Tuesday, December 16, 2008
Wednesday, October 22, 2008
A weakened America means genocide in Iran possibly on hold (as we expected, every day a weakened US signals greater peace prospects)
By Ray McGovern
On Sept. 23, the neoconservative chiefs of the Washington Post's editorial page mourned, in a tone much like what one hears on the death of a close friend, that "a military strike by the United States or Israel on Iran is not likely in the coming months." One could almost hear a wistful sigh, as they complained that efforts to stop Iran's nuclear program has "slipped down Washington's list of priorities … as Iran races toward accumulating enough uranium for a bomb."
We are spared, this go-round, from "mushroom clouds." But racing to a bomb? Never mind that the 16 agencies of the U.S. intelligence community concluded in a formal National Intelligence Estimate last November that work on the nuclear weapons-related part of Iran's nuclear program was halted in mid-2003. And never mind that Thomas Fingar, National Intelligence Director Mike McConnell's deputy for national estimates, reiterated that judgment as recently as Sept. 4. Never mind that the Post's own Walter Pincus reported on Sept. 10 that Fingar added that Iran has not restarted its nuclear weapons work. Hey, the editorial fellows know best.
The good news is that the bottom line of the Sept. 23 editorial marks one of those rare occasions when the Post's opinion editors have managed to reach a correct conclusion on the Middle East. It is true that the likelihood of an Israeli or U.S.-Israeli attack on Iran has receded in recent months. The more interesting questions are (1) why? And (2) under what circumstances might such an attack become likely again?
The Post attributes the stepping back by Israel and the U.S. to "the financial crisis and the worsening violence in Afghanistan and Pakistan." These are two contributing factors but, in my judgment, not the most important ones. Not surprisingly, the Post and other charter members of the Fawning Corporate Media (FCM) omit or play down factors they would prefer not to address.
Russia and Deterrence
More important than the bear market is the Russian bear that, after a 17-year hibernation, has awakened with loud growls commensurate with Russia's growing strength and assertiveness. The catalyst was the fiasco in Georgia, in which the Russians saw the hands of the neocons in Washington and their doppelgänger, the extreme Right in Israel.
You would hardly know it from FCM coverage, but the fiasco began when Georgian President Mikheil Saakashvili ordered his American- and Israeli-trained Georgian armed forces to launch an attack on the city of Tskhinvali, capital of South Ossetia, on the night of Aug. 6-7, killing not only many civilians but a number of Russian observers as well.
It may be true that our State Department officials had counseled Saakashvili against baiting the Russian bear, but it is abundantly clear to anyone paying attention to such things that State is regularly undercut/overruled by White House functionaries like arch-neocon Elliott F. Abrams (F. for Fiasco). His encomia include those earned for his key role in other major fiascoes like the one that brought about the unconscionable situation today in Gaza. (Would that the president's father had let Abrams sit in jail, rather than pardoning him after he was convicted for perjuring himself in testimony to Congress on the Iran-Contra fiasco.)
In any event, it is almost certainly true that Russian Prime Minister Vladimir Putin saw folks like Abrams, Vice President Dick Cheney, and their Israeli counterparts as being behind the attack on South Ossetia. For centuries the Russians have been concerned – call it paranoid – over threats coming from their soft southern underbelly, and their reaction could have come as no surprise to anyone familiar with Russian history – or, by analogy, those familiar with American history and the Monroe Doctrine, for example.
Even neocon Randy Scheunemann, foreign policy adviser to Sen. John McCain and former lobbyist for Georgia's Saakashvili, would have known that. And this lends credence to speculation that that is precisely why Scheunemann is said to have egged on the Georgian president. Russia's reaction was totally predictable, and it enabled McCain to "stand up to Russia" with very strong rhetoric and not-so-subtle suggestions that his foreign policy experience provides an important advantage over his opponent in meeting the growing danger of a resurgent Russia.
Russia's leaders are likely to have seen in Saakashvili's provocation, in the attempt to get NATO membership for Georgia and Ukraine, in the deployment of anti-missile defenses in Poland and the Czech Republic, and in hasty U.S. recognition of an independent Kosovo indignities that Russia should no longer tolerate.
I can visualize Russian generals telling Putin:
Enough! Look at the weakened Americans. They have destroyed what's left of their Army and Marine Corps, spreading them out and demoralizing them in two unwinnable wars. We know how bad it is with just one unwinnable war. It has not been that long since Afghanistan. But, Vladimir Vladimirovich, before we indulge ourselves with schadenfreude, consider what such actions betoken – total recklessness of a kind we have seen only rarely in Washington.
Who can assure us that "the crazies" – the Cheney-Abrams-Bush cabal – will not encourage the Israelis to precipitate the kind of armed provocation vis-Ã -vis Iran that would "justify" America's springing to the defense of its "ally" to bomb and missile-attack Iran? You are aware of the importance of the Israel lobby, and how American politicians vie with one another to prove themselves the most passionately in love with Israel.
Periodic attempts by Congress to require President Bush to seek congressional approval before ordering a strike on Iran have failed miserably. So his hands are free for another "preemptive war" before he leaves office. After all, Bush has publicly promised the Israelis he will deal with the "Iranian threat" before then. Besides, our political analysts suggest that Bush and Cheney might think that wider war would help the Republicans in the November election
No big bear likes to have its nose tweaked. But the Russian reaction to Georgia was not merely one of pique. It became a well-planned strategic move to disabuse Israel and the United States of the notion that Russia would sit still for an attack on Iran, a very important country in Russia's general neighborhood. After Georgia, the Russians were bent on sweeping such plans "off the table," so to speak, and seem to have succeeded.
The signs of new Russian assertiveness are in the public domain, although the FCM has not given them much prominence. What is more telling is the effect on Israel and the United States. Since early August there has been a sharp decline in the formulaic rhetoric against Iran's "path toward nuclear weapons," especially among U.S. policymakers and in American media following the conflict in Georgia and the expiration of the latest "ultimatum" served on Iran to stop its nuclear program.
The change in official Israeli statements was the most pronounced. After a consistently hawkish stance toward Iran, Israel's president, Shimon Peres told London's Sunday Times in early September:
"There are two ways to deal with Iran's nuclear threat; a military and a civilian way. I don't believe in the military option – any kind of military option … an attack can trigger a bigger war."
And then came the bombshell from Ehud Olmert in his valedictory interview appearing in the Israeli daily Yediot Ahronot on Sept. 29. Olmert argued that Israel had lost its "sense of proportion" in believing it could deal with Iran militarily.
Not Russia Alone
It is a curious twist, but to their great credit, senior military officers Adm. William Fallon, who quit rather than let himself be on the receiving end of an order to attack Iran, and Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, fought and continue to fight a rearguard action against the dreams and plans of "the crazies" in the White House to attack Iran. Fallon famously declared that the U.S. military was not going to "do Iran on my watch" as commander of Centcom.
In addition to his outspoken opposition to opening a "third front" in the area of Iraq and Afghanistan, Mullen has done much behind the scenes to talk sense into the Israelis. From the Israeli press we know that Mullen went so far as to warn his Israeli counterparts not to even think about another incident like the one on June 8, 1967, when Israeli jets and torpedo boats deliberately did their utmost to sink the intelligence collector USS Liberty off the Sinai coast.
A gutsy move. The Israelis know that Mullen knows that that attack was deliberate – not some sort of unfortunate mistake. Mullen could have raised no more neuralgic an issue in taking a shot across any Israeli bow that might be thinking of a provocation of some sort in the Persian Gulf.
Hats off to the new admirals… who outshine predecessor admirals who bowed to pressure from President Lyndon Johnson to portray the Israeli air and torpedo strikes on the USS Liberty, which took the lives of 34 U.S. sailors and wounded more than 170 others, as a mistake in the fog of war – despite unimpeachable evidence it was deliberate.
Hats off, too, to the grassroots movements that succeeded in quashing resolutions in both houses of Congress calling for the equivalent of a blockade of Iran. Several members actually withdrew their earlier sponsorship of the resolution in the wake of public pressure. Many of them came to realize that facilitating a new war might make them vulnerable to charges of poor judgment – the kind of charges that sabotaged Sen. Hillary Clinton, who, ironically, thought she had done the politically smart thing in voting to give the president authority to attack Iraq.
Not Completely Out of the Woods
There remain as many "crazies" among the Israeli leadership as there are here in Washington – crazies who continue to believe that Iran must be attacked while the going is good. And it will never be as good as it is with Bush and Cheney in the White House. If the Randy Scheunemanns of this world are capable of goading the likes of Saakashvili into irresponsible action, they can try to do the same with a wink and a nod to the crazies in Tel Aviv.
