Given the U.S. fiscal situation, should military spending change (how much?)

[MachineGhost]

2. Why are we maintaining troops in S. Korea when the S. Koreans could obliterate any N. Korean invasion in a New York minute?  North Korea's army looks impressive in numbers but the country can't even feed it's people and it is doubtful that there is enough gas for their 1950's vintage tanks to last more than a couple of days.

North Korea is downright creepy.  A few years ago, there were smuggled pictures posted on the web that presented a look literally out of Orwell's 1984.  Unfortunately, they seem to have disappeared.  However, these pictures of showcase city Pyongang offer a decent, if alot less creepy, glimpse:

http://tema.ru/travel/choson-1/
http://tema.ru/travel/choson-2/
http://tema.ru/travel/choson-3/
http://tema.ru/travel/choson-4/

MG

[Ad Orientem]

North Korea is downright creepy. 

There are a lot of places I think are creepy including some areas of San Francisco and Utah (for different reasons).  But I don't think we need to spend billions for stationing troops around them.  N. Korea is a Stalinist monstrosity and I thank God I don't live there.  But it's none of our business.

[Ad Orientem]

The national debt explained in 3 minutes.

[Gumby]

The national debt explained in 3 minutes.

That video, while amusing, gets it all wrong. A government budget is nothing like a household budget — particularly when our base money supply actually comes from the government's deficit spending.

See problems with that video here: The Most Destructive Monetary Myth In The USA

The US government is a currency issuer — not a currency user. All our money (except for coins) comes from either public or private debt.

Funny video though.

[moda0306]

The national debt explained in 3 minutes.

That video, while amusing, gets it all wrong. A government budget is nothing like a household budget — particularly when our base money supply actually comes from the government's deficit spending.

See problems with that video here: The Most Destructive Monetary Myth In The USA

The US government is a currency issuer — not a currency user. All our money (except for coins) comes from either public or private debt.

Funny video though.

Very funny... really I do appreciate this, as I had been a deficit hawk for the longest time... as I'm sure most relatively financially savvy people are, or at least start out.

But in the end, it's 100% wrong in its implications.

[stone]

If supporting enforcing global use of the USD by military might is a fine objective, then why be so coy about it? Why didn't GeorgeWBush just say, "Saddam is refusing to sell oil for USD so we need to kill 90000 Iraqi's and several thousand US soldiers to right that wrong."

[stone]

Gumby, those Mosler post about the current use of SDRs for bailing out Greece is totally different from what Stiglitz is proposing. Stiglitz was suggesting that oil etc would trade using a basket of free floating currencies (eg USD, JPY, RMB, CHF etc etc). That would mean that Triffin's dilemma would be annulled as it would become counteracting.

I guess eventually the Triffin's dilemma process will get to such a state that the current set up will collapse so it might make sense to put in place a system that isn't broken by design before that happens.

[Gumby]

Gumby, those Mosler post about the current use of SDRs for bailing out Greece is totally different from what Stiglitz is proposing. Stiglitz was suggesting that oil etc would trade using a basket of free floating currencies (eg USD, JPY, RMB, CHF etc etc). That would mean that Triffin's dilemma would be annulled as it would become counteracting.

I guess eventually the Triffin's dilemma process will get to such a state that the current set up will collapse so it might make sense to put in place a system that isn't broken by design before that happens.

Stone, Triffin's dilemma is no longer an issue. According to Warren Mosler (Mosler's comments are denoted by "****"):

WARREN MOSLER Reply:
February 2nd, 2011 at 2:51 pm

Triffin’s Dilemma

Testifying before the U.S. Congress in 1960, economist Robert Triffin exposed a fundamental problem in the international monetary system.

If the United States stopped running balance of payments deficits, the international community would lose its largest source of additions to reserves. The resulting shortage of liquidity could pull the world economy into a contractionary spiral, leading to instability.
credits If U.S. deficits continued, a steady stream of dollars would continue to fuel world economic growth. However, excessive U.S. deficits (dollar glut) would erode confidence in the value of the U.S. dollar. Without confidence in the dollar, it would no longer be accepted as the world’s reserve currency. The fixed exchange rate system could break down, leading to instability.

