The Dark Wraith Forums

Peek-a-Boo Politics

wraith@dark-wraith.com — Fri, 4 Jul 2008 00:41:36 -0500

Obama · Bush · Right-wing · President

Mortar Man

wraith@dark-wraith.com — Wed, 2 Jul 2008 00:25:28 -0500

I went to the shoe store in town, this evening. That's where a former student of mine works. He promised to give me a great deal on some shoes The ones I'm wearing I've had for about three years, and it's getting hard to glue what's left of the soles back on.

This former student of mine is in the National Guard. He had told me late last Spring his stint would be up in early September. He's been working hard to finish his Bachelor's degree and get down to living a good life with the woman he's planning to marry. She's a CPA, and the two of them are quite a sight together: she's just as pretty as a model and so sweet; he's handsome and muscular, with a boyish grin that hasn't disappeared even though he's killed more than his share of people in several tours of duty in Iraq.

So I went into the shoe store looking for him. The manager recognized me and came right over. He's seen me in there a few times; I like to stop in where former students work just to see how they're doing, and this manager got to know me while we all stood around chatting. (A few of my other former students work there, too.)

The manager, John, said, "Looking for Steve?"

"Is he here tonight?"

John had this serious look on his face, almost a frown. "Steve got stop lossed. He's about to be deployed."

For a few seconds, I was dumbfounded.

John stood there, arms folded, looking down. I found my tongue and almost snarled, "Where?"

"Dunno," John answered, "I'd like to say he's heading back to Iraq."

"Iraq? Steve's a glorified cannon cocker. He's good — But short stuff? Now?" I protested.

John shook his head: "Steve's scared."

I leaned a little bit toward John and said, "This is about Iran."

"All I know is, Steve's scared," John insisted.

I sort of turned toward the big front windows of the store and grumbled pretty loudly, "Steve's a mortar specialist. What the Hell, man?"

"Guess they're short on rocket shooters," John snorted.

"Mortars don't go all that far," I said.

John perked up a little: "Hey, I was a grunt. Mortars fly farther than bullets."

"Either way, you're not talking about airstrikes," I grumbled.

"Well, someone's got to do the real fighting once the flyboys have done their show," John added.

After that exchange, we both just stood there looking out those big front windows.

John finally said, "Hey, listen, why don't you look through the clearance shoes back in the back and see if there's anything you like. I'll do you a good deal on 'em."

I thanked him and went back there. Unfortunately, the only pair in my size looked like pimp-daddy specials.

I went back up front and thanked John for the offer. He told me they'd have some more shoes on clearance this weekend.

I walked out through the big front doors and stopped at the sidewalk. I swear, I thought about turning around to see if Steve would be standing in the store with that big, boyish grin he always had when he saw me coming in. He seemed to figure he was getting a chance to give me a deal on shoes to thank me for getting him through all his math classes. He wasn't very good at math, but he never failed a test if I gave him an hour or two of tutoring the day before.

Steve is a loyal fellow: loyal to his friends, loyal to his God, loyal to his President, loyal to his country.

He's about to walk into what might be the jaws of death. Apparently, he knows it, but he's still going to do it.

That makes him a damn fine soldier.

I think I'll keep these shoes I'm wearing for a while longer. Three years ago, Steve gave me a really great deal on them.

Iraq · Iran · stop-loss · war · soldier

War Mongers, War Buyers

wraith@dark-wraith.com — Mon, 30 Jun 2008 14:05:40 -0500

In an interview on CNN, investigative journalist Seymour Hersch, who has just exposed an on-going $400 million covert military/intelligence operation being prosecuted by the Bush Administration against Iran, had this to say: "And by the way, it's the Democrats in Congress who basically looked the other way and said, 'Take the money and run'..."

All those who think the Democrats are the "party of change," the Sucker Land Express to Obamaville is now boarding.

God Almighty, people. The Democratic leadership in Congress has authorized the Bush Administration's reassignment of military funds to a program of state-sponsored terrorism against a sovereign nation. The rank-and-file Democrats, now fully aware of this, are not taking even the first step to strip the President of the authority to conduct this project. The putative heir to Empire being anointed by the Democrats has not even so much as hinted at condemnation of this abomination and those who 'looked the other way' after approving it.

What is it going to take to shut down this corrupted government all the way from its unaccountable President to its appeasing Congress to its rubber-stamp judiciary?

Another war? Apparently not: the opposition party is paying the way for that.

Another 9/11? Not likely: the opposition party jumped right on the bandwagon to hand Bush our civil liberties as payment for his last catastrophic failure to protect the homeland from a handful of crazed religious criminals.

Your future? Sure: an addled, corrupted corporate shill versus a vacuous babe-in-the-woods with a cult following that features gyrating sex-pots on YouTube.

There's your future.

The Dark Wraith wonders when, exactly, it was that the term "false hope" replaced "unrelenting fury."

Iran · Hersh · Bush · Democrats · Republicans · war

Incompetence, Sedition, and a Note on Lousiness

wraith@dark-wraith.com — Fri, 27 Jun 2008 19:21:52 -0500

John McCain is calling former President Jimmy Carter a "lousy" commander-in-chief.

That is just plain harsh.

Maybe if Mr. Carter's abortive attempt to rescue the American hostages from the embassy in Iran in October of 1980 had not been disrupted by the back-door dealings of Republican candidate Ronald Reagan and his running mate, former CIA Director George H.W. Bush, history would have worked out a whole lot differently.

At the very least, President Carter never illegally sold the theocratic loons in Tehran weaponry that, to this very day, might be in the Iranian arsenal our current President claims is being handed to insurgents in Iraq to kill U.S. soldiers.

Neither was Mr. Carter in command when 241 U.S. Marines, sequestered in their barracks in Beirut, were slaughtered in 1983 by jihadist suicide bombers.

Talk about a "lousy" commander-in-chief.

Oh, wait a minute. Wasn't George W. Bush the commander-in-chief when a handful of crazed jihadists with nothing more than box cutters managed to circumvent the entirety of our NORAD air defense system with four commercial jetliners and blast two giant skyscrapers and the very nexus of our Department of Defense at the Pentagon?

Mr. McCain, the word "lousy" doesn't even begin to describe Republican commanders-in-chief of recent American history.

McCain · Carter · Reagan · Beirut · Iran · Bush · 9/11

Plain Language

wraith@dark-wraith.com — Mon, 23 Jun 2008 01:25:09 -0500

For many years, American conservatives have criticized judicial activists — judges who read into the United States Constitution that which is not in the plain language of the document. This criticism extends to judicial interpretations of statutory law, as well.

In many ways, condemnation of interpretive rulings is disingenuous and simplistic: the Constitution and laws must be understood in the context of how words, phrases, and sentences were used at the time a law was written; terminology and even word arrangements used in written law are often the product of a highly specialized dialect known only to those with appropriate training; and even the most ardent of strict constructionists cannot ignore the historical legislative, political, and social backdrops against which laws have been written, enacted, and enforced.

Moreover, because the United States legal system is based upon a complex hybrid of statutory law and common law, it is the duty of the judiciary in the United States to ensure the survival of the common law component (established through court precedents) by demanding the privilege of judicial review, as first advanced in the 1803 Supreme Court case, Marbury v. Madison, the practical effect of which was to bind judicial decisions, and subsequent respect by courts for those decisions by stare decisis, to the concept of "constitutional law." It is to the purpose of anchoring court decisions in gravity that, while the Congress may write laws that the President then enforces, the judiciary constructs law as a body through affirmation of its interpretations of the Constitution and the several laws crafted by Congresses from term to term and time to time.

Returning to the matter of simply reading the plain language of the Constitution, this has as much to do with the history of the language as it does with the history of law. The Second Amendment is an excellent case in point:

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

Late 18th Century writers had the annoying habit of using a comma to separate the subject of a sentence from the predicate, but even setting aside that curious artifact (along with the same penchant as High German for capitalizing nouns), the above sentence is an abomination. It begins with what appears to be the subject:

A well regulated Militia...

Then, a comma shows up, meaning that either the 18th Century scribe is moving on to the predicate, or he is preparing to insert a so-called "non-restrictive" phrase or clause, a string of words modifying the subject but not necessary to the sentence meaning. The second possibility seems to be applicable:

...being necessary to the security of a free State...

