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Jim O'Leary

Say Uncle!
Posted by: Jim O'Leary on 7/29/2010 12:00:00 AM

There’s that old taunt the schoolyard bullies use when they’ve got someone to the ground… “SAY UNCLE!”

Poor Uncle Sam. So often accused of being the bully, now he’s getting strong-armed by others. A little down-and-out for a while, Uncle Sam seems to be taking it on the chin, upside the head, and every which way.

First it was Russian President Dmitri Medvedev who wanted to flex some former schoolyard dominance. He blamed America for the global demise of just about everything bad since 2008. The Russian president sneered, saying that the world’s problems were caused by the U.S. housing debacle.

Then China jumped onto its Great Wall and prepared to pounce on the unsuspecting Uncle. They suggested the weak U.S. dollar should no longer be the currency to which global economies ought to be pegged. Of course Russia ganged up on this point.

Now, the IMF is the latest to put a pained hammer lock on Uncle Sam. In the International Monetary Fund’s latest report on the U.S., the 185-member global lender is giving occasion to news and blog rhetoric suggesting the U.S. should stop lecturingothers (hypocrisy at the latest G20?).

The report recommends a number of “get your own house in order” actions, including several tax patches. The IMF posture appears as both a scolding finger and a warning. The report warns of debt levels reaching 95% of GDP by 2020 and 135% by 2030.

They also warn of a double-dip housing recession, further deterioration in commercial real estate, and fallout consequences from the European debt crisis. Greece’s Prime Minister Georges Papandreou also took his shotat Uncle Sam by saying America may have caused his country’s debt crisis. Ouch!

If the IMF is piling on with the others, at least the organization’s relative impartiality does not carry with it the odor of partisan international politics that China and Russia can be accused of. There is credibility to the IMF, right or wrong.

Long before the latest gang-slam, the IMF warned of possible future consequences if America didn’t change some of its ways.

In January 2004, a lengthy report went after the Bush administration singling out tax cuts among other things. The report focused on America’s rising budget deficit and ballooning trade imbalance at the time. In a January 8, 2004 New York Times article, America was reportedly viewed by the International Monetary Fund as potentially threatening the financial stability of the global economy.

The report zeroed in on particular threats of the value of the dollar and international exchange rates. Heavy U.S. borrowing was looked at as leading to deficits that would infect global investment and output.

Despite America’s deficit rising to $413 billion in 2004 (the year of the report) from $374 billion in 2003, the IMF warning later appeared incorrect. Deficits fell successively over the following three years to a low of $162 billion in 2007. A disastrous 2008 saw the deficit rise to $455 billion, followed by last year’s $1.4 trillion.

With the 2010 deficit estimated to reach $1.6 trillion, it makes Uncle Sam in his tattered red, white, and blue clothes and top hot easy pickings. But, it’s not in his character to cry “Uncle!”

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