Inflation and War Finance: How Congress Funds the War behind Your Back

February 4th, 2007 - by admin

Hon. Ron Paul / US Congress (R-Texas) & Reuters & New York Times – 2007-02-04 23:02:41

WASHINGTON (January 29, 2007) — The Pentagon recently reported that it now spends roughly $8.4 billion per month waging the war in Iraq, while the additional cost of our engagement in Afghanistan brings the monthly total to a staggering $10 billion.

Since 2001, Congress has spent more than $500 billion on specific appropriations for Iraq. This sum is not reflected in official budget and deficit figures.

Congress has funded the war by passing a series of so-called “supplemental” spending bills, which are passed outside of the normal appropriations process and thus deemed off-budget.

This is fundamentally dishonest: if we’re going to have a war, let’s face the costs— both human and economic— squarely. Congress has no business hiding the costs of war through accounting tricks.

As the war in Iraq surges forward, and the administration ponders military action against Iran, it’s important to ask ourselves an overlooked question: Can we really afford it? If every American taxpayer had to submit an extra five or ten thousand dollars to the IRS this April to pay for the war, I’m quite certain it would end very quickly.

The problem is that government finances war by borrowing and printing money, rather than presenting a bill directly in the form of higher taxes. When the costs are obscured, the question of whether any war is worth it becomes distorted.

Congress and the Federal Reserve Bank have a cozy, unspoken arrangement that makes war easier to finance. Congress has an insatiable appetite for new spending, but raising taxes is politically unpopular. The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department.

In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny. Monetary policy is utterly ignored in Washington, even though the Federal Reserve system is a creation of Congress.

The result of this arrangement is inflation. And inflation finances war.

Economist Lawrence Parks has explained how the creation of the Federal Reserve Bank in 1913 made possible our involvement in World War I. Without the ability to create new money, the federal government never could have afforded the enormous mobilization of men and material.

Prior to that, American wars were financed through taxes and borrowing, both of which have limits. But government printing presses, at least in theory, have no limits. That’s why the money supply has nearly tripled just since 1990.

For perspective, consider our ongoing military commitment in Korea. In Korea alone, US taxpayers have spent $1 trillion in today’s dollars over 55 years. What do we have to show for it? North Korea is a belligerent adversary armed with nuclear weapons, while South Korea is at best ambivalent about our role as their protector.

The stalemate stretches on with no end in sight, as the grandchildren and great-grandchildren of the men who fought in Korea give little thought to what was gained or lost. The Korean conflict should serve as a cautionary tale against the open-ended military occupation of any region.

The $500 billion we’ve officially spent in Iraq is an enormous sum, but the real total is much higher, hidden within the Defense Department and foreign aid budgets. As we build permanent military bases and a $1 billion embassy in Iraq, we need to keep asking whether it’s really worth it. Congress should at least fund the war in an honest way so the American people can judge for themselves.

Congressman Ron Paul of Texas, is known among both his colleagues in Congress and his constituents for his consistent voting record in the House of Representatives

Bush Seeks $100 Billion for Wars in 2007
Caren Bohan / Reuters

WASHINGTON (February 2, 2007) — President George W. Bush will ask Congress for $99.7 billion for the Iraq and Afghanistan wars for the rest of fiscal year 2007 and more than $145 billion for fiscal year 2008, a Bush administration official said on Friday.

The administration official, who spoke on condition of anonymity, also said Bush would estimate the costs for the Iraq war at $50 billion for fiscal year 2009. Bush will unveil those numbers when he presents his annual budget to Congress on Monday.

The nearly $100 billion in war spending for 2007 comes on top of $70 billion that Congress already approved, totaling $170 billion and making this year the most expensive yet for the war.

Bush will ask for a hefty infusion of funds for Iraq at a time when his plans to dispatch 21,500 additional troops to the conflict have met with strong objections from many Democrats and some Republicans in Congress. Lawmakers are debating a resolution that would formally state their opposition.

The administration also has been under pressure from Congress to provide more details about its spending plans for the unpopular war.

House Speaker Nancy Pelosi, a California Democrat, called the expected request for the Pentagon next year a “huge number,” but added that she backed doing “whatever we have to do to protect the American people.”

But Democrats have promised tough oversight into Bush’s requests for Iraq war funding and military spending overall.

Pelosi, who spoke to reporters at a retreat of House Democrats in Williamsburg, Va., said Democrats needed to see a breakdown of the proposals for Pentagon funding requests to decide if they are justified.

Since the invasion of Iraq in 2003, the administration has funded the war primarily through emergency spending bills.

