The Coming Iraqi War
Nelson Hultberg
January 14, 2003

In Vegas, the game of Keno is known as a "sucker bet" -- very poor odds -- that only unsophisticated patrons play. Betting against a U.S. invasion of Iraq is today's geo-political "sucker bet," no matter what Hans Blix and the inspectors report, no matter how many delays are requested by our allies. The die was cast long ago when Richard Perle's war hawk boys in Washington convinced the Bush administration that America needed to establish a profound presence in the Middle East once and for all. Enough of this bargaining one regime off against another. Saddam and his ruthless aggressiveness had unwittingly offered us the cover for a power grab. America needed to take him out and, in the process, colonize Iraq. With the tragedy of 9-11, such a move could be spun to the media as "vital to the national interests." Conservatives would cheer, and liberals would acquiesce because of the prospect of lower oil prices. Europeans would gripe in their private confabs, but publicly they would offer minimal resistance. For fear of losing favor with the world military cop it depended upon, the UN would rationalize the move as a means for its own aggrandizement.

Poor Saddam just didn't understand the rudiments of modern day authoritarianism. He was such a bumpkin trying to resurrect his idol Stalin's methodology, when all the "progressive" authoritarians of Washington and Europe knew that Sweden and its slow Fabian style collectivism was the wave of the future. Ease the masses into slavery. Piecemeal tyrannization would win the day. Teach the people how to "love their servitude" as Huxley put it. Control the banking systems and denigrate gold. Manipulate the political peacocks in the legislatures, create modern day bread and circuses for the hoi polloi, and all nations could be insidiously maneuvered into a one-world government.

The New Authoritarianism

Strobe Talbot, Clinton's Deputy Secretary of State, revealed the true aims of today's power elites back in '92 with his very revealing Time commentary: "In the next century, nations as we know it will be obsolete; all states will recognize a single, global authority..National sovereignty wasn't such a great idea after all." (July 20, 1992, p. 70.)

Talbot represents the new wave authoritarian mind -- subtle, erudite, schooled in the art of Orwellian newspeak. Gauche Saddam was just too crude to be invited to the party. He remained what he had always been, a menacing street thug, and simply had to be removed from a position of such power in a geographical region of such importance as the Middle East. If the world was ever to be unified under one yoke and run by CFR honchos, then Saddam style thuggery and the old dictatorial method would have to be phased out. If stability was ever to be brought to the Middle East, then American hegemony would have to be extended to the area, and Arab leaders would have to be taught about the New Authoritarianism that the West had found to be so workable in regimenting its own economies and people.

Such is the hubris that moves the Washington-Berlin-Tokyo power axis of today's world. American intellectuals and financiers dominate the axis, and the neo-conservative mindset of Richard Perle dominates the intellectuals and financiers. This "progressive" authoritarianism, however, is new only in style, not in essence, for authoritarian power lust has been going on for 5,000 years of human history. Most of us in the hard money community have a pretty good grasp of its historical evolution, how it has resulted in the monster Leviathans of the 20th century, and we are outraged. But we also realize that we are basically powerless to change the game as it is being played -- at least in the near term in any significant way. What we can do though is to position ourselves in the market so as to take advantage of the radical economic fluctuations that are descending upon the world as a result.

So the predominant question on everybody's mind is what will be the effect on the markets over the next few years as Washington's New Authoritarians seek hegemony in the caldron of chaos that makes up the Middle East? Will the war be brief and painless as it was with Desert Storm? Can a new Iraqi regime be put in place without a lot of body bags coming back home? Or will the thousands of years of animosity and sectarian rivalry that dominate the region prevail to sabotage the plans of Washington? Will the scenario be short and successful, or long and catastrophic, or somewhere in between? All tough questions that defy easy answers. But that doesn't keep us from trying to peer into the crystal ball just the same.

