Excerpt
"the repeated and prolonged suspension of constitutional processes and the rule of law have created extra-constitutiona l and extra-legal power centres. These shadowy centres, embedded within and around the state apparatuses, have spawned a wide network of criminal and terrorist cells.This is an extremely dangerous situation. If the state allows itself to be manipulated outside the bounds of law, the implication is that it has allowed itself to be criminalised. If such a state closes its eyes to some of its functionaries — or those outside but close to power centres — collaborating with international or local smugglers, criminals, militants or terrorists, it can be suspected that this collaboration will at some future date extend to a wider range of criminal and terrorist activities in the country and abroad. The dangers inherent for civilised society in Pakistan and for the world community at large need to be recognised."
Editorial comment
Good comments and brilliant description of "incompetence and connivance". The rise of extra judicial entities who are a part of the Govt and yet independent is equally applicable to the USA. The US is guilty of ignoring International Law, the Geneva Conventions, the UN and unleashing the CIA to assassinate world leaders, topple governments and destabilize Democracy, not to mention cooking up false intelligence to justify their actions. In pretending to be incompetent, the US is conniving to create chaos in the Middle East.
To expect the International Community to resolve Pakistan's issues is like letting loose the fox in the hen house. Pakistan is on it's own and the sooner they realize this the sooner they will come up with a solution. For too long they have looked westward for inspiration. Mr. Bengali may not realize that the "International Communities" solution for Pakistan is to break it up and then blame the Pakistanis for it.
Khusro
Dawn – January, 6th, 2008
Who killed Benazir Bhutto?
By Kaiser Bengali
BENAZIR Bhutto is dead, martyred by a hired assassins bullets in the cause of the struggle for the rights of the people and in challenging the hegemony of a coterie of vested interests that is feeding itself off the sweat and blood of the people.
State minions have blamed the attack on Baitullah Mehsud, the Taliban Amir in Pakistan , a charge that has been duly denied. Clearly, one side is lying and, under the circumstances, the Musharraf regimes spokesmen do not command any more credibility than Baitullah Mehsuds spokesmen.
However, it cannot be disputed that it is the duty of the state to protect every citizen. And the state failed to protect a citizen who a vast multitude of people regarded as their leader and saviour and who was under threat — by official accounts as well. To this extent, at the very least, the Musharraf regime is responsible and liable. However, the direct responsibility of state functionaries cannot be ruled out altogether. The pattern of attempts at concealment, diversion, contradictions and concoction in the official responses to the October carnage at Karsaz in Karachi and the subsequent murderous attack at Liaquat Bagh in Rawalpindi constitute disturbing pointers.
One clear case of concoction is perhaps discernable, namely the transcript of the ‘conversations between Baitullah Mehsud and his ‘maulviâ field commander. Technology exists to trace calls to its location within seconds. Israel routinely uses such technology to locate Hamas freedom fighters and surgically target the particular vehicle, even while it is moving. It appears that the Pakistan military possesses this technology, as shown by its ability to pick up the ‘conversation.’ That they were not able or willing to locate either the ‘maulvi or Baitullah Mehsud during their alleged minute-long conversation smacks of incompetence or connivance.
Incompetence and/or connivance has now emerged as a hallmark of the Musharraf regime in different areas of policy. Most recent is the case of Mullah Fazlullah in Swat. Media reports of the operation of an illegal radio station by the mullah had been appearing for more than a year. No attempt was made to jam the broadcasts, although the technology to jam radio signals — used even during the Second World War — was available to Pakistani authorities. Possession of this technology is now proved, given that such radio signals have been jammed since the launch of the military operation in Swat. The question arises: is the Swat episode indicative of incompetence or connivance?
Earlier, Pakistani forces battled militants entrenched in the Lal Masjid/Masjid- i-Hafsa complex, suffering several casualties and causing between several score to several hundred deaths among the students. The Lal Masjid episode too simmered for more than a year before coming to a head. The question that arose then, and which no state functionary has cared to answer to date, is: how is it that the Ghazi brothers were able to amass sophisticated weaponry in the heart of Islamabad — a city where it is said that the number of intelligence operatives outnumber the total number of janitors, gardeners and taxi drivers combined? Once again, the question arises: is the bloody Lal Masjid episode indicative of incompetence or connivance?