The fact that the McCain/Palin campaign seems to be in serious jeopardy provides still more incentive for recklessness. If, as all seem to agree, a terrorist event of some kind might give the edge to McCain, many could argue that the same result could be achieved by a wider war including Iran, requiring the senior, seasoned leadership of one who has "worn the uniform."
And there is still more incentive for Bush and Cheney to look with favor on an attack on Iran… very personal incentive. It is a safe bet that if John McCain loses, Bush and Cheney and others will be plagued by various legal actions against them for the war crimes for which they are clearly responsible. Such would also be possible under a President McCain or Palin – but much less likely.
But attacking Iran would be crazy, you say. Not for nothing have many of the folks around Bush and Cheney been referred to as "the crazies" since the early Eighties. Some are still there; and they do things.
In April 2006, one of my Veteran Intelligence Professionals for Sanity (VIPS) colleagues, in a conversation with Marine Gen. Anthony Zinni, asked the general if he thought the U.S. or the U.S.-cum-Israel would attack Iran. Zinni shook his head vigorously, saying, "That would be crazy." Then he stopped and quickly added that we are dealing with "the crazies."
Ray McGovern was chief of the Soviet Foreign Policy Branch at the beginning of his 27-year career as a CIA analyst. He is co-founder of VIPS, and now works with Tell the Word, the publishing arm of the ecumenical Church of the Saviour in inner-city Washington.
Original article posted here.
Sunday, September 21, 2008
One party, two factions, and not a dime's bit of difference
| FOCUS: OPINION | ||||||
| Opinion: Obama shares Bush's goals | ||||||
| By Hossein Derakhshan, political analyst
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But when it comes to the foreign policy, there are enough reasons to remain sceptical. Will he adopt a foreign policy with objectives which differ from those of George Bush, the current US president, or will he merely change Bush's strategies and tactics? Some authors, like Raymond Aron, the French political theorist in his book, The Imperial Republic, hold that the US is essentially founded on two principles - Empire and Republic. Its foreign policy, from the start, has consistently fallen between the tensions between Empire and Republic. In 1903, Beckles Willson made a similar argument in his book, The New America: A Study of the Imperial Republic. National Endowment for Democracy At the height of the Cold War, in 1983, Ronald Reagan, the late US president, ordered the establishment of the bi-partisan, private, and non-profit National Endowment for Democracy (NED). "We must work hard for democracy and freedom, and that means putting our resources - organisations, sweat, and dollars - behind a long-term program," Reagan said in its inaugural speech. "I just decided that this nation, with its heritage of Yankee traders, we ought to do a little selling of the principles of democracy," Reagan added. NED's brief history shows that Reagan's notion of selling principles of democracy was in fact the practice of funding opposition groups in unfavourable states to destabilise and ideally topple their governments. These governments would then be replaced with US-allied local politicians who in many cases had already risen to fame through the work of NED-funded local human rights, labour, or democracy NGOs. Coups
In fact, NED admits on its own website that what it is doing now was being done by the CIA: "When it was revealed in the late 1960's that some American PVO's [or NGOs, as they're called today] were receiving covert funding from the CIA to wage the battle of ideas at international forums, the Johnson Administration concluded that such funding should cease, recommending establishment of 'a public-private mechanism' to fund overseas activities openly." The most famous example of NED's work came as a coup against Hugo Chavez, the Venezuelan president, in 2002. But this eventually failed. In Eastern Europe, however, NED's attempts have been more successful. In the past few years, Ukraine and Georgia's 'Orange and Rose revolutions' have effectively transformed the two countries into the most faithful American allies in Russia's backyard. NED's funding and consultants, along with funds and support from similar American organisations, such as George Soros's Open Society Institute, largely contributed to their metamorphoses. In fact, as reported in 2004 by The Guardian, NED and its subsidiaries such as the International Republican Institute (IRI), the National Democratic Institute (NDI), as well as United States Agency for International Development (USAID), Open Society Institute (OSI) and Freedom House were involved in financing and organising those campaigns in Serbia, Ukraine, Belarus, and Georgia. Since 9/11, NED has expanded its operations in the Middle East and has slowly and quietly been training and expanding networks of pro-American civil society and human rights activists, journalists, and labour unions. "Our future and the future of that region are linked", Bush said in a speech on the 20th anniversary of the establishment of NED. NED in Iran NED's interest in Iran was initiated in 1995 in the form of a fellowship programme. Among the first group of Iranian Fellows was Haleh Esfandiari, whose research was focused on women's issues in Iran. She later became the director of the Woodrow Wilson Centre's programme on the Middle East and kept close contact with Iranian women's NGOs. In 2007, she was detained and charged with "conspiring against the Islamic Republic of Iran", but was released on bail after three months. Interestingly, Senators Barack Obama and Joe Biden were among the senior US politicians who called the arrest unjust and explicitly demanded her release. Around the same time of Esfandiari's detention, Kian Tajbakhsh, another Iranian-American was also detained, charged, and freed on bail. The ministry of intelligence said he was identified with the help of Esfandiari as the representative of the OSI in Iran. OSI later confirmed in a statement that Tajbakhsh has been indeed a consultant to the organisation in Iran. Ramin Jahanbegloo, who was a Reagan-Fascell fellow at the NED in 2001 and continued contributing to NED's Journal of Democracy, was detained in 2006 (according to the Iranian Fars News agency over his ties with NED) and was charged with acts threatening the state. The Iranian ministry of intelligence, reported by IRNA, stated at the time that the Woodrow Wilson Centre's activities and programmes related to Iran were sponsored and financed by the Soros Foundation (or Open Society Institute) which had played a key role in the 'colour revolutions' in the former USSR republics in recent years. Obama and NED
In an interview with the Washington Post, Obama said that he would "significantly increase funding for the National Endowment for Democracy (NED) and other non-governmental organisations to support civic activists in repressive societies." He promised to "start a new Rapid Response Fund for young democracies and post-conflict societies that will provide foreign aid, debt relief, technical assistance and investment packages that show the people of newly hopeful countries that democracy and peace deliver, and the United States stands by them". Joseph Biden, Obama's running mate is not much different. In an article for Washington Monthly in 2005, he criticised Bush for not putting his money where his mouth is: "Promoting democracy is tough sledding. We must go beyond rhetorical support and the passion of a single speech. It's one thing to topple a tyrant; it's another to put something better in his place." "The most effective, sustainable way to advocate democracy is to help those moderates and modernisers on the inside build democratic institutions such as political parties, an independent judiciary, a free media, a modern education system, a civil society, non-governmental organisations (NGOs), and a private sector," Biden said. It was the same Joseph Biden in 2002 who, in a ceremony for the NED's annual Democracy award, introduced Mehrangiz Kar, a 'reformist' Iranian women rights activist who now lives in the US. Continuity The similarities between Bush and Obama's view of the American role and duty towards the rest of the world might be striking, but for those whose concept of history goes beyond searching Google, there is no surprise. In his book, Hegemony or Survival, Noam Chomsky cites John Stewart Mill, the British philosopher and one of the champions of the American notion of liberty, and shows how the same rhetoric of liberty and democracy has been used by the British Empire to justify its attempt to hegemony the world. Mills describes England as "a novelty in the world" who is committed to create an "idealistic new world bent on ending inhumanity". He refers to a selfless country that only acts "in the service of others", even though the fruits of its success will be shared "in fraternal equality with the whole human race". Chomsky traces this non-partisan 'altruist' foreign policy in the US back to Woodrow Wilson, who served two terms as the American president from 1913 to 1921. "The primary principle of foreign policy, rooted in Wilsonian idealism and carried over from Clinton to Bush II is the imperative of America's mission as the vanguard of history, transforming the global order and, in doing so, perpetuating its own dominance," wrote Chomsky. In his 1968 book, Woodrow Wilson and the Modern Amercian Empire, Gordon Levin, puts this eloquently: "The needs of America's expanding capitalism were joined ideologically with a more universal vision of American service to suffering humanity and to world stability." Talking to Iran When it comes to Iran, Obama's tactics indeed look quite different from Bush's - engagement versus isolation. But their goals are no different; both want to replace the only independent oil-rich state in the Middle East with an obedient regime, similar to the infamous Anglo-American coup in 1953 when Iran nationalised its oil industry. Obama's tactics are perhaps best articulated by Abbas Milani, an influential 'liberal' researcher on Iran who co-directs the Iran Democracy Project at the conservative Hoover Institute and is a supporter of Obama. He said to the New Yorker Magazine in 2005 that the Americans should talk to Iran "but with the purpose of overthrowing them". Hossein Derakhshan is a London-based media analyst and freelance journalist. He writes about Iran in a bilingual blog in Persian and English at hoder.com which is blocked by the Iranian government. |
