In The End, It's All About Money

How long can the US military's giant arsenal of weaponry last before rust, entropy and technological advances render it obsolete?

That is not just a purely academic question. The US economy is currently propped up by a massive deficit, which in turn is propped up by massive foreign investment. Now comes the news that China is reducing it's investment in US Dollars.

Given that China holds over $800 billion in foreign exchange reserves, with about 75% of that in in U.S. Treasury bills and other dollar-denominated assets, that's kinda important news. Only Japan has more forex reserves these days.

And the money is still flowing from Washington to Shanghai, with no sign of let-up. The U.S. trade deficit with China probably topped $200 billion in 2005 -- a 25 percent increase on the previous year and nearly 30 percent of the total U.S. deficit.

Remember when Bush promised to cut the deficit in half by 2006? That was back in July 2003, just about the time he was declaring "Mission Accomplished" in Iraq. The deficit then was a record $455 billion - the final figures for 2005 are due out Thursday and (from what I can see today) may be over $700 billion.

There is a good chance that other oil-producing countries will soon follow China's lead and start dumping US dollars. Then it's only a matter of time before the Euro becomes the standard denomination for oil trading (remember, one of the major reasons for invading Iraq was Saddam's threat to drop the US dollar for oil trades).

The USA also has a federal debt of over $8 trillion, up from $5.6 trillion when Bush took office. The U.S. National Debt currently stands at $8,222,811,595,148.55, or $27,573.20 for every man, woman and child in the USA. Ouch!

Here's some more comparison with the much-derided Clinton years:

Discretionary spending rose 48.5 percent in Bush's first term, according to an analysis by the libertarian Cato Institute, twice as much as in two terms under President Bill Clinton, when spending rose 21.6 percent. Adjusted for inflation, Bush has increased total spending at an annualized rate of 5.6 percent, compared with 1.5 percent under Clinton.

Given all this, it seems quite clear that America’s days as the world's only Superpower could be over before they hardly began.

But what will they do with those weapons?

NOTE: Sorry for the quality of this post, which is being blogged on the run. And I am no economist, just patching these stories together as best I can...

UPDATE: Just in:

The November trade deficit was still the third highest on record -- behind the tallies for October and September -- and confirmed a new record annual trade deficit, with one month of data yet to come in 2005. The gap for the first 11 months of the year totaled $661.8 billion, surpassing the record of $617.6 billion set in 2004, the Commerce Department said.