Doges of War

"Been there, done that," affirm the wizened specters of Venice. The fabled East-West ‘clash of civilizations’ – and the various ‘solutions’ proposed to combat it – are nothing new under the sun.

"Cry ‘havoc!’ and let loose the dogs of war, that this foul deed shall smell above the earth with carrion men, groaning for burial."

– Antony, in Shakespeare’s Julius Caesar, Act III

One of the nicest things about Europe’s cities is that they are so full of dead people. In Paris, the cemeteries are so packed that the stiffs are laid down like bricks, stacked one atop the other. Occasionally the bones are dug up and stored in underground ossuaries that are turned into tourist attractions. Thousands and thousands of skulls are on display in the catacombs; millions more must be spread all over the city.

Here in Venice, a dead man gets – or used to get – a send-off so gloriously sentimental that he could hardly wait to die. There is barely room within the city walls for the living and none at all for cadavres. So the dead were loaded onto a magnificently morbid floating mariah – a richly decorated funeral gondola, painted in bright black with gold angels on her bow and stern. Then, as if crossing the river Styx, the boat was rowed across the lagoon to the island of San Michele by four gondoliers in black outfits with gold trim.

How America’s versifiers must have envied one of their own, Ezra Pound, when he took his last gondola ride in such fabulous style in 1972. And then, what luck…the former classical scholar, poet and admirer of Benito Mussolini got one of the last empty holes on the cemetery island. Today, when a Venetian reaches room temperature, the best he can hope for is a damp spot over on the mainland.

Here at the Daily Reckoning, we do not hasten to join the dead, but we seek their counsel. When corpses whisper, we listen.

"Been there. Done that," they often seem to say.

The Doges of Venice: It’s Been Tried in Venice

Reading Mrs. Oliphant’s history of the dead dukes – or "Doges" – of Venice, we felt as though we should send a copy to someone in Washington. "Read this. Spare yourself some trouble," we might write upon the accompanying note. But who reads anything but newspapers in the capital city? Who reads at all? In America, if it isn’t on the evening news, it didn’t happen. Ancient history is something that happened last week.

Too bad. For many of the most preposterous ideas now emanating from the feverish swamps of the Potomac have already been tried out here in the feverish swamps of Venice, hundreds of years ago.

"Democracy! Commerce! Freedom! Nation-building," the ideas are cast into the murky lagoon of human affairs…as if the words themselves were clarifying magic. Suddenly, wrong is as distinct from right, as day from night. Good from bad…success from failure…how clearly we see things in the crystal waters of our own delusions!

America congratulates itself as the finest democracy the world has ever seen, but the system of ruling Venice 8 centuries ago was no less democratic. People voted for people who voted for other people, who then voted for yet more people who elected the Doge. The whole idea was to allow ordinary people to believe that they ran the nation…while real authority remained in the hands of a few families – the Bushes, Gores, and Rockefellers of 13th-century Venice.

"So easy is it to deceive the multitude," says Mrs. Oliphant. "The sovereignty of the Venice, under whatever system carried on, had always been in the hands of a certain number of families, who kept their place with almost dynastic regularity undisturbed by any intruders from below – the system of the Consiglio Maggiore was still professedly a representative system of the widest kind; and it would seem at the first glance as if every honest man, all who were da bene and respected by their fellows, must one time or other have been secure of gaining admission to that popular parliament."

The Doges of Venice: Easy to Deceive Yourself

To Mrs. Oliphant’s dictum on the multitude we add a corollary: it is even easier to deceive oneself. Today, rare is the American who is not a victim of his own scam. He mortgages his home and thinks he is getting richer by it. He buys Wall Street’s products as though he were gambling in Las Vegas, and believes himself a mini-Warren Buffett. He goes to the polling stations this November and believes he is selecting the government he wants, when the choice has already been reduced to two men of the same class, same age, same schooling, same wealth, same secret club, same society, with more or less the same ideas about how things should be run.

In Washington, the U.S. senate meets in the same solemn deceit as the Consiglio Maggiore – pretending to do the public’s business. While down the street, America’s own Doge, George W. Bush, takes up where the Michieli and Dandolos left off: trying to hustle the East.

Making a very long story short, at the beginning of the 13th century, as at the beginning of the 21st, many people saw a "clash of civilizations" coming and sharpened their swords. They were, then as now, the same civilizations, clashing in about the same part of the world – the Middle East.