The US' cloak of secrecy being pulled off in Bolivia
The Destabilization of Bolivia and the "Kosovo Option" by Michel Chossudovsky | |
The secession of Bolivia's Eastern provinces is part of a US sponsored covert operation, coordinated out of the US State Department, in liaison with US intelligence. The death squads armed with automatic weapons responsible for killing supporters of Evo Morales in El Porvenir are supported covertly by the US. According to one report, "USAID has an "Office of Transition Initiatives" operating in Bolivia, funneling millions of dollars of training and support to right-wing opposition regional governments and movements."(The Center for Economic and Policy Research, September 2008). The US also provides support through to various opposition groups through the National Endowment for Democracy. The expelled US Ambassador Philip S. Goldberg worked under the helm of Deputy Secretary of State John Negroponte, who directly oversees the various "activities" of US embassies around the World. In this regard Negroponte plays a far more important role, acting behind the scenes, than Secretary of State Condoleeza Rice. He is also known as one of the main architects of regime change and covert support to paramilitary death squads both in Central America and Iraq. Philip S. Goldberg's mandate as ambassador to Bolivia was to trigger the fracture of Bolivia as a country. Prior to his appointment as ambassador in early 2007, he served as US Chief of Mission in Pristina, Kosovo (2004-2006) and was in permanent liaison with the leaders of the KLA paramilitary, who had integrated civilian politics, following the NATO occupation of Kosovo in 1999. Supported by the CIA, the Kosovo Liberation Army (KLA), whose leaders now head the Kosovar government, was known for its extensive links to organized crime and the trade in narcotics. In Kosovo, Goldberg was involved in setting the stage for the subsequent secession of Kosovo from Serbia, leading to the installation of an "independent" Kosovar government. In the course of the 1990s, Goldberg had played an active role in the break up of Yugoslavia. From 1994-1996 he was responsible for the Bosnia Desk at the State Department. He worked closely with Washington's Special Envoy Richard Holbrooke and played a central role as Chief of Staff of the US negotiating team at Dayton, leading up to the signing of the Dayton Accords in 1995. These accords were conducive to the carving up of Bosnia-Herzegovina. More generally they triggered the destruction and destabilization of Yugoslavia as country. In 1996, Goldberg worked directly as Special Assistant to the Deputy Secretary of State Strobe Talbott (1994-2000), who together with Secretary of State Madeleine Albright, played a key role in launching the war on Yugoslavia in 1999. The Central Role of John Negroponte Deputy Secretary of State John Negroponte plays a central role in the conduct of covert operations. He served as US ambassador to Honduras from 1981 to 1985. As Ambassador in Tegucigalpa, he played a key role in supporting and supervising the Nicaraguan Contra mercenaries who were based in Honduras. The cross border Contra attacks into Nicaragua claimed some 50 000 civilian lives. During the same period, Negroponte was instrumental in setting up the Honduran military death squads, "operating with Washington support's, [they] assassinated hundreds of opponents of the US-backed regime." (See Bush Nominee linked to Latin American Terrorism, by Bill Vann, http://www.globalresearch.ca/articles/VAN111A.html):
This did not prevent his nomination to the position of US Permanent Representative to the UN under the Clinton administration. The Salvador Option Negroponte became Ambassador to Iraq in 2004, where he set up a "security framework" for the US occupation, largely modeled on the Central American death squads. This project was referred to by several writers as the "Salvador Option". While in Baghdad, Negroponte hired as his Counselor on security issues, a former head of special operations in El Salvador. The two men were close colleagues going back to the 1980s in Central America. While Negroponte was busy setting up the death squads in Honduras, Colonel Steele had been in charge of the US Military Advisory Group in El Salvador, (1984-86) "where he was responsible for developing special operating forces at brigade level during the height of the conflict.":
In Iraq, Steele was "assigned to work with a new elite Iraqi counter-insurgency unit known as the Special Police Commandos". In this context, Negroponte's objective was to encourage ethnic divisions and factional strife, by triggering covert terrorist attacks directed against the Iraqi civilian population. Negroponte was appointed as the Head of the Directorate of National Intelligence in 2005, and subsequently in 2007 came to occupy the Number Two position in the State Department. The Kosovo Option: Haiti This is not the first time that the "Kosovo model" of supporting terrorist paramilitaries has been applied in Latin America. In February 2003, Washington announced the appointment of James Foley as Ambassador to Haiti. Ambassadors Goldberg and Foley are part of the same "diplomatic stable". Foley had been a State Department spokesman under the Clinton administration during the war on Kosovo. He was involved at an earlier period in channeling support to the Kosovo Liberation Army (KLA). Amply documented, the Kosovo Liberation Army (KLA) was financed by drug money and supported by the CIA. ( See Michel Chossudovsky, Kosovo Freedom Fighters Financed by Organized Crime, Covert Action Quarterly, 1999 ) At the time of the Kosovo war, the then ambassador to Haiti James Foley had been in charge of State Department briefings, working closely with his NATO counterpart in Brussels, Jamie Shea. Barely two months before the onslaught of the NATO led war on 24 March 1999, James Foley, had called for the "transformation" of the KLA into a respectable political organization:
In other words, Washington's design was "regime change": topple the Lavalas administration and install a compliant US puppet regime, integrated by the "Democratic Platform" and the self-proclaimed Front pour la libération et la reconstruction nationale (FLRN), whose leaders are former FRAPH and Tonton Macoute terrorists. (For further details see Michel Chossudovsky, The Destabilization of Haiti, Global Research, February 2004) Following the 2004 coup d'Etat which led to the downfall of the Aristide government, KLA advisers were brought into Haiti by the United States Agency for International Development (USAID) to assist in the country's reconstruction. (See Anthony Fenton, Kosovo Liberation Army helps establish "Protectorate" in Haiti, Global Research, November 2004) Specifically, the KLA consultants were to assist in restructuring the Haitian police force, bringing into its ranks, former members of FRAPH and the Tonton Macout.
The Salvador/ Kosovo option is part of a US strategy to fracture and destabilize countries. The USAID sponsored OTI in Bolivia performs much the same function as a similar OTI in Haiti. The stated purpose of US covert operations is to provide covert support as well as as training to "Liberation Armies" ultimately with a view to destabilizing sovereign governments. In Kosovo, the training of the Kosovo Liberation Army (KLA) in the 1990s had been entrusted to a private mercenary company, Military Professional Resources Inc (MPRI), on contract to the Pentagon. It is worth noting that in Pakistan, recent developments point towards direct forms of US military intervention, in violation of Pakistani sovereignty. Already in 2005, a report by the US National Intelligence Council and the CIA forecast a "Yugoslav-like fate" for Pakistan "in a decade with the country riven by civil war, bloodshed and inter-provincial rivalries, as seen recently in Balochistan." (Energy Compass, 2 March 2005). According to a 2006 report of Pakistan's Senate Committee on Defence, British intelligence was involved in supporting the Balochistan separatist movement. (Press Trust of India, 9 August 2006). The Bolochistan Liberation Army (BLA) bears a canny resemblance to Kosovo's KLA, financed by the drug trade and supported by the CIA.
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Global Research Articles by Michel Chossudovsky | |
Monday, September 15, 2008
The refrain is growing: Yankee, go home.
Ecuador, Honduras support Bolivia, Venezuela in expulsion of U.S. envoys
Ecuador and Honduras on Friday voiced support for Bolivia and Venezuela's decision to expel U.S. ambassadors in their countries in protest of Washington's intervention in their domestic affairs.
"The president of Bolivia, Evo Morales and the president of Venezuela, Hugo Chavez, have enough reasons to label (as "persona non gratas") the U.S. ambassador in La Paz, Philip Goldberg, and that in Caracas, Patrick Duddy. I respect those countries' decisions and I am sure that they had their concrete and verified reasons," Ecuadorian President Rafael Correa said during his visit to Peru.
"Ecuador will make its resolutions in a sovereign way," Correa noted.
"I have to acknowledge that former U.S. ambassador to Ecuador always respected my country," the president said, adding that "if any U.S. ambassador or of any place attempts to interfere in our internal affairs or affect the country's security, he will be immediately expelled."
Correa made the remarks at a press conference at the Andean Community of Nations (CAN) that groups Bolivia, Colombia, Ecuador and Peru.
The Ecuadorian president had previously met with his Peruvian counterpart Alan Garcia.
Meanwhile, reports monitored here said that Hondurian President Manuel Zelaya also voiced support for Bolivia's decision to expel the U.S. ambassador, saying he will not receive the new U.S. ambassador to Honduras for the moment, though he does not want to have problems with Washington.
In another development of the day, the Venezuelan government said it formalized the expulsion of U.S. ambassador to Venezuela, Patrick Duddy, after President Hugo Chavez announced the decision on Thursday to show solidarity with Bolivia.
The U.S. ambassador was asked to leave the country within 72 hours starting from 19:15 local time (2345 GMT) on Thursday.