Earlier still emerged the affair relating to Dr Abdul Qadeer Khan’s clandestine international operations in smuggling contraband nuclear equipment and material. The exposure of his illicit activities was made not by Pakistani authorities but by the United States . The official Pakistan explanation was that he was alone in running the smuggling ring and that Pakistani officials were neither involved nor aware.Dr Qadeer Khan was a high-value national asset, protected by more than one high-powered security agency. Those who have experienced even one day of police escort know that the facility is double-edged. While the escort ostensibly provides protection, it also deprives the protected individual of a degree of privacy. That the nuclear scientist was able to carry out an international operation involving highly sensitive material — and allegedly use Pakistan Air Force C-130 planes to freight his wares around the world — without drawing the attention of his ‘escorts is inconceivable. Once again the question arises: is the Qadeer Khan episode suggestive of incompetence or connivance?
The issue of both, incompetence and connivance, is of critical importance. If incompetence is attributed to the above three cases — and they are by no means exhaustive — the implication is that the country has crossed the threshold of what defines a failed state. The government is unable to enforce its writ; it is unable to control illegal broadcasting stations; it is unable to stop the accumulation of weaponry at any location; it is unable to control individuals engaged in smuggling of dangerous materials; it is unable to protect the life and property of the citizens. By inference it should be considered unable to carry out the assigned task of assisting the United States in its war against terror.
Attribution of connivance is more worrisome. If the events of Swat, Lal Masjid and nuclear smuggling have been allowed to simmer or continue with the connivance of state functionaries, the implication is that there is a coterie of powerful individuals within the corridors of power who consider themselves above the law — national or international — and unaccountable to any principle or institution save their own definition of interests.
The demand for an international investigation into Benazir Bhutto’s assassination needs to be viewed in this context. It would be irresponsible to suggest that extra-legal operations are carried out under formal governmental auspices. However, the repeated and prolonged suspension of constitutional processes and the rule of law have created extra-constitutional and extra-legal power centres. These shadowy centres, embedded within and around the state apparatuses, have spawned a wide network of criminal and terrorist cells.This is an extremely dangerous situation. If the state allows itself to be manipulated outside the bounds of law, the implication is that it has allowed itself to be criminalised. If such a state closes its eyes to some of its functionaries — or those outside but close to power centres — collaborating with international or local smugglers, criminals, militants or terrorists, it can be suspected that this collaboration will at some future date extend to a wider range of criminal and terrorist activities in the country and abroad. The dangers inherent for civilised society in Pakistan and for the world community at large need to be recognised.
Clearly, substantive remedial measures are called for. If the murder of Benazir Bhutto is attributable to incompetence, there emerges an urgent imperative for correcting the failed state syndromes. If it is attributable to connivance, the corridors of power need to be cleaned up. In particular, the cobwebs shrouding sinister Ziaist forces in secret cells have to be cleared and the extra-constitutional and extra-legal power centres dismantled.Full restoration of the rule of law is in the interest of the political community and civil society in Pakistan if other political or civic leaders are not to be subjected to the threat of elimination. It is in the interest of the international community to help the people of Pakistan restore the rule of law if Pakistan is not to become the focal point for lawlessness, criminality and terrorism worldwide.
Sunday, January 6, 2008
Tuesday, December 18, 2007
The power of Silence
When you listen to music, listen in between the notes, where there is no music; listen to the sound of silence.
When you hear the wind rustling in the leaves, listen to the rustling when there is no wind, listen to the sound of silence.
When you hear the sound of your heart in your every breath, listen to the sound of your heart when it is not beating; listen to the sound of silence.
For silence is not of this world. It is from another dimension. If you can hear the silence you can go into another dimension and view our world from there. While noise is worldly, silence is spirituality. The noise in our brains is the noise of want, of worldly desires. If we can fill our minds with silence, we can feel humility.
But silence is nothing and God is no thing and when there was nothing there was silence.
Khusro
When you hear the wind rustling in the leaves, listen to the rustling when there is no wind, listen to the sound of silence.
