Barack Obama’s foreign policy and military advisors weren’t the only ones wrong about the prospects of the surge succeeding. So too was his economic advisor, economist Austan Goolsbee of the University of Chicago. On November 11, 2007, he published a column in the New York Times citing research by an MIT professor to conclude “that the bond market – which, historically, has often been an early indicator of the demise of a political system – was pessimistic about the Iraqi government’s chances for survival.” The evidence for this was the fact that Iraq’s dollar-denominated bonds were trading at a huge discount from their face value.
Goolsbee went on to praise “the prescience of financial markets.” Only in this case they haven’t turned out to be so prescient after all. The surge, as we know, has succeeded spectacularly. As a result the risk premium on Iraq’s bonds has fallen from nearly 7.0% in August 2007 to around 4.8% last month. Citigroup even released a research note in April which, according to Reuters, concluded that “Iraq is proving an oasis for investors battered by global financial turmoil” and that the “cost of insuring Iraq’s bonds against default has fallen so sharply that they now costs less to insure than Venezuelan debt.”
Not surprisingly there has not been a word about the improvement in outlook for Iraq’s bonds from Professor Goolsbee or the New York Times. Just one more reason why the analysis emanating from the Obama campaign and the MSM as regards to Iraq deserves to be devalued by the public. (Full disclosure: I’m a foreign policy adviser to Senator McCain, whose prescience has been fully vindicated by events in Iraq.)