What was different back then was that the effort to make the world a better place – at least in this episode – was being prodded forward by the French. Mrs. Oliphant’s history tells of the arrival of 6 French knights in shining armor, who strode into San Marco’s piazzo to ask the Doge for help. They were putting together an alliance of civilized Western armies in order to reconquer Jerusalem, they explained.

All the usual arguments were brought out. But the Venetians were not so much convinced by the French as they convinced themselves. They were, they said to themselves, just as Madeleine Albright would centuries later, the indispensable nation. Without them, the effort would fail; therefore they must act. Yes, they could still fail, they acknowledged, but look what they had to gain! For not only would they being doing good, but they stood to do well, too – implanting trading posts and ports along the way.

And so a fleet of 50 galleys was assembled and set off…the old Doge himself leading the way. Finding their French allies along the way, a bit the worse for wear and tear, they proposed a new deal: instead of attacking the infidels forthwith, they would warm themselves up with an assault on Zara, a town on the Dalmatian coast that had recently rebelled against its Venetian masters.

The French protested. They had intended to make war against the enemies of Christ, not against other Christians. But they so needed the Venetians’ support, they had no choice.

In five days, the city of Zara surrendered; its defenses were no match for the armies in front of them. And so the city was sacked and the booty divided up. Soon after came a letter from Pope Innocent III, who wondered what they were doing killing the fellow Christians; it was the pagans they were meant to be killing, he reminded them. He commanded them to leave Zara and proceed to Syria, "neither turning to the right hand nor to the left."

The Pope’s letters greatly troubled the poor pious French, but the Venetians seemed undisturbed. They ignored the letters and remained in Zara until a new comic opportunity presented itself.

This time, it was Constantinople that was the unfortunate target. A young prince from that city had come to them, asking support for a mission at once as audacious as it was absurd. His father had been blinded and thrown in a dungeon; the capital of Eastern Christendom was in the hands of men who must have been ancestors of Saddam Hussein – evil usurpers, dictators whom the people detested. If the Venetians would come to his aid, he promised, they would be rewarded generously. More than that, he and his father would return the entire Eastern Empire back to the one true church…the church of St. Peter in Rome.

The Venetians couldn’t resist. In April, 801 years ago this month, they set sail for the straits of the Bosporus. And in a great battle – a battle that must have been an undertaker’s dream – the city was taken.

The Doges of Venice: "A Bit Economical with the Truth"

Historian Edward Gibbon describes the scene:

"The soldiers who leaped from the galleys on shore immediately ascended their scaling ladders, while the large ships, advancing more slowing in the intervals and lowering a drawbridge, opened a way through the air from their masts to the rampart. In the midst of the conflict the doge’s venerable and conspicuous form stood aloft in complete armor on the prow of his galley. The great standard of St. Mark was displayed before him; his threats, promises and exhortations urged the diligence of the rowers; this vessel was the first that struck; and Dandolo was the first warrior on shore. The nations admired the magnanimity of the blind old man…"

It proved, however, that the young prince upon whose stories and promises the campaign was launched had been a bit economical with the truth. Like the intelligence services’ warnings of weapons of mass destruction in Iraq, his depiction of the circumstances prevailing in Constantinople at the time was only partially accurate. Much of it seemed fanciful.

Though the initial conquest was fairly easy and glorious, subsequent events were less so. The local population rose up against the invaders. The city had to be retaken; this time, the battle was even bloodier and thousands of innocent citizens were put to the sword.

As near as historians can tell, no lasting gain or benefit was earned by the Venetians. Dandolo died in 1205, never having seen his home again. As for his compatriots, what was left of them eventually returned to Venice.

"But there still remains in Venice," adds Mrs. Oliphant, "one striking evidence of the splendid, disastrous expedition, the unexampled conquests and victories yet dismal end, of what is called the Fourth Crusade. And that is the four great bronze horses, curious, inappropriate bizarre ornaments that stand above the doorways of San Marco. This was the blind doge’s lasting piece of spoil."

"Been there. Done that," whispers the old doge.


Bill Bonner,
The Daily Reckoning
April 27, 2004

Editor’s note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of the international bestseller: Financial Reckoning Day: Surviving The Soft Depression of The 21st Century (John Wiley & Sons).

We are deeply grateful to columnist William Greider this morning. We came into the office this morning, amazed and impressed by our own ignorance. What does the fall-off in the bond market mean, we were asking ourselves, as we entered the elevator – are falling bonds not a signal of rising inflation? Or, are they merely the pointy end of the pin that will finally pop America’s debt bubble…causing a gnashing of teeth, lower living standards and a general deflation in asset prices?

