www.washingtonpost.com By David Von Drehle Washington Post Staff Writer Sunday, March 16, 2003; Page A13

 	Oil industry analysts say a quick and clean war would probably result in significantly lower gasoline prices at the pump. (Greg Wahl-stephens -- AP) 

The crisis in Iraq has become a sharply personal test for President Bush, placing public trust in his judgment -- perhaps a president's most important asset -- at the heart of the issue.

Friends and critics generally agree that a bad outcome could undermine trust in his leadership not only abroad but also at home, with ramifications from Capitol Hill to Wall Street to Main Street and the ballot box. If events tend to show that Bush has miscalculated, that his critics sized up the risks better than he did, it would undercut confidence in his approach to domestic issues: the lagging economy, reform of major entitlement programs, homeland security and so on.

If, on the other hand, his judgment were vindicated by success in Iraq -- a quick war, minimum loss of life, and a relatively calm aftermath -- Bush could be rewarded with a surge in confidence among investors and consumers. Oil industry analysts say a quick war with a mild aftermath would probably lead to a significant drop in oil prices, and many economists believe Wall Street would respond.

Even the best results, though, might not return Bush to the stratospheric level of support he enjoyed from Americans in the aftermath of Sept. 11, 2001. The fierce debate over Iraq has catalyzed opposition to Bush in a way that earlier events did not, which could limit the potential impact of a victory on domestic issues. Given the narrowly divided Congress, "war in Iraq is not going to make his Medicare proposal more palatable back home," said Bruce Reed, chief domestic policy adviser in the Clinton administration.

In effect, Bush has staked his judgment against the judgment of a daunting roster of world leaders. At a recent news conference, he repeatedly answered questions about world opinion by citing his personal convictions. "I make my decisions based upon the oath I took," he said. ". . . I believe Saddam Hussein is a threat. He's a threat to the American people. He's a threat to people in his neighborhood. He's also a threat to the Iraqi people."

It is unusual for a president to be so completely identified with a war, according to historian Douglas Brinkley. The Mexican-American War of 1848, he noted, was widely known as "Mr. Polk's War," because President James K. Polk essentially made it happen. "This might be called Mr. Bush's War."

He continued: "If things don't turn out right and the economy stays sour and terrorist acts are going on around the world, it gives the opposition party a lot of issues."

Worry over home-front effects of the war begins with the price of oil.

Few, if any, factors mean as much to the economy, or land so squarely on the wallets of consumers. Some critics of the war worry that Hussein could sabotage his own oil fields if faced with defeat, and attack the fields in Saudi Arabia and Kuwait. If enough damage were done to seriously disrupt Middle East oil production, the global economy would almost certainly slide into a recession, economists generally agree.

However, if the disruption were limited to Iraq, oil prices would probably drop -- something voters and investors would like to see. According to James Placke, an Iraq expert and oil analyst at Cambridge Energy Research Associates, prices are already quite high because of a recent strike in the Venezuelan oil fields and general fears about war.

"Now Venezuela is coming back," he said. "A war premium of four or five dollars is already factored in. If war goes well from the U.S. perspective, the price would drop almost immediately below $30 per barrel." The price is currently around $32 per barrel. Once the 1991 Persian Gulf War got underway, Placke said, "the price dropped $10 a barrel overnight," and Hussein's decision to torch the Kuwaiti fields "didn't really have much effect."

While the U.N. debate has frayed alliances and given Wall Street the jitters, it has actually reduced the danger of an oil crisis by delaying a war. The end of winter typically reduces global demand for oil by about 2 million barrels per day, roughly the equivalent of the entire production of Iraq. Other OPEC members have pledged to increase production if necessary to maintain a steady supply.

In the longer term, many experts expect that the cost of reconstructing Iraq, including care of refugees, troops to keep the peace and repairs to bombed infrastructure, would add scores -- even hundreds -- of billions to a federal deficit already spiraling out of control. Some administration supporters worry that Bush would turn from a relatively successful war only to find himself stymied domestically by red ink and a Democratic Party gearing up for the next election.

