Playing with Fire in the Balkans; Gold/Bonds
Jude Wanniski & Criton Zoakos, David Gitlitz
April 12, 1994


Playing with Fire in the Balkans

The renewed U.S. military involvement in the Balkan war is currently under the operational control of a global bureaucracy, NATO and the United Nations. They control not only tactical decisions, but also the much more weighty strategic decisions which ought to be the sole prerogative of the elected representatives of the American people. Problems of a constitutional order as well as national security issues have emerged, which neither the executive nor the legislative branch of the U.S. government is addressing. Thus far in the public debate only Dr. William Hyland of Georgetown University has raised his voice, on last night's McNeil-Lehrer Newshour, against this looming foreign policy disaster.

NATO's April 10-11 bombing of Goradze has raised two sets of problems: legal ones relating to U.S. constitutional order, and military ones associated with the prospect of U.S. entry into a state of war against Serbia and its potential allies in the Balkans and beyond.

Legal problems: The Clinton Administration has constructed a legalistic alibi for the Goradze bombings which attempts to show that Washington had nothing to do with the tactical decision to order the action. The alibi says that this tactical decision to bomb was made by the British U.N. commander on the ground, General Michael Rose, conveyed to his Japanese political commissar, Yasushi Akashi, and executed by unnamed NATO airbase commanders in Italy under authority from the Egyptian Secretary General of the U.N., Boutros Boutros-Ghali. In all of this, the President of the United States, the Commander-in-Chief of the airmen who risked their lives to execute the bombing raid, is supposed to have been a helpless observer. When Russian President Boris Yeltsin complained that he had not been informed in advance of the bombing, President Clinton replied, according to Secretary of Defense William Perry, that not even he, Clinton, had been informed in advance. Our elected officials of the executive branch watched passively, according to their own admission.

Our elected officials in the legislative branch performed just as poorly. First, our armed forces have engaged in acts of war without activation of the War Powers Act. Yet what occurred in Goradze is no different from the Gulf of Tonkin bombings ordered by Lyndon Johnson, which expanded the U.S. military involvement in South Vietnam from an "advisory" role to a shooting war against North Vietnam. Second, the U.S. Senate, the sole authority for contracting treaties and alliances, failed to publicly note that the Goradze bombings transformed NATO from the defensive alliance created by a 1949 act of Congress, into an offensive alliance completely lacking any legislative basis. The U.S. Senate has never voted to enter into any offensive alliance of any kind such as the one into which NATO has been transformed. With Senate Minority Leader Bob Dole lightly ignoring these issues and endorsing the Goradze action, the legislative branch sat back and observed just as passively as the executive. Editorials in this morning's New York Times and Wall Street Journal are also oblivious to the implications of these moves.

What the politicians passively watched was the arrogant initiative of unelected global bureaucrats leading the United States down the path toward war. In contrast to President Clinton's protestations that decisions were out of his hands, we watched an aggressively self-assured Boutros-Ghali pounding the podium and shouting that he "will not hesitate" to call in more air strikes. We also observed German General Manfred Woerner of NATO threatening the Serbs with "reprisals," much as these same people were threatened with Wehrmacht "reprisals" during World War II.

Military problems: The Goradze action was taken even against the best military advice that the Pentagon had to offer the President. The Pentagon was overridden by the global bureaucrats at the U.N., at NATO and inside the State Department, who argued that the attacks would cower the Serbs and "strengthen the peace process." No evidence for this exists. Since the first NATO air raid, the Serbs, who credibly argued to General Rose that their actions in Goradze were in response to Muslim provocations, have taken action to limit the freedom of movement of U.N. troops, and are preparing to retaliate against NATO ground troops if further NATO air raids take place. The Bosnian Serb leadership announced April 12 that, "If they [U.N./NATO] continue with raids, we shall undertake measures which any people, any army would undertake in self-defense. If need be, we shall declare a state of war and name the aggressor." Russia's Yeltsin, during his state visit to Spain, warned that unless NATO's aggressive actions stop, "it will be war forever."

The global bureaucrats managing this crisis -- and its temporary captive, the Clinton Administration -- are pinning their hopes on the expectation that the Serbs will be intimidated. They have three alternatives: (1) gradually expand to extended Hanoi-type bombing campaigns; (2) massively introduce ground combat troops in a replay of the 1940-1944 Balkan occupation; or (3) terminate military actions and resume negotiations.

The unelected global bureaucrats' impulse tends toward options (1) or (2). It is time for our elected officials to take matters into their own hands. If we are to blunder into another war adventure, the least we can ask is that it be done in accordance with our own Constitution.

Jude Wanniski & Criton Zoakos


The fall of the gold price since early last week has brought a big sigh of relief from the credit markets. The period between now and the next FOMC meeting May 17 will be crucial, but gold dropping below $380 -- after flirting with $395 less than two weeks ago -- indicates a rising demand for dollar liquidity at the current 3.5% fed funds rate. We had previously contended that rather than another isolated tightening in the midst of market turmoil, the nation's creditors were calling out for Fed Chairman Alan Greenspan to clarify his policy designs, and suggested that he could defuse the tension by establishing a gold price ceiling of $400. Of course, implementation of an explicit gold price targeting regime would be the ideal. If gold stabilizes in the $375-$385 range, however, it would demonstrate that Greenspan has successfully restored the market's equilibrium without an immediate, potentially disruptive, tightening move. Former Fed Gov. Wayne Angell suggested in yesterday's Wall Street Journal that the Fed tighten fed funds to 4.5%, and then see how the gold price responds. We think gold is already confirming that another tightening is neither necessary nor advisable at this point.

Greenspan and the Fed are also getting a break from the market's perception that Japan-U.S. trade tensions are easing in the wake of the Hosokawa resignation, boosting the attractiveness of dollar-based assets. The interregnum between Japanese governments will allow the Clinton Administration to conduct a much-needed reassessment of trade policy. One idea that should be buried once and for all is that which holds that Japan's trade surplus can be reversed by ceaseless appreciation of the yen. Devaluationist Fred Bergsten, who now touts himself as an "informal advisor" to the White House, is busy promoting the idea that the yen at 90 to the dollar would be about right. This is ludicrous. As it is, the yen has been deflating against gold since early January, going from about 44,000 yen per ounce to less than 40,000 yesterday. Continued monetary deflation will only strangle Japanese consumption, which is a nonsensical way to attempt to boost imports.

David Gitlitz