A very interesting post from www.stratfor.com about the Cyprus banking crisis. This follows this post about disarming the political opposition such as in Colorado and New York.  In the meantime, you can read two very interesting books HERE.

Europe's Disturbing Precedent in the Cyprus Bailout

 

 

Stratfor

By George Friedman
Founder and Chairman
The European economic crisis has taken different forms in different places, and Cyprus is the latest country to face the prospect of financial ruin. Overextended banks in Cyprus are teetering on the brink of failure for issuing loans they cannot repay, which has prompted the tiny Mediterranean country, a member of the European Union, to turn to Brussels for help. Late Sunday, the European Union and Cypriot president announced new terms for a bailout that would provide the infusion of cash necessary to prevent bankruptcies in Cyprus' banking sector and, more important, prevent a banking panic from spreading to the rest of Europe.
What makes this crisis different from the previous bailouts for Greece, Ireland or elsewhere are the conditions Brussels has attached for its assistance. Due to circumstances unique to Cyprus, namely the questionable origin of a large chunk of the deposits in its now-stricken banking sector and that sector's small size relative to the overall European economy, the European Union, led by Germany, has taken a harder line with the country. Cyprus has few sources of capital besides its capacity as a banking shelter, so Brussels required that the country raise part of the necessary funds from its own banking sector -- possibly by seizing money from certain bank deposits and putting it toward the bailout fund. The proposal has not yet been approved, but if enacted it would undermine a formerly sacred principle of banking in most industrial nations -- the security of deposits -- setting a new and possibly destabilizing precedent in Europe.

Cyprus' Dilemma

For years before the crisis, Cyprus promoted itself as an offshore financial center by creating a tax structure and banking rules that made depositing money in the country attractive to foreigners. As a result, Cyprus' financial sector grew to dwarf the rest of the Cypriot economy, accounting for about eight times the country's annual gross domestic product and employing a substantial portion of the nation's work force. A side effect of this strategy, however, was that if the financial sector experienced problems, the rest of the domestic economy would not be big enough to stabilize the banks without outside help.
Europe's economic crisis spawned precisely those sorts of problems for the Cypriot banking sector. This was not just a concern for Cyprus, though. Even though Cyprus' banking sector is tiny relative to the rest of Europe's, one Cypriot bank defaulting on what it owed other banks could put the whole European banking system in question, and the last thing the European Union needs now is a crisis of confidence in its banks.
The Cypriots were facing chaos if their banks failed because the insurance system was insufficient to cover the claims of depositors. For its part, the European Union could not risk the financial contagion. But Brussels could not simply bail out the entire banking system, both because of the precedent it would set and because the political support for a total bailout wasn't there. This was particularly the case for Germany, which would carry much of the financial burden and is preparing for elections in September 2013 before an electorate that is increasingly hostile to bailouts.
Even though the German public may oppose the bailouts, it benefits immensely from what those bailouts preserve. As I have pointed out many times, Germany is heavily dependent on exports and the European Union is critical to those exports as a free trade zone. Although Germany also imports a great deal from the rest of the bloc, a break in the free trade zone would be catastrophic for the German economy. If all imports were cut along with exports, Germany would still be devastated because what it produces and exports and what it imports are very different things. Germany could not absorb all its production and would experience massive unemployment.
Currently, Germany's unemployment rate is below 6 percent while Spain's is above 25 percent. An exploding financial crisis would cut into consumption, which would particularly hurt an export-dependent country like Germany. Berlin's posture through much of the European economic crisis has been to pretend it is about to stop providing assistance to other countries, but the fact is that doing so would inflict pain on Germany, too. Germany will make its threats and its voters will be upset, but in the end, the country would not be enjoying high employment if the crisis got out of hand. So the German game is to constantly threaten to let someone sink, while in the end doing whatever has to be done.
Cyprus was a place where Germany could show its willingness to get tough but didn't carry any of the risks that would arise in pushing a country such as Spain too hard, for example. Cyprus' economy was small enough and its problems unique enough that the rest of Europe could dismiss any measures taken against the country as a one-off. Here was a case where the German position appears enormously more powerful than usual. And in isolation, this is true -- if we ignore the question of what conclusion the rest of Europe, and the world, draws from the treatment of Cyprus.

A Firmer Line

Under German guidance, the European Union made an extraordinary demand on the Cypriots. It demanded that a tax be placed on deposits in the country's two largest banks. The tax would be about 10 percent and would, under the initial terms, be applied to all accounts, regardless of their size. This was an unprecedented solution. Since the global financial crisis of the 1920s, all advanced industrial countries -- and many others -- had been operating on a fundamental principle that deposits in banks were utterly secure. They were not regarded as bonds paying certain interest, whose value would disappear if the bank failed. Deposits were regarded as riskless placements of money, with the risk covered by deposit insurance for smaller deposits, but in practical terms, guaranteed by the national wealth.
This guarantee meant that individual savings would be safe and that working capital parked by corporations in a bank was safe as well. The alternative was not only uncertainty, but also people hoarding cash and preventing it from entering the financial system. It was necessary to have a secure place to put money so that it was available for lending. The runs on banks in the 1920s and 1930s drove home the need for total security for deposits.
Brussels demanded that the bailout for Cypriot banks be partly paid for by depositors in those banks. That demand essentially violated the social contract on the sanctity of bank deposits and did so in a country that was a member of the European Union -- one of the world's major economic blocs. Proponents of the measure pointed out that many of the depositors were not Cypriot nationals but rather foreigners, many of whom were Russian. Moreover, it was suggested that the only reason for a Russian to be putting money in a Cypriot bank was to get it out of Russia, and the only motive for that had to be nefarious. It followed that the confiscation was not targeted against ordinary people but against shady Russians.
There is no question that there are shady Russians putting money into Cyprus. But ordinary Cypriots had their money in the same banks and so did many Cypriot and foreign companies, including European companies, who were doing business in Cyprus and need money for payroll and so on. The proposal might look like an attempt to seize Russian money, but it would pinch the bank accounts of all Cypriots as well as a sizable amount of legitimate Russian money. Confiscating 10 percent of all deposits could devastate individuals and the overall economy and likely would prompt companies operating in Cyprus to move their cash elsewhere. The measure would have been devastating and the Cypriot parliament rejected it.
Another deal, the one currently up for approval, tried to mitigate the problem but still broke the social contract. Accounts smaller than 100,000 euros (about $128,000) would not be touched. However, accounts larger than 100,000 euros would be taxed at an uncertain rate, currently estimated at 20 percent, while bondholders would lose up to 40 percent. These numbers will likely shift again, but assuming they are close to the final figures, depositors putting money into banks beyond this amount are at risk depending on the financial condition of the bank.
The impact on Cyprus is more than Russian mafia money being taxed. All corporations doing business in Cyprus could have 20 percent of their operating cash seized. Regardless of precisely how the Cypriot banking system is restructured, the fact is that the European Union demanded that Cyprus seize portions of bank accounts from large depositors. From a business' perspective, 100,000 euros is not all that much when you are running a supermarket or a car dealership or a construction company, but this arbitrary level could easily be raised in the future and the mere existence of the measure will make attracting investment more difficult.

