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-Caveat Lector-
Gary North's REALITY CHECK
Issue 177 Sept. 26, 2002
THE STOCK MARKET AND IRAQ
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.
The stock market has responded to the stand-off by
falling lower over the last week. 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
pounds [$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
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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.jeffsarchive.com/israel/Israel%20Developing%20an%20Ethno-Bomb.html
It is worth noting that the TIMES is owned by Rupert
Murdoch. That anything this embarrassing to the State of
Israel got through the editors indicates that they thought
it was true.
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. They 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 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.
-------------
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