Revocable Living Trust – A Beneficial Product, But Is It Right for You?

July 28, 2011 by · Leave a Comment 

By Adil Daudi, Esq.

Recently I was given the opportunity to speak at The Islamic Center of Greater Lansing on “Simplifying your Shariah Estate Plan.” My primary focus for the presentation was two-fold: (a) to provide a greater understanding for the community on the differences between a Revocable Living Trust and a Last Will and Testament; and (b) to inform the community on the importance of a Durable Power of Attorney and a Health Care Power of Attorney.

As the presentation ended and the question and answer period began, I realized that the focus of the questions was on the differences of a Trust and a Will, and which would be more suitable for them individually. Seeing how my article “To Will or Not to Will” has drawn attention from many in our community, I wanted to take the opportunity to write on the other product, the Revocable Living Trust, and hopefully shed some light on the benefits of obtaining such a product.

If you are at the stage where you are prepared to create an estate plan, you may be well-aware of the requirements that are placed on us Muslims: Narrated by Ibn Umar, Prophet Muhammad (s) once said: “It is not right for any Muslim person who has something to bequeath to stay for two nights without having his last will and testament written and kept ready with him.”

The following is a concise list of facts about Revocable Living Trusts that many may or not be taking into consideration when deciding on their estate plan. I would strongly advise for you to consult with an Attorney about these issues and to get a better, clearer, understanding of how a trust actually operates versus a Will.

1. Avoid Probate: One of the primary advantages of establishing a Trust is that you avoid the probate process; therefore, you avoid having the courts involved in your estate. This is extremely beneficial for multiple reasons: (a) allows you to distribute your assets almost immediately; (b) helps reduce the cost that your estate would otherwise pay; (c) allows you to avoid having lawyers involved; and (d) ensures a much smoother process for handling the estate’s affairs.

2. Costs: One of the biggest drawbacks of establishing a Trust is the upfront cost that is typically associated with it. From my experience, this is what usually deters clients away from creating a trust; however, more often than not, this is because they do not fully understand the benefits and the possible savings a Trust can actually provide. The average cost of going through the probate process is approximately 3-5% of your entire estate. Now, depending on the value of your estate, this cost can be excessive. However, in contrast, once you create a Trust, the only fee you will be required to pay is the actual cost of the Trust. 

If you are currently speaking to an Attorney about a Trust, be sure to ask whether there are any hidden costs, e.g. extra charges for making changes or costs for speaking to the Attorney about the Trust after it is created. Although I can only speak on behalf of my firm, we ensure that a client who purchases a Trust with us is given no additional fees, and has essentially retained us for the duration of their life (for their estate planning needs). Please make sure you understand your Attorney’s fee structure before signing up for any estate planning documents.

3. Private Information: Another important advantage with a Trust is that you do not open yourself up to the public. In other words, under a Trust, your information is kept private between you, your spouse and your immediate family (or whomever you choose). Unlike a Will, where once it is filed with the court, it is open for the public to see; with a Trust there is no requirement of having it filed with the court. For many, this is a very serious issue, as not many Muslims are keen on the idea of having their assets openly disclosed to the public. However, these are also issues that you need to address when creating your own personal estate plan.

It has become far too common for clients to focus too much on the type of estate plan they should create (trust vs. will), and less focused on the requirements that have been placed upon us. If you have yet to establish an estate plan, and if you are stalling the process because you confused on which product is more suitable for you, I highly advise for you to at least satisfy the bare-minimum requirement that Allah s.w.t. has made mandatory on us, and draft a Will; at least until you have informed yourself of the advantages to a Trust, and decided whether or not a Trust is in fact, the better product.

In addition, it is always important to discuss and understand these issues with your Attorney. Make sure you speak to an attorney who will not charge for the initial consultation and is knowledgeable in the area; especially in relation to Shariah law. With Ramadan approaching in less than two-weeks, there may be no better time than now to take advantage of completing a deed and satisfying your requirements; as well as ensuring you have protected your assets and have them distributed pursuant to Shariah law, and not Michigan law.

Adil Daudi is an Attorney at Joseph, Kroll & Yagalla, P.C., focusing primarily on Asset Protection for Physicians, Physician Contracts, Estate Planning, Business Litigation, Corporate Formations, and Family Law. He can be contacted for any questions related to this article or other areas of law at adil@josephlaw.net or (517) 381-2663.

13-31

The Love of Your Child

July 21, 2011 by · Leave a Comment 

By Karima Friedemann, TMO

There is nothing more intimate than the love between mother and child. Marriage is an interesting learning experience, but it cannot compete with the total human sacrifice it takes to produce a child. After bearing the stress in one’s womb for months and months, feeling the weakness and hunger, and finally the labor which cannot ever be described, a new human being arrives. This being suckles on you until your bones ache so that you cannot sleep at night, and yet you long for another one. This is love. This is true love.

“What is love? Does anybody love anybody anyway?” sang Howard Jones, a UK artist, when I was in Junior High School. I still don’t know the answer to these questions.

“The mothers shall give such to their offspring for two whole years, if the father desires to complete the term. But he shall bear the cost of their food and clothing on equitable terms. No soul shall have a burden laid on it greater than it can bear. No mother shall be treated unfairly on account of her child. Nor father on account of his child, an heir shall be chargeable in the same way. If they both decide on weaning, by mutual consent, and after due consultation, there is no blame on them. If ye decide on a foster-mother for your offspring, there is no blame on you, provided ye pay (the mother) what ye offered, on equitable terms. But fear God and know that God sees well what ye do. (Quran 2:233)”

He shall bear the cost of their food and clothing on equitable terms. No soul shall have a burden laid on it greater than it can bear. No mother shall be treated unfairly on account of her child. These are actually reasonable requests. God laid it down.

So now that we have got that straight, what have we now? A financial exchange. But is there more to life than that? I don’t know yet. But there are people who go through this life never knowing what it was like to fall asleep at their mother’s breast. There are so many of us, especially children of the 70’s, who just never knew that. When we had a nightmare, we had to “understand” that no one was going to cuddle us. We faced this world alone, without any sense of having any rights.

