Iraq War Not Breaking the Bank

[BlackRain]

Iraq War Not Breaking the Bank

In fact, it’s one of the least expensive conflicts in our nation’s history.

By Jerry Bowyer

http://www.nationalreview.com/images/chart_bowyer1-23-06.gif

Critics of the war in Iraq often complain about the “escalating cost of the war.” Listening to them, you’d never know that the war is one of the least expensive in American history.

Robert Whaples, professor of economics at Wake Forest University, has measured the cost of each major American war up through the first Gulf War. We took these costs and compared them to the cost of the Iraq war and found that the Iraq experience has consumed a smaller percentage of GDP (just 2 percent of one year’s wealth creation) than every other American war except the first Gulf War (which measured just 1 percent of GDP).

This stands in stark contrast to the Vietnam experience, which opponents have often attempted to liken to the Iraq war.

Vietnam comprised a much heartier 12 percent of GDP at the time. Other conflicts, such as World War II, took a remarkable 130 percent of a year’s GDP to see through to success.

The work is not done in Iraq, and the financial costs will grow beyond the $251 billion we have spent so far.

The real cost, of course, is in human lives, manifested in the debate about whether it is worth losing a few thousand American lives in order to liberate 23 million people.

But the data are clear; any attempt to discredit this war based on its effect on the U.S. economy is an unnecessary distraction.

http://www.nationalreview.com/nrof_buzzcharts/buzzcharts200601230854.asp

[ed316]

But the Bush haters will ignore it no matter what.

[BlackRain]

But the Bush haters will ignore it no matter what.

Well, they need a reality check every once in a while. The air on Mars is pretty thin.

[BoyElroy]

Well, I think people forget that the US GDP is closing in on $13 trillion/year. That is a huge friggin' economy.

Additionally, most people assume that when money is spent "on the war", it's basically like taking $20 bills and burning them into ashes. This is incredibly short sighted when you consider that the vast majority of that money is being recycled back through the US economy in the form of wages paid to defense workers, soldiers, purchases from companies that in turn order durable goods from other sub contracters, etc. The "war economy" in the US has traditionally increased economic activity over the long run.

In the case of the Korean war, US spending for infrastructure support in Japan basically kick started the "Japanese economic miracle", which in turn led to massive amounts of increased trade between the US and Japan and further US economic expansion.

[ogukuo72]

Elroy, you made a good point. Too many people seem to think that spending on military goods is money down the drain, instead of seeing the military industry as part of the larger economy. Also, much of the money goes to non-military goods, such as construction equipment and material.

[MakeWar87]

not only that but vast reconstruction companies are getting big budgets wich only helpes the economy more

[Pai Mei]

According to the graphic, WW2 cost 130% of (U.S.) GDP. Is that even possible? How can you spend more money than is generated by your economy?

[BoyElroy]

Deficit spending. Basically, you're a bank issuing yourself credit. If you issue too much credit to yourself relative to future earnings potential, your currency becomes devalued. If people believe that you've got a great financial future ahead of you (i.e. you're the next Bill Gates), then you can "borrow" from yourself (and others) and print all the money you need. Within reason, of course.

This is basically how the US is financing its current deficit; mostly with Asian investors buying up US Treasury bills since the returns on these instruments are basically 100% guaranteed safe. In turn, the US continues to import goods from East Asia, which allows, for instance, the Chinese economy to continue expanding. At some level, this basically begins to resemble a pyramid scheme/bubble and governments will have to manage this volatile cycle down to reasonable levels.

[Violet Fashion by Mindy]

Creative bookeeping

[CyberSpec]

Deficit spending. Basically, you're a bank issuing yourself credit. If you issue too much credit to yourself relative to future earnings potential, your currency becomes devalued. If people believe that you've got a great financial future ahead of you (i.e. you're the next Bill Gates), then you can "borrow" from yourself (and others) and print all the money you need. Within reason, of course.

This is basically how the US is financing its current deficit; mostly with Asian investors buying up US Treasury bills since the returns on these instruments are basically 100% guaranteed safe. In turn, the US continues to import goods from East Asia, which allows, for instance, the Chinese economy to continue expanding. At some level, this basically begins to resemble a pyramid scheme/bubble and governments will have to manage this volatile cycle down to reasonable levels.
The mother of all Ponzi schemes.

It will work as long as the US$ is accepted as a global reserve currency and as long it's in everyone's interest to keep buying Treasury bills.

But eventually it will break...and I'm betting it will happen within the next 10 years

[MakeWar87]

We borrow from our allies. We borrow a lot from britian and other european allies, they dont mind handing it over eathier because we always make good on our money

[BoyElroy]

The mother of all Ponzi schemes.

It will work as long as the US$ is accepted as a global reserve currency and as long it's in everyone's interest to keep buying Treasury bills.

But eventually it will break...and I'm betting it will happen within the next 10 years


That's the $64,000 question, isn't it? I think the key question will be, where will all the petro-dollars from Russia/Central Asia and the Middle East go. If history is any guide, as in the 1970's, the vast majority of the petro-dollars being made by the oil-producing countries will get re-cycled straight into US T-Bills.

As an institutional/government investor, if you look around the world right now, there are not that many safe places to park your billions/trillions in whatever denomination; traditionally there are fewer safer places than US T Bills. Moreover, as long as energy volatility threatens Chinese growth and European stability, money will continue to pour into the US.

