Friday, December 15, 2006

Central Bank Gold Lending

Central Bank Gold Lending
Ryan, Blanchard

Breaking: US Army planning to break Goodyear strike

Strikebreakers
---
US Army might break Goodyear strike

By Bernard Simon in Toronto
Financial Times

Dec 15, 2006

The US Army is considering measures to force striking workers back to their jobs at a Goodyear Tire & Rubber plant in Kansas in the face of a looming shortage of tyres for Humvee trucks and other military equipment used in Iraq and Afghanistan.

A strike involving 17,000 members of the United Steelworkers union has crippled 16 Goodyear plants in the US and Canada since October 5.

The main issues in dispute are the company's plans to close a unionised plant in Texas, and a proposal for workers to shoulder future increases in healthcare costs.

An army spokeswoman said on Friday that "there's not a shortage right now but there possibly will be one in the future".

According to Duncan Hunter, chairman of the House of Representatives armed services committee, the strike has cut output of Humvee tyres by about 35 per cent.

Mr Hunter said that the army had stopped supplying tyres to units not related to the Central Command, which is responsible for operations in Iraq and Afghanistan. Tyres were also not being provided to army repair depots.

While concern has centred on the Humvees, tyres are also critical to aircraft and other military equipment.

Goodyear brushed off concerns of looming shortages, saying that production at the Kansas plant, where the Humvee tyres are made, "is near normal levels and will be back to 100 per cent in the near future."

It added that "we're in daily contact with the military to ensure delivery of the required Humvee tyres".

The company said it was using salaried and temporary workers to keep the Kansas plant running. It has taken similar measures at other plants, as well as stepping up imports from overseas factories to maintain supplies to the car and truck industry.

The union claims that the strikebound plants are running at about 20 per cent of capacity. Goodyear has said that North American output is at about half normal levels, including non-union plants.

According to Mr Hunter, the army is exploring a possible injunction under the Taft-Hartley Act to force the 200 Kansas workers back to their jobs.

He proposed that they return under their current terms of employment, on the understanding that any settlement would be extended to them.

© The Financial Times

Ahmadinejad says Zionists are criminals

United Press International
12/14/2006

EHRAN, Dec 14, 2006 (UPI via COMTEX) -- Iranian President Mahmoud Ahmadinejad in Tehran called Thursday on world powers to end the "fake Zionist regime" of Israel.

Ahmadinejad said not all Jews are Zionists, and called for "a referendum in order to determine the type of regime the Palestinians prefer, with the participation of all Palestinians -- including Jews, Christians and Muslims," Iran's state-run IRNA news agency reported.

This week, Ahmadinejad was the host of a Holocaust denial conference for about 70 attendees, including members of the ultra-conservative Neturei Karta Jewish sect that doesn't believe there should be a Jewish nation until the Messiah appears.

Israel Hirsch is sect member who attended, and said Ahmadinejad's view was "very logical," as Germany had committed the genocide, Ynetnews reported.

"So they (Germany) should at least pay compensation to the Jewish nation and establish a Jewish state within Germany and not within the land of Israel, which belongs to the Palestinians," Hirsch said.

Wednesday night, Israel's Chief Rabbi Yonah Metzger said the Neturei Karta members "sabotaged Israel" and should not be allowed entrance to temples.

---

Metzger represents Jews who make Satan look good.

(Note UPI, once known for honest analysis, refers to a"denial" conference. I call bullshit on UPI.

The beliefs of Jews United Against Zionism

The Holocaust conference in Tehran includes members of Jews United Against Zionism, an organization of religious Jews who believe that the creation of the state of Israel goes against Jewish law.

"We don't want to deny the killing of Jews in World War II, but Zionists have given much higher figures for how many people were killed," Rabbi Moshe David Weiss, one of the members attending, told delegates. "They have used the Holocaust as a device to justify their oppression."

According to their website, Jews United Against Zionism believe that Jewish law says that Jews must not use force to create a Jewish state before the coming of the Messiah. Jews, they believe, are forbidden from joining rebellions and should remain loyal citizens and not attempt to leave the exile into which God sent the Jews.

They believe Jews are not allowed to dominate, kill, harm or demean another people and are not allowed to have anything to do with Israel. The group gives four reasons for its beliefs:

According to Jewish scripture, the only time that Jews were permitted to have a state was 2,000 years ago when God was with them, and a state is allowed again only when God returns.

If Jews create a state before this time, God will punish them.

Those who disobey the scripture will cease to be Jews.

The state of Israel is harmful to the Jewish religion.

Staff

Proxy War Anyone?

Fear of Iran-Saudi proxy war increases in Iraq
By Sharon Behn | Published Dec/11/2006 | Iraq , Peace and Conflict | Rating:

Sunni Muslim nations vs. Shi'ite Iran

By Sharon Behn
The Washington Times

U.S. and Iraqi officials fear the sectarian conflict in Iraq will become a proxy war pitting Saudi Arabia and other Sunni Muslim nations against Shi'ite Iran if a U.S. drawdown in Iraq leaves a weak government in place.

The conflict also threatens to strengthen al Qaeda in Iraq, which is seen as supporting the Sunnis in their fight against the steady expansion of Iranian influence over Iraq's Shi'ite-led government, said one Iraqi Sunni exile close to the insurgency.

"It is a religious war," said the exile, who added that Sunni tribal leaders in Saudi Arabia are already funding Sunni insurgents in Iraq.

U.N. Secretary-General Kofi Annan on Friday said the escalating violence in Iraq made a regional war more likely.

"High levels of civilian casualties and displacement on a daily basis are breeding an increasing sense of insecurity and deep pessimism among Iraqis," Mr. Annan said.

"The prospects of all-out civil war and even a regional conflict have become much more real" since Mr. Annan's last report, issued three months ago, he said.

One Iraqi government official said he could see several Sunni Arab countries extending ties -- political, economic, moral and other kinds of support -- to Sunni groups in Iraq.

"The present situation in Iraq is very dangerous -- a lack of a viable government in Iraq leaves it open for others to increase their influence in the country, and it has already opened a door to a wave of Shi'ite nationalism," the official said, speaking on the condition of anonymity.

In a Nov. 29 op-ed article in The Washington Post, Nawaf Obaid, an adviser to the Saudi government, said that if the United States leaves Iraq before the right time, "one of the first consequences will be massive Saudi intervention to stop Iranian-backed Shi'ite militias from butchering Iraqi Sunnis. ...

"To be sure, Saudi engagement in Iraq carries great risks," added Mr. Obaid, who was subsequently fired as an adviser by the Saudi government. "It could spark a regional war. So be it: The consequences of inaction are far worse."

But Kamal Nawash, president of the Free Muslims Coalition, a Washington-based advocacy group, said he did not think the region's Sunni governments want to be directly involved in Iraq.

"Their modus operandi is money from wealthy individuals," he said, predicting that large sums of money would begin flowing from Saudi Arabia and the Gulf states to assist the Sunnis in Iraq.

Growth of Shi'ite nationalism deepens concerns


All of Iraq's predominantly Sunni neighbors are getting increasingly nervous about the growth of Shi'ite nationalism led by Iran's theocratic regime.

"Shi'ites in the Middle East have basically been powerless since the beginning of time, and many of them see that for the first time in history, the tide is changing in their favor," Mr. Nawash said.

"For the first time, there is real concern about the future. Iran is being pretty aggressive in imposing its will, and it is not even that strong now. So they are thinking, 'Imagine if it becomes a real regional power -- it could be unstoppable,' " he said.

Incoming Defense Secretary Robert M. Gates said during his confirmation hearing that his greatest worry was that "if we mishandle the next year or two and leave Iraq in chaos ... a variety of regional powers will become involved in Iraq, and we will have a regional conflict on our hands."

High-ranking Iraqi officials told the Associated Press that Saudi money from private donations is already being used to buy weapons such as the Russian shoulder-fired Strela anti-aircraft missiles.

The money is being disbursed through Sunni clerics, Sunni political leaders or directly to the insurgents, the AP reported.

Saudi government officials have denied that their country is a major source of financial support to Iraq's insurgents.

It has also been suggested that the Saudis might use their oil muscle to counter Iran's growing influence over Iraq.

Mr. Obaid, in his commentary article, said Riyadh could boost its oil production enough to cut the price in half. That would drastically cut Iran's oil income and thus its ability to support Shi'ite militias in Iraq, he said.

