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February 21, 2005 - Image 4

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The Michigan Daily, 2005-02-21

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4A - The Michigan Daily - Monday, February 21, 2005

OPINION

igh Citl igttn ttilg

JASON Z. PESICK
Editor in Chief

SUHAEL MOMIN
SAM SINGER
Editorial Page Editors

ALISON GO
Managing Editor

EDITED AND MANAGED BY STUDENTS AT
THE UNIVERSITY OF MICHIGAN SINCE 1890
420 MAYNARD STREET
ANN ARBOR, MI 48109
tothedaily@michigandaily.com

NOTABLE
QUOTABLE
''He can forget
Texas. And he can
forget Florida. And
I will sit on my
hands."
- President Bush, then governor of Texas and
a candidate for the Republican presidential
nomination, threatening to withhold support
for opponent Steve Forbes if Forbes attacked
him too hard and won the nomination, as
reported yesterday by The New York Times.

SAM BUTLER ThE ScAPB4n3,
+01 a
tul "<rf e
de
low

*1

Why deficits matter
SUHAEL MOMIN No SIRRENDER

While it's nice
that President
Bush is wor-
ried about a Social Security
crisis scheduled to hit in 36
years, I'd personally prefer
he tackled the fiscal crisis
VS we're facing now. Because
oof irresponsible tax cuts and
runaway spending increas-
es, Manhattan's national debt clock - which was
turned off when it started going backward during
the closing years of the Clinton administration
- is now scrolling forward at $400 billion a year.
This massive debt has, in turn, decreased Amer-
ica's net exports and spurred the current account
deficit to new highs, causing the dollar to slide
against every major global currency.
The United States, which emerged from World
War II as the only major capitalist power, was
instrumental in the reconstruction of international
financial markets. Because the Bretton-Woods
framework of fixed exchange rates was anchored
by the American dollar, the dollar quickly emerged
as the dominant trading currency. Even after the
Bretton Woods system collapsed and most of the
world's major currencies were allowed to float
freely, the U.S. dollar remained the preeminent
medium for international transactions and com-
merce, and foreign governments were effectively
required to hold billions of American dollars in
reserve. This position of prestige kept the dollar
stable and strong and allowed the American gov-
ernment to run significant budget deficits - for-
eign central banks were eager to finance American
spending and acquire dollar-denominated debt.
The exploding current account deficit - it
topped $600 billion last year - has unsettled this

comfortable arrangement. The current account,
which measures the net exports balance, has a
direct bearing on the dollar's exchange rate, which
in turn determines whether foreign central banks
are willing to take on U.S. Treasury securities and
accommodate American government debt. The
mechanism is simple: Americans must buy for-
eign currency to buy foreign goods, so if Ameri-
cans buy $600 billion of foreign goods in excess
of American exports, the global supply of dol-
lars increases by $600 billion. The international
financial markets operate on the same principles
as those described in Econ 101 - if the supply of
dollars increases by $600 billion, the price, mea-
sured through the exchange rate, drops. This drop
is accompanied by consequences: The New York
Times reports that the European Central Bank had
real losses of $625 million due to depreciation in
2003 and about $1.3 billion in 2004. Facing these
losses, foreign central banks are less likely to hold
dollars or dollar-denominated debt.
The emergence of the Euro has exacerbated
this problem. In the past, foreign governments
were forced to hold American dollars to engage
in international trade. For the first time since Bret-
ton Woods was instituted in the 1950s, the Ameri-
can dollar is in a position to lose its status as the
world's dominant reserve and trading currency.
Used in the world's most active trading zone and
managed by one of the world's most respected
reserve banks, the Euro is a commonly used and
stable alternative to the U.S. dollar. If the dollar
continues to slide, the pressure on central banks to
shift portfolios into the Euro will only increase.
America finds itself at the edge of a cliff; fur-
ther fiscal profligacy could push the American
economy into crisis. If foreign banks, which are
already expressing concern over holding Ameri-

can government debt, decide not to take on addi-
tional dollar-denominated assets and the stream of
money financing irresponsible government spend-
ing dries up, the interest and inflation rates facing
American consumers and investors will inevitably
increase. The American economy, which is still
bound by the fundamental laws of economics,
could easily plunge into recession.
Given America's increasingly precarious posi-
tion in the international financial market, it's
hard to find a rationale for the administration's
policy direction. Divorced from economic real-
ity, Bush has proposed a drastic overhaul of the
Social Security system that would require tril-
lions in borrowing. His massive Medicare pre-
scription drug benefit, which will cost hundreds
of billions over the next decade, was passed
without any provisions to generate the revenue
needed to finance it. He has even urged Congress
to make permanent his first-term tax cuts, slated
to expire at the end of the decade, at a cost of
trillions more.
The Bush administration's gargantuan budget
deficits threaten the dollar's prestigious position
in international currency markets and America's
ability to secure cheap loans from foreign credi-
tors. At a time of war and increasing entitlement
costs, Bush's politically expedient and dogmatic
dedication to tax cuts and aversion to any form
of tax increases threatens the fundamental eco-
nomic health of this nation. In the end, even
though Shadow President Dick Cheney might
have argued that Reagan proved deficits don't
matter, the laws of economics continue to dictate
otherwise.
Momin can be reached
at smomin@umich.edu.