Irony: The greater the political and economic volatility the world, the more attractive the US becomes as an investment option. Which in turn, is like giving an open bar tab to an alcoholic :)

[Kilgor]

The mother of all Ponzi schemes.

It will work as long as the US$ is accepted as a global reserve currency and as long it's in everyone's interest to keep buying Treasury bills.

But eventually it will break...and I'm betting it will happen within the next 10 years

Dont be too glad when it does. Because if the US goes down, everyone is going to be going down.. and hard.

[CyberSpec]

Irony: The greater the political and economic volatility the world, the more attractive the US becomes as an investment option. Which in turn, is like giving an open bar tab to an alcoholic :)
That's true.

A problem might arise if the US$ starts droping in value too quickly. It has recovered well in 2005 and I think it will do well in 2006 (although it's under pressure at the moment).

A paradox was the almost parallel rise of the US$ and Gold in 2005. Economic orthodoxy would suggest they move in opposite directions

It will be interesting to see what happens towards the end of this year and into 2007.

[BoyElroy]

I've got a friend who's a banker at Bear Stearns and he's predicting that gold's going to rise to 1970's levels; i.e. close to $800 /oz. How insane is that?

[CyberSpec]

I've got a friend who's a banker at Bear Stearns and he's predicting that gold's going to rise to 1970's levels; i.e. close to $800 /oz. How insane is that?
Well it was $200/oz only a few years ago and it's almost $600/oz now.

I also think $800/oz is possible even likely...some are predicting $1000/oz:cantbeli:.

If only I had bought Gold at $300 (which I was contemplating) and held it, instead of f*cking around with currency options...I'd be a lot better off today:roll:...oh well, we can always hope...

[BoyElroy]

Hahaha....if only I'd bought Microsoft stock 20 years ago. Ah well, there's always lottery tickets for me as an investment option of last resort.

[CyberSpec]

Hahaha....if only I'd bought Microsoft stock 20 years ago. Ah well, there's always lottery tickets for me as an investment option of last resort.

I'm stubborn and will keep trying, even though I got "burnt" pretty bad a couple of years ago.

[go_army6969]

we just need to enslave all Iraqi females and use them as whores all around the world. Then we'll drive the cost of prostitution down so bad by flooding the market that every man can get laid and have a wife in this glorious new society of *** slaves.

[go_army6969]

Cyberspec is gay... gay, gay, gay, gay, gay! His name is gay and he has a ****ing wolf as a picture. Cool dude, but don't expect too much casual *** though... seriously. Lots of masturbation in that dude's free time.

[BoyElroy]

I've got a friend who's a fund manager here in NYC and beleive it or not, he's really pushing these things called I-Bonds. They're issued by the Icelandic Treasury and return some crazy amount like 8%-9% . Check it out and let me know what you think.

Barclays also issues iShares, bundled stocks that allow you to buy shares off the Korean and Japanese exchanges and these are also experiencing large, large gains.

[MakeWar87]

we just need to enslave all Iraqi females and use them as whores all around the world. Then we'll drive the cost of prostitution down so bad by flooding the market that every man can get laid and have a wife in this glorious new society of *** slaves.

OH YOUR REAL COOL 6969 YOU SOUND LIKE A QUEER NOOB GET A JOB. MAN YOU'RE PROBABLY JUST PISSED CAUSE IRAQI CHCKS AINT DROPPIN TO THEIR KNEES TO SUCK YOUR LITTLE DI** AFTER FREEING THEM. CASE YOU DIDNT NOTICE THERE IS QUITE A LOT OF HOT MIDDLE EASTERN BABES

[BoyElroy]

Originally Posted by go_army6969
we just need to enslave all Iraqi females and use them as whores all around the world. Then we'll drive the cost of prostitution down so bad by flooding the market that every man can get laid and have a wife in this glorious new society of *** slaves.OH YOUR REAL COOL 6969 YOU SOUND LIKE A QUEER NOOB GET A JOB. MAN YOU'RE PROBABLY JUST PISSED CAUSE IRAQI CHCKS AINT DROPPIN TO THEIR KNEES TO SUCK YOUR LITTLE DI** AFTER FREEING THEM. CASE YOU DIDNT NOTICE THERE IS QUITE A LOT OF HOT MIDDLE EASTERN BABES


wtf??????!!! Am I missing something here or is this just happy spillover from some other thread?

[CyberSpec]

Cyberspec is gay... gay, gay, gay, gay, gay! His name is gay and he has a ****ing wolf as a picture. Cool dude, but don't expect too much casual *** though... seriously. Lots of masturbation in that dude's free time.

Another fan who wants to have a go at me???

pick a number and get in line a-hole!

[CyberSpec]

I've got a friend who's a fund manager here in NYC and beleive it or not, he's really pushing these things called I-Bonds. They're issued by the Icelandic Treasury and return some crazy amount like 8%-9% . Check it out and let me know what you think.

Barclays also issues iShares, bundled stocks that allow you to buy shares off the Korean and Japanese exchanges and these are also experiencing large, large gains.

Thanks for the tip. I'll check it out.

But I've already got most of my modest spare cash invested. I'm more of a speculator than an investor

[MakeWar87]

wtf??????!!! Am I missing something here or is this just happy spillover from some other thread?

