Monopolists in Caves

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Citizens
of the civilised world are more threatened now than at any time
since the Second World War — more even than in the Cold War. In
the fight against communism, reason and self-preservation constrained
even the most fanatical hater of liberal democracy. Now we confront
those who love death and operate beyond the bounds of reason.

~
Gerard Baker, Freedom
From Fear is a Worthy Goal
,
Financial Times, March 17, 2004

Unchanged
minds and shattered lives

One
thing that the Madrid bombs did not do is to change minds. Supporters
of the War on Terror appear to have become, if anything, even more
determined to have their war. Opponents are not surprised. Political
debate is a dialogue of the deaf.

This
is a pity, because international events are moving ahead at flank
speed well ahead of the dialogue tossing fitfully in their wake.
What dialogue there is is conducted in a format so formal and so
stilted as to be not just useless, but downright dangerous. For
instance, the economics of the War on Terror are not discussed openly
outside the context of cash flow. "The occupation of Iraq has
cost X and will cost X+Y in another year" is about as deep
as it goes. The headline barometer of that spending, the US current
account deficit, is the subject of analysis only within the confines
of formal economic theory. This places the debate comfortably outsides
the boundaries of the useful, limiting it to detached and clinical
discussion about its "sustainability" with the pro war
faction assuring us tat it is, indeed, sustainable, and the antiwar
faction saying no, it its not. Neither appears prepared to discuss
what would be necessary to make it sustainable which is a very scary
discussion indeed. The former avoid the question because it would
expose their essentially undemocratic and totalitarian intent, while
the latter do not because it is safer to avoid that discussion.

Whodunnit?

Thus
the barrage of criticism levelled at the Spanish electorate in the
Anglo-Saxon press focuses on the "message" that the defeat
of the Aznar government send to the "terrorists." The
facts do no intrude on this fairy tale; facts such as the 90% plus
of the Spanish electorate who opposed Aznar's decision to send troops
to Iraq. The idea that he would win re-election was always preposterous
given such strong public opposition, whatever polls may be quoted
purporting to prove otherwise. The question that should be on everyone's
lips is left unasked and therefore unanswered as the repetitive
chanting of "Al-Qa'ida did it" drowning out anyone attempting
to answer it.

The
facts that the explosives were placed under the cars on the Spanish
trains and that there were ten of them raise several doubts about
this version of events. Charges set in such a fashion were not in
idly discarded rucksacks. They required placement and wiring. This
takes time. That there were so many and were detonated in such a
coordinated manner speaks of technical sophistication, numbers of
participants, and the time to place them. This and the early morning
timing of the attack imply that the charges were placed while the
trains were still in depot, which raises further questions, the
most uncomfortable of which is, was there collusion? The idea that
a Moroccan catering worker is supposed to have accomplished all
this, still less that a group of them did so, is one of the longest
of long shot hypotheses. This is a quality that the Madrid bombings
share with every i ncident attributed to Al-Qa'ida since the bombings
of the US embassies in Africa as Bill Clinton was facing impeachment.
To believe the official version is to believe by necessity two mutually
incompatible ideas: that Al-Qa'ida is globally, financially and
technically sophisticated and is, on the other hand, local and independent
of central control. When objections are faised to the former description,
the latter is used to outflank the objections. When the latter is
challenged, the reverse is true, in a circular argument that goes
nowhere but neatly sidesteps disclosure and derails debate. The
idea that President Clinton's "Terrorists in the Hindu Kush"
or President Bush's "Evildoers in Caves" could mount serial
operations like this is absurd. Not even the Irish Republican Army
managed anything like this in twenty years, and as the courts in
Britain are slowly divulging, even the IRA was thoroughly penetrated
by the security s ervices, raising the most interesting question
of all.

Dirty
doormats

The
insolence of doormats like Gerard Baker at the Financial Times
or David Brooks at the New
York Times
lecturing the Spanish on democracy is risible.
To call Al-Qa'ida the most dangerous menace to confront mankind
since the Second World War is so lacking in proportion, historical
context, or even rationality as to give the impression that one
has entered another's psychotic episode. Repetition replaces reason
as the arbiter of truth. If repeated frequently enough even the
basest slander and falsehood will gain respectability.

