Notes Book

The Manchurian Candidate

The Manchurian Candidate was a 1962 movie about an attempt by some Chinese agents to assassinate a presidential candidate in order to influence US politics.

That was then. Now the Chinese and others would not have to go to such lengths if they should decide to influence political events in the USA. All they need to do is use the economic leverage we have been giving them for that last few decades. Foreigners will buy a very large percentage of the half-trillion dollar US government deficit this year.

There are a lot of people in the world who are extremely irritated with President GW Bush. Fortunately for him, those people who are the most irritated tend to live in the countries that hold the least amount of US debt. Or perhaps that was a consideration in his policy decisions. Personally, I don't give him that much credit. But it is not necessary for holders of foreign debt to hold a personal grudge in order to pursue actions that might further a perceived policy advantage.

I think the Chinese and the Japanese hold the most debt. They currently believe that a strong dollar and a weak Yen and Yuan provide them with good export opportunities. History teaches that there are downsides to such a mercantilist policy, and if those downsides start to become more obvious, the oriental perception of economic advantage might change. They realize that if there were a run on the dollar, their export markets would collapse, and who knows what other surprising things might happen. Then again, if there were a run on the dollar, the last county holding the worthless paper would lose the most. I doubt any of them are anxious to be that country.

No paper currency ever introduced has gone very long without a complete collapse. Now that all the major currencies in the modern world are backed by nothing but faith, history tells us major problems are sure to happen. History does not tell us exactly when the problems will occur or what form they will take.

So we might expect any pressure on the dollar to be gently applied. It seems that the dollar has declined around 20% in the last year or so, and further drops seem to be in store. This will cause pain to US workers and consumers. It's not clear what form this pain will take, but people who are in pain tend to vote for political change.

The coming presidential campaign might be quite a dangerous time for international finances. While the US electorate is choosing between tax-and-spend liberals, and print-and-spend conservatives, the rest of the world will be watching closely with their hands on the economic leverage we have foolishly provided.

The Manchurian Candidate was made in 1962. Then the US had a $4.5 billion trade surplus. That's $27.5 billion in today's dollars. That's not a lot, but at least it was a surplus. In those days, central banks in other countries could still get one ounce of gold for every $35 US dollars they held, if they so desired.

In 1962, the Vietnam War was just a gleam in Jack Kennedy's eye. By far the majority of cars sold in the USA were made in the USA and most of the parts they were made from were also made in the USA. The drug war was still pretty low-key. The USA had a lot fewer military bases outside its borders. The foreign cars that were sold here were mostly tiny gas-mileage boxes. Now we see lots of large imported vehicles with large and powerful engines built by countries with large and powerful economies. Now we have a string of military bases in very logistically exposed positions all over the world, and we are stuck in Quagmire II, also known as Afghanistan, and Quagmire III, also known as Iraq. Now the drug war has caused our prison population to explode. All these things increase the deficit, and decrease the comfort and security of the US population.

In the 2000 election cycle much was made of Al Gore's visit to a Buddhist Monastery. People were horrified at that idea that some foreigners might influence United States Politics. The people who made that fuss don't seem to care about the influence trillions of dollars of foreign debt might have on US domestic affairs.