YEAH I THINK THATS A SPILLOVER IM NOT THAT DUMB

[BoyElroy]

YEAH I THINK THATS A SPILLOVER IM NOT THAT DUMB

Wow. I don't even wanna know what thread that's from. *ducks head*

[go_army6969]

OH YOUR REAL COOL 6969 YOU SOUND LIKE A QUEER NOOB GET A JOB. MAN YOU'RE PROBABLY JUST PISSED CAUSE IRAQI CHCKS AINT DROPPIN TO THEIR KNEES TO SUCK YOUR LITTLE DI** AFTER FREEING THEM. CASE YOU DIDNT NOTICE THERE IS QUITE A LOT OF HOT MIDDLE EASTERN BABES

Yes, I'm a noob! But one day, just one day, if I'm real lucky, I'll become a Military Photos Master black belt gear queer. I'm already off to basic training for the national guard, so I'm already learning... but one day, I'll have over 4,000 posts and then I can join your elite ranks.

[MakeWar87]

Yes, I'm a noob! But one day, just one day, if I'm real lucky, I'll become a Military Photos Master black belt gear queer. I'm already off to basic training for the national guard, so I'm already learning... but one day, I'll have over 4,000 posts and then I can join your elite ranks.

DAMN WHEN DID THEY START LETTING QUEERS IN THE MILITARY DAMN CLINTON WELL I GUESS ITS ONLY THE NATIONAL GUARD HAVE FUN GETTIN READY TO GO TO IRAQ AND DONT THINK THE NG WILL SAVE YOU FROM IRAQ

[BoyElroy]

Hey, nothing personal, but why don't you two go get a room somewhere. We're talkin' money, here, dudes. Dollar bills. You know, counting them down. 100. 200....

[MakeWar87]

Hey, nothing personal, but why don't you two go get a room somewhere. We're talkin' money, here, dudes. Dollar bills. You know, counting them down. 100. 200....
YEAH SO WAS I THATS FROM ANOTHER ROOM IT KEEPS SPILLIN OVER THOUGH

[MakeWar87]

I've got a friend who's a fund manager here in NYC and beleive it or not, he's really pushing these things called I-Bonds. They're issued by the Icelandic Treasury and return some crazy amount like 8%-9% . Check it out and let me know what you think.

Barclays also issues iShares, bundled stocks that allow you to buy shares off the Korean and Japanese exchanges and these are also experiencing large, large gains.

YEAH I HEARD ABOUT THOSE ASIA ECONOMY IS AT THE POINT OF MAJOR GROWTH LIKE GOLD WAS THEY PREDICT THAT CHINAS ECONOMY WILL BE BETTER THAN OURS BY 2015 IVE INVESTED A LITTLE THEIR BUT PLAN TO INVEST MORE THE BIRD FLU THING HAS KIND OF GIVEN ME A SCARE THOUGH AFRAID OF TRADE BLOCKS ON CHINA

[BoyElroy]

YEAH I HEARD ABOUT THOSE ASIA ECONOMY IS AT THE POINT OF MAJOR GROWTH LIKE GOLD WAS THEY PREDICT THAT CHINAS ECONOMY WILL BE BETTER THAN OURS BY 2015 IVE INVESTED A LITTLE THEIR BUT PLAN TO INVEST MORE THE BIRD FLU THING HAS KIND OF GIVEN ME A SCARE THOUGH AFRAID OF TRADE BLOCKS ON CHINA


Dude, You're scaring me man, turn off your CAPS!

I wouldn't really invest in China without a firm idea of who and what you're investing in. It's still a pretty shady place and I'd stay away for the moment if I were you or you could easily end up losing everything. I'm mostly talking about the S. Korean and Japanese exchanges. Its a lot more transprent there and the long term outlook is pretty good. Of course, short term you could end up losing, but long term is how you should be thinking anyway.

[MakeWar87]

Dude, You're scaring me man, turn off your CAPS!

I wouldn't really invest in China without a firm idea of who and what you're investing in. It's still a pretty shady place and I'd stay away for the moment if I were you or you could easily end up losing everything. I'm mostly talking about the S. Korean and Japanese exchanges. Its a lot more transprent there and the long term outlook is pretty good. Of course, short term you could end up losing, but long term is how you should be thinking anyway.

You also might want to look at china for the simple fact of the olympic games the economy should see a significant boost. Since it is highly respected there as well as a tourism hike

[BoyElroy]

Yeah, but the government's corrupt as hell and so you never know who's doing what with your money or even if you'll ever get any of it back. And if you do lose money to a shady deal, if it's government connected, you're screwed 'cos the judicial system there is basically an arm of the Communist party, regional as well as national.

Unless you kow people on the ground, don't be putting your money into the market without knowing the huge risks involved.

Seriously, look into Iceland issued "I Bonds". They're just about the best deal you can find at the moment.

[Seiyuuki]

MakeWar87, BoyElroy is right, short-term thinking and judging just on the image of the country without careful analysis of it internally is how a lot of people got burn (i.e. Russian T-bill fiasco in the 90's).


Seriously, look into Iceland issued "I Bonds". They're just about the best deal you can find at the moment.
(Studying political economy right now) One question, when the bonds go down, how big is the actual market, if I sell it, are there buyers (Maybe that question is redundant if the market can generate a lot of buyers and attention), but is there any liquidity on the downside?

[BoyElroy]

MakeWar87, BoyElroy is right, short-term thinking and judging just on the image of the country without careful analysis of it internally is how a lot of people got burn (i.e. Russian T-bill fiasco in the 90's).


