Still Trying to Hustle the East

When you get right down to it, every war has stemmed from a mass of people struggling for power…and once the masses get started, there’s no stopping them. Bill Bonner shows us how absolute power corrupts absolutely…

Now it is not good for the Christian’s health
to hustle the area in brown
for the Christian riles and the Aryan smiles
and it weareth the Christian down

And the end of the fight
is a tombstone white
with the name of the late deceased —
and the epitaph drear:
"A fool lies here
who tried to hustle the East!"
-Rudyard Kipling

The foreign press seems to have taken to the U.S. grunt in Iraq as if he were John Wayne fighting the Apache. They seem almost to admire the way GIs spit and curse, and "kick butt." "Our job is to destroy things," said one budding Sherman to an English reporter. The European can’t help but be impressed; he wishes he could destroy as much.

But the foreigners root for the Apache in films, and for the Iraqi in real life. Who can blame them? In a contest of David vs. Goliath, who takes Goliath’s side? That is the trouble one of the perverse curiosities of this world: You go to all the trouble to get on top of it, only to amuse your friends by falling off.

Iraqis are overwhelmingly outgunned. They are up against the world’s greatest military power. In comparison, they are practically unarmed. It is amazing they fight at all; for every one American they bring down, nearly 50 of their own men get stretched out. Newspaper photos typically show GIs in some compromising position. They are either torturing prisoners, kicking dead bodies, or shooting unarmed Arabs.

It was not the first time people tried to do good in the Near East.

At the end of the 11th century, Europeans decided to bring the blessings of Christian governance to the towel heads. Nine hundred years later, Democracy was the good that the do-gooders hoped to do.

The Crusades: From the Arab Point of View

The crusades of the 11th, 12th and 13th centuries were doomed from the beginning. The crusaders had the will and the weapons to kick Arab butts; what they lacked was a reason for doing so. Christianity was already firmly rooted in the Holy Lands…as it had been for more than 1,000 years, even though Jerusalem had fallen to the caliph Omar Ibn al-Khattab in February of 638. Amin Maalouf, in a delightful little book, The Crusades from the Arab Point of View, tells us how it happened, and shows us remarkable parallels between now and then.

Hassan as-Sabbah was born in 1048, not far from the present town of Teheran. Like Osama bin Laden many years later, Hassan had an axe to grind. And like Osama, he ground it on the wetstone provided by his Western allies.

What stuck in Hassan’s craw was the remarkable change that took place in the Arab world in the 11th century. Chiitism had dominated the region at the time of his birth. But the victory of the Seljuk turks pushed the Chiites to the back of the bus. The Seljuks were Sunnites…and defenders of Sunni orthodoxy.

Hassan fell in with Muslim fundamentalists and was soon active in a resistance movement, centered in Cairo. In 1090, he made a sudden assault on the "eagles nest" fortress at Alamout, near the Caspian Sea, giving him a base of operations — like Osama’s mountain red-outs — that was inaccessible and impregnable. There, he recruited an army and trained them in terror.

The terrorists of the 11th century had no fertilizer bombs and no commercial airplanes. All they had was the equivalent of box cutters — knives. Their technique was to infiltrate an enemy’s city, pretending to be merchants or religious ascetes. Circulating around town, their aim was get to know their target’s movements, while making themselves unremarkable. Then, they would spring on him suddenly and stick a knife between his ribs.

The Crusades: Haschaschin

So single-minded and unflappable were Hassan’s agents that witnesses thought they must be drugged. Thus, they came to be known as the "haschaschin," which became the word we know as "assassin."

The crusaders saw the assassins not as a threat, but as an opportunity. Like the Reagan administration in the 20th century, the Franks of the 12th century, decided to make common cause with the assassins against their common enemy — Seljuk Chiite Muslims.

Once a public spectacle gets underway, its initial intentions, premises and causes are soon lost. Events take on their own logic and run to the end. There is no stopping them, no arguing with them, no trying to make sense out of it, or trying to salvage a purpose to justify the expense. Quo fata ferunt. Public spectacles of the financial and political sort begin in comedy and end in farce. Those that involve armies and war typically begin as farce and end in tragedy. Nothing can be done to change the course of history; all the individual can do is to try to recognize when the spectacle nears its end…and slip out the exit while it is still open.

When the crusaders arrived in the Holy Land, they found a place of general religious tolerance — there were churches next to synagogues down the street from mosques. The also found a region that was divided into hundreds of political units where loyalties and alliances shifted as fast as the desert sands. The Muslim world posed no threat to the Christian West, it was too disorganized, unable to protect itself, and incapable of projecting much in the way of military power.

But the crusaders changed that. Gradually, under Noureddin and then Saladin, the Islamic world came together to drive out the Franks. At the decisive battle of Hittin, Saladin brought together troops from all over the near east and faced, none other than Renaud de Chatillon.

Al-Malik al-Afdal, Saladin’s son, then just 17 years old, described the battle:

"I was beside my father at the battle of Hittin, the first battle I had been in. When the king of the Franks found himself on the hill, he launched a ferocious attack that made our own troops drop back to where my father and his horse were standing. I looked at him. He was sad. Nervous. He pulled at his beard and stepped forward, yelling, ‘Satan must not win!’ The Muslims left once again to assault the hill. When I saw the Franks fall back under the pressure of our troops, I cried with joy, ‘We have beat them!’ But the Franks counter attacked even more strongly and our forces were once again near my father. He pushed them this time once again to the attack and he forced the enemy to retire towards the hill. I cried again, ‘We have them beat.’ But my father turned towards me and told me, ‘Be quiet. We won’t have beaten them until that tent up there falls down.’ Before he was able to finish his sentence, the tent collapsed. The sultan [Saladin] got down off his horse and kneeled and thanked God, crying for joy."

