Thoughts on the Forever War

Hey, kids! Christmas is but a snowball’s throw away. And we’re way past Halloween. But is it too late for some scary stories? "I think not," says Doug Casey, "because these aren’t made up."

I hope I’m totally wrong on this, but I’ve got a feeling what’s brewing is the biggest thing since at least World War II. The historical clock looks to me like it’s at about 1936. Straws in the wind are starting to signal a brewing hurricane. How much of the following were you aware of? Excuse the editorial content if you disagree with my interpretation; I take this seriously.

The current U.S. military budget is $396 billion, and it’s expanding rapidly. That’s roughly $5000 for every household in the U.S. But what’s more relevant is how it stacks up relative to other countries in the world with militaries. And the fact is that it’s significantly more than the combined budgets of every other country in the world, which is even more bizarre when you consider that the U.S. has only 4% of the world’s population.

For your reference, here are the next largest military budgets: Russia $60 billion; China $42 billion; Japan $40.4 billion; United Kingdom $34 billion; Saudi Arabia $27.2; France $25.3 billion; Germany $21 billion; Brazil $17.9 billion; India $15.6 billion; Italy $15.5 billion; South Korea $11.8 billion; Iran $9 billion; Israel $9 billion; Taiwan $8.2 billion.

These numbers give a lie to the whole U.S. war on terror. Israel, which is actually surrounded by enemy states while simultaneously fighting a guerrilla war within its borders, only spends $9 billion. France and Britain, which have close historical connections to scores of ex-colonies who are a constant tribulation (e.g., the Ivory Coast), together only spend a fraction of the US budget. Where does the money go? I don’t think anybody has actually figured it out. But 75% of it would be totally unnecessary if the U.S. government recalled the troops from well over 100 countries around the world where they’re antagonizing the natives. The U.S. is, in effect, in an arms race against itself. And the problem of having a powerful military is similar to that of having a big hammer: pretty soon, everything starts looking like a nail.

Of course, not all U.S. military spending goes directly to the U.S. military.

The U.S. gave $1 billion in aid to Somalia before its disastrous "peace-keeping" mission in 1991 – including $154 million in weapons. It’s estimated that the U.S. Government gave the Taliban and other Afghan rebels about $3 billion in military aid to fight the Soviets. And you certainly won’t hear Bush admitting that in 2001 alone, before the 911 attacks made the Afghans the Devil of the Month, the U.S. government gave the Afghan regime $125 million in aid. I haven’t seen the numbers for the amount of support to Saddam while Iraq fought the Iranians during the 80s. But the Iranians were armed almost exclusively with American weapons left over from the Shah’s regime. It might be called "the boomerang effect."

Passing out weapons to repressive regimes on the principle that "my enemy’s enemy must be my friend" is a proven formula for disaster.

"In the war against terrorism," said Bush, "we’re going to hunt down these evil-doers wherever they are, no matter how long it takes."

Of course, if the war is really against terrorism, Bush needn’t send the military to the worlds nether regions to find miscreants at huge risk and expense. He could start right here in the U.S.:

** General Jose Guillermo Garcia has lived in Florida since the 1990s. He was head of El Salvador’s military during the 1980s when death squads closely linked to the army murdered thousands of people.

** General Prosper Avril, the Haitian dictator, liked to display the bloodied victims of his torture on television. When he was overthrown, he was flown to Florida by the U.S. government.

** Thiounn Prasith, Pol Pot’s henchman and apologist at the U.N., lives in Mount Vernon, NY.

**General Mansour Moharari, who ran the Shah of Iran’s notorious prisons, is wanted in Iran, but is untroubled in the U.S.

** General Pervez Musharraf, the current dictator of Pakistan, who overthrew a democratically elected government, might easily join that list if he’s ever deposed by a coup. Maybe at some point soon, considering that Islamicist parties dominated the county’s recent parliamentary elections.

If charity starts at home, one thing the U.S. might do (even before trying to close down al Qaeda training camps) is to close down the School of the Americas at Fort Benning, Georgia, which has trained about 60,000 Latin American police and soldiers. It’s well known that among the techniques recommended for use against insurgents in its manuals are blackmail, torture, execution and the arrest of the suspect’s relatives. Those techniques would be called "terror" if they weren’t exercised by U.S. "allies."

The Washington Post ran an interesting article about something called The Expeditionary Task Force, a 1,500-man unit of former Bolivian soldiers that is totally funded, fed, clothed and armed by the U.S. Embassy in that country. This is a first in the War on Drugs, even though it’s taken a back seat to the War on Terror. The U.S. is paying the soldiers about $100 a month, which is 50% more than they got in the army; make a note in case you want your own private army. These guys go running around the jungle destroying the crops of the local farmers, and occasionally torturing, maiming, and murdering a few. The indigenes don’t like it, are well aware of who’s putting the Task Force up to it, and have long memories. You can bet a real guerrilla war will, at some point, blossom in Bolivia as a result. On the bright side, though, hiring local soldiers is a lot cheaper, and much lower profile, than using Americans. And you don’t really have to care who gets killed.