The betting on Wall Street and in the capitol is that it will be Desert Storm II -- creating some momentary investor anxiety with a moderate sell-off leading up to invasion day. Then as soon as the bombs start droping and US troops start routing the ramshackle Iraqi forces, the Dow will rally. The war will then become, as CNBC commentators hope, a launching pad to reignite the Bull and restore Wall Street to the glory days of the go-go nineties.

Questions Looming

The war is hardly going to reignite the Bull, but it could very well be short and successful. Maybe Saddam will be piloted out of Baghdad late one night and surface in Azerbaijan to live in exile, or maybe he'll just get a bullet in the head from one of his generals, and the whole affair will be over in a week. But what if the ancient animosities among the Arab nations (toward each other as well as us) are stronger than we envision? What if we easily win the war, but tragically lose the peace in the occupation aftermath? Many big questions loom before us. For starters, what if Saddam's generals remain loyal, and he decides to take a maniacal last stand? What if he, as Richard Maybury points out, turns Baghdad into a World War II Stalingrad? What if he sets fire to all Iraqi oil wells this time and sends oil to $80 a barrel? What if he starts lobbing scuds and biochemical warheads into Tel Aviv? Israel's high command is not going to sit on its hands this time in deference to America; it will strike back instantly and vehemently. What will Israel's entry into the fighting do to the Arab street? What will it do to the thousands of bin Laden wannabes lurking in the back alleys of Arabic culture? "Massive conflagration" are the words that come to this writer's mind.

Israel's entry would seriously damage the basics of America's war strategy. It would galvanize the rabble of the Middle East (who are many millions strong), and plunge us into a "real tar pit" to use Schwarzkopf's words. It would bring us a war of many months instead of a few weeks, with heart-wrenching bevies of body bags coming home. It would skyrocket the morale of Saddam's Republican Guard instilling into them a "fight to the death" resolve -- city to city, house to house, man to man. It would turn a caper into a catastrophe. But even if, by some miracle, Israel's entry into the fray did not extend the war into nightmarish proportions, it would certainly turn the peace into grotesque disasters like Reagan incurred in Lebanon when 240 of our Marines were blasted into a mangled mess by a terrorist bomb. Picture such grotesqueries happening repeatedly over a period of five years as our troops try to establish "stability" among a virulently hostile culture that sees us as the Great Satan.

What level of obtuseness is necessary among our Washington war hawks to blind them to such a denouement in the aftermath? Do our war planners really believe that Arabs are going to just meekly allow American-Israeli forces to subjugate them into a Western style government and culture? It's not going to matter that Israel prudently stays out of the regime changing aftermath. If Israel enters the fighting, then the peace and rebuilding process will be irreparably poisoned. And Saddam will certainly try to draw Israel into the war. This, in my opinion, is the most explosive danger threatening America's strategy. This is the Achilles heel of the whole operation -- a horrendous, psycho-strategic time bomb lingering ominously in the background, just waiting to ignite.

One of the most important aspects of any war effort is to figure an exit strategy for when things go wrong and the original aims have to be scuttled. I'm sure Washington has figured an exit strategy for the war itself. But have they thought out a clear exit strategy for a peace that is still going badly 2 to 3 years down the road? It's doubtful. We are ruled by short range thinkers whose level of blind confidence seems overwhelming in Washington at this time. American power is held to be impregnable, our technology supreme. Our people's resolve in the wake of 9-11 is resolute. We can overcome any obstacle that crops up in the war's aftermath. Just take out the bumpkin, Saddam, and regime change is assured. We don't need to concern ourselves with the rabid sectarianism that governs Arabic culture, or the inner psyche of the Islamic world, or the festering resentment Arabs harbor because of the wholesale rearranging of their borders performed by Europe and America over the past two centuries. We don't need to try and see their side to the issues at all. We have smart bombs and the most powerful armada of high-grade military technology ever assembled in history.

