Why Austerity?

Suddenly it seems to be all the rage.  There’s just one problem. If you actually wanted to try to prolong a recession you couldn’t do much better than imposing austerity.  Well maybe having a nuclear war would be better, but I digress. It hasn’t worked. It has never worked to bring us out of a recession or depression.

In a nutshell, here’s the problem.

The Government cuts back spending.  Now, some people will tell you about welfare mothers (usually without much in teh way of documentaion) roads to nowhere, or expensive military projects.  Which is good, except that is all examples of money that is going to employ people either directly (by employing them) or indirectly (by employing the people who clean their offices, build their roads, and deliver pizza).  Even better, there are very few jobs in teh government that can be considered truly “rich” upper class? Yeah. More usually middle class– and both those classes tend to put a lot of their money into the economy. Unlike the povertry stricken, they have money to spend, unliek the mega wealthy, they have other things to buy than super luxuries and don’t tend to stick it all into investments. In other words, the money goes back into the economy.

Fine, so Austerity hits, and those leeches on the public purse are sent packing.

Where do they go?  Well, in good times, probably to jobs in the public sector– that’s why austerity isn’t so bad in good times.

In case you haven’t noticed it’s not good times.  So they go…to the unemployment line.  Where they take money, but no longer produce anything and even better, can’t buy very much.

Now this trickles down. If you’re poor you don’t go on vacations– tough luck hotel clerk. You don’t buy as much pizza– so long delivery boy.  You don’t buy as much gas, etc, etc, etc. It has a ripple effect throughout the entire economy…

Which comes back as less in the way of tax revenues, so after this glorious move against waste, the government…

… Is worse off than it was before.

I wish this was a bad joke, but right now the people in charge aren’t simply driving for a cliff, they’ve got the accelerator pressed down against the fire wall.

Downgrade madness

The Stock markets are falling, in the aftermath of S&P’s downgrade…and people are rushing to…

Treasury Bonds.

That’s pretty odd, given that the fears were originally a default on the part of the US, but there are two reasons for this, in my opinion.

 

1. The US is the only game in town.  The Euro is moribound with ever more bad news coming out of member nations.  It’s not just Greece any more, it’s Spain and Italy and nobody has a clue how far the contagion may go–or whether or not the more healthy members, such as Germany will continue to support the unhealthy members. Not being able to pay because congress is acting like a bunch of five year olds is bad– but better then not being able to pay because you have no money in the bank.

2.  Our debt isn’t that bad.

Contrary to the tea party hysteria, the US debt isn’t that bad– letting the Bush tax cuts expire would go a long way towards fixing it, and that would still leave us far below or traditional tax rates, even when you consider how bad they were under such noted Commies, as Ike and Nixon. In other words, and this is related to 1. it’s not that the US doesn’t have the ability to deal with the debt, it’s that we currently don’t have the will.  But the Market is, I believe considering the fact that at this point, if crunch time hits, we can deal with our debt problems and thus a real, as opposed to political, default remains outside of the realm of probability.

 

Oh, there’s another point– if the US collapses, the entire global economy goes down with us– so it’s also likely that investors realize that if the US bond market collapses, it’s not like the money you’re losing will mean anything.

 

The real danger of the debt ceiling fight.

It’s not a real default, but a political default.

It’s important to note that nobody believes we can’t pay. This isn’t like Greece’s economic troubles, or a case where some disaster ended our ability to physically make good on our debts.

Some would say that’s good– there’s little chance the markets will react poorly since they know that sooner or later, we can, and likely will, pay our debts.

That is completely incorrect. The fact that this potential default isn’t involuntary, but a process of our political dysfunction makes things worse, not better.  The first point is to remember that bonds, currency, our entire economic structure infact, is backed by confidence, not anything physical.  You accept dollars because the government says they’re legal tender– and because we trust the government to insure that they’re honored. Nations where this doesn’t happen suffer people either not using the currency at all, using a currency that inflates as its value drops.

The system is a trust based system, and the fact that the United States has never defaulted is what keeps the trust up. You invest in Bonds because you know, that unlike the bank of developing-world-land, you won’t find out one day that the nation has decided to nationalize your investments, or simply won’t honor them because the new occupant of the capitol says not to.

And this trust is based in large part on the assumption that the self interest of the United States will trump political manuevering.

But, and this is the dangerous part, if it doesn’t get fixed, if we hit August 2, then that assumption will be proven false– it will prove that in fact the political system in the US is so dysfunctional that self interest no longer trumps politics.

