I lived and worked in Saudi Arabia for four years when oil was around $30/barrel.  It hasn’t been that long, folks.  It was a bonanza then.  Mind mind cannot comprehend what it must be like now.  Despite all the money, I would never go there again.

It would be a mistake to see this as simply an issue about oil wealth. The nearby Emirate of Dubai has almost as much money as Abu Dhabi, but very little of it is dependent on local petroleum resources. As hard a notion as it may be for Western capitalists to accept, the folks in the UAE and elsewhere are extraordinarily good businessmen and are beating us at our own game.

At the moment, one aspect of being good businessmen is related to the weak dollar. The UAE currency is pegged to the dollar, so it isn’t worth as much as it used to be against the pound or euro. China, Japan, Singapore, and Russia hold vast dollar reserves that are also devalued against stronger currencies. That makes investment in Europe or Asia expensive, but investment in the USA very attractive. I suspect that the reported investments and acquisitions by the Abu Dhabi and Dubai sovereign funds are only the tip of the iceberg.

We now face a long, painful reckoning for the fiscal profligacy and general irresponsibility of the Bush Administration over the past seven years. This irresponsibility created massive federal budget deficits that have widened our trade deficit and made us once again dependent on an influx of foreign capital. By the time this Administration leaves office, it will have doubled the federal government’s publicly held indebtedness. This government borrowing binge helped fuel the sort of profligate consumption whose consequences are now coming home to roost in real estate markets and the financial system.

With the federal budget in (or close to) balance, we would have consumed somewhat less, been none the worse for it at the time, and been better off now and during the coming decade.

It’s way more than Bush, we’ve been overspending for several decades now.  But our legislatures are all too aware of how easy it is to purchase support with spending from the public purse.  Very few (on either side of the aisle) are willing to cut their pet projects that purchase support in their districts.  I am fearful of the long term prospects.

As Hillary promises: “I’m going to raise your taxes to at least the point they were in the ‘90s….but I’m going to ‘give’ you an affordable healthcare system.”