Countdown to War

[hassata]

Here we go:

http://www.huffingtonpost.com/2012/01/04/us-iran-tensions-israel-joint-military-exercises_n_1183952.html?ref=mostpopular

[agrasyuk]

really, one minute ad you can not skip??

 

with that i wonder, really? Iranian paratroopers using Uzi SMGs, the staple product of israel? thats quite ironic. with that i think the situation will develop into lots of huffing an puffing but nothing of substance.

[EtherealN]

"This video can not be viewed due to your location." :(

 

The worst thing about censorship is ███████ ;;

 

As a comment to the text though - while I am not quite sure the alarming tone is warranted (but then again, I don't have direct access to intelligence reports either, so I wouldn't know when it's time to be alarmed :P ), I would note that sanctions leading to war is not exactly unprecedented. Classic example is how the USA ended up dragged into WW2. Roughly:

 

1) Japan does bad things in Nanking

2) USA and others impose sanctions, limiting Japan's oil imports

3) Japan faces the choice of either giving up it's ambitions in Asia, or taking head-on the powers that restrict it's access to the resources it needs.

4) Pearl Harbor.

 

Classic problem really - it's not ideal to intervene with arms at the slightest disagreement, but non-intervention will end up derailing everything (Chamberlain...), and non-armed intervention has a habit of causing armed conflict anyway. I'm so happy I'm not in the diplomatic corps forced to deal with that stuff on a daily basis.

Edited January 6, 2012 by EtherealN

[4c Hajduk Veljko]

We are not going to war any time soon, we don't have money. My government borrows 40 cents for every dollar it spends. Our debt to GDP is now at 100% and we continue to borrow ... USA credit rating was reduced few months ago.

 

Iran can just sell its oil to China and India, even at lower price if it has to.

[EtherealN]

Well, the fact that the USA borrows a lot is only relevant if people see it is a reason to stop spending. Compare for example with Japan (200+ percent). Debt is not a good thing to have, but just like it doesn't necessarily stop people from spending it doesn't stop politicians from spending. Possibly even less so, since politicians aren't spending their own money, and quite often politicians will see deficit spending as the way out of an economic problem (in accordanse with Keynesian theory).

 

The credit rating was not actually reduced for economic reasons, it was reduced for political reasons - it was the deadlock in congress about the debt ceiling that was the cause for the lowered rating; doesn't matter how good your economy is if the leadership finds itself unable to make budgetary decisions. AA-rating is, of course, also better than quite a few other countries as well, including for example Israel (A rating).

 

But anyhow, "war" doesn't have to mean "repeat of 2003". It can just as easily mean "bomb all military installations and reduce all nuclear-related facilities to rubble". I could easily see a way people would make the case that while they can't really afford a war, letting it go would become even more expensive than the war - sort of like selecting the lesser evil. Whether that'll happen though... meh, the people with the information to know are probably not allowed to talk about it because their offices are in Langley and Fort Meade. :P

Edited January 6, 2012 by EtherealN

[sobek]

Possibly even less so, since politicians aren't spending their own money, and quite often politicians will see deficit spending as the way out of an economic problem (in accordanse with Keynesian theory).

 

The problem IMHO is that the theory is used half assed nowadays. The states don't invest in long term assets like education and public welfare, which strenghten middle class spending capacity, instead they blow the money on institutions that are geared toward privatising it, which in term weakens the middle class.

[manfrez01]

Crazy World

[EtherealN]

Meh, my own view is that it focuses too much on consumption - but there's nothing to consume if there is no production in the first place. I've actually had politicians here (when I was active in politics) tell me straightfaced that "inflation is good because it discourages savings", with savings being considered bad since the money isn't being "used". ...except that it is. Money on a savings account is used to back lending at the bank, which is used either by others to consume (preserving the monetary velocity in the system), or by others to invest in production.

 

As a further aside, the "privatisation" of the education and welfare sector is, at least in my country and most places in the european union I've looked at, a total joke. But if you trick me into that topic I'll end up violating 1.7 in really bad way. :D

 

Could share my opinion in private if you like though, it would certainly be interesting to get a view on how things have been going down with that in Austria, since my own experience is mainly centered on Sweden (naturally).

 

Anyways, that's a derail. PM me if you have some pointers on places to look at the Austrian situation (german is fine).