When you hear the sound of your heart in your every breath, listen to the sound of your heart when it is not beating; listen to the sound of silence.
For silence is not of this world. It is from another dimension. If you can hear the silence you can go into another dimension and view our world from there. While noise is worldly, silence is spirituality. The noise in our brains is the noise of want, of worldly desires. If we can fill our minds with silence, we can feel humility.
But silence is nothing and God is no thing and when there was nothing there was silence.
Khusro
Thursday, December 13, 2007
Letter to the Pope
Extract
We would like to point out that "holy war¡¨ is a term that does not exist in Islamic languages. Jihad, it must be emphasized,means struggle, and specifically struggle in the way of God.
The authoritative and traditional Islamic rules of war can be summarized in the following principles:
1. Non-combatants are not permitted or legitimate targets.This was emphasized explicitly time and again by the Prophet, his Companions, and by the learned tradition since then.
2. Religious belief alone does not make anyone the object of attack. The original Muslim community was fighting against pagans who had also expelled them from their homes, persecuted, tortured, and murdered them.Thereafter, the Islamic conquests were political in nature.
3. Muslims can and should live peacefully with their neighbors. And if they incline to peace, do thou incline to it; and put thy trust in God (al-Anfal ).
However, this does not exclude legitimate self-defense and maintenance of sovereignty. "
Editorial Comment
A letter signed by 38 Muslim Scholars contains a unified explanation of Issues such as conversion, apostasy, relations with non Muslims etc. This sheds light on these subjects not only for the Pope but also for Muslims worldwide. It needed the Pope to question Islam in order for these scholars to issue a public explanation.
This letter was written a few months back, but the text was not available to me. There is a need for bodies like this to issue their understanding on other issues also on which there is much confusion.
Khusro
Click here to read the text
http://ammanmessage .com/media/ openLetter/ english.pdf
We would like to point out that "holy war¡¨ is a term that does not exist in Islamic languages. Jihad, it must be emphasized,means struggle, and specifically struggle in the way of God.
The authoritative and traditional Islamic rules of war can be summarized in the following principles:
1. Non-combatants are not permitted or legitimate targets.This was emphasized explicitly time and again by the Prophet, his Companions, and by the learned tradition since then.
2. Religious belief alone does not make anyone the object of attack. The original Muslim community was fighting against pagans who had also expelled them from their homes, persecuted, tortured, and murdered them.Thereafter, the Islamic conquests were political in nature.
3. Muslims can and should live peacefully with their neighbors. And if they incline to peace, do thou incline to it; and put thy trust in God (al-Anfal ).
However, this does not exclude legitimate self-defense and maintenance of sovereignty. "
Editorial Comment
A letter signed by 38 Muslim Scholars contains a unified explanation of Issues such as conversion, apostasy, relations with non Muslims etc. This sheds light on these subjects not only for the Pope but also for Muslims worldwide. It needed the Pope to question Islam in order for these scholars to issue a public explanation.
This letter was written a few months back, but the text was not available to me. There is a need for bodies like this to issue their understanding on other issues also on which there is much confusion.
Khusro
Click here to read the text
http://ammanmessage .com/media/ openLetter/ english.pdf
I condemn suicide bombings
The other day as my daughter in law was lecturing on "Islam in America" to a group of Social studies teachers, one participant became very red in the face and hot under the collar. " How come", he questioned, "the Muslims do not come out and condemn suicide bombings." This is a subject that I have heard many right wing people complain about and the Jews are besides themselves in my community about the unfairness and criminality of Suicide Bombings, particularly as they are targeted towards innocent civilians. My liberal Muslim friends are also quite embarrassed about this accusation and echo the same question as the social studies teacher. In fact for this and other reasons my liberal Muslim friends have turned against Islam and and are ready to throw out the baby with the bath water.
I have therefore decided as a Muslim to condemn this act. Mind you the Pope as head of the Catholic church came out quite forcefully against attacking Iraq but the US paid no heed to him. It is therefore unlikely that my condemnation or that of the Ayatollah or other Muslim group of scholars will likely dissuade the Suicide bombers, but the truth must be told. Fairness demands that what is unjust and criminal must be branded as such.
