Gold, Iraq, and the Stock Market

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Will
we go to war in Iraq? By going to the United Nations in search of
support for the war, President Bush moved the locus of decision-making
to an international bureaucracy. Saddam Hussein immediately took
advantage of this opportunity to delay the invasion. He has said
that weapons inspectors may come into his country. The UN is likely
to use this as a way to forestall a war that its members do not
want. Bush gave Hussein one last chance, and he took it.

Uncertainty
is rising. It’s not clear yet whether we are going to war. War is
bad for stock market performance unless the war is clearly going
to be short-lived. War transfers purchasing power from private consumer
markets to weapons markets.

This
time, a coalition will not pay for our expenses, unlike 1991. There
is no coalition. How much will this war cost? If we expect to impose
a regime change, we will have to remain in Iraq to keep alive the
politician who rises to the top with our help. He will know what
will happen to him once we depart. Karzai is the model. The assassination
strategy is a low-tech, low-cost response. There will be vengeance
for cooperating with the invader that has put sanctions on the nation
for a decade.

LINDSEY-WOOLSEY

Lawrence
Lindsey is President Bush’s senior economic advisor. He is a free
market man. But in serving as a spokesman for the Administration,
he has said some highly un-capitalistic things recently. The London
Telegraph (Sept. 17) reports the following.

Saddam
Hussein’s removal from power would be a great boost for the global
economy even though war in Iraq could cost America up to 140
billion [$215+ billion], the White House has said.

Larry
Lindsey, President George W Bush’s economic adviser, said increased
oil production in a free Iraq could drive down oil prices.

“When
there is a regime change in Iraq, you could add three million
to five million barrels [per day] of production to world supply,”
he said. “The successful prosecution of the war would be good
for the economy.”

But
Mr. Lindsey said the bill for war could be up to four times a
previous estimate by the Pentagon of 35 billion pounds. He did
not provide a breakdown but the Pentagon figure included the cost
of transporting and supplying troops and producing smart bombs.

Think
about this economic assessment. We may be about to hike spending
in the range of a quarter of a trillion dollars, not counting deaths.
This low-ball estimate assumes that the Middle East doesn’t explode
in waves of Islamic revolutionary violence that the United States
military will be called on to suppress.

Why
will this be a benefit economically? Because of increased oil flow,
Lindsey says. But the United States can get this increased oil flow
free of charge. All the President has to do is unilaterally remove
the economic sanctions that three consecutive Administrations have
placed on Iraq for over a decade. We simply allow Iraq to sell to
the highest bidder all of the oil it can produce. The price of oil
would fall sharply, probably to under $20.

The
Telegraph reports:

Now
it has reserves of at least 112 billion barrels, second only to
Saudi Arabia’s 261 billion. But Iraq’s oil production has dropped
to 1.7 million barrels a day, compared to 3.5 million barrels
before the Gulf war in 1991.

Mr.
Lindsey is ignoring the obvious. The Administration wants the ouster
of Saddam Hussein, and it is willing to spend hundreds of billions
of dollars to achieve this goal. The invasion may very well drive
up the price of oil because of the fear of regional de-stabilization.
As to how long the battle phase will take, nobody knows. As for
the loss of civilian lives due to the war itself and the economic
effects of war, nobody is saying.

In
an interview with the Wall Street Journal, Mr. Lindsey
said the cost would not be enough to push America into recession
or spark a rise in inflation.

On
the contrary, removing Saddam would take away a “huge drag on
global economic growth for a foreseeable time”. He said: “It’s
hard for me to see how we have sustained economic growth in a
world where terrorists are running around.”

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2002/09/17/wirq217.xml

Terrorists
will still be running around during and after our invasion of Iraq.
Lindsey is implying that Iraq is the source of terrorism, worldwide.
This, the Administration has yet to prove. Why Iran is not a larger
source of terrorism is not said. Iran is not under an oil-for-food
restriction. It has a lot more money to hand out than Iraq does.

If
he is correct — that sustained economic growth is incompatible
with terrorism — then this war is a prescription for reduced
economic growth. Our invasion of Iraq will confirm Osama bin Laden’s
accusation that the United States is anti-Islam, pro-Israel, and
that American troops will not leave the region. It will make Al-Qaeda’s
recruiting program that much more effective.

The
name of the game is oil, and how to get it de-nationalized in Iraq.
The Washington Post (Sept. 15) ran an article in which
the title told all: “In Iraqi War Scenario, Oil Is Key Issue U.S.
Drillers Eye Huge Petroleum Pool.”

