“Dubai cannot be trusted,” said Rep. Duncan Hunter (news, bio, voting record), R-Calif., chairman of the House Armed Services Committee. “I intend to do everything I can to kill the deal,” Hunter said. Moreover, Hunter thinks he will pass legislation requiring all critical infrastructure in the U.S. to be owned by Americans. Is Hunter right about Dubai? Who knows. But it won't matter.
Duncan Hunter is about to get rolled. Not by the Administration. Or the media. But by Adam Smith's invisible hand. Why?
The Stiftung will not launch into a dry discourse about current account imbalances and the staggering overhang of dollar denominated holdings overseas. But here's a simple truth: the only way the U.S. can maintain (a) our indulgent consumptive deficits (federal and private sector) and (b) the power of the dollar as the international reserve currency is to allow this deal, however modified, to go forward. We have no choice but to allow foreign dollar holdings to recycle back into the U.S. through purchase of U.S. assets.
It really is that simple. If we don't sell our stuff — ports, companies, people — those abroad like the UAE will dump their dollar holdings into the Euro, the Yen, or other reserve yet to be created. And blocking this deal will send the signal to everyone from Beijing, Tokyo, Frankfurt and the Middle East that their dollar holdings are hostage to political whim on the Hill.
Should the flight from the dollar really happen — the impact on the U.S. global position, economy, political stability and power will be staggering. A defeat of World Historical significance.
Because of our prolifigacy, our hand is forced. Cheney et al. may proclaim that they have repealed economics and “deficits don't matter”. And Duncan Hunter may think he can make decisions. But they do so only without understanding that they do not have the last word.
This also is another echo of what Corelli Barnett warned about, discussed in a previous post. Since 2001, in the Administration's eyes, international power has been reduced to buying and threatening to use expensive toys to blow things up with real time video feeds. But true international power resides with strong fiscal and financial health and an appreciation for how everything leverages from there.
There once was a time when the U.S. understood that.
UPDATE: 04.03.06 — U.S. raises its $8.81 trillion debt ceiling to avoid government shut down.
David Ignatius made a similar point in a recent column. But no expect these guys to understand economics...