Many lawmakers want that practice stopped and have demanded that Bush incorporate the war requests into the regular budget for the sake of transparency, with some referring to the emergency bills as a “shadow” budget.

The funding requests for Iraq and Afghanistan will be submitted to Congress in the form of emergency budget “supplementals.” But the administration will try to meet the concerns of its critics by providing a lot of details about its spending plans in the budget documents.

On the domestic side of the budget, analysts expect a near freeze in spending as Bush seeks to make the case that his tax cuts can be afforded while achieving the goal of erasing the deficit by 2012.

The administration official declined to comment on overall domestic spending, but said Bush will project a balanced budget within five years and a surplus for 2012.

The New York Times reported on Friday that Bush will propose squeezing $70 billion in savings from the Medicare and Medicaid health programs over the next five years — a proposal that is likely to be politically sensitive.

The official said that while the administration believes such savings are important for the long-term health of the budget, the expectation of a surplus “does not rest” on the achievement of the Medicare savings.

(Additional reporting by Richard Cowan)
© Reuters 2007. All rights reserved.

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Record $622 Billion Budget Requested for the Pentagon
David S. Cloud / New York Times

WASHINGTON (February 2, 2007) — The Bush administration is seeking a record military budget of $622 billion for the 2008 fiscal year, Pentagon officials have said. The sum includes more than $140 billion for war-related costs.

The administration is also seeking $93 billion in the current fiscal year, which ends on Sept. 30, to pay for military operations in Iraq, Afghanistan and elsewhere, the officials said.

The requests are part of the annual budget request to Congress for all federal spending programs. The budget is to be made public on Monday, and Congress will revise it in the coming months.

Together with money for combat operations this year already approved by Congress, the new request would push spending related to Iraq and Afghanistan to $163 billion.

“It is the highest level of spending since the height of the Korean War,” said Steven Kosiak, a military budget expert with the Center for Strategic and Budgetary Assessments, a policy analysis organization here.

Mr. Kosiak said that in 1952 the United States spent the equivalent of $645 billion in today’s dollars, factoring in inflation, and that in the Korean War military spending exceeded 13 percent of the gross national product. The figure is now 4 percent.

With Democrats in control of Congress and opposition to the Iraq war running strong, the administration’s request may face even greater scrutiny than it has in recent years. But few if any budget experts expect significant cuts in military spending while large numbers of troops are in combat in Iraq and Afghanistan.

In a statement, the Senate majority leader, Harry Reid of Nevada, said: “Democrats pledge that our troops will receive everything they need to do their jobs. We will also subject this supplemental to the tough and serious oversight that Congress has ignored for four years.”

The regular Pentagon budget request for 2008, which excludes war-related costs but covers Army, Navy, Air Force and Marine costs as well as other spending, will be $481 billion, a Pentagon official said. That would be an increase of $49 billion over what Congress provided this year, Mr. Kosiak said.

“As long as we’re engaged in major military operations, you are probably not going to see decreases in the baseline budget,” he said.

The Pentagon is seeking $128.6 billion for the Army, $110.7 billion for the Air Force and $140 billion for the Navy, department officials said.Background briefings for members of Congress and their staffs have begun.

As details leaked out, Pentagon officials agreed to provide an outline of the request. The officials said the budget included no cancellations of major weapons systems, despite delays and escalating costs in procurement accounts in all the services.

The $141 billion request for war-related costs in 2008 represents the first time the administration has tried at the beginning of the budget cycle to provide a total estimate for how much the wars in Iraq and Afghanistan and other military operations will cost a year in advance.

Congress has been pressing the administration for several years to provide such estimates. Even as they comply, Pentagon officials emphasized that actual costs could be far different, depending on the course of the wars.
The budget request, which takes many months to prepare, is being released as the administration is sending an additional 21,500 troops to Iraq.

A spokesman for the Pentagon, Bryan Whitman, said Friday that that the Office of Management and Budget had estimated that the additional forces would cost $5.6 billion in the current fiscal year, which ends in September.

On Thursday, the Congressional Budget Office released its estimate, which said the costs could run much higher.

Defense Secretary Robert M. Gates, at a Pentagon news conference, disputed the office’s estimate, saying it greatly overstated the number of support troops that would be necessary to go along with the 21,500 increase in combat forces.

Mr. Gates also said he had recommended that President Bush nominate Adm. Timothy J. Keating of the Navy, now commander of Norad, as commander of the United States Pacific Command, making him the top commander in the Pacific, and Lt. Gen. Gene Reunart of the Air Force to head the Northern Command, which is responsible for defending the continental United States.
Copyright 2007 The New York Times Company