BS: Spending America Into Ruin - Margolis

Subject: BS: Spending America Into Ruin - Margolis
From: Little Hawk
Date: 14 Feb 10 - 11:18 AM

His latest column:

SPENDING AMERICA INTO RUIN
February 08, 2010

One of history's most important lessons is that politicians should never be given a free hand to borrow money to cover the costs of wars, overseas adventures, or military spending.
More empires have been brought down by reckless spending than by invaders. The late Soviet Union, which wrecked its economy by buying too many tanks, is the most recent example. Now, the United States appears headed in the same direction.

Even so, President Barack Obama calls the US $3.8 trillion budget he just sent to Congress a major step in restoring America's economic health.      

In fact, it's another potent fix given to a sick patient deeply addicted to the dangerous drug of debt.   

Washington's deficit (the difference between spending and income from taxes) will reach a vertiginous $1.6 trillion this
year. The huge sum will be borrowed, mostly from China and Japan, which the US already owes $1.5 trillion. The United States has put its fate in the hands of two nations who bear it little good will.

Debt service will cost Washington $250 billion, and may reach over a third of the total Federal budget within the next decade. Washington is still paying for past wars while considering starting a new one against Iran.

To understand the immensity of one trillion dollars, one would have had to start spending $1 million daily soon after Rome was founded and continue for 2,738 years until today.

Obama's total proposed annual military budget is nearly $1 trillion. This includes Pentagon spending of $880 billion. Add secret `black programs (about $70 billion); military aid to foreign nations like Egypt, Israel and Pakistan (including bribes); 225,000 military `contractors' (mercenaries and workers); and veteran's costs. Add $75 billion (nearly 2.5 times France's total defense budget) for 16 poorly functioning intelligence agencies with 200,000 employees who keep tripping over one another.

The Afghanistan and Iraq wars ($1 trillion so far), will cost $200-250 billion more this year, including hidden and indirect expenses. Obama's Afghan `surge' of 30,000 new troops will cost an additional $33 billion - more than Germany's total defense budget.

These figures do not account for wear and tear on US military equipment, costs of reconfiguring the US military to wage colonial wars in the Third World, or the cost of replacing worn-out equipment.   Pentagon bookkeeping is about as flexible as Enron's bookkeeping.

No wonder US defense stocks rose after Peace Laureate Obama's `austerity' budget.

Military and intelligence spending relentlessly increase as the official unemployment figure hovers near 10% and the economy bleeds red ink. Some estimates put real unemployment at over 20%.

America has become the Sick Man of the Western World, an economic cripple like the defunct Ottoman Empire whose inept financial management was legendary.

The Pentagon colossus now accounts for half of total world military spending. Add America's rich NATO allies and Japan, and the figure reaches 75%.

China and Russia combined spend only a paltry 10% of US on defense.

There are 750 US military bases in 50 nations and 255,000 service members stationed abroad, 116,000 in Europe, nearly 100,000 in Japan and South Korea. President George W. Bush doubled military spending – much of which accrues to Republican states – to wage his faux war on terror.

Military spending gobbles up 19% of federal spending and at least 44% of tax revenues. America is on a permanent war footing. Many Americans believe the president's primary role is as a war leader rather than chief executive of the republic.

Like Bush, President Barack Obama is paying for America's wars through supplemental authorizations – ie putting them on the nation's already maxed out credit card. Wage war now – pay later. Future generations will be stuck with the bill.   

This presidential and congressional jiggery-pokery is the height of public dishonesty.

America's wars ought to be paid for through taxes, not bookkeeping fraud. If US taxpayers had to actually pay for the Afghan and Iraq wars, these conflicts would end in short order.

America needs a fair, honest war tax. But hardly any politicians – save the courageous and honest Rep. Ron Paul – dare admit this hard truth.

The US has clearly reached the point of imperial overreach. Military spending and debt servicing are cannibalizing the US economy, the real basis of its world power.   Besides the late USSR, the US also increasingly resembles the dying British Empire in 1945, crushed by immense debts incurred to wage WWII, unable to continue financing or defending the imperium, yet still imbued with imperial pretensions.

It is increasingly clear the president is either not in control of America's runaway military juggernaut, or working with it.

Sixty years ago, the great President Dwight Eisenhower, whose portrait I keep by my desk, warned Americans to beware of the military-industrial complex.   Six decades later, partisans of permanent war, fear-mongering,   and world domination have joined Wall Street's money lenders to put America into thrall.

