The Costs of War

Addison Wiggin – September 9, 2011

  • $3.2 trillion and counting: The cost of the “War on Terror,” rung up on a maxed-out credit card
  • Euro-jitters knock down stocks everywhere: Major announcement due Sunday?
  • Euro hits six-month low, dollar hits six-month high, gold swings wildly again
  • Boom business in the bust era: Matchmaking service for cheating spouses
  • Readers take our newest editor to task (already), report that banks are lending again (uh-oh)

   Since we’re only 30 miles from Washington, D.C., we’re supposed to be afraid today. Or not. We’re not sure.

With the 10th anniversary of Sept. 11 on Sunday, there’s a “specific, credible” terrorism threat involving Washington. Or maybe it’s New York.

The threat is “unconfirmed” and the government officials who put it out there yesterday — anonymously — presented no evidence to support its existence.

But “there were very, very specific facts that were made known in this threat,” said Rep. Peter King (R-N.Y.). “I would tell people right now to go about their lives. There’s no need to panic. We don’t know if this threat is real yet..”

And so it goes. For the last 10 years: Go about your life… but be afraid.

If these terrorism threats seem rather vague and amorphous… imagine calculating the total cost of the decade post-Sept. 11 in money and in personal liberty. Approaching the anniversary of the largest terrorist attack on U.S. soil, we found such a task a bit too daunting. So we rounded up a few nuggets of pertinent data we thought you might find useful instead.

Fair warning, today’s is one somber issue of The 5.

   First, a housekeeping note that will set some context: The U.S. debt ceiling is up to $15.19 trillion this morning.

You’ll recall it was $14.29 trillion in the buildup to the phony summer showdown in Washington. Then it was raised $400 billion on Aug. 2. But that was only enough to tide Uncle Sam over until next week.

So another $500 billion came yesterday when the president requested it and the Senate went along. This is supposed to keep Uncle Sam borrowing worry-free for another four or five months.

And has nothing to do with the additional “jobs” spending the president proposed in his bicameral address before Congress last night.

   Roughly one-fifth of the $500 billion granted to the Treasury yesterday will be spent prosecuting the Afghan “war” that began 10 years ago Sunday.

That’s if you go by the record so far: Add up the wars in Iraq, Afghanistan, Pakistan, Libya, Yemen and Somalia… plus the cost of veterans’ health care, plus the Homeland Security complex, plus interest on the debt incurred for these other war-related expenses.

“If all the wars were to end today without a single penny appropriated for military operations, etc., for the upcoming fiscal year (2012),” according to Winslow Wheeler of the Center for Defense Information, “the federal costs already incurred would be from $3.2-3.9 trillion.”

“If the wars were to run their course — as currently (and optimistically) estimated by the Congressional Budget Office — the costs (together with additional interest payments for the required deficit spending out to the year 2020) would come to an additional $1.45 trillion.”

“All that would make a total cost from $4.7 to $5.4 trillion — assuming everything in the future goes according to plan.” As wars always do…

   For many people in Washington, these staggering sums still aren’t enough. Sen. Jon Kyl is already threatening to quit the “super Congress” tasked with developing a plan to get the national debt “under control.”

“I am off of the committee if we are going to talk about further defense cuts,” he told the American Enterprise Institute on Wednesday.

“Cuts” in Washington-speak means trimming the rate of spending growth, not actually shrinking the spending. And that’s still enough for Kyl to announce he would step down from a committee that had yet to hold its first meeting.

   “Together the deficit and the Afghanistan war exemplify the chronic imbalances that unless corrected will accelerate American decline,” says Boston University professor Andrew Bacevich, an Army colonel in Vietnam who now teaches international relations at Boston University.

The deficit is “hovering around $1.6 trillion for the current fiscal year,” he notes. As for Afghanistan, “the United States is spending $10 billion per month in hope of pacifying a country with a total annual gross domestic product of perhaps $27 billion.”

Correcting these two things, Bacevich submits, will “staunch the hemorrhaging of American power.”

Perhaps, it’s too late. But professor Bacevich’s argument is worth considering — especially as he examines how we reached this state. He traces it even farther back than Sept. 11 — as you can see in today’s Whiskey & Gunpowder.

   Here’s one measure of the wars’ cost in terms of personal liberty.

The Patriot Act authorized “sneak and peek” search warrants — where you, the suspect, don’t have to be notified of the search until after the fact. If you’re a patriot and thought those powers would be used to fight terrorism, well you would be wrong.

   Meanwhile, the National Security Agency (NSA) has opened a massive $2 billion, 1 million-square-foot complex in the Utah desert… devoted to storing and sorting through emails, web searches and business transactions. Perhaps yours.

A similar complex is being built near San Antonio. By 2015, according to journalist James Bamford, the NSA will store data equivalent to 1 septillion printed pages. That’s a 1 followed by 24 zeroes.

