The "Great US debt engine slips into reverse"or so says John Kemp, Reuters columnist in "Great US debt engine slips into reverse" Reuters, Dec 12, 2008. After six decades of excessive consumption and prosperity the credit system has come to a halt and the locomotive of the US economy is stalled and beginning to slip back downhill in the third quarter of 2008. Kemp unearths some interesting facts: For six decades now--since the 1950s, financial activity has grown much faster than GDP (gross domestic production). From 1952 to 2007 our GDP has grown by about 40 times, while credit market debt has increased by more than 100 times. Credit debt has outpaced production by better than two to one. For the entire report see: http://www.forexfactory.com/showthread.php?p=2416385
Kemp points out that in 1953 for each dollar of GDP the economy was burdened with about $1.28 in debt. By 1980, each dollar of GDP was paired with credit instruments of $1.61, and in 1990 that had grown to $2.28. But debt continued to grow and by the end of 2007, there was nearly three and one-half dollars of debt for each dollar of GDP. While during these years of incraseing debt burden the US plowed ahead..not on what it was producing but on credit advanced by China and oil producin nations of the Middle East. Their largess permitted the huge expansion of US debt, enormous growth of consumption, massive home building, enormous business investment, and of course, the unwise tax cuts and ill advised prosecution of wars of choice --all at the same time, and all on the "cuff".
Then, in the twinkle of an eye...between July and September 2008 the entire credit-debt structure came tumbling down.
But right now like a man with a hangover in a liquor store..America has sworn off debt..but perhaps just for now. For the first time since 1952 total debt owed by US households fell. For corporations debt growth slowed from 14% to 4% in the last year. Only the US government remains an active borrower, its rate increasing by 40% in the three months up to this last September.
The Bush Administration, Greenspan and and other Bush-defenders have all "Poo Pooed" the great mountain of debt...claiming that both household and corporate assets have grown even faster than the debt.
But that was then. Now household net worth has shrunk in each of the last four quarters. Household net worth, valued at $64 trillion at the end of 2007 has dropped by $7 trillion to just $57 trillion, losing about 11% of its value. That seven trillion dollars of vanished wealth is one half of the nation's annual GDP, and greater than the GDP of any other single country on the planet! This, in addition to the nearly one billion loss in mutual funds valuations and nearly two billion dollars in pension fund reserves and three trillion dollars in falling equity prices may be the greatest loss of equity ever! Finally, the net worth of corporations (excluding financial corporations) fell by 52 billion out of $16 trillion net worth or about 3% of their value.
Next: The impact of Wall Street Scandals such as the Bayou Hedge Funds case.
Monday, December 15, 2008
Wednesday, December 10, 2008
OBAMA'S CHOICES IN AFGHANISTAN
Stay the course or a new direction?
There are presently (as of November 2008) approximately 70,000 allied troops in Afghanistan and we are "losing the war" according to our military advisors(rf: Antony Cordesman CSIS). On all sides one hears..."we need more troops". In a Washington Post article dated November 22, 2008, Defense Secretary Gates stated that he supported a buildup of an additional 20,000 US troops for Afghanistan in the next 12-18 months. That would mean we would have nearly 90,000 troops in that war torn nation. That was close to the level of Soviet troops during the initial phase of their occupation. Will it change anything? Herodotus of Halicarnassus (born in 484BC in what is Bodrum, Turkey today ) would have been familiar with this land of Afghanistan and would have certainly thought that history would give us an answer. The father of history is famous for his statement that though history does not repeat itself, human beings in similar circumstances are wont to do similar things...and that we would be wise to learn about those circumstances..so we do not repeat these old mistakes over and over again. Unfortunately, Americans in general, are not not history devotees--to our perpetual loss and discomfort. But it was Niccolo Machiavelli who (after reading Herodotus) may have said it best: "Whomever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who ever have been, and ever shall be, animated by the same passions, and thus they necessarily have the same results." And I add here Mr. Lincoln's warning to us all: "Fellow citizens, we cannot escape the past!" So in the case of Afghanistan we have a ready "case history", an open book of a most recent conflict there before us. But have we used it?
Afghanistan located in the middle east about 7000 miles from Washington DC. wedged between Iran and Pakistan. It is a nation of about the size of Texas (and close to that latitude as well) but with much greater relief, having half of its land area above 6500 feet, or well more than a mile high. The rugged Pamir Range and the Hidu Kush, parts of the Himalaya Range, make up these highlands.
The Soviet War in Afghanistan spanned the period form August 7, 1979 to May 15, 1988. Nine years of war in which more than 100,000 Soviet (now Russian) troops were deployed in a futile attempt to control an unruly people in a daunting climate and imposing terrane. As we read this essay keep in mind that the Soviets were fighting closer to home, on their near borders. Afghanistan is about 1000 miles from their southern, nearest border, while we, on the other hand have immensely long lines of supply (through Pakistan) of more than seven times that distance.
At this time, the causes for that Afghan-Soviet war are immaterial, but the circumstances and the analogies to our situation and the consequences are important aspects we should study carefully.
Invasion and Early Phase
After taking control of major urban centers, military bases and strategic installations by December 1979 the Soviet forces appeared to have the upper hand. But the large presence of USSR troops appears to have only exacerbated nationalist feelings and did not have the effect of pacifying the nation that the invaders expected. Furthermore, the Afghan army was not trustworthy and as a consequence the Soviets were increasingly drawn into fighting urban uprisings, tribal armies, and even rebellious Afghan army units. These engagements served only to further antagonize the Afghans. Soviet air power was used effectively against these uprisings when they fought as massed units. The control of air power caused the insurgency to subside temporarily.
The Guerrilla War
Between 1980 and 1985 the war evolved into a new pattern in which the Soviets occupied the cities and main axes of communication, while the mujahideen, in small groups, waged an effective guerrilla war. As a consequence, most (some estimate as much as 80%) of the country was never under USSR control. Periodically, the USSR launched major offences into guerrilla occupied areas but the overall situation was unchanged.
The Surge of Soviet Troops Phase
In March of 1985, under the direction of a new Soviet General Secretary, Mikhail Gorbachev, who was unhappy with the way the war was being fought, nearly ten thousand additional Soviet troops were sent to Afghanistan. The build-up brought the troop level at this stage to 108,000 Russian troops (not counting civilian and KGB operatives) and initiated 1985 as the bloodiest year of the war. Though the mujahideen suffered heavy losses, they remained in the field and continued to resist the Soviets effectively.
Middle Phase..thinking of withdrawal
From April 1985 to January 1987 began the implementation of a new phase..an exit strategy in which Soviet troops were limited to a supporting role for the Afghan army, such as air and artillery support, and technical assistance...though some large scale offensive actions were engaged in when it appeared they might be advantageous. By this time the Afghan Army had an official strength of 302,000 (1986) (and with Soviet forces at 108,000 there were more than 410,000 men in Afghanistan under arms by 1987.
Last Phase
Between 1987 and February 1989, the last phase of the war, the Soviet army remained in defensive positions as they prepared for withdrawal. From May to August 1988 half of the troops were withdrawn and from November to February 1989 the remainder of Soviet troops left the country.
Soviet Costs
More that 600,000 troops served in Afghanistan (but not more that 108,000 at one time), 14,500 were killed, 54,000 wounded, 400,000 fell sick from various diseases (hepatitis, typhoid fever were common due to difficult terrain and lack of sanitary facilities) Almost 11,000 Soviet army men were discharged as permanently disabled. There were heavy losses of weaponry and aircraft:more than 100 planes, 300 helicopters, and nearly 150 tanks were lost, and over 11,000 trucks and tankers were destroyed or stolen.
Cost to Afghans
Over one million Afghans were killed, five million became refugees to Pakistan and Iran, another 2 million were displaced within Afghanistan. More than a million Afghan fighters were disabled, and three million non-combatants maimed or wounded.
Farming the country's mainstay was devastated by destruction of irrigation systems (essential in Afghanistan's dry upland climate), killing of livestock, and bombing of farm fields. A post-war Swedish study revealed that 1/4 of all Afghan farmers had their irrigation systems destroyed and livestock shot.
Cities were depopulated. Kandahar a major center of population in the south was reduced from a population of 200,000 to 25,000, by Soviet carpet bombing and bulldozing.
Landmines killed 25,000 Afghans during the war.Another 10-15 million landmines unmarked and forgotten remain scattered over the countryside. Child mortality had climbed to 31% just prior to the Soviet withdrawal, and of those children who did survive, 67% were deemed severely malnourished by a UN study team.
To exploit the ethnic diversity of Afghanistan the Soviets Used standard "divide and conquer military practices". They purposely weakened the culture of Afghans by weakening traditional Islamic practices, generated refugee groups which departed from traditional home areas as they were forced to flee fighting. Thus intensifying ethnic differences and increasing inter-ethnic and sectarian animosities between formerly amicable groups. By the end of the conflict, a shared Afghan cultural unity had disappeared and the nation had been split into diverse ethnic enclaves with little or no culture, language and religion in common.
