Navy SNAFU: Some Things Don’t Change

Protecting American interests around the globe, the U.S. Navy faces a myriad of threats. From terrorists and anti-ship rockets, to mines, torpedoes and even ballistic missiles…But here at home, one naval installation has discovered a new menace…We’re referring to the common tree squirrel, and last Saturday night, one of these furry rodents disrupted phone service at Virginia’s Yorktown Naval Weapons Station. Four days later, “land line” phones at the base still aren’t working….Squirrel Leaves Navy Base Incommunicado, Nate Hale, The Examiner, 4/2/09

For most who’ve served in the military, the opinion of veterans regarding the competence of government to run operations large and small is usually lower than that of the general population’s. Ask anyone who served, whether in World War II, in Vietnam, or in Iraq and Afghanistan, and you’ll get variations on the same theme. We were doing fine in Kabul (Baghdad; Khe Sahn; Hoertgen Forest) until Big Army showed up. Big Army, of course, is that highly regulated and brassed crew whose officers go by the official Federal Big Blue Book of Bureaucracy. Big Army, as some like the intrepid reporter Robert Kaplan have argued (see Imperial Grunts), nearly lost us the war in Iraq, has fumbled the ball in Afghanistan in allowing the Taliban to stand up again, completely screwed the pooch in Vietnam, and nearly lost an airborne division in a pointless battle in the woods before the Bulge distracted enough attention from the important officers and allowed the regulars to fight the war again.

What is it that government can’t see? Well, at the Yorktown Naval Weapons Station, they couldn’t see the squirrel running between the legs of a terrorist scenario. Similar things happen in other programs. For instance, about a decade ago, the Clinton Administration, with such good buddies as they could find among bankers (Robert Rubin, and other Citibankers especially), thought it would be just fabulous if those too poor to afford mortgage payments could get mortgages to pay anyway. Fannie Mae and Freddie Mac would buy this questionable paper, mix it in with the good stuff, securitize it, and all would be wonderful. Even the half-assed speculator buying startup houses in a swamp could benefit. You could ask Barney Frank about the wisdom of that (Former President Bush did, time and again). Funny thing. It was true for a while, but then – oops! somebody forgot to pay for the program. And, oh, oops! Somebody forgot to pay attention to those wild guys selling credit default swaps. And, oh, oops! There went Citibank. There went Lehman Brothers. There went AIG. There went Merrill-Lynch.

Even the French don’t believe that throwing another trillion of stimulus at this mess is a good idea. And France is the country that thought it was worth its national budget in the 1930s to block a mobile army with fixed fortifications (See Maginot Line). Even crazy people think that blowing more trillions on this kind of stimulus, and that kind of bailout, is a mad idea. What will become of the dollar, the euro, any currency of participants in this kind of madness?

Big Government, though, personified these days by President Obama, Senator Reid, Speaker Pelosi, and Representative Frank, believes that it’s just hunky dory, a swell idea, a marvelous intrusion in everybody else's life.

Oh, SNAFU, we can hear you coming.

Luther

Federal Budget Madness: Even Budget Director Osrszag Thinks It’s Unsustainable

GREGORY (Meet the Press): Let’s move on to the budget and the deficit picture that you referenced just a moment ago. The Washington Examiner reported this this week: “Last week in a little-noticed conference call featuring Budget Director Peter Orszag. … [Orszag was asked:] Are those deficits sustainable? Relenting, Orszag said such deficits, in the range of 5 percent of the gross domestic product, “would lead to rising debt-to-GDP ratios in a manner that would ultimately not be sustainable.”…., Obama’s Budget, Embracing Our Inner ‘No’, Jennifer Rubin, Pajamas Media, 3/30/2009

This is a little like buying a $50,000 car on credit, then immediately telling the bank that you don’t think that you can sustain the payments schedule. With a banker, this means eating a car loan, taking a car that has already depreciated ten percent by just leaving the showroom, and then having to re-sell it to someone who can make the payments. Actually, what it’s most like is how bankers handled NINJA loans (no income, no job or assets), strongly encouraged by relentless enforcement of diversity loan demands authorized by Congress under the Community Reinvestment Act. You know very well what happened there. Special people don’t have to pay their creditors back, special people in a range from a speculator who walks away from an underwater mortgage on a house he never lived in to the politicians, regulators, and bankers who handed our financial system over to con artists. If even the President’s Budget Director thinks the transformation is unaffordable, what are they trying to prove?