(Studying political economy right now) One question, when the bonds go down, how big is the actual market, if I sell it, are there buyers (Maybe that question is redundant if the market can generate a lot of buyers and attention), but is there any liquidity on the downside?

That's a good question and certainly not one that I'm qualified to answer. here's a link to the Iceland Treasury I Bond website and pm me if you want to talk my broker friend who can give you the rundown.

http://www.bonds.is/

[Flagg]

I would take the thread topic with a grain of salt.

Although the MEASURED cost of the conflict in Iraq may appear smaller( as a percentage of GDP) compared to prior conflicts, a could facts need to be considered as well:

The nearly half trillion(that's 500,000,000,000 dollars) spent on US(and global) defense and security comes at a cost.

That cost is money spent on defense and security, while infrastructure critical to a healthy economy, rots.......for example...for every soldier deployed to Iraq.....XXX linear feet of highway crumbles into potholes or funding is cut for education that can improve exports and/or economic productivity.

While China and others get a free ride on the back of Uncle Sam, they get to spend their money on their economies, while Uncle Sam has to borrow money from China to protect the neighbourhood.....that's fooked up

A significant portion of costs that are NOT measured are "wear and tear" on men and machines.

Men(and women) injured physically/psychologically by conflict with downstream costs measured in the many billions. In their peak productive years they will require assistance FROM society, rather than being a contributor TO society during their prime productive years. I just hope those that are waving flags and buying beers for soldiers in uniform today will still be as patriotic when the ugly consequences of war are hurting everyone in the pocketbook tomorrow.

Equipment losses......I'm sure some actuarial "blanket counters" in the Pentagon have financial models to guesstimate equipment wear and tear over the useful life of equipment when it was procured.....much of that can be chucked out the window. I doubt the conflict costs to date include a realistic appraisal of lost and damaged equipment......so future capex needs for equipment will soar.......

We're talking REAL money......measured in the tens and hundreds of billions.

Money which is borrowed from current/future overseas competitors...mortgaging off the family farm piece by piece.

I fully understand the need to create a secure global environment.......but the Chinese are Fookin' laughing at us.

[WarriorMonk]

Creative bookeeping

of course, our little wannabe revolutionary has to say this...

[Bia]

Irony: The greater the political and economic volatility the world, the more attractive the US becomes as an investment option. Which in turn, is like giving an open bar tab to an alcoholic :)
But...as long as that alcoholic has a job and pays his tab...everythings good...right?
;)

[pathfinder82]

I would take the thread topic with a grain of salt.

Although the MEASURED cost of the conflict in Iraq may appear smaller( as a percentage of GDP) compared to prior conflicts, a could facts need to be considered as well:

The nearly half trillion(that's 500,000,000,000 dollars) spent on US(and global) defense and security comes at a cost.

That cost is money spent on defense and security, while infrastructure critical to a healthy economy, rots.......for example...for every soldier deployed to Iraq.....XXX linear feet of highway crumbles into potholes or funding is cut for education that can improve exports and/or economic productivity.

While China and others get a free ride on the back of Uncle Sam, they get to spend their money on their economies, while Uncle Sam has to borrow money from China to protect the neighbourhood.....that's fooked up

A significant portion of costs that are NOT measured are "wear and tear" on men and machines.

Men(and women) injured physically/psychologically by conflict with downstream costs measured in the many billions. In their peak productive years they will require assistance FROM society, rather than being a contributor TO society during their prime productive years. I just hope those that are waving flags and buying beers for soldiers in uniform today will still be as patriotic when the ugly consequences of war are hurting everyone in the pocketbook tomorrow.

Equipment losses......I'm sure some actuarial "blanket counters" in the Pentagon have financial models to guesstimate equipment wear and tear over the useful life of equipment when it was procured.....much of that can be chucked out the window. I doubt the conflict costs to date include a realistic appraisal of lost and damaged equipment......so future capex needs for equipment will soar.......

We're talking REAL money......measured in the tens and hundreds of billions.

Money which is borrowed from current/future overseas competitors...mortgaging off the family farm piece by piece.

I fully understand the need to create a secure global environment.......but the Chinese are Fookin' laughing at us.



Great post. You took the words from my mouth. Any economics major would laugh at this thread because so many variables were left out. Its easy to just look at what you spent off the top but its so much more than that.

Apparently people are blind to the fact that this administration is cutting spending at home to spend overseas.

[BlackRain]

Great post. You took the words from my mouth. Any economics major would laugh at this thread because so many variables were left out. Its easy to just look at what you spent off the top but its so much more than that.

Apparently people are blind to the fact that this administration is cutting spending at home to spend overseas.

The study was done by Robert Whaples, professor of economics at Wake Forest University.

Given the sky is falling mantra over spending with the War in Iraq (2% of our GDP), you would think that we were headed for a fall economically.

However, historically, after WWII when we spent/borrowed more than our GDP (130%); the USA economy flourished. More roads, infrastructure, businesses, homes, industries, and technologies were created than before the war. The standard of living for every American increased dramatically.

So to compare war time spending with harming our economy in the future is a bit of a stretch of the imagination when using historical data.

[budgie]

Not breaking the bank huh? Well it's nice to know - let's all stay another three years then...

[micronazi]

Also keep in mind that the numbers are compared with the total cost of Iraq so far / one years GDP. Spread that number across the several years the Iraq war has been going on and th number is even less. Also, I wanted to point out that while people are buying up U.S. treasury notes, we are buying quite a bit from other countries. That is what ties all of our economies together. If I'm not mistaken the U.S. has a tremendous amount of Japanese assets and so in effect we chain ourselves together. I believe that the only time our economy will be in danger is when OPEC stops exporting or the Euro suddenly becomes the international standard...even if that happened the dollar would be worth less but could still stabilize and be worthwhile.