A
U.S.-led ouster of Iraqi President Saddam Hussein could open a
bonanza for American oil companies long banished from Iraq, scuttling
oil deals between Baghdad and Russia, France and other countries,
and reshuffling world petroleum markets, according to industry
officials and leaders of the Iraqi opposition.

Although
senior Bush administration officials say they have not begun to
focus on the issues involving oil and Iraq, American and foreign
oil companies have already begun maneuvering for a stake in the
country’s huge proven reserves of 112 billion barrels of crude
oil, the largest in the world outside Saudi Arabia.

The
expert cited is James Woolsey, formerly the head of the Central
Intelligence Agency (as was President Bush I).

“It’s
pretty straightforward,” said former CIA director R. James Woolsey,
who has been one of the leading advocates of forcing Hussein from
power. “France and Russia have oil companies and interests in
Iraq. They should be told that if they are of assistance in moving
Iraq toward decent government, we’ll do the best we can to ensure
that the new government and American companies work closely with
them.”

But
he added: “If they throw in their lot with Saddam, it will be
difficult to the point of impossible to persuade the new Iraqi
government to work with them.”

Better
put, Iraq’s post-war puppet regime will be told by its U.S. handlers
that the French and the Russians must be cut out of the deal. But,
so far, Russia isn’t playing ball with any enthusiasm. The French
never do.

Since
the Persian Gulf War in 1991, companies from more than a dozen
nations, including France, Russia, China, India, Italy, Vietnam
and Algeria, have either reached or sought to reach agreements
in principle to develop Iraqi oil fields, refurbish existing facilities
or explore undeveloped tracts. Most of the deals are on hold until
the lifting of U.N. sanctions.

Of
course, none of this is official policy. Everything is unofficial
until after the new regime is installed.

The
Future of Iraq Group, a task force set up at the State Department,
does not have oil on its list of issues, a department spokesman
said last week. An official with the National Security Council
declined to say whether oil had been discussed during consultations
on Iraq that Bush has had over the past several weeks with Russian
President Vladimir Putin and Western leaders.

My
point, as usual, is that all is not as it appears to the general
public. This war isn’t mainly about the war on terrorism. It’s mainly
about oil.

Officials
of several major firms said they were taking care to avoiding
playing any role in the debate in Washington over how to proceed
on Iraq. “There’s no real upside for American oil companies to
take a very aggressive stance at this stage. There’ll be plenty
of time in the future,” said James Lucier, an oil analyst with
Prudential Securities.

But
with the end of sanctions that likely would come with Hussein’s
ouster, companies such as ExxonMobil and ChevronTexaco would almost
assuredly play a role, industry officials said. “There’s not an
oil company out there that wouldn’t be interested in Iraq,” one
analyst said.

http://www.washingtonpost.com/wp-dyn/articles/A18841-2002Sep14.html

THE
MAXIM MAXIM

The
Maxim gun was the first self-powered machine gun: no hand-cranking
required. Invented in 1885 by Hiram Maxim, it was used most famously
in the Sudan in 1898 at the battle of Omdurman, where the British
lost 48 men, and the “whirling Dervishes” lost 11,000. It took six
Maxim guns to accomplish this. This battle led Hilaire Belloc to
write “The Modern Traveller” (1898), a poem not on the Web, but
whose lines have become famous:

Whatever
happens, we have got
The Maxim Gun, and they have not.

But
now they do. The law of the Maxim Gun is that price competition
reduces the cost of buying it, and increases the quantity demanded.
The fuzzy-wuzzies of the world have Kalishnikovs these days, and
the whites have got nuclear weapons — not a readily usable
weapon.

The
Maxim maxim is that high-tech weaponry gets cheaper, and the market
for it gets larger as it gets cheaper. The effect of market-driven
technology is to lower the cost of destructive weaponry. This is
why Bush is obsessed with Iraq. Supposedly, Iraq has weapons of
mass destruction. This may be the case, but the fact is, biological
weapons are cheap to produce. We can be sure of one thing: they
will get cheaper.

To
imagine that information about these home-brew weapons can be bottled
up and made a monopoly of one or a few nations is one of the more
naive views of the modern political realm. Here is an example from
1999. It relates to that most terrifying of all weapons of mass
destruction, the racially specific biological weapon. It is this
weapon, not yet a reality, which offers to racial majorities hope
for the future: a way to equalize the playing field with technologically
and economically dominant minorities, i.e., us. This comes from
Jane’s, the British publishing company that specializes in weapons
and war. It quotes a naive dreamer named John Eldridge, who has
delusions of information controls.

