2007 September 16 Sunday
Bond Market Says Iraq Surge Will Fail

Alex Tabarrok reports on a piece of economic research which suggests the Iraq government will default on its bonds and the chance of default has grown with the "Surge" of US troops.

After the Surge, there is a sharp decline in the price of those bonds, relative to alternative bonds. The decline signaled a 40% increase in the market's expectation that Iraq will default. This finding suggests that to date the Surge is failing to pave the way toward a stable Iraq and may in fact be undermining it.

Who you going to believe? Hard nosed bond market investors? How about the rosier view of George W. Bush? Or how about the curious view of General Petraeus who mentioned "Al Qaeda" 160 times (according to Brian Williams) in recent Congressional testimony? Think about how dishonest (or self-deluded or not too bright?) the Bush Administration and at least one top US officer have gotten to try to argue for a continued US presence in Iraq due to an Al Qaeda threat. The foreign fighters who proclaim they are Al Qaeda forces (like replica watches using brand names), being Arab Sunnis, want the Arab Sunnis to regain power and see the Arab Shias as enemies. The Arab Shias are the clear majority of Iraqis and the Arab Sunnis are up against the Arab Shias and the Kurds. The Al Qaeda Sunni threat to continued Shia and Kurdish control is small. The Sunnis are getting steadily purged out of Baghdad, cementing Shia control of the "national" (using the term loosely here) government.

The bond market participants have serious money of their own at stake and do not need to defend Bush Administration mistakes. By contrast, George W. Bush and allies are spending OPM (Other People's Money) in an attempt to find some way out of Iraq short of admitting the invasion was flawed in its conception. He's telling tall tales to play for time hoping some good trend will develop. Don't trust him.

Update: A Zogby poll conducted August 11-20, 2007 found that a majority of Americans still think we haven't lost the war in Iraq.

A majority of Americans - 54% - believe the United States has not lost the war in Iraq, but there is dramatic disagreement on the question between Democrats and Republicans, a new UPI/Zogby Interactive poll shows. While two in three Democrats (66%) said the war effort has already failed, just 9% of Republicans say the same.

The problem with such a poll hinges on what is meant by the term "lost". US troops could stay in Iraq another decade and go any place in the country any time they want to if we keep enough troops there. So in that respect we haven't lost. But we can't win in the sense of creating a liberal democracy with freedom of religion and speech and with freedom for women. The Iraqis do not share our values and we can't convert them to our values. So in that sense we've lost.

Share |      By Randall Parker at 2007 September 16 12:46 PM  MidEast Iraq New Regime Failures


Comments
Wolf-Dog said at September 16, 2007 12:57 PM:

The more money (of the OPM type) Bush loses in Iraq, the less of that money (same OPM again) will be available for Energy R & D, so that by the time the peak oil phenomenon abruptly raises the price of oil to a level over $200 per barrel, it will be too late and it will take at least another 20 years until a solution is found to Energy shortage. Wherefore the final victory of the oil companies who will grab all the OPM for many more decades. Hence the oil companies will have won the war for OPM: for every loser, there is a winner.

Ned said at September 16, 2007 3:07 PM:

Yeah, it depends on your definition of the word "lost." Sort of reminds me of the Vietnam situation back in the 70's. The US never "lost" in Vietnam in the sense that it suffered a massive military defeat the way Germany or Japan did in WW II. In fact, given the constraints under which it was operating, the US military did rather well in Vietnam. The defeat was more political than military, but it was a defeat nonetheless. The US could have prevented the North Vietnamese from taking over the entire country by keeping large numbers of US forces in the south indefinitely to prop up the weak, corrupt, ineffective South Vietnamese government, at a cost of maybe 10000-20000 casualties per year. But by the early 70's, the US public had grown sick of the whole thing - the casualties, the costs, the complete inability of the South Vietnamese to effect their own survival in spite of massive US aid. So they pulled the plug on the whole misadventure, with the expected result. Ho Chi Minh and his associates correctly foresaw this - that the US public had no appetite for an open-ended Asian war. The parallel with Iraq seems exact - the American public is getting sick of this war too. Who knows what will happen when we leave, but we'll probably find out sooner than later.

Randall Parker said at September 16, 2007 3:44 PM:

Ned,

I think the US was in better shape in Vietnam in 1972 than we are in Iraq today. The US had defeated the VC and held off a tank thrust from North Vietnam (in '72 or '73?) with mostly air power. Today we still need lots of combat troops in Iraq fighting a big insurgency that will swell back up as soon as US troop levels go down.


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