"We saw with his father that winning a war with Iraq doesn't necessarily mean you're out of the woods," said one Republican with close ties to the White House.

Democrat Reed agreed. "It's possible the war could strengthen his hand in his own party," he said, thus allowing Bush to pass some legislation on straight party lines. "But things will get back to normal pretty quickly. As soon as the White House gets back to a partisan agenda, the partisan divisions will reemerge."

Democrats would also be affected by the course of a war. Among the nine announced candidates for the presidential nomination are some antiwar candidates, some pro-war candidates and a few with highly nuanced positions somewhere in the middle. Events in Iraq will strengthen some and damage others; Iraq could be the issue that reinvigorates the Democratic left after a decade of Clintonian political moderation.

Bush, ultimately, has staked his political future and his legacy on Iraq; failure would probably spell the end of his project to shift the balance of power in American politics decisively rightward and establish a lasting Republican majority. At home as well as abroad, this has become a defining moment.

"They've raised expectations very high," said Walter Russell Mead of the Council on Foreign Relations. "They've answered doubts about policy with assurances that it's a short war. Usually you lower expectations. They've raised them."

www.taipeitimes.com By Edmund L. Andrews NY TIMES NEWS SERVICE Sunday, Mar 16, 2003,Page 10

INTEREST: Most analysts say the US Federal Reserve is likely to leave the lending rate unchanged on Tuesday, as geopolitical situations seem to be having little effect

For months, Federal Reserve Chairman Alan Greenspan has said that the biggest weakness in the economy was anxiety about geopolitical risks. Greenspan reads over his papers during a Oversight hearing on the Federal Deposit Insurance System on Capitol Hill, Wednesday.

Alan Greenspan, the Federal Reserve chairman, has said for months that the biggest weakness in the economy is anxiety about "geopolitical risks" -- namely the threat of war in Iraq. Once that is "resolved," he has said, confidence should rebound and growth should resume to more normal levels.

But as the Iraq debate has dragged on longer than expected and the economic news has become worse, Greenspan is coming under increased pressure to reduce interest rates when the Fed's monetary policy committee meets on Tuesday.

The drumbeat of bad news -- the economy lost 308,000 jobs in February, retail sales slumped more than expected and oil prices surged to nearly US$40 a barrel before easing back -- has heightened fears that the economy is suffering from more than just war jitters and has increased speculation among investors that the Fed may lower interest rates.

Most analysts say the Fed is much more likely to stand firm on Tuesday. Rather, they say, the central bank is likely to warn that the risks of a slowdown have increased and that it will "closely monitor" events.

That would be a signal of its readiness to pump money into the economy quickly, without waiting until the next scheduled meeting of the Federal Open Market Committee, if a potential war with Iraq went worse than expected or if confidence failed to bounce back afterward.

"I don't think there is much chance of a rate cut next week," said Diane Swonk, chief economist at Bank One in Chicago. "Greenspan has been pretty clear that he thinks Iraq is the major disturbance in the economy."

Thus far, neither Greenspan nor any other top Fed official has hinted at a willingness to cut rates immediately. Indeed, Greenspan went so far as to say at a congressional hearing last month that he saw no need for stimulating the economy through special tax cuts like those proposed by President Bush.

But if Greenspan does not push for lower interest rates on Tuesday, economists say, it will probably not be long before he does, perhaps before the next policy-setting meeting in May.

"If it were not for the background of war uncertainty, the fundamental data would be pointing unambiguously to an aggressive move," said Robert V. DiClemente, chief US economist at Salomon Smith Barney, who is among economists who have become noticeably more pessimistic in the last few weeks.

"All of us have edged our numbers down," he added.

Richard B. Berner, an economist at Morgan Stanley, said the economy was suffering from more than just the paralysis caused by war anxiety.

"The big story is the energy situation," he said. Higher oil prices stem not only from concerns about the loss of Iraqi crude oil, Berner said, but also from drop-off in production from Venezuela after a national strike, low inventories in the US and limited additional production in the major oil-producing countries.