I presume you’ve heard of the Ashcroft Justice Departments TIPS (Terrorism Information and Prevention System) program, a part of the larger Bush "Citizen Corps" initiative. The Citizen Corps is something of a volksturm for busybodies who are too alt, lame, or chicken to hunt al Qaeda members personally in Afghanistan, or wherever. TIPS is a scheme asking Americans (particularly those like mail carriers, cable guys, truckers, utility workers – but anybody can enroll at their website at www.citizencorps.gov/tips.html) to sign up to report "suspicious activities" on the part of others. My understanding is that the program was supposed to go into effect in August, but has been shelved (largely due to the vigilance of the ACLU), despite having already recruited over a million wannabe snitches.

Ultimately, TIPS was, or is, supposed to have 12 million members turning in their observations via a hotline to a network of intelligence "reporting centers". Press reports I read seemed to indicate that it was an "overwhelmingly popular concept" among the hysterical hoi polloi, at least as far as a London Telegraph reporter could determine. Boobus americanus made comments like (I kid you not):

"I think the critics are making a big mistake. I would be happy to do some spying. I would love to do something to help America," Wilma Silva, postwoman.

"Yes, I sure would join this operation. I would be very happy to keep an eye on suspicious activities and suspicious people, and I would not feel uncomfortable about it at all." Douglas Hannah, Coca-Cola truck driver. "We need to do this. We need to watch for them, watch for anything out of the ordinary. And you know what? If you have done nothing wrong, you don’t have to worry about being spied on." Arpad Dozzy, FedEx delivery man.

Americans have often wondered where the Germans were able to recruit all the people who staffed the Gestapo and the SS. The fact is, however, that sociopaths, sociopath sympathizers, the weak-kneed, and the easily-led form a standard distribution across all societies, in all times. We have just as many in America now as the Germans did in the 1930s. Maybe even more, since Americans have been corrupted by welfare and programmed by the public schools and the mass media for several generations more than were the Germans of that time. Your local TIPS snitch might report that you "fail to display sufficient respect for authority." Or maybe he’ll write down that you "laugh upon hearing the phrase ‘homeland security’." Think I’m kidding? Try making a joke in an airport.

The popular response to the TIPS program is proof that the time is now right for the creepy-crawlies to emerge from under their rocks. That neighbor who’s got a kid, and a dog, and plays ball of a Saturday may have exactly the same dark side as the German who always politely shopped at a Jewish deli, but then broke its windows when Kristalnacht came.

One scary and hysterical government measure that hasn’t been shelved was the activation of 300 Army National Guard tank battalions as part of a homeland defense force, as part of a strategy calling for the domestic use of U.S. military forces. Reuters reported that, in his July 20 speech, Bush said that tank battalions "will serve in the homeland defense role within the United States." I’d like to know how, exactly, tanks will be employed within the U.S.

Possibly worse, Bush activated about 1,000 Special Forces units for possible deployment around the country to assist in searches for suspicious people "in support of the war on terrorism," Reuters said. I find the use of the military within the U.S. abhorrent, but especially Special Forces. Their whole raison d’être is counter-insurgency, and their approach is one of "anything goes." Soldiers aren’t trained, like cops, to warn people of their rights, defuse situations, minimize force, and adhere to strict rules of conduct. And Special Ops soldiers are, in fact, trained to do just the opposite. Of course, maybe the distinction is becoming blurred because most cops today are ex-military. But that’s another story.

Of course, all this makes the Posse Comitatus Act, which prohibits the use of the military in law enforcement, a dead letter. That doesn’t bother me; it’s just another arbitrary law, albeit one I agree with. But I can tell you that one thing I used to like about America was there were no armed soldiers on the streets, making the country look like it was in a state of siege, like so many places I’ve been in the Third World.

What’s really scary, though, is the way it ties in with Ashcroft’s stated desire to set up "domestic internment camps" for U.S. citizens that are accused of being "enemy combatants." It would appear the way this game is played is that if you’re accused of being part of this new class of criminal, you can forget about your rights; you’re locked up for the duration.

The reactivity, and utter lack of principle, of the Baby Bush regime is underlined by the creation of a Department of Homeland Security. And that…entirely apart from the fact that its $37 billion budget will compete with the FBI, CIA, NSA and other bloated and dangerous bureaucracies as Praetorian Guard wannabees.

