Like many bemused bystanders, I'm fascinated with the current debt ceiling crisis. Does anybody really understand it? After some preliminary research, I've concluded that the debt ceiling is tantamount to a speed bump. It's a warning. This provision is not in the U.S. Constitution. It is something which started in 1917 with the Liberty Bonds, when Washington went on a spending and borrowing binge to finance its unwise intervention in the Great War to prevent a Hohenzollern/Hapsburg triumph over John Bull. Alas, a triumph of the Central Powers in the Great War would have been a boon for civilization. It would have changed the history of the 20th Century in a positive direction. 

Before the First World War, public debt was regarded warily by American lawmakers. Congress put a cap on the National Debt in October 1917. That cap or ceiling has been crashed through many times since and a new limit proclaimed by the same entity responsible for the previous one. It has happened seventy-four times since 1962. So what's the point?

Moody's rating agency has suggested that the debt ceiling be done away with entirely, because it is a charade and creates uncertainty. The idea is worth considering. On the other hand, a speed bump serves a useful purpose. It lets our elected leaders know that they should take the foot off the pedal and/or not go to sleep at the wheel.

This begs the question, however, that if Congress has authorized expenditures for various projects, isn't the USG obligated to pay the bills no matter what? One option is to borrow, but there is also the option to curtail spending and increase revenues--like in private enterprise. Isn't that what Germany and France have forced upon Greece and Ireland, in exchange for lending Greece and Ireland more money so that they can transfer it back to banks in Germany and France? Such an arrangement is called austerity. I'm no expert on anything, but experts in high finance have decided that austerity is the ticket for Greece and Ireland. Why not a similar prescription for the lone surviving Superpower? Or is castor oil just for the little guys to take?

In this regard, I've observed (as a straw in the wind) that commercial real estate wheeler-dealer, press magnate, freelance talking-head, and Israel-first advocate--Mortimer Zuckerman--has recently changed his tune. You can see him on the Mclaughlin Group most every Friday evening. For years he has been advocating "stimulus" for the U.S. economy, and that is what Washington (the White House, the Federal Reserve and Capitol Hill) has delivered in spades, thereby exploding the National Debt.

To be fair, Zuckerman had in mind a program aimed almost exclusively at rebuilding national infrastructure. The idea was to create jobs. Fine. For some reason, that only materialized on a small scale. Whatever Team Obama did, in response to the economic crisis of 2008, it has fallen flat with respect to job creation. On the positive side, perhaps Washington did forestall a second Great Depression--if you believe Obama--by bailing out the New York banksters. Hank Paulson and Tim Geithner  certainly think so, and they should know.

But now Zuckerman has done a volte-face. He favors austerity and has stopped talking about stimulus. Apparently, he has looked at the numbers. His July 14th article in the Financial Times--"America has no choice but to enter its own age of austerity"--speaks for itself. Maybe he read the front page FT article of April 13th, where the IMF proclaims that the U.S. lacks a credible strategy on its public debt and urges "stringent austerity measures" to avert upending the global economy. I’m just waiting for the IMF to be put in charge of the U.S. economy.  

First up on Zuckerman's hit list? Entitlements, as they are called. Social Security, Medicare and Medicaid. Not a single word in his FT article of July 14th, no intimation whatsoever, about cutting the Pentagon budget or curtailing America's imperial foreign policy. We all know that Medicare and Medicaid need to be reformed from the ground up. That is a no-brainer. But don't people pay into Social Security, and is it not supposed to be a segregated trust fund, immunized from the National Debt? Could the problem be that the Social Security trust fund has invested heavily in U.S. Government bonds, heretofore considered to be risk-free?

Back in January 2008, I recall watching Zuckerman belittled Representative Ron Paul. John McLaughlin had shown a clip of Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson, both of whom addressed the worsening economic crisis. Wall Street was imploding. Then came a segment with Ron Paul in a debate with Governor Mitt Romney. They were running for the Republican presidential nomination. McLaughlin prefaced it by asking the panel and audience: "Why is the economy tanking?" Read the transcript here. Watch the video here.

In the debate, Ron Paul states: "We're fighting a trillion-dollar war and we shouldn't be doing it. Those resources should be spent back here at home.... It [inflation] comes from deficit financing with this war-mongering foreign policy we have. We run up the deficits. We tax. We borrow. We borrow from the Chinese. We can't borrow enough. Then what do we do? We print the money.... The value of the dollar goes down and prices go up when the government gets involved."

