A simple analysis of the relative curves shows that if nothing changes, the trade deficit, already beyond 5% of GDP, will continue to grow to reach closer to 6.5% of GDP, to which we should add the growing mass of interest that the US should pay on its foreign debt. This net flow of interest at about 300 billion+, which will remain roughly around 10% of the current account deficit as a whole. This is a big deal.
To significantly reduce the deficit, most economists believe that dollar devaluation, of the order of 40% would be necessary, which will bring the dollar to an unprecedented low.
Naturally, foreign holders of US assets would then be tempted to sell these assets to limit the loss. These sales would unleash a new downward movement of the dollar that could only be dealt with by a hefty rise in interest rates that would affect growth. An aggressive devaluation of the dollar could lead to the opening of a trade war with Europe.
Since the 1950's European nations have not enjoyed grand colonial opportunities to supplement their economies. Any ambitions to rise to an American standard of living, was tempered by a core operational strategy to partner with the United States globally in a joint pursuit of low cost natural resources sharing in the spoils of war and peace to sustain their post colonial economies. During the cold war era, with a bi-polar world, European nations, acting independently, were content to play second fiddle, and be a supportive partner with the United States. Second fiddle meant that while the US would get the lion share of any winnings, Europe would be happy with any spoils and in exchange (and more critically) receive political security by the US armies stationed in Europe. The threat of Russian invasion has now diminished. Germany has been reunified. The "Iron Curtain' has dropped. One by one, former communist countries have joined the European Union.
Europe is now an increasingly unified and coordinated economic and political force. The European Union is now a single market with a population of 500 Million (greater than the United States) and a total output of $18.4 Trillion (greater than the United States).
Every time Europeans are pushed to a corner, they have always resorted to shadowy political policies. The easiest thing to do, when your own economy can not pull a rabbit out of hat, is to steal wealth from other nations! European colonial history is a testament to that approach. Partnership during the cold war era however, has now increasingly developed into outright manipulation of the USA.
There is a trade war looming, and Americans must understand that in very subtle and maybe not so subtle ways, the Europeans have banded together and are undermining American interests globally in their favor.
I have Four Cases in point: Iraq, Iran, Central Asia and Israel
It turns out now, in retrospect that the core decision to invade Iraq was based on faulty intelligence fed to the United States by its so called allies. (Allies that by the way, are now holding hearings to "pretend' that they were somehow bullied into "supporting' the United States in the war"who do they think they are fooling?). Here we are, many years later, the United States has spent over a trillion dollars and literally given up thousands of lives to topple Saddam. And who is now in charge of Iraq's principal oil fields? The largest fields have been awarded to Britain and Russia! It's not just that they are the largest fields, but they are strategically positioned in Southern Iraq, near the port of Basra. The Russians were given their West Quma fields largely as a concession for better relations by the Obama administration. The Russians did after all have a $40 Billion contract with Iraq before the war, and felt "cut out' by the invasion; and were as a result supporting the insurgency "secretly'. Call it the price for peace. The Brits of course, were our stalwart allies providing 10,000 troops who quickly controlled southern Iraq around Basra and now control the giant Rumaila oil field there (one of the largest "that is multi-Billion barrel plus"fields in the world). And the Majnoon oil fields (30 Billion + barrels) has been awarded to guess who "Royal Dutch Shell" (British/Dutch enterprise). What's left? Not much. There is this very large oil field in Kirkuk (in Iraq's Kurdistan) that has major logistical issues "the oil has to piped out through foreign countries to tankers. (Basra, in Southern Iraq, is a port on the Persian Gulf). There are these smaller fields scattered across Iraq, with similar logistical issues. All the nice spoils have gone to Europeans. America spent the resources, Europeans took the spoils.
In 1979, Ayatollah Khomeini trounced into Tehran on board an Air France 747 having manipulated a popular uprising for freedom and democracy into a cry for a theocracy largely branded and promoted by the BBC Persian Radio service! In 1977, in Guadeloupe, Jimmy Carter had agreed to European proposals (James Callaghan, Helmut Schmidt, Valerie Giscard d'Estaing) have America's stalwart ally in the region (the Shah) toppled, and relished the potential of locking Russia up with an anti-communist, "Islamic Green Belt' across its southern borders. Trying to slip out of the lock, the Russians invaded Afghanistan, only to find a mindless and fanatic enemy. It bogged the Soviets down into a protracted war that bankrupted them. It was a brilliant strategy"backed by billions of dollars of illicit US foreign aid to the Afghans. It not only weakened the Soviets, but also weakened Iran and eventually led to the break up of the Soviet Union. Suddenly, the Caspian Sea was surrounded by western client states like Azarbaijan, Turkmenistan, Uzbekistan" The Caspian Sea, the world's largest untapped Oil and Gas with over 23 Trillion dollars (at today's valuation) of reserves, was suddenly available for exploitation"and Iran's 50% ownership (ratified by numerous treaties over 200 years) transformed into a 10% claim overnight. Brilliant!
Fast forward today, and what do we find? Who is the largest oil company in Azerbaijan? Do you really need the answer? BP (British Petroleum) of course. Who is number two? Luk Oil of course. Iraq mirrored!!