It is this kind of obliviousness to thousands of years of convoluted Arab sectarianism and to the roots of Arab hatred for the West that places our peace and rebuilding plans in jeopardy. This is not to say that we cannot pull off a successful regime change. Perhaps the Arabs are tired enough of Saddam to meekly submit to America browbeating them into a Western style democracy. But I have grave doubts, mostly because it will be difficult to keep Israel out of the fracas. You mix Israel into any Arab problems, and those problems cease to be rational, manageable processes. They become blood feuds that go back centuries to the Crusades, or at least back to what Arabs consider to be the year of infamy in 1948 when the UN partitioned off Palestine and uprooted millions of Arabs from their homeland. The hostilities that are aroused when Israel is thrown into the caldron are so immense that they will sweep away all our technological might, all our diplomatic skill, and all our visionary perseverance to try and stabilize the region.

Historian and investment advisor Richard Maybury calls this area of the world "Chaostan," meaning the land of great chaos. It has been so for thousands of years. He has written a marvelous book on the crisis called The Thousand Year War, which is a masterpiece of lucid, objective analysis of a hydra-headed monster of a problem that now confronts America and the West. (Call 800-509-5400 to order a copy.)

Are Washington and Wall Street living in a make-believe world regarding their Iraqi venture? Probably. War is the most malignant of abominations to afflict mankind. Always there are hideous, far-reaching consequences unforseen at the outset, but inevitably making their appearance in the aftermath. This is what history teaches to clear-headed observers. The question is, do we have clear-headed observers at the helm of this venture?

Market Reaction

What effect will all this have on the markets? In the near term, it can't help but be inflationary. That's what wars are, inflationary. They swell budget deficits. The guns and butter Bush program that is shaping up takes one back to the old Machiavellian, LBJ, and his pledge to teach the Vietcong about Washington's might, while bestowing upon us "unenlightened boobs" here in America his Great Society grandiosity. Do we ever learn? Sadly, no. As Maybury so aptly puts it, "History repeats! Power corrupts!"

So the prospects for precious metals look very favorable to say the least. The only wrinkle will be if the Kondratieff winter unfolds in such a powerful deflationary manner that it overwhelms the Fed's monetization capacity. Then silver might fall until its deficit-driven short squeeze begins which should propel it even beyond gold in gains. But gold looks like big profits starting now, and no matter what comes in the future -- deflation or stagflation. It's hard to imagine gold going down. Too much money is being pumped into the system. Too much fear of deflation guides the Fed. Too much hubris drives the war hawks. Too much debt saturates the consumers. Too much dollar weakness lies ahead. Too much excess, too much insanity, too much power lust governs in Washington.

Since we are now aware of the Kondratieff winter, the powers that be will do everything possible to alter it (which Greenspan and Bernanke have clearly signaled of late). The war on terrorism fits right into the necessary "reflation" goals of the Fed, for war is the perfect statist tool to monetize massive expenditures so as to pump up liquidity.

I see the Iraqi war, whether it unfolds horrifically or painlessly, as just the beginning of a whole series of Islamic-Washington clashes over the next 10 to 20 years; and genuinely healthy economies are not spawned from protracted periods of war. This is what lies on America's horizon for a long time to come. So better load up on gold and silver in whatever manner your risk tolerance allows. And spread the word about the hubris that is causing it all. That is what sane men do in times of upheaval. If the world wants to go insane, it has that prerogative. But the wiser heads of history always refuse to take part, and they always look to protect themselves from the insanity.

I think of that famous scene in Gone With The Wind when war fever has consumed the blustering Southern gentlemen during a party at the Wilkes plantation. Rhett Butler scornfully berates the amateur warriors so ignorant of the ultimate consequences to come. He knows that "herd madness" is taking over, and he'll have nothing to do with it. He just wisely smiles at the beligerant accusations of treason hurled at him, and goes off to make his fortune.

The tidal waves of history always overwhelm the ignorant, and they have a most fitting way of often humbling the arrogant. I suspect this wave will be no different, for there is much ignorance and arrogance beating the drums to expand the empire. So I stand with Rhett and will be striving to make my fortune amidst all the insanity.

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