Tuesday, September 30, 2008

Column #56 PRESIDENTIAL DEBATE – SEPTEMBER 26, PART II THE REAL "COST" OF THE IRAQ & AFGHAN WARS

(Week 10 - Tuesday, Sept. 30)

In yesterday's column I offered commentary on the first half of the Friday evening debate between John McCain and Barack Obama, which was directed towards the current financial crisis in the economy, and President Bush's proposed $700 billion dollar "rescue plan" to save the speculative financial "industry" and the banking system. Much of the discourse was about how the "debt" the Federal government would inevitably take on in any such plan would ultimately have to be made up in the future through ever more prudent priorities concerning taxing and spending.

In my view, this is a hopelessly off-target attempt to address the problem. The Federal "debt" is not a fiscal phenomenon (i.e. an imbalance between taxing and spending), but arises out of improper monetization (i.e. the process by which money itself is created and issued) [see Cols. # 19 – 21]. We can gain a dramatic insight into the difference between these two perspectives by examining the real "cost" of the Iraq and Afghan wars, which preoccupied much of the last half of the debate.

It can hardly be disputed that the wars in the Middle East are costing our country dearly in materiel, blood and lives. Many also argue that it is costing us the love, trust and admiration of our fellow human beings in the community of nations, and some even say that it is costing us our sacred honor for the supposedly devious reasons for which it was entered into (to be sure many feel otherwise). One would find little disagreement that the conflicts are imposing costs in carnage and suffering on the Iraqi and Afghan people that are difficult to even imagine, not to mention the toll that it is taking on their infrastructure and lands.

All this said, the question remains, what is the "cost" of these war sin terms of money? Each of the candidates lamented the vast sums that are being spent on these conflagrations. I understand where they are coming from, but I would suggest that there is another way of looking at the matter.

From the beginning of this series of columns I have examined and frequently referred to the private-bank-loan transaction by which our money supply is created and issued. I have also tried to show that it sets up a monetary dynamic whereby ever greater amounts of money need to be borrowed from the banking system and spent into circulation in order for people to be able to make the principal payments on old loans, plus the "interest" payments on those loans, while maintaining a necessarily growing money supply.

If this fails to occur, then the money supply will begin to contract, bankruptcies will multiply, and the economy will spiral down into recession or depression. Somebody has to keep going deeper into "debt". It does not matter to the banking system whether it is the people in the private or the public sector that feel compelled to make the plunge. At present, the confidence of the borrowing public is at low ebb, and their ability and willingness to take on vast quantities of new "debt" is largely exhausted. This means that if the economy is to not go into the tank the Federal government has no choice, seemingly, except to step in as the "borrower of last resort".

The key to making this work is to find a way to generate the political will to take on a vast public "debt". Spending on universal medical care, freely available education, public infrastructure, cleaning up the environment, and a dignified basis of support for all its citizens has been so discredited in the eyes of the public as "wasteful spending" (which is not to say that some things proposed are not indeed foolish and wasteful), that a political will sufficient to allow the government to borrow the huge sums necessary to stave off economic collapse under the current "debt" load cannot, as a practical matter, be attained. What can succeed in creating such a mandate is to start a war against a feared and hated enemy. Then no amount of "financial sacrifice" (i.e. government borrowing) is too much, and almost any politician who says otherwise runs a grave risk of being turned out at the next election cycle.

Far from being a net "cost" to the economy, the Iraq and Afghan wars have been the great engines of money creation that have kept the economy from imploding. I would hasten to add here that I am not saying that our national leaders have consciously gotten this nation embroiled in the Middle East morass for the purpose of going into "debt". On the contrary, on the whole they sincerely believe that the war is "costing" money that will have to be, in some vague and unspecified way, made up for by fiscal frugality after the conflict(which is an illogical notion given the virtual imperative imposed on the people by the private-bank-loan transaction to go even deeper into "debt" whenever new money is created)

When money is created and spent into circulation, it does not stop with the procurement for which it was originally issued, even if that is for weaponry. It goes into the paychecks of whoever produces the products and the profits of the company they work for, and thereafter becomes blended into the monetary pool. I would urge the reader to contemplate the thought that, of the dollars in his or her wallet or bank account right now, a large portion have entered into circulation as a result of government borrowing to pay the "costs" of the Iraq and Afghan wars. Monetarily speaking, if it were not for these wars, those dollars would very likely not be in existence, and the economy would be proportionally contracted, arguably to the point of recession or depression.

To be absolutely clear, this is not a rationale to start a war (or go into "debt" even for more benign domestic reasons). It is, rather, an absolutely compelling reason to change the basis of the monetary system away from one in which the madness of having to borrow the nation's money at "interest" from a private banking system becomes an effective economic imperative at whatever ruinous cost.

What I am saying here is nothing new. The fact that war, in its many guises, has been the great engine of money creation when the public could not be aroused to the task of taking on vast quantities of "debt" for any other purpose has been long discussed in classic economic writings, but has virtually disappeared from the more "sophisticated" canon of modern texts.

The real monetary "cost", then, of the wars in the Middle East is not the vast sums of money "borrowed" to finance them (which, unlike lives, can be created in any amount by the "flick of a pen"), but the ever deepening penetration of public consciousness with the flawed basic premise of the "private-debt-money" system itself (i.e. that the numbers associated with money creation at "interest" are the "hard realities" that must be accounted for, and everything else is a "cost"). It is a lesson that we as a modern civilization will have to relearn. In my view, this is what McCain and Obama need to be talking about if they are serious (and I can only imagine they are) about stopping these wars.

Richard Kotlarz
richkotlarz@gmail.com

The complete set of columns from this series is posted at the following websites:
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm

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