US to repudiate foreign debt?

Although there’s little in it that hasn’t previously been published by warbloggers like Steven den Beste, I found this piece by William Safire pretty startling. After all you can find just about anything on the web, whereas Safire clearly represents an influential strand of thinking within the US Administration and is writing in the New York Times.
Safire explores the warbloggers’ preferred scenario, in which the UNSC fails to accept a US resolution incorporating the term ‘material breach’ * and the US goes to war unilaterally. Safire envisages an old-style war of conquest in which a puppet government is set up (he doesn’t use the term, but he assumes the government will pursue predetermined policies that harm Iraq and help the US) and used to reward putative allies (Turkey, for example, is supposed to get royalties from the Kirkuk oil fields) and punish non-allies (the ‘corrupt’ debt to Russia is to be repudiated). Meanwhile the US and Britain get Iraq’s oil and pump like crazy, reducing world oil prices by a third.
I want to focus on just one element of this plan – the repudiation of debt on political grounds. Although Safire describes this debt as ‘corrupt’, it’s clear that, in his model, the debt would be repaid if the Russians backed a US invasion. So his proposal amounts to selective repudiation of the debts of a US-controlled government.
In writing about the relative merits of US and European government bonds a day or two ago, I mentioned the possibility of repudiation for the sake of logical completeness, but only to dismiss it as unthinkable. As of today, that is no longer the case. The occurrence of a chain of events leading the US to default on its own debt remains highly improbable, but it is no longer unthinkable.
One possible chain would run as follows. After an Iraqi repudiation dictated by occupying US forces, the Russians retaliate by selectively repudiating debts to the US or by seizing US assets. European financial institutions continue lending to Russia, so the Americans try to recover their losses from them. At some point in the process, wholesale panic breaks out and the US decides either to repudiate or to inflate its way out of trouble by printing unlimited numbers of US dollars.
In thinking about all this, it’s important to remember that the US is by far the world’s biggest debtor and borrower, whether we focus on the US government or the US economy as a whole. In 2003, the US will need to borrow around $500 billion from foreigners (mainly Europeans and Japanese) to balance its current account deficit. The Federal government budget deficit will account for about half of this, and with US household savings near zero, much of it will have to be financed directly by overseas borrowings. In these circumstances, even a slowdown in lending to the US could prove disastrous.
I regard the repudiation scenario as highly unlikely, in part because I don’t think it will get past the first hurdle. It appears unlikely that the proposed US resolution will even get enough support to require a veto from what Safire calls ‘the Paris-Moscow-Beijing axis of greed’. In these circumstances, while the US may be willing to go to war to defend the words ‘material breach’ it’s doubtful that crucial allies including Turkey, Qatar and the UK will go along. The US needs at least two of these, and probably all three, for a successful war. As regards Australia, it seems very probable that Labor would oppose participation in an invasion under circumstances of this kind. The government has been making noises of support for the US, but I suspect that they would try to sit on the fence if at all possible, rather than take part in an exercise like this.
So the prospect of debt repudiation remains a distant one. Still, if I were in the market for US government bonds, I’d want at least another percentage point on the interest rate after reading Safire.
* ‘material breach’ is supposed to provide an automatic trigger for a US invasion. The US resolution is highly ambiguous, however. It’s not clear whether the trigger requires Iraqi noncompliance with weapons inspections and, if so, whether the inspectors have to certify such noncompliance or whether the US can make a unilateral determination.

Crime and its causes

As a postscript to the recent gun debabe, Salon runs this wire story of an FBI report saying that US crime is up first time in decade. The coincidence of this rise with the increase in unemployment over the last two years is consistent with the (recently much-derided) view that its necessary to focus on the ‘root causes’ of crime, as well as on locking up criminals.


I tend to be slow in responding to events like those in Moscow, or previously in Monash and Bali. Initially at least, I just find the loss of life overwhelming. Rob Corr has some excellent coverage of this tragedy.

Another cheer for postmodernism

The postmodernists have been copping it from all directions lately, mostly in relation to their claimed infiltration of the High School English curriculum in New South Wales and elsewhere. In a post a while back, I pointed out three good uses for postmodernism:
“(i) Therapy for recovering Stalinists
(ii) A harmless target on which right-wing pundits can vent their rage
(iii) Some theoretical content for degrees in “communications”

In a marginally more serious vein, I’d like to say that the ‘old’ English literature curriculum displaced by postmodernism is, in my opinion, no loss. The basic task of students in the old curriculum was to learn to write literary criticism, mainly focused on Shakespeare in drama, and on Dickens and other C19 writers in prose. I object to this on the following grounds:
(a) The resulting literary criticism was very bad
(b) The world has more than enough literary criticism
(c) The favored writing style was ornate rather than efficient, and produced bad habits that universities then had to weed out
(d) Arguments about works of art are almost inevitably sloppy and illogical; and most importantly
(e) The subject inculcated a hatred of literature in the majority of students.
On the whole, I think deconstruction of TV ads and sitcoms is far less harmful and might even be beneficial.
Update Not surprisingly, I managed to annoy both traditionalists and postmodernists (a minority in the world of political blogs, but there are some around) with this post. Read the comments thread, which is great as always, but also check out Jason Soon for a statement of the traditionalist position that’s a lot better than you can find in the newspapers and Don Arthur for a reasoned defence of postmodernism. I think Don’s a bit too charitable to the PoMos, but I agree with his basic point. The problem with postmodernism in High School is that it’s too highbrow. To be done at all well, it requires a level of cultural knowledge and epistemological sophistication that is not feasible for a high school student, very rare in high school teachers and not all that common among postmodernist academics. The big weakness of the traditionalist position is the assumption that critical and analytical skills are best learnt through the critical analysis of great works of literature. This seems inherently implausible, and I can’t say that the old curriculum did much for critical skills. It seems much more reasonable to learn by criticising familiar material with a relatively mundane purpose, like ads, newspaper articles and even sitcoms.