Even the most emotionally detached mother could fall asleep with her child, and this skin contact could even save a child’s life. For life. A scientific study in Brazil showed that mothers who “wore” their premature babies under their clothes with constant skin contact (instead of keeping them in an incubator) were rewarded with higher rates of weight gain and overall health of their babies. Love boosts the immune system. And if you don’t know how to love yet, the first step is lots of long hugs to increase the sense of emotional security, which gives bursts to all the healing hormones your body can release.

Close physical contact is part of Islam. I invited some neighbors to a local iftar and my friend’s husband, who was from Spain, commented that, during the prayer, he had never been so physically close to other men in his entire life. He kind of liked it.

There are so many things we could do wrong in our lives, but if we could at least give our children the emotional security of skin contact at a very early age, we could do well. Even if we are not nursing, how about putting your arm around your child? If you give it a few minutes, he or she might even fall asleep. What’s most important, even more important than the mother’s milk, is knowing that somebody cares. Somebody is there.

We come into this world alone, and we will leave it alone. Nobody will be able to help us. We have only a short time to love one another. Whomever we love, they may be gone tomorrow. We might be gone tomorrow. We need to set boundaries against disrespect, but we must keep an open door policy for those whom we love.

We should never think that our actions will not affect another human being. If we let a child cry himself to sleep, we might think he’ll never remember, but in fact this might be the deciding factor in whether he believes in himself or not. It actually takes someone else to help you realize that you have the right to take up space in this world, when you are new here. No one can do it alone. People who are mistreated or neglected all their lives often curl up and die. In any case their immune system takes a hit.

Christians and Muslims have a dispute because Christians say, “God is Love,” whereas Muslims say, “God is the Lover.” This is a grammatical problem, not a basic issue. There are so many beautiful people out there. Why not love them all?

Love comes from Allah alone. You can never force or will someone to love you back. It is entirely out of your hands. And there is a certain element of comfort in that.

There is somebody who will never refuse your love. That is your child.

13-30

More Bucks, Less Bang:

June 9, 2011 by · Leave a Comment 

The Ineffective Weapons Disease Infects Another Generation of Weapons

By Dina Rasor, Truthout

In the early 1980s, the Pentagon was in the midst of several new generations of tanks, aircraft and missiles, especially during the Reagan defense budget buildup. It was in one of the hottest times of the cold war and I had many sources tell me that, because of nuclear weapons, there probably wasn’t going to be a land war with the Soviet Union in Europe, so these weapons were just bluff and window dressing. Much of the attitude was that it didn’t matter much if these weapons failed their test and cost too much because they were designed to look tough, but not to actually be used in war.
In many ways, the cold war was perfect for DoD managers of major weapons systems: they could project that their new technically laden weapon could do all types of terrifying things, but they were reasonably sure that they would not be used in a major war. It was the equivalent of saying you had a poker hand of four aces, really only having a couple of queens, but knowing that you wouldn’t have to lay down your hand to verify it. The problem of expensive weapons that didn’t work as advertised led me to edit a book in 1982 entitled “More Bucks, Less Bang: How the Pentagon Buys Ineffective Weapons.” The book reproduced over 30 news articles on various weapon failures with an introduction and final chapter on how the system failed and what to do about it.

Now, it is almost 30 years later and we are seeing signs of the same dilemma facing our next generation of weapons where they are costing more, but doing less than promised. The difference now is that we are currently in several hot wars and struggling through a serious recession. Many of these failing weapons are being introduced into the battlefield even as they are being developed, overrunning their costs and flunking their tests.

I could write numerous columns outlining all the current overpriced and low functioning weapons, but there is a new group of weapons that the DoD has promised to revolutionize warfare for these various wars we are involved. According to Wired.com’s Danger Room, the Pentagon plans to double its unmanned air force. This is in the face of budget cuts and concerns about the overruns and technical problems of the next generation of aircraft, especially the F-35. Unmanned aircraft, better known as drones to the public, have suddenly been elevated to new heights with the spying on Bin Laden’s compound to drone missile strikes in Pakistan. The military’s manned aircraft program is not growing, but the unmanned aircraft is slated to grow from “approximately 340 in FY [fiscal year] 2012 to approximately 650 in FY 2021,” according to the DoD’s Aircraft Procurement Plan 2012-2041.

There are already heated discussions on whether drone warfare works or not from a strategic point of view, but I will refrain from that argument today in order to just look at whether the drones are working as advertised and whether their price is becoming as prohibitive as the manned DoD aircraft.

On June 6, 2011, Bloomberg News reported that Michael Gilmore, the director of the DoD’s Operational Test and Evaluation office, declared that the newest version of Northrop’s Global Hawk “is not operationally suitable.” According to a May 27 report from the testing office, “mission-critical components fail at high rates, resulting in poor takeoff reliability, high air about rates, low mission capable rates, an excessive demand for critical spare parts and a high demand for maintenance support.”

According to Aviation Week, the Global Hawk’s poor performance had a “poor sortie turnaround performance. And, “Effective time on station (ETOS) or the amount of time the aircraft can loiter over a target gathering intelligence, was expected to be 55% but the system achieved only 27%.” There are quality problems with something as simple as nut plates that were breaking, requiring 24-hour cure time to fix the problem, thereby grounding the planes for a day each time these nut plates failed.

This “Block 30” of Global Hawk drones have already been used to fly over the Fukushima nuclear plant in Japan to take thermal images of the damaged plant, and have been used in surveillance missions over Libya. The Global Hawk is a “remotely piloted spy plane that can fly at high altitudes – up to 60,000 feet – to evade easy detection. Its primary role is to take pictures, while also picking up enemy communications signals and electronic signals like those from a nuclear detonation,” according to an article from The Hill.It has been cited as the replacement for the cold war manned U2 airplane. The report that Gilmore released on the testing is highly critical and blunt for that office and has 16 recommendations to improve the Global Hawk, including upgrading the communications systems and boosting its all-weather capabilities.

