Spending on defense - An indirect stimulus - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 16 August 2012
Spending on defense - An indirect stimulus A  A  A

Ouzilly, France

"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. Just wait 'til something happens; the crisis that began in '07 is still unresolved...with about $15 trillion in debt that should be paid off or written off. Lots of bad stuff still to come!

------------------ Everyone talks about their winners... What about the losing stock picks? ------------------

It's always good to acknowledge your loss making stock picks... You get to learn from them, and that helps to better the track record in the future.

Also our valued readers, like you, get a complete picture of how our stock picks are performing.

And that's exactly why we have always shared our loss making stock picks...

You see, an 81% success ratio, which our Blue Chip stock recommendation service has, is not a perfect score.

Both you and us know that! And that's why today we want to invite you to read every word of this message. In it we reveal 2 of our loss making picks, and share with you, exactly what we believe happened there. Read On...


We've been pointing out that the developed countries face a crisis. It is not the crisis you read about in the papers, however. It is more serious than that. Their model - developed by 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. 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. 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 '08, powerful debtors - such as Wall Street - wanted the feds to bail them out. Those bailouts...subsidies...backstops... and 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 WWII pulled the US economy out of the Great Depression.

Yes, WWII was a classic stimulus program. Trillions were spent. Trillions 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 only bring it up because Pentagon spending is in the news. Paul Ryan has been named the Republicans's #2 man. The Republicans have high hopes for him. Their #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 Adelman - 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 US is headed for disaster. He must know also that America could balance its budget simply by cutting out its excess military spending. But Adelman and the military industry won't permit a cut in the Pentagon/security budget. At this stage, coming out in favor of a balanced budget might be good for America, but it would be bad for Romney's presidential ambitions.

Romney is a smart fellow too. He knows the War Against Terror is a scam...and the wars in the Mideast have been trillion-dollar disasters. But Adelman is a staunch supporter of a militarized, aggressive Israel...backed by the Pentagon. A non-interventionist foreign policy would be good for the United States of America, but not for Mitt Romney's hopes for the White House.

Which brings us to Paul Ryan. Here's a guy who is supposed to be good with numbers too. He knows a 5 from a 7...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.

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

Yes, dear reader, the truth is obvious. The US spends far too much on war and preparations for war. The odds of being killed in a terrorist incident are 1 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. The authors look at 50 cases of supposed "Islamic terrorist plots" against the United States. What do they find. The alleged terrorist 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 your defense department to bother with, in other words.

Sure, if you've got money to waste, why not waste it anyway you want. The Pentagon can spend money as badly as anyone. But neither the US nor any other developed economy has money to waste. All are suffering from too much 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 US 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 costs the US about $1 trillion to $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.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Spending on defense - An indirect stimulus"


Aug 17, 2012

i am finding myself at home with your English but not with the English my fellow Indians write. bah...

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