Wednesday, August 20, 2008

Islam and Modern Economic System

Islamic scholars have been seeking to devise a global banking system that would serve as an alternative to the usury-based scheme now in control internationally, and Iran has led the way in devising that model. Iran is characterized as a democratic Islamic republic, which enforces Islamic principles not only morally but legally and politically.
The Iranian government is among the few to have very little foreign debt. It uses its state-owned banks to make loans and credits available to industrial and agricultural projects. The most unique feature of the banking system, however, is that it follows the Islamic proscription against usury.*

*That means loans are made interest-free."

The recent sub prime crises in the US has shown what happens when predatory lending practices, which had so far been applied to nations, is applied to individuals.

Predatory lending is the practice of giving loans when it is clear that there is no hope of the loan being repaid. In this way the borrower becomes indebted for life to the lender. It creates rights for the lender on the borrowers property and most importantly lifestyle. The IMF ( as an agent of the US) has used this to lend to needy third world countries.

These Loans were usually accompanied by formulas which would enable the countries to get out of the debt trap. Those formulas usually had the opposite effect. Most countries ended up as serfs of the IMF/US for life. Their sole purpose in life is to work hard so that they can pay interest on these loans or otherwise face severe punishments.

On an individual level we are today witnessing in the US the same happening to individuals, who were given loans which turned bad on day one. This is likely to result in these people being thrown out of their homes or working hard to stay in their homes but never being able to pay off even the interest on these loans.

Like money lenders in the villages of Indo Pakistan, institution like Bank of America, Cit Bank, JP Morgan Chase and of course the IMF went looking for the down and outs so that they could develop annuities for themselves for ever.

El Dewani writes, "Relieved of their annual debt repayments, the severely indebted countries could use the funds for investments that in Africa alone would save the lives of about 21 million children by 2000 and provide 90 million girls and women with access to basic education."

The world needs Islamic Banking today like a man lost in the desert needs water. The only problem is that except for countries like Iran, the rest of the Muslim world is indebted to the US and the IMF. This is not a relationship that any one can get out of if they wished. On the other hand no one is more indebted to the rest of the world than the US. In many ways the shoe is on the other foot.

However people have never lent to the US thinking that they would never be able to repay. That prospect now looms over the horizon. The cries of the poor and the marginalised can be heard seeking retribution. Lenders to the US no longer want to lend, it money they would much rather own a piece of its assets.


