The so called Global War on Terror looks to be a never ending saga, atleast till the Bush regime continues. Not delving into the political aspects of this, I'd rather like to consider a few financial aspects. Statutory Warning: I'm definitely not a qualified scholar on this topic, but the 3 w's (www) do provide some interesting numbers.
$8 million - cost of war in Iraq.. Per Hour!! Continuing on this trend, the mega spending comes out to approximately $700 Billion per year. Phew! According to Portfolio.com,
At that rate of burn, General Electric’s value would be wiped out in three and a half years, Bill Gates’ personal fortune would evaporate in just seven months, and the troubled Ford Motor Co. would cease to exist in a matter of weeks.Staggering as that number is, Nobel laureate Joseph Stiglitz and Harvard economist Linda Bilmes calculated that the real cost exceeds $2 trillion. As a sidenote, the cash inflow into the war saga is a big factor in the depletion of the US Capital, which is going down at the rate of $80 million an hour.
The US $ on the other hand continues to fall - the exchange rate today says that $1 US is equivalent to 41.538 of its counterpart INR. According to Professor Peter Morici of the University of Maryland -
"This is not great news, as the February figure was revised up from 0.2%. Over the last year, producer prices, including food and energy, have risen 3.2 percent, and this is troubling high."
Errr.. did I say earlier, that All's not well.. well, guess, I should have rather said - something's seriously wrong.
Enough of background on this, but we all know how the world economy functions, i.e. through circulation of money. Now, even the Big Sam can't generate money in the order of its spendings, so the question arises - How the heck are they continuing the war in Iraq? $700 Billion is a huge sum after all. The answer lies in the fact that the war effort is being ridden on the debt, which is held by the biggest players in the global economy: Japan, Europe, Saudi Arabia, and China. So probably, not a lot of pain is being inflicted on the US economy (now) even after the multi billion dollar adventure, but then someone's gotta pay later..
Among all the big players mentioned above, China is turning a lot of heads towards itself. A trillion dollars in foreign exchange reserves - they are accumulating to their forex at an eye-popping rate of $30 million an hour, and considering the continued growth rate of more than 10% - well, better get your calculators out. What's more, they are all geared up to spend $400 Billion in the next 4 years over infrastructure! Excuse me, did I hear it right?
According to the Economist,
"China's official reserves already far exceed what is required to ensure financial stability. As a rule of thumb, a country needs enough foreign exchange to cover three months' imports or to settle its short-term foreign debt. China's reserves are equivalent to 15 months of imports and are six times bigger than its short-term debt. The explosion in reserves is also a headache for the central bank. It creates excess liquidity, which risks fuelling higher inflation, asset-price bubbles and imprudent bank lending."
Two diverse countries, and radically different foreign policies. I'm not advocating China, they have been a closed door for most part of their existence (though changing radically now), but the fact that they have managed to pile up reserves the way they have did - perhaps even the best brains didn't expect this to happen so soon!