Saturday, October 12, 2013

US Government Default on Debt: What It Means To American Economy

What does a government shutdown mean to YOU - PERSONALLY? 

WASHINGTON — A prolonged government shutdown — followed by a potential default on the federal debt — and the consequences of which would be dire (to say the least). Here is just a sampling of what can and may happen on an economic scale:

(1) Financial markets would start to decline in value as many companies and individual bondholders have holdings within the United States Government.

(2) As stocks and mutual funds lose financial value, investors begin to stop investing. The longer the upheaval lasts in financial markets, the more investors begin to “sell off” securities in an effort to avoid even greater losses. As investor apprehension and the mass exodus grows away from financial markets, the closer a complete collapse of the financial system.

(3) The lower stock prices will also send the rapid devaluation of company-held stock into a free fall motion. As investors and company owners stop investing, employment will also grind to a halt and – quite possibly - send the unemployment rate higher only to further slow already sluggish, tepid economic growth.

(4) While a shutdown of a few days might do little damage, a longer standoff would suck money out of the economy and spread anxiety among consumers and businesses in a way that is likely to hold back economic activity.

(5) A default on the federal debt, which may occur within 30 days without congressional action, would be much worse. Failing to raise the debt ceiling would require the government, a major driver of growth, to cut spending by about a third, potentially forcing delays in Social Security checks, military pay and payments to doctors.

(6) There are other risks, too. On Oct. 17, the Treasury is to ask investors for $120 billion in loans. But if investors grow nervous about whether the United States will be able to pay them back, they are likely to demand higher interest rates, which would cause rates to spike throughout the financial system, leading to more expensive mortgages, auto loans and credit-card bills. As these interest rates begin to climb, spending will decrease as more expensive money costs will deter more people from parting with more of their money supply.

(7) U.S. bonds have long been a key pin of the global financial system. Failure of the government to pay on those debts would greatly damage U.S. credibility nationally and abroad.

(8) As spending slows, recession will loom more likely.

(9) American Businesses, who have cash reserves, will become less inclined to invest and hire.

(10) As financial uncertainty mounts, this emotional response will add to the economic uncertainty and will become a vicious, unrelenting feeling which may add to even more instability to the economy and destabilize economic growth. Positive emotion has long been a key driver of the American Economy and is gauged by the Consumer Price Index.

(11) The stock market, as measured by the Standard & Poor’s 500 index, was down four of five days last week, and the U.S. dollar also fell. More relevant, the cost of a type of insurance that investors use to protect themselves against default in U.S. government bonds has rocketed in recent days, suggesting the chances of default are increasing.

(12) Additionally, if the American Government faces to pay its obligations, contractors and builders will lose confidence in their government to be paid their amounts due. As this continues, more government jobs will become less desirable and could – theoretically – induce its own problems who would risk nonpayment for materials and labor invested in roads, bridges, buildings, etc.

(13) For example, the closure of national parks and museums may hurt hotels, restaurants and the people who work for them. The process of getting approval for a home loan could take much more time, slowing a housing recovery that is one of the few bright spots in the economy.

(14) A prolonged shutdown could trim economic growth in the final three months of the year by up to 1.4 percentage points. Under that scenario, the economy would hardly expand at all — at a time that is usually one of the most important economic periods of the year. Employment and income, overall for all citizens would be negatively affected.

(15) The Treasury has warned that it will have only about $30 billion in cash on hand by the middle of next month, and estimates are it will run out of money by the end of the month. If it is low on cash, the government is likely to hold back on payments until enough money comes in by way of tax revenue, according to a Treasury Department inspector general report. Social Security checks, veterans’ benefits and active-duty military pay could be delayed two weeks, according to estimates. Such delays would not only disrupt lives but also cause an economic contraction because that money often flows directly into the economy through grocery shopping, car sales and staple purchases.

(16) As a worldwide consequence, the United States currency could be devalued so much that other countries could refuse to accept the currency as payment. If this were to happen, (the loss of the United States currency as the World’s Reserve Currency) worldwide exports from the United States would be slashed significantly and could altogether nearly stop. If this were to happen, the United States would be vastly negatively affected by orders of scope and magnitude and theoretically could cause a worldwide Second Great Depression. If an economic depression were to happen, it would be nearly impossible from which to recover.

(17) There is simply not enough gold and silver to sustain the world’s economy. Even if investors were to invest in this as an “exchangeable currency” it may be priced so high that for the average United States citizen (or world citizen) that these precious metals could lose total value as there would be too little supply to satisfy demand.

(18) Since the United States dollar is the cornerstone of worldwide economic stability, losing complete value as a facilitator of trade, would send the entire worldwide economy into a possible economic “perfect storm” whereby the purchasing power of consumers – the world over – would lose the ability to trade freely and prosper.

