Monday, February 27, 2006

Signs of the Economic Apocalypse, 2-27-06

From Signs of the Times, 2-27-06:

Gold closed at 561.00 dollars an ounce on Friday, up 1.0% from $555.20 the week before. The dollar closed at 0.8420 euros Friday, up 0.5% from 0.8375 for the week. The Euro closed at 1.1876 dollars on Friday, compared to 1.1940 dollars at the previous Friday’s close. Gold in euros would be 472.38 an ounce, up 1.6% from 464.99 the week before. Oil closed at 62.91 dollars a barrel, up 5.1% from $59.88 at the end of the week previous week. Oil in euros would be 52.97 a barrel, up 5.6% from 50.15 euros for the week. The gold/oil ratio closed at 8.92, down 3.9% from 9.27 at the end of the week before. In the U.S. stock market, the Dow closed at 11,061.85, down 0.5% from 11,115.32 for the week. The NASDAQ closed at 2,287.04 up 0.2% from 2,282.36 at the end of the previous week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note was 4.57, down one from 4.58 for the week.

The mainstream media’s economic news was particularly positive until the end of last week, when no one could hide the bad news for the U.S. empire. The shocks on Thursday and Friday drove the price of gold and oil up and made even optimists uneasy.

In particular, the false flag suicide bomb attempt in Saudi Arabia by Al-CIAduh, as Kurt Nimmo puts it, benefitted Texas-based oil companies, the Neocons, and even perhaps the Saudi Royal Family by raising oil prices in spite of high supplies. So, too, did the attacks in Nigeria, which may also have been false flag ops.

Oil climbs 4 percent on Saudi attack
By Margaret Orgill
Fri Feb 24, 3:10 PM ET

Oil jumped more than $2 on Friday after news of a suicide bomb attack at the huge Abqaiq oil facility in Saudi Arabia, which triggered worries about supply from the world's top crude producer.

At least two cars exploded at the gates of the Abqaiq site when security forces fired on suicide bombers trying to storm the facility in the country's eastern province.

"It's all about perception. Just the idea of an attack in Saudi Arabia is enough to make the market jumpy," said Glenn Murray, an oil broker at GM Oil.

Saudi Oil Minister Ali al-Naimi described the raid as a "terrorist attempt" but said oil exports had been unaffected. He said a limited fire at the site was being brought under control.

"This incident had no impact on oil and gas production in the kingdom," Naimi said in a statement carried by the official Saudi Press Agency. "The plant continued production at full levels and export operations are as usual."

Most Saudi oil is exported from the Gulf via Abqaiq which handles about two thirds of the country's output.

"This just emphasizes fears over global oil supply security when we're already facing major ongoing risks in Nigeria, Iran and Iraq," said Gary Ross, CEO at PIRA Energy consultancy in New York.

…Oil prices had risen a dollar earlier Friday as fears of deeper disruptions to Nigerian exports overshadowed the comfort drawn from brimming fuel stockpiles in the United States.

Attacks on Nigeria's oil network have already forced Shell to cut output by 455,000 barrels a day, shutting in a fifth of the country's exports. Militants holding foreign oil workers hostage say they will continue attacks in the next few days.

But oil's upside may be limited by brimming U.S. fuel tanks. Gasoline stocks rose to 225.6 million barrels, the highest level in seven years, according to weekly data. Crude stocks rose 1.1 million barrels to 326.7 million barrels.

"The market is being tugged by two forces -- data are pulling it down and political forces are pulling it up," said independent oil consultant Geoff Pyne.

Aside from tension in Nigeria, traders said Iran's nuclear ambitions and the possible ramifications for the nation's oil production also remained a worry.

The board of the International Atomic Energy Agency (IAEA) meets on March 6 to discuss the next step in resolving Iran's nuclear row with the West.

Iraq, which has been struggling to get oil output back to pre-war levels, is suffering the worst sectarian violence since the fall of Saddam Hussein, compounding the geopolitical risks in the Middle East.

Add to this the horrific bombing of the Samarra Mosque, most likely also a false-flag attack carried out by the neocons to dismember Iraq, and it is getting increasingly hard for the imperial optimists to maintain their sunny outlook.