Behind the Drums of War with Iran: Nuclear Weapons or Compound Interest
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By Ellen Brown
On October 25, 2007, the United States announced harsh new penalties on the Iranian military and its state-owned banking systems. Sanctions, bellicose rhetoric and the implicit threat of military action are goads for another war, one that critics fear is more likely to ignite a nuclear holocaust than prevent one. The question is, what makes Iran such a serious threat? The official explanation is that it is planning to develop nuclear weapons, but the head of the UN watchdog agency IAEA says he has “no concrete evidence” of an Iranian weapons program.1 Moreover, even if there were one, a number of countries have tested or possess nuclear weapons outside the Nuclear Non-Proliferation Treaty, including Pakistan, North Korea, India, and probably Israel; yet we don’t consider that grounds for military action. Iran would just be joining a long list of nuclear powers.
Another theory says the push for war is all about oil; but Iran supplies only 15 percent of total Persian Gulf oil exports, and its oil is already for sale.22 We don’t need to go to war for it. We can just buy it.
A third theory says the saber-rattling is all about defending the dollar. Iran is threatening to open its own oil bourse, and it is already selling about 85 percent of its oil in non-dollar currencies. Iran has broken the petrodollar stranglehold imposed in the 1970s, when OPEC entered into a covert agreement with the United States to sell oil only in U.S. dollars. As Dr. Krassimir Petrov explained this potential motive in a 2006 editorial in
As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. . . . If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.3
An interesting theory, but it still fails to explain all the facts. In a March 2006 editorial in Asia Times Online, William Engdahl noted that war with Iran has been in the cards as part of the U.S. Greater Middle East strategy since the 1990s, long before Iran threatened to open its own oil bourse.4 And Iran is not alone in wanting to drop the dollar as its oil currency. To curb currency risks, Russia is planning to open an Energy Stock Exchange in St. Petersburg next year to trade oil in rubles, something that will have significantly more impact on the dollar than Iran’s oil bourse. Central bankers in Venezuela, Indonesia, and the United Arab Emirates have all said they will be investing less of their reserves in dollar assets due to the dollar’s weakening global position.5 Those countries are liable to switch to other currencies for their oil trades as well. Will the United States feel compelled to invade them all?
Each of these theories has some merit, but none of them seems to adequately explain the war drums. What is so special about Iran that keeps it squarely in the cross-hairs of the U.S. military? Here is another possibility: besides oil and the dollar, Iran poses a serious threat to a secret financial weapon that keeps a global banking empire in power . . . .
The Bankers’ Financial Weapon of Mass Destruction
Around 1980, when interest rates were soaring, Johnny Carson quipped on The Tonight Show that “Scientists have developed a powerful new weapon that destroys people but leaves buildings standing - it’s called the 17% interest rate.” Compound interest is the secret weapon that has allowed a global banking cartel to control most of the resources of the world. The debt trap snapped shut for many countries in 1980, when international interest rates shot up to 20 percent. At 20 percent interest compounded annually, $100 doubles in under 4 years; and in 20 years, it becomes a breathtaking $3,834.66 The devastating impact on Third World debtors was underscored by President Obasanjo of Nigeria, speaking in 2000 about his country’s mounting burden to international creditors. He said:
All that we had borrowed up to 1985 was around $5 billion, and we have paid about $16 billion; yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors’ interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.7
In the late 1970s, the World Bank and International Monetary Fund began imposing “conditionalities” on loans to Third World debtor countries, requiring them to open up their capital markets, privatize their industries, and slash spending on social programs to insure that international lenders got their interest. By 2001, enough money had flowed back to First World banks from Third World debtors to pay the principal due on these loans six times over; but interest had consumed so much of those payments that the total debt actually quadrupled during the same period.88 In 1980, median income in the richest 10 percent of countries was 77 times greater than in the poorest 10 percent. By 1999, that gap had grown to 122 times greater. In December 2006, the United Nations released a reported titled “World Distribution of Household Wealth,” which concluded that 50 percent of the world’s population now owns only 1 percent of its wealth, while the richest 10 percent of adults owns 85 percent. Under current conditions, the debts of the poorer nations can never be repaid but will just continue to grow.
Miracle or Crime?
What bankers call the “miracle” of compound interest is called “usury” under Islamic law and is considered a crime. In the sixteenth century, Martin Luther redefined “usury” to mean the taking of “excess” interest; but under Old English law, taking any amount of interest was a crime. Modern Islamic thinkers are not averse to a profitable return on investment if it takes the form of “profit-sharing,” with investors taking some risk and sharing in business losses; but the usurer gets his interest no matter what. In fact he does better when the borrower fails. The borrower who cannot afford to pay off his loans sinks deeper and deeper into debt, as interest compounds annually to the lender. In The Coming First World Debt Crisis (2006), Ann Pettifor gives this modernized definition of “usury”:
Usury is the practice of exalting money values over human and environmental values; of creating money at no cost and lending at rates of interest intended not to foster and maintain humanity or the ecosystem, but to
a) accumulate reserves of unearned income;
b) extract wealth from the productive sector in a manner that is parasitic;
c) extract wealth from those who lack wealth (the asset-less); and
d) make a claim on the future.
It is this debt scheme, with its lethal weapon of interest compounded annually, that has allowed a small clique of financiers to dominate the business of the world. In Tragedy and Hope, Professor Carroll Quigley, Bill Clinton’s mentor at Georgetown University, wrote from personal knowledge of this group, which he called “the international bankers.” He said their aim was “nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole,” a system “to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements.”99 The key to the bankers’ success was that they would control and manipulate the money systems of the world while letting them appear to be controlled by governments.
The majority of the world has now been brought into this private central banking scheme, with private banks creating most of the money of most countries as interest-bearing loans. In the United States, the only money created by the government today consists of coins, which compose only about one one-thousandth of the total money supply. Federal Reserve Notes (dollar bills) are created by the Federal Reserve, a private banking corporation, and lent to the government; while the vast bulk of the money supply is created by commercial banks when they make loans, something they do by advancing “credit” created with accounting entries. Similar arrangements prevail in most countries. Even where the central bank is technically state-owned (as in the United Kingdom and Canada), it creates only the nation’s paper currency, leaving 95% or more of the money supply to be created by commercial banks.10
The alternative to this independent “central bank” system is what used to be called “national banking.” The nation’s state-owned central bank issued the national currency as an agent of the government, and spent the money or lent it into the economy for internal development and public needs. The goal of the international bankers was to “privatize” these state-owned banks and other state-owned or locally-owned assets, making them available for purchase and control by international finance capital. At a 1968 meeting in Canada of the secretive globalist group known as the Bilderbergers, George Ball, U.S. Undersecretary of State for Economic Affairs, spoke of creating a “world company.” Ball was also a managing director of banking giants Lehman Brothers and Kuhn Loeb. The world company of which he spoke would be a new form of colonialism, in which global assets would be acquired by economic rather than military coercion. The company would extend across national boundaries, aggressively engaging in mergers and acquisitions until the assets of the world were subsumed under one privately-owned corporation, with nation-states subservient to a private international central banking system.11