14 September
1999

INADEQUATE
CONTROLS FOR RACE-SPECIFIC BIOLOGICAL WEAPONS, WARNS JANE’S

Recent
outcry in the UK over genetically modified foods would not have
occurred if there were adequate controls and regulations in the
field of genetic science. These controls must improve quickly
if we are to prevent a proliferation of race-specific biological
weapon (“ethnic” weapon) availability, warns John Eldridge in
the new edition of Jane’s Nuclear, Biological and Chemical
Defence.

Eldridge
notes that a number of projects are now publicly providing too
much information that is useful in the construction of ethnic
weapons: “Full
exposure of data on both the common DNA in the human species and
also its degree of variety should be subject to control”. There
is an urgent need to establish a common ethical consensus regarding
the uses of genetic research, so that stronger legislation can
be put in place.

Additionally,
world-wide advances in laboratory technology mean that it will
not be long before any country could theoretically develop an
ethnic weapon arsenal.

http://www.janes.com/press/pc990914-01.shtml

Here
is ethnic cleansing on the cheap. Here is a way for small terrorist
groups to get even with their enemies. This topic is not much discussed
because defenses against this technology seem futile. Once this
genie is out of the laboratory bottle, there will be no stopping
it. The problem of overpopulation will no longer be high on anyone’s
list. The threat of blowback — “Our people will die if theirs
die” — will be removed.

This
kind of high-tech research is likely to be pioneered in the West,
which has the money and the science to achieve success. But then,
inevitably, the information will spread.

In
the London Sunday Times (November 15, 1998), a highly controversial
article appeared. It has been reprinted by numerous politically
incorrect Websites. It provides insight into what’s afoot. The early
paragraphs are eerily familiar: weapons inspections, Iraq, and the
UN.

Israel
Developing an Ethno-Bomb

by
Uzi Mahnaimi and Marie Colvin

ISRAEL
is working on a biological weapon that would harm Arabs but not
Jews, according to Israeli military and western intelligence sources.
The weapon, targeting victims by ethnic origin, is seen as Israel’s
response to Iraq’s threat of chemical and biological attacks.

Yesterday
Saddam Hussein, the Iraqi leader, backed away from the brink of
war and agreed to resume co-operation with the inspection teams
seeking his suspected chemical and biological weapons plants.

Kofi
Annan, the United Nation secretary-general, said he believed Iraq
had met UN requirements. As Britain and America stood by to bomb
Saddam, however, Tony Blair’s office said compliance must be unconditional.

The
White House, which is threatening Iraq with the biggest onslaught
since the Gulf war, said President Bill Clinton’s advisers were
assessing whether Iraq’s offer was adequate. The Pentagon is ready
to bomb within days.

Last
week Downing Street warned Labour MPs that Saddam could be only
weeks away from completing the construction of offensive biological
weapons mounted on Scud missiles. Israel was hit by Scuds during
the Gulf war and fears it would be the prime target.

In
developing their “ethno-bomb”, Israeli scientists are trying to
exploit medical advances by identifying distinctive genes carried
by some Arabs, then create a genetically modified bacterium or
virus.

The
intention is to use the ability of viruses and certain bacteria
to alter the DNA inside their host’s living cells. The scientists
are trying to engineer deadly micro-organisms that attack only
those bearing the distinctive genes.

The
programme is based at the biological institute in Nes Tziyona,
the main research facility for Israel’s clandestine arsenal of
chemical and biological weapons.

A
scientist there said the task was hugely complicated because both
Arabs and Jews are of semitic origin. But he added: “They have,
however, succeeded in pinpointing a particular characteristic
in the genetic profile of certain Arab communities, particularly
the Iraqi people.” The disease could be spread by spraying the
organisms into the air or putting them in water supplies.

The
research mirrors biological studies conducted by South African
scientists during the apartheid era and revealed in testimony
before the truth and reconciliation commission.

The
idea of a Jewish state conducting such research has already provoked
outrage in some quarters because of parallels with the genetic
experiments of Dr Josef Mengele, the Nazi scientist at Auschwitz.

Dedi
Zucker, a member of knesset, the Israeli parliament, denounced
the research yesterday. “Morally, based on our history, and our
tradition and our experience, such a weapon is monstrous and should
be denied,” he said.

Some
experts said that although the concept of an ethnically targeted
weapon was feasible, the practical aspects of creating one were
enormous.

