Feature

Playing the Jesus Card

Why is Netanyahu courting Christian fundamentalists?

Benjamin Netanyahu has a problem. The Obama administration is insisting on a settlements freeze, and the Israeli prime minister, who is resisting such demands, is not getting the support he might have expected from the U.S. pro-Israel community. Usually, when an American President makes any sort of demand on Jerusalem, pro-Israel (primarily Jewish) organizations compel Congress to pressure the president to cease and desist. It usually works. But not this time.

So what's an Israeli leader to do? Netanyahu is resurrecting a tried and true strategy: Call on Christian fundamentalists -- who see maintaining Israel's occupation as paramount -- to galvanize popular pressure against Obama. But just like the last time he played this trick, the tactic is unlikely to work magic for Bibi anytime soon.

For one thing, it's clear that Netanyahu is on shaky ground with the mainstream pro-Israel lobby on settlements. At the president's meeting with Jewish leaders at the White House on July 13, Obama heard virtually no criticism of his policy on settlements. Even the more conservative Jewish groups held their tongues. The only exception came when one participant urged the president not to change his policy but to keep his differences with Israel private, such that there would be "no daylight" visible between Israeli and American positions. Obama responded that past administrations did not have much success with that approach. "For eight years, there was no light between the United States and Israel, and nothing got accomplished," he said.

There are numerous reasons why the Jewish community is not rushing to Netanyahu's defense. First, there has never been much support in the United States for West Bank settlements. AIPAC, the pro-Israel lobby, has never taken a stand favoring settlements nor have most of the other mainstream pro-Israel organizations. The up-and-coming pro-Israel, pro-peace organizations like J Street and my employer, the Israel Policy Forum, oppose settlements and fully support the president's position.

On top of that, Netanyahu has never been a popular figure in the American Jewish community. His last tenure as prime minister was a failure; he was turned out of office in near-record time. Yet even in this brief stint, he managed to antagonize the United States. Remember, he came to office less than a year after the assassination of Prime Minister Yitzhak Rabin, and moved quickly to undo the peace process. Not surprisingly, that led to a swift deterioration in relations between Netanyahu and then President Bill Clinton, who had cherished his relationship both with Rabin and the Oslo peace process.

Sensing the frost, and knowing that getting in Clinton's good graces would require endorsing Oslo, Netanyahu turned to the Republicans and to the Christian Zionists for support. There was nothing subtle about Netanyahu's embrace of the right. In fact, during the Monica Lewinsky crisis -- when he clearly believed Clinton was done for -- the media carried reports about Netanyahu joking with House Speaker Newt Gingrich over some of the more salacious details of the affair.

At about the same time that Netanyahu started cozying up to right-wing Republicans, the Israeli government intensified its efforts to court so-called Christian Zionists. These are fundamentalist Christians whose theology dictates unwavering support for the state of Israel.

Unlike most pro-Israel Jews, Christian Zionists emphatically support Israeli settlements and oppose the two-state solution. By no means liberal, they do not raise questions about Israel's treatment of Palestinians. They are, quite simply, Netanyahu's natural constituency -- far more natural than the Jewish community, which tends to be too dovish for Bibi's taste.

So, sure enough, Netanyahu was the man of the hour at this week's Christians United For Israel (CUFI) conference in Washington. The organization's founder, Pastor John Hagee, addressed Netanyahu -- who was in Israel -- by satellite, telling him that 50 million Christians support "Israel's sovereign right to grow and develop the settlements of Israel as you see fit and not yield to the pressure of the United States government."

Netanyahu expressed his gratitude. "Today millions of Christians stand with Israel because they stand for freedom, millions of Christians stand with Israel because they stand for truth, millions of Christians stand for Israel because they want to see genuine peace in the Holy Land," he said. The triumvirate of Netanyahu, Hagee, and Israeli Tourism Minister Stas Misezhnikov now plan to cement their alliance by conference call every three months.

It has all the makings of a zero sum game: Netanyahu and other right-wing Israelis hope that the support they gain from the Christian right can help make up for what they have lost among American liberals over the past several years.

It won't. Christian Zionists of the CUFI variety are hardcore Republicans. Their votes are never up for grabs in elections because they are owned by the GOP -- and not because of Israel. Right-wing Christians, including Christian Zionists, support Republicans for the party's stance on abortion, gays, taxes and a host of other conservative issues. Neither the Democrats (who will never get their votes or their campaign contributions) nor the Republicans (who will always get both) have any need to court them. So, loud and organized as they are, this subset of the American right is not a major political player.

On the Israel issue, the only domestic constituency that matters is the Jewish community and, thus far, it is supporting Obama -- not Netanyahu -- on the settlements issue and the peace process. That should be no surprise, given that most Jews are Democrats and 78 percent of them voted for Obama over McCain.

So long as that support holds, Obama has a free hand on Arab-Israeli affairs. And it will hold as long as the president's popularity remains high. If Obama's support declines --whether due to a failure on healthcare or anything else -- some of his Jewish support will erode too. And that would give Netanyahu the opening he wants to enlist the Jewish community in his effort to stop Obama's pressure on Israel.

In any case, it will be the Jews who make the difference, not Netanyahu's irrelevant fundamentalist Christian allies. Like most card tricks, this one is pretty easy to crack.

GALI TIBBON/AFP/Getty Images

Feature

The China Bubble's Coming -- But Not the One You Think

Forget about a Shanghai stock bubble. The whole Chinese economy's getting ready to burst.

Financial commentators are obsessively debating whether the recent rise in the Chinese stock market means there's a bubble -- and if so, when it's going to burst.

My take? Who cares! What happens to the broader Chinese economy is what we should really be watching. It will have a far-reaching impact on the rest of the world -- much more far-reaching than a decline in stocks.

