With Congress rejecting the $700 billion bailout package, the Dow falling 700 points and the U.S. economy on the edge of a cliff, no one is paying much attention to Iraq. Money talks, and incomprehensible and endless wars walk. From a purely financial perspective, that dismissive attitude makes no sense. The Iraq war has already cost almost $700 billion, and as Joseph Stiglitz and Linda J. Bilmes have argued, its total cost, factoring in huge back-end costs like disability payments, could end up exceeding $3 trillion. As Tom Engelhardt and Chalmers Johnson point out on TomDispatch, the money we've poured and are continuing to pour down the bottomless pit of Iraq, to the tune of $10 billion a month, could have bailed us out many times over.

But of course, the Iraq war is about a lot more than money. It's about the 146,000 U.S. troops still stationed there, and their families. It's about the stability of the Middle East, and our vital national interest in ensuring that it does not explode. It's about the overall direction of our foreign policy. It's about how America is perceived throughout the world. And it's about the fate of Iraq itself, a nation that our invasion devastated and that we owe our best efforts to rebuild.

Along with fixing our economy, then, what we should do about Iraq is the most important issue facing the country. And the choices offered by the two presidential candidates could not be more different. John McCain will continue the same policies as George W. Bush. He insists that Iraq remains "the central front in the war on terror," claims that the surge was a decisive turning point and that we are now winning the war, and warns that if America elects Barack Obama, we will lose, with catastrophic consequences. Obama argues that the war was a mistake to begin with, that it led us to "take our eye off the ball" and allow Osama bin Laden to escape and al-Qaida to regroup, and that it has strengthened Iran. He says that if elected he will withdraw American troops in stages over a 16-month period.

The first presidential debate highlighted these clear differences between Obama and McCain. But, unfortunately, Obama did not really challenge McCain's central claim that we are "winning" in Iraq. There are good political reasons why he didn't: The fact that he opposed a war that McCain ardently supported, and that most Americans have long turned against, allowed him to win the debate without venturing onto that dangerous terrain. But as a result, McCain's exaggerated claims about the surge, and his larger claim that we are winning in Iraq, have gone unrefuted. And what is actually happening in Iraq bears no resemblance to McCain's triumphant vision.

George W. Bush has defined "victory" in Iraq as a unified, democratic and stable country. McCain echoed this definition in the debate, saying that Iraq will be "a stable ally in the region and a fledgling democracy." Yet McCain never explained just how Iraq is going to become unified, democratic or stable, let alone a U.S. ally -- and Obama did not demand that he do so. McCain was lucky he didn't, because there is no answer.

McCain's entire position on Iraq boils down to two words: the surge. According to McCain, Gen. Petraeus' counterinsurgency tactic worked to perfection, and after years of failed approaches, victory is now within our grasp. McCain endlessly attacks Obama for not supporting the surge, painting his rival as a craven defeatist who, as McCain's top foreign policy advisor put it, "would rather lose a war that we are winning than lose an election by alienating his base."

The media has largely bought into this rosy view of the surge. Violence has fallen sharply in Iraq and U.S. casualties are down, and the media and the U.S. public have tacitly accepted both that the surge was largely responsible for these laudable outcomes and, to a lesser degree, that the underlying situation in Iraq has fundamentally improved. Unfortunately, neither claim is true.

First, the surge was not primarily responsible for the drop in sectarian violence in Iraq. It played a role, but was far less important than the simple, grim fact that the Shiite militias in Baghdad had already succeeded in ethnically cleansing the city. This was established by a team of UCLA geographers who analyzed night-light signatures in the city. They found that night lights in Sunni neighborhoods declined dramatically just before the February 2007 surge and never came back. "Essentially, our interpretation is that violence has declined in Baghdad because of intercommunal violence that reached a climax as the surge was beginning," John Agnew, a UCLA professor of geography and the study's lead author, told Science Daily. "By the launch of the surge, many of the targets of conflict had either been killed or fled the country, and they turned off the lights when they left ... The surge really seems to have been a case of closing the stable door after the horse has bolted."