Greenspan has long paid close attention to oil prices, and Fed officials are well aware that big surges in oil prices have been followed by recessions in the 1970s, 1980s and after the Persian Gulf War in 1991.

But some Fed officials have suggested that the current jump in oil prices may be less threatening than it seems. Ben S. Bernanke, a Fed governor, contended in a speech last month that previous recessions were driven less by high oil prices than by the Fed's reaction to them.

"My reading of the evidence suggests that the role the conventional wisdom has attributed to oil price increases in the stagflation of the 1970s has been overstated," Bernanke said. The real problems, he said, stemmed from deeply rooted inflationary expectations at the time and the Fed's decision to tighten monetary policy in response to the surge in oil prices.

Today, analysts say the Fed has much more latitude -- and the markets know it. Inflation expectations are so low right now, sometimes bordering on worries about deflation, that most economists believe the Fed can cut rates without igniting inflationary fears.

"They have a lot of running room," said DiClemente.

At the same time, analysts think Greenspan has good reasons to be cautious. The biggest one is that the federal funds rate on overnight loans between banks is already at 1.25 percent, and monetary policy moves into uncharted territory if the rate drops to zero.

If the Fed were to lower rates next week, it would have less ammunition to stimulate the economy if a war with Iraq turned out to be more costly and protracted than expected. Greenspan has said the Fed can stimulate the economy even if overnight interest drops to zero, by buying Treasury securities. But the Fed has almost no experience with that approach.

www.nytimes.com By EDMUND L. ANDREWS

WASHINGTON, March 14 — Alan Greenspan, the Federal Reserve chairman, has said for months that the biggest weakness in the economy is anxiety about "geopolitical risks" — namely the threat of war in Iraq. Once that is "resolved," he has said, confidence should rebound and growth should resume to more normal levels.

But as the Iraq debate has dragged on longer than expected and the economic news has become worse, Mr. Greenspan has come under increased pressure to reduce interest rates when the Fed's monetary policy committee meets on Tuesday.

The drumbeat of bad news — the economy lost 308,000 jobs in February, retail sales slumped more than expected and oil prices surged to nearly $40 a barrel before easing back — has heightened fears that the economy is suffering from more than just war jitters and has increased speculation among investors that the Fed may lower interest rates.

Most analysts say the Fed is much more likely to stand firm on Tuesday. Rather, they say, the central bank is likely to warn that the risks of a slowdown have increased and that it will "closely monitor" events.

That would be a signal of its readiness to pump money into the economy quickly, without waiting until the next scheduled meeting of the Federal Open Market Committee, if a potential war with Iraq went worse than expected or if confidence failed to bounce back afterward.

"I don't think there is much chance of a rate cut next week," said Diane C. Swonk, chief economist at Bank One in Chicago. "Greenspan has been pretty clear that he thinks Iraq is the major disturbance in the economy."

Thus far, neither Mr. Greenspan nor any other top Fed official has hinted at a willingness to cut rates immediately. Indeed, Mr. Greenspan went so far as to say at a Congressional hearing last month that he saw no need for stimulating the economy through special tax cuts like those proposed by President Bush.

But if Mr. Greenspan does not push for lower interest rates on Tuesday, economists say, it will probably not be long before he does, perhaps before the next policy-setting meeting in May.

"If it were not for the background of war uncertainty, the fundamental data would be pointing unambiguously to an aggressive move," said Robert V. DiClemente, chief United States economist at Salomon Smith Barney, who is among economists who have become noticeably more pessimistic in the last few weeks.

"All of us have edged our numbers down," he added.

Richard B. Berner, an economist at Morgan Stanley, said the economy was suffering from more than just the paralysis caused by war anxiety.

"The big story is the energy situation," he said. Higher oil prices stem not only from concerns about the loss of Iraqi crude oil, Mr. Berner said, but also from the dropoff in production from Venezuela after a national strike, low inventories in the United States and limited additional production in the major oil-producing countries.

Mr. Greenspan has long paid close attention to oil prices, and Fed officials are well aware that big surges in oil prices have been followed by recessions in the 1970's, 1980's and after the Persian Gulf war in 1991.

