Odds and Ends

The administration's proposals on guns fills many Americans with fear and loathing.  Especially odious is the idea that the President will restrict our rights unilaterally through executive orders.  I look forward to seeing him getting smacked down in the courts.  Further, his efforts will damage the rest of his political agenda. Good. I view his entire agenda with equal distaste.  He doesn't have the best interests of the country at heart; rather he sees his Presidency as a quest for social justice.  His pre-2008 comments that he was in favor of higher capital gains tax rates was enough proof for me; he said that he didn't care if the higher rates raised less revenue, he wanted them higher in the name of fairness.  This sent the clear signal that his agenda is based on animosity towards particular groups.

 The Under Secretary of Defense issued a memo today, authorizing the military departments to take actions to deal with the threat of sequestration, including freezing new hires; canceling certain types of new contracts and furloughing civilian employees for up to 22 days.  (Can't find a link.)  Typically, the mainstream media has mostly ignored the issue and there has been some inaccuracies in the reporting of the issue.  The Washington Post reporting that the Pentagon will take immediate action.  In fact, according to the memo, the military services are directed to consider those actions.  Whether they do so has not been determined.  Whenever, I see press reports about matters of which I have knowledge, I am always amazed at the inaccuracies I find.  Makes me wonder about the rest of the news I read.

Meanwhile, the issue of the national debt continues to be ignored.  See clock at right.  And since we can't deal with that issue, everything else pales by comparison.

Locally, Bob Filner has said that he wants to stop city legal action against local pot dispensaries.  He has said that the City Attorney should end such prosecutions.  San Diego City Beat reporter Dave Maass tweeted  

Filner says Goldsmith doesn't realize he's the lawyer and the city is the client.
— Dave Maass (@DaveMaass) January 9, 2013

While I agree with the idea that medical marijuana should be dispensed according to state law, I don't think the mayor has the right to remove prosecutorial discretion from the city attorney.  Is this what we want out of city government, the politicization of prosecutions?  Filner's proposal to change the city's laws regarding medical marijuana dispensaries seems a more sensible approach than bullying the City Attorney.

I owe a post on an issue involving the AT&T cell tower in Point Loma and an update on the Bay View Plaza in Bay Park. So far, no news on the latter and not much news on the former.

Financial System Supply-Chain Cross Contagion and Zombies

Many critics of today's economic policies of heavy indebtedness and unfunded future liabilities are in effect stating that there is a cascading risk due to increasing government debt burden. Tea partyers recognize the risk and call on government to end the binge because a bill will come due some day, and the collapse will be ugly. We foresee a situation such as San Bernadino writ large, where entire state governments and even the federal government is unable to keep its legal obligations.

The global economy is also showing signs of cascading risk related to Financial System Supply-Chain Cross-Contagion (H/T ZeroHedge). The study is a bit long to digest for one blog article, and I admit to not having read even half of it. However, I believe I understand the key concepts presented and they do not paint a pretty picture. The central theme is that a global supply chain, with Just-in-Time logistics presents an unstable system that a financial crisis could cause to collapse. Given such a collapse, even if the financial crisis were resolved, it would be difficult to quickly restart manufacturing. Further, the collapse in the global supply chain would have a feedback effect that would exacerbate the crisis. From the overview:

As the globalised economy has become more complex and ever faster (for example,
Just-in-Time logistics), the ability of the real economy to pick up and globally transmit supply-chain failure, and then contagion, has become greater and potentially more devastating in its impacts. In a more complex and interdependent economy, fewer failures are required to transmit cascading failure through socio-economic systems. In addition, we have normalised massive increases in the complex conditionality that underpins modern societies and our welfare. Thus we have problems seeing, never mind planning for such eventualities, while the risk of them occurring has increased significantly. The most powerful primary cause of such an event would be a large-scale financial shock initially centering on some of the most complex and trade central parts of the globalised economy.

The argument that a large-scale and globalised financial-banking-monetary crisis is likely arises from two sources. Firstly, from the outcome and management of credit over-expansion and global imbalances and the growing stresses in the Eurozone and global banking system. Secondly, from the manifest risk that we are at a peak in global oil production, and that affordable, real-time production will begin to decline in the next few years. In the latter case, the credit backing of fractional reserve banks, monetary systems and financial assets are fundamentally incompatible with energy constraints. It is argued that in the coming years there are multiple routes to a large-scale breakdown in the global financial system, comprising systemic banking collapses, monetary system failure, credit and financial asset vaporization. This breakdown, however and whenever it comes, is likely to be fast and disorderly and could overwhelm society’s ability to respond.

