Economy, Military, and the 2008 Election

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America is but one Katrina, one serious terrorist attack, one large earthquake, one more war away from an economic depression that will send tens of millions of Americans into the streets homeless, jobless, and waiting in line at charitable organization and government soup kitchen doors for meals.

Sen. John McCain says the economic fundamentals are strong. He could not be more wrong. The foundation of our economy is banking and lending. Want a car, home, small business, to expand a medium business, or buy out a failing competitor? Lending and borrowing is what makes these transactions happen. And our lending and borrowing system is broken in some very basic ways, referred to these days as "the credit crunch".

Finding money to borrow is getting harder and harder. Even credit card companies are pulling back on who they will lend to, and raising interest rates to 30% on millions of card holders, making the less well off, even poorer and driving them to the brink of bankruptcy.

Millions of Americans can no longer get an equity loan on their home. Financing a new home has a 4 out 5 chance of going through Freddie Mac or Fannie Mae. These two corporations handle 80% of the mortgage business. They are in serious jeopardy, as government insiders debate over whether the government should take them over to save investors from losing everything, or bail them out in other ways.

When the consumer can't borrow, the consumer can't spend. And if the consumer can't spend, the economy falters, since consumer activity accounts for the majority of all economic activity. It becomes a vicious cycle as drops in spending cause layoffs and unemployment to rise, which in turn reduces consumer spending even more, and so on. The only bright spot so far is that unemployment figures don't reflect steep rises, yet. (But, there are growing concerns over the validity of those employment / unemployment figures.)

The Federal Reserve Banking System was created to prevent another Great Depression in America. And with sound fiscal policy by Congress and the White House, the idea of another Great Depression has been laughable for decades. But, over the last 7 years, those in government have taken to burying their heads in the sand and promoting debt as if it was the fountain of youth, instead of the economic grave that it really is, sucking the life out of the economy's future.

Last year, our government and Wall Street were telling us that the economic slump may rebound by the Summer of '08. Then, despite Fed Chairman Bernanke's warnings in Jan. of 2008, some economists still held out hope of recovery by the end of 2008. But at the end of July, the White House was forced to cut its estimates for GDP growth nearly in half, yet again to 1.6%, after having done so previously in Nov. 2007 from over 4%. The White House now concedes recovery won't be found until late 2009. But, its track record of optimizing its projections belies the potential for things getting a whole lot worse before they get better.

Our economy is so fragile at this time, that one more major shock to it could pull the rug out from under it. Sen. McCain hasn't a clue about this. But, our adversaries know this, and they are taking advantage. Russia's invasion of Georgia at this time was not a spontaneous lark. It came on the heels of the world's recognition that America's economy is stretched tight as a drum and unlikely to stretch any further without ripping.

Russia's Prime Minister Vladimir Putin, a KGB agent during the Cold War, has no doubt considered that the Soviet Union's loss of the Cold War due to the undermining of its economic capacity by the Kremlin, is a shoe that is now on the other foot. It is now the U.S. economy which cannot afford to escalate a new Cold War arms race, while Russia harvests enormous financial resources from its oil production activities, confiscated by the State from private companies. Time to test the waters. And that is precisely what the invasion of Georgia is doing, testing America's the Western World's response capability, given its soft economic underbelly being exposed.

America now owes more than 1/5 of all the external debt in the world and is the world's number 1 debtor nation.

World external debt $54,260,000,000,000
United States external debt $12,250,000,000,000

China last year had an inside scoop on this situation, holding as they do, a massive amount of our debt. Thus, China recognized that it has little to fear from America as it grows its own military capability and refuses to budge on its currency valuation, human rights, and claims to Taiwan and Tibet.

In a little covered story last year, Pres. Bush had been trying for years to push China's hand on controlling its currency, the Yuan, which increasingly contributed to the U.S. trade deficit of 780 billion dollars last year with China's portion being over $230 billion dollars. Pres. Bush was forced to back off as evidenced by one economic journal which said this Summer:

The most notable development of this round of talks might be that the issue of the value of China's currency has moved to the back-burner for the first time in the Bush presidency.

