Signs of the Economic Apocalypse, 2-13-06

From Signs of the Times, 2-13-06:

Gold closed at 554.20 dollars an ounce on Friday, down 3.2% from $571.90 the week before. The dollar closed at 0.8401 euros, up 1.0% from 0.8317 at the end of the previous week. The euro, then, closed at 1.1904 dollars compared to 1.2024 the Friday before. Gold in euros would be 465.56 euros an ounce down 2.2% from 475.63 the week before. Oil closed at 61.84 dollars an barrel, down 5.7% from $65.37 at the close of the previous Friday. Oil in euros would be 51.95 euros a barrel, down 4.7% from 54.37 for the week. The gold/oil ratio closed at 8.96, up 2.4% from 8.75 at the end of the previous week. In the U.S. stock market, the Dow Jones Industrial Average closed at 10,919.05, up 1.2% from 10,793.62 the week before. The NASDAQ closed at 2,261.88, virtually unchanged from 2,262.58 at the end of the previous week. The yield on the ten-year U.S. Treasury note closed at 4.58%, up five basis points from 4.53 the week before.

With gold down substantially, oil down even more and the dollar up a bit against the euro, it looks like a good week for the imperial economy.

Ben Bernancke takes over as U.S. Federal Reserve Chairman this week. He is said to be a proponent of using controlled inflation to avoid deflationary depressions. This has earned him the scorn of the hard money crowd (gold standard supporters). He once said that he would drop money out of helicopters to keep the financial system from a crash, hence his nickname, Helicopter Ben. That was the actual policy of Greenspan and it worked. This type of policy works until it doesn’t work. Greenspan’s critics maintain that the more you postpone a market correction the worse the correction ultimately becomes.

Inflation does not avert deflation

by Chris Laird
February 7, 2006

Christopher Laird is editor of the PrudentSquirrel newsletter.

I keep reading inflation and deflation analyses that say:

“The Fed can print until there is no tomorrow, so deflation will never happen..”

Ok. So the Fed prints until the dollar’s value drops to zero. Who says that means there will still be demand/transacting from the consumer?

If the value of a currency drops to zero, then it hyperinflates but that does nothing for real economic demand. The US consumer is 70% of the US economy, and if he is hurt financially he cannot buy anything. Hyper inflation hurts the consumer drastically and real economic demand collapses. Basically here is the issue:

When the economy is wounded badly, the ability of consumers to provide real economic demand disappears. It does not matter if the cause/effect is deflationary or hyperinflationary, in either case real economic demand collapses.

The idea that hyper inflation will stimulate real economic demand enough to outrun a drop in real economic demand is a false concept. Sure, before a currency loses all its value, inflating that can create some modicum of real economic demand because people are willing to borrow against the future and buy physical and financial things.(this process is involved and has many facets).

But once the rate of hyperinflation reaches a certain level, the real drop in the purchasing power of that money falls behind the acceptable transacting curve, and real purchasing power of all the currency out there drops no matter how fast the monetary authorities try to keep ahead. The currency at this point is mortally wounded. At this juncture, the economy collapses from a lack of real purchasing power and demand, and a vicious cycle of falling real wages and real demand leads to an economic collapse (demand contraction). That leads to either a hyperinflationary depression or a deflationary depression. I have written several times that the ultimate outcome of hyperinflation and deflation is the same, an economic depression.

Take a look at the definition of depression:

de·pres·sion
Economics. A period of drastic decline in a national or international economy, characterized by decreasing business activity, falling prices, and unemployment.
http://www.dictionary.com/

Take a note of the definition. It means collapse of demand and falling prices.
There are two routs to a depression, hyperinflationary or deflationary.

I can provide two good examples, no three, to show this point that ultimately inflation cannot stop a deflation.

Germany in the 1920’s: hyperinflationary depression
Real purchasing power collapses, result: hyperinflationary depression and a new currency.

After WW1, Germany was forced to pay the victors gigantic financial and economic reparations. For a few years, Germany was barely able to keep ahead of this drain on their economy and currency, but, soon, they had to print more and more marks to stay “ahead” and that destroyed the net purchasing power of their total money supply.