Finally the Soviet withdrawl led to the Civil War 1989-1992) See: http://en.wikipedia.org/wiki/Soviet_war_in_Afghanistan
Addendum
An interesting piece summarized from the LA Times of Nov 23,08 by Megan Stack, "Retired general looks back Russo-Afghan war."
General Ruslan Aushev should know. He served five years in Afghanistan, was wounded, and named a "Hero of the Soviets" and now heads the Afghan Veterans society. What lessons did he learn from his experiences in the 1980s?
According to Stack's piece, Gen Aushev claims the US is making the same mistakes as the former Soviets. They set up a weak leader in Babrak Karmal, who had little "prestige" with the people. "We tried to mold the people into a Soviet way of life where religion is separated from the state..and imposed youth organizations, but in a nation that was still in the Dark Ages", said Aushev.
In regard to troop numbers Aushev said, "with more troops what will change? Even with 200,000 troops, at night the Taliban come and then they are in charge. You must talk with the Taliban to come to terms..they must be engaged in negotiations."
He added: "The Taliban are an idea (not an organization) you must sit down and think what to do with it (the idea)."
"One year after we were welcomed in 1979, we had 40% of the people hating us, five years later 60%, and when we pulled out, 90% hated us..so we understood finally we were fighting (not the Taliban) but the people."
"More than a million Afghans died and 14,000 Russians ...I am sorry we did that," said Ausheve.
There are presently (as of November 2008) approximately 70,000 allied troops in Afghanistan and we are "losing the war" according to our military advisors(rf: Antony Cordesman CSIS). On all sides one hears..."we need more troops". In a Washington Post article dated November 22, 2008, Defense Secretary Gates stated that he supported a buildup of an additional 20,000 US troops for Afghanistan in the next 12-18 months. That would mean we would have nearly 90,000 troops in that war torn nation. That was close to the level of Soviet troops during the initial phase of their occupation. Will it change anything? Herodotus of Halicarnassus (born in 484BC in what is Bodrum, Turkey today ) would have been familiar with this land of Afghanistan and would have certainly thought that history would give us an answer. The father of history is famous for his statement that though history does not repeat itself, human beings in similar circumstances are wont to do similar things...and that we would be wise to learn about those circumstances..so we do not repeat these old mistakes over and over again. Unfortunately, Americans in general, are not not history devotees--to our perpetual loss and discomfort. But it was Niccolo Machiavelli who (after reading Herodotus) may have said it best: "Whomever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times. This arises from the fact that they are produced by men who ever have been, and ever shall be, animated by the same passions, and thus they necessarily have the same results." And I add here Mr. Lincoln's warning to us all: "Fellow citizens, we cannot escape the past!" So in the case of Afghanistan we have a ready "case history", an open book of a most recent conflict there before us. But have we used it?
Afghanistan located in the middle east about 7000 miles from Washington DC. wedged between Iran and Pakistan. It is a nation of about the size of Texas (and close to that latitude as well) but with much greater relief, having half of its land area above 6500 feet, or well more than a mile high. The rugged Pamir Range and the Hidu Kush, parts of the Himalaya Range, make up these highlands.
The Soviet War in Afghanistan spanned the period form August 7, 1979 to May 15, 1988. Nine years of war in which more than 100,000 Soviet (now Russian) troops were deployed in a futile attempt to control an unruly people in a daunting climate and imposing terrane. As we read this essay keep in mind that the Soviets were fighting closer to home, on their near borders. Afghanistan is about 1000 miles from their southern, nearest border, while we, on the other hand have immensely long lines of supply (through Pakistan) of more than seven times that distance.
At this time, the causes for that Afghan-Soviet war are immaterial, but the circumstances and the analogies to our situation and the consequences are important aspects we should study carefully.
Invasion and Early Phase
After taking control of major urban centers, military bases and strategic installations by December 1979 the Soviet forces appeared to have the upper hand. But the large presence of USSR troops appears to have only exacerbated nationalist feelings and did not have the effect of pacifying the nation that the invaders expected. Furthermore, the Afghan army was not trustworthy and as a consequence the Soviets were increasingly drawn into fighting urban uprisings, tribal armies, and even rebellious Afghan army units. These engagements served only to further antagonize the Afghans. Soviet air power was used effectively against these uprisings when they fought as massed units. The control of air power caused the insurgency to subside temporarily.
The Guerrilla War
Between 1980 and 1985 the war evolved into a new pattern in which the Soviets occupied the cities and main axes of communication, while the mujahideen, in small groups, waged an effective guerrilla war. As a consequence, most (some estimate as much as 80%) of the country was never under USSR control. Periodically, the USSR launched major offences into guerrilla occupied areas but the overall situation was unchanged.
The Surge of Soviet Troops Phase
In March of 1985, under the direction of a new Soviet General Secretary, Mikhail Gorbachev, who was unhappy with the way the war was being fought, nearly ten thousand additional Soviet troops were sent to Afghanistan. The build-up brought the troop level at this stage to 108,000 Russian troops (not counting civilian and KGB operatives) and initiated 1985 as the bloodiest year of the war. Though the mujahideen suffered heavy losses, they remained in the field and continued to resist the Soviets effectively.
Middle Phase..thinking of withdrawal
From April 1985 to January 1987 began the implementation of a new phase..an exit strategy in which Soviet troops were limited to a supporting role for the Afghan army, such as air and artillery support, and technical assistance...though some large scale offensive actions were engaged in when it appeared they might be advantageous. By this time the Afghan Army had an official strength of 302,000 (1986) (and with Soviet forces at 108,000 there were more than 410,000 men in Afghanistan under arms by 1987.
Last Phase
Between 1987 and February 1989, the last phase of the war, the Soviet army remained in defensive positions as they prepared for withdrawal. From May to August 1988 half of the troops were withdrawn and from November to February 1989 the remainder of Soviet troops left the country.
Soviet Costs
More that 600,000 troops served in Afghanistan (but not more that 108,000 at one time), 14,500 were killed, 54,000 wounded, 400,000 fell sick from various diseases (hepatitis, typhoid fever were common due to difficult terrain and lack of sanitary facilities) Almost 11,000 Soviet army men were discharged as permanently disabled. There were heavy losses of weaponry and aircraft:more than 100 planes, 300 helicopters, and nearly 150 tanks were lost, and over 11,000 trucks and tankers were destroyed or stolen.
Cost to Afghans
Over one million Afghans were killed, five million became refugees to Pakistan and Iran, another 2 million were displaced within Afghanistan. More than a million Afghan fighters were disabled, and three million non-combatants maimed or wounded.
Farming the country's mainstay was devastated by destruction of irrigation systems (essential in Afghanistan's dry upland climate), killing of livestock, and bombing of farm fields. A post-war Swedish study revealed that 1/4 of all Afghan farmers had their irrigation systems destroyed and livestock shot.
Cities were depopulated. Kandahar a major center of population in the south was reduced from a population of 200,000 to 25,000, by Soviet carpet bombing and bulldozing.
Landmines killed 25,000 Afghans during the war.Another 10-15 million landmines unmarked and forgotten remain scattered over the countryside. Child mortality had climbed to 31% just prior to the Soviet withdrawal, and of those children who did survive, 67% were deemed severely malnourished by a UN study team.
To exploit the ethnic diversity of Afghanistan the Soviets Used standard "divide and conquer military practices". They purposely weakened the culture of Afghans by weakening traditional Islamic practices, generated refugee groups which departed from traditional home areas as they were forced to flee fighting. Thus intensifying ethnic differences and increasing inter-ethnic and sectarian animosities between formerly amicable groups. By the end of the conflict, a shared Afghan cultural unity had disappeared and the nation had been split into diverse ethnic enclaves with little or no culture, language and religion in common.
Finally the Soviet withdrawl led to the Civil War 1989-1992) See: http://en.wikipedia.org/wiki/Soviet_war_in_Afghanistan
Addendum
An interesting piece summarized from the LA Times of Nov 23,08 by Megan Stack, "Retired general looks back Russo-Afghan war."
General Ruslan Aushev should know. He served five years in Afghanistan, was wounded, and named a "Hero of the Soviets" and now heads the Afghan Veterans society. What lessons did he learn from his experiences in the 1980s?
According to Stack's piece, Gen Aushev claims the US is making the same mistakes as the former Soviets. They set up a weak leader in Babrak Karmal, who had little "prestige" with the people. "We tried to mold the people into a Soviet way of life where religion is separated from the state..and imposed youth organizations, but in a nation that was still in the Dark Ages", said Aushev.
In regard to troop numbers Aushev said, "with more troops what will change? Even with 200,000 troops, at night the Taliban come and then they are in charge. You must talk with the Taliban to come to terms..they must be engaged in negotiations."
He added: "The Taliban are an idea (not an organization) you must sit down and think what to do with it (the idea)."
"One year after we were welcomed in 1979, we had 40% of the people hating us, five years later 60%, and when we pulled out, 90% hated us..so we understood finally we were fighting (not the Taliban) but the people."
"More than a million Afghans died and 14,000 Russians ...I am sorry we did that," said Ausheve.
Friday, December 5, 2008
THE WHY OF THE IRAQ WAR
A central question of the Bush years will always be the Iraq War. Why did Bush invade Iraq? It certainly was not the WMDs. Even I, only an moderately well-informed private citizen, knew there was no evidences to suggest Hussein had such weapons. No it was not the WMDs.
