Counting the Cost of Iraq (2)

Is it, or is it not? This seems to be the question on everyone’s minds, but as yet, it seems that economists are divided over the answer.

Whether or not America is already in recession is something that people may still be debating about, but really purely on semantics. In reality, the slowdown is already very much upon the economy, and signs of it are everywhere.

Whoever has not heard of the sub-prime mortgage market before has surely been well educated about it by now. Already claiming a number of iconic American financial institutions like Bear Stearns, it has also caused the downfall of Northern Rock, one of the United Kingdom’s most trusted names in mortgage lending.

Of course, weakness in the financial system is never good, at least not for an economy that relies on borrowed money (and time) to finance itself. America -- as is all too familiar to most of us who have lived or visited there -- does not dwell in the present, as far as financing its consumer spending goes. Not in the least do consumers think about how much they earn before succumbing to that temptation to spend, but only about how much their credit limit can afford. Thus it is not uncommon for someone who subsists on survival wages to own expensive goods, all financed by plastic, and paid monthly in instalments so insignificant that in reality, it will take the borrower’s entire lifetime to ever repay.

As long as things stay on the up and up, living dangerously – in the financial sense – seems to be sustainable. Since the Clinton years, Americans have enjoyed an unprecedented period of economic prosperity that has made their economy the envy of those in the rest of the world. Set against the backdrop of economic confusion in the European Union, the stagnation of the Japanese economy, and fiscal mismanagement just about everywhere else, it seems the United States could do no wrong.

Clearly, with such a buoyant mood comes a certain sense of invincibility, and inevitably, recklessness. It is probably unwise to blame the financial community for causing the problem in its entirety, but it is not totally without basis to say that not-so-prudent instruments such as risky sub-prime mortgages and questionable asset-backed securities saw their heyday during the boom years.

Enter the “shock and awe” of George Bush’s Iraq adventure.

Without question, the decision to invade the Middle Eastern country was also spurred on by the same sense of American dominance that prevailed in the economic arena. After all, prosperity is power, and America certainly was feeling pretty powerful in those days.

Those days, unfortunately, are now long gone.

However little you remember of your economics classes all those many years ago, this you must not forget – psychology and economics are inseparable twins. The failure of the U.S. to impose its will on Iraq, the seeming hopelessness of the American occupation forces in the face of their enemies’ hit and run tactics, and the uncertainty of global oil supplies as a consequence of the protracted conflict, have all but depressed the American consumer into thinking that all cannot be well for the future. And as we already said, whatever the mind thinks, the economy mirrors. The result is an impending economic slowdown that now threatens to derail the global economy.

George W. Bush may have been motivated by dreams of historical immortality when he invaded Iraq – to be remembered like the war-time presidents who are forever worshipped in America's collective memory. But all he has managed so far is to awaken the nation’s most harrowing nightmare – that of an economy waking up to the fact that all along, it has been living on borrowed time – and the payback is drawing nigh.

Published in the Sun Star Daily, Saturday, April 12, 2008