At the same time let me condemn in no uncertain terms that I find reprehensible, the acts of the State of Israel in killing Innocent civilian Palestinians,men, women and children, in deliberately maiming and breaking their bones, in illegally appropriating their lands, in creating homelessness by demolishing their homes, in imposing collective punishment on the Palestinians by denying them water, electricity and tax revenues, by creating roadblocks and bantustans making their daily lives a misery and hell on earth.
I do not blame the Jews for this because these acts are equally reprehensible in Judaism. I do not feign ignorance of Judaism as my own beliefs are inspired by Judaism. I visit temples and Jewish synagogues and get confirmation that Judaism does not sanction the killing of innocent men, women and children. I am not looking for statements from Rabbi's to tell me this. Further proof of this is to be found in the overall condemnation by the Jews of suicide bombings. Surely they would not visit on others what they find repugnant by others.
I would not expect the State of Israel to condemn their own practices but do so only because they claim to be a Jewish state. I do expect their Rabbis to take out processions in Israel to stop this blatant violation of their own beliefs. If the State of Israel was not a Jewish State, I would not expect any such condemnation because I would understand this to be a political matter and not a Religious one. Similar to Israel, the State of Pakistan claims to be a Muslim State, but they practice torture which is not allowed in Islam, have laws that oppress minorities, which is not allowed by Islam. The State of Egypt does not claim to be an Islamic State and they torture people as a matter of routine but for them it is a political matter. Their religious scholars dare not point out that what they do is un Islamic for fear of being tortured themselves. The US is a Secular State and they practice torture although their constitution and their President say that torture is not allowed, but they are still breaking the laws of man and not the laws of God. It is an unwritten law for them that the end justifies the means. Under this belief any thing can be done if the cause is just.
The Muslim Religion is very strong against the taking of innocent lives. I have not heard a different view from any learned Muslim Scholar or even from my Secular Muslim friends. It is true that many of the suicide bombers may have done this as an act of desperation because they saw their brothers, mothers, sisters, fathers killed in front of their eyes, either by Israeli soldiers or American soldiers. Some of them may have become desperate when they saw their friends, their countrymen, their co coreligionist's not just killed or maimed before them but their homes and countries attacked, destroyed, ravaged, and their own lives made impotent and meaningless.
Islam does allow taking up arms in self defense. Islam does allow that you protect yourself and your faith by every means available to you. Islam still does not allow the taking of Innocent lives. In Islam, the end does not justify the means. It is not "suicide bombings" that are criminal. It is the target of the bomber. People who happen to be innocent bystanders. going about their daily lives. If the target were an opposing army or the direct oppressor, there would be some justification for this act but not for attacking women and children. If Muslims did the same thing to the Israelis as the Israelis do to them, then the faith of the Muslims is as weak as that of the Jews.
I try not to impress my views on my daughter in law because for saying half of what I have said today, she could lose her job. She could be ostracised by society and perhaps never find a job in the teaching profession in this country. She would certainly never be invited to speak to other teachers even about Islam. At a minimum she would be called antisemitic. Maybe none of this will happen, after all this is a free society, but she is concerned because it has happened to others. The Principal of a high school in New York was recently forced to resign because she explained the Arabic translation of the word Intefada.
Yet all I have done is to say that I condemn suicide bombings. Fortunately my daughter in law is smarter than I am. She keeps her distance from my writings.
Khusro
I have therefore decided as a Muslim to condemn this act. Mind you the Pope as head of the Catholic church came out quite forcefully against attacking Iraq but the US paid no heed to him. It is therefore unlikely that my condemnation or that of the Ayatollah or other Muslim group of scholars will likely dissuade the Suicide bombers, but the truth must be told. Fairness demands that what is unjust and criminal must be branded as such.
At the same time let me condemn in no uncertain terms that I find reprehensible, the acts of the State of Israel in killing Innocent civilian Palestinians,men, women and children, in deliberately maiming and breaking their bones, in illegally appropriating their lands, in creating homelessness by demolishing their homes, in imposing collective punishment on the Palestinians by denying them water, electricity and tax revenues, by creating roadblocks and bantustans making their daily lives a misery and hell on earth.
