What if there is another 9/11 or war of necessity as was Afghanistan? We're cooked. The tax revenue won't be there.

Excerpts from:

The 9/11 Bubble

By Thomas L. Friendman
The New York Times
12-02-04

I can't recall a time when the Treasury Department has been so emasculated by a White House. . . .

This is a time when we really need a strong Treasury secretary capable of speaking up for fiscal sanity. We are about to embark on a 10-year period in which recent tax cuts and runaway spending are expected to add $5 trillion to the cumulative deficit. In my lifetime we will have gone from the Greatest Generation to the Profligate Generation to the Bankrupt Generation. Yes, I'm talking to you 20-year-olds. President Bush has called for sacrifice - but not by his generation. He's passing the bill onto your generation.

"The 9/11 crisis has been used as a license to spend and cut taxes rather than to set priorities and focus our resources on what is critically important to our nation's security," said Robert Hormats, vice chairman of Goldman Sachs International.

And Congress has played right along, as have people like Josh Bolton, Stephen Friedman and Gregory Mankiw - Mr. Bush's key White House economic advisers. "You know that all these guys know better," said Clyde Prestowicz, head of the Economic Strategy Institute.

There have been lots of strong Republican and Democratic Treasury secretaries in recent years: George Shultz, Nick Brady, Jim Baker, Bob Rubin, Larry Summers. But right when we really need one with common sense and the will to set priorities, all indications are that this White House is looking for someone even weaker than Mr. Snow.

David Rothkopf, a former Clinton Commerce Department official who just wrote a history of the National Security Council, said that President Bush is obviously "seeking consensus and homogeneity. But the system works better when the president gets choices. If everyone is on the same page and it turns out to be the wrong page - you're really up a creek."

The very reason Mr. Bush had the luxury of launching a war of necessity in Afghanistan and a war of choice in Iraq, without a second thought, was because of the surpluses built up by the previous administration and Congress. Since then, the Bush team has been slashing taxes in the middle of two wars, weakening the dollar and amassing a huge debt burden - on the implicit assumption that nothing will go wrong in the future.

But what if there is another 9/11 or war of necessity? We're cooked. The tax revenue won't be there, so the only option will be more borrowing and a weaker dollar. But what happens if the Chinese and other foreigners, who now hold over 40 percent of our Treasury securities, decide they don't want to hold these depreciating dollars anymore, let alone buy more?

It is now clear to me that we have followed the dot-com bubble with the 9/11 bubble. Both bubbles made us stupid. The first was financed by reckless investors, and the second by a reckless administration and Congress. In the first case, the public was misled by Wall Street stock analysts, who told them the old rules didn't apply - that elephants can fly. In the second case, the public was misled by White House economists, peddling similar nonsense. The first ended in tears, and so will the second.