In a communique, the government declared Duddy as "persona non grata" , saying it subjects the ties with the United States to an intense evaluation "to guarantee the respect to our homeland."
Bolivian Ambassador to Venezuela Jorge Alvarado said on Friday that he appreciates Venezuela's sympathy with La Paz, describing the words of President Chavez as a honor and an incentive for the Bolivian people.
"The Bolivians, Venezuelans and the Latin Americans should feel proud because our governments are dignifying us," Alvarado said.
Alvarado said Latin American nations could not react to the U.S. intervention before, because they lived with alleged help from it. "But we are now showing that we can expel a U.S. ambassador," Alvarado told local VTV channel.
Bolivian President Evo Morales on Wednesday requested U.S. Ambassador to Bolivia Philip Goldberg to leave the country immediately, accusing him of "heading the division" inside Bolivia by encouraging, together with the opposition, the protests agains this government.
Original article posted here.
Rare article from Newsweek that actually says something helpful about international news: focus on Bolivian crisis
Despite winning last month's recall election, President Evo Morales faces escalating violence from protesters who don't want to share the nation's natural-gas wealth.
Relations between Bolivia's President, Evo Morales, and the country's wealthy easterners were tense from the start. Since Morales's election in 2005, the eastern provinces, known as the "Media Luna," or half moon, which have grown rich on natural gas, have fought bitterly over a new constitution that would redistribute some of that wealth to the western provinces. The opposition has requently waged disruptive strikes. Protests began to take a more violent turn after Morales trounced the opposition in last month's recall election. This week at least eight Bolivians were killed in clashes. Opposition groups blew up part of a natural gas pipeline and vandalized government offices, causing millions of dollars worth of damage. They have also succeeded in disrupting trade with Brazil and Argentina, which rely on Bolivia's natural gas.
Relations between Bolivia and the United States have quickly deteriorated as well. Bolivia expelled U.S. ambassador Philip Goldberg for "conspiring against democracy" and in response the Bush administration sent the Bolivian ambassador in Washington packing. In a show of support, Hugo Chavez, Venezuela's president and staunch Evo ally, ejected the American envoy from Caracas. On Friday, Morales sent troops into the eastern provinces to restore order. To find out where it's all headed, Newsweek's Michael Miller talked with economist and Bolivia expert Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, D.C. Excerpts:
Newsweek: How serious is the fallout between the United States and Bolivia?
Weisbrot: I think it's serious. I think that this thing was coming for a long time. There had been a number of incidents. There was the incident with the Peace Corps and the Fulbright scholar [asked to spy by the U.S. Embassy]. And then there are the meetings between the ambassador and the opposition. Obviously he's the ambassador: he should meet with everybody. But the way he did and the timing of it was considered unfriendly. I think you have a bigger structural problem, which is that you have USAID funding groups in Bolivia but they won't disclose who they are. They are doing this now in Venezuela too. These are polarized countries. So on that basis both of these governments [Bolivia and Venezuela] just assume that Washington is doing what it has always done, which is to fund the people that they are sympathetic to.
How much influence do eastern Bolivia's large estate owners have? What kind of pressure do opposition groups exert in Bolivia?
Quite a bit. That's what this conflict is really about. You have the most concentrated land ownership in almost the entire world in Bolivia, with around two thirds of the land owned by six tenths of one percent―not even one percent―of the landowners. Obviously Evo Morales ran on a platform of land reform. He is not talking about confiscating huge amounts of land, but there is going to be some redistribution. There is the hydrocarbon revenue, which goes disproportionately to the Media Luna states with the opposition governors. So those are the two big economic reasons for this conflict.
Which one, land or hydrocarbons, is really the central issue?
That is a tough question. The hydrocarbons are more immediate because [the government has] already begun some redistribution there. Morales has not touched the landowners. So I guess you could say that [hydrocarbons] are the bigger issue.
I was in Bolivia a couple months ago and I met with the Central Bank and the ministries. The government has $ 7 billion in reserves right now in the Central Bank, which is an awful lot [considering] their whole GDP is only $13.2 billion. Most of it is owned by the prefectures, the provinces, so they have a lot of money. So it is hard to explain why they would raise such a fuss over the government wanting to take a small part of that and use it for some pensions
for people over 60, which also goes to their own residents.
How does this tie into the recent recall election in Bolivia? Wasn't that election meant to resolve this impasse between the Morales government and the opposition provinces?
It did show some things. First of all, Morales got 67 percent of the vote, which is as big as you get in politics in the world without fixing the election. And the other thing it showed is if you look at the Media Luna provinces, while it's true that the opposition won, the vote for Morales also went up enormously as compared to what he got in 2005. So his support, his mandate, really increased quite a bit since the 2005 election. What you are seeing right now is that the people who could not win anything at the ballot box are trying to use other means. They are cutting off the gas, which is very serious.
What are the financial consequences of opposition groups disrupting Bolivia's natural gas pipeline?
It's huge. It's more of a problem for Brazil than it is for Bolivia: they get half their gas from Bolivia and more than half in the industrial region of Sao Paolo. For Bolivia it is quite a lot of money. It is a $100 million estimated just to fix [the gas pipeline] and $8 million per day of revenue lost as well. But it is even worse than that because the opposition can really sabotage the whole economy. Everything that the government is doing in terms of the next five years as far as extending gas supply to Brazil and Argentina, if Bolivia can't be a reliable gas supplier then those countries are going to have to look elsewhere. So it is a form of serious sabotage. The [Morales government] is calling it "terrorism."
Will Morales's mandate enable him to act more forcefully toward the breakaway provinces or is he going to have to wait for the constitutional referendum in December?
I think he is going to have to do something. The government has been very pacifist and I think they don't get enough credit for that. Most governments in the world would have sent in the military in force and a lot of people would have been killed. He has been extremely restrained. He has tried to avoid violence at all costs and the opposition has been emboldened by that. They just keep escalating. Now they are taking it to a different stage and I don't know how much more the government can just try to ignore it. They really depend on these gas exports, as do Brazil and Argentina. Brazil issued a statement the other day that said they will not tolerate an interruption in the constitutional order in Bolivia. Whether that means they will send troops, I don't know.
Does this have a financial impact on the United States? Or is the decision to expel the Bolivian ambassador simply a quid pro quo response? Is there real money at stake for the United States?
I don't think there is really anything at stake for the United States. If [by antagonizing Morales] they push Chavez too far, there is always the chance that he could cut off oil. But it is unlikely.
What type of fallout will there from Morales' use of troops in the eastern provinces?
It depends on what the [government forces do] and on their capacity for crowd control and using non-lethal weapons. Look at what happened prior to Morales: they are still trying to extradite the former president [Gonzalo Sanchez de Lozada] for all the people who were killed in the demonstrations back then. Morales has been on the other side of this and he knows that things can get out of control. So he is trying to do everything to avoid that but it's not easy when you have an opposition that is not operating by the same rules.
Honduras joins anti-empire struggle against US and in support of Bolivia
TEGUCIGALPA (Reuters) - Honduras, a former U.S. ally in Central America now run by a leftist government, told a U.S. envoy not to present his credentials as ambassador on Friday in a diplomatic snub in support of Bolivia.
Bolivia and anti-U.S. Venezuelan President Hugo Chavez are in a fight with Washington over what they see as U.S. support for violent protests against Bolivian President Evo Morales.
Honduran President Manuel Zelaya, who has moved the country closer to Chavez, was due to receive a new U.S. ambassador on Friday in a ceremony at which the envoy would present a letter with his diplomatic credentials.
But Zelaya temporarily put off the event in support of Bolivia, a government source said.
"The government decided to temporarily suspend the reception of the new ambassador's letter of credentials in solidarity with Bolivian President Evo Morales," the source said. The snub means that envoy Hugo Llorens is not officially U.S. ambassador.
The United States imposed sanctions on aides to Venezuela's Chavez on Friday in retaliation for his expulsion of the U.S. ambassador, escalating a crisis that raises the spectre of a possible oil supply cutoff.
Bolivia and the United States expelled their respective ambassadors earlier this week after Morales accused Washington of supporting the opposition in the Andean country.
Violent anti-government protests have killed eight people in Bolivia, where rightist governors have rebelled against the popular president, demanding autonomy and rejecting his plans to overhaul the constitution and break up ranches to give land to poor Indians.
Attempted coup in Paraguay to end rule of two week presidency reminiscent of plans of a certain superpower
Kiraz Janicke
Barely two weeks after being sworn in on August 15, a coup plot to oust newly elected Paraguayan president Fernando Lugo was exposed on September 2.
Reflecting a growing shift to the left across Latin America, the April 20 election of Lugo put an end to the right-wing Colorado Party’s six-decade-long grip on power — including a 35-year period of military dictatorship.
