Few geopolitical issues are of greater importance to resource investors than the outcome of current US policy in the Middle East, a policy that runs the risk of alienating regimes with their hands firmly on the spigots of global energy supplies. In this article, geopolitical analyst extraordinaire Richard Maybury provides important insights into the current morass in the Middle East..

Will the War Against Islam Bankrupt the U.S.?

In the economy and investment markets, the most important story of 2005 has been completely missed by the mainstream press. It was in Osama bin Laden’s speech on October 30 th, 2004.

Bin Laden said Muslim guerrillas “bled Russia for 10 years” in Afghanistan, until Russia “went bankrupt and was forced to withdraw.” He said, “We are continuing this policy in bleeding America to the point of bankruptcy.”

Bin Laden explained, the 9-11 attack cost the guerrillas $500,000, and it has cost America $500 billion. That’s a ratio of a million to one. For each dollar the guerrillas spent, Washington has spent a million. This ratio, said bin Laden, is the primary reason the federal deficit “has reached astronomical numbers.”

If bin Laden said it, it must be a lie, right?

In this case, I’m afraid not. I first warned about this military spending imbalance in a 1985 Washington Times article pointing out that the wartime defensive vs. offensive cost ratio was changing fast. I wrote, “For four decades, the superpowers have been carving up the world into their two spheres of influence, with little regard for the innocent individuals living in the path of the carving knife. […]

“Some individuals simply do not want to be part of anyone's sphere of influence. They want to be independent. Observe the many ‘Yankee Go Home!’ signs seen all over the world and their equivalent ‘Soviet Go Home!’ signs in places like Afghanistan and Poland. […]

“Shoulder-launched guided missiles like the Stinger and Redeye,” I explained in that 1985 article, “weigh less than 50 pounds and cost as little as $50,000. They can shoot down a $1 million helicopter or a $15 million supersonic jet fighter.”

In World War II, the defensive vs. offensive cost ratio was about 1 to 1. By 1985 it was as much as 1 to 300 in favor of the defense. Six times since then, I showed the ratio was continuing to shift in favor of the defense. A year ago, in some cases it had reached 1 to 280,000. The 1 to 1 million cited by bin Laden was taken from a recent study by a British think tank.

In other words, the old truism, the best defense is a good offense, has been reversed. Today, the best offense is a good defense, and the guerrillas know it, as do long-time readers of my newsletter, the U.S. and World Early Warning Report. Apparently Washington still has not figured it out, or is afraid to talk openly about it.

9-11 was the guerrillas’ way of suckering Washington into invading their homeland. This put Washington on the offense, and them on the defense.

I warned dozens of times in the 1990s that if Washington did not stop supporting Mideast tyrants such as Musharraf, Mubarak and the Saudi royal family, the victims of these tyrants would find a way to get revenge on us; we would end up in a global war with Muslims. Now we are three years into this war.

Here’s another example of what it’s doing to the economy…

On a November day in Fallujah, a single poorly paid guerrilla sniper with a rifle kept 150 much better paid U.S. marines, supported by unimaginably expensive aircraft, tanks and artillery, scrambling for nine hours. Then the sniper escaped, to do it again another day. I doubt the sniper spent more than $10, while U.S. taxpayers surely spent tens of thousands, maybe millions. This is the fundamental reason…

… The Dollar is Sick and Due to Become Sicker

Republicans occupy the presidency, plus majorities in the Senate, House and Supreme Court, and among state governors.

In other words, the Republican Party owns the government, lock, stock and barrel. This means, among other things, conservatives have been set up to take the fall for the war and the economic turmoil in the war economy. In 2008, Hillary Clinton could be a shoo-in. Not good for those who believe in liberty and free markets.

This also means the U.S. dollar is in deep trouble. In the three days after Bush won the election, the greenback fell to 6-month lows against the yen and Australian dollar, an 8-year low against the Swiss franc, a 12-year low against the Canadian dollar, and an all-time low against the euro.

In an article on November 19, 2004, the Financial Times said, “The U.S. currency came under renewed selling pressure the moment it became clear that George W. Bush had been re-elected president.”

Consider what this means. Currencies are traded mostly by well-informed bankers and other money experts, not amateurs. The dollar’s sudden fall after Bush’s re-election means the experts had been holding out hope that a Fabian socialist, John Kerry, would be more responsible with our money than the republicans. That’s how little confidence in conservatives the financial pros now have. It’s one measure of how much damage the Bush gang has done in mutating the tiny war on terrorism into the global, democracy vs. Islam.

Two weeks after the election, the dollar began looking even worse. On November 16, Treasury secretary John Snow said, “We know that our deficit is too large,” but, “We have an obligation to deal with terrorism and we will pay whatever it costs.”

Markets took this as confirmation U.S. officials will print however many dollars it takes to finance this runaway war. Next day, the dollar plunged again.

Then on November 18 th, republican leaders in Congress put the final touches on a bill to raise the federal debt limit an astounding $800 billion. They hope this extra Himalaya of debt, which is twice the size of the current annual deficit, will carry them through until—get this—September 30 th.

Confidence Destroyed

On top of this republican insanity, we have Federal Reserve chairman Alan Greenspan retiring in 2006. This is almost certain to worsen the dollar’s fate, because currencies are no longer on the gold standard. They are just slips of paper backed by confidence in the honesty and judgment of the politicians and bureaucrats who issue them. A chilling thought.

When a person holds dollars, he is trusting officials not to print so many that his dollars become worth less. If these confidences in government officials wane, people dump the currency, trading it for types of money or other assets they trust more.

At the Asia-Pacific Economic Cooperation forum in November, Bush said he is committed to a strong dollar and he wants the dollar to weaken.

What? What? Did he really say that?

He did, according to an 11/22/04 article in the Wall Street Journal, and showed not an iota of embarrassment at this Alice-in-Wonderland thinking. (Said the Queen proudly to Alice: “Sometimes I’ve believed as many as six impossible things before breakfast.”) This is what happens to your mind when you spend a few years in DC. Imagine how much confidence Bush inspires in holders of dollars.

Since 1987, the greenback has been on the Greenspan standard. No U.S. official is more trusted than Greenspan. (I don’t think he deserves it, but that’s a story for another day.) We do not know who will replace him next year, but whoever it is, he or she is unlikely to inspire as much confidence.

Let’s be clear about this. Since the days of Franklin Roosevelt, the Democratic Party has been as responsible about money as a sailor in a brothel with a credit card, and now the Republican Party is trying to outdo them. The only person who inspires enough confidence to be a counterweight to these wastrels is Greenspan, and he is leaving next year.

Summarizing, Washington fell for bin Laden’s trap. U.S. officials are hell-bent on demolishing the dollar and the economy to pay for their global war of democracy vs. Islam. The government’s enemies do not plan to win on the battlefield. The battlefield is just a tool they’re using to defeat Washington in the stock, bond, commodity and currency markets. This is the chief reason the dollar has been falling. And, the sole person with credibility to counter this disaster in the making will leave in 2006.

- Richard Maybury

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