But its not likely for the reasons many like Carl Weinberg, chief economist at High Frequency Economics think:

From our point of view, the yuan issue is pretty much a dead duck" because the explosive growth of exports from China to the U.S. "has stopped,

China not so subtly pondered out loud late last year what might happen if China put over 1 trillion dollars of U.S. currency and debt on the open market for sale.

Meanwhile, Xia Bin, finance chief at China's Development Research Center, was suggesting that China could use its foreign reserves as "a bargaining chip" to prevent a few "silly senators" from setting U.S.-Chinese economic policy.

That pondering coincides with the Bush Administration's rethink about pushing China on decoupling its Yuan from the U.S. Dollar. The fact is, if holder's of American debt begin to auction off that debt in amounts this large, confidence in U.S. investments and currency would tailspin, and the U.S. economy would be further undermined.

In other words, our adversaries like China and Russia recognize our economic vulnerabilities and view them as openings for asserting themselves on the world stage in ways they would not have considered before the evidence of the mortgage and credit debacle began to surface in late 2006 and early 2007. I wrote about this in March of 2007. This is the cost of America's fighting two wars, stretching its military too thin, and nearly doubling its national debt in course of Pres. Bush's two terms as president.

It is impossible to imagine, given his campaign rhetoric, that Sen. John McCain could even comprehend what is happening here, and why. He doesn't understand the economics of the situation, and insists that our economic fundamentals are strong. Sen. McCain's ignorance and lack of economic understanding therefore, would jeopardize America's already weakened position in dealing with the likes of Russia and China, as McCain's solutions to foreign affairs all center on using our military might to resolve issues without regard for economic considerations.

Which raises the last issue of this article. The Draft. Sen. McCain has been recorded on several occasions alluding to a reinstatement of the draft in the event of WWIII and that we are now engaged in a World War against terrorism. This is creating quite a stir in the blogosphere.

Given America's struggle to put forth the manpower to efficiently meet goals and expectations in Iraq and Afghanistan, does anyone doubt that McCain has to be considering the Draft as a potential solution to this problem? Sen. McCain criticizes Bush for not having placed sufficient manpower in Iraq from the beginning. But, that critique reveals in McCain's thinking that we would have needed far greater manpower than was available, while maintaining our global military footprint around the globe. And the Draft was the only way he could have delivered that manpower.

Sen. McCain is smart enough to recognize that his election would be torpedoed by revealing a policy of reinstating the Draft. But, the Draft would have been the only means to create the strength he thought would be required for the invasion of Iraq. It is difficult to imagine Sen. McCain not contemplating the Draft as a means of achieving the manpower his campaign rhetoric alludes to being required to remain in Iraq for more years, double our efforts in Afghanistan, and take on other military missions that could arise during his presidency.

What was true of military history's lesson regarding dividing one's forces between two fronts, is just as true today regarding dividing one's economic resources between two or more fronts of war. It is a lesson which completely escapes Sen. McCain's understanding. And that makes Sen. McCain, regardless of what one thinks of Obama, the most dangerous candidate in this race for president of the United States.

Sen. Obama knows what he doesn't know and will seek more learned and experienced counsel like that of Sen. Joe Biden. Sen. McCain thinks there is nothing about being Commander In Chief that he doesn't already know. And that makes him dangerous for America. What he doesn't know, as he has already demonstrated, could destroy America economically. Age does not guarantee wisdom, and experience does not guarantee knowledge. One has to pursue both actively in their lifetime, and work at it. Sen. McCain has not had to work for anything since coming home from Viet Nam as a POW war hero.

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This page contains a single entry by David R. Remer published on August 23, 2008 4:46 PM.

What's A Republican To Do? was the previous entry in this blog.

Stupid Bush Administration - Illegal Immigrants is the next entry in this blog.

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