We could not say. Perhaps neither. Perhaps both. We don’t know.

But then, when we read Greider’s article, our stock rose. Compared to him, we are omniscient.

The article that caught our eye is entitled "Debtor Nation" and appears in the current issue of The Nation. What a marvelous work it is. Mr. Greider takes us on a romp through contemporary macroeconomics that makes us laugh and cry at the same time. He manages to combine such a sharp-eyed look at the problems facing the U.S. economy with such dizzyingly bubble-brained ‘solutions’ – it takes our breath away.

At least Greider realizes that the nation is on the road to ruin. How it got there…and how it might get off…he has no clue.

The trade deficit was only $30 billion in 1978 and economists were appalled. But that was just the beginning. The strong dollar policy, globalization, free trade (he doesn’t mention subsidized credit or the dollar standard) – all contributed to a spending spree in America. By last year, the trade deficit was $489 billion. All together, the U.S. borrowed $540 billion from the rest of the world last year – an amount that is equal to about 75% or 80% of the total world’s available capital.

It has been customary for rich nations to lend money to poor ones – thus stimulating development among the world’s yearning masses. But lately, the flow of funds has been in the opposite direction. People in China work 6 days a week in unheated factories…save their money…and then lend it back to Americans so that they can continue living in a style that not even they can afford.

Already Americans owe the rest of the world $3 trillion. At any time, the lenders could decide that they are being taken for patsies. Were they to suddenly stop lending, the result would be an immediate calamity in America…and perhaps throughout the world. Or worse, they could continue lending! At the present rate, Americans will owe foreigners more than 10% of the value of the entire nation before 2010.

You’d think that Greenspan and Co. – guardians of the nation’s financial health – might be concerned about this. Instead, they throw out words like magic incantations as if the mere sound of the words erased all the complications of real life. "Globalization…free trade…" But the national economy is deaf. Indifferent to words, it goes to Hell at the rate of more than half a trillion dollars per year.

"Don’t worry," says Greenspan…"productivity."

To his credit, Greider gags on this nonsense, as we d "The U.S. economy, in essence, is being kept afloat by enormous foreign lending so that consumers can keep buying more imports, thus increasing the bloated trade deficits. This lopsided arrangement will end when those foreign creditors – major trading partners like Japan, China and Europe – decide to stop the lending or simply reduce it substantially.

"That reckoning could arrive as a sudden thunderclap of financial crisis – spiking interest rates, swooning stock market and crashing home prices. More likely it will be less dramatic but equally painful. As foreign capital moves elsewhere and easy credit disappears for consumers, many Americans will experience a major decline in their living standards – a gradual grinding-down process that could continue for years."

But then, Greider begins foaming at the mouth…

"If the U.S. government reacts passively and allows ‘market forces’ to make these adjustments, the consequences will be especially severe for the less-affluent families already stretched by stagnating wages and too much borrowing."

"Tariffs…taxes…more credit," he proposes, as if the pain of a downswing in the credit cycle could be avoided with the right mix of larceny and fraud.

And then, our eyes moisten and a deep sadness settles on our soul when we read that Greider actually approves of Richard Nixon’s 1971 desperate surcharge of 10% to 15% on all imports. "America needs a bit of Nixonian nerve," he writes.

Why not wage and price controls, too? Something awful is surely coming. Greider and his associates are sure to make it worse.

Over to you, Eric…


Eric Fry in New York City…

– The stock market provided very little drama yesterday, as the Dow fell 28 points to 10,445 and the Nasdaq slipped 13 points to 2,037. The dollar also fell slightly, while gold gained $1.50 to $396.55.

– For more than a year, the stock market has been dazzling and delighting its many fans. The Nasdaq has soared more than 70% since October 2002. But the high-performance index has been sputtering throughout most of 2004 – gaining less than 2% year-to-date.

– Is the stock market merely catching its breath before another race higher, or is it gasping for breath as rising interest rates choke off its growth prospects? Long-term interest rates have been rising for several weeks, as reports of booming economic growth have been pouring in almost daily.

