The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick
Kevin: We have Don McAlvany in the studio with us today. Don, you are here today, having come back from all your travels. I think one of the things that we are really wanting to hear from you is this: Democracy in the Middle East? Is it real?
Don: You have to be joking. (laughter) Whoever said there is democracy in the Middle East was wrong. Oh! President Obama did. Well, there has never been democracy in the Middle East, not in all of history, maybe with the exception of Israel, and we would say that probably will continue to be the case.
What is being told to us by our leaders about how we are going to change the world for democracy in the Middle East is not realistic, it is not going to happen, and indeed, it is an excuse for another agenda that I think is probably under way.
David: Let’s talk about that, because there is obviously a significant back-story. Not only have we seen a shift in the balance of power, but I am not sure that many news media viewers today are aware of what actually is happening in the Middle East. What they are being told is that it is all positive, and it is all for democracy. Maybe you could just give us some of the back-story and look at foreign policy disasters that we have had in the past, whether it was related to Batista, Somoza, the Shah – this is not the first out of the bag for us.
Don: The political left, I think, certainly in the State Department, and elsewhere in our government, has supported leftist groups, or actually fundamentalist Muslim groups coming to power, going back for 35-40 years, or longer, in fact, going all the way back to almost the end of World War II. We saw this strange thing where in 1958-1959 we had the State Department pull the rug on Batista and help place Juan Fidel Castro into power. He was a communist and we wonder why they did that.
But that was not the only thing. We saw that same State Department pull all the support away from Chiang Kai-shek a little bit earlier in 1949 in the middle of the Chinese Civil War and, basically, enable the Chinese communists to come to power. That was 1949, and in 1959 the Castro thing.
Then I guess you could go on to 1979, where Jimmy Carter pulled the rug out from under the Shah of Iran, and the U.S. government actually supported the rise of Khomeini to power, fundamentalist Muslims, not the first or the last time, maybe the first, but not the last time, that we have supported fundamentalist Muslims.
We also pulled the rug out from under Somoza and helped the Sandinistas to come to power about the same time. We also pulled the rug out from under Ian Smith and the free peoples of Rhodesia, now known as Zimbabwe, and our government helped place Robert Mugabe into power. I was there. I saw it happen. You can go on, and on, and on, where the people in our State Department or government have been supporting our enemies and bringing people to power who do not believe in the United States. We supported Arafat and the PLO and Arafat was very clearly a Soviet asset, had been for many, many years. Now the leftists in our State Department are sympathetic to the Hezbollah in Lebanon, and to the radicals down in Gaza.
Why do we see these people supporting people who are totally against American interests, against Western interests? The answer is that there has been, over the last 25-30 years, but especially in recent years, a merger between the interests of the far political left – call them communists, call them Marxists, call them ultra-socialists – the far political left in Europe, England, and America, and radical Islam.
I know many Muslims. I have Muslim friends, but there is also the brand of Islam that is the radical fundamentalist, certainly personified today by the rulers in Iran, and there has been a merger between their common interests. Common ground has been found, if you will, between the far political left, and the radical fundamentalists. All of this is germane to what is happening in the Middle East today.
David: As I look at this, it seems like there is a calculus involved, but whether it is a political calculus or not, I would read it as simply bad math. It does not seem to be well put together. It does not seem to be well thought out. It seems that at every opportunity we are doing the wrong thing at the wrong time. Maybe that is just from a particular vantage point. Is there actually an intended outcome here?
Don: When I see people making the same kinds of mistakes over and over and over, consistently, and they never make a mistake in our favor, it does make me wonder. Let’s go back to the case of the Shah of Iran. There is an incredible book which is now out of print, but you might get hold of it through Amazon, for instance, called, The Shah’s Story. This was the autobiography of the Shah of Iran written several years after he was overthrown by the Carter administration and they helped place Khomeini into power. In this book, he gives a strategy, if you will, the pattern of how the American government has undermined its friends and helped put its enemies into power.
