Iraq: Total Defeat for U.S.

On November 27 the Iraqi parliament voted by a large majority in favor of a security agreement with the US under which the 150,000 American troops in Iraq will withdraw from cities, towns and villages by June 30, 2009 and from all of Iraq by December 31, 2011. The Iraqi government will take over military responsibility for the Green Zone in Baghdad, the heart of American power in Iraq, in a few weeks time. Private security companies will lose their legal immunity. US military operations and the arrest of Iraqis will only be carried out with Iraqi consent. There will be no US military bases left behind when the last US troops leave in three years time and the US military is banned in the interim from carrying out attacks on other countries from Iraq.

The Status of Forces Agreement (SOFA), signed after eight months of rancorous negotiations, is categorical and unconditional. America’s bid to act as the world’s only super-power and to establish quasi-colonial control of Iraq, an attempt which began with the invasion of 2003, has ended in failure. There will be a national referendum on the new agreement next July, but the accord is to be implemented immediately so the poll will be largely irrelevant. Even Iran, which had furiously denounced the first drafts of the SOFA saying that they would establish a permanent US presence in Iraq, now says blithely that it will officially back the new security pact after the referendum. This is a sure sign that Iran, as America’s main rival in the Middle East, sees the pact as marking the final end of the US occupation and as a launching pad for military assaults on neighbours such as Iran.

Astonishingly, this momentous agreement has been greeted with little surprise or interest outside Iraq. On the same day that it was finally passed by the Iraqi parliament international attention was wholly focused on the murderous terrorist attack in Mumbai. For some months polls in the US showed that the economic crisis had replaced the Iraqi war as the main issue facing America in the eyes of voters. So many spurious milestones in Iraq have been declared by President Bush over the years that when a real turning point occurs people are naturally sceptical about its significance. The White House was so keen to limit understanding of what it had agreed in Iraq that it did not even to publish a copy of the SOFA in English. Some senior officials in the Pentagon are privately criticizing President Bush for conceding so much to the Iraqis, but the American media are fixated on the incoming Obama administration and no longer pays much attention to the doings of the expiring Bush administration.

The last minute delays to the accord were not really about the terms agreed with the Americans. It was rather that the leaders of the Sunni Arab minority, seeing the Shia-Kurdish government of prime minister Nouri al-Maliki about to fill the vacuum created by the US departure, wanted to barter their support for the accord in return for as many last minute concessions as they could extract. Some three quarters of the 17,000 prisoners held by the Americans are Sunni and they wanted them released or at least not mistreated by the Iraqi security forces. They asked for an end to de-Baathication which is directed primarily at the Sunni community. Only the Shia cleric Muqtada al-Sadr held out against the accord to the end, declaring it a betrayal of independent Iraq. The ultra-patriotic opposition of the Sadrists to the accord has been important because it has made it difficult for the other Shia parties to agree to anything less than a complete American withdrawal. If they did so they risked being portrayed as US puppets in the upcoming provincial elections at the end of January 2009 or the parliamentary elections later in the year.

The SOFA finally agreed is almost the opposite of the one which US started to negotiate in March. This is why Iran, with its strong links to the Shia parties inside Iraq, ended its previous rejection of it. The first US draft was largely an attempt to continue the occupation without much change from the UN mandate which expired at the end of the year. Washington overplayed its hand. The Iraqi government was growing stronger as the Sunni Arabs ended their uprising against the occupation. The Iranians helped restrain the Mehdi Army, Muqtada’s powerful militia, so the government regained control of Basra, Iraq’s second biggest city, and Sadr City, almost half Baghdad, from the Shia militias. The prime minister Nouri al-Maliki became more confident, realizing his military enemies were dispersing and, in any case, the Americans had no real alternative but to support him. The US has always been politically weak in Iraq since the fall of Saddam Hussein because it has few real friends in the country aside from the Kurds. The leaders of the Iraqi Shia, 60 per cent of the total population, might ally themselves to Washington to gain power, but they never intended to share power with the US in the long term.