One obvious reason was to remove Hussein's Iraq as a threat to Israel's hegemony in the greater Middle East region. That was attractive to an element in the government, but that could not be the entire reason.
Another, may have been George Bush's own personal predilections: When his father, George H. W. Bush wisely refrained from entering Baghdad at the end of the Gulf War in 1991, he was pilloried for "not completing the mission". Some say young George saw this as a way to differentiate himself from his father with his political base by accommodating the "hawks" and "completing the mission" to "out" Hussein. There are abundant evidences to support that contention in reports from Bush's first cabinet meetings in the early days of his administration in which it was reported that Bush stated clearly his intention was to invade Iraq. Paul O'Neil, former Treasury Secretary mentions that in his book, as does Richard Clark White House Security Chief in his memoir.
Also the stage may have been set for the invasion as far back as March 1992, when a document entitled the "Defense Planning Guideline" written by Paul Wolfowitz was leaked to the NY Times. [Wolfowitz was the former Undersecretary of State who famously stated: "Iraq floats of a sea of oil."] The frank nature of the leaked document sparked such controversy that it was quickly withdrawn and rewritten, and a toned down. A more diplomatic version was issued in April of that same year. However, the original (leaked) document is the one that the neocons of the Bush regime seemed to have kept in their vest pockets. When Bush was elected eight years later they attempted to put many of these into play as the "Bush Doctrine". Thus the Bush team had a grand strategy ready for implementation given the opportunity.
What were the tenets of the right's grand strategy as outlined in the "Defense Strategy Guidelines"? The main premise was that after the Cold War, and the collapse of the Soviet Union, the US was the sole superpower. Under those conditions the objective of the US should be to maintain that prime status. "Our first objective is to prevent the re-emergence of a new rival,...and that we (should) endeavor to prevent any "hostile" (my quotes) power from dominating a region whose resources would, under consolidated control, be sufficient to general (sic) global power." Furthermore, Wolfowitz and the neocons eschewed international coalitions, preferring the security and secrecy of US unilateralism. It stated the USA's right to intervene when and where it believed necessary, preemptively if it saw fit. It viewed Russia as a continued potential threat. In the Middle East, it stated the need to remain the predominant outside power in that region and to preserve US access to the region's oil. Eight years later, upon the election of George Bush these precepts were put into action with what turned out to be disastrous results.
As Fareed Zakaria notes in his Nov 29, 2008 essay,"Wanted a New Grand Strategy". Mr. Zakaria states that with a grand strategy in place (even a flawed one such as the Defense Strategy Guidelines) the Bush administration only had to take advantage of the "opportunities" (such as the tragedy of 9-11) to implement these ideas. Or according to Zakaria, "to use the urgent to pursue the important or, put another way, never let a crisis go to waste."
Thus the Bush Administration saw an opportunity to implement a major part of its grand strategy as the 9-11 tragedy unfolded. The implicit reasoning was put forth by Mr Robert Kagan (1) (in the Washington Post, June 19, 2005). "The most sensible argument for the invasion was not that Hussein was about to strike the United States or anyone else with a nuclear bomb. It was that containment could not be preserved indefinitely, that Hussein was repeatedly defying the international community and that his defiance appeared to both the Clinton and Bush administrations to be gradually succeeding. The main concern of senior officials in both administrations was that, in the words of then-national security adviser Samuel "Sandy" Berger, containment was not "sustainable over the long run." ....if and when containment collapsed. As Berger put it, "Saddam's history of aggression, and his recent record of deception and defiance, leave no doubt that he would resume his drive for regional domination if he had the chance."
It was Kagan's opinion that if the Bush administration had not gone to war in 2003, the United States might have faced a more dangerous and daring Saddam Hussein later on, consequently it felt compelled to act. So, in addition to whatever price might have been paid, certainly by the Iraqi people and possibly by Iraq's neighbors, for leaving Saddam in power, we might have wound up going to war anyway. There is the further question of what the entire Middle East would have looked like with a defiant, increasingly liberated Hussein still in power. To quote Berger again, so long as Hussein remained "in power and in confrontation with the world," Iraq would remain "a source of potential conflict in the region," and, perhaps more important, "a source of inspiration for those who equate violence with power and compromise with surrender." Whether historians judge the war favorably will depend heavily on whether post-Hussein Iraq does indeed provide a different sort of inspiration, but, again, the effort to change the direction of the region was surely worth paying some price."
This last statement is the crux of Kagan and Berger's arguments. Would Hussein have been containable? And was he to become a "source of inspiration for those who ....equate violence with power and compromise with surrender." And we can add here..an inspiration for those who might have the temerity to stand up to American domination in the region. Thus the entire question comes to this. Was the effort to change the direction of the region "worth paying some price?" The answer is yes..some price. But at what price? Today we must look at the balance sheet prepared for us by the Sandy Bergers, Kagans, Wolfowitzs and Bushs. Was the devastation of Iraq, the loss of life, the unimaginable costs in money and horrible costs in blood and suffering be worth the change they sought? Did they accomplish their goals? Can we say we have moved the region in a new direction (a pro-American direction)? I think not. We have changed the Middle East but not they way Kagan, Berger, Bush et. al wanted. It is a less pro-American Middle East and a more dangerous world for us all. Can we honestly say that a further diplomatic effort was not the wiser choice? I think not. It is obvious that those that prepared our balance sheet prior to the war saw only what they wanted. They are a generation too far removed from the horrors of the great wars in Europe. Perhaps we must learn over and over again what horror and devastation war really is.
Were there other reasons? Many have suggested that Bush feared he might end up as his father did, challenged by a strong Democrat and ousted after only four years. However, a well-timed middle east war would have the advantage of avoiding that eventuality and as well, advancing the Wolfowitz-Bush global strategy, eliminate the potential for a rival such as Russia to control a rich oil reserve, and make it possible for the US to position itself in the center of the Middle East where it could more effectively project its military power; and most importantly for Bush, make it difficult for the unsteady, "wet behind the ears" junior Bush to be challenged from the left in the 2004 election. Furthermore, if he attained a second term he could cement Republican gains in Congress, and the Supreme court and thus help to permanently ensconce Republican far-right wing philosophy and its "grand strategy" in a power position for the next several election cycles. And certainly, he was not immune from the personal financial advantages a war could have to advance the Bush-family economic interests. The war was a win-win situation for Mr. Bush. There was little to say about it that was not positive, except perhaps there was no "good reason" to go to war. But then Mr. Bush was adept at "cherry picking" among CIA data and wholly unperturbed and unembarrassed (perhaps unaware) of the lack of logic in his verbal gyrations prior to and during the war.
Gwynne Dwyer (Japan Times, March 22, 2008) writes in "Iraq after five years of war" that the "facts" Bush's defenders love to restate over and over are how Hussein's security forces killed thousands of Iraqis every year! The Bush war removed this tyrant from power. But as Dwyer states, the figures of Hussein's atrocities (as horrible as they were) pale in comparison to even the monthly figures of deaths resulting from the insurgency and the sectarian violence unleashed by the US war. Yes Iraq's evil Hussein killed his own people during uprisings. There is no valid comparison here, but in an accounting only of the number of dead the deaths of Iraqis at the hands of Hussein and his henchmen pale in comparison to the numbers that the US has been responsible for as the result of the invasion and its aftermath.
Keeping in mind that Iraq posed no threat to its neighbors (or to Israel or to the distant USA) when we invaded, and there was no moral imperative to invade. Recall that their army had been annihilated in the Gulf War of 1991 by "pere" Bush and could not be rebuilt because of the strict and harsh post-war sanctions imposed on Iraq. [The economic and health effects of that ten year period of sanctions are another chapter of American abuse of Iraqi population which no one wishes to include in the estimates of civilian deaths. That is another story.] The oft repeated claim of connections to al Qaida were patently false. For basic religious reasons...Hussein was a Bathist Sunni while al Qaida were predomnately Shia. The antipathy between those two groups was on the level of the hatred between Catholics and Protestants in Northern Ireland. The idea that they might collude with each other is hard to imagine for anyone understanding these basic Iraqi cultural facts. In fact, a Pentagon study of post-war captured Iraqi documents (more than half a million of them) proved conclusively that Iraq had no ties to al-Qaida. So we can just leave those tried old justifications as one of the many "mis-statements" that Bush and his cronys used so effectively in the lead up and during the war.
The balance sheet must include the US dead (nearly 5000) and maimed and the Iraqi dead and maimed. Had we not invaded, those vast numbers of Americans and Iraqis (solid estimates for Iraqi dead range from 100,000 to 600,000) would still be alive. And let us not forget the horrendous monetary cost...three trillion dollars in lost war expenditure (See Stiglitz and Bilmes' book: "The Three Trillion Dollar War".) dumped down a hole. The money was spent for no good purpose since the outcome of the war has not changed the region the way the war planners had hoped. That lost war money would be a great boon to us today during the economic crisis we face, were it still in our coffers.
