Tales of the American War Machine

We are still on vacation. Plus, we have come up to Paris to see a dear friend in the hospital. So please don’t expect much reckoning today.

Still, there is reckoning to do…

Today’s top news story in the International Herald Tribune is that Nicholas Sarkozy, president of France, came back from his vacation in New Hampshire, and his visit with George W. Bush, and made a stunning announcement. The world faces only two choices, he said, both of them involving bombs. Either Iran gives up its plans to build a nuclear bomb, or it gets bombed.

‘Peace and Prosperity’ are the traditional twin goals of modern, democratic public policy. Both appear to be giving us the slip. Prosperity is disappearing for all the reasons described in these Daily Reckonings for the past eight years. We repeat them today, just so we don’t forget: the ‘boom’ of the last 10 years was phony. In America (and Britain), it was based on debt, not on increases in productivity, output, or rising earnings. That is why the average person has seen no real income growth. Attempts by the manipulators to keep the phony boom going only make it worse…by increasing amounts of debt and bad investments.

As to peace, who wants it? Like so many other things, the desire for peace comes in cycles. After a war, people crave it more than anything else. Before a war, peace is often the last thing they want.

Paul Craig Roberts, former undersecretary of the Treasury in the Reagan administration, is indignant about it:

“The Bush regime says it is going to designate part of Iran’s military – the Revolutionary Guards – a terrorist organization, whose bases and facilities Bush intends to bomb along with Iran’s nuclear energy sites. Three U.S. aircraft carrier strike forces are deployed off Iran. B-2 Stealth bombers are being fitted to carry 30,000 pound ‘bunker-buster’ bombs to use against hardened sites. Politicized U.S. generals assert that Iran is providing arms and aid to the Iraqi resistance to the U.S. occupation. The media are feeding the U.S. population the same propaganda about nonexistent Iranian weapons of mass destruction that they fed us about nonexistent Iraqi weapons of mass destruction. A former CIA Middle East field officer, Robert Baer, has written in Time magazine that the Bush regime has decided to attack the Revolutionary Guards within the next six months. Remember the ‘cakewalk war’? Well, this time the neocons think that an attack on the Revolutionary Guards will free Iran from Islamic influence and cause Iranians to back the U.S. against their own government.

“Lies, unprovoked aggression, and delusional expectations – the same ingredients that produced the Iraq catastrophe – all over again. The entire Bush regime and both political parties are complicit, along with the media and U.S. allies.”

War appeals to Americans, for reasons also described and explained to long-suffering Dear Readers in these columns. Like it or not, the USA is the world’s leading empire. Fish gotta swim; birds gotta fly; and empires gotta live by the sword until they are finally put to death by it. War also appeals to Americans, more than to, say, Germans or Japanese, because war has been good to them. They came out of the two big wars of the last century ahead of the game; while other nations’ economies were destroyed, the United States gained market share…and gained credits. No nation was owed more money by more foreigners than the United States of America, following both WWI and WWII.

But now it is more than half a century later. Now, no nation OWES more money to more foreigners than the USA. Relatively speaking, Americans get poorer while the rest of the world gets richer. But the U.S. military is still Numero Uno; is it really any wonder we love it so…and want to use it?

But there is always more to the story. A very alert French neighbor reminded us:

“Have you ever heard of the ‘Report from Iron Mountain’ or something like that? I only recall it vaguely. But I was a consultant and I remember the Rand Corporation was asked to prepare a report on what the United States should do…how it should motivate and control its citizens…after the Soviet Union fell apart. The Rand Corporation realized that without the threat of the Soviet Union, western governments were likely to drift, without any sense of purpose. And people in the West would probably resent paying taxes and so forth. Well, I don’t remember exactly what the Rand analysts came up with, but I remember that they focused on three major ideas to distract and manipulate the masses – fighting terrorists, climate change, and health scares. And today, those are the three major public preoccupations, other than financial concerns.