Pentagon-Controlled Iraqi National Guard Implicated in Samarra Mosque Bombing

Thursday February 23rd 2006, 1:36 pm

As the “non-partisan” Council on Foreign Relations assures us, Iraqi National Guard troops are trained and fully “vetted” by the Pentagon. “National guard troops receive three weeks of formal training and then on-the-job training by working with U.S. forces,” a CFR backgrounder explains. “The National Guard has replaced the Iraqi Civil Defense Corps as the largest security force in Iraq,” reports the World Tribune. “The 45,000-member force has been trained and equipped by the United States, with help from Britain and Jordan.” In short, the Iraqi National Guard is a subsidiary of the Pentagon, organized and trained to do the bidding of the Anglo-American occupation forces and their installed minions. Thus it should come as no surprise the Iraqi National Guard may play an important role in the recent bombing of the Golden Dome mosque in Samarra, according to locals.

Since it is unreasonable to expect Baghdad hotel-bound corporate media hacks to report anything beyond what is read from a Pentagon script inside the Green Zone, most Americans remain unaware of details implicating the Iraqi National Guard in the bombing. According to reports appearing on the humanitarian Iraqi League organization’s Iraqi Rabita website and translated into English by the Iraqi blogger Baghdad Dweller (see original Arabic here and here), at least two witnesses saw “unusual activities by the ING [Iraqi National Guard] in the area around the mosque.” Two mosque guards reported four men in ING uniforms had blindfolded them and planted explosives. A second witness, Muhammad al-Samarrai, the owner of an internet cafe in the area, was told to stay in his store and not leave the area. From 11 pm until 6:30 am, ten minutes before two bombs were detonated, the area surrounding the mosque was patrolled by “joint forces of Iraqi ING and Americans,” according to al-Samarrai.

In addition to apparently facilitating the mosque bombing, Iraqi National Guard troops provided assistance to “more than a dozen masked Shia gunmen” attacking the Sunni al-Quds mosque in western Baghdad in the wake of the Samarra attack, according to the
Times Online. In addition, “gunmen arrived [at the Maakel prison in Basra] in a fleet of cars and showed documents which claimed that they were from the Interior Ministry… and lynched at least eleven Sunni inmates, among them at least two Egyptians.”

Last month, according to the Washington Post, the Iraqi Interior Ministry was implicated in the operation of death squads targeting Sunnis. Moreover, according to John Pike, an expert on classified military budgets, as cited by Robert Dreyfuss in an article for the American Prospect, a 2004 Iraqi appropriation bill contained $3 billion for paramilitary units. The “bulk of the covert money” went to “support U.S. efforts to create a lethal, and revenge-minded, Iraqi security force” and also “an Iraqi secret police staffed mainly by gunmen associated with members of the puppet Iraqi Governing Council,” thus revealing the situation in Iraq is not precisely as the hand-fed corporate media would have us believe.

Of course, two eye witnesses should not be considered conclusive evidence the Pentagon puppet Iraqi National Guard is behind the mosque bombings in Samarra. However, when added to the wealth of evidence from various sources detailing the existence of a Anglo-American “counterinsurgency” program in Iraq (including the now largely forgotten and never referenced by the corporate media story of two British covert operatives caught red-handed in terrorist behavior last September) the incident should at least stir a modicum of suspicion.

One piece of good news for the rest of us, last week, was the resignation of the vile pathocrat Lawrence Summers from the presidency of Harvard University:

Lawrence Summers resigns as Harvard president

By Bill Van Auken24 February 2006

The resignation this week of Lawrence Summers from the post he has held for the last five years as president of Harvard has provoked an extraordinary firestorm of political controversy far from the ivied halls of what has long been considered one of the premier US universities.

Summers, who served as Clinton’s treasury secretary before taking the helm at Harvard, announced on February 21 that he will resign at the end of the current school year. The decision came on the eve of a “no confidence” vote called by the faculty and amid widespread demands within the university for him to step down.

The Wall Street Journal lamented the fall of an individual who, during his eight years in the Clinton administration, had identified himself fully with the interests of American corporations and financial institutions. The Journal’s right-wing editorial board portrayed him as the victim of a “largely left-wing faculty that has about as much intellectual diversity as the Pyongyang parliament.”

The ostensibly more liberal Washington Post published an editorial with the provocative title, “Prejudice Wins.” It referred to the university faculty’s “complaints that he was acting like a corporate chief executive—as though there were something wrong with that.” The paper warned, “Because of the prestige of Harvard, his defeat may demoralize reformers at other universities.”

Notice how the neoliberals and neoconservatives have hijacked the term ‘reform’. Germans should beware of this when they read about Angela Merkel’s drive to institute what the neoliberal press calls “much-needed reform” for Germany.