The
War Party's loudly trumpeted concern for democracy does not evidently
extend to serious public examination of cause and effect, aims or
finance. The Bush administration's disgraceful and determined efforts
to short circuit any meaningful public enquiry into the events of
September 2001 is one manifestation of this. Its refusal to seriously
investigate the collapse of accounting and financial control in
the government is another. The military budget is out of control,
and so is the military. The very people and agencies tasked with
protecting the American nation have been rewarded for their failure
to do so by using the federal credit to finance a massive arms spending
spree and global deployment of forces, while at the same time stripping
federal medical and retirement benefits, back door regressive tax
hikes in the guise of user fees, and foreign job outsou rcing. The
only parallel that we have been able to find that adequately conveys
the gravity of the collapse in constitutional government and military
discipline is perhaps Japan in the decades before the Second World
War. Her Manchurian Army became a power unto itself in Manchuria,
where it became accustomed to financing itself outside the statutory
and customary channels in Tokyo, and over whom the government in
Tokyo lost control. The synergy that arose thanks to its control
of armed force, finance and organised crime became a model for the
systematic looting and asset stripping of territories it overran,
each "victory" creating the excuse for the next campaign.

The
incredible self-financing war machine

Similarly
in the United States today the military and security complex has
been ceded de facto the ability to dictate its budgets. The conflict
of interest that this implies is profound but simple, and understood
by gangsters everywhere. Protection is a racket, and so is the Pentagon.
This is one reason why we are doubtful about the ability of the
US to alter its course irrespective of the outcome of the presidential
election this year. There is simply too powerful and too broad a
coalition of interests to do otherwise. The Democratic Party's nomination
of John Kerry should disabuse even the most ardent of wishful thinkers.
Kerry's nomination defines the ground on which the party will fight
the election, which will be national security. The groundswell of
popular revulsion inspired by the 2000 election fraud and the War
on Terror was threatening to derail the pr ogram. With Kerry's nomination
there is no serious reason to expect the basic policies of unrestricted
war and unrestricted deficit finance to change. There will be no
move to throw the rascals out; only a choice of one of two rascals.

This
still leaves the matter of the nation's finances unresolved. We
have argued for some time that the priority of the Treasury and
the Federal Reserve would necessarily be to finance the Federal
deficit, which is to say the war. That precludes serious action
to deal with the current account deficit for the time being, which
in turn means that a meaningful rise in interest rates any time
soon to do so is unlikely. By soon we mean this year, and by meaningful
rise we mean a rise in the Fed Funds rate to more than 4%.

If
at first you can't raise interest rates…

This
implies that the Fed is going to rely on prices to do the job of
suppressing demand for them. We don't usually reprint letters but
in this instance we are making an exception. this was written by
a friend of ours, a job foreman running a major electrical subcontract
on a large construction site at the University of Michigan:

Dear
SRA,

We
knew it was coming and now it’s here. Our gas is around two dollars
a gallon and yesterday I ordered 25,000 feet of steel conduit, a
drop in the bucket for this job, and was told that Detroit suppliers
are out of conduit and hopefully they could fill my order next week.
I was warned by two of our three major suppliers that steel would
be rationed by summertime. Prices for the conduit have jumped one
hundred percent in less than ninety days. What this means is that
if I cannot get this one order within a week the company would have
to lay off some employees. We go through a hundred thousand feet
of conduit easily in two weeks with 75 men. My question to the suppliers
is “where is the steel?” The answer I get is “Between China and
rebuilding of Iraq” Copper is also in short supply and the price
of scrap copper that we take to the scrap yards is over a dollar
a p ound. What’s next? Will we bring construction in this country
to a halt? Will U of M not have their Bio Science Research Building
done by 2006? Ann Arbor’s Local Electrical Union is one of the small
pockets, if not the only pocket of work right now in the U.S. We
have over a thousand men and women from out of state signing up
to go to work here without a chance in a thousand of getting a job
as our own people are not employed.

Yours,

Serious
bottlenecks in strategic commodities are upon us, and the shipping
industry cannot keep up with demand. Bottlenecks are bad enough,
but the real crunch is coming in energy prices. As the charts accompanying
this essay show, the price of every tradable form of fuel is skyrocketing.
And the downstream impact of this is already being felt not just
in the obvious forms of higher electricity prices, higher gasoline
prices, and higher heating bills, but also in higher food prices.
Food in the late industrial age is, after all, just reprocessed
petroleum.

Evildoers
in caves did not do this. Given that the world monetary system is
a dollar monopoly, and that control of that monopoly has been ceded
to a handful of financial institutions, given further that those
institutions are the biggest financial contributors to the US political
process, it is hard to avoid the obvious conclusion. One of the
problems with having a monopoly on power is that when something
goes wrong with that power, it is not very credible to blame it
on someone else.

It
is going to be a long war, if for no other reason than that we have
been led into it by those who indeed are operating beyond the bounds
of reason.

March
24, 2004

Chris
Sanders [send him
mail
] has worked as an international banker and investment manager
for twenty five years. In 1997 he founded Sanders Research Associates
Ltd., which provides political and economic risk management services
for corporate and private clients. He is also a visiting professor
in international finance at the School of Public Administration
at the University of Gothenburg in Sweden.


        
        

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