The first step in the process of prying resources loose from local economies was to induce national leaders to open up their capital and currency markets. In 1971, President Nixon took the U.S. dollar off the gold standard, making it the world’s “reserve currency” without the tether of gold. Dollars could then be created and lent to whatever extent lenders could find borrowers for them. In 1974, OPEC was induced to enter into an agreement to trade its oil only in U.S. dollars, and the price of oil then suddenly quadrupled. Countries that did not have the dollars they needed to buy oil had to borrow them. The IMF then imposed its “conditionalities,” including the privatization of state-owned oil industries and banks. In the ensuing decades, this and other predatory lending schemes brought most of the world under the heel of the international bankers.11
When Dominoes Won’t Fall
Iran was among the few nations to have escaped this global privatization scheme. Iran had its own oil. It managed to avoid the trap of letting its currency be devalued by speculators by imposing foreign exchange restrictions and price controls on its national currency (the rial), something it could afford to do because it had adequate foreign exchange reserves from its oil sales.12 Iran’s state-owned oil industry has allowed its economy to perform well, despite economic sanctions and rumors to the contrary.13 A “reformist” movement toward increased privatization ended in 2005, when Mahmoud Ahmadinejad was elected to the presidency. Ahmadinejad is a “populist” who has promised to redistribute Iranian oil wealth more expansively and has committed the government to funding public-sector projects and charitable investments.14
Islamic scholars have been seeking to devise a global banking system that would serve as an alternative to the usury-based scheme now in control internationally, and Iran has led the way in devising that model. Iran is characterized as a democratic Islamic republic, which enforces Islamic principles not only morally but legally and politically. The 1979 revolution overthrowing the American-backed Shah of Iran ended 2,500 years of monarchical rule. All domestic Iranian banks were then nationalized, and the government called for the establishment of an Islamic banking system that would replace interest payments with profit-sharing. Its state-owned central bank issues the national currency, with the “seigniorage” (the difference between the cost of producing money and its face value) accruing to the government rather than to private banks.15 The Iranian government is among the few to have very little foreign debt. It uses its state-owned banks to make loans and credits available to industrial and agricultural projects. The most unique feature of the banking system, however, is that it follows the Islamic proscription against usury. That means loans are made interest-free.16
At least, that is true in principle. To make their system work with the prevailing scheme, Islamic economists have had to come up with some creative definitions of “interest.” Assuming Iran can develop a workable alternative model, however, it might well threaten the usury-based banking system that now dominates international finance and trade. If governments were to start doing what banks do now - advancing “credit” created out of nothing with accounting entries - they could sidestep the hefty interest that is the principal cost of most government programs today.
Estimates are that eliminating interest charges could cut the cost of infrastructure, sustainable energy development and other government programs in half.17 Third World economies might then escape the grip of the global bankers, bringing a 300-year global banking empire crashing down.
The size of the stakes was suggested by Tarek El Diwany, a British expert in Islamic finance and the author of The Problem with Interest (2003). In a presentation at Cambridge University in 2002, he quoted a 1997 United Nations Human Development Report which said:
Relieved of their annual debt repayments, the severely indebted countries could use the funds for investments that in Africa alone would save the lives of about 21 million children by 2000 and provide 90 million girls and women with access to basic education.
El Diwany commented, “The UNDP does not say that the bankers are killing the children, it says that the debt is. But who is creating the debt? The bankers are of course. And they are creating the debt by lending money that they have manufactured out of nothing. In return the developing world pays the developed world USD 700 million per day net in debt repayments.” He concluded his presentation:
But there is hope. The developing nations should not think that they are powerless in the face of their oppressors. Their best weapon now is the very scale of the debt crisis itself. A coordinated and simultaneous large scale default on international debt obligations could quite easily damage the Western monetary system, and the West knows it. There might be a war of course, or the threat of it, accompanied perhaps by lectures on financial morality from Washington, but would it matter when there is so little left to lose? In due course, every oppressed people comes to know that it is better to die with dignity than to live in slavery. Lenders everywhere should remember that lesson well.18
That could explain the big guns trained on Iran. The intent may not be to thwart the development of nuclear weapons so much as to pluck a budding economic alternative out by its roots before it has a chance to spread. Dominoes that won’t fall into the debt trap must be pushed. Like in the brutal attacks in Lebanon in July 2006, the military targets in Iran are liable to be economic ones - ports, bridges, roads, airports, refiners.1920 The threat posed by Iran’s economic model will be obliterated by blasting it back into the Stone Age.
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies. Her websites are www.webofdebt. com and www.ellenbrown. com.
1. “U.S.: Iran Seeks Nuclear Weapons,” http://news. (October 31, 2007).
2. Rob Kirby, “The Looming Fiat Currency Train Wreck,” www.financialsense. com (January 16, 2006).
3. Krassimir Petrov, “The Propose Iranian Oil Bourse,” com (January 15, 2006).
4. William Engdahl, “Why Iran’s Oil Bourse Can’t Break the Buck,” Asia Times Online (March 10, 2006).
5. Julian Phillips, “Gold Positive: Iran Wants Yen from Japan Not the U.S. $ for Oil,” www.goldseek. com (July 27, 2007).
6. “Compound Interest Week,” www.lazymanandmoney .com; Fido Compound Investment Tool Kit,
7. Rodney Shakespeare, The Modern Universal Paradigm (2007), pages 63-64.
8. Achin Vanaik, “Cancel Third World Debt,” The Hindu (August 18, 2001),
9. Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (New York: Macmillan Company, 1966), page 324.
10. See Ellen Brown, “Dollar Deception: How Banks Secretly Create Money,” www.webofdebt. com/articles (July 3, 2007); Ellen Brown, Web of Debt (2007), chapter 2.
11. Daniel Estubin, “Bilderberg 2007 - Towards a One World Government?”, Nexus Magazine (August-September 2007).
11. E. Brown, Web of Debt, op. cit.
12. Taylor & Francis Group, The Middle East and North Africa (2003), pages 405-07; “Iran’s Exchange Rate Freeze,”www.farsinet. com (July 2003).
13. Kelly Campbell, “Is Iran Facing an Economic Crisis?”, (May 2007).
14. “Iran Profile,” www.austrade. (July 2007).
15. Kamran Dadkhah, “Reform of Exchange Market in Iran,” www.economics. northeastern. edu/papers/ documents/ 03-015.pdf (2003), page 4 (“Seigniorage” ); Clifford Thies, “Radioactive Money,” (March 2007).
16. “Economy of Iran,” http://en.wikipedia .org; “Iran Banking,” www.photius. com (2004).
17. Margrit Kennedy, Interest and Inflation-free Money (1995), discussed in Deidre Kent, “Margrit Kennedy Inspires New Zealand Groups to Establish Regional Money Systems,” McKeever Institute of Economic Policy Analysis, www.mkeever. com (2002).
18. Tarek El Diwany, “Third World Debt,” presentation at Cambridge University’s “One World Week” in February 2002, citing UNDP Human Development Report (1997), page 93; “A Debate on Money,” www.islamic- (July 2001).
19. “Lebanon’s Infastructure Dismantled,” www.democracynow. org (July 17, 2006). See John Perkins, Confessions of an Economic Hit Man (San Francisco: Berrett-Koehler Publishers, Inc., 2004).