Americans and Australians (Warning: metablogging ahead!)

The human brain is a classifying machine, and its favorite type of classification is a dichotomy, as in, “there are two sorts of people in the world, those who divide the world into two sorts of people and those who dont”. The runner-up is a spectrum. The Left-Right division can either be seen as a dichotomy, as in left-handed vs right-handed or as a spectrum.

In relation to Australian ploggers (this term for political bloggers is due to Ken Parish), there’s been plenty of discussion of the standardleft-right dichotomy/spectrum and the Political BlogMap also distinguishes authoritarian from libertarian. I’ve observed a significant shift on the first dimension in the few months since I’ve been blogging. Whereas ‘Ozplogistan’ was clearly right-wing when I joined it, it’s now much more reflective of the Australian political spectrum as a whole. The pronounced libertarian bias observable on the blogmap remains however.

Another distinction that had a good run was left brain (rational/analytical/verbal) vs right-brain (emotional/figurative). Again I think there’s been a clear shift to the left over time. In Ozplogistan, though not in the ‘real world’, there’s a strong correlation between left-wing and left-brain, so the parallel shifts aren’t surprising.

The gun debate and reactions to Bali made me realise that Ozploggers are divided on a third dimension, which I’ll call “American vs Australian”. ‘Americans’ are basically participants in the American blogosphere (mostly right-wing and right-brain) who happen to live in Australia and may add occasional local Australian color to their posts. James Morrow, who is an American expatriate recently arrived here, naturally falls into this category. So, to a very large extent does Tim Blair – as Tim Dunlop notes all his links are to US blogs. At the other extreme, Ken Parish is very much focused on events in Australia and comments on Australian blogs/plogs. Tim Dunlop is the mirror image of James Morrow: an American resident, but with a major focus on Australian events.

The gun debate was very revealing. Virtually all those I would regard as ‘Australian’ were pro-gun control and virtually all those I would regard as ‘American’ were anti. Of course, nearly all the ‘Americans’ are on the right, but ‘Australians’ with broadly similar views on most issues, like Gareth Parker and Scott Wickstein were strongly pro-control.

In writing this post, I thought about my own classification. I’m very interested in US economic developments, but otherwise would class myself as Australian in orientation. This led me to the further observation that whereas my ‘Australian’ posts get heaps of great comments, nobody much seems to be interested in my observations on the US economy. So I’ve decided to cut coverage of this topic to a minimum. If I get really energetic, I may start up a separate blog on it, just to record things that interest me.

Update: Possibly because I was trolling for compliments, lots of people have said they like the commentary on the US economy. So I’ll keep it up, but I’ll try and give it more of an ‘Australian/international’ angle, explaining why these issues matter to us and the world, and not worrying so much about keeping up with the American economic blogworld.

Great minds think alike

Tim Dunlop and I think alike so often we could be used as an experimental test of telepathy, or, for the more prosaic, of Merton’s theory of multiple discoveries. I regularly start work on a post only to find that Tim’s already written it, and I think the same may be true in reverse. My review of Baumol’s The Free-Market Innovation Machine, soon to be published at The Drawing Board, makes the point that

‘the Internet [was] a technological innovation created almost entirely by the public sector. The architecture of the Internet was set up with seed money from the US department of Defence, the network was built by the universities, and the World Wide Web was a gift from CERN, a physics research lab in Switzerland. The only significant private contribution was Unix, the last important piece of public good research done by Bell Labs before its effective demise.’

And here’s Tim:

[the] Internet was itself the product, not just of government regulation, but of public finance, research and expertise. It was then further “regulation”, under the influence of industry lobbying, that allowed it to move into the private sphere to the extent that it has, and which I presume Bargraz(sic) approves of.

. Tim’s argument elicits the counter from the redoubtable detective that ‘Tim’s presuming that I prefer privatisation over regulation. No so’, which is encouraging.
Of course, the fact that the Internet is a creation of the public sector is well-known except to those whose knowledge dates from after 1997, and to the writers at Wired, who presumably once knew, but have now forgotten. Still the coincidence between me and Tim is striking, especially in the light of another post in which Tim notes the failure of the other Tim (Blair) to link to any Australian blogs. This anticipates a new way of classifying Oz blogs which I was about to announce with great fanfare and will soon announce anyway without so much fanfare.

What I'm reading this week

I’m still going through Trollope’s Palliser novels. Currently I’m reading The Eustace Diamonds. The leading character, Lizzie Eustace, is explicitly compared by Trollope to Thackeray’s Becky Sharp. In both cases, it’s hard for a modern reader not to barrack for these women playing the marriage market for all it’s worth in a society that offered few other choices. Jane Austen’s sympathetic treatment of Charlotte Lucas’ decision to accept the ludicrous Mr Collins is far more sophisticated than anything in Victorian literature.
Meanwhile, I still read quite a few magazines in print format. Both the Scientific American and Prospect (UK) have excellent web sites, but I’m happy to read the print versions. Prospect in particular is excellent, if a little bit Blairite for my own tastes.