Rep Ron Paul of Texas ...
(snip)"Prolonged wars, as this one has become, have profound consequences. No matter how much positive spin is put on it, war never makes a society wealthier. World War II was not a solution to the Depression as many claim. If a billion dollars is spent on weapons of war, the GDP records positive growth in that amount. But the expenditure is consumed by destruction of the weapons or bombs it bought, and the real economy is denied $1 billion to produce products that would have raised someone’s standard of living.
Excessive spending to finance the war causes deficits to explode. There are never enough tax dollars available to pay the bills, and since there are not enough willing lenders and dollars available, the Federal Reserve must create enough new money and credit for buying Treasury Bills to prevent interest rates from rising too rapidly. Rising rates would tip off everyone that there are not enough savings or taxes to finance the war. This willingness to print whatever amount of money the government needs to pursue the war is literally inflation. Without a fiat monetary system wars would be very difficult to finance, since the people would never tolerate the taxes required to pay for it. Inflation of the money supply delays and hides the real cost of war. The result of the excessive creation of new money leads to the higher cost of living everyone decries and the Fed denies. Since taxes are not levied, the increase in prices that results from printing too much money is technically the tax required to pay for the war.
The tragedy is that the inflation tax is borne more by the poor and the middle class than the rich. Meanwhile, the well-connected rich, the politicians, the bureaucrats, the bankers, the military industrialists, and the international corporations reap the benefits of war profits.
A sound economic process is disrupted with a war economy and monetary inflation. Strong voices emerge blaming the wrong policies for our problems, prompting an outcry for protectionist legislation. It’s always easier to blame foreign producers and savers for our inflation, lack of savings, excess debt, and loss of industrial jobs. Protectionist measures only make economic conditions worse. Inevitably these conditions, if not corrected, lead to a lower standard of living for most of our citizens.
(snip)
Though many Americans are starting to feel the economic pain of paying for this war through inflation, the real pain has not yet arrived. We generally remain fat and happy, with a system of money and borrowing that postpones the day of reckoning. Foreigners, in particular the Chinese and Japanese, gladly participate in the charade. We print the money and they take it, as do the OPEC nations, and provide us with consumer goods and oil. Then they loan the money back to us at low interest rates, which we use to finance the war and our housing bubble and excessive consumption. This recycling and perpetual borrowing of inflated dollars allows us to avoid the pain of high taxes to pay for our war and welfare spending. It’s fine until the music stops and the real costs are realized, with much higher interest rates and significant price inflation. That’s when outrage will be heard, and the people will realize we can’t afford the “humanitarianism” of the Neo-conservatives.
The notion that our economic problems are principally due to the Chinese is nonsense. If the protectionists were to have their way, the problem of financing the war would become readily apparent and have immediate ramifications-- none good. Today’s economic problems, caused largely by our funny money system, won’t be solved by altering exchange rates to favor us in the short run, or by imposing high tariffs. Only sound money with real value will solve the problems of competing currency devaluations and protectionist measures.
Economic interests almost always are major reasons for wars being fought. Noble and patriotic causes are easier to sell to a public who must pay and provide cannon fodder to defend the financial interests of a privileged class.
The fact that Saddam Hussein demanded Euros for oil in an attempt to undermine the U.S. dollar is believed by many to be one of the ulterior motives for our invasion and occupation of Iraq. Similarly, the Iranian oil burse now about to open may be seen as a threat to those who depend on maintaining the current monetary system with the dollar as the world’s reserve currency.
The theory and significance of “peak oil” is believed to be an additional motivating factor for the U.S. and Great Britain wanting to maintain firm control over the oil supplies in the Middle East. The two nations have been protecting “our” oil interests in the Middle East for nearly a hundred years. With diminishing supplies and expanding demands, the incentive to maintain a military presence in the Middle East is quite strong. Fear of China and Russia moving into this region to assume more control alarms those who don’t understand how a free market can develop substitutes to replace diminishing resources. Supporters of the military effort to maintain control over large regions of the world to protect oil fail to count the real costs once the DOD budget is factored in. Remember, invading Iraq was costly and oil prices doubled. Confrontation in Iran may evolve differently, but we can be sure it will be costly and oil prices will rise."(snip)



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