April 25th, 2006
<br />
What the Price of Gold is Telling Us<br />
The financial press, and even the network news shows, have begun reporting the price of gold regularly. For twenty years, between 1980 and 2000, the price of gold was rarely mentioned. There was little interest, and the price was either falling or remaining steady.
Since 2001 however, interest in gold has soared along with its price. With the price now over $600 an ounce, a lot more people are becoming interested in gold as an investment and an economic indicator. Much can be learned by understanding what the rising dollar price of gold means.
The rise in gold prices from $250 per ounce in 2001 to over $600 today has drawn investors and speculators into the precious metals market. Though many already have made handsome profits, buying gold per se should not be touted as a good investment. After all, gold earns no interest and its quality never changes. It’s static, and does not grow as sound investments should.
It’s more accurate to say that one might invest in a gold or silver mining company, where management, labor costs, and the nature of new discoveries all play a vital role in determining the quality of the investment and the profits made.
Buying gold and holding it is somewhat analogous to converting one’s savings into one hundred dollar bills and hiding them under the mattress– yet not exactly the same. Both gold and dollars are considered money, and holding money does not qualify as an investment. There’s a big difference between the two however, since by holding paper money one loses purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat currency.
Holding gold is protection or insurance against government’s proclivity to debase its currency. The purchasing power of gold goes up not because it’s a so-called good investment; it goes up in value only because the paper currency goes down in value. In our current situation, that means the dollar.
One of the characteristics of commodity money– one that originated naturally in the marketplace– is that it must serve as a store of value. Gold and silver meet that test– paper does not. Because of this profound difference, the incentive and wisdom of holding emergency funds in the form of gold becomes attractive when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when earning some nominal interest. The lack of earned interest on gold is not a problem once people realize the purchasing power of their currency is declining faster than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.
The point is that most who buy gold do so to protect against a depreciating currency rather than as an investment in the classical sense. Americans understand this less than citizens of other countries; some nations have suffered from severe monetary inflation that literally led to the destruction of their national currency. Though our inflation– i.e. the depreciation of the U.S. dollar– has been insidious, average Americans are unaware of how this occurs. For instance, few Americans know nor seem concerned that the 1913 pre-Federal Reserve dollar is now worth only four cents. Officially, our central bankers and our politicians express no fear that the course on which we are set is fraught with great danger to our economy and our political system. The belief that money created out of thin air can work economic miracles, if only properly “managed,” is pervasive in D.C.
In many ways we shouldn’t be surprised about this trust in such an unsound system. For at least four generations our government-run universities have systematically preached a monetary doctrine justifying the so-called wisdom of paper money over the “foolishness” of sound money. Not only that, paper money has worked surprisingly well in the past 35 years– the years the world has accepted pure paper money as currency. Alan Greenspan bragged that central bankers in these several decades have gained the knowledge necessary to make paper money respond as if it were gold. This removes the problem of obtaining gold to back currency, and hence frees politicians from the rigid discipline a gold standard imposes.
Many central bankers in the last 15 years became so confident they had achieved this milestone that they sold off large hoards of their gold reserves. At other times they tried to prove that paper works better than gold by artificially propping up the dollar by suppressing market gold prices. This recent deception failed just as it did in the 1960s, when our government tried to hold gold artificially low at $35 an ounce. But since they could not truly repeal the economic laws regarding money, just as many central bankers sold, others bought. It’s fascinating that the European central banks sold gold while Asian central banks bought it over the last several years.
Since gold has proven to be the real money of the ages, we see once again a shift in wealth from the West to the East, just as we saw a loss of our industrial base in the same direction. Though Treasury officials deny any U.S. sales or loans of our official gold holdings, no audits are permitted so no one can be certain.
The special nature of the dollar as the reserve currency of the world has allowed this game to last longer than it would have otherwise. But the fact that gold has gone from $252 per ounce to over $600 means there is concern about the future of the dollar. The higher the price for gold, the greater the concern for the dollar. Instead of dwelling on the dollar price of gold, we should be talking about the depreciation of the dollar. In 1934 a dollar was worth 1/20 th of an ounce of gold; $20 bought an ounce of gold. Today a dollar is worth 1/600 th of an ounce of gold, meaning it takes $600 to buy one ounce of gold.
The number of dollars created by the Federal Reserve, and through the fractional reserve banking system, is crucial in determining how the market assesses the relationship of the dollar and gold. Though there’s a strong correlation, it’s not instantaneous or perfectly predictable. There are many variables to consider, but in the long term the dollar price of gold represents past inflation of the money supply. Equally important, it represents the anticipation of how much new money will be created in the future. This introduces the factor of trust and confidence in our monetary authorities and our politicians. And these days the American people are casting a vote of “no confidence” in this regard, and for good reasons.
The incentive for central bankers to create new money out of thin air is twofold. One is to practice central economic planning through the manipulation of interest rates. The second is to monetize the escalating federal debt politicians create and thrive on.
Today no one in Washington believes for a minute that runaway deficits are going to be curtailed. In March alone, the federal government created an historic $85 billion deficit. The current supplemental bill going through Congress has grown from $92 billion to over $106 billion, and everyone knows it will not draw President Bush’s first veto. Most knowledgeable people therefore assume that inflation of the money supply is not only going to continue, but accelerate. This anticipation, plus the fact that many new dollars have been created over the past 15 years that have not yet been fully discounted, guarantees the further depreciation of the dollar in terms of gold.
There’s no single measurement that reveals what the Fed has done in the recent past or tells us exactly what it’s about to do in the future. Forget about the lip service given to transparency by new Fed Chairman Bernanke. Not only is this administration one of the most secretive across the board in our history, the current Fed firmly supports denying the most important measurement of current monetary policy to Congress, the financial community, and the American public. Because of a lack of interest and poor understanding of monetary policy, Congress has expressed essentially no concern about the significant change in reporting statistics on the money supply.
Beginning in March, though planned before Bernanke arrived at the Fed, the central bank discontinued compiling and reporting the monetary aggregate known as M3.M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation. Yet this report is no longer available to us and Congress makes no demands to receive it.