“Somewhere between Sept. 11 and today,” wrote Bamford yesterday, “the enemy morphed from a handful of terrorists to the American population at large, leaving us nowhere to run and no place to hide…”

“At the NSA, thousands of analysts who once eavesdropped on troop movements of enemy soldiers in distant countries were now listening in on the bedroom conversations of innocent Americans in nearby states…”

“A surveillance system capable of monitoring 10 million people simultaneously this year will be able to monitor 100 million the next year — at probably half the cost. And every time new communications technology appears on the market, rest assured that someone at the NSA has already found a way to monitor it. It’s what the NSA does.”

Isn’t technology great?

   Can any country afford to station — and these are the Pentagon’s figures from 2007 — 190,000 troops and 115,000 civilians in 909 bases scattered across 46 countries?

The answer turns up on a micro level with stories like the one we had last week in New England — where the Vermont National Guard’s helicopters, sorely needed for flood relief, were stuck instead in Iraq.

And it turns up when government can no longer afford to follow through on its promises — like Social Security benefits. That’s why future benefits are due to be keyed to an even lower phony rate of inflation than they are now.

This is another wrinkle to the forecast we issued this summer — about an unsustainable government spending spree and the consequences it will have for you, very close to home. If you haven’t reviewed this forecast in a while, give it a look today. It’s just as relevant now.

   So much for the market rally. The Dow is down nearly 300, clinging to 11,000 and losing whatever grip remains.

   The losses are being chalked up in part to “skepticism over President Obama’s economic stimulus spending plans,” says a Reuters report.

No wonder, given that the hints of a $300 billion scheme turned out to be $447 billion — most of which is to be made up by spending cuts or tax increases that are supposed to be enacted by future Congresses with reps and senators as yet unelected and unknown.

The intent of the bicameral session, we suppose, was to ensure confidence in the “professional politicians.” If the markets are any indication, “the public” didn’t like being chastised for and asked to pay more for the nation’s unemployment rate.

   Adding to the losses: New stress in the eurozone. Traders in the credit default swap market have upped Greece’s probability of default to a record 94%.

Meanwhile, a top official in the European Central Bank, Juergen Stark, is stepping down for “personal reasons.” Stark is one of the hawks who opposed the ECB’s decision last month to print money by buying bonds of the PIIGS countries.

Major European indexes closed down 3-4% today.

Analysts at Morgan Stanley are anticipating a dramatic announcement before Asian markets open on Sunday night in North America: “The negative feedback loop between weak growth and soggy asset markets makes a coordinated monetary policy easing move more likely — perhaps as early as the G7 meeting this weekend.”

“The Fed, the ECB, the BoJ and the BoE could all participate in a coordinated move with a mix of rate cuts and quantitative easing.”

Ooh, shades of 2008 and Hank Paulson coming up with a new plan to save the world every Sunday — can’t wait.

   The euro is finally getting the whacking it’s had coming all summer. After trading the last three months between $1.40-1.45, the Esperanto currency plunged today to, as of this writing, $1.365.

The dollar index, as a result, has zoomed above 77 to a six-month high.

[Ed. Note: As a result of these moves, it’s been a very good week for readers of Strategic Currency Trader. Not only did Abe Cofnas nail it with his call for a sharply weaker Swiss franc — that was good for nearly a double in a week’s time — there are also these gains:

  • A play on a falling German stock market delivered 161% gains
  • A play on a volatile S&P 500 delivered 179%
  • He also recommended taking small profits on half of a Japanese yen play.

Even if the other half doesn’t work out by day’s end, that’s still impressive for three recommendations Abe made only three days ago. But that’s how it works in the market Abe follows — Everything plays out in a week or less.

He’ll issue a new batch of recommendations on Monday. If you’d like to be on board, here’s where to begin.]

   Another day, another wild ride for gold: As high as $1,887 and as low as $1,822 in the last 18 hours, the spot price is presently $1,866.

Not bad in light of the dollar’s strength, eh? Silver, meanwhile, trades for $42.22.

   We have located one business today that’s booming despite the gnarly economy. It doesn’t involve alcohol — at least not directly.

For Ashley Madison, a website that describes itself as a “married dating service for discreet encounters,” business started taking off in early 2009

Housing bust leads to cheating boom: Who’d have guessed?

In hard times, “who wants to pay $40,000 for a divorce when you can pay $49 for an affair?” Noel Biderman, CEO of the site’s parent company, asks CNBC. For that sum, you’re able to chat with about 20 other members, umn, discreetly.

“We’re not a recession-proof business, we’re a recession-growth business,” he says. Business is especially strong, he says, in housing-bust states like Michigan, Nevada and Arizona.

