The system can accomodate almost any amount of red ink by simply letting sovereign wealth funds and foreign billionaires recycle petro or fair trade profits into ownership of US assets and cheapening of the US dollar. So get ready for a wider, worse war.

All Bush or Israel has to do to prolong and worsen the war in Iraq is to goad Iran into retaliation by a campaign of air strikes against it. I believe this will happen starting after the party conventions in September. Obama, like Clinton, has voted for every war funding bill. When Bush then sounds an alarm that Iran is attacking our troops, whether true or not, whoever the Democrat nominee may be will have the same excuse as McCain for continuing the Middle East Crusade. (I'm putting my spare pennies into oil and gold stocks.)

The only nonviolent way I can think of for Americans to avoid this is for voters, in mass numbers, after their primaries, to de-register from the Republican and Democratic parties, stop supporting them with money, refuse to tell pollsters how they are leaning and make clear to these conniving parties that deepening and worsening the war is unacceptable.

The Iraq War turned out to be just an extension of the Bush tax cuts. Huge "No Bid" contracts to Friends of Bush/Cheney with no accountability for performance or oversight. The biggest, boldest corporate welfare program "evah" as we say in Boston.

The US government massive borrowing is crowding-out others in the market.

This should be one of the key linkages and themes for Democrats in the fall.

The Dems, including their presidential contenders, have continually voted for every bloated Pentagon budget, including those for war. Why would they suddenly say they were wrong to vote these budgets? They've now seen the light, realize the error of their ways, admit that excessive spending has been bad for the economy and promise to correct their behavior? Sure. When pigs fly.

Obama and Clinton want to expand the military and modernize its equipment, which will be expensive. This, at a time when the United States is not threatened by any military force.

The sunk cost of the wars justifies the sending of more money down the rathole, otherwise our troops have died in vain, the story goes. This is under the present essentially steady-state conditions of the contested occupations of Iraq and Afghanistan. A significant change in the situation for the worse, in any way, which has a high probability of happening given the wrongness of US policies, would "justify" even more, not less, spending.

There is no hope.

Dean- You can't deny the Fed was in favor of easy money during most of Greenspan's tenure and that helped keepo the borrowing costs for the war fairly low. It also helped inflate the housing bubble you warned about. And of course Helicopter Ben is pursuing the same policies of flooding the system with easy money.

George Bush nailed it:
". . .the spending on the war might help with jobs . . .I think this economy is down because we built too many houses."
http://www.washingtonpost.com/wp-dyn/content/blog/2008/02/19/BL2008021901527_pf.html

And they say economics is complicated. Sometimes it takes a C student frat boy to clarify things for an MIT PhD. War is good, housing is bad. More war and fewer houses -- that'll work.

“Helicopter Ben” responds:

“Of course, the ‘helicopter drop’ metaphor is purely a pedagogic device to help explain money’s role in the economy, not a practical policy tool.”

Ben Bernanke

Back when we anticipated surpluses as far as Ellen's eye can see, Alan Greenspan was worried. He was worried that the entire public portion of debt would be repaid, leaving the Fed without the policy tools long found in treasury securities. A study was commenced on possible replacement candidates, inclusive of corporate bonds, state bonds, municipal bonds, mortgage securities and equity securities. Injections of liquidity, most especially when performed through a variety of avenues, was called a “money rain.” But then, the surplus disappeared for deficits and the theoretical contingencies became mute.

The subprime mortgage problem encompasses mortgage securities and linked derivative instruments, which has likely rendered bank telephone lines around the globe hot. There’s likely a mad dash to ascertain each series of linked securities. Something like identifying a line of dominos, then somehow dealing with the lot. Before this is over the Fed may have to radically alter the type of securities accepted at the discount window, and make full use of what once was mere theory.

The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

Wow - you've been listening to Ron Paul (which is a good thing, by the way).

the economy was flat on its back in 2002 and 2003 because of the collapse of the stock bubble. This is why Greenspan pushed borrowing cost to 50 year lows. He was trying to boost the economy.

Which, of course,just delayed the coming depression and will make it worse when it comes.

As I said, if anything, the war spending pushed in the other direction.

Only if we assume ceteris paribus (all else being equal). It is not unreasonable to think that the war did not push the Fed even further in interest rate cuts than it would have gone without the war.

Re: The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

This isn't right. The Fed's drastic lowering of the interest rate occured immediately after 9-11, a year and a half before the Iraq War began. It was during the Iraq War that the Fed began bumping interest rates back up again. It makes more sense to tie 9-11 to the credit crisis than Iraq.

You=Ellen,(like Ellen said) The reply function, just like some linked derivatives, appears to have gone up in smoke.

Good post, Jon (love the metaphor of 'swimming naked when the tide goes out'). Let's just remember that the $3 Trillion is just for Iraq, and doesn't begin to cover the engorged military spending binge we've been on during the Bush years, not to mention the 'black budget.'

We are being bled by the MIC--is it time to nationalize?

religious sect may degenerate into a political faction,' wrote James Madison, but the new American nation would nevertheless be protected against the ungovernable combination of religious fervor and political power as long as the Constitution prohibited the federal government from establishing any particular creed as preeminent.
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