Boggart Blog How Saddam May Yet Win The War
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KEYWORDS: War, Iraq, Saddam Hussein, economics, politics
Based on an article written in 2005 this reflection of the economic and political effect of the Iraq war on the American and European economies poses some distrurbing questions and a warning against complacency to those who believe the west will quickly pull out of 2008's economic meltdown simply by restarting the cycle of borrowing and consuming that created the economic crisis. From the moment the invading troops poured into Iraq the world could never be the same.
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How Saddam May Yet Win The War

by ianrthorpe

This article was revised in January 2007 from an earlier version written before Saddam's trial began. When Saddam Hussein was hanged for his many crimes against the people of Iraq few were people around the world were sympathetic, even the usual murderers' rights squad had the sense to keep quiet. We though we had seen the end of Saddam and were glad he was gone for good. Unfortunately the old tyrant may yet disrupt our lives. from beyond the grave.

When the neo - cons in the White House were whipping up the American people and Tony Blair to support the case for invading Iraq and overthrowing the regime, they failed to see the big picture. Economic tunnel vision seems to run in the Bush family but I suspect some of the others did realise what was going on in the world economy but chose to exploit short term economic opportunities and let the ordinary people of America suffer later.

It is some years now since Saddam made his most astute move ever although it was probably done in a fit of petulance rather than with foresight. Maybe however some Iraqi economists did know the true state of the western economies when they advised their president to demand payment in Euros for Iraq's oil. The U.S.A. far more than any other nation except perhaps Switzerland depends on the strength and stability of its currency. Exports are weak, the national debt is out of control and trade deficits are insupportable. If the dollar had not been the currency the world trades, the U.S.A would be, if not quite a basket case of African levels then certainly in no better economic shape than "walking wounded" like Brazil and Mexico.

The American economy has since the 1970s been both beneficiary and victim of the fact that the dollar is the world's reserve currency. Whatever nations buy from across national borders they must pay for in dollars and whatever they bring to the world market to trade they want to be paid in dollars for. So it does not really matter how big the US deficit on oil, steel, foodcrops and coffee may be because what Uncle Sam is really selling in the world market is the dollar. This means the Federal Reserve Bank can print dollars to buy whatever the consumers demand.

The situation had persisted since the British economy crashed and burned in the early nineteen - sixties. The pound is still a trading currency but mostly within the British Commonwealth. In the world market a wodge of British wonga no longer begs the question "how much of our stuff would you like, sir?" but "how many dollars will that monopoly money buy us, schmuck?" No matter, we own enough of America to ensure we have a ready supply of dollars flowing in through our holdings in the Caymans, Bermuda, The Channel Islands, The Isle of Man etc. World trade is truly wonderful.

The happy situation of dollar supremacy would have continued but for the push towards European integration. After the fall of the Soviet Union certain economists and political philosophers (mostly in France and Germany) decided that to have only one superpower would be bad for the world community. Another trading bloc was needed and the European Union could easily be adapted to fill the void.

It is easy to follow the reasoning, around 70% of the world's currency reserves are held in dollars which of course means that essential commodities, particularly oil, are valued in dollars. While the U.S.A. controls the money supply in effect it gets imports for free. As a bonus most of the dollars that other nations have worked hard to earn have to be invested back in the U.S. economy. It is so smart we should be surprised the Mafia did not think of it first.

In spite of its recent enlargement the European Union's economy suffers from none of the systemic weaknesses of the American economy. This being so, the Euro is the only serious competitor to the Dollar as a world currency. There we have one of the true, but unmentionable, reasons why The White House was so anxious to bring about regime change in Iraq. Now American interests control Iraq's oil it is once more priced in dollars.

The lesson has not been lost on people who are not friends of America however.