Yes, that would modify an immediately preceding subject:

A well regulated Militia, being necessary to the security of a free State...

Okay, we're in business; here comes the predicate:

...the right of the people to keep and bear Arms...

Oh, my. That looks like a subject; but the sentence already delivered the subject way back there at the beginning! Worse, a comma follows this little phrase, and that could be interpreted in one of at least three ways: it could be a comma splice; it could be one of those abominable commas 18th Century writers used to separate subject from predicate; or (and this one is really maddening), it could mean that the entire phrase from the last comma had been a non-restrictive adjective clause modifying a prior subject!

...shall not be infringed.

Well, thank God for the occasional period to end the suffering of a mangled sentence.

Years ago, when I taught English grammar and paralegal courses, I complained to a historian on the faculty about the Second Amendment. He said that, were I to have confronted Thomas Jefferson, himself, with my fussing, he would have casually and quite absently dismissed me with a slow wave of the hand and something to the effect, "You know what I mean."

Well, yes, I suppose so: revolutionaries can be obtuse.

Moving along, the Constitution has plenty more interesting language in store for the unprepared, but it also has extraordinary context invisible to the unknowing. When I tell my students that the Constitution of the United States is a "treaty between the federal government and the several states that form the union of those states," they are entirely perplexed. They have never before heard the Constitution described as a treaty. A treaty?

From there, the situation deteriorates because they have no idea of what I mean by ius naturalis (or ius naturale to remove the masculine aspect).

I explain by beginning with this declaration: "The Constitution grants you NOTHING!"

That seems to fly in the face of everything they know (what little it is the typical American college student knows) about the Constitution. Surely, the Bill of Rights begins by laying out essential rights we are given.

In fact, it does nothing of the kind, and the framers did not intend to "give" us rights via the Constitution or any other document; but to understand why this is the case, we must go all the way back to ancient Greece and then to the Roman political theorists who picked up and ran with an amazing observation Greek philosophers before them had made.

When Greek armies were rocking the known world, communiques sent back to the homeland included documents of peoples encountered. Translating the laws of foreigners was no easy task, but the fruits of such labors revealed something rather interesting about the laws of various peoples: although great variety and variation could be found in laws from place to place, some laws seemed to be just about everywhere. Although it would be the Romans and later scholars who would put a solid conceptual and political framework around the idea, it was quite apparent that a core of principles, embodied in a set of seemingly universal laws showing up from one place to the next, existed.

The Romans would come to call this ius gentium, the law of nations, or, as constructed in statutes, the law that applies to the people regardless of whether they be citizens of Empire or foreigners. St. Thomas Aquinas would later take it one step further and postulate that ius gentium is, essentially, an addendum to ius naturalis, the "natural law" that transcends the vicissitudes of this society or that tribe, positivistically inhering to the collective of humanity and to each within that body.

Truth be told, much of this apparently universal law that had begun to emerge by the Middle Ages in high-minded, grueling complex thinking had begun with those observations of a seemingly universal set of observed laws from nation to nation, and this observation led to what the Romans would later refer to as lex ratio, or rational law. Unknown to the Greeks and their successors, the Romans, that common set of laws that seemed for all the world to point to something transcendent and universal—a ius naturalis—was actually nothing more than the result of many of the peoples being encountered all being bound historically and linguistically to tribes that had long before lived around the Black Sea whose members, in their waves of migration perhaps 3,000 to 5,000 years previously, had gone in every direction, carrying not just their earlier ways, but also a common root language, what modern linguists refer to as Proto-Indo-European (PIE), a hypothetical language upon which a huge number of later languages came to be built in layers as the Black Sea tribes fanned out. Latin and its derivatives, Germanic tongues, Greek, and even Sanskrit have their common roots in PIE. In fact, a regular set of rules about how sounds in one Indo-European language relate to sounds in another language of the super-family was first discovered by none other than Jacob Grimm of the Grimm Brothers of fairy tale fame.

That's interesting in and of itself, but what is more interesting is that the Black Sea tribes were quite aware of the importance of social bindings, and we know this because a large group of words across PIE languages still carry the fossil root of important words that begin with the letter "l": lock, line, ligature, lokk, loc, uslok, Loche, loquet, lineage, and lygos, for example. That last one, lygos, is Greek and suspiciously conflatable with logos, the "logic" used in forensics, which derives from the Latin forensis, meaning (among other things) "legal." The Greeks dearly loved word play, especially to the effect of connecting concepts through devices of letter replacements and rearrangements (what is called "metathesis") in words, as in "Hercules" deriving from "Heracles," he who is anointed of the goddess Hera.)

Law is a binding of people, and the 18th Century French philosopher Jean-Jacques Rousseau, consolidating thoughts of some of his contemporaries, went so far as to postulate a "social contract," an implicit instrument that, unlike a common contract binding one person to another, binds a people to their common state. Each performs duties for the other and anticipates reciprocal benefit in return. In more modern legal terminology, each party to this contract suffers "legal detriment" and contractually enjoys "consideration" as a result. Rousseau used the concept of this social contract to replace with somewhat greater substance in codifiable law the less tangible political reliance upon natural law, itself, that was on the mind of John Locke, his predecessor in political philosophy.

The Founding Fathers of this country were well-versed in the thinking of both the ancients and their contemporaries in Europe. They knew very well that ius gentium as nothing more than a class of laws had conceptually evolved, and certainly not coincidentally, with lex ratio into a firm belief in ius naturalis, law that is timeless. St. Thomas Aquinas was certainly favorable to this idea, and several influential thinkers of the 15th and 16th Centuries—among them, Huig de Grotius in Holland and Francisco de Vitoria in Spain—were advancing a "law of reason" inherent in ius naturalis. Vitoria built the case and criteria for what would constitute just war, deeply troubled as he was by the violence being committed by the Conquistadors against natives of the New World. Grotius dismissed the confinement of ius naturalis to trivial, animalistic rules of behavior like producing and caring for the young; if it exists (and these are most decidedly not Grotius' words, but rather my own), then natural law is undoubtedly neither probative in construct nor utilitarian in ontological valence, although by the later part of the 18th Century, it would be about the only deep anchor in law and theoretical reasoning for justifying all-out, separatist rebellion.

The rebels in the British Colonies of North America gladly took hold of natural law: it flows neither from sovereignty nor from its stewards. For purposes of historical, if maybe unconscious, continuity, natural law comported for the restive but intellectual colonists with the earlier rebellion of Protestantism and its predecessors like Lollardism in that the Word and, hence, the will of God may be revealed to the common man without intercession by putative, and necessarily mortal, representatives of God in the stations of the church. To this admittedly speculative argument, it did not hurt one bit that the Founding Fathers were almost to the last man affiliated with Freemasonry, a secretive society in open ideological, religious, and political war with the Holy Roman Catholic Church.

In the Virginia Declaration of Rights dated May 15, 1776, George Mason got quite explicit about ius naturalis with this clause: "That all men are by nature equally free and independent and have certain inherent rights..." [emphasis added].

The Declaration of Independence subsequently riveted the source of rights accorded men not to the state, but to higher authority:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. � That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, � That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. � Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

There, in the first paragraph, is the invocation of "Nature"; then, in the second paragraph, comes the odd adjective "unalienable" used to describe the rights endowed to men by their Creator: unalienable, not inalienable. The rights accorded men may, indeed, be taken away, but they cannot be extinguished. The extent to which a government separates itself from the recognition of the rights men have by natural law is the equivalence of that government's descent into tyranny, and only the consent of the governed, feeble as that consent might be, serves to promote those unalienable rights owned by the governed.

The Constitution—in its Articles, its Bill of Rights, and its subsequent Amendments—is, then, not a document granting rights because no government, no document, indeed, no person or thing on Earth may grant that which is by natural law unalienable. The state as a rightful and legitimate authority may only circumstantially and parsimoniously circumscribe rights from natural law, and it is to that purpose that the United States Constitution may exist as an express treaty between the several states and the separate and supreme sovereign they form in union. The Constitution, then, expressly defines the circumstances, situations, and extents in which the federal government may arrogate to itself the ability to diminish—not to extinguish, not to repudiate, not to abolish, but only to diminish as necessary for the common good—the rights of the governed as citizens both of their respective states and of their common nation as a federation of those several states.

