THE crux of the current economic climate lies in an astonishing display of ignorance, according to terrorism financing expert Loretta Napoleoni.

Almost two decades of intense research into the military and financial money trails of leading world economies informed Ms Napoleoni’s formation of a complex theory linking the global financial environment to the activities of powerful terrorist movements.

According to Ms Napoleoni, the magnitude of the current political and economic issues facing the modern world could have been mitigated, if only those in power had thought to trace the trails of money flowing in and out of their respective countries from their point of origin to their end user.

Ms Napoleoni has done this of her own accord since 1993, the product of which can be found in her publications.

Her fourth book, Terrorism and the Economy, was released this year.

Had it not been for the dire financial woes wounding America and Europe, including the UK, Ms Napoleoni said it was unlikely the situation would have been given any consideration at all.

“It was only after the new [coalition] government was elected [in the UK] that things changed, can you believe it?” she said.

“The Europeans only started to go after tax evasion this year because all of a sudden the recession shrunk government revenues, and now they’re searching for money.”

Ms Napoleoni said the European government did not consider terrorist financing or tax evasion to be “such a big deal.”

“That’s the problem,” she said.

“They don’t care.

“The people in Lichtenstein who were selling CDs with the names of tax evaders on them from Germany two years ago offered the CD with the British names on them to Great Britain,” Ms Napoleoni said.

“And do you know what the British said? They said, ‘Thank you very much, we’re not interested.”

Terrorism and the Economy details the accumulation and movement of a terrorism economy Ms Napoleoni calls the ‘shadow economy’ through the world’s finances from World War II to the present day.

Before September 11 Ms Napoleoni estimated the shadow economy to account for $1.5 trillion- over five percent of the world’s economy- invested in the United States, in US dollars.

She attributed $500 billion each of the $1.5 trillion sum to capital flights, gross criminal profit and terrorism respectively.

The term ‘capital funds’ describes money that moves through the global economy undetected, such as tax evasion.

It ought to be noted, Ms Napoleoni said, that the United States is the only country in the world capable of borrowing money from the global reserve currency; the global reserve currency is the American dollar.

This means, she said, that while Australia is only able to borrow money already printed into Australian money- a finite amount printed within the country- the United States is not restricted in this way.

As such, Ms Napoleoni’s theory suggests the economic growth of the United States since World War II to be intrinsically- and in all likelihood unintentionally- linked to the growth of the ‘shadow economy’, which is responsible for injecting the $1.5 trillion into the American economy over the same time period.

To be entirely frank, this equates the success of America as a world superpower until the turn of the 21^st century to what now seems to be its undoing: terrorism.

The decision to wage war upon terror- the lifeblood of a blissfully ignorant economy- subsequently sapped the American economy of its riches.

 A handful of economists, including Ms Napoleoni, published information detailing the illegal flight of approximately one third of the US economy from the region shortly after the introduction of the American Patriot Act.

Ms Napoleoni said the then US government largely ignored this.

The Patriot Act, Ms Napoleoni said, empowered the late Bush government with the ability to track the transfer of monies in US dollars worldwide, and restricted the flow of said monies to and from the United States.

As the then government did not collaborate with either Europe or its international allies prior to legalizing the Patriot Act, Ms Napoleoni said it inflamed the situation, much to the detriment of the patriotic nation.

International banks encouraged clients to conduct transactions in Euros to avoid the hefty restrictions imposed by the United States; Ms Napoleoni said they did not enjoy their interactions with their clients being screened by the United States.

As such, the shadow economy began to invest in Euros, laundering the money in Europe and Islamic nations rather than the United States.

As the European nations deigned to enforce policies similar to the Patriot Act’s financial restrictions, the flow of cash from US dollars to Euros went largely unnoticed; the trading price of the newly introduced Euro, however, boomed.

Ms Napoleoni’s discoveries also expose the international implications of Dick Cheney’s decision to embark on a war in Iraq: the current global financial crisis.

Misdirected attempts to draw funds for two wars America- and later, the rest of the world- could ill afford from a pool of national debt influenced a decision to dramatically drop interest rates in an excessively short period of time, Ms Napoleoni said.

Within the space of two years, the interest rate in America plummeted from six percent to less than two.

She added that the crisis is far from over.

“Don’t believe it,” she said of advice to the contrary.

According to Ms Napoleoni, Cheney’s decision is likely to have been motivated by America’s need to create an ally in the Middle East to re-establish its hegemonic position in the region; or, as Ms Napoleoni said, “redrawing of the map of the world.”

What drew Ms Napoleoni to the study of terrorism financing, from her origins in economics?

A terrorist.

Ms. Napoleoni was personally invited to hear and share the story of the Red Brigades, a Marxist art organization, in 1993.

A childhood friend became a leader of BR after developing the view that Italy had become a blocked democracy.

She had recommended Ms Napoleoni as the appropriate person to share the story of the BR with after they declared the end of the armed strongholds.

The fall of the Berlin Wall and the end of the Cold War were influential in the BR’s decision.

“I was an economist, I was working abroad and I didn’t have any connection with the Italian politics,” she said.

“They thought I would do a good job of telling their story without any [political] influence.”

For Ms Napoleoni, the decision to accept her friend’s invitation was driven by two questions of her own.

“What turned my best friend into a terrorist?” she wondered.

“And why she never recruited me.”

Ms. Napoleoni later discovered this was because her opinionated and single-minded nature meant she did not meet the psychological profile of a terrorist.

It was her realization that high-ranking terrorists shared many traits with the high-power bankers she was employed to liaise with in London as an economist that sparked Ms Napoleoni’s interest in the financial aspect of terrorism.

“This is something much, much bigger than ideology,” she said.

“What these guys do day in and day out is search for money, because terrorism is a very expensive business.”

She recalled enthusiasm within the BR’s ranks at the opportunity to tell their story- surprising, given the organisation’s reputation for secrecy.

“People were very eager to tell me their story because they were proud of how clever they were,” Ms Napoleoni said.

A recording of the Big Ideas: Terrorism and the Economy session held at the Melbourne Writer’s Festival is available on Slow TV.