Decline of the American Empire

I have been saying pretty much the same thing for two years in fact my horizon goes beyond that of Dr. Roubini, the difference is that Roubini is a Harvard Graduate, a PhD and a professor of Economics at NYU. It is getting difficult to ignore him and last Sunday the New York Times ran an article on his views in their Magazine .
http://www.nytimes. com/2008/ 08/17/magazine/ 17pessimist- t.html?ref= magazine

To quote from the article posted:

"US policy mistakes in economic, financial and foreign policies will steadily erode the power of the American Empire. This process will not be sudden and will take a couple of decades. But the trend is clear: the brief period of unipolar power of the American hyperpower is now over and a new age of balance of great powers is starting in the world. Also, the rise of non governmental actors – multinational corporations, NGOs, terrorist groups, non-nation state powers, failed and unstable states, non-traditional global players – will radically change the traditional balance of power as the power of nation states will shrink relative to that of other global players."

His comment about the rising influence of non state powers is right on. One group that he forgets to mention is the internet. Our own yahoogroup is a microcosm of thousands who are no longer just exchanging jokes,health tips and articles of interest. They are expressing their own views and opinions and they are expressing them without fear of censorship. Many nation states fearing the impact of the internet are trying without success to curb them.

Governments are too afraid to tell things as they are for fear of losing power or simply to avoid panic. The state of the world today is no more dangerous than at other momentous times, the difference is that because of the information explosion it is there for all to see. If we are more aware then it places on us the responsibility to act. Whether this reaction is in the form of protecting our financial assets, our retirement nest egg or looking for a safe haven to live in will depend on each individual. The most common reaction is to go into denial and hope that the world that we have become trained in will never change.

I do not agree with the hope that Roubini expresses that there will be an equilibrium achieved by a balancing of power. The US will never allow this. They will continue to be in denial up to their last breath and unwittingly create a greater catastrophe then would happen with an orderly transition. We are already beginning to see that Obama and McCain are fighting to become the next Imperial President.


Recent economic, financial and geopolitical events suggest that the decline of the American Empire has started. After the collapse of the Soviet Union there was a brief period where the world switched from a bipolar balance of two superpowers to a unipolar world with one economic, financial, geostrategic superpower, or better, hyperpower, i.e the United States. But by now three factors suggest that the US has squandered its unipolar moment and that the decline of the American Empire – as the US was in effect a global empire – has started.

Let us explain how and why...First, the US squandered its power by relying excessively on its hard military power in the wars of Iraq and Afghanistan and in its unilateralist foreign policy – including economic issues such as global warming - rather than relying more on its soft power of diplomacy and multilateralist approaches to global policy issues.

Second, regardless of mistaken US policies the rise of other economic and financial powers – the rise of China, the recent resurgence of Russia, the process of economic and political integration in the European Union, the emergence of India, and the rise of other regional powers such as Brazil, South Africa and Iran – implies that the relative economic, financial and geopolitical power of the US will be reduced over time. We are indeed slowly moving towards a multipolar world where there will be a balance of Great Powers rather than the hegemony of a single hyperpower. While on military terms the US is still the only superpower even its military power is now restricted by imperial overstretch and its armed forces being bogged down in Iraq and Afghanistan; thus, Russia has now been able to flex its muscle in its Central Asian backyard and humiliated the US – not just Georgia – in the latest conflict on South Ossetia. For the Bush administration having supported Georgia by words only and show its impotence – or unwillingness - to support an ally in spite of the administration push to have Georgia join NATO shows the limits of the American power. The US is at fault for effectively letting Georgia start a reckless attack on South Ossetia. Russia has scary and dangerous neo-imperial goals but deeply flawed US foreign policy of encircling a paranoid Russia allowed the worst nationalist tendencies of the Russian bear to reemerge.

Third, and more important, the US squandered its economic and financial power by running reckless economic policies, especially its twin fiscal and current account deficits. The last time around the current account started to go into negative territory in 1991 after a brief surplus during the 1990-91 recession. In the 1990s the growing US current account deficit was driven by a private investment boom – the internet technological revolution – and thus the accumulation of foreign liabilities of the US was driven by FDI and M&A activity, i.e the US accumulated foreign liabilities in the form of equity rather than debt. But since 2001 the further worsening of the US current account deficit was driven instead by growing fiscal deficits - especially in the 2001-2004 period – caused by unsustainable tax cuts and by the buildup of spending on foreign wars and on domestic security and since 2002 by the collapse of household savings and boom in investment in unproductive stock of housing capital that the housing bubble induced. And while the weak dollar is now inducing a modest improvement of the external deficit the looming sharp increase in fiscal deficits - that the current recession and financial crisis is inducing - will cause a return of twin deficits in the coming years. By now the US is the biggest net borrower in the world – running current account deficits still in the 700 billion dollars range – and the biggest net debtor20in the world with its foreign liabilities now over 2.5 trillion dollars.

