Plowshares Into Swords, and Back Again
Stocks are up on the day, if barely. Gold’s down $5 at writing.
In the Mediterranean, the Hellenic Republic is busy mortgaging what little it has left to Germany. “Greece May Have to Sell Islands and Ruins Under Its Bailout Deal,” clamors Time.
Meanwhile, “the United States may be the next shoe to drop,” says colleague Jim Rickards. “The Congressional Budget Office (CBO) now estimates U.S. debt ‘held by the public’ will be over 100% of GDP by 2039. The last time it was that high was 1946, just after World War II. But that CBO forecast does not include debts owed to Social Security, Medicare, Medicaid, Fannie Mae, Freddie Mac and all of the other government promises. When those are included, the situation is far more dire.”
To be exact, total U.S. liabilities stand at $210 trillion, as calculated by Laurence Kotlikoff of Boston University. By that accounting, we’re not headed toward bankruptcy; we’re already broke today.
But it’s fun to play pretend, and people come to believe whatever they must believe when they must believe it. Like that we’re solvent. As long as fantasy is accepted as reality, the empire will play the role it’s meant to play.
This was the central insight of Addison’s best-selling book with Bill Bonner, Empire of Debt. And since an empire’s role is to “make the world safe,” it’s little surprise the empire is always at war… always propping up the financial system… and always telling people what they can eat, say and do.
Yesterday seemed like a rare departure from that role. Seven years ago, bombing Iran over their nuclear program seemed inevitable, yet yesterday, the U.S. came to terms on a peaceful agreement to monitor uranium and centrifuge reduction and then lift sanctions.
Donald Trump says the deal is “terrible.” But we’re not so sure…
What we do know is that U.S. defense contractors will reap what John Kerry sowed: $6 billion in military spending, according to yesterday’s 5 Min. Forecast, as the Persian Gulf monarchies and Israel shop around for new weapons. (Byron King’s on that scene, showing readers how to invest accordingly.)
“Rather than ‘tilting’ toward Iran or Saudi Arabia,” Jim Rickards adds, “the U.S. will pursue a traditional balance-of-power approach in which neither the Sunnis nor the Shiites will be allowed to become too strong or too weak.”
In Havana this past November, we thumbed through a government pamphlet in the Museum of the Revolution bookstore. The cover had the logos of U.S. defense agencies and contractors splattered across the top, with a buff Uncle Sam barging through an explosion, machine gun blazing, like an idiot.
Skimming through, we were surprised to see the Castro regime considered America, in retrospect, an international role model until, roughly, the turn of the twentieth century. Thereafter, the booklet contended, American plowshares turned into swords and squander — especially after WWII.
To illustrate the point, annual average U.S. GDP growth between 1949-2009 was 3.3%. Between 1979-2009, that rate fell to 2.7%. From 1989-2009, the average annual growth rate fell to 2.5%. From 1999-2009, it was 1.9%, and then just 0.9% between 2005-2009.
Instead of producing, we’ve spent. Instead of saving, we’ve borrowed. Instead of minding our business, we’ve looked for enemies in all the right places. All the while, easy credit greased the wheels.
“It is no coincidence,” opines our former employer Ron Paul in his book End the Fed, “that the century of total war coincided with the century of central banking.”
Three years after that book was published, on Nov. 14, 2012, on Capitol Hill, I remember sitting behind a desk right past the entrance of 203 Cannon House Office Building, a lowly assistant. The walls were bare… years of paper were in bins waiting to be shredded… phone calls were coming from across the country to pay compliments and adieus…
Dr. Paul was on the House floor, delivering his hour-long farewell speech to Congress after 23 years as a member. You could hear him on the office TV…
“In many ways, according to conventional wisdom, my off-and-on career in Congress, from 1976-2012, accomplished very little.
“No named legislation, no named federal buildings or highways — thank goodness…
“In spite of my efforts, the government has grown exponentially, taxes remain excessive and the prolific increase of incomprehensible regulations continues. Wars are constant and pursued without congressional declaration, deficits rise to the sky, poverty is rampant and dependency on the federal government is now worse than anytime in our history.
“All this with minimal concerns for the deficits and unfunded liabilities that common sense tells us cannot go on much longer. A grand but never mentioned bipartisan agreement allows for the well-kept secret that keeps the spending going.
“One side doesn’t give up one penny on military spending, the other side doesn’t give up one penny on welfare spending, while both sides support the bailouts and subsidies for the banking and corporate elite. And the spending continues as the economy weakens and the downward spiral continues. As the government continues fiddling around, our liberties and our wealth burn in the flames of a foreign policy that makes us less safe.
“The major stumbling block to real change in Washington is the total resistance to admitting that the country is broke. This has made compromising, just to agree to increase spending, inevitable, since neither side has any intention of cutting spending.”
Earlier that same year, as part of his presidential bid, he put forward a proposal for the would-be Paul administration: $1 trillion cut from the federal budget in year one, with five Cabinet-level departments eliminated.
After leaving Congress, Dr. Paul established the Institute for Peace and Prosperity. This Friday, he’s releasing his latest book, Swords into Plowshares, which helps define the mission of the new project.
In Plowshares, Dr. Paul relates personal stories during wartime and dares to consider how the U.S. can return to minding its own business… while still fostering economic prosperity, if you can picture such a thing. You’ll find an exclusive excerpt Dr. Paul approved for you, right here.
In exchange, perhaps you’ll consider pre-ordering a copy on Amazon, right here. We’ve read through an advance copy. It’s a good read.
P.S. Be sure to sign up for The Daily Reckoning — a free and entertaining look at the world of finance and politics. The articles you find here on our website are only a snippet of what you receive in The Daily Reckoning email edition. Click here now to sign up for FREE to see what you’re missing.