Zombie Wars cost a fortune

Nov 2, 2011

Paris, France

The Dow dropped 297 points yesterday. October may have been the best month for stocks in 37 years. But November could be the worst.

Gold fell a little yesterday, too, down $13. Oil is still over $90.

The newspapers tell us that disappointed investors are over the European deal. They thought they had that problem wrapped up with a bow. Apparently not...

First, Italian bond yields rose. All of a sudden the problem wasn't solved at all. It was bigger than ever.

And then the Greeks that they were going to have to vote on any further austerity measures. And you know what that means. They're going to vote no. No sensible people would agree to give up their ill-gotten goods so that they could be given to investors, speculators and the banks.

Ambrose Bierce described an election as an "advance auction of stolen goods." But today's elections auction off goods that haven't even been created yet...and probably never will be. A government bond is really a promise that the government will steal enough money to pay the interest and principle. Investors don't doubt its willingness. They doubt its ability.

So do we. Every government in the developed world is deeply in debt. Most countries have little margin to increase taxes, without hurting economic growth. You can only squeeze so much blood out of a population of turnips. When you get to the pulp...you have to find a new source of revenue. And few voters are willing to accept austerity just so rich, greedy capitalist bond buyers get what they've been promised.

The betting is that Greece will run out of juice sometime in the next few months. Greek bond prices have fallen so low that you can now buy Greek 1-year notes with a 200% yield. If all goes well, you will double your money in a year. If it doesn't go well...

...well, you take your chances!

It's precisely because investors don't want to take chances that the yield on America's 10 year note has fallen to under 2% again. The Greeks may not be good for the money. The Italians may be untrustworthy. And who knows what the French are up to! But you can count on gold ol' Uncle Sam. He may be a rascal and a scalawag...but he's got a printing press.

Besides, the way things are going, it looks like the dollar...and US government debt...may be the only things you can count on. That is, until they blow up.

But we're beginning to think it could be long time before this show is over. The world's financial system lurches from one crisis to the next. Risk assets go down. People seek the safety of the US bond government bond market. And the feds get to finance their deficits at low rates. What's not to like?

Besides the fact that everyone gets poorer and poorer...

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*** Zombie Wars

Man may fight for his country or his family or his religion, but for the cause of honest capitalism he will take a dive every time. That is as true of the fighters as it is of everyone else. They may pretend to defend the nation, but in the absence of a real enemy, they're happy to take the money and fall to the mat.

Like education and health care - and most charitable activity - spending on 'defense' is not subject to market pricing. So, you never know if you're getting your moneys' worth. As time goes by, spending on 'defense' becomes spending for a variety of purposes that have little to do with ensuring the safety of the nation or its people. One congressional district wants a military base to provide jobs. Another is hoping a local company gets the contract to build a new software system. Still another produces airplanes. One man wants a sinecure. Another wants to boss people around. Still another hopes for a contract without competitive bidding.

The Pentagon is the world's biggest spender. It uses more gasoline. More steel. More food. More of just about everything than any other organization on the planet. The military budget was $685 billion last year. But that was just the beginning of it. Hundreds of billions more were spent to support intervention efforts all over the globe - including foreign aid, trade missions, embassies, spooks, and other meddlers. Altogether, we have seen estimates as high as $1.2 trillion per year as the cost of maintaining the US imperial agenda.

It is easy to believe. The total cost of the Iraq war alone is now being estimated at as much as $3 trillion to $6 trillion. The higher number was proposed by Nobel Prize winning professor Joseph Stiglitz at Columbia University. This makes it more expensive than WWII, which adjusted for inflation, cost $3.6 trillion. It also means that the Iraq war will have a price tag about even with the 2008-2011financial bailout, said to cost about $5 trillion.

What do you get for that kind of money?

The financial bailout zombified much of the economy. Businesses that should have closed their doors were able to keep the lights on. Managements that proved they were incompetent were given bonuses and kept on the job. Industries that needed to be shaken up became even further entrenched.