el

LETTER TO THE EDITOR

Most Democrats, liberals
and Jews stand together in
support of Israel's security
TO THE DAILY:
I certainly share Dan Shuster's concern about
the welfare and security of Israel, (Israel and
the Democrats, 02/16/2005), but unfortunately,
he seems to have been receiving his distorted
information from Fox News and other such
ultra-right sources. Yes, the Left has been vili-
fying Israel, but most Jewish Democrats do not
support the ideas of such misguided or anti-
Semitic activists. Shuster chooses to focus on
the most extreme leftists, rather than on the vast
majority of Democrats who support Israel and
other democratic countries. The America-Israel
Political Action Committee gave John Kerry a
100-percent pro-Israel rating during the cam-

paign. After he spoke about the security fence,
he was open to listening to different opinions
and he re-considered his remarks. Our president
shuts out any opinions that differ from his own.
The Bush administration will take credit if some
kind of a peaceful period develops between the
Israelis and the Palestinians, but the death of
Yasser Arafat is the real reason there has been
some change in the situation.
Jewish Democrats believe that Israel benefits
if its strongest ally, America, is seen as a strong,
moral world leader. Bush has his own religious
and political reasons for supporting Israel, but
is Israel (or America) safer now that Iraq has
become an incubator for Islamic terrorism and
many in Iraq are looking to Iran for leadership?
Is anyone in the world better off since America
has come to be seen as condoning torture? As
our national debt reaches unprecedented levels
and the U.S. has to borrow from China and Sau-
dia Arabia, will America have leadership clout

to help weaker nations?
It is very sad when some American Jews for-
get that, as a minority, we have always been sen-
sitive to the needs of the less fortunate and other
minorities. The present Republican vision, so
well articulated by talk show host Bill O'Reilly,
sees America as a Christian country where the
foreign-born and people of other faiths need to
accept the "right way" of doing things. The poor
and the elderly will have to fend for themselves,
because the government has other budget pri-
orities. Halliburton and the "retired" executives
of Enron will continue to prosper while this
administration destroys social programs and
the environment. Scientific research, personal
freedom, intellectual inquiry, fiscal responsi-
bility and America and Israel's standing in the
world are all being sacrificed to Bush's version
of values and morality.
Marlene Gitelman
The letter writer is a University employee.

0
0
0

VIEWPOINT
Drinking Coke and wearing Nikes

By JESSE FORESTER
I'm addicted to Coke. Naturally, when I first
heard about the recent calls for the University to
terminate its contract with the tasty beverage com-
pany, I was a bit more than perturbed. The thought
of not having Coke at my disposal when I go to
class at Angell Hall or the chemistry building is
certainly heartbreaking. Despite my best rational-
izing efforts, however, I know serving my self-
interest alone cannot justify the horrible acts that
the company has allegedly perpetuated. While
nothing has been proven in a court of law, hearing
first-hand accounts from the people of Colombia
and India has compelled me to believe that at some
level, the Coca-Cola company is in violation of the
University's labor standards condition. Nonethe-
less, the University should renew the company's
contract when the issue comes up in June.
Admittedly, my opinion is quite biased. My
defense, however, will focus on the economic
reality of the situation. The recent troubles of
the Coca-Cola Corporation cannot be viewed as
individual incidents. Rather, they are endemic
of the large-scale harms of globalization. This

exploiting workers of other countries in order to
maximize profit. The reality, however, is that in
most instances, American companies create favor-
able situations for international workers. Addition-
ally, globalization has provided the rest of the world
with developmental and economic gains. Ending
relations with these companies due to labor viola-
tions is both damaging to what is a good system
overall and establishes a dangerous precedent.
Coke is not alone in its labor abuses. In fact,
Coke isn't even alone in the soft drink industry. In
addition to Coke, Pepsi has recently been criticized
for its use of child labor in India. Other businesses
that the University knowingly does business with,
most notably Nike, are also responsible for such
exploitations. If the University is going to end its
contract with Coca-Cola, it cannot be hypocritical
- it must fully comply with its labor standards
and end its relations with any companies in viola-
tion of these standards. If this occurred though, the
University would find itself in a very precarious
position.
If the University actually followed through
with its labor standards policy, it would have a
very difficult time doing business with anyone.

vide its goods to the rest of the world, and many
countries - India, China, Japan, etc. - would lack
the American capital that has allowed their econo-
mies to grow during the last decades. This is not to
say that companies shouldn't be held accountable.
This is to say though that the University's business
should not be conditioned on labor practices. The
Coca-Cola corporation provides this University
with an inexpensive and reliable service that is
enjoyed by many. The incidents in Colombia and
India, while bad, are not representative of the over-
all purpose and message of Coke. Though what
Coke has done is bad, it's in no way comparable to
the practices of apartheid South Africa, which the
University divested from in 1978.
Coca-Cola should be held accountable, but this
should occur through market forces. If Coke con-
tinues to supply its product to places like the Uni-
versity, but sees a significant drop in sales, it will
see a drop in profit and have a greater motivation to
change its policies. If, on the other hand, the Uni-
versity ends its contract, that's the same as giving
Coke its money back, a measure that will allow the
company to simply find another willing market. I
commend the students of the Killer Coke Coali-

A.L.iJ~ ~ AS' -,

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