Our so-called "troop surge" was a "success" but not because of the additional number of soldiers but because of the cooling of the Iraq civil war (nothing we had to do with) and our policy of walling off and segregating formerly mixed Sunni-Shite neighborhoods, as well as the costly arming and subsidizing of local Sunni tribal groups...many of which now pose a threat to the Iraq central government.
Then there is the case of the Iraqi refugees and displaced persons. About one out of every eight Iraqis have fled their neighborhoods and homes (or about 4-5 million people displaced) out of a pre-war population of about 32 million. Will they return? Probably not. And certainly not to their old homes which have been destroyed or taken over by some other family. The costs to a nation so altered by human tragedy are incalculable.
Again was the war worth it in terms of cost? The direct costs (12 billion x 68 months) right now (December 2008) range from 800 billion on up to a trillion dollars. Were those costs contributory to the economic melt-down in the USA and the world of late 2008? Linda Bilmes a budget and public finance expert at Kennedy School of Government (Harvard) thinks so and states that "both in a long term sense and short term...the US is worse off economically..because of the war." She states that by adding nearly a trillion dollars to the national debt, due to borrowing for the war, debts which clearly limit the fluidity and financial flexibility to respond to the financial crisis. That "war money" is not available to provide things like economic stimuli to improve the economy." Bilmes states further that as a result of having to borrow the money for the war (and ultimately to repay its interest costs) that any idea that the war was good for the economy is a myth.
We must not let the Bush revisionists get away with it. Hearing that the war was worth it go back and dig up the real facts and respond to them with the truth. Our very democracy depends on a valid recounting of the past, so we can avoid making the same mistakes over and over again.
1. A little background on Mr. Kagan: He writes extensively from the far right perspective on US strategy and diplomacy. Kagan and fellow neoconservative William Kristol co-founded the Project for a New American Century (PNAC) in 1997. Also Kagan signed the famous 1998 PNAC letter sent to President Clinton urging regime change in Iraq. A more critical view of Mr. Kagan appeared recently in a piece by Glenn Greenwald (March 11, 2007) entitled, "Why would any rational person listen to Robert Kagan? (Read at: http://www.salon.com/opinion/greenwald/2007/03/11/kagan/)
Greenwald states:"No rational person would believe a word Robert Kagan says about anything. He has been spewing out one falsehood after the next for the last four years in order to blind Americans about the real state of affairs concerning the invasion which he and his comrade and writing partner, Bill Kristol, did as much as anyone else to sell to the American public."]
One obvious reason was to remove Hussein's Iraq as a threat to Israel's hegemony in the greater Middle East region. That was attractive to an element in the government, but that could not be the entire reason.
Another, may have been George Bush's own personal predilections: When his father, George H. W. Bush wisely refrained from entering Baghdad at the end of the Gulf War in 1991, he was pilloried for "not completing the mission". Some say young George saw this as a way to differentiate himself from his father with his political base by accommodating the "hawks" and "completing the mission" to "out" Hussein. There are abundant evidences to support that contention in reports from Bush's first cabinet meetings in the early days of his administration in which it was reported that Bush stated clearly his intention was to invade Iraq. Paul O'Neil, former Treasury Secretary mentions that in his book, as does Richard Clark White House Security Chief in his memoir.
Also the stage may have been set for the invasion as far back as March 1992, when a document entitled the "Defense Planning Guideline" written by Paul Wolfowitz was leaked to the NY Times. [Wolfowitz was the former Undersecretary of State who famously stated: "Iraq floats of a sea of oil."] The frank nature of the leaked document sparked such controversy that it was quickly withdrawn and rewritten, and a toned down. A more diplomatic version was issued in April of that same year. However, the original (leaked) document is the one that the neocons of the Bush regime seemed to have kept in their vest pockets. When Bush was elected eight years later they attempted to put many of these into play as the "Bush Doctrine". Thus the Bush team had a grand strategy ready for implementation given the opportunity.
What were the tenets of the right's grand strategy as outlined in the "Defense Strategy Guidelines"? The main premise was that after the Cold War, and the collapse of the Soviet Union, the US was the sole superpower. Under those conditions the objective of the US should be to maintain that prime status. "Our first objective is to prevent the re-emergence of a new rival,...and that we (should) endeavor to prevent any "hostile" (my quotes) power from dominating a region whose resources would, under consolidated control, be sufficient to general (sic) global power." Furthermore, Wolfowitz and the neocons eschewed international coalitions, preferring the security and secrecy of US unilateralism. It stated the USA's right to intervene when and where it believed necessary, preemptively if it saw fit. It viewed Russia as a continued potential threat. In the Middle East, it stated the need to remain the predominant outside power in that region and to preserve US access to the region's oil. Eight years later, upon the election of George Bush these precepts were put into action with what turned out to be disastrous results.
As Fareed Zakaria notes in his Nov 29, 2008 essay,"Wanted a New Grand Strategy". Mr. Zakaria states that with a grand strategy in place (even a flawed one such as the Defense Strategy Guidelines) the Bush administration only had to take advantage of the "opportunities" (such as the tragedy of 9-11) to implement these ideas. Or according to Zakaria, "to use the urgent to pursue the important or, put another way, never let a crisis go to waste."
Thus the Bush Administration saw an opportunity to implement a major part of its grand strategy as the 9-11 tragedy unfolded. The implicit reasoning was put forth by Mr Robert Kagan (1) (in the Washington Post, June 19, 2005). "The most sensible argument for the invasion was not that Hussein was about to strike the United States or anyone else with a nuclear bomb. It was that containment could not be preserved indefinitely, that Hussein was repeatedly defying the international community and that his defiance appeared to both the Clinton and Bush administrations to be gradually succeeding. The main concern of senior officials in both administrations was that, in the words of then-national security adviser Samuel "Sandy" Berger, containment was not "sustainable over the long run." ....if and when containment collapsed. As Berger put it, "Saddam's history of aggression, and his recent record of deception and defiance, leave no doubt that he would resume his drive for regional domination if he had the chance."
It was Kagan's opinion that if the Bush administration had not gone to war in 2003, the United States might have faced a more dangerous and daring Saddam Hussein later on, consequently it felt compelled to act. So, in addition to whatever price might have been paid, certainly by the Iraqi people and possibly by Iraq's neighbors, for leaving Saddam in power, we might have wound up going to war anyway. There is the further question of what the entire Middle East would have looked like with a defiant, increasingly liberated Hussein still in power. To quote Berger again, so long as Hussein remained "in power and in confrontation with the world," Iraq would remain "a source of potential conflict in the region," and, perhaps more important, "a source of inspiration for those who equate violence with power and compromise with surrender." Whether historians judge the war favorably will depend heavily on whether post-Hussein Iraq does indeed provide a different sort of inspiration, but, again, the effort to change the direction of the region was surely worth paying some price."
This last statement is the crux of Kagan and Berger's arguments. Would Hussein have been containable? And was he to become a "source of inspiration for those who ....equate violence with power and compromise with surrender." And we can add here..an inspiration for those who might have the temerity to stand up to American domination in the region. Thus the entire question comes to this. Was the effort to change the direction of the region "worth paying some price?" The answer is yes..some price. But at what price? Today we must look at the balance sheet prepared for us by the Sandy Bergers, Kagans, Wolfowitzs and Bushs. Was the devastation of Iraq, the loss of life, the unimaginable costs in money and horrible costs in blood and suffering be worth the change they sought? Did they accomplish their goals? Can we say we have moved the region in a new direction (a pro-American direction)? I think not. We have changed the Middle East but not they way Kagan, Berger, Bush et. al wanted. It is a less pro-American Middle East and a more dangerous world for us all. Can we honestly say that a further diplomatic effort was not the wiser choice? I think not. It is obvious that those that prepared our balance sheet prior to the war saw only what they wanted. They are a generation too far removed from the horrors of the great wars in Europe. Perhaps we must learn over and over again what horror and devastation war really is.
Were there other reasons? Many have suggested that Bush feared he might end up as his father did, challenged by a strong Democrat and ousted after only four years. However, a well-timed middle east war would have the advantage of avoiding that eventuality and as well, advancing the Wolfowitz-Bush global strategy, eliminate the potential for a rival such as Russia to control a rich oil reserve, and make it possible for the US to position itself in the center of the Middle East where it could more effectively project its military power; and most importantly for Bush, make it difficult for the unsteady, "wet behind the ears" junior Bush to be challenged from the left in the 2004 election. Furthermore, if he attained a second term he could cement Republican gains in Congress, and the Supreme court and thus help to permanently ensconce Republican far-right wing philosophy and its "grand strategy" in a power position for the next several election cycles. And certainly, he was not immune from the personal financial advantages a war could have to advance the Bush-family economic interests. The war was a win-win situation for Mr. Bush. There was little to say about it that was not positive, except perhaps there was no "good reason" to go to war. But then Mr. Bush was adept at "cherry picking" among CIA data and wholly unperturbed and unembarrassed (perhaps unaware) of the lack of logic in his verbal gyrations prior to and during the war.