With all that as backdrop, in some places seemingly disconnected and summary, this article concludes with the full text of the Fourth Amendment to the United States Constitution:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

The Amendment is clear: the Constitution is recognizing a right, then clearly describing, first, the procedural circumstances ('Oath or affirmation, and particularly describing' what is to be searched and seized and against whom an arrest is to be made) and, second, the substantive reason ('probable cause') by which that right may circumscribed as necessary by the state.

The plain language—capturing as it does phenomenally complex, interwoven threads of history, linguistics, and philosophy—is available for all, even politicians and judges of the 21st Century, to read and understand.

Natural law does not hide from the just; neither does it vanish at the will of tyrants.

The Dark Wraith rests his case against the New American Century.

Constitution · law · rights · independence

The Dark Wraith Lecture Series: Lecture 4

wraith@dark-wraith.com — Thu, 19 Jun 2008 21:06:22 -0500

Dark Wraith Publishing presents The Dark Wraith Lecture Series, specially edited, streaming audio versions of academic lectures in economics and business offered as a public service to visitors at this Website.

Lecture 4: "Industry Structure"
Duration: 1:11:47
Size: 65.7 Mb

economics · competition · monopoly · market

Energy Horizon

wraith@dark-wraith.com — Mon, 16 Jun 2008 15:03:23 -0500

This past weekend, officials of Saudi Arabia, citing concerns about global economic and political instabilities resulting from high fuel prices, unofficially indicated that the country will increase oil production by as much as 500 thousand barrels per day, which would lift its daily output to about 10 million barrels. Vague assurance was given that the production increase would be confirmed by the Saudi oil minister on Sunday, June 15, but as of the time of publication of this article, a clear, official announcement has not been made, although it might come after a June 22 meeting of representatives from oil producing and consuming countries, who will discuss the recent, rapid run-up in oil prices. By early afternoon on Monday, June 16, 2008, world oil markets were still anticipating tight supplies, with the price of oil probing record-breaking territory in the $140 per barrel range. Moreover, regardless of any increase in output level by Saudi Arabia, the trend in oil prices will remain upward.

Notwithstanding claims by U.S. Treasury Secretary Henry Paulson, Jr., that soaring energy costs are in part due to "minimal investment" by oil producing nations in new oil wells and refineries, the near-certain prospect of continuing increases in oil prices is not entirely the result of surging demand for hydrocarbon products by fast-growing countries like India and China, although the underlying supply and demand dynamics do link the surging growth of those two economies to what is happening to fuel prices right here in the United States. However, considerably more of the reason oil prices are skyrocketing is the collapse of the value of the dollar against major foreign currencies: this is driving the cost of all imports upward.

A weakening U.S. dollar makes imports from foreign nations more expensive and makes domestic exports to the rest of the world cheaper. Entirely aside from what are undoubtedly somewhat tight supply conditions and escalating global demand, the literal collapse of the greenback against currencies like the euro and the yen is greatly magnifying any increases in the price of all foreign-produced products save for those from China, a country still manipulating the exchange rate of its currency to the dollar, notwithstanding assurances to the contrary by both the Bush Administration and the rulers in Beijing.

Even the representatives of the G-8, meeting this past week in Osaka, conceded that the precipitous decline of the greenback was a primary cause of the rising price of oil (after the august body of ministers ritualistically laid some of the blame at the doorstep of unnamed, shadowy, altogether evil "oil speculators").

The graphic below, created from data available at the Energy Information Administration, shows the monthly spot price for Brent Crude from January 2000 to June 13, 2008, along with the exchange rate of the euro against the dollar.

The inverse relationship is striking, as is the recent increase in the steepness of the rise in the spot price of oil. The mirror image part of the visual relationship in the graphic above is the result of the collapse of the dollar; the acceleration of the trend is largely the result of the rising demand in emerging economies like China and India. Neither of those two causes are likely to vanish in the foreseeable future, so the cost of oil and products derived therefrom has virtually no prospect of going anywhere but further upward for a long time to come.

Furthermore, domestic equivalents of those imports will also become more expensive, too, by virtue of the substitution effect. That means those calling for bio-fuels, wind energy, solar power, nuclear power, coal, natural gas, continental or shelf oil, geothermal power, and any other source of energy as alternatives to imported hydrocarbon products will ultimately be wildly disappointed by the emerging economic reality that the cost of energy, regardless of its source, will be absorbing a greater and greater share of household and business income from now on.

The President of the United States cannot fix that; neither can the Saudis, who have little long-run incentive to do so, considering that their country and other OPEC nations will exit the 21st Century without their stores of wealth in oil reserves. It is in their best interest to convert those reservoirs into usable wealth at the highest possible price and at the swiftest possible pace consistent with maintaining firm prices that are not so high that they overwhelm the consuming world's ability to continue industrial growth.

Complicating the matter is that a positive correlation will become stronger between the price of oil and industrialized nations' rate of technological conversion away from energy extracted from fossil fuels: as oil becomes more expensive, the price-relative of alternatives will fall, which means that a price of oil that is too high will induce the research and development for, implementation of, and widespread industrial adaptations to alternative sources of energy. Hence, the oil producing and exporting nations must control the price rise to the extent possible to accelerate the conversion of their wealth from raw oil to other, more liquid assets, but at the same time keep the price from rising so quickly that substitutes become so widely and quickly adopted that remaining oil reserves become less valuable through globally lower demand.

The good news for the Oil Producing and Exporting Countries is that many nations that are net consumers of fossil fuels will, for the time being, anyway, find that domestic exploration for oil and gas and wars to secure oil and gas fields and distribution routes will remain cost effective. The domestic exploration will necessarily entail conversion and occasional destruction of environmentally sensitive ecosystems, and the wars will necessarily construct, shift, and reconfigure at least some historical alliances, as explained in the article "Hydrocarbon Battlefields," published nearly two years ago here at The Dark Wraith Forums, and result in combatant and civilian casualties. On the plus side, both exploration and fighting will lead to technological innovations in both beneficiary civilian and war-making industries, as explained in the series "The 21st Century," published here at The Dark Wraith Forums more than three years ago. On the negative side, the need for access to more domestic areas of exploration and the requirements of managing states of conflict will entail an acceleration of global trends toward more authoritarian societies, as explained in "The 21st Century, Epilogue," published last year here at The Dark Wraith Forums, whether the degradations of human and civil rights are open or hidden from common view.

Is the emerging world and its economic, military, and political dynamics complicated? Yes.

Must the world of tomorrow happen with persistently rising energy prices, wars, environmental degradation, and authoritarian management schema? Again, yes. The American people as a body politic seems to learn best through direct application of pain consequential to prior bad choices in leaders and their policies.

Sometimes, learning requires multiple applications of pain-inducing consequences. Presently, the follow-up pain therapy will be delivered by the continued corrosive incompetence in the presidency of the corporatist John McCain, or it will be delivered in the refreshing alternative economic incompetence of the liberal Barack Obama. Mr. McCain is surrounded by the same failure-prone neo-conservatives and corporate lobbyists that crafted foreign policy and its attendant economic policy necessities under the disastrous presidency of George W. Bush; Mr. Obama is surrounded by fawning yes-men and neo-Keynesian globalists so enamored of "free trade" that they blissfully allowed the Chinese to maintain a peg of the yuan against the dollar so out of line with purchasing power parity that the result was a literal gutting of American industry over the past decade-and-a-half.

Thus, in the event of either McCain or Obama ascending to the throne of Empire, the American people will be the beneficiaries of yet another round of economic, social, and spiritual pain that will progressively and inevitably feel a lot like genuine agony.

The good news is this: although the dosage is pretty much out of their control, the voters are, at the very least, free to choose their preferred delivery system. Whether it be the iron fist of neo-conservative authoritarianism or the velvet choke-hold of its neo-liberalist brother, this time, those who do not like the outcome will have no one at all to blame but themselves.

The Dark Wraith has spoken.

oil · energy · OPEC · McCain · Obama · exchange · economy

Dark Wraith Video Lecture 1: Economics Defined

wraith@dark-wraith.com — Sun, 8 Jun 2008 08:40:48 -0500

This is the first video lecture in the reconstituted Dark Wraith Video Lecture Series.