Dr
Daan Goosen, head of a South African chemical and biological warfare
plant, said his team was ordered in the 1980s to develop a “pigmentation
weapon” to target only black people. He said the team discussed
spreading a disease in beer, maize or even vaccinations but never
managed to develop one.

However,
a confidential Pentagon report warned last year that biological
agents could be genetically engineered to produce new lethal weapons.
William Cohen, the American defence secretary, revealed that he
had received reports of countries working to create “certain types
of pathogens that would be ethnic-specific”. A senior western
intelligence source confirmed last week that Israel was one of
the countries Cohen had in mind.

The
“ethno-bomb” claims have been given further credence in Foreign
Report, a Jane’s publication that closely monitors security and
defence matters. It reports unnamed South African sources as saying
Israeli scientists have used some of the South African research
in trying to develop an “ethnic bullet” against Arabs.

It
also says Israelis discovered aspects of the Arab genetic make-up
by researching on “Jews of Arab origin, especially Iraqis”.

The
British Medical Association has become so concerned about the
lethal potential of genetically based biological weapons that
it has opened an investigation, which is due to report in January.

Dr
Vivienne Nathanson, who organised the research, said: “With an
ethnically targeted weapon, you could even hit groups within a
population. The history of warfare, in which many conflicts have
an ethnic factor, shows us how dangerous this could be.”

Porton
Down, Britain’s biological defence establishment, said last week
that such weapons were theoretically possible. “We have reached
a point now where there is an obvious need for an international
convention to control biological weapons,” said a spokesman.

http://www.portaec.net/library/peace/bio_arab.html

The
story was not picked up by the Establishment Western media. The
liberal Web magazine, Salon, responded within days (December
2), reporting that U.S. experts were skeptical about the story.
But the story was carefully titled. The deniers denied that Israel
“has developed a biological weapon that can target Arabs.” “. .
. American experts are skeptical that such a weapon is possible
today.” But the Sunday Times report did not say that Israel
had developed such a weapon, only that the Israelis were working
on developing one. The Salon article was filled with quotations
from experts who said — with no further evidence — that
they were skeptical. But some of them did admit that the project
is theoretically possible. The Israelis officially said nothing.

http://www.salon.com/news/1998/12/02news.html

The
issue is not which nation is working on these weapons. The issue
is that such weapons are conceivable. With the completion of the
human genome project, such weapons will be that much easier to produce.

The
Maxim maxim is permanent. All attempts to bottle up technology will
fail. This is why it is so risky for any nation, but especially
a nation hated by Islamic zealots, to get involved in regime changing
in the Middle East.

PANDORA’S
BOX

The
stock market has not moved up in response to the apparent delay
of America’s invasion of Iraq. This indicates that forecasters are
not persuaded that Saddam Hussein has bought Iraq very much additional
time.

To
launch a preemptive strike in the absence of publicly displayed
evidence of Iraq’s near-term threat to the United States represents
a return to Panama-style adventurism: Hussein = Noriega (another
former client dictator of the U.S. government). If there were an
immediate threat, Mr. Bush had no good reason to go to the UN to
build a coalition. That he decided to appeal to the UN is evidence
that there is no imminent threat. To let that debating society in
on the decision-making process is to postpone action indefinitely.

If
we attack Iraq despite opening the door to UN debate and weapons
inspectors, this will create opportunities for foreign leaders to
back off from the whole affair, which they want to do anyway. The
United States and Great Britain will then become the targets for
terrorist reprisals. This will cheer up the French. They know of
the attitude of the British: “The wogs begin at Calais.”

CONCLUSION

Rumsfeld’s
rule
is correct: “It is easier to get into something than to
get out of it.” The United States military will find this true in
Iraq.

War
is bad for the economy because it substitutes military purchases
for consumer demand. It reduces wealth. There is always a trade-off
between guns and butter. When an Administration seeks both, and
uses fiat money to fund both, the result is price inflation.

Once
again, let me say it: war is never deflationary.

If
you were a Middle East oil billionaire, what would you be thinking
about doing with your money? Buy more dollars? Or would you commit
some percentage to gold? I cannot imagine that war in Iraq will
be good for stocks and bad for gold. I also cannot imagine that
a regime change will allow a hit-and-run strategy. If we go in,
we will stay in. American taxpayers will foot the bills this time.

I
do not expect to see a balanced U.S. government budget in my lifetime.

Contrary
to the slogan, deficits do matter.

September
30, 2002

Gary
North is the author of Mises
on Money
. Visit http://www.freebooks.com.
For a free subscription to Gary North’s twice-weekly economics newsletter,
click
here
.

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