I do not blame the Jews for this because these acts are equally reprehensible in Judaism. I do not feign ignorance of Judaism as my own beliefs are inspired by Judaism. I visit temples and Jewish synagogues and get confirmation that Judaism does not sanction the killing of innocent men, women and children. I am not looking for statements from Rabbi's to tell me this. Further proof of this is to be found in the overall condemnation by the Jews of suicide bombings. Surely they would not visit on others what they find repugnant by others.
I would not expect the State of Israel to condemn their own practices but do so only because they claim to be a Jewish state. I do expect their Rabbis to take out processions in Israel to stop this blatant violation of their own beliefs. If the State of Israel was not a Jewish State, I would not expect any such condemnation because I would understand this to be a political matter and not a Religious one. Similar to Israel, the State of Pakistan claims to be a Muslim State, but they practice torture which is not allowed in Islam, have laws that oppress minorities, which is not allowed by Islam. The State of Egypt does not claim to be an Islamic State and they torture people as a matter of routine but for them it is a political matter. Their religious scholars dare not point out that what they do is un Islamic for fear of being tortured themselves. The US is a Secular State and they practice torture although their constitution and their President say that torture is not allowed, but they are still breaking the laws of man and not the laws of God. It is an unwritten law for them that the end justifies the means. Under this belief any thing can be done if the cause is just.
The Muslim Religion is very strong against the taking of innocent lives. I have not heard a different view from any learned Muslim Scholar or even from my Secular Muslim friends. It is true that many of the suicide bombers may have done this as an act of desperation because they saw their brothers, mothers, sisters, fathers killed in front of their eyes, either by Israeli soldiers or American soldiers. Some of them may have become desperate when they saw their friends, their countrymen, their co coreligionist's not just killed or maimed before them but their homes and countries attacked, destroyed, ravaged, and their own lives made impotent and meaningless.
Islam does allow taking up arms in self defense. Islam does allow that you protect yourself and your faith by every means available to you. Islam still does not allow the taking of Innocent lives. In Islam, the end does not justify the means. It is not "suicide bombings" that are criminal. It is the target of the bomber. People who happen to be innocent bystanders. going about their daily lives. If the target were an opposing army or the direct oppressor, there would be some justification for this act but not for attacking women and children. If Muslims did the same thing to the Israelis as the Israelis do to them, then the faith of the Muslims is as weak as that of the Jews.
I try not to impress my views on my daughter in law because for saying half of what I have said today, she could lose her job. She could be ostracised by society and perhaps never find a job in the teaching profession in this country. She would certainly never be invited to speak to other teachers even about Islam. At a minimum she would be called antisemitic. Maybe none of this will happen, after all this is a free society, but she is concerned because it has happened to others. The Principal of a high school in New York was recently forced to resign because she explained the Arabic translation of the word Intefada.
Yet all I have done is to say that I condemn suicide bombings. Fortunately my daughter in law is smarter than I am. She keeps her distance from my writings.
Khusro
Wednesday, December 12, 2007
Authority
You will not get what you want unless you ask for it. You will not get to where you want to go unless you travel. You do not know how much authority you have unless you assert it.
Khusro
Khusro
Life on Earth
Pure worldliness takes us away from Spirituality and yet Spirituality demands that we be worldly. The Challenge is to convert worldliness into a spiritual experience. The challenge is to practice Humility.The challenge is to have faith and to believe in God.
Khusro
Khusro
How the world Financial System is changing
Extract
"A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts)." Martin Wolf, Financial Times.
Editorial Comment
The subprime lending crises has changed the face of world finances. It was a disaster waiting to happen and when it did, it was surprisingly dealt with by the new forces in the market place. Forces which had hitherto been unrecognised. Firstly there was a substantial loss of credibility for the US markets both amongst Europeans and other major investors but secondly and most importantly there emerged an alternative source of Liquidity and Investments which had sufficient depth and clout to stabilise the world.
It is less important that Abu Dhabi bailed out CitiBank and that Singapore bailed out UBS, It is more important that they were allowed to. Just one year back Sovereign funds were considered as threats to Western Security, now there is a queue forming outside their offices begging for participation.
