Ruminations, November 22, 2009

Eastern Europe defends itself

In 1921, the resurrected country of Poland was three years old and had just concluded a moderately successful war against the Soviet Union. Polish leader Jozef Pilsudski, looking east, knew that the Soviets, with three times Poland’s population, would be formidable opponents once they had righted themselves. Looking west, Pilsudski saw a formidable German nation that had fought a war but had not had any damage on its own soil. To survive between these two behemoths, a nation would have to be big and strong and Poland wasn’t either one.

With that in mind, he sought to diplomatically restore the boundaries 17^th Polish-Lithuanian Commonwealth. As the largest country in Europe at that time, the commonwealth included Poland, Lithuania and Ukraine and was an influential military force in Central and Eastern Europe. Pilsudski tried to make the point to both Lithuania and Ukraine that none of them would survive a German-Soviet onslaught individually, but he could not sell the idea of consolidation; in the 17^th century, Poland had dominated the commonwealth both economically and culturally and neither Lithuania nor Ukraine wanted to subordinate themselves again. Therefore, they were willing to risk their independent survival on the magnanimity of the Soviet Union and Nazi Germany.

When those diplomatic efforts failed, Poland established defense treaties with England and France, but that didn’t work out too well either. When Poland was attacked by Germany, both England and France declared war on Germany and then sat on their hands for a year, until Germany was ready to attack them. If Poland, Lithuania and Ukraine had consolidated, we don’t know what would have happened in 1939 but we do know what happened when they operated independently: one-by-one, they fell to the Soviets and to Germany.

Recently, Poland thought it had finally had an ally who was dependable — the United States. The United States had stood firm in the face of Russian threats and announced that it was working with Poland to establish a missile defense system. But then President Obama, seeking to placate Russia, pulled the plug on the missile system. Russia expressed its gratitude – not; they conducted war games in which they simulated nuclear attacks on Poland.

If that doesn’t sound ominous to Eastern Europe, how about Russian Premier Vladimir Putin referring to Ukraine as “little Russia?” Or, Russia stopping the delivery of oil and gas to Lithuania?

Of course, Lithuania and Poland are members of NATO and Ukraine has applied for membership. But NATO, without the United States, is essentially a paper army. And the United States forces are tied up in the Middle East.

It looks like it’s time to trot out the old Pilsudski strategy again. Last week, the creation of a joint brigade of Polish, Lithuanian and Ukrainian troops was announced by Polish Deputy Defense Minister Stanislaw Komorowski, Lithuanian Defense Minister Rasa Jukneviciene and acting Ukraine Defense Minister Valeriy Ivaschenko. It’s not a political union and a brigade is not an army but it’s a start – a start in self-defense, and, given the reliability of the allies of Eastern Europe, self-defense makes sense.

Maybe this time the Pilsudski strategy will serve as a deterrent. Let’s hope so because as a backup to the brigade, the three countries are developing a defense plan with NATO.

The currency battle with China

It has been said that if you owe a bank ten thousand dollars, the bank owns you. On the other hand, if you owe the bank 10 million dollars, you own the bank. The point being that in the second instance, the debtor can have such a significant impact on the bank that the bank will go to extremes to avoid having the debtor default.

As the banker of the United States, China is in the position of being “owned” by the United States – to a degree. When you find yourself in the position of a bank with a big debtor, you do two things: (1) encourage the debtor to make themselves fiscally viable and (2) look for other venues to make yourself fiscally strong.

At the conference in Beijing last week, the Chinese encouraged the United States to make itself fiscally viable and take the necessary steps to cut the deficit and ensure that the dollar is stabilized. The implication is that U..S. spending is out of control and China’s President Hu Jintao is especially concerned that the health care bills going through the U.S. Congress are too expensive and will dramatically increase the deficit, which will decrease the value of the dollar.

At the same time, China is looking for other venues to make itself fiscally strong. One technique that China is using is to continue to link the value of their currency (the yuan) to the dollar. This does two things: (1) it keeps the yuan artificially low and therefore China retains its trade advantage vis-à-vis the dollar and maintains its economic model as an exporter. And (2) since there is upward pressure on the yuan, tying it to the dollar keeps the value of the dollar higher than it would be without the tie.

Of course, the downside of the Chinese machinations is that while creating export jobs in China, they slow the creation of jobs in the United States and put political pressure on President Obama to create more jobs through more deficits; more deficits put downward pressure on the dollar and have a negative effect on China’s U.S. holdings.

The United States and President Obama (and President George W. Bush, when he was in office) would like to see China allow the value of the yuan to increase. That would appreciate the cost of Chinese goods while creating jobs in the United States.

So in Beijing, it came down a simple argument between Hu and Obama. Hu, knowing with the amount of debt that the U..S. owes China it owns China nonetheless told Obama to stabilize the dollar. Obama, knowing that as a debtor he owns China, replied: Up your yuan.

Show trials

In 1922, the Soviet Union instituted the first of what would be known as show trials. A show trial is the term used for a highly public trial in which the verdict of guilty is preordained and the trial itself is merely a show.

This came to mind when Attorney General Eric Holder announced that Khalid Sheikh Mohammed (KSM) and four other alleged terrorists would be tried in public court rather than in a military tribunal at Guantanamo Bay.

But, in the American legal system, there is the presumption of innocence. Given that, isn’t there a possibility that KSM will be found innocent? According to Holder, the answer is no. “Failure [to find KSM guilty] is not an option.”

President Obama added that he thought that KSM would be “convicted and …the death penalty [would be] applied.”

The Administration’s dancing around the issue of the courts setting KSM free was summarized by the New York Times when it said that the Administration, in case the court did set KSM free, “suggested that they could continue to detain anyone deemed to be a ‘combatant.’”

So, let’s see. The top executive and top prosecutor of the United States say that, in effect, KSM is guilty and will be executed. And even if in the unlikely event that KSM is found innocent, he will be “detained” in prison anyway.  So, what’s the point of transferring KSM to a New York Federal court if the presumption of innocence does not exist and the verdict and punishment have already been decided?

Now, ostensibly, the purpose of the trial is to show the world that everyone stands equally and fairly before the unbiased American legal system. Clearly, this will not be the case. Then why do it unless…unless…Could this be nothing but a show trial?

The Russian newspaper Pravda has had a recurring theme for the last few months stating that the United States is becoming more and more like the old Soviet Union. I hope they’re not right.

Different pages

When Attorney General Eric Holder announced the decision to try Khalid Sheikh Mohammed in Federal Court in New York he said that the decision was his and his alone. Holder said that he immediately informed the President Obama of his decision. The President concurred.

When New York Governor David Paterson (D) was informed of Holder’s decision he said that he already knew it. Paterson said that he was informed by the White House six months ago.

It might be more impressive if Paterson, Holder and Obama were all on the same page of the same script. Right now it seems as if someone is ad-libbing.