The problem with looking at the recommended fixes is that the Global Hawk production costs have already overrun by at least 25 percent. The unit cost has been pegged at $113.9 to $161 million each. When you count the cost of research and development and the construction of the facilities to build it, each Global Hawk has risen to an astounding $173.3 million, rivaling many of the DoD current manned aircraft. To give it perspective, the estimate of the much-maligned F-35 is now put at $133 million each (with an equally astounding life-cycle cost of one trillion dollars.) There are threats to cut down the amount of F-35s and replace a percentage of them with current fighters.

However, even though this testing report was issued on May 27, 2011, there are assurances that the Global Hawk’s problems can be fixed and that the program will survive and the weapon will work. While Gilmore has revealed serious problems in the testing, the head of Air Force testing, Maj. Gen. David Eichorn puts a softer spin on the bad news. According to Aerospace Daily, Eichorn said that he found the system to be “effective with significant limitations … not suitable and partly mission capable.” He went on to explain his softer version of the operational tests: “I was much more comfortable with the shade of gray in this case rather than the black and white of is it effective or not.”

The pressure will be on to put in some fixes, retest the drone and quickly declare a victory to get it out in the field. Several corporate watchers say that the Global Hawk will survive this because the original Predator drone had major operational test problems, but there were enough fixes to make it effective in the field. Philip Finnegan of the Teal Group, an industry consulting group, told The Hill, “The Predator/Reaper suffered from serious criticism from testers early on, but it came back and is now very effective and I would anticipate that the Global Hawk would solve its problems.” There are still questions whether the Predator or Reaper have truly solved their testing problems because of the circle-the-wagons mentality by the Air Force and the DoD when a weapon is questioned. I am glad that Mr. Finnegan was willing to talk for free to The Hill, because the Teal Group’s white paper on unmanned aircraft costs a whopping $1,895.00 for a copy – sort of in line with the Pentagonal costs of weapons.

To help ensure that the Global Hawk survives any DoD cuts, the June 7 email issue of Politico’s Morning Defense had several Northrop ads sprinkled through the text including:

    A message from Northrop Grumman: The newest and most capable Global Hawks, Block 40, have started arriving at Grand Forks AFB, North Dakota. Block 40 provides affordable, state-of-the-art wide area surveillance sensor for the future.
    [and]
    The employees of Northrop Grumman salute the men and women of the U.S. Air Force and citizens of North Dakota on arrival of the first RQ-4 Global Hawk to Grand Forks Air Force Base. This milestone marks the activation of the second Global Hawk main operating base, bringing expanded intelligence, surveillance and reconnaissance capabilities to our troops. Global Hawk is the world’s preeminent high-altitude, long-endurance unmanned aircraft system, capable of flying above 60,000 feet for more than 32 hours and having already flown more than 43,000 hours in combat.

There was no mention of the severe test results that were in the press only the day before. Northrop has been running positive ads on Global Hawk in Politico’s Morning Defense since April, including extolling its virtues in combat. Since the DoD would have briefed Northrop on its results, I have no doubt that Northrop knew that the bad news was coming and wanted to soothe the problem with ads that predicted great successes for their drone.

Despite all the problems, the Global Hawk most likely will be approved for full production, despite the poor operational tests.

Inside Defense gave several reasons the Global Hawk will succeed in a June 6, 2011, story:

    Tom Christie, who headed the Pentagon’s weapons testing shop from July 2001 to 2005, when the Global Hawk Block 10 variant was being operationally assessed, doubts that the new report will impede Pentagon plans to proceed with full-rate production of the Block 30 variant.

    “Once again, we have a system that has failed to meet effectiveness and suitability requirements – but one that no doubt will probably proceed post-haste into full production and deployment,” Christie said. “In fact, the Global Hawk has been deployed for years prior to any semblance of realistic OT&E [Operational Test and Evaluation].”

    Last year, the Pentagon flagged the Global Hawk program for running afoul of statutory cost-growth thresholds for a third time. The Pentagon has spent $7.7 billion of a projected $13.9 billion to develop and acquire Global Hawk systems. The program has already breached “significant” cost growth thresholds, and on two occasions – including last June – exceeded “critical” cost growth levels, prompting the Pentagon to restructure the program and certify it as essential to national security.

    Later this month, Ashton Carter, the Pentagon’s acquisition executive, is scheduled to convene the high-level Defense Acquisition Board (DAB) to consider whether to proceed with full-rate production of the Block 30 variant. As part of that review, the Pentagon plans to restructure the program, breaking out elements of the Global Hawk program into subprograms.

    This DAB meeting is expected to be a culminating moment for a program that has been under close scrutiny for more than a year, including an internal Pentagon review last summer and an Air Force-directed blue-ribbon panel set up in December.

    On April 6, Air Force Secretary Michael Donley revealed that the Pentagon was cutting the Global Hawk procurement objective from 77 to 66, a 14 percent decrease (DefenseAlert, April 21).

Here, based on my experience, is how the Air Force and Northrop will save face on this failing program and get it through, even during these tough budget times.

Many of the problems listed above are failures by Northrop to have Global Hawk do its mission and to be maintainable (remember the nut plates that broke and needed 24 hours to fix). In a realistic world, not the world of military procurement, Northrop would be expected, under their fixed-price contract, to fix these serious problems on their own dime and lose any incentives built into the contract. However, since this would be at a high cost to Northrop, the Air Force will probably declare that the fixes of these problems are actually changes requested by the government and will put in Engineering Change Orders and other government “requests” for changes (not to be called fixes anymore). This will allow the defects of this drone to be fixed at government cost, not Northrop’s cost because the government initiated the fixes. This will raise the baseline of Northrop’s fixed-price contract (called rubber baseline in the trade), nourish the contract and lessen the specter of having overruns, all because the government will now pour more money into the drone. With these fixes, the Air Force, once embarrassed, will make sure that the drone passes the next set of operational tests by tricks in the scoring of what is a failure and is not a failure. It has been a common practice for over 40 years for services to manipulate test data to make sure that a troubled weapon passes the operational tests and goes into full production.

