The US economy has been subsidized for many years by the rest of the world. The subsidy has come about because the rest of the world has allowed the US to import very much more than it has exported since 1982. In that period, countries receiving dollars for the goods and services they have supplied have only spent a small proportion of them on imports from the US. Most of the remainder has been loaned back to America, typically by being used for the purchase of US Treasury bills or shares in companies quoted on the US stock exchange. $2,500 bn, roughly half the rest of the world’s total savings, has been invested and lent in this way.

Amazingly, this huge inflow of funds has cost America nothing – so far. True, interest has been paid on the loans and dividends on the shares but both payments have been in dollars that have simply been added to the outstanding debt. The US has not had to supply anything that cost it real resources to make for the use of this massive amount of capital. Moreover, the bigger its trade deficit has been, the more dollars foreigners have had to invest and the higher they have pushed Treasury Bond prices and the Dow Jones share price index, making investment in America seem very attractive. Even more foreigners have consequently been keen to get hold of dollars to put their savings there. At the moment, the US trade deficit is running at much higher levels and America is having to borrow around $1.25bn every single day.

Now take a look at this report, from CNN yesterday:

The Treasury Department Thursday denied a report that the White House suppressed a paper estimating the United States is facing at least a $44.2 trillion [debt] due to future health care and pension obligations [because the news would have jeopardized the Iraq war effort and the Bush tax cut]. London’s [conservative] Financial Times said in its Thursday edition that the Bush administration “shelved” the report “commissioned by then-Treasury Secretary Paul O’Neill” and written by former Treasury official Kent Smetters and former Treasury consultant Jagdessh Gokhale.

According to the Financial Times, the report shows the U.S. government is threatened with being overwhelmed by the future health care and retirement costs of the “baby boomer” generation. The study concludes, according to the report, that sharp and permanent tax increases or massive spending cuts — or a combination of both — are unavoidable if the United States is to meet the health care and retirement benefits promised to future generations.

The Treasury Department does not deny the numbers, they just deny that they suppressed the report. I’m not an economist, but when you put the facts of these two articles together, the undeniable conclusion is that Bush is playing a terrifying game of brinksmanship dice with the global economy. A debt of $44 trillion, with additional borrowings and deficits of $500 billion per year. Who is this monstrous debt owed to? American citizens, who invest in government securities, directly and to a greater extent indirectly through the insurance companies and corporations they invest in, who in turn invest in government securities. And foreign governments and foreign investors who hedge the massive US trade deficit, denominated in US dollars, by buying equally massive amounts of US dollar-denominated shares and treasury bills.

We’ve seen what happens to governments like Argentina’s, that borrow too much or spend too recklessly. The IMF turns off the tap or raises the interest rates on borrowings to reflect the unacceptable risk, the foreign lenders call in their loans, and the economy collapses. The consequences of that are massive currency devaluation, stock market collapse, massive layoffs, and severe austerity (huge tax increases and huge cuts to government services and payrolls).

But what if the recklessly overspending country isn’t a Latin American third-world country, but the world’s only political and economic superpower? We don’t know — it’s never happened. Bush the gambler is counting on the fact that the IMF and the lending countries (including, ironically, many Arab oil states) won’t dare force the US into bankruptcy, because then the whole global house of cards collapses. To use a simple analogy, Bush is the high roller in the casino who is losing big-time, and keeps borrowing more and more on credit, and tossing most of the chips he’s borrowed to his rich friends, to the point where the casino knows full well that he can’t pay it back. He’s just got to keep playing until his luck turns around. The problem with the analogy is that when it comes time to cash in and pay the banker, Bush will be long gone. It’s the citizens of America and the world, and our children, who will have to pay for his monumental folly.

Canadian Prime Minister ChrÈtien this week became the first leader to publicly worry that US spending is out of control, and predictably the neocons, led by the soon-to-flow-the-coop Ari Fleischer, railed against him, predictably blaming it all on terrorism. ChrÈtien is scheduled to present the global economic report at the upcoming G8 summit meeting in France. Today, Bush announced he’ll leave the summit early. Guess he has to get back to the craps table.

Afghanistan : David Hayman reports for the Herald:

Wasn’t this the country that Tony Blair and George Bush pledged, in the same breath that announced war, that the people of Afghanistan would not be forgotten? Well, I can say after two visits to Afghanistan that they are not only forgotten but well and truly betrayed. The country is on its knees: roads, bridges, tunnels, schools, homes, hospitals, and farmlands are reduced to rubble and dust. It is one of the most heavily land-mined countries in the world. Only 5% of the rural population have access to clean water, 17% have access to medical services, 13% have access to education, 25% of all children are dead by the age of five. Life expectancy is 43. An estimated three million people are still in refugee camps in Iran and Pakistan, let alone the hundreds of thousands of internally displaced peoples. This country is in a mess and if anyone tells me that millions of dollars worth of aid is getting into this country then I will gladly take them to Afghanistan and point out the brutal truth. The people are dying! And we are turning a blind eye.

Congo :  Someni Sengupta for the NYT:

They call the machete a weapon of mass destruction here. Its ghastly wreckage can be found inside what passes for this town’s only functioning hospital. On a thin foam mattress lies a wide-eyed old man who has survived an attempted decapitation. Nearby, a mother with black moons around her eyes nurses two wounded children back to health and mourns for another two, freshly killed. It is estimated that more than three million people have died in Congo’s four-year war as a dizzying array of rival rebel armies and their patrons from nine neighboring countries have fought over Congo’s enormous spoils. Gold, diamonds and coltan ? a mineral used in cellphones ? are among the precious loot in this northeastern province called Ituri, and peace deals so far have done nothing to stanch the bloodletting. The latest massacre took place over several days this month, as militias belonging to rival Hema and Lendu tribes battled for control here in Ituri’s largest town. Today, the death toll stands at 350. Most have been buried in unmarked graves since their remains offered few details about who they were, let alone which of the warring ethnic groups they belonged to. As many as 17,000 people are huddled inside the tent cities that have sprung up in a United Nations compound, at the airport and in the heart of town.