A New Precedent

The more significant development was the fact that the European Union has now made it official policy, under certain circumstances, to encourage member states to seize depositors' assets to pay for the stabilization of financial institutions. To put it simply, if you are a business, the safety of your money in a bank depends on the bank's financial condition and the political considerations of the European Union. What had been a haven -- no risk and minimal returns -- now has minimal returns and unknown risks. Brussels' emphasis that this was mostly Russian money is not assuring, either. More than just Russian money stands to be taken for the bailout fund if the new policy is approved. Moreover, the point of the global banking system is that money is safe wherever it is deposited. Europe has other money centers, like Luxembourg, where the financial system outstrips gross domestic product. There are no problems there right now, but as we have learned, the European Union is an uncertain place. If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg?
This was why it was so important to emphasize the potentially criminal nature of the Russian deposits and to downplay the effect on ordinary law-abiding Cypriots. Brussels has worked very hard to make the Cyprus case seem unique and non-replicable: Cyprus is small and its banking system attracted criminals, so the principle that deposits in banks are secure doesn't necessarily apply there. Another way to look at it is that an EU member, like some other members of the bloc, could not guarantee the solvency of its banks so Brussels forced the country to seize deposits in order to receive help stabilizing the system. Viewed that way, the European Union has established a new option for itself in dealing with depositors in troubled banks, and that principle now applies to all of Europe, particularly to those countries with financial institutions potentially facing similar problems.
The question, of course, is whether foreign depositors in European banks will accept that Cyprus was one of a kind. If they decide that it isn't obvious, then foreign corporations -- and even European corporations -- could start pulling at least part of their cash out of European banks and putting it elsewhere. They can minimize the amount of cash on hand in Europe by shifting to non-European banks and transferring as needed. Those withdrawals, if they occur, could create a massive liquidity crisis in Europe. At the very least, every reasonable CFO will now assume that the risk in Europe has risen and that an eye needs to be kept on the financial health of institutions where they have deposits. In Europe, depositing money in a bank is no longer a no-brainer.
Now we must ask ourselves why the Germans would have created this risk. One answer is that they were confident they could convince depositors that Cyprus was one of a kind and not to be repeated. The other answer was that they had no choice. The first explanation was undermined March 25, when Eurogroup President Jeroen Dijsselbloem said that the model used in Cyprus could be used in future bank bailouts. Locked in by an electorate that does not fully understand Germany's vulnerability, the German government decided it had to take a hard line on Cyprus regardless of risk. Or Germany may be preparing a new strategy for the management of the European financial crisis. The banking system in Europe is too big to salvage if it comes to a serious crisis. Any solution will involve the loss of depositors' money. Contemplating that concept could lead to a run on banks that would trigger the crisis Europe fears. Solving a crisis and guaranteeing depositors may be seen as having impossible consequences. Setting the precedent in Cyprus has the advantage of not appearing to be a precedent.
It's not clear what the Germans or the EU negotiators are thinking, and all these theories are speculative. What is certain is that an EU country, facing a crisis in its financial system, is now weighing whether to pay for that crisis by seizing depositors' money. And with that, the Europeans have broken a barrier that has been in place since the 1930s. They didn't do that casually and they didn't do that because they wanted to. But they did it.

Read more: Europe's Disturbing Precedent in the Cyprus Bailout | Stratfor

March Madness Brackets: Another Sweet Sixteen???

Or a sour Sixteen? Who is the Worst Liberal? Let me know in Comments. Print it out if you can't see this!!

Another list from www.yaf.com is here, but I like mine better!

Kimani Gray: New Embellishments, New Anti-Police Hyperbole, Gray Family Lawsuit Coming (My New VDARE Column is Up!)

A very interesting post from  http://nicholasstixuncensored.blogspot.com about police work in Brooklyn, New York, USA. This follows this post about a race hoax at U.T. Austin. This follows this post about Emmit Till. This follows this post about the likelihood of urban warfare in the U.S. and this about violent Flash Mobs which can result in activities such as Knockout King. You can read a very interesting book HERE.

Kimani Gray: New Embellishments, New Anti-Police Hyperbole, Gray Family Lawsuit Coming (My New VDARE Column is Up!)

The late gangbanger and aspiring cop-killer, Kimani Gray, at app. 10 years of age



A picture of a more mature Gray


[New VDARE column: “Trayvon Martin was Barack Obama’s Son, and Kiki Gray was Jumaane Williams’ Son, but Why Will No Politician Adopt Bailey O’Neill?”]

By Nicholas Stix

While urban terrorists posted “Wanted” posters seeking to get the two cops who righteously shot Kimani alias Kiki alias Shapow Gray to death killed, the leftwing MSM spent all day Monday re-fueling the hate campaign against the NYPD.



“Gang subset 50z” calls for murdering hero cops. The only thing missing is a Nation of Islam/New Black Panther Party bounty on their heads.


The leftwing MSM are trumpeting new embellishments on previous claims by “eyewitness” Tishana King, 39, who claimed she saw everything from her third-floor window across the street and “two driveways down from her building” from the 11:30 p.m., March 9 incident. (In other words, she couldn’t have had the direct view she claims to have had, but a view on an angle, at best.) King previously asserted that Gray had no gun. Now, in her umpteenth iteration to the media, she suddenly “remembers” that the police continued to shoot Gray after he had collapsed on the ground.

King could not confirm what direction Gray was facing at the time he was shot. "I'm not the shooter. I wouldn't be able to tell you. If I had the gun and I was shooting at him I'd be able to answer that question," she said. King said the officers "looked white, from what I was seeing." [White enough, eh. “White Egyptian”?] News reports have indicated, however, that Sgt. Mourad is Egyptian. [The writer forgets to mention that the other officer, Jovaniel Cordova, is Hispanic.]
After the gunfire subsided, King claims the officer who "did the most shooting" put his hands on his head "like, 'Oh my God.'" She describes him as "the main shooter."

[Even if Sgt. Mourad had put his hands on his head, that’s not an admission of guilt of a crime, but a normal human response to killing someone, even if justified. Tishana King is relating everything in the most nefarious light possible.]

"That's the one I was focused on," she explained. "He just kept shooting while [Gray] was on the ground." When asked how close the officer was when he was shooting Gray, King said, "right over him."

"I thought he was dead," King said. That's when Gray began to scream. "'Help me. Help me. My stomach is burning. Help me. They shot me,'" she said the teen cried out. Friends have said Gray was approximately 5'6" and weighed at most about 100 pounds. [No way, he could have been that tall and weighed so little, unless he was starving. Scrawny girls that age and height still weigh at least 120 pounds.] King described him as "frail" and said she was surprised he was not killed instantly. "I didn't think anybody could take those amount of bullets," she added.

"I just remember screaming out the window 'Why?! Why so much?!" King recalled. She claims the "main shooter"'s partner--"with the short haircut"--responded.

[Here, she is further embellishing, repeating the talking point that Gray’s mother made several days later, with Councilman Charles Barron, that the cops should not have fired more than one round.]