I helped pass the law in the 1980s to set up an independent test office in the DoD, the office that Gilmore now heads. Sen. David Pryor of Arkansas read an article that I wrote about cheating on weapons testing and urging for an independent testing office, and sponsored a bill to create an independent testing office. We were successful in getting the office established, but there was much resistance in the DoD to give it enough funding and to find tough leaders of the office to insist on hard-nosed testing. One of the directors, Thomas Christie did try to fight the bureaucracy while he was head of that office, but the institutional DoD and the military services fight any bad news coming out of the office.

The Global Hawk test report was stronger than usual, but it probably won’t help fix all the problems, keep the government from paying for Northrop’s mistakes or make sure that this weapon is truly effective in the battlefield, even during an active war. Even having an independent testing office in the DoD won’t guarantee that; even when problems are made public, things will change.

Northrop will marshal its supporters in Congress and in the DoD to help them look good so that the DoD program managers will also look good and everyone will be happy. The drone programs are headquartered at Wright Patterson Air Force Base near Dayton, Ohio, and the Dayton Daily News helped tout that base’s future in a May 19, 2011, story headlined “Pentagon plan for drones may secure WPAFB future,” outlining how this base is “Ohio’s largest single-site employer with more than 27,000 workers …”  The district that has the bedroom communities for Wright Pat and has the base literally on the border of the district is Speaker of the House John Boehner’s district, which means that there will be a heavy hitter to make sure that the drone programs make full production and are well funded despite any bad testing news or critical cost overruns.

In the eyes of most involved in this program, everyone will win except the taxpayers who will have to pay more for a flawed weapon and the troops that will be relying on the data or lack of data that the drone is supposed to capture.

So, what is the solution here? I worked for years to make sure that there was independent review of weapons testing, but the bureaucracy has dulled its impact. The DoD just released two studies that showed that testing of a weapon does not cause delay or overrun, but that fixing the problems found in testing caused by bad management is a main reason for delay and overrun. So, the testing isn’t the problem; fixing the mistakes is a big problem.

Once again, this is such a huge problem that any small-slice solution will be quickly deformed by the crushing power of the forces that want to keep the weapons’ money flowing. I believe that this system won’t change until we successfully get rid of the overwhelming problem of self-dealing: where people in this system have personal monetary stakes in these weapon systems proceeding through the system. One of the biggest problems is the revolving door among the military, Congress and the industry. In my past column, “The Buying and Selling of the Pentagon (Part II),”  I take each group, the Congress, the military and the defense contractors, and put in very strict restrictions that forces a decision: if they want to be a part of the system that buys weapons for our troops, which puts them in a very special category, then they have to sacrifice for their country, as our troops have had to sacrifice.

These solutions are not easy, but I don’t believe that we can solve problems like the Global Hawk without drastic action.

13-25

The Cost of One Man

May 12, 2011 by · Leave a Comment 

$3 Trillion Over 15 Years–Osama bin Laden cost America more than any villain, ever—which is exactly the way he wanted it.

by Tim Fernholz and Jim Tankersley

media.nationaljournal.comThe most expensive public enemy in American history died Sunday from two bullets.

As we mark Osama bin Laden’s death, what’s striking is how much he cost our nation—and how little we’ve gained from our fight against him. By conservative estimates, bin Laden cost the United States at least $3 trillion over the past 15 years, counting the disruptions he wrought on the domestic economy, the wars and heightened security triggered by the terrorist attacks he engineered, and the direct efforts to hunt him down.

What do we have to show for that tab? Two wars that continue to occupy 150,000 troops and tie up a quarter of our defense budget; a bloated homeland-security apparatus that has at times pushed the bounds of civil liberty; soaring oil prices partially attributable to the global war on bin Laden’s terrorist network; and a chunk of our mounting national debt, which threatens to hobble the economy unless lawmakers compromise on an unprecedented deficit-reduction deal.

All of that has not given us, at least not yet, anything close to the social or economic advancements produced by the battles against America’s costliest past enemies. Defeating the Confederate army brought the end of slavery and a wave of standardization—in railroad gauges and shoe sizes, for example—that paved the way for a truly national economy. Vanquishing Adolf Hitler ended the Great Depression and ushered in a period of booming prosperity and hegemony. Even the massive military escalation that marked the Cold War standoff against Joseph Stalin and his Russian successors produced landmark technological breakthroughs that revolutionized the economy.

Perhaps the biggest economic silver lining from our bin Laden spending, if there is one, is the accelerated development of unmanned aircraft. That’s our $3 trillion windfall, so far: Predator drones. “We have spent a huge amount of money which has not had much effect on the strengthening of our military, and has had a very weak impact on our economy,” says Linda Bilmes, a lecturer at Harvard University’s John F. Kennedy School of Government who coauthored a book on the costs of the Iraq and Afghanistan wars with Nobel Prize-winning economist Joseph Stiglitz.

Certainly, in the course of the fight against bin Laden, the United States escaped another truly catastrophic attack on our soil. Al-Qaida, though not destroyed, has been badly hobbled. “We proved that we value our security enough to incur some pretty substantial economic costs en route to protecting it,” says Michael O’Hanlon, a national-security analyst at the Brookings Institution.

But that willingness may have given bin Laden exactly what he wanted. While the terrorist leader began his war against the United States believing it to be a “paper tiger” that would not fight, by 2004 he had already shifted his strategic aims, explicitly comparing the U.S. fight to the Afghan incursion that helped bankrupt the Soviet Union during the Cold War. “We are continuing this policy in bleeding America to the point of bankruptcy,” bin Laden said in a taped statement. Only the smallest sign of al-Qaida would “make generals race there to cause America to suffer human, economic, and political losses without their achieving anything of note other than some benefits for their private corporations.” Considering that we’ve spent one-fifth of a year’s gross domestic product—more than the entire 2008 budget of the United States government—responding to his 2001 attacks, he may have been onto something.