“For example, we have major campaigns designed to vilify smoking,” he continued, lighting a cigar, “and we’re all supposed to be alarmed about global warming. And the War on Terror…I remember that I was startled at how fast they pinned the World Trade Center attack on Islamic terrorists (they even found the passport of one of them in the ashes of the building…somehow the fire that was hot enough to melt concrete and steel didn’t have any effect on his paper passport). I was amazed too by how fast George W. Bush came out with his War Against Terror. It was as if the whole thing had been figured out before the attack …which, of course, I think it was.”

And speaking of the public spectacle that is the war in Iraq, in the DR blog, Dave Gonigam points to a recent Newsweek cover story on the search for Osama bin Laden.

The Newsweek story asserts that instead of bombing caves like when the search for Osama began, the U.S. military wanted to “fight on a grander scale where it could show off its mobility and power.” And how did they manage that? By invading Iraq, of course.

Newsweek continues: “Former House Speaker Newt Gingrich was on Rumsfeld’s Defense Policy Board and, at the time, a close confidant of the SecDef. In November 2001, Gingrich told a NEWSWEEK reporter, ‘There’s a feeling we’ve got to do something that counts – and bombing caves is not something that counts.'”

“Not in the realm of public spectacle, it’s not,” says Dave. “You can’t send in special ops to put a bullet between bin Laden’s eyes and expect too much mileage out of it. You can’t telegraph it for weeks or months in advance. Nor can you have TV cameras set up for the decisive moment. You can trot out bin Laden’s corpse after the deed is done, but its utility is limited; it’s not as if the video can be run in an endless loop to cover the talking heads on cable TV for more than a day or two.

“But a ‘shock and awe’ bombing campaign on a major urban center? That’s got staying power. It’s a storyline that’ll last for weeks. There’s ample opportunity for live coverage as it’s happening, punctuated by ample down time during which the pundit class (and a host of Pentagon-approved retired generals) can pontificate about the significance of the moment. It is, in short, a public spectacle of spectacular magnitude.”

We recently penned a book with co-author Lila Rajiva on how to “survive the public spectacle in politics and finance.” Now might be a good time to pick up your copy.

Mobs, Messiahs and Markets

But now, the International Herald Tribune tells us that terrorism has been pushed out of the limelight.

“Bad credit cited as riskier than terrorism to U.S.,” says the headline. The story tells us that the National Association for Business Economics polled its members and found that 50% more of them were worried about loan defaults and excessive debt than were about terrorism.

Terrorism poses a tiny statistical danger to Americans…but never any real danger to the USA. Instead, the Bush Administration correctly identified it not as a threat, but as an opportunity…to spend more money and boss people around. Trouble was, the money being spent hadn’t been earned yet; we wonder if it ever will be.

Well, just one thought…

Do you remember our Country Hotline? It is a service we offer free of charge to sovereign nations. Heads of state can call us any time for advice. So far, the phone has been silent.

Still, a few months ago, we offered some helpful, unsolicited advice to Ireland, which we won’t repeat here. And today we offer advice to France.

Tourism is big business in France. In fact, it may be the biggest industry in the country. More tourists arrive in France than in any other country. Unfortunately, many are disappointed. Not by rude waiters and high prices – they expect those things, and would feel cheated if they didn’t get them. No, the disappointment sets in when they realize that the French are not so different from everyone else.

What makes this world interesting…and what drives tourism everywhere…are local particularities. But today, the French businessman looks just like a businessman in New York or Los Angeles. The uniform is the same. That is to be expected, you might reply. All businessmen are interchangeable parts of the great modern economic machine. But further down the ladder, the lower rungs are expected to preserve a bit of their local color. Alas, you look around France today and you see the same trashy, lower class culture that you’d find in Baltimore or Sarasota. Young women expose chubby midriffs. Young men tart themselves up with chains and track suits to look like rap singers. You walk down the street in Toulouse and, except for the old stones, you might feel as though you were in Toledo or Tulsa.