And just as a person who lies once is never fully trusted again, the question on every investors lips will be: “what if this happens again?”  Instead of being a rock solid gurentee, US debt, like many other nations, will become a dangerous investment, where the fear of default is always present.  Yes, you could say it will never happen again– but until now, people were saying there was no chance– not one, of it happening at all. Ask any investment broker and he’ll tell you that political instability is a big part of decisions to not invest in a region– and political instability doesn’t just mean “factions shooting at each other” it also covers political systems that simply can’t make vital decisions, which is what we have here.

And then of course there’s the emotional consequences– the people of the world, if a US political tussle plunges them into a recession, won’t be very eager to trust, or forgive us again.  The fall out from such a default will extend to every form of investment in the United States public and private sector.

And remember, this is, in some political corners, by choice.

We need to remember that, because if we don’t fix this, you can bet your ass that the rest of the world will remember it.

How to support Al Qaeda in one easy step.

And no, it’s not in Iraq– It’s in Bahrain.

The sentencing of four protesters to death, in court proceedings that would be familiar to any small town Southern Sheriff in the 1950’s, makes it plain that the intent isn’t simply to defeat the protesters but to crush them. While the west continues to bomb Libya, the bleatings on Bahrain are distinguished by their half hearted nature, and in fact in many places, an obvious hope this will go away so that the current leadership, which is quite amiable to taking our suggestions, remains in place, comfortably swilling at their troughs.   That’s why we hear so much about these Libyan mercenaries, yet the full scale incursion of Saudi troops (troops supported, trained and equipped by the West, not least among them, the United States.) goes without much comment.

The level of mental gymnastics to explain why nothing has been done– and yes, when you consider all the levers the US and west have, “nothing” is the operative word here, would be amusing, if it wasn’t so sickening.

And what’s worse?  We’ve been down this road before in Iran.  Bahrain may suppress this current movement– they after all, came to a gun fight with some knives, but the only thing that means is that any hint of compromise will be burned away.  The fearful may retreat– make no mistake, they will never support the government again, but they will at least stay in their homes.

That is, until the other side of the movement, the one that will be purged of any moderation, manages to score a victory.  And this side of the movement, infuriated, and well aware that from this point on, words and demonstrations will be met with guns, will turn to anyone willing to provide them with guns.  And among those groups would be Iran or groups like Al Qaeda’s various franchises.

And one can hardly blame them– the US and west after all, in real terms, reacted with a giant yawn, combined with some annoyance that the Bahraini security services weren’t able to make this problem go away more quietly.   For the protesters it’s now become a life and death struggle, and you take help, well from anyone you can get it from in those sorts of struggle. After all, Churchill was the one who made the perceptive comment about aid from the devil.

If the US was worried about Iranian influence, this is the worst possible outcome– an allied nation now that rules solely on the backs of foreign mercenaries and military units, one that no longer has even the smallest shard of legitimacy.  The Christian Science Monitor calls it accurately:

The government’s strategy of crackdowns cannot be a long-term solution, says a Western observer in Bahrain who asked not to be identified to avoid repercussions from the government.

“Ultimately countries that start on this path have to end in reform. The only question is whether it’s five years, 10 years, or 15 years, and what the body count is,” says the observer. “The only options right now are substantial reform or a severe crackdown in which they kill a lot of people and pin them in their villages. And that’s not sustainable. I don’t care if you’re talking about 20 years, at some point that ends.”

What has happened is that the US had made the creation of another radical government certain– not this year, maybe not next year, but revolutionaries are often patient– worse, it has provided an easy PR victory for anti-US forces, who can point at bombs in Libya, a nation opposed to us, and then to the ineffectual response in Bahrain. The Shia will once again see Iran as one of their only champions, and radical movements will gain more adherents– every doctor fired for treating patients, every individual arrested for participating in protests will have received a graduate level education in why bombs are better than words.

Iran is handed another group of Shia who now need support from any group they can get it, and various radical groups know that now they have yet another potential source of recruits, ones repressed by yet another corrupt, western supported oligarchy.

Tony Blair: Libya could be a “Gold mine.”

We have it from the former PM of Great Britain:

As Nato increased air strikes on the dictator’s forces, Britain’s former prime minister insisted Libya should open up its society and economy.

‘The thing about Libya is that potentially it is a goldmine of a country – it has got fantastic financial resources, it has got amazing tourist sites,’ Mr Blair told Danish TV.

‘If it opened up its economy and opened up its society and takes that route of reform once they change government, then Libya will be a phenomenally successful country but we need to be there to partner them to do that.’

