by John M. Curtis
(310) 204-8700

Copyright January 17, 2008
All Rights Reserved.

ancing on the precipice, the U.S. economy looks ready to fulfill former Fed Chairman Alan Greenspan's Feb. 26, 2007 prophecy that the country was heading into recession. Greenspan at the time was concerned about the dwindling tax base to sustain entitlement programs like Medicare and Social Security. He made no comment about the government's outlay for the wars in Iraq and Afghanistan, costing the treasury about $12 billion a month. Since the Iraq War began March 20, 2003, the subject has been a political hot potato, especially during an election year when Democrats and Republicans slog their way to the White House. Talking about Iraq is verboten for Fed chairmen, including Greenspan's successor, Princeton University economist Ben S. Bernanke. Warning about budget deficits, recession or the fiscal viability of government programs remains OK.

      Bernanke testified Jan. 17 before House Budget Committee that a stimulus should be quick, temporary and not ad to the “structural” deficit. “Putting money into the hands of households and firms that would spend it in the near term” would be a positive step toward dealing with the economy's slowdown and staving off recession. Bernanke mentioned nothing in his testimony about the elephant in the room: The Iraq War's whopping and unsustainable drain on the U.S. treasury. President George W. Bush refused to offer specifics in his stimulus plan, only that he agreed with the Fed chairman about economic stimulus. White House press secretary Dana Perino echoed Bush's sentiments about the stimulus being effective, simple and temporary, yet gave no specifics. Bernanke refused to jump into the fray, reluctant to endorse any specific stimulus package.

      Beranke should remain politically neutral but shouldn't withhold his opinion about the Iraq War's effect on the economy. For too long, Greenspan and now Bernanke refuse to identify the 800-pound gorilla, the fiscal crisis caused by the Iraq War threatening Medicare, Social Security and other needed programs. “To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible in the next 12 months or so,” Bernanke told the House Budget Committee, signaling he was prepared to slash the federal funds rate as much as 50 basis-points or one-half percent. Lowering interest rates should make consumer spending easier, reducing minimum payments on credit cards. Since the subprime mortgage meltdown and foreclosure problem that hit last year, homeowners haven't had much cash.

      High energy prices and a devalued dollar have also robbed consumers of purchasing power, putting more pressure on consumer spending, accounting for two-thirds of Gross Domestic Product. “The nation faces daunting long-run budget challenges associated with an aging population, rising health cares costs and other factors. A fiscal program that increased the structural budget deficit would only make confronting those challenges more difficult,” said Bernanke, again, warning against stimulus that would bust the budget and cause higher deficits. What's inexplicable is Bernanke's unwillingness to confront the $12 billion a month price tag to rebuild Iraq. With stocks entering a bear market, or at least a prolonged “correction,” the tax base is going to shrink, adding to deficits. Whether Bush admits it or not, the economy can't afford the Iraq War.

      Wall Street won't end its tailspin unless the nation's financial institutions are assured about fiscal discipline. Nor can one expect the U.S. dollar to recover until markets see an Iraq exit strategy. With the presidential primaries in full swing, the debate should focus on the best use of taxpayers' money. Instead of listening only to the White House, the discussion should shift to whether there's any remaining national security purpose to continuing the Iraq war. GOP hopeful Sen. John McCain (R-Ariz.) said the U.S. should stay in Iraq until victory, whether it takes a hundred years. While everyone praises the U.S. military and drop in Baghdad's violence, specifically U.S. casualties, there's no need to lose one more U.S. soldier or drain the treasury. There's no greater harm to U.S. national security than a weak economy, unable to pay for needed defense spending.

      Nearly five years into the Iraq War, it's time for Washington and Wall Street to accept that the economy can no longer support the whopping $12 billion a month price tag. No U.S. soldier should be sacrificed without a compelling national security purpose. Bush's theory about Islamo-Fascism can't be allowed to sabotage Wall Street and tank the U.S economy. No one wants to give Sept. 11's terrorists a free pass. But the time to reconsider the most costly blunder in recent U.S. history has long passed. Any economic stimulus that doesn't deal with Iraq's disastrous drain on the U.S economy is a shortsighted fix. Five years into the war, it's clear that the U.S. tax base can't absorb the massive defense spending needed to reconstruct Iraq. Bush may fight to the bitter at all costs but there's too much at stake to do nothing. Any fix to the U.S. economy must include ending the war.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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