The End of The Post-War Western Alliance

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The post-war
Western alliance, as incarnated by the United Nations, is finished.
Its future is as shaky as Ted Turner’s investment portfolio. It
needs life support. I can honestly say that I never thought I
would see this.

Last week,
there was a joint declaration by Germany, Russia, and France that
they will not permit the Security Council to support the USA’s
war in Iraq. France and Russia possess a veto, either of which
can stop the Security Council from taking action.

The mainstream
press has not commented on the historically unprecedented implications
of this joint statement. Up until the Cold War, the Franco-Russian
alliance had operated to keep Germany isolated. Both sides preferred
a two-front war for Germany. Now, all three are acting in concert
to challenge the legitimacy of the USA’s foreign policy in the
Middle East. The Great Game of the Middle East has entered a new
phase.

Secretary
of Defense Donald Rumsfeld a few weeks ago dismissed the Franco-Germanic
alliance as irrelevant. Germany and France are part of the "old
Europe," he said. The "new Europe" is central Europe,
he said. Who is he kidding? Central Europe is a collection of
nearly bankrupt ex-Communist nations with little money, no armies,
and a crumbling infrastructure. It is rice-bowl Europe. On their
borders is Russia, which is still armed to the teeth. The fact
that these ex-Soviet satellite countries are willing to support
us verbally means about as much as the support of Spain and Italy.

They are
all part of old Europe. Old Europe is white, ex-Christian, Enlightenment
rationalist, and shrinking fast. Italy and Spain are the models
of its future. Neither country has a reproduction rate above 1.5
children per family, when 2.1 is necessary to maintain a stable
population. Even these culturally suicidal birth rates are made
higher statistically in both countries by the presence of millions
of Arab immigrants, who have large families. Both countries will
be Islamic in a century if present birth rates continue.

If the European
Union opens its collective border to Turkey next year, when the
vote is scheduled, Germany will be Turkish within two centuries.
There has been a Turkish-German alliance for a century. The Germans
trained the Turkish military, beginning before World War I. There
are something in the range of 2.5 million Turks living in Germany
today.

Old Europe
is dying Europe. All of it: east, west, and central. The population
statistics in Pat Buchanan’s book, The
Death of the West
, are irrefutable. The New Europe is
Islamic, and we are about to go to war with its cousin.

THE
UNITED NATIONS

The United
Nations never had any independent power. To the extent that it
had the ability to take action, it could do so only under the
auspices of the United States, which then covered its foreign
policy with the fig leaf of international support (e.g., the Korean
War). Now, that fig leaf is gone. The UN no longer serves the
interest of American foreign policy. So, it’s history.

As an anti-UN
conservative, I am shedding no tears. I always appreciated the
John Birch Society’s slogan, "Get the US out of the UN, and
the UN out of the US." But understand where I am coming from,
as they say. I am an anti-Rockefeller, anti-Establishment conservative.
When the Rockefeller family donated land to the UN on which the
UN’s facilities were then constructed, I saw the making of an
alliance against American national sovereignty. The Rockefellers
have been internationalists from day one.

I am not
just an anti-internationalist. I am a non-interventionist. I don’t
see the United States as the world’s policeman, any more than
I see it as the world’s welfare agency. I have been ideologically
allied to the Taft wing — or feather — of the Republican Party.
We Taftites have always hated the UN because we see it as a cover
for the USA’s getting involved in places where America should
never have been involved. Besides, the Soviet Union had too much
say in the Security Council to suit us. It had a veto. Russia
still does.

Today, the
anti-Taft Republicans — the Eastern Establishment, Rockefeller,
oil-industry Republicans — are finding that we anti-UN Republicans
were right: "You can’t trust the UN." It took them a
long time to figure this out. At long last, the UN is blocking
the plans of the Eastern Establishment, Rockefeller, oil-allied
Republicans. So, we Taftites stand on the sidelines and yell,
"We told you so." Nobody listens, of course, but we
deserve a little fun every fifty years or so.

To make things
really ironic, the person representing the Establishment, George
W. Bush, is a member of Yale’s secret society, Skull
& Bones
. So is his father. Why is this so ironic? Because
Robert A. Taft was also a Bonesman. So was his father, President
and Supreme Court Chief Justice William Howard Taft, whose father,
Alphonso Taft, was the co-founder of Bones in 1833.

American
political history is confusing until you view it as a power-sharing
oligopoly among about 300 families, whose screening agents, the
admissions committees of Yale and Harvard, battle for control
over the future of the country against the admissions committees
of Columbia, Princeton, and Chicago, who are always trying to
muscle in on New England’s turf. These universities recruit the
next generation of hirelings. The concept of the American meritocracy
is a convenient fiction and grand illusion. It keeps corporate
Vice Presidents satisfied, and the neoconservatives, too.

