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Monthly Archives: June 2012

Supranational Government in Europe?

June 4th, 2012 - 5:37 am

UPDATE: Spain’s economy minister Christobal Montoro June 5  ”called for outside support for the first time to battle the financial crisis,” asking for help to recapitalize Spnaihs banks, which he claims don’t need “excessive” amounts of money.” He’s lying.

Great swathes of southern Europe operated as a fiscal scam within the European Monetary Union, we know now. Greece lied about its economy to get into EMU and then ran its national debt up to 130% of GDP to feed a kleptocratic patronage machine. Spain’s banks fed a real estate bubble that, in relative economic terms, is three times as big as America’s, by issuing bank bonds that amount to an astonishing 110% of GDP. The difference between America’s subprime bubble and the European equivalent is that the latter was concentrated in a few countries where the government and financial institutions conspired to misuse the borrowing capacity they derived from membership in the monetary union to turn the local economy into a Ponzi scheme. Greece is now bankrupt, with its debt worth 20% to 30% on the dollar depending on the trading day.

Now the European Commission bureaucracy wants European countries to cede sovereignty to Brussels in return for a German-financed bailout. Germany, the only major European economy with financial resources to spare, faces an unpleasant choice: either it will assert its own interest and refuse to bail out the Bernie Madoffs of Club Med Europe, or it will endorse the bureaucracy’s pitch to dissolve Europe’s states into a regional government. Germany’s conservative newspaper Die Welt broke the story over the weekend, and today’s Wall Street Journal writes:

Germany is sending strong signals that it would eventually be willing to lift its objections to ideas such as common euro-zone bonds or mutual support for European banks if other European governments were to agree to transfer further powers to Europe.

If embraced, the move would deepen in fundamental ways Europe’s political and fiscal union and represent one of the boldest steps taken by the bloc since the euro was launched. Germany has never before been willing to discuss the conditions it believes necessary to move toward assuming common risks within the euro zone. Now, although the end may be a long way off, it appears willing to discuss those conditions.

“The more that other member states get involved with this development and are prepared to give up sovereign rights to get European institutions more involved, the more we will be prepared to play an active role in developing things like a banking union,” a German official familiar with the discussions told The Wall Street Journal. “You can’t have one without the other.”

The Obama administration, George Soros, the International Monetary Fund, and liberal opinion in general believe that no crisis should be wasted: an enlightened supranational bureaucracy should emerge as the ruler of Europe.

I find this repulsive for the most elemental of reasons: the further that government is removed from the electorate, the more prone it is to abuse. The Brussels bureaucracy is responsible for the catastrophe in the first place, and one doesn’t normally give the gasoline monopoly to a bunch of arsonists.

As an old investment banker, though, I think that consolidating all the European scams into supranational entities will fail disastrously. The lifeboat itself will sink under the weight. Some of the scams are simply too outrageous to be rescued. The same Keynesian quackery that has kept the US in recession for the past four years festers among the Eurocrats.

In today’s Asia Times, I published an open letter to German Chancellor Angela Merkel proposing that Germany take the situation in hand instead. Spain can’t be bailed out; France must be, at least in part.

Here are some extracts from my open letter:

….Ultimately, you will have to sacrifice Spain. That will compromise the French banks, which in turn will require German support. Spain is unsalvageable. It is better to take the pain early and deliberately, rather than later and chaotically. Dealing expeditiously with Spain, moreover, should convince Italy to adopt the reforms which can prevent it from following Spain and Greece into de facto national bankruptcy.

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My mentor in world politics is Dr. Norman A. Bailey, who served as Special Assistant to President Reagan for National Security during his first administration. When I first met Norman in 1981, he told me that America’s economic recovery and arms buildup would cause Russian Communism to implode by 1987. He was two years off. At the time I thought him a dangerous lunatic, and signed up immediately; I did a variety of jobs for Norman, and joined his consulting firm after he left government service. Along with Bill Casey, George Shultz, Alexander Haig, William Clark, Richard Pipes, Michael Ledeen and a few others, Norman was part of the tiny band that set out to win the Cold War and did.

I am frightened about about the state of the world; more than 1979, in the miserable denouement of the Carter administration, everything seems to be going wrong at once. I asked Norman for his current views, and he responded with the missive below. It is something to ponder.

Entropy is the natural tendency of all things to “dis-integrate” unless held together by a counter-force.  In international relations that counter-force is usually a hegemonic power, starting with the Pax Romana and continuing with Byzantium, the Caliphate, Venice, Spain, Great Britain and the United States.

During each interregnum in this process the forces of entropy gain strength and a greater or lesser degree of anarchy grips the world community, both domestically and internationally.

We are currently in such an interregnum.  It is sufficient to mention a United States, in 2000 all-powerful, now with its future mortgaged for many generations to come; a literally disintegrating Europe; Syria, Iraq, Iran, Libya, Afghanistan, Sudan, and the list goes on.

