Gabor Steingart

(Speech delivered in Charlotte, North Carolina, at an event of the German American Chamber of Commerce on Monday, January 25th 2009)

Dear Ladies and Gentlemen. It’s a great pleasure to be your guest tonight. Let’s give a big round of applause to Klaus Becker, the chairman of the German American Chamber of Commerce here in Charlotte. Klaus pushed me hard to speak about „The Role of the West in the World of the Future“. That’s a really great invitation to tell you a lot of smart things which will later on turn out to be completely wrong. That seems to be the destiny of projections. Looking into the future is a tricky business.

Ironically, the last decade began with great hopes. Nobody was talking about terrorism, jihadists and a huge financial crisis. Nobody predicted anything like 9/11 or a meltdown on Wall Street. Days before New Year’s Eve in 1999 it seemed that a computer crash, caused by stupid software engineers, was the biggest threat to all of us.

The West was dreaming of eternal peace. People still believed the words of Francis Fukuyama, then deputy director of the State Department’s Policy Planning Staff, who famously wrote in 1992: “What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such.“ Democracy will be the final form of human government, he wrote.

Well! It’s a pity about all these big, big ideas. Most of them are too big to fit into our reality. Maybe we as human beings are too small to understand the big picture.

So I will try to resist the temptation to speak about the future. The only thing I can deliver is a closer look at our current reality.

Let’s start with the so called War on Terror.
9/11 is still shaping the agenda in Washington. It’s not so easy as a White House Correspondent to keep up with all the events in all the different theaters: Iraq, Pakistan, Afghanistan, maybe tomorrow Iran, maybe Yemen. The forever war, as the New York Times called it, is coming at an enormous cost – and here I´m not talking about money.

This war is eating a lot of the time and concentration of the US government. Secretary of Defense Bob Gates was in Pakistan over the weekend, Vice President Joe Biden visited Bagdad, the President while reviewing the review of his strategy probably spent more time in the Situation Room than behind his desk.

The result is depressing: The US and its allies are getting deeper and deeper into the mess. More troops, more casualties, more instability. The army is fighting a traditional war with ships and air carriers, with tanks and 100,000 boots on the ground in Afghanistan. It’s a 20th century war in the 21th century.

But this time the enemy is completely different. Last week I spoke with a US government official who is working as a security adviser for Yemen. He told me: „I guess Al-Qaida is more than happy. They brought us to Iraq, to Afghanistan, to Pakistan and now they try to bring our troops to Yemen. So we are losing money, people and energy. But they are a traveling society. By the time we arrive, they are gone.”

The truth is: In Afghanistan they are gone. Now we are trying to beat the Taliban who are crazy people too, but they had nothing to do with 9/11 or any of the other major attacks in the Western hemisphere.

The West so far has proven to be helpless in these asymmetric wars. I´m sure this war has to be fought, but differently than all the wars before. They have a plan, we don´t. The result: The whole government is distracted. Victory is not in sight.
But that sounds very much like a prediction. And I promised to not step into the prediction business.
So let’s talk about the other big problem of our world today: the economy. It’s also not so funny what we are seeing here.

Fearing a depression after the attacks of Sept. 11, central banks flooded the financial system with liquidity. The tons of money could not find enough profitable investment opportunities, so they took a shortcut into the speculation business. Stocks went up, housing prices sky rocketed, even though the real economy was on shaky ground.

In mid-2008, a gigantic bubble that had developed, primarily in the US real estate market, burst. Banks tumbled like dominoes and the real economy collapsed. 7 million people in the US lost their jobs, 20 million in China, another 7 million all over the world. It was a near-death experience. Without the infusion of taxpayers’ money the Wall Street Banks would not be alive. They told us they were too big to fail. So we rescued them.
So far, so good. I don´t want to complain about what has happened. Everybody is allowed to make mistakes even if he or she is a Wall Street banker.

But what real people in their real life normally do after near-death experiences is to change their life, to change priorities, values and behavior.

They did no such thing. And the Western societies allowed them to proceed as if nothing had happened. Yes, the Americans people picked a President who looked different, who spoke differently, but then this new president followed the old path. He helped to save a financial system that caused these huge problems. He continues to borrow tons of Chinese money, and because the Chinese officials are little bit reluctant, he allowed the Federal Reserve Bank to go into the business of printing money. Barack Obama is drinking from the same old bottle and the country is still addicted to foreign money.

All the fresh money he sent to rescue Wall Street – to rescue what? Their lifestyle, their bonus system, their bad behavior. The money helped to forget. It makes them numb. Their old way of thinking is still in place. They still see themselves as masters of the universe, even though they had created a mess of the universe. The system was saved, but at a cost that is still hard to believe.

The G-20 countries are currently spending about $1.5 trillion to rescue their own economies. Taxpayers will still be paying the interest on their governments’ various bailout and economic stimulus programs in 100 years’ time, so that total payments will amount to several times the original principal.

Only the German stimulus package needed the same amount of money the German society had saved in their bank accounts. And we are saving nation. The cost of this stimulus packages will be paid off when the grandchildren of our grandchildren have no idea who Mr. Geithner and Mr. Bernanke might be.

Lessons learned? I think they are not even understood. It turned out that the financial system had merely experienced a brief setback and soon returned to its old ways. The big banks are bigger than before. There is more hot money under way than ever before, money which is not backed by real values. The real part of the economy, industries and useful services, is still shrinking.

The crisis was caused by too much confidence, too much credit and too many debts. And how do we fight back against the crisis: with more confidence in Wall Street, more credit on behalf of the taxpayers and more public debt.

Bottom line: In fighting back the great recession we are preparing the next one. But again, that’s a prediction and I by my own rule am not allowed to talk about the future.

Hopefully my concerns are all needless. There is always a best case scenario: The US will win big in Afghanistan and we all go skiing in the amazing mountains of the Hindukusch. Wall Street will be enlightened and banking will become boring again. The US will develop their real economy with real engineering instead of financial engineering. If all that happens, I will come back to Charlotte and we will have another great night – this time on my dime.

Thank you for listening.