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“I love cooking with wine”, said our hostess last night, with a smile. “Sometimes, I even put it in the food.”
Nothing happened in the markets yesterday. But nothing is good. As long as nothing happens, we’re all right. Just wait ‘til something happens; the crisis that began in ’07 is still unresolved with about $16trn in debt that should be paid off or written off. Lots of bad stuff still to come!
We’ve been pointing out that the developed countries face a crisis. It is not the crisis you read about in the papers however. It is more serious than that. Their model – developed by Otto von Bismarck – no longer works. You can’t spend more than you earn, generation after generation, and depend on bigger, richer generations to keep the whole thing going. Growth rates are now too low. Future generations are too small.
Commentators, economists and kibitzers focus on whether austerity or stimulus is the proper path to ‘recovery’. The argument is fraudulent. Neither will work. You owe more than you can pay, you can neither save nor spend your way out. When debt is bad, it is bad. Unpayable. Rotten. Worthless.
The only honest thing to do is to ‘fess up, admit that you have erred, write it off, and get back to work.
But there is no truth so obvious that people can’t deny it.
So, when the debt crisis hit hard in ’08, powerful debtors – such as Wall Street – wanted the feds to bail them out. Those bail-outs, subsidies, backstops and QE money printing continue. The latest is a $66bn ‘stimulus’ programme announced by Brazil! Good luck with that.
And you want to know the biggest stimulus programme of all time?
World War II. That’s right. It is widely believed that WWII pulled the US economy out of the Great Depression.
Yes, WWII was a classic stimulus programme. Trillions were spent. Trillions were lost. And at the end of it the world was a poorer place.
But it didn’t matter. Growth – from the 1950s through to the 1970s – reduced the weight of debt and the pain of losses. The developed countries were rich again!
We only bring it up because Pentagon spending is in the news. Paul Ryan has been named the Republicans’s number two man. The Republicans have high hopes for him. Their number one man is a dud. Nobody seems to like him. And no wonder.
He seems hollow, willing to say anything to get himself into the White House.
Romney is a rich fellow – with a fortune of about $250m. But Sheldon Adelman – who funds many of the groups that support Republican candidates – is much richer, about ten times richer. Romney can do the math.
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Romney is good with numbers. He knows the US is headed for disaster. He must know also that America could balance its budget simply by cutting out its excess military spending. But Adelman and the military industry won’t permit a cut in the Pentagon/security budget. At this stage, coming out in favour of a balanced budget might be good for America, but it would be bad for Romney’s presidential ambitions.
Romney is a smart fellow too. He knows the 'War Against Terror' is a scam and the wars in the Mideast have been trillion-dollar disasters. But Adelman is a staunch supporter of a militarised, aggressive Israel backed by the Pentagon. A non-interventionist foreign policy would be good for the United States of America, but not for Mitt Romney’s hopes for the White House.
Which brings us to Paul Ryan. Here’s a guy who is supposed to be good with numbers too. He knows a five from a seven... he can do addition and multiplication. He understands the difference between a gain and a loss. He can see what will happen if you continue to spend more than you earn.
And yet... surprise, surprise... there are no cuts to the military/security spending in his proposed budget.
Yes, dear reader, the truth is obvious. The US spends far too much on war and preparations for war. The odds of being killed in a terrorist incident are one in 3.5 million. Spending trillions to make war on terrorists and probably inciting more terrorists to want to kill you is money ill-spent. And who are these terrorists?
Read John Mueller and Mark G Stewart's The Terrorism Delusion: America's Overwrought Response to September 11, in the latest issue of International Security. The authors look at 50 cases of supposed "Islamic terrorist plots" against the United States. What do they find? The alleged terrorist was "incompetent, ineffective, unintelligent, idiotic, ignorant, unorganised, misguided, muddled, amateurish, dopey, unrealistic, moronic, irrational and foolish".
Not the kind of disciplined, sophisticated troops you’d want your defence department to bother with in other words.
Sure, if you’ve got money to waste, why not waste it anyway you want. The Pentagon can spend money as badly as anyone. But neither the US nor any other developed economy has money to waste. All are suffering from too much spending, too much debt and too many promises that can’t be met. Unless they can find a new model, they’re all destined for bankruptcy.
The US is uniquely positioned however. It wastes such a big part of its budget that its finances could easily be put in order. The waste could be stopped overnight. Fully loaded, defence, war and security costs the US about $1trn to $1.2trn per year. Maybe $300bn of that is for legitimate defence purposes. The rest – about $900bn – could be erased from the budget and returned to the citizens. National bankruptcy, disgrace, pointless wars, inflation, depression – all could be avoided.
This is so obvious that the Republicans’ top dogs – Romney and Ryan – could see it if they wanted to. But it is not in their interest to open their eyes.
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