crumbling faith in U.S. political and financial institutions starting
with the installation of George W. Bush as president after Election 2000
through the latest corporate-accounting scandals is sending shivers
through a U.S. economy that has grown dependent on $1.2 billion a day in
capital from overseas. This withdrawal of foreign investment now is
threatening to choke off a U.S. economic recovery.
Less than 18
months into Bush's presidency, a nasty mixture of economic and
international problems is facing the American people: a sinking dollar and
a sagging stock market on one side and soaring budget and trade deficits
on the other, with a backdrop of Bush's intent to press ahead with an
ill-defined "crusade" to rid the world of "evil" over
the advice of traditional allies in Europe and elsewhere.
One might call this predicament the combination
of a depressed economy, an inability to address pressing domestic needs,
the alienation of key allies and an endless war the Bush Effect.
A key feature in the new economic and political
reality has been a stunning reversal in attitudes about the U.S. in Europe
and other regions. In the mid-to-late 1990s, a consensus emerged that the
world was integrating itself into a common market with the U.S. in the
lead, an assessment that propelled the boom in U.S. stocks. In the last
half of the decade, the United States was THE place to invest.
From 1995 to early 2001, foreign net purchases of
U.S. stock and corporate bonds soared ten-fold, while foreign direct
investment jumped six-fold, Business Week reported in its July 8, 2002,
edition. The money from Europe and elsewhere financed technology startups
as well as high-tech equipment that improved productivity at traditional
The benchmark Dow Industrial average more than
tripled from the end of George H.W. Bush's presidency on Jan. 20, 1993, to
the end of Bill Clinton's administration on Jan. 20, 2001 rising from
3241.95 to 10587.59. Other major indexes, such as the broader S&P 500
and the tech-heavy Nasdaq, registered similar or bigger increases.
Domestic and foreign Investors bid up U.S. stocks
with the hope of profiting from the edge U.S. companies had in business
enterprises around the world. This Clinton-era prosperity swung the
long-running federal budget deficits into surpluses. The U.S.-led
technology boom also offered hope that nations could be brought closer
together through the growth of the Internet and that the world might have
a chance to solve emerging threats, such as global warming.
The tarnishing of the U.S. image abroad arguably
began with the circus-like impeachment of President Clinton in 1998-99 and
worsened with the flame-out of some dot-com high-fliers in 2000. But
Bush's theft of the presidential election in December 2000, with
Republican partisans on the U.S. Supreme Court stopping the counting of
votes in Florida, proved to be a watershed.
Europeans, who viewed the U.S. as the world's leading
democracy as well as the top economy, may have been more shocked by the
power grab than many Americans were. The U.S. political system suddenly
looked like one that could be found in any banana republic.
Though lacking a popular mandate, Bush pushed ahead
with his conservative Republican agenda, most notably a $1.3 trillion tax
cut weighted heavily toward the rich. Bushs big-money backers who had
grown fabulously wealthy during the Clinton years the likes of Enron
Corp.s Kenneth Lay were drooling over a chance to keep even larger
shares of their fortunes.
When Bush's tax cut is fully phased in, 51.8 percent
of the benefits will go to the wealthiest one percent of Americans,
according to a study by Citizens for Tax Justice. [http://www.ctj.org/html/gwb0602.htm]
The tax cut also sent a message to investors that
Washington was pulling away from the budget discipline of the 1990s.
Meanwhile, Bush offered no new economic ideas, nothing like Al Gores
commitment to aggressively invest resources and technologies into the
development of alternative energy sources and the manufacture of
Instead of the Clinton-Gore emphasis on new
technologies and the environment, Bushs team was eager to access new
sources of fossil fuels, including oil from Alaska and the Caspian Basin,
along with more coal from Appalachia. It was back to the future of the
1950s. Bush also sent the world a message that there would be no more
Clinton-style nation-buildingand multilateralism. Bush spurned the
Kyoto Treaty on global warming and other international agreements.
Europeans were aghast at Bushs go-it-alone foreign
policy and retrograde economic plans. Many Europeans regarded Bush as a
swaggering buffoon, making ill-informed comments about complex
In April 2001, for instance, at a time of heightened
tension between the U.S. and China caused by the downing of a U.S. spy
plane, Bush was asked in a television interview how far he would go to
defend Taiwan from a hypothetical Chinese attack. Bush said he would do
whatever it took to help Taiwan defend herself.
This statement represented a shift in U.S. policy,
which up to then had carefully left the issue of how the U.S. might
respond to a Chinese invasion of Taiwan ambivalent. After Bush's comments,
the White House issued statements clarifying that Bush hadn't meant what
he had seemed to say and that he still supported the longstanding One
Other times, Bushs bewildering remarks might have
been funny if uttered by old-time baseball great Yogi Berra, but were
unnerving coming from a president of the United States.
