Tuesday, September 30, 2008

Could the Republicans wag the dog?

Global markets tumbled again yesterday after the US House of Representatives shot down the US President George W. Bush administrations’ US$700 billion bailout plan in a rare show of unity among Republicans and Democrats. For weeks now, we have been hearing rumors of a recession, and in the last few days analysts have begun referring to the financial crisis as the worst since the Great Depression of 1929. The world is now holding its breath to see whether the US Fed will submit a revised bailout scheme — hopefully one that, unlike its stillborn predecessor, isn’t so skewed in favor of the wealthy.

What will make matters more complex are the US presidential elections on Nov. 4, which could very well lead to ostensibly “irrational” behavior in the House as Republicans and Democrats seek an advantage over one another on the last leg of the campaign. With the Democrats standing to gain as many as 30 seats in the House — a clear repudiation of the Bush administration, if ever there was one — some Republicans could stoop to a new low in already acrimonious relations between the two parties and seek to create conditions that would advantage the Republicans. Ironically, doing this could well involve behavior that would further undercut the economy (yes, US politics have gotten this dirty)..

Now what would this be? What is the area in which the Republicans believe they have the upper hand over the Democrats, that could rescue their dwindling fortunes?

During his campaign, Republican candidate Senator John McCain has repeatedly argued that his party is stronger on foreign policy and that, conversely, the Democrats under Senator Barack Obama lack experience in diplomacy, are mere “amateurs,” or that they are “soft” on terror and “rogue regimes” like Iran and North Korea.

What, therefore, could reinvigorate the Republican Party and put it back in the race than some crisis involving North Korea (which has already provided the gunpowder by threatening to pull out of the nuclear disarmament talks), Iran (the likeliest candidate), Venezuela or even a “resurgent” Russia weeks before Americans hit the polls? Nothing would work better to distract frazzled Americans worrying about their jobs and their retirement packages, or bolster the country’s slumbering industry, than a new conflict. History is replete with examples of countries going to war after the economy had soured, both as a means to deflect domestic criticism but also because, sadly, war is good for business. Behind the scenes, things could therefore be done to precipitate conflict, or other countries’ policies interpreted in a way that would provide a more “irritable” or less patient Washington with a casus belli.

The Great Depression culminated in World War II, and the stock markets only dropped (ashamedly) after hostilities had come to an end. Ever since, numerous other conflicts that on the surface seemed the result of political brinkmanship turned out to have been partly engineered by, or in response to, market forces, as William Engdahl convincingly argues in his revealing A Century of War. Such a scenario would be especially likely if, whatever comes next, a bailout package were seen by the Wall Street-Washington nexus as not meeting the needs of the corporate superrich (in other words, one favored by the Democrats), in which case some influential individuals (in and outside government, or straddling both worlds, as is frequent in Washington circles) could pull strings and engineer a convenient crisis.

Watch for the headlines in the coming weeks. Should financial instability prevail, trouble abroad could emerge, right on cue.

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