The occupation has always been unpopular in Iraq. Foreign observers and some Iraqis are often misled by the hatred with which different Iraqi communities regard each other into underestimating the strength of Iraqi nationalism. Once Maliki came to believe that he could survive without US military support then he was able to spurn US proposals until an unconditional withdrawal was conceded. He could also see that Barack Obama, whose withdrawal timetable was not so different from his own, was going to be the next American president. Come the provincial and parliamentary elections of 2009, Maliki can present himself as the man who ended the occupation. Critics of the prime minister, notably the Kurds, think that success has gone to his head, but there is no doubt that the new security agreement has strengthened him politically.

It may be that, living in the heart of the Green Zone, that Maliki has an exaggerated idea of what his government has achieved. In the Zone there is access to clean water and electricity while in the rest of Baghdad people have been getting only three or four hours electricity a day. Security in Iraq is certainly better than it was during the sectarian civil war between Sunni and Shia in 2006-7 but the improvement is wholly comparative. The monthly death toll has dropped from 3,000 a month at its worst to 360 Iraqi civilians and security personnel killed this November, though these figures may understate the casualty toll as not all the bodies are found. Iraq is still one of the most dangerous places in the world. On December 1, the day I started writing this article, two suicide bombers killed 33 people and wounded dozens more in Baghdad and Mosul. Iraqis in the street are cynical about the government’s claim to have restored order. “We are used to the government always saying that things have become good and the security situation improved,” says Salman Mohammed Jumah, a primary school teacher in Baghdad. “It is true security is a little better but the government leaders live behind concrete barriers and do not know what is happening on the ground. They only go out in their armoured convoys. We no longer have sectarian killings by ID cards [revealing that a person is Sunni or Shia by their name] but Sunni are still afraid to go to Shia areas and Shia to Sunni.”

Security has improved with police and military checkpoints everywhere but sectarian killers have also upgraded their tactics. There are less suicide bombings but there are many more small ‘sticky bombs’ placed underneath vehicles. Everybody checks underneath their car before they get into it. I try to keep away from notorious choke points in Baghdad, such as Tahrir Square or the entrances to the Green Zone, where a bomber for can wait for a target to get stuck in traffic before making an attack. The checkpoints and the walls, the measures taken to reduce the violence, bring Baghdad close to paralysis even when there are no bombs. It can take two or three hours to travel a few miles. The bridges over the Tigris are often blocked and this has got worse recently because soldiers and police have a new toy in the shape of a box which looks like a transistor radio with a short aerial sticking out horizontally. When pointed at the car this device is supposed to detect vapor from explosives and may well do so, but since it also responds to vapor from alcohol or perfume it is worse than useless as a security aid.

Iraqi state television and government backed newspapers make ceaseless claims that life in Iraq is improving by the day. To be convincing this should mean not just improving security but providing more electricity, clean water and jobs. “The economic situation is still very bad,” says Salman Mohammed Jumah, the teacher. “Unemployment affects everybody and you can’t get a job unless you pay a bribe. There is no electricity and nowadays we have cholera again so people have to buy expensive bottled water and only use the water that comes out of the tap for washing.” Not everybody has the same grim vision but life in Iraq is still extraordinarily hard. The best barometer for how far Iraq is ‘better’ is the willingness of the 4.7 million refugees, one in five Iraqis who have fled their homes and are now living inside or outside Iraq, to go home. By October only 150,000 had returned and some do so only to look at the situation and then go back to Damascus or Amman. One middle aged Sunni businessman who came back from Syria for two or three weeks, said: “I don’t like to be here. In Syria I can go out in the evening to meet friends in a coffe bar. It is safe. Here I am forced to stay in my home after 7pm.”

