Life During Wartime

Discussion in 'General Survival and Preparedness' started by Bear, Feb 12, 2006.

  1. Bear

    Bear Monkey+++ Founding Member Iron Monkey

    Interesting Read.... for anyone who is "listening"......

    Life During Wartime
    by Dan Denning
    Contributor, The Daily Reckoning
    February 10, 2006

    The Daily Reckoning PRESENTS
    If you feel like things are rumbling out of control and that something big and important is happening, well, then, you’re not alone. But what does all of it mean for gold, for the dollar, for oil, for America? In fact, is there more at stake than just the price of oil? Dan Denning explores…

    When I got back from my excursion to the Far East in late 2004 and sat down at my desk in London to write up the story, I emphasized three major trends that would create danger and opportunity for investors. First, the bull market in energy (oil, gas, electric, nuclear) was going to be one of the longest and strongest you and I would see in our investment lifetimes.

    The big drivers are the growth in demand from China and India. Since then, of course, through the work of Whiskey & Gunpowder editor Byron King, we’ve seen how Peak Oil - the exhaustion of all the world’s cheap, easily recoverable oil - is driving up energy prices even higher and faster than I thought, and also has complicated things geopolitically.

    Second, the general rise of Asia into the developed world was causing huge demographic and economic dislocations - and creating enormous investment opportunities as Asian economies began to consume as well as produce, to spend as well as save.

    Third, I wrote that the rise of the East was accompanied by the simultaneous collapse of the ruling currency regime of the last 30 years, the dollar standard. This last point is still so inconceivable to many people that they refuse to entertain the possibility. Too much would have to change. Too much wealth would be destroyed. Too many vacations would have to be canceled. Yet the inexorable rise of gold shows that this revolution in money is slowly but surely eroding the dollar’s status.

    Iran Nuclear Threat: Possible Effects

    The current situation with Iran doesn’t change any of those three main trends. It accelerates them, however, and adds the dangerous new element of nuclear holocaust to the table. Let’s be clear about one thing, though: Even if Iran developed a nuclear device tomorrow, it would not likely be the sort of thing they could put on a missile and fire off to Tel Aviv…or Rome…or London. It would be a large, unwieldy thing that they might be able to put on a jetliner. (Incidentally, Iran recently announced the resumption of commercial flights to the United States.)

    Still, it’s not a secret anymore what Iran is trying to do. The question is, can anyone stop it? Another question is does everyone really want to stop it? I would argue that both China and Russia, though they might be deeply uncomfortable with having a nuclear Iran, see it as an enormous strategic blow to the United States and a key element of their respective energy alliances with Iran. China and Russia, in other words, are more than willing to let the world’s nuclear club expand. Doubtless, they feel like they’d have some measure of control over Iran, especially since both countries have helped Iran with its weapons program. Whether they will have any control or not remains to be seen.

    Let’s leave aside all the speculating about if the United States or Israel can or will attack Iran. I have no idea. Nobody does. In analyzing the whole situation, I found it useful to head to the bookshelf and dust off a copy of Paul Kennedy’s The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500–2000. I’m going to quote from a few sections that I think help explain how what’s playing out across the globe today is a result of both globalization and Peak Oil.

    Unfortunately, if we follow Kennedy’s analysis, it’s very bad news for America and for Americans who fail to understand what’s motivating our main economic and strategic competitors. Emphasis added is mine. In the introduction, Kennedy writes:

    “The triumph of any one Great Power in this period, or the collapse of another, has usually been the consequence of lengthy fighting by its armed forces; but it has also been the consequence of the more or less efficient utilization of the state’s productive economic resources in wartime, and, further in the background, of the way in which that state’s economy has been rising or falling relative to the other leading nations, in the decades preceding the actual conflict. For that reason, how a Great Power’s position steadily alters in peacetime is as important to this study as how it fights in wartime.”

    Iran Nuclear Threat: The War on Terror

    If you date the war on terror to its beginnings, you could conceivably go back to the Iranian hostage crisis of 1979–80. But let’s use Sept. 11 as our start date. Since that time, how efficient has the United States been at using its productive economic resources? Not very, as I have mentioned ad nauseam. That’s because America continues to consume more than it produces. Debt has driven a boom in American consumption right alongside a war that doesn’t seem to interrupt the daily life of many Americans. If countries rise or fall based on the efficient use of productive economic resources, then China, with its 9.9% growth, is rising and America, with GM’s $8.6 billion loss last year, is not. America has been falling relative to China and India for the last 10 years. Kennedy continues:

    “The relative strengths of the leading nations in world affairs never remain constant, principally because of the uneven rate of growth among different societies and of the technological and organizational breakthroughs which bring greater advantage to once society than to another. For example, the coming of the long-range gunned sailing ship and the rise of the Atlantic trades after 1500 was not uniformly beneficial to all the states of Europe - it boosted some much more than others. In the same way, the later development of steam power and of the coal and metal resources upon which it relied massively increased the relative power of certain nations, and thereby decreased the relative power of others.”

    My first essay for Whiskey & Gunpowder, “The Birth of Cultural Siege Engines,” made the simple observation that nuclear proliferation would alter the world’s political structure by making it nearly impossible for one country to invade another. Such as it is, this might actually reduce the incidence of war. It might also mean a very nasty but realistic situation where dictators and tyrants are free to terrorize their populations without fear of being toppled by invasion. After all, King Jong Il is around because he has nuclear weapons. Saddam Hussein will be executed sometime this year because he did not.