Gwynne Dwyer (Japan Times, March 22, 2008) writes in "Iraq after five years of war" that the "facts" Bush's defenders love to restate over and over are how Hussein's security forces killed thousands of Iraqis every year! The Bush war removed this tyrant from power. But as Dwyer states, the figures of Hussein's atrocities (as horrible as they were) pale in comparison to even the monthly figures of deaths resulting from the insurgency and the sectarian violence unleashed by the US war. Yes Iraq's evil Hussein killed his own people during uprisings. There is no valid comparison here, but in an accounting only of the number of dead the deaths of Iraqis at the hands of Hussein and his henchmen pale in comparison to the numbers that the US has been responsible for as the result of the invasion and its aftermath.
Keeping in mind that Iraq posed no threat to its neighbors (or to Israel or to the distant USA) when we invaded, and there was no moral imperative to invade. Recall that their army had been annihilated in the Gulf War of 1991 by "pere" Bush and could not be rebuilt because of the strict and harsh post-war sanctions imposed on Iraq. [The economic and health effects of that ten year period of sanctions are another chapter of American abuse of Iraqi population which no one wishes to include in the estimates of civilian deaths. That is another story.] The oft repeated claim of connections to al Qaida were patently false. For basic religious reasons...Hussein was a Bathist Sunni while al Qaida were predomnately Shia. The antipathy between those two groups was on the level of the hatred between Catholics and Protestants in Northern Ireland. The idea that they might collude with each other is hard to imagine for anyone understanding these basic Iraqi cultural facts. In fact, a Pentagon study of post-war captured Iraqi documents (more than half a million of them) proved conclusively that Iraq had no ties to al-Qaida. So we can just leave those tried old justifications as one of the many "mis-statements" that Bush and his cronys used so effectively in the lead up and during the war.
The balance sheet must include the US dead (nearly 5000) and maimed and the Iraqi dead and maimed. Had we not invaded, those vast numbers of Americans and Iraqis (solid estimates for Iraqi dead range from 100,000 to 600,000) would still be alive. And let us not forget the horrendous monetary cost...three trillion dollars in lost war expenditure (See Stiglitz and Bilmes' book: "The Three Trillion Dollar War".) dumped down a hole. The money was spent for no good purpose since the outcome of the war has not changed the region the way the war planners had hoped. That lost war money would be a great boon to us today during the economic crisis we face, were it still in our coffers.
Our so-called "troop surge" was a "success" but not because of the additional number of soldiers but because of the cooling of the Iraq civil war (nothing we had to do with) and our policy of walling off and segregating formerly mixed Sunni-Shite neighborhoods, as well as the costly arming and subsidizing of local Sunni tribal groups...many of which now pose a threat to the Iraq central government.
Then there is the case of the Iraqi refugees and displaced persons. About one out of every eight Iraqis have fled their neighborhoods and homes (or about 4-5 million people displaced) out of a pre-war population of about 32 million. Will they return? Probably not. And certainly not to their old homes which have been destroyed or taken over by some other family. The costs to a nation so altered by human tragedy are incalculable.
Again was the war worth it in terms of cost? The direct costs (12 billion x 68 months) right now (December 2008) range from 800 billion on up to a trillion dollars. Were those costs contributory to the economic melt-down in the USA and the world of late 2008? Linda Bilmes a budget and public finance expert at Kennedy School of Government (Harvard) thinks so and states that "both in a long term sense and short term...the US is worse off economically..because of the war." She states that by adding nearly a trillion dollars to the national debt, due to borrowing for the war, debts which clearly limit the fluidity and financial flexibility to respond to the financial crisis. That "war money" is not available to provide things like economic stimuli to improve the economy." Bilmes states further that as a result of having to borrow the money for the war (and ultimately to repay its interest costs) that any idea that the war was good for the economy is a myth.
We must not let the Bush revisionists get away with it. Hearing that the war was worth it go back and dig up the real facts and respond to them with the truth. Our very democracy depends on a valid recounting of the past, so we can avoid making the same mistakes over and over again.
1. A little background on Mr. Kagan: He writes extensively from the far right perspective on US strategy and diplomacy. Kagan and fellow neoconservative William Kristol co-founded the Project for a New American Century (PNAC) in 1997. Also Kagan signed the famous 1998 PNAC letter sent to President Clinton urging regime change in Iraq. A more critical view of Mr. Kagan appeared recently in a piece by Glenn Greenwald (March 11, 2007) entitled, "Why would any rational person listen to Robert Kagan? (Read at: http://www.salon.com/opinion/greenwald/2007/03/11/kagan/)
Greenwald states:"No rational person would believe a word Robert Kagan says about anything. He has been spewing out one falsehood after the next for the last four years in order to blind Americans about the real state of affairs concerning the invasion which he and his comrade and writing partner, Bill Kristol, did as much as anyone else to sell to the American public."]
Thursday, November 20, 2008
DEFLATION?
Perhaps it was two weeks ago. I was browsing in the sports department of an unnamed large department store and found myself in front of the big display of golf balls. I was looking for a softer ball, better for shots around the green and for putting. I had planned to go home with a box of new, shiny, non-scuffed golf balls. But something had changed in my decision-making process. In the past I might have just picked what I thought was the best ball, or perhaps the one I would just like to “try out” and, not thinking much about the price, I would drop it into the shopping cart and be off. But for some reason that day, I began to look more carefully at the little yellow price tags above the stacks. They ranged from $9.98 for twelve, soft, Maxi-fly Noodles to $35.00 for Pro V 1 Titleists. There were many choices in between. I was irritated and puzzled or perhaps puzzled and irritated. I could not make up my mind. I felt a resistance to simply picking a set of golf balls based on only what I wanted. Something else was brewing. Now for some reason the price was a factor and so without thinking much about it I found myself doing a mental cost-benefit analysis which included factors such as the number of balls (12 or 15?) their type (long for distance, long and soft, or soft for greenside control?) and of course the price of each type. In the end, I picked up a box of Maxi Fly Noodles at $9.98 and dumped them in the basket. But then I hadn’t gone more than a short pitching wedge shot from the display, when I decided that I really didn’t need these balls. I returned them to the display. What had happened? A short time later it struck me that were you to multiply that episode at the golf-ball display a few hundred million times over (for our 300 million population) and you’d have an economic crisis.
This morning I clicked on my favorite morning web site “Market Watch” to read where the stocks on the NY exchange had fallen precipitously again. The DOW hovered about the 8000 mark. And I found that that dirty word that no one would dare mention “recession” has become more common. The other “no-no” word “de de dep…ssion”, (aw shucks, you know what I mean!) has actually raised it’s ugly head like a snake in the woodpile, appearing in print here and there. But this morning my eye caught a piece entitled: “Is deflation in the cards?” (See Market Watch, Nov 19, 2008.) Perhaps it was the strange word “deflation”. Is'nt it inflation we worry about? That’s when your money loses purchasing power and over time is worth less and less. Yeah, that’s why traditionally Americans don’t save much. Our experience is only with inflation. We all know that if you stuff $100 dollars in the mattress one year, and take it out at the same time the following year you will have only $94.50 in buying power of the original “C” note. We always worried about inflation. That I could understand. But now the new scary word is “deflation”.
But what’s to worry? That’s the opposite of inflation, so prices fall. Yeah, that’s good right? Gas prices have dropped down so fast I can’t keep up with them. Who is selling at the lowest price? The guy on the corner is now pumping gas at $2.25, I bragged to my wife. Who retorted casually, without looking up from her book, “Conoco Service Station on Rt 25 is lower, they had a price posted yesterday at $2.17 and today its $2.15." The newspapers report falling prices for nearly everything, from corn to soybeans and even gold!. All the local stores are slashing prices too. I learned from my wife that Kohls has a sale planned for the day after Thanksgiving, Black Friday Sale. “They are cutting some prices by as much as 75%,” she announced, with a big anticipatory grin. She’s happy, why are we supposed to be worried about this..this… deflation?
The word, of course, makes one think of an auto tire going flat, and that’s what it is. It is a “flattening out” of consumer demand and the lowering of prices of goods in general over a sustained period of time. It is the deflation of the “demand tire” on the vehicle of the economy, and of course, like a flat tire on a speeding automobile (and in an economy) makes the car slow down to a thumping, rubber-flopping, rim-grinding crawl—that gets you not to where we were going, but straight to the nearest repair shop! So deflation is the lowering of prices in general over the board…all prices. But what causes the decline is that demand (like my demand for a box of golf balls) dries up during a deflationary period. Without demand the economy does not roll.
Lest’s look at that more closely. Because if the price of goods falls regularly, consumers have an incentive to delay purchases until prices fall further. So instead of rushing in to Kohls to snap up the sale stuff, customers may pass up the big “Prices Slashed” signs on the window, with the assurance that prices will probably be lower after the sale. After Kohl’s first day of desultory sales, the manager might call up its supplier and cancel an order it had for next month delivery. If Kohl’s can’t sell its present inventory of stock how can it order more? Imagine that happening throughout the nation’s economy, to other Kohls stores, or to the meat-market, the gas station, the corner drug store, the home appliance outlet, and, of course, the automobile dealer on the high road. But as well, the companies which supply all those retail stores are also idled. The suppliers have no orders to fill and perhaps must lay off employees. The manufacturers who serve the suppliers have a glut of unsold goods and therefore cut their raw material orders—and to stay in business must cut expenses by firing employees.
