Here are some sobering facts:

The U.S. is losing $725 billion per year to foreign countries through trade losses. This money does not come back to buy our goods and services. It comes back to the U.S. in three other ways:

1. Foreign countries are bankrolling the U.S. Government – with levels as high as 53 percent of U.S. Treasury debt held in foreign hands

2. Foreign countries are using the rest of this money to buy out our core industries and companies (more than16,000 U.S. wealth producing companies in last 30 years)

             3. Many American industries are now controlled by non-U.S. companies (i.e. Book publishing 63 percent foreign owned, Sound Recording industries 97 percent, Motion pictures 75 percent, Cement Industry 62 percent)

Here is the result:

Foreign lenders are effectively propping up the U.S. Government, lowering U.S. interest rates and consumer spending. If foreign countries were to stop extending this easy credit to the U.S., imported goods would cost much more and the government would have to raise interest rates in order to attract lenders for U.S. Treasury debt. We naively assume faith in the perpetuity of U.S. superpower status. No “superpower” in history has ever produced so little of what it consumes for so long while taking on such overwhelming debt.

Why is this a risk?

If foreign creditors were willing to continue to ship us foreign goods and bankroll our government indefinitely all in exchange for printed dollar bills, this would be fine. However, at some point, as U.S. debts continue to skyrocket, foreigners may demand something more than printed paper as security for this credit. As they are presently using much of these dollars to buy our assets, there will be less and less of the U.S. to offer as security. The U.S. rates of indebtedness and asset loss are climbing much faster than the rate we are replacing them with new industries and new assets. We assume that at any point, we will be able to rebuild our industries at a whim. The failing U.S. auto industry shows just how difficult that is. It takes time, money, and know-how – three luxuries a country at war with massive debts may not have.

Why has nothing been done?

This has been going on for 30 years and each new administration likes to think it will not be caught with the “hot potato.” Instead, the U.S. blames Asian countries for undervaluing their currency and not opening up their markets. The U.S. blames Europe for not helping rein in military threats to global stability and for subsidizing their own industries. Meanwhile these regions blame the U.S. for recklessly abusing its superpower status to run up huge deficits to support the U.S. lifestyle without domestic production. By our own admission, we have converted from a production economy to a service economy. However we don’t recognize that domestic services cannot be readily traded for foreign goods. At present our goods deficit with the rest of the world is 14 times larger than our services surplus.

The straw

At some point, higher oil prices, terrorism, higher interest rates, or some other exogenous factor could disrupt the precarious balance that is presently supporting the U.S. standard of living. Our options are to wait until so-called market forces return the situation to equilibrium or to acknowledge the problem and develop a plan to deal with this problem. The problem with the wait-and-see approach is that since other countries are actively executing their own economic “war plans,” we may not like what the new equilibrium means for the U.S. The problem with the planned approach is that it probably means short-term pain for the U.S. and the outcome may not be what we expect either.

At the very least, U.S. leaders should formulate a task force to examine this problem thoroughly and understand the magnitude of our economic vulnerabilities and how, under various scenarios, the near term may unfold. To do otherwise is no less than a disgrace to past generations who sacrificed for our present position and a dereliction of duty with respect to future generations that must live with the liabilities this generation establishes.

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