At first, economic demand continued apace, but there reached a point where the Germans could not print enough money to keep the purchasing power of the accumulated money mass ahead of its accelerating deflation. Once that point was reached, the German mark collapsed in a final five months of hyperinflation. In that period, the economy collapsed as commerce disappeared because people would not sell anything for Marks.

Germans in that time would be paid at lunch each day in paper Marks and give their pay to relatives to go buy anything ASAP. Eventually that process failed, and no one would take Marks for anything.

The total transacting power of all the marks printed was falling faster than the Germans could print the new money. The value of the money supply disappeared. Once the net real value of the currency falls enough, the economy stalls for lack of transactable money! (acceptable money). During this process, the total value of all the marks circulating contracted until there was not enough ‘money’ to run the economy.

The point here is that the transacting power of the currency fell off a cliff and commerce in the economy disappeared. Result: monetary collapse, and severe economic depression.

Now, when people talk about the Fed being able to avoid deflation by dropping money by helicopters, if necessary, they miss the crucial issue that, at some point, the Fed would not be able to stay ahead of the accelerating fall of the currency. Ultimately, they would not be able to maintain real total purchasing power of the currency, people would stop taking dollars, and commerce and demand would stop altogether.

Inflation cannot keep real purchasing power alive, ultimately, and a collapse of demand and a depression is the ultimate end. Hence, deflation and depression.

The US in the 1930’s
Deflationary depression

After the collapse of the real estate and stock and finance bubbles of the Roaring 20’s, the US entered a drastic ten year depression that began in 1929.

The financial losses were so great and widespread that there was not enough money and earning power left in the economy to sustain normal commerce. The value of the dollar was all right, but people lost their money and jobs, and we got a depression. The US GDP dropped 30% in that period!

Banks collapsed, credit collapsed, and businesses collapsed. That led to a vicious cycle of job losses, leading to less earning power, leading to business failures, to more job losses. It is said by some that, unless the US had entered WW2, we would have had another ten years of economic depression. (so would have the world).

Here, it is not necessary to explain why a deflation occurred. Economic demand fell off a cliff and prices fell. Farmers couldn’t even make enough to grow food. Ford closed their plants for “modernization” because of a collapse in demand for cars. And so on. A classic deflationary outcome.

Japan in the 1990’s
After the collapse of the Japanese real estate and stock bubbles, Japan entered a period of about 10 years of mild deflation. People stopped all unnecessary purchases, consumer demand fell precipitously, and the Japanese government tried to stimulate their way out of it.

The government lowered interest rates to literally zero. They spent a fortune with government fiscal stimulation, leaving Japan with a national debt of 160% of their GDP.

The stimulation did not work, and ultimately, Japan started to pull out by reviving through exports. The jury is still out on their economy, though it has strengthened significantly in 2005.

The point is that, by direct government spending and monetary flooding with ultra low interest rates, Japan did not pull out economically until normal economic forces did the lifting. Japan is still saddled with all those debts amassed fighting deflation.

Here is an example where, once the consumers pulled back significantly, they were reluctant to borrow more money, which negated the effects of monetary loosening. Also, the government deficit spending never did resolve the deflationary forces. Obviously, a government cannot replace a consumer in the economy. In the case of the US, if the consumer is 70% of the economy and pulls back a mere 10%, for the government to replace that spending power, it would have to deficit spend about $1 trillion in a single year! And that is just for that component, never mind the usual government expenses.

That cannot and will not happen for long. We would see hyperinflation with in a year probably. Then, the total aggregate value of the U.S. dollar would collapse, and the U.S. economy would stop transacting because there is not enough real acceptable currency to make things go round.

Result? Hyper inflationary depression followed by massive deflation in the end and a new US currency.

Conclusion
Hyperinflationary solutions to deflation do not succeed in keeping the aggregate value of a currency up enough to keep demand alive. Ultimately, when hyperinflation overruns any simulative effects to the economy, the net aggregate value of all the money in circulation collapses, and commerce stops. Hence, deflation in the end.