Finally, investors who loan the cash for purchasing stock, paying bills or long term expansion, are sensitive to these circumstances and instead of lending or investing they now hold on to their cash. For them, the such circumstances are high risk, so they tend to hoard cash rather than risk investment, in a deflationary time the purchasing power of the cash they hold is rising and they don’t have to take risk to increase the value of their holdings. Their decisions to hoard money all add to the decline in available money supply and with less money to “chase goods” in the markets prices fall even lower. This leads to the vicious cycle of lowered demand leading to lowered prices, leading to less available cash, leading to lowering demand. Do you see the problem? It’s demand that drives the vehicle of the economy, and without it, all comes to a crawl. The lower demand and the vicious cycle may reduces over-all economic activity so much to contribute to what is known as a deflationary spiral. Now that sounds familiar, like something that happend as an aftermath of the 1929 crash.
For other evidence of lowered demand see: China shifts course and export demand slows, Int Herald Tribune, Oct 20 2008; Economic crisis slows gadget spending, blue-ray adoption, http://www.switched.com/2008/10/20/economic-crisis-slows-gadget-spending-blu-ray-adoption/
But what causes the slow-down in demand in the first place? Now there’s the question! Was it the high gas prices earlier in the year? The strains on the economy of the Iraq War? The credit meltdown on Wall Street which reduced confidence in the economy? Whatever it was..consumer’s perceptions have changed. Hey I’m going back to that sports department and try again!
For an answer to the above question "...what caused the slow-down in demand?" Nuriel Roubini in his piece in Forbes (Nov 19, 2008) entitled "Twenty Reasons Why We're Not Consuming" gives a twenty part list why demand is down and the nation is not consuming as it did in the past.
Some of his reasons briefly stated: the US consumer is shopped out, debt-burdened, and without adequate savings. They own homes with negative equity or of falling value, while MEWs (mortgage equity withdrawls) had been as high as $700 billion dollars in 2005, in the third quarter of this year they are at $20 billion dollars, so homes can no longer be used as ATM machines, real wage growth has been stagnant for several years, employment has been falling over the last 10 months, the recent inflation due to gas price and food cost hikes (now abated) has used up reserves especially for low-income workers, the glut of housing, durables, and autos on the market will take a long time to work out of the system, and finally, rising rates on credit (such as mortgages, autos, credit-cards and student loans) as well as reduced availability of credit have sharply curtailed the ability of consumers to borrow and spend. See" http://www.forbes.com/opinions/2008/11/19/consumer-debt-savings-oped-cx_nr_1120roubini.html
Sometimes known as "Dr.Doom", Roubini is a professor of economics at NYU. He forecast the Wall Street crisis well before it happened, but of course no one believed him, hence the epithet "Dr Doom".
This morning I clicked on my favorite morning web site “Market Watch” to read where the stocks on the NY exchange had fallen precipitously again. The DOW hovered about the 8000 mark. And I found that that dirty word that no one would dare mention “recession” has become more common. The other “no-no” word “de de dep…ssion”, (aw shucks, you know what I mean!) has actually raised it’s ugly head like a snake in the woodpile, appearing in print here and there. But this morning my eye caught a piece entitled: “Is deflation in the cards?” (See Market Watch, Nov 19, 2008.) Perhaps it was the strange word “deflation”. Is'nt it inflation we worry about? That’s when your money loses purchasing power and over time is worth less and less. Yeah, that’s why traditionally Americans don’t save much. Our experience is only with inflation. We all know that if you stuff $100 dollars in the mattress one year, and take it out at the same time the following year you will have only $94.50 in buying power of the original “C” note. We always worried about inflation. That I could understand. But now the new scary word is “deflation”.
But what’s to worry? That’s the opposite of inflation, so prices fall. Yeah, that’s good right? Gas prices have dropped down so fast I can’t keep up with them. Who is selling at the lowest price? The guy on the corner is now pumping gas at $2.25, I bragged to my wife. Who retorted casually, without looking up from her book, “Conoco Service Station on Rt 25 is lower, they had a price posted yesterday at $2.17 and today its $2.15." The newspapers report falling prices for nearly everything, from corn to soybeans and even gold!. All the local stores are slashing prices too. I learned from my wife that Kohls has a sale planned for the day after Thanksgiving, Black Friday Sale. “They are cutting some prices by as much as 75%,” she announced, with a big anticipatory grin. She’s happy, why are we supposed to be worried about this..this… deflation?
The word, of course, makes one think of an auto tire going flat, and that’s what it is. It is a “flattening out” of consumer demand and the lowering of prices of goods in general over a sustained period of time. It is the deflation of the “demand tire” on the vehicle of the economy, and of course, like a flat tire on a speeding automobile (and in an economy) makes the car slow down to a thumping, rubber-flopping, rim-grinding crawl—that gets you not to where we were going, but straight to the nearest repair shop! So deflation is the lowering of prices in general over the board…all prices. But what causes the decline is that demand (like my demand for a box of golf balls) dries up during a deflationary period. Without demand the economy does not roll.
Lest’s look at that more closely. Because if the price of goods falls regularly, consumers have an incentive to delay purchases until prices fall further. So instead of rushing in to Kohls to snap up the sale stuff, customers may pass up the big “Prices Slashed” signs on the window, with the assurance that prices will probably be lower after the sale. After Kohl’s first day of desultory sales, the manager might call up its supplier and cancel an order it had for next month delivery. If Kohl’s can’t sell its present inventory of stock how can it order more? Imagine that happening throughout the nation’s economy, to other Kohls stores, or to the meat-market, the gas station, the corner drug store, the home appliance outlet, and, of course, the automobile dealer on the high road. But as well, the companies which supply all those retail stores are also idled. The suppliers have no orders to fill and perhaps must lay off employees. The manufacturers who serve the suppliers have a glut of unsold goods and therefore cut their raw material orders—and to stay in business must cut expenses by firing employees.
Finally, investors who loan the cash for purchasing stock, paying bills or long term expansion, are sensitive to these circumstances and instead of lending or investing they now hold on to their cash. For them, the such circumstances are high risk, so they tend to hoard cash rather than risk investment, in a deflationary time the purchasing power of the cash they hold is rising and they don’t have to take risk to increase the value of their holdings. Their decisions to hoard money all add to the decline in available money supply and with less money to “chase goods” in the markets prices fall even lower. This leads to the vicious cycle of lowered demand leading to lowered prices, leading to less available cash, leading to lowering demand. Do you see the problem? It’s demand that drives the vehicle of the economy, and without it, all comes to a crawl. The lower demand and the vicious cycle may reduces over-all economic activity so much to contribute to what is known as a deflationary spiral. Now that sounds familiar, like something that happend as an aftermath of the 1929 crash.
For other evidence of lowered demand see: China shifts course and export demand slows, Int Herald Tribune, Oct 20 2008; Economic crisis slows gadget spending, blue-ray adoption, http://www.switched.com/2008/10/20/economic-crisis-slows-gadget-spending-blu-ray-adoption/
But what causes the slow-down in demand in the first place? Now there’s the question! Was it the high gas prices earlier in the year? The strains on the economy of the Iraq War? The credit meltdown on Wall Street which reduced confidence in the economy? Whatever it was..consumer’s perceptions have changed. Hey I’m going back to that sports department and try again!
For an answer to the above question "...what caused the slow-down in demand?" Nuriel Roubini in his piece in Forbes (Nov 19, 2008) entitled "Twenty Reasons Why We're Not Consuming" gives a twenty part list why demand is down and the nation is not consuming as it did in the past.
Some of his reasons briefly stated: the US consumer is shopped out, debt-burdened, and without adequate savings. They own homes with negative equity or of falling value, while MEWs (mortgage equity withdrawls) had been as high as $700 billion dollars in 2005, in the third quarter of this year they are at $20 billion dollars, so homes can no longer be used as ATM machines, real wage growth has been stagnant for several years, employment has been falling over the last 10 months, the recent inflation due to gas price and food cost hikes (now abated) has used up reserves especially for low-income workers, the glut of housing, durables, and autos on the market will take a long time to work out of the system, and finally, rising rates on credit (such as mortgages, autos, credit-cards and student loans) as well as reduced availability of credit have sharply curtailed the ability of consumers to borrow and spend. See" http://www.forbes.com/opinions/2008/11/19/consumer-debt-savings-oped-cx_nr_1120roubini.html
Sometimes known as "Dr.Doom", Roubini is a professor of economics at NYU. He forecast the Wall Street crisis well before it happened, but of course no one believed him, hence the epithet "Dr Doom".
Wednesday, November 19, 2008
COMMENTS ON STIGLITZ'S SEVEN DEADLY DEFICITS
In his article “The Seven Deadly Deficits,” Dr. Joseph Stiglitz (Nobel Prize Winning Economist and co-author of "The Three Trillion Dollar War”) lays out the causes of our economic crisis and the action we must take to extricate ourselves. Stiglitz begins where we all began-- in January 2000. We were upset at the inconclusive election, and unhappy with the two candidates (Bush and Gore) and uncertain of the future, but not too worried. We were secure in the structure of our government’s internal checks and balances and in the traditional Democratic-Republican gridlock in Washington which would prevent even Bush from causing too much havoc. I remember thinking that Bush seemed unprepared for the task, lacking in curiosity and not too bright, but he seemed a nice guy—but then, he had a strong VP in Cheney! Wow how wrong could we be?