"Russia is no longer our enemy and therefore we
shouldn't be locked into a Cold War mentality that says we keep the peace
by blowing each other up," Bush said during a trip to Des Moines,
Iowa, on June 8, 2001. "In my attitude, that's old, that's tired,
While visiting the Jefferson Memorial on July 2,
2001, Bush declared, "Well, it's an unimaginable honor to be the
president during the Fourth of July of this country. It means what these
words say, for starters. The great inalienable rights of our country.
We're blessed with such values in America. And Iit'sI'm a proud man
to be the nation based upon such wonderful values."
In other strange behavior for a president, Bush poked
fun at people's physical appearances. During one August 2001 press
conference in Crawford, Texas, for instance, Bush called on a familiar
reporter who had covered him as Texas governor. He referred to the
reporter as "a fine lad, fine lad," drawing polite chuckles from
the press corps.
As the reporter began to ask a question, Bush
interrupted with his punch line. "A little short on hair, but a fine
lad. Yeah," Bush said. The young reporter paused and acknowledged
meekly, "I am losing some hair." [For details, see
Consortiumnews.com, Aug. 27, 2001]
A Second Chance
Some of these "Bushisms," as they came to
be called, were widely read in Europe, possibly drawing more attention
there than in the U.S. One result was plunging confidence in Bush among
many of America's closest allies.
The Sept. 11 terror attacks, however, generated broad
sympathy among Europeans for the United States. In effect, Europe took a
second look at Bush amid hope that he would repair the frayed relations
with traditional U.S. allies who also were a key source of investment
Instead, Bush chose to cite Sept. 11 as a
justification for greater U.S. freedom of action around the globe. Beyond
offending many European and other foreign leaders, Bush projected a future
of a world coming apart, not coming together. The prospects for an
economically vibrant worldwide common market faded. Many Europeans no
longer expected or wanted the U.S. to lead the way into the
Europeans widely opposed Bushs unilateral decision
to waive the Geneva Conventions in dealing with captured Taliban and al-Qaeda
combatants in Afghanistan. Europeans also recoiled at his black-and-white
view of the war on terror as Bush announced that he alone would give a
thumb up or a thumb down to governments and political movements in the
Middle East, Central Asia and elsewhere.
Bush's "axis of evil" speech drew sharp
criticism from diplomatic observers around the world. They saw Bush as
incapable of grasping nuances and lacking a breadth of knowledge about
global hot spots. Even conservative Nebraska Republican Chuck Hagel called
Bush's inclusion of Iran as part of the "axis of evil" a blunder
that would strengthen extremist clerics and weaken reformers.
While Bush's supporters praised his simplistic
messages as moral clarity, Bush continued to struggle with
intellectual and rhetorical clarity. Repeatedly, he made himself an
"For a century and a half now, America and Japan
have formed one of the great and enduring alliances of modern times,"
Bush declared in Tokyo on Feb. 18, 2002, apparently overlooking the Second
World War in which his father was shot down by the Japanese military.
"There's nothing more deep than recognizing
Israel's right to exist. That's the most deep thought of all," Bush
said in Washington on March 13, 2002. "I can't think of anything more
deep than that right."
"This foreign policy stuff is a little
frustrating," Bush said, as quoted by the New York Daily News,
on April 23, 2002. [These quotes come from Bushisms compiled at Slate's
Web site at http://politics.slate.msn.com/default.aspx?id=76886]
After meetings with Bush, foreign leaders offered
pointed, though polite, critiques of his competence. He is the type of person who sleeps at 9:30 p.m. after
watching the domestic news, Saudi Arabia's Crown Prince Abdullah told
Okaz, a Saudi newspaper. In the morning, he only reads a few lines
about what is written on the Middle East and the world due to his huge
responsibilities. [The Guardian, May 15, 2002]
Der Spiegel, the German newsmagazine, reported
that Bush's ignorance of the world caused an embarrassing episode at a
meeting with Brazil's President Fernando Henrique Cardoso. "Do you
have blacks, too?" Bush blurted out to the Brazilian leader, Der
National Security Adviser Condoleezza Rice, who is
black, broke in. "Mr. President, Brazil probably has more blacks that
the USA," said Rice. "Some say it's the country with the most
blacks outside Africa." [Der Spiegel, May 28, 2002] Cardoso or one of
his top aides apparently was the source of the quotes.
Europes disdain for this un-elected American
president crystallized with his trip to the Continent in late May. During
that rocky week-long tour of Europe, intended to rally U.S. allies, Bush
faltered badly. He said jet lag got the better of him as he struggled to
stay alert. He also displayed his thin skin.