In an August 15 interview with Argentine daily Clarin, Lugo — a former Catholic priest known as “the Bishop of the poor” — said one of his first measures would be to “recuperate institutionality”.
“We are going to take over state institutions identified with the hegemonic party. We want these institutions to be at the service of all citizens, without ideological distinction”, he explained.
A supporter of the landless peasants’ movement, Lugo has also pledged to carry out a program of agrarian reform, although since being elected has criticised land occupations carried out by poor peasants arguing they should be a “last resort”.
He has also promised to implement a series of measures to combat poverty.
However, this reform program has put him on a collision course with the right-wing oligarchy.
The coup plot allegedly involved Lugo’s predecessor Nicanor Duarte, Attorney-General Ruben Candia Amarilla, electoral court president Manuel Morales and retired general Lino Oviedo. It was exposed after the group invited General Maximo Diaz Caceres, the officer who is the official intermediary between the armed forces and parliament, to a meeting on August 31 to discuss the best way of ousting Lugo.
Oviedo, who attempted a coup in 1996 after being sacked as army chief, is also implicated — though never tried — in the murder of former vice-president Luis Maria Argana in 1999 and the ensuing “Bloody March” massacre of six pro-democracy protesters on March 26, 1999.
Oviedo was pardoned by the Supreme Court for his role in the 1996 coup attempt just in time for him to run in the 2008 elections as a candidate for the National Union of Ethical Citizens (UNCE). He came third.
Parallel senates
Clifton Ross reported in a September 2 Upsidedownworld.com article that Oviedo specifically asked Diaz Caceres about the “appearance” of the military as a means of resolving a crisis over the existence of two competing senates formed, respectively, by Duarte and by Lugo.
Diaz Caceres immediately reported the meeting to the commander of the Paraguayan armed forces, General Bernadino Soto Estigarribia, who in turn reported it to Lugo — assuring him that the military would take no position on the question of the two separate senates.
The crisis of the two separate senates arose after Duarte illegally registered to run for the Senate while still serving as president, and attempted to get himself sworn in as a senator.
In a manoeuvre when only a minority of senators were present, Duarte and Oviedo managed to pass a resolution electing UNCE member Enrique Gonzalez Quintana as “president” of the senate, and swore in Duarte as a senator.
The majority of the Senate — involving some of the Authentic Radical Liberal Party (PLRA), other factions of the Colorado Party and Lugo’s Alianza coalition — rejected these actions and formed a parallel senate.
In a press conference on September 1, with heads of the armed forces behind him, Lugo warned Paraguayans to be “alert against anti-democratic and retrograde sectors out to overthrow” the government and called on the people to mobilise in support of the process of change, according to a Reuters report that day.
On September 4, the Popular Social Front — formed after Lugo’s election in order to unite left groups, social movements, unions and peasant organisations — held a rally of more than 10,000 people outside the Senate in support of the new president, shouting “Nicanor, go home!”
The same day, an ordinary session of the Senate passed a resolution excluding Duarte as an active member, but ratifying him as a non-voting “senator for life”, as is traditional for ex-presidents.
Governments across Latin America, including Brazil, Venezuela, Argentina, Bolivia, Uraguay and Ecuador, as well as Organization of American States President Miguel Insulza, issued statements in support of Lugo.
Resistance
Despite winning this first battle, Lugo faces enormous resistance to his program of change from the old elites, including from within his own governing coalition.
As a September 4 statement by the Brazilian Communist Party pointed out, the conservative PLRA occupies the vice-presidency and many ministries, constituting the government’s largest parliamentary support base.
While the PLRA, Lugo’s main institutional support, is opposed to any change in the agrarian structure, the main social movement is the landless peasants’ movement, which is demanding land redistribution.
Paraguay is one of the biggest beef and soy producers in Latin America, however almost 80% of land is owned by only 1% of the population — many with ties to both the Colorado Party and PLRA.
According to Bloomberg, agriculture minister Candido Vera Bejarano indicated on September 8 that the Lugo government will press ahead with proposals for a new tax on soybean production and banning the growing of oilseed in some areas, as part of a broader agrarian reform package.
Currently soy producers pay no tax on exports.
Unlike neighbouring Argentina, which imposed a variable tax rate on soy in March that led to a four-month conflict with agricultural producers, Paraguay will attempt to negotiate a new tax with producers, Bejarano said.
The government will also create zones dedicated to small-scale farming, where the cultivation of soybeans will be prohibited, the minister said.
However, Luis Enrique Cubillas, advisor to Paraguay’s Oilseed and Cereals Chamber (CAPECO) said soybean growers will protest if the government attempts to introduce a direct tax on exports.
“We have indicated before that we are willing to discuss a tax on profits with the government”, Cubillas said. “But we will not accept any taxes on exports, in fact we will go out onto the streets to defend our rights”.
As with other progressive governments in Latin America, Lugo will have to rely on the mobilisation of the popular masses to break this impasse with the oligarchy, if he is to genuinely implement a program of progressive change.
Original article posted here.
Wednesday, September 10, 2008
Wednesday, July 30, 2008
A strong overview of a dying dollar, and the Chinese dilemma
By Henry C K Liu
The vast expansion of US-led globalized trade since the Cold War ended in 1991 had been fueled by unsustainable serial debt bubbles built on dollar hegemony, which came into existence on a global scale with the emergence of deregulated global financial markets that made cross-border flow of funds routine since the 1990s.
Dollar hegemony is a geopolitically constructed peculiarity through which critical commodities, the most notable being oil, are denominated in fiat dollars, not backed by gold or other species since then president Richard Nixon took the US dollar off gold in 1971. The recycling of petro-dollars into other dollar assets is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973. After that, everyone accepts dollars because dollars can buy oil, and every economy needs oil. Dollar hegemony separates the trade value of every currency from direct connection to the productivity of the issuing economy to link it directly to the size of dollar reserves held by the issuing central bank. Dollar hegemony enables the US to own indirectly but essentially the entire global economy by requiring its wealth to be denominated in fiat dollars that the US can print at will with little in the way of monetary penalties.
World trade is now a game in which the US produces fiat dollars of uncertain exchange value and zero intrinsic value, and the rest of the world produces goods and services that fiat dollars can buy at "market prices" quoted in dollars. Such market prices are no longer based on mark-ups over production costs set by socio-economic conditions in the producing countries. They are kept artificially low to compensate for the effect of overcapacity in the global economy created by a combination of overinvestment and weak demand due to low wages in every economy.
Such low market prices in turn push further down already low wages to further cut cost in an unending race to the bottom. The higher the production volume above market demand, the lower the unit market price of a product must go in order to increase sales volume to keep revenue from falling. Lower market prices require lower production costs which in turn push wages lower. Lower wages in turn further reduce demand.
To prevent loss of revenue from falling prices, producers must produce at still higher volume, thus further lowering market prices and wages in a downward spiral. Export economies are forced to compete for market share in the global market by lowering both domestic wages and the exchange rate of their currencies. Lower exchange rates push up the market price of commodities which must be compensated for by even lower wages. The adverse effects of dollar hegemony on wages apply not only to the emerging export economies but also to the importing US economy. Workers all over the world are oppressed victims of dollar hegemony, which turns the labor theory of value up-side-down.
In a global market operating under dollar hegemony, the world's interlinked economies no longer trade to capture Ricardian comparative advantage. The theory of comparative advantage as espoused by British economist David Ricardo (1772-1823) asserts that trade can benefit all participating nations, even those that command no absolute advantage, because such nations can still benefit from specializing in producing products with the lowest opportunity cost, which is measured by how much production of another good needs to be reduced to increase production by one additional unit of that good.
This theory reflected British national opinion at the 19th century when free trade benefited Britain more than its trade partners. However, in today's globalized trade when factors of production such as capital, credit, technology, management, information, branding, distribution and sales are mobile across national borders and can generate profit much greater than manufacturing, the theory of comparative advantage has a hard time holding up against measurable data.
Under dollar hegemony, exporting nations compete in the global market to capture needed dollars to service dollar-denominated foreign capital and debt, to pay for imported energy, raw material and capital goods, to pay intellectual property fees and information technology fees. Moreover, their central banks must accumulate dollar reserves to ward off speculative attacks on the value of their currencies in world currency markets. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. Only the Federal Reserve, the US central bank, is exempt from this pressure to accumulate dollars because it can issue theoretically unlimited additional dollars at will with monetary immunity. The dollar is merely a Federal Reserve note, no more, no less.
Dollar hegemony has created a built-in support for a strong dollar that in turn forces the world's other central banks to acquire and hold more dollar reserves, making the dollar stronger, fueling a massive global debt bubble denominated in dollars as the US becomes the world's largest debtor nation. Yet a strong dollar, while viewed by US authorities as in the US national interest, in reality drives the defacement of all fiat currencies that operate as derivative currencies of the dollar, in turn driving the current commodity-led inflation. When the dollar falls against the euro, it does not mean the euro is rising in purchasing power. It only means the dollar is losing purchasing power faster than the euro. A strong dollar does not always mean high dollar exchange rates. It means only that the dollars will stay firmly anchored as the prime reserve currency for international trade even as it falls in exchange value against other trading currencies.