We’re not on the best of terms with the Chinese. It is fair to say that Red leaders in the People’s Republic might have certain biases. However, even the top Red in Beijing knows what’s going on. The deficits are going to be a tool to encourage the printing of enough dollars to devalue the vast debt held by the Federal government. We have other concerns than a few pissed off investors in the U.S. There are some people who might consider the devaluation of what had been promised as good paper as a cassus belli. Want to fight a world war to save Citibank? Does the President even know what's at stake?

Luther

Back to the 70s: The Threat of Inflation is Real Again

"The best way to destroy the capitalist system is to debauch the currency," said Lord Keynes. Ben Bernanke disagrees…Bernanke is printing money to buy U.S. bonds…This new gusher from the Fed, after the $700 billion TARP bailout, comes on top of a Congressional Budget Office estimate that this year's deficit will be $1.85 trillion, 13.1 percent of gross domestic product, more than twice the share of the U.S. economy of the largest previous postwar deficit…Concluding the dollar is being abandoned…markets reacted instantly. The dollar plunge was the steepest since the Plaza Agreement of 1985…The Weimar Solution, Townhall.com, Patrick Buchanan, 3/24/2009

In Weimar, in the 1920s, when the deutschmark was devalued, it got so bad that a shopping basket full of money wouldn’t buy one egg. It got so bad that when a thief attacked someone carrying all those billions of deutschmarks, the robber would let the money fly into the wind because the basket was worth more money. That’s what inflation does.

In the 1970s, beginning when Buchanan was one of Richard Nixon’s aides in the White House, and continuing for years afterwards under Carter, prices were rising at more than ten percent a year. This was partly because of Nixon's action to take the dollar off its indexing to a fixed gold price of $35 an ounce, but more because a mountain of debt from the deficit-financed Vietnam War and Great Society was monetized, i.e., bought with printed money. Both policies and three administrations effectively devalued the dollar by more than sixty percent over the decade. A $50,000 salary in 1970 was worth less than $20,000 in 1979 and taxed at the same rate. A three-year battle led by Paul Volcker and the Reagan Administration stopped inflation cold in 1983, but it took 20% prime rates and sharp restrictions on the money supply to do it. A lot of people lost their jobs. We recovered. It’s a funny thing about sane fiscal policies in response to a crisis. When the country’s government began to act as though it ought to manage the household budget, the country began to find it had room to grow.

However, from the 1973-74 bear market to 1983, inflation sapped much of the creativity and life out of the U.S. economy. Someone in their early twenties in 1973 didn’t see much promise in the future for nearly a decade. The writer speaks from personal experience. The remarkable hope and expansion of the next thirty years was not a paradigm for life anyone in America recognized in the 1970s. Typical cultural responses were movies like The Godfather Network, and Serpico, deeply cynical and dark, however brilliant, or, for that matter, Star Wars, a fantasy about a world that had never been and would likely never be.

In New York, the confidence gamers played for rent-controlled, or rent-stabilized, apartments. It wasn’t just the scam that it is now, but a matter of survival. In a desperate effort to index city worker incomes to inflation, Mayor Lindsay, in a series of very foolish agreements, bankrupted the city, whose citizens effectively lost control of their own government as makeshift bureaucracies stepped in for both the Mayor and the City Council. In a cynical and desperate strategy to get some kind of income from properties bound by rent price controls on one side and skyrocketing prices on the other, landlords set tens of thousands of apartment houses on fire for insurance money. The scam became the only game in town. A master of the universe in the 1970s put his or her income in a Cayman Islands tax shelter, dodged for a rent-controlled apartment, claimed twice as many dependents as he or she had, and, in many neighborhoods, preyed on the old, the infirm, and the unwary to make a living, in short acted like a Soviet citizen trying to make it in Moscow in 1935. Every system the city depended upon, from subways to water mains, began to break down. In the blackout of 1977, the cameraderie of the blackout of the 60s was replaced by citywide looting and riots. It was an urban miniature of Atlas Shrugged. This is what inflation does.

That is also what happens when you spend far beyond your means. And, by comparison, what the Congress and White House are trying to do now dwarfs what happened in the 1970s. They are risking Weimar by flooding the market with phony money. And what followed Weimar was not a rational reconstruction of Germany but Adolf Hitler. This is a lesson they're about to learn in Britain all over again. And it's coming here fast.

Buchanan puts it best:

Inflation is theft. It make liars and cheats of governments. By eroding the value of a currency, inflation punishes savers and creditors and rewards debtors. And what nation is the biggest debtor of them all? The United States of America. Insidiously, inflation consumes the value of cash, savings, municipal bonds, corporate bonds, Treasury bonds and T-bills. Friends who lent America money, who bought our debt in good faith, are robbed…(The Weimar Solution, Buchanan…cont’d)

Luther