Though M3 is the most helpful statistic to track Fed activity, it by no means tells us everything we need to know about trends in monetary policy. Total bank credit, still available to us, gives us indirect information reflecting the Fed’s inflationary policies. But ultimately the markets will figure out exactly what the Fed is up to, and then individuals, financial institutions, governments, and other central bankers will act accordingly. The fact that our money supply is rising significantly cannot be hidden from the markets.
The response in time will drive the dollar down, while driving interest rates and commodity prices up. Already we see this trend developing, which surely will accelerate in the not too distant future. Part of this reaction will be from those who seek a haven to protect their wealth– not invest– by treating gold and silver as universal and historic money. This means holding fewer dollars that are decreasing in value while holding gold as it increases in value.
A soaring gold price is a vote of “no confidence” in the central bank and the dollar. This certainly was the case in 1979 and 1980. Today, gold prices reflect a growing restlessness with the increasing money supply, our budgetary and trade deficits, our unfunded liabilities, and the inability of Congress and the administration to reign in runaway spending.
Denying us statistical information, manipulating interest rates, and artificially trying to keep gold prices in check won’t help in the long run. If the markets are fooled short term, it only means the adjustments will be much more dramatic later on. And in the meantime, other market imbalances develop.
The Fed tries to keep the consumer spending spree going, not through hard work and savings, but by creating artificial wealth in stock markets bubbles and housing bubbles. When these distortions run their course and are discovered, the corrections will be quite painful.
Likewise, a fiat monetary system encourages speculation and unsound borrowing. As problems develop, scapegoats are sought and frequently found in foreign nations. This prompts many to demand altering exchange rates and protectionist measures. The sentiment for this type of solution is growing each day.
Though everyone decries inflation, trade imbalances, economic downturns, and federal deficits, few attempt a closer study of our monetary system and how these events are interrelated. Even if it were recognized that a gold standard without monetary inflation would be advantageous, few in Washington would accept the political disadvantages of living with the discipline of gold– since it serves as a check on government size and power. This is a sad commentary on the politics of today. The best analogy to our affinity for government spending, borrowing, and inflating is that of a drug addict who knows if he doesn’t quit he’ll die; yet he can’t quit because of the heavy price required to overcome the dependency. The right choice is very difficult, but remaining addicted to drugs guarantees the death of the patient, while our addiction to deficit spending, debt, and inflation guarantees the collapse of our economy.
Special interest groups, who vigorously compete for federal dollars, want to perpetuate the system rather than admit to a dangerous addiction. Those who champion welfare for the poor, entitlements for the middle class, or war contracts for the military industrial corporations, all agree on the so-called benefits bestowed by the Fed’s power to counterfeit fiat money. Bankers, who benefit from our fractional reserve system, likewise never criticize the Fed, especially since it’s the lender of last resort that bails out financial institutions when crises arise. And it’s true, special interests and bankers do benefit from the Fed, and may well get bailed out– just as we saw with the Long-Term Capital Management fund crisis a few years ago. In the past, companies like Lockheed and Chrysler benefited as well. But what the Fed cannot do is guarantee the market will maintain trust in the worthiness of the dollar. Current policy guarantees that the integrity of the dollar will be undermined. Exactly when this will occur, and the extent of the resulting damage to financial system, cannot be known for sure– but it is coming. There are plenty of indications already on the horizon.
Foreign policy plays a significant role in the economy and the value of the dollar. A foreign policy of militarism and empire building cannot be supported through direct taxation. The American people would never tolerate the taxes required to pay immediately for overseas wars, under the discipline of a gold standard. Borrowing and creating new money is much more politically palatable. It hides and delays the real costs of war, and the people are lulled into complacency– especially since the wars we fight are couched in terms of patriotism, spreading the ideas of freedom, and stamping out terrorism. Unnecessary wars and fiat currencies go hand-in-hand, while a gold standard encourages a sensible foreign policy.
The cost of war is enormously detrimental; it significantly contributes to the economic instability of the nation by boosting spending, deficits, and inflation. Funds used for war are funds that could have remained in the productive economy to raise the standard of living of Americans now unemployed, underemployed, or barely living on the margin.
Yet even these costs may be preferable to paying for war with huge tax increases. This is because although fiat dollars are theoretically worthless, value is imbued by the trust placed in them by the world’s financial community. Subjective trust in a currency can override objective knowledge about government policies, but only for a limited time.
Economic strength and military power contribute to the trust in a currency; in today’s world trust in the U.S. dollar is not earned and therefore fragile. The history of the dollar, being as good as gold up until 1971, is helpful in maintaining an artificially higher value for the dollar than deserved.
Foreign policy contributes to the crisis when the spending to maintain our worldwide military commitments becomes prohibitive, and inflationary pressures accelerate. But the real crisis hits when the world realizes the king has no clothes, in that the dollar has no backing, and we face a military setback even greater than we already are experiencing in Iraq. Our token friends may quickly transform into vocal enemies once the attack on the dollar begins.
False trust placed in the dollar once was helpful to us, but panic and rejection of the dollar will develop into a real financial crisis. Then we will have no other option but to tighten our belts, go back to work, stop borrowing, start saving, and rebuild our industrial base, while adjusting to a lower standard of living for most Americans.
Counterfeiting the nation’s money is a serious offense. The founders were especially adamant about avoiding the chaos, inflation, and destruction associated with the Continental dollar. That’s why the Constitution is clear that only gold and silver should be legal tender in the United States. In 1792 the Coinage Act authorized the death penalty for any private citizen who counterfeited the currency. Too bad they weren’t explicit that counterfeiting by government officials is just as detrimental to the economy and the value of the dollar.
In wartime, many nations actually operated counterfeiting programs to undermine our dollar, but never to a disastrous level. The enemy knew how harmful excessive creation of new money could be to the dollar and our economy. But it seems we never learned the dangers of creating new money out of thin air. We don’t need an Arab nation or the Chinese to undermine our system with a counterfeiting operation. We do it ourselves, with all the disadvantages that would occur if others did it to us. Today we hear threats from some Arab, Muslim, and far Eastern countries about undermining the dollar system- not by dishonest counterfeiting, but by initiating an alternative monetary system based on gold. Wouldn’t that be ironic?Such an event theoretically could do great harm to us. This day may well come, not so much as a direct political attack on the dollar system but out of necessity to restore confidence in money once again.
Historically, paper money never has lasted for long periods of time, while gold has survived thousands of years of attacks by political interests and big government. In time, the world once again will restore trust in the monetary system by making some currency as good as gold.
