In January 2000, half a year before his son was chosen as the Republican Presidential candidate, former President George H.W. Bush stated that he had been right not to pursue Iraqi forces to Baghdad and capture or kill Saddam Hussein in 1991. He stated that the coalition would have collapsed and the US would have been caught in a quagmire. And he went on to state that: "you've got to have hard evidence before you expand the scope of the war."
In 1991, the US was in recession, but the Fed was quickly coming to the party, lowering interest rates by main force. Between July 1990 and March 1991, shortly after Mr Bush's comments quoted above, the Fed Funds rate had been cut from 8.0% to 6.0%. Further cuts brought it to 3.0% by September 1992, two months before the Presidential elections. Mr Bush, however, did not benefit. He went out as a one term President (and a two term Vice President under Ronald Reagan), defeated by Bill Clinton.
This is a fate which haunts his son, and which he is doing everything he possibly can to avoid.
George Bush senior knew war, having fought with some distinction in WW II. In 1991, he did not want to escalate the war against Iraq into a quagmire. George Bush junior does not know war, he merely wants war. George junior, surrounded by many of the same advisors who were thwarted by his father in 1991, has no qualms about military or geo-political quagmires of any magnitude, as long as they take place OUTSIDE the United States.
Both "Bushes", senior and junior, latched onto an external war as a means of distracting attention from the state of their own economies and financial systems. In 1990, Bush senior was presiding over a nation in recession and a government which had totally lost control of its spending when Saddam Hussein attacked Kuwait in August 1990. He grasped the opportunity to "defend" Kuwait with both hands. Having done that, and aided by a credible "causus belli" (Saddam had after all invaded Kuwait), Bush senior carefully brought the rest of the world, the UN, and Congress onside. He won Congressional approval by ONE vote. Mr Bush fought his war at a "profit", won it with ease, but made a fatal mistake. He left US ground troops in Saudi Arabia. From that error came the escalation of terrorist acts which have grown ever since and which have culminated - so far - with September 11, 2001.
His son, Bush junior, actually campaigned in 2000 on a platform of a "humble" (his words) US foreign policy. Compare the "humility" of candidate Bush's foreign policy with the monumental hubris of President Bush's foreign policy as declared in his State of the Union address of January 28, 2003. In between has come a recession far worse than the one his father faced in 1990/91. In between has come a Federal Reserve which cut rates far more than it did to escape the recession of 1990/91, this time without success. In between has come a disaster on US stock markets which has no precedent in the past 70 years. And in between has come Bush junior's excuse - 9/11. Bush junior "needs" a war far more than his father did. Bush junior, having had no direct experience with war, is far more determined to have one, and devil take the consequences.
This attitude is, of course, not new, although it has seldom been more virulent than now. To illustrate how far back it goes, here is a short exerpt from a book called The Roosevelt Myth written by John T. Flynn:
"In January, 1938, I" (Mr Flynn) "talked with one of the President’s most intimate advisers. I asked him if the President knew we were in a depression. He said that of course he did. I asked what the President proposed to do. He answered:"
"'Resume spending.' I then suggested he would find difficulty in getting objects on which the federal government could spend. He said he knew that. What, then, I asked, will the President spend on? He laughed and replied in a single word:"
"'Battleships.' I asked why. He said: 'You know we are going to have a war.' And when I asked whom we were going to fight he said 'Japan' and when I asked where and what about, he said 'in South America.' 'Well,' I said, 'you are moving logically there. If your only hope is spending and the only thing you have to spend on is national defense, then you have got to have an enemy to defend against and a war in prospect.'"
It was true for Roosevelt in the late 1930s. It was true for Truman in the early 1950s, and for Kennedy/Johnson/Nixon in the 1960s - 70s, and for Reagan in the 1980s, and for Bush senior at the beginning of the 1990s. Throughout that time, they didn't need a war "in prospect" - they had a Cold War. After the cold war ended in 1991, the US had a chance to step back, but did not take it. So more enemies were found - for Clinton through the rest of the 1990s. And now Bush junior has found the best enemies of all - for these purposes. He has the terrorists. He has the "axis of evil". And he has Saddam Hussein.
Is it not obvious from Mr Bush's State of the Union address that as his economic advisors see it, the only hope of the US is "spending"? Looking at the upward trajectory of US debt, both public and private, since WWII rescued the Roosevelt Administration, is it not obvious that this has been the "hope" of government for the past three generations? If it isn't, it should be.
What is NOT obvious - yet - is that that this orgy of spending (through borrowing, of course) has reached its limit. When Mr Flynn was having that conversation with a Roosevelt advisor in 1938, the total funded debt of the US government was about $US 37 Billion. The MONTHLY trade deficit of the US is now more than that. Treasury debt increased by $US 450 Billion over the last SIX MONTHS of 2002. The US started spending, massively, at the beginning of the depression in the early 1930s. They "resumed spending" in the lead up and waging of WWII. They have not stopped since. In 1972, I was 23 years old and the total debt of the US Treasury was $US 450 Billion. I am now 53 and the debt is $US 6,400 Billion. Contrary to the delusions of omnipotence shown by both Mr Bush and those who wrote his State of the Union address for him, this can't and won't go on much longer.
Next time you hear someone say that the "overbought" Gold price is merely a reaction to the uncertainty about war in Iraq, and that once the war starts and the uncertainty vanishes, Gold will plummet, think about the legacy of three generations of "resuming spending" - over and Over and OVER again.
On ALL the evidence, it is impossible to come to any other conclusion than that Gold has just gotten started. Corrections there will be, no market goes straight up. But if you have been looking for ONE single market which IS reacting in a logical and historically consistent way to the present economic and financial situation, inside AND outside the US, look no further. Gold is the one market which is doing so. It will continue to do so.