Bush learns business from King Canute

WASHINGTON, July 16 (UPI) -- King Canute of England a thousand years ago placed his throne on the seashore and told the incoming sea tide to turn back. It didn't listen to him.

The famous story is actually somewhat unfair to old King Canute. He is supposed to have staged the display to prove to his courtiers he was only a man and knew that he couldn't control the big wide world just by telling it what to do. This appears to have been one of the many lessons in economics and sound fiscal management that President George W. Bush did not learn when he was at the Harvard Business School.

On Monday, the Bush performed his second exercise in a week in trying to talk up the key indicators of the U.S. economy and once again, he might just as well have been talking to the onrushing tide. The Dow Jones index plunged 440 points before and after he spoke. It then rebounded back to finish not far below where it had started out -- though where it had started out was horribly dismal enough.

And even more ominously for Bush, the same day he spoke, with a fearful symmetry worthy of the 18th-century English poet William Blake, who coined the term, the mighty, proud dollar for the first time in more than two years fell below the value of the euro, the European Union currency that Bushies in particular love to despise.

Like the still-slumping Dow, the fall of the dollar against the euro is no volatile random flicker of a few days, or something that can be blamed on a fluke, or a few evil currency traders or those pesky Democrats. It has been steadily increasing in speed and severity in recent months. The dollar has fallen well over 10 percent of its value against the euro and the yen since the start of the year. Four months ago, in mid-March, the euro was still worth a measly 86 cents. Now it is worth a dollar. We predict here in UPI Analysis that it will soon be worth very significantly more than that.

For the last year and a half, we have been steadily tracking here in UPI Analysis Bush's obsession with keeping interest rates low, the obliviousness of his administration to the soaring U.S. balance of trade deficit, the largest ever run by any nation over the past 10 years and in the last year in the history of any nation and the recklessness with which he has been spending money he did not have like water.

Bush pushed through as his first, obsessive measure, a vast $1.35 trillion tax cut that was shamelessly weighted to benefited the super-rich who did not need it, and that would not help the middle and working classes of the American people at all. Then, after the mega-terrorist attacks of Sept. 11 last year, he pumped hundreds of billions of dollars into the economy in security and defense build-ups whose benefits will take many years to be seen, if there are any, or many, benefits at all.

And according to the most recent figures, the healthy and hard-won annual federal budgetary surplus he inherited from the Clinton administration is already all gone. Only a year and a half into his first term, he is already looking at a federal budget deficit for next year of $165 billion.

Note what Fabio Scacciavillani, a senior economist at the Goldman Sachs Group Inc. in London told the New York Times in a euro-dollar business analysis published Tuesday: He said, the paper reported, "that the weakness of the dollar was driven by concerns over the gaping trade deficit in the United States 'and the need to finance this deficit at a time when stock markets are weak and not attracting much capital from abroad.'"

Now look at what we wrote in UPI Analysis on March 16, 2001, 16 months ago when the Bush administration was still bright-eyed and bushy-tailed and thought nothing more than super tax breaks for the rich would unleash roaring bull markets to rescue the Dow and the Nasdaq:

"Fears are mounting among Japanese and European bankers that Bush's drive for huge tax cuts to stave off a looming recession will instead stall the mighty domestic U.S. economy into its worst inflationary spiral in more than two decades.

"Bush has always been a true believer in the Ronald Reagan, neo-Republican faith that all economic problems can be resolved by slashing taxes.

"He and his economic advisers appeared confident that the very fact of his cliffhanger presidential election victory over former vice president Al Gore and his subsequent determination to push a $1.6 trillion tax cut through as his first order of business would restore the business confidence needed to jump start the U.S. economy.

"But it hasn't worked out that way."

How true.

The New York Times was right to make a major story of the benchmark rise of the euro over the dollar. Everyone -- except maybe Bush and his Council of Economic Advisers staffers -- agrees that the dollar is overvalued and that an orderly controlled fall in value for it might be just what the -- free market economic -- doctor ordered to boost U.S. exports and reduce the monstrous balance of payments deficit.

But with the other U.S. economic fundamentals so weak or uncertain, and Wall Street investors so nervous, it is very unlikely that any significant fall in the dollar against the yen and the euro will be a smoothly managed affair. It could easily deteriorate into a panic stricken rout, like a financial version of the retreat from the First Battle of Bull Run.

The first fiscal priority of the Bush administration ought to be, not to defend a clearly overvalued dollar, but to restore confidence in it, and in fundamental U.S. fiscal policy, as quickly as possible.

Raising interest rates would help, something that this administration has never dared to do because it puts its own short-term political gain ahead of the long-term, well-being of the U.S. economy and the American people. Then, government spending should be cut and Bush's beloved but never popular $1.35 trillion tax cut should be rescinded. But pigs will fly and the Dow return to above 10,000 before that will ever happen under this administration.

Till then, the president can talk up the American economy as much as he wants. International investors will continue to afford him the same respect that the sea waves paid to King Canute.