Gold, or any acceptable market commodity money, is required to preserve liberty. Monopoly control by government of a system that creates fiat money out of thin air guarantees the loss of liberty. No matter how well-intended our militarism is portrayed, or how happily the promises of wonderful programs for the poor are promoted, inflating the money supply to pay these bills makes government bigger. Empires always fail, and expenses always exceed projections. Harmful unintended consequences are the rule, not the exception. Welfare for the poor is inefficient and wasteful. The beneficiaries are rarely the poor themselves, but instead the politicians, bureaucrats, or the wealthy. The same is true of all foreign aid– it’s nothing more than a program that steals from the poor in a rich country and gives to the rich leaders of a poor country. Whether it’s war or welfare payments, it always means higher taxes, inflation, and debt. Whether it’s the extraction of wealth from the productive economy, the distortion of the market by interest rate manipulation, or spending for war and welfare, it can’t happen without infringing upon personal liberty.
At home the war on poverty, terrorism, drugs, or foreign rulers provides an opportunity for authoritarians to rise to power, individuals who think nothing of violating the people’s rights to privacy and freedom of speech. They believe their role is to protect the secrecy of government, rather than protect the privacy of citizens. Unfortunately, that is the atmosphere under which we live today, with essentially no respect for the Bill of Rights.
Though great economic harm comes from a government monopoly fiat monetary system, the loss of liberty associated with it is equally troubling. Just as empires are self-limiting in terms of money and manpower, so too is a monetary system based on illusion and fraud. When the end comes we will be given an opportunity to choose once again between honest money and liberty on one hand; chaos, poverty, and authoritarianism on the other.
The economic harm done by a fiat monetary system is pervasive, dangerous, and unfair. Though runaway inflation is injurious to almost everyone, it is more insidious for certain groups. Once inflation is recognized as a tax, it becomes clear the tax is regressive: penalizing the poor and middle class more than the rich and politically privileged. Price inflation, a consequence of inflating the money supply by the central bank, hits poor and marginal workers first and foremost. It especially penalizes savers, retirees, those on fixed incomes, and anyone who trusts government promises. Small businesses and individual enterprises suffer more than the financial elite, who borrow large sums before the money loses value. Those who are on the receiving end of government contracts–especially in the military industrial complex during wartime– receive undeserved benefits.
It’s a mistake to blame high gasoline and oil prices on price gouging. If we impose new taxes or fix prices, while ignoring monetary inflation, corporate subsidies, and excessive regulations, shortages will result. The market is the only way to determine the best price for any commodity. The law of supply and demand cannot be repealed. The real problems arise when government planners give subsidies to energy companies and favor one form of energy over another.
Energy prices are rising for many reasons: Inflation; increased demand from China and India; decreased supply resulting from our invasion of Iraq; anticipated disruption of supply as we push regime change in Iran; regulatory restrictions on gasoline production; government interference in the free market development of alternative fuels; and subsidies to big oil such as free leases and grants for research and development.
Interestingly, the cost of oil and gas is actually much higher than we pay at the retail level. Much of the DOD budget is spent protecting “our” oil supplies, and if such spending is factored in gasoline probably costs us more than $5 a gallon. The sad irony is that this military effort to secure cheap oil supplies inevitably backfires, and actually curtails supplies and boosts prices at the pump. The waste and fraud in issuing contracts to large corporations for work in Iraq only add to price increases.
When problems arise under conditions that exist today, it’s a serious error to blame the little bit of the free market that still functions. Last summer the market worked efficiently after Katrina– gas hit $3 a gallon, but soon supplies increased, usage went down, and the price returned to $2. In the 1980s, market forces took oil from $40 per barrel to $10 per barrel, and no one cried for the oil companies that went bankrupt. Today’s increases are for the reasons mentioned above. It’s natural for labor to seek its highest wage, and businesses to strive for the greatest profit. That’s the way the market works. When the free market is allowed to work, it’s the consumer who ultimately determines price and quality, with labor and business accommodating consumer choices. Once this process is distorted by government, prices rise excessively, labor costs and profits are negatively affected, and problems emerge. Instead of fixing the problem, politicians and demagogues respond by demanding windfall profits taxes and price controls, while never questioning how previous government interference caused the whole mess in the first place. Never let it be said that higher oil prices and profits cause inflation; inflation of the money supply causes higher prices!
Since keeping interest rates below market levels is synonymous with new money creation by the Fed, the resulting business cycle, higher cost of living, and job losses all can be laid at the doorstep of the Fed. This burden hits the poor the most, making Fed taxation by inflation the worst of all regressive taxes. Statistics about revenues generated by the income tax are grossly misleading; in reality much harm is done by our welfare/warfare system supposedly designed to help the poor and tax the rich. Only sound money can rectify the blatant injustice of this destructive system.
The Founders understood this great danger, and voted overwhelmingly to reject “emitting bills of credit,” the term they used for paper or fiat money. It’s too bad the knowledge and advice of our founders, and their mandate in the Constitution, are ignored today at our great peril. The current surge in gold prices– which reflects our dollar’s devaluation– is warning us to pay closer attention to our fiscal, monetary, entitlement, and foreign policy.
Meaning of the Gold Price– Summation
A recent headline in the financial press announced that gold prices surged over concern that confrontation with Iran will further push oil prices higher. This may well reflect the current situation, but higher gold prices mainly reflect monetary expansion by the Federal Reserve. Dwelling on current events and their effect on gold prices reflects concern for symptoms rather than an understanding of the actual cause of these price increases. Without an enormous increase in the money supply over the past 35 years and a worldwide paper monetary system, this increase in the price of gold would not have occurred.
Certainly geo-political events in the Middle East under a gold standard would not alter its price, though they could affect the supply of oil and cause oil prices to rise. Only under conditions created by excessive paper money would one expect all or most prices to rise. This is a mere reflection of the devaluation of the dollar.
If one endorses small government and maximum liberty, one must support commodity money.
One of the strongest restraints against unnecessary war is a gold standard.
Deficit financing by government is severely restricted by sound money.
The harmful effects of the business cycle are virtually eliminated with an honest gold standard.
Saving and thrift are encouraged by a gold standard; and discouraged by paper money.