"He started waving his gun up at our windows, myself and my neighbor. 'Get your F-ing head out the window before I shoot you.'" King said she and her neighbor "jumped back."

"I told the authorities that," she said. "You threatened our lives and we didn't even do anything."

King says a number of questions continue to bother her. "Why did they exit their vehicles? Why were they in our neighborhood? Why were they on our block? What was the reason? Why didn't you follow protocol?"

[What racial fairy tale “protocol” is she implying? This is the exact same talking point that racist blacks imposed on George Zimmerman, now applied to the police. Are the police now obligated to wait in their car, until the official local street gang shows up? Did King come up with this herself, or did she have help? And if she had help, who helped her? Black supremacist city councilman Charles Barron? The family’s lawyer, Kenneth Montgomery? Village Voice blogger Ryan Devereaux?]

"The scene just keeps replaying in my head," she told the Voice, "over and over and over and over and over again."

[“Eyewitness: Police Shot Kimani Gray While the 16-Year-Old was on the Ground,” by Ryan Devereaux, Village Voice, Monday, March 18, 2013 at 11:44 a.m.]

The ending of a New Yorker blog today reveals that for the leftwing media and their racist black allies, Kimani Gray’s value, beyond the usual, generations-long purposes of disarming the police and shaking down the ever-dwindling white and Asian tax base for millions of dollars, is to force an end to the NYPD’s stop-and-frisk policies. The leftwing MSM always note that 85 percent of those targeted are black or Hispanic, without noting that over 90 percent of the felonious shootings in New York City are by blacks.

Whether or not Gray held a gun was a secondary issue for some. Kamar Johnson, a thirty-year-old from Crown Heights, told me Gray was his cousin. Johnson and his family had shown up every night that week [for the riots and demonstrations], but even they were unsure whether or not Gray had a gun on him. “He was just a kid,” Johnson said. “He was crying out for his mother.” Khorey Rice, an eighteen-year-old from East New York, headed to Medgar Evers College next year to study psychology, estimated that he’s been stopped and frisked fifteen times in his life “The majority of [the police involved] were in plainclothes,” he said. He recalled one time getting patted down by an officer who merrily crowed a local gang call. “The gun is beside the point,” Rice said. “The thing that has to come out of this is ending stop-and-frisk. Without stop-and-frisk, Kimani Gray never would have been killed.”

[“Protect and Serve: the Aftermatchof the Kimani Gray Shooting,” by Rob Fischer, The New Yorker, March 18, 2013 (circa 7 p.m.).]

It's ghetto lottery time! Carol Gray, mother of at least two gangbangers and a 19-year-old daughter who got herself arrested for rioting last week, with black supremacist city councilman Charles Barron, who is helping her attempt to extort millions of dollars out of the city's white and Asian tax base.

Meanwhile, the Gray family attorney, Kenneth Montgomery, has set the wheels in motion for a multimillion-dollar lawsuit.

[“Officers in Kimani Gray Shooting Part of Growing Trend,” by Stephen Nessen, WNYC News, Monday, March 18, 2013.]

A very interesting post from www.DebbieSchlussel.com about Barack Obama's visit to Israel. This follows this post about al-Qaeda on the anniversary of the Madrid bombings.  This follows this article about American energy independence and preventing money from going to hostile countries such as Iran . For more about what is happening in the nation now click here. In the meantime, you can read two very interesting books HERE.

Obama Boycotts Israel’s Elected Parliament for Hand-Picked Liberal Americans; EXCLUSIVE Account From an Israeli Friend

By Debbie Schlussel
Why is Barack Obama snubbing Israel’s Knesset (its parliament) and instead choosing to meet with 100 “Israeli youths,” instead? Because he has no respect for the country and is seeking to sow the seeds of liberalism and further Israeli amputation through concessions to the terrorist Palestinians.

Much has been made of Barack Obama’s lack of visits to Israel for his entire first term, but to be fair, we must note that neither Ronald Reagan nor George H.W. Bush ever visited Israel when they were President, and George W. Bush only visited in the last year of his second term, when he made two visits to Israel. That said, when Obama visits Israel, this week, he’ll do what Israeli leader Binyamin Netanyahu would never think of doing here in the U.S.: skipping Israel’s democratically-elected governmental body. It’s an interesting choice in a Middle East where he continues to insist on democratic elections by the barbarians who surround Israel and, yet, snubs the one real Western democracy’s elected leadership, which by the way includes several Arabs (some of whom openly support HAMAS). An Israeli Facebook (join me on Facebook) friend of mine, David Weiss, has the inside scoop, which is even more insulting to Israel:


Debbie, I spoke earlier today with one of my Knesset friends about getting me into the Knesset to see Obama’s speech in the plenum. Guess what? He’s boycotting the Knesset! When George Bush came here as president, he spoke in the plenum for 30 minutes and took time to shake each of our hands afterwards. Obama, by contrast, is only speaking to “students and Americans” at the international convention center which seats several thousand. As an American and as a Hebrew University student, I checked into tickets. He is only allowing 3 Hebrew U. students to come and 100 hand-picked Americans. Not only is he snubbing his nose at the Israeli leadership, he is snubbing the Israeli people. What is more, he is going to shut down half of our capital city for a show-speech in front of very few people. This is a HUGE contrast to President Bush’s visit to our country. Amen to that. It’s insulting and disgusting. If you’re an American President (even one with Muslim sympathies who doesn’t like Israel), show a modicum of class and behave like a leader of the Free World. Israel is an American ally–the closest, most supportive American ally there is (look at the U.N. votes of the two countries).
Don’t defecate on Israel when you are visiting it, Obama. Get some class . . . for once in your fraudulent, Walter Mitty fantasy life (with apologies to Walter Mitty and his fantasies for the comparison).
More on what is at play here:

Mr. Obama will meet Mr. Netanyahu and other leaders across the region, but administration officials see public appeals as a way to build rapport and stoke public pressure for the peace process. With that in mind, Mr. Obama will bypass the Knesset, Israeli’s Parliament, and instead will speak to thousands of young Israelis at Jerusalem’s convention center.

And, again, as David notes, these are NOT young Israelis, but carefully selected liberal Americans who happen to be in Israel. Like visiting Kardashian fans who are on vacation in Cancun and saying they represent Mexicans. Same difference.
And a total slap in the face to Israel.

***BUMPED & UPDATED*** Catholic bishops spend $3.5 million of anti-poverty funds to increase poverty among American workers

A very interesting post from www.NumberUSA.com about U.S. Catholic bishops increasing poverty among America's poor. This follows this post about the Senate trying to increase the amount of immigrants during this slow economy. This follows this post about the release of illegal alien criminals from jails. This follows this post about how to Report Illegal Immigrants! For more about what is happening in the nation now click here and you can read two very interesting books HERE.

