It's not mere speculation that the US is a huge war machine that neglects the welfare of its own people. When it comes to war, no expense is spared. When it comes to funding programs to help the American people, any expense is too much. The US government is very poor when it comes to welfare in the broad sense of the word, very rich when it comes to war and occupying the world and bailing out Wall Street. With over 700 military bases abroad, there are more than 3 bases for every country in the world. Meanwhile, veterans are made to beg for their benefits and go homeless in the streets. No government official or Presidential candidate is even talking about homelessness in America which is a major and growing problem especially among the elderly and veterans. In The Three Trillion Dollar War, Joseph Stiglitz and Linda Bilmes write
The Bush Administration was wrong about the benefits of the war and it was wrong about the costs of the war. The president and his advisers expected a quick, inexpensive conflict. Instead, we have a war that is costing more than anyone could have imagined.
The cost of direct US military operations - not even including long-term costs such as taking care of wounded veterans - already exceeds the cost of the 12-year war in Vietnam and is more than double the cost of the Korean War.
And, even in the best case scenario, these costs are projected to be almost ten times the cost of the first Gulf War, almost a third more than the cost of the Vietnam War, and twice that of the First World War. The only war in our history which cost more was the Second World War, when 16.3 million U.S. troops fought in a campaign lasting four years, at a total cost (in 2007 dollars, after adjusting for inflation) of about $5 trillion (that's $5 million million, or £2.5 million million). With virtually the entire armed forces committed to fighting the Germans and Japanese, the cost per troop (in today's dollars) was less than $100,000 in 2007 dollars. By contrast, the Iraq war is costing upward of $400,000 per troop.
Most Americans have yet to feel these costs. The price in blood has been paid by our voluntary military and by hired contractors. The price in treasure has, in a sense, been financed entirely by borrowing. Taxes have not been raised to pay for it - in fact, taxes on the rich have actually fallen. Deficit spending gives the illusion that the laws of economics can be repealed, that we can have both guns and butter. But of course the laws are not repealed. The costs of the war are real even if they have been deferred, possibly to another generation.
As Fed chairman Bernanke continues to bail out Wall Street and in the process adds hundreds of billions of dollars in liabilities to the Federal government and the American taxpayer, the US continues to increase its debts and liabilities. First, Bernanke arranged a deal for JPMorganChase to buy out Bear Stearns for $2 a share. But Bear Stearns shareholders were not happy with that so Bernanke in effect says "OK, then, how about $10 a share?" We can't have unhappy shareholders in a bankrupt company, can we? We must do something!
J.P. Morgan and Bear still needed the Fed's acquiescence to reopen negotiations. New York Fed President Timothy F. Geithner, with support from colleagues on the Fed Board of Governors in Washington and top officials at the Treasury Department, used that as leverage to negotiate the new deal.
The key word here is acquiescence. The Fed is acquiescing to everything in order to appease Wall Street investors, taking on even more liability in the new deal. The first deal had the fed assuming $30 billion in Bear Stearns liabilities. The second deal has it assuming everything over $1 billion. How is that a better deal for the American taxpayer? This is all a continuing and massive transfer of wealth from the taxpayer to the wealthy along with Bernanke's promise of $400 billion of liquidity to Wall Street banks. Now don't you think that the collective minds on Wall Street are going to figure out a way to cash in on all that liability? They will figure out how to work the system so as to manifest that transfer of wealth and cash in on every last dollar of the Fed's guarantees. When you add on the $160 billion stimulus package, you come up with the astonishing figure, depending on how you value the Bear Stearns liability, of around another trillion dollars for the recent bailouts and stimuli. A few trillion here, a few trillion there ... pretty soon you're talking about real money!
From Robert Reich's blog:
So JP Morgan is raising its offer for Bear Stearns, hmm? Well, it still may be a good deal for old JP, because the worst that can happen is JP loses $1 billion. If losses turn out to be more than $1 billion, the Fed – that is, you and I and every other American taxpayer – will make it up to JP. Who knows what the assets are really worth? They may be worth 80 cents on the dollar, in which case Bear’s stocks are a huge value even at $10 a share (remember, their market price before the panic was around $70 a share). They may be worth 90 cents on the dollar – even better for JP. Or they may eventually (in the long run, when the crisis is over and housing values start trending upward again) be worth far more --- maybe, just maybe, even approaching $70 a share. JP doesn’t know. Bear doesn’t know. The Fed doesn’t know. Everyone is guessing. Bear shareholders are playing a giant game of “chicken.” They’re threatening to go into bankruptcy – that is, liquidate the firm and essentially sell off their assets in an auction – if they don’t get a better deal from JP than the $2 per share JP originally offered.
As part of the new Bear Stearns deal, the Fed's role was also renegotiated. The central bank originally had agreed to put public dollars on the line to guarantee $30 billion of risky mortgages owned by Bear Stearns. In the reworked deal, J.P. Morgan agreed to cover the first $1 billion in losses if the value of those securities falls, with the Fed responsible for any losses beyond that. The main point here is that what Bernanke and the Fed are doing is all guess work. They are in uncharted waters and they are playing by ear. But their main concern is the investors not the homeowners who are in or about to go into foreclosure. If they wanted to protect them, they'd mandate restructuring of their loans. But this would piss off the investors who were counting on the homeowners' mortgages resetting to higher interest rates. In other words the investors were counting on the homeowners getting screwed when they made their investments, and, by golly, it's not fair to change the rules of the game now and make their investments worth less. However, it's OK to bail out huge investment banks.
Wall street has become a huge casino and doesn't serve any positive economic purpose or function. It used to be that they provided venture capital for start-ups and assisted with initial public offerings (IPOs). Now Silicon Valley has their own venture capital firms, and Wall Street just provides ever more fancy investment vehicles for rich investors who are not satisfied with just buying stocks and bonds as in the old days. No, they want to bet that the values of these stocks and bonds will go up or down at some future date. They want to buy insurance against their bets. They want derivatives of derivatives. They want synthetic exposure to the bond market as opposed to real exposure. They want credit default swaps. Who needs all this stuff? Surely, it contributes nothing to GDP. 70% of GDP is consumer spending; the remainder is almost evenly divided between real investment and government spending.
[Investment] is defined as investments by business or households in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products.
In the $14 trillion American economy, if Wall Street and all its supposedly sophisticated investment vehicles disappeared off the face of the earth, the GDP would not be affected one bit! They are talking about regulating Wall Street banks; why not just outlaw all these fancy schmancy investment vehicles? They didn't rear their ugly heads until a couple years ago anyway, and right off the bat they've cost the American taxpayers almost a trillion dollars. Why not get back to a real economy?
And, tying this all together, the US government is spending $3 trillion on war (and spends more on its military than the rest of the world combined), another trillion on bailouts and stimulus packages, and all the while running up the US national debt to almost $10 trillion. If the US government were to disappear altogether, the US GDP would still be roughly $12 trillion based on consumer spending and real investment. So my solution to this mess: get rid of Wall Street and get rid of the war based component of government spending. They say that in 10 years the government budget will be totally consumed with paying interest on the national debt, social security and medicare. But that doesn't account for the fact that war trumps social security and medicare. It's far more likely that the government budget will consist of paying interest on the national debt and war.