Seven Deadly Deficits explains how the federal money squandered on the wars, wasted on the housing pyramid scheme, lost as a result of the recession, as well as the gap between what our economy actually produced and what it could have produced..say under a Gore administration was enormous. Had we not suffered through “Bush Years” we might be now sitting pretty, our people working productively in “green technology”, our citizenry all insured by a universal health care system, cars running efficiently on natural gas and our infrastructure (bridges and roads),our schools (and teachers) in shape to face the 21st century. Compare that to where we are today and you get the picture of what I call the “Bush Deficit”.
The following are Stiglitz’s Seven Deadly “Bush” Deficits. I have freely interspersed my own comments.
The Values Deficit. Is the difference between what Bush-Cheney meant by “innocent until proven guilty”, and what the rest of us thought: that government can’t just throw someone in a cell and forget about them (and throw out“habeas corpus”) as well the” rule of law”.
The Climate Deficit: The difference between Bush's statement: “global warming is fiction”, and what the rest of the world and US scientists thought:“its real”!
The Equality Deficit: The difference between rich and poor has grown immensely under Bush due to tax codes that reward those at the top.
The Accountability Deficit: Bush’s encouragement of deregulation of markets led to high risk practices which were supposed to “disperse” risk (by mortgaged based securities and hedge funds, the latter have grown over the Bush years from a thousand funds to ten thousand). instead they disguised and hid risk. Thus the markets did not function properly as a vehicle to direct funds into the economy, but only as a means of enriching the moguls—then when the system failed..they walked away (with their golden parachutes) leaving the taxpayers to pay the bill.
The Foreign Deficit: With both US citizens and the government unable to save money, the US is forced to seek cash on the foreign markets. The foreign deficit is the money we must beg for over-seas now at about ten billion dollars per day!
The Budget Deficit: In just eight years the Bush Deficits have grown the national debt by a third, from $6 trillion dollars to $9 trillion. But Stiglitz reminds us that these numbers do not include yet to be paid Iraq war bills (i.e. life benefits, rehabilitation of injured, payments to survivors, etc.) and the trillion dollar bail-out of late 2008, and the social-security and Medicare bills for “boomers” yet to retire. But why did Bush grow the deficits with such abandon?
Stiglitz gives two theories, one is based on the fantasy of “supply-side economics” (a Reagan pet-theory..sometimes called the “trickle down” theory) which states that if the “engines” of the economy..i.e. big business…are growing and prospering they will generate forces which buoy the entire nation’s economy. Of course this theory is tied in with the other side of this fantasy equation, the idea that lower taxes for the wealthy generate economic stimulus..for all. The last nearly thirty years of government policy slavishly followed such policies and have demonstrated the wrongheadedness of this idea to everyone’s satisfaction.
The second theory is known as the "Starve the Beast theory, but I've added a bit of my own. I believe it is less just an economic theory and more to do with political infighting-- a strategy of political power. Republicans see domestic spending as a source of political power for the Democrats. After-all, better schools, roads, levees, bridges and health care probably do encourage citizens to vote for the party which encourages such expenditures…but they also are a “good” for the nation as a whole, and its citizenry too. (And then let's remember that no one prevents Republicans from encouraging expenditure in those areas. Do they?) Thus at least in recent Republican theory..domestic spending is an option that must somehow be denied the Democrats. How can that be accomplished? One way is through generating public fear. If the nation is threatened by real attack, or simply by fear of an attack (perhaps engenered by creative use of CIA information), legislators are much more likely to pass bloated defense budgets. The ballooning defense spending squeezes domestic expenditures out of the budget. (Just see a summary of our recent budget in my blog entitled:"About those big numbers" below.) Since the executive branch of governement prepares the budget, it can, by manipulating “necessary” defense side of the budget, an executive like Bush can squeeze the Democrats into the unpleasant choice of having to either cut useful and needed domestic spending to the bone (and deny their constituents) or spend for those projects anyway, and grow the deficits. Thus big big deficits were a “plus” to Republican political power theorists…since it limited the power of their adversaries , while at the same time shoveled massive funds—by way of government military procurement contracts-- toward industries and institutions which were natural constituents of the Republican Party. Thus, the ballooning annual budgets were a “win-win” for Republicans, but a disaster for the nation as a whole.
The Investment Deficit: Good government investments help reduce budget deficits. For example, investment in in better schools and education helps generate new ideas and new technologies, while sound levees in New Orleans might have reduced or prevented the disaster there and had a similar result in the Minneapolis bridge collapse. But the government did not make that type of positive investments in US infrastructure. Partly for reasons outlined above. But it can! To do so, it can either cut expenses or raise taxes. Wealthy corporations and individuals can afford higher rates. European rates are higher than ours--the GDP of the EU at $16 trillion dollars is greater than ours at $14 trillion, yet we have similar sized populations and their industires compete with ours very effectively. But higher taxes alone can’t do it. Expenditures must be cut. But where? Under Bush, domestic spending has been cut to the bone. According to Stiglitz the only area to cut is defense spending. Our so called defense budget is by far the biggest in the world, accounting for one-half of all the world’s military expenditures. Bush’s last budget had military spending (Defense spending plus war costs) at 700 billion dollars (See my blog below “About those Big Numbers”) out of a total $2.8 trillion dollar budget. That’s about one quarter of the total budget and its biggest component in direct costs, Stiglitz calculates that we spend 42 cents of each federal dollar on direct or indirect defense spending. “With so much money spend on weapons that don’t work against enemies that don’t exist, there is ample room to increase security at the same time that we cut defense spending,” states Stiglitz in the Mother Jones piece. And I agree with that whole heartedly.
Stiglitz adds: “The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while. We can spend beyond our means, but only for a while. We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.”
Read the entire article at http://www.motherjones.com/news/feature/2008/11/the-seven-deadly-deficits.html
Seven Deadly Deficits explains how the federal money squandered on the wars, wasted on the housing pyramid scheme, lost as a result of the recession, as well as the gap between what our economy actually produced and what it could have produced..say under a Gore administration was enormous. Had we not suffered through “Bush Years” we might be now sitting pretty, our people working productively in “green technology”, our citizenry all insured by a universal health care system, cars running efficiently on natural gas and our infrastructure (bridges and roads),our schools (and teachers) in shape to face the 21st century. Compare that to where we are today and you get the picture of what I call the “Bush Deficit”.
The following are Stiglitz’s Seven Deadly “Bush” Deficits. I have freely interspersed my own comments.
The Values Deficit. Is the difference between what Bush-Cheney meant by “innocent until proven guilty”, and what the rest of us thought: that government can’t just throw someone in a cell and forget about them (and throw out“habeas corpus”) as well the” rule of law”.
The Climate Deficit: The difference between Bush's statement: “global warming is fiction”, and what the rest of the world and US scientists thought:“its real”!
The Equality Deficit: The difference between rich and poor has grown immensely under Bush due to tax codes that reward those at the top.
The Accountability Deficit: Bush’s encouragement of deregulation of markets led to high risk practices which were supposed to “disperse” risk (by mortgaged based securities and hedge funds, the latter have grown over the Bush years from a thousand funds to ten thousand). instead they disguised and hid risk. Thus the markets did not function properly as a vehicle to direct funds into the economy, but only as a means of enriching the moguls—then when the system failed..they walked away (with their golden parachutes) leaving the taxpayers to pay the bill.
The Foreign Deficit: With both US citizens and the government unable to save money, the US is forced to seek cash on the foreign markets. The foreign deficit is the money we must beg for over-seas now at about ten billion dollars per day!
The Budget Deficit: In just eight years the Bush Deficits have grown the national debt by a third, from $6 trillion dollars to $9 trillion. But Stiglitz reminds us that these numbers do not include yet to be paid Iraq war bills (i.e. life benefits, rehabilitation of injured, payments to survivors, etc.) and the trillion dollar bail-out of late 2008, and the social-security and Medicare bills for “boomers” yet to retire. But why did Bush grow the deficits with such abandon?
Stiglitz gives two theories, one is based on the fantasy of “supply-side economics” (a Reagan pet-theory..sometimes called the “trickle down” theory) which states that if the “engines” of the economy..i.e. big business…are growing and prospering they will generate forces which buoy the entire nation’s economy. Of course this theory is tied in with the other side of this fantasy equation, the idea that lower taxes for the wealthy generate economic stimulus..for all. The last nearly thirty years of government policy slavishly followed such policies and have demonstrated the wrongheadedness of this idea to everyone’s satisfaction.
