The last 6 months of 2008 will be marked as a turning point in America’s history and its status as an economic superpower. The real estate crash could have been contained had it not been for Wall Street’s unethical packaging of questionable home loans. Those loans were resold to other banks and governments as secure, rated investments. As housing prices corrected in the US, which does occur occasionally, those multi-trillion dollar investments became suspect. Once banks and investors lost confidence in these shaky loan packages, they were effectively worthless. No one wanted to buy them or guarantee them. Trillions of dollars evaporated overnight.  As a result, the global financial system was severely damaged and the world economy nearly collapsed. Someday it will be revealed how near the brink Wall Street pushed us for the sake of a sales commission.

The George W. Bush administration and Congress acted swiftly (pork-barreling nothwithstanding) to shore up the American side of the ledger sheet. Whether the initial $1 trillion was well spent is a matter for economists to debate. It provided a badly needed confidence-booster  and signaled to the world that America would attempt to clean up its mistakes. Since September 2008, trillions more have been pumped into the financial system. As of January 2008 that number stands at approximately $7 trillion. Just to provide some perspective: At 3% interest, that $7 trillion demands almost $1 billion in interest payments per day. At 1% interest, it will take almost a 1,000 years to pay off the debt based on our government’s past performance for loan repayment. America had already piled up $40 trillion in national debt before this most recent debacle.

Given the gravity of the situation and the magnitude of the destruction, it’s outrageous that no one’s been arrested, investigated or even pilloried in the press. Of course, Bush administration officials have been grilled endlessly, but what about the clowns on Wall Street who created this mess? What about Obama’s housing advisor Franklin Raines, who was a key player in the mortgage meltdown as CEO of Fannie Mae? The press has diverted attention away from the people who created this mess to an intense scrutiny of the people trying to clean it up.

What gets lost in all the noise is the hard fact that someone’s going to have to pay down this debt. It doesn’t appear that Wall Street honchos are going to cough up a nickel. Franklin Raines isn’t going to return his $45 million bonus. That leaves average working Americans to pick up the tab. That means a century or more of diminished economic growth, personal opportunity and personal wealth. It means more taxes, more inflation, a drop in the dollar’s value and a drop in our standard of living. And, adding insult to injury, Barack Obama wants to add an astounding 600,000 new government employees to the federal payroll. That’s insane. With pensions and benefits, it instantly adds another trillion dollars to this year’s federal budget, which is already a trillion in the hole. And it adds another trillion every year going forward forever. At what point do the wheels come off this gravy train? It appears that the only thing that can stop our government from spending money it doesn’t have is for the rest of the world to push our government into bankruptcy. And even then, our politicians and bureaucrats won’t be suffering one bit. That will be left to the taxpayer.

The 20th century was certainly America’s greatest age - the first half, at least. The bitter and divisive Reconstruction Era of the 1870s and 1880s transitioned into a more or less cohesive national perspective on America’s place in the world by 1900. The Spanish American war, concluded successfully just two years earlier, gave American military leaders confidence in their abilities to wage war on a global scale. And so, when World War I erupted, president Woodrow Wilson wasn’t intimidated by Germany’s U-boat attacks and quickly mobilized a huge army that effectively won the war in Europe and elsewhere. World War II was a repeat performance on a larger scale. America emerged from WWII as a superpower. The armed forces executed their missions superbly. But it was the home front that made overwhelming victory possible - the manufacturing might of America’s relatively new steel and automotive industries, as well as shipbuilders and munition makers, was the key strategic factor. It wasn’t the Roosevelt administration or government bureucrats who were responsible for developing this overwhelming advantage. It was America’s entrepreneurs and business leaders. For example, under direct Army supervision, aircraft makers were turning out one B-17 bomber every four days. Under direct Ford Motor Company’s supervision, the output was increased to one B-17 bomber every four hours. America didn’t become a superpower on just the courage and dedication of its military personnel. Our military entered combat with more armor, more firepower, more munitions, more fuel, more food and more technology than any other armed forces on land, sea or in the air. It’s a position of strength we’ve never relinquished.

