- The Washington Times - Sunday, February 16, 2003

The White House is under assault from many directions. Code Orange warnings issued over the growing likelihood of terrorist attacks at home have alarmed many Americans and raised profound questions about how that war is going. At the U.N. and NATO, administration efforts to rally support for disarming Saddam Hussein with military force have stumbled. North Korea continues its belligerent nuclear diplomacy and Osama bin Laden is calling for the Iraqi people to fight to the death to repel any American attack.
But the unkindest cut of all may have come from Alan Greenspan, the highly respected chairman of the Federal Reserve and possibly the most powerful man in Washington given his influence on markets and economic policy. Testifying before Congress on Tuesday, Sir Alan Queen Elizabeth II bestowed an honorary knighthood last year argued against the need for a large economic stimulus package until the "geostrategic situation" became less uncertain.
In other words, the president's proposed tax cuts that would induce greater budget deficits did not win the chairman's support. Subtly understated, the impact was as stunning as German, French and Belgium opposition to defending Turkey under Article 5 of the NATO Treaty.
So what is going here? Across government, virtually every agency is preparing for war. The Pentagon is deploying hundreds of thousands of men and women; State is crashing to rally international support and negotiate the access necessary for encirclement of Iraq; and the CIA and FBI are moving heaven and Earth to prevent future attacks against the United States and its friends abroad. Even the Export-Import Bank, an independent federal agency that makes loans to U.S. firms doing business abroad, has begun preparing for a possible war in Iraq and the need for reconstruction.
But what is the Fed up to, or is it so isolated that issues of war are secondary to its responsibilities?
This is not a matter solely of economic fiscal and monetary policy. This is a question of strategy and politics and what can be done to make the nation safer, including taking out some economic insurance in the event war follows. Geostrategic uncertainty is part and parcel of life in a world no longer defined by a struggle between two superpowers. Inaction is not an answer. There is a challenge and there are means of coping.
Consider the infamous "Y2K" bug that some thought would disrupt world economies and send the global system into the technological equivalent of a new dark age. At the stroke of midnight of the new millennium, the fear was that so many computers were not programmed to read 2000 there would be a massive malfunction of power distribution, banking, transportation, emergency services and other key systems.
To deal with this potential shock to the system, there was a careful, premeditated response to correct and anticipate these problems well in advance of the New Year. In the U.S., for example, an extraordinary well-coordinated effort was undertaken by government and the private sector. A great deal of money was pumped into circulation by the Fed and spent by business to correct or bypass the programming bug. As a result, when 2000 arrived, there were virtually no Y2K problems. Preventive action against even a potentially catastrophic event can and does work when seriously undertaken.
As we have learned, sometime after September 11, 2001, Osama bin Laden discovered that "it was the economy, stupid." Terror attacks to disrupt the economy became part of his and al Qaeda's modus vivendi. The suicide assault against a French tanker in the Red Sea was further proof. Hence, for powerful political and strategic reasons, the U.S. must act now to protect its economy as it did to defeat the Y2K bug. This is where the Fed comes in.
At the risk of provoking inflation and large deficits, the nation must not wait idly. This may require tolerating large deficits for so long as the wars go on. It also mandates easing the money supply. For the past several months, the Fed has been contracting rate of growth of the money supply. Not only must that be stopped. It must be reversed.
The major engine for economic growth and employment in the U.S. has been small business. Clearly, market uncertainties and attendant risks discourage business investment. But so does lack of capital. The Fed can and must help here. More money must be put in play. Of course, there is no guarantee that business will react. However, should war occur and the markets turn negative, these actions can help buffer the consequences. It's not only the economy, stupid it's the need to keep America safe and sound.

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