****it applied to the fixed exchange rate system, which is no longer applicable.

Triffin’s Solution

Triffin proposed the creation of new reserve units. These units would not depend on gold or currencies, but would add to the world’s total liquidity. Creating such a new reserve would allow the United States to reduce its balance of payments deficits, while still allowing for global economic expansion.

****functionally there is no such thing short of a floating fx arrangement, like what we have now.

“A fundamental reform of the international monetary system has long been overdue. Its necessity and urgency are further highlighted today by the imminent threat to the once mighty U.S. dollar.”?

****that reform was exiting the gold standard

Robert Triffin
November 1960
Source: http://moslereconomics.com/2011/02/01/e ... onth-high/

Triffin's dilemma is only an issue under a fixed exchange rate system. It no longer applies. The US has the ability to run a trade deficit indefinitely if need be — and may have to. Those trade deficit dollars just end up as foreign exchange reserves and they tend to stay that way.

[stone]

Gumby, isn't the danger that an alternative system will get set up that excludes the USD? So oil starts trading for a basket of currencies that does not include the USD and the, by then mountainous, reserves of petro-dollars get tossed back and forth bidding down the price of the USD relative to that basket? That really would be a pickle.

Triffin's dilemma no longer exists only if you consider it no big deal to have ever more USD net financial assets in the world. Not to mention other countries being content with the USD's "exorbitant privilege" side of it.

[Gumby]

Gumby, isn't the danger that an alternative system will get set up that excludes the USD? So oil starts trading for a basket of currencies that does not include the USD and the, by then mountainous, reserves of petro-dollars get tossed back and forth bidding down the price of the USD relative to that basket? That really would be a pickle.

Not going to happen Stone. The proposed oil for SDRs would be based on the dollar, euro, yen and pound. Let's not overlook the fact that the US is the largest member of the IMF.

Triffin's dilemma no longer exists only if you consider it no big deal to have ever more USD net financial assets in the world.

It's really not a big deal. Again, Warren Mosler says:

it’s the foreigners who are dependent on our domestic credit creation process to fund their desire to save $ US financial assets.

Domestic credit funds foreign savings. We are not dependent on foreign savings for funding anything. Nor can we be. Again, it’s our spread sheet and if they want to save our $ they have to play in our sandbox.

And what options do foreign savers have for their dollar deposits? They can do nothing, or buy other financial assets from willing sellers, or buy real goods and services from willing sellers.

And when they do that, at market prices, again, both parties are happy. The buyers get what they want- real goods and services, other financial assets, etc. The sellers get what they want
— the dollar deposit.
Source: http://mosler2012.com/wp-content/upload ... deadly.pdf

Not sure you've noticed, but foreign countries want to be net-savers of dollar assets. They can't do very much with those dollar assets, nor do they want to. Those dollar assets can help support their own currencies. And the dollar is essentially backed by the power of the US military. Spending even some of those dollar assets tend to weaken the value of the remaining dollar reserves. So, countries just tend to save.

[stone]

Gumby we totally agree on what the current set up is. I think where we diverge is on whether the rest of the world considers it consensual and whether the rest of the world is likely to replace it. Isn't China in the process of setting up non-USD trading relationships with Brazil etc and they certainly are not asking the IMF about it. Warren Mosler seems to think that the entire world is populated by imbeciles who have some innate desire to save $US financial assets for the hell of it. IMO the dictators in the rest of the world simply want to stay in power and the people in the rest of the world want to have some basic level of self determination and affluence. My guess is that the current set up is already unraveling. I really wonder whether the US might miss the boat and be faced with global commodity trade being in a basket of BRIC currencies.

[stone]

Gumby, 9/11 was pure evil but isn't it fair to say that it was pure evil that grew from this system.

[Gumby]

For the rest of the world to exchange other currencies for goods doesn't really hurt the US. In fact, it's probably a good thing, since the dollar reserves are being saved instead.

