Sunday, January 17, 2010
The ten biggest threats to The United States of America
| The ten biggest threats to the United States Increasing terrorist threats, global warming, health care, or mounting deficits and debt. We hear the constant drumbeat from the right and left everyday. If we take the politics out of the equation, and rely on history, which of these are most likely to cause widespread chaos, and even destruction in the United States? The answers may surprise you. 10. Global warming, or the solution to global warming. While on our list global warming is the least of our concerns, the issue is still a huge threat to the United States and the entire world. If the global warming theorists are correct, history shows us that human intelligence will probably find a solution. In fact a former Microsoft executive has already found a solution that is so cheap it is literally less than a rounding error in one year of government spending. This is the sulfur dioxide solution which mimics a volcano, and though I'm by no means a scientist I have yet to uncover any serious risks with the solution. The hysteria surrounding the issue has softened somewhat, but both sides still hold steady to positions that empirically seem at best untenable. Some evidence of a warming trend is still compelling, but the near term disaster scenarios appear to have been largely exaggerated. The proposed cap and trade solution is as much a threat to The United States (near term) as global warming itself. For a comparison and to put the issue in historical context we can look to the early years of the Roosevelt administration. Roosevelt was working to solve a problem, unemployment and poverty, and inadvertently probably exacerbated the problem. By introducing uncertainty in to the business world, he caused an investment freeze that would last effectively until 1938 when the New Dealers were thrown out and stability returned to the financial markets. While Cap and Trade may not exacerbate global warming, it would have similar effect on the overall economy to Roosevelt's crack down on business, and increases in spending. Nature abhors a vacuum, and business abhors uncertainty. Cap and trade legislation will have the effect of injecting uncertainty throughout the economy. Investment in new and more efficient products and services will contract mightily until the investors can be certain a period of stabilization has arrived. Politicians world wide would be well advised to slow down the fixes, and increase the research over the next decade. 9. Intelligence gathering and foreign policy This is the most difficult for me to gauge in terms of importance. I think I could have just as easily ranked it first. Over the last 25 years I've read about 3000 books. More than 80% of them non-fiction, and of those, mostly histories of the last two or three hundred years. I do not consider myself an amateur historian, or "student of history" because I read these books, but because I often check foot notes and other sources, and read contrary opinions. As an amateur historian I thought I had a good understanding of foreign policy, diplomacy and the scope of the old KGB, CIA, MI5 and other information gathering services throughout the world.Then I read the Sword and the Shield, also known as The Mitrokhin Archive. It is the work of a form KGB archivist who diligently copied and collected thousands of pages of notes from the archives of the KGB. It is not only the most fascinating work of non-fiction I have ever read, I believe it is also the most important foreign policy book of the last 100 years. Any politician, left or right, who speaks on issues of foreign policy, intelligence gathering, or the cause and effect of war who has not read this book cannot possibly understand the big picture. There has been much debate on the issue of hiring "undesirables" for intelligence gathering. The United States and a handful of other Western countries have also shown a reluctance (at least publicly) to cross the line when it comes to intelligence gathering. The history of the KGB shows clearly that other nations and peoples do not exercise the same level of restraint. I correlate historically the KGB with the current round of extremists operating at the fringes. While they clearly may not have the technology, or the budget available to the KGB or the CIA, they have something that is actually more important. A ruthless ideological pursuit of intelligence. Unchecked the capacity to pursuit intelligence, and the value of the information collected will grow. Information will not only increase the size of terrorist operations, but the frequency. The more information your enemies have, the less costly it is for them to attack you. Thus when noted British spy Kim Philby told the Soviets not only who the agents were, but when and where they were being parachuted in to Soviet territory, the cost to stop them was a few hours of labor and gas for the truck to go pick them up. There are two sides to the intelligence sword. Diligence in protecting vital information is of course important, but just as important is counter intelligence. Without a top level security clearance it is of course difficult to assess this issue. But a few spectacular failures lead one to believe that our intelligence gathering is at best marginal. 