September 11th seems to have occurred an eternity ago. We have, at least consciously, allowed that dark day to recede into our collective memory, probably because its something we would rather soon forget.
But in retrospect, nine long years later, 9/11 seems to have become an even more iconic day then we thought it to be. On a very tactical level, it was of course the most catastrophic attack ever by a foreign entity on US soil. It led, again tactically, to two significant ground wars, one of which has lasted longer than World War I and World War II combined. On the surface we have viewed 9/11 as a geopolitical event. Also, on the surface, we can fairly say that the US military has achieved battlefield victory over the enemy, at least in the sense that we have inflicted great pain on al-Qaeda and its allies, much more so than it has on us.
But in longer range terms, and with the benefit of hindsight, it may be fair to ask a question:
Has al-Qaeda achieved its strategic aim of bringing down the United States as a world power?
On the face of it, this is a preposterous thought.
There were no follow up attacks, one of the few positive achievements of the Bush Administration. The Taliban, while not wiped out, was significantly degraded, as has been al-Qaeda. Bin-Alden's own popularity and ideological agenda are less popular now in the Muslim world than they were at the beginning of the last decade. The US, meanwhile, remains the world's preponderant power, even after fighting two wars and suffering through a major financial crisis.
Consider the seeds that were planted that day. We focus on the military and geopolitical response to the attacks on New York and DC. But we should not forget that there were economic consequences as well.
9/11, which exacerbated a mild recession which started in 2000, prompted the Fed to keep rates artificially low for an extended time to support not only the real economy, but a very tentative and volatile equity market as well. President Bush also began a ground war in Afghanistan, and then, for reasons that will be debated for decades to come, began a larger and more complex war in Iraq. The Administration, however, never raised taxes or cut other spending to pay for these endeavors, thereby driving the nation into a deepening financial hole. (In fact he ramped up domestic spending to buy off key constituencies).
There were other repercussions from 9/11. General Motors introduced 0% financing in an attempt to spur auto sales after the attacks. While initially successful, consumers became addicted to low financing costs, and GM (and other car companies) lost pricing power in the domestic market. By 2003 GM and Ford were downgraded to junk bond status. By 2008, GM and Chrysler were bankrupt. The Fed seemed to follow GM's lead, keeping rates low even well after the economy started to recover. And, in a way, the Fed also lost pricing power in the domestic market, as its lackadaisical monetary stance led to a gigantic real estate asset bubble, which popped with great pain in the second half of 2008.
It would not be fair to say that the events of September 11th directly led to the breakdown of the nation's financial condition. One cannot say that Osama bin Laden set out to sabotage US economic policy, and plant the seeds for the nation's economic decline. That would be giving a man whose mentality is more 13th century than 21st too much credit. But 9/11 did prompt both the Greenspan Fed and the Bush Administration to exacerbate already suicidal economic policies that have been gleefully pursued by their successors.
And the reality is that these policies have pushed the nation into decline since that fateful day.
Government surpluses became massive deficits. Low interest rates led to a disaster in the housing market. The equity market has not gone anywhere in the past decade, and is down in inflation adjusted terms. GM, Citibank and AIG are wards of the state, and Chrysler is owned by the Italians. And the Bush Administration, which combined fiscal recklessness with organizational incompetence, paved the way for President Obama, who apparently looked at Bush's mismanagement of the nation's balance sheet, liked what he saw, and decided to double down. For good measure, he decided to throw in a semi-nationalization of health care, with no real means to pay for it.
Great nations don't collapse overnight.
It takes years of incompetent leadership and bad management to force a nation into decline. But sometimes a watershed event occurs that puts a nation on the path to irrelevance. 9/11, in retrospect, appears to have been just such an event. No, the Four Horseman are not about to charge into view. But it is clear that the decisions our political class has made since 9/11 -- whether they be Democrats or Republicans -- have put the nation on the path towards a financial calamity that will haunt us for decades.
Our power and prestige will be compromised, and our ability to influence the world will decline. After all, spendthrifts are never taken seriously. And while we walk that path towards European style irrelevance, we and our so called leaders will be left to ponder this irony: we have punished our enemies relentlessly, bringing them pain that they could not have imagined. But at the same time, and by our own hand, we have handed them the one thing they could never have achieved: the long, slow decline of the United States as the world's greatest nation. Irony indeed.
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State of America: Al-Qaeda has Lost the Battle. But has it Won the War? | Chris Thomas
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