The degree of optimism or pessimism felt by Iraqis depends very much on whether they have a job, whether or not that job is with the government, which community they belong to, their social class and the area they live in. All these factors are interlinked. Most jobs are with the state that reputedly employs some two million people. The private sector is very feeble. Despite talk of reconstruction there are almost no cranes visible on the Baghdad skyline. Since the Shia and Kurds control of the government, it is difficult for a Sunni to get a job and probably impossible unless he has a letter recommending him from a political party in the government. Optimism is greater among the Shia. “There is progress in our life, says Jafar Sadiq, a Shia businessman married to a Sunni in the Shia-dominated Iskan area of Baghdad. “People are cooperating with the security forces. I am glad the army is fighting the Mehdi Army though they still are not finished. Four Sunni have reopened their shops in my area. It is safe for my wife’s Sunni relatives to come here. The only things we need badly are electricity, clean water and municipal services.” But his wife Jana admitted privately that she had warned her Sunni relatives from coming to Iskan “because the security situation is unstable.” She teaches at Mustansariyah University in central Baghdad which a year ago was controlled by the Mehdi Army and Sunni students had fled. “Now the Sunni students are coming back,” she says, “though they are still afraid.”

They have reason to fear. Baghdad is divided into Shia and Sunni enclaves defended by high concrete blast walls often with a single entrance and exit. The sectarian slaughter is much less than it was but it is still dangerous for returning refugees to try to reclaim their old house in an area in which they are a minority. In one case in a Sunni district in west Baghdad, as I reported here some weeks ago, a Shia husband and wife with their two daughters went back to their house to find it gutted, with furniture gone and electric sockets and water pipes torn out. They decided to sleep on the roof. A Sunni gang reached them from a neighboring building, cut off the husband’s head and threw it into the street. They said to his wife and daughters: “The same will happen to any other Shia who comes back.” But even without these recent atrocities Baghdad would still be divided because the memory of the mass killings of 2006-7 is too fresh and there is still an underlying fear that it could happen again.

Iraqis have a low opinion of their elected representatives, frequently denouncing them as an incompetent kleptocracy. The government administration is dysfunctional. “Despite the fact,” said independent member of parliament Qassim Daoud, “that the Labor and Social Affairs is meant to help the millions of poor Iraqis I discovered that they had spent only 10 per cent of their budget.” Not all of this is the government’s fault. Iraqi society, administration and economy have been shattered by 28 years of war and sanctions. Few other countries have been put under such intense and prolonged pressure. First there was the eight year Iran- Iraq war starting in 1980, then the disastrous Gulf war of `1991, thirteen years of sanctions and then the five-and-a-half years of conflict since the US invasion. Ten years ago UN officials were already saying they could not repair the faltering power stations because they were so old that spare parts were no longer made for them.

Iraq is full of signs of the gap between the rulers and the ruled. The few planes using Baghdad international airport are full foreign contractors and Iraqi government officials. Talking to people on the streets in Baghdad in October many of them brought up fear of cholera which had just started to spread from Hilla province south of Baghdad. Forty per cent of people in the capital do not have access to clean drinking water. The origin of the epidemic was the purchase of out of date chemicals for water purification from Iran by corrupt officials. Everybody talked about the cholera except in the Green Zone where people had scarcely heard of the epidemic. .

The Iraqi government will become stronger as the Americans depart. It will also be forced to take full responsibility for the failings of the Iraqi state. This will be happening at a bad moment since the price of oil, the state’s only source of revenue, has fallen to $50 a barrel when the budget assumed it would be $80. Many state salaries, such as those of teachers, were doubled on the strength of this, something the government may now regret. Communal differences are still largely unresolved. Friction between Sunni and Shia, bad though it is, is less than two years ago, though hostility between Arabs and Kurds is deepening. The departure of the US military frightens many Sunni on the grounds that they will be at the mercy of the majority Shia. But it is also an incentive for the three main communities in Iraq to agree about what their future relations should be when there are no Americans to stand between them. As for the US, its moment in Iraq is coming to an end as its troops depart, leaving a ruined country behind them.

Patrick Cockburn is the author of 'The Occupation: War, resistance and daily life in Iraq', a finalist for the National Book Critics' Circle Award for best non-fiction book of 2006. His new book 'Muqtada! Muqtada al-Sadr, the Shia revival and the struggle for Iraq' is published by Scribner.