Increasing numbers of Americans are rightly outraged and fearful of runaway deficits. But many do not understand their political leaders are also spending their nation into ruin through unnecessary foreign wars and a vainglorious attempt to control much of the globe -what neocons call `full spectrum dominance' – using the canard of terrorism to justify an imperial policy that often closely resembles that of the old British Empire.

If Obama were really serious about restoring America's economic health, he would demand military spending be slashed, quickly end the Iraq and Afghan wars, and break up the nation's five giant Frankenbanks that now control 40% of all deposits.

But the president won't, of course, and neither will Congress. They would rather see the nation go over the financial falls rather than change course.

Copyright Eric S. Margolis 2010

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Rapparee
Date: 14 Feb 10 - 11:48 AM

Come the Revolution....

Subject: RE: BS: Spending America Into Ruin - Margolis
From: olddude
Date: 14 Feb 10 - 11:54 AM

There is not one American like myself or anyone else I talk to that is not terribly concerned with this borrowing and crushing debt that we will leave for our grandkids and their grandkids to dig out. The only ones that don't get it are our leaders ... go figure !!

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Little Hawk
Date: 14 Feb 10 - 12:10 PM

Well, they probably "get it" (in that they do understand what's actually happening), but I think they are literally in thrall to the major interests that Margolis alludes to. In other words, they are not really serving the public (although they might perhaps like to do so if they could figure out how to)...they're serving their major sources of funding and they are dutifully following orders from the people who really put them in office: the banking/military/industrial cartel that really runs the show.

No ordinary public ever really runs a big country, regardless if they go out to vote or not. Major established financial and industrial interests run a big country. If they can control all the major political parties (and they most definitely can), then they can control what those parties do once elected, and what those parties do is continue to grease the wheels of the banking and corporate interests who fund them.

This isn't some kind of a conspiracy. It's simply an established system that looks after itself and maintains itself in the manner it is accustomed to. That means high military production at all times and frequent foreign wars and interventions...or the creation of foreign "enemies" to arm against...in order to maintain and justify high military production.

The same sort of thing happened in the past with Rome, Great Britain, the Soviets, Napoleon, Spain, Persia, and all the greatly successful military empires of past history. They eventually overreached themselves and failed, because their system, based on ever-expanding itself, finally overextended itself to the point where it could no longer meet its financial or logistical committments.

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Richard Bridge
Date: 14 Feb 10 - 12:34 PM

Military spending rescued Germany's economy in the 30s. If the only way to get spending inside the USA on the right track is to spend money on military matters, then that's an egg that has to be broken, whither or not it involves borrowing. I thought, after the recent fuckup, that people had finally realised that Keynes was right all along. I'd rather the spending was on something else - but that would no doubt get filibustered by the anthill kings of destruction, the dogs in mangers, the wholly solipsist US looney right republicans (with God on their side. I hate Dylan, but he got that one right)

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Little Hawk
Date: 14 Feb 10 - 12:54 PM

You can get an economy initially rolling with a huge binge of military spending, yes....but then what? What do you do with it? Military equipment, after all, is only good for one purpose which is to smash things up and kill people. If you build more of it, then other countries get scared and they build more it, so then you have to build even MORE, and so it goes. I don't call that a very useful form of growth industry. ;-) So Hitler first of all got Germany on its feet by massive military spending...and then sent the whole country straight to hell by doing the next logical step and fighting a bunch of unwise wars with all that nice shiny new equipment...

Anyone who says you shouldn't do that, though, will be accused of being "unpatriotic" and "unwilling to stand up and defend his country and way of life against a foreign threat"... Ho! Ho!

And there is the magic political prescription for the maintenance of the militaristic lifestyle...where those are are really the attackers pretend that they are engaging in national "defence", as they call it.

Subject: RE: BS: Spending America Into Ruin - Margolis
From: pdq
Date: 14 Feb 10 - 01:50 PM

Irving Fisher

{an economics icon of the 1930s}

Fisher's father was a teacher and Congregational minister, who raised his son to believe he must be a useful member of society. The young Irving had mathematical ability and a flair for invention. A week after he was admitted to Yale University, his father died at age 53. Irving carried on, however, supporting his mother, brother, and himself, mainly by tutoring. He graduated from Yale with a B.A degree in 1888, where he was a member of Skull & Bones.