Regards,
micronazi

[pathfinder82]

The study was done by Robert Whaples, professor of economics at Wake Forest University.

Given the sky is falling mantra over spending with the War in Iraq (2% of our GDP), you would think that we were headed for a fall economically.

However, historically, after WWII when we spent/borrowed more than our GDP (130%); the USA economy flourished. More roads, infrastructure, businesses, homes, industries, and technologies were created than before the war. The standard of living for every American increased dramatically.

So to compare war time spending with harming our economy in the future is a bit of a stretch of the imagination when using historical data.

and many other folks in the same field see it differently. So you tell me who to believe? I know what I see, I know what I hear. The fact is their are 3rd world countries doing better than us all around right now.

[ed316]

and many other folks in the same field see it differently. So you tell me who to believe? I know what I see, I know what I hear. The fact is their are 3rd world countries doing better than us all around right now.

If they were doing better than us than they wouldn't be considered a 3rd world country

[stonecutter]

The real cost, of course, is in human lives, manifested in the debate about whether it is worth losing a few thousand American lives in order to liberate 23 million people.

Yeah, that's the reason America went to war in iraq. :) :(


I believe that the only time our economy will be in danger is when OPEC stops exporting or the Euro suddenly becomes the international standard...even if that happened the dollar would be worth less but could still stabilize and be worthwhile.
Yeah, and it's interesting that Iraq in 2000 dumped the U.S. dollar standard and switched over to the Euro. I think your assessment of what would happen to the U.S. economy if OPEC followed suite and also adopted the Euro, is overly optimistic. So did U.S. war planners apparently.
But you won't find much support on this forum for what you say about the Euro versus Dollar war. Which is surprising, considering comments like the following, talking about how the U.S. is able to maintain such a huge deficit:

It will work as long as the US$ is accepted as a global reserve currency

This isn't to say the war in Iraq wasn't necessary. It obviously was, for the reasons outlined above. But it had to be marketed to the American people using such knee-jerk response terms like "Freedom" and "Democracy", otherwise it would have been a harder sell to just say that they were invading for the sake of money.

[micronazi]

The Euro is an extemely viable alternative to the dollar, and the dollar won't always be the national currency forever. I'm optimistic that it would stabilise relatively quickly because no one wants to suddenly jeopardize their current investments in the U.S. economy. Everyone is buying up bonds from the treasury and then switch to the Euro, bam...everyones investments drop suddenly and quickly. could be a welcome transition if done properly. Now, OPEC on the other hand could switch to the Euro and that would significantly hurt the U.S., but hurt everyone else as well...except probably OPEC.

This is all amature speculation, I'm no economist, but it seems plausible.

Regards,
micronazi

[Clarsachier]

It doesn't matter how much of a percentage of the GNP the war costs since U.S.s in a deficit.

The article ignores quite a few fact to try to make the assertion that 'the Bank's not being broken.'

And I especially can't understand why anyone would see this article as logical
since since 'U.S. spending exceeds revenue.' (Except for folk who don't have income and so, don't know how to balance a checkbook.)

Also, the author compares the % of GDP that this war costs with wars that weren't fought when the U.S. was in deficit. (There that word again!)

Budget:
revenues: $2.119 trillion
expenditures: $2.466 trillion, including capital expenditures of NA (2005 est.)

http://www.cia.gov/cia/publications/factbook/geos/us.html

BTW, the deficit is : $8,174,270,999,692.73

http://www.publicdebt.treas.gov/opd/opdpenny.htm

What a dumb article.

[stonecutter]

Now, OPEC on the other hand could switch to the Euro and that would significantly hurt the U.S., but hurt everyone else as well...except probably OPEC.


Except probably Europe as well. Makes sense as to why France and Germany spearheaded the opposition to the war...

[BoyElroy]

It doesn't matter how much of a percentage of the GNP the war costs since U.S.s in a deficit.

The article ignores quite a few fact to try to make the assertion that 'the Bank's not being broken.'

And I especially can't understand why anyone would see this article as logical
since since 'U.S. spending exceeds revenue.' (Except for folk who don't have income and so, don't know how to balance a checkbook.)

Also, the author compares the % of GDP that this war costs with wars that weren't fought when the U.S. was in deficit. (There that word again!)

Budget:
revenues: $2.119 trillion
expenditures: $2.466 trillion, including capital expenditures of NA (2005 est.)

http://www.cia.gov/cia/publications/factbook/geos/us.html

BTW, the deficit is : $8,174,270,999,692.73

http://www.publicdebt.treas.gov/opd/opdpenny.htm

What a dumb article.



There have been many articles written by various economists that warn against trying to explain macroeconomic theory through the lonely prism of one's personal checkbook. The British economist Keynes held to the theory that deficit spending was actually a desirable thing for national banks and that government borrowing was necessary for fueling growth. Your analysis here is far, far too simplistic. The US has been running deficits for decades while registering relatively healthy growth rates. The problem recently is that while the US Fed has been pursuing a relatively low interest/high growth policy, other western nations have been following a high interest rate/anti-inflationary policy, isolating the US as the sole "locomotive" for growth in the G8. This has been changing slowly over the past year as expansion in Japan and Russia finally takes hold, but without massive US consumer spending, the world economy would have been in tatters the past few years.

