Maybe we should work to defeat Al Queda before November then maybe that wouldn't be a concern, jackass

Posted at March 14, 2008 3:06 PM in response to McCain: I "Worry" That Al Qaeda Will Attack To Tip Election Against Me

Labor, resources, wealth and the Iraq war. An acre of land has a certain value to it. Depending on the location, that value will increase proportional to the demand for the land in a certain area. An acre in Manhattan has more monetary value than an acre in upstate New York. Build a house on that land and the value increases again.
Now demand plays a critical role in how fast or slow the property appreciates. During the past 5-6 years, housing appreciated at very abnormal levels. Speculation and demand was encouraged by many exotic and dubious lending practices. Homebuyer's were freed from the "constraint" of saving for a downpayment for a period of several years. Teaser rates, 0% loans, negative amortization and other exotic loans became the norm instead of the exception becoming almost half, half of loans processed during the peak of the housing bubble. This sent a flood of new buyer's into the housing market.
Now, for me, the key question is what was the trigger for this flood exotic lending? During the late 90's job's were plentiful and so was capital and housing grew at a healthy, predictable pace without the need for exotic lending.
But in 2003, the economic landscape was different, the Iraq war was dragging on, the economy was growing albeit slowly and wages remained stagnant. Interest rates remained extremely low during this period since the Fed feared that the war in Iraq could trip the economy into recession while both the government's budget and deficit continued to grow well ahead of the country's GDP. Alot of money was being printed and easy credit made it flow into the country's economy very, very rapidly. The rapid and easy flow of money allowed housing to inflate at a very, very rapid pace. When the exotic loans and easy credit could no longer supplant a wage earner's income deficit AND with the FED forced to increase interest rates, growth stalled. Now many, many borrower's were faced with a sharp drop in their spending power since their mortgage payment increased substantially while at the same time home prices had risen to the point of being out of reach to a substantial number of consumer's.
What I conclude, is that the cost of the Iraq war has been an extremely substanial extraction of wealth from the nation. The Iraq war triggered the FED and the government to make unsound policy choices. Yes, as a percentage of the current size of the budget, spending on the Iraq war appears small. However, when examined as a cost benefit to the country, the cost of the Iraq war has been extremely high. It is very, very important how a country spends it's wealth. If say, instead of the war, the government choose to build an in-ground swimming pool for each homeowner this would be a very poor use of the nation's wealth. Maybe, at first, with all the job's created there would be a stimulus but later, when finished and many pools would go unused and into disrepair, the folly of this expenditure would be clear. Contrast that to building a new interstate that improves commerce, or health care facility that improves productivity of workers.
So, with time and dilution, it's become possible to avoid a conclusion that the Iraq war is bad and costly ergo it caused the recession. However, I believe, history will prove that talk of the current downturn will definately include the cost, both internationally as well as domestically, of the Iraq war and it's impact on the texture of the economy. The Iraq war's impact on energy prices, the additional cost of energy for consumer's that was extracted from their paycheck that could have been used for domestic spending. The increased use of credit to supplement the average American's income. To not conclude that the Iraq war played a part in our current circumstances is to lift the Iraq war from the pages of history and conclude that this recession was inevitable without the war. And recessions may be inevitable, but recessions with huge deficits do not need be inevitable which contrains the government's ability to act, a constraint it didn't have in 2001. Overall, and in the end, the current downturn, it's nature, and our long term ability to recover and grow from it, are the cumlative effect of very bad, economic, military and domestic policy choices. These choices were poorly thought through, made grossly optimistic(more like gambling) assumptions and used mulitple deceptive accounting gimmicks at many levels of public and private institutions.
Many of the same people who believed war in Iraq was a good idea, believed that lifting the constraint's on lending by the OCC was a good idea. It was a mindset by like minded individuals on issues of war and spending that took America's economy on it's current path. Individuals who believed greater defense spending, 'created' good paying jobs so that people could buy better houses which in turn would add to the country's growth. The fatal flaw of this plan was that it assumed only one outcome. A short war costing as little as $6Billion to $60Billion, lower oil prices and tranquillity in Iraq that would not require large expenditures. To everyone's dismay, the opposite occurred, the gamble didn't pay off.

Posted at March 10, 2008 12:29 PM in response to The Recession: It's the Housing Bubble, Not the War