The trouble with these twin deficits is multi-fold. First, superpowers and empires - like the British Empire at its peak - tend to be net lenders – i.e run current account surpluses – and be net creditors, not net debtors; The decline of the British Empire started in World War II when the British fiscal deficits in the war and the current account deficits turned that empire into a net borrower and a net debtor both in its public debt and external debt. That financial switch into an external debtor and borrower position was also the reason for the decline of the British pound as the leading reserve currency. And the British twin deficits were being financed by a rising economic and financial power that was a net lender and a net creditor, the US.

Second, the last time the US was running large twin deficits in the 1980s the main financers of these deficits were the friends and allies of the US, i.e Japan, Germany and Europe as the US external deficit was against these economies. Today instead the economic powers financing the US twin deficits are the strategic rivals of the US – China and Russia – and unstable petro-states, i.e Saudi Arabia, the Gulf States and other shaky petro-states. This system of vendor financing – with these US creditors providing both the goods being imported and the financing of such deficits – has led to a ba lance of financial terror: if these creditors were to pull the plug on the financing of the US twin deficits the dollar would collapse and US interest rates would go through the roof.

Third, while it is unlikely that China, Russia and other powers would suddenly pull the rug from under the US feet – as such action would lead to a sharp appreciation of their currency and negatively affect their export led growth model – relying excessively on the kindness of strangers – especially that of your strategic rivals – is extremely risky. Since almost 100 percent of all US fiscal deficits since 2001 have been financed by non-residents – as US residents net holdings of US Treasuries have been flat since 2001 - by now the total stock of US Treasuries held by non-residents is getting close to 60 percent. And the foreign financing of the US current account deficits has also become more risky: less FDI and equity, more debt, more short term debt, more debt held by official political actors – central banks and sovereign wealth funds – , less debt held by foreign private investors, and more debt held by politicals rivals rather than allies of the US. This change makes the US vulnerable to such rivals using the financial terror weapon – dumping US assets and or reduicing their financing of the US twin deficits – in situations of geostrategic tension.

Suppose Russia flexes further its muscle in its backyard20– under the pretense of defending abused Russian minorities in Ukraine, the Baltics and other former Soviet Union or Iron Curtain countries. Then Russia could use its financial power – the ability to dump hundreds of billions of dollar assets – to exert both financial and military influence. So could China over time if trouble in Taiwan or other disputed Asian territories become big geopolitical issues. Russia and China are already winning the new war for the control of commodities and ressources through their investments in Africa and Latin America - in the case of China – and its domestic and foreign control of energy and pipelines in Central Asia in the case of Russia. China and Russia are indeed winning the new Scramble for Resources.

Fourth, the foreign creditors of the US are getting tired of financing the US in the form of low-yielding US Treasuries. Thus the switch of such reserve holdings to SWFs that are planning to make large equity investments possibly with actual control of corporate firms and financial institutions that are desperate for capital to recapitalize themselves. But this desire of our creditors to get equity investments – the gems of the US corporate world - rather than low yield debt instruments is hitting the political backlash of financial protectionism as the UNOCAL- CNOOC, the Dubai Ports cases and the likely protectionist reform of the CIFIUS process of approving FDI in the US suggest. But a country that needs to borrow from abroad 700 to 800 billion dollar a year to finance its external deficit cannot afford to be too choosy on the ways – equity rather than debt – that its lenders and creditors want to finance those deficits. The first rule of good manners if you are a guest is that you don't spit on the plate from which your host is feeding you. But in its creeping financial protectionism the US thinks it can dictate to other countries the form and the terms of the financing of its twin deficits. This attitude will not be allowed by such creditors to last much longer.

The ensuing decline of the US dollar as the main reserve currency will take time and will not occur overnight; but it is inexorable given the relative fall in US economic, financial and geopolitical power. Already Russia is flexing its muscle and pushing for an international role of the ruble; the euro is rising as a major reserve currency; central banks and SWFs will slowly but surely start to diversify away from dollar assets especially as the Bretton Woods 2 regime starts to unravel; and even the RMB may become the dominant currency in Asia in the next decade as capital controls are slowly removed in China. It will take little time – if the secular decline of the value of the dollar continues – for oil and other commodities to be priced in currencies other than the dollar or in a basket of currencies.

All these changes in the economic, financial, reserve c urrency and geopolitical role and relative power of the US will not occur overnight. But the trend is clear. The rise of the BRICs and other emerging market economies; the continuation of the process of economic and political integration in Europe; the US policy mistakes in economic, financial and foreign policies will steadily erode the power of the American Empire. This process will not be sudden and will take a couple of decades. But the trend is clear: the brief period of unipolar power of the American hyperpower is now over and a new age of balance of great powers is starting in the world. Also, the rise of non governmental actors – multinational corporations, NGOs, terrorist groups, non-nation state powers, failed and unstable states, non-traditional global players – will radically change the traditional balance of power as the power of nation states will shrink relative to that of other global players.

Whether the decline of an hegemonic power providing global public goods – security, free trade, freer mobility of capital and people, inducements to free markets and democracy, better environment, peace – will lead to a more stable world with many powers multilaterally cooperating on these global economic, financial and geopolitical issues; or whether the absence of such stable hegemonic power will lead to a more unstable world characterized by conflicts – economic, political and even military – among traditional nation states, great powers and non-traditional20ac tors is an open and difficult issue. But it is certain that the decline of the American Empire has started.

