the end of the post-war western alliance

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    From Long Waves

    Gary North's REALITY CHECK

    Issue 221 March 7, 2003


    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.

    This 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


    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.]
    (And a move in power from the old Anglo elite to the Jewish neo cons)


    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 in 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 stole Bunker Hunt's
    oil wells in 1971, 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.


    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

    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."


    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 150 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.

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