Yes, there is a human cost to the war but economics being what it is, you have to try to stick to the numbers as much as possible and the numbers really point to the fact that the US economy can easily carry the financial "load" of the current military crisis. Anyone rememre War Bonds from WII? Well, that was a good exampole of deficit spending and yet we look back at that time as the period when the US economy finally recovered from the negative growth of the Depression.

The Euro has probably seen it's high water mark for the year. With the energy crisis looming via its eastern borders and political unrest in Iran and other hotspots, US T Bills will continue to be the international reserve of choice.

[soprano]

LOans i guess.

[Crassus]

Here is another point of US debt:


The United States' current-account deficit is a figment of bad accounting. If only


http://www.economist.com/images/20060121/CFN179.gif

STARE at something long and hard enough, and it will begin to swim before your eyes. Economists have been scrutinising America's current-account deficit for years now, and they are no closer to agreeing on what they are looking at. Now two economists at Harvard doubt whether the deficit even exists. Ricardo Hausmann and Frederico Sturzenegger first put this claim in a working paper* (http://www.economist.com/finance/displaystory.cfm?story_id=5408129#footnote1) released last November. Your correspondent has blinked twice since then, but the claim has not gone away. On the contrary, it is gathering moss† (http://www.economist.com/finance/displaystory.cfm?story_id=5408129#footnote1).
At the heart of the argument is a well-known paradox. In the mainstream view, America is now the world's biggest debtor. Thanks to its chronic trade deficits, it stood $2.5 trillion in the red at the end of 2004. And yet it still somehow manages to earn more on its foreign assets than it pays out to service its much bigger stock of debts: $36.2 billion more in 2004.

...You can calculate a price for an asset from the earnings it provides. Messrs Hausmann and Sturzenegger elect to value America's net foreign assets at 20 times their annual earnings, which corresponds to a 5% rate of return. Valued at this ratio, America's national “portfolio” of foreign assets and liabilities is really worth $724 billion, not minus $2.5 trillion. What is more, if its foreign assets are as stable as the authors say, it follows that “the country has not been running a deficit.”


Rest:http://www.economist.com/finance/displaystory.cfm?story_id=5408129

So, happy news USA can keep borrowing practically forever if you believe these guys.
... but thank God mainstearm of economists do not. And where on earth originates idea that war is good for economy? War is money taken away from other consuming, investment and goverment spending, in other words: wasted money for unproductive investment.

[BoyElroy]

Hey Crassus,

Interesting points that you bring up. Regarding the current account deficit, there is mainstream consensus that the continuing dynamic is a train wreck waiting to happen. The question seems to be, will the situation be self-correcting or will an external crisis result in a sudden flight from and devaluation of the US dollar?

Governments have two broad sets of tools to manage their economies, fiscal policy and monetary policy. The latter basically is what Alan Greenspan was good at, setting interest rates and using the money supply to control growth targets and expansion. Fiscal policy is basically where governement tax policies and budgets come into play. Most economists at this point have come out and said that monetary policy alone at this point won't be able to halt the continuing account deficit. So what alternatives are there?

Let's check out some facts and definitions first:

"Current account deficit" is the broadest measure of the difference between U.S. imports and exports of goods, services and capital. It is expected to rise above 7% of U.S. gross domestic product by the end of 2006.

The US deficit hit a record 5.7% of GDP in 2004.

Basically, the deficit means that the U.S. is consuming more than it is producing. The United States has run a current account deficit every year since 1991.

So what is to be done at this point? Again, the mainstream view points to the following course of action: the U.S. should cut its budget deficit, China should end its effective "peg" to the U.S. dollar, and Japan and Europe should loosen monetary policy to increase domestic demand.


But things aren't as sinple as you'd think. Lowering the US budget deficit, for example, would do nothing to lower the trade gap between the US and its trading partners. Many economists feel that the US has to increase its savings rate in order to bring some stability to the trade balance yet this would decrease GDP and slow growth around the world, something which is an extremely delicate matter at this point.

Ironically, as the US deficit increases, this will put upwards pressure on long term interest rates, which will attract more overseas investment.

In an ideal world, as the current account deficit grows, this will place downwards pressure on the dollar. In turn, the cheaper dollar will increase US exports (as US made goods become cheaper) and make imports more expensive. This, in turn, will correct the trade imbalance without a severe correctional crisis. But who knows if this will happen or not?


As far as military spending goes, how is military spending any different than any other form of government purchasing project? The US pays General Dynamics, General Dynamics in turn, pays it's employees, who in turn, pay Ford to buy a new Mustang. This money gets re-cycled through the economy just as any other investment dollar would. Is the Pentagon fundamentally different, as a bureaucratic entity I mean, from the US Postal service? The US already outspends other OECD countries in education and medical programs (per capita). How is the Pentagon going out and buying 183 F-22's any different from the US Postal service buying 183 tractor trailers for its mail service? Both are capital outlays and both purchases will create employment for large numbers of workers. Engineers will get paid, laborers will get paid, manufacturers will earn profits. Both provide "essential" government services; mail delivery and security. So again, how is military spending so fundamentally different than any other sort of government spending project?