Price inflation, with generally rising price levels, is characteristic of paper money. Reports that the consumer price index and the producer price index are rising are distractions: the real cause of inflation is the Fed’s creation of new money.
Interest rate manipulation by central bank helps the rich, the banks, the government, and the politicians.
Paper money permits the regressive inflation tax to be passed off on the poor and the middle class.
Speculative financial bubbles are characteristic of paper money– not gold.
Paper money encourages economic and political chaos, which subsequently causes a search for scapegoats rather than blaming the central bank.
Dangerous protectionist measures frequently are implemented to compensate for the dislocations caused by fiat money.
Paper money, inflation, and the conditions they create contribute to the problems of illegal immigration.
The value of gold is remarkably stable.
The dollar price of gold reflects dollar depreciation.
Holding gold helps preserve and store wealth, but technically gold is not a true investment.
Since 2001 the dollar has been devalued by 60%.
In 1934 FDR devalued the dollar by 41%.
In 1971 Nixon devalued the dollar by 7.9%.
In 1973 Nixon devalued the dollar by 10%.
These were momentous monetary events, and every knowledgeable person worldwide paid close attention. Major changes were endured in 1979 and 1980 to save the dollar from disintegration. This involved a severe recession, interest rates over 21%, and general price inflation of 15%.
Today we face a 60% devaluation and counting, yet no one seems to care. It’s of greater significance than the three events mentioned above. And yet the one measurement that best reflects the degree of inflation, the Fed and our government deny us. Since March, M3 reporting has been discontinued. For starters, I’d like to see Congress demand that this report be resumed. I fully believe the American people and Congress are entitled to this information. Will we one day complain about false intelligence, as we have with the Iraq war?Will we complain about not having enough information to address monetary policy after it’s too late?
If ever there was a time to get a handle on what sound money is and what it means, that time is today.
Inflation, as exposed by high gold prices, transfers wealth from the middle class to the rich, as real wages decline while the salaries of CEOs, movie stars, and athletes skyrocket– along with the profits of the military industrial complex, the oil industry, and other special interests.
A sharply rising gold price is a vote of “no confidence” in Congress’ ability to control the budget, the Fed’s ability to control the money supply, and the administration’s ability to bring stability to the Middle East.
Ultimately, the gold price is a measurement of trust in the currency and the politicians who run the country. It’s been that way for a long time, and is not about to change.
If we care about the financial system, the tax system, and the monumental debt we’re accumulating, we must start talking about the benefits and discipline that come only with a commodity standard of money– money the government and central banks absolutely cannot create out of thin air.
Economic law dictates reform at some point. But should we wait until the dollar is 1/1,000 of an ounce of gold or 1/2,000 of an ounce of gold?The longer we wait, the more people suffer and the more difficult reforms become. Runaway inflation inevitably leads to political chaos, something numerous countries have suffered throughout the 20 th century. The worst example of course was the German inflation of the 1920s that led to the rise of Hitler. Even the communist takeover of China was associated with runaway inflation brought on by Chinese Nationalists. The time for action is now, and it is up to the American people and the U.S. Congress to demand it.
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April 5th, 2006
<br />
Iran: The Next Neocon Target<br />
It’s been three years since the U.S. launched its war against Saddam Hussein and his weapons of mass destruction. Of course now almost everybody knows there were no WMDs, and Saddam Hussein posed no threat to the United States. Though some of our soldiers serving in Iraq still believe they are there because Saddam Hussein was involved in 9/11, even the administration now acknowledges there was no connection. Indeed, no one can be absolutely certain why we invaded Iraq. The current excuse, also given for staying in Iraq, is to make it a democratic state, friendly to the United States. There are now fewer denials that securing oil supplies played a significant role in our decision to go into Iraq and stay there. That certainly would explain why U.S. taxpayers are paying such a price to build and maintain numerous huge, permanent military bases in Iraq. They’re also funding a new billion dollar embassy- the largest in the world.
The significant question we must ask ourselves is: What have we learned from three years in Iraq? With plans now being laid for regime change in Iran, it appears we have learned absolutely nothing. There still are plenty of administration officials who daily paint a rosy picture of the Iraq we have created. But I wonder: If the past three years were nothing more than a bad dream, and our nation suddenly awakened, how many would, for national security reasons, urge the same invasion? Would we instead give a gigantic sigh of relief that it was only a bad dream, that we need not relive the three-year nightmare of death, destruction, chaos and stupendous consumption of tax dollars. Conceivably we would still see oil prices under $30 a barrel, and most importantly, 20,000 severe U.S. causalities would not have occurred. My guess is that 99% of all Americans would be thankful it was only a bad dream, and would never support the invasion knowing what we know today.
Even with the horrible results of the past three years, Congress is abuzz with plans to change the Iranian government. There is little resistance to the rising clamor for “democratizing” Iran, even though their current president, Mahmoud Almadinejad, is an elected leader. Though Iran is hardly a perfect democracy, its system is far superior to most of our Arab allies about which we never complain. Already the coordinating propaganda has galvanized the American people against Iran for the supposed threat it poses to us with weapons of mass destruction that are no more present than those Saddam Hussein was alleged to have had. It’s amazing how soon after being thoroughly discredited over the charges levied against Saddam Hussein the Neo-cons are willing to use the same arguments against Iran. It’s frightening to see how easily Congress, the media, and the people accept many of the same arguments against Iran that were used to justify an invasion of Iraq.
Since 2001 we have spent over $300 billion, and occupied two Muslim nations–Afghanistan and Iraq. We’re poorer but certainly not safer for it. We invaded Afghanistan to get Osama bin Laden, the ring leader behind 9/11. This effort has been virtually abandoned. Even though the Taliban was removed from power in Afghanistan, most of the country is now occupied and controlled by warlords who manage a drug trade bigger than ever before. Removing the Taliban from power in Afghanistan actually served the interests of Iran, the Taliban’s arch enemy, more than our own.
The longtime Neo-con goal to remake Iraq prompted us to abandon the search for Osama bin Laden. The invasion of Iraq in 2003 was hyped as a noble mission, justified by misrepresentations of intelligence concerning Saddam Hussein and his ability to attack us and his neighbors. This failed policy has created the current chaos in Iraq– chaos that many describe as a civil war. Saddam Hussein is out of power and most people are pleased. Yet some Iraqis, who dream of stability, long for his authoritarian rule. But once again, Saddam Hussein’s removal benefited the Iranians, who consider Saddam Hussein an arch enemy.