The nations of the Middle East do more trade and have better political relationships with Europe, the EU imports more oil and the European economies are cashflow based rather than debt based and so are more sustainable in adverse trading conditions. There have already been rumblings from within OPEC (the Organisation of Petroleum Exporting Countries) that a switch from dollars to euros for pricing oil could be a serious option. Should Europe's two main oil producers, Britain and Norway adopt the euro it could well be the tipping point at which a switch by OPEC becomes not possible but inevitable. On top of that there is another risk. Western News Media portray Al Qaeda as an organisation intent upon destroying western civilisation but this is a dangerous over estimation of terrorist ambitions. There are surely terrorist cells around the world who meet in gloomy basements and mutter darkly through beards of mass destruction about the downfall of the decadent west and the triumph of Islam but Osama bin Laden is certainly neither mad nor stupid. He knows well the American collective psychology, the siege mentality that sees enemies (and Satan) lurking behind every rock and tree along the borders.

The destruction of the World Trade Centre was a perfect tactical move and in his response George W. Bush played right into the terrorists hands. Now with the threat is inflated beyond all feasibility in the American psyche and the death toll in Iraq creeping past a thousand, isolationism is starting to look like a good option to American voters. A shift to a more inward looking stance on foreign policy could well open the way for a Bin Laden inspired coup in Saudi Arabia, overthrowing the House of Saud and replacing it with an Islamic fundamentalist regime. And with the fundamentalists pulling the strings in the world's main oil producing area you can bet the exodus from the dollar would be rapid and total.

The American currency is already weak in world markets, the past twelve months have seen first a decline against other major currencies and now a resurgence. The situation is so far out of America's control that with either a weak or a strong dollar they are the losers. The weak dollar mean imports, particularly oil, get more expensive and Americans regard the right to cheap gasoline alongside the right to free speech and the right to have bed dress sense. A strong dollar means America's exports get dearer and a country already up to its neck in debt cannot afford a drop in its income from exports. Finally the American domestic economy is consumer led. A few hikes in the price of gasoline will cause panic to set in and people will stop spending. And then the trouble starts.

Central banks have started to shift reserves into more stable currencies and create a snowball effect. With demand for its main trading commodity diminishing the US economy faces possible collapse and America's position as the world's strongest nation looks precarious. Europe may constitute a significant threat to America's domination in trade but whereas the Soviet Union was a military superpower but an economic island, Europe and the U.S.A. are allies militarily but economic competitors that, under the unwritten rules of free market economics, would have go head to head in a trade war like two bull elephants. Free market economics compels all participants to compete for a bigger share of the cake at a time when America is more vulnerable than it has been in well over a century.

The problem in predicting how this poker game will be played out is that there is a third power and nobody truly know swhat kind of hand they hold. The Chinese are a military power, not so well armed in high - tech weaponry but with strength of numbers and a more compliant population. The risk of upsetting China, and the possible consequences of that may thwart America's political ambitions but all the while the vast dollar reserves China holds can be used to influence the world economy in ways that suit the Chinese government.

The only way to avert a series of economic crises in the coming is for the other nations of the industrialised world to persuade America to adopt a more responsible and internationalist attitude to the obligations that go with its role as the world's most powerful nation. Before we can begin to do that though, the American people must play their part by making sure the political establishment understands that being the biggest and the richest does not absolve a nation from its moral duty to the world community as a whole.

Before plunging into a war in Iraq, a war that Saddam Hussein knew he could not win on the battlefield, the U.S. Government and that of Britain should have consulted with experienced diplomats of other nations. In the west we are ruled by short - termism. The troops were in Baghdad within a month, a great triumph was proclaimed. It should have been all over but anyone experienced in Middle Eastern affairs would have advised that the Arab mindset is different and well suited to playing a long game.

So far the war has gone the way Saddam would have predicted. He knew his army could not withstand the assault, even if the British had not been involved to take some weight off the American military the Iraqis would have been overwhelmed. But America has been sucked into a prolonged and costly occupation that has done inestimable damage to its standing in the world.

The consequences of a collapse of the global economy could result in global cultural war and plunge the world into a new dark age. The message that G8 has failed to send to the White House is that the world needs a strong and confident and outward looking America but America needs a supportive world community in order to regain its confidence and its sense of moral duty. If that message is not heeded soon then Saddam will truly have won the war.

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