Title: Economics Defined
Album: Dark Wraith Video Lecture Series
Track: 01
Publisher: Dark Wraith Publishing
Duration: 75 minutes
Size: 280 Mb

The Dark Wraith hopes that you enjoy this video presentation.

Farewell, My King

wraith@dark-wraith.com — Fri, 30 May 2008 23:42:50 -0500

President · Bush · McClellan · betrayal · revelation

The Economics of Wreckage, Part Four

wraith@dark-wraith.com — Sun, 25 May 2008 10:48:00 -0500

This is the final installment in a series that began in early March of 2007. Part One of the series presented the nominal and real returns on index portfolio equity investments over the course of the Bush Administration from January 22, 2001 through March 2, 2007. The striking results were that real (that is, inflation-adjusted) returns on investment in standard, well-balanced index portfolios had been negative over the course of the Bush Administration. Total real return to a portfolio mirroring the Dow Jones Industrial Average was negative 1.10 percent, that for a portfolio mirroring the Standard & Poor's 500 was negative 10.79 percent, and that for a portfolio mirroring the NASDAQ Composite was negative 25.85 percent; the associated, respective annualized rates of returns were negative 0.18 percent, negative 1.85 percent, and negative 4.78 percent. The real returns accruing to those index portfolios have not improved since then, but the significance of those stunning, adverse real returns on equity investments in the American economy is deeper in the context of fiscal and monetary policies long pursued by the United States government.

Part Two of this series showed how real hourly wages accruing to the U.S. labor force had been virtually stagnant over the past half-century and how, when inflations hit the economy, nominal wage gains had persistently and repeatedly lagged the run-up in the overall price level.

Part Three of the series explained neo-Keynesian macroeconomic policy in terms of a necessary reliance upon important factors of production being unable to quickly impound excess growth of the money supply that causes overall inflation: to the extent that, say, labor cannot immediately capture inflation driving up the prices of goods and services, workers must become more productive, both in terms of hours worked and in terms of efficiency in production, since they must pay higher prices for what they buy but are not earning higher wages per hour. The economist John Maynard Keynes described this as the "sticky wages" effect; it gives public policymakers a powerful incentive to use inflation cycles as a tool of economic growth, an idea given empirical weight by economist A.W.H. Phillips, who published a paper in 1958 showing a striking, inverse relationship between wage inflation and unemployment, a phenomenon that came to be known as the Phillips curve, which was the graphical representation of this inverse relationship between unemployment and inflation. The principal problem that has beset policymakers pressing this short-run phenomenon into effect has been that, eventually, wages and compensation to other factors of production do impound the inflation being created by increasing the money supply at a rate faster than the growth of the real, productive base of the economy can use the money. More importantly, once inflation expectations become embedded in compensation demands, the policymakers face a perilous choice: either they must accelerate the growth rate of the money supply to keep ahead of those expected inflation premiums, or they must reduce the rate of growth of the money supply below the real growth rate of the economy in order to allow economic activity to slowly absorb the currency overhang; in the first instance, accelerating the growth rate of the money supply will serve only to accelerate the inflation, but, in the second instance, clamping down on the money supply will cause interest rates — already embedding an expected inflation premium — to rise, thereby diminishing real economic activity to the point that recession could occur, as happened in the wake of the contractionary monetary policy regime instituted by former Fed Chairman Paul Volker in 1979.

In this last installment, a macroeconomic model will be introduced and then used to present a wealth of economic data from the past several decades. The model, a relatively simple means of breaking down the gross domestic product of a nation into large, mutually exclusive components, will allow trends and substantive changes in economic activity to become evident. Analyzing that economic activity within each large sector provides opportunities for highlighting interrelationships among the nation's foreign trade, government spending, and the various facets of the domestic private sector.

A national economy can be viewed as a complex machine comprising an incomprehensible number of individual parts: every household, every business enterprise, and every part of local, state, and federal government contributes some greater or lesser activity in terms of spending and output. Most households, for example, contribute labor to the national economy and, in exchange, receive compensation that is then spent on current purchases and possibly savings. Businesses employ labor and other so-called "factors of production," combining them in such a way as to create goods or services that are then sold. All the various levels of government, from local to federal, buy goods and services, employ factors of production, and produce goods and services. A broad but useful means of breaking down an economy into mutually exclusive parts is to separate domestic spending into private consumption, private investment, and government (this last one sometimes being called "public investment" both to relate it to and distinguish it from the investment in productive activities that occurs in the private sector). In a so-called "closed economy," one where no trade with other countries occurs, national spending could then be completely, if summarily, written as the sum of household consumption (C), private investment (I), and government (G).

Bringing international trade into the mix, an "open economy" would have two additional parts: exports, which earn the domestic economy more money to spend, and imports, which drain money from the domestic economy into the central banks of trading partner countries. Nations that engage in international trade both sell to and buy from other countries, so during any given accounting period, a certain amount of money is flowing into the economy from selling exports, and a certain amount of money is flowing out from the economy because of imports purchased. A country's "balance of trade" is the difference between its exports (X) and imports (M). In a given period, if more exports are sold than imports purchased, exports minus imports is positive, and the country is said to have run a "trade surplus" for the period; on the other hand, if the country buys more imports than it sells abroad as exports, the country is said to have run a "trade deficit" for the period. Hence, exports minus imports, which is called "net exports," accounts for the net amount of money a country either takes in for spending (when net exports is a positive number) or loses the opportunity to spend (when net exports is a negative number) as it engages in international trade. As a hint of the model to be presented below, economists break an economy down into two large components: the sum of household consumption, private domestic investment, and government spending is called the "internal" economy, and the exports minus imports is the "external" economy.

At the level of total, aggregate output where an economy is operating, which is traditionally measured by gross domestic product ("GDP"), what all of the parts of an economy have to spend in aggregate for a given period will be the same as what it has produced in goods and services during that period. Economists call this "equilibrium," the place where the total amount a country's economy has earned in productive output is the same as the total amount it has to spend. Hence, in general, national spending is the sum of household consumption, private investment, government spending, and net exports; but in equilibrium, national spending is the same as the total output of an economy, so the model presented below describes C+I+G+(X-M) as being the GDP instead of the more general national spending.

This might seem like a distinction without an important difference, and that is the case unless the equilibrium at which an economy is operating is undesirable. If the total output of an economy is too low, a condition that is associated with an unemployment rate that is unacceptably high, the more desirable, higher GDP would require some way for national spending to increase to close the "recessionary gap"; on the other hand, if the total output of an economy is so high that factors of production are being utilized too aggressively, the more desirable, lower GDP would require some means by which national spending might be cooled down to close the "inflationary gap." The economist John Maynard Keynes showed that the necessary government actions to either stimulate or suppress national spending were considerably less than the actual spread between the equilibrium GDP and a target.

To the matter at hand for this article, though, it is necessary to know only that the total output of an economy, GDP, is the same as national spending in equilibrium, so the equations presented below always use GDP to represent national spending, which is fully depicted as comprising the sum of the components of internal, domestic economic activity and the external, international activity.

(1)

GDP = Consumption + Investment + Government + (Exports-Imports)

Using letters to compress the equation, we have this result, which is both an algebraic equation and an accounting identity:

(2)

GDP = C + I + G + (X - M)

That equation above is called the Spending Allocation Model, and it is used to categorize and account for actual economic values in the national income accounting that is done by the U.S. government, which reports the numbers on a monthly, quarterly, and annual basis, along with excruciatingly detailed breakdowns within each broad category. As in all accounting, the numbers have to add up correctly: gross domestic product really does have to equal the sum of the numbers derived for C, I, G, and (X-M).

One important point to note for this article is that the government reports the numbers both in "current" dollars and in "constant" dollars adjusted for the effects of inflation. For the constant dollar versions, some base year is chosen (right now, the year 2000 is the government's choice), and the values of the components are then corrected so that any effects of inflation for years other than 2000 are taken out. Later in this article, when actual numbers for the U.S. economy are presented and analyzed, they will be in year 2000 dollars using the year-by-year adjustment factors called "GDP deflators" to remove the effects of inflation so that only "real" (that is, inflation-adjusted) year-to-year changes are being shown and analyzed. (As a note on methodology, all numbers in any given year presented here in the Spending Allocation Model have the same GDP deflator applied, whereas the government's numbers seem to have had a slightly different deflator applied to each component of a given year's GDP. The differences thus created between the numbers here and on the Website of the Department of Commerce are immaterial.)

