Money trail links the war on terrorism to the global financial crisis
American combat troops have headed home from Iraq, leaving behind a democracy without a government and an ethnically divided nation. In Afghanistan, the Taliban continue to advance and Osama bin Laden is still at large.
Far from winning the ''war on terror'', the US and its closest allies are broke. Plagued by overwhelming debts and suffering from the worst recession since 1929, these countries now live in fear the ratings agencies will downgrade their economies. Is there a link between these events? To answer, we need to revisit bin Laden's theory that September 11 would inflict a mortal blow on the US economy. Though the attack did negligible damage to Wall Street, George W. Bush's response set in motion a chain of negative events.
The Patriot Act, introduced a few weeks after the destruction of the twin towers, failed to curb terrorist financing but it did prompt a massive flight from the dollar: fearing prosecution, Muslim investors repatriated investments worth $US1 trillion.
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Then, to avoid the scrutiny of US authorities, banks suggested their clients switch from dollar to euro investments. Finally, criminal and terrorist organisations relocated most of their money laundering activities from the US mainland to Europe.
By December 2001, these events caused global demand for dollars to shrink, reducing the value of the greenback. In 1993, Dick Cheney clearly stated the neocon desire to relaunch America's world hegemony.
Ironically, the ''war on terror'' provided a much-sought-after opportunity to achieve this desire. Regime change in Iraq was deemed necessary to secure a friendly base at the heart of a strategically important region.
To raise funds to finance such an ambitious military adventure, the Bush administration tapped the international capital market by selling billions of dollars worth of treasury bonds in a few years. To make the US debt competitive, the Federal Reserve progressively slashed interest rates, which fell from 6 per cent on the eve of September 11 to 1.2 per cent by mid-2003, when Washington thought it had won the war in Iraq following the initial invasion. The then-chairman of the US Federal Reserve, Alan Greenspan, went along with this strategy even though the world economy was growing too fast and needed higher rates to prevent the formation of financial bubbles.
For over a decade, lowering interest rates had become instrumental in counteracting the recurrent economic crises of globalisation – such as the rouble and the Asian crises – and September 11 triggered a mini-recession in the Western world. This policy of lower interest rates never solved the underlying problems. It merely hid them until the next crisis.
If the White House and the Federal Reserve had paid attention to the signs of an overheating globalised economy – the booming housing market and the growing indebtedness of the 1990s – things would have been different. Possibly, the world would have avoided the serious economic crisis in which it finds itself today.
The steep fall in US and world interest rates between 2001 and 2003 created the ideal conditions for the spread of the subprime mortgage crisis and for the securitisation of bad debts – the genesis of the credit crunch. That policy precipitated the bankruptcy of Iceland, a country that accumulated a debt 12 times the size of its gross domestic product, and the solvency crisis of Greece.
Wall Street monoliths such as Goldman Sachs and JPMorgan took advantage of declining interest rates to allow countries, as well as corporations and individuals, to live beyond their means. Naturally, in the process, they pocketed large sums of money.
Washington's fixation with military intervention also prevented the formulation of an effective policy to thwart terrorist financing, which nobody ever regarded as a real priority. European countries, which had long-standing experience in counter-terrorism, went along with this folly.
They could not even reach an agreement on regulating offshore facilities until the recession shrank tax revenues, prompting finance ministers to go after tax evaders.
This is how Europeans learned that since September 11 their continent had become the global epicentre of money laundering, thanks principally to several joint ventures between Italian organised crime and the cocaine barons of Latin America.
While fighting America's ''war on terror'', the world changed dramatically: the West spent money it did not have to fight a war which had nothing to do with bringing Osama bin Laden to justice; to fund this war, America fuelled a massive financial bubble which eventually exploded; from Latin America, narco-business reached Europe via west Africa, thanks to a new joint venture with armed organisations such as al-Qaeda in the Maghreb; and the Taliban successfully tapped into the heroin trade, using it to fund its war on coalition forces.
The interdependency between terrorism and the global economy goes well beyond the credit crunch, the recession and the euro crisis. Since September 11 it has been extending the boundaries of a shadow world which threatens to replace our own if we do not break away from the legacy of the ''war on terror''. Bringing the troops home is not enough; we need to focus on the true target of this war, on the lifeline of terrorism – we need to focus on the money.