Re: PKE and WTC disaster

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Excerpts from

By Bob Woodward and Vernon Loeb
Washington Post Staff Writers
Friday, September 14, 2001; Page A01
 
 

Briefing reporters at the Pentagon, Wolfowitz said that military forces would receive a "significant" portion of a $40 billion supplemental appropriation now before Congress to pay for "some huge requirements to build up our military for the next year, maybe longer." Much of the supplemental funds, he said, are necessary "to prepare our armed forces for whatever the president may ask them to do. The costs mount rapidly, and they will mount more rapidly as this campaign develops."

Some of that funding could be used to call up more than 40,000 reservists to active duty, a proposal under consideration, according to a senior military official. Several thousand reservists with "specialized skills" could be called up in the next few days, the official said.

Many of the extra personnel are necessary to support combat air patrols over major metropolitan areas instituted this week by filling out the ranks of pilots, aviation maintenance crews and military air traffic controllers, the official said.

State authorities have enlisted about 10,000 National Guard troops to assist in civil recovery efforts in Washington and New York. But the Pentagon move represents the first significant federal call-up. Major U.S. military actions almost invariably require reservists to supplement regular troops.

Pentagon planners are focusing on starting any military campaign with sustained bombing raids, first against bin Laden sites in Afghanistan, a senior U.S. official said yesterday. If that proves ineffective, the plan would call for the bombing of targets associated with Afghanistan's ruling Taliban militia, which has harbored bin Laden for the past five years, the official said.

"That was what the president meant when he said the U.S. was prepared to retaliate against both those responsible for terrorism and those who harbor them," the official said.

U.S. attempts to negotiate with the Taliban earlier this year to have it expel bin Laden failed, another official said, adding: "We have moved past there. Now we are trying to affect their intentions."

Several military officers said the Pentagon is also considering an array of special forces operations aimed at suspected terrorist redoubts in Afghanistan, Yemen, Sudan, Pakistan and Algeria. The Pentagon also is considering flying unmanned drones capable of lingering over terrorist camps for extended periods to provide almost continuous surveillance, one officer said.

"Things are different this time," another senior officer added. "I don't think the American people expect a light response."

One factor restraining previous military action was an emphasis on zero casualties, which has tended to constrain the Pentagon from employing ground troops and has led to a reliance on sea- or air-launched cruise missiles. Following the embassy bombings in 1998, the United States launched cruise missiles against sites in Afghanistan and Sudan thought to have ties to bin Laden. The attacks were criticized as largely ineffectual.

Bush and his advisers appear ready to consider the use of ground troops, particularly special forces, military officers said. "If you regard what happened as an act of war, as the president has said, your standard of application for what you do about it is different," said a four-star officer.

At the same time, military officials knowledgeable about the extent of Pentagon preparations characterized the planning as still in the early stage. They said no specific targets had been selected and no forces yet earmarked for action.

"It's really embryonic at this point," the four-star officer said.

Former CIA director R. James Woolsey said that Iraq would have multiple targets for military planners if it is conclusively demonstrated that Iraq "had a substantial hand" in Tuesday's attacks.

Should such evidence materialize, Woolsey said, "all instruments of power to the Iraqi state should be destroyed: the Republican Guard, everything associated with Saddam Hussein, everything associated with their weapons of mass destruction program."

Woolsey said he believes there is evidence suggesting that Ramzi Ahmed Yousef, the convicted mastermind of the 1993 World Trade Center bombing, was an Iraqi intelligence agent. "If Iraq is behind the '93 attack, it's never really paid any price for that -- and we can start right there," he said. "But if it's behind the '93 attack, there's a good chance it's behind this one."

http://www.washingtonpost.com/wp-dyn/articles/A28094-2001Sep13.html

Ted Schmidt wrote:

Agreed Henry. I've told my corporate finance courses that I'm expecting a
"patriotic rally" when markets open next week.  "Military Keynesianism" is a
good euphimism for what will unfold over the next few years.
T. Schmidt

"Henry C.K. Liu" wrote:

> It happened today in the bond market in Chicago.  Traders were unusually
> less aggressive towward their NY counterparts, instead of maximizing
> profits.
>
> There is no doubt that the effect on the market of the terrorist attack
> would be outright CB intervention in both exchange rates and equity prices.
> The Fed just announce a $50 billion eurodollar swap with the ECB for 30 days
> to banks with dollar liquidity.  Countercyclical moves by the Fed will now
> be justified in the name of stability and patriotism.  Foreign CBs will fall
> in line in the name of stability and sympathy.
>
> The denial phase of the recession ends with responsibility for the slowdown
> pinned on terrorist attacks, rather than inept policy.  In the name of war
> on terrorism, all manners of government control will be instituted, the
> market will not be exempt.  This marks the end of market fundamentalism and
> the beginning of war planning in the name of defense of freedom.  Military
> Keynesianism is on the move.
>
> Henry C.K. Liu
>
> "Forstater, Mathew" wrote:
>
> > Paul - You have argued here before, I believe, that PK analysis
> > concludes that natural disasters can end up stimulating the economy by
> > giving rise to various types of emergency expenditures that then will
> > have multiplier effects.  I believe you made such an argument with
> > regard to California a few years back.  Certainly, the argument has also
> > been made in terms of military destruction.  I wonder if you think that
> > we may expect a similar effect as a result of the WTC disaster, and if
> > you think that these effects may more than compensate for any
> > destabilizing effects.
> >
> > I also wonder whether there might be other relatively stabilizing
> > effects as well.  For example, is it possible that such a disaster gives
> > rise to sentiments (sense of duty, responsibility) that may curb some
> > excessive moves on the part of some market participants?  For example,
> > is it possible that a 'big player' might resist a big sell-off in the
> > context of this kind of disaster, where they might not under 'normal'
> > circumstances of markets turning sour?  Also, would certain kinds of
> > 'coordination' be acceptable under these circumstances, where they might
> > not usually?  Or would certain appeals, e.g. for calm, have a greater
> > chance of being heeded?
> >
> > Also, will the disaster be blamed for things turning economically sour,
> > even if it may have been the case that things were heading that way
> > anyway?
> >
> > Thanks,
> >
> > Mat