As mentioned earlier regarding the distinction between domestic economic activity and international trade activity, Equation (2), by the way, is sometimes useful to write the following way:

(3)

GDP = Internal Economy + (External Economy)

Returning to Equation (2), levels of economic activity, although important, do not always tell the whole story. For example, if the price of an item that costs a dollar changes by 50 cents, that is quite a bit different from the situation where an item costing ten dollars changes by the same 50 cents: in the first case, the price has changed by 50 percent, but in the second case, the price has changed by only five percent. It is because of how absolute changes depend upon what numbers are being talked about that financial analysts and economists often prefer to look at percentages. To turn Equation (2) into an equation with everything depicted as percentages of GDP, we shall divide everything on both sides of the equation by the GDP, itself:

(4)

GDP

(X - M)

GDP

Simplifying the notation of Equation (4) a little bit, with the obvious result for the left side that GDP divided by GDP simply tells us that the sum of the percentages of the economy have to add up to 100%, we get this handy result:

(5)

100% = %(C in GDP)+%(I in GDP)+%(G in GDP)+%(Net Exports in GDP)

Finally, further simplifying the equation to make it look pretty and compact, we have the final form of the Spending Allocation Model that we shall use for demonstrations and the actual data:

(6)

100% = %C + %I + %G + %(X - M)

Demonstration 1: Suppose that total consumption in an economy is $400, private investment is $200, government spending, is $100, exports are $400, and imports are $100. Using Equation (1), we would get:

(7)

GDP = $400 + $200 + $100 + ($400 - $100)

So, our GDP is $1000, and we can write Equation (2) with all the numbers filled in:

(8)

$1000 = $400 + $200 + $100 + ($400 - $100)

As a side note, from Equation (3) we can see that the internal economy is generating $700 of the total GDP, and the external economy is generating an additional $300 of the total GDP. Notice that net exports are positive $300, meaning that this economy has a trade surplus for the period under consideration; if (X-M) had come out negative, which we will show in the following example, the economy would have been running a trade deficit.

Now, we shall divide everything on both sides of the equation by the GDP, $1000, of this economy as in Equation (4):

(9)

$1000

$400

$1000

$200

$1000

$100

$1000

(+$300)

$1000

And, finally, we can write these as percentages:

(10)

100% = 40% + 20% + 10% + (+30%)

Putting this in words, the total Gross Domestic Product of this economy is 40 percent consumption, 20 percent private investment, 10 percent government expenditures, and 30 percent net exports. A little more broadly, we can see from Equation (10) that 70 percent of the economy is powered by internal, domestic activity, and the remaining 30 percent of the economy is powered by external, international trade activity.

So far, so good. All the Spending Allocation Model does is provide us a nice little framework to decompose an economy into important, separate parts, both internally and externally. It is not some deep, obscure mathematical theory at all; it is nothing more than a way we can see how the big parts of an economy each contribute to the whole of it.

The next example is just like the first, except that we shall set up a similar economy with only one difference: this time, we'll see what happens when the country runs a trade deficit instead of a trade surplus. One result of this seemingly minor alteration is a little amazing; but, first, let us get some numbers with which to work.

Demonstration 2: Suppose that total consumption, just like in Demonstration 1, is $400, private investment is $200, government spending (sometimes called "public investment" is $100, exports are $400, and imports are $600. Here, unlike in Demonstration 1, where imports were $100, we are making the level of imports larger than the level of exports, which means the economy is running a trade deficit. Using Equation (1), we would get:

(11)

GDP = $400 + $200 + $100 + ($400 - $600)

So, our GDP is $500, and we can write Equation (2) with all the numbers filled in:

(12)

$500 = $400 + $200 + $100 + ($400 - $600)

Again, as an aside, from Equation (3) we can see that the internal economy is still generating $700 of the total GDP, but this time the external economy (the (X-M) part) is generating negative $200 of the total GDP; in other words, a trade deficit actually saps GDP downward.

Now, we shall divide everything on both sides of the equation by the GDP, $500, of this economy as in Equation (4):

(13)

$500

$400

$500

$200

$500

$100

$500

(-$200)

$500

And, finally, we can write these as percentages:

(14)

100% = 80% + 40% + 20% + (-40%)

Putting this in words, the total gross domestic product of this economy is 80 percent consumption, 40 percent private investment, 20 percent government expenditures, and -40 percent net exports. A little more broadly, we can see from Equation (14) that 140 percent of the economy is powered by internal, domestic activity, and then the excess 40 percent of the economy is bled out by external, international trade activity.

Now, that is an interesting result: running a trade deficit allows the internal component of an economy (the C+I+G part) to burn at more than 100 percent of total GDP! Even though the trade deficit had actually lowered the gross domestic product, at the very same time it was forcing domestic consumption, private investment, and government expenditures upward because the sum of everything internal plus external must add up to 100 percent. That means, if the international component of a country's total economic activity is negative, the internal component has to be larger than 100 percent so the sum of the internal and external parts will still add up correctly.

Keep in mind, here, that this is not some "theory"; it is simply a mathematical necessity, just like two plus two has to equal four.

That still leaves the problem of how, exactly, this "equilibrium" circumstance is achieved in the real world; in other words, the question is this: How is it that a trade deficit makes the sum of consumption, private investment, and government spending go above 100 percent?

In non-mathematical terms, the equilibrium dynamic has been explained in several previous articles here at The Dark Wraith Forums, including "Exchange Rate Regimes."

The concept is really quite simple to understand. When an American buys a foreign product, there is an exchange of U.S. dollars for the foreign merchandise: the domestic consumer gets an import, and, in exchange, the foreign manufacturer gets the greenbacks. This kind of trading, where currencies are swapped for goods and services, is called the "current account" because it happens in the here and now, with immediate exchange of money for goods. These are transactions involving relatively short-term assets (money and the things money can buy). Money and goods flow both ways, of course. American manufacturers export, foreign manufacturers export; American consumers buy imports, and foreign consumers buy imports. Between any two countries there will be a balance of exports versus imports; usually, one side will have exported more than it bought from the other side. This balance is the (Exports - Imports), which are called net exports in the equations above. Obviously, between any two countries, if net exports for one of the countries end up being positive for a given period, then the other country in the trading relationship will have net exports end up being negative by the same amount for the period. Overall, any country's international trade with the rest of the world can be represented as a ledger column of total exports to the rest of the world and another ledger column of total imports from the rest of the world. The sum at the bottom of the exports column is the "X" in (X-M), and the sum at the bottom of the imports column is the "M" in (X-M). If exports minus imports yields a positive number (mathematically, if (X-M)>0), then the country was a "net exporter" for the period in which the ledger was kept; on the other hand, if exports minus imports is a negative number (mathematically, if (X-M)<0), then the country was a "net importer" for the period in which the ledger was kept. A country that is a net exporter will have a net inflow of currencies from its trading partners; a country that is a net importer will have a net outflow of its currency to its trading partners.

Where a country is a net importer, then, there is a net outflow of its currency to its foreign trading partners. In the case of the United States, because we run trade deficits (in other words, (X-M) is negative), there is a net outflow of U.S. dollars to foreign countries, where they accumulate in those countries' central banks as what are called "foreign reserves." Those foreign reserves of dollars must be spent in the nation of their origin; in this case, that would be the United States.

The foreign central banks repatriate those dollars through investments in American assets, both real and financial. These investments pump those dollars back into the economy through purchases of long-term assets, the primary class of which is debt instruments.

When a borrower — be it a household, a corporation, or a government agency — borrows money, it is actually selling a debt instrument, and the lender is purchasing it. The particulars of the debt instrument — how it is repaid, the interest rate, early payment provisions, etc. — can vary widely: everything from a credit card purchase to a corporate bond to a mortgage loan to a U.S. government Treasury security is a debt instrument, each with its own "covenants." Lenders buy these, and the price they pay is, more or less, the loan amount, although a borrower might not get the whole price, depending upon terms, conditions, fees, and other agreed-upon mark-downs.