Catholic bishops spend $3.5 million of anti-poverty funds to increase poverty among American workers


Blogger's Note: You can contact these four bishops about this.
NY: Timothy Dolan http://www.archny.org/news-events/media-contact/
Philadelphia: Charles Chaput http://archphila.org/contact.php
Phoenix: Thomas Olmstead http://www.diocesephoenix.org/contact.php
Los Angeles: Jose Gomez http://www.la-archdiocese.org/Pages/Help/Contact.aspx

You can also contact the closest diocese  to you here 

and let them all know what you feel whether you are Roman Catholic or not!

By Roy Beck - posted on NumbersUSA



I have no doubt that America's Catholic bishops are nice people and that they mean well. But their callous indifference to America's unemployed and low-wage workers is astounding when it comes to their lobbying on immigration policy.



The Washington Post reports that the U.S. Conference of Catholic Bishops is going to expend another $800,000 of its anti-poverty funds to help pass a bill that will add millions more foreign workers to compete for scarce U.S. jobs.



The bishops’ anti-poverty program in the past year has invested more than $3.5 million in grass-roots immigration reform.



The organization of U.S. Catholic bishops said it would make $800,000 in grants available for projects aimed at mobilizing regular Catholics to push for the bishops’ immigration platform.



-- Washington Post, March 5, 2013



Wow. Not only are the bishops taking more than $4 million away from anti-poverty efforts in little more than a year, but they are investing it in a policy that will further depress wages in the occupations where the extra foreign workers will compete. And those occupations are disproportionately ones where the American workers in them already are making poverty or near-poverty wages.



Fortunately, our own polling has long found that most Catholics in the pews reject the bishops' priority of helping corporations gain more visas for foreign workers and of helping foreign citizens who have broken our immigration laws.



The Post seems to lament the fact, noting:



A recent Pew poll showed just 32 percent of churchgoing Catholics had heard about immi­gration issues at church. Among Catholics overall, just 7 percent said religion was the main force in shaping their immigration views.



That suggests that most priests are not as blind to the needs of their working-class parishioners as are the bishops, and that the priests refuse to preach the glories of a loose labor market.



About the 7% figure, I don't take the result to mean that Catholics' immigration views are uninformed by moral concerns. It may just mean that they use a moral compass that is stronger and different from the open-borders pronouncements of their bishops.



OK, my comments are harsh. I don't believe at all that the bishops WANT to help employers make more money on the backs of workers drawing lower wages. I don't believe the bishops WANT the gigantic economic underclass of Black and Hispanic Americans to grow. I don't believe the bishops THINK that loose labor markets that encourage greater and greater income disparity in our society are a moral good.



Really, I don't believe the Catholic bishops think those things at all -- even though those are the logical results of their preferred immigration policies.



But it doesn't seem like the bishops even THINK about the possibility of the results of their actions because they have made an idol out of immigration and a fetish out of concern for immigration lawbreakers as their priority concern. And they have allowed that to blind them to the pain and suffering of this country's most vulnerable citizens.



I can sort of understand how the bishops can make a mercy case for the 11 million illegal aliens. But I can't understand at all why they are spending anti-poverty funds to insisting on adding millions more new immigrant workers while 20 million Americans can't find a full-time job.



We should always remember that all these religious leaders who are demanding an amnesty for illegal aliens are also demanding a "comprehensive immigration reform" package that includes huge increases in future immigrant workers.



Would somebody explain to me what the bishops' argument is for increasing foreign workers in the future? If they were willing to care as much about poor Americans as they do about illegal aliens, the bishops would at least be demanding that the amnesty include large cuts in future green cards and worker visas? Why don't they?



Really, I would like to know because I have to believe that this nation's Catholic bishops are good people who mean well.



ROY BECK is Founder & CEO of NumbersUSA



NumbersUSA's blogs are copyrighted and may be republished or reposted only if they are copied in their entirety, including this paragraph, and provide proper credit to NumbersUSA.

The Looming Tower author Lawrence Wright on the state of al Qaeda

A very interesting post from www.HughHewitt.com about al-Qaeda on the anniversary of the Madrid bombings. This follows this post about Japan two years after it got hit by the tsunami. This follows this post about the state of Latin America after the death of Hugo Chavez. In the meantime, you can read two very interesting books HERE.