Excess Debt and Deflation = Depression

Irving Fisher (1867 - 1947) was perhaps the most noted economist of his day. The Concise Encyclopedia of Economics calls him "one of America's greatest mathematical economists and one of" its clearest writers. He earned special acclaim for his work on monetary and statistical theory, policy, index numbers, econometrics, and the distinction between real and nominal interest rates.

He's also remembered for having made one of the worst and most ill-timed ever stock market calls that cost him his reputation and millions in the subsequent crash - on October 17, 1929 (a week before Black Thursday) when he said "stock prices had reached what looks like a permanently high plateau."

He made the call in a climate much like mid-2007 - one of economic growth and easy credit producing speculative excess, bubbles, and the belief that good times would continue unabated. They didn't then and never do but only in hindsight are those lessons learned.

Investors forget what Keynes once taught when he said: "Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise become the bubble on a whirlwind of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done." So it was in the 1920s, in the 1990s, and post-2000, but even Keynes was wrong in 1927 when he said: "We will not have any more crashes in our time."

After the 1929 crash and deepening downturn, Fisher analyzed what happened and in 1933 wrote his "Debt-Deflation Theory of Great Depressions." It raised disturbing questions about the roles of the Fed, Wall Street and Washington, and, as a result, was largely ignored. Given the book's relevance today, this article reviews the most significant of his "49 tentative conclusions."

He believed two major factors cause depression - excess debt (based on easy credit and loose lending practices) and deflation, especially in combination. Others also affect business cycles, but they're secondary to the main ones.

Financial expert and investor safety advocate Martin Weiss recalls what his father, Irving, taught. He lived through the 1920s, the 1929 crash, and Great Depression and tracked data as it was released "to figure out what might happen next. (He) was an analyst and that was (his) job."

"Years later economists like Milton Friedman and (his) young friend Alan Greenspan (tried) to decipher what went wrong. They concluded that it was mostly the government's fault, especially the Federal Reserve. They developed the theory that the next time we're on the brink of depression, the government has got to step in and nip it in the bud. Bah! Those guys weren't back there back then (like Irving was)."

He "saw exactly what the Fed was doing in the 1930s: They did everything in their power to stop the panic. They coddled the banks. They pumped in billions of dollars. But it was no use. They eventually figured out they were just throwing good money after bad. The real roots of the 1930s bust were in the 1920s boom. That's when the Fed gave (loads of) cheap money to the banks." They loaned it to brokers who loaned it to speculators, and a bubble was created and imploded.

"In 1929, our economy was a house of cards. It didn't matter which cards we propped up or which ones we let fail. We obviously couldn't save them all. So no matter what we did," and the longer we denied reality, "the worse it was for everyone. The sooner we accepted it, the sooner" a real recovery was possible. Fisher understood it also and wrote about it in his book.

Besides the early years of the Great Depression (before its full impact or length could be known), he used the Panic of 1837 as an example. It was caused by heavy demand for loans to buy land, build businesses, and invest in the country's development. Prices began rising, economic strains built up, and a speculative bubble developed that burst in New York on May 10 when every bank stopped payment in specie (gold or silver coinage). A five year depression followed. Many banks failed, and unemployment soared to record levels.

Andrew Jackson was blamed for requiring that gold and silver currency (not fiat paper) be used to pay for government land. Also for not renewing the Second Bank of the United States charter and withdrawing government funds from the bank. Most historians believe it but more recent scholarship cites other causes instead. What's not disputed was the speculative excess that came to a painful end.

The Panic of 1857 ended the boom years following the 1846 - 1848 Mexican War. It gave America undisputed control of Texas, established the US - Mexican border at the Rio Grande River, seized the present-day states of California, Nevada, Utah, and parts of Colorado, Arizona, New Mexico, and Wyoming, and opened this vast new area to speculation and development. Much of it was to expand railroads. It proved unsustainable and led to crisis.