In the years before these popular revolts, like we have been seen in Egypt, and Tunisia, and what we are seeing now in Libya, Yemen, Syria, Bahrain, and God forbid, one is coming, we are afraid, in Saudi Arabia, in each instance, he points out in his book that the U.S. government steps in, people in the State Department, sometimes the CIA, and they support these revolutionaries, these rebels, behind the scenes. This is exactly what the Daily telegraph reported about a month or so ago, that for three years the U.S. government has been supporting the revolutionaries in Egypt to overthrow a person who was supposedly our ally. We gave him billions and billions of dollars of military aid, and yet, as the Daily Telegraph reported, we were supporting the revolutionaries.
If you look close at the revolutionaries in Egypt, you will find they are heavily backed by Iran, by the Muslim Brotherhood, and you can see the same thing in Libya. In fact, in each one of these popular revolts, where we are now siding with the rebels, we are finding that there is backing from fundamentalist Iran. This is why Saudi Arabia is so angry at the United States right now that they are going over and trying to cut all kinds of deals with China, because they realize the United States may betray them, just as we helped betray Mubarak, just as we betrayed the Shah of Iran. It is just really strange how we are supporting people who are totally against American interests, against the West. They will destroy us, destroy Israel if they can. What is this? What is going on? There is a certain consistency in our foreign policy, and it is always against U.S. interests.
David: What would you make of Hilary Clinton’s unprecedented move just a couple of months ago of bringing all of our U.S. ambassadors back to Washington for closed-door meetings?
Don: Clearly she and the powers that be saw the upheaval that we all see now in the Middle East, so I am sure that briefings about that coming upheaval were certainly part of it. There probably was more, but they knew a crisis was coming and I think briefing all of their people was probably very much in order.
What is a little confusing, though, is how our State Department and intelligence community are supporting rebels. Even the mainline press says, “We don’t know anything about them. Are they good guys or are they bad guys?” Well, there is strong evidence that they are bad guys, that the Muslim Brotherhood is behind a lot of these revolts, and Iran is behind a lot of these revolts, so there is a certain inconsistency there. We warn our ambassadors the upheaval is coming, and yet we are supporting people who, when they come to power, certainly are not going to bring democracy.
Let’s just dispel the idea that democracy ever has, or probably ever will, exist in the Middle East, except in Israel, which I think is very clearly a democracy, but in the rest of the Middle East, good grief Charlie Brown, we are not supporting people who have ever believed in democracy. It is just not going to happen. So what is our purpose? Are we just supporting our oil interests? We are bombing Libya, and as we are sitting here today, there is some talk of U.S. troops actually going into Libya, though I don’t know if it will happen or not.
By the way, David, I don’t understand something. Why did a president who now has us in three wars get a Nobel Peace Prize in the first month or two that he was in office? What don’t I understand about that?
David: Clearly, the committee was misjudging his vast experience in world politics and international relations.
Don: David, let me answer that question for you. There is no good answer. Let me just say this. Think about this, folks, who are listening out there to us today. What is the common denominator behind the countries where the governments are being overthrown and replaced? None of them were fundamentalist Muslim governments. None of them were actively and overtly opposing the U.S., with maybe the exception of Syria. Syria is having its upheaval today, and I guess you would not call them a close ally of the United States. Tunisia was not a threat to the United States.
Libya was not a threat to the United States. Libya is a bad guy. Khadafi is a bad guy, we know that. He tried to kill you and me, David, 21 years ago when we were supposed to be on Pan Am 103. He and his people blew it up and by an act of God, we were not on that plane, so I have no love for Khadafi. But let me tell you something. After he got bombed by Reagan, and a few more times, he basically stopped being a bad guy and just kind of started minding his own business. He was not a threat to us.