[hassata]

My favorite example is the privatization of the water utility in a South American country (I forget which one). The French company the took over convinced (read paid-off) the government to pass a law prohibiting the collection of rain water for home use. A guy in the related documentary said he had to choose between buying drinking water for the family and educating his son!

[Boberro]

We are not going to war any time soon, we don't have money. My government borrows 40 cents for every dollar it spends. Our debt to GDP is now at 100% and we continue to borrow ... USA credit rating was reduced few months ago.

 

Iran can just sell its oil to China and India, even at lower price if it has to.

 

Do you really think this debt is to be repayed? Almost every country (on the West) has enormous debt... which I highly doubt is meant to be paid off.

[EtherealN]

Do you really think this debt is to be repayed? Almost every country (on the West) has enormous debt... which I highly doubt is meant to be paid off.

 

Well, to be fair, we (sweden) has been there and we're paying it off. Technically the debt is always being paid, since it is usually in the shape of obligations with a defined maturity, but obviously some countries are using new debt to take care of those maturities. The big deal is that in a lot of cases these instruments cannot be paid off early in the same way you might be able to pay your credit card bill early if you so desire - if the obligation is set to mature after 20 years, then that's that.

 

But it is definitely possible to reduce your debt. In '95 our national debt was equal to roughly 80% of the GDP, today it is just over 30% (the lowest it's been since the 70's oil crisis). You pay off the debt basically through sorting out your finances to ensure you don't have a deficit, and then pay your maturities and don't use new debt for anything beyond standard liquidity measures - and for those you make sure to use short-term obligations or similar, not those rediculous 20-year obligations we've seen some of the euro-zone countries forced into issuing to save themselves right now.

 

Another thing to remember is that as long as you don't take in new debt and have a living economy, the debt to GDP ratio will steadily decrease. For example, in end of 2010 our GDP was ~3 300 billion SEK, our debt was ~1 151 billion SEK, or roughly 35% of GDP. In '95 our GDP was ~2 300 billion SEK - if our debt had been stationary from then, it would then have been ~50% of GDP and we could, in 16 years, have gotten a 15%-point decrease even without making an effort to reduce absolute debt. (We have paid reduced absolute debt as well, so we have inflation, GDP growth and real debt reduction to thank for our relatively small debt.)

 

But basically, the nature of the game is that if you just let enough time pass, debt will be reduced even if you don't pay it, simply because your economy will be growing and inflation will be eating on the value of the debt. Now, of course, reducing the US debt to manageable levels through that alone would take a LOOOOONG time... :P

[4c Hajduk Veljko]

Do you really think this debt is to be repayed? Almost every country (on the West) has enormous debt... which I highly doubt is meant to be paid off.

Ask Greeks or Spaniards or Portuguese or Italians or Icelanders ...

[Boberro]

Ask Greeks or Spaniards or Portuguese or Italians or Icelanders ...

 

These countries can't match to the USA....

[EtherealN]

Well, to be precise, Iceland doesn't quite belong there: they're not in debt due to overspending as a government, they're in debt because their banks were over-exposed and the government pretty much took them over and assumed their liabilities.

 

And, again, take a look at Japan. Their debt is a lot greater than that of pretty much any european country (pretty much only Zimbabwe can compete with them), yet they're not in the same kind of trouble as the southern european economies. There's a lot more to this than just being in debt.

[EtherealN]

These countries can't match to the USA....

 

Slightly old figures (2010), but:

 

Greece: 143% of GDP

Italy: 119%

USA: 62%

 

Now ofc, the USA is higher up than that now, and numbers like these are always a bit problematic to judge since a lot depends on how you cound domestically held debt, and in the case of the USA you also have the fact that it, to a relatively great extent, owes itself money - that is, some of the debt has the federal government loan money from state institutions (for example, you could borrow money from a state pension fund).

 

This then creates debt that is techincally debt just the same, but is still a bit different. Compare to the interest-carousel used by many companies to reduce taxes: a group of companies that are owned by one and the same company, and act in different countries, loan a lot of money from each other. This ensures that everyone has interest payments to everyone, and with the right kind of timing you can then ensure that even though everyone is profitable, none of them is paying taxes - that happens in the mother-company, which is placed on a suitable island. :)

[Boberro]

Well, to be fair, we (sweden) has been there and we're paying it off. Technically the debt is always being paid, since it is usually in the shape of obligations with a defined maturity, but obviously some countries are using new debt to take care of those maturities. The big deal is that in a lot of cases these instruments cannot be paid off early in the same way you might be able to pay your credit card bill early if you so desire - if the obligation is set to mature after 20 years, then that's that.

