And I'm with you nearly 100% on your last sentence. Up to a point. It depends on how high we're willing to set the marginal tax rates on upper-income brackets, how willing we are to reverse the tax breaks afforded to rent income. Clinton-level rates will not do the trick.

I also wonder how reasonable it is to expect Americans to resist the urge to throw their wait around the world. I guess it's just that I'm a bit skeptical that it can be done. Well, we'll see. New congress, cautious optimism and all that, though I'm not hearing the sorts of tax progressivity hints I'd expect to be hearing if we were going to start seeing this being tackled seriously.

All this being said, back then in the late '80's and early '90's, the budget situation was dire, but it was arguably nowhere near as structural as it is today. The S&L bailout was hitting general fund outlays pretty hard back then. Now there's reasonably strong growth and real deficits in the 4% range.

Second, the CA deficit was less than a third what it is today back then.

Third, US manufacturing had not yet been hollowed out as it has been today, impacting US ability to export its way out of whatever might come down the road. You have to be able to produce things other countries are willing to buy in order to do that, it its relatively less true today that the US can do this than it was 15 years ago.

Finally, the amount of assets owned by foreigners was far less back then than it is now, scarcely 15 years later. Foreign asset ownership as measured by the fed (z.1 schedule) has gone from roughly 10% of gdp to approaching 60%, and grows a further five percentage points a year thanks to the equally structural CA deficit. This causes far more exposure to capital flight than was previously the case. The last time there was a major financial crisis in the US, just over 30 years ago, the US was a net creditor, so the risk was far more mitigated. But that didn't stop the stock market from going into the shitter for damn near a decade, and you probably remember the crazy things that happened to the price of gold and silver back then.

And not only this, but the dollar tanked back then too, far worse than when Papa Bush was simultaneously borrowing money hand over fist while the fed kept interest rates at recessionary-low levels. And again, this happened even though the US was in a far better situation with respect to CA, the federal budget deficit, and the economy's balance sheet.

Despite this, Nixon's crisis drove the franc to roughly 25% more than it is worth today. It isn't a stretch to imagine, given the current parlous state of affairs, something significantly worse. In fact, it certainly is far from an issue which only cranks write and worry about, as this Rogoff (former chief economist at the IMF) article on the eve of Dubya's mandate makesquite clear:

The US deficit problem is not only a domestic issue, but a
global concern and neither candidate has the answer
By MAURICE OBSTFELD and KENNETH ROGOFF
890 words
1 November 2004
Financial Times
London Ed1
Page 19
English
2004 The Financial Times Limited.

Should the next US administration worry that high oil prices are pushing America's
current account deficit towards 6 per cent of national income, the country's all-time
record high? Should it worry that the US is single-handedly eating up more than 70 per
cent of the combined current account surpluses of China, Japan, Germany and all the
other surplus countries in the world? Should it worry that foreigners might start balking at
the sub-par returns they have been averaging in the US market for more than a decade?
Will it matter for this foreign borrowing binge whether George W. Bush or John Kerry
wins tomorrow?

Our answer to the first question is a resounding "yes". We first began publishing papers
on the risks of a US current account collapse more than four years ago.(1) Back then it was
an important medium-term problem. Today it should be problem number one on the new
president's international financial agenda. Sadly, we fear it will not be. The winning
candidate will probably find it convenient to hide behind one of the proliferating versions
of the revisionist theory that there simply is no problem.

According to this seductive view, foreign investors, especially official ones, will never
tire of accumulating crisp green dollars. In fact, it would be unneighbourly of the US to
stop pumping nearly Dollars 600bn (Pounds 325bn) a year (and growing) of its liabilities
out into the world market. Besides, even if the current account did close up and the dollar
collapsed (by 20-40 per cent, according to our latest analysis(2)), there would be no need
to worry. Global capital markets are deep, and a dollar meltdown would be relatively
benign, as in the 1980s.

We are very sceptical. When one looks closely at the US twin deficits (current account
and fiscal) in the context of open-ended security costs, geopolitical tensions, rising old
age pensions, higher energy costs and extraordinarily stimulative macroeconomic
policies, we see stronger parallels to the early 1970s than to the late 1980s. The years
following Richard Nixon's 1972 re-election were not pretty for the dollar or for the world
economy.

If current accounts are forced towards balance in the context of a difficult global
economy, the effects could include financial crises, higher interest rates and a big drop in
global output.

No, a sober US president-elect ought to worry a lot about his country's foreign borrowing
addiction. But what to do? Given that the federal government's own impecuniousness is a
big part of the problem, raising taxes would seem like a good place to start. Taxes would
have to rise more broadly than in Mr Kerry's proposals to tax high wage earners, even
ignoring his spending promises. George W. Bush, if he wins, ought to look at how
Ronald Reagan did it. His decision to raise taxes in his second term almost certainly
helped facilitate the steep but smooth adjustment in the dollar's exchange rate that took
place on his watch.

Perhaps as the Federal Reserve continues to normalise interest rates, that, too, will help
by tempering the dollar's fall and stimulating US private saving. Countries such as
Germany and Japan could help by encouraging productivity growth in the nontraded
goods sectors that constitute the bulk of their outputs. Productivity gains would be
welcome in traded goods, but if that is the main locus of growth, current account
imbalances will get worse before they get better. Of course, a move to more flexible
exchange rates in Asia is also needed, although this step alone is not enough.

Four years ago the US current account deficit stood at 4.4 per cent of gross domestic
product, below today's level. We then speculated that an unwinding of the imbalances
would probably take place over a three to five years, accompanied by a large depreciation
of the dollar. That was before the Bush tax cuts, September 11 2001 and the Iraq war.

Four years ago the US current account deficit was arguably financing high investment,
although a collapse in private savings also weighed heavily. Today's 6 per cent deficit is
larger and is mainly financing government borrowing, a far riskier situation. With the
government's fiscal deficit now accounting for most of the country's overall borrowing,
events are likely to unfold within the next presidential term.

Neither candidate has yet proposed a convincing solution. Both seem to think, in denial
of spending realities, that at least half the budget deficit is going to evaporate painlessly.
Whoever wins tomorrow can look forward to a cold blast of water from the ocean of
international capital markets. The problem for the world economy is that many other
countries will get flooded at the same time.

(1) "Perspectives on OECD Capital Market Integration", in Global Economic Integration
(Federal Reserve Bank of Kansas City, 2000);
(2) "The Unsustainable US Current
Account Position Revisited," NBER working paper 10869, October 2004.