The Geopolitics of 2005 Jude Wanniski December 28, 2004

As much as I would like to be upbeat about the course of the world in the coming year, the problems are such that even wishful thinking doesn`t seem to work. It`s not that the problems are insurmountable, but that the political community seems determined to look for solutions in the wrong places. If I were President, here is how I would fix the world:

1. Fix the dollar to gold at $400 oz. Not all geopolitical problems are the result of economic errors, but correcting this major error would immediately make all the geopolitical problems easier to deal with. Even if the Fed fixed at the current price, $444 oz, it would take several years at relatively low rates of inflation for the general price level to equilibrate. China might be able to absorb the implied inflation without changing its dollar peg if the market understood the Fed would maintain the price at this relatively high level. One result: The U.S. current-account deficit would fade because the rest of the world has more unrealized potential than we do, which means they would become net importers of capital and the U.S. would become a net exporter.

2. I`d announce that U.S. troops will be completely out of Iraq before the end of 2005 and that it will be up to the Iraqi people to sort out their political differences. I`d even make it clear the invasion was unnecessary because there was, after all, no threat to the region from Saddam Hussein. I`d offer to stay just to secure the border against further infiltration by the Iranians, who are now entering Iraq in droves and getting I.D. cards so they can vote in the January elections. Iraqi nationalists, wary of the Iranians, would like this gesture while we pull out.

3. As soon as the Palestinians elect a new president in January, I would invite him and Israeli Prime Minister Ariel Sharon to Camp David to negotiate a final settlement, reviving the stated goal of a two-state solution in 2005. The outlines of a final settlement are well known -- including shared sovereignty of Jerusalem. The only missing ingredient is an American willingness to give Israel a push.

4. I`d make it clear to Ukraine`s new president Yushchenko that Washington`s relationship with Moscow is more important than its relationship with Kiev, and not to expect overt or covert moves to further undermine Vladimir Putin`s authority in what should be a strategic partnership in the region.

5. I`d make it clear to Beijing that if it expends its political capital in working out a modus vivendi with North Korea over the nuclear issue, one that brought it back under the auspices of the Non-Proliferation Treaty, I`d be content to let bygones be bygones with Pyongyang and proceed to normalization.

6. I`d make it clear to Tehran that as long as it ratified the new protocol to the NPT, which authorizes the International Atomic Energy Agency to conduct intrusive inspections at sites suspected of treaty violations, we could also proceed to normalization of diplomatic relationships. I`d ask Britain, France and Germany to assist in this diplomatic initiative.

There are a few other odds and ends I would take care of before getting too far into the new year, mostly having to do with getting some credible supply-siders into policy positions involving economic policies in Africa and Latin America. The top six moves I`d make, though, would not take much effort at all and the world would soon be celebrating. Instead, here`s how things appear to be headed:

1. The Fed will stick to its "measured pace" of dollar mismanagement, building in further domestic inflation and causing commercial dislocations with all our trading partners as the dollar weakens further.

2. Iraq will disintegrate into civil war, with President Bush assured by his neo-con advisors that the best possible outcome will be a three-state solution. (We note Henry Kissinger already buying into this line.) The Kurds will get the northern oilfields, the Shi`ite majority the southern oilfields, and the Sunni Muslims will get an empty bag. Israel might be happy, assured of an oil supply from the Kurds, but it`s hard to see how this outcome would benefit U.S. security interests. Iran would get from Iraq what it couldn`t in its 8-year war with Saddam.

3. The superficial progress we see now with Sharon`s baby steps in the Gaza Strip will be stretched out again and again, with no push at all from the Bush administration. Again, we see Kissinger, now part of the neo-con pack that has always opposed a Palestinian state, arguing against "imposing" a peace, or even a concept of a peace. With no real movement toward resolution, Osama bin Laden will be in the driver`s seat and the budget will double for Homeland Security.

4. Secretary of State Condoleezza Rice, an "expert" on Russia, will persuade the President to be "even-handed" in his relationship with Yushchenko and Putin, which of course further drives a wedge between Kiev and Moscow and forces Putin to think of Washington as a strategic adversary. A Cool War for starters.

5. North Korea could easily have been reeled in by Colin Powell at the start of the Bush administration and is still ripe for a genuine diplomatic initiative. Instead the White House has shown no interest in making the kinds of personnel changes that would enable that to happen. Pyongyang will retreat into deeper paranoia and Beijing will assume the U.S. has firmly decided to play the imperial card in the Far East, and will further boost defense spending. More Cool War.

6. The mullahs of Iran, willing to give the civilian/military reformers a shot at getting along with the Great Satan, will have taken all the guff they can from the U.S. State Department. They will seriously consider pulling out of the NPT, since the U.S. refuses to permit it to have the rights accorded a signator anyway. And with no IAEA to make sure they don`t have the means to acquire a nuke, they will acquire a nuke, and Israel will conclude it has to bomb the suspected Iranian sites.

You can see from this assessment why I`m cautioning myself against wishful thinking. The Geopolitics of 2005 would look much nicer if the President would shift gears in his second term as outlined at the top. He`s shown the world he knows how to use force, but he hasn`t shown any signs yet that he knows how to manage the world diplomatically – which is of course much less expensive. And I can`t see how he can shift gears with the same team of warriors in every important policy slot, with the only halfway bright spot in the first term – Colin Powell – on his way out. Maybe we`ll get lucky.