I see no evidence of any country not wanting to save dollars right now.

Gumby, 9/11 was pure evil but isn't it fair to say that it was pure evil that grew from this system.

Would you care to elaborate?

[moda0306]

We sold over $500 billion to other countries last year.  We'll sell a ton more this year.  In fact, from 1997 thru 2008 we sold more currency to those countries than we produced via deficit spending, sometimes in absolutely staggering amounts.  The worst years were 2005, 2006 and 2007, where we sold about $1.4 Trillion in excess of our fiscal deficit money creation.

[MachineGhost]

If supporting enforcing global use of the USD by military might is a fine objective, then why be so coy about it? Why didn't GeorgeWBush just say, "Saddam is refusing to sell oil for USD so we need to kill 90000 Iraqi's and several thousand US soldiers to right that wrong."

Uh, that's not what happened.  Kuwait was drilling horizontally into Iraq's oil reserves for a long time.  Iraq did the rounds diplomatically and Bush Sr gave his tacit acknowledgement by silence for Iraq to punish Kuwait.  Then Bush Sr cooked up a faux Iraqian invasion pretense of Saudi Arabia replete with doctored satellite images, in true wag the dog style, to get the world to act and hence began the Gulf War.  I'm recalling this from memory so it might not be 100% accurate in the details.

Don't remind the NeoCons of that.  They're still embarassed by the lack of nuclear weapons and weapons of mass destruction B.S. cooked up by Chablis (sp?) that got stovepiped to the White House.  Then again when did the truth ever stop them?  The IAEA has found no evidence of uranium enrichment diversion to nuclear weapons or nuclear weapons capability in Iran just as they didn't in Iraq.  The first casualty of war is truth.

MG

[MachineGhost]

Gumby, 9/11 was pure evil but isn't it fair to say that it was pure evil that grew from this system.

Are you saying that the 92/11 blowback for stationing American troops on the holy land grew out of the need for petrodollar hegemony?  Thats confusing cause and effect.

The real cause is the Lincolnian desire for the American Empire hegemony that the NeoCons have.  We don't need to be provoking or being in wars, real or imagined, to police shipping lanes.  No, they have "regime change" and "nation building" as an agenda and they really don't give a damn about what it takes, collateral damage or not.  This is why in the past people and war tax protestors were against having a central bank: it forments wars by allowing them to financed.

MG

[stone]

Machine Ghost and Gumby, to me 9/11 was several thousand decent people murdered. Most of them had no comprehension why any of the suicide bombers would have any grievance against the USA let alone them.

That said, the suicide bombers did feel a grievance however warped and evil they were. Saudi Arabia has (in al Qaeda's view) a puppet ruler and is under de-facto occupation and a state of looting by the USA. The USA has filled Arabia with military bases and in effect takes oil in return for maintaining the rule of the unpopular puppet regime. 9/11 was supposidly striking back at a thieving imperialist power that had the Arab world under its heel.

The Arab rulers all know that their survival depends on agreeing to accumulate USD or US stocks in exchange for oil. Their citizens know that the only reason why they have the rulers that they have is because those are the people who have made that pact with the USA.

[KevinW]

For folks who would change spending (in either direction), what would you cut and/or spend more on?

Fundamentally I'd want to reign the DoD's scope back in to something closer to the constitutional mandate of defending the nation. Much "defense" spending seems to involve policing the world and providing standing armies for adversaries that were defeated decades ago. A good start would be to cut the blue water fleet, foreign bases, long range bombers, and scale the nuclear arsenal way back. Cut research into invasion technologies but keep defensive technologies.  Gradually lower troop counts to levels necessary for an overwhelming domestic defense but nothing further.

With all those cuts, there'd be room to increase funding for technological solutions to credible modern threats. Domestic terrorism, rogue nukes, electronic warfare, etc. Also do well by the troops caught midstream and provide generous retraining and retirement packages.

