Date : March 3, 2003

Gold Can Afford To Wait While The Tide Inevitably Turns Against the Weakening US Dollar.Every time the radio or television is turned on there is more news of US threats against Iraq, more news of dissent among Bush’s supposed allies, more arguments against war. The hubbub has reached a level where the core of the debate is being drowned out. The simple fact is that the economy of the world is in a fragile state and wars cost money, big money.. Even America has to acknowledge that and future generations will have no thanks for their parents who merely cranked up the printing presses. The dollar is under pressure and this time round America is having to fight a war largely on its own.

When Bush’s father went to war last time loads of countries were there to offer money to the war effort. This time round they are not so keen and the fact that the UK has only managed to fly one tenth of its promised airforce into the area shows that Blair may be more talk than action. The official reason is that a whole lot of Arab countries – funnily enough most of those said by George Dubya to be under threat from Saddam Hussein – have refused permission for these planes to cross their airspace. Blair backed down but Bush knows the score. A bit of baksheesh in the right hands and permission will be granted. Turkey caught on to the possibility of having a ‘good war’ at an early stage and is making a meal out of payments for US troops to use bases in that country.

The latest figure bandied about is US$92 billion compared with an original US offer of US$3 billion. The trouble is that the US administration behaves just like its tourists used to do in these parts of the world. In the bazaars they were known as the ‘people who know the price of everything and the value of nothing’ by those who had skinned them twice over for a fake Persian carpet. There is no set sum that can be paid to a Moslem country for the acute political problems it will face if seen to back America. But there is a limit to the payments that America can keep making to maintain its coalition. That limit may very well be set by the people of America when they see just what it can mean in terms of falling stock prices, and cuts in education, health and benefits.

The truth of the matter is that the US administration does not have a budget for this war. Huge increases in military expenditure are announced, but never is any guidance given as to where it will come from or what eventualities it is expected to cover. Every war, big or small, requires an expensive cleaning up operation afterwards. It is strange, therefore , how sparse is the information on the money being spent by the US in Afghanistan now that it has been rid of the Taliban and has what the Americans consider to be a ‘westernised’ government. According to the Financial Times a sum of US$300 million was added recently to the latest estimate of military expenditure to cover this requirement. US$300 million is less than half what it cost to build the ill-fated Dome in London. It must be a fleabite compared with the damage done to the infrastructure of Afghanistan which is not a small country. Maybe, when push comes to shove, the US administration has realised that it simply cannot honour its contngent obligations and moves on.

That will be no comfort to the Iraqis who will perceive that there is no sum allocated in the military expenditure budget to cover the post-war costs of occupation, humanitarian aid and reconstruction. After suffering huge collateral damage to their country they may find that a westernised puppet has been installed instead of Saddam Hussein, but by that time the US forces are over the horizon threatening North Korea. The fact is that this crusade against an ill-defined axis of evil is already out of control financially and as it progresses the bills will mount and mount. As countries round the world come to appreciate this fact they will dump the dollar on an increasing scale led, no doubt, by the Moslem countries.

At the moment the US borrows about US$200 million a day from the rest of the world to cover its savings gap. This sum is bound to rise as a result of the current military expenditure budget and the rise will probably accelerate once the total obligations incurred by the US administration round the world are revealed. Why would anyone want to lend to a country whose debts are rising and whose currency is weakening? Already foreigners are reducing their holdings of dollars and dollar denominated debts and the trickle will become a flood as the true situation emerges. And this is where gold comes into its own. The story is told of the Afghanistan war lord who threw dollars back to the Americans and demanded gold before his troops would fight. Maybe the countries in the Middle East will stop accepting America’s depreciating dollar IOUs and demand gold. What a turn-up that would be for a country who banks were in the forefront of the campaign waged over the past twenty or more years to stigmatise gold as a barbarous relic.