Larry Kudlow
The massive American-British air raid over western Iraq on the evening of Sept. 6 is almost certainly a precursor to an invasion of the country. An estimated 100 warplanes delivered a major blow to Iraq's various command and control systems that could deliver weapons of mass destruction and complicate an invasion by ground forces. That strike followed a raid on Aug. 5, when allied bombers demolished Saddam Hussein's air-command-and-control center southwest of Baghdad. Key Iraqi air-defense lines have been taken out, and the way is now clear for U.S. special forces. Israeli intelligence sources report that some 15 percent of Iraqi soil is already under allied control and that a combined U.S.-Turkish force will soon capture Iraq's oil facilities in the north. They also say U.S. special forces numbering near 15,000 troops could move into the area in the next month. A full-scale allied invasion could occur in late November. The recent air strikes represent much more than mere enforcement of the Iraqi no-fly zone. Instead, they may well signal that the first phase of the war with Iraq has already begun. And despite a recent pessimistic barrage from media and political naysayers, there's no economic, financial or military reason not to finish off the job this time. Recent stories in The New York Times and elsewhere continue to grouse that an invasion of Iraq will be tough on the U.S. economy. The oil card is the biggest argument against this war, and it was effectively disposed of a week ago when Kuwait came out in strong support of a U.S. invasion of Iraq. Should the Iraqis set fire to their own fields, the Kuwaitis can easily make up half of the potential million-barrel-a-day shortfall. Think of Kuwait as a strategic petroleum reserve. And the Saudis could easily add a couple of million barrels per day to help stabilize prices. Saudi Arabia is basically broke and would not want to see a big oil spike crushing demand during a global recession. Nor will they risk losing U.S. protection of their oil facilities. Also, many industrialized countries including the U.S. have significantly increased their own strategic reserves. By year end, U.S. reserves should reach a capacity of 700 million barrels -- enough to distribute over 4 million barrels per day. More than enough oil-card insurance. Then there's the issue of the U.S. budget deficit, which is likely to average roughly 1.5 percent of gross domestic product through next year, the lowest recessionary deficit in memory. And contrary to the predictions of former Clinton economic adviser Robert Rubin, the temporary deficit rise has been accompanied by plunging -- not rising -- interest rates in U.S. government securities, and homeowner mortgage rates stand at four-decade lows. But what if the United States has to finance the Iraqi war on its own? What if another $50 to $100 billion of war-related funds becomes necessary? Easy. The Treasury should sell war bonds. Liberty bonds were sold in World War I and were actively traded on the open market. During World War II, war bonds were big business, raising huge sums of money and generating a cottage industry for their sale. War bonds sold today would act just like U.S. savings bonds. They would be government-insured savings accounts with competitive interest rates; the interest would not be taxed on the state or local levels; and federal taxes would be deferred until the bonds are redeemed in 20 or 30 years. These bonds, which should be indexed to offset inflation, will yield more money after tax than ordinary bank savings accounts (for most states). With stock-market confidence still at low ebb, a good portion of the roughly 80 million shareholding Americans will undoubtedly invest in war bonds for patriotic and economic rate-of-return reasons. Doomsayers may try to use oil and budget deficits as reasons not to go to war. But the economic facts speak otherwise. And anyway, American economic potential is so vast that these anti-war arguments quickly become meaningless. The U.S. economy is strong, resilient and free. The post-Sept. 11 recession predicted by many never came to pass. In fact, the 2001 recession ended last September, and key measures such as growth, profits, production and living standards are all recovering. This improving economic backdrop provides a solid foundation for the war effort. We have already blown away the Taliban. Al Qaeda has been totally disrupted. Strengthened homeland defenses have thus far stopped additional terrorist acts. And businesses have stayed open to increase our prosperity. Now it's time to end state-sponsored terrorism in Iraq and elsewhere. A year after Sept. 11, 2001, a resolute America is ready for the task.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.
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