The cost of more Guantanamos

On the southern end of Cuba is Guantanamo Bay where 3,000 US military personnel are based. The Americans have occupied this small edge of Cuba since 1898 when in its first real imperialistic war, the USA attacked Spanish possessions in the Caribbean. The ostensible aim of the war was to 'liberate' the oppressed Cubans from tyrannical Spanish rule. The real reason was the potential control of the lucrative sugar trade in which Spain had a monopoly.

The new 'liberated' government of Cuba under President Palma signed an agreement to 'lease' Guantanamo Bay to President Theodore Roosevelt and the US in May 1903, exactly 100 years ago. In 1934, the US and Cuba signed a deal leasing the Bay 'in perpetuity', making the base for all practical purposes American territory.

Thus began the US imperialistic adventures that continued over the next 100 years. In exactly the same way as the UK took over the Rock of Gibraltar from Spain in early 1700 from the Spanish, the Americans copied the British imperialistic model in Cuba. They repeated it across the Pacific and in Europe and Asia over the rest of the 20th century.

This model of 'liberating' an oppressed people and then setting up permanent military bases to keep those people 'liberated' is being copied again in Iraq. The US has announced that it will form at least four permanent military bases there once the 'occupation' is over. No doubt the new 'liberated' Iraqi government will sign a deal to keep these bases there.

But the cost of US imperialism is mounting. The US has by far the biggest military force in the world, bigger than all the rest of the world put together. It is also the most technologically advanced, as the Iraq war has proved. The Iraqis under Saddam were like Incas fighting the Spanish Conquistadores in the 16th century. Then, tens of thousands of Inca soldiers on foot armed with bows and stone axes were no match for just a few hundred Spanish soldiers mounted on war horses, armed with cannon and powerful metal swords. But superior technology costs money. The Spanish got booty for their pains. Will the US state?

The cost of the US military machine rose dramatically throughout the 20th century as the US intervened in two world wars and in just about every part of the five continents in their so-called campaign to 'defend the free world' after 1945. Above all, the nuclear arms race with the Stalinist Soviet Union drove up military spending to a record 8% of GDP by the 1970s. With so many resources devoted to the extension of US imperialism by its leaders, the US economy suffered compared to Germany and Japan, countries that had lost the wars but recovered quickly economically, because they spent so little on 'defence' - less than 1% of GDP.

The collapse of Stalinism in 1989 laid the basis for the peace dividend of the 1990s. American leaders reduced their spending on 'defence', not absolutely but relatively. It fell to just 3% of GDP by 1999. That was part of the reason why America's savings could be devoted more to civilian investment and the tax burden lowered. In the 1990s, the hi-tech boom allowed the US to reverse its relative decline as Germany coped with the unification of eastern Germany and Japan slipped into an unending stagnation. Such was the peace dividend.

But the imperialistic ambitions of the most powerful militaristic capitalist state cannot be held in check forever. The New World Order after Stalinism unleashed US imperialistic ambitions again.

Within the first days of the Bush administration, the US government announced plans to increase defence spending. After 9/11, there was not even the glimmer or murmur of opposition to that from the US Congress. Even before the Iraqi adventure, defence costs were set to reach 4% of GDP. At the same time, Bush needed to reward his supporters in the election: big business and the wealthy. He announced unprecedented tax cuts for corporations, stock holders and high income groups built in over the next ten years.

But here's the rub, the cost of increased numbers of tanks, aircraft carriers, fighters and bombers and nuclear missile systems plus cuts in taxes to the rich will drive the US government's budget from a surplus of 1% in GDP in 2000 to a near 4% of GDP deficit this year. And that was before Iraq. And that's going to be expensive.

Winning the war over the Inca forces in Iraq was quick and relatively easy. Winning the peace is another story. First, the cost of the military battle itself is going to be $80bn. That's already been agreed by Congress. The cost is the same as the first Gulf War cost, but then Kuwait, Saudi Arabia and others coughed up the bulk of the finance. This time, the US having gone to war without UN assent, must pay for all the costs itself.

