Look! Up in the sky! It’s a Swiss Franc… It’s a U.S. Dollar… No, It’s Peace Dividend Man!

Yesterday I got into a cab and took a ride. It didn’t matter to where. I wasn’t going anywhere. I just needed to know what was hot these days since I cut the cord. Yes, the virtual umbilical cord from my wall to my remote control. Now that I have no news, only internet truths, I was fresh meat in the back seat.

Me: So what’s a good stock these days?

FutureUberDriver: Oh that bubble has burst.

How about a good place to buy some property?

Oh that bubble has burst.

… odd silence.

Me: Heard any good jokes lately?

Yes, a commodity broker from Switzerland walks into a bar…

Oh, I’ve heard this, Little oil lady who, right?

We stop at a red light again. He looks back,,, simultaneously we say: That bubble has burst!

A guy gets out of a cab and walks into a bar. That’s me now. Psyche! Thinking,,, what’s next? Silver? The U.S. Dollar? Inflation? And how many cab rides will it take to find out?

Thinking,,, wondering,,, what’s it all mean? Is this is a long, round about circle that we are circumscribing. You know what I mean right? When someone says: ‘oh, we’ve come full circle’. What is full circle, really? If someone begins talking of a peace dividend today, you might say: ‘wow, we’ve come full circle now’, since that is all that we heard about after the cold war ended. And what about that?

We really haven’t heard the term peace dividend yet (post Afghanistan/Iraq). Is that because there is now a subliminal war on peace, or could it be that peace dividends usually don’t manifest predictably. The IMF claims that the last peace dividend never culminated as pre-subscribed by this article written in 2002 at: http://www.imf.org/external/pubs/ft/fandd/2002/12/gupta.htm.

Let me summarize with their introduction and conclusion italicized:

The Elusive Peace Dividend
Sanjeev Gupta, Benedict Clements, Rina Bhattacharya, and Shamit Chakravarti

How armed conflict and terrorism undermine economic performance.

The end of the Cold War was supposed to bring with it a “peace dividend” that would release resources for more productive purposes. Instead, we are witnessing an era of scattered conflicts, while terrorist groups have become more sophisticated and destructive.

Our results suggest that countries that end conflicts and combat terrorism will realize sizable economic gains in terms of growth, macroeconomic stability, and the generation of tax revenues. Ending conflict and terrorism and restoring security can result in a substantial peace dividend, freeing up fiscal resources that a country can use to lower its deficit, reduce taxes, or raise the allocation for propoor spending.

Okay, now I think I get it. The markets hate uncertainty!

I have read the article a couple of times and I know that I am uncertain… primarily on their mixed message. It is a very serious article/paper. There is substantial effort to make certain that the criteria for the study are met. It’s just that it reads as if the original premise was not substantiated, then concluding that the study shows that it was. Maybe the IMF is referring to a global peace dividend rather than a U.S. specific.

Anyway, assuming that it’s me (and not you), let’s pursue this. After the cold war verbiage of former president Reagan: “Gorbachev, tear down this wall”, we soon after engaged in Desert Storm to extradite Iraq from Kuwait. Then we had nearly a decade of prosperity and partying till it was 1999,  allegedly from a continuing peace dividend.

Maybe we should switch gears and take a look at what is the force behind a peace dividend. One major benefit allowing immediate prosperous results is reduced oil used during times of peace. See: http://www.ucsusa.org/clean_vehicles/smart-transportation-solutions/us-military-oil-use.html#.VMNhcEfF-aU

Some excerpts from the article:

The U.S. Military and Oil

The U.S. military uses more oil than any other institution in the world

The military uses lots of oil

The U.S. military is the largest institutional consumer of oil in the world. Every year, our armed forces consume more than 100 million barrels of oil to power ships, vehicles, aircraft, and ground operations—enough for over 4 million trips around the Earth, assuming 25 mpg.

Well, now we’re getting somewhere. I had not heard one mention of this while in my umbilical days. No wonder the price of gas is dropping. There isn’t an oil glut JUST BECAUSE of over production. Nor is there a glut just because of UNDER-CONSUMPTION by the world consumer.  A factor in the equation that we are not hearing about is the reduced consumption by the military due to increasing PEACE!!

Hallelujah,,, can I get an AMEN?

This unsubstantiated peace dividend should not lead to recession, as the article by the IMF quantifies in this chart

Chart1 from IMF study

Chart1 from IMF study

No, a peace dividend relative to the United States’ worldwide military involvement should lead to REAL GDP growth; further that inflation occurs before and DURING conflict and subsides post-conflict.

Caveat Kryptonite: Hyper-InflationMan, America may be tearing down a wall!


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