Editor’s note: The following is a guest commentary from one of WND’s sponsors, Kevin DeMeritt, president of Lear Financial. If you would like to learn more about investing in precious metals, take advantage of the free information Lear Financial is making available to WND readers.
Now that we’ve successfully put a halt to Iraq’s presumed plans for terrorizing America, it’s become painfully apparent that we – and we alone – are on the hook for re-building our former foe. It’s a cost many Americans never saw coming. Ironically, at a time when our nation readily maintains the title, “The World’s Leading Debtor Nation,” we must now outlay billions upon billions in a high-risk, low-return resuscitation effort.
In a sense, it’s part of what makes America great. We’ve never let expenses stand in the way of freedom-building anywhere on the planet. Teddy Roosevelt even ordered the Navy around the world without the essential financing in place, figuring he could get them halfway there and it would then be Congress’ responsibility to bring them back home. This time, however, the shocking costs of rebuilding Iraq may prove to be money we simply don’t have.
Consider what’s involved here. After being the victim of some 28,000 American bombs, most of the Iraqi infrastructure is in desperate need of an overhaul. This includes all of the nation’s major systems, including national and local governments, health services, law enforcement and public works. There are ports, roads, airports, schools and even museums we now find ourselves obligated to replace. Pentagon officials said that the Bush administration was even planning to pay the salaries of over 2 million Iraqi civil servants and soldiers to enlist them in the rebuilding of their own country.
The job we inherited is clear: We must resurrect an entire nation.
“The United States is probably going to have to pick up the bulk of what’s going to happen in reconstruction, at least at the outset,” said Bathsheba Crocker, co-author of a report on post-Hussein Iraq at the Center for Strategic and International Studies. “And it’s acknowledged that it will be a drop in the bucket compared to what the overall costs will end up.”
According to this study, the cost of postwar reconstruction of Iraq will be at least $20 billion a year. This will have to include the cost of the deployment of 75,000 to 200,000 troops over at least two years in order to maintain stability while a new government is glued into place. And that comes after President Bush’s calls for $74.7 billion in emergency spending to pay for the Iraqi war. All told, the economy could take a $391 billion hit – nearly half a trillion dollars – over the next two years according to an analysis published by Yale University economist William Nordhaus.
Can’t Iraqi oil or frozen Iraqi funds cover the reconstruction? Experts believe it will be all Iraqi oil can do just to meet the nation’s basic subsistence requirements. One such expert, Eric Schwartz, a Clinton administration humanitarian-aid specialist, called it “unrealistic” to expect Iraqi oil revenue to cover the massive rebuilding costs. As far as frozen Iraqi funds are concerned, there’s simply not enough of these funds to go around. The bottom line? The money for rebuilding Iraq will have to come from the U.S. taxpayer. As usual.
The wholesale spending of ‘unproductive’ money
The problem with all of this offshore spending is that it comes on the cusp of the billions America just spent in Afghanistan and for homeland security following 9-11. Unfortunately, all of this money spent, as necessary as it has been, is merely us “running in place.” Whether we like it our not, this is the spending of unproductive money, in the sense that it hasn’t gone nor will go into segments of our economy that will prove fruitful. Apart from putting a small percentage of people to work in a relative handful of security, engineering and defense-related companies (initially, there were only five companies allowed to bid on rebuilding Iraq), the rest of our vast economy remains unaffected.
Worse than that, there is no apparent war dividend on its way. At the end of World War II, there was a sweet and long-awaited boost to the stock market that lasted years. But not all wars are followed by prosperity. The Revolutionary War, for example, was followed by a depression, the Civil War by deflation, and World War I and the Vietnam War by serious inflations.
“In the recent period, there has been a tendency for the world economy to do badly during wars and the recovery afterwards,” says John Wyss, a Standard & Poor’s economist.
That seems to be the case today, too. For one thing, the stock market barely registered a blip on the screen at the war’s end. For another, clouds of consumer gloom are still stuck squarely over our economy. “Nobody is optimistic about the end of the Iraq war triggering a rapid recovery in the world economy,” says Frank Vargo, a vice president at the National Association of Manufacturers. There’s good reason for such pessimism, including the following:
- Unemployment has fallen in manufacturing for 32 straight months. Today, in a nation of 290 million people, we have only 10 million manufacturing jobs left – yet another dividend of NAFTA and GATT.
- The Federal Reserve reported that the number of U.S. factories in daily use fell in March to its lowest level in 20 years (again, thanks to NAFTA and GATT).
- While the S&P 500 has fallen over 40 percent from its peak, its P/E still sits at a wildly unrealistic 32. In the early ’90s, by contrast, the S&P 500 P/E was in the 15-17 range.
- The dollar has declined 19 percent over the past 21 months. This is due, in part, to the greenback being challenged as the world’s reserve currency. Mexico, for example, just announced it would start selling its reserve dollars in international markets.
- The U.S. savings rate has swung from a surplus of 2.3 percent of GDP in early 2000 to a deficit of 2.3 percent in late 2002.
- Only halfway through the fiscal year, total spending is up 6.7 percent to $1.078 trillion, while total receipts are down 6.1 percent to $825 billion, with a budget deficit of $285 billion.
Your ‘gold dividend’
If we are to have a war at all, as terrible as warfare is, it would be nice if there were a war dividend, a broad economic boost as a result of ensuing national relief and optimism. Unfortunately, that doesn’t appear to be the reality for investors today.
Should nothing, in fact, prove to be the stimulus to the economy we’ve all been expecting in 2003 – should America’s rose-colored glasses finally fall off – those investors who believed in gold early will find their faith amply rewarded. Bloomberg.com, for the opinion of just one respected financial organization, predicted on May 28 that gold “may climb above $400 an ounce for the first time in seven years.” This kind of impressive bottom-line performance should come as no surprise to anyone, however. The precious metal has, after all, proven to be man’s most reliable and enduring storehouse of value through successive centuries of war, weakening currencies, and deep economic downturns.
Special for WND readers, Lear Financial is making available free information on investing in precious metals.
With more than 20 years of industry experience, Kevin DeMeritt is president of Lear Financial, one of today’s fastest growing and most successful precious metals investment firms.
