Regularly reading the Financial Times (Britain’s leading financial daily) can put an American in a fighting spirit. At least, it puts this American (transplanted former Englishman and naturalized American citizen that I am) in such a disposition.
I have in mind, this time, an article in Monday’s edition by Jeffrey Garten, titled “We must get ready for a weak-dollar world.” The article makes two broad assessments:
1) “The two most significant structural consequences of the recent financial debacle are the massive deficits and debts of the US and the shift of economic power from west to east. There is only one effective way for governments to address the combined impact of both: press for a sea change in currency relationships, especially a permanently and greatly weakened dollar.”
2) “The issue is no longer whether the dollar is in long-term decline but which of two options will be taken. Should Washington and other capitals calmly and deliberately manage the transition to a new era, or, by default, should they let the market do it, with the risk of massive financial disturbances. Today, governments have a choice. Soon they may not.”
What I don’t like about the article is that it is — from an American point of view — defeatist and that objectively, it may turn out to be true.
But before contesting the latter point — that such decline is inevitable — it is vital to understand that a weak dollar driven by permanently excessive public debt directly threatens not only our prosperity but also our sovereign ability to protect our liberty in this heartless world. There is no better evidence of such a possible American future than the event 53 years ago this month that put paid to British pretensions to greatness and independence — the Suez crisis of 1956.
Briefly in 1956, when Egyptian President Gamal Abdel Nasser nationalized the British- and French-owned Suez Canal, Britain took understandable offense and organized its retaking. Allied with Israel and France, Britain arranged for Israel to invade Sinai, after which Britain and France militarily intervened with the intent to have the world agree to let them continue to manage the canal.
Unfortunately for Britain, U.S. President Dwight Eisenhower disapproved of the effort. (He was up for re-election, and the Soviets had just invaded Hungary. Ike didn’t like being surprised by America’s closest ally, Britain, and he didn’t want the Third World to see America as complicit with colonialism.) Also, unfortunately for Britain, though it still had the army, navy and obligations of a great power, it relied on America for financial help.
Britain could not maintain its currency, the pound sterling, at the pound’s needed reserve currency value of $2.80 without American help. Also, Britain needed petroleum, which was being cut off by the Suez crisis.
The “genial” Eisenhower (who had worked side by side with British Prime Minister Anthony Eden when Eden was top foreign policy aide to Winston Churchill during World War II) had had enough. He instructed his treasury secretary, George Humphrey, to sell off the pound, break the British currency and economy and refuse to sell Britain any American oil (which we then had in abundance) until Britain gave up its military action.
And so effectively ended the British empire, not at the hands of an enemy, but by the ungentle touch of its closest ally, the United States, to whom its weak currency and debt-ridden economy was perennially dependent.
Eden had a nervous breakdown and retired from government. That December, his replacement, Harold Macmillan, commented to U.S. Secretary of State John Foster Dulles:
“The British action (at Suez) was the last gasp of a declining power. … Perhaps in 200 years, the United States (will) know how we felt.”
Well, here we are, 147 years shy of that predicted American comeuppance date of A.D. 2156. And now the stately British Financial Times is suggesting that the United States may be imminently vulnerable to a not-so-friendly China playing Ike’s role of spoiler of American sovereignty to our role as the dear old broke Britain of 1956.
That is why the United States should not accept the shrewd but not yet inevitable prognosis of the Financial Times. In the next few years — and starting immediately, while our gross domestic product is still bigger than the combined economies of China, Japan, Germany and Russia — we must start radically cutting our spending until our fiscal condition supports a strong dollar and low taxes.
It is an open political question whether the majority of Americans love our country, our children and our grandchildren enough to take the painful sacrifice (vast reductions in entitlement benefits) it will take to guarantee our sovereign and prosperous future.
But we are being given that rare chance to glimpse into our near future and see what will befall our children after the past 40 years of spending excess compounded by this latest year of spending madness. What a fine theme for the 2010 election cycle.
But are we Americans still brave enough to remain free? My guess is that neither the two major political parties nor the majority of the public loves America enough to campaign and vote on the hard, bitter truth about our condition.