Paying off debts using war?

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sunson's picture
sunson
Status: Bronze Member (Offline)
Joined: Jan 29 2009
Posts: 42
Paying off debts using war?

US has had a history of 'paying off' its debts by playing (or creating? :) ) big wars. I'm not questioning what the US would do post oil peak if it squandered precious oil.

I was actually going to point one of my friends (currently a US resident, Indian citizen) to consider living a low energy, yet full of opportunities life (food production, "crude" technology using cheap / low energy electronics + computers, education), etc.,. 

When discussing the US economy's problems (using data points pointed out by Chris) he pointed out that the US has had significant success paying off debts using wars. If someone can point me to some key statistics around this topic (I'm not really looking for "winning the argument" but more to see if it is really possible to pay off _this_ debt by creating 'wars'). 

Gut answer(s) / points I have already made:

- 53 trillion dollar is HUGE compared to all the debts in the history of US.

- US had the power of oil to propel itself forward / bail itself out thus far - it was the first nation to use oil so extensively. It created an amazing infrastructure within the country and also outside to help drive economy but unfortunately an unsustainable one at that since everything needed lots of energy.

- Forget the financial crisis, a war is essentially a waste of resources. Something as critical as oil when wasted, you're only talking 'short term' - forget everything

His simple point:

- war might change the scenario significantly that its difficult to 'predict' the outcome. For instance, for all you care, US might just show the middle finger to all the oil producing nations and invade / squander / use the oil exclusively for itself. It can become a large mega dictator. However, US has (historically) whacked everybody out of their pants - it 'probably' will do so this time around too (I have no data points to 'deny' this 'belief' of this friend of mine but again, its pretty obvious that "war" is not a solution to 'end' the crisis (unless, you're talking about a _real nuclear holocaust_  types end, that is))

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 7 2008
Posts: 153
Re: Paying off debts using war?

War destroys wealth, not create it.  Therefore you cannot reimburse anyone the wealth they loaned to you buy destroying wealth. 

Say the gov't prints money or collects taxes from citizens savings to secure steel and other commodities and to pay workers to build tanks and bombs.  These war machines then go to war and destroy other things of wealth such as bridges, buildings, life-laborers, energy  and the war machines themselves get destroyed.  After the war the war machines also serve no purpose in creating wealth.  You can't fly in a war plane to cross the country to visit your family.  You can't use a military tank to plow your field to produce food. 

Any debts paid following a time of war is likely done so with dollars of weaker purchasing power.  Wars are highly inflationary because the gov't usually prints the money to fund such activities, considering tax payers would revolt and demand the war end if they were immediately penalized with the cost of the war.  The gov't instead applies the inflation-stealth tax created by the printing press.  Who pays the salaries of the soldiers?  Someone must forego consumption in order to supply the food and resources to employ the soldiers who do not produce anything for consumption in the economy.  Doesn't matter if it's by money printing or by confiscating savings by taxing.

War does reduce unemployment.  When you enlist 100k young men & wemen into uniform that creates non-productive jobs and clears the market of unemployed citizens.  This creates new demand for laborers.  Soldiers are non-productive jobs because soldiers do not create any wealth.  They do not create food or produce goods that improve the comfort and quality of life.  They do serve and protect but if there wasn't a hostile situation created between governments then there would be no consumer demand for soldiers.

There is nothing positive that comes from generating war or creating war machines.  If any politician tries to convince you otherwise - turn off your TV or stop reading.

sunson's picture
sunson
Status: Bronze Member (Offline)
Joined: Jan 29 2009
Posts: 42
Re: Paying off debts using war?

Thanks for the detailed explanation!

bearing01 wrote:

Say the gov't prints money or collects taxes from citizens savings to secure steel and other commodities and to pay workers to build tanks and bombs.  These war machines then go to war and destroy other things of wealth such as bridges, buildings, life-laborers, energy  and the war machines themselves get destroyed.  After the war the war machines also serve no purpose in creating wealth.  You can't fly in a war plane to cross the country to visit your family.  You can't use a military tank to plow your field to produce food. 

 

But most of what gets destroyed by a "winner" is the loser's productive stuff - such as _their_ bridges, buildings and other such centres of economic activity - I'd think the relative strengthening of the 'dollar' helps gain? "Gain what?" I don't know.

 

Quote:

Any debts paid following a time of war is likely done so with dollars of weaker purchasing power.  Wars are highly inflationary because the gov't usually prints the money to fund such activities, considering tax payers would revolt and

This I completely understand and agree to. Thanks for elucidating.

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 7 2008
Posts: 153
Re: Paying off debts using war?
sunson wrote:

But most of what gets destroyed by a "winner" is the loser's productive stuff - such as _their_ bridges, buildings and other such centres of economic activity - I'd think the relative strengthening of the 'dollar' helps gain? "Gain what?" I don't know.

I'm not quite sure what you're asking here.  If we go bomb another country then that will destabilize or destroy their economy and/or government.  That will make investors in that country loose faith in the system.  They will try to convert their money in that economy to something that is more stable... like that of the country that won the war and is stable.  That could drive the exchange rate up when trying to buy the money of the winning country.  However, it won't be real increase in purchasing power of the country that won the war.  The volume of money in the country who won will still be chasing the same number of goods.  Perhaps after the war the country who won won't be needing to suck the wealth out of its citizens to fund the production of war machines. Giving them back their wealth may bring back the demand for consumer goods that they had before the war.  Because they had been making war machines that means there won't be many consumer goods to buy.  Therefore same number of dollars chasing fewer goods makes those goods expensive.

If we won, that means we may have destroyed another countries capital/wealth.  They will be impoverished until they can save and get back on their on productive feet again.  Their destruction of wealth does not benefit me - the winner.  If USA blew up Germany then American's won't be able to buy BMW's anymore.  American's will be worst off, not better.  If Germany used to export food, steel or energy then after the war they will have to build & save those resources to rebuild their wealth in the form of bridges, factories, etc..  They won't be able to afford to trade their produce with other countries in order to consume consumer goods because they're in save-mode to rebuild their economy.  Therefore, their surpluses have to be kept for building not consuming.  No one gains. 

Back to the exchange rate thing.  If Americans owe money to destroyed Germany and if the German Mark exchange rate had become cheap to Americans then yes it would be cheap for Americans to pay back the Germans their Marks.  But a Strong US dollar doesn't enable Americans to go into Germany and cheaply buy their products.  They have no products to offer for exchange. They need to have production and savings (savings in the form of surplus corn, surplus energy, etc.) in order to have something Americans can buy.

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