This could change the way we think - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 12 December 2011
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Baltimore, Maryland

What's new?

When we signed off last week, the Germans and the French were trying to hold Europe together. This morning, they are still trying.

"Don't you live in Europe?" asked a friend at a party over the weekend.

"Yes...much of the time."

"Well, maybe you can tell me what is going on with this European debt crisis"

"I was hoping you would tell me."

The closer you to get to Europe the harder it is to see what is going on. In the trees of constitutional changes, pledges of solidarity, plans A-Z, official and unofficial announcements from more than a dozen different sovereign countries and half a dozen European agencies...it's hard to see the forest of debt.

Debt levels need to come down. And falling debt levels mean a slumping economy. The rest is detail.

In America, stockmarket investors generally decided to ignore the debt problem last week. The unemployment rate went down, largely because people who couldn't find jobs were taken off the list. Consumers still seemed ready to buy, as long as the price was right. And Congress does not seem serious about cutting spending...which gives people hope, either because they're dim enough to think that Congress knows what it is doing or they're bright enough to know it doesn't. Either way, they're sure the US government will spend, spend, spend...until it can't spend any more.

People tend to view the future through the lens of the past. If you're under 70, you have lived almost all your life in a world where economic growth was a fact of life. It slowed sometimes. It stopped from time to time. But it always came back. All you had to do was to stick with it. Whether you were an investor, a businessman, or a householder, you learned that as long as you could stay the course, you would probably come out okay. Your investments would go up. Your business would do better. And your standard of living would rise.

Naturally, you came to believe that that was the way things were supposed to be. Economist David Rosenberg explains the US mindset with the following quote:

Because human psychology is slow to change, a broad economic move usually occurs in three stages. The first stage begins when some unexpected event shatters an overdone psychological environment. Yet, while some people respond immediately to this new lesson, most people, as they find it outside their past experience, do not believe it. They need more evidence - that is, a second stage. Typically, the majority become convinced during the second stage and therefore the psychological background changes. People begin to act differently, and their behavior soon affects the performance of the economy. (Dick Stoken as quoted by Arthur Zeikel in On Thinking)

But Rosenberg agrees with us. Something big has happened. Something has changed. And it could change the way we think. Instead of believing that 'recovery' is right around the corner, we may begin to think it will never come.

Rosenberg says that major changes in our attitudes will come in 8 different areas:

EIGHT AREAS OF BEHAVIOURAL CHANGE TO WATCH FOR IN 2012
  1. Frugality on the part of the global consumer (living within our means; retirement with dignity)
  2. Austerity on the part of sovereigns (spending cuts/tax reform)
  3. Nationalism (an umbrella for protectionism and isolationism: mean reversion for globalization)
  4. Political movement along the ideological and fiscal spectrum (from gridlock to change)
  5. Geopolitical change (wars, elections and regime changes)
  6. Changes in inflationary/deflationary expectations
  7. Changes in growth expectations
  8. Changes in asset allocation preference (fund-flows/de-risking)
He may be right. Markets make opinions.

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*** The Pentagon continues to carry out Osama bin Laden's plan to hobble America. Remember, he outlined his strategy on video. He said he would sucker the US into very expensive, unwinnable wars. He wouldn't defeat the US military. Instead, he would allow it to spend itself to self-destruction.

The strategy is working:


U.S.'s Afghan Headache: $400-a-Gallon Gasoline

Military Air Drops Fuel Barrels to Avoid Dangerous Convoys
By NATHAN HODGE


With more American troops on the ground, and to avoid the perils of ground transportation, the military is more frequently using cargo planes to deliver supplies. But as WSJ's Nathan Hodge reports, the cost is putting a strain on military budgets.

OVER EASTERN AFGHANISTAN-Parachuting a barrel of fuel to a remote Afghan base takes sharp flying skills, steady nerves and flawless timing.

It also costs a lot of money-up to $400 a gallon, by military estimates.

But the Pentagon is stuck with the expense for the foreseeable future, especially given the recent deterioration in U.S.-Pakistani relations.

"We're going to burn a lot of gas to drop a lot of gas," said Capt. Zack Albaugh, a California Air National Guard pilot deployed with the 774th Expeditionary Airlift Squadron. He spoke just before a recent mission to supply a remote base near the Afghanistan-Pakistan border, scene of cross-border rocket attacks that have heightened regional tensions this fall.

But for now, nearly 100,000 U.S. troops are on the ground in Afghanistan, often stationed in difficult-to-reach outposts that depend on pallets of food, water, ammunition and fuel that are dropped by parachute out of cargo planes.

Since 2005, the Air Force has increased by nearly 50 times the amount of supplies it air-drops to remote bases, partly as a way to avoid dangerous land-based fuel convoys.

*** Bin Laden was wasting his time. Even without his help, the Pentagon was turning into a zombie army.

The Most Top-Heavy Force in U.S. History
By BEN FREEMAN


In September, I testified before the Senate Armed Services Subcommittee on Personnel about the military becoming increasingly top-heavy as a result of growth in the proportion of general and flag officers at the Pentagon. This trend, which we at POGO dubbed Star Creep, is costly to taxpayers who have to foot the large bill for every new general and admiral. It also hinders military effectiveness by leading to what Gates referred to as a "bureaucracy which has the fine motor skills of a dinosaur."