The same thing has happened in the defense industry. Real wars have been replaced by zombie wars...started by zombie strategists...and pursued by zombie military men. Zombie wars are never won. Nobody really cares who wins anyway, for there is nothing really at stake. Zombie wars cost a fortune; they go on forever; they produce nothing. Zombie industries look out for themselves. They don't care whether they do any good or not.

The war in Iraq has now lasted twice as long as WWII...at a cost of $3,000 per second. Four thousand four hundred and eighty US troops have been killed and 32,000 wounded...many of whom will need care for the rest of their lives. The British medical journal, The Lancet, estimates that Iraqi casualties have totaled more than 640,000. Without market pricing you never know whether you're doing any real good or not. But we can guess: Pentagon spending is even less productive then spending on education or health.

Dwight Eisenhower was a career military man. He knew how susceptible the defense industry was to zombification. In his farewell address, he warned:
"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist."
Then, in 1961, the US faced a real, belligerent foreign enemy. The Soviet Union was an aggressive imperial power that had recently defeated Nazi Germany. Many thought its centrally planned economy would permit it to overtake the US in terms of wealth as well as military power.

But today, in real terms, the US spends more than twice as much as it did when Ike gave his speech. How come we spend so much today? Is the world really a more dangerous place? The Soviet Union renounced communism in 1989. It admitted that its system was a failure. It also admitted that it could not compete with the US militarily or economically.

China had made the same sort of admission nearly a decade earlier. Without giving up its lip service to communist political ideology, it conceded that collectivism as an economic system was a mistake. "To get rich is glorious," Deng Tsaoping is credited with saying, making nonsense of the whole Marxist creed.

But as the external threats disappeared, theorists developed reasons for actually spending more, not less, on defense. Then, the defense industry hit the jackpot with the 9/11 attacks on the World Trade Centers. The Bush administration panicked. It started the 'war on terror' and blundered into war with Iraq, a country that had nothing to do with the events of 9/11. The 2001 terrorist attacks allowed the defense industry to put the nation on a war footing, shifting substantially more of the nation's wealth towards the "military industrial complex" even without a real war. We have seen estimates that Pentagon and domestic policing contracting now accounts for 40% of all US manufacturing (honest, market-based contracting has moved to China!) Billions and billions more were spent, as if the nation's survival were at stake (the only thing really at stake was the continued prosperity of the zombified military establishment).

Here's how it works: money from the federal government is handed out to military contractors, who then recycle some of it back into the political process. Campaign funds, lobbying, pimping by retired generals and admirals...the money gets around. A general, for example, might insist that the Pentagon needs a new weapons system. Then, in retirement, he might find that he is a valuable consultant to the company that makes it. He might earn far more than his military pension. Likewise, a congressional flunkey might help push through a new weapons system...and then find his services in demand in the defense industry, where he is regarded as a key "political expert."

In 2010, the defense industry employed more than 1,000 lobbyists, double-teaming every member of Congress. It spent $144 million on lobbying activity and contributed $22.6 million to political candidates in the last election cycle.

Now that a "super-committee" has been set up to curb federal spending, the military zombies can better target their efforts. According to analyst William Hartung, military contractors gave $1.1 million to the 12 members of the super committee in the last two elections. And twenty-two former staffers of super committee members now work as defense industry lobbyists.

More to come...

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

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2 Responses to "Zombie Wars cost a fortune"


Nov 3, 2011

Bonner is dynamic & classic .
Mr.Athmanathan observed 100% , at the same time (hope) Athma's 2nd statement not referring our beloved Bill...!!!



Nov 3, 2011

The word zombie has been the favourite word of the author who never hesitates to use it for lack of other suitable words. But think of a zombie or a living dead person and immediately what comes to your mind is a very lazy person good for nothing and an uninspiring figure.

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