Legions accomplish mission. Credit ratings? View 686 20110807-1

View 686 Sunday, August 07, 2011

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Mission Accomplished

 

 

The mission had been completed. The Rangers had taken the objective, and the special forces were called in to complete the mission. That was accomplished and the team was on its way out.

The enemy was experienced in operations against helicopter forces, and had assembled all their troops possessing RPG’s to cover and concealment about 500 yards from where the Chinook was loading up. Their fire discipline was excellent. They lay in wait, mostly undetected.

Twenty two Seals, Three USAF Ground Combat Controllers and a dog handler with his dog, Four Tennessee Army National Guard pilots and crew, and eight Afghan Commandos were loaded aboard, their mission finished. They were on the way home. As the Chinook rose – slowly at first – the RPG’s fired, probably in volley. At least one made a critical hit. The Chinook went down from a height of more than a hundred feet. All aboard were killed.

Of course I am a fiction writer, and the scenario above has been constructed after I spoke with people who know something of the situation. It’s a guess. I am giving away no tactics: the Taliban has employed this tactic since the days of the Russian occupation – indeed we may have taught it to them.

The media news seems to be asking why the Pentagon has not sent grief counselors to console what the media seems to believe is a crippled legion. I have a different view.

I would not care to be a member of the Taliban in that district this month.

 

The Credit Rating Fandango

The credit rating change (by one rating company, from AAA to AA+) means nothing, but it does give people like former Presidential Chief of Staff Rahm Emanuel an opportunity to blast the Republicans and blackguard the Tea Party for its intransigence on taxes. It’s a new opportunity to make the argument: fairness requires more entitlements. More people ought to be given more benefits. Taxes on the American middle class are already too high. Without higher taxes we are already going into debt with growing deficits. We can’t balance the budget on the backs of the poor – we can’t cut their benefits which is like raising their taxes. Therefore it follows as the night the day that we have to raise taxes on the rich. That includes any corporations making profits, particularly obscene profits. We also have to eliminate the sweetheart tax loopholes, like the deduction for mortgage interest. Mortgage interest is paid by those whose houses haven’t been foreclosed already, meaning that those people paying it must be richer than those who have lost their houses or don’t own one; so by a kind of Morton’s Fork it must be true that they can afford to pay more taxes to support the government.

And of course we can’t balance the budget by cuts. We could cut needless programs like Bunny Inspectors, but that would be such a trivial reduction in the Deficit as not to be worth bothering with.

And if we can’t cut something as silly as Bunny Inspectors, can we cut anything? It is interesting that any proposal to do something as obvious as eliminate silly and clearly needless programs is resisted furiously; probably because once we start cutting, it becomes easier. Once we can eliminate some programs, and actually make real cuts in others (not just cut back on the rate of increase, which is called a Cut in the curious language of finance) the game actually changes.

So the credit rating change will be used as a club to beat the Tea Party; but it ought to be seen as a warning. The United States is not in danger of defaulting on its debts: it retains the ability simply to print enough money to pay them off. The danger is not default, it’s inflation. Coupled with increased unemployment. That’s called stagflation, and we had it good and hard during the Johnson Administration. I wrote several papers on it back when I was running the Pepperdine Research Institute. I don’t seem to have any of those now. I rewrote some of them during the Carter Administration, and Reagan and some of his advisors read them; perhaps they had an effect.

The formula for stagflation is increased deficit financing leading to inflation coupled with stifling regulations that prevent the creation of new jobs. We seem to be on track for stagflation.

Note that Canada was in this situation some years ago, and decided to get out of it by cutting spending. Drastic cuts in spending. The Canadian dollar is now worth more than the American dollar, which is startling for those who grew up before 1990.

As to credit ratings, these are the ratings given by the companies which by law had to approve the Credit Default Swaps that fueled the housing bubble and whose collapse got us into the Depression – oops – Great Recession we’re in now. Their predictive abilities particularly in recognizing bad bets do not inspire a great deal of confidence. Of course the United States will pay its debts. That’s not in question. Just what it pays them with can be another discussion. I don’t think the credit ratings reflect that.

The news chatters about the possible wave of financial collapses starting with the Nikkei just about now (1600 PDT Sunday) and spreading across the Asian market, resulting in a collapse of the NY York stock market Monday (tomorrow) morning; all that in reaction to the downgrading of the US credit rating from AAA to AA+. For most of you whatever is going to happen on that will already have happened by the time you read this.

I don’t do breaking news, and I’m just as confused about that as the rest of the talking heads. I am pretty sure that your interest income will be taxed, and if you are paying off a mortgage and your house hasn’t been foreclosed on, they’ll raise your taxes by closing the “loophole” of mortgage deduction. Our answer to that here at Chaos Manor has been to remove some money from money market accounts and pay off our mortgage entirely. It seemed like the right idea. I don’t see interest income going up or taxes on interest income going down, and the thirst to tax all those who haven’t lost their homes to foreclosure seems insatiable; the Democrats are certain that homeowners will not catch wise. We’ll see. But that was our bet.

Incidentally, in case you are wondering, I continue to point to Bunny Inspectors because until we come up with a mechanism to eliminate something that so obviously needs to be eliminated, I am not sure we will come up with a mechanism to eliminate anything else. Certainly the Super Congress Committee won’t bother with such trivia. It’s not clear that it will cut anything at all. It’s more likely to raise revenues by “eliminating loopholes”.

The credit ratings ARE important because any number of pension and other funds are mandated by law to only invest in AAA –rated bonds.

These funds will have to sell – or the laws will have to change.

Larry

The ratings agencies, which demonstrated their competence by giving great ratings to Credit Default Swaps and the crazy bundled mortgage packages that made it impossible to determine who owned what, and rated high risk loans up there near Treasury Bonds, have power only because Congress gave it to them. What Congress givether Congress may take away – or give to a new ratings agency that magically restores AAA.  Unless of course there is some advantage to a lower US credit rating. It is a Fandango. The United States is not going to default on its debts, and the credit rating agencies can’t really force real cuts in spending. It’s going to take new elections to do that.

 

 

Stability and National Security

For anyone interested, one of my old Pepperdine Research papers is available here. It’s in a very muddy pdf format (it appears to be a pre-Xerox copy of the typewritten original) of a paper on Strategic Stability. The report was presented (by me) in a report to the Air Council, and was used at the USAF Academy, in the Air War College, and in some of the strategic policy debates between the Arms Controllers at the State Department and the defense intellectuals of the Pentagon. Eric has been working to clean up the paper so that we can get a clean and readable copy; I’ll make a few comments on the concept now that the Cold War is over (the principles are much the same, and boil down to this: if you want to have peace you have to keep it; a principle that hasn’t changed since Athenian times). The goal is to put it out, readable with some comments, probably for $0.99 on Kindle. I’d make it free, but frankly it will be more widely distributed if it’s on Kindle, and Amazon won’t do that for free. I think this paper is worth the effort to make it available.