Guest Post: Economic Weakness Creates Military Weakness

Tyler Durden's picture

Submitted by LToddWood via LToddWood.com,

It has happened over and over again throughout history.  Nations, empires, and dynasties have made bad economic decisions which lead to their own destruction.  The scenario usually goes something like this--one generation sacrifices and works hard to overcome global challenges and creates an economic powerhouse, which in turn allows it to project military power.  Follow on generations take their elders work for granted and ignore and even denigrate the fruits of hard labor, they just want the benefits and start giving away the spoils for free.  The next generation indulges itself in sloth and corruption and is overrun by the barbarians. 

The Roman Empire was famous for giving out bread and circuses to satiate the citizens of Rome, all the while devaluing their currency with less and less precious metal.  They ignored their financial obligations to their military.  The Emperor became corrupt, handing out favors only to those closest to him and persecuting the opposition while ignoring the very real threats to the north until it was too late.  The Spanish also devalued their currency by reducing the precious metal content as they fought wars all over the world.  We all know how that turned out.  After WWI, the Deutschmark to the Dollar exchange rate was 4 to 1.  In order to pay their war reparations, the Weimar Republic started printing money.  A few short years later it was four million to one USD.  This destroyed the German economy and gave Hitler an opening to power. 

Today with convoys of Russian troops rolling through the Crimean Peninsula and Hind helicopter gunships controlling the skies, one doesn’t have to look far to see evidence of American weakness.  Whether or not you can understand the Russian position, the bottom line is that Putin does not fear a Western reaction to Russia projecting power in Ukraine.  This situation is the latest in a long list of examples of American economic weakness leading to serious national security threats.  Iran continuing to develop nuclear weapons, Syria defying the Russian brokered agreement to destroy its chemical weapons, Russia granting Snowden asylum, North Korea going nuclear, China threatening Japan, are a direct result of an absence of a serious American response or perceived threat.

Why is America no longer credible when our president draws a red line or two or three?  It is not just that Obama is a weak leader and naive in foreign affairs, although that is certainly true. It is because American owes $17 trillion dollars, a good chunk of  it to our adversaries.   It is because we are cutting the meat from our defense budget in order to fund bread and circuses to keep the people happy.  It is because pilots in the Air Force are flying the same tail numbers their grandfathers did.  The U.S. military used to train and equip to fight two wars simultaneously.  Now the world knows America is broke and cannot even sustain one long term conflict financially.  This status of affairs has not just happened under Obama.  A long list of Democratic and Republican administrations have not spent our money wisely.  And our allies in Europe are in no better shape.  In fact, their defense situation is worse after decades of relying on the Americans and running up their debt to GDP ratio as well. 

At some point, the FED will lose control of the bond market no matter how much money they print.  Then interest rates will be set based on the credit risk of the United States.  This will cause interest rates to shoot higher.  Each percent rise in interest rates is approximately $200 billion in increased debt service costs for the United States.  Soon the majority of the federal budget will go to paying interest and entitlements and defense will be squeezed even harder.  We have not even begun to see austerity yet.  This interest rate shock will also hurt the economy.  Do you remember the twenty percent mortgage rates in the seventies?  Federal revenue will shrink at the same time expenses are rising.  The future is not pretty.

America only has a short time to deal with this problem.  We need to stop spending money we don’t have and we need to grow the economy.  The government needs to get out the way.  If you are in a hole and want to get out the first thing you need to do is stop digging.

It is not our generation that will suffer.  It will be your children and grandchildren.  Do you hear that commotion to the north?  The barbarians are coming.