“People are basically confessing in their profile,” says Biderman, “that ‘the marriage is really over — we’re just waiting for the market to recover.’”

Hmmnn, could be a long wait.

   “Michael Pento,” a reader writes of the newest member of our team, “apparently, is another disciple of the Reaganomics trickle-down theory which has never worked and will never work. The fact is that the jobs program the president is seeking is the only kind of program which will work because corporations are increasing profits and hiding in overseas tax shelters and have shown no intent of adding employees.

“Private-sector jobs are lost when the middle class is struggling to make ends meet and can’t buy goods and services at a normal rate; private-sector jobs are created when badly needed construction work is performed on our infrastructure and the end result is the spending ability of middle-class families increases and businesses can sell more product.”

“Please keep your salt handy when this kind of garbage is spouted by so-called experts who cannot see the reality in our economy. You would be better off listening to Sen. Bernie Sanders. He actually gets it.”

The 5: Oy.

“So corporations are the enemy and the government is our best friend,” writes Mr. Pento in reply. “Let me ask you a question. When the government spends money, where does the money come from? Since they don’t have a factory or a mine on Mars, they take it from you — the productive portion of the economy. Government funds are sourced either honestly through direct or deferred taxation or through inflation, which is a regressive and furtive form of taxation.”

“The middle class takes it on the chin either way. Especially when a government has borrowed so much money that it has outstripped the tax base. That’s where we are now in America. Our ability to borrow and print money with impunity has come to an end. The U.S. now faces the end of the dollar as the world’s reserve currency. We are on the precipice of rapidly rising interest rates, intractable inflation, falling GDP, increased taxation and a completely eradicated middle class.”

“The president’s plan calls for us to borrow yet more money to spend on whatever ‘the government’ deems necessary. The problem here is that the government is a miserable allocate of capital. There is no vetting process to determine if the money ‘invested’ will increase the productive capacity of the economy or improve our standard of living.”

“Therefore, nonviable construction projects are allowed to persist, yet the debt will remain and accumulate. The president seems to have missed the fact that gross debt as a percentage of GDP is now at 100% and growing at a 10% of GDP per annum.”

“The trend cannot end well.”

   “Banks in Kentucky are now lending as of about eight weeks ago,” writes a reader cluing us in to a potential shift in money flows. “Some at 0% down. Several at 3.5% down. Low rates, fairly low origination fees.

“My guess is the federal bank examiner folks were directed to lean on their banks to get loans moving or they were going to make life miserable for them.

“If you look at the new job postings on a service like Topix in my area you see a large percentage of the very recent postings are for the Army National Guard, the Veterans Administration Hospital and other government or government-supported agencies. They did not need anyone two months ago, but now they need a lot of new employees.”

“Seems like the current administration has commanded its minions to create jobs so unemployment will go down. It does not matter whether they need new people or not. It does not matter whether the new loans meet the bank’s normal lending criteria or not. Obama needs the reported numbers to improve if he hopes to be re-elected.”

“Just wondering if other 5 readers had observed anything similar in their areas?”

While you’re thinking it over, have a good weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. The date Sept. 11 means different things to different people.

In Chile, Sept. 11, marks the date in 1973 when the United States carried out “regime change.” A military coup overthrew the elected government of Salvador Allende.

“I don’t see why we need to stand by and watch a country go communist due to the irresponsibility of its own people,” said Secretary of State Henry Kissinger at the time. “The issues are much too important for the Chilean voters to be left to decide for themselves.”

And with that, the 16-year rule of Gen. Augusto Pinochet was ushered in. It turned out to be one of Latin America’s more brutal dictatorships — replete with torture, murder, even a car bombing on Embassy row in Washington, D.C., targeting the former foreign minister.

Coming to a Country Near You? Limits
on Gold Purchases in Europe

Somewhere in Europe, there’s no doubt a mechanism to scoop up emails, web searches and electronic transactions — just like the NSA in the United States.

And that mechanism is about to get a much better handle on the gold that people buy and sell.

“Austrian banks have now been ordered to restrict the sale of gold and silver bullion purchases,” says Mac Slavo at the SHTF Plan site, “and are limiting personal acquisitions of precious metals to 15,000€ (approximately $20,700 USD) at a time, or 11 ounces of gold at today’s prices.”

This took place within the last 30 days, according to Slavo, just back from a visit to Europe. “As Austria is one of the more developed nations in the eurozone, there is a strong likelihood that they are not the sole country implementing these new policies — and that this has been, or soon will be, implemented across the entirety of EU nations.”

That might seem ominous enough… but combined with a new law in France, it looks downright diabolical. Effective Sept. 1, metals purchases in France can no longer be made with cash.

There’s no indication that similar limits are coming into play in the United States. Not now, anyway. We just pass this along as a word to the wise.


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