Mubarak was not a threat to us. He thought he was our ally. The president of Yemen, who is about to be overthrown, and who we supported and now we are withdrawing support, was not a threat to us. Saddam Hussein was not a threat to us. There was all the fuss about the weapons of mass destruction that he had. Well, we knew he had weapons of mass destruction. Bush senior sold them to him from 1985 to 1990. That is how we knew they were there. But before the bombing ever started, Saddam had moved them out, he moved them to Syria, in big Russian troop conveys, with the Spetsnaz, on that evacuation.
Why did we attack Saddam? Do you realize that in Saddam’s era Christians could actually have programs on Easter on national television? Saddam was, like these other leaders, more of a secular Muslim. He was not a radical fundamentalist. He had had this crazy war for almost ten years with Iran, in which over a million people died, and it was very, very sad, but he was a buffer to stop the Iranian fundamentalists who are the new, rising superpower in the Middle East, and want to take over everything, including Saudi Arabia. He was that buffer, and we removed him.
The people that we have withdrawn support from, and, in fact, we have been helping their opposition, in every case they are not fundamentalist, they have not been attacking American interests, and now the people who are coming in are fundamentalists, and are attacking American interests. What is wrong with that?
David: Let me just see if I understand the backdrop here, because we have had our monetary policy and the central bankers from around the world following suit, creating a tremendous amount of liquidity that is driving the price of commodities up on a global basis.
Don: And our stock market, by the way.
David: And so we saw people setting themselves on fire in Tunisia and in Egypt, and what started, actually, as protests related to the rising costs of food, then snowballed into something else. I guess what you are describing is an opportunistic move on the part of the Shi’ite groups, sponsored and funded through Iran, to drive this energy toward a particular goal, and that particular goal includes Saudi Arabia.
Don: Sure. I want to back up and say that many, many of the people, the great majority of the people out on the streets demonstrating, do want freedom. They do want freedom. They want more bread, they want more food, and they want to be able to get it at affordable prices. So sure, there were a lot of people who hit the streets who just wanted a new regime and a better life.
But, of course, the fundamentalists came in and have been taking this over. The radicals have taken it over in each and every one of these countries. What has been the trigger? This goes back to our monetary policy. The Fed is creating trillions of dollars, we know that, out of thin air. That is creating a global inflation. This global inflation is driving food prices up. Now, there are other reasons why food prices are going up, because of droughts and famines and floods, and so forth, but food prices are going up, and this is being exacerbated by our Federal Reserve.
Oil prices are going up, and that is being exacerbated by the upheaval in the Middle East. All of these things are working together. My recent newsletter is entitled, “The World in Turmoil, Surviving In The Perfect Storm.” Good grief, you have the earthquakes and the tsunamis, and the potential nuclear meltdown going on in Japan, which is causing waves in the financial markets, you have upheaval spreading throughout the Middle East.
David: By the way, before you move on to the Middle East, what were you doing flying through the Narita airport just a few weeks ago?
Don: It wasn’t the Narita airport, it was the other airport, in Tokyo, and if I look like I am glowing here now, it is not because I am talking so fast and this room is hot. I was only there for two hours and it was because I could not change my plane.
David: Okay, how about the Middle East?
Don: There is this perfect storm that is developing all over the world, and I know you guys have talked about this in earlier programs. All of these things are hitting at the same time. I am not saying that our Federal Reserve, by printing trillions of dollars and pushing all prices in the world up, triggered these crises, but they were triggered by food riots, and now they have spread into something that is quite different, because other people have come in and harnessed the energy that was out in the streets.
You have the sovereign debt crisis in Europe, with Portugal on the edge now, and that thing is not going away. You have the potential of a hyperinflation, with our Fed printing money like there is no tomorrow. I guess the only good news I can find is gold just hit $1475 and silver just hit $41-42 and I guess people who took our advice are doing well from that.