The Scorecard

Other enemies throughout history have extracted higher gross costs, in blood and in treasure, from the United States. The Civil War and World War II produced higher casualties and consumed larger shares of our economic output. As an economic burden, the Civil War was America’s worst cataclysm relative to the size of the economy. The nonpartisan Congressional Research Service estimates that the Union and Confederate armies combined to spend $80 million, in today’s dollars, fighting each other. That number might seem low, but economic historians who study the war say the total financial cost was exponentially higher: more like $280 billion in today’s dollars when you factor in disruptions to trade and capital flows, along with the killing of 3 to 4 percent of the population. The war “cost about double the gross national product of the United States in 1860,” says John Majewski, who chairs the history department at the University of California (Santa Barbara). “From that perspective, the war on terror isn’t going to compare.”

On the other hand, these earlier conflicts—for all their human cost—also furnished major benefits to the U.S. economy. After entering the Civil War as a loose collection of regional economies, America emerged with the foundation for truly national commerce; the first standardized railroad system sprouted from coast to coast, carrying goods across the union; and textile mills began migrating from the Northeast to the South in search of cheaper labor, including former slaves who had joined the workforce. The fighting itself sped up the mechanization of American agriculture: As farmers flocked to the battlefield, the workers left behind adopted new technologies to keep harvests rolling in with less labor.

World War II defense spending cost $4.4 trillion. At its peak, it sucked up nearly 40 percent of GDP, according to the Congressional Research Service. It was an unprecedented national mobilization, says Chris Hellman, a defense budget analyst at the National Priorities Project. One in 10 Americans—some 12 million people—donned a uniform during the war.

But the payoff was immense. The war machine that revved up to defeat Germany and Japan powered the U.S. out of the Great Depression and into an unparalleled stretch of postwar growth. Jet engines and nuclear power spread into everyday lives. A new global economic order—forged at Bretton Woods, N.H., by the Allies in the waning days of the war—opened a floodgate of benefits through international trade. Returning soldiers dramatically improved the nation’s skills and education level, thanks to the GI Bill, and they produced a baby boom that would vastly expand the workforce.

U.S. military spending totaled nearly $19 trillion throughout the four-plus decades of Cold War that ensued, as the nation escalated an arms race with the Soviet Union. Such a huge infusion of cash for weapons research spilled over to revolutionize civilian life, yielding quantum leaps in supercomputing and satellite technology, not to mention the advent of the Internet.

Unlike any of those conflicts, the wars we are fighting today were kick-started by a single man. While it is hard to imagine World War II without Hitler, that conflict pitted nations against each other. (Anyway, much of the cost to the United States came from the war in the Pacific.) And it’s absurd to pin the Civil War, World War I, or the Cold War on any single individual. Bin Laden’s mystique (and his place on the FBI’s most-wanted list) made him—and the wars he drew us into—unique.

By any measure, bin Laden inflicted a steep toll on America. His 1998 bombing of U.S. embassies in Africa caused Washington to quadruple spending on diplomatic security worldwide the following year—and to expand it from $172 million to $2.2 billion over the next decade. The 2000 bombing of the USS Cole caused $250 million in damages.

Al-Qaida’s assault against the United States on September 11, 2001, was the highest-priced disaster in U.S. history. Economists estimate that the combined attacks cost the economy $50 billion to $100 billion in lost activity and growth, or about 0.5 percent to 1 percent of GDP, and caused about $25 billion in property damage. The stock market plunged and was still down nearly 13 percentage points a year later, although it has more than made up the value since.

The greater expense we can attribute to bin Laden comes from policymakers’ response to 9/11. The invasion of Afghanistan was clearly a reaction to al-Qaida’s attacks. It is unlikely that the Bush administration would have invaded Iraq if 9/11 had not ushered in a debate about Islamic extremism and weapons of mass destruction. Those two wars grew into a comprehensive counterinsurgency campaign that cost $1.4 trillion in the past decade—and will cost hundreds of billions more. The government borrowed the money for those wars, adding hundreds of billions in interest charges to the U.S. debt.

Spending on Iraq and Afghanistan peaked at 4.8 percent of GDP in 2008, nowhere near the level of economic mobilization in some past conflicts but still more than the entire federal deficit that year. “It’s a much more verdant, prosperous, peaceful world than it was 60 years ago,” and nations spend proportionally far less on their militaries today, says S. Brock Blomberg, a professor at Claremont McKenna College in California who specializes in the economics of terrorism. “So as bad as bin Laden is, he’s not nearly as bad as Hitler, Mussolini, [and] the rest of them.”

Yet bin Laden produced a ripple effect. The Iraq and Afghanistan wars have created a world in which even non-war-related defense spending has grown by 50 percent since 2001. As the U.S. military adopted counterinsurgency doctrine to fight guerrilla wars, it also continued to increase its ability to fight conventional battles, boosting spending for weapons from national-missile defense and fighter jets to tanks and long-range bombers. Then there were large spending increases following the overhaul of America’s intelligence agencies and homeland-security programs. Those transformations cost at least another $1 trillion, if not more, budget analysts say, though the exact cost is still unknown. Because much of that spending is classified or spread among agencies with multiple missions, a breakdown is nearly impossible.

It’s similarly difficult to assess the opportunity cost of the post-9/11 wars—the kinds of productive investments of fiscal and human resources that we might have made had we not been focused on combating terrorism through counterinsurgency. Blomberg says that the response to the attacks has essentially wiped out the “peace dividend” that the United States began to reap when the Cold War ended. After a decade of buying fewer guns and more butter, we suddenly ramped up our gun spending again, with borrowed money.

The price of the war-fighting and security responses to bin Laden account for more than 15 percent of the national debt incurred in the last decade—a debt that is changing the way our military leaders perceive risk. “Our national debt is our biggest national-security threat,” Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, told reporters last June.