[Clarsachier]

There have been many articles written by various economists that warn against trying to explain macroeconomic theory through the lonely prism of one's personal checkbook. The British economist Keynes held to the theory that deficit spending was actually a desirable thing for national banks and that government borrowing was necessary for fueling growth. Your analysis here is far, far too simplistic. The US has been running deficits for decades while registering relatively healthy growth rates. The problem recently is that while the US Fed has been pursuing a relatively low interest/high growth policy, other western nations have been following a high interest rate/anti-inflationary policy, isolating the US as the sole "locomotive" for growth in the G8. This has been changing slowly over the past year as expansion in Japan and Russia finally takes hold, but without massive US consumer spending, the world economy would have been in tatters the past few years.

Yes, there is a human cost to the war but economics being what it is, you have to try to stick to the numbers as much as possible and the numbers really point to the fact that the US economy can easily carry the financial "load" of the current military crisis. Anyone rememre War Bonds from WII? Well, that was a good exampole of deficit spending and yet we look back at that time as the period when the US economy finally recovered from the negative growth of the Depression.

The Euro has probably seen it's high water mark for the year. With the energy crisis looming via its eastern borders and political unrest in Iran and other hotspots, US T Bills will continue to be the international reserve of choice.


The fact that when we (the U.S.) borrows money, we have to pay it back IS
simple.

Trying to assert that it's okay, or even a good idea to spend money you don't have as per Keynsian Socialist economics is most definately complicated.

And theoretical. Plus, it's off topic.

The topic's the authors usage of the GDP comparison to make his (vague) assertion that's something to the effect that, 'the Iraq war's not breaking the bank.'

That's why I used FACTS to show that since we're spending money we don't
have - the revenue comparison's a farce.

Start a thread about theory ; Keynesian/socialist economics vs. the alternative so it has it's own venue.

[BoyElroy]

The fact that when we (the U.S.) borrows money, we have to pay it back IS
simple.

Trying to assert that it's okay, or even a good idea to spend money you don't have as per Keynsian Socialist economics is most definately complicated.

And theoretical. Plus, it's off topic.

The topic's the authors usage of the GDP comparison to make his (vague) assertion that's something to the effect that, 'the Iraq war's not breaking the bank.'

That's why I used FACTS to show that since we're spending money we don't
have - the revenue comparison's a farce.

Start a thread about theory ; Keynesian/socialist economics vs. the alternative so it has it's own venue.



First of all, let's chill out. No need to get all worked up over economic policy, my man.

When you say that the US is borrowing money and that we have to pay it back, let me ask you, whom are we borrowing from and who do we have to pay back? You see, this is where trying to look at monetary policy as an analogue to your checking account breaks down.

When you say that we're spending money that we don't have, how do you think bridges and buildings and highways get built? Local governments issue bonds, which are purchased by individuals, funds, brokers, etc., who are in turn, given assurances that they will get cash back plus interest, in 10 years, 20 years, whatever. Governments couldn't operate without the central ability to borrow money.

In general I'd suggest that you stop trying to compare national monetary and fiscal policy to personal finance issues. They are very different animals and will only confuse you further if you continue down that non-virtuous circle.

[Clarsachier]

First of all, let's chill out. No need to get all worked up over economic policy, my man.

Dude; I wasn't YELLING! We're good. I'm just saying a Keynesian economics debate is off topic. And I suggested that it might be a good topic by itself. I applaud you - you're thinking for yourself and you're
not afraid to put your beliefs in public scrutiny.



When you say that the US is borrowing money and that we have to pay it back, let me ask you, whom are we borrowing from and who do we have to pay back?

China's the biggest 'holder of the U.S. national debt' with currently 161 Billion. What's your point?

http://www.bloomberg.com/apps/news?pid=10000039&sid=aEBBmwvtNuxA&refer=columnist_pesek

You see, this is where trying to look at monetary policy as an analogue to your checking account breaks down.

The current list of countries that hold the U.S. debt. is easily available. The anology doesn't break down. In your own words, 'we're talking dollars and cents."

When you say that we're spending money that we don't have, how do you think bridges and buildings and highways get built? Local governments issue bonds, which are purchased by individuals, funds, brokers, etc., who are in turn, given assurances that they will get cash back plus interest, in 10 years, 20 years, whatever.

Governments couldn't operate without the central ability to borrow money.

In general I'd suggest that you stop trying to compare national monetary and fiscal policy to personal finance issues. They are very different animals and will only confuse you further if you continue down that non-virtuous circle.

Non-virtuous??? I'm a bad man for making that anology? I'm not sure who's confused here! ;-)

The point is, that the author's GDP comparisons aren't a valid economic comparison. Neither's his conclusion - 'breaking the bank' is slang meaning just about anything the user intends.

[BoyElroy]

Non-virtuous??? I'm a bad man for making that anology? I'm not sure who's confused here! ;-)

The point is, that the author's GDP comparisons aren't a valid economic comparison. Neither's his conclusion - 'breaking the bank' is slang meaning just about anything the user intends.


"Non-virtuous Circle" doesn't really have a direct correlation to the moral term, "virtue". It's basically a term commonly used in economics and science.

Here's a good definition:

Non Virtuous Circle

A condition in which an unfavorable circumstance or result gives rise to further incorrect or unfavorable results.

As for your comments on the article, well, to each his own.

Later, man.

[BlackRain]

It is really sad to read some posts here.

Most of you have no idea what you are talking about and can only quote 'michael moore' type anti-Bush sources for your facts.

The USA has an exponentially larger deficit during WWII than today. And, during WWII the USA spend 130% of it's GDP on the war as compared to the war in Iraq which only accounts for 2% of our GDP.