Our obsession with democracy– which is clearly conditional, when one looks at our response to the recent Palestinian elections– will allow the majority Shia to claim leadership title if Iraq’s election actually leads to an organized government. This delights the Iranians, who are close allies of the Iraqi Shia.
Talk about unintended consequences! This war has produced chaos, civil war, death and destruction, and huge financial costs. It has eliminated two of Iran’s worst enemies and placed power in Iraq with Iran’s best friends. Even this apparent failure of policy does nothing to restrain the current march toward a similar confrontation with Iran. What will it take for us to learn from our failures?
Common sense tells us the war in Iraq soon will spread to Iran. Fear of imaginary nuclear weapons or an incident involving Iran– whether planned or accidental– will rally the support needed for us to move on Muslim country #3. All the past failures and unintended consequences will be forgotten.
Even with deteriorating support for the Iraq war, new information, well planned propaganda, or a major incident will override the skepticism and heartache of our frustrating fight. Vocal opponents of an attack on Iran again will be labeled unpatriotic, unsupportive of the troops, and sympathetic to Iran’s radicals.
Instead of capitulating to these charges, we should point out that those who maneuver us into war do so with little concern for our young people serving in the military, and theoretically think little of their own children if they have any. It’s hard to conceive that political supporters of the war would consciously claim that a pre-emptive war for regime change, where young people are sacrificed, is only worth it if the deaths and injuries are limited to other people’s children. This, I’m sure, would be denied– which means their own children are technically available for this sacrifice that is so often praised and glorified for the benefit of the families who have lost so much. If so, they should think more of their own children. If this is not so, and their children are not available for such sacrifice, the hypocrisy is apparent. Remember, most Neo-con planners fall into the category of chicken-hawks.
For the past 3 years it’s been inferred that if one is not in support of the current policy, one is against the troops and supports the enemy. Lack of support for the war in Iraq was said to be supportive of Saddam Hussein and his evil policies. This is an insulting and preposterous argument. Those who argued for the containment of the Soviets were never deemed sympathetic to Stalin or Khrushchev. Lack of support for the Iraq war should never be used as an argument that one was sympathetic to Saddam Hussein. Containment and diplomacy are far superior to confronting a potential enemy, and are less costly and far less dangerous– especially when there’s no evidence that our national security is being threatened.
Although a large percentage of the public now rejects the various arguments for the Iraq war, 3 years ago they were easily persuaded by the politicians and media to fully support the invasion. Now, after 3 years of terrible pain for so many, even the troops are awakening from their slumber and sensing the fruitlessness of our failing effort. Seventy-two percent of our troops now serving in Iraq say it’s time to come home, yet the majority still cling to the propaganda that we’re there because of 9/11 attacks, something even the administration has ceased to claim. Propaganda is pushed on our troops to exploit their need to believe in a cause that’s worth the risk to life and limb.
I smell an expanded war in the Middle East, and pray that I’m wrong. I sense that circumstances will arise that demand support regardless of the danger and cost. Any lack of support, once again, will be painted as being soft on terrorism and al Qaeda. We will be told we must support Israel, support patriotism, support the troops, and defend freedom. The public too often only smells the stench of war after the killing starts. Public objection comes later on, but eventually it helps to stop the war. I worry that before we can finish the war we’re in and extricate ourselves, the patriotic fervor for expanding into Iran will drown out the cries of, “enough already!”
The agitation and congressional resolutions painting Iran as an enemy about to attack us have already begun. It’s too bad we can’t learn from our mistakes.
This time there will be a greater pretense of an international effort sanctioned by the UN before the bombs are dropped. But even without support from the international community, we should expect the plan for regime change to continue. We have been forewarned that “all options” remain on the table. And there’s little reason to expect much resistance from Congress. So far there’s less resistance expressed in Congress for taking on Iran than there was prior to going into Iraq. It’s astonishing that after three years of bad results and tremendous expense there’s little indication we will reconsider our traditional non-interventionist foreign policy. Unfortunately, regime change, nation building, policing the world, and protecting “our oil” still constitute an acceptable policy by the leaders of both major parties.
It’s already assumed by many in Washington I talk to that Iran is dead serious about obtaining a nuclear weapon, and is a much more formidable opponent than Iraq. Besides, Mahmoud Almadinjad threatened to destroy Israel and that cannot stand. Washington sees Iran as a greater threat than Iraq ever was, a threat that cannot be ignored.
Iran’s history is being ignored, just as we ignored Iraq’s history. This ignorance or deliberate misrepresentation of our recent relationship to Iraq and Iran is required to generate the fervor needed to attack once again a country that poses no threat to us.Our policies toward Iran have been more provocative than those towards Iraq. Yes, President Bush labeled Iran part of the axis of evil and unnecessarily provoked their anger at us.But our mistakes with Iran started a long time before this president took office.
In 1953 our CIA, with help of the British, participated in overthrowing the democratic elected leader, Mohamed Mossedech. We placed the Shah in power. He ruled ruthlessly but protected our oil interests, and for that we protected him– that is until 1979. We even provided him with Iran’s first nuclear reactor. Evidently we didn’t buy the argument that his oil supplies precluded a need for civilian nuclear energy. From 1953 to 1979 his authoritarian rule served to incite a radical Muslim opposition led by the Ayatollah Khomeini, who overthrew the Shah and took our hostages in 1979. This blowback event was slow in coming, but Muslims have long memories. The hostage crisis and overthrow of the Shah by the Ayatollah was a major victory for the radical Islamists. Most Americans either never knew about or easily forgot our unwise meddling in the internal affairs of Iran in 1953.
During the 1980s we further antagonized Iran by supporting the Iraqis in their invasion of Iran. This made our relationship with Iran worse, while sending a message to Saddam Hussein that invading a neighboring country is not all that bad. When Hussein got the message from our State Department that his plan to invade Kuwait was not of much concern to the United States he immediately proceeded to do so. We in a way encouraged him to do it almost like we encouraged him to go into Iran. Of course this time our reaction was quite different, and all of a sudden our friendly ally Saddam Hussein became our arch enemy. The American people may forget this flip-flop, but those who suffered from it never forget. And the Iranians remember well our meddling in their affairs. Labeling the Iranians part of the axis of evil further alienated them and contributed to the animosity directed toward us.