8. Terrorist attacks Lack of intelligence and information on the enemy of course gives rise to more terrorist attacks. When an attack takes place, the human suffering extends well beyond the victims. Their families, friends and others feel a palpable loss that can of course not be properly addressed with mere words. The direct suffering is horrible, and to those like myself who believe that violence and taking of a life are the ultimate crimes it should be addressed with all resources available. But the specific and direct human suffering at loss of lfe is only part of the bigger picture. Even an unsuccessful attack exacts a heavy price on the entire nation. Trade and commerce are restricted, and the freedom of movement (one of the essentials of happiness and liberty) is also severely impacted. As the intelligence gathering and effectiveness of our enemies increases, we could see the evolution of economic terror that cripples the infrastructure of the nation. The possible scenarios are endless, and the only anti-dote is effective counter-intelligence. 7. Fiscal policy Perhaps I could better have worded this as, "lack of fiscal policy". For the lest few years it has become all to apparent that The United States doesn't really have a fiscal policy. Congress doesn't have a core set of guidelines, or even a rudimentary structured that could be considered a fiscal policy. While often listed as the greatest threat, history continuously shows us that a poor or non-existant fiscal policy is often righted by the constraints of monetary policy. If the leaders of a nation understand money and how it works, they tend to preserve the value of money. Thus when the money runs out, the spending slows, or they begin borrowing to cover the shortfall. As long as monetary policy is focused on maintaining the currency, interest rates rise and act as a backstop to excessive debt, and thus fiscal policy is again forced in to line. Lacking a fiscal policy that self imposes limits on congress, the spending, debt and printing of money do not stop until the house of cards collapses. Thus we find ourselves with a bit of a Catch-22. If our monetary policy were sound, fiscal policy could only get as bad as the cash on hand, and ability to borrow would allow. If fiscal policy were sound, we would have no need to borrow money excessively, nor would we have a need to print money. Were congress to declare any fiscal restraint, or rather limits, at all a stabilization in the money supply and debt would be at least a possibility. Without a fiscal policy the people who would buy our bonds have no way to estimate the value of the investment. 6. Debt Government debt causes a chain reaction. The domino effect first hits the big business, who must compete with the government for large sums of money, and then trickles all the way down to the young adults trying to buy that first car or home on credit, only to find that interest rates are high and choices limited. The debt spirals back on the government as pressure grows to "inflate" some of the debt away in an effort to keep interest rates low, and the voters happy. Debt also limits the flexibility of government. Large portions of the budget must be dedicated to paying the interest on the debt thus furthering pressure to cut, or scale back spending, or failing that politically unpopular choice, to print ever more money. Perhaps the most dangerous aspect of government debt is precisely the same aspect of debt that is most dangerous to business; for awhile it hides the truth. When credit is free flowing, businesses and governments make short term decisions under the false impression that they can grow themselves out of the debt, and resume real profitability. In the case of government the assumption is that with short term borrowing for a few years, the pump of the economy can be primed to pay the interest, and the principle on the debt,and eventually operate in the black. The months turn to years, and the years turn in to decades, and the gains either do not materialize, or they are plowed back in to more interest on more debt. Eventually the mountain of debt raises eyebrows and even the loan sharks won't lend money. When this situation confronts business the enterprise is forced to file bankruptcy and try to restructure debt. Those at the bottom of the pile lose everything. Governments have no such option. So they resort to printing money, or repudiating the debt. 5. Political corruption To say that politicians are corrupt is to say that the earth is round. The first politician in history may not have been corrupt, the second surely was. The problem reaches a tipping point during times of crisis. The corrupt politician becomes a corrupt human being and will do anything to hold his power. At this point in history the devils take over and while the nation may retain its original name and geographic boundaries the people stuck inside experience a level of misery unfathomable by most people in The United