Friday, September 28, 2007

Your War Costs

Perhaps the main reason Americans have left ‘W’ get away with his unfunded war in Iraq for so many years is the amazing ability of govt. to hide expenditures. If there is one thing the Federal Govt. can do well, it is hide massive spending and debt. After all, these are the guys who print the money and nobody knows just how much they are printing. In addition, when they need more they sell Treasury Bonds, the most secure investment on the planet since WW II.

The idea of hiding the cost of war isn’t new. Lyndon Johnson didn’t include the cost of VietNam in any of his budget requests for five years. He left the next president so much debt Nixon was forced to take America off the ‘gold standard’ that had been adopted during WW II when the world economy was in shambles.
Only America could back its currency with gold and silver, until VietNam. Even after removing this guarantee, American dollars remained the most secure currency backed by the most prosperous economy for the next thirty years.
All that began to change after the dot com bubble burst in 2001. For the next two years the US stock market struggled. Then, Bush invaded Iraq starting with the most expensive fireworks exhibition in history, “shock and awe”. The most shocking part of that display was the cost [CLASSIFIED].

According to the Washington Post, “…from $48 billion in 2003 to $59 billion in 2004 to $81 billion in 2005 to an anticipated $94 billion in 2006, according to the Center for Strategic and Budgetary Assessments. The U.S. government is now spending nearly $10 billion a month in Iraq and Afghanistan, up from $8.2 billion a year ago, a new Congressional Research Service report found. Annual war costs in Iraq are easily outpacing the $61 billion a year that the United States spent in Vietnam between 1964 and 1972, in today's dollars. The invasion's "shock and awe" of high-tech laser-guided bombs, cruise missiles and stealth aircraft has long faded, but the costs of even those early months are just coming into view as the military confronts equipment repair and rebuilding costs it has avoided and procurement costs it never expected.”

Each Tomahawk or SHRAM missile cost over $1 Million and so does each of the 3,700 MRAP armored transports now being airlifted to Iraq. We are spending over $322 Million a day in Iraq (vs $1M in VietNam) and some of the replacement costs for equipment and most of the medical costs for injured veterans have yet to be determined. Officially, war replacement parts were estimated at $30 Billion last year. But this week the sixth emergency spending bill (outside of budget) Bush has requested for the war is double last year’s $106 Billion request to which Congress added tens of billions more for MRAPs, medical care and other needed equipment.

All these figures are probably news to you since you never saw a penny of tax increase to pay for this war and the top 2% got huge tax cuts instead –a first during wartime. So far, Bush has spent over $1.5 Trillion dollars more than the govt. took in, almost all of it for his war on Iraq.

But don’t think you got away free and simply added this amount to our deficit. Eventually these huge figures have an impact, even on an economy the size of America’s. When tons of new paper currency is printed without income to support it and huge sums of treasury certificates are sold to foreign investors, there is an impact. The value of the US dollar compared to other major currencies is now at a 32 year low (when Nixon had to pay for VietNam).

Just this year the US dollar is down 8% so far and falling. Oil is priced in dollars so even though consumption currently justifies $70 a barrel, today’s spot price closed at $82. Americans are now paying a 15% penalty other countries are not paying because of a lack of confidence in our economy by other nations and economic policies Treasury Secretary Paulsen has put into place to hide the massive debt Bush has run up and stimulate US exports because of our massive exchange imbalance resulting from “Free” trade. What does this mean to you?

Take all your cash, savings, IRA’s and other investments. Take away 10%. That’s what you’ve lost to currency fluctuations and inflation this year. Over the past four years, you’ve lost 44% of the global buying power on your CD’s if you kept them in US dollars. While you thought you were earning 4.4%, after taxes, inflation, and currency fluctuations you were losing more than 5% in real value.
Retirees and others trying to live on investment income really got screwed and will feel the standard of living change, especially if they want to travel.

While global growth suggests the need for higher interest rates, the US FED lowered interest rates to stay out of recession. This will dry up foreign investment that has been paying for the war as investors move to more lucrative markets. To attract needed investment the Fed will eventually have to match global rates and send our economy spiraling downward as all commodity prices rise. This is called Stagflation. I’ve written about it before (see archives). It is out of our control. Only significant govt. spending restraint and years of low growth will pull us out. But our Congress doesn’t have the guts to cut spending so we may not see the end of Stagflation for a decade or more. By that time, MediCare funding will fail and Social Security will need major adjustments we can’t afford. Worse, individuals can’t even move to another country to avoid this mess. It is already too late for most of us. This is the true cost of the Iraq war to all of us.

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