Tuesday 12th July 2005AD
DEFICIT SPENDING IN ANCIENT BABYLON

On a quiet Tuesday afternoon in late June, the Bank of International Settlements (BIS) added its name to growing list of prominent voices publicly expressing concern over Global Financial Stability, focusing specifically on the US dollar and US financial management. 

Previously we have dug up reports of Paul Volcker, Robert Rubin, the OECD and others, breaking ranks with the normal establishment "all is well" mantra, to go publicly on the record challenging the current course we find ourselves on. 

"There will be serious ramifications if we fail to change economic policies that continue to produce massive deficits" said William White, head of the BIS's monetary and economics department in the Financial Times. 

White's warning was quite specific, saying that US unwillingness to decrease spending would cause the dollar to come under severe pressures, resulting in a disorderly decline and economic turmoil.

We have raised the subject of currencies many times before, arguing that the Euro, Yen, GB Pound and others are no alternatives to the US Dollar, all suffering the very same structural and systemic frailties. 

In this global picture there remains some wild cards; 
1) the rising costs of Energy (oil and gas) in the decades ahead.
2) the increasing likelihood of tensions and all out war in oil producing regions.
3) the increasing scarcity of several other vitally important and strategic commodities. 

We have seen from history virtually all wars have been fought over gold, but in our view, future wars will be increasingly fought over energy. 

There have been those commentators who have concluded that the West's motivations for war in Iraq almost certainly included the hopeful control of its oil reserves. While the true answer to this we may never know with certainty, this we do know; the "allied" (USA, UK, Australian) war in Iraq is worsening everyday. 

Recently I was speaking with our analyst in the Middle East; "leave aside the US led war for a moment Philip, internally and culturally Iraq is now a total quagmire, and on the brink of complete civil war and this will be a war that could well drag on for many, many decades." Globally terrorism is on the rise, not on the decrease. 

BIS's William White suggests the US should reduce its deficit spending. The expense of a long protracted war in the land of Ancient Babylon is unlikely to help in this lofty quest. 

White might be right, but most likely this will only prolong the inevitable. In the long run "reducing" deficit spending is unlikely to change the ultimate conclusion of an unsustainable system out of control. 

As Individuals - our job is to equip ourselves with the knowledge that will help us survive and prosper in our changing world. At Daily Dig - our job is to dig up the relevant information that will provide this knowledge. 

Best Regards 
Philip Judge
pjudge@anglofareast.com