In recent decades, central banks of all governments, led by the US Federal Reserve during Alan Greenspan's watch, had bought economic growth with loose money to feed debt bubbles and to contain inflation with "structural unemployment", which has been defined as up to 6% of the workforce, to keep the labor market from being inflationary. Central banking has mutated from being an institution to safeguard the value of money so as to ensure wages from full employment do not lose purchasing power into one with a perverted mandate to promote and preserve dollar hegemony by releasing debt bubbles denominated in fiat dollars. (See Critique of Central Banking, Asia Times Online, November 6, 2002.)
Despite all the talk about globalization as an irresistible trend of progress, the priority for the United States in the final analysis has been to advance its superpower economic objectives, not its obligations as the center of the global monetary system. This superpower economic objective includes the global expansion of US economic dominance through dollar hegemony, reducing all domestic economies, including that of the US, to be merely local units of a global empire. Thus when the US asserts that a healthy and strong economy in Europe, Japan and even Russia and China, all former enemies, is part of the Pax Americana, it is essentially declaring a neocolonial claim on these economies.
The concept of "stakeholder" in the global geopolitical-economic order advanced by Robert B Zoellick, former US deputy secretary of state and now president of the World Bank, is a solicitation from the US to emerging economic powerhouses to support this Pax Americana. The device for accomplishing this neo-imperialism is a coordinated monetary policy managed by a global system of central banking, first adopted in the US in 1913 to allow a financial elite to gain monetary control of the US national economy, and after the Cold War, to allow the US as the sole remaining superpower controlled by a financial oligarchy to gain monetary control of the entire global economy.
With the help of supranational institutions such as the International Monetary Fund and the Bank of International Settlements, the US aims to negate national economic sovereignty with globalization of unregulated trade conducted under dollar hegemony. Unregulated trade globalization in the 21st century aims to neutralize national economic sovereignty to preempt national development financed by sovereign credit. Trade through export has become the sole operative path for national economic growth in a political world order of sovereign nation states that has existed since the Treaty of Westphalia of 1648. No national domestic economy can henceforth prosper without first adding to the prosperity of US-controlled global economy denominated in dollars.
Holy Dollar Empire
Echoing the Holy Roman Empire, the global economy has been operating as a global Holy Dollar Empire with the Federal Reserve as the Holy Dollar Emperor. Similar to the Holy Roman Empire, which disintegrated from the rise of Lutheran nationalism, this Holy Dollar Empire will eventually disintegrate from progressive centrifugal forces of a new populist economic nationalism. This new nationalism is not to be confused with regressive trade protectionism. The formation of the new Group of Five (G5 - China, Brazil, India, Mexico and South Africa) in the 2008 Group of Eight Summit in Tokyo (G8 - the US, UK, Germany, France, Italy, Japan, Russia and the European Union) is a sign of this new trend of progressive economic nationalism. The 2008 US presidential election may herald in a new populism in US history to reform the structure of US debt capitalism.
In his speech to the G5 leaders, China's President Hu Jintao said: "It is necessary to take into full account the issue of food security in tackling the challenges in energy, climate change and other fields." Apart from calling for the setting up of an UN-led international co-operation mechanism and a global food-security safeguard system, Hu said all countries should strengthen cooperation in grain reserves, a process of proven success in China but not recommended by the UN Food and Agriculture Organization, which views such scheme as a distortion of trade.
Liberation from this Holy Dollar Empire of dollar hegemony can only come from sovereign nations withdrawing from the global central banking regime to return to a national banking regime within a world order of sovereign nation states to put monetary policy back in its proper role of supporting national development goals, rather than sacrificing national development to support global dollar hegemony through wage-suppressing export-led growth.
In a world order of sovereign nation states, the supranational nature of central banking will render it inoperative, as it can be and has been used as an all-controlling device for the world's rich nation to neutralize the sovereign rights of financially weak nations. In a democratic world order, central banking is also inoperative within national borders, as it can be used by a nation's rich as a device to deny the working poor of their economic rights. Central banking, in its support of dollar hegemony, operates internationally in opposition to the economic interests of sovereign nation states and domestically in opposition to the economic rights of the working poor by discrediting enlightened economic
nationalism as undesirable protectionism.
To preserve dollar hegemony, exporting economies that accumulate large dollar reserves through trade surpluses are forced by the US to revalue their currencies upward, not to redress the trade imbalance, which is the result of dysfunctional terms of trade rather than inoperative exchange rates, but to reduce the value, in foreign local currency terms, of US debt assumed at previously stronger dollar exchange rates. When commodities prices rise, it reflects a defacement of all fiat currencies led by the dollar as a benchmark. When the currency of another nation rises against the dollar, it does not mean that currency can buy more; it only means the dollar can buy less than what the appreciating currency can buy. This is why commodities prices have been rising in all currencies, albeit at different rates.
The bursting of the latest dollar-denominated debt bubble created a global credit crisis in August 2007 that is beginning to cause globalized trade to contract. Exporting economies around the world are now forced to reconsider their dysfunctional strategy of seeking growth through exports for fiat dollars that are pushing the world economy towards hyperinflation, leading all other fiat currencies in a depreciation race to the bottom.
China's high trade dependency
At the top of the list of exporting economies is China's. The country in 2006 registered an unwholesome trade-to-GDP (gross domestic product) ratio of 69%, with a per capita trade value of US$1,645. In 2007, China's nominal GDP was 24.66 trillion yuan, or $3.38 trillion at then exchange rate of 7.3 yuan to a dollar. The 2007 per capita GDP for the population of 1.32 billion was 18,655 yuan, or $2,556, translating to $9,711 on purchasing power parity (PPP) ratio of 3.8. If China's exports were to be redirected towards the domestic market, the country's 2007 per capita GDP on a PPP basis would have increased by $5,384 to $15,095, even not counting any stimulant multiplying effect. Chinese household consumption remains at a record low of 37% of GDP, the smallest ratio in all of Asia, due to low Chinese wages.
China's trade surplus fell 20% year-on-year in June 2008 to $21.3 billion because of a drop in export growth. In Chinese currency terms the drop is more due to a rise in its exchange rate against the dollar. Still, it was the biggest surplus since December 2007, which totaled $22.7 billion. Export value in June was $121.5 billion, 18.2% more than a year earlier but the growth rate was nearly 10 percentage points down from the May figure. Imports totaled $100.1 billion, up 23.7% from a year earlier. China's trade surplus with the US in June totaled $14.7 billion, 5% higher than 2007. The surplus with the EU, its biggest export market, was worth $13.2 billion, up 21.2% from 2007.
Chinese exports are slowing because of reduced global growth caused by a developing US recession, while imports are rising on the back of rising commodity prices. These figures are not inflation adjusted. However, they reflect the rising exchange value of the yuan. In other words, exports have been falling more in yuan terms. The fall in exports is expected to accelerate as no market analyst of worth is projecting any quick or sharp recovery in the US economy.
Going forward, the ratio of nominal-GDP to PPP-GDP can be expected to fall as China's domestic inflation rate continues to exceed the US inflation rate. This trend will gain momentum as China attempts to use its trade surplus denominated in dollars for domestic development, which requires it to issue more yuan into the Chinese money supply. And market pressure can be expected to push the yuan down against the dollar until the Chinese inflation rate is at parity with the US inflation rate.
But a falling exchange rate causes more domestic inflation from imports denominated in dollars; and rising domestic inflation adds pressure to a falling exchange rate in a downward spiral, preventing the yuan from rising against the dollar from market forces. That is the dysfunctionality of the yuan-dollar exchange rate regime in relation to the inflation rate differentials between the two economies, when the exchange rate is set by trade imbalance denominated in dollars. This dysfunctionality is cause by the flawed attempt to use exchange rates to compensate for dysfunctional terms of trade, which has been mostly caused by wage disparity.
Stagflation danger
Li Yining, a leading Chinese economist, former president of Guanghua School of Management at Beijing University and member of the Standing Committee of the 11th National Committee of the Chinese People's Political Conference, the country's political advisory body, opined in the Second Meeting of the Standing Committee on July 4, 2008, that China is facing a pressing challenge in preventing inflation from turning into stagflation - the dual evils of high unemployment along with high inflation - if market expectation concludes that Chinese policymakers will fail to insulate the economy from the developing global slowdown that is expected to deepen next year with no prospect of a quick recovery.