Bush bumbled one question about the sensitive issue
of Russias support for efforts to build a nuclear power plant in Iran.
During a joint news conference with Russias President Vladimir Putin,
Bush announced that Putin had offered Bush assurances that will
be very comforting for you (the public) to listen to.
Immediately contradicting Bush, Putin reaffirmed
Russias support for Irans nuclear power plant.
Bushs fatigue also showed in testy exchanges with
reporters. During a joint press conference with French President Jacques
Chirac, Bush lost his cool when NBC correspondent David Gregory followed
up a question to Bush in English with a question to Chirac in French.
Very good, the guy memorizes four words, and he
plays like hes intercontinental, Bush said in what looked like Bush
impersonating Saturday Night Lives Will Farell impersonating Bush.
I'm impressed que bueno.
Now I'm literate in two languages. [New York Times, May 28, 2002]
Taken as a whole, Bush's inappropriate behavior
which included winking at reporters in front of a naked statue of the
Goddess Venus gave the impression of a president having trouble
keeping focused. [Financial Times, May 29, 2002]
Most establishment reporters in the U.S. portrayed
Bushs stumbles in Europe as quirky gaffes. New York Times
columnist Maureen Dowd, for instance, attributed Bushs poor performance
to his proving how Texas he is by overdoing the anti-elitist,
anti-intellectual sneer. [NYT, May 29, 2002]
But the European press was less forgiving. Bush's
behavior was described as clownish. Published reports examined Bushs limited intellectual abilities. Europeans
also expressed amazement at his high standing in U.S. opinion polls.
Throughout the May trip, in scenes reminiscent of Bushs inaugural
parade, average citizens on the streets gave Bush the middle finger as his
motorcade passed. In Germany, tens of thousands of protesters turned out
with signs telling Bush to go home.
Bushs insistence on U.S. exceptionalism from
international laws governing other nations also infuriated Europeans.
While insisting that U.S. adversaries such as former Yugoslav president
Slobodan Milosevic be tried for war crimes, the Bush administration
demanded a special waiver from the U.N. Security Council to shield U.S.
forces from the authority of a new global war-crimes court.
Diplomats also objected to Bushs new military
doctrine of preemptive invasions of countries, such as Iraq, deemed by
Bush to threaten U.S. security. What member states find most irritating
is this perennial argument that the United States is a special case, that
rules are for everybody else, one diplomat told the New York Times.
Even close friends are very, very nervous. This is really a serious
assault on the international legal order. [NYT, June 19, 2002]
"In 32 years of reporting on international
affairs, I have never seen Britain and the United States more separated
from each other: not during the terrible last years of the Vietnam War,
not during President Reagan's Iran-Contra dealings or his espousal of the
crackpot Star Wars system," wrote correspondent John Simpson.
"The way George W. Bush's administration deals with the outside world
is affecting even the most traditionally pro-American elements in British
society." [London Telegraph, June 30, 2002]
In an article in Foreign Policy entitled "The
Eagle Has Crash Landed," Yale senior research scholar Immanuel
Wallerstein argued that U.S. power has followed a downward arc since the
Vietnam War, but that Bush and his administration have accelerated the
rate of decline by depleting U.S. "ideological credit." [Foreign
Policy, July/August 2002]
Bushs stewardship of the federal budget also has
undermined confidence in the ability of U.S. institutions to address an
economic downturn. Under Bush, the U.S. budget is heading toward its first
deficit since 1997, with current projections ranging from $100 billion to
more than $150 billion, compared to a $127 billion surplus in fiscal 2001,
which ended last Sept. 30. The $277 billion swing would be the largest
on record, Business Week said in its July 8, 2002, issue.
The cumulative impact of the corporate accounting
scandals and the prospects of a world increasingly divided by regional
conflicts combined with doubts about Bushs competence have
reversed the trend of Europeans and other foreigners investing heavily in
U.S. markets. "It's no longer cool to invest in the U.S.," said
one European summing up the new attitude toward U.S. stocks.
Over the past year, foreign purchases of U.S. stocks
and bonds have dropped 24 percent, with direct investments falling 63
percent, according to Business Week.
The longer-term problem is that less abundant foreign financing
could limit the U.S. expansion, Business Week said.
Since Bush has been in office, the Dow has dropped 15
percent, the S&P 29 percent and the Nasdaq 51 percent. Reflecting the
withdrawal of investments from U.S. stock markets, the dollar has slid 12
percent against the euro since February and fallen against other
currencies as well.
