by John M. Curtis
(310) 204-8700

Copyright January 22, 2008
All Rights Reserved.

lunging 465 point at the opening bell, the Dow Jones Industrial Average closed 128 points down to 11,971, !5% below its all-time high of 14,164 on Oct. 9, 2007. Wall Street sold off responding to the worldwide plunge, taking foreign stock markets down over five percent. After watching the opening nosedive, Federal Reserved Board Chairman Ben S. Benrnake slashed the federal funds rate 75 basis points or .75% to 3.5% in hopes of avoiding recession. President George W. Bush and Congressional leaders tried to work out an emergency stimulus package, including possible $800 rebate checks and more tax credits and cuts. Bush can't explain the sour economy, taking no responsibility for the intolerable financial drain caused by the Iraq War. While everyone looks for a quick-fix, including presidential candidates, no one offers the obvious: Ending the Iraq War.

      If Bush announced a responsible exit strategy, domestic and foreign financial and stock markets would rally, causing the sagging U.S. dollar to rise against foreign currencies. There's no greater stimulus than stopping the $12 billion in red ink caused by Bush's long-range plan to rebuild Iraq. As a presidential candidate in 2000 Bush promised he would not use the military for “nation-building,” the exact process he's committed to in Iraq. Spending $12 billion a month out of the U.S. tax-base caused the meltdown now seen in stock and capital markets at home and abroad. With the economy sputtering, Bernanke had no choice taking down the federal funds rate, the overnight rate depository institutions lend to other depository institutions. Bush's stimulus plan probably won't hurt but won't stop the ongoing hemorrhage caused by the Iraq War. Without ending the war, the red ink continues unabated.

      U.S. markets thrashed around after Bernanke dropped rates, signaling the economy was worse than imagined. Bush kept insisting the “fundamentals” were sound, not recognizing his trillion-dollar-plus war has paralyzed capital markets, penalized thrift and contributed to the meltdown in the real estate and stock markets. With home equity fueling the last bull market and economic boom, it was a matter of time before the latest real estate downturn affected the economy. Since the market cratered Oct. 9, 2002 taking the Dow down to 7,286, it's been on a bull-run. While the Dow stands at 11,991, it may have a lot further to go, as it did in 2002, before markets rebound. When markets correct, large funds don't like to jump back in until they see “capitulation” where investors give up or avoid stocks. Today's Dow is only 200 points above the Jan. 14, 2000 peak when the Dow hit 11,773.

      Bush expressed “optimism” about working out a stimulus package with Congress to keep the economy from recession. His stimulus package is a quick-fix that doesn't deal with the ongoing damage to the U.S. economy caused by Iraq. “The urgency that we feel at home is now even more urgent as we see the impact of our markets on others,” said House Speaker Nancy Pelosi (D-Calif.), mentioning nothing about the problem Iraq poses for the economy. Senate Majority Leader Harry Reid (D-Nev.) expressed hope that he could get a stimulus bill to Bush within about three weeks, also ignoring Iraq. “I really feel good that we have an opportunity to do something together,” said Reid, pretending that a quick-fix will deal with the real problems. Even precipitously dropping interest rates won't fix the fiscal nightmare caused by rebuilding Iraq and funding the war on terror.

      Wall Street follows the U.S. dollar plummeting into oblivion. Financial markets won't be reassured until the White House commits to a responsible exit strategy. When that happens, the stock, real estate and U.S. currency markets should rebound, when confidence builds over a new sane fiscal policy. No nation has the resources to rebuild another country, especially where there's no end in sight. When Cruise missiles hit Baghdad March 20, 2003, the country expected Iraq's vast oil wealth to help pay for the reconstruction price tag. So far, only greedy oil companies have benefited from Iraq's wounded oil industry, pumping about 1.9 million barrels a day, compared with the 2.6 million produced before the Iraq War. Iraqis consume about 500,00 barrels a day, leaving, 1.4 million a day to fund the reconstruction. To date, there's no evidence that taxpayers are getting reimbursed.

      Whatever the danger posed by weapons of mass destruction, it pales in comparison to the threat to U.S. national security posed by a weak economy. Temporary fixes or stimulus have their place but the economy can't support the $12 billion price tag to fund Iraq's reconstruction. Bush wants to spend about one percent of Gross Domestic Product on economic stimulus. But he doesn't want to stop the one percent of GDP he spends a year to rebuild Iraq. There's no point in throwing $140-50 billion down a rat hole on short-term economic stimulus when he spends the same amount yearly on a failed strategy. There's no use winning the battle in Iraq if the U.S. loses the economic war, plunging the country into recession. U.S. lawmakers and presidential candidates must stop ignoring reality and face the inescapable fact that the U.S. economy can't subsidize reconstructing Iraq.

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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