We are living in a world of a lot of turbulence and a lot of conflicts are coming together at one time. I do not want to get too far away from the Middle East, but let me say this: If there is a revolution that breaks out, a Shi’ite-backed, Iranian-backed revolution that breaks out in Saudi Arabia, you will see $200-a-barrel oil, and you will see it literally overnight. We will go through $150 and $175 so fast you will not believe it. If the royal family should be overthrown – and they are targeted by the Iranian Shi’ite fundamentalist government – if they should be overthrown, you could see $250-300-a-barrel oil. Now, look at what that does to food prices, global inflation, and a very shaky world financial system.
David. What is interesting is that if the U.S. is not going to be the security backstop, the paid interest, if you will, to be the bodyguard there in Saudi Arabia, and the new arrangement is either between the Chinese or the Russians, maybe the Shi’ite revolution cannot and will not occur. But what you will find instead of F16 fighters sitting there on the tarmac, protecting the royal family – what if it is MIGs this time around?
Really, what we are talking about, not only in the shift of balance of power, we may see stability in the Middle East, but we somehow get written out of the script. And it is just one more theme that we have in terms of the dollar, the U.S. treasury market, and the U.S. capital markets, taking a step down, as others move forward. Listen, if there is a crack in the dam, that pressure will find its way through. That is essentially what we have – the burgeoning dollars being collected in China, the burgeoning interest by Putin and his crowd in Russia. If they can find weakness in our foreign policy, you had better well believe they will take advantage of it.
Don: David, you know I just came back from Asia. I spend about six months of the year in Asia, and you have heard me say, and I have written in my newsletter many times, the wave of the future is Asia. The baton of greatness, world leadership, that we had throughout the last century, and Britain had in the century before, is now passing to Asia, and in particular, to China, and secondarily, to India. Since Bretton Woods in 1944, the U.S. was the dominant influential factor that called the shots in the world financial monetary system. Now we are losing that, and that baton is now passing to China.
China is openly talking about how they want a gold-backed reserve currency that will be their currency, maybe a basket of currencies first. So America is losing its influence as the dominant world power in the world financial monetary system, as these people who are out of their minds in our Fed are printing money by the trillions, intentionally destroying the dollar, and everybody in the world sees it.
In the Middle East, we are also losing our influence, because we have made such a mess of the Middle East. We started it when we overthrew Saddam Hussein, and just opened the flood gates for the fundamentalists to sweep across that part of the world, so we are losing our influence there. Whose influence is filling the power vacuum – financially, monetarily, politically, geopolitically, and militarily – that America is leaving? Militarily, we are still out there, but because we are going bankrupt as a country, we will start pulling back in the next couple of years militarily, as well. China is going to come in and they are going to fill the vacuum.
China will be the dominant influence in the Middle East over the next 5 or 10 years – no longer the United States, and certainly not Europe. The Europeans – oh my gosh – where do they come off through this thing? We are going to overthrow Khadafi and start bombing everything in sight. They are going to have their own problems with terrorism as a result of this. He does strike back, and I think we are going to see some upheaval across the Middle East as a result of this. Europe has lost its influence. In Europe the political left dictates its monetary, financial, economic, and now foreign policy and military policies, the same situation we have in America. Europe and America are losing their influence all over the world and the Chinese are coming in and filling that vacuum.
David: What we might disagree about is the rate of decay in terms of the U.S., and how long we maintain reserve currency status. They have a banking system which rivals ours in terms of largesse, bad loans, etc. It looks a lot like where we were in 2006, 2007, on the cusp of financial disaster. But they have become what the U.S. was, by 1925, which was a massive producer of things. We were the world’s massive producer of things. They are, today, the world’s massive producer of things.
Dons: Including a massive new military machine that within 5-10 years will pass our own. I will tell you what, David, we will have to agree to disagree on this one, but I will bet you a steak dinner at Ruth’s Chris, in your city of choice anywhere in the world, that within 5-10 years they will be the dominant financial, economic power, and that they may have the world reserve currency. They will, at least, be part of a basket of currencies which will include gold and the dollar, which I think will emerge in the next 2-3 years, but 5-10 years out, I think they will be working to supplant that basket of currencies. We will be history as far as the reserve currency. So we will just bet a steak dinner on that, and we will see. I hope you are right and I am wrong, and I will be glad to pay.