After WWII, the former Russian Empire, run by Josef Stalin and his thugs, emerged as an unintentional and adversarial superpower. They were a brutish, unsophisticated and xenophobic bunch. Soviet Russia was a superpower only in a military sense, and even that was questionable. Much of the government’s resources were consumed in keeping their own citizens under control. Russia’s non-military economy was a tiny fraction of even a war-ravaged Europe, much less that of the United States. In the end, Soviet Russia collapsed not because it couldn’t maintain an iron grip on its subjects and not because it couldn’t compete technologically with US weapons systems. It collapsed because America could out-manufacture and out-spend the Russians 10 to 1 and they couldn’t keep up.

Ronald Reagan realized this when he was developing his political platform in the late 1960s. America’s manufacturing muscle was our de facto arsenal of democracy. Not only did we have the latest and best weapons systems, we had more of everything than anyone else. Once he was elected President, Reagan put his strategy into action. Without firing a shot, Ronald Reagan was able to destroy Russian rule over its conquered neighbors by simply outspending the Soviets on every level. They couldn’t keep up. And once their economy  started to crumble, the political machinery unraveled as well. Soviet Russia was unable to keep an iron grip on its conquests. Millions of Belorus, Ukrainians, Poles, Czechs, Slovaks, Kazakhs, Georgians, Armenians, Lithuanians, Latvians, Estonians, Finns, Prussians, Ossetians, Turkmen, Azerbaijani, Tartars, Uzbecks and a dozen more ethnic groups now had a chance at freedom and self-determination.

Our manufacturing sector was responsible for ending the Cold War. Unfortunately, that manufacturing sector has been under attack for the last two decades. Poorly considered free trade policies, unscrupulous trading partners like Japan, India and China, the raping of corporate assets by trial lawyers, unrelenting pressure from environmental groups and a massive expansion of government have combined to deal a mortal blow to domestic manufacturing. Our own government has carried on a relentless assault, literally driving manufacturers out of business, some of whom were critical to national security. For example, our government drove the last domestic manufacturer of hand grenade detonators out of business by allowing non-US companies to bid on US military contracts. The only company in the world that can supply those detonators is located in Switzerland. When the US invaded Iraq, the owners of that private company refused to supply grenade detonators to the US and any other country that entered the war as part of the coalition. This is only the tip of the iceberg. No one knows how many mission-critical parts and pieces are manufactured in countries that aren’t particularly concerned with our national security. And no one within the government is talking.

From a military and national security perspective, it’s absolutely stupid to put American companies out of business and outsource critical technical components to China, Japan, India or just about anywhere but here. The US military relies heavily on foreign sources of microchips, memory and logic controllers. It is unbelievably easy to compromise weapons and communications systems with a little bit of re-engineering that’s almost impossible to detect. This is not paranoia. The China government sanctions and funds daily cyber attacks on Department of Defense servers from so-called ‘military academies’ and institutes within China. And, China has already leapfrogged American Internet technology by embracing TCP/IP and mobile protocols at least two generations ahead of our current versions.

From an economic stability perspective, it’s absolutely stupid to beggar our skilled and unskilled manufacturing workers by pitting them against workers in other countries who live and work in unbearable conditions. Unemployed Americans in the hundreds of thousands create economic instability and political problems. In their desperation, they fall prey to demagogues and panderers who promise them hope and handouts in exchange for their votes. If the government is going to ‘invest’ in America, the first place to make that investment is in revitalizing the manufacturing sector, and specifically, the repatriation of defense manufacturing. Every nut, bolt and screw should be made in America, not because it’s a trade protectionist urge, but because it truly protects the country to do so. Given the astounding level of waste, greed, corruption and inefficiency in government, rebuilding our domestic manufacturing capability is a low-cost, high-return investment.