For a different view, but one that would have a similar outcome, Rob Lee claims that the Fed’s monetary policy has actually been tight enough to trigger a crash without going through the hyperinflationary phase:

The US Economy and Markets may be heading for a Bernanke 'Trap'

Rob Lee
February 8, 2006

Much has been written recently about Alan Greenspan’s tenure as Fed Chairman, most of it very positive. I recall the (apocryphal?) story of the Chinese history professor who was asked to sum up the impact on Europe of the French revolution. After some thought he replied “ It is too early to tell”. My feeling is that reviews of Mr Greenspan’s record written in five to ten years time will be much more critical than those written now.

Nevertheless, it is a remarkable fact the US economy suffered only two recessions during his 18 years at the Fed, both of which were relatively short and mild. Furthermore, Mr Greenspan dealt successfully (apparently) with a series of financial crises. These include the 1987* stock market crash, the savings and loans debacle of the early 90‘s, the Asian crisis, the LTCM rescue, the Millenium bug scare, and the Nasdaq crash of 2001/2. The “cure” for these ills was always the same - massive infusions of liquidity and aggressive cuts in short term interest rates. (Few seem to question whether the cure may itself be responsible for the unnerving recurrence of such crises, but that is a topic all of its own.)

In Mr Greenspan’s skilful hands monetary policy has apparently demonstrated itself to be virtually all powerful. This in turn has produced an extraordinary degree of confidence and complacency among US investors, businessmen, and consumers. In this state of mind truly staggering imbalances - most notably the huge current account deficit, the collapse in the savings rate, and an obvious housing bubble - are regarded with insouciance.

Enter stage left Ben Bernanke, former Fed Governor and incoming Fed chairman. Here is a successor who has promised to follow in Mr Greenspan’s footsteps. Indeed he is on record as supporting or contemplating an even more aggressive use of monetary policy in circumstances of crisis. So no problem then. If the economy or markets show signs of turning down, Mr Bernanke can be relied upon to work the same magic, and then some. This seems to be the consensus view, but I think it is wrong. I think that the US economy and markets are heading for a trap.

In my view US monetary policy already is tighter than intended or perceived, and is likely to become more so in the early part of Mr Bernanke’s term in office. Thus the US economy is heading for recession and the stock market for a major downturn. I expect this for the following reasons:

1. Monetary policy operates with long lags, in the US as much as 12-18 months. Therefore even if rates are not raised any further there is still a considerable degree of tightening to come. The remarkable growth in the use of adjustable rate mortgages in recent years may accentuate this factor, as very large numbers of mortgages revert to market rates over the next two years.

2. Although interest rates are relatively low in historical terms, whether real or nominal, they may still prove uncomfortably high in the context of unprecedented debt levels. Furthermore, the degree of tightening that has taken place - a cumulative 350 basis points in the Fed Funds rate - is already more than that which has led to recessions in the past.

3. The underlying economy is probably already weakening significantly. The very low level of growth recorded in 4Q 2005 has been dismissed as an aberration but I am not so sure. The housing market has been a key driver of growth in recent quarters. My impression from the data, and from various (admittedly) anecdotal sources, is that the boom is over. Bust is not yet here but history surely suggests it is coming.

4. The single most reliable leading indicator of future economic slowdowns/recessions is an inverting/inverted yield curve (that is short term rates higher than long term). The yield curve has been inverting sharply for some months and recently became (narrowly) inverted across most maturities. Many have dismissed the yield curve indicator, arguing that this time is different. Now where did I hear that one before…? Narrow measures of money supply growth also have a respectable record in predicting economic weakness. Although broad M3 money growth has risen sharply in recent months, M1 and M2 growth remains at levels more consistent with slowdown/recession.

5. The fiscal policy bullet was well and truly shot in reaction to the 2001/2 downturn. The Bush administration is now busy trying to control the federal deficit. These efforts may well prove ineffectual, but it seems very unlikely that the economy will be rescued by another fiscal boost. Naturally the fiscal deficit will increase in the event of a recession but by definition this will not have prevented one occurring.

6. The Fed statement after its last meeting indicated at least one more rate hike is likely, with more possible. Such expectations are now embedded in the Fed Funds futures markets. Clearly the Fed is at liberty to change its mind, but this is not typical of how institutions operate. There is usually a period of indecision before a change of course is possible. It is conceivable that Mr Greenspan would have been able to engineer a quick turnaround, given his undoubted credibility and authority within the Fed and in the markets. It is very doubtful that a novice Chairman could operate in the same way. This is part of the Bernanke trap that I see approaching.