My fellow witnesses at the hearing-several generals and admirals as well as former Under Secretary of Defense for Personnel and Readiness Clifford Stanley-assured the concerned Committee that they had everything under control. They cited Gates' Efficiency Initiatives, which purportedly eliminate 102 general and flag officer positions, as evidence of the DoD's commitment to combating Star Creep. Stanley confirmed to Chairman Jim Webb (D-VA) that Gates' successor-Secretary of Defense Leon Panetta-supported these efforts and, "has accepted the policies and the things put in place by his predecessor." (Stanley tendered his notice of resignation in late October.)

What Senator Webb and I did not know at the time-and perhaps Stanley did-was that Gates' initiative to cut general and flag officers had already come to a screeching halt. Data that were released recently on the DoD personnel office's website tell the tale.

Between May and September, more than 10,000 enlisted personnel were cut by the DoD, possibly in preparation for the end of military operations in Iraq, while more than 2,500 officers were added. Consequently, for the first time in the more than 200 years that the U.S. has had a standing military, there are fewer than five enlisted personnel for every officer. In other words, today's military is the most top-heavy force in U.S. history.

The Costs of Star Creep

The cost to taxpayers of uniformed military personnel increases markedly with their rank. In just basic compensation, these six new generals will cost taxpayers more than $1.25 million per year. Over the next ten years, they'll cost taxpayers more than $14 million (methodology).

The total cost to taxpayers of Star Creep is not trivial, even in the Pentagon's bloated budget. Since the war in Afghanistan began, the Pentagon has added 99 general and flag officers, a rate of growth that's tops among all DoD uniformed personnel groups... In 2012, these general and flag officers will cost taxpayers more than $22 million in just direct financial compensation. Between 2012 and 2021, they'll cost nearly $250 million.

But the cost of Star Creep only begins with direct compensation. Other costs that surround generals and admirals-such as staff, contractors, and travel-increase with higher ranks. For example, Bloomberg recently reported that taxpayers in Huntsville, Alabama, footed a $3.8-million bill to build luxurious homes for generals in a successful effort to keep Pentagon pork flowing into the area. One such home, built for a major general, was a sprawling 4,200-square-foot mansion that included granite countertops, hardwood floors, and stainless steel appliances.

Luxurious homes are just the beginning of the extravagances available to top military commanders. According to Raymond Dubois, former DoD director of administration and management from 2002 to 2005, there are other perks:

A four-star has an airplane. A three-star often doesn't...Can a three-star get an airplane when he needs it? Not always. Does a four-star get an airplane when he needs it? Always. Many times he'll already have a G5 sitting on the runway, gassed up. There are the kinds of costs that are fairly significant when you add them all up.

In his August 2010 speech on Efficiency Initiatives, Gates referred to these perks as "the overhead and accoutrements that go with" senior positions, be they military or civilian, within DoD. In an interview with Newsweek, Gates bemoaned these accoutrements and entourages that surround generals and admirals, which he believes are indicative of a military leadership that is "suffering from an inflated sense of entitlement and a distorted sense of priorities."

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

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3 Responses to "This could change the way we think"

Satyajit Chakraborty

Dec 13, 2011

Dear
Bill Bonner,
According to you almost all important nations are running huge national debts(except China).So they are in debt.But for every debtor,there must be some creditor.Who is therefore in credit if so many are in debt?

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VIJI

Dec 13, 2011

TRIED GOOD ATTEMPT DYNAMIC BILL.
AND A NICE OBSERVATION OF MR.PARIKH.
=THEY HAVE HIGHEST RESERVES OF GOLD, HENCE ARTIFICIALLY MAKING IT AS AN ASSET CLASS. WHY NOT TO MAKE IT AS INTERNATIONAL RESERVE CURRENCY IF IT IS REALY WORTH EXCHANGING COMMODITY?
ONE SMALL EXAMPLE-CHINA HAS BONDS WORTH (LENT) 3.4 TRILLION OF US ,NOW US IN A BAD SHAPE SO IN TURN, US HAS TO NOT ONLY TO SHOW THEIR RESERVES TO COOL OFF CHINA'S CONCERN OF GETTING THEIR MONEY BACK BUT ALSO TO INCREASE THE VALUE OF GOLD ARTIFICIALLY IN INTERNATIONAL MARKET(NOW 1650) &CREATE UNUSUAL DEMAND.
(MR.ASAD ALSO HIGHLIGHTED THE PROBLEMS OF GOLD INVESTMENT IN 'INDIA'S LOVE AFAIR WITH GOLD'DEC.10TH DAILY RECKONING )
'GOLD- ANY TIME IT 'LL GO BUST/BURST ,WHEN US & EUROPE (SPECULATING/ NOT TO MAKE IT AS INTERNATIONAL RESERVE CURRENCY/ HIGHEST RESERVES/ NOW DEBTS SUPPRESS etc.,) TURN THE TABLE UPSIDE DOWN'

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Yatin Parikh

Dec 12, 2011

Dear BB, on the debt crisis, what is stopping the US and EU countries from selling Gold which they have been hoarding, to heat up their economies ?

On US military spending, they need to overthrow pakistan's ISI and military rulers in islamabad, not keep troops in some remote afghan outpost !

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