Assessing Several Possibilities Ahead Jude Wanniski July 12, 2005

ROVE: The President`s alter ego, political confidante and deputy chief of staff Karl Rove may have to resign in the firestorm that has now engulfed the White House over the Valerie Plame affair. The defense his lawyer has thrown out is that Rove`s motive in telling Time's Matt Cooper about Joseph Wilson's CIA "wife," without naming her, was to make it clear Wilson wasn`t sent to Niger on the "yellowcake" matter by CIA Director George Tenet. That`s all a scrambled mess at the moment, but Rove`s deeper problem is with the federal grand jury, if in his three appearances before it he didn't answer questions truthfully. It seems most unlikely he could ever be indicted on the law that prohibits revealing the name of covert CIA agents. It seems clear she was not "covert."

But if the grand jury concludes he committed perjury in the process and he is indicted, he would have to resign. What still worries me are those "eight blank pages" in the opinion of the federal judge who normally would support press confidentiality, but who supported the jail terms for Cooper and NYTimes reporter Judith Miller after reading what was on those eight pages. The big question is where the story will go from here and will it show that President Bush knew he was misleading the nation in his State of the Union Address in order to promote the war in Iraq. If it stops at Rove, it will be a great embarrassment to the administration, but no big deal for the financial markets. The President can't run for a third term anyway, and that`s Rove's forte. The President's domestic reform agenda is in the hands of congressional Republicans anyway. We need only be concerned if it turns out the President knowingly misled the nation. All the buzz about impeachment overlooks the fact that Mr. Bush would be replaced by Vice President Cheney, who has more than anyone else near the President promoted the war with Iraq on intelligence that has been suspect at best.

IRAQ: The war is of course at the heart of the Plame Affair -- and because the insurgency appears to be gaining momentum, a combination of the public losing patience with the loss of life and treasure and losing confidence in the President`s team for the way it went to war will hasten the planning to pull out. Once the debate here focuses on whether Iraq`s prospects are better or worse with the presence of U.S. troops, it will be harder for the administration to argue for a continued presence beyond some point in 2006. The off-year congressional elections will provide that grim political reality, along with continued reports of manpower shortages and recruitment difficulties. No matter what political difficulties are left, the GOP can always fall back on the argument that the war rid the country of a despotic regime. This scenario may not be positive for the neo-cons in the party, but I think it would be welcomed by everyone else and would show up in the financial markets as a definite plus.

ECONOMY: We had for months been seeing more positive than negative forces on the horizon for economic expansion -- especially understanding the reason for low long-term interest rates (the "conundrum") and dismissing the notion that the housing boom represents a "bubble." The 400-point rally in the DJIA since it flirted with 10,000 has been a gratifying reflection of those positives. It could have been greater but for the Supreme Court decision on eminent domain, a definite downer, and the refusal of outgoing SEC Chairman Donaldson to lighten regulation of Sarbanes/Oxley. On the other hand, we were thrilled with President Bush`s resolute opposition to the Green Eurocrats at the G-8 meeting on global warming. And now we have Rep. Oxley confessing SOX was passed in a hurry and if he had to do it over again he would have lightened its impact on small- and medium-sized business. Within the next several weeks, we should expect statements out of incoming chairman Christopher Cox about another review of SOX that will keep the DJIA on an upward track, with the economy growing at a respectable, non-inflationary rate.

IRAN AND NORTH KOREA: The G-8 Summit at Gleneagles, Scotland, addressed the "nuke issue" in Iran and produced the following statement: "We remain united in our determination to see the proliferation implications of Iran's advanced nuclear program resolved… It is essential that Iran would provide the international community with objective guarantees that its nuclear program is exclusively for peaceful purposes in order to build international confidence." This suggests the continued influence of John Bolton, who is not going to get confirmed as U.N. Ambassador but who will at the least remain at the State Department at the non-proliferation post he`s held since 2001. As far as I can tell, there are no "objective guarantees" Iran can give that it has not already given to the International Atomic Energy Agency (IAEA). Iran simply is not going to give up its right under the Non-Proliferation Treaty to enrich uranium to a small degree to provide fuel for nuclear power reactors. I hope the administration`s modest rhetorical movements in the direction of resolving the nuclear issues with both Iran and North Korea will be bolstered by its difficulties over the Plame affair.

ISRAEL AND PALESTINE: My e-mail box is bombarded by skeptics who tell me the Sharon initiative in the Gaza Strip will break down and there will be no "roadmap to peace." My native optimism that the steps Ariel Sharon has said will be taken will be taken next month, but it was jolted two weeks ago when Washington Times editorial-page editor Tony Blankley predicted on NBC`s "McLaughlin Group" that the Gaza initiative will fail. Blankley, who has been plugged into the neo-cons for as long as I`ve known him, almost certainly got his "tip" from one of them. The neo-cons intellectual leader, Richard Perle, has been a fervent opponent of a Palestinian state and has worked hand-in-glove with Sharon and the Likud Party in the past. The flare-up of violence in recent days has further shaken my optimism. A breakdown now would make life in Iraq only that more difficult.