Friday, September 29, 2006

Military Spending and interest rates

The Federal Reserve will probably lower its benchmark interest rate in the first quarter of 2007 as slowing economic growth diminishes inflation pressures, according to economists at Citigroup Inc.

The biggest U.S. bank by assets previously forecast the Fed would keep its target rate for overnight loans between banks at 5.25% through June. The bank now predicts a quarter-point reduction by March, with the Fed holding the rate at 5% through September.

Surging liquidity today and lower rates coming up. The Fed is doing everything it can -- to keep the housing situation afloat. And it's obvious that, so far, the stock market believes the Fed will be successful in creating a "soft landing."

Do you remember Richard Koo's book, The Balance Sheet Recession in which Koo noted that the US consumers were tapped out, that corporations had no particular incentive to spend, and that it was up to the government to spend in order to keep the economy simmering? Well, I doubt if Bush or his buddies read the Koo book, but Bush is a super-spender. In fact, Bush will go down as the biggest spender in history.

The wars in Iraq and Afghanistan plus the added "war on terror" are sending US government spending into never-never land. And oh yes, do you remember (I do) Eisenhower's comments in his last speech in which Ike warned about the "military-industrial complex"? When the America's military and its defense contractors and its politicians get together, the result is spending, and I mean HUGE spending. For instance, consider the following --

The Air Force is controlled by fighter pilots, old fighter pilots and new ones. And these guys love the F-22, a super jet-fighter plane that was originally designed to beat the Russian fighter pilots during the cold war. The F-22 cruises at Mach-2, twice the speed of sound. It is invisible to radar, it's a technical marvel. The only problem is that it's unbelievably costly -- it comes three for a billion dollars or about $350 million a copy. The plane is manufactured by Lockheed-Martin. A fleet of 183 of these planes has been budgeted by the administration. The F-22 lobby (Lockheed, the Air Force and some Senators) is tremendously powerful. Beyond the 183 F-22s already ordered, the Air Force says it needs a total of 381 of these planes. That would come to a total bill of around $13 billion. And then there's the up-keep.

As I said, the F-22 was designed to fight the Russians. But the Russians are no longer our enemy. Today our enemies are the Muslim extremists. And these guys don't give a damn about jet-fighters, they fight on the ground with rockets and rifles and dynamite and machine guns and home-made mines. Stuff like that. So why are we spending billions of dollars on more F-22's when the US already controls the skies? Well, it keeps Lockheed-Martin busy, and it maintains a bunch of jobs in selected states. And it's all just part of the military-industrial complex. It makes work, and it runs up astronomical bills.


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