Monday 20 October 2008

The Financial Death of the US Empire


Doug Bandow

Doug Bandow is a Washington-based political writer and policy analyst and Robert A. Taft Fellow with the American Conservative Defense Alliance. He served as a special assistant to President Ronald Reagan and as a senior policy analyst in the 1980 Reagan for President campaign. He has been widely published in leading newspapers and periodicals and has appeared on numerous radio and television shows. He has written and edited several books, including Foreign Follies: America's New Global Empire (Xulon Press), The Korean Conundrum: America's Troubled Relations with North and South Korea (Palgrave/Macmillan, coauthor), Tripwire: Korea and U.S. Foreign Policy in a Changed World (Cato), Perpetuating Poverty: The World Bank, the IMF, and the Developing World (Cato, coeditor), and Military Manpower and Human Resources (National Defense University). His latest book is Foreign Follies (Xulon Press).

Read related article (below) by Chris Floyd: The God That Failed

Excerpts: Read here for more

The American empire is kaput.

Neither John McCain nor Barack Obama realizes that fact yet, but the myth of the omnipotent unipower, the essential nation, the country which declares that what it says goes, has been exposed to all.

The financial crash has wrecked the economic basis of America's imperial pretentions.
  • The US stock market has dropped 2500 points in 9 days. Trillions of dollars in wealth disappeared as the Dow lost six years worth of growth.

  • The Bush administration and Congress have tossed ever increasing amounts of money at FAILING firms, hoping to appease the economic gods.

  • But the markets refuse to be appeased, and financial contagion has circled the globe.
Even BEFORE the economic crisis spiraled out of control, the US government was effectively broke.
  1. The national debt currently stands at $9.8 trillion, up $4 trillion (about 72 percent) since George W. Bush took office.

  2. With the pre-bail-out federal deficit in 2009 expected to hit a half trillion dollars, earlier this year Congress upped the debt ceiling to $10.6 trillion.

  3. But truly frightening are the many liabilities yet to come due. The federal government makes loans and loan guarantees for most any purpose known to man or woman – education, energy research, housing, agricultural land, airlines, veterans, and more.

  4. The Federal Deposit Insurance Corporation is billions of dollars short of the reserves necessary to cover expected bank losses. Washington is on the hook for generous pensions for its own workers as well as billions of dollars in guarantees of pensions for private workers whose companies fail.

  5. Then there's Medicare and Social Security, which together have an unfunded liability – that is, promised benefits exceeding expected revenues – of more than $100 trillion. In 2003 the Republican Congress and Republican president created the Medicare drug benefit without bothering to figure out how to pay for it, adding trillions of dollars more to the system's unfunded liabilities.
No one knows where the money is going to come from to pay all of these bills, but that hasn't stopped Congress from continuing to expand benefits. Now the government's liabilities are going up again, as Congress and the administration spend wildly in an attempt to revitalize the economy.

Indeed, the administration and Congress apparently are prepared to bankrupt America to save American business.

So far this year they have spent:
  1. $850 billion for the Wall Street bailout plus the financial "sweeteners" needed to buy enough votes for passage;
  2. $300 billion to bail out the housing industry largely through the Federal Housing Administration; $200 billion in Federal Reserve loans to commercial banks;

  3. $200 billion (and probably more) to bail out and essentially nationalize the political piggy banks Fannie Mae and Freddie Mac;

  4. $144 billion or more to buy mortgage-backed securities through Fannie and Freddie (yes, the same entities being bailed out by Uncle Sam because of their past purchases of bad debt);

  5. $87 billion to repay JPMorgan Chase for financing Lehman Brothers trades;

  6. $85 billion for a loan to bail out and effectively nationalize insurer American International Group;

  7. $50 billion to guarantee money market funds;

  8. $37.8 billion in a second loan to AIG,

  9. $29 billion to finance the buyout of Bear Stearns;

  10. $25 billion in loans to the auto industry, which continues to sink as demand for cars falls;

  11. $10 billion in direct Treasury Department purchases of mortgage-backed securities;

  12. $4 billion in mortgage community grants.
That's $2 trillion, which is REAL MONEY even in Washington.

And the bailouts aren't over. Just two business days AFTER Congress approved the $700 billion buy of bad securities and any other assets desired by the Treasury Secretary, the Federal Reserve announced that it may purchase unsecured short-term corporate debt. If so, the Fed will be directly lending to the firms in the biggest financial trouble with no security; we all know how that is likely to end.

Moreover, the Treasury Department says it wants to "directly strengthen the balance sheet of individual institutions" by acting like a common investor and buying an equity stake in companies.

Treasury also is considering taking a formal ownership position in US banks, giving them cash directly. The Fed then cut interest rates, even though its ongoing policy of cheap, easy money is one of the primary causes of the boom that just went bust.