7. The next part of the trap may be Mr Bernanke’s advocacy of inflation targets. Mr Greenspan shied away from this approach in order to give himself and the Fed maximum flexibility. Clearly it would take Mr Bernanke some time to persuade his colleagues and Congress to formally adopt an inflation target. In the meantime though it would appear inconsistent to ease policy while inflation was pushing up to or through potential target ceilings. Unfortunately for Mr Bernanke that is exactly what inflation is doing at present. Admittedly inflation targets are typically set two years into the future, so he could argue that inflation is forecast to fall in the future if he wished to cut rates. However, the subtlety of this argument may not appreciated by bond and forex traders contemplating massive trade deficits.

8. The trap is further deepened by the unfortunate reputation that Mr Bernanke has generated for himself. The following is an well known extract from a speech Mr Bernanke gave in November 2002:

“ Like gold, U.S dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S dollars at it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate …inflation.”

It should be emphasised that this was no off the cuff remark, but contained in a set speech while he was already a Fed governor. He has repeatedly expressed these and similar views since. Of course his analysis may very well be correct, but it was not wise of a potential future Fed Chairman to say so. Central bankers around the world were privately aghast. Let’s face it, the sobriquet “Helicopter Ben” is not helpful to the man now in charge of the world’s reserve currency. Mr Bernanke must be well aware that he has this reputation for being weak on inflation. Is it likely that his first move as Chairman will be to ease policy? No. Does he have less room for manoeuvre than Mr Greenspan, both within the Fed and with markets? Yes.

In summary, I think the US economy is already slowing significantly. Monetary policy is tighter than it appears. Mr Bernanke’s Fed will (partly inadvertently) tighten policy even further and initially be slow to react to the resulting downturn in the economy and markets. Later down the road Mr Bernanke may get to implement his wilder ideas on monetary policy. Interesting times lie ahead!

This week the U.S. trade deficit hit record levels:

U.S. Trade Deficit Hits All-Time High

By MARTIN CRUTSINGER, AP Economics Writer

The U.S. trade deficit soared to an all-time high of $725.8 billion in 2005, pushed upward by record imports of oil, food, cars and other consumer goods. The deficit with China hit an all-time high as did America's deficits with Japan, Europe, OPEC, Canada, Mexico and South and Central America.

The Commerce Department reported Friday that the gap between what America sells abroad and what it imports rose to $725.8 billion last year, up by 17.5 percent from the previous record of $617.6 billion set in 2004.

It marked the fourth consecutive year that America's trade deficit has set a record as American consumers continued their seemingly insatiable demand for all things foreign from new cars to televisions and electronic goods.

The increased foreign competition has helped to keep the lid on prices in this country, but critics say the rising trade deficit is a major factor in the loss of nearly 3 million manufacturing jobs since mid-2000 as U.S. companies moved production overseas to lower-waged nations. Many economists believe those manufacturing jobs will never come back.

"Such a huge trade gap undercuts domestic manufacturing and destroys good U.S. jobs," said Richard Trumka, secretary-treasuer of labor's AFL-CIO. "America's gargantuan trade deficit is a weight around American workers' necks that is pulling them into a cycle of debt, bankruptcy and low-wage service jobs."

Sen. Byron Dorgan (news, bio, voting record), D-N.D., said the new deficit figure showed that "our trade policy is an unbelievable failure that is selling out American jobs and weakening our economy."

…The rising trade deficits must be financed by increased borrowing from foreigners, who so far have been happy to sell us their products and hold U.S. dollars in payment which they invest in U.S. stock, bonds and other assets. The concern is that at some point foreigners will want to reduce their dollar holdings. If the change occurs at a rapid pace it could send the value of the dollar, U.S. stocks and bond prices all plunging.

Things look bad enough looking just at the endogenous (internal to the system) economic statistics. Looking outside of standard economic news, the prospects look even worse. Perhaps sensing that the economic basis for the United States empire is now gone, and, therefore, the military basis will also soon be gone, it appears that the United States, Israel and the NATO countries are planning to start World War III. In a desperate attempt to forestall an economic collapse that would, in the current state of imperial overreach, spell the end of the U.S. Imperium’s “sole superpower” status, it appears that at best they will hasten the end of the U.S. Empire and at worse will bring everyone down with them.