The Looming Tower author Lawrence Wright on the state of al Qaeda

HH: Special hour of the program today with Lawrence Wright, author of The Looming Tower, and correspondent for the New Yorker magazine. Lawrence, welcome back, always a pleasure to talk to you.
LW: Thank you, Hugh, good to talk to you again.
HH: I’m going to New York tonight. I’m sorry, I guess you’re not playing. Your blues band is not going to be playing this weekend at the Hill or any place?
LW: Look, that was the most fun I’ve had in a long time. It made me wonder how I ever got into this writing gig.
HH: Well, it is about the writing gig I’m calling. Every, at least once a year, I like to check in with you. And you wrote on 9/11 over at your New Yorker blog that eight years after 9/11, many analysts are saying that al Qaeda is finished. That’s not true. What is the status of al Qaeda as we round into the end of 2009, Lawrence Wright?
LW: Well, the core of al Qaeda is very much reduced. The Egyptian intelligence told me they thought it was about 200 guys. And the CIA says three to five hundred. But whichever figure you take, it’s still a lot less than it was before 9/11. And you know, they’re under siege. There’s no doubt about it. But on the other hand, they’ve developed these affiliates in North Africa, Yemen, Iraq, Saudi Arabia. You know, some of those places, Somalia, Mali, that they really weren’t present before 9/11. So the banner has spread. And then there are a lot of al Qaeda wannabes who are like pirates. They just run up the al Qaeda flag, although they might not have very much real connection to them. So you can say that the idea has spread, the affiliates have spread, but the mother ship itself is in hiding. And that’s good. I mean, I think that the war on al Qaeda is going pretty well, except that we haven’t gotten bin Laden, and we haven’t gotten, really, any member of the inner council since Abu Hafs al Masri in December of 2001.
HH: How do you understand our efforts to cut off their financing to be going?
LW: You know, they are under financial pressure. There’s no doubt about it. But Hugh, the truth is that terrorism is a really cheap enterprise. It doesn’t cost a lot of money to be a terrorist. And if you look at, say, the first, big operation was the Embassy bombings in 1998 in East Africa. And that was financed by a couple of guys with a fishing boat. You know, I mean, they just didn’t have very much money. And they’ve been pretty scrupulous about accounting for that money. For instance, the 9/11 hijackers, 9/11 cost about a half a million dollars, but at the end, the hijackers were sending money back, because they had more than they needed. So the concept that you need suitcases of cash or vast resources to operate al Qaeda, I think, is mistaken.
HH: Before we walk through the practical situation in these various countries, Lawrence Wright, since you read what they write, has their ideological fervor diminished? I know about 18 months ago, you wrote in the New Yorker about a split that was developing with one of the ideological godfathers of al Qaeda in an Egyptian prison. Has that chasm widened? Or does the fever remain at high pitch?
LW: No, actually, I think this is the most hopeful development in what I see as the final game, the end game of al Qaeda, is that their ideology is fracturing. The guy you’re referring to is Dr. Fadl, Sayyed Imam al-Sharif is his real name. And he was the chief ideologue of al Qaeda. He was also the emir, the leader of the group that Ayman al-Zawahiri had in Egypt. But he’s the guy who wrote the books that al Qaeda gives to its recruits. And they are, they’re the books that say that every Muslim must be at war with non-believers, and that all the leaders of the Arab countries are infidels and must be killed, and so must everybody that follows them, and so must everybody who votes, and works for the government and other police. That’s the kind of takfiri ideology that al Qaeda raises its recruits on. Now Fadl was captured in Yemen after 9/11 and sent to Egypt, where he’s in prison now. And he wrote a renunciation of his views. It’s very strident, very fascinating. And yes, of course, he’s in prison, so you have to discount that. But it is closely reads, and very much a threat to Zawahiri, who wrote an entire book in response. And since then, there have been a number of other developments, for instance, the Libyan fighting force, which was an affiliate of al Qaeda, about ten days ago renounced al Qaeda’s violence. And the most prominent cleric in the Sunni portion of the Islamic world, Yusuf Qaradawi, just recently contributed his thoughts in declaring, saying that al Qaeda was a mad declaration of war on the world. And this is just, these are just a series of developments that have been going on for a while that show that within radical Islam, there is a tremendous controversy, and al Qaeda’s not very well defended to take care of that kind of controversy.
HH: Within radical Islam, of which al Qaeda’s a variant within that…
LW: Yeah.
HH: Has there been any kind of, outside of al Qaeda, a rethinking of how to achieve its goals through proselytizing as opposed to conquest? Is that underway?
LW: You know, they can’t achieve their goals that way. The…al Qaeda is essentially built on action. It gets its recruits from dramatic strikes against the West, and as it turns out, against other Muslims. And it’s failed in that regard. I mean, if you look back at the Embassy bombings, and the Cole bombing, and 9/11, there were three years where you had major attacks one after another each year, and then eight years and no attacks against America. The only real attacks that you can attribute to al Qaeda in the West, London and Madrid, and Madrid is pretty, you know, tangential. So al Qaeda’s really been marginalized, as far as its actions go. And other people are acting in its name, and where it’s been able to strike, it’s been against Muslims.
HH: Now Lawrence Wright, we’re talking the day after the arrest in Massachusetts of a would-be jihadi…
LW: Yeah.
HH: And a month after the arrest of at least one jihadi who drove the bus at Denver. What did you make of those two incidents?
LW :Well, the question is, you know, what occurred to me when these things began to happen, there are other incidents as well that happened prior to this, are we becoming more like the situation in Europe where you have home grown jihadis turning against the country? And that could be true. We have a population of about two and a half million Muslims in this country. But the truth is, our Muslims in this country, we’re so blessed by this community, it’s so much better off than, it’s the wealthiest Muslim community in the entire world, Saudi Arabia included. They make about as much money as the average American, they’re just as likely to go to college or graduate school as the average American, far less likely to go to prison. And those kinds of things are, I can’t tell how…like France, let’s take France for a minute. 12% of the French population is Muslim, about. 60% of the prisoners are. Now that shows you what a tremendous difference there is…
HH: Wow.
LW: …in the kind of alienation and marginality those people feel in that society as compared to this one. So yes, we have bad actors. And I remember a few years ago, I was having iftar in Birmingham, England with some radical Muslims. And iftar is the meal you take to break the fast at the end of the day in the month of Ramadan. And one of the companions said that he supported the kidnapping and beheading of aid workers in Iraq, which was taking place at that time. And I thought to myself, you know, this guy is really dangerous. And we have people like him in this country. But I looked around the table, and I saw all these nodding heads, you know, these guys agreeing with him. And I thought well, you know what’s really dangerous are those nodding heads, because they surround him with a community of approval. And they allow him to think those thoughts out loud, and maybe recruit others to his thinking, and actually act out the consequences of those thoughts.
HH: Yeah, I’ve had a number of law students who are Muslim over the years, and so I know what you speak about the fact that the American Muslim community is simply not radicalized in the way the European Muslim community is.
LW: Right.
HH: But I was wondering about the command and control structure of al Qaeda. There are some reports that both of these recent characters had connections back to the mother ship, as you called it. Do you credit those?
LW: Well, the Afghan, he went to Pakistan, and actually met Abu Yazid al Masri, who’s the head of al Qaeda in Afghanistan. That’s pretty impressive. So the other guy wasn’t able to hook up with jihad at all. So I am concerned that he can get to al Qaeda that quickly.
- – - –