As Congress and the president continue to pile debt upon debt, America's financial problems will cascade. In May the Congressional Budget Office warned:
"Budget deficits that grow faster than the economy ultimately become unsustainable. As the government attempts to finance its interest payments by issuing more debt, the rise in deficits accelerates.

That, in turn, leads to a vicious circle in which the government issues ever-larger amounts of debt in order to pay ever-higher interest charges. In the end, the costs of servicing the debt outstrip the economic resources available for financing those expenditures.

At some point, then, policy has to change: Taxes must be raised, spending must be reduced, or both."
With the post-bailout 2009 budget deficit now expected to run around one trillion dollars, Uncle Sam may soon have to worry about who is going to buy all of this debt.

  • Will the Chinese continue purchasing securities from a financially irresponsible entity that keeps adding obligations with no obvious means of paying?
  • Will Americans want to take on the increasingly risky paper?

  • Will they be able to afford to do so?
Earlier this year – before the tsunami of federal bailouts covering anyone even walking near Wall Street – Moody's Investors Services announced that it was considering downgrading federal bonds, citing the government's failure to fund Social Security and Medicare.

"These two programs are the largest threats to the long-term financial health of the United States and to the governments' AAA rating," Moody's Vice President Steven Hess explained.

Tom Lemmon, also of Moody's, warned that "the underlying credit rating of the US government faces the risk of downgrading in the next ten years if solutions are not found to our growing Medicare and Social Security unfunded obligations." Lowering the investment rating for US debt would hike federal expenditures even more.

As credit dries up and the US economy stalls, how can Washington continue to engage in social engineering the world over?

The Iraq war continues. Nearly $600 billion so far has been wasted on Bush's folly, and the total cost will exceed $2 trillion, according to the Congressional Budget Office, and maybe $3 trillion or even more, if Joseph Stiglitz's and Linda Bilmes's numbers come true.

The Cost of Maintaining the US Military Worldwide

Then there are Washington's other military activities.

America accounts for roughly half of the globe's military outlays. The US maintains nearly 800 military bases and other facilities around the world.

In 2009 Uncle Sam will be spending roughly $515 billion on "NORMAL" military operations – more, in real terms, that at any time since World War II. That means Americans now are spending more per year to patrol the globe than they spent to fight the Cold War, Korean War, and Vietnam War.

But that's NOT including Iraq and Afghanistan, which together cost roughly $12 billion a month.

Toss in those costs and include some money for unexpected contingencies, and we're talking $700 billion. That's the amount of the Wall Street bailout, but an expense that will continue year after year.

It's one thing to act like the global dominatrix when the country is living on easy street, enjoying record economic growth and government revenue. But as the economy is crashing and Uncle Sam will soon have to visit the equivalent of global loan sharks to finance its operations, the time for the pretention of international hegemony is over.

Why are over-burdened US taxpayers expected to defend the Europeans, who have a larger collective economy and population, from nonexistent threats?

Yes, the government in Moscow has an ugly edge, but Vladimir Putin is not the reincarnation of Joseph Stalin and there will be no Red Army dash through Germany and France and on to the Atlantic. And if that was a possibility, then why shouldn't the Europeans sacrifice a little more of their abundant wealth to defend against it?

In fact, with the financial crisis hitting Europe as well, military spending there is likely to drop. Observed Mark Stoker of the International Institute for Strategic Studies in London,
"I can't see defense is going to escape any kind of austerity measures.

It would be very difficult for any government to justify cutting health and education in favor of, say, building two aircraft carriers and buying a load of planes to stick on them."
Surely the US SHOULDN'T be subsidizing Europe if those nations spend even less on their own defense. What they spend for the military obviously is their decision to make, but they should bear the full consequences of whatever decision they do make.

Even worse, why should Washington take on the role of protecting former pieces of the Soviet Union and even the Russian empire? We should wish the Baltic States, Georgia, and Ukraine well. But they never counted as a security interest to America.

Just how much US money and blood should be spent to guarantee Georgia's right to supress secessionists and settle a century-old feud to its satisfaction? If Europe believes this to be an important goal, wonderful. Let the Europeans spend the money and take the risks necessary to make it happen.

It is equally nonsensical for America to continue subsidizing the defense of Japan, which has the second or third largest economy in the world, depending on the measure used. Yet it spends less than one percent of its GDP on defense, a quarter of America's burden. The ongoing economic crisis is a good time to tell Tokyo: you're a big country now, so defend yourself and your region.

The same goes for South Korea. It possesses one of the largest economies in the world and has 40 times the GDP of its decrepit northern antagonist. A majority of younger South Koreans say they fear America more than North Korea. Why are nearly 26,000 US troops still on station there? Bring them home and demobilize them, while the Republic of Korea takes over responsibility for its own defense. South Korea has matured. It should act like it and take on "adult" international responsibilities.

