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Thursday, September 25, 2008

The French Revolution, the Iraq war, the US financial system

Napoleon

Partly as a result of vast military spending, the French government in 1789 was bankrupt.

The rich elite refused to pay more taxes.

The King was toppled and eventually Napoleon came to power as Emperor.

Lafayette

According to Wikipedia:

Among the direct causes of the French Revolution was a massive financial crisis caused by:

France's enormous debt,

the lack of food and the high prices,

the government's lavish spending,

and an archaic system of taxation which brought little money to the national coffers by placing the greatest tax burden on the commoners; while virtually ignoring the First Estate (the Clergy) and the Second Estate (the Nobility).

In France in 1788, Lafayette was called to the Assembly of Notables to respond to the nation's financial crisis.

Lafayette proposed a meeting of the French Estates-General, where representatives from the three traditional classes of French society—the clergy, the nobility and the commoners—met.

This eventually led to the toppling of the King.

Napoleon Bonaparte who prepared a proclamation declaring a Jewish state in Palestine, though he did not issue it.

A letter to the Financial Times, 22 September 2008, explains that the Iraq war could cost US its financial system - ft

Sir,

The US government last weekend decided it could no longer risk taxpayers’ money by supporting Lehman Brothers and on Monday that bank filed for bankruptcy.

In assessing the wisdom or otherwise of this decision one fact should be kept in mind: the International Monetary Fund estimates that the total cost to banks of losses stemming from the subprime crisis will amount to $1,000bn;

the cost of the war in Iraq, according to other estimates, particularly one by Linda Bilmes and Joseph Stiglitz, will come to $3,000bn.

The US has shot its financial bolt in Iraq, which may cost the country its financial system.

It quite simply no longer has the money to stop a run on banks.

Seen in this light, the war in Iraq brings to mind the ruinous decision on the part of the French ancien rĂ©gime to finance Lafayette’s campaign during the American revolution.

John M. Coates, University of Cambridge, Cambridge,

UK Copyright The Financial Times Limited 2008

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