This scenario looks eerily like the Lockdown scenario in the Federal government's Project Horizon strategic planning documents. In that case terrorism causes a global collapse of trade that has predictable effects of decades long drop in living standards. In such an environment, we might see a flight to stability and an attempt to move source selection and end item manufacture close to consumer markets. I surmise that some part of the recent increase in U.S. manufacturing output is related to risk aversion by business leaders. Airbus has selected Mobile, AL as a new manufacturing site. Less well publicized, Apple is increasing its reliance on U.S. manufacturing.

I have no data to suggest that manufacturers are becoming more risk averse by laying in larger inventories to support potential interruptions of supplies. If we had the kind of crisis envisioned above, such a strategy might be seen as a worthwhile hedge, even though costly. But all hedges against risk carry some cost. Today, the potential cost of a rapid world-wide financial and supply chain contagion appears to be vastly underestimated, so the cost-benefit trade off of maintaining high inventories is skewed.

At a personal level, we joke about preparing for a zombie apocalypse; but much of the thinking that goes into disaster planning could serve one well if there was even a temporary collapse in global trade. Carrying high personal inventories of spare food stuffs, water, gasoline, generators and other means of preparedness has a cost. Given the current fragility of the global economy, with its high levels of debt and tight integration, personal preparedness is needed.

Stimulus Not Selling

I got an email from BarackObama.com informing me of the defeat of more stimulus legislation in the Senate.

Last night, Democrats in the Senate tried to pass a simple piece of President Obama's jobs plan that shouldn't be controversial: provide money to prevent further layoffs of teachers, cops, and firefighters at the local level, and pay for it by taxing the income of millionaires an extra 0.5%.

This morning a lot of media outlets reported that the Senate "rejected" or "voted down" this proposal.

But that's not what happened. The measure didn't come to an actual vote.

That's because every single Republican senator filibustered the bill -- meaning they wouldn't even let an up-or-down vote happen. Republicans have unilaterally decided not to allow even that simple majority vote on anything that might help the economy before the next election.

To be clear: This bill would have created jobs, and both parties have supported similar measures in the past.

Note the demagoguery of going after millionaires to pay for temporary spending in an area that is not even the federal government's responsibility. I applaud the Republicans for not getting sucked into this. Since this is temporary spending, it only postpones the day of reckoning for states in dealing with budget problems associated with pensions of teachers, cops and firefighters. Better to allow these tough times to force state governments into action now.

Further, all of this stimulus spending is doing squat to increase private sector employment. At a time when we need to expand the tax basis by increasing private sector employment, employing more government workers isn't going to help the economy, because their pensions become a long term liability on the public purse.

The next gambit will be spending on "infrastructure" like roads and bridges. To some extent, this is a federal responsibility at least, but it should be adequately funded in ongoing budgets. Further, the same stupidity of taxing millionaires will be used.

Wonder why stimulus spending isn't helping the economy? The main reason is the temporary nature of the spending. Second, it is put to uses that primarily benefit various levels of government. Finally, the various program tend to be poorly administered. Consider, how the small business stimulus of $30 billion worked out. The Treasury actually only disbursed $4 billion. They only started approving applications in July, 2010, three months before the program ended. And consider this little gem.

More troubling, the $4 billion in loans the government did make might not really help small businesses anyway. A Wall Street Journal analysis of Treasury data found that about half of the banks that took cash from the fund used some of it to pay back the Troubled Asset Relief Program. Rather than giving money to the restaurant around the corner or the startup in your neighbor’s garage, the banks gave it right back to Uncle Sam, bettering their balance sheets but doing little to spur business expansion or job growth. The Chamber of Commerce howled, branding the program little better than a bailout for small banks.

TARP has been defended as a success because the loans are being repaid. But if GM and small businesses are just using government dollars to repay TARP, how is that a success?

The economy would recover on its own if the government would just get consistent tax and regulatory policies in place and start to deal with long term liabilities and debt. But perpetual short-sightedness seems to prevent that.