Emerging market Stock Markets which had been regarded as fringe Investments are suddenly being considered preferred Investments. Oil producing Countries are switching out of the Dollar and into a basket of currencies. A move which a few years back would have brought about a full scale attack on them by US Marines.
If the US goes into a recession the world will not follow suit. Another myth falls by the wayside. The US is no longer the engine that fuels the world economically. It is still a big engine but one that in due coarse is beginning to look more like a liability than an asset.
The speed and viciousness with which Capitalism is coming unstuck is breath taking. All of a sudden the long rope of greed, exploitation, opportunism and short term thinking has formed into a noose around it's neck. The two largest exports of the US to date, Democracy and Capitalism stand discredited. How can you export ideas that you are unable to practice yourself.
Right now there is a conspiracy a foot to save the system. The rating Agencies, The market Analysts, the Stock brokers, The Investment Analysts, The US Treasury, The Federal Reserve, The Banks, The media are all in cahoots to come up with self serving ideas to preserve the way of life that they have known. The fact this way of life is devoid of fairness and justice to others seems to bother no one.
Economists’ forum - Nov-16
Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com
First and most important, what is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts).
Second, these events have called into question the workability of securitised lending, at least in its current form. The argument for this change – one, I admit, I accepted – was that it would shift the risk of term-transformation (borrowing short to lend long) out of the fragile banking system on to the shoulders of those best able to bear it. What happened, instead, was the shifting of the risk on to the shoulders of those least able to understand it. What also occurred was a multiplication of leverage and term-transformation, not least through the banks’ “special investment vehicles”, which proved to be only notionally off balance sheet. What we see today, as a result, is a rapid shrinkage of markets in asset-backed paper (see chart).
Third, the crisis has opened up big questions about the roles of both central banks and regulators. How far, for example, do the responsibilities of central banks as “lender-of-last-resort” during crises stretch? Should they, as some argue, be market-makers-of-last resort in credit markets? What, more precisely, should a central bank do when liquidity dries up in important markets? Equally, the crisis suggests that liquidity has been significantly underpriced. Does this mean that the regulatory framework for banks is fundamentally flawed? What is left of the idea that we can rely on financial institutions to manage risk through their own models? What, moreover, can reasonably be expected of the rating agencies? A market in US mortgages is hardly terra incognita. If banks and rating agencies got this wrong, what else must be brought into question?
Fourth, do you remember the lecturing by US officials, not least to the Japanese, about the importance of letting asset prices reach equilibrium and transparency enter markets as soon as possible? That, however, was in a far-off country. Now we see Hank Paulson, US Treasury secretary, trying to organise a cartel of holders of toxic securitised assets in the “superSIV”. More importantly, we see the US Treasury intervene directly in the rate-setting process on mortgages, in an attempt to shore up the housing market. Either, or both, of these ideas might be good ones (though I strongly doubt it). But they are at odds with what the US has historically recommended to other countries in a similar plight. Not for a long time will people listen to US officials lecture on the virtues of free financial markets with a straight face.
Fifth (and here we start to move from the questions about the workings of the financial system to global macro-economic implications), the crisis signals a necessary re-rating of risk. It turns out that it also represents a move towards holding more transparent and liquid assets, as one would expect. This correction is altogether desirable. It has, moreover, been selective. It is a striking feature of what has happened that emerging markets have emerged as a safe haven as investors run away from US households. For those in emerging economies, this must be sweet revenge. They should not cheer too soon. Today’s favourites may be brutally discarded tomorrow.
Sixth, this event may well mark the limits to the US role as consumer of last resort in the world economy. As the Organisation for Economic Co-operation and Development notes in its latest Economic Outlook, the correction is well under way. In 2007, it forecasts, US final domestic demand will grow by just 1.9 per cent, down from 2.9 per cent in 2006. It forecasts a further decline, to growth of 1.4 per cent, next year. In both years, net exports will make a positive contribution to growth: 0.5 percentage points in 2007 and 0.4 percentage points in 2008, as the trade deficit shrinks in real terms. In this way, the US is re-importing the stimulus it exported to the rest of the world in previous years. The credit crunch is quite likely to accelerate this process. So the US needs strong growth of net exports. For this reason, policymakers are relaxed about the dollar’s fall, provided it does not awaken fears of rapidly rising inflation.