States. Sadly this is all too often the case and the history books are filled with the stories of death that reaches in to the millions. There is however no template for the people who become tyrants. While Lenin was a brutal ideologue, Stalin was just brutal. Hitler was a frustrated artist, and the Angka Loeu all highly educated Marxists who once in power were content to kill, maim and otherwise displace until the fear guaranteed at least their own security. And sometimes the dictators were just crazy as in the case of Sadaam Huessein and Kim Jong iL The only common thread we can find is that all were fighting for the common man. The forgotten peasant, who is just as quickly forgotten once the tyrants have power. For a thousand years prior to the twentieth century wars were waged in the name of religion. More people died in the name of God than just about any other name. In the Twentieth Century more people died in the unknown name of the common man. The Proleteriat become the cause, the motivation and ultimately the victim. The root cause of his misery was political corruption in the pursuit of unlimited power. Be it the luxurious rewards of politics, or the naked power over another human being, corruption was always the path. The corruption begins with all political corruption, selling favors. A piece of legislation that includes a new bridge or exit ramp, a favor to a senators home state, or the big prize of a favor to an entire group. Unions often the beneficiary in the twentieth century, ideaologues lately. When there are not enough voters to bribe, one politician bribes another with the promise of a prestige job should he lose the election. In this job, the lucky politician believes that he will be able to thus sell more pull and influence, and continue to line his pockets or stroke his ego. The bottom has been reached when the practice is considered nothing more than good old fashioned horse trading. The politicians quicly forget that the horses they are trading do not belong to them. But no matter, the taxpayer has grown weary of the fight. The corruption reaches the dangerous level when there are no more favors to give, and no more of the taxpayers money to hand out. He knows his end is near so he must necessarily take the ultimate step in political corruption; destroying his enemies. At first it is personal attacks, often through the back channels of a friendly media. Quickly exhausted he moves directly to the mind of his enemy. Questioning first intelligence, and then sanity. When these cards are played, he moves to have his enemies thrown to gaol, and when the jails fill up the killing begins. Santayana warned that those who fail to learn the lessons of history are doomed to repeat it. We are told that that this is the lesson of history. Santayana was a bit to vague. The real lesson of history is that when the citizens fail to protect themselves against the corruption of the political class they will surely lose their freedoms, and often their lives. 4. The decline of journalism Many rate this as a higher threat, but history again offers us some hope. While the older forms of journalism are struggling, new models which integrate television with the world wide web are growing. While the growth of media outlets has offered us new choices for news, it has also exposed and perhaps deepened the ideological bent behind the news. The left may be correct in labeling Fox news as right leaning. This is surely the case with commentators such as Beck, Hannity and O'reilly, though it is hard to consider Van Sustern a right wing ideologue. During the news portions of Fox's programming it is much more difficult to paint with the same brush. Of course Maddow and Olbermann at MSNBC are no less partisan than Fox. The truth is that Rachael Maddow often brings important issues to light. Not as a journalist, but as a commentator. Olbmermann, John Stewart, Sean Hannity and others could make similar claims, and they would be correct. No one has had more success with this than the much maligned Glenn Beck. Mr. Beck had the unfortunate luck of being correct and factual in some of his accusations against members of President Obama's staff. An exclusive with Andrew Brietbart's news outlet Biggovernment.com exposing corruption at Acorn furthered Beck's standing among the right, and raised the ire of the left. But the real story, and the real threat is that none of the recognized journalists picked up on these stories with any zeal to investigate the validity or sort through the facts and fallacies. Even more troubling is that since Matt Drudge uncovered Ms. Lewinsky's tale of the little blue dress, the recognized journalists and main stream media have not only broken no blockbuster stories, the few they attempted have blown up spectacularly. This was no more evident than with Dan Rather's amateurish reporting on the George Bush National Guard story. When the recognized journalists abandon the professional ethic they lose credibility We the people are forced to look to other venues for our news. Sometimes these venues provide a valuable service. Other times they simply feed the frenzy. The end result is