The dollar, after rising sharply in value for
years in a reflection of American economic might, is weakening markedly,
mirroring concern about the fragility of the economic recovery and the
nations financial condition, the New York Times reported.
We risk seeing a flood of dollar selling as
everybody tries to get through the door at the same time, said Kenneth
T. Mayland of Clear View Economics. [NYT, June 21, 2002]
If the Federal Reserve Board tries to shore up the
dollar by raising interest rates, the move could undercut the overall
economy and damage one of the healthiest sectors, the housing market.
Also, since the loss of faith among European investors stems more from
disillusionment with U.S. institutions than from Fed policy, a
ratcheting-up of interest rates might build little new confidence.
Bushs belated words of outrage over U.S.
corporate-accounting abuses seem unlikely to pull much weight with
European investors either, since many view Bush as part of the problem.
Following WorldComs admission last week that it
used improper accounting to hide $3.9 billion in expenses, Bush termed the
chicanery outrageous and vowed, in his usual clunky rhetoric, to
pursue within our laws those who are irresponsible.
But Bush has little credibility in waving his finger
at wayward executives. Through his first year in office, Bush boasted of
his corporate-style management and his own record as a corporate
executive. For his vice president, Bush recruited Dick Cheney, who was
chairman and chief executive of the Houston-based oil-services firm,
While at Halliburton, Cheney appeared in a
promotional video for the company's accountants, Arthur Andersen LLP.
"I get good advice, if you will, from their people based upon how
we're doing business and how we're operating over and above just sort
of the normal by-the-books auditing arrangements," Cheney declared.
[Wall Street Journal, May 10, 2002]
Halliburton's accounting during Cheney's tenure is
now under investigation by the Securities and Exchange Commission.
Andersen, which also signed off on Enron's off-the-books partnerships that
hid at least $1 billion in losses, was convicted last month of obstructing
the SEC's probe of the Houston-based energy trader.
Bushs lecturing about corporate responsibility
also has a do-as-I-say-not-as-I-do quality. Bush's much-touted 10-point
accountability plan includes a mandate for corporate officers to disclose
their stock sales immediately, rather than under variable timetables as
they do now. The purpose of stock-sale reports is to alert shareholders
that insiders are unloading shares, which can be a tip-off of trouble at a
Yet, when Bush was on the board of Harken Energy
Corp. in the late 1980s and early 1990s, he violated federal securities
law four times when he was late on four separate occasions filing public
reports that he had sold more than $1 million in Harken stock, according
to an SEC report prepared in 1991. Bush didnt miss the deadline by a
day or two, but by between 15 and 34 weeks. [http://www.public-i.org/story_01_100400.htm]
Bush, as a member of Harken's finance committee, had
privileged access to information that Harkens financial prospects were
weakening. Bushs delay allowed his stock sale to go unnoticed before
Harken's stock slumped and unsuspecting investors lost money.
In the best light, Bushs handling of his Harken
stock sales was sloppy. Bushs actions also could be construed as
insider trading, though the SEC didn't pursue the case at a time when
Bush's father was president. Bush used his Harken profits to become part
owner of the Texas Rangers baseball team, a position that established Bush
in the public eye and helped launch his bid to become Texas governor.
From the Texas governor's mansion to the White House,
Bushs political career was backed by major corporate figures such as
Enrons Kenneth Lay. A grateful Bush gave Lay the nickname, Kenny
Boy, as well as access to government policy, including private meetings
with Cheney's task force drafting the administration's energy policy in
Like many other corporate chieftains, Lay had
profited handsomely from the booming economy in the 1990s, but still
looked for less government regulation and lower taxes under a Bush
presidency. Ironically, Lay and many other executives have seen their
stock portfolios and their personal fortunes deteriorate with Bush in the
For Enron, the drop in its stock price in 2001
transformed complex hedging schemes, tied to Enron stock, into whirlpools
that sucked the company into bankruptcy. Lay resigned in disgrace and pled
the Fifth Amendment before Congress. He now faces federal investigations
into whether he knew about and profited from the accounting gimmicks at
Though Lay helped put Bush into the White House, the
ex-Enron chief certainly does not appear to be better off today than he
was two years ago. The same might be said for millions of small investors
in the U.S. and elsewhere who have lost trillions of dollars from their
pension funds, retirement accounts and personal portfolios.
Everyday, as the news grows bleaker on both the
economic and international fronts, it becomes more and more apparent that
Bush's shortcomings in intellect, vision and temperament are inextricably
bound to the sinking U.S. stock market and the rising world tensions.
As Europeans and other investors continue to bail out
of U.S. securities, the pressing question becomes how far down will the
Bush Effect drag the overall economy and how much damage will Bush's
unilateralist foreign policy do to U.S. standing among the nations of the