The Bush administration threatens our security with short term focus on his election. Iraq, weak dollar, leads to debt and subservience to China

From http://www.saag.org/papers9/paper858.html

China currently has nearly 500 missiles aimed at Taiwan and has been increasing them at nearly 15% each year. In addition, it periodically issues loud threats to the renegade province and even warns the US to rein in Taiwan and restrain itself. This leads to insecurity and anger on the island. The Taiwanese president seeking re-election and previously flirting with declaring independence has chosen to hold a referendum on the withdrawal of Chinese missiles. This is a euphemism for independence. China has stated indirectly through high-ranking Peoples Liberation Army officials, that it is willing to face economic and military setbacks to prevent Taiwan from declaring even an intention of independence. The warning is to America that trade sanctions or gunboat diplomacy will not work and the One China policy is sacrosanct. China is smart. It knows that America is bogged down in Afghanistan and Iraq. North Korea has thumbed its nose at the US in nuclear proliferation and it needs Chinese help in the six party talks to put the North Korean genie back in the bottle. China and Hong Kong hold over half a trillion dollars in US treasuries and can sink the dollar. This, an America with budgetary and current account deficits projected infinitely in the future cannot afford, especially with an ambivalent Saudi Arabia and hostile Iran waiting in the wings to price oil in Euros and dethrone the dollar as a reserve currency. China has ignored the desperate pleas of the Bush administration to revalue its currency upwards. Not that it would help too much, because it would ultimately ignite the dormant fire of American inflation. The Congress is sliding towards huge tariffs on Chinese exports. TVs and textile quotas have already been restricted. Punitive tariffs would decimate the Chinese economy and aggravate the regional economic disparities that are already a present threat of fissiparous disintegration to China. This would make it abandon restraint and make it more aggressive towards renegade Taiwan.

This is why America is sending emissaries to stop the Taiwanese referendum and contrary to its hypocritical democracy preaching preventing the progress of democracy in Taiwan. Latin America and much of Asia have already realized that. The Middle East and Africa are getting there. When Taiwan utters the words that some Cherokee nay have uttered on the Trail of Tears---The Great White Father in Washington speaks with a forked tongue the whole world may become enlightened.

http://www.china-ready.com/news/WeakUSDollarPolicyWillBoostChinaInvestment052803.htm

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According to their thinking, a cheaper US dollar will stimulate exports, as US products will become cheaper. Increased demand for US products will lead to hiring of more US workers, which will stimulate more US consumer spending. Happier US consumers and a smoother economy will be less likely to vote out the Bush administration in 2004. At least, that is the conventional wisdom.

But the reality may be very different. A weak US dollar is like a crack high; it may make you feel like the king of the world for a short while, but the comedown can be a potential killer. Foreign investors will not put their capital in the US because their rate of return will be way down. Importers of foreign goods in the US will at first absorb smaller profit margins in order to remain competitive, but will then be forced to raise prices. In order to bring in more foreign capital to finance US debt, interest rates will have to go up, causing inflation. Remember, the US economy relies on foreign capital and investors to finance its debt. And it is unlikely that foreign companies will choose to put their manufacturing in the US because of weak consumer demand and higher costs. Handled poorly, the US economy will end up with the worst of all possible worlds: little or no job creation, weak consumer demand and inflation.

When it comes to job creation in the US, the best that can be said for the Bush administration's economic policies are that the link between tax cuts, economic stimulus and job creation are very tenuous. When it comes to new business, most US companies are trying to offer a security angle in the hope that they can get federal contracts from the Department of Homeland Security, since they seem to be the only organization with any purchasing budget.

So where will the capital go?

Capital always goes where it generates the best rate of return, and it continues to be China, even after the SARS crisis. China is now the factory to the world in many sectors, and this pace will accelerate with the depreciation of the dollar. Because the Chinese yuan is pegged to the US dollar at 8.2 to 1, Chinese products will become even cheaper and Chinese makers will enter more manufacturing sectors and markets. As China's export markets reach full capacity, Chinese companies will turn their attention to developing and stimulating demand in the Chinese domestic market. When the manufacturing sector reaches capacity, growth will be focused on China's service sector.

US, Japanese and European makers will continue to enter the China market and set up factories, but more and more, the emphasis will be on serving the China market instead of their own stagnant markets because that's where the growth will be. Competition in the Chinese consumer market, already hot, will become red hot.

US baby boomers will begin retiring in 2010. Faced with a foreign debt overhang, low job creation, a stretched health insurance and social security system, US consumers will cut their spending even more, which will in turn lead to a fall in the US standard of living. Interest on foreign debt will take a growing piece of the US budget. Hardest hit will be US workers entering the US workforce after 2010; they will have to support all the retiring baby boomers and the combined deficit/demographic timebomb, where a smaller, shrinking tax-paying population supports a growing deficit and growing retired population.
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From
http://www.dailyfx.com/article_rr_005.html

President George W. Bush has told the markets repeatedly that his administration is committed to a strong dollar. However, the Bush administration's recent monetary and fiscal policy initiatives lead us to believe that behind the scenes the US is actually supporting a weak dollar policy. [...]