For whatever reasons the Neo-conservatives might give, they are bound and determined to confront the Iranian government and demand changes in its leadership. This policy will further spread our military presence and undermine our security. The sad truth is that the supposed dangers posed by Iran are no more real than those claimed about Iraq. The charges made against Iran are unsubstantiated, and amazingly sound very similar to the false charges made against Iraq. One would think promoters of the war against Iraq would be a little bit more reluctant to use the same arguments to stir up hatred toward Iran. The American people and Congress should be more cautious in accepting these charges at face value. Yet it seems the propaganda is working, since few in Washington object as Congress passes resolutions condemning Iran and asking for UN sanctions against her.
There is no evidence of a threat to us by Iran, and no reason to plan and initiate a confrontation with her. There are many reasons not to do so, however.
Iran does not have a nuclear weapon and there’s no evidence that she is working on one–only conjecture.
If Iran had a nuclear weapon, why would this be different from Pakistan, India, and North Korea having one? Why does Iran have less right to a defensive weapon than these other countries?
If Iran had a nuclear weapon, the odds of her initiating an attack against anybody– which would guarantee her own annihilation– are zero. And the same goes for the possibility she would place weapons in the hands of a non-state terrorist group.
Pakistan has spread nuclear technology throughout the world, and in particular to the North Koreans. They flaunt international restrictions on nuclear weapons. But we reward them just as we reward India.
We needlessly and foolishly threaten Iran even though they have no nuclear weapons. But listen to what a leading Israeli historian, Martin Van Creveld, had to say about this: “Obviously, we don’t want Iran to have a nuclear weapon, and I don’t know if they’re developing them, but if they’re not developing them, they’re crazy.”
There’s been a lot of misinformation regarding Iran’s nuclear program. This distortion of the truth has been used to pump up emotions in Congress to pass resolutions condemning her and promoting UN sanctions.
IAEA Director General Mohamed El Baradi has never reported any evidence of “undeclared” sources or special nuclear material in Iran, or any diversion of nuclear material.
We demand that Iran prove it is not in violation of nuclear agreements, which is asking them impossibly to prove a negative. El Baradi states Iran is in compliance with the nuclear NPT required IAEA safeguard agreement.
We forget that the weapons we feared Saddam Hussein had were supplied to him by the U.S., and we refused to believe UN inspectors and the CIA that he no longer had them.
Likewise, Iran received her first nuclear reactor from us. Now we’re hysterically wondering if someday she might decide to build a bomb in self interest.
Anti-Iran voices, beating the drums of confrontation, distort the agreement made in Paris and the desire of Iran to restart the enrichment process. Their suspension of the enrichment process was voluntary, and not a legal obligation. Iran has an absolute right under the NPT to develop and use nuclear power for peaceful purposes, and this is now said to be an egregious violation of the NPT. It’s the U.S. and her allies that are distorting and violating the NPT. Likewise our provision of nuclear materials to India is a clear violation of the NPT.
The demand for UN sanctions is now being strongly encouraged by Congress. The “Iran Freedom Support Act,” HR 282, passed in the International Relations Committee; and recently the House passed H Con Res 341, which inaccurately condemned Iran for violating its international nuclear non-proliferation obligations. At present, the likelihood of reason prevailing in Congress is minimal. Let there be no doubt: The Neo-conservative warriors are still in charge, and are conditioning Congress, the media, and the American people for a pre-emptive attack on Iran. Never mind that Afghanistan has unraveled and Iraq is in civil war: serious plans are being laid for the next distraction which will further spread this war in the Middle East. The unintended consequences of this effort surely will be worse than any of the complications experienced in the three-year occupation of Iraq.
Our offer of political and financial assistance to foreign and domestic individuals who support the overthrow of the current Iranian government is fraught with danger and saturated with arrogance. Imagine how American citizens would respond if China supported similar efforts here in the United States to bring about regime change! How many of us would remain complacent if someone like Timothy McVeigh had been financed by a foreign power?Is it any wonder the Iranian people resent us and the attitude of our leaders? Even though El Baradi and his IAEA investigations have found no violations of the NPT-required IAEA safeguards agreement, the Iran Freedom Support Act still demands that Iran prove they have no nuclear weapons– refusing to acknowledge that proving a negative is impossible.
Let there be no doubt, though the words “regime change” are not found in the bill– that’s precisely what they are talking about. Neo-conservative Michael Ledeen, one of the architects of the Iraq fiasco, testifying before the International Relations Committee in favor of the IFSA, stated it plainly: “I know some Members would prefer to dance around the explicit declaration of regime change as the policy of this country, but anyone looking closely at the language and context of the IFSA and its close relative in the Senate, can clearly see that this is in fact the essence of the matter. You can’t have freedom in Iran without bringing down the Mullahs.”
Sanctions, along with financial and political support to persons and groups dedicated to the overthrow of the Iranian government, are acts of war. Once again we’re unilaterally declaring a pre-emptive war against a country and a people that have not harmed us and do not have the capacity to do so. And don’t expect Congress to seriously debate a declaration of war resolution. For the past 56 years Congress has transferred to the executive branch the power to go to war as it pleases, regardless of the tragic results and costs.
Secretary of State Rice recently signaled a sharp shift towards confrontation in Iran policy as she insisted on $75 million to finance propaganda, through TV and radio broadcasts into Iran. She expressed this need because of the so-called “aggressive” policies of the Iranian government. We’re seven thousand miles from home, telling the Iraqis and the Iranians what kind of government they will have, backed up by the use of our military force, and we call them the aggressors. We fail to realize the Iranian people, for whatever faults they may have, have not in modern times aggressed against any neighbor. This provocation is so unnecessary, costly, and dangerous.
Just as the invasion of Iraq inadvertently served the interests of the Iranians, military confrontation with Iran will have unintended consequences. The successful alliance engendered between the Iranians and the Iraqi majority Shia will prove a formidable opponent for us in Iraq as that civil war spreads. Shipping in the Persian Gulf through the Straits of Hormuz may well be disrupted by the Iranians in retaliation for any military confrontation. Since Iran would be incapable of defending herself by conventional means, it seems logical that some might resort to a terrorist attack on us. They will not passively lie down, nor can they be destroyed easily.