The United States appears to be planning a nuclear attack on Iran, an invasion of Syria, as well as some sort of military action in Latin America, whether by proxy, covert action or even by outright invasion. There was a fierce war of words last week between the Bush and Blair administrations and the Chavez administration in Venezuela. Rumsfeld also made threatening mention of Bolivia, which is contemplating the ultimate sin, as far as the Bush gang is concerned: nationalizing energy production:

Bolivia Edges Close To Energy Takeover
New Leader May Nationalize Gas Reserves, Revive State-Owned Oil Company

By Alan Clendenning

Feb. 9, 2006, 10:28PM
Associated Press

Bolivian President Evo Morales is moving his country closer to nationalizing South America's second-largest natural gas reserves and reviving a state-owned petroleum company that now amounts to little more than a collection of bureaucrats and decrepit gas stations.

The latest rhetoric from Bolivia's new leadership seems ominous for foreign energy companies faced with the prospect of renegotiating their contracts to extract and export Bolivia's gas.

"Some multinationals already have conspiracies," Morales said Monday in one of his harshest speeches since taking office two weeks ago. He said Bolivia's military leaders are preparing a response, and he pledged to bring government control over all levels of oil and gas exploitation.

If that isn't enough leverage, Morales said he'll send Bolivians into the streets to defend his government's plans to keep more of the profits in Bolivia.
Analysts believe Morales will try to model Bolivia's energy industry after Venezuela's, where most multinational oil companies are managing to live under a system dominated by President Hugo Chavez's socialist government.

Just what are the global plans of the U.S. military machine? The Pentagon recently released Quadrennial Defense Review spells it out. Not only are these maniacs thinking of simultaneously fighting in Latin America, Middle East, and Africa but they are also planning on confronting China. I mention these things here because such military actions are the Bush gang’s only prescription for the economic crisis: concentrate all the wealth in a few (their) hands whether by tax and economic policy or by war:

Pentagon spells out strategy for global military aggression

By Bill Van Auken

9 February 2006

Only days before the Bush administration submitted its fiscal 2007 budget, which calls for a major increase in military spending, the Pentagon sent Congress a long-term strategy document that makes clear Washington’s intentions to use the additional billions to wage an aggressive campaign of global militarism.

Envisioned in the document, the Defense Department’s Quadrennial Defense Review (QDR), is a vaguely defined “long war” that will involve the use of military power all over the globe to suppress challenges to US interests both from popular insurgencies and geo-strategic rivals. In particular, the document singles out China as a potential military competitor that must be deterred.

President Bush’s budget calls for a 7 percent hike in military spending, to reach a total of $440 billion. The proposed increase has been coupled with calls for sweeping cuts in such core entitlement programs as Medicare and Medicaid.

With the increase, combined with tens of billions of dollars more for the wars in Iraq and Afghanistan as well as funds separately allotted to the Energy Department to maintain America’s nuclear arsenal, US military spending will climb well above the half-trillion-dollar mark in the coming year. This is more than the amount spent by all other countries combined, accounting for more than half of the estimated $1 trillion in worldwide arms expenditures.

The bloated Pentagon budget includes $5.1 billion—a 20 percent increase—for special operations, i.e., to expand elite killing squads, such as the Army’s Special Forces and the Navy Seals, which are trained for use in far-flung counterinsurgency interventions, including the deployment of assassination squads to kill insurgent leaders. The plan envisions adding 14,000 more troops to these units by 2011, bringing the ranks of such forces up to 64,000.

Another $6.1 billion is to be allotted to the Army to transform its forces into a more mobile brigade-based force, better suited for rapid deployment in counterinsurgency warfare.

…The administration is continuing its stealth funding of the war in Iraq, which is excluded from the Pentagon’s annual budget and procured under “emergency supplemental requests”—seven thus far. It has already gotten $50 billion more from Congress this year and is expected to return within the next two weeks for another $70 billion to finance its Iraq intervention for the rest of the current fiscal year. This will bring the total cost of the wars in Iraq and Afghanistan thus far to $440 billion, rapidly approaching the cost (when adjusted for inflation) of the 13-year-long war in Vietnam.