    Iran Nuclear Threat: Economic Strategy

    In historical context, nuclear weapons are the long-range gunships of the Atlantic. They are the great military equalizers. With the technological breakthroughs on the nuclear black market, you can expect more nations to get them. In a strange way, their spread might also dilute their leverage. Once everyone has them, there will be no urgency to get them. Military competition will turn back to economic competition.

    For America, this means that we are less likely to be able to use our military as a means to achieve our economic strategy. True, aircraft carriers and long-range bombers still give America the unique ability to project force anywhere in the world. But a nuclear weapon and the means to deliver it, that’s really an army of one isn’t it? How well will America compete now that its great growth is behind it? And what about China and India? They will be boosted, in Kennedy’s terms, by the proliferation of nuclear weapons to the extent that global competition will be more economic than military. And of course, resource-rich countries will enjoy the greatest rates of growth and have the largest advantages of all:

    “Once their productive capacity was enhanced, countries would normally find it easier to sustain the burdens of paying for large-scale armaments in peacetime and of maintaining and supplying armies and fleets in wartime. It sounds crudely mercantilistic to express it this way, but wealth is usually needed to underpin military power, and military power is usually needed to acquire and protect wealth.”

    Here we just find more somber questions for America. America’s productive capacity is being systematically dismantled and shipped to China. If you don’t make anything, how can you sell it? And if you can’t sell it, what will you use to pay for your military? Without the means to generate wealth, how will America maintain its power? By selling bonds to our strategic adversaries? Come again?

    In an energy-scarce, nuclear-abundant world, the surest ticket to wealth, and thereby to power, is energy. Those who have it - Russia, Iran, Venezuela - have tremendous leverage - provided they can survive as nation-states. Those who don’t - America, the United Kingdom, Western Europe - will find themselves not only less wealthy but less powerful. The free ride to power, luxury, and apathy that the Peak Oil age provided the West is emphatically, undeniably over.

    Kennedy writes of this weakening of national power, “If, however, too large a portion of the state’s resources is diverted from wealth creation and allocated instead to military purposes, then that is likely to lead to a weakening of national power over the longer term.” You might add that if states’ resources and capital and their creative energies are diverted and devoted to buying and selling houses and filling them with trinkets bought on eBay, national power is weakened. The consumption lifestyle to which America has grown addicted does not produce capital. It does not produce wealth. It does not produce power:

    “In the same way, if a state overextends itself strategically - by, say, the conquest of extensive territories or the waging of costly wars - it runs the risk that the potential benefits from external expansion may be outweighed by the great expense of it all - a dilemma which becomes acute if the nation concerned has entered a period of relative economic decline.”

    If there have been benefits to the war in Iraq, cheap oil is not one of them. The war is not paying for itself with Iraqi oil exports. That war is not paying for itself at all. It has become a major and costly national undertaking, at just the time when America finds itself on the wrong side of the wealth = energy = power equation and in the fight of its economic life with rising powers India and China.

    Kennedy writes:

    “The strengths and the weaknesses of each of the leading powers are analyzed relatively, in light of the broader economic and technological changes affecting Western society as a whole, in order that the reader can understand better the outcome of the many wars of this period.”

    In the last few years, we’ve seen how the broader “economic and technological changes” of globalization are making the world more competitive and changing social structures everywhere. Indeed, many of the great social and economic institutions on which the postwar world was built are falling like dominoes…GM, the pension system, the United Nations, the dollar standard…the beat goes on. In fact, about the only thing preventing this migration of wealth and power IS the dollar standard.

    It allows America to fund its wars and consumption with a depreciating currency. It is a tremendous advantage Kennedy does not ignore:

    “Since the cost of standing armies and national fleets had become horrendously great by the early 18th century, a country which could create an advanced system of banking and credit (as Britain did) enjoyed many advantages over financially backward rivals.”

    England survived its many wars with France largely because of the creation of a funded national debt, the issuance of bonds whose interest was paid by the efficient collection of taxes. The modern warfare state is simply not possible without “an advanced system of banking and credit,” and that, for now, is exactly what is keeping America afloat. The world still wants our bonds. China has nearly $800 billion in currency reserves, its resource war chest.

    But how long will this advantage last? I suspect a lot will have to do with the price of oil. As oil rises in dollar terms - whether from geopolitical tension or the growing realization that Peak Oil is real - the run on the dollar will grow. Hard assets like gold won’t just be fashionable: They will be indispensable to wealth preservation.

    Soaring gold and oil prices will be accompanied by soaring interest rates and inflation. The convenient fantasy world where prices don’t rise and the dollar doesn’t lose purchasing power will collapse. One day, Americans will wake up and find that the money in their wallets buys three-quarters or half as much as it did the day before. The dollar will have lost status. America will have lost power. And in the new world that emerges, possession of energy, not a printing press, will be the key to wealth.


    Dan Denning
    for The Daily Reckoning

    © 2006 Dan Denning
    The Daily Reckoning Archives
  2. RightHand

    RightHand Been There, Done That RIP 4/15/21 Moderator Moderator Emeritus Founding Member

    Welcome Nalos Surith, Imperial Rogue. Glad you have joined us.
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