The weakening hegemonic power has put the world on notice that it is going to concentrate on Asia, and the rest of the world be damned.

Leadership is a void among powers great and small.  The European crisis could be resolved by issuing bonds replacing the bonds of the insolvent (NOT illiquid) countries with replacement issues, reducing face value or reducing interest and lengthening maturity, like the Brady bonds that resolved the less-developed-countries’ debt crisis of the eighties.  The end of the euro could be managed intelligently and gradually, declaring that for legal purposes all private contracts denominated in euros will be deemed to be denominated in dollars at the rate of exchange of the date of signing.

The Iranian government could be put on notice that unless nuclear weapon preparations are halted AND DISMANTLED the economic infrastructure of the country will be destroyed.  Hopeless cases such as Afghanistan would be isolated, regimes such as Zimbabwe would be ostracized, but challenges to the national interest of the great powers, emerging and declining, would be dealt with by non-military means and only in the case of a threat to national security would military action be contemplated, thus avoiding future Iraqs.

But rational leadership is missing almost everywhere; confusion, doubt and delay hold sway while the forces of entropy gather strength and scope.  The lack of an obvious new hegemonic power retards resolution of any of the manifold challenges.

For a small country like Israel, the lesson is clear while the current interregnum persists; resolutely and persistently pursue national interests and defend national security by exploiting the many openings and opportunities offered by the entropic developments.  Outdated concepts and policies must be abandoned and new policies adoipted and pursued.

Above all, know what is going on and instead of hand-wringing, grasp the moment and make the most of it.


Ambassador Yoram Ettinger cites my work on Muslim demographics in his blog at Israel Hayom today. Excerpts are below:

The Westernization of Muslim demographics

The dramatic Westernization of Muslim demographics defies conventional wisdom. It requires the re-evaluation of economic, social and national security assumptions and the re-assessment of related policy.

For example, the fertility rate among young Arabs in Judea and Samaria — at an average of three births per woman — has converged with the respective fertility rates of young Israeli Arabs and Jews, while (mostly secular) Jewish fertility rates are currently trending upwards and Arab fertility rates are trending downwards.


David Goldman (“Spengler”) writes in his book “How Civilizations Die” that “as Muslim fertility shrinks at a rate demographers have never seen before, it is converging on Europe’s low fertility. … Iranian women in their 20s, who grew up with five or six siblings, will bear only one or two children during their lifetimes. … By the middle of this century, the belt of Muslim countries from Morocco to Iran will become as gray as depopulating Europe.”

“Demographers have identified several different factors associated with population decline: urbanization, education and literacy. … Children in traditional societies had an economic value, as agricultural labor and as providers for elderly parents; urbanization and pension systems turned children into a cost rather than a source of income…. Dozens of new studies document the link between religious belief and fertility. … [An] Iranian 25-year-old’s mother married in her teens and had several children by her mid-twenties. Her daughter has postponed family formation, or foregone it altogether, and spent her most fertile years on education and work. … World fertility has fallen by about two children per woman in the past half century — from about 4.5 children per woman to about 2.5. Fertility in the Muslim world has fallen two or three times faster than the world average… Across the entire Muslim world, university-educated Muslim women bear children at the same rate as their infecund European counterparts. … The only Muslim countries where women still give birth to seven or eight children are the poorest and least literate: Mali, Niger, Somalia and Afghanistan. … Iran’s secular government under the late Shah put enormous efforts into education during the 1970s and 1980s. … Ayatollah Khomeini’s Islamic Revolution slowed but could not stop the literacy movement.”


David Goldman (“Spengler”) states that “the only advanced country [other than the U.S.] to sustain high fertility rates is Israel…”

He criticizes Israeli leaders who based their policy on erroneous demographic assumptions: “Israeli concessions in the first decade of the 21st century [Rabin’s Oslo, Sharon’s uprooting of Jewish communities in Gaza and Olmert’s unprecedented proposed concessions] were motivated by fear that Arab fecundity would swamp Israel’s Jewish population. In actuality, quite the opposite wasoccurring…”

In fact, the Jewish fertility rate in Israel in 2012 — three births per woman — is higher than all Arab countries, other than Sudan, Yemen, Iraq and Jordan, which are trending downward. The average Israeli-born Jewish mother exceeds three births. Moreover, Israel’s robust demography yields uniquely promising economic, social, technological and national security ramifications.


The demographic, economic, military and diplomatic resources at the disposal of Israel in 2012 are dramatically superior to those available to Herzl in 1900, Ben-Gurion in 1948 and Shamir in 1992. Anyone suggesting that Jews are doomed to become a minority west of the Jordan River, that there is a demographic machete at the throat of the Jewish state and that the Jewish state must concede Jewish geography in order to secure Jewish demography, is either grossly mistaken or outrageously misleading!