In the case of foreign lending, the central banks of countries with foreign reserves of American dollars buy U.S. debt instruments of all kinds. When corporations want to raise money through borrowing, they "issue" bonds that are purchased by investors who are nothing other than lenders. When banks want to move mortgage loans off their books, they bundle a group of them and sell the package to a corporation like Ginnie Mae, which then carves up the cash flows or otherwise separates, rearranges, then blends the individual loans into very large "secondary mortgage market" instruments that are sold to big investors who are, again, nothing other than lenders since the money they pay for those secondary mortgage market bonds flows back through the banking system to become more money available to banks to lend.

Among borrowers, though, the United States government, itself, is a veritable 800-pound gorilla, these days, as it has been at other times in American history. Any time the federal government raises insufficient revenues through taxes to pay for its current obligations, it runs a "budget deficit" for the period under consideration, and that shortfall of revenues to meet expenditures must be borrowed. The federal government gets its loans by selling Treasury securities, which are debt instruments of the United States government. It sells all kinds: very short-term, promissory paper called Treasury bills ("T-bills"); intermediate-term paper called Treasury notes; and long-term paper called Treasury bonds. Treasury auctions are held periodically by the United States Treasury Department, and at these auctions, the government sells as much paper of different kinds as it must to raise the money it needs to meet its shortfall. Treasury auctions occur at regular intervals, and lenders from around the world come to these auctions (not physically, of course, since everything is done electronically, these days) to buy the paper the Treasury is offering. When the government is borrowing money, this is one of the ways foreign central banks repatriate to the United States the dollars they have acquired through trade with us. (More on this particular topic can be found in the article "Foreign Trade and Debt" here at The Dark Wraith Forums.)

Bringing this back to the Spending Allocation Model, in times when the United States is running trade surpluses, the American central bank, the Federal Reserve, as an agency of the U.S. government is a net investor to the rest of the world; when the United States is running trade deficits, the central banks of foreign countries are, on balance, net investors to the American economy.

The Spending Allocation Model can be represented as a teeter-totter on one side of which is the internal component of the overall GDP, which is the sum of our consumption, private investment, and government spending; on the other side is the external component of overall GDP, the difference between how much we sell abroad and how much we buy from abroad. The entire sum of the percentages of consumption, private investment, government spending, and net exports constitutes 100 percent of GDP, as illustrated in the graphic immediately below.

If the U.S. were to run a trade surplus of, say, five percent of GDP, the teeter-totter would produce the overall 100 percent of GDP by allocating five percent to our external trade activities, with the remaining 95 percent allocated among the internal components of the economy, as shown in the graphic below.

On the other hand — and this is the one that seems almost perverse — if the U.S. were to run a trade deficit of five percent of overall GDP, as illustrated below, that would mean the internal components of the economy would have to be 105 percent of GDP to keep the final sum of all the percentages equal to 100 percent.

In recent years, the United States has run trade deficits, in part because the U.S. dollar has been very valuable ("strong," in the vernacular of international trade) against other currencies. Much of that was the natural result of the strength of the American economy: it is massive; it is diverse in its productive output; the labor force is generally educated, well-fed, and enculturated to a work-for-compensation ethic; and the banking system is sound. The United States is the banker to the world; as such, it gets banker's preference in interest rates, terms, and conditions of its borrowings, which means it can serve as a global financial intermediary. Furthermore, the federal government is good for what it owes: it has a huge tax base of wage-earning citizens, and it has a legacy of more than 200 years of continuity in governance, having even at one time proved its internal federal supremacy by crushing a multi-state rebellion against rule by the central government. Its institutions, both private and public, are the subject of the rule of law, and its laws and their enforcement, while strong and comprehensive, are subject to review by an independent judiciary. Its banking system is the subject of strong, consistent, and pervasive oversight; and its currency, even though backed by nothing other than the "full faith and credit" of the central government, is every bit as good as gold in any transaction anywhere in the country.

To the extent that the United States is able to maintain the validity of and belief in the representations above, its currency maintains its strength against foreign equivalents; and just like any good bank, the United States then serves as a magnet for investment from around the world, and those of other nationalities will strive to acquire American dollars that can then be invested back into our historically powerful engine of solid, relatively safe returns on investment. In practical terms, this means the currencies of other countries will have a persistent tendency to be "weak" against the dollar, if for no other reason than that such weakness will cause foreign imports to the U.S. to be relatively cheaper than American exports to the rest of the world. In essence, foreigners will be willing to sell their goods and services here via the current account at attractive prices so they can receive valuable American greenbacks in exchange because those dollars can then come back here via the capital account to earn solid returns.

Unfortunately, the downside of this is two-fold: first, this means our economy will persistently be the target of foreign investment, which means claims on future cash flows generated by American assets are owned by those of other nations; second, a foreign central bank, especially one with weakness in its own, internal economy, will have an incentive to cheat by making its currency weaker than it already is, or by keeping that currency inappropriately weak long after it has gained considerable strength relative to the American dollar. The reason for such an incentive to cheat is that, by keeping a currency weak against the dollar, the productive base of that foreign economy ensures a continuing export market for its goods and services, which boosts that country's own GDP; but the harm done is of several types, not the least of which is that, by maintaining a continuing inflow of greenbacks in foreign reserves, the country's central bank must expend those assets in the United States, not in its own country, thereby sapping its own productive base of needed capital to continue growing.

Far worse, however, is the damage done by the mechanics of how a cheating country "pegs" the exchange rate of its currency to the dollar, which is by printing its own currency in massive quantities and then entering global currency markets to buy dollars with that money. The result is inevitable: sooner or later, all of that currency printed in excess of what the country's own economy needed for internal transactions will come back to its own shores; and whenever the growth rate of a money supply exceeds the real (that is, physically productive) growth of the economy backing it, the "overhang" will become inflation. Countries that have played the game of pegging their currencies against the U.S. dollar have almost all, eventually, come to the same disastrous place: hyperinflation, which made their currencies become so worthless that they could not buy anything in international markets, which forced them to use their gold reserves, which they then wiped out. After that, these hapless governments no longer had any way to keep their economies from collapsing under the weight of inflation, sky-rocketing interest rates, and resulting social instability. In the end, rebellions and revolutions happened; or, much worse, the International Monetary Fund sent in the economists to take control of the central banks while Right-wing, authoritarian governments got installed to set about shooting the fussy peasants.

With respect to the United States and the dollar's natural tendency to be strong against the currencies of other nations, the resulting trade deficits have both an upside and a downside. To the benefit of the United States, those current account trade deficits mean that the internal part of the economy — again, the sum of household consumption, private business investment, and government spending — will run at greater than 100 percent of the total GDP of the economy. To the detriment of the United States, as shown in Demonstration 2, above, that total GDP of the country is lower because of the productive capacity we are allowing overseas manufacturers to carry by virtue of their production of the goods and services we buy. In the language of those opposed to extensive trade with other countries, the United States loses millions of jobs because we buy things from overseas instead of buying them from domestic producers. There is, however, no evil intent in Americans buying foreign imports: people are rational, and they will tend toward purchases that save them money. Grand exhortations to "buy American" simply will not win the day when real money and real, personal decisions must be made about the use of limited income in a world of many needs and even more wants.

The Spending Allocation Model comes to life in the real numbers from the U.S. economy, and this is a model that gives quite interesting insights, especially in the context of the forces that have brought the economy to its current situation. The table below shows the year-by-year breakdown, from 1990 to 2007, according to the Spending Allocation Model. Each cluster of rows presents one year, first with the model, itself, then with the actual, inflation-adjusted number for each component, then with the percentage each component constitutes in total GDP. The final row for each year shows the total internal percentage of GDP (that arising from the sum of consumption, investment, and government), and the part arising from external, international trade. Readers will be able to see exactly how, in each year, the trade deficit exactly matched, as a negative number, the extent to which the internal part of the economy exceeded 100 percent of GDP.

