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Wednesday, May 13, 2009

It's the Empire, stupid!

In a recent article, the Independent Institute's Ivan Eland unearths the root cause of the present economic crisis. Despite the claims of many politicians and pundits, it wasn't greed:

War has a history of causing financial and economic calamities. It does so directly by almost always causing inflation — that is, too much money chasing too few goods. During wartime, governments usually commandeer resources from the private sector into the government realm to fund the fighting. This action leaves shortages of resources to make consumer goods and their components, therefore pushing prices up. Making things worse, governments often times print money to fund the war, thus adding to the amount of money chasing the smaller number of consumer goods. Such “make-believe” wealth has funded many U.S. wars. . . .

The Fed caused the current collapse in the real estate credit market, which has led to a more general global financial and economic meltdown, by earlier flooding the market with excess credit. That money went into real estate, thus creating an artificial bubble that eventually came crashing down in 2008. But what caused the Fed to vastly expand credit?

To prevent a potential economic calamity after 9/11 and soothe jitters surrounding the risky and unneeded U.S. invasion of Iraq, Fed Chairman Alan Greenspan began a series of interest rate cuts that vastly increased the money supply. According to Thomas E. Woods, Jr. in Meltdown, the interest rate cuts culminated in the extraordinary policy of lowering the federal funds rate (the rate at which banks lend to one another overnight, which usually determines other interest rates) to only one percent for an entire year (from June 2003 to June 2004). Woods notes that more money was created between 2000 and 2007 than in the rest of U.S. history. Much of this excess money ended up creating the real estate bubble that eventually caused the meltdown. Ben Bernanke, then a Fed governor, was an ardent advocate of this easy money policy, which as Fed Chairman he has continued as his solution to an economic crisis he helped create using the same measures.

Of course, according to Osama bin Laden, the primary reasons for the 9/11 attacks were U.S. occupation of Muslim lands and U.S. propping up of corrupt dictators there. And the invasion of Iraq was totally unnecessary because there was never any connection between al-Qaeda or the 9/11 attacks and Saddam Hussein, and even if Saddam had had biological, chemical, or even nuclear weapons, the massive U.S. nuclear arsenal would have likely deterred him from using them on the United States.

So the causal arrow goes from these imperial behaviors — and blowback there from — to increases in the money supply to prevent related economic slowdown, which in turn caused even worse eventual financial and economic calamities. [Emphasis added.] These may be indirect effects of empire, but they cannot be ignored. Get rid of the overseas empire because we can no longer afford it, especially when it is partly responsible for the economic distress that is making us poorer.

--from "How the US Empire Contributed to the Economic Crisis" by Ivan Eland at http://original.antiwar.com/eland/2009/05/08/how-the-us-empire-contributed-to-the-economic-crisis/.

Once the American people understand the role played by the Empire and the Federal Reserve in causing the economic meltdown they will be ready to abolish the Empire and the Fed.

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