Friday, August 8, 2008

The proposed impeachment of Musharraf

Musharraf is no longer going to Beijing, instead Gilani will go.

Zardari has promised to reinstate the Judiciary after Musharraf has been succesfully impeached. Surely if the Judiciary is reinstated now, they will force Musharraf out.

Zardari probably argues that Musharraf is more likely to sack the Government( and he has the power to do that) if there is a chance of the Judiciary being reinstated rather than if he is being impeached. Musharraf on the other hand promises that he will not sack the Government.

The hand of Zardari is written large on this latest move. He is too clever for Nawaz and has succeeded once again in delaying any action on restoring the judges. Nawaz's hatred for Musharraf and his need to take revenge for his ouster makes him a pliable object in Zardaris hand.

Within 5 months of the elections, Zardari has placed his men in strategic positions, Nawaz has been sidelined to the Punjab, Musharraf has been made powerless and the restoration of judges has been postponed indefinitely. There was a failed attempt to put the ISI under civilian control but no doubt he will try again.

Zardari has been able to achieve all this in spite of intense pressure from the lawyers to restore the judges, pressure from the Americans to keep Musharraf, pressure from Nawaz to get rid of Musharraf, pressure from dissidents within his own party who have been sidelined and reported pressure from his own children to restore the judges. In the game of power, Zardari is winning so far by keeping all the balls in the air. He reckons that time is on his side as he will agree to anything and do nothing. By neutralising Nawaz, he has taken the air out of the lawyers balloon which desperately need the support of a political party to show street strength.

The street smart Zardari recognises no ideology except power and money. His strength is that his opponents are weak and equally without ideology. The pretense of ideology in fact places a heavy weight on their shoulders and makes him more nimble. At the end of all this Musharraf will not be impeached, the Judges will not be restored, the ISI will continue to function independently of the civilians, America will pump in more money to keep the Economy going and Zardari will have made more money than in his previous incarnation.


Saturday, August 2, 2008

The thirty year war revisted

"US army and air-force plans for operations in Iraq each imply that Washington intends to establish a near-permanent presence that will remain almost independent of the wishes of any future administration; most analysts believe that even if the violence does continue to decline, the Pentagon envisages a total US military presence of around 50,000 for many years to come, backed up by many thousands more across the border in Kuwait as well as other forces in Qatar and Oman (see "The Iraq project", 30 January 2008). "

An interesting summary of a lot that has been written on the so called war on terror lately. Two things emerge from all the analyses. First the US intends to stay in Iraq with a reduced but still sizable presence. Second the theater of activity will shift to Afghanistan. Since this involves Pakistan, the stakes are going to be higher because of the population involved. Negroponte representing the diplomatic thrust and Mike Mullen the military, almost have second homes in Islamabad.

America has no patience for the civilian process and is keeping Musharraf in cold storage for when he is needed. Pakistan and the US have a joint interest in having a pipeline run from Turkmenistan through Afghanistan, Pakistan and even to the Arabian Sea. Pakistan's domestic dependence on natural gas is huge after having invested in the infrastructure.

The news for Pakistan is good and bad. The good news is that Pakistan's economy will be flooded with dollars, hyping the stock market and Real Estate. The bad news is if this backfires, then Pakistan will be taken over by forces not friendly to America and there will be American boots in parts of Pakistan and all hell will break loose.

Right now Oil in the Caspian and Kazakhastan and Gas in Turkmenistan is a prize which will tempt every American President. The whole strategy is so Pakistan dependant that it is almost certain to fail but failure will bring renewed chaos to a world still reeling from the Iraqi Invasion. Right now American has no realisation that a Nuclear weapon in the hands of Iran is far safer than a Nuclear weapon in the hands of Pakistan.