Fisher's best subject was mathematics, but economics better matched his social concerns. He went on to write a doctoral thesis combining both subjects, on mathematical economics. Irving was granted the first Yale Ph.D. in economics, in 1891. His advisors were the physicist Willard Gibbs and the economist William Graham Sumner. Fisher did not realise at the outset that there was already a substantial European literature on mathematical economics. Nevertheless, his thesis made a contribution European masters such as Francis Edgeworth recognised as first rate. He constructed a wonderful machine of pumps and levers to complement and illustrate his thesis. While his books and articles on economic topics exhibited unusual (for the time) mathematical sophistication, Fisher always wished to bring his analysis to life and to present his theories in a very lucid manner.

This research into basic theory did not touch the great social issues of the day. Monetary economics did and this became the main focus of Fisher's work. In the 1890s the United States was divided over the question of the monetary standard. Should the dollar float, be fixed in terms of gold or silver, or some combination of the two? To opt for one system was to choose between West and East, farmer and financier, debtor and creditor, …. Fisher's Appreciation and interest was an abstract analysis of the behaviour of interest rates when the price level is changing. It emphasised the distinction between real and monetary rates of interest which is fundamental to the modern analysis of inflation. However Fisher believed that investors and savers—people in general—were afflicted in varying degrees by "money illusion"; they could not see past the money to the goods the money could buy. In an ideal world, changes in the price level would have no effect on production or employment. In the actual world with money illusion, inflation (and deflation) did serious harm.

Fisher was a prolific writer, producing journalism, as well as technical books and articles, addressing the problems of the First World War, the prosperous 1920s and the depressed 1930s.

Fisher's theory of the price level was the following variant of the quantity theory of money. Let M=stock of money, P=price level, T=amount of transactions carried out using money, and V= the velocity of circulation of money. Fisher then proposed that these variables are interrelated by the Equation of exchange: MV=PT.

Later economists replaced the amorphous T with y or "Q", real output, nearly always measured by real GDP.

Fisher was also the first economist to distinguish clearly between real and nominal interest rates:                  

                                              _r   =       (1 + i)      _{- 1}
                                                       (1 + inflation)

where r is the real interest rate, i is the nominal interest rate, and inflation is a measure of the increase in the price level. When inflation is sufficiently low, the real interest rate can be approximated as the nominal interest rate minus the expected inflation rate. The resulting equation bears his name.

For more than forty years, Fisher elaborated his vision of the damaging "dance of the dollar" and devised schemes to "stabilise" money, i.e. to stabilise the price level. He was one of the first to subject macroeconomic data, including the money stock, interest rates, and the price level, to statistical analysis. In the 1920s, he introduced the technique later called distributed lags. In 1973, the Journal of Political Economy reprinted his 1926 paper on the statistical relation between unemployment and inflation, retitling it as "I discovered the Phillips curve". Index numbers played an important role in his monetary theory, and his book The Making of Index Numbers has remained influential down to the present day.
The theory of interest and capital

While most of Fisher's energy went into "causes" and business ventures, and the better part of his scientific effort was devoted to monetary economics, he is best remembered today for his theory of interest and capital, studies of an ideal world from which the real world deviated at its peril. His most enduring intellectual work has been his theory of capital, investment, and interest rates, first exposited in his The Nature of Capital and Income (1906) and elaborated on in The Rate of Interest (1907). His 1930 treatise, The Theory of Interest, summed up a lifetime's work on capital, capital budgeting, credit markets, and the determinants of interest rates, including the rate of inflation.

Fisher saw that subjective economic value is not only a function of the amount of goods and services owned or exchanged but also of the moment in time when they are purchased. A good available now has a different value than the same good available at a later date; value has a time as well as a quantity dimension. The relative price of goods available at a future date, in terms of goods sacrificed now, is measured by the interest rate. Fisher made free use of the standard diagrams used to teach undergraduate economics, but labelled the axes "consumption now" and "consumption next period" instead of, e.g., "apples" and "oranges." The resulting theory, one of considerable power and insight, was exposited in considerable detail in The Theory of Interest.

This theory, since generalized to the case of K goods and N periods (including the case of infinitely many periods) using the notion of a vector space, has become the canonical theory of capital and interest in contemporary economics; for an exposition see Gravelle and Rees (2004). The nature and scope of this theoretical advance was not fully appreciated, however, until Hirshleifer's (1958) reexposition, so that Fisher did not live to see this theory's ultimate triumph.

