1918, 1940 and 1943, 1950 and 1953, 1963 and 1966...

Only in rightwingers imagination is George Bush compelled to keep the army's size down because Bill Clinton told him to.

Jen Larson -- also note that Bush has nothing in his budgets to replace all the equipment being destroyed in Iraq. In another year half of the army will have no armour.

the curret administration has 3 years since 9/11 to change this, significant funds to do so and has chosen not to

And what "significant funds" would those be, hmmm?

My understanding was that the size of the military has nothing to do with the availability of funds. Instead, it has to do with the idea that a "smaller, leaner" military was sufficient to fight the kind of wars in which America would be involved. We were supposed to be in and out of Iraq quickly, with the main part of that war being the overthrow of Saddam. Instead, the occupation has become the tough part, and Rumsfeld's dream of a light-on-its-feet military moving quickly from one conquest to the next has evaporated into the ether from which it was conjured.

bithead's just gotta get to that Eriksonian developmental stage where you can separate your ideology from your financial self-preservation instincts. Usually people get there when they've accumulated enough capital that the cost of emotional rah-rah becomes prohibitive. This commenter loved Clinton more than Monica did, but that didn't keep him from dumping equities at their blatantly absurd millenial peak.

But you see, that's where you're dead wrong.
I've reamed Bush a new one on several diffeent topics. He's far from perfect. I simply see Mr. Bush as the (Far) better of the two alternatives. Thus does he have my support.

But I do have a certain attachment to the truth. And what I see being piled up against him has little or no connection to the truth.

And by the way, while I have the editor open: Jen Larson Here's a question you won't be able to answer; What do you suppose the reaction of the left is going to be with a massive buildup of Military spending that would certainly result following so many years of being overworked and underpaid?

Need a historical reference? Try what Mr. Reagan had to to to get the army back on their feet after Mr. Peanut got through with them.

'Thus does he have my support'

that'll show those sissies sneaking overseas with $19B worth of capital flight, last we looked.

(thus does...? what are you, from olden days?)

Oh, and Al, a crucial heads-up: as everybody knows, politics reflects mating strategy. In your peak mating years you pick an image: for males, it's 'good provider' (right) or 'kind and caring person' (left). You're gonna wreck your good-provider image if you don't shut up with the nonsensical economic opinions. Like, you can't just compare exchange rates without reference to some model equilibrium (like http://www.stern.nyu.edu/globalmacro/Roubini-Setzer-US-External-Imbalances.pdf or take your pick.)

Look, I'm just trying to help you get girls, it's obviously an issue.

At the risk of sounding "declinist," the parrallel that worries me is the 1920's. Americans bought German bonds so the Germans could pay reparations and keep their economy afloat. I'm sure there were a lot of Germans back then who thought the Americans wouldn't call their loans because it would hurt America too...Of course this probably won't happen, but why take the chance? To give the Chinese gov't such power over our economy is madness, and certainly not "conservative" by any definition I'm aware of.

I wonder if anyone has quantified such speculation. What if the Chinese were to simply stop, cold turkey, lending money to Washington. Just how much would rates rise, and just what would the ramifications be? I'd like to know.

The thing is, it's not like the Chinese are the only sources of funds. With an increase in interest rates, other foreigners would eventually be tempted into the market, as would domestic actors in the US. Problems like the scenario outlined by the commenter I've cited are self-correcting, in other words.

Yes, perhaps we'd undergo a recession. Maybe even a fairly sharp one. But America is still a very rich country. The transition to a higher savings rate such a scenario implies need not be cataclysmic. Again, America is still a rich place in a way China can only dream of. Color me skeptical, but I strongly suspect the US is more strongly positioned to withstand a sharp increase in rates than China is to withstand a sharp falloff in exports.

'Thus does he have my support'

that'll show those sissies sneaking overseas with $19B worth of capital flight, last we looked.

Which as Dan will tell you, has an effect on the overall balance. And I think in the overall you will find that amounts to about half a days commerce in the overall. Not nearly as problematic as you make it.

(thus does...? what are you, from olden days?)

What is it about the King's English you find so troublesome? Words, after all are all we have, here.

Oh. I see Government school.
You'd prefer smaller words?
Ebonics, perchance?

(Snort)

hmm. high need for affiliation: GOP, more-or-less selective school. easy to manipulate. your social superiors will find you useful, if you know your place

My, my... you DO have an active imagination, don't you? Ah, well, at least you never have trouble raising a date that way.

the rigor of your discourse declines a bit when issues of class and upbringing are broached