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The End of The Post-War Western Alliance

by Gary North

 

 

 

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.

 

 

Copyright © 2003 LewRockwell.com

 

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[Thinkerman]

Interesting. But Very long

[SCORPION_SISTA]

I must say that although it was a bit long reading, the author i believe used sarcasim sort of style to keep the readers attention, or atleast mine. Now coming back to the topic, i definitely agree with it, our world as we know it now is changing and everything is reshaping, europe and usa stands as the supreme power. Russia fell and at this rate, American isn't going to be the ultimate power at least just maybe for the next 10 or 20 yrs. But then another nation would come on top, be it Japan or united european nations, who knows. i think what the author was trying to get across is that things aren't working as they are now and are we going to do something about it or just watch and bite our nails.

As to the sitution with Iraq and the UN, i do believe that the decision whether the USA makes a decision to go to war without UN would extremely undermine if not make the UN look like an empty shell with no power at all, and that makes me wonder after the collapse of UN what would be left for us.