that real news becomes lost and trusted only by those who are inclined to believe. If Racheal Maddow discovers that Dick Cheney has grand designs on fighting terrorism that will impact our freedom, the right dismisses the story because the messenger is a "leftist". If Glenn Beck exposes corruption within the White House that threatens the economy or our standard of living, the story is dismissed becuase the rank and file of the left have been conditioned to believe that he is a right wing nutcase. A professional journalist should feel compelled to investigate. In doing so he would find that there weren't many more critical of the Bush administration than Glenn Beck, and Ms.Maddow has expressed concern that portions of the Patriot act, still in effect under President Obama, are a threat to the freedom of all citizens. 3. The Demographic time bomb and the fatal flaw in the new health care bill. The shortfall in funding of Medicare is incorrectly estimated at anywhere form 30 to 40 trillion dollars. The reality is that no one can possibly know and the number is potentially much smaller. This thought of course goes against the grain of current conventional wisdom so I'll explain quickly. Health care costs are escalating, but much of the escalation can be tied to a few specific segments and illnesses. All of the illnesses, diabetes, cancer and heart disease are dependent on early detection and thus diagnostic tools. In the current health care legislation (which is admittedly in a state of flux) manufacturers and investors in new diagnostic and treatment equipment will be subjected to a new 2.5% tax. This tax will change the risk profile and drive investment out of the health care segment, thus increasing the cost. If logic and reason prevail ( a long shot under any political power) the tax increase would become a tax credit to increase investment in the technology and thus lower costs. The natural order of prices is to go down. This is because technology increases efficiencies and productivity, thus of course lowering price. Nowhere should this be more evident than in the health care segment. In fact, other than universty education (also largely controlled by government) it is difficult to find an area of the economy where technology has not caused prices to fall. So if Medicare costs and health care costs in general could fall drastically with the proper investment incentive, what risk do the baby boomers pose? The answer is of course social security payments. These payments are also wildly underfunded, and technology offers little in the way of cost containment. The problem is two-fold in that a small cut in the payments today, which could save the system, would probably doom the party proposing the cut, and thus drive costs even higher as politicians back track in an attempt to buy votes. In the end, this dichotomy will result in a solution that will lead to the biggest threat facing the nation, hyper inflation caused by debt monetization. In plain English; printing money. As politicians are confronted with losses during elections they will print money to keep the social security payments coming. The short term benefit will be to the politicians. The long term catastrophe will affect everyone, but in an odd twist most the burden will fall on the senior citizens relying on social security. Their payments will continue to be adjusted every year, but the money they receive will lose most of its value in the first couple of months of the increase. This is exactly what happened in Weimar Germany when workers were paid twice every day to get rid of the money as soon as possible before it lost more purchasing power. A loaf of bread in the morning will be $100, by the end of the day $200 or more is not inconceivable. For those on a fixed income, there is nowhere to turn. 2. Monetary Policy History can be misinterpreted to bend the conventional wisdom. It is a game politicians and pundits love to play to make their cases. But monetary policy offers no escape. The record is clear. Nations that print money to pay down debt will fail. The governments either collapse, as in the case of Weimar Germany, or must be held together through fear and intimidation as in modern day Zimbabwe under the financial stewardship of Gideon Gono. In ancient Rome the coinage is minted with less silver, During the heyday of the Spanish empire a huge influx of real silver from South America, Schacht in Weimar Germany and the aforementioned Gideon Gono in Zimbabwe all have take the path of inflation. All have failed the people of their nations. The United States of America has embarked on a monetary policy that is not only misguided, but dangerous. Part of the problem is the historically unique nature of the American dollar. Hundreds of billions (actually trillions) of American dollars do not circulate within the American economy. In China, the American dollars are simply held. In Zimbabwe, Syria, Lebanon, and dozens of other nations, American dollars are used as the local currency. The street vendor accepts an American dollar and gives a piece of fruit to the carpenter in the morning. At the end of the day, he takes some