Ed O'Connell, a senior analyst at the Rand Corp., said the Saudi government could get directly involved, possibly by deploying its air force closer to Iraq's eastern border with Iran.

"You have to look at the symmetry of the situation -- if the Saudis introduce air power, it would be a balancing power. You have to look at the resources that can be mustered on both sides. These would be indicators that things could go south," Mr. O'Connell said.

It’s Not Just Bush: We’re Accountable Too

HEATHER WOKUSCH

Blaming everything on a handful of people at the top, no matter how destructive and abusive they've been, misses a critical point. Systems tend to self-perpetuate. Remove one player and the next comes in to ensure business as usual.

Remove Rumsfeld, a man who helped prop up Hussein in the 80's and skewed intelligence towards war, and who do you get? Robert Gates, a man who helped prop up Hussein in the 80's and skewed intelligence towards war.

Replacing those in power won't help if the power structure itself doesn't change. And that means addressing how our own actions maintain this dysfunctional system.

Decades ago, Rumsfeld and Cheney hoodwinked the American people with fearmongering lies about Soviet military capability, and set the country on a path of paranoia and weapons build-up. 911 let them pull the exact same trick again, with a public more focused on macho vigilantism than on facts and diplomacy.

But the dirty little secret remains: a combative foreign policy requires perpetual conflict. After all, tough-talking cowboys and weapons manufacturers have little value in times of peace, so it's in their interest to foment never-ending strife. Maybe that's why top Pentagon strategist Air Force Brig. Gen. Mark O. Schissler recently warned Americans to prepare for a 50-100 year "generational war."

The Democrats also seem to be hunkering down for a long-term battle against evildoers; their "Six for '06" goals call for doubling the size of "Special Forces to destroy Osama bin Laden and terrorist networks like al Qaeda." An October 2006 report from the Democratic Leadership Council's Progressive Policy Institute additionally noted: "America needs a bigger and better military ... Democrats should step forward with a plan to repair the damage, by adding more troops, replenishing depleted stocks of equipment, and reorganizing the force around the new missions of unconventional warfare, counterinsurgency, and civil reconstruction.

The wild card in this march towards military domination remains Iran. Bush has already promised Israel protection if it bombs Iran's alleged nuclear facilities, and just this week, Congress voted to double the US stockpiles of military equipment in Israel (turns out that Israel had used much of the US equipment during its war with Lebanon this summer). Israeli prime minister Ehud Olmert's recent admission that Israel possesses nuclear weapons is not expected to impact the billions in aid the country receives each year either, even though the US officially bans funding to those producing weapons of mass destruction.

While US involvement in an attack on Iran would invite Armageddon, Bush is backed into a corner domestically and may feel he doesn't have a whole lot to lose. Leading Democrats (including Clinton and Obama) have also called for the "military option" to be available for Iran, and would most likely push for troops/weapons to protect Israel from retaliation.

Some consider war with Iran as inevitable, but it isn't. The results would be catastrophic and the diplomatic options have not been adequately explored. More to the point, one must consider how the very legitimizing of perpetual conflict is devastating our national security. The Pentagon's budget currently runs over $430 billion per year, not including the roughly $140 billion spent in Iraq and Afghanistan, and Democrats are expected to increase the military budget next year. Meanwhile, domestic social programs are being slashed to compensate for war spending and our military has become severely weakened.

The upshot? We the people need to retire the tough-talking cowboys in both political parties and dump the idea that perpetual conflict is a given. We have to hound members of the 110th Congress to pursue every possible option for peace in the Middle East and we must confront the fear of faceless enemies legitimizing rollbacks in our own civil liberties. Above all, we must hold ourselves accountable not to be fooled into war again.

Action Ideas:

1. To learn more about the lies leading to the 2003 invasion of Iraq:

2. To explore peaceful approaches to foreign policy:

3. To identify the cost of the Iraq War to U.S. taxpayers:

Note: Originally published: December 15, 2006

The Charge of the Muny Light Brigade

Dennis Kucinich
From Kucinich.us

The Charge of the Muny Light Brigade

Twenty-eight years ago today, 31-year-old Dennis Kucinich, then the youngest-ever mayor of a major American city, famously pushed Cleveland into economic default rather than capitulate to the demands of a group of bankers eager to gobble up the city’s power plant. Today, as Kucinich kicks off his White House bid, he speaks to Truthdig about a stand of integrity that nearly cost him his political career, but which has striking relevance in the current political landscape—where such integrity seems in short supply.

Sy Hersh on Defense Secretary Gates

Posted on Dec 7, 2006

Hersh

Veteran journalist and Bush administration critic Seymour Hersh speaks to Amy Goodman on “Democracy Now” about what to expect from Robert Gates as defense secretary: “The reality is Gates is a fresh face and there’s a lot of people, [Brent] Scowcroft and James Baker among them, who are very worried about what’s going to happen in ’08.”

  • Watch it

    Partial Transcript (from Alternet / Evan Derkacz):

    SEYMOUR HERSH: Look, you can spend a lot of time going over the past. Iran-Contra was one of the most underreported stories of the time. As much attention as it got, there’s no question that the president of the United States, Ronald Reagan, and all of the people immediately around him, knew much more. This is one of the worst reported stories of the decade, of the last couple of decades. We really didn’t get to it, none of us in the press corps. It was a failure. Bob Gates was certainly in the middle of this, but I’ll tell you right now, the issue for Gates, you know, if you want to worry about the past, worry about the past. The issue for Gates now is, is he going to throw—he’s president of a major university, he’s written a memoir, he’s come out of it with his reputation pretty much intact—is he going to throw it away by going into the tank?

    In other words, one way he’s brought in, one reason he’s brought in, he’s seen as somebody, unlike Rumsfeld, who in case they decide to go to war or they think there’s intelligence that supports going to war with Iran, he’s seen as somebody that can go brief it and be accepted by the Congress. As you know, many of the legislators are Democrats, Joe Biden among them, who voted against Gates, were very—when he was up for CIA director, a decade ago—were very quick to say they would vote for him now.

    And so the issue for Gates—Gates is really going to be in a very tough spot. Is he going to throw away 35 years and put himself right back in the maelstrom by being—you know, being a mouthpiece for some of the people who want to do things that he may not agree with, or is he going to tell it straight? But he’s going to have credibility, he’s going to be seen as somebody who is going to be replacing Rumsfeld. Bob Gates is not the worst person in the world. I don’t disagree with what Mel Goodwin says—Goodman says—and he and I have talked about this in the past. But Gates is also very strong-minded, and what he could see as tilting intelligence could be Gates inflicting his views, which is also wrong, but it’s different.

    It’s not quite—in any case I’m not apologizing for him, I’m just saying let’s deal with reality. The reality is Gates is a fresh face and there’s a lot of people, Scowcroft and James Baker among them, who are very worried about what’s going to happen in ‘08. The Republicans do not want to lose the election in ‘08 as they lost it in ‘06. They don’t want to see a Democratic president in, and so this is a sort of the last hurrah. The old boys, around George Bush Sr., saying that whatever the kid, the young boy wants to do as a lame duck next year, he better be aware that the party’s future’s at stake and that’s what’s going on here. I think this is really sort of a huge big canvass that we really don’t quite fully understand. But Gates, if he’s going to come in and be the briefer they think he might be on all issues, and spin it the way they want, well that’s going to be his problem. But if he’s going to have some credibility and he’s told friends, he understands his position and he’s not going to, as I say, he’s not going to throw away a lifetime on this issue, let’s just hope that’s right.

    Comments: 2 Published. Add Yours

  • Let's say 'Enough!'

    12/15/2006 12:07:00 PM
    Comment on this article
    Letter

    In his essay, "Iraq: The War of the Imagination," posted by The New York Review of Books at www.nybooks.com, Mark Danner asks a fundamental question that Americans should have been asking themselves.

    "If confronted with that simple question the smiling President Ahmadinejad of Iran put to Mike Wallace last August - 'I ask you, sir, what is the American Army doing inside of Iraq?' - how many Americans could offer a clear and convincing answer?"

    The problem is that Iraq had nothing whatsoever to do with Sept. 11, and had no "weapons of mass destruction." Those realities were known to the Bush administration, and yet were misrepresented by that administration. The entire premise for the American invasion of Iraq was fraudulent.

