by John M. Curtis
(310) 204-8700

Copyright July 3, 2008
All Rights Reserved.

hite House officials continue to deny the biggest drag on the U.S. economy: The Iraq War. They find every excuse, including the mortgage meltdown, high energy prices and falling dollar, but don't own the obvious cause. “I think there is a very strong possibility the we will be growing at the end of the year. We will have stronger growth at the end of the year than we have right now,” said U.S. Treasury Secretary Henry “Hank” Paulson hoping to stop the market's downward slide into bear territory. Since former Fed Chairman Alan Greenspan predicted recession Feb. 26, 2007, the White House has denied the possibility, despite obvious signs. Sluggish growth, falling dollar, rising unemployment, growing budget deficits, credit crisis, all of which point to a recession. Above all else, White House officials have tried to disconnect today's economic woes with the massive capital outlay for Iraq.

      While Bush's economic team will be long-gone from the White House next January, Paulson's rosy predictions attempt to reassure jittery markets. Economists know there can be no recovery without an end to the war. Fed Chairman Ben S. Bernanke has warned the White House about its lack of fiscal discipline. Time and again,. Bush ignores reality, begging the Congress for the latest installment to fund Iraq and Afhghanistan. Cutting another $162 billion check further busts the budget, buries the country in dept, mushrooms the deficit and pushes the economy deeper into recession. Bush has his exit strategy, expecting to start packing his bags before Jan. 20, 2008. There's no exit strategy for Iraq, where the federal treasury takes a $12-16 billion hit every month. Paulson and Bush's team of economic advisors know there's no recovery without an exit strategy.

      No one at the White House says boo about the obscene profits taken by the oil industry at the expense of virtually all other businesses and the economy. It's one thing to complain about spiraling oil prices it's yet another to allow one industry record profits while the economy goes down the drain. Bush's economic team totally ignores how speculators on Wall Street and their friends in London drive the price of crude into the stratosphere. White House spokesmen and women blame everything on “supply-and-demand.” “There's no doubt that high headline inflation as it relates to oil and food prices are the real concern of Americans,” Paulson told the BBC today, again, ignoring the damage done by funding the Iraq War. Massive deficit spending on the war has put the economy on shaky ground, devaluing the U.S. dollar and driving the price of crude oil to record levels.

     Today's inflation numbers take out food and energy, the two most significant commodities to the American consumer. No wage earner escapes inflation in food and energy. Yet the government's core inflation number subtracts out the two. “My biggest focus today is on the downside risks which are housing, oil prices, and obviously what's going on in capital markets,” said Paulson, again, refusing to admit the cause of today's economic misery. Payrolls shrunk by 62,000 in June, the fifth monthly decline, putting the jobless rate at 5.5%, still low by historic measures. Paulson acts like the administration has no control of the key variables to improve the economy. He knows ending the Iraq War would reassure the Fed and European Central Bank, forced to raise rates to combat inflation. If Bush or Defense Secretary Robert Gates signaled an Iraq exit strategy, the dollar would recover.

      Paulson knows there's nothing magical about escalating oil prices. If the dollar rallies, oil prices would come down proportionally. Wild speculation and the devalued dollar account for the lion's share of oil's record run-up. He knows that as long as the margin requirements are so low for trading oil futures, major investment funds will continue to speculate at unprecedented levels. Big oil knows it can't hike pump prices and continue to sell record amounts of gasoline, diesel, jet fuel, etc. Most of the recent run-up in food prices is directly related to rising fuel and transportation costs. Strapped consumers are already spending less at the pumps, the exact conservation argument used by oil executives to justify astronomical prices. Rising fuel prices have damaged most U.S. businesses, especially the airlines and trucking industries whose profits have disappeared.

      Fed Chairman Bernanke is running out of rabbits to pull of his hat to save the U.S. economy. With the European Central Bank raising its key interest rate 25 basis-points, Bernanke can no longer drop U.S. rates without hurting the dollar. Real inflation in the U.S. and Europe runs far higher than reported in the Fed's Beige Book. With the Federal Funds Rate at 2.0%, Bernanke has no room, without more currency devaluation and wholesale commodity inflation. Oil prices hit $146 a barrel July 3 on a shortened trading day, largely due to the dollar's declining value. Going forward, Bernanke hopes to hear from the White House about ending the Iraq war and saving taxpayers $12-16 billion a month. Without a real exit strategy and fiscal discipline, the economy will continue to sputter, go downhill and make life miserable for GOP presumptive nominee Sen. John McCain (R-Ariz.).

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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