Lessons from the Greek Tragedy

Successive Greek governments borrowed heavily and lied about it to sustain spending on high wages for public sector employees, close to half the work force. Now that the bill has come due, a massive general strike, further reducing the output of the economy has been called to protest austerity measures the current government is putting into place to please creditors and the other European governments who are putting up rescue money. Seemingly no one is willing to face the essential fact, that no amount of rescue money can save the Greek economy, especially given the popular mood in Greece. The current government of George Papandreou has said that elections will be called early next year, but his party is unlikely to retain power. From the WSJ:

Greeks have become frustrated, suffering from rising crime and suicide rates as more shops are boarded up and personal bankruptcies spiral higher. The country has a young-worker unemployment rate of more than 40% and likely faces a fifth year of economic recession in 2012 amid deeper austerity measures.

Austerity is the word for what the government is doing, but unwinding the socialist economy might be a better plan. Corruption, bureaucracy and significant state ownership of telecommunications, tourism and energy companies have wrecked the Greeks ability to grow their economy.

Ultimately, the outcome will be a default which will impact the Greeks themselves, such as pensioners holding debt, foreign financial institutions, and international institutions such as the IMF. The fear is that banks in Europe, especially France will fail as a result, which would lead to a global financial melt down. Additionally, Greece itself would suffer as liquidity would seize up in that country.

But, too bad. This is unavoidable. Putting into household terms, what if you owned a house which kept rising in market value, due to a bubble, let's say? Let us further stipulate that you borrowed against that rising value to fund your current expenses. Your spending was your income (A) plus your borrowing (B). When the bubble burst, you would have two problems. First, you could no longer live at your prior high level of expenditure A + B. Further, the same problems that caused the bubble to collapse might also reduce your income. Finally, you are saddled with the debt from borrowing and lack the means to pay it back. Even if you file for bankruptcy and move out of your home, your new lifestyle is significantly less extravagant than before. Further, you will have a hard time getting new loans to finance a new business, for example, if you wanted to go for a higher income. This is the problem the Greeks are facing. They probably can't afford to pay back their debts unless they sell their assets, and even then, I am not sure that would work. They are going to face drastically reduced average incomes for some time to come. Right now they are striking and protesting, rather than dealing with moving away from the socialism that got them into this mess in the first place.

This also is essentially the message Chris Christie has for the union employees in New Jersey. You were lied to before, and the promises made cannot be kept. Unless we restructure pension deals you won't get paid at all. The earlier we start working on a solution the better, because the problems just keep getting worse the longer we put this off.

Christmas Recovery?

Various news articles I have read indicate that retail sales over the holidays are picking up steam, and the economy might be truly recovering. I certainly hope so, because there are a lot of hurting people who could use a job and a lot of business owners who desperately need more sales. My worry is that the nation at large will take this as a sign that we don't have underlying structural issues and monster debts that require near term action. The advantage of the great recession was that it focused the minds of voters on the causes of our travails and they responded rationally, moving the legislatures and the Congress sharply to the right with new members committed to fiscal responsibility.

Even if we do have a recovery, another recession is inevitable, because we have not repealed the laws of economics, and all economies have boom and bust times. Unfortunately, if we don't deal with the underlying deficits, liabilities and out of control spending of federal, state and local government that recession will come sooner than later and will be a depression, not a recession.

Meanwhile, if you are the beneficiary of what might be a temporary improvement in the economy, be careful about preparing for the next down turn. The importance of the Tea Party in focusing on out of control spending and pensions is needed more than ever, if the economy is truly improving.

The other thing to consider is that given the precarious state of the finances of many cities and states, massive default on obligations might precipitate another panic. I hope not, but we should be realistic and prudent about the current situation.

Debt and Deficit - Leaks from the Panel

"Depend upon it, Sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully," or so says Samuel Johnson. Doing some reading about the math surrounding the Federal debt has done the same for me. First a little from the "Debt Commission." The leaders have leaked some of their recommendations, and they are challenging. But despite the immediate negative reaction and the sweeping nature of the proposals, they don't fully close the gap, the federal deficit would still be 2.2% of GDP in 2015.

Before I get into the details released by the commission's co-chairs Erskine Bowles and Alan Simpson, we should review the magnitude of the problem. KT recommended an article on Monty Pelerin's World that gives a sense of the magnitude of our debt problem:

If the Government confiscated everything, the social programs would still be $50 trillion short and the Government would still be bankrupt. Furthermore, no company or individual would be left with anything.
. . . The Federal Government has nothing left from their “gross pay.” Their “living expenses” actually exceeded their gross pay by $1.2 trillion last fiscal year. That is, they spent almost 50% more than they made. Comparable behavior is budgeted for the next ten years. . .The Federal Government is in what is known as a Debt Death Spiral. They are unable to pay the actual and implied interest on their debt. Hence, the unpaid balance is added back to the amount owed, making the problem worse next year.

