Notes on the Revolution XVII
Jude Wanniski
July 28, 1995


BOSNIA: When Washington journalists who had been referring to "Serbian aggression" begin referring to "the civil war," you know the potential for U.S. involvement is finally over and done with. All that remains is a negotiated extrication of the U.N. peacekeepers, which will accompany the negotiations between the warring parties as soon as it becomes clear to the Bosnia Muslims that the hopes they had held out for U.S. involvement the last two years have been dashed. I would be surprised if low level negotiations were not now underway, with no participation by U.S. or U.N. intermediaries. Imagine two brothers fighting as their parents look on trying to settle the dispute, fearing violence if they leave. Of course, as soon as the parents decide the argument is too complicated, and they walk away, the brothers will quickly come to terms. This example is not meant to trivialize the matter and the bloodshed in the Balkans, or to suggest there is nothing Mommy and Daddy the Europeans and the Americans can do. We can tell the boys that as soon as they settle up, they can come inside for some pie and ice cream. That will hasten the process. A Russian diplomat I know told me this morning that if instead of spending several billion dollars on military maneuvers in the region these past few years, we had instead given out the money, "everyone would be drinking beer and slivovitz and nobody would be fighting." The meaningless Senate vote to lift the arms embargo in Bosnia is the last gasp of our Cold Warriors, whose hidden agenda in promoting U.S. involvement has been to settle old scores with the Russians and their Serbian clients. President Clinton now looks pretty good at having dragged his feet long enough to avoid U.S. bloodshed.

WACO AND WHTTEWATER: It's good that the OOP Congress is conducting hearings on these matters. When the dust settles, the country will have been assured no stones have been left unturned, and almost surely no political grief attaching to the President. This will of course puncture conspiracy theories and cause attendance at the picnics of the private militias to drop off. We do sense a dramatic decline in GOP enthusiasm for serious pursuit In the Waco story, the dismissal of FBI deputy director Larry Potts is probably enough to settle that score. In Whitewater, as soon as we observed The Wall Street Journal's heavy guns trained on Maggie Williams, secretary to the First Lady, on the question of whether or not she was carrying a file folder when seen more than two years ago, we knew it was time to call it quits.

GREENSPAN: The Fed chairman's chances of being reappointed next year now look better than ever. Treasury Secretary Bob Rubin, who had been the candidate expected to succeed him, demonstrated sufficient incompetence in the Mexico fracas to numb his chances of being confirmed by Chairman Al D'Amato's Banking Committee. The Fed would serve without dejure chairman until 1997, when the next President or the current one would get to name one. It would of course be comforting to have Greenspan on the job through next year's elections. In case you didn't notice, Greenspan had the Fed's PR people spread the word that last week's stories linking the market decline to fears he will not cut rates further were all nonsense. As we said last week, Don't Blame Greenspan.

CAPITAL GAINS: If you are wondering why NASDAQ can rebound so smartly when the GOP legislative agenda remains stalled in Congress, as the President threatens veto, remember that the political interests of the Congress and the President now coincide in getting capgains signed into law. They both get blamed if it doesn't, both share credit if it does, and the business community from top to bottom is now aligned behind it instead of being divided. The entire GOP legislative agenda can go down the drain, as far as we are concerned, as long as the President and the Speaker deliver that 50% exclusion and prospective indexation. It will be far easier to work on the welfare, regulatory and banking reforms against a backdrop of real economic expansion. Chairman Jim Leach of House Banking tells the independent bankers they can get a good banking bill that will be vetoed, or a lesser bill that will pass. They should take the veto and wait.

JAPANESE BANKS: The New York Times this morning has an excellent story on the front page, Business Section, about the fragility of the Japanese banking system, with about $450 billion of non-performing loans on the books. I was asked about this yesterday while speaking in Philadelphia, at the Financial Analyst Society lunch, and noted that the crisis appears to have passed. The Bank of Japan is still wobbling back and forth on policy, but for the most part finally appears to be taking the urgent advice we offered April 21 on the WSJ editorial page ("Where the Bank of Japan Errs"). On balance, it is printing yen, buying bonds from the banks, instead of destroying them, which has brought welcome relief from the crushing deflation. The yen, which had been as low as 82, is nuzzling 89 to the dollar, and the gold price is moving up, to Y34000 from its low of Y32000 this spring. It began the year at Y38000. The Nikkei, nearing 17000, has also climbed off the 14000 floor. The trajectories should continue as long as our Treasury Department keeps its nose out. At 100 yen to the dollar, we would see some color back in the cheeks of a financial system that has been bled white.

FORBES: He is still doing "due diligence,' weighing the flood of pro and con advice he has been getting, but Malcolm S. (Steve) Forbes Jr. has essentially decided to make a run for the GOP presidential nomination. The collection of political advisors he has assembled recommends that he not make a final decision until after Labor Day, that between now and then he may still discover negatives he has not yet thought about Who knows, maybe a voice will come to him from a burning bush, one suggested. Office space has been leased in Bedminster, N.J., near the family homestead. Now in Forbes' inner circle is Tom Ellis, the political savant now in his 70s, who rescued Ronald Reagan's political career in the spring of 1976, when Reagan's losses in the early primaries had him at the edge of dropping out of national politics forever. Ellis is unanimously credited with the moves that won a surprise victory over President Ford in the North Carolina primary. The Gipper took off from there to close only a whisker from victory. John Sears, 52, the other political wiz associated with Reagan's political fortunes is also on the team having been persuaded in April that the publishing scion has what it takes to go all the way.