Sunday, November 23, 2008

Global Recession a by-product of WAR

Every war has its economical impact and history proves it. Whether it is from the strongest economy or developing economies. World War-I, German Inflation during Hitler's era, Russian Revolution, World War-II, Vietnam War, Indo-Pak War, Iran or Iraq War, all prove beyond doubt that funding in all these wars is from concerned countries' tax-payers. No country's economy is immune enough to consequences of war, whether it may be attacker or the attacked. You may label the war with any any name (fight against terror) the affects cannot be nullified.

The Reserve Bank or any Federal Agency controlling the economy of the country, they are non profit organizations, created with an intention to stabilize economy by following various methods. They are answerable to none and with a free hand. They regulate the money supply to the government for funding various schemes & projects. They also provide the leverage to the country by providing funds for waging war in the name of defense. Now just for the common understanding the cost of war, or the country's capabilities to wage war are financed by Reserve Bank or Federal Bank, who in turn collect it through various improvised methods form the public.

Whom the government may approach for financing the WAR ?

If you are asked to give Rs.10,000 for waging a war, would you part with the amount. The answer can be well imagined, so what else can the government do ? they have found a way out - to recover the expenses of the WAR by picking the pockets of unwary public, by imposing direct or indirect taxes.

Now just imagine for a moment that, if your pay-cheque is Rs.25,000 and Rs.10,000 are taken away how you will cope for various requirements. Obviously you will cut down all the expenses which can be postponed or you will adjust rather will be forced to adjust your expenditure. The result your buying capacity will be reduced. This will effect the retail demand and will adversily effect the production of the goods.

If the producing company is unable to meet its targeted profit what are the options left before the company or organization to remain afloat ? The company would reduce production, workers will become idle leading to lay-offs. After first round of these corrective measures the company if still finds itself in non-profitable position, how long will it bear. The company decides the enevitable the SHUTDOWN. This will further lead to addition of unemployment problem.

All the above factors lead to further lowering of demand and further CLOSURES.

The inflation spreads its tentacles, further affecting the common man who has a fixed income or pensioners. People with variable income remain a little less effected. Export/import of the country is adversely impacted.

Lower production leads to shortages. People start holding or piling up reserves in fear of non-availability or price-escalation further compounding the inflation.

The resultant effect is less money so to increase the money supply lending rates or repo rate is cut, to make more money available to the companies. All sorts of measures are taken by Reserve or Federal Bank to contain inflation.

The above impact of WAR will continue till Fedral or Reserve Bank fills the coffers again, which is imperative.

2 comments:

Devesh Misra said...

Reuters
U.S. costs of Iraq, Afghan wars top $900 billion: report
Tue Dec 16 08:04:37 UTC 2008

By David Morgan

WASHINGTON (Reuters) - U.S. military operations, including the Iraq and Afghanistan wars, have cost $904 billion since 2001 and could top $1.7 trillion by 2018, even with big cuts in overseas troop deployments, a report said on Monday.

A new study released by the nonpartisan Center for Strategic and Budgetary Assessments, or CSBA, said the Iraq conflict's $687 billion price tag alone now exceeds the cost of every past U.S. war except for World War II, when expenditures are adjusted for inflation.

With another $184 billion in spending for Afghanistan included, the two conflicts surpass the cost of the Vietnam War by about 50 percent, the report said.

CSBA said U.S. military operations have already reached $904 billion since 2001, including the two wars as well as stepped-up military security activities at home and the payout in war-related veterans' benefits. The estimate includes allocated spending into 2009.

In contrast, a separate Government Accountability Office study released on Monday said Congress has provided the Pentagon with $808 billion for the Bush administration's global war on terrorism from 2001 through September 30, 2008, including $508 billion for Iraq and $118 billion for Afghanistan, the Philippines and the Horn of Africa.

The CSBA study said U.S. taxpayers could pay another $416 billion to $817 billion over the next decade, even if the combined troop deployment to Iraq and Afghanistan were slashed to between 30,000 and 75,000.

That would bring the cost for both wars to between $1.3 trillion and $1.72 trillion for 2001 through 2018, and even higher when federal borrowing costs are included, CSBA said.

The United States has 143,000 troops in Iraq and 31,000 in Afghanistan. Washington has agreed to withdraw its forces from Iraq by the end of 2011, under a newly signed agreement with the Iraqi government. But U.S. officials are planning to add more than 20,000 forces in Afghanistan within 12 to 18 months.

One reason for the ballooning costs is the Bush administration's habit of funding the wars through supplemental budget requests, a practice that CSBA said has eroded congressional oversight and weakened the Pentagon's long-term planning and budgeting processes.

The Bush administration and Congress have also pursued significant tax cuts since 2001 and robust spending increases, rather than following the established approach of funding war costs by combining tax increases with curbs on domestic spending and borrowing.

"The Bush administration has taken a starkly different approach to financing the wars in Iraq and Afghanistan," the CSBA study said in its executive summary.

In fact, CSBA said war cost projections rise significantly when interest payments on the federal debt are included in the calculations.

Overall costs would reach $1.4 trillion to $1.8 trillion from 2001 through 2018 if borrowing were assumed to cover 10 percent of underlying military operations.

CSBA said war cost projections would climb to between $2 trillion and $2.5 trillion, if all costs were covered by borrowing.

(Editing by David Alexander and David Wiessler)

Devesh Misra said...

The above news by Reuters is an confirmation of the reason to world economic recession