Sincerely,

Doug Casey,
for The Daily Reckoning
December 17, 2002

P.S. Just for the record, look at the Cabinet level departments created over the last 40 years. Why should Homeland Security be any different from any of these disasters – except that it’s got a lot more power, and its employees carry guns:

1965, Housing and Urban Development, budget $31 billion, which is mainly responsible for the creation of vertical ghettos, and the destruction of the inner cities in general…

1966, Transportation, budget $61 billion, the bane of the transportation industry…

1977, Energy, budget $19 billion, which has never produced a barrel of oil…

1979, Education, budget $48 billion, the running dog of the corrupt NEA trade union, whose creation coincides with a collapse in the education system…

1988, Veterans Affairs, budget $52 billion, the agency every veteran I’ve ever met would like to launch an air strike against…

P.P.S. I know some pundits are saying this is already the longest bear market in history – which is nonsense. And I’m not just talking about the 12 year Japanese bear market. Entirely apart from that, bear markets historically tend to linger for about half the length of the proceeding bull, which was 18 years in this case.

The explosive 1000 point rallies we see are evidence there’s actually still a lot of bullish sentiment out there. I don’t think it’s going to be over until we see 6- 8% dividend yields everywhere, a great decline in the number of mutual funds, and low trading volumes. And not only won’t there be bullish articles in McPaper [USAToday], there won’t even be bearish articles. There won’t be any articles on stocks, because nobody is going to want to hear about stocks at all.

People’s attention is likely to be much more focused on news from the latest front in The Forever War.

Editor’s note: International Speculator Doug Casey has been seeking and finding incredible opportunities around the world for 25 years. Mr. Casey is the author of the best- sellers Crisis Investing and Crisis Investing for the Rest of the 90’s, and is one of the more opinionated contributor’s to the Daily Reckoning. If you’re interested in additional insights from Doug, please see:

The International Speculator

Yesterday was a good day for Bernanke and the Fed gang.

Stocks rose in a typical Santa Claus rally. The CRB – which measures an assortment of raw commodities, such as scrap metal and cotton – rose to a 21-month high. Deflation is nothing to be concerned about, says Bloomberg columnist Caroline Baum.

And along comes a study from Merrill Lynch that tells us homeowners are still refinancing. Merrill says the hundreds of billions taken out by homeowners should be enough to keep the economy going for another few months.

American consumers are notoriously indebted. But with the help of the Fed’s easy money, they’re going even further into the hole.

And here’s more good news for Bernanke: "Many are not saving for retirement," reports the Arizona Republic. "Half of paid workers 25-64 have no retirement savings of any kind," says the paper.

"Our savings rates are a disaster," opines the executive director of the Alliance for Retirement Security, obviously not a serious economist. For as every Keynesian and Monetarist knows, the worst thing people can do is to save their money. They’ve got to spend money to keep the economy going, even if they don’t have any!

Many of today’s consumers are already up to their necks in debt – much of it mortgage debt. The Fed graciously provided such easy credit over the last few years that it was hard to resist. Besides, when everything seemed possible, why not enjoy life in a bigger, nicer house?

Housing prices rose twice as fast as incomes in the ’90s. Many people now spend 35% of their gross income – or half their take-home pay – on mortgage payments. The percentage of people who spent that kind of money on housing rose from just 6% of homeowners in 1990 to over 20% in 2000.

Now, says a Reuters report, loan delinquencies are near record levels…and are expected to double next year. How are these poor homeowners going to continue to carry the entire world economy on their backs?

No problem, says Bernanke. We’ll lend them some more money.

Over to you, Addison…

————

Addison Wiggin in Paris with the details…

– Wow, this is astounding…even Santa Claus appears to be a Daily Reckoning reader. No sooner had we posed the question: "where’s the jolly ol’ fella when you need ‘im?"…and poof out of a cloud of chimney smoke – he arrives.

– At least it appeared to be Santa. Upon viewing the apparition, the Dow lept up with glee and added 194 points to its tally, closing the day at 8,627. The S&P 500 was a little more boisterous, adding 2.4% to its ranks…but the Nasdaq was the most petulant of all.

– Which gives us reason for pause. Despite a recent announcement that the predominant companies in the Nasdaq 100 will be re-weighted away from an emphasis on the tech sector, and despite the fact that new bull markets rarely start with the old bubble leaders, tech companies led yesterday’s rally: Morgan Stanley’s High Tech Index itself jumped 2.7%.

– So, one might wonder…was it really Santa…or was it Mr. Bear marauding in disguise? Think about it. They are…roughly the same shape…weight…and body type. And Santa did arrive in a cloud of chimney cinders. Hmmmnnn…maybe people mistook all that dark fur for soot. After all, cursory look at the days news reveals little holiday joy.