But some Fed officials have suggested that the current jump in oil prices may be less threatening than it seems. Ben S. Bernanke, a Fed governor, contended in a speech last month that previous recessions were driven less by high oil prices than by the Fed's reaction to them.

"My reading of the evidence suggests that the role the conventional wisdom has attributed to oil price increases in the stagflation of the 1970's has been overstated," Mr. Bernanke said. The real problems, he said, stemmed from deeply rooted inflationary expectations at the time and the Fed's decision to tighten monetary policy in response to the surge in oil prices.

Today, analysts say, the Fed has much more latitude — and the markets know it. Inflation expectations are so low right now, sometimes bordering on worries about deflation, that most economists say the Federal Reserve can cut rates without igniting inflationary fears.

"They have a lot of running room," Mr. DiClemente said.

At the same time, analysts say that Mr. Greenspan has good reason to be cautious. The biggest reason is that the federal funds rate on overnight loans between banks is already at 1.25 percent, and monetary policy would move into uncharted territory when the rate dropped to zero.

If the Fed were to lower rates next week, it would have less ammunition to stimulate the economy if a potential war with Iraq turned out to be more costly and protracted than expected. Mr. Greenspan has said the Fed can stimulate the economy even if overnight interest rates drop to zero, by buying Treasury securities. But the Fed has almost no experience with that approach.

www.washingtonpost.com By Maryan Chilinguerian washingtonpost.com Staff Writer Thursday, March 13, 2003; 1:48 PM

Americans, frustrated with the ongoing uncertainty over the Iraq crisis and a national economy teetering on the edge of recession, are spending less on big-ticket items, opting instead to stock up on the necessities. U.S. businesses anticipate that if a war occurs, consumers will continue to penny pinch until the outcome is clear. And while the fighting continues, consumers are expected to remain glued to their televisions instead of spending at the malls.

Many companies have scaled back production, investments in capital goods and advertising spending as they await a possible war with Iraq. The auto industry is feeling a lot of this pain. Two major auto retailers, General Motors Corp. and Ford Motor Co., have already announced plans to cut production in the second-quarter on the assumption that demand for automobiles will drop. • In U.S. Plants and Wallets, The Other Iraq Standoff (The Washington Post, Feb. 25, 2003)

Throughout the economic downturn, auto sales have remained relatively strong due to zero percent financing and cash back offers that lured in customers. But the allure of those promotional offers has worn off. According to January's retail sales report, auto sales dropped 7.5 percent while overall retail sales increased at the fastest rate over two years. Sales of home improvement items, gasoline and groceries showed the strongest sales numbers, indicating that consumers are only stocking up on necessities. Retailers also took a hard hit in February, due in part to the mid-Atlantic blizzard that kept shoppers locked indoors over the President's Day holiday weekend. • February Retail Sales Fall 1.6 Percent (The Washington Post, March 14, 2003) • As U.S. Gears for Fight, Spending Winds Down (The Washington Post, Feb. 25, 2003) • Retail Blows Hot In Winter (The Washington Post, Feb. 14, 2003)

One possible reason for dwindling consumer spending is the spike in fuel costs. Exacerbated by the political instability in Venezuela and looming war with Iraq, oil prices are nearing an all time high, with the national average reaching $1.77 per gallon for gasoline. Prices at the pump are expected to continue to rise as demand outpaces supply. Recently, the national inventory of oil hit 25-year lows and an attack on Iraq could worsen the problem by disrupting overseas oil supplies. • Gas Prices Rise to Near-Record Level (The Washington Post, March 11, 2003) • Is Worst Ahead for Airlines? (The Washington Post, March 11, 2003) • Retail Gasoline Prices to Set Record High (The Washington Post, March 7, 2003) • Natural Gas Price Surveys Under Suspicion (The Washington Post, Feb. 29, 2003) • Paying the Price for Rising Fuel Costs (The Washington Post, Feb. 29, 2003)