Seventh, a US recession is possible. Whether it happens depends overwhelmingly on consumers. The principal counterpart of the external deficits has been the excess of spending over income by households. That has meant negligible savings and a big jump in household debt: mortgage debt jumped from 63 per cent of disposable incomes in 1995 to 98 per cent in 2005. This rising trend is unlikely to continue in a falling housing market. Unwillingness (or inability) to borrow on such a scale will, in turn, hamper the effectiveness of US monetary policy. That, in turn, makes a weak dollar and strong export growth yet more important.
Last but not least, this event also has big significance for the game of “pass-the-external-deficits” that has characterised the world economy for several decades. It has proved virtually impossible for emerging market economies to run large deficits, without running into crises. Over the past decade, the US filled the (growing) gap as ever-larger borrower of last resort. This epoch has probably now ended. But the surpluses being run by China and Japan, by oil exporters and, within the European Union, by Germany continue to grow. If we are to enjoy global macro-economic stability, a creditworthy set of countervailing borrowers must emerge. If the US ceases to increase its absorption of the growing savings surpluses being generated elsewhere, which countries will be able and willing to do so?
Experience teaches that big financial shocks affect patterns of lending and spending across the world. Originating, as it does, at the core of the world economy, this one will do so, too. The question is how stable and dynamic the world economy that emerges will be.
"A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts)." Martin Wolf, Financial Times.
Editorial Comment
The subprime lending crises has changed the face of world finances. It was a disaster waiting to happen and when it did, it was surprisingly dealt with by the new forces in the market place. Forces which had hitherto been unrecognised. Firstly there was a substantial loss of credibility for the US markets both amongst Europeans and other major investors but secondly and most importantly there emerged an alternative source of Liquidity and Investments which had sufficient depth and clout to stabilise the world.
It is less important that Abu Dhabi bailed out CitiBank and that Singapore bailed out UBS, It is more important that they were allowed to. Just one year back Sovereign funds were considered as threats to Western Security, now there is a queue forming outside their offices begging for participation.
Emerging market Stock Markets which had been regarded as fringe Investments are suddenly being considered preferred Investments. Oil producing Countries are switching out of the Dollar and into a basket of currencies. A move which a few years back would have brought about a full scale attack on them by US Marines.
If the US goes into a recession the world will not follow suit. Another myth falls by the wayside. The US is no longer the engine that fuels the world economically. It is still a big engine but one that in due coarse is beginning to look more like a liability than an asset.
The speed and viciousness with which Capitalism is coming unstuck is breath taking. All of a sudden the long rope of greed, exploitation, opportunism and short term thinking has formed into a noose around it's neck. The two largest exports of the US to date, Democracy and Capitalism stand discredited. How can you export ideas that you are unable to practice yourself.
Right now there is a conspiracy a foot to save the system. The rating Agencies, The market Analysts, the Stock brokers, The Investment Analysts, The US Treasury, The Federal Reserve, The Banks, The media are all in cahoots to come up with self serving ideas to preserve the way of life that they have known. The fact this way of life is devoid of fairness and justice to others seems to bother no one.
Over the years the world has been trained to look at the US as a borrower of last resort. This has meant that the world has saved and the US has consumed. This was a formula built for the US. It does not follow that The US will be replaced by another consumer country. This is a system built on inequality. If there were more rich countries, they would all be consumers also and then one country would not account for consuming 25% of the worlds resources.
Khusro
Why the credit squeeze is a turning point for the world
By Martin Wolf
Published: December 11 2007 19:24 Last updated: December 12 2007 07:53
These are historic moments for the world economy. I felt the same during the emerging market financial crises of 1997 and 1998 and the bubble in technology stocks that burst in 2000. This “credit crunch” may, I believe, be an equally important turning point for financial markets and the world economy. Why do I believe this? Let me count the ways.
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First and most important, what is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts).
Second, these events have called into question the workability of securitised lending, at least in its current form. The argument for this change – one, I admit, I accepted – was that it would shift the risk of term-transformation (borrowing short to lend long) out of the fragile banking system on to the shoulders of those best able to bear it. What happened, instead, was the shifting of the risk on to the shoulders of those least able to understand it. What also occurred was a multiplication of leverage and term-transformation, not least through the banks’ “special investment vehicles”, which proved to be only notionally off balance sheet. What we see today, as a result, is a rapid shrinkage of markets in asset-backed paper (see chart).