It's true that someone needs to provide security for global shipping routes. I'd rather that the shippers have to pay for that themselves rather than enjoy a blank check from the US government. Then the price of globalized goods would reflect these costs more accurately. Personally I buy less imported energy and goods than an average American, and I don't appreciate paying taxes to subsidize others' consumption, nor being implicated in all that violence.

[MachineGhost]

That said, the suicide bombers did feel a grievance however warped and evil they were. Saudi Arabia has (in al Qaeda's view) a puppet ruler and is under de-facto occupation and a state of looting by the USA. The USA has filled Arabia with military bases and in effect takes oil in return for maintaining the rule of the unpopular puppet regime. 9/11 was supposidly striking back at a thieving imperialist power that had the Arab world under its heel.

Do they view the entire "island" as Arabia?  Because I only saw one U.S. military base in the chart, oddly smack dab in the middle of Saudi Arabia.  Whats the purpose of that?

MG

[TripleB]

Gumby,

Why can't we pull our military out of all those countries, let them start accepting Euros or other non-USD currency, and then the US will owe foreign demoninated debt.

Then when we run out of money, we just start printing foreign denominated currency, the same we do with USD to pay our debts off that.

Problem solved! 

In all seriousness, in my first post, this is what I was talking about. The USD needs to be the world reserve currency in order to maintain our global ponzi scheme. If OPEC started taking Euros for oil, then the USD would plummet. It's pure supply and demand. Because all countries need oil, all countries need USD, and thus the act of them trading their currency for USD drives demand of USD up and keeps the global value high.

The problem with simply "letting" them go off USD, and saying "screw it, we will keep our USD in house and start domestic in-sourcing of manufacturing" is that the stuff we need is based on a global marketplace.

Even if we pumped our own oil here in the US, if the value of that oil globally is high relative to the USD, then it drives the USD price of it up, because the US companies could just as easily sell it overseas. This would cause gas prices to go up 2x over night and 10x over a few years.

Even if we grew our own food (which we do), it's priced on a global marketplace. Americans will be priced out of buying US-grown corn because the price isn't simply based on USD, but it's based on USD relative to global currencies since other countries buy our corn.

Essentially, over the years as the military-industrial complex has grown and is tied to our current fiscal policy, it's made us dependent as a nation on the need for continued currency hegemony. I'm afraid our best course of action is to continue as is and let the system destroy itself in 20 to 30 years, rather than try to dismantle it all at once and have us all plunge into an immediate depression that we never get out of. At least we get another 30 good years out of it!

[stone]

That said, the suicide bombers did feel a grievance however warped and evil they were. Saudi Arabia has (in al Qaeda's view) a puppet ruler and is under de-facto occupation and a state of looting by the USA. The USA has filled Arabia with military bases and in effect takes oil in return for maintaining the rule of the unpopular puppet regime. 9/11 was supposidly striking back at a thieving imperialist power that had the Arab world under its heel.

Do they view the entire "island" as Arabia?  Because I only saw one U.S. military base in the chart, oddly smack dab in the middle of Saudi Arabia.  Whats the purpose of that?

MG

I guess that US base is to provide defense for the current USD accepting Saudi regime I suppose it might be seen as a bit like a protection racket.

[Gumby]

Not sure if people realize this or not, but the US doesn't get most of its oil from the Persian Gulf...

[align=center][/align]

Clearly we need all the oil we can get our hands on, but the fact is that a lot of our oil comes from North America. Most of that oil is used to move ourselves and our goods around the country.

It's not just about oil. Having a blue water navy is necessary to provide regional stability across the globe. Worldwide regional stability allows for more free trade (of dollars).

Keep in mind that we have 11 aircraft carrier groups in service. That's more than all of the other nations combined. The next largest navies (Span, Italy) have only 2 aircraft carriers each.

http://en.wikipedia.org/wiki/List_of_ai ... in_service

Spain and Italy do not have the ability to maintain regional stability across the globe. Nor does the UN — particularly since the US makes up the bulk of the UN's military force.

[stone]

Gumby, what exactly do you mean by "provide regional stability"?

The other thing to remember is that trading routes existed long before global superpowers. When the conquestadors first arrived in the Pacific NorthWest, they were astonished to find Spanish Toledo steel knives that had been traded across Asia and Alaska.

