Guns or Butter at High Noon…
Tags: Banks + China + Deficit + Markets + obama + Russia + Stocks
The US Defense industry, the largest weapons dealer in the world, seeks to sell Taiwan a $6.4 billion arms package consisting of Blackhawk helicopters, Patriot Missiles, and Mine-finder military ships. Later if the calculation that China will protest but do little is correct, the US will sell F-16 fighter jets to Taiwan in another arms package. President Obama
announced his intentions to ask Congress to approve the weapons sale. Yet the President now has a problem. Just a few months earlier in November he publicly conceded his administration’s firm commitment to a ‘one China policy’ and so Beijing is reasonably angered over this US move viewing this announcement as a breach of word. The US had bargained with China for their help in disciplining North Korea and Iran over nuclear weapons and the implicit concession was the US’s agreement to support China’s ‘one China’ policy. The US commerce department has made the case as an opportunity for jobs and a boost to US GDP, showing historical evidence that these exports sharply benefit US trade by creating additional demand from others to keep pace. President Obama has obviously conceded, and now must appease China–a task that will likely take more than smooth words. At risk is China’s support of US deficit spending projected out to 2019. China holds over a trillion dollars of US debt securities–Treasuries. Finding another holder could push US interest rates higher and derail the US recovery. At the same time the Fed is seeking to offload (lend with a guarantee of repurchase) its impaired mortgage securities purchased from its constituent banks. It seeks an SEC forbearance concession on the requirement that money markets hold a minimum of 95% of their asset in liquid, AAA rated, short term securities. Getting this concession will permit the Fed to lend them to money markets and other mutual funds with later repurchase guarantees. Could be that this flipflop on the US’s support of a ‘one China’ policy was also foretold by the recent historical increase in number of new US Government Security Dealer applications that were approved to step up the sale of government debt to you and me. The successful execution of which purports on-going low interests rates under US control–until that money sees more return elsewhere, overseas where rates of growth lure it. This in turn purports a period of greater market volatility as political, couched as economic, statements are planted on the newswires to make safe haven securities desirable over other securities with “foreign risk.”
So we have a classic ‘guns or butter’ situation in US policy. Does the US go ahead and push arm sales to boost its GDP? Or does the US otherwise seek trade in non-weapons of mass destruction?
This quandary is, and has been, at the cornerstone of US foreign policy ever since, years ago, the US laughed at Asia conceding the US electronics industry to them, saying let them sell trinket consumer electronics and we’ll sell billion dollar defense electronics. But like many things US multi-national corporations do, notably in the oil and gas and defense industries, the US government must pay an additional price in the end, and the ultimate bill gets passed to us, the taxpayers.
It is appropriate to interject here the concepts of opportunity costs and morality into decisions about our foreign policy. US multi-nationals strike commerce deals that are unfair, that ravage other nation’s natural resources, that support oppression, and ultimately result in disputes and wars–or a change of government occurs damaging US relations. Recent Iraq and current and past Iranian US foreign policy are living examples of this. In fact the entire US Mid East policy is such. The $6-8 billion in arms sales, largely credits, given to Israel each year has resulted in what originally was called Liberation Theology, and is now the ‘jihad of the oppressed, radical, Muslim’ fed up with the status quo. The juxtaposing of the religious belief goes something like this: Allah says we should fight oppression. Those who aid and abet our on-going oppression are necessarily our enemy too. Allah tells us to fight them too. Voila: Osama Bin Laden. Oil and gas, precious metals, & mineral exploitation deals, environmentally impermissible in this county and disadvantageous to the populace of many countries in South America are on-going, additional examples. Allende in Chile, Noreiga in Panama, and The Shah in Iran are other historical examples.
Morality is a pertinent consideration of policy when others are damaged and lives are lost by such commercial foreign policy. Unfortunately the US financial industry has adapted the same business politic. The ‘too big to fail’ banks and Wall Street when they weren’t banks also, with complete disregard for others and morality, packaged and sold sub-prime mortgages glittering like AAA paper and defrauded pension plans, individual investors, and sovereign governments, all for short term profits and personal greed. It was accomplished by securitization of auto, credit card, and mortgage loans and then leveraged to maximize profits. Done for GDP with our governments blessing. And we are now experiencing the public costs of this immoral behavior. (The opportunity costs come with the set back bail out fund could have alternatively been used for to better the domestic good.)
The US Treasury took over Fannie Mae and Freddie Mac and later swapped back China’s mortgage-backs for US Treasury securities to make China whole (and we suspect to backstop Goldman Sachs). The Treasury and the Fed also bailed out the banks and Wall Street because ‘too big to fail’ meant a more dire consequential domestic outcome. Plus there is now an unhealthy co-dependence between the need for government revenues and the support of commercial policies desired by those generating the revenues. Indeed the US Government itself is too big to fail having used its “Free Market Capitalism” religion to engulf the world financial system in its “voodoo economics” to quote George Bush, Sr. before he acquiesced to get elected President. Indeed it’s a broken financial model. SB calls it “Dark Capitalism as it is characterized by an advanced stage of slow organic growth, monopolistic capitalism whereby large corporations run government having successfully gamed the system effectively changing the rules to their benefit. Government acquiesces because that’s what business wants, because they, Government, need revenues and because elected officials get their campaign financing revenues from that same source. Competition is indeed global and fierce, so the titans of business work to systematically put “all the right people in place” in government and the courts to dictate policy and fix the rules. Citi Group explained it all in their infamous “Plutocracy Memo” to their wealthiest clients. Ironically there is the unlikely mass revolution cited in the Citi memo but it was created by the banker’s own hubris. Unfortunately few citizens recognize that few honest players are on their side as the people put in place are at yet there.
This must change. America must purge and reinvent itself. The guns or butter syndrome is in its eight inning. There is a global competition and the China’s of the world have power too. They have passed the threshold of an emerging market economy and have two choices: throw in with the fascists or make the rules in their own image.
President Obama would like to change all this. He advocates that America reach inside itself and reaffirm the best of its checkered past; rise to the call and lead by sacrifice, by doing what’s right. But the President can not act without your help. Citizens must realize we stand at a crossroads. It is we the citizens who must do what’s right. Our legacy as a freedom loving nation leading the world depends on it.
Sorting out which side we stand on with regard to a ‘one China policy’ is a tell tale part of the dilemma. We must always take the side of freedom and democracy, but not by selling weapons that destabilize others or cause the escalation of weapons of mass destruction. Is it not ironic that we seek to curtail nuclear weapon stock piles with Russia, yet continue the very behavior which escalates one-upmanship desires in other nations that result in them finally desiring the ultimate in weapons? We must realize that we perpetuate what we want by our commercial actions toward others. We must never again knowingly seek to exploit and get the better end, with complete disregard to the damage we cause others. We must make responsible, moral, decisions and set forward looking policies that are sustainable. We must begin by realizing that our system has been corrupted and purge it of that corruption and greed. This happens at the voting polls. Guns or butter is a choice and it is ‘high noon.’ America must remake itself literally doing what we say we profess–”do under to others as you would have them do unto you.” And this starts with each of us. We are beyond the fairy tale that Congress is responsible and acting in our best interest. The time is now. We must do what is required and make America great again. But it is we the citizens who must do it–clutching and grasping onto change that makes the world a better place to live. We can do this each time by simply pulling the lever of change at the voting booth.
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