Overwrought anti-inflation macroeconomic measures by Chinese policymakers may cause investors to dump shares of companies in the export sector, putting these companies in financial distress and causing foreign capital to exit the Chinese economy to cause unemployment to rise in China. As China is unhealthily trade dependent, this will hurt domestic development and curb consumer spending.
Li argues that China should decelerate the pace of capital and foreign exchange decontrol within the context of an oncoming, protracted global economic slowdown to preserve the value of its huge foreign exchange reserves in yuan terms. He wants the government to avoid being misguided by the static concept of a fixed low inflation rate target of 3%. Rather, an inflation rate up to 60% of the economic growth rate should be permissible, meaning to allow an inflation rate at around 6% for a 10% growth rate.
China's inflation rate hit an 11-year high of 8.7% in February 2008 and eased to 7.7% in May, still high above the government-set goal of 3% annualized. Li points out that incoming economic data show that the Chinese economy is on a sound footing despite new challenges from abroad and at home, including the May 12 Sichuan earthquake and serious floods in the south. However, Li warned the government to avoid risks of stagflation in formulating macro policies going forward.
Li's advice is sensible. It serves no useful purpose to cause a collapse of the economy to fight inflation, as Paul Volcker did in the US in the1980s, making the cure worse than the disease. Still, Volcker was facing a 20% inflation rate in 1980, which might have justified drastic action. Yet Li should realize that under dollar hegemony, Chinese central bankers must try to keep the Chinese inflation rate target below 3% to stay on par with the dollar inflation rate target set by the US Federal Reserve, the head of the world's central bank snake. A 6% inflation rate in China would be more than triple the current inflation rate target set by the US central bank, the defender of dollar hegemony even as it allows the dollar's exchange rate to fall.
A Chinese inflation rate of 6%, as proposed by Li, would cause market forces to push the yuan down against the dollar, further exacerbating US-China trade tension and reviving protectionist pressure in the US. As China is being pressured relentlessly by the US to further revalue the yuan upward against the dollar, yuan interest rates must rise above Chinese inflation rates. At 6% interest rate for the yuan, the disparity with the dollar interest rate would cause hot money denominated in dollars to rush into China through "carry trade" to profit from interest rate arbitrage, betting on continuing Chinese government intervention to keep the yuan from falling against the dollar despite higher Chinese inflation.
With a 6% inflation rate, China will be forced to pay currency traders massive sums to defend an overvalued yuan dictated by US trade policy in contradiction of US Treasury policy of a strong dollar. That was how the Bank of England allowed itself to be broken by George Soros on Black Wednesday, September 16, 1992, when the British central bank attempted in vain to defend an overvalued pound sterling out of sync with its interest rate regime. It was also how the Hong Kong government was forced to execute its "incursion" into the equity market in August 1998 to defend the Hong Kong dollar's peg to the US dollar against market fundamentals.
China has been forced to take steps to offset the impact of the US Fed's easy money policy on the Chinese economy. The US Fed has cut the Fed funds rate target eight times since September 18, 2007 from 5.75% to 2% on April 30, and the discount rate nine times since August 17, 20007 from 6.25% to 2.25% on April 30. Although China's central bank has issued notes to absorb excess liquidity, market pressure still exists for the central bank to put more currency into circulation to add to already excessive liquidity. China's central bank has increased interest rates six times and the bank reserve ratio 15 times since 2007, but Shanghai interbank rates have increased only slightly, signaling major resistance to monetary policy.
LIBOR and SHIBOR
Assistant governor Yi Gang of the People's Bank of China (PBoC), the central bank, in a speech in the 2008Y SHIBOR (Shanghai inter-bank borrowing rate) Work Conference on January 11, 2008, outlined the role of SHIBOR, introduced a year ago as a benchmark rate for money market participants. At the initial stage of the index's launching, central bank promotion is deemed necessary. But the SHIBOR, as a market benchmark, will be set by the market and all market participants. Yi asserts that all parties concerned including financial institutions the National Inter-bank Funding Center and National Association of Financial Market Institutional Investors should have a full understanding of this, and actively play a role in the operations of SHIBOR as "stakeholders", the new buzzword in Chinese policy circle, thanks to Robert Zoellick.
Yi said that "under the command economy, the central bank is the leader while commercial banks are followers. But from the current [market economy] perspective of the central bank's functions, the bipartite relationship varies on different occasions. In terms of monetary policies, the central bank, as the monetary authority, is the policy maker and regulator, while commercial banks are market participants and players. But in terms of market building, the relationship is not simply that of leader and followers, but of central bank and commercial banks in a market environment. This broad positioning and premise will have a direct bearing on how we behave. On the one hand, it requires the central bank to work as a service provider, a general designer and supervisor of the market. On the other hand, it requires market participants and various associations to cultivate SHIBOR as stakeholders and players on a leveling playground."
The fact of the matter is that in the US, the central bank, in addition to being a lender of last resort, has become a key market participant in the repo market (in which, effectively, stock is borrowed or lent for cash, with the stock serving as collateral) to keep short-term interest rates aligned with the Fed funds rate target set by the Fed Open Market Committee. Until proposed reforms are adopted by Congress, the Fed is not the regulator of non-bank financial institutions, be they investment banks and brokerage houses, hedge funds, private equity firms, or the recently active foreign funds.
The role of regulating the issuing of securities in the US belongs to the Security Exchange Commission (SEC), created by the Securities Act of 1933 to protect investors by maintaining fair, orderly and efficient markets while facilitating capital formation. Securities offered to the general public must be registered with the SEC, requiring extensive public disclosure, including issuing a prospectus on the offering. It is a time-consuming and expensive process.
Most commercial paper, the market that precipitated the credit crisis in August 2007, is issued under Section 3(a)(3) of the 1933 Act, which exempts from registration requirements short-term securities with certain characteristics. The exemption requirements have been a factor shaping the characteristics of the commercial paper market. Private equity firms with fewer than 15 investors and hedge funds, even though they may control billions of equity and multi billions of credit, are not regulated by the SEC.
When the Federal Reserve and other central banks have taken crisis-induced actions since August 2007 to calm markets to get market participants to believe that the financial system will continue to operating normally, market indicators, such as London InterBank Offered Rate (LIBOR), on which SHIBOR is modeled, suggest that the Fed's message has not been accepted by market participants. The LIBOR, a global benchmark, normally trades predictably at only a few basis points (hundreds of a percentage point) above the federal funds rate. It is a "traded version of the fed funds rate". As such, it's an important benchmark for determining lending rates on big corporate deals, mortgages and other lending markets.
LIBOR has been out of normal alignment with the Fed funds rate since the credit crisis began in August 2007. The Fed and the European Central Bank have already been greasing the markets by adding liquidity through reserve operations. When the credit crisis broke, one-month LIBOR was traded at an abnormally high 5.82% when the Fed funds rate target was 5.25%, a 57 basis points spread, and the Fed discount rate was cut 50 basis points to 5.75%. The Fed has since cut the fed funds rate target from 5.25% to its current 2% and the discount rate from 6.24% to 2.25%, but the spread between the Fed funds rate and LIBOR has not narrowed.
Three-month dollar LIBOR was trading at 2.75% as of July 11, 2008, 75 basis points above the Fed funds rate. It means banks are not willing to lend short-term money to each other for fear of counterparty default. Also, as part of general tightening in the current credit crisis, banks have been hoarding cash to respond to the frozen asset-backed commercial paper market. Many European banks have committed to credit lines to big issuers of this paper, and because nobody wants to take on more of that paper, those paper-issuing companies are forced to borrow from banks using their bank credit lines - making banks need more cash to build up required reserves. With more than $1 trillion of commercial paper set to come due every six weeks since August 2007 and more than $700 billion as of June 2008, banks are reluctant to tie up their reserves lending to other banks even at rates that would normally seem extremely attractive.
At present, lending and deposit interest rates are regulated in China with a floor lending rate and a ceiling deposit rate. Central banker Yi said that "[W]hen clients complain about high interest rate, commercial banks can pass the buck to the central bank because the central bank sets the interest floor. When SHIBOR matures, SHIBOR will become the culprit. Such a change bears important legitimacy, authoritativeness, and persuasiveness, and can make SHIBOR a recognized and authoritative benchmark."
Yi sees market-based interest rates coming from deregulation. But if the central bank deregulates deposit rate ceiling and lending rate floor when there is no other reliable benchmark to substitute them, the result could be worse. When is the right timing for deregulation? The answer is when a new benchmark matures. SHIBOR is an important benchmark in the process of making interest rates more market-based. An interest rate floor and ceiling are likely to exist for some period. Can the market-based interest rate transformation process start with discount rate linking with SHIBOR? In fact, discount facilities are loans. A breakthrough with the discount rate will have a far-reaching impact on market-based interest rate transformation, and provide experience for future interest rate reform, according to Yi.
