by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, and Ryan Powers
The War Economy
Congress and the administration are embroiled in contentious talks over on the details of a $700 billion infusion into the financial system, intended to restore liquidity and maintain the flow of credit. But the talks stalled yesterday. "It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington," the New York Times observed. Tonight, Sens. Barack Obama (D-IL) and John McCain (R-AZ) are scheduled to debate foreign policy matters in Oxford, MS. While the subject matter seems disconnected from the situation in financial markets, prescient economists predicted this fall-out from the Iraq war long ago. In 2002, Gerd Hausler, director of international capital markets at the IMF, said that "a serious conflict with Iraq would not be a very healthy development" for the financial markets. Robert Shapiro, undersecretary of commerce in the Clinton administration stated, "If the [Iraq] conflict wears on or, worse, spreads, the economic consequences become very serious." The debt was $5.7 trillion when Bush took office; it will be $10.3 trillion by the time he leaves. While Congress hesitates to appropriate $700 billion for the financial crisis, the administration still is pouring $12 billion a month into Iraq, also raising the question of how the Iraq war funds could be spent better at home.
IRAQ RECESSION?: A significant reason for the current $9.6 trillion federal debt has been the Iraq war, which the U.S. largely financed through borrowing. This week, President Bush said that the crisis began after "a massive amount of money flowed into the United States from investors abroad because our country is an attractive and secure place to do business," which led to easy credit and to the housing bust. But the problem isn't simply one of excessive foreign investment because of businesses. "It's that the U.S. had to borrow money from foreign nations at an alarming rate, after it dug itself into debt paying for the Iraq War while cutting taxes," The Wonk Room observed. Thus, the United States had to turn to investment from abroad for financing. This, as well as lax regulation and oversight of Wall Street contributed to the credit troubles. Currently, 45 percent of Treasury securities are owned by foreign nations, with the most owned by China and Japan. Other nations owned less than 20 percent of these securities as recently as 1994. Bush left out of his assessment the fact that much of the foreign investment went to finance a war and his tax cuts.
PAYING FOR $700 BILLION: The rhetoric used in justifying giving a $700 billion blank check to the administration mimics the arguments used to justify the Iraq war. "Money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back," President Bush said on Tuesday. "The government could make 10 or 20 times what it pays on this, possibly," Sen. Norm Coleman (R-MN) said this week. Similarly, Iraq war architect Paul Wolfowitz remarked in 2002, "We are talking about a country that can really finance its own reconstruction and relatively soon." "[T]he negative effect will be quite small relative to the economic benefits," said White House economic adviser Lawrence Lindsey. As economist Paul Krugman wrote, "The premise of the Paulson plan -- though never stated bluntly -- is that these assets are hugely underpriced, so that Uncle Sam can buy them at prices that help the financial industry a lot, without big losses for taxpayers. Are you prepared to bet $700 billion on that premise?" "Both the $200 billion surge and the proposed $700 billion bailout are emblematic of a failed conservative ideology," writes the Center for American Progress's Matt Duss today.
ACHIEVING BIN LADEN'S GOAL: As Congress stalls on whether to appropriate $700 billion, exploding the deficit and handicapping the next administration, it's hard not to notice that this sum closely resembles the amount that the United States has spent thus far in Iraq. This is Osama bin Laden's very strategy: entangling the United States abroad and plunging the country into economic turmoil. In 2004, he remarked that his "bleed-until-bankruptcy" plan was seeing "evidence of the success." "And it all shows that the real loser is...you. It's the American people and their economy," he added. Lawmakers are cognizant of bin Laden's plan. The Iraq war "has weakened our national economy -- which is what bin Laden did to the Soviets in the 1980's and has expressly set out to do to us," said Sen. Russ Feingold (D-WI) this month. "I think Osama bin Laden is sitting back right now looking at this thing [and saying] in effect, 'We're kinda bankrupting this country," Sen. George Voinovich (R-OH) remarked in April. The United States will have spent at least $3 trillion regardless of who the next president is, according to Nobel Prize-winning economist Joseph Stiglitz.
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Yesterday, the House passed legislation "requiring health-insurance providers nationwide to cover mental-health treatment on an equal basis with medical care."
THINK
PROGRESS: Think Progress will be
liveblogging tonight's
presidential debate.
WONK
ROOM: Exclusive video of former
Vice President Al Gore's remarks at
the Clinton Global Initiative: "It is time for civil disobedience."
YGLESIAS:
The people of Georgia want just as close a relationship with Russia as
they do with the United States.
CONSCIENCE
OF A LIBERAL: The breakdown in
bailout talks is "the culmination of
many past betrayals."
CALIFORNIA:
California is the only
state that offers no money to help National Guard members get an
education.
COLORADO:
"Days after discounting an economic forecast that predicted a $100
million shortfall in the current year's state budget, Gov. Bill Ritter
on Thursday announced a partial hiring freeze and other steps
to
cut
spending."
CIVIL RIGHTS:
New
television ad launches in Colorado and Nebraska that exposes Ward
Connerly and
his divisive campaign to outlaw equal opportunity programs.
"If money isn't loosened up, this sucker could go down."
-- President Bush, 9/25/08
VERSUS
"But our economy has very strong long-term fundamentals."
-- Treasury Secretary Henry Paulson, 7/20/08
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