    Former federal prosecutor, Elizabeth de la Vega, in her book United States v. George W. Bush et al, has documented in detail the crime committed by the Bush administration. "The crime," writes de la Vega, "is tricking the nation into war - in legal terms, conspiracy to defraud the United States."

    "Money talks," as they say, and that is how oil and Israeli interests took control of our government. Nuclear-armed Israel can look out for itself, and we can buy oil; we don't need to steal it. Yet our supine Congress allowed oil and Israeli special interests, operating within the Bush administration, to usurp powers rightfully exercised only by Congress. Congressmen who dodged their responsibilities have given us the best Congress that money can buy.

    Because the fraudulent war on Iraq has taken the lives of thousands of innocent people, the Bush administration has placed an indelible stain of shame on the history of America. How long must we allow it to continue? Is there no leader in America with guts enough to stand up, to look beyond oil and Israeli money, and to declare "enough?"

    JACK DENNON
    Warrenton

    Brimelow, CBS Marketwatch: Gold & Oil to Rule New Year

    Peter Brimelow
    PETER BRIMELOW
    Testing the new year's metal
    Commentary: Letter sees growing demand for gold, silver, uranium - and oil


    NEW YORK (MarketWatch) -- In the new year, oil and gold will still rule, according a top-performing newsletter.

    Justin Litle's Outstanding Investments is the fifth-best performing letter over the past 12 months, according to the Hulbert Financial Digest, up 37.2% vs. the dividend-reinvested Dow Jones Wilshire 5000's 16.54%.

    Over five years, Outstanding Investments is up a remarkable 36.88% annualized, vs. 8.86% for the total return DJ Wilshire.

    Unquestionably, this is because, for whatever reason, Outstanding Investments has been in synch with a major market move: the rebirth of oil and gold. But you can't argue with Hulbert numbers: It's really worked.

    Editor Litle is aware of this, but he's carrying on anyway. As he wrote Wednesday night:
    "Every New Year's Eve in recent memory, I've thought to myself: "It can't get any crazier than this. How can the new year possibly top the last?" Yet for five years running at least, the new year HAS topped the last, in all the ways that count.

    "2007 is shaping up to be the same, yet even more so. A lot of chickens will be coming home to roost. 2007 could be the year we see oil above $100 ... the year gold breaks its 1980 highs ... the year silver jumps over the moon ... the year developing-world economics and infrastructure woes really hit home ... and that is just a start."

    This is true both strategically and tactically. When I last checked in, Outstanding Investments was standing firm with oil and gold. See Oct 16 column

    It worked, especially with gold.

    Outstanding Investment's latest letter was published some time ago, in early December. The service continues to be intensely focused on what it sees as a looming brute physical shortage of energy, and raw materials generally, in the world.

    It wrote: "It's like a broken record, I know: Chinese growth is driving the commodity boom. We hear it all the time. And it's true. The fact of the matter is that China has struck some incredible deals with countries like Canada, Russia and Venezuela, and the list goes on. While we've seen a pullback in many of the commodities in the third quarter, China used that pullback to prepare for the next leg of the rally in commodities. Meanwhile, the U.S. has been asleep at the switch and busy trying to stave off nuclear proliferation in various regions of the world, with about 50/50 success. The U.S. is woefully behind in the race to snatch up valuable resources and lock in key partnerships as we head past the halfway mark of the first decade of the millennium."
    One result: Outstanding Investments seconds veteran editor Jim ("The Dines Letter") Dines' fascination with uranium. See Nov. 13 column

    For example, Outstanding Investments continues to recommend Cameco Corp. (CCJ
    Cameco Corporation...
    Sponsored by:
    CCJ
    )


    ... despite the recent flooding of the huge Cigar Lake, Saskatchewan, uranium mine, in which Cameco has a half interest. If anything, Outstanding Investments seems to think that this will just exacerbate the supply crunch.

    Outstanding Investments does think about other things. For example, its most recent stock of the month was Walter Industries Inc. (WLT
    Walter Industries Inc
    Sponsored by:
    (WLT
    )
    .

    Admittedly, it's partly a high-quality metallurgical coal play. But Walter also owns Mueller Water Products, a leading provider of water infrastructure products. Outstanding Investing thinks U.S. infrastructure is heading for a crisis. And, as it happily quotes someone saying, "Water is the new oil."

    Outstanding Investments recommends buying WLT below $48.

    U.S. Delegation Seeks Ties With Cuba

    Friday December 15, 2006 9:01 PM

    By ANITA SNOW

    Associated Press Writer

    HAVANA (AP) - A delegation of American lawmakers sought improved diplomatic and economic ties with Cuba on Friday, anticipating leadership changes in Havana and on Capitol Hill.

    Ten U.S. congressmen were expected to discuss the possibility of easing U.S. trade and travel sanctions in meetings with Communist officials. They also scheduled talks with Cuba's Roman Catholic Cardinal Jaime Ortega, as well as foreign diplomats, during their trip, which ends Sunday.

    Jeff Flake, an Arizona Republican, and William Delahunt, a Massachusetts Democrat, led the group - said to be the largest congressional delegation to visit the island since the 1959 Cuban revolution. Both legislators advocate ending decades-old trade and travel sanctions against Cuba.

    ``This certainly seems like a good time to move ahead,'' Flake said. ``I think that there is more momentum to move ahead than we have had in a while.''

    The Bush administration, meanwhile, has over the past six years adopted measures aimed at further squeezing the island's economy and undermining Cuba's Communist leaders.

    The delegation reportedly asked to see Defense Minister Raul Castro, who leads Cuba as his brother Fidel recovers from intestinal surgery. It was not clear Friday if the meeting would take place.

    The trip comes amid growing uncertainty about the health of Fidel, the island's 80-year-old leader, who has not been seen in public since he underwent surgery in July. He temporarily ceded his powers to his 75-year-old brother Raul.

    Raul Castro has offered to talk with Washington about its differences with Cuba. The Bush administration says there will be no dialogue until Cuba holds free and competitive elections and releases its roughly 300 political prisoners.

    ``I think that there is a significant majority in the U.S. Congress that believes it is time to engage in dialogue,'' Delahunt said.

    The Bush administration in the fall added $80 million to programs seeking to promote the transition to a U.S.-style democracy in post-Fidel Cuba.

    Communist officials call the groups receiving the money ``mercenary'' and ``counterrevolutionary.'' They insist Cuba will not abandon communism after Fidel Castro is gone. Instead, they say, a collective leadership will preserve the current economic and political system.

    On the eve of the congressional visit, the Communist Party newspaper Granma published a lengthy editorial criticizing U.S. funding of Cuban opposition groups.

    The editorial cited a recent study, requested by Flake and Delahunt, which concluded that the U.S. Agency for International Development failed to keep track of spending by Cuban groups running pro-democracy programs. The report found some groups used part of their money for questionable purchases, including cashmere sweaters and chocolate.

    The party newspaper, meanwhile, criticized the American diplomatic mission in Havana for distributing books, medicine, clothes and shortwave radios to Cubans.

    Granma claimed the congressional report confirms that the U.S. Interests Section ``acts like the central barracks of the counterrevolution.''

    The lawmakers plan to meet with Michael Parmly, the head of the American mission, on Sunday. Friday's agenda includes meetings with the head of Cuba's food import company Alimport. U.S. Rep. Jo Ann Emerson, a Missouri Democrat, is looking to expand American food exports to Cuba.

    They also plan to meet National Assembly President Ricardo Alarcon, Cardinal Ortega, Canadian and European diplomats and the head of Cuba's basic industries ministry.

    World economies will grow as U.S. slows

    By MALCOLM FOSTER, AP Business Writer 2 hours, 31 minutes ago

    A slowdown in the U.S. economy will likely drag on global growth next year, economists predict, but Asia and Europe are expected to remain fairly resilient amid signs of healthy consumer demand.

    Even as a cooling U.S. housing market weakens Americans' appetites for foreign-made electronics, clothing and other exports, the swelling ranks of middle-class consumers in China, India and the rest of emerging Asia are seen picking up the slack, experts say.

    Europe's growth may also slow some, but the outlook there is also relatively positive due to renewed consumption and falling unemployment.

    "While the world's other major economies will be affected by slower U.S. growth, their own domestic demand should continue to drive global growth," Swiss investment bank UBS said in its year-end outlook for the global economy.