The anticipated spending rate of $10 billion a month is 50 percent higher than last year. The Pentagon said the dramatic hike was due, in part, to the inclusion of funding to repair and replace the large amount of military equipment that has been damaged or destroyed in Iraq.

This massive spending proposal is driven ultimately by a policy, supported by the decisive sections of the American ruling elite and both major parties, of utilizing US military superiority as a means of countering the relative decline of American capitalism on the world market. The buildup of the US armed forces is aimed not at countering some ubiquitous terrorist menace, but at defending American economic and political hegemony against challenges from both popular movements and powerful economic rivals.

This strategy is spelled out in the QDR document released in conjunction with the budget request. That the document uses the term “long war,” a phrase that is increasingly replacing the “global war on terrorism” in Washington official-speak, has ominous implications. The term is aimed at accustoming US military personnel and the American public at large to a state of permanent warfare that will continue regardless of the outcome of the current interventions in Iraq and Afghanistan.

As the document states: “Currently, the struggle is centered in Iraq and Afghanistan, but we will need to be prepared and arranged to successfully defend our Nation and its interests around the globe for years to come.”

In another significant terminological shift, the Pentagon document defines the main enemy not as terrorists, but rather as “violent extremists” or merely “extremists.” This choice of words is not accidental. The thrust of the strategic conceptions outlined by the Pentagon review is the organization of the US military to violently quell any and all opposition to US domination.

Those who resist Washington’s economic and political hegemony are to be branded “extremists,” no matter what their ideological conceptions, and ruthlessly suppressed. The counterinsurgency methods elaborated in the document are aimed not merely at Islamist terrorist groups, but at any popular movement that emerges against US imperialism and its client regimes.

Significantly, the QDR includes repeated references to both Latin America and Africa. In its sections on Special Operations Forces (SOF), the document states: “SOF will increase their capacity to perform more demanding and specialized tasks, especially long-duration, indirect and clandestine operations in politically sensitive environments and denied areas. For direct action, they will possess an expanded organic ability to locate, tag and track dangerous individuals and other high-value targets globally... For unconventional warfare and training foreign forces, future SOF will have the capacity to operate in dozens of countries simultaneously... while increasing regional proficiency specific to key geographic operational areas: the Middle East, Asia, Africa and Latin America.”

In regards to Latin America, the document presents as a growing concern in US military planning the “resurgence of populist authoritarian political movements in some countries, such as Venezuela,” which it says “threaten gains achieved and are a source of economic and political instability.”

…The document likewise spells out Washington’s intentions to increasingly deploy the US military for domestic purposes. The Pentagon, it states, will, on the order of the White House, use military forces to support “civil authorities for designated law enforcement and/or other activities.” It adds that it intends to “provide US NORTHCOM [the military command created in 2002 to oversee the US itself] with authority to stage forces and equipment domestically prior to potential incidents when possible.”

In a section entitled “Shaping the choices of countries at strategic crossroads,” the document makes clear that the buildup of the US military is aimed at deterring any country from challenging US domination in any region of the world.

It warns that Washington “will attempt to dissuade any military competitor from developing disruptive or other capabilities that could enable regional hegemony,” adding the explicit threat that “should deterrence fail, the United States would deny a hostile power its strategic and operational objectives.”

In particular, the document singles out China, describing it as “having the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional US military advantages.”

This marks a significant change over the last such QDR, issued in 2001, in which China was not even mentioned by name, though indirectly referred to as “a military competitor with a formidable resource base.”

The current review clearly suggests that the spending on new long-range weapons programs is aimed at preparing for a future military confrontation with China. Increased Chinese military capabilities, the documents states, as well as “the vast distances of the Asian theater, China’s continental depth, and the challenge of en route and in-theater US basing place a premium on forces capable of sustained operations at great distances into denied areas.”

This overt military threat provoked angry protests from the Chinese government. A Chinese Foreign Ministry spokesman said that his government had “lodged serious representation” with Washington over the Pentagon document, charging that it “interferes in China’s internal affairs.” He demanded that the US “stop its random and irresponsible remarks on China’s normal defense construction.”