The failure of the New York branch of the Ohio Life Insurance and Trust Co. was the proximate cause. It ignited panic as a result of massive embezzlement and heavy losses on depreciated railroad investments. Eroded public confidence took over, setting off a chain of events as follows:

-- investment money dried up;

-- British investors pulled out of American banks because of fears of their unsoundness;

-- grain prices fell and heavily impacted rural areas;

-- inventories piled up in warehouses;

-- massive layoffs followed;

-- railroads failed because of over-building;

-- 5000 businesses failed within a year; and

-- land prices collapsed ruining thousands of investors.

A further blow was losing 30,000 pounds of San Francisco Mint gold at sea intended for eastern banks. Confidence eroded further in the government's ability to back paper currency with specie. In October, a bank holiday in New England and New York failed to avert runs in the states. Panic spread to Europe, South America and Asia and, while brief, didn't fully abate until the 1861 War Between the States (the American Civil War).

The Panic of 1873 (near the onset of the Gilded Age) was called "the real Great Depression" by some. It began eight years after war ended and started a six-year depression until 1879. It was triggered by the Vienna Stock Exchange crash in May (the so-called Grunderkrach or "founders' crash"), then spread to America in the fall.

The key event was the failure of Jay Cooke and Company, the nation's preeminent investment bank, the principal backer of the Northern Pacific Railroad, and holder of most government wartime loans. It triggered a series of events that followed.

The New York Stock Exchange closed for 10 days. Credit dried up. Banks demanded payment of their loans. Investors rushed to sell stocks. Foreclosures increased, many banks failed and most major railroads. Factories then closed, unemployment soared, and many reasons were cited as the cause - post-war frenetic growth, unregulated speculative abuse, and the extreme overbuilding of the railroads causing panic and depression.

Another factor was also involved. Like today's Wall Street banks, the railroads crafted complex financial instruments promising a fixed return. Few investors understood them or that in case of default they'd get nothing. Initially the bonds sold well, but fell after 1871 when investors doubted their value. As prices weakened, railroads assumed short-term bank loans to keep expanding. When rates skyrocketed in 1873, they were in trouble, and when Jay Cooke (in September) defaulted on his debt the stock market crashed. Hundreds of banks failed, the panic continued for five years and even longer in Europe.

What harmed the public, banks, and railroads created opportunity for well capitalized industrialists like Rockefeller, Carnegie, and Cyrus McCormick. It let them buy assets at fire-sale prices, began the so-called Gilded Age, and triggered the onset of powerful business concentration.

Small factories and businesses were out of luck. Many shut down. Tens of thousands of workers lost jobs. Unemployment in New York alone reached 25%. Workers demonstrated in Boston, New York, Chicago and elsewhere demanding work, and some of the most violent strikes in American history followed. One was a nationwide railroad action in 1877 in which mobs destroyed hubs in Pittsburgh, Chicago, and Cumberland, MD. Times were even harder in Central and Eastern Europe and lasted longer.

The panic of 1893 caused another depression until 1897 that according to some was as severe or worse than the 1873 crisis. Various factors were blamed - railroad overbuilding, shaky financing, the usual kinds of speculation, and a run on the gold supply among others.

In early May, the New York stock market fell sharply and crashed by late June. A severe credit crisis followed. About 15,000 businesses, 600 banks and 74 railroads failed, and unemployment tripled from one to three million by mid-1894.

Workers responded in the first ever march on Washington. Businessman populist Jason Coxey led his "Coxey's Army" (numbering about 500) from Massilon, Ohio (beginning March 25, Easter Sunday) to the nation's capital to demand jobs and present Congress with "a petition with boots on." Local police intervened. The marchers were disbanded. Coxey was arrested, spent 20 days in jail for disturbing the peace and violating a local ordinance prohibiting walking on the grass, was never charged, and then released.

Other panics followed in 1903, 1907, and then the big one in 1929 - the Great Crash on three days - Black Thursday (October 24), Black Monday (October 28) and Black Tuesday (October 29) - triggering bank failures and the Great Depression throughout the 1930s until WW II ended it.