of those American dollars and gives them to a farmer for more fruit. The farmer takes some of his dollars and pays his workers with them. The money never comes back in to The United States, and does not even indirectly purchase American goods or services. It left the country to purchase a good or service initially, but it never returns to circulate or cause inflation. This is vitally important, and I have yet to see an economists place this in to its proper context. Printing money does not by itself cause inflation. The treasury can print ten trillion dollars tomorrow without causing any inflation at all. How? By burying the money in the ground. This is what happens every day all over the world. The faith in the American dollar still supercedes the faith in just about any other currency worldwide. For decades this has put a damper on inflation. China, Russia, Japan and other governments (more properly central banks) hold these dollars for the same reason. They believe that the dollar will always maintain some of its value. The dollars that these nations and central banks hold have been properly identified by pundits and economists as having an inflationary risk. But here again, they don't get, or at least present, the entire picture. The experts fail to factor in all of the expatriate dollars. Those U.S. dollars that act as a local currency in other nations. No one has any idea of how much money is actually out there. Estimates range from just a few billion, to hundreds of billions. The pundits and politicians believe that Ben Bernanke and Timothy Geithner have the tools and knowledge to forecast inflation and thus will apply the brakes to prevent hyper-inflation. A study of history shows us clearly that no such crystal ball exists when it comes to hyper-inflation. I CANNOT TELL YOU WHEN HYPER-INFLATION WILL HAPPEN, BUT I CAN TELL YOU HOW. AND I CAN TELL YOU THE DAY IT WILL START Hyper-inflation is generally not something that unfolds over years. There is historical precedence for it, but it is not the norm. During the Weimar years and in to World War II France was experiencing a crippling inflation, but it took decades to unfold. Because of the unique status of the dollar, we will know no such luxury. At some point in the not too distant future, one nation will begin to lose faith in the U.S. government's resolve to maintain a strong dollar. The most likely nation is China, but it need not start here. For our purposes, we'll call this nation A. This nation will decide that the risk of holding hundreds of billions of dollars is too high. On a Friday afternoon when the markets have closed in The United States, they will begin selling their dollars for euros, gold, or some other currency. On Saturday morning, nation B will see what has happened, and realize that the dollars it holds are now worth much less, and they will begin to sell. This will precipitate the crash in the dollar. The speed at which information spreads will exacerbate the effect, and by Monday morning the dollar will be in free fall. Over the course of the next few weeks, billions more dollars will start to come back in to the United States as the regional trust (think Zimbabwe) collapses, and the money is rushed in to America to buy as many goods as possible while the dollar retains some value. For a few short months (maybe only weeks) it could be the best of times. American companies will be bringing in record profits as the dollar is repatriated. When reality sets in, things will get bad. We won't be able to use these dollars to buy anything from other nations. While this may help the American car industry, the cars won't be worth much because where are you going to purchase the gasoline to drive them? Now we compound this problem with every other raw material or finished good from outside the United States and the end result is clear. I don't believe I need to go much further with this. It should be clear that hyper-inflation will lead to ruin for everyone. The nine previous threats listed are my list, but not unique. What I believe is unique is that there is a core premise to each of these problems. It's easy to say the hyper-inflation and monetary policy poses a huge threat to the United States. It is easy to show that fiscal responsibility is necessary for future growth, and that Social Security is going to straing the budget for decades to come. The question is why does this happen? Why do politicians insist on spending more money than we have, and then instead of fixing the problem, why do they resort to printing money? The answer is a dichotomy that is as old as politics itself, geopolitics. 