1990	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$7112.5	=	$4706.3	+	$1055.3	+	$1446.5	+	(-$95.6)
% of GDP	100%	=	66.17%	+	14.84%	+	20.34%	+	(-1.34%)
int. + ext.	100%	=	101.34%					+	(-1.34%)

1991	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$7100.5	=	$4720.4	+	$950.8	+	$1461.8	+	(-$32.6)
% of GDP	100%	=	66.48%	+	13.39%	+	20.59%	+	(-0.46%)
int. + ext.	100%	=	100.46%					+	(-0.46%)

1992	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$7336.6	=	$4902.8	+	$1001.1	+	$1471.3	+	(-$38.4)
% of GDP	100%	=	66.83%	+	13.65%	+	20.05%	+	(-0.52%)
int. + ext.	100%	=	100.52%					+	(-0.52%)

1993	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$7532.7	=	$5066.6	+	$1078.8	+	$1461.0	+	(-$73.5)
% of GDP	100%	=	67.26%	+	14.32%	+	19.39%	+	(-0.98%)
int. + ext.	100%	=	100.98%					+	(-0.98%)

1994	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$7835.5	=	$5255.2	+	$1215.5	+	$1468.6	+	(-$103.7)
% of GDP	100%	=	67.07%	+	15.51%	+	18.74%	+	(-1.32%)
int. + ext.	100%	=	101.32%					+	(-1.32%)

1995	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$8031.7	=	$5402.2	+	$1242.0	+	$1486.5	+	(-$99.2)
% of GDP	100%	=	67.26%	+	15.46%	+	18.51%	+	(-1.24%)
int. + ext.	100%	=	101.24%					+	(-1.24%)

1996	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$8328.9	=	$5601.1	+	$1321.5	+	$1508.7	+	(-$102.5)
% of GDP	100%	=	67.25%	+	15.87%	+	18.11%	+	(-1.23%)
int. + ext.	100%	=	101.23%					+	(-1.23%)

1997	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$8703.5	=	$5814.1	+	$1456.6	+	$1539.3	+	(-$106.5)
% of GDP	100%	=	66.80%	+	16.74%	+	17.69%	+	(-1.22%)
int. + ext.	100%	=	101.22%					+	(-1.22%)

1998	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$9066.9	=	$6094.5	+	$1564.3	+	$1573.8	+	(-$165.7)
% of GDP	100%	=	67.227%	+	17.25%	+	17.36%	+	(-1.83%)
int. + ext.	100%	=	101.83%					+	(-1.83%)

1999	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$9470.3	=	$6419.4	+	$1661.1	+	$1656.1	+	(-$266.2)
% of GDP	100%	=	67.78%	+	17.54%	+	17.49%	+	(-2.81%)
int. + ext.	100%	=	102.81%					+	(-2.81%)

2000	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$9817.0	=	$6739.4	+	$1735.3	+	$1721.6	+	(-$379.5)
% of GDP	100%	=	68.65%	+	17.68%	+	17.54%	+	(-3.87%)
int. + ext.	100%	=	103.87%					+	(-3.87%)

2001	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$9890.7	=	$6889.7	+	$1576.5	+	$1782.8	+	(-$358.4)
% of GDP	100%	=	69.66%	+	15.94%	+	18.03%	+	(-3.62%)
int. + ext.	100%	=	103.62%					+	(-3.62%)

2002	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$10448.8	=	$7055.3	+	$1518.5	+	$1822.3	+	(-$407.3)
% of GDP	100%	=	70.21%	+	15.11%	+	18.73%	+	(-4.05%)
int. + ext.	100%	=	104.05%					+	(-4.05%)

2003	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$10301.0	=	$7239.9	+	$1563.9	+	$1966.5	+	(-$469.3)
% of GDP	100%	=	70.28%	+	15.18%	+	19.09%	+	(-4.56%)
int. + ext.	100%	=	104.56%					+	(-4.56%)

2004	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$10675.8	=	$7487.5	+	$1725.4	+	$2025.2	+	(-$562.2)
% of GDP	100%	=	70.13%	+	16.16%	+	18.97%	+	(-5.27%)
int. + ext.	100%	=	105.27%					+	(-5.27%)

2005	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$11003.4	=	$7706.0	+	$1838.2	+	$2091.5	+	(-$632.4)
% of GDP	100%	=	70.03%	+	16.71%	+	19.01%	+	(-5.75%)
int. + ext.	100%	=	105.75%					+	(-5.75%)

2006	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$11319.4	=	$7913.5	+	$1895.2	+	$2164.4	+	(-$653.7)
% of GDP	100%	=	69.91%	+	16.74%	+	19.12%	+	(-5.78%)
int. + ext.	100%	=	105.78%					+	(-5.78%)

2007	GDP	=	C	+	I	+	G	+	(X - M)
$billions	$11566.8	=	$8134.6	+	$1776.1	+	$2247.8	+	(-$591.7)
% of GDP	100%	=	70.33%	+	15.36%	+	19.43%	+	(-5.12%)
int. + ext.	100%	=	105.12%					+	(-5.12%)

The graphic below visually presents the GDP allocation percentages from the table. Note that the top line (in beige), which shows the total of household consumption, private investment, and government expenditures as a percentage of GDP, is the mirror image of the lowest line (in red), which is net exports (exports minus imports) as a percentage of GDP.

The table, itself, yields a wealth of relatively obvious information. For example, after the fairly mild recession of 1991, the U.S. GDP grew quite smartly throughout the 1990s, which turned out to be the longest economic expansion in modern American history, stopped only by an economic pause heralding the beginning of the presidency of George W. Bush.

As pointed out in the article, "The Gospel of Economic Doom," here at The Dark Wraith Forums, the U.S. economy in 2001 was in recession only by some measures but did not meet the technical criterion (two consecutive quarters of negative real change in GDP) to qualify as a genuine recession; however, it was more than enough to give the newly minted Republican U.S. President all the excuse he and his fellow party members in Congress needed to enact legislation implementing long-term, significant tax cuts, ostensibly to stimulate the economy. The substantial, enduring effect of these tax cuts was, as it had been at the beginning of the Reagan Administration when the economy was in considerably worse shape, federal tax revenues insufficient to meet government expenditures. The result was that the growing federal budget surpluses hallmarking the fiscal discipline of President Clinton's era were wiped out by the second year of the 21st Century, replaced by mounting federal budget deficits. The graphic below shows federal budget surpluses and deficits from 1990 to 2007, illustrating that the claim by the former Bush Administration head of the Treasury, John Snow, that the Clinton-era budget surpluses were a "mirage" was patently false and self-serving: the trend line of closing the budget deficits and opening surpluses had been an on-going process throughout the period after Clinton's inauguration. A similar argument — one shared by Bush's apologists and those in some circles of intelligentsia — that the budget surpluses were a fluke of capital gains tax revenues from robustly growing stock markets in the 1990s is similarly put to rest because of the fact that the budget deficits were closing and the surpluses were subsequently widening as a virtually straight-line trend during the Clinton years, and such a continuity in trend for overall stock market performance and realization of capital gains simply cannot be found that would account for such continuity in overall federal tax revenues progressively catching up with, then overtaking government expenditures.

The incontrovertible conclusion from the above graphic is that the Administration of President George W. Bush has overseen massive budget deficits that simply did not exist during the Clinton Administration, and these budget deficits correlate precisely with a package of tax cuts enacted in 2001 to stimulate an economy that was not in recession. As a consequence, federal revenues were diminished at the same time the real growth rate of government expenditures turned upward. Expanding government and concomitant tax cuts are a prescription for federal budget deficits that are key to understanding why the trade deficits that began to widen in the later Clinton years morphed from a typical feature of a globally dominant economy into the wrecking ball that has pushed the U.S. currency down to half its value against the euro and created a domestic credit crisis, all while setting the country on a course toward a degraded, less affluent, more perilous future.

The Spending Allocation Table for 1990 to 2007 nicely illustrates the phenomenon of trade deficits allowing the internal components of gross domestic product, as a sum, to exceed 100 percent of GDP. In the year 2000, for example, the U.S. trade deficit was 3.87 percent of GDP, which allowed the sum of the percentages of consumption, private investment, and government spending to exceed 100 percent by exactly that same 3.87 percent. Importantly, because the federal government was running budget surpluses, it was not a net borrower in domestic or global capital markets, meaning that the backflow of U.S. dollars being repatriated via the capital account from foreign central banks was not being tapped by the United States Treasury; all of those greenbacks returning to the U.S. through foreign investment were, instead, feeding household consumption and private investment. Foreigners who had earned American dollars through importing cheap goods could buy corporate bonds and other debt instruments, participate in real estate and other property purchases, buy huge amounts of secondary mortgage market paper, and otherwise pump dollars into the private components of the U.S. economy.