All of those costs, totaled together, reach at least $3 trillion. And that’s just the cautious estimate. Stiglitz and Bilmes believe that the Iraq conflict alone cost that much. They peg the total economic costs of both wars at $4 trillion to $6 trillion, Bilmes says. That includes fallout from the sharp increase in oil prices since 2003, which is largely attributable to growing demand from developing countries and current unrest in the Middle East but was also spurred in some part by the Iraq and Afghanistan conflicts. Bilmes and Stiglitz also count part of the 2008 financial crisis among the costs, theorizing that oil price hikes injected liquidity in global economies battling slowdowns in growth—and that helped push up housing prices and contributed to the bubble.

Most important, the fight against bin Laden has not produced the benefits that accompanied previous conflicts. The military escalation of the past 10 years did not stimulate the economy as the war effort did in the 1940s—with the exception of a few large defense contractors—in large part because today’s operations spend far less on soldiers and far more on fuel. Meanwhile, our national-security spending no longer drives innovation. The experts who spoke with National Journal could name only a few advancements spawned by the fight against bin Laden, including Predator drones and improved backup systems to protect information technology from a terrorist attack or other disaster. “The spin-off effects of military technology were demonstrably more apparent in the ’40s and ’50s and ’60s,” says Gordon Adams, a national-security expert at American University.

Another reason that so little economic benefit has come from this war is that it has produced less—not more—stability around the world. Stable countries, with functioning markets governed by the rule of law, make better trading partners; it’s easier to start a business, or tap national resources, or develop new products in times of tranquility than in times of strife. “If you can successfully pursue a military campaign and bring stability at the end of it, there is an economic benefit,” says economic historian Joshua Goldstein of the University of Massachusetts. “If we stabilized Libya, that would have an economic benefit.”

Even the psychological boost from bin Laden’s death seems muted by historical standards. Imagine the emancipation of the slaves. Victory over the Axis powers gave Americans a sense of euphoria and limitless possibility. O’Hanlon says, “I take no great satisfaction in his death because I’m still amazed at the devastation and how high a burden he placed on us.” It is “more like a relief than a joy that I feel.” Majewski adds, “Even in a conflict like the Civil War or World War II, there’s a sense of tragedy but of triumph, too. But the war on terror … it’s hard to see what we get out of it, technologically or institutionally.”

What we are left with, after bin Laden, is a lingering bill that was exacerbated by decisions made in a decade-long campaign against him. We borrowed money to finance the war on terrorism rather than diverting other national-security funding or raising taxes. We expanded combat operations to Iraq before stabilizing Afghanistan, which in turn led to the recent reescalation of the American commitment there. We tolerated an unsupervised national-security apparatus, allowing it to grow so inefficient that, as The Washington Post reported in a major investigation last year, 1,271 different government institutions are charged with counterterrorism missions (51 alone track terrorism financing), which produce some 50,000 intelligence reports each year, many of which are simply not read.

ConWe have also shelled out billions of dollars in reconstruction funding and walking-around money for soldiers, with little idea of whether it has even helped foreigners, much less the United States; independent investigations suggest as much as $23 billion is unaccounted for in Iraq alone. “We can’t account for where any of it goes—that’s the great tragedy in all of this,” Hellman says. “The Pentagon cannot now and has never passed an audit—and, to me, that’s just criminal.”

It’s worth repeating that the actual cost of bin Laden’s September 11 attacks was between $50 billion and $100 billion. That number could have been higher, says Adam Rose, coordinator for economics at the University of Southern California’s National Center for Risk and Economic Analysis of Terrorism Events, but for the resilience of the U.S. economy and the quick response of policymakers to inject liquidity and stimulate consumer spending. But the cost could also have been much lower, he says, if consumers hadn’t paid a fear premium—shying away from air travel and tourism in the aftermath of the attacks. “Ironically,” he says, “we as Americans had more to do with the bottom-line outcome than the terrorist attack itself, on both the positive side and the negative side.”

The same is true of the nation’s decision, for so many reasons, to spend at least $3 trillion responding to bin Laden’s attacks. More than actual security, we bought a sense of action in the face of what felt like an existential threat. We staved off another attack on domestic soil. Our debt load was creeping up already, thanks to the early waves stages of baby-boomer retirements, but we also hastened a fiscal mess that has begun, in time, to fulfill bin Laden’s vision of a bankrupt America. If left unchecked, our current rate of deficit spending would add $9 trillion to the national debt over the next decade. That’s three Osamas, right there.

Although Bin Laden is buried in the sea, other Islamist extremists are already vying to take his place. In time, new enemies, foreign and domestic, will rise to challenge America. What they will cost us, far more than we realize, is our choice. 

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Economist Tallies Rising Cost of Israel on US Taxpayers

April 8, 2010 by · Leave a Comment 

By David R. Francis, Christian Science Monitor

Since 1973, Israel has cost the United States about $1.6 trillion. If divided by today’s population, that is more than $5,700 per person.

This is an estimate by Thomas Stauffer, a consulting economist in Washington. For decades, his analyses of the Middle East scene have made him a frequent thorn in the side of the Israel lobby.

For the first time in many years, Mr. Stauffer has tallied the total cost to the US of its backing of Israel in its drawn-out, violent dispute with the Palestinians. So far, he figures, the bill adds up to more than twice the cost of the Vietnam War.

And now Israel wants more. In a meeting at the White House late last month, Israeli officials made a pitch for $4 billion in additional military aid to defray the rising costs of dealing with the intifada and suicide bombings. They also asked for more than $8 billion in loan guarantees to help the country’s recession-bound economy.

Considering Israel’s deep economic troubles, Stauffer doubts the Israel bonds covered by the loan guarantees will ever be repaid. The bonds are likely to be structured so they don’t pay interest until they reach maturity. If Stauffer is right, the US would end up paying both principal and interest, perhaps 10 years out.
Israel’s request could be part of a supplemental spending bill that’s likely to be passed early next year, perhaps wrapped in with the cost of a war with Iraq.

Israel is the largest recipient of US foreign aid. It is already due to get $2.04 billion in military assistance and $720 million in economic aid in fiscal 2003. It has been getting $3 billion a year for years.

