Monday, February 14, 2011

Obama's Budget & Islamic Revolutions

President Obama today delivered his 2011 Budget proposal to Congress. Here are some of the "highlights".. the deficit this year will be (by far) the largest on record.. $1.6 trillion, just over 10% of our entire GDP. The US Government will in effect spend three dollars for every two they take in. There will be some haggling amongst politicians on "discretionary spending", which amounts to only 15% of the budget. You'll hear words like "painful" and "deep" from politicians. But the 85% of the budget.. and the fastest growing segment of it.. entitlements and defense, are completely off limits. Nobody will touch these programs with a ten foot pole. Social Security, Medicare and other entitlement programs consume 60% of all federal spending.. $2.1 trillion. In contrast, the federal government expects to take in $2.2 trillion in tax revenues. Obama's budget also expects federal revenues to grow by leaps and bounds.. it expects federal revenues to grow from $2.2 trillion this year to $3.0 trillion by 2013.. an increase of some 27% in only two years. Uh huh. By 2015, they'll grow to $3.6 trillion. Just who will be loaning us these vast sums to keep our government solvent ? The largest purchaser of government bonds is.. The Federal Reserve. Simply put, of the $1.6 trillion the US Gov't needs to borrow, approximately half will simply be printed funny money. QE3 and rising Bond interest rates are a mathematical certainty. Look for the US 10yr Bond to hit 4% by mid summer's eve. Here's the scary part.. the Office of Management and Budget expects interest payments on this national debt to rise from $180 billion this year to over $800 billion in 2020. Stephen Lewis from Monument Securities says "The US is pushing it's luck. Markets sense that Obama is unwilling to cut spending before the 2012 election. The Fed may have to stop QE because of rising commodities prices.. and if that happens, the market will react very negatively".

I watched an interview a year or so ago with Nouriel Roubini, an economist at NYU who predicted the economic collapse in 2008 and has become somewhat famous for that prediction. In this interview, he predicted that the Republicans would win at least one of the two Houses of Congress (which they did) and that when this happens, deficits would explode because the Democrats refuse to slow spending and the Republicans refuse to allow tax hikes.. and the path of least resistance is to just keep borrowing. Alas we have arrived. Instead of blaming politicians, I'd like for all of my readers to look in the mirror. If given a choice between electing a politician who says "Sorry guys.. the economy is screwed six ways from sunday and the best option we have is to slash social security and end the foreign wars. This is gonna hurt" and another one who says "I believe there are good options and we wont have to raise taxes or slash social security" nine out of ten Americans will vote for the second guy who's simply blowing sunshine up their rears. It's you and me that send these slicksters to govern us.

This money printing is already having an effect on us.. food and gasoline prices are spiking and will keep going upwards at a dangerous level. We'll see $3.50/gal gasoline this year, and I also believe we will not see them under $3.00 for some time. Brent Crude went over $103/bbl today, the highest since 2008. In 2012, should things keep apace, $4.00 will be the norm. Food prices will  continue to go upwards. But as I've said before, this inflation.. especially with food.. will hit other places on the globe especially hard. Tunisia and Egypt have recently found this out. Other governments are increasing their food subsidies to try and keep the price of food to reasonable levels so as to keep hungry masses from rising up against their governments. Many will begin defaulting on foreign debt rather than see their own people go hungry. It's not only the Islamic world that is feeling the pinch. China today released their inflation numbers.. and food inflation has risen by 4.6%.. in just ten days. Something's gotta give. I look for Venezuela to begin having problems pretty soon as well after a decade of mismanagement by Comrade Hugo.

Which brings me to point B in today's discussion.. the ongoing revolutions in the Islamic World. Today, there were violent upheavals in a number of Muslim nations.. Algeria, Yemen, Bahrain and Iran. Of these, two are of serious concern to the US.. Bahrain (home to the US 6th Fleet) and Iran. In Bahrain, a very rich country, the people were not upset so much by rising food prices as they were demanding a change in how they are governed. In Iran, where the demonstrators numbered in the tens of thousands, the police let loose volleys of tear gas and rubber bullets.. and the demonstators responded with rocks and bottles. That section of Tehran now resembles Beirut after a few Hizbullah rockets finished redecorating. My guess is that the Bahrain problems will pass without much more trouble.. fat, rich people make bad revolutionaries. But the ones in Algeria and Yemen are serious business and these governments might be in some trouble. As for Iran, we shall see.. there was a serious uprising about a year ago when the results of an "election" were announced. The Islamic regime was able to supress that one. Today's mayhem was the biggest demonstration since last year's. This friday will be a good test of wills in Teheran.. if the protesters number in the hundreds of thousands.. in combination with rising food prices.. Ahmed-need-a-jihad could be in some serious trouble. The Islamic regime itself might survive if they put a moderate guy like Rafsanjani in power and hold fair elections. But if this weekend is a dud, there's a good chance this uprising will fade much like the last one did.

In a greater context, much of what is going on in the Islamic world is about more than just food prices; it's about democracy, greater opportunity and justice. Many commentators here are worried about Islamic revolutions sweeping the Arab world, with visions of the entire region becoming rather like Iran. In truth, it's about something that we Americans take for granted.. liberty, justice and prosperity. The people at risk in all of this are the leaders of nations who do a bad job of providing these basic human desires. In Tunisia and Egypt, pro-US cleptocrats was swept from power. In Teheran, anti-US Islamist mullahs look to be in some trouble. On a grander scale, if many of these regimes are swept away, the end result might be an Islamic world that cares more about economic opportunity and justice than it does about wiping out a group of Jews hanging out in a small corner of the neighborhood. In my view, we do not need to fear these movements. In this context, Obama's early on ditching of Mubarak and his speech extolling democracy and human rights in the region looks like it was dead on.


  1. with all due respect, while I agree with much of your postings it is never wise to underestimate the power of religion over people. This 'war' has gone on for over 2,000 years. It is a bit naive to think that people in the Middle East will be different than those elsewhere. Liberty and justice are nice but a full belly with the promise of 'eternity' often weighs in by placing unseen stones on Ms. Justice. After all, we see that here with our 'too big too fail' banks and Mr. Market.

    The problem is that America never takes a LONG view but always the 'short' one. We have no stomach for least, not if you look at our history. Even in WWII we were 'forced' into it. Since then we haven't fought a 'winning' war (although I would be remiss in not stating that the very idea of a WIN combined with the word war is somewhat of an oxymoron.

    What the modern world has done is move every issue to 'gray' rather than white or black--all the while ignoring that some issues cannot be painted over. We have dismissed evil and honor and settle for the utopian idea that we will all get along and prosper equally. Even the old Star Trek Federation had to learn that the same battle was fought time and again for utopia doesn't exist.

    As technology advances we will become less social. Whether that will influence our world for the better remains to be seen. One thing is assured, however, our resources will eventually run out, leaving us back at square one of how to square survival WITH ethics.

  2. Anon: I don't underestimate the power of religion.. and you're right.. Egypt and a whole slew of Middle East nations might well become some Taliban paradise of martyrdom, jihad and hunger. It's my guess that this will not happen in either Egypt or Tunisia.. the young people (who represent a huge percentage of the population) are more interested in getting cool townhouses than jihad. Both Egypt and Tunisia have large, educated middle classes, and the Army seems to be run by professional soldiers. Yemen, however, is another story altogether. I calls 'em likes I see 'em..