Thursday, November 13, 2008

The End of America?

"In the Crash of 2008, 40 percent of stock value has vanished, almost $9 trillion. Some $5 trillion in real estate value has disappeared. A recession looms with sweeping layoffs, unemployment compensation surging, and social welfare benefits soaring. America's first trillion-dollar deficit is at hand. ... As Americans save nothing, where are the feds going to get the money? Is the Fed going to print it and destroy the dollar and the credit rating of the [US]? ... The budget is going to have to go under the knife. But what gets cut? Social Security and Medicare are surely exempt. ... Medicaid and food stamps are untouchable. Interest on the debt cannot be cut. ... Yet, that is almost the entire U.S. budget--except for defense, the wars in Afghanistan and Iraq, and foreign aid. And this is where the axe will eventually fall. It is the American Empire that is going to be liquidated. Retrenchment has begun with Bush's backing away from confrontations with the Axis-of-Evil charter members Iran and North Korea over their nuclear programs, and will likely continue with a negotiated peace in Afghanistan. Gen. Petreus and Secretary Gates are already talking 'reconciliation' with the Taliban. We no longer live in Eisenhower's or Reagan's America. Even the post-Cold War world of George H. W. Bush, where America was a global hegemon, is history. In both relative and real terms, the U.S.A. is a diminished power. Where Ike spent 9 percent of GDP on defense, Reagan spent 6 percent, we spend 4 percent. ... As U.S. weapons systems are many times more expensive today, we have fewer strategic aircraft and Navy ships than Ike or Reagan commanded. Our active-duty Army and Marines Corps consists of 700,000 troops, 15 percent women, and a far higher percentage of them support rather than combat troops. With so few legions, we cannot police the world, and we cannot afford more. Yet, we have a host of newly hostile nations we did not have in 1989. ... With a recession of unknown depth and duration looming, why keep borrowing billions from rich Arabs to defend rich Europeans, or billions from China and Japan to hand out Millennium Challenge Grants to Tanzania and Burkina Faso"," Pat Buchanan (PB), 13 October 2008 at

Chris Hedges (CH) rants against our idiot rulers on 20 October 2008:

"Where is the bottom? How far do we have to fall? According to Roubini, 'The policy makers have lost control.' But the policy-makers never had control. The economy is a creature of its own, with laws of its own, where prosperity corresponds to freedom. ... On every side, from economists and politicians, the truth has been forgotten. We hear politicians talk about 'fixing' the economic problem. There is no 'fix' that can be engineered by government. ... Despite his nickname of 'Dr. Doom,' Roubini says there isn't going to be another Great Depression. ... The capitalist world is headed for an unprecedented crisis. It is a financial crisis, and it is also a strategic crisis. When the Great Depression took hold nearly eighty years ago, there were no nuclear powers. ... This column has previously discussed the statements of Chinese Gen. Chi Haotian, known to Chinese dissidents. In recent years China's leaders have been quietly talking to party cadres about a future war with America. ... It is more than a tactic, however to tell the political elite of a country that war is coming. The Chinese leadership has not been blind to the financial problem inherent in the U.S. economy and, therefore, the related problem of the Chinese economy. ... After affirming Deng Xiaoping's dictum that 'development is the hard truth' for China, Gen. Chi warned that economic development isn't going to continue forever. "Our economic development is all about preparing for the need of war!' Chi declared. 'Publicly we still emphasize economic development as our center, but in reality, economic development has war as its center!' Therefore, China's economic development has a strategic purpose. It looks ahead to an inevitable crisis of national survival. ... Without specifically stating the obvious to a Communist gathering, Gen Chi points to the inevitable crisis of capitalism, which in integral to the teachings of Marx, Lenin and Mao Zedong. ... 'What is our key to correct orientation? It is to solve the issue of America'. Such a statement may be 'shocking,' yet there is logic in it. The situation of the Chinese ruling party suggests the necessity of outward expansion, and the United States stands in the way. "In the long run,' said Chi, 'the relationship of China and the [US] is one of a life-and-death struggle.' ... China's need for living space is urgent. The need for energy resources cannot be denied. In terms of solving these problems, America is the main obstacle. 'Of course,' noted Chi, 'right now is not the time to openly break with them yet. Our reform and opening to the outside world still rely on their capital and technology, we still need America.' ... According to Chi, the Chinese 'must put up with America; we must conceal our ultimate goals, hide our capabilities and await the opportunity.' ... 'Thus we will understand why we constantly talk loudly about the "Taiwan issue" but not the "American issue". We all know the principle of "doing one thing under the cover of another". If ordinary people can only see the small island of Taiwan in their eyes, then you as the elite of our country should be able to see the whole picture of our cause.' ... What Beijing wants is identical to Moscow's goal in Europe. Divide Europe from America through economic and financial agreements. Isolate the [US] and assure European neutrality in a future conflict. ... A military outbreak may be months or years away. Before this outbreak begins, Europe must be detached from America. Already the process in underway, initiated by Moscow' and this process craves wary watching. America's leaders are presently distracted. All eyes are on the economy. But today's crisis is not merely economic. It is a strategic crisis as well", JR Nyquist (JRN), 31 October 2008 at

Well said PB, where? During the 1950s it was just "accepted" that the US should spend about 10% of GDP on defense. The 4% figure PB cites is not comparable to the 9% as military pensions are a larger percentage of our defense budget than in 1960. PB is correct about military equipment cost. A P-51, our best WWII fighter cost $50,985 in 1945 according to wikipedia, about $1.2 million 2008 dollars. An F-22, if we ever build it, will cost at least $100 million a copy, depending on the length of the production run.