 

But it is definitely possible to reduce your debt. In '95 our national debt was equal to roughly 80% of the GDP, today it is just over 30% (the lowest it's been since the 70's oil crisis). You pay off the debt basically through sorting out your finances to ensure you don't have a deficit, and then pay your maturities and don't use new debt for anything beyond standard liquidity measures - and for those you make sure to use short-term obligations or similar, not those rediculous 20-year obligations we've seen some of the euro-zone countries forced into issuing to save themselves right now.

 

Another thing to remember is that as long as you don't take in new debt and have a living economy, the debt to GDP ratio will steadily decrease. For example, in end of 2010 our GDP was ~3 300 billion SEK, our debt was ~1 151 billion SEK, or roughly 35% of GDP. In '95 our GDP was ~2 300 billion SEK - if our debt had been stationary from then, it would then have been ~50% of GDP and we could, in 16 years, have gotten a 15%-point decrease even without making an effort to reduce absolute debt. (We have paid reduced absolute debt as well, so we have inflation, GDP growth and real debt reduction to thank for our relatively small debt.)

 

But basically, the nature of the game is that if you just let enough time pass, debt will be reduced even if you don't pay it, simply because your economy will be growing and inflation will be eating on the value of the debt. Now, of course, reducing the US debt to manageable levels through that alone would take a LOOOOONG time... :P

 

Problem is you need stable growth rate - the best all time. I don't say growth at 1-2%. which is nothing. But more 5%+. In this case you are right - debt will be repayed itself IF you don't increase expends in meantime. But between the time of the repayment start to the end you have to face against social discontent for years (few dozen sometimes). After some time people just go on streets or abandon country which leads to other troubles.

Personally I think more and more about option zero. Reset all and build new economy rules, or strongly improve current one, but I don't see it happening even now at all.

 

Slightly old figures (2010), but:

 

Greece: 143% of GDP

Italy: 119%

USA: 62%

 

Now ofc, the USA is higher up than that now, and numbers like these are always a bit problematic to judge since a lot depends on how you cound domestically held debt, and in the case of the USA you also have the fact that it, to a relatively great extent, owes itself money - that is, some of the debt has the federal government loan money from state institutions (for example, you could borrow money from a state pension fund).

 

This then creates debt that is techincally debt just the same, but is still a bit different. Compare to the interest-carousel used by many companies to reduce taxes: a group of companies that are owned by one and the same company, and act in different countries, loan a lot of money from each other. This ensures that everyone has interest payments to everyone, and with the right kind of timing you can then ensure that even though everyone is profitable, none of them is paying taxes - that happens in the mother-company, which is placed on a suitable island. :)

 

Compare two countries, both with same debt, ect ect. You will look other way for USA and Greece - this is why I think USA will really not bother to repay (which doesn't mean they don't want to slow down progress of debt), because they can allow itself not to. Who will threat them? Nobody Who will threat Greece, Spain? Most of countries :)

Edited January 6, 2012 by Boberro

[EtherealN]

Actually, no, you don't need a stable growth rate, just an average growth. And it doesn't have to be big either. This is classic interest-on-interest, except the other way around.

 

Start with 100 billion in debt, with 100 billion in GDP. 1% net growth after inflation. Tick clock 20 years. 100 billion in debt, 122 billion in GDP. Instead of 100% debt, you now have 82%. And sure, it's not a disaster, but the point is that as long as you were able to pay the interest while at 100%, you'll have an even easier time when at 82%. Especially since you'll have had some turnover in debt instruments in this time, meaning that you would probably have had the ability to reduce interest costs as well through adjusting the type of instrument you use for the debt - lower debt with stability in the economy should lead to lower interests; all you have to do here is compare the low interest sweden pays on it's debt (a percent or two) with what the situation is like for Greece (7+).

 

Basically, as long as you keep your finances sound, you can keep stable even with a high debt. Again - check out Japan. 200+ percent debt to GDP! But this is not necessarily a problem - they have an easier time paying this than Italy has with half; but indeed, they might very well be paying a lower interest on their loans and thus have a lower credit cost in spite of having the greater debt.