David: I’ll take the bet. In 5-10 years we will see where we are. This is going to be an interesting time, certainly one of transition. We are having to adjust, and I think the man in the street is having to adjust to a new reality – certainly higher oil prices, our shot across the bow in terms of families putting their heads together and starting to budget differently, whether it is travel, whether it is even something as simple as groceries, but things are going to be costing more and more. The great deflationary impact of importing goods from China and having their currency pegged to ours has been one of the key components that has allowed the inflation generated by the Fed for the last 30 years to go unnoticed, because while we were earning, though not what we could have been earning, we still were able to buy these manufactured goods at discount prices because of an undervalued currency. If they do let go of their currency and let it revalue, we are going to see inflation, God forbid, even at Wal-Mart…
Don: Oh, that would be horrible.
David: That is, I think, what people have to adjust to. What does life look like when you have to live on half? And we are not saying people in America are taking a pay cut, we are just saying that your dollars do not go as far, by up to 50%. So what does it look like for Americans to live on half? Part of that is the realignment in China, as you suggest. A part of that is the greatest input cost into any economy around the world – oil – being at a sustained high level, and frankly, $150-200 doesn’t do it. Those are prices that become critical and are destructive, but $90-100 a barrel, if we just slip back to those and maintain those levels, those are equally devastating to people who are having a hard time making ends meet, and have not seen their income rise with inflation.
Don: David, bringing it back to home, we are seeing the destruction of the middle class. Whether this was planned or just the stupidity of our financial and political leaders, it is happening, and the middle class is going broke rapidly, as their home values diminish, as their paychecks buy less and less, as their real, inflation-adjusted income goes down, and you are seeing a whole paradigm shift where America is no longer to be a wealthy country.
Our jobs have been shipped by the tens of millions abroad. I called yesterday to finalize an air ticket out to Hawaii. It was a Mileage Plus, so it was free, it was really great. I was talking to this young man, and I said, “How is the weather over in Manila?” He said, “Oh, how did you know? The weather is really great.” So I talked with this young man from the Philippines who was booking my United Airlines ticket. This is the whole deal. We have shipped all these jobs, tens of millions, out of the United States, so there will not be an employment recovery, and without an employment recovery, how can we ever get back to a really strong economy?
Americans are going to have to learn to live on less. In some ways it will be good, but I am reminded, in the movie, Rocky III, of Clubber Lang, who was the big, mean guy, the champion who was about to fight Rocky, when the commentator asked him, “What is your prediction, Mr. Lang?” He just looked at the reporter and said, “Pain.” Pain – that is what coming. Pain is coming for all of us in this country, and what I am seeing is that in Europe, in the U.K., and in much of the world, but probably less so in Asia, pain is coming as a result of this perfect storm of all these things that are converging right now.
David: It is our hope that our listeners and our clients alike will keep clear heads and stay informed, and make the wisest possible decisions in these challenging times.
Kevin: Don, thanks for joining us today. I want to mention that your April letter from the McAlvany Intelligence Advisor, was especially good. Is that something that you would offer to the listeners?
Don: Absolutely, Kevin. It is entitled, “The World in Turmoil, Surviving In The Perfect Storm.” It talks about the Middle East ablaze and the whole sea change in the world balance of power, and the potential for problems in the derivatives market, and how gold and silver should react in this perfect storm that is developing, and then some practical ideas as to what to do to survive. We would love to share this with people. We would love to send it out for free, if you will call us at 1-800-525-9556. It is 16 pages. If you do not like to think and read, do not order the letter, but if the things we are talking about today, and they talk about here every week, are of concern to you, I would strongly encourage you to get this letter, in particular, because I think it tries to tie together a lot of the things we have been talking about here today.
Kevin: It is at no cost to the listeners. We will go ahead and send that out for free. We have some here, so just give us a call.