Adjusting the official aid to 2001 dollars in purchasing power, Israel has been given $240 billion since 1973, Stauffer reckons. In addition, the US has given Egypt $117 billion and Jordan $22 billion in foreign aid in return for signing peace treaties with Israel.

“Consequently, politically, if not administratively, those outlays are part of the total package of support for Israel,” argues Stauffer in a lecture on the total costs of US Middle East policy, commissioned by the US Army War College, for a recent conference at the University of Maine.

These foreign-aid costs are well known. Many Americans would probably say it is money well spent to support a beleagured democracy of some strategic interest. But Stauffer wonders if Americans are aware of the full bill for supporting Israel since some costs, if not hidden, are little known.

One huge cost is not secret. It is the higher cost of oil and other economic damage to the US after Israel-Arab wars.

In 1973, for instance, Arab nations attacked Israel in an attempt to win back territories Israel had conquered in the 1967 war. President Nixon resupplied Israel with US arms, triggering the Arab oil embargo against the US.

That shortfall in oil deliveries kicked off a deep recession. The US lost $420 billion (in 2001 dollars) of output as a result, Stauffer calculates. And a boost in oil prices cost another $450 billion.

Afraid that Arab nations might use their oil clout again, the US set up a Strategic Petroleum Reserve. That has since cost, conservatively, $134 billion, Stauffer reckons.

Other US help includes:

• US Jewish charities and organizations have remitted grants or bought Israel bonds worth $50 billion to $60 billion. Though private in origin, the money is “a net drain” on the United States economy, says Stauffer.

• The US has already guaranteed $10 billion in commercial loans to Israel, and $600 million in “housing loans.” (See editor’s note below.) Stauffer expects the US Treasury to cover these.

• The US has given $2.5 billion to support Israel’s Lavi fighter and Arrow missile projects.

• Israel buys discounted, serviceable “excess” US military equipment. Stauffer says these discounts amount to “several billion dollars” over recent years.

• Israel uses roughly 40 percent of its $1.8 billion per year in military aid, ostensibly earmarked for purchase of US weapons, to buy Israeli-made hardware. It also has won the right to require the Defense Department or US defense contractors to buy Israeli-made equipment or subsystems, paying 50 to 60 cents on every defense dollar the US gives to Israel.

US help, financial and technical, has enabled Israel to become a major weapons supplier. Weapons make up almost half of Israel’s manufactured exports. US defense contractors often resent the buy-Israel requirements and the extra competition subsidized by US taxpayers.

• US policy and trade sanctions reduce US exports to the Middle East about $5 billion a year, costing 70,000 or so American jobs, Stauffer estimates. Not requiring Israel to use its US aid to buy American goods, as is usual in foreign aid, costs another 125,000 jobs.

• Israel has blocked some major US arms sales, such as F-15 fighter aircraft to Saudi Arabia in the mid-1980s. That cost $40 billion over 10 years, says Stauffer.

Stauffer’s list will be controversial. He’s been assisted in this research by a number of mostly retired military or diplomatic officials who do not go public for fear of being labeled anti-Semitic if they criticize America’s policies toward Israel.

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As U.S. Health Row Rages, Many Seek Care in Mexico

August 20, 2009 by · Leave a Comment 

By Tim Gaynor, Reuters

NACO, Mexico–Retired police officer Bob Ritz has health insurance that covers his medical and dental care in the US.

But every few months he drives from his home in Tombstone, Arizona, to this small town in northern Mexico to avoid the healthcare costs that aren’t paid by insurance.

“I pay $400 a month for my health insurance, and it’s still cheaper to come to Mexico,” says Ritz, 60, as he stood outside a sun-bleached pharmacy in Naco, a few hours drive southeast of Phoenix.

President Obama is locked in a bitter fight to overhaul U.S. healthcare, as he seeks to increase the number of Americans getting coverage and drive down costs of around $2.5 trillion a year.

Republican critics charge that Obama and his Democratic allies in Congress are seeking a government takeover of healthcare that will drive up the budget deficit.

With Washington bickering over how to reform the system and contain its spiraling costs, many Americans like Ritz simply head to Mexico to get care they can afford.

The total number making the trip is unclear. But a recent study by the UCLA Center for Health Policy Research estimated that nearly 1 million people from California alone seek medical, dental or prescription services in Mexico each year.

Some making the trek have little or no medical coverage. Others like Ritz are on fixed incomes and want to avoid so-called co-pays and deductibles charged by U.S. insurers on top of policies that routinely cost from a few hundred dollars to a few thousand each month.

“The very wealthy can afford whatever they want, the very poor get it through aid, but the working and the middle-class have to struggle to pay insurance,” said Ritz, who worked as a police officer in Chicago for 28 years.

“I’m very lucky to live near enough to Mexico to get good healthcare at a reasonable price,” he added.

Healthcare reform is the flagship domestic policy drive of Obama’s first year in office.

He wants coverage for around 46 million uninsured Americans and to rein in rising medical costs, and regulate insurers that already provide care to millions more.
Republican opponents say Obama’s plan amounts to socialism by stealth and argue that its trillion-dollar price tag will hurt the economy as the United States remains mired in the worst recession in decades.

While the bitter row continues to rage at town hall meetings across the United States, signs of the U.S. system’s failings are visible in Mexican border cities, where cut-price pharmacies, dental clinics and doctors’ surgeries vie for business from Americans who can’t afford treatment at home.

In Tijuana, where medical tourism from neighboring San Diego is big business, clinics offer operations ranging from cut-rate cosmetic procedures to hysterectomies and bariatric surgery to curb obesity.

“I waste up to four hours coming to an appointment, but it’s worth it as we’ll save thousands of dollars,” said Beatriz Iturriaga, a 26-year-old mother of two from Eastlake, south of San Diego, who paid $6,500 for bariatric surgery at a Tijuana clinic that would cost up to $40,000 stateside.

At the other end of the cost spectrum in Naco, Mexican physician Sixto de la Pena Cortes charges the 15 or so Americans that trek to his clinic-cum-pharmacy each week $20 for a check-up — the cost of an average co-pay in the United States.