1. Geopolitics All of the threats listed above have at their core a central premise, a nexxus of fiscal destruction if you will. The term is often used to refer to describe world politics, but a more precise meaning is political ideology that is pushed from one region or culture to another. The idea can best be described as, "I know what's best for you, and I'm going to make sure you get it." Let us use California as an example. The state is in dire financial straights to say the least. Businesses are leaving to escape the crushing tax burden, social services are on the edge of collapse, and the people of California are slowly moving from frustration to outrage. But let us take a look at just how high these taxes really are. The top tax rate on income is 10.55%, for those with incomes over $ 1 million per year, while a single making just under $50,000 per year is still taxed at 9.55%. The sales tax rate is 8.5% and varies by city. Hardly what anyone would consider a confiscatory tax rate. But when we factor in the top Federal income tax rate of nearly 40% we begin to see the problem. Right out of the gate the California family with an average income loses about half of their money to Federal income taxes, state income taxes, social security taxes and other taxes and fees. The small business owner is hit even harder. Now let's look at the amount of money received by California for all of those taxes they pay in to the system. In 2005 according to the taxfoundation.org Californians sent 289 billion dollars to Washington D.C. They recieved 242 billion dollars back. From 1996 to 2005 California sent 484 billion dollars more to Washington than it received. The public debt (the amount of money owed by the citizens of California on behalf of thier government) was less than 100 billion dollars as of third quarter 2009. How is this possible? Geopolitics is the answer. The people of California like the services the state of California provides. They have elected politicians at the state house to provide these services, and the reality is, the politicians have done a good job of delivering them. There is waste and fraud to be sure, but the services have been delivered. The problem is that a 10% state income tax rate is not enough to pay for it. So with just a 10.5% tax rate, there should be plenty of room to increase those taxes to pay for the services. Alas, geopolitics stepped in, and nullified the solution. While Californians were enjoying the services provided by their state governments, they decided that the people of Alabama, Indiana and New York could use these services as well. So they elected politicians to go to Washington D.C. and spend some more of their hard earned money so everyone else can have these services. Even if the people of the other states didn't want them. California could have (and should have) had it all. They fell in to the geopolitical trap and assumed the the rest of the nation wanted what they had, and in the process, they bankrupted themselves. What would have happened if the politicians in Washington D.C. (elected by the people of California) had said, "We do not wish to push or political positions on the people of Alabama, and thus we don't want them to have any of our money." ? Well, over the same ten year period the state of Alabama received 102 billion dollars more from Washington D.C. than they sent. And this with a population of just about 5 million people as opposed to California's 37 million people. As i mentioned during the ten years from 1996 to 2005 California's politicians in Washington D.C. took 484 Billion dollars out of the state. Had the state been just balanced in its export of political ideology the politicians in Washington would be asking California for a bailout, instead of the other way around. Had they pushed fiscal conservatism, which was in their own best interest, the state would have over one trillion dollars in financial leeway, even at current state spending levels. And this is of course a very conservative assessment. Much of federal spending originates with California's politicians and large number of electoral votes. Had this been just cut in half at the federal level, California would enjoy the trillion dollars. While Alabama was sending fiscal conservatives to Washington to represent their desires, California did not. They sent to Washington the same type of people they sent to govern their state. Geopolitics corrupted the interests of both states. Alabama should logically have elected die hard conservatives to state government (which they did) and sent liberally minded politicians like Nancy Pelosi, Barbara Boxer and Dianne Feinstien to Washington. California should have had Pelosi, Boxer and Feinstein in state government, and sent fiscally conservative Republicans to Washington D.C. Had this happened California would currently have no debt, be flush with cash and would enjoy lower tax rates. Instead of cutting social programs because of the recession, they could expand programs, and still lower taxes. The lure of geopolitics and the ambition for power of California's politicians motivated the citizens to act against their own self interests. This same dynamic plays out across the globe and has for all of recorded history. The Romans wish to push their world view on the rest of the world. The English believe the white man's burden is to bring the white man's civilization to Africa, and the people of Massachusetts wish to push their politics on the people of New Jersey. The intentions are usually good. The result is usually misery for all involved. Written by Eric Gurr gurreric@gmail.com |
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