Yi touched on the relationship between SHIBOR and internationalization of the yuan. In the past, the central bank looked only at the domestic market, but now it must adopt a global perspective. Many currencies in the world have their benchmark interest rates, including LIBOR, EURIBOR, Japan's TIBOR and so forth. The launch of SHIBOR shored up transaction volume in the Chinese money market. Comparatively speaking, Shanghai's money market capacity now is much smaller than that of London and New York. But the yuan will soon become an important currency in the world, so China will steadily push ahead with yuan convertibility under the capital account.
At present, great appreciation pressure on the yuan driven by large amounts of capital influx is to a large extent due to a positive speculative outlook of China's economy and purchase of yuan-denominated assets by foreign companies and individuals. The money market is part of the financial infrastructure that will establish the role of the yuan in world markets, according to Yi.
Many existing financial products are linked to interest rates set by the PBoC. So when the PBoC adjusts interest rates, multiple factors have to be taken into account so as to balance the interests of various parties. Any move to balance interests involves different interest groups and complex situations. So a widely accepted and objective benchmark is needed, and SHIBOR can serve that need. More products, from company provident funds, public welfare funds, company trust funds to wealth management products, housing provident funds and broker depository funds can be linked to SHIBOR.
Chinese equity markets have been taking a beating in recent months. The Shanghai Composite Index fell from a peak of 6,124 in mid-October 2007 to 2,566 in early July 2008, a fall of 58%, largely due to the rising exchange value of the yuan and market pressure on yuan interest rates to rise to keep lenders from cutting off loans at negative interest rates. If the yuan becomes freely convertible and tradable, China would be receiving 3% interest on its sizable dollar reserves currently at $1.8 trillion while paying 6% interest on much larger yuan deposits.
By seeking growth through exports for dollars, China has trapped itself in an incurable mismatch between necessary domestic macroeconomic policies to assure sustainable growth and its central bank's monetary policy dictated by dollar hegemony. This mismatch is counterproductive, crisis-prone and unsustainable.
And as China liberalizes its interest rate regime and currency convertibility as advised by neo-liberal economists whose credibility has been bankrupted by unfolding events, the Chinese economy will face another financial crisis that will wipe out a good part of the export-led financial and economic gains in the last decade. All exporting economies that have abandoned capital controls since the emergence of deregulated globalization of financial markets have been regularly devastated by recurring financial crises that have imploded every decade, the last three being the 1987 market crash, the 1997 Asian Financial Crisis and the 2007 credit crisis. This latest crisis has yet to fully play out its destructiveness and there are no signs so far that US policymakers trapped in dysfunctional supply-side ideology have the economic wisdom and the political dexterity to prevent it from turning into a global depression.
China was relatively spared in the 1997 Asian Financial Crisis largely due to its then cautious pace of opening up its financial sector to global market forces reacting to dollar hegemony. This time around, China can only insulate itself from this pattern of global financial crises by making a concerted effort to shift its exports to the domestic market and to reduce substantially its trade dependency from the current near 70% to below 30% in a planned manner and on an orderly schedule. Exports should be returned by policy to an augmentation role in the economy, supporting domestic development, which should be the main focus of economic growth. The domestic sector should no longer be made to sacrifice to support the export sector. Exports should support domestic development, not act as a parasite on domestic development.
Breaking free from dollar hegemony
A first step in this redirection of policy focus on domestic development is for China to free itself from dollar hegemony. This can be done by legally requiring payment of all Chinese exports to be denominated in yuan to stop the unproductive role of exporting for dollars that cannot be spent domestically without incurring
heavy monetary penalty. Such a policy affects only Chinese exporters and can be implemented unilaterally by Chinese law as a sovereign nation, without any need for international coordination or foreign or supranational approval.
Importers of Chinese goods around the world will then have to acquire yuan from the Chinese State Administration for Foreign Exchange (SAFE) to pay for imports from China. The yuan exchange rate and Chinese export prices can then be coordinated according to Chinese domestic conditions. Import prices denominated in yuan can then be more rationally linked to Chinese export prices. Foreign trade for China then will benefit the yuan economy rather than the dollar economy. There will be no need for the PBoC to hold dollar reserves.
China's economic growth since 1980 has been driven by export of low-price manufactured goods with a dysfunctionally low wage scale. To correct the imbalance of trade that has been giving China trade surpluses of dubious financial or economic benefit, China needs to raise wages, not to revalue its currency. Raising Chinese wages to the level of other advanced economies will redress the current inoperative terms of international trade that now benefits only the dollar economy to benefit the Chinese yuan economy.
This low-wage-driven growth has distorted the progressive purpose of Chinese socialist society by reintroducing many of the pre-revolution socio-economic defects commonly found under market capitalism, such as income and wealth disparity, market-induced chronic unemployment, inequality of opportunities, collapsed social safety nets resulting from privatization of the part of the economy best handled by the public sector, rampant corruption from a collapse of societal morals and excessive influence of money in the political process, uneven regional development and environmental deterioration of crisis proportions.
The current export-led growth of China can be expected to be seriously hampered by a protracted slowdown in the importing economies. Despite China's image as an export juggernaut, the country's per capita merchandise export in 2006 was $1,655, some $135 lower than global per capita merchandise export of $1,780. This is because Chinese wages are substantially lower than the average of all export economies, while the prices of raw material are the same for all buyers in the global market.
A fall in world demand for exports would hit China harder than other export economies by pushing already too low Chinese wages further down just to keep Chinese export factories running. Also, since China's trade dependency has increased steadily over time, importing inflation through the export sector to the domestic sector, China's economy would be hit proportionally harder by a downturn in exports than it was during previous global recessions, unless current policy to reduce trade dependency is accelerated.
Exports are measured by gross revenue while GDP is measured in value-added terms. The rules of input-output macroeconomics requires import inputs to be subtracted from exports in value-added terms, and then conversion of the remaining domestic content into value-added terms by subtracting inputs from other domestic sectors to avoid making the denominator for the export ratio much bigger than GDP. Normally, this would reduce the export-to-GDP ratio. But China's domestic input is excessively low due to low wages and rents, tax subsidies and weak environmental regulations. Thus such input adjustments have little impact on the trade-to-GDP ratio.
In recent years, China has been shifting from exports with a high domestic content, such as toys, to new export sectors that use more imported components, such as steel and electronics, which accounted for 42% of total manufactured exports in 2006, up from 18% in 1995. Domestic content of electronics is only a third to a half that of traditional light-manufacturing sectors. So in value-added terms, exports have increased less than gross export revenues. This is not a comforting development because it turns the export sector into a re-export sector, benefiting the domestic economy even less.
China's current-account surplus amounted to 11% of GDP in 2007. This means its entire GDP growth was from the export sector, and its economy produced far more than it consumed domestically. This surplus production was shipped overseas for fiat dollars that cannot be spent in the yuan economy while Chinese workers could not afford the very products they produced at low wages. Thus under hegemony, while China has become the world's biggest creditor nation, it suffers from shortage of capital needed by its still undeveloped economy, particularly in the vast interior, and has to depend on foreign capital even in the coastal regions when the export section is located. In recent years, Chinese policy has encouraged higher domestic consumption, yet since 2005, net exports have contributed more than 20% of GDP growth.
Some analysts have suggested that China's GDP growth would stay at 9% from strong domestic demand. Yet this demand comes mostly from severe income disparity. China's exports to other emerging economies are now bigger than those to the US or the EU. Asia and the Middle East accounted for more than 40% of China's export growth in 2007, North America for less than 10%. But Chinese trade with other emerging economies was at a deficit, with China importing more, such as oil and other commodities, than the oil-exporting small economies could absorb in the way of low-price Chinese goods for their small populations, while poor emerging economies cannot buy more from China because they do not have sufficient dollars. If Chinese exports are denominated in yuan, trade with these poor economies would explode with balance because their exports to China can also be denominated in yuan to pay for imports from China denominated in yuan.
Export for dollars presents for all exporting countries a problem of diminishing returns because of dollar hegemony. For China, it is a problem of crisis proportions. Since global trade is denominated in dollars, China's economy faces a capital shortage despite its new role as the world's biggest creditor nation. China is forced to accept foreign direct investment, which accounts for over 40% of GDP, despite the country's chronic trade surplus and huge foreign exchange reserves of upwards of $1.8 trillion and growing. Weaker export growth could lead to a sharp drop in foreign direct investment because exporters would need to add less capacity.
While over half of all foreign direct investment in China is in infrastructure and property, such investment is still mostly related to exports, facilitating expatriate managers' housing, foreign company offices in commercial buildings, power plants to supply export factories and highways linking production areas with shipping terminals. Only sovereign credit can redress China's problem of uneven regional development caused by excessive dependence on foreign investment.
Henry C K Liu is chairman of a New York-based private investment group. His website is at http://www.henryckliu.com.
Original article posted here.