[Note: The
best book on this hierarchy is Philip H. Burch's 3-volume study,
Elites
in American History
, which traces family connections from
the Revolutionary war to the Carter Administration. The only book
I have read that gives plausible evidence that the Old Boy Network
is facing real competition from the meritocracy is David Brookes'
Bobos
in Paradise
, but he makes clear how the game was played
until about 1960, when Harvard raised the SAT minimum score to
get in.]

THE
END OF INTERNATIONALISM

We are now
seeing the disintegration of internationalism. The very ideal
is dying. The colonies are asserting themselves. Some of them
are buying weapons that could challenge the Western oligarchy.
That’s what the howl over WMD is really all about: the fuzzy-wuzzies
are about to get Gatling guns. Some of them already have: the
ones we are polite to. Diplomacy is what goes on between nations
of equal firepower or who have alliances with nations of equal
firepower. The oligopoly with the weapons seeks to maintain a
closed club. Such is the history of weaponry.

The post-war
rise of Asia was foreseen by the internationalists in 1945, but
they bet the farm on Japan, which is also an oligopoly. Five families
controlled the country, 1868—1945. The best book on this
is Carroll Quigley’s Tragedy
and Hope
(1966). (Quigley taught Bill Clinton history
at Georgetown, a fact that Clinton mentioned in his 1992 acceptance
speech at the Democratic Convention.) Today, there are a few more
families, but the system is essentially unchanged.

The internationalists’
bet is turning sour. Japan’s banking system is close to collapse.
China, Japan’s ancient enemy, has replaced Japan as the central
nation in this century’s Greater East Asia Co-Prosperity Sphere.

To put restrictions
on Asia, the Western alliance must control the oil spigots. This
goal is what is now driving the Bush Administration. When Ghadaffi
nationalized British
Petroleum’s oil in1971,
he fired a shot across the bow of
the West, whose oil companies controlled the distribution of the
Middle East’s oil. The West did nothing. OPEC saw its opportunity.
The OPEC price hikes of 1973 and 1979 made it clear that the Arabs
and Iranians would henceforth take the lion’s share of the oil
income.

Their big
problem was where to invest this income. They let Western banks
do this for them. Then they bought big cars, set up college scholarships
for selected students from the masses, and generally became dependent
on the West’s production system. Now they are trapped by their
own social welfare states. They are dependent on American-produced
spare parts for their military. They can do little to resist the
United States, which is coming back into the region to extract
those lost oil profits.

What Quigley
called the Anglo-American alliance is about to smash its fist
into what I
have called the mother of all tar babies.

France and
Germany see what’s coming — an Islamic reaction — and have opted
out. Russia has joined with them. Regionalism lies ahead: Asia,
Europe, and the Western hemisphere. This is David Rockefeller’s
vision, the Trilateral
Commission
, but without the hoped-for cooperation. The regional
blocs that he forecasted a generation ago as inevitable are now
going their own way, just as he feared they might. The original
regional alliance — the United States and Great Britain — still
has a special relationship, but the large continental European
powers have officially broken ranks.

The glue
that holds the system together today is fractional reserve banking.
The Bank for International Settlements in Basle cleared central
bank accounts all through World War II. For central bankers, world
war was a side issue, an inconvenience. But without a gold standard,
the international system has moved to currency blocs. The United
States dollar is the central factor. Central banks have 70% of
their foreign currency reserves invested in T-bills and T-notes.
But Greenspan’s FED and the sagging US economy have combined to
push interest rates to about 1%. It’s getting almost as cheap
to hold gold.

The glue
is the dollar. If the world’s central bankers could decide on
an alternative currency, they would start selling dollars and
investing in that currency’s T-bills. I think the French-German
alliance is a political move against the pound and the dollar.
The split is not complete yet. No central banker wants to be the
first to dump dollars and move to an untried currency, such as
the euro. But the longer the euro survives, the more likely that
move will be.

If China
ever makes the Yuan convertible into gold, the dollar will be
abandoned. China now constitutes about 5% of all world trade.
The growth curve is heading up fast. See
chart #7, "World Shifts Production to China’s Export Platforms,"
prepared by Jeff Rubin of the Canadian Imperial Bank of Commerce.

When China’s
currency finally reflects this, and its central bank abandons
its fixed ratio with the dollar (price controls always break down),
the run against the dollar will begin.

SNOW’S
JOB

Jim
Rogers, the multimillionaire "investment biker," has
sounded the warning.

In late
January, the Senate confirmed John Snow as our new U.S. Treasury
Secretary, the 73rd in the government agency’s two-hundred
plus year history. Snow, like Paul O’Neill and Robert Rubin
before him, promised to follow a strong dollar policy and take
steps to help spur on a U.S. economic recovery and long-term
growth.