HH: Lawrence Wright, I taught the terrorism cases this week to my Con Law students. And of course, the Supreme Court took certiorari again in another terrorism case this week. But I asked the 60-65 students I’ve got how many of them anticipate an attack on America in the next year. Not one. And I generally believe that America has now discounted the threat from Islamist extremism in the United States to the point where very few people expect it anytime soon. Do you concur with that assessment?
LW: Yes, in general, I think that the chances of an attack are low, but not zero. And so if you ask me if there was an attack tomorrow in the U.S., would I be surprised, no I would not be surprised, but I don’t expect it. I know that they are relentlessly attempting to make another strike.
HH: That’s what I was going to ask you next. Have they abandoned the attack on America because of its tactical futility, or because they simply lack the ability to do so?
LW: Well, I think that they are, first of all, the sanctuaries have been pretty much taken care of, and that was a key thing, because it’s one thing to have the internet and so on, but you really, you know, if you look at all the successful attacks that have taken place since 9/11, and well, go back to 9/11 and the Embassy bombings, they all had training. They all had on the ground training. And so al Qaeda’s handicapped in that way. It doesn’t mean that there might not be some cell somewhere secretly getting some training right now, but the other thing is I noticed, and I don’t know if this is still in effect, but five or six years ago, maybe it wasn’t that long ago, Zawahiri wrote a note to his followers, and essentially said go forth and do whatever you want. You know, kill Americans, strike at the embassies, the oil facilities, whatever you can do. But if you’re going to hit America, you have to clear it with us. And I thought that was an interesting clause, and it suggested to me that he didn’t want to follow up 9/11 with some strip mall bombing or something like that. He wanted to make an effect, because America is Broadway for them. And you know, if they’re going to have an attack, they want it to reverberate. So if you look at how diminished their news value is now, a lot of times they make statements that don’t even get into the newspapers or on television. They…in order to recover some of that, they’re going to have to make a big strike, and I think they’re going to be very hard-pressed to follow up with something like 9/11.
HH: That brings us then, Lawrence Wright, to Afghanistan, and the question of if we reduce pressure there, and if the President declines General McChrystal’s request for troops, or if over the next two years we draw down or retreat closer to Kabul, does al Qaeda reconstitute itself? Would the Taliban, in your estimate, treat them now as they did prior to 9/11?
LW: Honestly, Hugh, I’m going through kind of soul searching with myself about both Afghanistan and Pakistan right now. And I haven’t clearly decided what I think. But here is some of the elements of my thinking. Our presence there is very destabilizing. And if, it seems to me that there are only two possible outcomes that are realistic for Afghanistan. One is that we succeed in creating a semi-stable narco-state that’s run by warlords. And that’s the good scenario. The bad one is that the Taliban takes over, and it becomes a massive sanctuary for al Qaeda. That’s a pretty disheartening set of alternatives. And so I don’t think we ought to fool ourselves that we’re going to create a really successful democratic state that has anything like a prosperous economy. It’s a long way from our ability to do that. And yet we went in, we capsized Afghanistan. We do owe the Afghan people the effort to try to create some safety for them. Maybe the best way of doing that is by making our footprint a little smaller, and trying to operate less conspicuously, and stick to areas that are populated cities and things like that.
HH: Is a semi-stable narco-state such a bad thing for us? And second question, is it better for the average Afghan than the return of the Taliban?
LW: I think anything’s better for them than the return of the Taliban. The Taliban was a catastrophe when they were in government, and I don’t, even though there’s some talk about how they’ve wised up, if you look at their action, you know, just see what the Taliban in Pakistan has done with the burning of girls schools and so on. I don’t think they really learned their lesson. My feeling about the Taliban, and this is what I believe of all radical Islamists, they’re not really interested in government. They’re interested in purification. And they want to bring, make people become pure Muslims. And they leave the business of government sort of aside. I mean, when Mullah Omar was running the thing, he kept the treasury in a silver box under his bed. He really had no interest in government at all. And I don’t, you know, I look at where radical Islam has come to power. And you can say Afghanistan under the Taliban, Sudan when Hassan Turabi initiated the revolution, Somalia in part, and now you can see what’s happening in Iran, the first of the radical Islamic regimes. In every case, it’s a disaster. And I tell my radical Islamist friends, it’s like the crash test. You know, some of the dummies survive, but the car is always wrecked.
HH: Now in terms of, then, the choice before America, even though a semi-stable narco-state is horrible…
LW: Yeah.
HH: It’s a lot less horrible. Is that what you’re saying, Lawrence, Wright, than a Taliban state, and especially in that al Qaeda would be issuing forth again?
LW: I think that’s true. But you know, it’s still unappetizing. I mean, look at how disheartening it is to see the fraud underway in this recent election, and to think that we are so critical, for instance, of Ahmadinejad for stealing the election in Iran. But he’s not our ally. He’s not our guy. Karzai is. And we’ll be kind of stuck with him, and to some extent, we have to live with that. I don’t know how long the American people can take the complexity and the messiness of being deeply engaged in that part of the world.
- – - –
HH: Lawrence, I try and keep up with the books that are well-reported on this subject. And whether it’s Robin Wright’s Dreams And Shadows, or Amir Taheri’s The Persian Night, nobody quite gets the relationship, in my opinion, between Khomeinist Iran and al Qaeda, and Sunni Islamists, which hate each other, but appear to me to be operating at least sometimes in coalition as is now the case, I think, in Afghanistan and some regions of Pakistan. What’s your assessment of that operational compatibility?
LW: I think it’s fascinating, frankly. I agree with you. First of all, after we went into Afghanistan, a lot of al Qaeda guys took refuge in Iran, including bin Laden’s son, and the, Saif al-Adil, the al Qaeda security chief who’s still there, and according to a Saudi paper, there were at least five hundred al Qaeda guys that took refuge in Iran. I don’t know what’s happened to all of them, but some of them are still there. You go back to when Khomeini first took over in 1979, it was a tremendous shock to a lot of Sunni Muslims who had been talking about how they wanted to do this, and suddenly, in the Shia world, a major country becomes an Islamist institution. So it showed them it was possible. It game them hope, even though they felt that it was a heretical regime. Zawahiri, this was particularly true of him. He was very inspired, and yet, when we were in Iraq, remember deep in Iraq, when Zarqawi was murdering all the Shiites, and in the name of al Qaeda, still, Iran did not throw out the al Qaeda guys. They continued to cause mischief in Iraq. They, for instance, help out Hamas, which is also a Sunni group. So…in the eyes of radical Sunni Muslims, Shiites are heretical. And so why do they help them? The only answer I’ve come up with so far, Hugh, is it’s the Middle East.
HH: Now what about in Pakistan, where we have so many different players…I try and keep track. I really do, but it’s almost impossible to figure out who is fighting whom in the border regions, and in the Swat Valley, et cetera. What’s your assessment of radical Islam inside of Pakistan?
LW: This is another area where I’m, you know, re-jiggering my thoughts. I had, there was a conference, I’m in Washington right now, and there was a conference about al Qaeda the other day, and a retired Pakistani general and ambassador to the U.S. was talking about the current campaign that the Pakistani army is engaged in, in Waziristan, in the tribal areas. And he was saying frankly, the hardware that we’ve been given, in other words, by the Americans, is peanuts. And I said well, General, we’ve given you $11 billion peanuts over the years since 9/11, and is it really our fault that you don’t have the right equipment if you used all that money to build up your forces against India, and developed your nuclear arms, and by the same token, swell the Pakistani military into this outsized presence into Pakistani society, and make it one of the major investors. For instance, the Pakistan military owns banks and real estate and insurance companies. Where did all that money come from? I don’t mean to demonize Pakistan, because it’s suffered terribly since the war on terror. But I don’t think it’s America’s fault that the Pakistani military doesn’t have the right kind of equipment to go into Waziristan.