He also warned that anti-Gaddafi rebels may disagree about how the country should be run if the leader is toppled.

‘I know quite a lot about what makes up the different compositions of the rebel groups – some will be people we would want fully to support, others would have a somewhat different view as to how Libya develops,’ Mr Blair said.

One would hope he means that we don’t want Al Qaeda in Libya, or groups that try and oppress women, or some other group, but the context of his little set of comments makes it pretty plain– we don’t want people in charge who might have their own ideas on how to run Libya and esepcially its economy.

Consider this– the move of NATO is right now setting the nation up for a long stalemate.  The US, UK and French armed forces are not staffed by idiots–they know this.  Even ignoring the illegal nature of moving UNSC 1973 from no-fly and protecting citizens to regime change, the current tactics are tailor made to insure that neither side can win quickly–and whatever side that does win is confronted with a shattered nation, and have seen their own forces bled white.  Not only that, but it’s safe to say the other outcome will be such a hardening of attitudes among the former combatants that whoever wins will need external support to maintain control.

Support which no doubt the UK, US and France will be willing to provide, for a few minor considerations, say favorable terms on the various oil concessions, perhaps a veto on any foreign agreements they might make, how about cutting the Chinese and Russians loose from any deals?  After all, you want to be a partner, don’t you?

Welcome to the 21st century– for nations like Libya, it’s going to be just like the 19th century was for Latin America with the US moving in changing governments to suit our economic interests.

Wow, and people thought Bush was bad.

Remember one of the complaints about Bush?  That he got us into wars we didn’t need to be in, for bad reasons?

We probably owe him something of an apology, because certainly this Libyan idiocy is on a par with his adventures.

Now, Colonel Gaddafi is a very bad man.  He’s likely not as bad, on a bodies per year basis as Saddam Hussein, but he’s still a very bad man.  However, being a very bad man, if it is grounds for bombing you, would see the bomb industry probably become the worlds #1 employer.  We need more than that.

Well, he’s done terrible things to his citizens!  That was the argument we got, when the US entered into enforcing a no-fly zone, without mind you, the president getting permission from Congress. 

Fine.  The argument could be made that in this case, the facts on the ground were moving too fast for Congress to take action.  But now we’re seeing a move from no-fly to regime change.

All this from a no fly resolution– a resolution which it must be stated, in no place makes the statement that Gaddafi must go.

in fact, this part:

“6.   Decides to establish a ban on all flights in the airspace of the Libyan Arab Jamahiriya in order to help protect civilians;”  Refers explicitly to civilians, but groups engaged in armed rebellion are not treated as civilians– they’re treated as combatants.  The use of aircraft to directly support the rebels is nowhere backed by the resolution, which right now is the only legal fig leaf these attacks have going for them.

Now, why should we care?  Again, he’s a very bad man.  Well, first of all, so far he’s a very bad man who is winning. What happens when the air strikes alone, as has been proven from WWII on, don’t achieve the goal?  Do we storm the beaches?  If not, what than– he’ll have little incentive for ever dealing with the west again, since he’ll have pretty well eliminated his internal competition.

Second of all, we know very little about the rebels– if upon entering Tripoli, courtesy of Western fire power, they engage in a celebratory massacre?  Are we also now required to provide security and internal governance for Libya?

Lastly, and from the long term perspective, most worrying is Sarkozy’s statement here:

EUOBSERVER / BRUSSELS – French President Nicolas Sarkozy has warned all Arab rulers that they risk Libya-type intervention if they cross a certain line of violence against their own people.

The president told press at an EU summit in Brussels on Thursday (24 March) that UN Security Council resolution 1973 authorising air strikes on Libya has created a legal and political precedent on the “responsibility to protect.”

Very inspiring isn’t it?  Especially since the implication is that this single resolution, which never even referred to regime change, now has produced a lasting precedent, one which presumably means nations won’t even have to bother with that pesky security council.

Of course, because of the current problems with NATO’s bombs, it’s likely that it’s a precedent the  United States will have to back up– one hopes that this time, Congress, of either party, might be consulted.

So there you are– on flimsy reasons, an attack is launched against a foe that however nasty wasn’t at war with the US, which is now putting us in a position of not only risking an open ended involvement in  Libya, but opening up involvement in God knows how many other states, that has no end game, no exit strategy (well other than the good colonel dying and his replacements proving to be tractable democrats), at the very point that we continue to be stretched thin by our other military commitments.

Strangely enough, I thought one of the reasons we voted the Republicans out of the White House was to reduce this sort of thing.