The raw numbers are very bad. Federal spending for the last fiscal year was estimated at $3.55 trillion and federal receipts at $2.38 trillion, leaving a deficit of $1.17 trillion. Relating it to your family budget, this is like having a family income of $100,000, spending $150,000 and funding the difference with a line of credit on which you already owe $575,000. Except it's even worse, because that only includes the debt that is admitted to, according to the linked article above, the real value would be closer to $4,500,000, however, I am unable to independently confirm that figure.

Some pictures:

2010 Federal Outlays, Estimated.

Here's a summary of the $3.8 trillion in deficit reduction measures proposed by the leaders.

• Gradually raise social security retirement age.
• Various cuts in social security benefits.
• More taxes on wealthier incomes (presumably for social security).
• $410 billion in various discretionary spending cuts.
• Earmarks - $16 billion.
• Cut the federal work force by 10%.
• $100 billion in Defense spending cuts.

Already the commission catching grief from right and left. Both Grover Norquist and Nancy Pelosi have criticized the preliminary recommendations. The full commission seems unlikely to vote for these recommendations. As you can see from the graphic above, there are few easy answers. I don't like all of the recommendations either, but it's time to get serious.

Assuming for a moment that all the recommendations were implemented, it still leaves the country with a huge overhang of debt that is only continuing to grow. Apparently, there is no combination of spending cuts and tax increases politically acceptable enough to solve this crisis.

Exit question: What's to be done?

Strangely enough, I think part of the answer lies in solving the immigration problem. More on that in another article.

Debt Without End?

The most recent report on the federal debt outlook from the Congressional Budget Office doesn't paint a pretty picture. From the CBO's blog (who knew?):

Recently, the federal government has been recording the largest budget deficits, as a share of the economy, since the end of World War II. As a result of those deficits, the amount of federal debt held by the public has surged. At the end of 2008, that debt equaled 40 percent of the nation’s annual economic output (as measured by gross domestic product, or GDP), a little above the 40-year average of 36 percent. Since then, large budget deficits have caused debt held by the public to shoot upward; CBO projects that federal debt will reach 62 percent of GDP by the end of this year—the highest percentage since shortly after World War II.

But that's only the start. The Economist has some analysis on likely scenarios and publishes this chart:


The CBO blog has an explanation for the shape of these curves:

The budget outlook is much bleaker under the alternative fiscal scenario, which incorporates several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period. In this scenario, CBO assumed that Medicare’s payment rates for physicians would gradually increase (which would not happen under current law) and that several policies enacted in the recent health care legislation that would restrain growth in health care spending would not continue in effect after 2020.

Note how the increase in spending in the long term is due to medical spending by the federal government. This is the reason that Obamacare is so pernicious. For all the reasons that we have detailed previously (straitjacket on free enterprise, reduced competition, increased demand due to subsidies) spending on health care by the federal government will inevitably increase.

Further, there are other reasons to be believe that tax revenues will be flat in the long run, as shown in the chart above, regardless of tax law changes. I have previously commented on Hauser's law, which is an empirical observation that federal tax receipts will never rise above 20%. Recently found the graph that shows this:



The math of our situation is unavoidable. Under the current tax system, we will not raise significantly more revenue, but the cost of government will inevitably rise. To answer the title question, of course this debt will end, because it is unsustainable. If the Greeks can figure this out, so can we, the sooner, the better.

Greek Update and a California Question

And no, I don't mean a frat party at UCSD. KT has been keeping up with the Greek debt situation and alerted us to the fact that the interest on Greek two year debt has shot up to 26%, "...26% is what you would pay on your credit cards if you missed a payment." My question is to what extent is California going to go the way of Greece? California can't print its own money, just as Greece can't print euros. California apparently lacks the political will to tackle its structural deficit, a la Greece. California will inevitably ask the feds for a bailout, much as the Greeks have done with the EU. And the promise of a bailout may come too little, too late to help. Bottom line, I wouldn't be holding California debt if I could help it, and that includes waiting on an income tax refund check, like I'm doing right now. There's a name for chumps like me that paid too much in taxes to the state and are now waiting for that check, Unsecured Creditors. Last in line for you, pal.

