Saturday, August 7, 2010

Gulam Mitha: Economic Justification For America's Next War

Economic Justification For America's Next War
By Gulam Mitha article link
August 06, 2010 | CounterCurrents

December 2007 was the start of the global recession which after 21 months would be termed as the Great Recession. The consensus of a recovery is in doubt in spite of the massive stimulus from USA, Europe, Japan and Canada. Bernanke on 21 July 2010 “warned” Congress that the economic outlook remains unusually uncertain. The global stimulus packages have been between US$ 1.25 and 1.5 trillion; with such massive injection, it was expected that the global economies would recover within 12-18 months and yet there is nothing but grey colors over the economic horizons. Why is the economy sluggish and what’s in it for a recovery by 2011 ? In order to answer the question, we need to look back over the past decade and examine the causes of the great recession and lessons learnt from the previous recessions.

I’ve been a witness to 6 recessions over the past 40 years, but none as worse than this last one. Contraction and expansion cycles are normal phenomena that occur in nature. The global economic crisis, part of a business cycle contraction, was one that essentially went out of control due to various factors, the principal ones being excessive speculation and greed. The warning signs of an economic slowdown were quite visible as early as 2006 and several economists had started to fire warning shots. Hearing the alarm bells, I was beginning to warn privately about the state of the economy.

I was in USA during the recessions of 1969-1970 and 1973-1974 and in Canada during the global recession of 1981-82 that had lasted 16 months.. The latter was mainly because oil prices had begin to spiral from $ 14 in 1978 to $ 40 by 1981-82 due to Iranian revolution and the Iran-Iraq war and the drive by OECD countries to become independent of Middle East oil . Businesses had scurried to find new energy sources in Europe, Canada, USA, Far East and S. America. Business expansion in the energy sector as well as stock market and housing speculation consumed much of the money supply leading up to inflation in the double digit teens. China and India were not part of the economic party then. Though the recovery started in 1984-85 as interest rates eased, full recovery did not occur till the 1991 Gulf War. The trough to peak expansion following that recession was 8 years.

On 29 October 2009, Mark Zandi Chief Economist and founder of Moody’s in a written statement before the US Congress Joint Economic Committee (JEC) stated that the great recession had finally come to an end in the US primarily due to the fiscal stimulus of $ 787 billion and that the economy was on the road to recovery. The recession had lasted 20 months with nearly 9 million lost jobs. As a result of the fiscal stimulus, the US has eased out of the recession but the unemployment continues at a sluggish 9%. The cause of the recession was an unprecedented global business expansion which included China and India, global credit consumer spending, housing and stock market speculation, oil prices rising from US$ 35 in 2005 to $147 by mid-2008 and the Credit Default Swaps. No wonder, the G7 nations had to inject such massive stimulus to save the economy and prevent a truly global depression.

The US is the economic engine that drives the global economic train. The world has been saving to satisfy the US thirst for consumer goods. 10 months out of a recession and a fragile recovery, there is more than $2 trillion stuck in the economic pipeline of which businesses are sitting on a mountain of $1 trillion. Businesses are unwilling to take the risks to kick start a growth towards recovery due to unusually uncertain circumstances.

The US economy is war based and has always been so. Expansions following contractions have been due to wars. Its not as if the US will not enter another war but more so where. The possible theatres are the Korean Peninsula, Iran or Pakistan. A war will be the catalyst that will flush the economic pipeline towards a business expansion, high profits, full employment of 4-5% and a GDP growth of 4-6% over 3-5 years. Every major expansion cycle has followed a war. The 1991-2001 trough to peak expansion followed the Gulf War and the 2002-2008 trough to peak expansion followed the Afghanistan and Iraq wars . The average peak to trough recession and trough to peak expansion cycles have been historically 10 months and 57 months, respectively. The US has barely nudged out of a recession over the past 10 months. If the historical business cycles in the US are any indicators, the US will likely enter another war between 2011 and 2012 to commence the business cycle of trough to peak expansion.

It should be borne in mind that China is the biggest creditor nation of the US. As reported in The Washington Times of 2 March 2010, according to Simon Johnson, Professor of Economics at MIT, it is estimated that China holds $ 1 trillion in US Treasury securities which is approximately 42-45% of the total Treasury debt held by “foreign ownership”. By no means is China the banker for the US; the world is. In the same Washington Times news, Major General Luo Yuan of Peoples Liberation Army and member of Chinese People’s Political Consultative Conference (CPPCC), said that China could sanction the US by economic means such as dumping US government bonds. China is now the second largest economy outstripping Japan but the US is far more advanced in economic and monetary management. By no means can China threaten economic sanctions on the US nor is its military and political strength equal to that of the US which is mainly due to the North Atlantic alliance. China stands out as a finger in strength whereas the alliance is like five fingers than make up a fist.

China and Russia have both supported the Iran sanctions and that they do not intend to be left out of a business expansion due to the forthcoming war, most likely in Iran. China and Russia have been past beneficiaries of Afghanistan and Iraq wars also. There is no bigger corporate profits, higher government taxes and consumer spending than in wars. But the costs in human lives and sufferings cannot be condoned.

The next war will economically benefit the UN-5—US, UK, France, Russia and China—as well as their allies. The UN-5 need to sell and test their military hardware by replenishing their existing inventory in a war and sell the outdated ones to the Arabs, share the spoils of war and begin production of the next generation of deadly weapons for the next after next war. Even the existing generation of conventional weapons and WMDs can wipe off this civilization to a great extent. If all goes as per Iran plan, Pakistan may be next. My good friend NH reminded me the other day of Arundhati Roy’s words “superpowers don’t need friends; they only need agents”. The only three remaining non-agents of USA or better yet UN-5 are Iran, Syria and N. Korea, jointly the axis of evil.

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