McLaughlin turns to Zuckerman, "Is Ron Paul right? Do you have to deal with the monetary policy before you deal with anything else to account for deficit spending?" Zuckerman's response: "...This guy doesn't know what he is talking about." Mclaughlin: "What's wrong with what Paul says?" Zuckerman: "He has pulled nothing together. He's just pulled words together." Zuckerman is ready to have a cow. Mclaughlin: "You don't think the Iraq war...?" Zuckerman: "I'm not saying the Iraq war was an economic boon. We had five years of this war and the country was booming. The reason why the country is going down is because of the credit system."

True enough, the real estate bubble and the massive subprime mortgage fraud were the visible malefactors which tanked the economy. But like the reckless banks, the hot-shot real estate developers, and the brazen fraudsters on Wall Street, the USG was also wildly overextended and having a party with cheap money provided by Greenspan. [Everybody still is partying, in a way, and now the money is free, thanks to Bernanke. Isn't that ironic? Interests rates in real terms are zero.] The Iraq war itself was based upon fraud and funded by credit. It was a gratuitous invasion, for which Zuckerman was an unabashed advocate from the word go, joined by the Neocons, acting as a front for the Israel Lobby. 

May I suggest that this war in Iraq, sold back then as part of GWOT, the global war on terror, helped to wreck "the credit system" and the American economy as a whole. One might even argue that the United States has hit the wall, because of its foolish and incendiary foreign policy in the greater Middle East, begun in the aftermath of the Cold War. The attendant wars being waged by the Pentagon today are costing untold billions and achieving nothing positive for the American people. 

I've touched upon this problem in a recent essay entitled "Why did they squander the Peace Dividend?", an abbreviated version of which appeared in Taki's Magazine on May 6th. I was flattered to receive a note, commenting upon what I had written, from Chuck Spinney, who worked at the Pentagon for over thirty years. I say flattered, because Spinney is an expert who thinks out of the box and knows what he is talking about. He's a one-man think tank. At best, I only make educated guesses and ask embarrassing questions.

Spinney has done his homework and arrived at  startling conclusions which are at odds with the Washington establishment. He has been courageous and straight-forward in recording his dissent. "Why the War Machine Keeps on Running" is his latest article for CounterPunch.

Here is a sample of what Spinney wrote me:

“I agree pretty much with everything you said, but you left out a very important determinant why there was no peace dividend--the political economy of the military/industrial/congressional complex (MICC).... The idea that foreign policy drives the train is not correct, in my opinion, which is based on years of study and analysis while working in the Office of the Secretary of Defense.

“Foreign policy is a factor to be sure, but the internal political-economic dynamics of the MICC also shape the evolutionary pathway and foreign policy most often is responding to the imperatives of these dynamics--i.e., keeping the money flowing through the MICC....

“What you said is correct, but it is by no means the entire story. Until we address the internal dynamics shaping our behavior, efforts to change foreign policies (which are more effects than causes) will lead nowhere.”

In sum, Spinney has concluded that the gargantuan defense budget of the United States has a life of its own, detached from reality and authentic threats; it is not just self-perpetuating, but self-aggrandizing. I have read the four research papers he sent with his note, and they make fascinating reading. The first one entitled "Defense Power Games" was written in October 1990, right at the end of the Cold War. An important moment in time. The last one is entitled "The Domestic Roots of Perpetual War", published in the February 2011 issue of the economic journal, Challenge Magazine. 

Spinney's outlook is most relevant when viewed in the context of the current debt ceiling debate. May I ask, as part of this crisis, have you heard anybody in Congress or the White House talk about cutting the defense budget? I haven't. Foreign policy expert William Pfaff, writing from Paris, pointed out in a column dated July 12th: 

“By far the strangest thing about the American debate concerning national economic policy, currently concentrated on whether a law lifting the present limit on the deficit will or will not be passed, is that it has been conducted without discussion of the largest item in the budget.

“This is the aggregate cost of running military interventions of one or another kind in Afghanistan, Pakistan, Iraq, Libya, Somalia, and sundry other unhappy and unlucky sites in the non-western world, plus a global program of illegal individual assassinations by drones or dedicated military and civilian killer teams--all in democracy's name. Cut that, even its blatant excesses, and the budget problem would disappear.”

