The Iraq War Crash

It’s the Chinese Year of the Boar, not very propitious if you’re looking to have an easy time of it. Chinese astrologer Raymond Lo predicts:

“The Year of the Boar will not be very peaceful. Boar years can be turbulent because they are dominated by fire and water, conflicting elements that tend to cause havoc.”

China’s booming stock market – a monument to the victory of China’s “capitalist-roaders” over the last remnants of Maoism – doubled last year, and the speculators were drawn to it like … well, like this, or this. The Shanghai Exchange was about due for a big correction when it dropped by 9 percent the other day, an event which many blame for the 500 point drop in the Dow Jones – and the advent of what seems like a new era of economic turmoil, as the slide continues into Thursday. Which raises the whole question of – why now?

The Chinese spark that set off a global prairie fire fell on some pretty dried up terrain. According to the estimates of economic experts, the Iraq war drained off one trillion dollars from the U.S. stock market before the first shot was fired. After the war was “won,” however, the real costs began to kick in, which economists Linda Bilmes and Joseph Stiglitz estimate at another trillion bucks (in direct costs), and possibly two trillion when all the other variables are factored in. The Bilmes-Stiglitz study shows that one of the costs of the Iraq war has been that stock prices have been tamped down considerably:

“The surge in corporate profits in the last couple of years has not been accompanied by an increase in stock prices of the magnitude that would have been expected. Robert Wescott estimates that the value of the stock market is some $4 trillion less than would have been predicted on the basis of past performance. Assuming that the major factor contributing to that is the increase in oil prices, and that 20% of that increase in oil prices is due to Iraq leads to a cost of some $800 billion. This is several times the increase in the direct energy costs over the next few years.”

The prosperity we lost is not as great as it might have been: this is due entirely to the war. Resources that might otherwise be engaged in the peaceful production of consumer goods are diverted and frozen in the form of fighter jets, aircraft carriers, and cluster bombs, whose only product is death. What characterizes war, aside from the mass death and horror, is sheer waste. We have seen the body-bags come home, and their increasing number has made us sit up and take notice. Once the economic consequences begin to kick in, however, we’re likely to hear some real howling.

There are two ways to finance a war: one is by directly increasing taxes. This is never popular, either with the people or the politicians, and so the latter have hit upon a successful subterfuge: inflation. They simply set the government printing presses to running at high speed, sell more government securities overseas, and impose a “hidden” tax – one that falls disproportionately on those least able to afford it. But then again, don’t the downtrodden masses always suffer the most in wartime? Isn’t it always the elites – in government and in the think-tanks, with their soft white hands and social distance from the battlefield – who dream up the wars, and the hoi polloi who fight them?

The Chinese panic is being diagnosed as the “cause” of our own apparent meltdown, but this mistakes the symptoms for the underlying disease. The name of our affliction is debt, and that burden has increased by over 30 percent since our venture into empire-building was launched. The Chinese are – or, have been – buying that debt, but the bursting of the Shanghai bubble could soon cut off that supply of income – and then where would we get the money to pay for the biggest military build-up in world history?

Bush is demanding $716 billion for his “defense” budget, which, as one news report described it, is “greater than the annual gross domestic product of all but 14 countries.” He’ll get that, and more: the Democrats, for all their “antiwar” pretensions, fault this administration for not having a large enough military. Which brings to mind Madeleine Albright‘s infamous scolding of Colin Powell, which had her saying:

“What’s the point of having this superb military that you’re always talking about if we can’t use it?”

Well, I hope Madame Albright is satisfied: these days, our formerly superb military is getting a lot of use, and there are growing indications that the Bush administration is preparing to use it against Iran. What may have spooked the Chinese, and set off a global chain reaction, is a case of the Iranian war jitters.

China is hugely dependent on Iran for its energy needs, or else the rapid industrialization and modernization envisioned by the Chinese elite will come to a sputtering halt. U.S. war moves against Iran threaten China’s lifeblood. Stock markets, being very future-oriented, pick up on rumors of war very quickly and the Shanghai Stock Exchange acted accordingly.

The Chinese didn’t cause markets to fall: the main factor is U.S. economic and foreign policy. The elements of a global recession – or worse – have been in place for some time now. As one commentator presciently put it:

“A US housing market in sharp decline; rampant speculation in a bubble-like mania in China; growing clouds of war over Iran. These are the elements of the gathering ‘perfect storm.'”

Years of living beyond our means, combined with our imperial delusions and the prospect of a war that would send oil prices skyrocketing, triggering a global economic meltdown – that is what has sent the markets spinning, and threatens to destroy our economic system.

Capitalism, contrary to the popular leftist myth, doesn’t cause wars: indeed, capitalism is the antithesis of war. Yes, some profit from war – the war industries, and their economic satellites. If the American Enterprise Institute sold stock, they’d be right up there with Google. It doesn’t matter that their intellectual stock – as predictors and policymakers – is at an all-time low, what with the Iraq war disaster and growing public opposition to our crazed foreign policy. What matters is that those in power – in the White House, and Congress – are buying it.

Markets fell precipitously in the run-up to war with Iraq, and they are doing the same as war clouds gather on the Iranian horizon. As the U.S. colossus goes lumbering after its latest victim, and world markets are shaken, we can expect more of the same. The Iraq War Crash is coming down on our heads – but hey, if you own Halliburton stock, or perhaps Lockheed, you don’t have a lot to worry about.

Author: Justin Raimondo

Justin Raimondo passed away on June 27, 2019. He was the co-founder and editorial director of, and was a senior fellow at the Randolph Bourne Institute. He was a contributing editor at The American Conservative, and wrote a monthly column for Chronicles. He was the author of Reclaiming the American Right: The Lost Legacy of the Conservative Movement [Center for Libertarian Studies, 1993; Intercollegiate Studies Institute, 2000], and An Enemy of the State: The Life of Murray N. Rothbard [Prometheus Books, 2000].