Peace Scenario on Track
Jude Wanniski
February 14, 2003


The UN report of the UNMOVIC and IAEA inspectors to the UN Security Council this morning in my mind essentially ended any possibility of war with Iraq. Hans Blix and Mohammed Baradei could not have been anymore supportive of the idea that Iraq is practically, totally disarmed of weapons of mass destruction. Scott Ritter had put the confidence level of disarmament at 95% a year ago, before these new inspections. That level is now between 99% and 100%, and Blix and Baradei today revealed initiatives on Iraq`s part that will get to 100%. The most important, which I have always believed would be necessary, is a request by the inspectors to interview those lower-level Iraqis who were responsible for destroying WMD "precursors" in 1991. If you watched Blix reporting, you will note Iraq is now supplying the names of those who destroyed the stuff with Blix indicating this will resolve those issues, the anthrax, VX gas, etc. With Saddam issuing a decree today prohibiting the import of WMD materials and the Iraqi assembly doing the same legislatively, there is nothing else that can be asked of Baghdad relating to disarmament which he has not agreed to. 

What is going on, I think, is that Secretary of State Colin Powell HAS KNOWN that Iraq has gone so far in meeting UN demands that it would not be possible to go to war, and that President Bush agrees with him. But instead of saying so, they have decided to push as far as possible to see what they can get for free out of Baghdad. And they are obviously succeeding. Powell can be even more Catholic than the Pope (Defense Secretary Donald Rumsfeld) in his blusterings and belligerencies. This is the only way to explain the sudden shift in Powell`s presentations, from dove to megahawk, in the last month. He has been spouting all kinds of obvious nonsense about the threat from Saddam, which I believe he certainly knows is almost certainly nonsense, because he already knows there is no longer the kind of dangers he expressed to President Bush as related in Bob Woodward`s book, "Bush at War." That Colin Powell is the man who knows that if Bush starts dropping bombs when there is no smoking gun of an imminent threat, the calamitous "War Scenario" would unfold. 

The gold market is the best guide to the reduced risks of war, which is why the $30 per ounce sell off in the last week can be viewed as the leading edge of the equity markets. Gold is the purest play in the spot market, reflecting the supply and demand for dollar liquidity. The price of gold did not go up because it is a "safe haven," but because of a decline in the demand for dollar liquidity due to fears that the global exchange economy in dollars would need less of them. In other words, the decline in gold will be followed shortly by a recovery in equities as the spot information translates into financial instruments that necessarily involve a time sequence. We were clearly ahead of ourselves on this analysis with our assessment that equities had found a floor three weeks ago. Equities continued to be spooked because of this tactic by Powell. That has to end now, as there is nothing else Powell can squeeze out of Baghdad.