    Global growth as a whole is projected to slow a tad to 4.9 percent next year from an estimated 5.1 percent this year, the International Monetary Fund predicts.

    The world's richer, more mature economies will see lower growth rates. The Organization for Economic Cooperation and Development has trimmed its 2007 growth forecast for its 30 mainly industrialized member countries to 2.5 percent — the lowest rate since 2003 — from its previous estimate of 2.9 percent.

    The big question is whether the U.S. economy will slow gradually while avoiding a jump in inflation — something economists call a "soft landing" — or slide into a recession, which could seriously stifle global growth.

    "We think it will be a soft landing," said Dong Tao, chief regional economist at Credit Suisse in Hong Kong. And as U.S. export demand slows, "Asia's growth will be more moderate."

    "But the rest of the world is starting to pick up the slack," he said. "That will make domestic demand determine the winners and losers."

    Consumers in the U.S. and around the world should get some relief from soaring oil prices, which have dropped more than 20 percent since hitting a record high $78 a barrel in July.

    U.S. gross domestic product will likely expand by 2.5 percent in 2007, down from an expected 3.3 percent this year, according to according to a panel of 50 top forecasters in a survey released in November by the National Association for Business Economics.

    India and China will remain star performers in the year ahead, although both countries face challenges ranging from environmental degradation to the risk of overheating.

    China's booming economy is expected to keep growing at more than 10 percent a year. But Beijing faces a tricky balancing act of fostering growth to lift millions out of poverty while trying to clamp down on excessive investment in property development that authorities worry could make banks and companies vulnerable to a financial crisis.

    Attempts to restrain investment — two interest rate hikes and measures to curb lending — have had only limited impact.

    Chinese officials recently set an 8 percent growth target for 2007, well below the 10.7 percent rate recorded for the first nine months of this year. But growth has topped the targets every year in this decade.

    In India, Prime Minister Manmohan Singh has set an ambitious 9 percent annual growth target for the economy over the next five years, up from the current expansion rate of 8 percent, hoping to reduce poverty among the country's 400 million rural poor, who haven't benefited from the country's rapid development.

    Singh says boosting productivity in agriculture and channeling more investment into infrastructure projects and job creation are the keys to accelerating growth.

    Japan, Asia's largest economy, is steadily recovering from a decade of stagnation. However, consumer spending appears to be weakening, leaving the economy vulnerable to slowing demand for exports, its traditional source of growth.

    A critical factor will be when the Bank of Japan next raises interest rates. A move is expected in early 2007. The central bank raised rates in 2006 for the first time in six years to 0.25 percent from virtually zero. Some worry that hiking rates again too soon will choke the recovery.

    European growth appears to be on an upswing, but that could be dented some by the expected U.S. slowdown.

    Forecasts by the European Union and European Central Bank see gross domestic product in the 12-nation euro zone expanding 2 percent next year, slower than the 2.7 percent expected this year, but well above the 1.4 percent it has averaged since 2001.

    "The euro zone can actually cope with a temporary downturn in the U.S. if activity stays dynamic in emerging markets — which seems to be the case for the time being," said Gilles Moec, a London-based economist with Bank of America.

    Central and Eastern Europe, combined with Asia, have contributed twice as much as the United States to euro-zone export growth over the past seven years, according to Bank of America.

    The only major drag for Europe appears to be Germany, which is expected to take a hit in the first quarter after a hike in its value-added tax.

    Latin American economies are expected to do well next year. The region is a big exporter of commodities such as copper, iron ore and soy, so any global economic shocks — like an unexpected slump in China — would have severe repercussions.

    Brazil's growth is seen accelerating to 3.4 percent next year after an estimated 3 percent this year. President Luiz Inacio Lula da Silva has managed to bring inflation down to 3.2 percent, something almost unthinkable just a few years ago.

    Mexico is expected to grow 3.7 percent next year, down from 4.7 percent this year. But inflation has dropped to a record low, the nation's currency is stable and nearly 1 million jobs have been created in the nation's formal sector.

    Argentina is expected to continue its strong comeback after its economic meltdown in 2002, with experts predicting GDP growth of 7 percent next year. Construction is booming, soy exports are up, and unemployment is below 10 percent after reaching a record-high of 21.5 percent in 2003.

    ____________

    AP Business Writers Elaine Kurtenbach in Shanghai, Rajesh Mahapatra in New Delhi, Hans Greimel in Tokyo, Matt Moore in Frankfurt, Viorel Urma in New York and Alan Clendenning in Sao Paulo contributed to this report.

    Will the French kill the Euro ?

    Will the French kill the Euro ?
    Evans Pritchard, Audio, The Telegraph

    The arms deal they called the dove: how Britain grasped the biggest prize

    The Saudis want Iran whacked. Time to go after these sumbitches, folks.
    ---
    ·
    No expense spared as UK wooed Saudi politicians
    · US and France lost out on tens of billions


    David Pallister
    Friday December 15, 2006
    The Guardian


    The deal of the century, as it came to be known, took three years to complete. But when it was finally signed by Prince Sultan, the Saudi defence minister, on the Caribbean island of Bermuda in 1988 it provided British Aerospace with a stream of revenue worth around $2bn (£1.02bn) a year, with a current total that stands at more than $40bn.

    It involved the sale of 72 Tornado fighters and 50 Hawk jet trainers, the construction of two airbases and a host of other equipment, training and spares, serviced by more than 3,000 UK experts stationed in Saudi Arabia. They called it Al-Yamamah: the dove.



    Britain's role as one of the world's top arms exporters was guaranteed by the partnership, but it was a close-run battle. In 1985 the Saudis were desperate to upgrade their defences. They were concerned even then about the spread of Islamic fundamentalism touching their Shia citizens in the oil-rich east, as well as the possibility of being drawn into the Iran-Iraq war, in which they took the side of Saddam Hussein. They approached France for its Mirage 2000s and the US for the F-15E, in the face of strenuous opposition from the Israeli lobby.

    In the end Britain triumphed, due, in large part, to the intervention of Margaret Thatcher. She assiduously cultivated Sultan on his private visits to London and developed a close relationship with King Fahd, whose opinion of the British prime minister verged on infatuation.

    The British party that flew to Bermuda to sign the memorandum of understanding included Sir Colin Chandler, head of defence export services and now chairman of easyJet; air vice-marshal Ronald Stuart-Paul, head of the Saudi armed forces project at the Ministry of Defence; and John Weston, the British Aerospace director in charge of the project.

    The deal was immediately controversial and perpetually shrouded in secrecy. It was paid for by the delivery of up 600,000 barrels oil a day, with the money going into a dedicated MoD account. But given the Saudi royal family's propensity for extravagance and corruption, the allegations of kickbacks soon surfaced and have never gone away.

    It was not only princes and their officials who were said to have benefited but also, allegedly, Mrs Thatcher's son, Mark, through his friendship with one of the intermediaries, the Syrian/Saudi billionaire Wafic Said.

    Campaigners against the arms trade argued that Britain should not be selling war planes and military equipment to an undemocratic regime that practised torture. They claimed that the British government refrained from criticising Saudi human rights abuses, even when British citizens were involved, in order not to upset the arms sales.

    Such was the sensitivity of the arrangement that a National Audit Office report in the early 1990s was, unprecedentedly, suppressed. The official British line has always been that this was a government-to-government contract, and no agents were involved. But evidence that commissions or bribes were paid by BAE, as it now is, and some of its sub-contractors such as Rolls Royce, Thorn EMI and Royal Ordnance, have been seeping into the public domain for years. Rolls Royce was even sued in the high court by agents acting for one of the princes because it had reduced the level of its commissions.

    The alleged principal method for concealing the bribes was to increase the price of the goods; so, it appears, the Saudi princes were stealing from their people.

    But after Al-Yamamah 1, the deal just rolled on. It was renewed in 1993 when Saudis agreed to buy another batch of 48 Tornado war planes. In a third stage, signed last year, Britain is selling up to 72 more planes, this time Typhoons.

    The Guardian disclosed that accidentally released Whitehall papers, including a telegram from Chandler, revealed how the price of the Tornados had been inflated by 32%. Another document in the archives quotes a dispatch from a British ambassador saying the family of Prince Sultan "had a corrupt interest in all contracts". Two years ago this newspaper also revealed something of the quantity of money that was allegedly being passed around when it published details of the lavish BAE Systems hospitality showered on Prince Turki bin Nasser, the deputy head of the air force, and his family.