One of the reasons given for going into Iraq was to secure “our” oil supply. This backfired badly: Production in Iraq is down 50%, and world oil prices have more than doubled to $60 per barrel. Meddling with Iran could easily have a similar result. We could see oil over $120 a barrel and, and $6 gas at the pump. The obsession the Neo-cons have with remaking the Middle East is hard to understand. One thing that is easy to understand is none of those who planned these wars expect to fight in them, nor do they expect their children to die in some IED explosion.
Exactly when an attack will occur is not known, but we have been forewarned more than once that all options remain on the table. The sequence of events now occurring with regards to Iran are eerily reminiscent of the hype prior to our pre-emptive strike against Iraq. We should remember the saying:”Fool me once shame on you, fool me twice, shame on me.” It looks to me like the Congress and the country is open to being fooled once again.
Interestingly, many early supporters of the Iraq war are now highly critical of the President, having been misled as to reasons for the invasion and occupation. But these same people are only too eager to accept the same flawed arguments for our need to undermine the Iranian government.
The President’s 2006 National Security Strategy, just released, is every bit as frightening as the one released in 2002 endorsing pre-emptive war. In it he claims:”We face no greater challenge from a single country than from Iran.” He claims the Iranians have for 20 years hidden key nuclear activities– though the IAEA makes no such assumptions nor has the Security Council in these 20 years ever sanctioned Iran. The clincher in the National Security Strategy document is if diplomatic efforts fail, confrontation will follow. The problem is the diplomatic effort– if one wants to use that term– is designed to fail by demanding the Iranians prove an unproveable negative. The West– led by the U.S.– is in greater violation by demanding Iran not pursue any nuclear technology, even peaceful, that the NPT guarantees is their right.
The President states: Iran’s “desire to have a nuclear weapon is unacceptable.” A “desire” is purely subjective, and cannot be substantiated nor disproved. Therefore all that is necessary to justify an attack is if Iran fails to prove it doesn’t have a “desire” to be like the United States, China, Russia, Britain, France, Pakistan, India, and Israel-whose nuclear missiles surround Iran. Logic like this to justify a new war, without the least consideration for a congressional declaration of war, is indeed frightening.
Common sense tells us Congress, especially given the civil war in Iraq and the mess in Afghanistan, should move with great caution in condoning a military confrontation with Iran.
Cause for Concern
Most Americans are uninterested in foreign affairs until we get mired down in a war that costs too much, last too long, and kills too many U.S. troops. Getting out of a lengthy war is difficult, as I remember all too well with Vietnam while serving in the U.S. Air Force from 1963 to 1968. Getting into war is much easier. Unfortunately the Legislative branch of our government too often defers to the Executive branch, and offers little resistance to war plans even with no significant threat to our security. The need to go to war is always couched in patriotic terms and falsehoods regarding an imaginary eminent danger. Not supporting the effort is painted as unpatriotic and wimpish against some evil that’s about to engulf us. The real reason for our militarism is rarely revealed and hidden from the public. Even Congress is deceived into supporting adventurism they would not accept if fully informed.
If we accepted the traditional American and constitutional foreign policy of non-intervention across the board, there would be no temptation to go along with these unnecessary military operations. A foreign policy of intervention invites all kinds of excuses for spreading ourselves around the world. The debate shifts from non-intervention versus interventionism, to where and for what particular reason should we involve ourselves. Most of the time it’s for less than honorable reasons. Even when cloaked in honorable slogans– like making the world safe for democracy– the unintended consequences and the ultimate costs cancel out the good intentions.
One of the greatest losses suffered these past 60 years from interventionism becoming an acceptable policy of both major parties is respect for the Constitution. Congress flatly has reneged on its huge responsibility to declare war. Going to war was never meant to be an Executive decision, used indiscriminately with no resistance from Congress. The strongest attempt by Congress in the past 60 years to properly exert itself over foreign policy was the passage of the Foley Amendment, demanding no assistance be given to the Nicaraguan contras. Even this explicit prohibition was flaunted by an earlier administration.
Arguing over the relative merits of each intervention is not a true debate, because it assumes that intervention per se is both moral and constitutional. Arguing for a Granada-type intervention because of its “success,” and against the Iraq war because of its failure and cost, is not enough. We must once again understand the wisdom of rejecting entangling alliances and rejecting nation building. We must stop trying to police the world and instead embrace non-interventionism as the proper, moral, and constitutional foreign policy.
The best reason to oppose interventionism is that people die, needlessly, on both sides. We have suffered over 20,000 American casualties in Iraq already, and Iraq civilian deaths probably number over 100,000 by all reasonable accounts. The next best reason is that the rule of law is undermined, especially when military interventions are carried out without a declaration of war. Whenever a war is ongoing, civil liberties are under attack at home. The current war in Iraq and the misnamed war on terror have created an environment here at home that affords little constitutional protection of our citizen’s rights. Extreme nationalism is common during wars. Signs of this are now apparent.
Prolonged wars, as this one has become, have profound consequences. No matter how much positive spin is put on it, war never makes a society wealthier. World War II was not a solution to the Depression as many claim. If a billion dollars is spent on weapons of war, the GDP records positive growth in that amount. But the expenditure is consumed by destruction of the weapons or bombs it bought, and the real economy is denied $1 billion to produce products that would have raised someone’s standard of living.
Excessive spending to finance the war causes deficits to explode. There are never enough tax dollars available to pay the bills, and since there are not enough willing lenders and dollars available, the Federal Reserve must create enough new money and credit for buying Treasury Bills to prevent interest rates from rising too rapidly. Rising rates would tip off everyone that there are not enough savings or taxes to finance the war. This willingness to print whatever amount of money the government needs to pursue the war is literally inflation. Without a fiat monetary system wars would be very difficult to finance, since the people would never tolerate the taxes required to pay for it. Inflation of the money supply delays and hides the real cost of war. The result of the excessive creation of new money leads to the higher cost of living everyone decries and the Fed denies. Since taxes are not levied, the increase in prices that results from printing too much money is technically the tax required to pay for the war.
The tragedy is that the inflation tax is borne more by the poor and the middle class than the rich. Meanwhile, the well-connected rich, the politicians, the bureaucrats, the bankers, the military industrialists, and the international corporations reap the benefits of war profits.