HH: Does anyone have a path forward there, though? Is there a strategic thinker in the whole country?
LW: I can’t answer that, but I can say that there’s a lot of conflict, yet probably we are closer together now in our strategic goals than we have been since the beginning of the war on terror, because the Taliban is waging war on the military itself. They killed a brigadier general just yesterday. They attacked the headquarters of the military a couple of weeks ago. It’s outright bloody war.
- – - –
HH: Lawrence, at the beginning of the hour, you mentioned al Qaeda in North Africa, in Yemen, in Iraq, in Somalia, in Mali. And I’ve got to go back there, because we only have two segments left. This is only an eight minute segment. So while progress has been made in Iraq, certainly, in other places, they’re back in Somalia again. And I don’t know that they’ve ever been crushed in Algeria, and I’ve read some very alarming things about the tribes of Yemen. Just take us on a tour of al Qaeda or radical Islamist ideology around the globe.
LW: Well, I think the first thing is, al Qaeda started by taking what were very disparate groups like the ones we’re talking about and putting them all under one umbrella. That was al Qaeda. It was a coalition. And it still is. But these were mostly nationalist groups. They had national aims. They didn’t have international aims. And what bin Laden was able to do was focus them on the idea that their problems are really international problems. In jihadi language, the terms are the near enemy and the far enemy. For instance, the Egyptian groups like Zawahiri were focused on the Egyptian regime, the near enemy. And the al Qaeda discourse says you know what? The far enemy is actually the near enemy. Look at America. It’s everywhere. It’s in the skies. It’s in the seas. It’s all around us. Our regimes would not be able to operate if it weren’t for America. And so the idea that there is a distant enemy is wrong. And that was a very persuasive argument for a lot of these groups. But the trouble is, from al Qaeda’s point of view, is they still are mainly interested in their own countries. The Libyan fighting forces, they’ve been now negotiating with Gaddafi’s regime, and they’re kind of pulling out. There are other places where it’s a little dicier. I think that Yemen is in a pretty rocky spot right now, because it’s a fairly new country. I mean, it had been two countries, and then North and South Yemen, and they tried to put them together, and they may break apart again. So it’s a very fractious country. And in a chaotic situation, al Qaeda does really well. In Somalia, historically, al Qaeda hasn’t done very well. But the Somalis are getting assistance from al Qaeda, and al Qaeda’s really trying very hard to make a presence there. I look at the geography of the Red Sea, and how Somalia and Yemen form a kind of Pincer at the opening of the Red Sea, and I wonder if in the minds of al Qaeda strategists they’re not thinking if we could control Yemen and Somalia, we’d be able to control the entire access to the Red Sea and the route through the Suez Canal. And of course, if they get Somalia, they’ll have a navy, too, of all those pirates.
HH: Yeah.
LW: So I guess I have more concern about that area of the world. bin Laden has been directing energy right now to the front line states against Israel – Jordan and Lebanon in particular.
HH: They have traditionally tried to topple the Egyptian government.
LW: Yeah.
HH: They have traditionally tried to attack the Kingdom and the monarchy. Have they given up the ghost? And do you see any progress there by these tottering, very dictatorial regimes to try and reform themselves to make al Qaeda a less, or radical Islam a less appealing alternative?
LW: Not a lot. I mean, I think that Mubarak’s reign is going to be over in the coming year, and his son will probably take over. And that’s, you know, he’ll be younger, but he’ll still be Mubarak. And I don’t know that that’s going to make any Egyptian feel any better about the state of democracy in that country. Saudi Arabia is a different situation, a different culture. I frankly think that King Abdullah’s done quite a lot to try to create civil society in a place where there’s practically none. But it doesn’t mean that there have been real gains. I have some Saudi friends, the last time I was there, that were showing me their voting cards, which were beautiful. They’re like passports. They have the official stamp of the Kingdom, and their photos inside, and it’s a real work of art. And with that voting card, they could vote for 49% of the city council. The King gets to vote for 51%, and the mayor. And with my crummy, little cardboard stub of a voting card, I can overthrow the government.
HH: Right.
LW: So you know, there’s a long, long way between what they have on their plate, and what will make them into a more moderate, stable country. But I actually think that King Abdullah wants to move in that direction. Whether his successor, who is right now Prince Nayef, has those same inclinations, I don’t really believe that.
HH: Now last question this segment, the young people of Europe about which we have heard so many alarms raised…
LW: Yeah.
HH: …especially the young Muslim population, does it continue to be radicalized? We’ve all seen the pictures of the cell phones playing the beheading videos, and things like that. Is that still moving as virulently through that population as it was, say, five years ago?
LW: Maybe not as virulently, but it’s still present. And the kind of socioeconomic situation that gave rise to that movement hasn’t changed. I think that there have been more moderate Muslim voices raised that have kind of helped to blunt that. But it’s, you know, I think the future of Islam, to some extent, is going to be found in Europe and America, which is where it comes face to face with forces of progress and modernity and democracy. And when Muslims learn well how to negotiate in those kinds of environments, they’ll be able to take those lessons back to their own, their previous cultures. And I think that that will make a change. But it’s going to be a while.
- – - – -
HH: Thank you, Lawrence Wright, for joining us again. I wanted to ask, you’re not meeting your demand curve. A lot of people are waiting for the next book after The Looming Tower, or another New Yorker article. I mean, you’ve got this…
LW: Well, the only thing I can say, I’m desperately looking for a new book. I just finished an article about Gaza that will be out in a couple of weeks in the New Yorker. So…but I’m, the shop doors are open. So I’m eager to find a new idea that would mean as much to me as my book on al Qaeda did.
HH: Give us a preview of what you found in Gaza.
LW: The place has been crushed, and there’s been no…well, first of all, just so people understand, Gaza Strip is 25 miles long, and 7 miles wide at its widest point. There are a million and a half people there. And for the last two years, they’ve been under a strict blockade that the Israelis have controlled whatever goes in there, have calculated more or less the calories needed to sustain life. And that’s how many truckloads of supplies they let in. Most people, half the population is under 18. And most people under 25 have never been out of there. So they’re really in this kind of open-air prison. And in December of last year, through January of this year, there was, one can’t really call it a war, because it was such a mismatch. But the Israelis just crushed the place. And most of the buildings are lying in rubble. All the buildings of government, many houses and so on, and because of this, there’s no supplies coming in, they’re just lying there. It’s really shocking and disheartening to see. I mean, whatever Hamas has done, and should be held to account for, a million and a half people in Gaza didn’t do those things.
HH: Does Hamas show any sign of moderating, to your view, Lawrence Wright?
LW: Yeah, I was interested in that. I got some signals, you know, for instance, they’re embarrassed about their charter, which is a ridiculous document, and even quotes the protocols on the elders of Zion, that famous forgery. They are actually engaged in talks that would try to…so they could release this prisoner of war that they captured, this Israeli, the young man named Gilad Shalit. Of course, they want hundreds, they want thousands, more than a thousand prisoners in return. So there is some movement that honestly, it’s a stalemate.
HH: We will look for that article in the New Yorker, and perhaps we can get you on to talk about it specifically. I appreciate, Lawrence Wright, the time always. Thanks for joining us.
End of interview.