Despite everything, the Chinese economy has shown incredible resilience recently. Although its biggest customers -- the United States and Europe -- are struggling (to say the least) and its exports are down more than 20 percent, China is still spitting out economic growth numbers as if there weren't a worry in the world. The most recent estimate put annual growth at nearly 8 percent.

Is the Chinese economy operating in a different economic reality?  Will it continue to grow, no matter what the global economy is doing? 

The answer to both questions is no. China's fortunes over the past decade are reminiscent of Lucent Technologies in the 1990s. Lucent sold computer equipment to dot-coms. At first, its growth was natural, the result of selling goods to traditional, cash-generating companies. After opportunities with cash-generating customers dried out, it moved to start-ups -- and its growth became slightly artificial. These dot-coms were able to buy Lucent's equipment only by raising money through private equity and equity markets, since their business models didn't factor in the necessity of cash-flow generation.

Funds to buy Lucent's equipment quickly dried up, and its growth should have decelerated or declined. Instead, Lucent offered its own financing to dot-coms by borrowing and lending money on the cheap to finance the purchase of its own equipment. This worked well enough, until it came time to pay back the loans.

The United States, of course, isn't a dot-com. But a great portion of its growth came from borrowing Chinese money to buy Chinese goods, which means that Chinese growth was dependent on that very same borrowing.

Now the United States and the rest of the world is retrenching, corporations are slashing their spending, and consumers are closing their pocket books. This means that the consumption of Chinese goods is on the decline. And this is where the dot-com analogy breaks down. Unlike Lucent, China has nuclear weapons. It can print money at will and can simply order its banks to lend. It is a communist command economy, after all. Lucent is now a $2 stock. China won't go down that easily.

The Chinese central bank has a significant advantage over the U.S. Federal Reserve. Chairman Ben Bernanke and his cohort may print a lot of money (and they did), but there's almost nothing they can do to speed the velocity of money. They simply cannot force banks to lend without nationalizing them (and only the government-sponsored enterprises have been nationalized). They also cannot force corporations and consumers to spend. Since China isn't a democracy, it doesn't suffer these problems.

China's communist government owns a large part of the money-creation and money-spending apparatus. Money supply therefore shot up 28.5 percent in June. Since it controls the banks, it can force them to lend, which it has also done.

Finally, China can force government-owned corporate entities to borrow and spend, and spend quickly itself. This isn't some slow-moving, touchy-feely democracy. If the Chinese government decides to build a highway, it simply draws a straight line on the map. Any obstacle -- like a hospital, a school, or a Politburo member's house -- can become a casualty of the greater good. (Okay -- maybe not the Politburo member's house).

Although China can't control consumer spending, the consumer is a comparatively small part of its economy. Plus, currency control diminishes the consumer's buying power. All of this makes the United States' TARP plans look like child's play. If China wants to stimulate the economy, it does so -- and fast. That's why the country is producing such robust economic numbers.

Why is China doing this? It doesn't have the kind of social safety net one sees in the developed world, so it needs to keep its economy going at any cost. Millions of people have migrated to its cities, and now they're hungry and unemployed. People without food or work tend to riot. To keep that from happening, the government is more than willing to artificially stimulate the economy, in the hopes of buying time until the global system stabilizes. It's literally forcing banks to lend -- which will create a huge pile of horrible loans on top of the ones they've originated over the last decade.

But don't confuse fast growth with sustainable growth. Much of China's growth over the past decade has come from lending to the United States. The country suffers from real overcapacity. And now growth comes from borrowing -- and hundreds of billion-dollar decisions made on the fly don't inspire a lot of confidence. For example, a nearly completed, 13-story building in Shanghai collapsed in June due to the poor quality of its construction.

This growth will result in a huge pile of bad debt -- as forced lending is bad lending. The list of negative consequences is very long, but the bottom line is simple: There is no miracle in the Chinese miracle growth, and China will pay a price. The only question is when and how much.

Another casualty of what's taking place in China is the U.S. interest rate. China sold goods to the United States and received dollars in exchange. If China were to follow the natural order of things, it would have converted those dollars to renminbi (that is, sell dollars and buy renminbi). The dollar would have declined and renminbi would have risen. But this would have made Chinese goods more expensive in dollars -- making Chinese products less price-competitive. China would have exported less, and its economy would have grown at a much slower rate. 

But China chose a different route. Instead of exchanging dollars back into renminbi and thus driving the dollar down and the renminbi up -- the natural order of things -- China parked its money in the dollar by buying Treasurys. It artificially propped up the dollar. And now, China is sitting on 2.2 trillion of them. 

Now, China needs to stimulate its economy. It's facing a very delicate situation indeed: It needs the money internally to finance its continued growth. However, if it were to sell dollar-denominated treasuries, several bad things would happen. Its currency would skyrocket -- meaning the loss of its competitive low-cost-producer edge. Or, U.S. interest rates would go up dramatically -- not good for its biggest customer, and therefore not good for China.

This is why China is desperately trying to figure out how to withdraw its funds from the dollar without driving it down -- not an easy feat.

And the U.S. government isn't helping: It's printing money and issuing Treasurys at a fast clip, and needs somebody to keep buying them. If China reduces or halts its buying, the United States may be looking at high interest rates, with or without inflation. (The latter scenario is most worrying.)

All in all, this spells trouble -- a big, big Chinese bubble. Identifying such bubbles is a lot easier than timing their collapse. But as we've recently learned, you can defy the laws of financial gravity for only so long. Put simply, mean reversion is a bitch. And the longer excesses persist, the harder the financial gravity will bring China's economy back to Earth.

Flickr user Marc van der Chijs