I am very sympathetic to CH's statements. Our ruling elite is incompetent and hopelessly conflicted. CH ends with, "But I do know that what is coming, as long as our oligopoly remains in charge, will not be good. We will either recover the concept of the public good, and this means a revolt against our bankrupt elite and the dynamiting of the corporatist structure, or we will extinguish our democracy". Amen!

JRN's points are well-taken. Our military position is unenviable. Neither Obama nor McCain seriously discussed America's potential future threats. The closest we got is talk about the surge and whether or not we should stay in Iraq. Iraq is of no strategic importance to the US. China's and Russia's military capabilites are.


printfaster said...

The root of the problem has started with the replacement of gold with future tax receipts as currency. Once any government does that, they push the burdens of expense to future generations, bankrupting them.

At some point government borrowing exhausts its ability to tax, witness Iceland where cod fishing cannot pay for government largesse. Perhaps Iceland can bring back whaling and sell the whaleoil as biofuel -- three cheers for irony.

US accounts need to be substantially in balance or we beggar our future. Budget deficits have been increased because of the loss of liquidity. Increased budget deficits are the only means to increase the supply of currency, since after all, currency is backed by government debt.

It is this increase in government debt that drives out savings because savings cannot liquify banks, if they are in government debt. Government debt is simply disintermediating private investment. And government debt cannot decrease once the cycle starts and the demand for currency increases.

Currently, the US cannot balance its budget or it will collapse under the weight of its debt. It needs more debt to pay for its debt service. The US needs to renounce its debt and do a reset. We cannot put the future in debtor's prison.

Anonymous said...

Mr. Skeptical and printfaster...

Your understanding dazzles me...

You both have dire warnings for the future.

Thanks for sharing it and I'll be thinking about this.

Anonymous said...

However, Plosser told reporters that technical problems confront the Fed in potentially pushing the rate any lower and he is "comfortable" with rates as they stand.

Cutting the rate below 1 percent creates problems for investors and mutual funds in short-term money markets -- "technical ramifications" that become more complex the closer the rate gets to zero.

"There are a lot of questions we're going to have to grapple with going forward," Plosser said. "You have to think about what this means for policy, market functioning, how we manage reserves."

Stern said with the federal funds rate already at 1 percent, the U.S. central bank would be pushed into a regime of "quantitative easing," or flooding markets with enough liquidity to keep the effective funds rate well below the official target rate.

Many analysts concede that quantitative easing is well under way given a massive increase in the Fed's balance sheet over the past several weeks.

Plosser and Stern both stressed the temporary nature of the Fed's efforts to get credit markets moving, and the need to reverse those moves when conditions allow.

The Fed must be ready to shrink its balance sheet, but that process "might not be easy," Plosser said.

Similarly, Stern said "it will be difficult to unwind" all of the new programs and lending facilities the Fed has put in place since the credit crisis erupted in August 2007, whipped up by the collapse of the U.S. market for subprime mortgages.

There are tentative signs that the Fed's efforts are bearing fruit, including a reduction in the spread between three-month London Interbank Offered Rates and the fed funds rate over the past month, he said.

I guess Stern is suggesting that all the Fed lending programs will be in place for an indefinite period?

Dan said...

Iraq is most certainly of strategic importance to the US, but not for any terrorism related reasons. We now have US troops sitting atop oil-rich sands in the Middle East and US intelligence agencies causing chaos in Africa, particularly in those areas where China has made friends. The game is to deny China access to oil and to keep the oil price high to suppress emerging economies. Being able to jerk the price of oil up and down also is an effective weapon to be wielded against petrostates like Venezuela. (The Soviet Economy was weakened after George Casey convinced the Saudis to flood the oil markets after all.)

We're not in Iraq because of al Qaeda, democracy, or other such reasons of course. They tell us that's why we're there. American Empire simply isn't up for democratic debate, so they have to sell us something. It isn't talked about much, but a few authors have written about this. Read Armed Madhouse, by Greg Palast, and The Oil Card by James Norman. Google: Keeping Iraq's Oil In the Ground, by Greg Palast for a history of Iraq's oil production.

Our Idiot Rulers believe that so long as US hardware is sitting on enough of the world's oil, that the US will be able to maintain hegemony over the world financial system, since the dollar is linked to oil.

Independent Accountant said...

Do a "reset"? You sound like Mencius Moldbug. I see a "reset" as a distinct possibility. That's one reason I am so bearish on bonds. As I see it they will be: defaulted or inflated out of existence. Either way the bondholder loses.