Re: Politics and the military (Re: The rise in military science fiction)

In message <3+sCSXIrC6xDFwae@xxxxxxxxxxxxxxxxxx>, Robert Sneddon <nojay@xxxxxxxxxxxxxxxxxx> writes 
In message <Zml8FQBCQtxDFwuN@xxxxxxxxxxxxxxxxxxxxxx>, Brett Paul Dunbar
<brett@xxxxxxxxxxxxxxxxxx> writes

In message <gebHq2M0drxDFwr2@xxxxxxxxxxxxxxxxxx>, Robert Sneddon
<nojay@xxxxxxxxxxxxxxxxxx> writes


Governments can and have done economically stupid things, doing this
particular stupid thing would involve reversing the entire trend of
Chinese economic policy over the last few decades, so is really
unlikely.


Of course the Chinese always think of their economic good first, last
and foremost. They're Americans after all, they think just like you and
will behave in all ways just like Americans and their belief in the
almighty dollar. Riiight.


As I said governments can do stupid things, the specific stupid thing you are suggesting China might do would involve China reversing a policy that it has been pursuing with considerable determination for many years. It wouldn't work anyway.


Much like the USA could repudiate all or some of the debt it owes,
again something the state has the power to do and very good financial
reasons for not doing,


The problem with repudiating a single debt is like the virgin with only
one baby, it destroys credibility in the eyes of anyone who you might
want to borrow money from in the future. It takes decades or even
centuries to build up that trust, a year at a time, guaranteeing that
your word is your bond so to speak. Repudiate the T-bills the Chinese
hold and everyone else holding those bonds will get antsy and it will
become very difficult to sell future bonds. And the US has to sell bonds
since it can't or won't balance its budget, either by cutting spending
or raising taxes.

You have managed to completely miss the point of my argument. China in unlikely to render its entire banking sector insolvent by abruptly dumping US securities, for similar reasons the US is unlikely to repudiate its debts. The financial consequences of both are fairly serious. In fact a default isn't catastrophic, Argentina defaulted in 2002 and Russia in 1998.



The US is nowhere near the kind of debt/GDP ratio that would cast any
real doubt on its ability to service its debts (in 1946 the US national
debt was over 120% of GDP). so US bonds will remain under all
reasonably foreseeable circumstances an ultra-safe investment.


There are other investments out there. The T-bill is safe, sure, but
that doesn't guarantee people will buy them in preference to other
equally safe investments. There are good economic reasons the Chinese
buy US debt right now. Don't let that delude you into believing there
aren't good political reasons for doing so too, and especially don't
think that means they wouldn't use that debt as a lever, directly or
indirectly against the US if push comes to shove.


It is an almost totally impotent lever, given the demand for US bonds.


Right now the Chinese are negotiating to buy a lot of Iranian oil to
fuel their booming economy. They don't want that supply of oil messed
around with. Sabre-rattling by the Bush administration against Iran has
quietened down recently, fewer public statements and more leaks to the
press. I suspect the Chinese government has had a quiet word in Bush's
shell-like ear.


Even if the US decided to reduce borrowing it could still, print money,
raise taxes or divert other spending.


Of course it could. The government that does it is out of power at the
next election though as the US people have been told time and again by
all the politicians that they can have their cake and eat it, that the
bread and circuses will continue forever and the tax cuts will keep on
coming and they'll never have to pay back the eight trillion dollars
they owe.



The old saw attributed to Napoleon that "An army marches on its
stomach" doesn't refer to food as such, it refers to the ability of
the leaders to pay for that food as well as all the other supplies it
needs.


Napoleon's armies actually fed themselves mainly by foraging, he meant
it more or less literally not figuratively,


It was easier to buy the food locally than steal it or take it by
force, even in occupied territories like Spain. It meant a more regular
supply, for one thing -- merchants from around Europe would smuggle in
shiploads of supplies even through naval blockades. But they wanted to
be paid, hard cash money. No money, no food, no powder, no horseshoes.
Napoleon's logistic train was good but if he didn't keep it fed with
money he'd have to start looting the towns and farms and that means
uprisings and diversion of troops to deal with the unrest. Money makes
all those problems go away.


Quite true, that's why the French lost in Spain. Napoleon's approach worked as long as his forces could move fast and win decisive victories when the French couldn't force a decisive battle and had to stay in the same area for a long time they got into massive difficulties. In Spain it was the British who had the sophisticated logistics, the French mostly looted.

When the economy is doing well people borrow more and save less, if the
US economy were doing badly then people would feel less secure in their
jobs and keep more money is safe investments, for example bank accounts
and government bonds....


They don't have money to save. Pay rises for low-paid workers are
non-existent. Any spare cash they've got is going into medical insurance
premiums since their job doesn't come with benefits. They refinanced the
mortgage and they're staring down another twenty-five years of monthly
payments before the house is free and clear. The credit card bills are
going up month on month, gas is two dollars a gallon and baby needs new
shoes. Savings are what rich people have.

In point of fact saving rates do go up as economic confidence declines, as people are more likely to save up for spending in the future if they are not confident in future income, while they borrow and spend now if more confident in their future income.



Passing the debt on to the next three generations of Americans to pay
back isn't going to work when inflation is not acceptable any more and
you can't make it disappear down the cracks over time. They will want
to borrow money themselves in all likelihood, they don't want to be
paying back the debts their spendthrift grandparents left them with.
But they don't get to vote, at least not yet.


That the consequences of borrowing are unpleasant in the future doesn't
actually prevent the US from borrowing now, the debt at the moment
isn't that high by historic standards,


The problem is that the old borrowing was inflated away over a period
of decades. Today's economic engineering thinking demands low inflation
now and into the future for stability. A trillion owed today won't be
pocket change thirty years from now, at 4% it'll need 40 billion dollars
annually to service the debt without touching the capital and even if
it's only worth 50% of today's dollar by that time that's an awful lot
to ask taxpayers to stump up for no benefit to them in new roads, VA
facilities etc.


Did you actually look at the figures I posted?

Between 1996 and 2001 the US national debt fell from 67.3% of GDP (higher than today) to 57.4% of GDP with low inflation mostly by means of economic growth.

What future tax income is spent on is a matter of judgement at the time. So it might make life difficult for a future government, that doesn't affect the current credit worthiness of the US government, provided that the inflation expectations are low and the risk of default is considered minimal US bonds will remain low risk, and therefore cheap.
--
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Brett Paul Dunbar
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