The thirty-year war, revisited
Paul Rogers
The "war on terror" and the "long war" are losing their potency as shorthand guides to the global conflict. But the United States remains trapped by a military logic that guarantees an endless and unwinnable campaign, says Paul Rogers
31 - 07 - 2008
What is the most realistic description of the conflict the United States launched after the attacks of 11 September 2001? As the seventh anniversary of this founding event approaches, and with no end to the conflict in sight, leading analysts are seeking to consign the formerly potent notions of a "war on terror" (or its sobering successor the "long war") to early retirement. Some offer in their place a focus on "counter-terrorism" that argues against the idea that a "battlefield solution" to the military campaign is possible. A new report by the RAND Corporation, for example, concludes that "the U.S. approach to countering al Qa'ida has focused far too much on the use of military force. Instead, policing and intelligence should be the backbone of U.S. efforts" (see Seth G Jones & Martin C Libicki, How Terrorist Groups End: Lessons for Countering al Qa'ida, RAND Corporation, July 2008).
Paul Rogers is professor of peace studies at Bradford University, northern England. He has been writing a weekly column on global security on openDemocracy since 26 September 2001
This linguistic and intellectual shift might in principle be a small sign of an encouraging willingness to review the policy reactions and choices that have brought the United States and the world to this point - and to look for a better way. The problem, however, is twofold. First, the logic of the military definition of the conflict - and all the exercise of power and control that it implies - is so deeply rooted that it would take an immense effort of argument and will to reverse (see "A world beyond control", 22 May 2008).
Second, the current evidence on the ground in the two areas where US forces are engaged in large-scale operations - Iraq and Afghanistan - is cited by many subscribers to this logic as supporting the need to intensify, not reverse, the search for military solutions. The result is a double-bind: to extend even further the likely timespan of war, and to ensure that it remains even in its own terms unwinnable.
The near horizon
The case for progress in the two main theatres of war does not seem a harmful illusion to those who continue to make it. The latest statistic welcomed in support of it is that the United States's military death-toll in Iraq in July 2008 is on course to be the lowest since the war began in March 2003. The five American soldiers killed in combat in Iraq as of 31 July - a decline from May's total of fifteen and June's of twenty-three - is greeted by politicians, military strategists and (especially conservative) commentators hungry to find confirmation of the prevailing narrative of 2008: that the military "surge" strategy promoted by the George W Bush administration in early 2007 has been vindicated (see Dylan Matthews & Ezra Klein, "How important was the surge?", American Prospect, 28 July 2008).
The Pentagon is even hoping to begin a modest withdrawal of forces from the country in the autumn, enabling it to move more troops into Afghanistan during the winter. The prospect that this trend of events ostensibly holds out is that victory in the administration' s still-championed "war on terror" is now more or less assured - with a return to security and stability in Iraq making available the forces at last to defeat the Taliban in Afghanistan.
This anyway is the impression being given by those analysts in the United States who still cleave to the notion that this is the kind of conflict where "victory" in the classic sense of a vanquishing of a military enemy is possible. The surge's success in its aim of transforming "the conflict over power in Iraq from a military to a political struggle" is in this view a key index of current progress (see Kimberly Kagan, "The Future of Iraq: the decline of violence, the rise of politics", Weekly Standard, 28 July 2008).
The military knot
In addition to his weekly openDemocracy column, Paul Rogers writes an international security monthly briefing for the Oxford Research Group; for details, click here Paul Rogers's most recent book is Why We're Losing the War on Terror (Polity, 2007) - an analysis of the strategic misjudgments of the post-9/11 era and why a new security paradigm is needed
The pattern of incidents in the first half of 2008 suggested that the violence across most of Iraq was indeed abating, raising hopes of a definite turning of the page towards peace and security. Iraqi army units were also taking a larger role in operations, albeit they were still dependent on US air power, logistics and combat-support. This makes the sudden and unexpected escalation of violence represented by the bombings and subsequent violence in Baghdad and Kirkuk on 27 July 2008 all the more shattering.
The attacks on Shi'a pilgrims and Kurdish protestors respectively killed at least fifty-five people and wounded about 240; they were almost certainly perpetrated by Sunni militants and seem designed (as was the bombing of the al-Askari mosque in Samarra in February 2006 which opened the most ferociously sectarian phase of the war) to incite a vigorous counter-reaction from Shi'a militias (see "Iraq's burning season", 23 February 2006).
This is also a departure from the previous period of intense violence, the conflict between the Iraqi army and the (Shi'a) Mahdi army of Muqtada al-Sadr in Basra and Baghdad in April 2008. The combination shows how much potential for new outbreaks remain, and now narrow and fragile is the true margin of confidence that Iraq is moving beyond war (see Patrick Cockburn, Muqtada Al-Sadr and the Fall of Iraq, Faber, 2008).
The Baghdad and Kirkuk assaults have been followed by others, for example a suicide-bomb attack in Qayara (south of Mosul) on 31 July that killed three policemen and wounded four others - the fifth suicide-bomb in Iraq in as many days. These operations are a reminder that the most extreme elements of the Sunni paramilitary groups have not been brought under control. They also display the potential for a new and broader upsurge of violence, especially if some US forces are reassigned to Afghanistan (see Jennifer Koons, "Al-Qaeda in Iraq Down - But Not Out", Institute of War & Peace Reporting [IWPR], Iraqi Crisis Report 266, 25 July 2008). Even if these attacks do not provoke large-scale reprisals, they will still provide US negotiators with strong arguments to seek to persuade the Nouri al-Maliki government - against his expressed wish - that the United States must have an extended military presence in the country.
The Bush administration intended to complete negotiations on a long-term force agreement by now, but the al-Maliki government has been far stronger in its negotiating stance than had been expected, leading just to some short-term proposals with almost everything else on hold (see Gareth Porter, "'Pushover' Maliki stands his ground", Asia Times, 30 July 2008).
These problems do not in anyway diminish the determination of the US military to plan for a sustained involvement in Iraq (see "Iraq: a far horizon", 25 October 2007). Two recent developments confirm this: the US army's proposal to build new power-plants costing $184 million at five main bases in Iraq, and the US air-force training programme for long-term support of US troops on the ground.