This was largely beneficial to the extent that the capital made available through this process allowed wider business and private household access to credit, since the capital available from the domestic banking system and other domestic financial intermediaries was being supplemented by money flowing into the American credit markets from overseas. The increasing debt burden being carried by the private sector — a phenomenon that has been around for quite a few years — afforded some degree of so-called "gains to leverage," whereby an increasing debt-to-equity ratio in an investment tends to increase the return on equity to that investment (but also increases the risk, at least somewhat). To what degree gains to leverage fed the Clinton-era economic boom is debatable, but no question exists that the economic boom, itself, was in full swing, despite the efforts of Federal Reserve Chairman Alan Greenspan to kill it with a string of discount rate increases he claimed had to be done during the Clinton Administration to stop what he rather dubiously called the "irrational exuberance" of the stock markets. Mr. Greenspan's declaration of wholesale, long-term irrationality in processes at the scale of stock markets lent credence to subsequent and still on-going myths about "bubbles" that are all the rage as vapid explanations for price run-ups that are, in truth, driven by much less fanciful, considerably more analytical, understandable forces.

Returning to the subject of the American economy, its sustained growth in the 1990s fed the trade deficit spiral. The economy got stronger and stronger, making investments in it more and more attractive, thereby propelling the U.S. dollar to ever greater desirability as a commodity to be acquired by foreigners in exchange for the goods and services they could offer as imports to the U.S. The power of this engine was evident to most individuals and businesses, on the upside, in terms of easy credit and, on the downside, in terms of the loss of American manufacturing and service jobs to foreign countries where goods and services were extraordinarily cheap to produce.

Although few saw it at the time, the dynamic began to change soon after the election of George W. Bush, who had a string of Congresses of his own party, thereby opening the way for what would become the wholesale abandonment of fiscal discipline that had hallmarked the Democratic Clinton Administration and its Republican Congresses. In real terms, government spending during the period from 1993 to 2000 grew at an annualized rate of 1.39 percent; from 2001 to 2007, real government spending grew at an annualized rate of 1.72 percent, an increase of almost a fourth. Tellingly, during the same time period for the Clinton years, domestic consumption grew at an annualized rate of 3.63 percent, but during the subsequent Bush years, from 2001 to 2007 the annualized growth rate fell to 2.29 percent, a drop of more than a third. The sector most severely hit has been private investment, though: for the Clinton years, private investment grew at an annualized rate of 6.12 percent, but during the period from 2001 to 2007, it plunged to an annualized rate of 3.08 percent, a veritable collapse of domestic business investment by nearly 50 percent.

With the slowdown of the economy in the first quarter of 2008 and no substantial recovery in sight, the full, eight-year annualized growth rates of consumption and investment will likely be even lower than they were over the first seven years of the Bush Administration, and the federal government has shown no recent loss of appetite for expending funds beyond the tax revenues it receives, meaning that the government expenditures component of domestic GDP is quite likely to be even larger than it has been so far during the Bush years.

The sluggish economy is also taking a toll on the federal budget deficit, which had narrowed over the past two years from unprecedented levels of Bush's first five years in office. For the first five months of the current fiscal year, even though federal government revenues had come in at a record-setting pace, expenditures were racking up at an even more breathtaking rate, resulting in what could very well turn out to be not only the largest budget deficit of this Administration, but also one of the largest in U.S. history. The relatively immediate damage from this resumption of heavy government spending that cannot be covered by tax revenues is that the U.S. Treasury will be hammering both the domestic and global capital markets for money to borrow, but it is doing so in a world where, because the greenback is weakening so much against foreign currencies, thus closing the U.S. trade deficits, foreign central banks will just not have as many U.S. dollars in foreign reserves to invest back in the United States. In the terminology introduced in this article, the current account is becoming less negative, so, by definition, the capital account is becoming less positive.

The United States government will be competing against households and businesses for a shrinking pot of overseas funds available for lending to both the private and public sectors of the American economy. When push comes to shove, the Treasury will get what it needs, regardless of the effect its demand for lendable funds has on interest rates. Moreover, it was because of the year-over-year public sector pressure on demand for those lendable funds that some private credit markets began to experience what has been described as a credit crisis, which had already been quietly seeping through private investment for more than a year. The Spending Allocation Table presented above clearly shows that the percentage of GDP accounted for by private investment had contracted rather dramatically in 2007, dropping from its 2006 level by 1.38 percent. That was more than the amount, 0.66 percent, by which the trade deficit as a percentage of GDP closed for the same period. That means private investment not only took the brunt of the loss of dollars flowing into the economy from the capital account, but it also lost out in the battle for lendable funds being waged between households and the government, both of which commanded greater shares of GDP in 2007, even as total internal spending slid back toward 100 percent because of the narrowing of the trade deficit.

In summary, at its peak in 2006, the internal component of the U.S. economy was able to burn at 105.78 percent of GDP because the U.S. was running a trade deficit equal to 5.78 percent of GDP, which resulted in that 5.78 percent excess being returned as investments in the U.S. by foreign countries that had earned dollars in trade with us. As the trade deficit narrowed in 2007 because of the weakening greenback, less money to lend us was in foreign central banks. Although the United States central bank was busily printing dollars far in excess of the real growth rate of the economy, the shrinking pool of lendable funds from overseas nevertheless had considerable impact on credit availability. The brunt of this contracting reservoir of funds in 2007 was absorbed by private investment; but, by early 2008, effects were being felt in the secondary mortgage markets, which sell their packages of mortgages to an investment community that includes foreigners. The effect was and still is being magnified by the fact, as mentioned above, that the federal budget deficit for the current fiscal year is growing at a near-record pace, meaning that the U.S. Treasury has been absorbing a greater and greater share of domestic and global funds available for lending.

Again, as noted in previous installments of this series as well as in other articles published here at The Dark Wraith Forums, the Federal Reserve has been printing money at a rate far in excess of the real growth rate of the domestic economy, a monetary policy being pursued to mitigate a full-blown, widespread credit crisis, but a monetary policy that will nonetheless ultimately result in an inflation spiral as that excess growth rate of the money supply eventually and inevitably evaporates into eroded purchasing power of the currency.

The prospect for years beyond the end of the Bush Administration is perhaps even bleaker. Aside from a steepening inflation shock wave sweeping through the economy, government expenditures will continue to rise not only with the inflation, but also in real terms as non-discretionary spending within the federal budget is forced upward by demands of an aging U.S. population stepping up to promised federal benefits. Adding to that maze of unavoidable pressures on the federal budget will be the heavy burden of servicing and retiring national debt obligations driven up tremendously by the irresponsible taxation and spending policies of the Bush Administration and its enablers in Congress. Further demand for federal expenditures will come from continuing involvement in wars overseas that will persist and drain funds, notwithstanding promises of some candidates for President to end American engagement in unnecessary conflicts, such vows being treated in some liberal quarters as every bit as good as money already in the bank. Unfortunately, the inconvenient and more plausible reality is that, even if the American military were to be pulled completely out of Iraq tomorrow, fully rebuilding the fighting capability of the U.S. armed forces and taking care of the already injured veterans of that wildly unproductive, unnecessary war will require possibly several trillion dollars beyond what has already been spent.

All of this will be happening in an era in which the United States is no longer the beneficiary of foreign investment generated by a strong American dollar that creates trade deficits and resulting reservoirs of greenbacks in foreign central banks just waiting to lend to U.S. households, businesses, and government. The American economy will be on its own, with staggering national debt to service, robust inflation to quell, a drained military to reconstitute, an aging population to coddle, spiraling energy costs to mitigate, an education system producing intellectually stunted new entrants to a shrinking workforce, and a surrounding world of ambitious, ascendant nations and coalitions of economic and military power.

Rebuilding the United States from the economics of wreckage is the task at hand, and it is the grim work of the citizens and leaders of this country to take hold of and breathe real life into the American story of a can-do people able to overcome adversity and rise to inordinate challenge; but whether or not we spend one more day in the grim conflicts of miserable countries we have shattered half a world away, one thing is certain.

Our own, far worse war here at home is just about to begin.

The Dark Wraith has spoken.

Part One Part Two Part Three Part Four

economics · macroeconomics · Keynesian · deficit · recession · inflation