– Yesterday, the Commerce Department reported that home sales boomed in March – up nearly 9% to a record seasonally adjusted annualized rate of 1.23 million homes – as the median sales price rose 8.8% year-over-year. And later this week, the Commerce Department will likely announce that GDP growth exceeded 4% annualized in the first quarter…

– Shouldn’t this terrific economic news be terrific news for the stock market as well? The short answer is yes and no…but mostly no. On the one hand, corporate earnings are soaring. On the other hand, inflation is heating up and interest rates are rising, neither of which is helpful for share prices. Thus the stock market finds itself at that awkward, manic-depressive stage between celebrating economic strength and ruing it.

– "The formerly deflation-fearing Greenspan Fed could do worse than to bone up on its modern American financial history," writes James Grant, editor of Grant’s Interest Rate Observer. "In the late 1960s and early 1970s, inflation rates of 4% and 5% – i.e., the rates indicated by the March 2004 CPI report – sent shock waves through Wall Street."

– History will soon repeat itself, Grant predicts, backing up his assertion by drawing intriguing financial parallels between the Vietnam War Era and the Iraqi Conflict Era of today. Specifically, Grant compares the bond bear market of the 1960s and 1970s with the bond bear market that he and we believe began in June of last year.

– "The U.S. invaded Iraq in March 2003," Grant writes. "U.S. bond yields made their lows three months later, in June, with the 10-year Treasury quoted at 3.11%. It’s a fair bet, we believe, that that yield will stand as the lowest for many years to come – that a long-term bond bear market got under way around the time of the fall of Baghdad. It was a coincidence that the Gulf of Tonkin incident [in August 1964] marked a long-term low in U.S. interest rates, and it would be a double coincidence if the opening phase of the Iraq war marked a second major low in U.S. interest rates.

– "But behind the coincidences (actual and potential), there is a possible train of causation," Grant continues. "War is bearish for bonds because war finance is usually inflationary. War is specifically bearish for the bonds of the United States because war tends to undermine the standing of the dollar, the world’s reserve currency. In the Vietnam era, it was a loss of faith in the capacity of the U.S. government to pay out gold for dollars that precipitated rising interest rates. In the Iraq era, it will be the world’s loss of faith in the capacity of the U.S. government to finance its external deficit that throws a spanner in the financial works."

– The Vietnam era bond bear market coincided with a decade-long bull market in gold. We should not be surprised, says Grant, if the Iraqi Conflict era bond bear market coincides with a similar flight to gold.

– "In 1964," Grant recalls, "the law required that 25 cents of every dollar in circulation in the United States and on deposit at the Federal Reserve be backed by gold. American citizens were prohibited from owning the barbarous relic, but foreign holders could exchange their paper for gold at the official $35-per-ounce rate."

– In January 1965, the enterprising French availed themselves of the U.S. Treasury’s generous offer, by shipping their excess dollars across the Atlantic to exchange them for gold. "Yes, gold," declared French president, Charles de Gaulle, "which does not change in nature, which can be made into either bars, ingots, or coins, which has no nationality, which is considered, in all places and in all times, the immutable and fiduciary value par excellence."

– Swapping overvalued dollars for gold was fun while it lasted. But eventually, the U.S. Treasury tired of this Franco-American arbitrage and in 1971, President Nixon "closed the gold window." 33 year later, Mr. Market’s gold window is open every business day, and he’s willing to accept 395 dollar bills in exchange for an ounce of gold…while supplies last.


Bill Bonner, back in London…

*** GM’s sales to China rose 70% in the last quarter.

*** Gold is marching back to the $400 level. The dollar didn’t rise yesterday.

*** What’s front-page news in London? Well, The Guardian thinks the most important thing that happened yesterday was the unveiling of a video portrait at the National Portrait Gallery. Sam Taylor-Wood, nominated for a Turner Prize, displayed a 107-minute film of soccer star David Beckham sleeping. "The image is also unashamedly beautiful," says the Guardian, "Beckham’s limbs and face are warmly lit, looming out of a Caravaggio-esque gloom. The curves of his musculature and honeyed tone of his skin are sensuously conveyed. This is a David as physically perfect as Michelangelo’s." Will a British reader please tell us; is this a joke?

*** Maria Misra, writing in the Times, came up with an interesting idea. India, she claims, is still an agrarian economy. The boom last year was caused not by outsourcing, but by rain. This year, the monsoons may not come.

*** And here’s something interesting. A fat woman with dark hair named Joyti De-Laurey is in the newspapers after stealing about $7 million from her bosses at Goldman Sachs. "They made it so easy, they deserved it," she told the Times. "Their money was just left lying about; if it wasn’t me it would have been someone else. Quite frankly, it would have been rude not to."

The Daily Reckoning