We Lost Our Creditability With Reagan’s ‘Charge-a-War’
Just about the time the stock market was collapsing in a frenzy of panicked selling, the Reagan Administration was moving another notch closer to war with Iran. In the Persian Gulf the U.S. Navy destroyed two Iranian oil platforms, declaring that it was “retaliating” for an attack on a U.S.-flagged Kuwaiti tanker. On Wall Street, investors tried to bail out of stocks whose inflated prices could no longer be supported by the realities of the economy.
One event did not cause the other, but they are intimately linked. Policy-makers in Washington have refused to acknowledge this. But Wall Street, whose flights of fantasy are always, sooner or later, tempered by brutal facts, knows better. The message from Lower Manhattan, echoed in stock markets around the world, is that the United States is living on credit and the bills are now coming due.
This year’s stock run-up has been fueled by a double suspension of disbelief: that what goes up need never come down, and that America would never have to pay its bills. Both of these illusions crashed this week.
They crashed not because of the attack in the gulf but because that action, however minor in itself, was the drop of water that set the bucket of anxiety overflowing. It symbolized the chasm between a foreign policy based on the notion that the United States is a totally independent actor bound by no constraints other than its own will, and the economic reality that everything that we do is now dependent on a continued inflow of foreign money. The people who control that money are now losing confidence that those who run America’s foreign policy know what they are doing. The sure sign of this has been the fall of the dollar against other currencies. Foreigners are reluctant to pump money into the United States if that money continually loses its value due to a falling dollar.
Wall Street is neither more nor less than a market--a forum where hopes, fears and hard cash interact. The market has finally recognized what Washington prefers to ignore: that the United States is a debt-ridden country that shows no intention of reforming its ways. It is mortgaged to the hilt, and behaves as though it had an open line of credit. But lenders, abroad and at home, are fearful of throwing more good money after bad, and are beginning to worry about their investment.
What concerns the world’s bankers about the Administration’s escapades in the gulf is not so much that these will lead to a war involving the Soviets, for Moscow does not normally behave frivolously. Rather, it shows that U.S. foreign policy has lost touch with a deeper truth: that the United States is now the world’s largest borrower. Every action that it takes involves other peoples’ money. And $2 billion of that money, according to former Secretary of the Navy John Lehman, is being eaten up by the adventure in the gulf.
We refuse either to cut our expenses or to tax ourselves to pay our bills. We conform to the classic definition of an irresponsible debtor. Instead of balancing our accounts, we write IOUs--more than $200 billion worth last year. These are picked up by foreigners--mostly Japanese--who touchingly believe that one day we will change our errant ways and pay our debts. This year the Japanese alone have pumped an estimated $50 billion into Wall Street.
The whole rickety system depends on confidence. But a combination of events, now culminating in the cavalier decision to go to the brink with Iran, has shaken that confidence. The panic on Wall Street is a result of the dawning realization that the United States may never pay its bills.
Eventually there comes a time when even the most understanding friend stops believing a gambler’s promise to reform. This is what has been happening on Wall Street and in the world’s financial capitals. The United States, as a conscious and deliberate policy of the Administration, has been living on credit. Its creditors have been hoping that it would put its house in order. But the events in the gulf show that it still is playing the roulette table with the rent money. And it believes, as Lyndon Johnson did, that it can charge a war. That was two decades ago. Now the lenders, if not yet foreclosing, are calling in the cards. America has run through its line of credit.
Countries on the verge of bankruptcy ought not to be launching wars with other peoples’ money--especially when the borrower’s resources will be further depleted no matter how the war turns out. That is the meaning of the debacle now taking place on Wall Street. We will not be out of danger until we recognize that a foreign policy, like everything else in this world, has to be paid for. Borrowers can’t be choosers. Having decided to become a debtor, we will now have to behave like one.