Fisher discussed its cause and attributed it to debt and deflation. He also explained "cycle theory" - the instability around equilibrium and the influence of "forced" (like seasons) and "free" (self-generating like waves) cycles. He stated:

"Exact equilibrium....is seldom reached and never long maintained. New disturbances are....sure to occur, so that....any variable is almost always above or below ideal equilibrium."

"....at most times there must be over or under-production, over or under-consumption, over or under spending, over or under-saving, over or under investment, and over or under everything else." Believing in perfect equilibrium is like assuming the Atlantic Ocean is without waves.

"In the great booms and depressions, each of the above-named factors has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after; also that where any of the other factors do become conspicuous, they are often merely effects or symptoms of these two." This is key.

Fisher then discussed nine interacting factors under debt and deflation conditions that can lead to a Great Depression. Over-indebtedness leads to liquidation "through the alarm either of debtors or creditors or both." The following "chain of consequences" follows:

(1) "Debt liquidation leads to distress selling and to

(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation." Deposit and velocity contraction (from distress sales) cause

(3) "a fall in the level of prices, in other words, a swelling of the dollar." If price declines aren't "interfered with by reflation or otherwise, there must be

(4) A still greater fall in the net worths of business, precipitating bankruptcies and

(5) a like fall in profits." That, in turn, causes

(6) "A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to

(7) Hoarding and slowing down still more the velocity of circulation." Velocity refers to the rate at which money circulates, changes hands, or turns over. Greater velocity means greater demand and faster growth. It's computed by dividing the output of goods and services (GDP) by the total money supply.

The above eight changes cause:

(9) "Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

....debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way."

Fisher explained that loose monetary policy causes over-indebtedness fueling speculation and asset bubbles that aren't sustainable. "Easy money is the great cause of over-borrowing. When an investor thinks he can make over 100 per cent per annum by borrowing at 6 per cent, he will be tempted to borrow, and to invest or speculate with the borrowed money. This was the prime cause leading to the over-indebtedness of 1929. Inventions and technological improvements (at the time) created wonderful investment opportunities, and so caused big debts."

Fisher then described "distinct phases" driving public sentiment:

(a) the prospect of "big dividends or gains in income in the remote future;"

(b) selling at a profit for a capital gain "in the immediate future;"

(c) "the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations" or the notion that good times are self-sustaining, and

(d) "the development of downright fraud, imposing on a public which had grown credulous and gullible."

Fisher's debt, deflation and instability theory is summarized as follows:

(1) "economic changes include steady trends and unsteady occasional disturbances (that result in various type) cyclical oscillations;"

(2) among the "disturbances" are new investment opportunities;

(3) these among others create over-indebtedness;

(4) this "leads to attempts to liquidate;"

(5) "unless counteracted by reflation," these cause price declines "or a swelling dollar;"

(6) "the dollar may swell faster than the number of dollars owed shrinks;"

(7) as a result, liquidation doesn't liquidate; it aggravates debts, "and the depression grows worse instead of better;"

(8) extricating from this is either by bankruptcy or reflation through monetary and/or fiscal policies.

Like Keynes, Fisher believed that reflation should be limited and temporary, not long, sustained or extreme like under Greenspan and Bernanke. Otherwise short-term solutions cause much greater problems, now playing out and may become more severe ahead. As a per cent of GDP, total credit market debt is now double its 1929 level at about 350%. It's rising fast with continuing new new liquidity injections that show no signs of diminishing. Reportedly the Fed may now issue its own debt - an astonishing move if it happens as it will create unlimited debt amounts and leave the Fed unaccountable to no one for doing it.

As in 1873, 1929, and other financial panics, speculation has been rampant, much more extreme than earlier, and debt levels are unprecedented and growing. As a result, large banks are effectively insolvent, hoard cash, and won't lend. Credit is scarce. Households are too over-indebted to borrow. Lenders won't extend it anyway. Unemployment is skyrocketing, and the potentially greatest ever economic crisis is worsening - so much so that London-based GFC Economics predicts successive 2009 months of one million layoffs in the US.