“Most common (ailments) are bronchitis, pneumonia and stomach problems,” said de la Pena Cortes, 62, who said he has also set broken bones and arranged for an appendix to be removed at a hospital in nearby Agua Prieta at a cost of around $2,000.

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Investments in Complex Plants Backfire

August 13, 2009 by · Leave a Comment 

By Ikuko Kurahone, Reuters

LONDON, Aug 12 (Reuters) – Oil firms that invested in complex refineries to process the most difficult crude and in theory generate big profits have inadvertently forced up the cost of feedstock, wrecking the economics of their plans, especially in Europe.

An increase in the cost of high quality lighter crude, which began about seven years ago, first inspired investment either in complex new plants or in adding cokers and residual hydrocrackers to existing refineries so they can process heavier oil.

What the refiners did not predict was the extent to which heavy crude costs would be driven higher by increased demand from more complex refineries and the plunge in refined products that followed the end of the oil market rally last year.

As profit margins have diminished, some new projects, particularly in Europe, are likely to be shelved, raising the prospect of supply tightness when demand recovers and as heavy crude supplies are expected to outstrip availability of lighter oil.

“The first wave of large investment in conversion capacity and new complex refineries is coming on line in 2009-2010. Whatever was planned for 2009-2010 is going to come on, cancellation/postponement more likely to affect projects scheduled from 2011 onward,” BNP Paribas oil analyst Harry Tchilinguirian said.

“The economics are more challenging as profitability of more expensive complex operations is eroded when the discount between the medium/heavy grades narrows relative to light grades.”

Light, sweet crude, with low sulphur content, gives a high yield of high value products such as gasoline, diesel and jet fuel.

Heavier, sour crude, which includes more sulphur that has little commercial value and requires longer processing, historically traded at a deep discount.

The medium heavy, sour Russian benchmark grade Urals, for instance, traded at discounts of about $7 a barrel when Brent and U.S. light crude futures hit a record high above $147 in July last year.

But since July this year, it has traded at near parity to lighter North Sea streams, including Brent and Forties.

Another of the variables relates to the Organization of the Petroleum Exporting Countries (OPEC) as the group’s output cuts have reduced the amount of heavier crude available.

Thomas O’Malley, chairman of Europe’s top independent refiner Petroplus, told a webcast last week the narrower gap between light and heavy differentials would continue to constrain complex refiners.

“We may see three years of contraction of heavy light spreads … coker builders in the last couple of years are not happy builders,” he said.

Some analysts have said European refiners might have missed out on the cost advantage of a wide light-heavy spread once and for all.

By contrast with refiners in the United States, which has been processing heavy crude from domestic fields, as well as Mexico and Venezuela, for many years, deep conversion projects in Europe are recent.

They have been mostly geared to taking Russian medium-heavy Urals, which would have been unlikely to make the kind of profits possible from processing heavier Mexican and Venezuelan grades.

“Low demand and new refining capacity coming onstream in 2009 are likely to keep refining margins below those seen in recent years, unless serious disruptions occur on the supply side,” said one refiner in its second quarter earnings report.

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The Fiat Currency Disease

July 2, 2009 by · 1 Comment 

Courtesy James Turk

Yesterday the Federal Reserve completed the latest meeting of its Federal Open Market Committee.  It re-affirmed its plan to purchase by the end of the year some $1.8 trillion – yes, $1.8 trillion – of US government paper, comprising of agency debt, agency mortgage-backed securities and US Treasuries.  That’s nearly $6,000 for every man, woman and child in the United States.

While $1.8 trillion is a gargantuan amount of money, the actual amount is of secondary importance to the essential, piercing question.  Namely, where is this $1.8 trillion going to come from?

The answer is not pretty.  These dollars will come from the same place that all other dollars are created these days, namely, out of thin air.  Here’s how Mr. Bernanke explained this monetary sleight-of-hand before he was appointed as chairman of the Federal Reserve.  “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Like most central banker statements, this one is based on half-truths. How can there possibly be “essentially no cost” to creating all these dollars?  We=2 0all know that there is no free lunch in the real world, so there must be some significant cost to creating so many dollars, right?

Please read Mr. Bernanke’s statement again. There may be essentially no cost to the US government, but here is what he doesn’t tell you. There is a very real and huge cost to everyone who ends up holding these dollars that were created ‘out of thin air’.  It is the cost of inflation; it is the onerous cost burden arising from the reality that the purchasing power of the dollar is being continuously eroded. And the more dollars that are created beyond the need for dollars in normal commerce, the worst the inflation becomes. The $1.8 trillion the Federal Reserve will soon be creating should cause those remaining deflationists still arguing their point of view to recognize that they are looking down the wrong road.

They argue that deflation is inevitable because credit is contracting.  However, contracting credit is not deflation. Rather, contracting credit causes wealth destruction, but does not necessarily cause deflation in a fiat currency world.

Deflation arises when the quantity of dollars contracts, as it did when credit contracted in the Great Depression.  But the quantity of dollars is not contracting today.  It continues to grow, regardless what measure one uses, M1, M2 or M3 (which John Williams of http://www.shadowstats.com estimates to have grown +7.3% over the past 12 months).

What’s more, the trillions of dollars created out of thin air for various bailout schemes as well as this latest $1.8 trillion planned purchase by the Federal Reserve will make sure that the quantity of dollars continues to grow.  The result will be that the purchasing power of the dollar will continue to be inflated away.

It has become increasingly apparent that the US dollar has caught the fiat currency disease, where too many units of account are created.  This disease is fatal, and hundreds of fiat currencies buried in the fiat currency graveyard throughout history have succumbed to it.

By creating too many units of account out of thin air, the Federal Reserve has sealed the dollar’s inflationary fate.  Own gold and/or silver to protect yourself and your family from this inevitable outcome.

Since 1987 Mr. Turk has written the Freemarket Gold & Money Report, an investment newsletter that publishes twenty issues annually. He is the author of The Illusions of Prosperity (1985), SOCIAL SECURITY Lies, Myths and Reality (1992) and several monographs on money and banking.

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