On July 15th, ex-CIA official Philip Giraldi had this to say in The American Conservative blog on the same subject, while excoriating a David Brooks piece in the N.Y. Times:

"...Brooks has again indicted healthcare as the culprit in the budget imbroglio. He says that it is the largest part of the Federal budget. That would be correct only if one ignores special appropriations for fighting wars, which Brooks approves of. In fact, Brooks never once mentions "defense" spending....  Another recent estimate for the total costs of Iraq and Afghanistan, arguably wars that the United States should either not have fought or should have long since ended, is $4 trillion. That...does not include legacy costs and interest. Other estimates of the total costs of the wars, even if they were to end today, go as high as $7 trillion."

In sum, it appears that the defense budget is sacrosanct. Where Spinney lays the blame upon the MICC, seeing the defense establishment as a self-perpetuating money-making machine with no accountability, I tend to blame a self-defeating, Neconized foreign policy, which both Republicans and Democrats have bought into and cannot back out of, without looking like frauds.

Clausewitz wrote that war is not an independent phenomenon, but the continuation of politics by different means, that is, a continuation of diplomacy using other means. Politicians can’t cut “defense” because it is predicated upon diplomacy, to wit, American foreign policy. To be able to cut “defense” now would be an admission that American foreign policy has been a ghastly mistake in the aftermath of the Cold War.  

The last member of Congress who stood up and said we've got to get the hell out of Iraq was John Murtha, Democrat from Pennsylvania. It took a lot of courage in the face of the Cheney/Bush propaganda machine. As for the Senate, it may have been Republican Chuck Hegal of Nebraska. The former is deceased and the latter has left the Senate in disgust.

Let me close by quoting a few paragraphs from Spinney's "The Domestic Roots of Perpetual War"...

"By the time the Cold War ended in 1991, a true peace dividend would have collapsed the defense industry and its powerful political dependents. To survive and flourish, the factions of the MICC badly needed to evolve a subtle, pervasive shift in strategy, a subliminal mutation in the MICC’s political DNA. It is now clear that this mutation has taken a frightening form: namely, the need to foment an enduring voter-terrifying threat and unending small wars to justify the money flow needed for the MICC’s survival.... (My emphasis.)

"Without that never-ending succession of little wars (Somalia, Bosnia, Kosovo, the first and second Gulf Wars, Afghanistan, Yemen, Pakistan, the War on Terror, etc.) keeping the political system lathered up, the MICC’s political-economic house of cards would collapse. A little reflection reveals that this mutation actually started in earnest as early as 1990, when Saddam Hussein invaded Kuwait. Clearly, September 11th did not create this mutation, but it certainly proved a windfall for expanding the scale and cost of our small wars.... (My emphasis.)

"It is easy to throw rocks at President Obama, but he did not create the defense mess, nor did his predecessor—though George W. Bush’s reckless spending, coupled with incompetent management in the Defense Department under the stewardship of Donald Rumsfeld and the domestic politics of the war-centric foreign and domestic policies that metastasized in the wake of September 11, certainly worsened the crisis and accelerated the Pentagon’s day of reckoning."

Interesting stuff. I am wondering, though, if Spinney has over-reacted in his analysis. Could corporate officials of various American defense industries really be so cynical, dishonest and greedy? Instead, could all this be a sort of "natural phenomenon" with an innocent explanation? Rank opportunism, say, as opposed to deliberate corruption? After all, Senators and Congressmen would normally cater to defense industries, which provide jobs and taxes, not to mention campaign contributions. And Businessmen must do business. They are not interested in ideas. Could it be that simple? 

Further, on the foreign policy front, was the rise of the Neocons and the Vulcans in the wake of the Cold War just an accident? Or was it part of a deliberate plan, to foster a private agenda, to take advantage of the void at the end of the Cold War? Were the Neocons and Vulcans bankrolled and promoted by the Israel Lobby for that purpose? Did the MICC forge an opportunistic alliance with the Israel-firsters? There seems to have been something for everyone at the Pentagon.

At the moment, all we know for certain is that the American warfare state is unstoppable, albeit unsustainable, and that the U.S. defense budget cannot be cut. The debt ceiling debate is a smoke screen. Nothing will change until and unless there is a genuine meltdown. That prospect is no longer remote.

--Copyright 2011 Patrick Foy-- 

Update I: “True Cost of Afghan, Iraq Wars is Anyone’s Guess”, McClatchy News Service,  August 15th.

Update II: “Leon Panetta--Defense Cuts would have Devastating Effects”, Huffpost, August 17th.

Update III: “Budget Talks Have Major Defense Contractors on Edge”, AntiWar.com, August 26th.

Update IV: “War Spending and Paul Krugman”, CounterPunch, September 6th.