A very interesting post from www.Stratfor.com about Japan two years after it got hit by the tsunami. This follows this post about the state of Latin America after the death of Hugo Chavez. In the meantime, you can read two very interesting books HERE.

Japan, the Persian Gulf and Energy

 

Stratfor

By George Friedman
Over the past week, everything seemed to converge on energy. The unrest in the Persian Gulf raised the specter of the disruption of oil supplies to the rest of the world, and an earthquake in Japan knocked out a string of nuclear reactors with potentially devastating effect. Japan depends on nuclear energy and it depends on the Persian Gulf, which is where it gets most of its oil. It was, therefore, a profoundly bad week for Japan, not only because of the extensive damage and human suffering but also because Japan was being shown that it can't readily escape the realities of geography.
Japan is the world's third-largest economy, a bit behind China now. It is also the third-largest industrial economy, behind only the United States and China. Japan's problem is that its enormous industrial plant is built in a country almost totally devoid of mineral resources. It must import virtually all of the metals and energy that it uses to manufacture industrial products. It maintains stockpiles, but should those stockpiles be depleted and no new imports arrive, Japan stops being an industrial power.
The Geography of Oil
There are multiple sources for many of the metals Japan imports, so that if supplies stop flowing from one place it can get them from other places. The geography of oil is more limited. In order to access the amount of oil Japan needs, the only place to get it is the Persian Gulf. There are other places to get some of what Japan needs, but it cannot do without the Persian Gulf for its oil.
This past week, we saw that this was a potentially vulnerable source. The unrest that swept the western littoral of the Arabian Peninsula and the ongoing tension between the Saudis and Iranians, as well as the tension between Iran and the United States, raised the possibility of disruptions. The geography of the Persian Gulf is extraordinary. It is a narrow body of water opening into a narrow channel through the Strait of Hormuz. Any diminution of the flow from any source in the region, let alone the complete closure of the Strait of Hormuz, would have profound implications for the global economy.
For Japan it could mean more than higher prices. It could mean being unable to secure the amount of oil needed at any price. The movement of tankers, the limits on port facilities and long-term contracts that commit oil to other places could make it impossible for Japan to physically secure the oil it needs to run its industrial plant. On an extended basis, this would draw down reserves and constrain Japan's economy dramatically. And, obviously, when the world's third-largest industrial plant drastically slows, the impact on the global supply chain is both dramatic and complex.
In 1973, the Arab countries imposed an oil embargo on the world. Japan, entirely dependent on imported oil, was hit not only by high prices but also by the fact that it could not obtain enough fuel to keep going. While the embargo lasted only five months, the oil shock, as the Japanese called it, threatened Japan's industrial capability and shocked it into remembering its vulnerability. Japan relied on the United States to guarantee its oil supplies. The realization that the United States couldn't guarantee those supplies created a political crisis parallel to the economic one. It is one reason the Japanese are hypersensitive to events in the Persian Gulf and to the security of the supply lines running out of the region.
Regardless of other supplies, Japan will always import nearly 100 percent of its oil from other countries. If it cuts its consumption by 90 percent, it still imports nearly 100 percent of its oil. And to the extent that the Japanese economy requires oil -- which it does -- it is highly vulnerable to events in the Persian Gulf.
It is to mitigate the risk of oil dependency -- which cannot be eliminated altogether by any means -- that Japan employs two alternative fuels: It is the world's largest importer of seaborne coal, and it has become the third-largest producer of electricity from nuclear reactors, ranking after the United States and France in total amount produced. One-third of its electricity production comes from nuclear power plants. Nuclear power was critical to both Japan's industrial and national security strategy. It did not make Japan self-sufficient, since it needed to import coal and nuclear fuel, but access to these resources made it dependent on countries like Australia, which does not have choke points like Hormuz.
It is in this context that we need to understand the Japanese prime minister's statement that Japan was facing its worst crisis since World War II. First, the earthquake and the resulting damage to several of Japan's nuclear reactors created a long-term regional energy shortage in Japan that, along with the other damage caused by the earthquake, would certainly affect the economy. But the events in the Persian Gulf also raised the 1973 nightmare scenario for the Japanese. Depending how events evolved, the Japanese pipeline from the Persian Gulf could be threatened in a way that it had not been since 1973. Combined with the failure of several nuclear reactors, the Japanese economy is at risk.
The comparison with World War II was apt since it also began, in a way, with an energy crisis. The Japanese had invaded China, and after the fall of the Netherlands (which controlled today's Indonesia) and France (which controlled Indochina), Japan was concerned about agreements with France and the Netherlands continuing to be honored. Indochina supplied Japan with tin and rubber, among other raw materials. The Netherlands East Indies supplied oil. When the Japanese invaded Indochina, the United States both cut off oil shipments from the United States and started buying up oil from the Netherlands East Indies to keep Japan from getting it. The Japanese were faced with the collapse of their economy or war with the United States. They chose Pearl Harbor.
Today's situation is in no way comparable to what happened in 1941 except for the core geopolitical reality. Japan is dependent on imports of raw materials and particularly oil. Anything that interferes with the flow of oil creates a crisis in Japan. Anything that risks a cutoff makes Japan uneasy. Add an earthquake destroying part of its energy-producing plant and you force Japan into a profound internal crisis. However, it is essential to understand what energy has meant to Japan historically -- miscalculation about it led to national disaster and access to it remains Japan's psychological as well as physical pivot.
Japan's Nuclear Safety Net
Japan is still struggling with the consequences of its economic meltdown in the early 1990s. Rapid growth with low rates of return on capital created a massive financial crisis. Rather than allow a recession to force a wave of bankruptcies and unemployment, the Japanese sought to maintain their tradition of lifetime employment. To do that Japan had to keep interest rates extremely low and accept little or no economic growth. It achieved its goal, relatively low unemployment, but at the cost of a large debt burden and a long-term sluggish economy.
The Japanese were beginning to struggle with the question of what would come after a generation of economic stagnation and full employment. They had clearly not yet defined a path, although there was some recognition that a generation's economic reality could not sustain itself. The changes that Japan would face were going to be wrenching, and even under the best of circumstances, they would be politically difficult to manage. Suddenly, Japan is not facing the best of circumstances.
It is not yet clear how devastating the nuclear-reactor damage will prove to be, but the situation appears to be worsening. What is clear is that the potential crisis in the Persian Gulf, the loss of nuclear reactors and the rising radiation levels will undermine the confidence of the Japanese. Beyond the human toll, these reactors were Japan's hedge against an unpredictable world. They gave it control of a substantial amount of its energy production. Even if the Japanese still had to import coal and oil, there at least a part of their energy structure was largely under their own control and secure. Japan's nuclear power sector seemed invulnerable, which no other part of its energy infrastructure was. For Japan, a country that went to war with the United States over energy in 1941 and was devastated as a result, this was no small thing. Japan had a safety net.
The safety net was psychological as much as anything. The destruction of a series of nuclear reactors not only creates energy shortages and fear of radiation; it also drives home the profound and very real vulnerability underlying all of Japan's success. Japan does not control the source of its oil, it does not control the sea lanes over which coal and other minerals travel, and it cannot be certain that its nuclear reactors will not suddenly be destroyed. To the extent that economics and politics are psychological, this is a huge blow. Japan lives in constant danger, both from nature and from geopolitics. What the earthquake drove home was just how profound and how dangerous Japan's world is. It is difficult to imagine another industrial economy as inherently insecure as Japan's.
The earthquake will impose many economic constraints on Japan that will significantly complicate its emergence from its post-boom economy, but one important question is the impact on the political system. Since World War II, Japan has coped with its vulnerability by avoiding international entanglements and relying on its relationship with the United States. It sometimes wondered whether the United States, with its sometimes-unpredictable military operations, was more of a danger than a guarantor, but its policy remained intact.
It is not the loss of the reactors that will shake Japan the most but the loss of the certainty that the reactors were their path to some degree of safety, along with the added burden on the economy. The question is how the political system will respond. In dealing with the Persian Gulf, will Japan continue to follow the American lead or will it decide to take a greater degree of control and follow its own path? The likelihood is that a shaken self-confidence will make Japan more cautious and even more vulnerable. But it is interesting to look at Japanese history and realize that sometimes, and not always predictably, Japan takes insecurity as a goad to self-assertion.
This was no ordinary earthquake in magnitude or in the potential impact on Japan's view of the world. The earthquake shook a lot of pieces loose, not the least of which were in the Japanese psyche. Japan has tried to convince itself that it had provided a measure of security with nuclear plants and an alliance with the United States. Given the earthquake and situation in the Persian Gulf, recalculation is in order. But Japan is a country that has avoided recalculation for a long time. The question now is whether the extraordinary vulnerability exposed by the quake will be powerful enough to shake Japan into recalculating its long-standing political system.