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Dan Dorfman

Dan Dorfman

Posted: June 21, 2010 01:55 PM

Johnny, Get Your Gun

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"Give us this day our daily bread" is one of the more memorable lines from the Lord's Prayer.

Considering burgeoning global crises, such as the riots in Greece and Thailand, Iran's threat to challenge Israel's blockade of Gaza and swelling financial turmoil in one country after another, perhaps another appropriate line these days in looking ahead at world affairs might well be give us this day our daily dread.

So what's the biggest thing to dread?

A new war on top of the ones in Iraq and Afghanistan, I'm told by the Foundation for the Study of Cycles, headquartered in Albuquerque, New Mexico.

"The next war is already in the wings," says Richard Mogey, the foundation's research director.

How does he figure that? Dating back to the Napolean era (1805-1810), economic crises have set the stage for about 85% of all global wars. Mogey tells me. "And right now, there are economic crises galore," he observes.

To illustrate his point that wars follow economic stress, he cited three noteworthy examples in the United States, namely:

--1836-1838, a two-year period that produced the second worst depression (second only to the Great Depression), an era that saw more than 600 bank failures, a 32.8% decline in business activity or GDP, a lack of confidence in paper currency and a collapse of the South's cotton market.

This period was followed by war with Mexico (1845-1847) and the Civil War (1861).

--1913-1914. a two-year recession in which the economy changed from agrarian (land ownership) to industrial and which was characterized by a 25.9% plunge in GDP, a loss of productivity, a four-month closure of the New York Stock Exchange and a silver crisis. World War I (1914-1918) followed.

--1929-1933, a four-year period (known as the Great Depression), marked by a banking collapse, extensive new tariffs, 25% unemployment, a 26% drop in GDP and a stock market crash. World War II (1939-1945) followed.

One striking similarity is that all three of these periods of economic crisis ran concurrent with extremely low interest rates (as is the case now).

As for the stock market impact, wars are generally terrible at the outset, but then the market takes a positive turn for the better as companies build products for war and corporate profits balloon.

No one, of course, knows when a war might kick off, but pointing to an economic system currently saddled with huge debt, excessive spending, out-of-control deficits and high unemployment, Mogey notes the ingredients are certainly in place to trigger another one.

Where? He figures you have to look at the usual suspects, notably west Asia (the home of Iran) and east Asia (which houses North Korea).

Mogey reckons since the U.S. is playing cop everywhere, we're bound to be involved in any conflict.

Larry Edelson, a member of the advisory board of the Foundation for the Study of Cycles and an analyst at Weiss Research in Jupiter, Fla., also worries about the threat of a new war. He points, in particular, to the danger of economic stress stemming from financial panics in the banking system and credit markets.

Edelson maintains it behooves the world's leaders to come to grips with the chaos on the world's economic and financial scene and to stop playing the blame game.

"Bad things like wars can happen when the world is unstable financially, and that's where we are now," he says. "I'm not trying to scare anybody, but investors should be alerted to the very real risks and vulnerabilities."

Edelson is especially critical of certain congressmen here who are trying to put up trade barriers with China. "That's the worst thing we can do," he says, "because that's protectionism, and protectionism has a habit of instigating wars."

What I'm essentially being told is that another war is looming, that maybe we'll hear a resumption of the song, "Johnny, Get Your Gun." Let's hope not. With GIs continuing to get killed and wounded in wars in Iraq and Afghanistan, hopefully, instead, the tune will be "When Johnny Comes Marching Home Again."

What do you think? E-mail me at Dandordan@aol.com