The Crusades: Rough Place, Rough Time

Saladin had a reputation for mercy and even-handedness. But it was a rough place and a rough time. The Franks, especially, had a reputation for butchery. Later, when Richard the Lionheart took the city of Acre, for example, he massacred 2700 soldiers he had taken prisoner, plus an additional 300 women and children found in the city. Under similar conditions, Saladin typically let his captives go free. But so great was his disgust with Renaud that he had vowed to kill him with his own hands. When the prisoner was brought before him, he made good his promise.

Back in the Homeland, 2004, most Americans have persuaded themselves that their troops are doing God’s work in the land of the ancient Mesopotamians. God means for the Iraqis to be free and democratic, they believe.

Thus has the whole nation become a giant OJ Simpson jury…unable to imagine that their homeland boys could be doing anything but good. Pictures were exhibited on national television, clearly showing a U.S. marine gunning down a wounded prisoner. "This one’s faking he’s dead," said the soldier. Then, after a clatter of gunfire, "He’s dead now," says the marine.

A poll, that circulated on the Internet the next day, revealed that crowd back home was fully behind its troops — three out of four people thought the Iraqi had it coming.

But this is a Public Spectacle. There is no place for ambiguity, subtlety or irony. The mass of Americans has lined up in favor of the war against Iraq as if it were the Superbowl, and they were backing the home team; it asks no questions, and feels neither guilt nor shame. It sees no need to apologize and fears no danger of retribution, neither from man or God himself.

Regards,

Bill Bonner
The Daily Reckoning
November 19, 2004

Bonds finally may be topping out.

But what a remarkable run they’ve had. For more than two decades, bond yields fell, and prices rose. Year after year, lenders (in effect, buying a bond is lending money to the issuer) grew more confident. Each year, they judged inflation as less of a threat than the year before. And the risk of default or bankruptcy? There, investors lulled themselves into a dreamlike insouciance. Even junk bonds — issued by the most leveraged companies of the most leveraged sectors of the most leveraged economy of the most leveraged country in history — now draw yields as low as 6%, or nearly a third of the yield on a bond issued by the U.S. Treasury just two decades ago!

It almost seems as though things are too good to be true. In fact, a small, but growing band of investors has come to believe that such an excess of wonderfulness is not likely to persist; it might even reverse itself.

These contrarian investors are buying gold; they’ve driven the price from a low near $250 an ounce in the late ’90s, to a recent high over $440. But even at that price, it is still barely halfway to the record price for gold that was recorded a quarter of a century ago.

But the majority of investors still believe that the trend set in motion by Paul Volcker, and the declining cost of borrowing in the ’80s and ’90s, will continue indefinitely. They’re voting with their dollars for the Bush-Greenspan ticket, without bothering to notice that there is practically no chance that the EZ Boys will be able to make things as EZ in the next 20 years, as they were in the last.

EZ Al has already dropped down to 1%. How much lower could they go? Under pressure to preserve the Fed’s integrity as it is, the Fed chief is now raising rates, not lowering them. Inflation rates finally seem to be going up — with an increase of 0.7% recorded in the month of October.

While EZ Al lends money he doesn’t have, EZ George spends it. The president has yet to see a spending bill that he didn’t want to pay; he has never vetoed a piece of legislation. But while giving away record amounts of other people’s money, the Republican president has actually cut taxes. The gap between what his government collected and what it spent was so great that during his first term, federal debt increased by $2.23 trillion. Since Americans save little money themselves, Mr. Bush has put the nation at the mercy of foreign lenders — who are likely to want a little more yield before opening their purses.

Whatever the future may hold, it will not be another period when the cost of borrowing drops from 18% to 1%. Nor is it likely to be another period of rapid credit expansion — or rising equity prices. A dollar’s worth of earnings was worth only about seven dollars a quarter of a century ago. As confidence, and borrowing, increased it came to be worth more than $30. That big growth in P/E ratios is not likely to be repeated in the next 25 years. Instead, a P/E of 7 is probably a reasonable target. What went up so nicely in the red glare of the credit rockets…is likely to fall back to Earth, as the EZ credit burns out.

More news, from our team at The Rude Awakening:

————–

Eric Fry, reporting from New York City…

"’What is gold currently, and what will it be tomorrow?’ Mozhaikov wonders aloud. ‘Real money with intrinsic value? A raw material? A cash commodity that has lost some of its monetary functions? If so, what are the prospects – complete loss of gold’s role or a restoration of lost functions, in one form or another…?’"

————–

Bill Bonner, back in Munich…

*** "The world wants to be deceived", begins a comment from a German reader. "You, too, as a financial adviser/analyst are part of this world and the financial community. What about the possibility of your own fallibility?"

We do not think that our fallibility is a possibility here at the Daily Reckoning; we take it as a certainty. We are just bit players in the whole Public Spectacle. But what is our role? Are we the tragic hero? The villain? We doubt it. Instead, the role we play is that of the fool. In all old English drama, the fool was a stock character. Often, he could see what other actors could not; he kept himself apart from the main plot. He was neither good guy nor bad guy…an observer, not a player. He never got the girl, in other words, but he didn’t get killed either. The Fool just keeps his eyes open and tries to entertain.

*** In today’s International Herald Tribune, people from all over Asia tell how they are orienting their lives towards China. One man says he dropped English in order to study Chinese. "America is the past," he said. "China is the future."