The Daily Reckoning PRESENTS: On day 9 of the war, much of
the world is still wondering: "why Iraq, why now?" Bill
Bonner considers a few of the media's more prevalent
answers.
WHEN BUSH COMES TO SHOVE
By Bill Bonner
dailyreckoning.com
And freedom? Ahh, freedom...
that's just some people talkin'
"Desperado"
- the Eagles
The world's chattering classes pose themselves a two-part
question: Why Iraq? Why now?
The Bush administration has given its answers. Saddam is a
monster...he may have weapons of mass destruction...he has
links to the Al Qaeda network...America's security is at
stake...it is our duty to bring freedom to the Iraqi
people...and so on.
These explanations were good enough for reporters, members
of Congress, and village idiots...but the skeptics, cynics
and kibitzers needed something more. All that Bush had said
about Saddam might be true, but the same could have been
said of him when America was supplying him with weapons of
mass destruction a few years ago...and now could be said of
many other regimes in the area. Cynics scratched their
heads...and even laughed out loud at the "Liberty for Iraq"
campaign theme. What's the 'real reason' for the war, the
intellectuals continued to wonder? A French journalist,
Francois de Bernard, wrote recently that he was so
perplexed, he decided to study the transcripts of White
House discussions for signs of mental illness!
Here at the Daily Reckoning, the question came up from time
to time. We do not especially like intellectuals...and we
have no faith in thinking, especially our own. But we stoop
to it occasionally, after we've been drinking. We drink so
much, however, that it is hard to find a single idea in our
whole Daily Reckoning oeuvre that doesn't bear the stains
of cheap Bordeaux.
We take it for granted that politicians usually lie and are
often insane. Still, when they do extraordinary things -
such as making war for no apparent reason - we look for
reasons at least as absurd as the events they are meant to
explain.
"It is plain bizarre," wrote Geoffrey Heard, from
Australia, preparing to offer one. "Where does this
desperation for war come from?"
"It's oil," is the reason most commonly given.
The insight quickly spread among the Greens and peaceniks,
who didn't care much for oil in the first place. They were
perfectly content to drive an SUV to an anti-war
demonstration, but they never liked the people who produced
oil, and didn't like the idea of other people using so much
of it. "No blood for oil," became their slogan.
Blood for oil probably seemed like a fair bargain to many
Americans, so long as it was someone else's blood. But the
'blood for oil' theme was too obvious to elicit much shock
and awe at cocktail parties. And few intellectuals could
imagine that the Bush administration would go to war in
order to give their buddies in the oil industry a few slimy
dollars of profit. 'Even Republicans could not be that
craven,' they said to one another, probably underestimating
them. But the theme had an even graver defect: it sounded
too moralistic, as if someone were wagging a finger and
threatening damnation.
Intellectuals had long since come to see the world in a
different way: it is a mechanistic world, not a moralistic
one, they say. Push lever A and you get result B. Morality
has nothing to do with it; people get the results they
chose, not the results they deserve. All they have to do is
to push the right buttons and pull the right levers.
James Davidson, writing in this space a few weeks ago,
accused us of being "Old School" here at the Daily
Reckoning and derided the whole idea of morality in the
marketplace. Why should investors ever be 'punished' for
excessive gains, he wondered? Why couldn't they just earn
more and more money, forever and ever, amen?
Paul Krugman, too, dismissed the notion that economics has
a moral character. "Hangover theory," he called
it...referring to the way a man who enjoys an excess of
alcohol in the evening suffers an excess of regret the
following morning. All that is needed is for government to
make the right 'policy choices', he said, and the hangover
would disappear.
The right policy choices had been described by Lord Keynes
many years before. Analyzing the Great Depression, he came
to the conclusion that it didn't really matter how much you
drank the night before...you just had to find the right
lever in the morning. When an economy fell into a slump,
said he, the lever to pull on was the one marked
"Government Spending". If the private sector was unwilling
to spend, the public sector should pick up the slack; it
was a simple as that. No moral lessons needed.
After mocking morality for the last 100 years, the
intelligentsia could not look at the war from a moral
perspective; instead, intellectuals had to pry open the
hood and see how the machine worked.
Why was Bush pushing so hard on the "I" button? For the
last 6 months, critics have been tracing the wires to try
to figure out where they lead. Only recently, they have
come upon the dollar.
"There are many things driving President Bush and his
administration to invade Iraq, unseat Saddam Hussein and
take over the country," explains Heard. "But the biggest
one is hidden and very, very simple. It is about the
currency used to trade oil and consequently, who will
dominate the world economically, in the foreseeable future
- the USA or the European Union.
"Iraq is a European Union beachhead in that confrontation.
America had a monopoly on the oil trade, with the U.S.
dollar being the fiat currency, but Iraq broke ranks in
1999, started to trade oil in the EU's euros, and profited.
If America invades Iraq and takes over, it will hurl the EU
and its euro back into the sea and make America's position
as the dominant economic power in the world all but
impregnable."
"In 1999, Iraq, with the world's second-largest oil
reserves, switched to trading its oil in euros. American
analysts fell about laughing; Iraq had just made a mistake
that was going to beggar the nation. But two years on,
alarm bells were sounding; the euro was rising against the
dollar, and Iraq had given itself a huge economic free kick
by switching.
"Iran started thinking about switching too; Venezuela, the
4th largest oil producer, began looking at it and has been
cutting out the dollar by bartering oil with several
nations including America's bête noir, Cuba. Russia is
seeking to ramp up oil production with Europe (trading in
euros), an obvious market.
"The greenback's grip on oil trading, and consequently on
world trade in general, was under serious threat. If
America did not stamp on this immediately, this economic
brushfire could rapidly be fanned into a wildfire capable
of consuming the U.S.'s economy and its dominance of world
trade."
Mr. Heard has a point. The U.S., its dollar, its consumers,
its government and its central bank have an enormous
advantage. But it is an advantage like an unlimited bar
tab; it can get a man into trouble.
The U.S. issues dollars to pay for the things it wants.
Many of the dollars are then used to buy oil. As long as
oil accounts are settled in dollars, there will be a demand
for them. But the demand is not infinite. More dollars are
needed only insofar as the world's use of oil
increases...not necessarily as America's need for foreign
credit increases.
The wiring of the world financial system is more
complicated than Mr. Heard thinks. The U.S. may seize the
oil fields. It may reinstall the dollar as the designated
currency. But it cannot make its financial situation
"impregnable". It can control the value of its currency, or
its quantity, but not both. If it increases the supply of
dollars, it risks setting off a panic out of dollars -
whether oil is priced in dollars or not.
The U.S. may control Iraq's oil fields, but it cannot
control oil's price...nor its reciprocal, the price of the
dollar. In the end, these will be determined not just by
how the oil market is wired, but also by how human beings
are wired. When they grow fearful of the dollar...not even
the 3rd Infantry will be able to stop them from dumping it.
Then, there will be hell to pay...no matter what lever
authorities choose to yank.
Bill Bonner,
writing from a little outpost of the Old School, in a
small, old corner of an old city in old Europe... |