It's the Spending, Stupid!

Imagine my shock when Bill O'Reilly echoed a main theme of TLT on today's Talking Points Memo, laying into the unsustainable levels of spending at the federal, state and local levels. I normally find O'Reilly entertaining but not usually an inspiration for my blog, but he was spot on today. (Sorry for no link, Bill holds back his material from the web for a day, for business reasons, I suppose.) But this is the exact message of the Tea Party from day one, when we started by protesting the porkulus, the stimulus, and the bailouts. It's never been about race, it's the spending stupid. Why the left can't get this? Because it doesn't fit their narrative and it distracts people from the simple fact that excess spending is causing growing debts and deficits.

But, I think the word is getting out. More and more people identify with the Tea Party movement; the left's attempt at demonization has backfired. Every day we see more articles on the out of control spending, as O'Reilly called it. This is why we will be out in force on April 15. Now the liberals will say to the average tax payer, how has Obama increased your taxes? Answer: even if you don't see it on your tax bill Thursday we all know it's coming. Rich Lowry takes aim:

This is why the country has a roiling tax revolt prior to the imposition of any significant tax increases. The tea-party movement is an act of pre-emption, based on the simple calculation that higher spending eventually means higher taxes. For all the tsk-tsking about its supposed irresponsibility, the movement is attuned to the future in a way that the president -- who hopes to evade or hide the consequences of his budgetary choices for as long as possible -- is not.

Not only will be paying future taxes, we are already paying the price through increased inflation, higher interest, higher state taxes over mandated medicare spending, higher health insurance premiums and fewer jobs due to increased taxes on the rich and capital gains besides the tax increases for the grandkids. Just no increase in your personal income taxes... today. There, don't you feel better. What crap; the President thinks he can increase spending, while holding down middle class taxes and no one will notice? Memo for Team Barry, our level of economic ignorance does not match yours.

Time to get ready for Tea Party protests on Tax Day. The media is going to ask this very question of one of us at the protest, or some variation "Have your personal taxes gone up and if they haven't, why are you protesting?" Let's all be ready with our answer.

I couldn't resist one more paragraph of Rich Lowry's article to round this out:

"I like to pay taxes," Oliver Wendell Holmes famously said. "With them I buy civilization." With ours, we will buy a misbegotten stimulus program, bailouts, runaway entitlements, a costly new health-care program and a federal government where incontinence is a perpetual pre-existing condition. No matter what your tax bill this year, don't worry -- it'll go higher.

Debt and the Deficit

In the video linked in the post below, Pam Stout reminds us that a big reason that the Tea Party came into being was a sense of dread over the size of the national debt and deficits. At just the right moment Donnald B. Marron puts this into scholarly perspective with pictures in National Affairs. (As an aside, those, like Letterman, who complain that the Tea Partiers weren't active when Bush was President, should notice how much worse the trends are under Obama.)

First, to help me get your attention I offer two graphs from the article.

Obama towers over his predecessors.

Obama - Up, Up and Away!

Unfortunately, voters still aren't paying attention and don't seem to care about the impending disaster. However, just as a Republican might have won the 2008 Presidential election if they had listened to Rasmussen and positioned themselves on economic issues, so now, Republican candidates could start winning, and positioning by taking on the debt issue. More from Mr. Marron:

Before we can hope to make a dent in our deficits and debt, there must be broad agreement among the public and the governing class that we even need to. There are still some commentators on both the right and the left who continue to insist that deficits and debt do not matter much. It is important to understand why they are mistaken.

Running deficits can certainly be appropriate — and even beneficial — at times of particular stress, such as wars and recessions. But in the long run, persistent large deficits and growing debts undermine our nation's prosperity.

He goes on to point out seven key reasons why long term deficits and debt hurt the United States. Summarizing:

1. Debt undermines growth by crowding out investment.
2. Debt fuels inflation, a hidden tax and destroyer of wealth.
3. Foreign holding of our debt gives them leverage to negotiate in other areas.
4. Use of shorter and shorter term debt puts interest rate risk on the budget.
5. Rising debt limits our ability to raise money to combat a new crisis or our ability to go to war (not always a bad thing I guess.)
6. Due to the magic of compound interest, debts grow on their own. Especially when you are financing current operations out of debt.
7. We're screwing our children and grandchildren. (Marron uses the PC "intergenerational fairness.")

