Read And Learn

Doug Casey is by far one of the most intelligent thinkers and investors alive on the planet today. He is a self-described Libertarian-Anarchist and I believe he's forgotten more this morning than I'll learn in the next 10 years. He's a firebrand and very critical of what doesn't work in the world, which gives him a lot to say. He travels extensively which only make his words ring louder with authority. He's seen what mostly others just talk about. His books "International Man" & "Crisis Investing in the '90's" are still good reads and I recommend them highly.

The Health of the State

By Doug Casey

Randolph Bourne once sagely noted that “war is the health of the state,” by which he meant that war is particularly fertile soil for growing government power.At the beginning of WWII, the U.S. government was powerful but on a par with a half-dozen other states. But the war enabled it to reinvent itself as the centerpiece of American society and the controlling force in the economy. Although the U.S. started acting like an empire at least as early as its shameful war against Spain and the taking of Cuba, Puerto Rico and the Philippines, among other places, it was WWII that really set the U.S. on its current path.Some dimwits think that war is good for the economy, the theory being that the economy must ramp up to replace all the goods and infrastructure that war destroys. Great; every time the economy starts to falter, let’s bomb the world to pieces. The reality is that directing any resources to the government is by definition a misallocation, since it takes funds away from their owners. The capital used to build weapons and blow things up is capital that could have been used to finance sustainable, productive jobs and build more wealth.Yes, I know it seemed like a good idea at the time (to some people), but what do you think the U.S. actually gained by spending $375 billion (in today’s dollars) bombing jungles in Vietnam and killing more than 2 million people there? The Iraq war is no different. In fact, it will turn out even worse. Vietnam was just a small, isolated, desperately poor country; in Iraq, we’re provoking the whole of the Islamic world. And this war will be vastly more expensive. Osama bin Laden predicted his strategy of financial attrition would bankrupt us, and he’s right.On that point, a former U.S. government apparatchik has broken ranks and gone on record with some numbers that I don’t think are going to be far off and that will prove to be well on the light side should the war in the Middle East spread. In his recent analysis, Joe Stieglitz, former chief economist of the World Bank and chairman of the President's Council of Economic Advisors, put the tally for the Iraq war at $1 trillion for direct costs and another 1$ trillion for macroeconomic costs (such as the higher price for oil).As you can see in the table, he compiles two estimates of direct costs, one he terms conservative and another he calls moderate, that range from about $750 billion to $1.2 trillion, two to three times more than Vietnam.Oil in the MixAll of this assures oil will stay high for the foreseeable future. As oil is literally the stuff that makes the world go ‘round, persistent high oil prices mean a lower standard of living in the U.S. and a lot more power in the hands of oil producers, which range from unstable to overtly hostile.And the next big headline—whether it’s a major attack on a U.S. city, the assassination of Mubarak in Egypt or Musharraf in Pakistan, a revolution in Saudi Arabia, things going from terrible to horrific in Iraq, or an expansion of the conflict into Iran and/or Syria—will unquestionably send the price of oil over $100 bbl. More importantly, the U.S. will predictably send troops and bombers to whichever new trouble spot beckons, getting further and further stuck in the tar pit of “Chaostan.”Proof? Why is it that Condi headed to Lebanon to try and work things out? Why not the secretary of state of, say, Thailand or Mongolia? There’s a price for empire, and we are paying it.Just as Vietnam played its role, at the time, in the spiraling inflation of the 1970s, so, too, will Iraq and wherever it is we point the guns next. The situation is escalating as Bush, Rumsfeld and presidential candidate Gingrich have actually started using the phrase “World War III” in their speeches. The thought precedes the word, and the word precedes the act.