Millions killed in genocide in Sudan, resurging famine in Ethiopia and Somalia, political instability, corruption and economic collapse in South America, tens of millions displaced and homeless due to wars in Asia and Africa, guerrilla movements and brutal, corrupt dictatorships in Central Asia, environmental holocaust accelerating everywhere, dozens of countries governed by madmen and criminals. But no mention of any of this in most of the American press or government speeches.

A few weeks ago I discussed Jack Kent’s children’s story There’s No Such Thing as a Dragon , where a once-peaceful ignored dragon keeps growing and growing until it gets so large that it starts to create havoc, and then devastation. On 9/11, one Middle Eastern dragon got so large its flailing tail was felt on this side of the Atlantic. Our response was to declare war on green tails (since there’s no such thing as a dragon we couldn’t declare war on dragons). When a green tail couldn’t be found, we attacked some other animal that we persuaded ourselves looked kind of like a green tail, though unfortunately when we killed it, it turned out we were mistaken. But we declared green tails to be in retreat, since we haven’t seen one around here lately, though we’ve been screening for them at all the airports and arresting anyone that we think looks like they might have a green tail or be a green tail sympathizer.

Meanwhile, across the globe, the army of dragons is growing ever larger. In Palestine, Afghanistan and Congo they’re larger than life. And although we’re still calling them green tails, since there’s no such thing as a dragon, we know they’re coming.

Last year, Merrill Lynch was accused of defrauding its clients by giving them corrupt advice about which stocks to buy. Internal e-mails demonstrated that its research analysts had publicly recommended stocks that they’d privately derided. The company wound up having to make a payment of a hundred million dollars, as part of a settlement with the New York Attorney General’s office. And how did Merrill’s retail clients react to all this? They gave the company eighteen billion more dollars to manage. It was a tough year for Citigroup, too, what with the revelations about chicanery at its Salomon Smith Barney division, whose customers lost vast sums of money on tainted stock tips from the likes of Jack Grubman. So what did the customers do? They gave Citigroup another thirty-five billion dollars to manage. If Circuit City sold televisions that blew up after three months, people would probably stop shopping there. Why is Wall Street different? For one thing, Wall Street is selling a service, not a product, and customers demonstrate much greater loyalty to services than to products, because services usually involve personal relationships. An investor who has his money with Merrill Lynch forms a bond with his broker, not the firm.

It’s true that services are not the same as products, and that people can trust an agent of a company they distrust, but I think there’s more to our addiction to buying from corporate wrong-doers than that. There are well-publicized campaigns to boycott the products of Microsoft (monopolistic practices), Monsanto and ExxonMobil (environmental damage), McDonalds, Disney, the Gap and Nike (domestic and foreign employment practices), P&G (animal cruelty and war profiteering), and a host of other companies (unhealthy and defective products). But even those who are vaguely aware of these boycotts continue to buy their products. Why?

Part of the reason is the conspiracy of silence between the corporations and the media to squelch public awareness of corporate wrong-doings and the protests against them. After all, the media depend on these same corporations for their livelihood, so their conflict of interest is blatant. There are also massive marketing campaigns to present guilty corporations in the best possible light, including, as the current Nike case illustrates, outright lies to the consumer, lies that these corporations consider their constitutional right.

Beyond that, we are a part of the conspiracy. We don’t want to hear bad things about the things we buy, because it makes the buying decision more difficult and makes us feel guilty as well. We don’t want to feel guilty. For the same reason people on a diet don’t want to know the calorie count of the foods they’re addicted to, we don’t want to know that the company that makes the shoes we like, the bank or broker we trust, our favourite family vacation spot, are all corporations guilty of criminal activities. Just like discovering our favourite restaurant is a Mafia front, our first reaction is to say “that’s not my business, it has nothing to do with me or my decision to do business with them”.

But of course it does. If boycotts and corporate criminal behaviour received the same publicity as other public and criminal events, we would all be embarrassed into finding other suppliers, and the wrong-doers would quickly be out of business.  But we’ve now been conditioned to believe that large corporations are really “all the same”. Is Reebok really any better than Nike, Shell than ExxonMobil, Six Flags than Disney, Unilever than P&G, broker X than Merrill Lynch? Truth is, we don’t know, because it’s in no one’s best interest to tell us. Armies of corporate lawyers stand ready to sue anyone who suggests wrong-doing of their clients, as Consumer Reports, which faces constant litigation for simply reporting the most blatant product flaws, can attest. Whistle-blowers in corporations risk losing their jobs and litigation if they reveal what’s going on in their companies. The media and the politicians don’t want to risk losing the huge cash flow from these companies that they depend on.

Fixing the problem won’t be easy. We can’t expect political or legal solutions — those guys are part of the problem . What we need is a place where consumers can get information from an objective source. A consumers’ Corporate Ethics Clearing-House, perhaps a collaboration between Consumer Reports and consumer watchdog groups, could be established which would keep a score-card on every major company’s ethical history. To support this we need additional protection for whistle-blowers, acting in good faith, from the wrath of the corporations they expose. And we need national standards associations like ANSI and UL to establish standards for corporate conduct, a requirement to report on corporate conduct in accordance with those standards in the annual report, and a mechanism for audit of those corporate conduct disclosures.

I think the Corporate Ethics Clearing-House is all we need to get started. The rest will take time, but will occur inevitably as both buyers and investors begin using the Clearing-House in making purchasing and investing decisions. We may yet prove that Knowledge is Power.