    By then, the Serious Fraud Office had launched an inquiry into allegations; laws that came into force in 2002 made paying bribes on overseas deals a criminal offence. SFO officers have been trawling seized documents and have arrested and interviewed some BAE officials.

    They unravelled details of arrangements for commissions being paid through Swiss bank accounts, and appeared to be about to approach the Swiss authorities for access to them. The scale of the alleged slush fund, concealed in Swiss bank accounts of Panamanian companies, may be as much as £100m.

    BAE and all individuals have always denied any wrongdoing.

    All the allegations have infuriated the Saudi royal family, not least because they have fuelled the resentment against the regime by its own militants and fundamentalists throughout the Muslim world.

    In the past few weeks there have mutterings - aired by BAE Systems itself - that the Saudis are upset, the new Typhoon deal is in peril, and thousands of jobs are at risk if the Serious Fraud Office continues its investigations.

    Key dates

    Mid-1980s
    Saudis keen to upgrade defences; consider French and US-made systems as well as British.

    1985
    Al-Yamamah deal signed by Saudi defence minister Prince Sultan and then defence secretary Michael Heseltine. Britain's biggest arms deal, it provides for the sale of 72 Tornado and 30 Hawk warplanes to Saudi Arabia. Worth £43bn so far. Al-Yamamah means "the dove" in Arabic.

    1989
    Deliveries begin.

    1992
    National Audit Office scrutinises the deal following allegations that members of Saudi royal family and middlemen were secretly paid hundreds of millions of pounds in kickbacks. But report is suppressed over fears it would anger the Saudis.

    1993
    Al-Yamamah deal renewed. Saudis agree to buy 48 Tornados.

    1997-1999
    BAE sets up offshore accounts in British Virgin Islands and Switzerland to move around large sums of off-balance-sheet cash.

    2002
    Laws come into force making it illegal to pay bribes to foreign public officials.

    2004
    Guardian reveals scale of hospitality BAE showered on Prince Turki bin Nasser, deputy head of air force.

    2004
    SFO launches investigation into corruption, including allegations that BAE Systems ran a multimillion pound "slush fund" to secure the Saudi arms deals.

    2005
    Third phase of deal sees Britain sell up to 72 Typhoon aircraft in £6bn deal.

    2005
    Sir Richard Evans, BAE chairman, interviewed by SFO.

    Oct 2006
    Guardian publishes documents showing how price of Tornado warplanes was inflated by £600m.

    Nov 2006
    SFO pursues evidence that millions of pounds of BAE cash was found in Swiss accounts potentially linked to the Saudi royal family.

    US Government Biological Weapons Legislator Says 2001 Anthrax Attacks Part Of Government Bio-warfare Program


    Expert says FBI covered up the plot to attack Congress which may have been perpetrated by the same people who carried out the 9/11 attacks

    Steve Watson, Infowars.net
    Wednesday, December 13, 2006

    The real culprits behind the 2001 anthrax attack on Congress were most likely US government scientists at the army's Ft. Detrick, MD., bioterrorism lab according to a former government biological weapons legislator and University of Illinois Professor.

    Dr Franics A. Boyle says the FBI covered up these facts and has also quite clearly stated that he doubts the official government story that 19 arabs with boxcutters perpetrated the attacks of 9/11.

    Boyle is a leading American professor, practitioner and advocate of international law. He was responsible for drafting the Biological Weapons Anti-Terrorism Act of 1989, the American implementing legislation for the 1972 Biological Weapons Convention. He served on the Board of Directors of Amnesty International (1988-1992), and represented Bosnia- Herzegovina at the World Court. Professor Boyle teaches international law at the University of Illinois, Champaign. He holds a Doctor of Law Magna Cum Laude as well as a Ph.D. in Political Science, both from Harvard University.

    "I believe the FBI knows exactly who was behind these terrorist anthrax attacks upon the United States Congress in the Fall of 2001, and that the culprits were US government-related scientists involved in a criminal US government bio-warfare program," Boyle says in his new book Biowarfare and Terrorism.

    Only a "handful" of scientists had the means to carry out the attack, yet the FBI ordered the destruction of the anthrax culture collection at Ames, IA., from which the Ft. Detrick lab got its pathogens. Boyle states that only top level scientists with access to "moonsuits" that enabled them to safely process and manufacture super-weapons-grade anthrax could have carried out the attacks.

    "The trail of genetic evidence would have led directly back to a secret but officially-sponsored US government biowarfare program that was illegal and criminal" , Boyle said. However, impartial scientists were not allowed to perform genetic reconstruction of the anthrax found in letters mailed to Senators Daschle (D-S.D.) and Patrick Leahy, (D -Vt.) in late 2001.

    We have previously exposed how leading members of the Bush administration and White House staff were on the anthrax-treating antibiotic Cipro up to six weeks before the attacks occurred. It is also documented that the anthrax strain used was military grade. This was widely reported in 2002 in publications such as the New Scientist. However, this fact has recently been totally changed with the FBI now suggesting that common anthrax, not military grade anthrax was used.

    The whole thing "appears to be a cover-up orchestrated by the FBI." according to Dr Boyle.

    Boyle goes on to inquire, "Could the real culprits behind the terrorist attacks on 11 September 2001, and the immediately following terrorist anthrax attacks upon Congress ultimately prove to be the same people? Could it truly be coincidental that two of the primary intended victims of the terrorist anthrax attacks - Senators Daschle and Leahy - were holding up the speedy passage of the pre-planned USA Patriot Act ... an act which provided the federal government with unprecedented powers in relation to US citizens and institutions?"

    Clearly Dr Boyle has a hard time believing what the government says happened on 9/11.

    The anthrax attacks cleverly (or coincidentally if you choose to believe) coincided with the terrorist atrocities and sent Congress into shut down for days. Immediately after re-convening the liberty smashing PATRIOT Act was passed without even being read by members.

    In addition, the Bush administration moved to begin planning a major $10 billion expansion of the bioweapons labs at Fort Detrick. Residents in the area have fiercely campaigned against the expansion.

    In a forward to Boyle's book, Dr. Jonathan King, Professor of Molecular Biology at M.I.T. and a founder of the Council for Responsible Genetics, says the government's "growing bioterror programs represent a significant emerging danger to our own population."

    Those who cannot fathom how or why the government could kill almost 3000 citizens, including police and firefighters, on 9/11 need look no further than the anthrax attacks, which provide solid proof that criminal elements within the structure of authority are in operation and don't give a damn about who they kill to achieve their goals of social control.

    There are countless examples of the US government having illegally tested and used bio-weapons on its own citizens. The Tuskegee Syphilis Study, The Program F fluoride study, Project SHAD which we are now learning used live toxins and chemical poisons on American servicemen on American soil, spraying clouds of bacteria over San Francisco, releasing toxic gases into the New York subway, holding open-air biological and chemical weapons tests in at least four states in the 1960s, the list goes on.

    The Pentagon's biowarfare program has long been in operation and US citizens have never been spared from experimentation. To get more of a taste for just how hideous the secret biowarfare program is, click here and go to Rense.com, which has a lengthy (but by no means a comprehensive) list of previous known bio-experiments conducted on the population by the criminal elite.

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    Voters Remain Angry at GOP, NPR Poll Shows

    Politics

    Sixty-eight percent of voters polled favor withdrawing U.S. troops from Iraq in the next six months, according to the NPR poll. Public Opinion Strategies/Greenberg Quinlan Rosner Research

    Poll Results

    The poll was conducted for NPR Dec. 7-10, 2006, by Public Opinion Strategies and Greenberg Quinlan Rosner Research. It consisted of a national telephone survey of 800 likely voters. The survey has a margin of error of +/-3.46 percentage points.

    About 46 percent of voters favor a Democratic presidential candidate in 2008; 28 percent favor a Republican. Public Opinion Strategies/Greenberg Quinlan Rosner Research

    Voters continue to be pessimistic about the direction of the country. Sixty-five percent say it's on the wrong track, up from 55 percent in December 2005. Those who see the country heading in the right direction dropped to 25 percent, from 35 percent a year earlier. Public Opinion Strategies/Greenberg Quinlan Rosner Research

    Morning Edition, December 15, 2006 · Voters are feeling more positive about the Democratic Party than about the Republicans as the GOP prepares to hand over control of Congress in January, according to a new NPR poll. And with his approval rating remaining low, President Bush will find it tough to keep Republican lawmakers on his side, the numbers suggest.

