October 15, 2006

Debt saps world power of America

NORTH KOREA's ability and willingness to set off a nuclear device of some sort is being blamed on a failure of American diplomacy. Never mind that Kim Jong Il's survival depends on the continued support of China, or that Russia has consistently refused to support moves to pressure North Korea to end its bid to become a nuclear supplier to the world's jihadists. When it comes to failed diplomacy, there is blame enough to go around.

But when it comes to failed economic policies that produce failed diplomacy, the buck stops in Washington. It is the economic policy of the Bush administration that has hobbled its efforts to veto North Korea's application to join the nuclear club.

Let's start with fiscal policy. It is indeed true that the Bush tax cuts were key to ending the recession the Republicans inherited from the Clinton administration. And it is also true that some of the tax cuts have proved to be revenue generators for the Treasury. That has enabled the administration to gloat over a 22% reduction in the budget deficit from last year's $319 billion. But in a booming economy, a continued deficit of $248 billion is hardly chopped liver, as the analysts in New York's delis are inclined to say. And when those deficits result in stacks of IOUs held by China, America's diplomats are forced to walk softly lest they antagonise so large a creditor.

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