US Folly in Attempting Nation-Building

Finally, it's time for Washington to give up on nation-building. Social engineering is difficult enough at home. It's well-nigh impossible for outsiders, especially na├»ve and ignorant – even if well-intentioned – Americans, to transcend history, tradition, geography, religion, ethnicity, and culture to remake other societies.
  • Iraq has been a catastrophe.

  • We've been trying to fix Haiti for more than a century.

  • Arresting warlords in Somalia was one of Washington's dumbest ideas.

  • Neither Bosnia nor Kosovo are real countries, despite years of American attention.And, to be perfectly blunt, who cares if they become real countries?

  • (Yes),we should be concerned about the mistreatment of people everywhere. But Washington has demonstrated NO competence in setting foreign nations right, and ivory tower humanitarians have no right to risk the lives of our brave servicemen and women in the name of a glorious crusade for democracy in Mesopotamia, the Balkans, Caribbean, Africa, or anywhere else.

    War truly must be a LAST resort, which means NO resort at all unless American society truly is at risk in some fundamental way.

    No wars of choice or convenience, no matter how easy and cheap they appear likely to be.

    The Myth of American Omnipotence

    The American economy will eventually recover from its current trauma. But the myth of US omnipotence likely is shattered forever.

    Over the last six years the US has tossed away its moral superiority, diplomatic indispensability, and military infallibility.

    Now it has lost its economic security. Washington is broke, having made a succession of financial promises the country can ill afford to cover.

    There was never a good time for empire. But if there ever was a good time, it has passed. Instead of attempting to micro-manage global affairs, America should again become a normal country, strong enough to protect itself, but no longer claiming responsibility for maintaining global security, stability, and prosperity. Doing so isn't possible, at least at an affordable price.

    Empire isn't worth the risk to American society or the lives of American military personnel. It certainly isn't worth the cost, especially at a time of economic crisis.

    Let us make John Quincy Adams' apt dictum the lodestar of our new foreign policy:
    America "goes not abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own."


    The God That Failed- The 30-Year Lie of the Market Cult


    Chris Floyd

    Excerpts: Read here

    Perhaps the most striking fact revealed by the global financial crash -- or rather, by the reaction to it -- is the staggering, astonishing, gargantuan amount of money that the governments of the world have at their command.

    In just a matter of days, we have seen literally trillions of dollars offered to the financial services sector by national treasuries and central banks across the globe.
    • Britain alone has put $1 trillion at the disposal of the bankers, traders, lenders and speculators;

    • Washington is shoveling into the financial furnaces of Wall Street and the banks.

    • These radical efforts are being replicated on a slightly smaller scale in France, Germany, Italy, Russia and many other countries.
    The effectiveness of this unprecedented transfer of wealth from ordinary citizens to the top tiers of the business world remains to be seen. It will certainly insulate the very rich from the consequences of their own greed and folly and fraud.

    Milton Friedman's Market Economy

    Beginning with Margaret Thatcher's election in 1979, government after government -- and party after party -- fell to the onslaught of an extremist faith:
    The narrow, blinkered fundamentalism of the "Chicago School." Epitomized by its patron saint, Milton Friedman (watch video clip of Milton Friedman) , the rigid doctrine held that an unregulated market would always "correct" itself, because its workings are based on entirely rational and quantifiable principles.
    This was of course an absurdly reductive and savagely ignorant view of history, money and human nature; but because it flattered the rich and powerful, offering an "intellectual" justification for rapacious greed and ever-widening economic and social inequality, it was adopted as holy writ by the elite and promulgated as public policy.

    This radical cult took its strongest hold in the United States and Britain, and was then imposed on many weaker nations through the IMF-led "Washington Consensus" with devastating and deadly results. (As in Yeltsin's Russia, for example, where life expectancy dropped precipitously and millions of people died premature deaths from poverty, illness, and despair.)

    According to the (market) cult:
    1. Not only were markets to be freed from the constraints placed on them after the world-shattering effects of the Great Depression, but all public spending was to be slashed ruthlessly to the bone. (Although exceptions were always made for the Pentagon war machine.)
    2. Every dollar spent by a public entity on public services and amenities was a dollar taken away from the private wheeler-dealers who could more usefully employ it in increasing the wealth of the elite -- who would then allow some of their vast profits to "trickle down" to the lower orders.
    This was the cult that captured the governments of the United States and Britain (among others), as well as the Republican and Democratic parties, and the Conservative and Labour parties as well.

    And for almost thirty years, its ruthless doctrines have been put into practice. Regulation and oversight of financial markets were systematically stripped away or rendered toothless.
    • Essential public services were sold off, for chump change, to corporate interests.

