We Could Fix This...

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Published on Thursday, 16 August 2012 15:26

Written by Bill Bonner, Founder and President, Agora Inc.

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"I love cooking with wine," said our hostess last night, with a smile. "Sometimes I even put it in the food."

Nothing happened in the markets yesterday. But nothing is good. As long as nothing happens, we're all right.

The crisis that began in 2007 is still unresolved. And there's still about $15 trillion in debt that should be paid down or written off. Lots of bad stuff still to come!

We've been pointing out that the developed countries face a crisis. It is not the crisis you read about in the papers. It is more serious than that. Their model -- developed by Germany's first chancellor, Otto von Bismarck -- no longer works.

You can't spend more than you earn, generation after generation, and depend on bigger, richer generations to keep the whole thing going. In the developed world, at least, economic growth rates are now too low. Future generations are too small.

Commentators, economists and kibitzers focus on whether austerity or stimulus is the proper path to "recovery." The argument is fraudulent. Neither will work. If you owe more than you can pay, you can neither save nor spend your way out. When debt is bad, it is bad. Unpayable. Rotten. Worthless.

The only honest thing to do is to 'fess up... admit that you have erred... write it off... and get back to work.

But there is no truth so obvious that people can't deny it.

So when the debt crisis hit hard in 2008, powerful debtors -- such as those on Wall Street -- wanted the feds to bail them out. Those bailouts... subsidies... backstops... and the QE money printing continue. The latest is a $66 billion "stimulus" program announced by Brazil! Good luck with that.

And you want to know the biggest stimulus program of all time?

World War II. That's right. It is widely believed that the war pulled the U.S. economy out of the Great Depression.

Yes, World War II was a classic stimulus program. Trillions of dollars were spent. Trillions of dollars were lost. And at the end of it, the world was a poorer place.

But it didn't matter. Growth -- from the 1950s through the 1970s -- reduced the weight of debt and the pain of losses. The developed countries were rich again!

We bring it only up because Pentagon spending is in the news. Paul Ryan has been named the Republicans' No. 2 man. The Republicans have high hopes for him. Their No. 1 man is a dud. Nobody seems to like him. And no wonder. He seems hollow -- willing to say anything to get himself into the White House.

Romney is a rich fellow -- with a fortune of about $250 million. But Sheldon Adelson -- who funds many of the groups that support Republican candidates -- is much richer (about 10 times richer). Romney can do the math.

Romney is good with numbers. He knows the U.S. is headed for disaster. He must know also that America could balance its budget simply by cutting out its excess military spending. But Adelson and the military industry won't permit a cut in the Pentagon budget. At this stage, coming out in favor of a balanced budget may be good for America. But it would be bad for Romney's presidential ambitions.

Romney may be hollow. But he's not stupid. He knows that the "War on Terror" is a scam... and that the wars in the Mideast have been trillion-dollar disasters. But Adelson is a staunch supporter of a militarized, aggressive Israel... backed by the Pentagon. And Romney is "his man."

Which brings us to Paul Ryan. Here's a guy who is supposed to be good with numbers too. He knows a five from a seven. He can do addition and multiplication. He understands the difference between a gain and a loss. He can see what will happen if you continue to spend more than you earn.

Yet... surprise, surprise... there are no cuts to military/security spending in his proposed budget.

Yes, dear reader, the truth is obvious. The U.S. spends far too much on war and preparations for war. The odds of being killed in a terrorist incident are one in 3.5 million. Spending trillions to make war on terrorists... and probably inciting more terrorists to want to kill you... is money ill-spent.

And who are these terrorists?

Read John Mueller and Mark G. Stewart's "The Terrorism Delusion: America's Overwrought Response to September 11" in the latest issue of International Security. (You can find it here.)

The authors look at 50 cases of supposed "Islamic terrorist plots" against the United States. What do they find? The alleged terrorists were "incompetent, ineffective, unintelligent, idiotic, ignorant, unorganized, misguided, muddled, amateurish, dopey, unrealistic, moronic, irrational and foolish."

Not the kind of disciplined, sophisticated troops you'd want the Department of Defense to bother with, in other words.

Sure, if you've got money to waste, why not waste it any way you want? The Pentagon can spend money as badly as anyone. But neither the U.S. nor any other developed economy has money to waste. All are suffering from too much government spending... too much debt... and too many promises that can't be met. Unless they can find a new model, they're all destined for bankruptcy.

The U.S. is uniquely positioned, however. It wastes such a big part of its budget that its finances could easily be put in order. The waste could be stopped, overnight.

Fully loaded, defense, war and security cost the U.S. taxpayers about $1-1.2 trillion per year. Maybe $300 billion of that is for legitimate defense purposes. The rest -- about $900 billion -- could be erased from the budget and returned to the citizens. National bankruptcy, disgrace, pointless wars, inflation, depression -- all could be avoided.

This is so obvious that the Republicans' top dogs -- Romney and Ryan -- could see it if they wanted to. But it is not in their interest to open their eyes.