Third, the crisis has opened up big questions about the roles of both central banks and regulators. How far, for example, do the responsibilities of central banks as “lender-of-last-resort” during crises stretch? Should they, as some argue, be market-makers-of-last resort in credit markets? What, more precisely, should a central bank do when liquidity dries up in important markets? Equally, the crisis suggests that liquidity has been significantly underpriced. Does this mean that the regulatory framework for banks is fundamentally flawed? What is left of the idea that we can rely on financial institutions to manage risk through their own models? What, moreover, can reasonably be expected of the rating agencies? A market in US mortgages is hardly terra incognita. If banks and rating agencies got this wrong, what else must be brought into question?
Fourth, do you remember the lecturing by US officials, not least to the Japanese, about the importance of letting asset prices reach equilibrium and transparency enter markets as soon as possible? That, however, was in a far-off country. Now we see Hank Paulson, US Treasury secretary, trying to organise a cartel of holders of toxic securitised assets in the “superSIV”. More importantly, we see the US Treasury intervene directly in the rate-setting process on mortgages, in an attempt to shore up the housing market. Either, or both, of these ideas might be good ones (though I strongly doubt it). But they are at odds with what the US has historically recommended to other countries in a similar plight. Not for a long time will people listen to US officials lecture on the virtues of free financial markets with a straight face.
Fifth (and here we start to move from the questions about the workings of the financial system to global macro-economic implications), the crisis signals a necessary re-rating of risk. It turns out that it also represents a move towards holding more transparent and liquid assets, as one would expect. This correction is altogether desirable. It has, moreover, been selective. It is a striking feature of what has happened that emerging markets have emerged as a safe haven as investors run away from US households. For those in emerging economies, this must be sweet revenge. They should not cheer too soon. Today’s favourites may be brutally discarded tomorrow.
Sixth, this event may well mark the limits to the US role as consumer of last resort in the world economy. As the Organisation for Economic Co-operation and Development notes in its latest Economic Outlook, the correction is well under way. In 2007, it forecasts, US final domestic demand will grow by just 1.9 per cent, down from 2.9 per cent in 2006. It forecasts a further decline, to growth of 1.4 per cent, next year. In both years, net exports will make a positive contribution to growth: 0.5 percentage points in 2007 and 0.4 percentage points in 2008, as the trade deficit shrinks in real terms. In this way, the US is re-importing the stimulus it exported to the rest of the world in previous years. The credit crunch is quite likely to accelerate this process. So the US needs strong growth of net exports. For this reason, policymakers are relaxed about the dollar’s fall, provided it does not awaken fears of rapidly rising inflation.
Seventh, a US recession is possible. Whether it happens depends overwhelmingly on consumers. The principal counterpart of the external deficits has been the excess of spending over income by households. That has meant negligible savings and a big jump in household debt: mortgage debt jumped from 63 per cent of disposable incomes in 1995 to 98 per cent in 2005. This rising trend is unlikely to continue in a falling housing market. Unwillingness (or inability) to borrow on such a scale will, in turn, hamper the effectiveness of US monetary policy. That, in turn, makes a weak dollar and strong export growth yet more important.
Last but not least, this event also has big significance for the game of “pass-the-external-deficits” that has characterised the world economy for several decades. It has proved virtually impossible for emerging market economies to run large deficits, without running into crises. Over the past decade, the US filled the (growing) gap as ever-larger borrower of last resort. This epoch has probably now ended. But the surpluses being run by China and Japan, by oil exporters and, within the European Union, by Germany continue to grow. If we are to enjoy global macro-economic stability, a creditworthy set of countervailing borrowers must emerge. If the US ceases to increase its absorption of the growing savings surpluses being generated elsewhere, which countries will be able and willing to do so?
Experience teaches that big financial shocks affect patterns of lending and spending across the world. Originating, as it does, at the core of the world economy, this one will do so, too. The question is how stable and dynamic the world economy that emerges will be.
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