    Democrat Stan Greenberg and Republican Glen Bolger conducted the survey of likely voters. They found that unlike some previous elections, the 2006 midterms were not a release valve. In other words, according to Bolger, voters are still angry, mostly at Republicans.

    Sometimes when voters get the result they want in an election, they feel better about the country. But the survey showed that although the number of voters who believe the country is on the wrong track stayed the same as before the election, the number of voters who think the country is on the right track dropped.

    And while President Bush's approval rating is still around 40 percent, Bolger points out that the president's strong approval is at 17 percent, and his strong disapproval rating is at 45 percent. That suggests that the president will be facing an increasingly difficult challenge keeping Republican members of Congress on his side.

    Even before last month's election, many Republicans were starting to break with the president; now they will be under even more pressure to do so.

    Bolger and Greenberg asked voters a "thermometer question" -- to measure how warm or cool they were toward the parties. For the first time in many years, the Democrats' rating on a scale of 1 to 100 was 53; the Republicans scored 44. Greenberg points out that this gives Democrats an opportunity, but not a free pass. Bolger says Republicans are still in a hole and must claw their way back into the trust of the public.

    by

    Listen to this story...

    Here

    Economic storm brewing in America


    By Ambrose Evans-Pritchard

    Last Updated: 12:01am GMT 07/12/2006


    America's stock markets typically start crumbling four months before each recession, anticipating the crunch in profits. Shares then grind relentlessly down for 10 months or so until they have on average knocked 26 per cent off the S&P 500 index, Wall Street's listing of top companies.

    So if you think the US property slump is looking scary after October's 9.7 per cent drop in new home prices, it may be time to take a little money off the table. It has been a lucrative autumn rally, but the four-year bull market is long in the tooth by any standards.

    As we report today, the rate of insider stock sales by company directors on both sides of the Atlantic is the highest since records began 20 years ago, with sales outnumbering purchases by 60:1.

    It makes scant difference whether your shares are on Wall Street or the London Stock Exchange. The FTSE 100 index is a global play these days. The lion's share of profits come from overseas, while London's AIM market has become a bet on Chinese and Russian companies nesting there by the dozens.

    The world economy is what matters, and I don't like the smell of it. Nor, apparently, does Hank Paulson, who made $700 million at Goldman Sachs before taking over the US Treasury this year. He has reactivated a crisis team with a command centre in Washington to cope with the "systemic risk" in a market melt-down. His worry? 8,000 unregulated hedge funds with $1.3 trillion at hand, and derivative contracts now worth $370 trillion. "We need to be very careful here," he said.

    A well-sourced article in Washington's Weekly Standard says Mr Paulson fears a "serious crisis that would be a body-blow to the US economy".

    Yes, China is booming – for now – but it accounts for just 4 per cent of world consumption. The great US shopping extravaganza is six times bigger, and remains the anchor of the international system. It is slowing fast, unsurprising after 17 interest rate rises from 1 per cent in June 2004 to the current 5.25 per cent. "Big ticket" orders for cars, aircraft, computers and such plummeted 8.2 per cent in October.

    Average house prices have fallen from $244,000 in April to $221,000 last month, with more violent corrections in Florida, Arizona, and New England. Builders have warned of a "death spiral" as they slash prices to off-load a glut of unsold homes.

    The "happy handover" orthodoxy of the International Monetary Fund is that America will escape with a shallow slowdown. Asia and Europe will pick up the growth baton. The world will march on without missing a step.

    Nice if you can get it. The more ominous possibility is that America fails to recover quickly, and takes the world with it. Japan already shows signs of stalling. Retail sales have fallen for two months. Far from bursting back to life as expected, it is still teetering on the edge of deflation.

    France ground to a halt in the last quarter as the surging euro ate into the country's industrial core. Airbus was humming when the euro was worth 90 US cents. Now it must compete at $1.33, with wage costs in euros set against delivery contracts in dollars. Currency hedges protect for a while, then reality hits.

    German industry says $1.40 is the pain limit. It is hard to see what can stop the dollar sliding that far as funds bet on US rate cuts next year. The yield premium that kept the currency aloft earlier this year is about to narrow, perhaps sharply. The central banks of Asia and Russia are sated on dollar reserves. They may not slash their US holdings, but they are unlikely to add either. So who will fund America's deficits?

    "The US needs a trillion dollars a year just to stand still," says David Bloom, currency guru at HSBC. Modern financial crises have always begun on the peripheries of global economy, setting off a chain reaction. Mr Bloom says the seizure this time will be at the heart of the system as the dollar buckles, pressing down on the "aorta of capitalism".

    So we have a world where the ageing economies of Europe and Japan are too fragile to withstand a dollar slide, yet America needs a weak dollar to cushion its own downturn. Meanwhile, China is holding its currency far below equilibrium. Nobody is doing much to break this impasse. The 1930s come to mind.

    The consensus is that America will rebound quickly, averting a sticky end. But it takes two years for rate rises to feed through an economy, so Americans have not yet faced the worst. Nobody knows how US households with record debt will cope with the squeeze. Borrowings rose 8.1 per cent in 2000, 8.6 per cent in 2001, 9.7 per cent in 2002, 11.4 per cent in 2003, 11.1 per cent in 2004, 11.7 per cent in 2005, with no let-up in 2006. Debt payments have reached an all-time high of 13.9 per cent of personal income.

    Americans extracted 6 per cent of GDP from their homes last year in equity withdrawals (ie, more debt), mostly to subsidise their lifestyles. This game is up. Professor Nouriel Roubini from New York University says recession is inevitable. "People have been using their homes as their ATM machine, but many are now facing negative equity so there will be a lot of foreclosures. As the housing recession spreads to manufacturing, this is going to lead to a much harder landing than people think."

    The bonds markets are alert, even if equities are not. Interest rates on 10-year Treasury bonds (4.46 per cent) have dropped below short-term rates (5.25 per cent) for five months. This is the "inverted yield curve" of satanic fame, flag of recession. Ignore that at your peril.

    Whatever happens, the Federal Reserve will come to the rescue. But how soon? The Fed minutes from December 2000 show some governors fretting about inflation long after the danger had shifted to slump. That wily old bird Alan Greenspan silenced them, knowing in his bones that the economy was going over a cliff.

    His untested sucessor, Ben Bernanke – burdened with inflationist baggage – does not yet have the credibility to pull off that stunt. Whatever he really thinks, he will have to play by the book. So batten down the hatches for a long storm.

    Death of the Dollar



    10:07

    A dangerous illusion

    The idea that caving to Saudi pressure to halt the SFO's inquiry could be in Britain's national interest is absurd - and disastrous.

    December 15, 2006 06:15 PM

    Ian Davis

    The decision to discontinue the Serious Fraud Office investigation into BAE Systems' arms deals with Saudi Arabia was not only a "shabby, shaming day, among the most inglorious" Tony Blair has spent in office, it is also one that leaves Britain less secure.

    This arms deal with Saudi Arabia will ensure that Britain remains a target for al-Qaida, is almost certainly bad for British jobs and the economy, lacks transparency and accountability, drives a coach and horses through proposed tougher measures against corruption in international business and undermines UK leadership of an international arms trade treaty. Apart from boosting the coffers of BAE Systems and its shareholders, what does Britain gain from this highly visible, seemingly unquestioning appeasement of one of the most ineffective, corrupt and authoritarian regimes in the Middle East?

    There are at least four grounds for disagreeing with the Attorney General's interpretation of the UK public interest in this case.

    First, it is in Britain's national interest to promote our international standing as a democratic country that values the rule of law and seeks to promote it elsewhere. This decision not only undermines confidence in UK anti-corruption legislation, but also opens the door for other countries to apply political pressure to prevent criminal investigations that might conflict with foreign policy objectives. Will the Scotland Yard inquiry into the murder of former Russian spy Alexander Litvinenko be the next casualty should Vladimir Putin decide to threaten our access to gas and oil supplies?

    And where does this leave Hilary Benn, appointed in June this year as our "ministerial champion" for tackling international corruption with the support of a new taskforce including the City of London and Metropolitan police? This will now be seen as a fruitless exercise and have no credibility with either domestic opinion or other governments.