 

Why people would rise up or emigrate due to debt being growing or stable I don't understand. You need to realize that it's not like the people who loaned out the money never get their money back - they get their money back on time, all the time. If they didn't - that is, if the government was unable to pay the maturities, the government in question would be bankrupt. THIS is the problem in Greece, for example: it's not -really- that the government is in debt that is the cause for crisis, it's the fact that the government is out of money to pay it's bills. The debt comes in since the restrictions imposed by paying the interest means that it is extremely difficult for them to make the required budgetary balancing towards being able to pay their bills again - and this gets worse since with the credit rating plummeting due to the aforementioned problems, interest rates go up and the problem gets even worse.

 

...but if the greek government had been running it's books smoothly and not overspent, then there would have been no problem. Sure, there'd have been a lot of money paid in interests, but there'd have been nothing to rebel about.

 

Anyways, we are derailing from the topic, I think. Once I get a moment (I just realized how much time I already spent on this, eeek!) I think I'll look at splitting this to it's own topic. Economics is interesting, but the original issue was the question of whether sanctions would cause war with Iran... :D

[104th_Cobra]

Well, You derail off-topic but without get in a rant (for now) that we can easily avoid :)

My economic's knowledge is basic but I'm having some talking with urban planning experts.

The main part of external debt is private and not public. At least here in Portugal, since 1972, the private can develop terrain from forestry and agriculture to urban, taking to him the plus value. What happened since 1985 was a run to buying propriety with the urban construction purpose, with the forestry and agriculture objectives being derailed because of low propriety taxes. If the Government passed politics to augment the propriety taxes, like the ones in U.S., they were instantaneously labeled as communists and of course no one want to loose votes. We are a Republic for one hundred years (with a dictatorial regime from 1926 to 1974) but we are still in the Ancién Regime, with economy based on land profiteering , illiberal markets and arbitrary policy absolutism. The result of all this right now, accordingly with Portugal Bank data, our external debt is composed by public 68%GDP and private 450%GDP.

 

 

Governments are borrowing money on private banks and paying high taxes. The governments are just paying for the private debt.

 

 

 

Concerning Iran, what is The Truth and what we know? If there is to happen an aerial war it will be an aggressive one, taking all military infrastructures down, rapid enough to avoid more Iranian public opinion support to their government. The Iranian government passed the limit some time ago, soon or later will be violence.

Edited January 6, 2012 by Xpto

[Mustang]

In the midst of all this, the USN rescues Iranian hostages from Somali pirates :)

 

http://www.reuters.com/article/2012/01/06/us-usa-iran-pirates-idUSTRE80517V20120106

[Pilotasso]

What money needs to be spent? I think they would make money instead. All that USA needs to do is supply intelligence and weapons to israeli and Saudi military (either one), then they will do all the fighting, basicaly mauling Irans obsolete military equipment from a distance.

 

They dont even need to face ground troops (that would be out of support soon anyway) because occupation is not the objective.

Edited January 6, 2012 by Pilotasso

[ZQuickSilverZ]

Funny how when money leaves the USA to another country it is a gift, but when money leaves other countries to the USA it is a debt. We GIVE more money away every year than most countries have in their whole economy.

 

Fact.

[sobek]

If it were only as simple as that. ;)

[Mustang]

West readies oil plan in case of Iran crisis

[4c Hajduk Veljko]

Slightly old figures (2010), but:

 

Greece: 143% of GDP

Italy: 119%

USA: 62%

USA debt to GDP is now at 100%.

[primus_TR]

USA debt to GDP is now at 100%.

 

In my opinion, it may not be that important, since 1) the US debt is largely internal, 2) the US debt is in USD, meaning they,unlike Greeks, Spaniards, Italians, Irish et al., can print their way out of debt without worrying too much about inflation in a low-demand environment (note also the extremely low [negative even] rates at which which the US government can currently borrow).

 

In other words, the US economy has unique characteristics in several aspects and comparing it to other countries may be misleading. And contrary to common misconceptions, in my opinion a gigantic (in the trillions) war spend which no one (read republicans) can argue against CAN be the US's way out of the current economic depression (may be that is the whole point behind the Iran escalation afterall?). At any rate, again in my view, the US is in much less economic trouble compared to everyone else around the world, and CAN afford (financially and otherwise) wiping Iran off the face of the earth.

 

And remember, despite the now-secured Libyan oil supply, Europe will suffer immensely from an oil crisis due to Iran war, unlike the US. So sell your euros and buy golds and dollars while you can :D