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January 24, 2008

The US is buying the modern equivalent of a Maginot Line

Tom Craver posits in a comment that the current financial troubles of the United States are from spending too much money on the military and for War in Iraq, Afghanistan and the war on terror and not because of the subprime mortgage situation. The USA is overspending on the wrong kinds of defense and buying the modern equivalent of a Maginot line. The Maginot line were fixed defenses built by the French before WW2 that were overrun and circumvented by the Nazis.

The US needs some but a lot less traditional defense spending and more technological spending and a stronger economy.

Another thing is that the new kind of warfare like the Russian hacker attack on Estonia, your defences are not improved with your 4th, 5th, 6th and 7th aircraft carrier group.

Supporting this is a cost estimate of buying the mortgage bond insurers by Jim Cramer:
$250 billion maximum and probably $125 billion or less.

The government needs to buy these mortgage insurers and mortgage-backed and municipal bond insurers – MBIA MBI, PMI Group PMI, MGIC MTG and Ambac ABK he said. The insurance covering municipal bonds could be sold to Warren Buffett or the highest bidder. Then Washington could guarantee the loans at 50 cents on the dollar. That way, even if all of the whole $500 billion worth defaulted, it would only cost $250 billion to lift the economy out of this rut. But most likely no more than half of that $500 billion would need to be covered.


So $125 billion to cover half of $250 billion which gets back half of that from reselling at 50 cents on the dollar.

So a $125 billion subprime problems against trillions spent on the wars and on overspending on the military.

I do support prudent military spending and national security. However, excessive and inefficient spending does not provide more security.

Plenty of security could be had from a $200-250 billion/year military budget instead of $440 billion/year. (military-related expenses totaled approximately $626.1 billion) Note: it would take time to make the adjustments from the current situation.

Adding up all of the national security spending gets to a total of about $1 trillion Note: 25% of that number is from interest payment on debt, so we would have to get to budget surpluses and then to paying down the debt to reverse that situation.

The existing level of US defences (nuclear and conventional) is sufficient to deter all of the other possible big nation enemies (Russia, China) and it should not be that expensive to keep Iran, the middle east and terrorists under control. An economically stronger America with balanced budgets and very little or no debt and a more modest military with the right technological infrastructure would be stronger than an economically stretched America with a lot of debt a big military and an infrastructure dependent on foreign oil. The Soviet Union was the classic example of a country with a military that was too big and an economy that was too weak and out of balance.

Better fiscal discipline would provide for more security and a better economy. A better economy is critical to a stronger nation.

Note: Fiscal/budgetary discipline could also be achieved by cutting way back on entitlement programs, but defence and security seem like areas with more excess that are not achieving real goals.

The Atlantic review also makes the case that the US Defense budget is too big and the European one is too small

A Yale professor also makes the case that the US defense budget is too big

Also, better technological and policy choices are also critical. Building a lot of nuclear and some renewable power so that there is no dependence on foreign oil would change the geopolitical situation and alter the need to spend money in the middle east.

I have plenty of articles on my site about the right technological and infrastructure choices.

1 comments:

Jonathan said...

Its only a matter of time until the federal govt can only pay for the interest on its loans. This kind of irresponsible fiscal policy must be stopped.