    How different the wheels of justice spin in Germany, for example, where the former junior defence minister, Ludwig-Holger Pfahls, was jailed in August 2005 for two years and three months on bribery and tax evasion charges stemming from a controversial export of 36 armoured vehicles to Saudi Arabia during the 1991 Gulf war.

    Second, it is in Britain's national interest to promote restraint in international arms transfers. Indeed, down at the Foreign Office, Margaret Beckett, is supposedly championing an international arms trade treaty to ban arms transfers if they are likely to contribute to human rights violations, fuel conflict or undermine development. As one of the world's leading arms exporters, this was always going to be a difficult trick to pull off. The Saudi arms deal makes it nigh impossible.

    The British arms industry has long been heavily dependent on one major deal: the al-Yamamah contract to supply Tornado fighter aircraft to Saudi Arabia, which was secured only after personal lobbying by Margaret Thatcher and after high levels of secrecy and commissions were guaranteed. Al-Yamamah accounted for 62% of all UK military exports from 1997-1999, but by the end of the millennium the deal was coming to a close, increasing pressure on BAE to secure a follow-up order for the Typhoon Eurofighter.

    Built by a four-nation consortium, which includes Britain's BAE, the Typhoon was delivered to the RAF a decade later than first planned (hence the change in name from Eurofighter 2000), at a total cost for the UK alone of over £19bn, £12bn more than initially projected. That is about £350 for every adult and child living in the UK, the equivalent of paying £1.1m for every job that the project is said to sustain.

    Like several other controversial arms deals agreed in recent years, the export of Typhoons to Saudi Arabia will breach a series of criteria outlined in the 1998 European Code of Conduct on Arms Exports. For example, the code requires consideration of the impact of any export on the preservation of regional security. President George HW Bush's 1991 Middle East Arms Control Initiative also called for a series of proposals designed to "restrain destabilising conventional arms build-ups", since the situation in the Middle East poses "unique dangers". Despite all this, the US and UK have carried on transferring vast quantities of destabilising weapons to the Saudis.

    Similarly, the code states that arms exports should be compatible with "the technical and economic capacity of the recipient country, taking into account the desirability that states should achieve their legitimate needs of security and defence with the least diversion for armaments of human and economic resources". Saudi Arabia's weapons purchases over the past 20 years have been among the largest in the world, vastly outweighing domestic technical capability, with much of the equipment being operated or serviced by UK government officials and RAF personnel. In short, Britain is effectively running the Saudi air force.

    This leads to my third point that it is in Britain's national interest to balance "UK/Saudi security, intelligence and diplomatic cooperation" in the war on terror with the pursuit of political reform in Saudi Arabia. There is a strong public perception in the Arab world that the ruling Saudi family is corrupt and exists in mutual dependency with the west. This has led not only to increased support for al-Qaida but also to fears of a palace coup. More recently, a steady stream of Saudis have become involved in the insurgency in Iraq, a further indication of the depth of support for radicalism in the Saudi state. Reconciling the tension within Saudi Arabia between an internal radical Islamic stance and an external pro-western policy can only be made more difficult by a further arms deal with the UK government.

    Finally, it is also in Britain's national economic interest to remove the costly subsidies that underpin such arms deals. Lord Goldsmith's claim that "no weight has been given to commercial interests or to the national economic interest" carries no credibility whatsoever. Large defence export contracts have helped to ensure BAE's continuing viability, but at a significant cost for Britain. By 2003, for example, £1,015,166,892 of Saudi debt was guaranteed by the UK Export Credit Guarantee Department (ECGD), mostly for military exports. And industry claims that 50,000 UK jobs are at stake are pure fantasy. The Eurofighter consortium's own report (The Industrial and Economic Benefits of the Eurofighter Typhoon, June 2006) states that Eurofighter sales to Saudi Arabia would secure around 11,000 jobs throughout the whole of Europe. Fewer than 5,000 of these jobs would be located in the UK.

    Moreover, studies by the MoD's own chief economist have suggested that a halving of military exports from Britain would lead to an increase in the numbers employed, as investments shift to less capital-intensive activities elsewhere in the economy. Because of the level of subsidy offered by the government to defence exporters (up to almost £1bn a year, for an industry that accounts for less than 2% of exports), the exchequer and the wider economy would clearly benefit from a shift in resources.

    It is now almost 12 months since then defence minister, John Reid, signed the latest multi-billion-pound arms deal with Saudi Arabia. The deal has profound political and security implications - and the high likelihood that it is being underpinned by publicly-funded subsidies. Yet, with the exception of a few political commentators (such as George Monbiot) and a handful of parliamentary questions from Liberal Democrats, the silence from our guardians of truth and accountability has been deafening.

    When the late Robin Cook took over foreign policy in 1997, in the wake of the arms-to-Iraq scandal, the promise was that things would be different. A stronger ethical or moral compass would guide Britain's relations with the rest of the world. Today, such an approach is needed more than ever, not only to enhance Britain's tarnished international reputation as result of an illegal war in Iraq, but also to dampen some of the poisonous thinking at home that led to the London terrorist bombings. An ethical foreign policy would also make Britain more secure. Unfortunately, Britain's ethical foreign policy appears to have been finally buried by the Attorney General's statement in the House of Lords yesterday.


    Dr Ian Davis is executive director of the British American Security

    Information Council (BASIC). With offices in Washington, DC and London, BASIC provides independent research, analysis, and advocacy on nuclear and WMD non-proliferation, missile defense, the international weapons trade, and global security issues. BASIC acts as a transatlantic bridge for policy makers and opinion formers on these issues, and seeks to promote public awareness of security and arms control in order to foster a more informed debate leading to creative and sustainable solutions.

    Ian has a rich background in government, academia, and the non-governmental organization (NGO) sector. He received both his Ph.D. and B.A. in Peace Studies from the University of Bradford, in the United Kingdom. He has made high-level presentations in Washington, D.C. and in Europe on WMD non-proliferation and transatlantic security issues.

    His publications include: The Regulation of Arms and Dual-Use Exports: Germany, Sweden and the UK, SIPRI/Oxford University Press (2002); Sailing Into Uncharted Waters? The Proliferation Security Initiative and the Law of the Sea, BASIC Research Report (2004); and Unravelling the Known Unknowns: Why no Weapons of Mass Destruction have been found in Iraq, BASIC Special Report, (2004).

    The Worth of the Dollar

    By RONALD MCKINNON
    December 13, 2006; Page A18

    Since the beginning of 2006, depreciations of the dollar -- about 12.5% against the euro, 14.9% against the pound sterling, and about 2.1% against the yen, all more or less floating exchange rates -- have occasioned intense speculation in the financial press as to whether these currency moves should be welcomed as the beginning of the great "correction" to America's current account and trade deficits. After all, the U.S. has been running such deficits since the early 1980s -- and over the last year, the current account deficit ballooned to about 7% of its GNP. Shouldn't the market now discipline the world's biggest debtor and bid the dollar down to help reduce the trade deficit?

    Essentially, the answer is no.

    * * *

    Take the euro. The chart nearby shows the dollar's fluctuations against the German mark, which was transformed on Jan. 1, 1999 into the euro, from 1970 to the present. In the last decade and a half, the many ups and downs of the dollar value of the floating euro-mark were quite comparable, and sometimes greater, than what we have observed this year. Indeed, the dollar strengthened against euro in 2005 about as much as it fell in 2006. Only if the change in the dollar's current exchange rate is measured from January 2002, at the peak of the U.S. high-tech bubble, would the fall seem to be portentous -- and of the order of 30% to 40%. But this would be grossly misleading. High-tech bubble aside, the value of the dollar in euros is about the same now as in the mid-1990s.

    Putting aside countries such as Zimbabwe with chronic inflation and ever-depreciating currencies, economists have learned that a floating rate between two financially stable countries moves close to a "random walk." Over the next few days, weeks, months or even years, the dollar value of the euro is just as likely to move up as down. Although such moves can be quite disconcerting, they cannot be forecast. Consequently, the best guess of the future exchange rate is just today's spot value. (Tip for astute corporate executives: Don't bother hiring highly paid consultants, including this one, to forecast how a floating exchange rate will move!)

