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Friday, January 18, 2008

Empire and the Economy: Hornberger's Blog

Hornberger’s Blog

Friday, January 18, 2008

Empire and the Economy
by Jacob G. Hornberger

It’s quite amusing to watch U.S. officials, presidential candidates, and mainstream-media types presenting their pet plans to “revive the economy.” Except for Ron Paul, they all operate on the assumption that a recession, like terrorism, is some sort of mysterious disease that periodically afflicts societies. Their diagnosis of the problem is similar to the one we were all taught about the Great Depression — that this is one of the failures of the free-enterprise system. Thus, it’s not surprising that their plans call for such things as an “economic stimulus package” entailing such band-aid solutions as welfare spending, tax cuts, and the like.

Notice one glaring omission in all their analyses: Iraq and Afghanistan and, specifically, the hundreds of billions of dollars that have gone into these imperial adventures. As we have been warning here at FFF for several years, the out-of-control federal spending was ultimately going to have a disastrous financial and economic effect on the American people. Yet, most people continued to operate under the quaint delusion that a government can continue to spend uncontrolled amounts of money without any adverse effect on the citizenry.

Consider the home-mortgage crisis. According to the military adventurers, this reflects nothing more than a failure of free markets, including over-exuberant lenders and borrowers as well as that favorite of all free-market demons, the speculator.

Yet, ask yourself: How was it going to be possible for the federal government to spend hundreds of billions of dollars — on top of all the other hundreds of billions of dollars it was already spending — without an adverse economic effect on the American people?

Did people really think that all this military adventurism, including the destruction and rebuilding of Iraq, was going to be free? Sadly, many of them did. They had no idea that they would have to pay an individual price for such folly.

Ever since the out-of-control federal spending began after 9/11, President Bush steadfastly maintained that he would not raise taxes. People praised him, not daring to ask how he was going to magically come up with the hundreds of billions of dollars he would need to fund his adventures. People just thought to themselves, “Someone else will end up paying for it, not me. So why should I care?”

How did the president get the money? He simply borrowed it. Federal officials went into domestic marketplace and borrowed capital that would ordinarily have been available for civilian use, such as the financing and re-financing of homes. Despite the fact that the U.S. is the wealthiest society in the world, there is still only a limited amount of capital available, especially given the no-saving proclivity of the American people. Thus, when U.S. officials borrowed their hundreds of billions of dollars, that contributed to the drying up of capital for other purposes. I wonder how many people who are now suffering a severe decrease in the value of their home and even the possibility of foreclosure applauded when the president announced his invasion of Iraq.

But that wasn’t all. Given the enormous amounts of money needed to finance the president’s destroy-and-rebuild follies, U.S. officials also had to go into international markets to borrow money. That’s how the Chinese communists became the holders of massive amounts of U.S. debt. They loaned Bush the money he needed to finance his adventures. Americans had better hope that the Chinese communist regime never decides to make a panic run for the exits by dumping its dollar holdings because the economic result is not likely to be pretty. Of course, if that were to happen, no doubt U.S. imperialists would castigate those evil communist lenders rather than take responsibility for the disastrous consequences of their own imperial schemes.

Ultimately, all that debt must be paid off. Would Bush raise taxes to pay it off? Not on your life — that would mean taxpayer ire, especially at election time. So, how does he propose to pay off the debt? Well, that’s where the Federal Reserve comes in. Americans are about to learn once again what Latin Americans learned long ago — the value of a central bank to a profligate ruler. To help out the ruler, the central bank simply prints the money to pay off the debt the ruler has incurred. It’s a process that Federal Reserve Chairman Ben Bernanke has already initiated.

What happens to the value of the dollar when the Fed starts printing the money to pay off the debt? It goes down. More dollars mean less value. That’s why the dollar has plummeted in value some 50 percent against the Euro in the past 5 five years alone. In fact, the Fed’s decades-long policy of debt accommodation is also why the value of the dollar has steadily declined for the past 70 years.

How is the crashing value of the dollar reflected in the marketplace? By rising prices across the board. That’s why just about every commodity has been soaring for the past few years. After all, how else can the plummeting value of a currency be reflected than by rising prices?

But the beauty of this process, from the standpoint of those who brought on these imperial follies, is that everyone and everything else can be blame for them — speculators, greedy lenders and borrowers, entrepreneurs, immigrants, and the free market. Who’s going to suspect that the real culprit of people’s economic woes is the federal government itself — or, more precisely, the welfare-warfare state whose out-of-control federal spending threatens the financial and economic well-being of the American people?

Mr. Hornberger is founder and president of The Future of Freedom Foundation.

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