The second theory is known as the "Starve the Beast theory, but I've added a bit of my own. I believe it is less just an economic theory and more to do with political infighting-- a strategy of political power. Republicans see domestic spending as a source of political power for the Democrats. After-all, better schools, roads, levees, bridges and health care probably do encourage citizens to vote for the party which encourages such expenditures…but they also are a “good” for the nation as a whole, and its citizenry too. (And then let's remember that no one prevents Republicans from encouraging expenditure in those areas. Do they?) Thus at least in recent Republican theory..domestic spending is an option that must somehow be denied the Democrats. How can that be accomplished? One way is through generating public fear. If the nation is threatened by real attack, or simply by fear of an attack (perhaps engenered by creative use of CIA information), legislators are much more likely to pass bloated defense budgets. The ballooning defense spending squeezes domestic expenditures out of the budget. (Just see a summary of our recent budget in my blog entitled:"About those big numbers" below.) Since the executive branch of governement prepares the budget, it can, by manipulating “necessary” defense side of the budget, an executive like Bush can squeeze the Democrats into the unpleasant choice of having to either cut useful and needed domestic spending to the bone (and deny their constituents) or spend for those projects anyway, and grow the deficits. Thus big big deficits were a “plus” to Republican political power theorists…since it limited the power of their adversaries , while at the same time shoveled massive funds—by way of government military procurement contracts-- toward industries and institutions which were natural constituents of the Republican Party. Thus, the ballooning annual budgets were a “win-win” for Republicans, but a disaster for the nation as a whole.
The Investment Deficit: Good government investments help reduce budget deficits. For example, investment in in better schools and education helps generate new ideas and new technologies, while sound levees in New Orleans might have reduced or prevented the disaster there and had a similar result in the Minneapolis bridge collapse. But the government did not make that type of positive investments in US infrastructure. Partly for reasons outlined above. But it can! To do so, it can either cut expenses or raise taxes. Wealthy corporations and individuals can afford higher rates. European rates are higher than ours--the GDP of the EU at $16 trillion dollars is greater than ours at $14 trillion, yet we have similar sized populations and their industires compete with ours very effectively. But higher taxes alone can’t do it. Expenditures must be cut. But where? Under Bush, domestic spending has been cut to the bone. According to Stiglitz the only area to cut is defense spending. Our so called defense budget is by far the biggest in the world, accounting for one-half of all the world’s military expenditures. Bush’s last budget had military spending (Defense spending plus war costs) at 700 billion dollars (See my blog below “About those Big Numbers”) out of a total $2.8 trillion dollar budget. That’s about one quarter of the total budget and its biggest component in direct costs, Stiglitz calculates that we spend 42 cents of each federal dollar on direct or indirect defense spending. “With so much money spend on weapons that don’t work against enemies that don’t exist, there is ample room to increase security at the same time that we cut defense spending,” states Stiglitz in the Mother Jones piece. And I agree with that whole heartedly.
Stiglitz adds: “The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while. We can spend beyond our means, but only for a while. We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.”
Read the entire article at http://www.motherjones.com/news/feature/2008/11/the-seven-deadly-deficits.html
Monday, November 17, 2008
MELAMINE SURFACES AGAIN! NOW IN US?
Questions of the contamination of US food, feed and fertilizers with the industrial substance known as "melamine" are reviewed in this NYT piece by McWilliams in:http://www.nytimes.com/2008/11/17/opinion/17mcwilliams.html?_r=1&hp&oref=slogin
Read my earlier (September 2008) blog on this page concerning the "Melamine Milk Mess" to get the background and a clear picture of this problem. To reach that blog activate "September" on this page below right, and then on the new page, scroll down to the "Melamine" blog.
Read my earlier (September 2008) blog on this page concerning the "Melamine Milk Mess" to get the background and a clear picture of this problem. To reach that blog activate "September" on this page below right, and then on the new page, scroll down to the "Melamine" blog.
Monday, November 10, 2008
BROADBAND INTERNET IN THE USA: WE LAG BEHIND
What is broadband internet access? And why are we so far behind the Europeans. Didn't we invented the thing?
According to Wikipedia, broadband is a high rate of internet data access, generally described in terms which indicate the data (or 'bits') delivered or sent per second. A kilobit (kb) is defined as 1000 bits, while a delivery speed of 1kbit/s is a rate of 1000 bits per second, while a megabit/sec (Mbit/s) is a rate one million bits per second.
For example, a typical telephone modem is capable of a maximum of 56kbit/s or 56,000 bits per second. Not much, considering modern Internet sites with photographs, maps, streaming imagery, etc. Some providers have used the term "broadband" to indicate services which range from 64kbit/sec to up to 1Mbit/sec. However, the Organization of Economic Cooperation and Development (OECD) a group of developed nations (including North America,Western Europe, Japan, Australia, New Zealand and others) generally defines broadband Internet as equal to or faster than 256kbit/s and the USA FCC defines broadband as anything above 768kbit/s. By the way, a "gigabit" is a thousand times faster than a megabit or a billion bits/s. You may not have that fast of a service in your home but might come across this term in discussions of Ethernet fiber optic or copper twisted wire services.
"Broadband penetration" is a recent term indicating what percentage of the population of a nation has broadband access. It is now commonly used as a key economic indicator.
Though the USA invented the Internet (not Al Gore), the US is now listed by OECD as 15th in the world in access to broadband, having fallen from 12th place recently. The reason: we do not have a coherent national plan. Furthermore, we now rank behind nations like the Czech Republic, Mexico, Hungary, and Poland in cost of broadband service. Not wanting to sound like a blatant frankophile, but I must say that the French have a system that is four times faster than our standard, and their (better) service costs one half of ours. In general, the broadband penetration, is greater, and access, speed and the overall system is better in western Europe than it is here. Some reasons stated for our lagging position. We developed the technology first and while we tried out various options..shared telephone lines, then devoted-telephone lines and finally fiberoptic cables and wireless. One example: At Suffolk CC College--where when finally a thin line was snaked into our offices just when technology had advanced to the wireless stage and the worthless lines were abandoned. So they profited from our early experiments, then chose the best options and are now ahead of us. That's understandable and correctable. But don't accept the excuse that the reason for our lagging position is that we (USA) are so much bigger than western Europe. I've heard that one. Some one with a Sarah Palin view of geography tried to use that as an excuse. Not true. For from west to east from Spain to the Russian border it is about 2,300 miles and from Sicily to Finland south to north is about 2,400 miles. Those distances are greater than continental USA. Thus Europeans systems cover a larger area and do it cheaper and better.
See:http://www.informationweek.com/news/services/data/showArticle.jhtml?articleID=207801621
For further information on broadband and how is broadband provided See:
http://en.wikipedia.org/wiki/Broadband_Internet_access#Broadband_worldwide
According to Wikipedia, broadband is a high rate of internet data access, generally described in terms which indicate the data (or 'bits') delivered or sent per second. A kilobit (kb) is defined as 1000 bits, while a delivery speed of 1kbit/s is a rate of 1000 bits per second, while a megabit/sec (Mbit/s) is a rate one million bits per second.
For example, a typical telephone modem is capable of a maximum of 56kbit/s or 56,000 bits per second. Not much, considering modern Internet sites with photographs, maps, streaming imagery, etc. Some providers have used the term "broadband" to indicate services which range from 64kbit/sec to up to 1Mbit/sec. However, the Organization of Economic Cooperation and Development (OECD) a group of developed nations (including North America,Western Europe, Japan, Australia, New Zealand and others) generally defines broadband Internet as equal to or faster than 256kbit/s and the USA FCC defines broadband as anything above 768kbit/s. By the way, a "gigabit" is a thousand times faster than a megabit or a billion bits/s. You may not have that fast of a service in your home but might come across this term in discussions of Ethernet fiber optic or copper twisted wire services.
"Broadband penetration" is a recent term indicating what percentage of the population of a nation has broadband access. It is now commonly used as a key economic indicator.
Though the USA invented the Internet (not Al Gore), the US is now listed by OECD as 15th in the world in access to broadband, having fallen from 12th place recently. The reason: we do not have a coherent national plan. Furthermore, we now rank behind nations like the Czech Republic, Mexico, Hungary, and Poland in cost of broadband service. Not wanting to sound like a blatant frankophile, but I must say that the French have a system that is four times faster than our standard, and their (better) service costs one half of ours. In general, the broadband penetration, is greater, and access, speed and the overall system is better in western Europe than it is here. Some reasons stated for our lagging position. We developed the technology first and while we tried out various options..shared telephone lines, then devoted-telephone lines and finally fiberoptic cables and wireless. One example: At Suffolk CC College--where when finally a thin line was snaked into our offices just when technology had advanced to the wireless stage and the worthless lines were abandoned. So they profited from our early experiments, then chose the best options and are now ahead of us. That's understandable and correctable. But don't accept the excuse that the reason for our lagging position is that we (USA) are so much bigger than western Europe. I've heard that one. Some one with a Sarah Palin view of geography tried to use that as an excuse. Not true. For from west to east from Spain to the Russian border it is about 2,300 miles and from Sicily to Finland south to north is about 2,400 miles. Those distances are greater than continental USA. Thus Europeans systems cover a larger area and do it cheaper and better.
See:http://www.informationweek.com/news/services/data/showArticle.jhtml?articleID=207801621
For further information on broadband and how is broadband provided See:
http://en.wikipedia.org/wiki/Broadband_Internet_access#Broadband_worldwide
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