Then there are the costs of occupation. The longer the American troops stay, the more bases they set up 'in perpetuity', the greater the cost to the American taxpayer. Most reasonable estimates suggest that could be at least another $100bn, but more likely closer to $200bn, over the next five years.

And then there is the cost of reconstruction. The US government said it would help reconstruct Iraq to help the people. Of course, it said it would do that for the Afghanis, but in reality has ploughed in little or nothing there. It will be more difficult to avoid spending in Iraq, where a much larger population, with skills and education, will soon start complaining if things don't improve after American 'liberation'. Most estimates suggest that reconstruction costs could be another $50-100bn.

That adds up to $250-400bn, or 4% of America's GDP spread over five years, equivalent to knocking nearly 1% point of growth off the US economy's progress, just at a time when it is struggling to bounce back.

Of course, the US could reduce that burden if the rest of the capitalist world is prepared to share the burden. But the likes of France and Germany are not going to be stepping up to the plate and neither are the sheikdoms of the Middle East this time.

What about using Iraq's huge oil reserves to pay the bill? It's true that Iraq has the second-largest reserves in the world after Saudi Arabia, but its wells and refineries are so inefficient, outdated or damaged that daily production was only 2m barrels before the war started, or just 25% of that of Saudi Arabia. It will cost more money and a lot of time to get that production even up to 3m a day, the highest Iraq has ever achieved.

Also, after the first Gulf War in 1990, it was agreed that Iraq should use up to 25% of its oil revenues to pay back Kuwait in reparation for invading it. Kuwait still wants that money. In addition, Iraq has run up foreign debts to France, Germany, the old Soviet bloc and many others to the tune of nearly $200bn. Just starting to repay that and the accumulated interest would use up all Iraq's oil revenues and more.

Maybe Iraq's creditors might agree to 'forgive' this debt or 'reschedule' it for a while. The Americans are asking the UN to arrange just that. But there may be no agreement to do so.

Even if there is a debt forgiveness and Kuwait agrees to drop its reparation claims, there is the question of whether Iraq's oil resources should be used to pay for American military occupation and American companies building bridges, oil refineries etc, while Iraq's population struggle to survive. Experience shows that American-style reconstruction brings precious little jobs, incomes or prosperity to the people of the countries it occupies. So will a new 'liberated' Iraqi government be able to survive if it uses its oil revenues to pay for an American occupation and not improve things for its people?

The most likely outcome then is that the US will have to pay for all this. If so, it will drive the US government's deficit out to 5-6% of GDP for the rest of this decade. If Bush insists on putting through his tax cuts as well, then this deficit will have to be financed by government borrowing. That means issuing government bonds. Who will buy these fresh red roses?

Most US bonds are bought by US banks and financial institutions. But over 30% are bought by foreign banks and institutions. That's how the US can run a big deficit on its trade with the rest of the world. Foreigners have been prepared to cover that deficit by buying American companies, shares and bonds. And that's why the US dollar has stayed strong despite the country running a big trade deficit.

Foreigners stopped buying US companies when the hi-tech bubble burst. They stopped buying US shares when the stock market bubble burst. If there is a flood of American bonds onto the market and foreigners are reluctant to buy them (and the price of these US bonds have never been so high), then one thing will happen – the dollar will collapse.

The dollar is already creaking against the Euro. But the US government is now set to flood the market with loads more dollars in the form of bonds to pay for its wars. That almost certainly means the dollar will weaken much more. A weak dollar means that the rest of the world will struggle to compete in world markets, driving prices down. Global deflation and recession will be on the agenda.

One hundred years after its first foreign base in Cuba, the US government now plans many more Guantanamos. And maybe these new Iraqi bases will also house hundreds of prisoners including under-age youths without trial and in contravention of the Geneva Convention as in Guantanamo. But the economic cost of these new Guantanamos threatens to stretch the economy of US imperialism to breaking point.