In 1963, 75 cents of every public education dollar was spent on ’student services’ - teacher salaries, books, classroom materials - and the remaining 25 cents was spent on ’administration, facilities, support services’. Fifty years later, that ratio is reversed. 75 cents of every public education dollar is spent on just about everything else but the education of our kids. Where does the money go? The list is long and full of surprises. The usual suspects are present - unions, government contractors, school board insiders, lobbyists. They have the political and administrative muscle to ram through spending plans that run counter to the students’ best interests. The spending snowball usually begins with “Let’s build a new high school” - a surefire way to load up the gravy train and get the parasites circling like vultures.

Today’s high schools rival college campuses for size, facilities, construction quality and materials, electronic and lighting technologies, operating costs and maintenance. Many have Olympic swimming pools, Broadway-style theaters, collegiate-level athletic facilities and cafeterias that rival those of the Fortune 500. All of these facilities are overpriced, overbuilt and extraordinarily expensive to operate. Everyone involved in the process benefits from this except, of course, the taxpayer. The students are for the most part oblivious to their surroundings. So, who exactly benefits from this state of affairs?

Let’s begin with the school board. It’s usually packed with people predisposed to favor public employee unions, government contractors or public financiers, either through outright ignorance or because they were voted in with their support. There is no real oversight of school boards, and no legal means to compel them to be circumspect with taxpayer money.

School construction is very expensive. In fact, it’s the most expensive type of building in the US except for nuclear power plants. And no one knows why. But, because that local high school is going to cost $100 million (how did they know that going in?), bond underwriters are flying in from all over the country to shock and awe the school board with their financial prowess. Obviously, no school district can afford to build a high school with available cash. So, they will issue bonds, guaranteed by the local taxpayer, to create a 30-year mortgage. The firm that creates those bonds and sells them to investors will pocket nearly $10 million for its efforts. Not bad for 90 days work. And yes, the local taxpayer will be on the hook for it.

Schools take up lots of real estate. Usually, it’s very expensive real estate located on a main thoroughfare. That means brokers, developers, landowners, insurers and yes, teacher pension funds, vie for the opportunity to sell land to the school district, simply because the sale price will be above market, and will have traded hands several times before the sale. It’s an opportunity to play favorites, broker influence and who knows what else.

Then there’s the planning and architectural work. Once again, engineering firms, architects, interior designers, furniture companies, consultants, technologists and a whole gang of specialists buzz around trying to get a piece of the work. There are hearings, planning sessions, bidding, re-bidding and awarding the contracts - all of it an opportunity to waste money and peddle influence.

Moving along, there’s the construction itself. Savvy government contractors are adept at padding the bill, running up change orders and working the price variance in commodities like gypsum and concrete to their advantage. They are committed to using union contractors wherever possible, which also adds to the cost and pads the build schedule. But hey, what’s the problem? It’s free money.

And finally, after all the computers are installed, the refrigerators are humming and the desks have been unpacked and arranged, the students file into their new school. Is the education they’re getting any better? No. Have the teachers gotten any smarter? No. Has the curriculum improved, has the selection of books been carefully vetted? Of course not. So, $100 million later, our kids are as poorly served as they were in the previous facility. The only difference is that lots of people made lots of money off the backs of the taxpayer.

President Elect Barack Obama has been tiptoeing around his campaign promises lately, carefully rephrasing his words and restating the problems he once sought to vanquish just by being Obama. There is little doubt that he and his cohorts in Congress will drive the country deeper in to debt with spending programs intended to reward his union supporters (please refer to earlier posts). That means infrastructure and school building projects that involve lots of union members and bureaucrats. This will be packaged up as an economic stimulus package, but that’s eyewash at best. In fact, it’s an outright fraud that our grandchildren and their children will still be paying off in the next century.

The best possible economic stimulus would be to enact a tax holiday - two months where no tax of any kind is collected. All the money is kept, and spent, by those who earned it. It’s an idea that’s been circulated previously and it would most certainly work better than anything coming out of Congress or the Office of the President-Elect. Which is why it will never happen.