If and when US troop numbers do decrease, their function is meant to change from a mixture of direct combat operations and the training of Iraqi forces to just the latter role. Yet the Iraqi forces cannot provide logistical support, they do not undertake aerial intelligence gathering and they have no capacity for close air support of combat troops. (Thom Shanker, "Air Force Plans Altered Role in Iraq", New York Times, 29 July 2008).
US forces will be embedded with Iraqi army units, but should they come under attack there will not be US ground forces to provide reinforcement. The air force thus expects to play a more direct role at this point - even though this is likely to mean close air-support operations in urban areas, with all the risks of civilian casualties that these entail.
The tightened grip
This probable development in Iraq comes at a time of increased US air operations in Afghanistan that as ever is accompanied by civilian casualties (see David Wood, "Afghan Air War Grows in Intensity", Baltimore Sun, 28 July). The intensity of the air war is one indication of the deterioration in security across southern and southeastern Afghanistan; in the week of 21-27 July 2008 there was an average of sixty-eight air-strikes each day, compared with thirty-five a year ago. This increased activity has entailed controversial incidents involving civilian deaths; US and Nato officials are currently investigating three incidents of such suspected "collateral damage" between 4 July and 20 July 2008 in which seventy-eight civilians were killed (see Candace Rondeaux, "Civilian Airstrike Deaths Probed", Washington Post, 25 July).
US army and air-force plans for operations in Iraq each imply that Washington intends to establish a near-permanent presence that will remain almost independent of the wishes of any future administration; most analysts believe that even if the violence does continue to decline, the Pentagon envisages a total US military presence of around 50,000 for many years to come, backed up by many thousands more across the border in Kuwait as well as other forces in Qatar and Oman (see "The Iraq project", 30 January 2008).
In itself this forward planning is hardly a surprise, given the long-term strategic significance of the region - and especially its oil reserves - to the United States. The country's need and vulnerability in this regard are highlighted by the steep oil-price rises and the intense competition for resources at a time of breakneck economic development. But a determined focus by Washington on the pursuit of its own perceived interests in Iraq - especially in the context of its close relationship with Israel - will also create further antagonism to the American presence in Iraq and the wider region.
The additional worry that an entrenched commitment to Iraq would raise is whether a lengthy occupation of Iraq will be paralleled by a drawn-out war in Afghanistan. All the signs of the June-July 2008 period are that Taliban and al-Qaida paramilitaries on both sides of the Afghanistan/ Pakistan border are growing in strength (see "Haqqani emerging as new leader of a resurgent Taliban", Times of India, 31 July 2008). Al-Qaida itself is reportedly reconfiguring its energies from Iraq to Afghanistan - in effect back to its home base, except this time the key areas will be on both sides of the Afghanistan/ Pakistan border (see Robert Burns, "Al Qaeda Shifting Focus from Iraq", Washington Times, 20 July 2008).
The loose affiliation of networks is also proving successful in recruiting many new potential paramilitaries - from Turkey, central Asia and across the middle east (see Kathy Gannon, "Al-Qaeda Recruiting Scores of New Jihadis", Philadelphia Inquirer, 18 July 2008). Most of them are entering Pakistan and are receiving their training there rather than (as with an earlier generation of militants) in Afghanistan. Such is the control that the Pakistani Taliban groups have in the border areas that camps are now operating just a few miles from the regional capital, Peshawar (see Zahid Hussain, "In Pakistan Mountains, Jihadis train for War", Wall Street Journal, 28 July 2008).
Indeed, Peshawar itself is now surrounded on three sides by territory controlled be Taliban militias. Pakistan's capital, Islamabad, and its main military city, Rawalpindi, are only ninety minutes' drive down the eastern highway on the fourth side (see Jackie Northam, "Taliban Tightens Grip Near Northern Pakistan Border", National Public Radio, 25 July 2008).
The far horizon
For the Pentagon, the deteriorating situation in Afghanistan and related problems in western Pakistan demand a substantial military expansion: in effect, a new phase in the overall war. This will be heralded by an additional US combat brigade of 3,500 troops in autumn 2008, but it could yet involve many thousands more troops over the next year. It also comes at a time when US intelligence agencies are becoming more questioning of the loyalties of their putative allies in Pakistan (see "CIA cites Pakistan spy agency's ties to militants", International Herald Tribune, 30 July 2008).
A greater western presence in Afghanistan, and / or an increase in US action in Pakistan, could - according to some experienced Pakistani civil servants as well as many independent analysts in the region - be deeply counterproductive, in that these measures are likely to produce a strong reaction against what is already widely seen as a foreign occupation (see Ahmed Rashid, Descent into Chaos: The United States and the Failure of Nation Building in Pakistan, Afghanistan, and Central Asia, Penguin, 2008). But in political terms the momentum is towards such escalation: there is, for example, bipartisan support in the United States for an expanded military commitment in the region, with both Barack Obama and John McCain seeing this as an essential part of the US's response to current pressures.
The war in Afghanistan started in October 2001, achieved the overthrow of the the Taliban regime in November and was assumed to have been won by January 2002. By that time, an extension of the war to Iraq was becoming foreseeable. In three months' time, the combatants will enter the eighth year of a conflict that has already lasted far longer than the full span of the second world war (see "Afghanistan' s Vietnam portent", 17 April 2008).
The likelihood is that in 2008-09 the conflict will intensify as it extends to western Pakistan. This, alongside other developments in Iraq and Afghanistan, suggests a different perspective on its overall timeframe which can draw a number of indicators to substantiate it: that this is a war still in its early stages, and that it will continue irrespective of whether John McCain or Barack Obama wins the United States presidential election on 4 November 2008 (see Anthony Cordesman, "The presidential campaign, the Iraq and Afghan-Pakistan wars, and the coming year of uncertainty", CSIS, 21 May 2008).
Indeed, predictions of a thirty-year war made at the time of the initial occupation of Iraq - which may then have seemed outlandish, given the euphoria at the apparent success of the short-sharp invasion - remain all too plausible (see "A thirty-year war" [4 April 2003] and "Permanent occupation?" [24 April 2003]). Whatever the answer to the question about the most realistic description of the conflict launched after 9/11, this conflict may indeed - unless there is a decisive shift towards a different security paradigm - be measured in decades not years.