Conventionally I abstain from commenting on the policy of other nations (we got enough dumb politicians in Austria too) but when president Bush and his vice Richard Halliburton, excuse me, Cheney, start demonizing Islamism and announce coming "decades of war" I think this is of concern to every citizen of this world. Today's speech of the president who has run up more debt than any other American leader before him reminds me a little of Joseph Goebbels propaganda speech of 1943 when he asked a frantic auditorium "do you want total war?" We know how that ended.
In this context one is almost relieved to read Fed Dallas president Richard Fisher's latest speech where he points out that inflation has also to be fought on the government's spending side. Fisher made it clear that the Fed won't "let the inflation virus infect the blood supply and poison the system." Fisher's remarks dealt the markets another blow, the second in two days. From his speech:
When governments run massive deficits, markets worry about two of three possible outcomes.Remember, take away the military spending and there would be no deficit anymore. The US spends some $420 billion on its standing army which is more than the next ten big weapon spenders pull out of their pockets every year. Russia now spends $19 billion on its army annually.
The first is that taxes would eventually be raised to pay for spending and move the ledgers toward balance. Higher taxes, of course, risk sending highly mobile capital scurrying to more tax-friendly destinations, destroying investment and jobs as it leaves.
The second is that the central bank would monetize the deficit, inflating the economy. The risk would be capital flight to destinations where the purchasing power of capital is better preserved. Here, I want to make myself perfectly clear: As a member of the FOMC, I will never vote to monetize fiscal profligacy. And while I never speak for my colleagues, it is my distinct impression that none of them will do so either.
So this leaves a third option: better calibrating and configuring government spending programs. In a globalized world, nations must tax and spend more prudently than ever. Just to retain capital, yet alone attract more, they must offer taxpayers the best deal at the lowest price. No government anywhere in the world can go on taxing and spending as if it is still operating in yesterday's economy. If the United States is to remain an economic colossus, its fiscal authorities, like its central bankers, will have to become paragons of prudence and restraint, implementing policies that will put the nation in a position to bolster, not hamper, its competitive edge.
Also remember that the cost of the war in Iraq, at least $170 million every single day, is not included in the $420 billion figure. This adds another cool $60 billion annually, at least. And now the two leaders of the biggest army tell us that the "war on terror" - reminds me of "fucking for virginity" - will go on and on and on.
Something is seriously wrong. I am short the Dow since 10,550 and I see no reason to change that position as long as this administration is trigger-happy on opening ever more fronts in a war that cannot be fought and therefore cannot be won. Peace is a process founded on the pillars of education and safety. With these war-mongers in the White House the rest of the world has really something to fear. Something is seriously going wrong and I see no way out of it as long as Dubya tries to mold the world according to his or his buddy's beliefs.
By the way, gold rallied strongly today. Remember its the most tangible asset when you flee a war zone.