    • Public spending on anything other than making war, threatening war and profiting from war was pared back or eliminated.

    • Such public spending that did remain was forever under threat and derided, like the remnants of some pagan faith surviving in isolated backwaters.
    Year after year, the ordinary citizens were told by their governments:
    We have NO money to spend on your needs, on your communities, on your infrastructure, on your health, on your children, on your environment, on your quality of life.
    We can't do those kinds of things any more.
    Of course, when talking amongst themselves, or with the believers in the think tanks, boardrooms -- and editorial offices -- the cultists would speak more plainly: we don't do those things anymore because we shouldn't do them, we don't want to do them, they are wrong, they are evil, they are outside the faith.

    But for the hoi polloi, the line was usually something like this: Budgets are tight, we must balance them (for a "balanced budget" is a core doctrine of the cult), we just can't afford all these luxuries.

    But now, as the emptiness and falsity of the Chicago cargo cult stands nakedly revealed, even to some of its most faithful and fanatical adherents, we can see that this 30-year mantra by our governments has been a deliberate and outright lie.

    The money was there -- billions and billions and billions of dollars of it, trillions of dollars of it.

    We can see it before our very eyes today -- being whisked away from our public treasuries and showered upon the banks and the brokerages.

    Let's say it again: The money was there all along.
    1. Money to build and generously equip thousands and thousands of new schools, with well-paid, exquisitely trained teachers, small teacher-pupil ratios, a full range of enriching and inspiring programs.

    2. Money to revitalize the nation's crumbling inner cities, making them safe and vibrant places for businesses and families and communities to grow.

    3. Money to provide decent, affordable and accessible health care to every citizen, to provide dignity and comfort to the elderly, and protection and humane treatment for the mentally ill.

    4. Money to provide affordable higher education to everyone who wanted it and could qualify for it.

    5. Money to help establish and sustain local businesses and family farms, centered in and on the local community, driven by the needs and knowledge of the people in the area, and not by the dictates of distant corporations.

    6. Money to strengthen crumbling infrastructure, to repair bridges, shore up levies, maintain roads and electric grids and sewage systems.

    7. Money for affordable, workable public transport systems, for the pursuit of alternative sources of energy, for sustainable, sensible development, for environmental restoration.

    8. Money to support free inquiry in science, technology, health and other areas -- research unfettered from the war machine and the drive for corporate profit, and instead devoted to the betterment of human life.

    9. Money to support culture, learning, continuing education, libraries, theater, music and the endless manifestations of the human quest to gain more meaning, more understanding, more enlightenment, a deeper, spiritually richer life.
    The money for all of this -- and much, much more -- was there, all along. When they said we couldn't have these things, they were lying -- or else allowing themselves to be profitably duped by the high priests of the market cult.

    When they wanted a trillion dollars -- or three trillion dollars -- to wage a war of aggression in Iraq, they found it.

    Now, when they want trillions of dollars to save the speculators, fraudsters and profiteers of greed in the global market, they suddenly have it.

    This is one of the main facts that ordinary citizens around the world should take away from this crisis:
    The money to maintain, secure and improve the lives of their families and communities was always there -- but their governments, and their political parties, made a deliberate, unforced choice NOT to use it for the COMMON good.
    Instead, they subjugated the well-being of the world to the dictates of an extremist cult.

    A cult of greed and privilege, that preached iron discipline to the poor and the middle-class, but released the rich and powerful from all restrictions, and all responsibility for their actions.

    Let these thoughts guide you as you weigh the promises and actions of politicians and candidates, and as you assess the "expert analysis" on economic and domestic policy offered by the corporate media and the corporate-bankrolled think tanks and academics.

    You certainly will hear, when (and if) the markets are finally stabilized (at whatever gigantic cost in human suffering) -- the adherents of the market cult emerge once more and call for "deregulation" and "untying the hands of business" and all the other ritual incantations of their false and savage fundamentalist faith.

    So remember well the lessons of this new October crash:

    The money to make a better life, to serve the common good, has always been there.

    But it has been kept from you by deceit, by dogma, by greed, and by the ambition of those who have sold their souls, and betrayed their brothers and sisters, their fellow human creatures, for the sake of privilege and power.


    Becky said...

    I completely agree with you. Our economy is in a world of hurt! "Plunder," written by Danny Schechter is another great resource that confirms your very ideas.

    Anonymous said...

    If Alan Greenspan were to be put in charge of the Army, Osama Bin Laden would be the US president today. If he was put in charge of the police, the Mafia would be running the US, as he believes that things would regulate itself. The world's economy was destroyed by one naive man. Vulture bankers and company CEOs are not in jail, they are in resort islands around the world praying to their new god with the initials A.G.