– While around the country, consumers "cash-out" the equity in their homes to pay for the holiday rush, wages are dropping…jobs are drying up…and because of the same increases in house prices that make people "feel" richer, the percentage of income going to meet housing payments is rising. The Census Bureau, reports the Detroit Free Press, shows the cost of homes has increased by 21% in the Detroit area, while incomes have only increased by 13%.

– ‘Wage Collapse’, reads a headline in Newsday.com. The articles details the stories of three people in the New York area, who’ve joined the growing ranks educated workers, formerly employed in well-heeled positions, "filling salt shakers, selling sweaters or cell phones, making telemarketing calls, imputing medical billing information – even passing out fliers on street corners."

– "People who have jobs had better be glad they have jobs," says Charlene Ruiz, a former consultant with US Trust Co. now working for $7.25 as a cashier in Manhattan cafe. "If I continue to work at this wage," says Ruiz, "I’ll never get out of debt." She owes, says the article, $20,000 to credit card companies…and another $4,000 to the IRS. The Bureau of Labor Statistics reports that country the number of people working part-time jobs who would ordinarily be in high-paying salary positions has lept up to 18.3% of all part-time workers – or…4.2 million Americans.

– "This is just fall out from the boom," says our own Dan Denning, editor of Strategic Investment. It’s the beginning of the ‘long bust,’ where some Americans will see their standards of living fall, their incomes stagnate, and their prospects for anything like retirement dwindle. The labor market is telling us something: America is just beginning to pay for it’s over-consumptive sins. Americans might not like it. And who knows what they might do about it…

– In Atlanta, 61,800 jobs were lost in the 12 months that ended in October…pushing the city to the top of the "lost jobs" list kept by Dept. of Labor. "Tourism, transportation and technology made its economy a triple threat," reads an article in the New York Times. "Hotels sprang up like jack- in-the-boxes as the city became a leading venue for conventions and trade shows. Business travelers jammed Hartsfield International Airport, pushing it past Chicago’s O’Hare Airport as the world’s busiest. And with precious little fanfare, Atlanta gained possibly more high-tech jobs than any other city in the nation."

– Now…"I wish I hadn’t moved to this hot thing," the Times quotes Van Black, an out-of-work 17-year veteran of Nortel Networks. Mr. Black moved to Hot-lanta from St. Louis with his wife and two children in April 2000…in his capacity as manager, he lured hundreds of other workers there too. By early 2001, most of them had been laid off…and by July, so was he. "It was literally feast to famine in a couple of months."

– Curiously, the latest Investors Intelligence poll puts the number of bulls at 50%. Bears, meanwhile, number only 24%. Confidence in the Bernanke team is strong. Mr. Bear still has a lot of investments to destroy before his work is done…reason enough we expect for the Santa disguise.

– Despite the ruse, gold investors appear not to have been fooled. The price of gold rose again yesterday, to $337.60. And the Gold Bug Index itself tacked on another 2.5%…but gold is not really an investment, we remind you. It is merely an insurance policy that pays off when other people’s investments go bad.

————

Back in Baltimore…

*** How do people with no savings end up with such big mortgages in the first place, we wonder…don’t they have to come up with down payments? Apparently not.

The Wall Street Journal reports that it has become common for builders to front the money for the down payment…using a little loophole in the law that allows non-profit groups to help aspiring homeowners get in over their heads…oops, we mean, acquire a new home. The builders set up non-profit groups to put up the down payment. Then, Fannie Mae finances the mortgage as if the house were worth what the buyer paid for it…and as if the buyer were a decent credit risk. The mortgage is then packaged into an asset backed security – a derivative instrument with a feeble obligation at its core – and sold to an investor.

*** What happens if the homeowner can no longer keep up with his payments? Or, if the price of houses in his neighborhood begins to fall? He has put up nothing…will he not walk away when the mood hits him?

We don’t know. But the uncertainty of the whole situation makes us prefer holding gold to holding mortgage-backed securities, at least until the bar fight is over and Bernanke has gotten his derriere kicked.

*** "The IRS is after me," said a friend over dinner last night. "They asked for a list of everything I own so they could decide what to seize."

"What’s the matter? Why didn’t you pay your taxes?"

"I did," came the reply. "I paid $250,000. But they want another $500,000. I don’t have that kind of cash."

It is après-bubble, dear reader. Money was easy to come by in the boom years. It’s harder to find today. People are finding it hard to pay their taxes from the bubble years. And state, federal and local governments are finding it hard to meet their budgets.

"Believe me, no one has a keener interest in another bull market than the government," continued our friend.