Check out http://www.bbc.co.uk/programmes/b00sdhr6
"Five objects from the British Museum tell the story of the movement of goods and ideas, along the Silk Road out of China, to Korea and even as far as East Anglia"

[Gumby]

Now, to put our military spending into perspective...

[align=center][/align]

It's certainly easy to say that the cost of each $13.5 billion aircraft carrier could have been diverted to putting 643,286 kids through college or paying for an extra 895,641 families' health insurance. I wish they would! And if you thought the nation's spending was like a household budget (it's not) then you might be guilty of thinking that.

But, the fact is that the US is never reserve constrained, so the Congress always has the ability to put an extra 643,286 kids through college or paying for an extra 895,641 families' health insurance. Congress just doesn't have the political will to do those things.

Clearly the United States values world wide regional stability more than our own citizens' healthcare. We do it so that global free trade (of dollars) is more likely and so that worldwide resources are easier to come by. It totally sucks, but who else is going to do it? France? Italy? Shipping companies? Not going to happen.

Most people take worldwide stability for granted. As much as we moan and groan about the military's size, the world is generally more free and stable than it was 100 years ago.

I just wish Congress would prioritize making healthcare and eduction more affordable — so that we can all be more productive.

[Gumby]

Gumby, what exactly do you mean by "provide regional stability"?

This is a term used by the State Department...

Strategic Goal 1: Regional Stability
Avert and Resolve Local and Regional Conflicts to Preserve Peace and Minimize Harm to the National Interests of the United States

I. Public Benefit
The United States must provide for the safety of Americans at home and abroad, protect against threats to its interests worldwide, and honor commitments to its allies and friends. The activities of the Department and USAID are cost-effective means for enhancing and ensuring stability in all regions of the world through understanding, addressing, and responding early to the causes and consequences of violent conflict. Through diplomacy and development assistance, the U.S. builds and strengthens relations with neighbors and allies worldwide by promoting peaceful regional environments and by educating foreign audiences in ways that can prevent, manage, and mitigate conflicts, and foster cooperative efforts. The benefits to the U.S. are greatest when the world is safer and more stable. Early action to address failing, failed, and recovering states, or “fragile states”? is central to promoting regional stability and addressing the source of our nation’s most pressing security threats. Factors that contribute to fragility and regional instability include, but are not limited to, economic and political instability; health crises; the illegal trade in toxic chemicals and dumping of hazardous wastes; corruption; violent ethnic conflict; influence of neighboring country interests; population movements; landmine contamination; exploitation of natural resources; proliferation of small arms and light weapons; trafficking in persons; the trade of illegal conflict diamonds; natural disasters; and systemic, state-sponsored denial of political and legal rights. The Department and USAID advance U.S. national security interests through the resolution of regional instability, so that Americans, at home and abroad, are safe from violence.
Source: http://www.state.gov/documents/organization/41602.pdf

If you're curious, the (2006) document continues on to explain what those regional missions actually are.

The other thing to remember is that trading routes existed long before global superpowers. When the conquestadors first arrived in the Pacific NorthWest, they were astonished to find Spanish Toledo steel knives that had been traded across Asia and Alaska.

Let's not ignore the fact that the nation with the largest navy always had control over international trade.

Every era of successful globalization, from Pericles to Queen Victoria, has involved a naval hegemon to ensure the security of shipping, and therefore commerce. The hegemon provides this public good that lets other, smaller actors free-ride, not because it's in the thrall of neocons, but because it directly benefits from strong, safe international trade.
Source: http://www.businessinsider.com/america- ... z1ltUonXD7

It's not just about shipping lanes. It's also about having as many free (dollar-friendly) markets as possible — through worldwide regional stability.

Think about it. The less free the world is, the less likely regions will be willing to accept dollars. The less regions that are willing to accept dollars, the less value our dollar has at obtaining resources. I'm not saying policing the world is a good situation to be in. But, it's the position our politicians apparently think is necessary.