Monday, February 22, 2010

Follow the Money - It's Going to China


Follow the Money - It's Going to China
David R. Stokes
Sunday, February 21, 2010

The other day, President Barack Obama met with the Tibetan Dali Lama in the White House—doing so in the Map Room as opposed to the Oval Office in an apparent attempt to mute any “official” aura for the meeting. It was sort of like trying to kowtow to one audience while powwowing with another. Likely the nuance was lost on the government in Beijing. Of course, past presidents have received the Tibetan leader—a man who has become a symbol for freedom and a persistent reminder of the oppression of his people at the hands of the Chinese regime.

It was 38 years ago this week that President Richard Nixon played the historic China Card—a geopolitical masterstroke during the Cold War. It was all part of a strategic view of the world and effectuated from a position of strength. We were powerful; they were backward—technologically, culturally, and with obvious political deficiencies. That moment remains a high water mark in Nixon’s presidency—a moment in time that even the most determined critics concede positively to his legacy.

But what would Mr. Nixon think now?

These days, admittedly, the whole issue of U.S.-China relations is a sticky one for our current President. It is one of many examples of how different things are when you are governing as opposed to campaigning for office—although it is hard to tell which is which in Washington these days. Mario Cuomo famously talked years ago about politics being “poetry” and governing “prose.”

Dealing with potential adversaries—and even some friends—is always best when you do so from a position of strength. It’s true in military and national defense (“peace through strength”) and it’s true in economics, as well. The scriptures remind us, “The borrower is servant to the lender.” And when one party is deep in financial debt to another a certain measure of leverage is ceded to the lender.

How this dynamic will play out in the immediate future is anyone’s guess, but owing nearly $800 billion to the Chinese should raise a flag—a red one. And it should come as no surprise if and when those to whom we owe such copious amounts of money begin to squeeze us on the international stage.

President Obama has been making great pains to try to change our image before the world, one that he believes George W. Bush perpetuated and that has led to our virtual “blackball” by many nations. But in fact, what he really should be concerned about is not “blackball,” but rather “blackmail.” The Chinese dumped $45 billion of T-bills a couple of months ago—wave of the future? And why shouldn’t one nation operating out of its own interests use such leverage? We would.

In fact, we have.

In 1956, there were two hot spots with the potential of blowing up into World War III, a revolution in Hungary—and a crisis in the Middle East involving the Suez Canal. Seen now in hindsight against the backdrop of the Cold War and as the moment when the last vestiges of old world colonialism gave wave to complete bi-polar hegemony pitting the United States against the Soviets, the Suez Crisis was as much about the exercise of economic clout as it was a diplomatic-military affair.

Gamal Abdul Nassar had emerged as a leader in Egypt as part of a 1952 coup overthrowing King Farouk and by 1954 he was firmly in place as that nation’s maximum leader. He immediately undertook a complete transformation of his country with massive public works and the progressive nationalization of industry. He was enamored of the Soviet system and soon it became clear that his nation would be taking that side in the Cold War. One project near and dear to his heart was the building of the Aswan Dam, which America at first agreed to help fund. But when Nassar sold arms to Soviet satellite Czechoslovakia and then recognized the People’s Republic of China, U.S. Secretary of State John Foster Dulles withdrew our dam dollars.

In reaction to this, Nassar announced on July 26, 1956 a Nationalization Law freezing all the assets of the Suez Canal—in effect, a seizure of that vital passageway.

Opened in 1869, this 119-mile long man-made waterway connects the Mediterranean and Red Seas. Originally financed by the Egyptians and French, Britain became a major stakeholder and stockholder in 1875, and eventually the canal became part of the United Kingdom’s imperial portfolio in the region. Following World War II, and with the decline of the U.K.’s empire, the canal gradually became a diplomatic football—not to mention thorn. And the creation of the nation of Israel in 1948 caused tensions about the vital waterway to further increase.

In the aftermath of Nassar’s July 26 speech, Britain—led by Prime Minister Anthony Eden—and France, represented by Eden’s counterpart, Guy Mollet, began to plot how to ensure their access to the Suez Canal. Eventually, and in an alliance with Israel (a nation with the most to lose if the canal was closed to them), military action was planned and initiated.

Follow the money.

Meanwhile, the American President, Dwight D. Eisenhower, in the midst of a reelection bid, had already had a rough year in 1956—physically and politically. And shortly following election to a second term in the White House, he played some power politics of his own. Now, I should state here that I am not of the number in agreement with what he did in the Suez matter, anymore than I am about how we abandoned the freedom fighters in Budapest earlier that summer. I am simply using this story to describe a reality in all of life and politics—like it or not.

There is a golden rule in geo-politics: He who has the gold makes the rule.

Mr. Eisenhower did not want Britain, France, and Israel—all stated allies of the United States—creating a situation that might not play well with the Soviets and that had the potential to instigate a larger war. Here was the hero of Normandy putting the pressure on British Prime Minister Eden—a man who had worked closely with Ike while serving in Churchill’s War Cabinet.

“The borrower is servant to the lender.”

To apply pressure on Eden’s government to cease and desist, Eisenhower instructed U.S. Treasury Secretary, George M. Humphrey, to begin to sell off some of our government’s British bonds. Some of these bonds were holdovers from the U.K.’s World War II debt; others had been sold to us to help that nation’s economy rebound after the war. Eden’s Chancellor of the Exchequer, future P.M. Harold Macmillan, told him that the results would be devastating to the British economy.

Checkmate.

Anthony Eden was a broken man. He fled to a vacation-exile in Jamaica, spending time at Ian Fleming’s (of James Bond literary fame) estate there, but his health quickly deteriorated. He was taking amphetamines—had been for years under doctor’s orders after a botched gall bladder operation—and the drugs magnified his problems with insomnia and unraveling mental health. Soon, Mr. Macmillan took over at 10 Downing Street, but by then the Suez episode had hastened the sunset on the British Empire—and the Cold War morphed from a multi-national tag-team match into a virtual two-nation standoff.

Follow the money.

We are potentially in big trouble as a nation. Our security is threatened not only by Islamist terrorism—but also by some who have a lien on our title deed. Certainly, throughout our history we have dealt with nations and regimes in pragmatic and realpolitik ways, even having to hold our collective noses because of the stench of tyranny and oppression on the part of some of our momentary allies in a larger cause. But we have managed, for the most part, to deal with it—ugliness and all—because of the ability to approach everything from a position of strength: morally, militarily, and economically.

Now though, we not only depend on others for much of our energy, but we also owe an astronomical amount of money (the interest alone is unfathomable) to powerful entities. We should not be surprised that other nations no longer dance on cue—nor should we ever be surprised if and when some big bills come due with humiliating strings attached.

Or worse.

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