    The one big exception to this essential randomness is when governments force (or "talk") an exchange rate into changing, and then sustain it by altering the future course of monetary policy. The first great depreciation of the dollar started in August 1971, when Richard Nixon undermined the old Bretton Woods system of fixed exchange rates. He imposed a tariff on all imported manufactures, and refused to remove it until other industrial countries appreciated by changing their dollar pegs -- which they had done by December 1971. The fixed-rate system broke down altogether in early 1973.

    But the story doesn't end here. To help insulate the American economy from the inflation ensuing from the dollar's devaluation, Nixon also imposed wage and price controls from 1971 into 1973 -- and leaned heavily on then Fed Chairman Arthur Burns to gun the money supply to make the economy boom and ensure Nixon's overwhelming re-election in 1972. But it soon became clear that the wage and price controls for repressing inflation were untenable and doing great damage to the economy -- so they were abolished by the end of 1973. Unsurprisingly inflation shot up in 1973 and hit almost 12% in 1974.

    Unfortunately, the Carter administration in 1977 resumed the policy of trying to talk the dollar down -- and Treasury Secretary Michael Blumenthal stated that the yen in particular should appreciate against the dollar. With increasing inflation and great uncertainty about Fed policy, there was another run on the "Carter" dollar in 1978 requiring an international rescue operation.

    Of course, these shenanigans drove the dollar down and led to the great inflationary turmoil of the 1970s. Not until 1979, when Paul Volcker became Fed chairman and imposed very tight money with extremely high interest rates in the early 1980s, was inflation painfully squeezed out of the American economy. But an incidental side-effect was that the dollar shot upward in the foreign exchanges by more than 50%, because foreign capital inflows were attracted by the high U.S. interest rates. Thus, the shock of disinflation fell disproportionately on American companies producing internationally tradeable goods: The decline in manufacturing created the infamous "rust bowl" in the Midwest.

    To correct the overshoot, the leading industrial countries in 1985 got together in New York's Plaza Hotel to "talk" the dollar down. And, sustained by somewhat easier money in the U.S. but also by relatively deflationary (tight) monetary policies abroad, the dollar did fall very sharply against the mark and other major currencies such as the yen. (Indeed, it "overshot" downward and had to be supported by the so-called Louvre Accord in 1987.) In Europe, the sharp appreciations slowed economic growth causing what was then called "eurosclerosis." The Japanese yen had appreciated the most, with additional American pressure creating the expectation of further appreciations. This thoroughly destabilized Japan's financial system with gigantic stock and land markets bubbles in the late 1980s that crashed in 1991 -- and severe deflation from the overvalued yen throughout its "lost decade" of the 1990s.

    Given the unfortunate macroeconomic consequences of large changes in nominal exchange-rate-cum-monetary policies, why is it that so many economists today advocate dollar depreciation? On the one hand, they are transfixed by continuing large U.S. trade deficits that they see to be unsustainable. They also are enamored with a popular but incorrect theory, sometimes called the elasticities model of the balance of trade, that seems to point to a straightforward solution. If a deficit country such as the U.S. can somehow depreciate its "real" exchange rate -- i.e., its nominal exchange rate depreciates without causing either inflation at home or deflation abroad -- then its trade balance should improve. Its exports become less expensive in foreign monies so that foreigners buy more, while its imports will look more expensive in dollar terms so that Americans buy less. Et voilĂ !

    The crucial flaw in this reasoning is the missing link to monetary policies. Apart from random short-term fluctuations, any substantial nominal depreciation can only be sustained by future monetary adjustments permitting inflation at home or foreign central banks acquiescing to deflation abroad -- the trade-off between the two being somewhat arbitrary. True, following a devaluation there are lags before prices begin to rise at home or fall abroad. But even in this short run of price "stickiness," the balance of trade of the depreciating country is unlikely to improve.

    Why? First, for imports already contracted for and invoiced in a foreign currency like the euro, the U.S. importer would have to pay more (depreciated) dollars for the European goods he had agreed to buy. Economists call this the "J curve" effect.

    Second, with a temporarily real depreciation of the dollar, international investors would see a window of opportunity for a year or two to undertake physical investments at lower cost in the U.S. Conversely, they would see countries with appreciated currencies to be more expensive. As a consequence, an investment-led spending boom in the U.S. would increase imports and a slump abroad would reduce imports of American goods -- as in the aftermath of the Plaza Accord described above. The upshot is that the net effect on the U.S. trade balance in this intermediate term of two years or so would be ambiguous -- even though the foreign currency prices of American exports in world markets had been (temporarily) reduced.

    In the long run, a general depreciation of the dollar's nominal exchange rate against other currencies can only be sustained by an increase in the U.S. price level relative to that in foreign countries such that any real depreciation washes out! Thus there would be no net price advantage left to U.S. exporters as domestic costs rose to offset the effect of the nominal depreciation. Of course, this is just the end result, which looks unduly clean. In the transition, however, financial turmoil associated with higher inflation in the U.S., coupled with deflation abroad, could well lead to major losses in output and declines in productivity growth characteristic of the 1970s and 1980s.

    * * *

    Given these caveats, what can be done about the now-huge U.S. current account deficit? The "problem" is not new and there need be no crisis unless the never-ending Greek chorus of editorial writers in the Financial Times, The Economist, the New York Times, and so on, praising every (random) decline in the dollar as a welcome step in helping correct global imbalances, somehow foment a run on the dollar. However, this need not happen if Treasury Secretary Hank Paulson sticks firmly to the strong dollar policy bequeathed from former Secretary Robert Rubin -- and Fed Chairman Ben Bernanke continues to squeeze U.S. inflation downwards.

    Unfortunately, Mr. Paulson, by continuing to pressure China to appreciate the renminbi against the dollar, somewhat undermines his professed strong dollar position. If China were coerced into really large appreciations of the renminbi, it could face the same deflationary fate as Japan in the 1980s and 1990s -- and all this without reducing its trade surplus.

    The U.S. current account deficit simply reflects the excess of expenditures in the U.S. relative to income, or, equivalently, the amount by which America's moderate level of investment exceeds its very low saving rate -- both by households and the federal government. So the first order of business in correcting the trade deficit is to reduce the structural fiscal deficit of the U.S. and possibly run with surpluses. The second order of business is to provide incentives -- possibly tax incentives -- for American households to increase their saving. Both require major changes in U.S. public finances and should be phased in gradually but very deliberately.

    However, this is not the end of the story. To work smoothly, adjustment has to be two-sided. The East Asian countries with large saving and trade surpluses, notably China and Japan (also Germany and various oil producing emirates) must move to increase consumption in parallel with American efforts to reduce consumption. Governor Ben Bernanke wrote an excellent paper in 2005 (just before he became chairman of the Fed) interpreting trade imbalances to be as much as or more of a saving glut in the rest of the world than a saving shortage in the U.S. The very low interest rates prevailing world-wide support Mr. Bernanke's hypothesis. If it were only a saving shortage in the U.S. we would face much higher interest rates and a possible credit crunch.

    This two-sided approach to righting international trade imbalances has a further great advantage of better stabilizing the world economy overall. Some people worry that if the U.S. were to move unilaterally to raise taxes and reduce private consumption, aggregate demand would be insufficient. U.S. households would no longer be "consumers of last resort" for the world at large. Thus unilateral moves by the U.S. to contract consumption, unless done very gradually, could foment a world-wide slump. However, if contraction in the U.S. was offset by expansion elsewhere, such problems would be minimal -- and trade imbalances could be reduced more quickly. In neither case, however, would any substantial change in the dollar's exchange rate be necessary or desirable.

    So we now have enough grist in the mill for Secretary Paulson's visit to China. To his great credit, Mr. Paulson has said that he very much wants to engage China constructively. Thus, in considering China's (and other Asian countries') trade surpluses, he should not reach for the wrong instrument -- particularly one that is based on faulty theorizing. A major reduction in the yuan value of the U.S. dollar will not correct the saving imbalance between the two countries. However, it could cause a major bout of monetary instability with deflationary consequences in China itself. And if China is the linchpin, such that other countries in Asia and even Europe follow with their own appreciations against the dollar (as many dollar devaluationists seem to want), the inflationary pigeons may well come home to roost in the U.S. -- as in the 1970s.

    Mr. McKinnon, professor of economics at Stanford, is author of "Exchange Rates under the East Asian Dollar Standard: Living with Conflicted Virtue" (MIT Press, 2005).

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