Following the stock market crash of 1929 and the ensuing Great Depression, Fisher developed a theory called debt-deflation. According to the debt deflation theory, a sequence of effects of the debt bubble bursting occurs:
        1         Debt liquidation and distress selling.
        2         Contraction of the money supply as bank loans are paid off.
        3         A fall in the level of asset prices.
        4         A still greater fall in the net worth of businesses, precipitating bankruptcies.
        5         A fall in profits.
        6         A reduction in output, in trade and in employment.
        7         Pessimism and loss of confidence.
        8         Hoarding of money.
        9         A fall in nominal interest rates and a rise in deflation adjusted interest rates.

The stock market crash of 1929 and the subsequent Great Depression cost Fisher much of his personal wealth and academic reputation. He famously predicted, a few days before the crash, "Stock prices have reached what looks like a permanently high plateau." Irving Fisher stated on October 21 that the market was "only shaking out of the lunatic fringe" and went on to explain why he felt the prices still had not caught up with their real value and should go much higher. On Wednesday, October 23, he announced in a banker's meeting "security values in most instances were not inflated." For months after the Crash, he continued to assure investors that a recovery was just around the corner. Once the Great Depression was in full force, he did warn that the ongoing drastic deflation was the cause of the disastrous cascading insolvencies then plaguing the American economy because deflation increased the real value of debts fixed in dollar terms. Fisher was so discredited by his 1929 pronouncements and by the failure of a firm he had started that few people took notice of his "debt-deflation" analysis of the Depression. People instead eagerly turned to the ideas of Keynes. Fisher's debt-deflation scenario has made something of a comeback since 1980 or so.

Subject: RE: BS: Spending America Into Ruin - Margolis
From: GUEST,kendall
Date: 14 Feb 10 - 02:58 PM

.. our taxes keep on going up
Of that there is no doubt
They just can't seem to take it in as fast as they dish it out,
Our national debt is monster size and growing every day
Our childrens children still un born are gonna have to pay.

Written in, I believe 1952.

Was anyone concerned when Reagan increased the debt, or when Bush doubled it?

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Sawzaw
Date: 14 Feb 10 - 03:27 PM

I agree Little Hawk. Obama was supposed to heal the American Economy. Now he says plaintively "It is hard".

I can't see where he has done anything different except pass a stimulus bill with 9000+ earmarks [pork] attached, something that he said he would not do when campaigning.

But you are running the risk of angering the "One screen" gods.

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Little Hawk
Date: 14 Feb 10 - 04:19 PM

"Shrug". I don't really care about the One screen gods. Margolis' column speaks for itself. I think Obama is basically serving the same huge financial interest groups that Bush and Clinton and Bush and Reagan all did before him. He's a Democrat, of course, so the partisan thing enters in as to who will attack him over what he does and who won't, but the partisan thing is just a noisy distraction as far as I'm concerned. It's like the cheerleaders yelling their heads off on the fringes of the game...much sound and fury, signifying almost nothing.

Subject: RE: BS: Spending America Into Ruin - Margolis
From: kendall
Date: 14 Feb 10 - 04:31 PM

Obama inherited a situation that Bush kept secret. Bush did not include the cost of his two wars in his budget Surprise!

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Little Hawk
Date: 14 Feb 10 - 04:39 PM

If the American people were directly taxed for foreign wars in a visible way, those wars would quickly become politically unsustainable.

If the draft were re-instated, the same thing would happen...although not quite so quickly.

The real cost of America's wars is being hidden from the public...as best it can be hidden.

Subject: RE: BS: Spending America Into Ruin - Margolis
From: Joe_F
Date: 14 Feb 10 - 08:19 PM

"...As London is the market of England, to which the best of all things find their way, so Rome was the market of the Mediterranean world; but there was this difference between the two, that in Rome the articles were not paid for. Money, indeed, might be given, but it was money which had not been earned, and which therefore would come to its end at last. Rome lived upon its principal till ruin stared it in the face. Industry is the only true source of wealth, and there was no industry in Rome. By day the Ostia road was crowded with carts and muleteers, carrying to the great city the silks and spices of the East, the marble of Asia Minor, the grain of Africa and Egypt; and the carts brought nothing out but loads of dung. That was their return cargo...."
-- Winwood Reade, _The Martyrdom of Man_ (1872)

For "dung", to bring this up to date, read "Treasury bills".