A Chinese foreign policy spokesperson writing in the China Daily called the references to China in the document “anxiety on the part of the US that borders on the illusionary.”

“The speedup of China’s military modernization has its own logic, which is completely reasonable,” wrote Yuan Peng, vice director of the Institute of American Studies of China’s Institutes of Contemporary International Relations.
“It is a necessary step for a major power in a new phase of development, just like the US did at the end of the 19th century and the beginning of the 20th century, when it invested heavily in its naval power.”

No opposition to the escalation in military spending—or the growing threat of new wars and interventions—can be anticipated from the Democratic leadership in Congress. Many of the congressional Democrats have welcomed the multi-billion arms programs as a favor to defense contractors in their districts—such as Connecticut Senator Joe Lieberman, who praised the Pentagon for budgeting for yet another nuclear submarine, to be built at the General Dynamics shipyard in Groton.

The Democratic Party intends to contest the 2006 midterm election not as an opponent of the Iraq war and global US militarism, but as a critic of the administration’s performance in these pursuits. Some Democrats in Congress have criticized the Pentagon budget for its failure to fund a proposal approved by Congress last year to recruit an additional 30,000 troops to bolster the badly overstretched US ground forces in Iraq.

So this policy of war everywhere against nearly everyone has unanimous support among the ruling elite, while having little support among the public. The public can be frightened into supporting attacks against some single, hyped-up “threat” like Iran, but I would bet that if you asked in a poll whether the United States should attack two more countries in the Middle East, perhaps with nuclear weapons, while already bogged down in two countries, overthrow governments and send troops throughout Latin American and Africa and prepare for a war with China, the public would throroughly reject such a policy. The problem is, the bought-and-paid-for media presents such policies as the ONLY options.

Can they be serious? Yes, because they are crazy. But can they succeed? Of course not. Either they will destroy everyone and everything or China and Russia will join together and stop them. It is hard to see how such an economically and politically weakened empire can grab all power. According to Al Martin, Russia and China are now doing to the United States what the United States did to them in the Cold War:

The Dawning of the New Sino-Russian Global Supremacy As the Sun Sets Over the American Empire

(2-6-06) For the first time, the whole world saw the Chinese and the Russians flexing not only their new economic muscle, but their new political muscle as well. It is becoming evident that Russia and China are coming together to formulate a new Sino-Russian Middle East policy.

…The Russians and the Chinese to a lesser extent see this as an opportunity, not simply to exert influence in the Middle East because the Russians had already been doing that -- but to supplant U.S. influence in the Middle East completely and to become the dominating power.

Is it just like giving Bush the finger? No, it’s much more. It is power politics for the highest stakes. What the Russian government is saying is that the substantially economically weakened Bush-Cheney Regime (weakened as a result of the fiscal imprudence of Bushonomics) can no longer maintain sufficient military power in the Middle East, and is not capable of injecting sufficient military power.

Furthermore the Bush Cheney Regime does not have the economic capability to sustain a long term theater-wide peace initiative in the Middle East. The Russians and Chinese are in effect saying -- We now have that capability. We have the economic capability to do so in that we can now spend proportionately more on our militaries than can the United States because our economies are generating enormous surpluses, something that is, of course, an anathema in a Bush-Cheney Regime.

It is power politics and it is meant to send a message. It is why the Bush Cheney Regime went into an emergency session led by Dick Cheney. Calls went out of the White House to all of their allies in the media not to carry the story and not to debate the story. Even on the TV political talk shows, there has been very little debate about it because the Bush Cheney regime is frightened. This is the result of Bushonomics. It is really the economic deterioration of the United States, which would be shown up to the American people in all of this.

Because of that economic deterioration, the United States does not have the ability to meet its treaty commitments or exert political, economic or military power into theaters that it previously so exerted.

Even the newly ensconced King of Saudi Arabia who was in Beijing last week, was very chummy with the Chinese as he signed new oil and economic accords with the Chinese government. You may have seen him in Moscow doing the same thing with the Russians. We are in fact seeing the breakdown of the alliance -- for the very first time since the post-war confederation, when Saudi Arabia became the linchpin of U.S. domination in the Arab Middle East.