And unprecedented-sized bailouts assure greater trouble ahead. Using inflation-adjusted numbers, Jim Bianco of Bianco Research said that bailout-related debt cost more than the following combined:

-- the Marshall Plan - cost: $12.7 billion; inflation-adjusted cost: $115.3 billion;

-- the Louisiana Purchase - cost: $15 million; inflation-adjusted cost: $217 million;

-- NASA's Apollo human spaceflight program - cost: $36.4 billion; inflation-adjusted cost: $237 billion;

-- the S & L crisis - cost: $153 billion; inflation-adjusted cost: $256 billion;

-- the Korean War - cost: $54 billion; inflation-adjusted cost: $454 billion;

-- the New Deal - cost: an estimated $32 billion; inflation-adjusted cost: an estimated $500 billion;

-- the invasion and early months of the Iraq War (not the total war cost to date that's far higher) - cost: $551 billion; inflation-adjusted cost: $597 billion;

-- the Vietnam War - cost: $111 billion; inflation-adjusted cost: $698 billion; and

-- NASA since inception - cost: $416.7 billion; inflation-adjusted cost: $851.2 billion.

Total: $3.92 trillion compared to around $8.5 trillion in bailout funds allocated or pledged thus far with these numbers certain to go higher.

Will deflation and depression follow? Who can know, but Nouriel Roubini understands the seriousness of over-extended debt and explains the consequences of falling prices. It affects "the real value of nominal liabilities," and makes them rise "as do real interest rates once the nominal interest rate hits" zero. Hoarding cash and saving "instead of investing is thus self-reinforcing as (a) deflationary spiral takes hold."

He sees the threat of "stag-deflation (recession/ stagnation and deflation) and "debt deflation" that's "already forced the Fed into a liquidity trap (with investors preferring to hold cash) as the Fed funds rate is effectively close to 0% and an informal policy of 'quantitative easing' has already....flooded financial markets with over $2 trillion of liquidity" - now even more than when he wrote this in late November and, for the first time (on December 9), the Treasury sold $30 billion of four-week bills at zero interest. On July 31, 2001, they were auctioned for the first time, to be continued weekly along with regular 13 and 26-week bills. Back then, they yielded around 3.5%.

Roubini sees lots of negatives from current policies, even depression, but he doesn't predict it. He states: "Desperate times and desperate economic news require desperate policy actions." However "partially necessary" they may be, they'll "eventually lead to much higher real interest rates on the public debt and weaken the US dollar once this tsunami of implicit and explicit public liabilities and monetary debt (the result of rising twin fiscal and current account deficits) hits a world where the global supply of savings is shrinking. As most countries move to fiscal deficits (and reduce global savings), foreign investors (may) start to ponder the long-term sustainability of the US domestic and external liabilities."

With the economy "in free fall," debt obligations at unprecedented levels, and "stag-deflation" deepening, the worst of possibilities may unfold and spread contagion everywhere.

The Bank for International Settlements (the so-called central bank for central bankers) showed concern in its December Quarterly Review. It questions the soundness of near-zero interest rates that may disrupt money markets and "discourage banks from lending to other banks." It's also worried about the "scope and magnitude of the bank rescue packages (because) significant risks (from toxic debt have) been transferred onto government balance sheets" in amounts great enough to risk future default.

Only in time will we know, but the worst of possibilities are real, especially in America where debt levels are hugely unmanageable, yet they continue to be added to recklessly.

What will unfold and how it will end can't be known. The human fallout already is huge. It may end up overwhelming but not as fast as in the 1930s. According to Department of Commerce Bureau of Economic Analysis figures, GDP fell 26.6% between 1929 and 1933, personal income declined 25.7%, and consumption expenditures dropped 18.2%.

Given a three-decade US standard of living decline to the present, exacerbated by the intensifying current crisis (very likely to be protracted and deep), it's very possible those 1930s numbers may be matched or exceeded going forward. If so, it may just take longer before their full effects show up and are felt.

But look how big businesses are advantaged. Smaller ones will fail, and the giants will get even bigger through asset acquisitions at fire-sale prices. As they say, what goes around, comes around but much to the public's detriment as it always is.