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Imagine that. Kofi Annan, the U.N. Secretary-General, tells the world that Iraq is "nearing civil war unless conditions change," and major media outlets scramble over each other to officialy declare that we are now caught up in a civil war in Iraq (see, for example, CNBC). For those of us who have been opposed to the Iraq incursion from the very beginning, this news is worth a big, fat yawn. Not only did we fear civil war would eventually break out once the U.S. unilaterally (essentially) went in shooting and bombing, but as the violence within the country escalated as expected, we called it an outright civil war. One must wonder how many people must die at the hands of their fellow citizens before a war becomes a civil war? Anyway, only you very faithful readers will even remember (or care) that I strongly opposed this mess. Over the past 18 months or so, I simply stopped writing about it as I focused on other topics - I just assumed that America would never get it, or at least not anytime soon. I had to pipe up again here, and I will connect this to the financial markets at the end!
When it comes to the domestic scene in the U.S., the most frustrating thing about the constant detereoration in Iraq was that the U.S. was locked into its mistakes because the commander-in-chief, our President, for so long refused to acknowledge anything was wrong, refused to acknowledge that any mistakes were being made, refused to admit that we needed to change course, and insisted that real progress was happening every step of the way. Even worse, those who took opposing views were automatically labelled unpatriotic and, in the extreme, were labelled supporters of terrorism. It was an ugly exmaple of the self-sealing logic that keeps wanna be empires trapped in battles and far-flung adventures that cause internal decline back at home. Here we were supposeduly fighting for our very freedom in Iraq, and we were willing to curtail freedoms right here at home. The President, and most in the Republican Party, chose to ignore the opinion polls and the rising outrage across the land until it was too late to change their fortunes in the most recent mid-term elections. The Democrats have now returned to power in Congress, President Bush fired his man in charge of Defense, and suddenly the President is urging dialogue about Iraq. Suddenly, it is OK to have an open and honest, even civil (no pun intended) discussion about this war. I guess it is better late than never, but it would be even better if folks would pay attention to history and learn from it. (You can go anywhere for the relevant history lessons, but I recently read, and enjoyed with some caveats "The Empire of Debt.")
Hopefully, this new freedom to discuss what is really going on in Iraq will lead to some kind of solution, but it is too late to help the Iraqis stem even more serious bloodshed before things get better. We should all hope that we have not caused permanent damage to the ability of the Middle East to heal itself. We know what the rage can come from such debilitation. In the near-term, this incursion has been extremely expensive for the U.S. - in human terms, financial terms, and in political capital around the world. The damage we have done will take many years to correct or to mitigate, perhaps decades. In the meantime, you can bet that behind the scenes, we are trying to figure out the best way to get the heck out of dodge while maintaining some facade of victory and moral superiority. Well, whatever happens, we owe it to our soldiers fighting for us to finally do the right thing. They cannot protest what they are doing in Iraq. Their job is to do what the President and other superiors tell them to do. We might be horrified reading about the chaos in Iraq, but our soldiers are on the ground, living it for real, every day. They are sacrificing greatly, to an extent that most of us will never understand. We owe it to them to do the right thing when we call upon their honor and sense of duty to execute a mission on our behalf. So, now that we have finally won new freedoms to change our ways in Iraq, let us exercise them judiciously and with as much haste as is practical.
Why does any of this matter for the financial markets? The most immediate thing I can think of is that a reduction in our expenditures in Iraq could be used to level out some of the massive debts we have allowed to accumulate on our books. We could use some of that money to spend on security measures within our own borders. But most importantly, curiously, it could actually cause the market to slip. Yep. It does not make sense at first blush, but, to the extent that the market assumes that Democrats are anti-growth and against the free rein of capital, any signs of Democratic dominance on the political scene will have folks extrapolating out disaster for corporate profits and the like. I think that is nonsense: it seems folks have already forgotten how much the last Democratic President was aligned with business interests. The 1990s were a roaring success for business. The Democrats seem to have learned how to more finely balance their traditional bias for social welfare with the welfare of the economic engine that drives our financial well-being (read: become more moderate). So, if such selling materializes, treat it as a buying opportunity. Regardless, doing right in Iraq will certainly help us regain some of our lost stature on the international scene and provide a climate more conducive to American business. Of course, such economic achievements pale in comparison with the value of saving lives and reducing misery, but economic achievement can also promote the improvement of human welfare.
Be careful out there!