(19) In conclusion, this whole economic system is based on 2 major things: First, credibility of the currency. Second, high consumer and investor confidence. Once these two issues are undermined across the nation and the world, it is almost impossible to retract and the consequences of which would be immeasurably dire.  Finally, an economic collapse would be 5 - 6x greater than the Economic Crash of 2007-08.

Reporting for the News,

Michael Hathman

Tuesday, October 8, 2013

Vice President Dick Cheney, the Iraq War & the Military Industrial Complex

President Dwight Eisenhower warned Americans about the "Military Industrial Complex" in his farewell speech leaving as President of the United States in 1961.  Apparently, President Eisenhower had perfect vision looking back to World War II and presiding over the Cold War. This is not at all surprising in the least as the old aphorism goes: "Hindsight is always 20/20 vision."  What does that mean?  Well, we should learn from our past.  In fact, it is our past that directs the very decisions we make about our future.  When we don't learn from our past, we infer another old adage that states, "History is bound to repeat itself."

Let me explain...
Just prior to World War II, British Prime Minister Chamberlain exclaimed, "Peace in our time!" thinking he was averting a Second World War with Germany when Hitler started "annexing" parts of Europe. Appeasement was the policy of the day.  Thinking that would be the end of the aggression, the Western powers fooled themselves into a false sense of security thinking that peace would finally win over war.

Meanwhile, in direct contravention of International Law and the Versailles Peace Treaty, Germany started rearming and restarting a vast military industrial complex by contracting with multiple factories to make various armaments, artillery, tanks, planes and guns for the upcoming war.  Hitler and the industrial military complex (which was still in power after Germany's defeat in World War I) now had the chance to become rich providing massive military capability - made with the latest and best technology of the day.  And, as further assurance the military complex would have security knowing that the Nazi War Machine would provide an excellent profitability for an indefinite time period - by engaging in massive warfare and with an eye towards military conquest.

Eisenhower plainly saw this "alliance" between the Nazis and the powerful owners of manufacturing.  This alliance was still very much in place after World War 1 and had not been dismantled.  In fact, WWI did not see the dismantling of this power bloc until the Nuremberg Trials after World War II.  This power alliance posed the greatest single threat to threat to political stability and democracy in Germany.  The money, power and warfare makes for incredible wealth for a nation.  And, the power players who manufacture the weapons of war will constantly use their massive wealth and political power to put pressure on politicians to make and manufacture those weapons and to step up that production in war time.

This massively influential institution is required to be fully armed and functional and must be available upon a moment's notice.  But, there has never been a time in all of human history has any nation been known to dump so many resources into military matters as the United States of America.

Eisenhower saw plainly the effects that such a massive industrial military complex would have on the nation and the world.  He saw that this complex should be maintained and used more as a peace keeping format than one of aggression as implemented by the Nazi Empire.  This political, wealthy and powerful complex would have significant influence in American politics and the governing of our nation.  Eisenhower was right to be worried about this connection as it could lead the Republic towards acts of aggression and away from more peaceful missions of diplomacy.

Thus, under the rule of Nazism, the idea of the "industrial military complex" was born.  Interestingly enough, two books were written on the matter - before and during World War II: Fascism and Big Business by Daniel Guerin and Behemoth: The Structure and Practice of National Socialism by Franz Leopold Neumann.  (See: Wikipedia)

Fast forward to President Dwight Eisenhower's Farewell Address to the public.  This historic speech alludes to some of the matters that President Eisenhower was witness to during his tenure as Supreme Leader of the Allied Forces and as President of the United States ("POTUS").

Fast forward to September 11, 2001 - Terrorists murder millions in the WTC incidents on President Bush's watch.

Approximately a month later, Bush and Cheney invade Afghanistan to wipe out Al qaeda.

I am certain that Cheney told Bush that it would be in the best interest of the Bush Legacy to attack Iraq, depose of Saddam as President of Iraq and link the government of Iraq to weapons of mass destruction and Al qaeda.  Indeed, the Bush Administration went along with the plan and years later the public finds out that Iraq never had any such weapons and that there was no connection found between Hussein and the terrorists.

Halliburton (A Dick Cheney Company) would be one of the contractors given approximately $138 billion dollars in contracts to do work in Iraq.  Cheney's wealth skyrocketed as a result.

Conclusion: If war is so profitable, it will be nearly impossible to keep the peace.  You can most certainly bet that the industrial military complex will be lobbying for war as those contracts are worth TENS OF BILLIONS OF DOLLARS.  The American people have a responsibility to separate the politicians from making certain decisions wherein there is a conflict of interest.  Regardless of their position in government, our republic must do everything possible to steer clear of decisions that are of monetary benefit to those politicians who make decisions in areas of government that can and will benefit them monetarily.  Failure to do so can only lead to mass corruption and could possibly even threaten the very well being of the Republic.


Michael Hathman