This is why we should applaud Jim Bunning for his insistence on pay-go. This is why we should mock every stimulus boondoggle. This is why we should demand an end to earmarks. This is why we should demand less spending everywhere. This is why we need to get the Democrats out of the majority in Congress and Obama out of the White House.

Happy New Year! You're on the Hook for a Cool Trillion... Per Year... For Life

A smiling Barack Obama goes to meet with Congressional leaders. Later he announced that he is down with deficits of a trillion per year. Happy New Year!

Meanwhile Democrat blogs are pointing out the hypocrisy of Republicans opposing large deficits. However, in their meager defense, KT at the Scratching Post, points out that things could have been worse.

Cost of Iraq War

###
Current Cost of War in Iraq The little clock you see is from Zfacts, showing the current estimated cost of the war in Iraq based on congressional appropriations. My experience in that realm tells me that it is an undersestimate.

The current economic mess reminded me of an earlier time in my life when a drawn out war became a drain upon the U.S. Treasury and was financed with deficit spending. That time was Vietnam, and I was convinced then and remain so today, that the cost of that war directly resulted in the ruinous inflation of the 1970's. Coincidentally, that was also a time of fundamental shifts in world economic exchange arrangements. In 1971, the Bretton Woods system which had governed central bank exchanges after World War II, finally came undone due to the deficit spending of the U.S. government on social programs and the Vietnam war. Essentially, the policy of pegging the dollar to $35/ounce came undone and the reality of the dollar's falling value was recognized. Wikipedia article here. However, floating the dollar against gold was a new experience for America's central bank, the Federal Reserve. As a result. they lacked knowledge of the tools needed to combat the ensuing inflation.

Fast forward to our decade. Nowadays, central banks purportedly understand the relationship between deficits and inflation. However, cost inflation was contained because of a new phenomenom, that did not escape the central bank's notice, but was seemingly beyond its power to influence. I am referring to the practice of consumers in China to save at high rates and for their bankers to invest those savings in American assets such as Treasury bonds or commercial bonds. Full article here. This sopped up the extra liquidity in our system and hid the normal effects that would have resulted in price inflation. However, the inflation did show up in asset price inflation, primarily real estate. Meanwhile, both nations seemed to benefit. China strong export growth was fueling those savings and making the citizens feel more prosperous, even though the economy was not really producing benefits to consumers. The United States didn't have to deal with the tough choices that such high deficits would normally require.

The outgoing administration and the Republican party has much to answer for. Spending like drunken sailors on both the war and social programs reminds us of the Democrats of the LBJ era. But I also object to the cost of war. Yes, I supported the invasion of Iraq. However, our nation had a proven and successful blueprint for fighting overseas ground wars called the Powell doctrine. Among its tenets was that war required overwhelming numerical superiority in order to prosecute to a quick conclusion. The doctrine also calls for a well planned exit strategy. Enter Donald Rumsfeld, a patriot, visionary, and a man who turned out to be too smart for the nation's good. I was on active duty when he was sworn in as Secretary of Defense and remember his vision pre-9/11 vision of a much smaller military with much greater emphasis on special forces. The war in Iraq gave him the chance to test that vision. But to my thinking, this was the wrong time to make such a gamble. The war in Iraq was always a gamble, in some ways a hail-mary to change the trend line in the middle east, to show the Muslim world that democracy and prosperity can coexist. To make a side bet on force structure under those circumstances seemed foolhardy to me. Ultimately a force leve was sent that could of course remove Saddam from power, but was insufficient to impose order on a post-Saddam Iraq. In hindsight, the widespread looting was a tipping point that showed the criminal and Islamofascist elements that we were not up to the job of pacifying the countryside. So here we are, over $600 billion later. Only the surge, which is a direct rebuke to Rumsfeld's arguments has saved the day. Ultimately, prolonging the war has had a direct cost to the national treasury that is calculable and has contributed to our current predicament.

Now we will be faced with tough times for many years to come. The war wasn't the only cause of increased deficits, but it hasn't helped. This kind of financial overhang is very difficult to unwind. It wasn't until 1982 that inflation got under control in the United States. The current practice of adding more government debt to go along with all the private debt doesn't seem likely to help in the long run. Might as well bite the bullet now and start focusing on efforts that will encourage saving by U.S. citizens.