The UCLA scientists' findings are supported by Shiite expert Juan Cole, who argues that the surge actually helped the Shiite militias to ethnically cleanse Baghdad by disarming Sunnis. "Rates of violence declined once the ethnic cleansing was far advanced, just because there were fewer mixed neighborhoods," Cole argues.

Joining Cole and the UCLA team is one of the best field reporters in Iraq, Nir Rosen, author of an important piece, "The Myth of the Surge," which appeared in Rolling Stone. Rosen points out that another key factor behind the cessation of violence is that U.S. troops began bribing their former deadly enemies, Sunni insurgents, to cooperate. (The Sunnis had turned against al-Qaida because of its brutal tactics -- a key factor in the decline of terrorist attacks in Iraq that the surge had nothing to do with.) But these Sunnis, called "the Awakening" or "Sons of Iraq," will be off the U.S. payroll on October 1, and Rosen paints a grim picture of what is likely to happen next. "There is little doubt what will happen when the massive influx of American money stops: Unless the new Iraqi state continues to operate as a vast bribing machine, the insurgent Sunnis who have joined the new militias will likely revert to fighting the ruling Shiites, who still refuse to share power."

The final reason for the cessation of violence was the stand-down by Muqtada al-Sadr's Mahdi Army, which is lying low. That stand-down, which can be reversed at any time, was brokered by -- Iran. But Iran is playing all sides: It supports both Maliki and Sadr. The U.S. simply cannot compete in this kind of deep game, at which Iran has excelled for centuries, without diplomatic engagement. But for McCain, that is anathema.

Insofar as the surge helped to contribute to lowered levels of violence in Iraq, it is to be commended. And there is no doubt that Gen. Petraeus' adoption of classic counterinsurgency doctrine, which mandates moving troops out of secure bases and closer to the people, was a significant improvement over previous tactics. But as the above should make clear, the surge was not the main reason for the reduction of violence -- which remains at terrifyingly high levels. In any case, the mere reduction of sectarian violence does not prove that the U.S. is "winning." Even the Bush administration has acknowledged that the critical issue in Iraq is political reconciliation. And the sad reality is that there has been no political reconciliation in Iraq, that there are no indications it is on the horizon and that there is no reason to believe that the continued presence of U.S. troops will help bring it about.

As analyst Peter Galbraith points out in an excellent piece in the New York Review of Books, the salient fact about Iraq is that Prime Minister Nouri al-Maliki's government is allied with Iran, wants to create a Shiite Islamic state and will never integrate the Sunni Awakening forces into the Iraqi Army, because it correctly sees them as threatening the current regime's existence. Its rapprochement with the Kurds, the only group that supports the U.S., is fragile and could collapse at any time, with the fate of the disputed, oil-rich city of Kirkuk likely to be the trigger.

Galbraith sums up the situation thus: "George W. Bush has put the United States on the side of undemocratic Iraqis who are Iran's allies. John McCain would continue the same approach. It is hard to understand how this can be called a success -- or a path to victory."

Most critically, the Maliki regime wants U.S. forces to leave Iraq -- on the same 16-month timetable as the one Obama has proposed. The Iraqi people also want the U.S. out. The U.S. simply lacks the power to oppose this demand, and McCain's bluster about staying in Iraq until "victory" is absurd in the face of it.

McCain's talk of "victory" is not just logically false, it is morally obscene. Our unprovoked invasion destroyed Iraq. Up to a million Iraqis may have died. The infrastructure is dreadful, far worse than in Saddam's time. Most of Iraq's doctors have fled or been killed. Vast numbers of Iraqis have been forced into exile, and few have dared to return. The sectarian war our invasion let loose has ripped the country apart. Iraq remains one of the most dangerous and violence-torn countries in the world. (On Sunday, five bomb attacks in Baghdad killed at least 27 people.)

What do we do confronted with this situation? What do we owe the Iraqi people? What do we owe ourselves? What is in our national interest? And with our economy melting down, how long can we spend $10 billion a month waiting to decide?

There are no easy answers to these questions. But we cannot hide them behind cheap talk of "victory" and incoherent fear-mongering. We will have to hope that in January we will get a new administration, one not deluded by empty slogans and neoconservative ideology. And they will then have to begin the difficult process of figuring out how to responsibly extricate ourselves and the Iraqi people from the nightmare we created.