If you think the economy is bad now, just wait - Bush's real legacy

Eric Margolis, foreign correspondent, Defense analysts and columnist, has some chilling things to say about the American economy.

• Why has the price of oil jumped from $40 a barrel to over $140 per barrel?
  
  "The principal villain is the once mighty US dollar.
  
  Most of oil’s price surge has been caused by the US dollar’s steady loss of value caused by Washington’s bungled foreign policy and orgy of debt. Increased demand from India, China, and other Asian nations, where gas prices are kept below world prices by government subsidies, have played an important but secondary role."


• What has the Bush/Cheney administration done about the price of oil?
  
  "Former US Federal Reserve Chairman Alan Greenspan admitted in 2007 that the 2003 US invasion of Iraq had been about seizing oil. The Bush-Cheney strategy was aimed at seizing Iraq’s oil, then boosting production to break up the oil cartel, OPEC. The result was a disaster. In spite of 14,000 mercenaries guarding Iraq’s pipelines, its oil production is actually lower than before the US invasion, adding to the growing supply shortage on the world market."


• How does this fit with the slow-motion credit crisis that America is undergoing?
  
  "In his excellent new book, `Bad Money,’ political analyst Kevin Phillips explains how the Clinton and Bush administrations allowed, and even aided, the unregulated finance industry to create the giant bubble of largely worthless securities that is now bursting.
  
  Phillips points out that finance has become America’s leading industry while manufacturing has shrunk to only 12%. Public and private debt has grown from $10.5 trillion in 1987 to $43 trillion. The housing bubble stimulated by the crack cocaine of absurdly low interest rates accounts for 40% of America’s gross domestic product.
  
  America’s reckless debt orgy is ending, bringing recession in its wake. The collapse of Wall Street’s house of cards continues, with half of bank profits going up in smoke. Soaring oil prices are so far the most painful symptom of America’s economic and geopolitical decline under the Bush administration."

Essentially the Clinton and Bush administrations allowed the Wall Street bankers to take over the American economy, transferring America's production capabilities overseas and creating new and riskier financial products designed to create fees and commissions instead of goods and services.

As the bankers took over the American economy, they ballooned up the housing industry by having Greenspan and the federal reserve maintain ridiculously low interest rates. The refusal to regulate financial instruments was part of the same deal. As manufacturing jobs dropped to 12% of the economy, housing was responsible for 40% of the Gross Domestic Product.

Only now the Housing Bubble has burst and the dollar has lost 40% of its value against the Euro, 15% against the Yen, and the price of oil is skyrocketing.

So what happens next? More from Margolis:

The next shoe to drop will be when oil producers start demanding payment in Euros or a basket of currencies. Interestingly, Saddam’s Iraq, Venezuela and Iran all began doing this, and quickly hit the top of Washington’s enemies list.

Control of Mideast oil is one of the main pillars of US world power. Breaking the half-century old link between the US dollar and oil will further accelerate America’s decline as a great power.

Two thirds of the world’s hard currency reserves are now held in Asia. China and Japan alone hold 47% of US foreign debt. As the US dollar weakens, Asian and Mideast nations will feel growing pressure to reduce their holdings of US dollars and debt and move to stronger currencies. If this happens, the US economy will be in for a huge crisis and face sharp interest rate hikes.

Bush and Cheney tried to solve the financial/oil crisis by using American military force to invade Iraq and gain control of Iraq's oil. That's the reason why the Bush administration has been trying so hard to negotiate a new Status of Forces Agreement (SOFA) that permitted a long-term American military presence in Iraq. Iraq's Shiite government has refused to go along, and is demanding a timetable for American withdrawal.

In short, the military solution to the oil crisis has failed, at tremendous cost. At the same time, the bankers have essentially destroyed America's manufacturing capabilities.

When Asia starts reducing their holdings of U.S. dollars, the result will be an even greater drop in the value of the dollar, accompanied by even higher oil prices and greater inflation. At some point, even Saudi Arabia will have to stop supporting the dollar (which they do now primarily because the inflow of petro-dollars and American military technology is the primary support for the House of Saud and most of their investments are in dollars which lose value as the dollar drops.)

This is the Bush legacy and the result of the Reagan Revolution/conservative movement free market small government no regulation ideology. It will mean a sharp drop American lifestyles and a sharp drop in American influence around the world.