The world's biggest debtor

Bishop, Jordan

THE PRESS called it the Shamrock Summit and all agreed that it made great show business: Brian Mulroney, Prime Minister of Canada, welcomed Ronald Reagan in Quebec City, on Saint Patrick's Day....

...As the minister of planning in the already bankrupt Bolivian government complained last August:'' Why doesn't the United States pay for its own fiscal deficit and war costs...
...dollar...
...dollar...
...Journalists are less prudent, but still divided...
...At the time of the meeting the U.S...
...But it creates an extremely volatile situation abroad...
...history, and to the neatly-timed (for the 1984 elections) deficit-driven recovery of the U.S...
...Reagan, who doesn't believe in economic planning anyway, except for the defense industry...
...For many foreign observers, Mr...
...dollar for some time now...
...Many argue that the trade imbalance comes not because of any policies or actions on the part of other countries, but as a direct result of policies of the Reagan administration...
...Mulroney agreed to put off any action on the vexing question of acid rain for six months to a year...
...In fact, it is a price war, with the added advantage that those who practice it cannot be accused of dumping or of protectionism...
...The same speculators who are now cleaning up at the expense of other currencies would turn on the American dollar at the slightest sign of weakness...
...Presently, this dynamic is working against the export sector of the American economy...
...No one in his or her right mind would gamble on the American budget deficit going down, and this probably means that American interest rates will stay high...
...Reagan will continue to finance his end of the arms race by borrowing the world's money, even as the United States moves into Brazil's position as the world's biggest debtor...
...They are simply obeying the laws of the market...
...And American suggestions of voluntary restraint are resented by countries only too aware that the crisis did not arise because of their policies...
...The chances of either of these becoming a reality are about equal...
...policy, or lack thereof...
...With two million American jobs at stake, labor groups pressure for protectionism...
...Mulroney that he will fight against it...
...Other governments are simply not in a position to do anything about it...
...One reason for complaint is that the present situation is inherently unstable...
...interest rates have increased the burden of debtor nations while attracting money away from local economies and into the United States...
...Reagan puts his faith in the market...
...Reagan's support for balanced budget legislation, and the Republican Party's platform calling for a return to the gold standard...
...Canadian governments, Liberal and Tory, have attempted to defend the value of the Canadian dollar through high interest rates, even though this has acted as a brake on the Canadian economy...
...MONETARY POLICY The world's biggest debtor JORDAN BISHOP Why indeed...
...Reagan's dollar is standing tall, but even as money moves into the United States to take advantage of still-high interest rates incidently forcing interest rates in Britain up to fourteen percent a lot of people still remember when gold went up to nine hundred dollars...
...Long-term planning becomes difficult...
...government is discriminating against its own industry...
...It is apparently a moot question whether or not Canada will be involved in Star Wars...
...Reagan does not believe in protectionism...
...Reagan is borrowing the world's money to finance his arms race...
...Most recently, it was supposed to be an item on the agenda for Margaret Thatcher's visit to Washington, but it appears to have been lost in the shuffle...
...but they are powerless in the face of U.S...
...products abroad than do tariffs or import quotas imposed by other countries...
...South of the border, the evils of protectionism form one of the ongoing themes of the Reagan administration...
...He has promised Mr...
...From the Canadian side of the border it looks as if the U.S...
...The American trade deficit has yet to catch up with the budget deficit, but according to the Department of Commerce, the trade deficit passed $100 billion in 1984, and appears to be growing...
...3 May 1985: 277 A NEIGHBOR'S VIEW OF U.S...
...The export boom may bring in some money, but coming out of a depression or perhaps still in one most plants are operating at well below capacity...
...Under Tory government, Canada has moved closer to the United States, if that were possible, although there are few tangible results for Canada...
...On the other hand, foreigners, including Canadians, are perplexed by Mr...
...This is apparently not a problem for Mr...
...If Mr...
...Since the ultra-high rates of a few years ago, many, perhaps a majority of Canadian mortgages are routinely renegotiated every year...
...In fact, many European governments have been wringing their hands over the strength of the U.S...
...The expensive dollar has made everything else cheap, so that Americans have been buying more and selling less...
...The world's currencies are all floating, and the seas are hardly calm...
...dollar was trading at over one dollar and forty-two cents in Canadian funds, or as the Canadian media usually put it, our dollar is only worth seventy-two cents...
...dollar standing tall, why complain...
...The argument has been that if this is not done, the smart short-term money will all flow into the United States, pushing up even further the value.of the U.S...
...Reagan agreed to fight protectionism...
...It is like setting up shop next to a wounded dinosaur...
...In this context, protectionism is an ideological taboo...
...Offshore goods are cheap and American goods abroad are expensive...
...Why do we have to cover the North American deficit...
...It was never asked...
...Nothing seems more certain than that Mr...
...Only in the resource sector has there been trouble, since Australia, Sweden, South Africa, Argentina, Brazil, and Chile to name a few can undercut even the devalued Canadian dollar...
...economy...
...It is very much a question of "pull up the ladder, Jack, I'm aboard...
...And the hardest question, the one about the tall-standing dollar, was not answered...
...The cost in jobs to the American economy has been estimated at two million...
...In such a situation investors, entrepreneurs, and people in general are reluctant to move...
...The risk is destabilizing...
...Reagan has made it clear that his responsibility does not extend to the impact of his policies on other economies...
...Brian Mulroney and his Tory government, with an overwhelming majority in the House of Commons, have the power to keep their side of any bargains made...
...So why not live with it...
...Even buying a house entails some heavy decision-making: does one go for a one-year mortgage, or three years, or five...
...The week after the Shamrock Summit the price of gold rose by nearly forty dollars in one day...
...At the same time, the fact that an over-valued American dollar gives other countries a trade advantage is resented at home...
...Striking by its absence, however, was the single item in U.S.-Canadian relations which has dominated the Canadian media for the past six months: the value of the U.S...
...and both agreed to work towards something like free trade...
...The present strength of the U. S. dollar forms a more effective barrier to the sale of U.S...
...Business was brief and boring...
...What the Bolivian minister said, others have been thinking, JORDAN BISHOP is a member of the faculty of the College of Cape Breton in Nova Scotia...
...Mulroney agreed to undertake the renewal of the DEW line radar network...
...Economists appear to be holding their cards very close to the belt...
...The strength of the U. S. dollar, as seen from abroad, is not a one-sided affair...
...If there is no real choice, why are we upset...
...Wage bills for foreign industry are cheaper than are wage bills for American industry...
...We are left with the market, and the market in currencies is both fickle and volatile...
...At the same time, U.S...
...With some carefully nuanced provisos, economists attributed this to the continued high real interest rates in the United States, to competition for money induced by the biggest budget deficit in U.S...
...From abroad, this is viewed with some apprehension, and with a great deal of frustration...
...When practiced competitively, it has the same effect as a price war...
...Reagan may have some troubles with Congress...
...All this goes on even as the new Tory government in Canada continues to explore the idea of free trade with the United States...
...For those whose memories are long enough, the world went through a period in the 1930s when competition for cheaper currencies was popularly called the politics of ' 'beggar thy neighbor.'' A devaluation made the products of a given economy cheaper for those who lived in other economies...
...Meanwhile, in Canada, spokesmen for the export sector of the economy say that things have never been better...
...In such a climate, who is going to tie up money in capital investment...
...Reagan insists on staying the course, on the U.S...

Vol. 112 • May 1985 • No. 9


 
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