While the Democrats in the Congress were calling General Petraeus a liar for arguing that things were getting better in Iraq, one of our favorite publications — Grant’s Interest Rate Observer — was circulating around town with a cover story called “Strongest currency, best bourse.” It turns out that is in neither Switzerland nor Britain nor Japan nor America but Iraq, which, Grant’s reports, “has turned into a capital magnet.” Says it: “The only thing stronger than the Iraqi currency is the Baghdad stock market.” And it adds this classic Grantian formulation: “Money is sometimes misinformed, but it is never insincere. Something is afoot in Iraq.

Grant’s says it hasn’t gotten to the bottom of what is afoot. “One could mention,” it quotes its correspondant Ian McCulley as enumerating, “the country’s healthy petrodollar harvest, the central bank’s decision to use the exchange rate as a policy tool against inflation, the central bank’s 20% overnight interest rate, the declining Iraqi inflation rate (to 30%, year over year, from last year’s triple digits) or the simple fact that Iraq has one of the few floating currencies in the Gulf.” But it notes that whatever the reason, the dinar has climbed to 1,235 to the dollar from 1,480 at the start of 2004. It says that on the Baghdad bourse, local investors anticipated the opening of the market to foreign capital in August by bidding the market up 58% in July.

Well, neither Grant’s nor we would want to make too much of the Iraqi economic indicators. The whole stock market, Grant’s notes, is capitalized at but $2 billion. It’s a war situation and there can be a lot of distortions. But neither would we want to make too little of it. The key point is which way the arrow is pointing. As well as the potential, which is enormous. One of our favorite moments in the whole Iraq debate is when a broadcaster asked Ahmad Chalabi whether he thought Iraq needed another Karzai, a reference to the Afghanistan strongman. Replied Mr. Chalabi: “No, Iraq needs another Erhard,” a reference to the Free German economist Ludwig Erhard, who, in 1948, moved to sound currency and set the stage for the West German economic miracle. Grants noted that the Guardian reported the other day, “There are some tentative signs of political reconciliation in Iraq.” Concluded Grant’s: “Maybe the smart money saw it coming.”