Well, I
know you’ve just started your new job, Mr. Snow, but I’ve got
some sobering news for you. You and your pals can keep talking
about this alleged "strong dollar policy" until you’re
blue in the face, but it’s not going to make a lick of difference
if you don’t start managing our currency more responsibly. The
dollar is not just in decline; it’s a mess. If something isn’t
done soon, I believe the dollar could lose its status as the
world’s reserve currency and medium of exchange, something that
would lead to a huge decline in the standard of living for U.S.
citizens like nothing we’ve seen in nearly a century.

Rogers is
not some loose canon. He is a careful observer of the international
scene. Who else would tour the world on a motorcycle, staying
in touch with the markets by satellite phone? Not Mr. Snow, certainly.

Rogers warns:

A sound
currency, after all, reflects solid economic fundamentals: little
to no debt, a trade surplus, a stable balance of payments —
the difference between a nation’s receipts of foreign currency
and its expenditures of foreign currency — and growing
international reserves.

That’s
not exactly the picture you get when you look at the U.S. balance
sheet. Our national debt to foreigners is now around $6.4 trillion,
with interest payments alone last year totaling $333 billion.
We’re importing far more goods than we are exporting. International
reserves remain around $60 billion, but we’re attracting far
less direct foreign investment every year. Our current account
deficit runs at roughly $500 billion a year, or five percent
of our gross domestic product. Think of it this way: It costs
us about $1.3 billion a day in the foreign markets just to keep
the dollar afloat. Our $60 billion of reserves against our obligations
would last 3 minutes if creditors begin cashing in. We’re like
the untrustworthy brother-in-law who keeps borrowing money,
promising to pay it back, but can never seem to get out of debt.
Eventually, people cut that guy off. . . .

What’s
worse, little is being done by Washington’s
economic gurus to pull us out of our economic quagmire. Faithful
readers know I believe Alan Greenspan is the grand maestro of
this economic debacle. Our esteemed Federal Reserve chairman
is the first to "buy any assets" or lower interest
rates to pump money into the economy and give investors the
illusion that things aren’t as bad as they really are. Greenspan
is ringing the bell signaling to sell dollars. Sometimes I wonder
if our central bank is just going to print money until we run
out of trees. People say that inflation is a dead issue, but
you wouldn’t guess that shopping where most of us buy things
or checking reality over on the commodity pages.

Rogers knows
the problem: all currencies are manipulated. None is reliable.
The dollar reigns supreme in a world of fiat money. But. . .

How long
does the dollar have? A year? A decade? I’m not so sure. As
long as there’s no other currency stepping up to the plate and
EU continues to struggle with the euro, the U.S. government
will likely be able to continue to jiggle the books, essentially
floating our enormous tab on the backs of the rest of the world.
No country in history which has gotten itself into such a situation
has escaped without at least a semi-crisis eventually.

But remember:
Whenever there has been an economic crisis like this, a new
player has always emerged on the economic landscape. A century
ago, few people would have believed that the dollar was going
to emerge out of the 19th century as the dominant
world currency. There’s always a phoenix that rises from the
ashes. Who will it be for the 21st century? My guess
is the Chinese yuan may eventually have its day in the sun —
certainly if the euro fails. The nation has a recipe for a sound
currency — a huge population, an enormous balance of payments
surplus, and a sizeable GDP to match. China is now the world’s
largest importer and the world’s second largest creditor (Japan
is first). For the moment, its currency is not convertible,
which must change now that it has been admitted to the World
Trade Organization. There are still a lot of cultural barriers
to get over — rampant xenophobia and fear of capitalist interests
— but nothing assuages fears like steady flows of money into
your coffers.

Thus, he
concludes, "Despite proclamations from Washington about a
strong dollar policy, I see no reason to believe that the dollar
won’t continue to decline, that we won’t continue to borrow like
beggars and put Band-Aids on gaping wounds in our fiscal, monetary
and tax policies. That is, until the day when our creditors say
enough is enough. And that day may not be far off."

CONCLUSION

We are witnessing
the end of the post-war Western alliance. Internationalism is
today a cooked goose. The UN is its symbol, and the UN is in disarray.
The General Assembly is a collection of about 190 nations. The
Security Council is the last emblem of the West’s hegemony over
the world. Now the Security Council is paralyzed.

The day the
invasion of Iraq begins is the day of judgment for the UN and
all that it represents. I say good riddance, but I wonder about
the future. Regionalism is better than internationalism, and nationalism
is better than regionalism. Localism is best of all. "Support
your local sheriff." But, in the meantime, where should we
put our money?

My answer:
the closer to home, the better.

March
8, 2003

Gary
North is the author of Mises
on Money
. Visit http://www.freebooks.com.
For a free subscription to Gary North’s twice-weekly economics newsletter,
click
here
.

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