There seems little doubt among the financial commentators, and the public at large, that the stock market is very sensitive to the prospects of war with Iraq. Wall Street’s early selloff yesterday was almost certainly in reaction to President Bush’s hawkish State of the Union Address, which was interpreted in some quarters as an outright declaration of war. The selloff, which brought the DJIA almost to its Friday low, may have reflected selling from abroad in reaction to the Bush address to Congress. Investors close to home could probably see that it did not yet provide the smoking gun he needs to win support for military action and as they weighed in the market recovered its losses and made some headway against the winds of war.
Secretary of State Colin Powell will make his presentation to the UN Security Council on Tuesday, trying to win over a skeptical world. This could provide another inflection point as he shows satellite photos of trucks moving from one point to another in Iraq, supposedly moving materials in advance of surprise inspections. But if satellites can show material being moved from Point A to Point B, then the inspectors can go to Point B. Meanwhile, Iraq is continuing its own diplomatic offensive to demonstrate that it really is toothless and no threat to anyone. The scientists who have refused to be interviewed so far – which the President is told is happening because they are being threatened by the regime with death to themselves and their families – will almost certainly soon agree, without government minders present, but with their own tape recorders. As I noted Tuesday, after Hans Blix and Mohammed Baradei made their harsh reports to the UN Security Council about lack of Iraqi cooperation, the issues raised are much smaller than they seem to be on the surface. That is, the “gaps” in information on what Iraq says it destroyed and what the inspectors say they need to have to know the materials were destroyed can be closed with the new pro-active mechanisms Iraq has agreed to.
The last argument of the hawks is that no matter how much Iraq is stripped of weapons of mass destruction now, it can always reconstitute them in the future. This certainly does not apply to nuclear weapons, which Iraq secretly attempted to develop in the 1980`s – a multi-billion dollar project that was an abysmal failure. The International Atomic Energy Agency has since closed the loophole that permitted clandestine efforts, making it impossible for Iraq or any other non-nuclear power, to acquire the materials needed for a nuclear weapon. As for chemical and biological “weapons of mass destruction,” Iraq was never successful in “weaponizing” the toxic agents like anthrax and VX nerve gas. In that sense, Iraq never possessed weapons of mass destruction. The nerve gases it used in its war with Iran – primarily mustard gas – were not meant to kill the enemy armies as much as they were to disorient them. The “kill rate” was 2%, according to the Army War College. The massive amount of “missing” anthrax that Mr. Bush mentioned in his speech Tuesday was in “liters,” and he may not know (as I did not until I checked) is harmless unless swallowed. Iraq long ago abandoned efforts to weaponize anthrax by getting it into powdered form. The U.S. tried to weaponize anthrax in the 1960s, but the programs were scrapped by President Nixon.
What will hold off military action by the President is the opposition that will mount if he tries to move closer to war without persuasive evidence of a threat. It remains my belief that his primary motives have little to do with oil or geopolitics, everything to do with his belief that Saddam is an “evil man,” a Hitler equivalent who would commit genocide once and will be capable of doing it again. If I believed Saddam had committed genocide and had tried to assassinate my father, as the President does, I would try my utmost to get rid of the man for the good of humanity. This is the President’s “moral clarity,” which the administration supporters of war argue the European allies do not possess. In the case of the assassination attempt, I note that Bob Woodward on CNN’s Larry King show Monday night said there is some doubt that it ever happened. A little more of the pressure of war and I think journalists will be digging into that story as they have failed to do since 1993, when Seymour Hersh tore it to pieces in his New Yorker article, “A Case Not Closed.” As for the genocide, I’m told the New York Times will shortly run a major op-ed that authoritatively refutes the longtime charges that Saddam committed genocide by gassing his own people.
If these weights are removed from the scales of war & peace in the President’s head, the moral clarity he now has will most certainly be clouded. He does not have to see that Saddam is a “nice guy,” only that he falls short of being as evil as he has been portrayed. The atrocities of Saddam the President mentioned in his State of the Union address are also in doubt, as I’m told they come from the raw files of the intelligence agencies, raw meaning they were never verified, yet made their way into the public prints through leaks by those who had access to the raw files and wished to make a case against Iraq for their own reasons. As for the future of Iraq if there is no war, Robert Novak reports today that high sources in the administration tell him that Saddam must go, one way or another, that there is a hard decision Iraq must be transformed into a democracy. Yet the Iraqis tell me that after the eight-year war with Iran, in 1989 Saddam’s Ba’ath Party was organizing political reforms that could lead to the kind of democratic socialism then prevalent in Europe. The process ended with the tensions arising between Iraq and the U.S., partly over the genocide issue, then over Baghdad’s arguments with Kuwait over oil. Should peace break out now, I’m told, the dictatorship that travels with a war footing could give way to democratic reforms in the near future, with or without Saddam standing for election in genuine contested elections.
When I wrote Tuesday that I believed the DJIA had hit its Iraq bottom on Iraq at 7957 at midday Monday it was because I could then assess the reports of UNMOVIC and the IAEA which had just been delivered by Blix and Baradei – and see the bark was far worse than the bite. I was of course delighted that Zbigniew Brzezinski expressed the same thought on the Lehrer News Hour Monday night. In the week ahead, I think it should be clearer that the war/peace scales are tilting a bit more toward peace, with less chance that Wall Street will have to find a new bottom, more likelihood that the dollar/gold price will drift down away from $370.
You can take note that the dollar gold price is accompanied by a weakening dollar relative to the yen and the euro, which means that the effect of a go-it-alone war with Iraq will have greater negative consequences to commerce in the U.S. than in Europe and Asia. That is because political terrorists would more likely concentrate on making life difficult here rather than in those countries which are opposed to war with Iraq. If this analysis is correct, if the risk of war recedes, the dollar/gold price will drift down and the dollar will strengthen against the euro and yen.