…What the Saudis are saying, in effect, is: We do not believe that the United States under the control of the Bush-Cheney Regime can sufficiently protect the kingdom of Saudi Arabia or Saudi Arabia’s interest within the region. And we, the Saudi government, now believe that the Russian and the Chinese are the new power on the planet. They’re the people we want to deal with. And that’s precisely what the Saudis are doing.

It is a global shift of power. And what irks the Saudis is that they are effectively financing the continued ability of the Bush Cheney Regime to increase military expenditure by being the leading purchaser of U.S. Treasury debt. They are effectively financing the regime’s continued ability to even prosecute war in Iraq. They’re getting tired of it. And I don’t blame them.

The Saudis (and this has been done very, very quietly) for the first time since the 1973 Kissinger protocol have begun to quietly reduce their holdings of U.S. Treasuries and U.S. dollars. They have quietly increased their holdings of gold. They’re reducing diplomatic protocol with the United States. They are trying to back away from the United States gradually because they’re so heavily exposed to Bushonomics.

Look at the map and see what’s happening. You don’t have to be a rocket scientist to see what the Russians and Chinese are doing. They are creating new spheres of influence all around the United States. They are effectively hemming in the United States by creating new geographical spheres of political, economic and geo-military interests around the United States.

We have talked before about the increasing relationships now between all of the South American countries and both Russia and China. We see Venezuela upgraded the relationship with both the Chinese and the Russians again last week. We are seeing increasing Chinese domination of Brazilian commodity production and we are seeing Russian domination of Argentine production increasingly.

In fact, this new relationship with South America, the new power bloc that the Chinese and Russians are creating in South America, proceeds apace. In 10 years they will control South American commodity production, and it will be Chinese gold-backed yuans and Russian gold-backed rubles that are propping up South American economies. No longer U.S. dollars. Why? Because, as the Russian government said, the United States no longer has the capability to bail out or even so much as prop up Central and Latin American regimes as they had in the past.

Thanks to Bushonomics, the United States no longer has the economic resources to do this, while the Russians said -- Look, we have paid down our IMF debt. We will be the first of the G-20 nation-states to be out of debt in 12 years. We can back up Latin American debt and Latin American economies. And, guess what, Bush Cheney Regime? We don’t have to go to the IMF to do it.

… What the Russians and Chinese are doing for the first time is using an economically weakened U.S., a U.S. that has been weakened by the Bush Cheney Regime, and they are bridging that to the geo-political and military sphere. Because all nation-states know that geo-economics are on top. The politics and military are secondary because they are paid for by the economics.

…But now we are seeing a new global axis of power – and it does not include the United States. It will simply grow stronger because it has all the right ingredients to grow larger. It will accumulate more allies and more supporters. But it’s not like the Russians and Chinese are putting troops in South America.

What they’re doing is what we used to do, how we used to hem in the Russians. Remember what U.S. post-war policy was for 50 years? It was to dominate the Russians economically. Now the Russians and the Chinese are going to dominate the United States economically. They’re not putting in troops in South America. We’re not going to put in troops. We don’t have them to put in. They’re simply buying out all of the land, the agri-businesses, the aqua-businesses, the refineries, etc. They’re lending money. They’re purchasing Argentine bonds and Brazilian bonds in huge quantities because they know the political control that this gives them.

As the United States power in Central and South America recedes, the Russians and Chinese are doing what they always wanted to do, but didn’t have the capability to do until very recent years -- and that is fill the power vacuum. As U.S. power recedes around the planet, the new Sino-Russian confederation is filling that power gap.

The Sino-Russian confederation’s influence will continue to grow, and the U.S. influences will continue to diminish as long as the practice of Bushonomics continues. Hence, the United States’ economic power becomes ever weaker.

What the Bush Cheney Regime has done to this nation is nothing short of treasonous. It has fiscally weakened the United States, and now we are seeing the consequences of an economically weakened United States with the new Sino-Russian confederation filling the void.

This is the dawning of a new Sino-Russian global supremacy as the sun continues to set over the American Empire.

The question then becomes, will the United States gracefully accept a less-powerful position in the world? The character of the Bush regime argues against that. So does the craven nature of the rest of the political establishment, including the so-called opposition. The danger is that they will escalate the situation into one in which they will either gain everything or lose everything. The problem is, they are playing with all our lives.