Whatever the reason, the anxiety is growing and is evident in the latest consumer confidence report. The Conference Board reported consumer confidence plunged to its lowest reading in nine years. • Investors Skittish Worldwide (The Washington Post, March 12, 2003) • Stock Indexes Retreat From War (The Washington Post, March 11, 2003) • Consumer Confidence at 9-Year Low (The Washington Post, Feb. 26, 2003)

The U.S. dollar recently hit a four-year low versus the euro, losing 20 percent of its value against the European currency in the past year. A weak dollar is beneficial for American exporters because it makes domestic goods more competitive against foreign-made products. But a weak dollar could crush confidence in U.S. currency and hurt foreign investment. • New Treasury Chief Learns A Lesson (The Washington Post, March 6, 2003) • U.S. Trade Deficit Rises to Record Levels (The Washington Post, Feb. 21, 2003)

Historically, war has sparked bullish behavior among investors but continuing uncertainty about whether and when a war against Iraq could occur is dragging on the markets. Fund managers and institutional investors are sitting tight and waiting, keeping trading volumes low and the Dow teetering below 8,000. • Wall Street Sits Tight as War Looms (The Washington Post, Feb. 13, 2003)

However, the markets were given some reassurance in the latest report on gross domestic product. The Commerce Department revised its January report of GDP, which grew at a 1.4 percent annual rate versus the originally reported 0.7 percent. • Economic Growth Rate Upgraded (The Washington Post, Feb. 29, 2003)

www.forbes.com Reuters, 03.14.03, 8:55 AM ET 

NEW YORK, March 14 (Reuters) - The following is comment on from stock market analysts on Friday after the Labor Department reported the producer price index rose 1 percent in February. Overall producer prices climbed higher than analyst forecasts for a 0.7 percent rise, after a 1.6 percent increase the previous month. Stripping out volatile food and energy costs, prices dropped 0.5 percent, pulled down by falling car, truck and computer prices. Analysts were expecting so-called core inflation to be unchanged.

RICK MECKLER, PRESIDENT OF LIBERTYVIEW, JERSEY CITY, NEW JERSEY: "I don't think it will have much of an impact. The numbers have been moved around quite a lot by the unusual energy price movement, but I don't think the treasury market currently is as dominated by these types of numbers as it is by the potential for war with Iraq. While the number could have had meaning in another time, at this point it goes virtually unnoticed. I think it will be a non-factor to the market. "People had expected energy prices are much more volatile than they're likely to be in he future. Production is very weak and it's very hard for companies to raise prices. It's certainly part of the reason why the stock markets had trouble as companies are pressured by higher commodity prices but can't raise prices and pass it on. "It just shows excess capacity and the difficulty companies have in raising prices. I think that the danger is in lower profits rather than there is in greater inflation because of no ability to pass commodity price increases on."

TIMOTHY GHRISKEY, MONEY MANAGER WITH GHRISKEY CAPITAL PARTNERS LLC: "The month-over-month PPI was well above expectations, though excluding the volatile food and energy it was negative, showing deflation at the producer level. The year-over-year PPI is calculated at 3.5 percent, showing a moderate level of inflation, though again excluding food and energy it is showing only a measly 0.1 percent. "The data shows a significant jump in energy costs which have been caused by short-term factors like Iraq and Venezuela. But at the core level, excluding food and energy, producer price increases remain virtually no-existent. "No price increases means no inflation and clearly this is a no-inflation report when excluding food and energy. The stock market appreciates a low interest rate environment, as does the bond market, and this report leaves room for the Fed to lower interest rates again if they so choose."

PAUL CHERNEY, CHIEF REAL-TIME MARKET ANALYST AT S&P MARKETSCOPE: "I don't think (the numbers) will have material impact on the markets. When you look at the ex-food and energy, which was down 0.5 percent, there's plenty of people willing to discount the rise in the headline number due to the surge in energy prices related to the Iraq situatation. "When you look at ex-food and energy, it tells you inflation is not a problem, and that it doesn't appear that manufacturers are able to expand margins and pass costs on to consumers. So it's somewhat of an indication that the economy remains weak. But what's driving the markets now is hopes for a delay or an animation of military action in Iraq. Thats' what spurred the markets yesterday."