Rather than wait for Nicholas Sarkozy to call, we will go ahead and give the French government a simple piece of advice: Bring back the beret. We thought of it as we watched a man working on a construction site. He labored without a hat. He could have been working anywhere in the world. But put a beret on him…and he could only be French…and seeing him, you could only be in France. Put berets back on the heads of Frenchmen and you will give the nation’s largest industry a big boost.

Bill Bonner
The Daily Reckoning
August 28, 2007

P.S. And like so many things in life, there may be unintended consequences. When Frenchmen still wore berets, France was a nicer place to live and do business. Taxes were low; the meddlers and parasites were few. As the beret disappeared, taxes and regulations appeared everywhere. Maybe the two were connected. Removing the warm, wool beret caused coagulation in the brain, reducing blood flow and diminishing intelligence. The Frenchman, like the American, has become a bit of a dolt in the last 20 years; maybe the process can be reversed by bringing back the beret. We don’t know, but it seems worth a try.

More news…

…from Short Fuse in Los Angeles

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Views from the Fuse:

*** Here’s a shocker: consumer confidence in the United States is down the most since Hurricane Katrina hit two years ago.

Honestly, what do consumers have to be confident about? The markets are up and down – but mostly down…jobs aren’t exactly plentiful, wages are going nowhere…mortgages are harder to pay…houses are worth less and are sitting on the market for longer…paying off your credit card with your home equity line of credit is near impossible and groceries are more expensive because of the ethanol fraud.

And when people aren’t feeling “confident” they are less likely to go buy any “big ticket” items – such as cars.

Auto sales have been weak this year – and if the data from August, which is reported on September 4, is negative, it will be the sixth month this year and the third month in a row that sales have been down.

This time, the problem is not high gas prices…a CNW Marketing Research national survey of 14,000 consumers showed 18% of those who chose not to buy a car cited home-related issues.

“Nearly two-thirds of those said it was due to a decline in home equity, and 36% said it was because their mortgage payment increased.”

Well, well. It seems like people are starting to catch on – for now.

From the Chicago Tribune:

“Richard Apicella, an auto finance executive at Atlanta-based Benchmark Consulting International, says the bad news about subprime mortgages and home values may be scaring consumers who have prime credit – the ones more likely to have home equity – into holding on to their money, making sure they can pay the mortgage before taking on new debt.

“‘Maybe they’re starting to realize they’re not as rich as they thought they were,’ he said.”

Are the rose-colored glasses slipping? We shall see…

*** With the world abuzz over ethanol, prices of commodities (even the ones not directly used in the production of the biofuel), like corn, wheat, soybeans and dairy are steadily on the rise, and increasingly on the minds of traders and investors alike.

Demand for all of these commodities are escalating…and it’s not just demand from the United States and Europe anymore…our friends in the Far East have a growing appetite, and are turning to South America to be satiated.

While there are historical roots between China and South America, “trade between the countries has really surged in recent years,” writes Chris Mayer in today’s guest essay.

“For example, China gets about one-third of its food supply from South America – with a good chunk of that from Brazil’s vast farmlands. It’s a natural, too. Not just for China, but for the world.

“In Brazil and Argentina, you have one of the few places left in the world where you can acquire large tracts of land in temperate climates with plenty of rainfall to support large-scale agriculture. Already, the two countries produce about one-third of the world’s agricultural commodities. As China is the world’s workshop and India its back office, so has South America become its breadbasket.”

And one last note before we sign off…as many of you already guessed, yesterday’s essay was NOT by Thomas Friedman…it was a spoof written by Bill. He did the same when Greenspan left the helm of the Fed last year.

Short Fuse
The Daily Reckoning

P.S. If Chris’ guest essay has you thinking you’d like to profit from the agricultural boom in South America, he has some interesting ways to play it – which do NOT include getting on plane and going to buy Argentine land in person. In fact, he’s been busy assembling an interesting collection of companies that are sure to benefit from this boom.