A sound economic process is disrupted with a war economy and monetary inflation. Strong voices emerge blaming the wrong policies for our problems, prompting an outcry for protectionist legislation. It’s always easier to blame foreign producers and savers for our inflation, lack of savings, excess debt, and loss of industrial jobs. Protectionist measures only make economic conditions worse. Inevitably these conditions, if not corrected, lead to a lower standard of living for most of our citizens.
Careless military intervention is also bad for the civil disturbance that results. The chaos in the streets of America in the 1960s while the Vietnam War raged, aggravated by the draft, was an example of domestic strife caused by an ill-advised unconstitutional war that could not be won. The early signs of civil discord are now present. Hopefully we can extricate ourselves from Iraq and avoid a conflict in Iran before our streets explode as they did in the 60s.
In a way it’s amazing there’s not a lot more outrage expressed by the American people. There’s plenty of complaining but no outrage over policies that are not part of our American tradition. War based on false pretenses, 20,000 American casualties, torture policies, thousands jailed without due process, illegal surveillance of citizens, warrantless searches, and yet no outrage. When the issues come before Congress, Executive authority is maintained or even strengthened while real oversight is ignored.
Though many Americans are starting to feel the economic pain of paying for this war through inflation, the real pain has not yet arrived. We generally remain fat and happy, with a system of money and borrowing that postpones the day of reckoning. Foreigners, in particular the Chinese and Japanese, gladly participate in the charade. We print the money and they take it, as do the OPEC nations, and provide us with consumer goods and oil. Then they loan the money back to us at low interest rates, which we use to finance the war and our housing bubble and excessive consumption. This recycling and perpetual borrowing of inflated dollars allows us to avoid the pain of high taxes to pay for our war and welfare spending. It’s fine until the music stops and the real costs are realized, with much higher interest rates and significant price inflation. That’s when outrage will be heard, and the people will realize we can’t afford the “humanitarianism” of the Neo-conservatives.
The notion that our economic problems are principally due to the Chinese is nonsense. If the protectionists were to have their way, the problem of financing the war would become readily apparent and have immediate ramifications– none good. Today’s economic problems, caused largely by our funny money system, won’t be solved by altering exchange rates to favor us in the short run, or by imposing high tariffs. Only sound money with real value will solve the problems of competing currency devaluations and protectionist measures.
Economic interests almost always are major reasons for wars being fought. Noble and patriotic causes are easier to sell to a public who must pay and provide cannon fodder to defend the financial interests of a privileged class.
The fact that Saddam Hussein demanded Euros for oil in an attempt to undermine the U.S. dollar is believed by many to be one of the ulterior motives for our invasion and occupation of Iraq. Similarly, the Iranian oil burse now about to open may be seen as a threat to those who depend on maintaining the current monetary system with the dollar as the world’s reserve currency.
The theory and significance of “peak oil” is believed to be an additional motivating factor for the U.S. and Great Britain wanting to maintain firm control over the oil supplies in the Middle East. The two nations have been protecting “our” oil interests in the Middle East for nearly a hundred years. With diminishing supplies and expanding demands, the incentive to maintain a military presence in the Middle East is quite strong. Fear of China and Russia moving into this region to assume more control alarms those who don’t understand how a free market can develop substitutes to replace diminishing resources. Supporters of the military effort to maintain control over large regions of the world to protect oil fail to count the real costs once the DOD budget is factored in. Remember, invading Iraq was costly and oil prices doubled. Confrontation in Iran may evolve differently, but we can be sure it will be costly and oil prices will rise.
There are long-term consequences or blowback from our militant policy of intervention around the world. They are unpredictable as to time and place. 9/11 was a consequence of our military presence on Muslim holy lands; the Ayatollah Khomeini’s success in taking over the Iranian government in 1979 was a consequence of our CIA overthrowing Mossadech in 1953. These connections are rarely recognized by the American people and never acknowledged by our government. We never seem to learn how dangerous interventionism is to us and to our security.
There are some who may not agree strongly with any of my arguments, and instead believe the propaganda: Iran and her President, Mahmoud Almadinjad, are thoroughly irresponsible and have threatened to destroy Israel. So all measures must be taken to prevent Iran from getting nukes– thus the campaign to intimidate and confront Iran.
First, Iran doesn’t have a nuke and is nowhere close to getting one, according to the CIA. If they did have one, using it would guarantee almost instantaneous annihilation by Israel and the United States. Hysterical fear of Iran is way out of proportion to reality. With a policy of containment, we stood down and won the Cold War against the Soviets and their 30,000 nuclear weapons and missiles. If you’re looking for a real kook with a bomb to worry about, North Korea would be high on the list. Yet we negotiate with Kim Jong Il. Pakistan has nukes and was a close ally of the Taliban up until 9/11. Pakistan was never inspected by the IAEA as to their military capability. Yet we not only talk to her, we provide economic assistance– though someday Musharraf may well be overthrown and a pro-al Qaeda government put in place. We have been nearly obsessed with talking about regime change in Iran, while ignoring Pakistan and North Korea. It makes no sense and it’s a very costly and dangerous policy.
The conclusion we should derive from this is simple: It’s in our best interest to pursue a foreign policy of non-intervention. A strict interpretation of the Constitution mandates it. The moral imperative of not imposing our will on others, no matter how well intentioned, is a powerful argument for minding our own business. The principle of self-determination should be respected. Strict non-intervention removes the incentives for foreign powers and corporate interests to influence our policies overseas. We can’t afford the cost that intervention requires, whether through higher taxes or inflation. If the moral arguments against intervention don’t suffice for some, the practical arguments should.
Intervention just doesn’t work. It backfires and ultimately hurts American citizens both at home and abroad. Spreading ourselves too thin around the world actually diminishes our national security through a weakened military. As the superpower of the world, a constant interventionist policy is perceived as arrogant, and greatly undermines our ability to use diplomacy in a positive manner.
Conservatives, libertarians, constitutionalists, and many of today’s liberals have all at one time or another endorsed a less interventionist foreign policy. There’s no reason a coalition of these groups might not once again present the case for a pro-American, non-militant, non-interventionist foreign policy dealing with all nations. A policy of trade and peace, and a willingness to use diplomacy, is far superior to the foreign policy that has evolved over the past 60 years.
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