There is no comparison, just leftist whinning.
http://traxel.com/deficit/deficit-percentage.png

Click link to see non-resized graph: http://traxel.com/deficit/deficit-percentage.png

[seva108]

Yeah, that's the reason America went to war in iraq. :) :(


Yeah, and it's interesting that Iraq in 2000 dumped the U.S. dollar standard and switched over to the Euro. I think your assessment of what would happen to the U.S. economy if OPEC followed suite and also adopted the Euro, is overly optimistic. So did U.S. war planners apparently.
But you won't find much support on this forum for what you say about the Euro versus Dollar war. Which is surprising, considering comments like the following, talking about how the U.S. is able to maintain such a huge deficit:


This isn't to say the war in Iraq wasn't necessary. It obviously was, for the reasons outlined above. But it had to be marketed to the American people using such knee-jerk response terms like "Freedom" and "Democracy", otherwise it would have been a harder sell to just say that they were invading for the sake of money.


Fascinating. Are you saying Europe supported Saddam for financial reasons? Pretty sick....

[ViktorNavorski]

China's the biggest 'holder of the U.S. national debt' with currently 161 Billion. What's your point?

China also has a banking and industrial sectors over a trillion dollar in debt with an average injection of over $60 billion a year to keep it from sinking further, all thanks to foreign capitals, mainly from Uncle Sam. With U.S. multinationals being the main factor in its growth, with the current U.S. interest rate more lucrative than anything Chinese's bond market can offer, they will keep buying our T-bill and so what is your point.

The U.S. is also a holder of other national debts and others also constitute a significant portion as holder of U.S. debt. With the U.S. anchoring this ironic interconnected circular status quo.

[ogukuo72]

The Euro is an extemely viable alternative to the dollar, and the dollar won't always be the national currency forever. I'm optimistic that it would stabilise relatively quickly because no one wants to suddenly jeopardize their current investments in the U.S. economy. Everyone is buying up bonds from the treasury and then switch to the Euro, bam...everyones investments drop suddenly and quickly. could be a welcome transition if done properly. Now, OPEC on the other hand could switch to the Euro and that would significantly hurt the U.S., but hurt everyone else as well...except probably OPEC.

This is all amature speculation, I'm no economist, but it seems plausible.

Regards,
micronazi

That certainly is a possibility, but not at the moment. The Euro isn't likely to replace the USD as the world wide currency when the EU remain weak economically as a whole, and when its trade with Asia at such low levels.


hina also has a banking and industrial sectors over a trillion dollar in debt with an average injection of over $60 billion a year to keep it from sinking further, all thanks to foreign capitals, mainly from Uncle Sam. With U.S. multinationals being the main factor in its growth, with the current U.S. interest rate more lucrative than anything Chinese's bond market can offer, they will keep buying our T-bill and so what is your point.

The U.S. is also a holder of other national debts and others also constitute a significant portion as holder of U.S. debt. With the U.S. anchoring this ironic interconnected circular status quo.

Viktor, you made another good point. Do you happen to be an economist by any chance? :)

[Clarsachier]

China also has a banking and industrial sectors over a trillion dollar in debt with an average injection of over $60 billion a year to keep it from sinking further, all thanks to foreign capitals, mainly from Uncle Sam. With U.S. multinationals being the main factor in its growth, with the current U.S. interest rate more lucrative than anything Chinese's bond market can offer, they will keep buying our T-bill and so what is your point.

That is the point. That the U.S. is in debt to China and not vice versa.


The U.S. is also a holder of other national debts

and others also constitute a significant portion as holder of U.S. debt.

Correct - and your point?

With the U.S. anchoring this ironic interconnected circular status quo.


If you're saying that China's tied to the US economically, that's correct. And well known.

With no data to back up your opinion, your comments will have to be taken with a grain of salt.
It sounds like you're saying that U.S. investment in China offsets the debts.
[/COLOR]

[Crassus]

It is really sad to read some posts here.

The USA has an exponentially larger deficit during WWII than today. And, during WWII the USA spend 130% of it's GDP on the war as compared to the war in Iraq which only accounts for 2% of our GDP.
Yes, youre quite right, when you teach parrot saying supply and demand it thinks being an economist:)

But seriously, deficit is not a problem if you invest it productive projects I just don´t believe Iraq being one of those projects. Even if Iraqi Freedom is a dubious enterprise at best you must say tax cuts financed with debt is even worse.

Hopefully this graph will help to illustrate my point:

http://zfacts.com/metaPage/lib/National-Debt-GDP.gif
You can see that when GDP growth remain strong, the relative level of debt dropped even if in the absolute amount kept raising. Late 60´s on inflation kept the level of debt diminishing. So now we come to my point: in order to cope US needs strong economic growth years to come or they can inflate the economy to take care of the debt. Inflation is like bank robbery in the wild west, others save - you rob and spend their money. Which of the options are more likely to happen?

and what comes to "leftist whinning":


On February 5, 1981, two weeks after taking office, in his "Address to the Nation on the Economy" Reagan said:
By 1960 our national debt stood at $284 billion. ... Today the debt is $934 billion. ... We can leave our children with an unrepayable massive debt and a shattered economy."

[stonecutter]

Fascinating. Are you saying Europe supported Saddam for financial reasons? Pretty sick....


That's exactly what I'm saying. And don't pretend America is any better.
Welcome to the harsh reality of world politics.