Even the Financial Times of Britain weighed in with a mournful editorial entitled “Larry Summers Concedes to his Foes.” The voice of the City of London praised him for “challenging established fiefdoms and implementing uncomfortable changes,” while declaring his “blunt style of management” a “virtue” necessary for pursuing such a struggle.

The reference to “fiefdoms” here is significant. The term refers to feudalism, a mode of production wiped out by capitalism. So, for the neoliberals, “fiefdoms” are bad and “reform” that gets rid of them and makes universities run like corporations is good. But what the feudal aspects of universities, such as tenure, for example, do is protect intellectual freedom from political interference.

The reaction indicates that the departure of Summers represents for decisive sections of the ruling elite, in the US and beyond, a significant setback. Clearly, major political issues are involved in the so-called “reforms” and “uncomfortable changes” that these forces deem to be necessary in American academia.

Summers was brought in as Harvard’s president in 2001 with a mandate from the university’s governing body to “shake up” the institution. While he had taught economics at the school in the 1980s, his subsequent career left little doubt as to what kind of changes were contemplated.

In 1991 he left for Washington to become the chief economist at the World Bank, where he oversaw the implementation of “structural adjustment” programs that meant the impoverishment of masses of working people in Latin America, Africa and elsewhere around the globe.

It was during this phase of his career that Summers drafted an infamous secret memo proposing a “free market in toxics.” He wrote that the World Bank should be encouraging the “migration of dirty industries to the LDCs [Less Developed Countries].”

“Health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages,” he declared. He continued by arguing that the low life expectancy in impoverished countries meant that people would not live long enough to contract diseases from pollution.

Ah, the logic of the Pathocrat!
The memo provoked worldwide outrage and calls for his resignation. Brazil’s secretary of the environment, Jose Lutzenberger, wrote to Summers that his proposal was “perfectly logical but totally insane” and reflected the “social ruthlessness and the arrogant ignorance of many conventional ‘economists’ concerning the nature of the world we live in... If the World Bank keeps you as vice president it will lose all credibility.”

That such an individual was tapped by President Bill Clinton for high office was testimony to the right-wing character of the Democratic administration. Clinton first attempted to install Summers as the head of his Council of Economic Advisors, but was forced to withdraw the nomination in the face of protests. Instead Summers was appointed to the Treasury Department, where he was mentored by former Wall Street financier Robert Rubin, whom he succeeded as Treasury Secretary in 1999.

As Harvard’s president, Summers deliberately staged a series of provocations that were clearly designed to shift the university’s political atmosphere to the right and to more closely align the institution with the political philosophy of the Republican administration of George W. Bush.

He staged a confrontation with African-American Studies professor Cornel West, browbeating him for spending too much time on political activism. West responded by leaving Harvard for a post at Princeton University.

By 2002 he had made a well-publicized denunciation of the campaign, in protest against Israel’s occupation of the Palestinian territories, for Harvard and other universities to sell off investments in companies with significant holdings in Israel. Smearing the students and faculty members who had supported the campaign, Summers declared that the demands for divestment were “anti-Semitic in their effect, if not their intent,” and linked the movement to “disturbing evidence of an upturn in anti-Semitism globally.”

He called for the reintroduction of the Reserve Officers’ Training Corps (ROTC) at Harvard, a program for training military officers that was closed down on the campus by the protests of the Vietnam War era. The proposal, which was not implemented, was widely seen as an attempt to curry favor with the Bush administration.

Indeed, the series of provocative acts on Summers’s part led the right-wing Weekly Standard, the house organ of the Republican neo-conservative right, to declare him its “favorite university president.”

The affinity of the most predatory sections of the American establishment for Summers has a definite social content. Summers is representative of an avaricious social layer that enriched itself off of the economic transformations—many of which he helped direct—that have led to a lowering of the living standards for the vast majority of the world’s population, including the American working class, over the past two decades. His tenure at Harvard exhibited the repugnant characteristics of the social type that has risen to the summit of the ruling elite and its institutions: shallowness, arrogance, egotism.

As university president he was paid an annual salary of $563,000. He was provided a chauffer-driven black stretch limousine. In one of his first appointments, he hired a former press secretary of British Prime Minister Tony Blair to serve as his own spokesman.

His interactions with the university’s faculty were frequently described as bullying and autocratic.

Resentment and opposition boiled over following a speech that Summers delivered at a January 2005 conference on workforce diversity, in which he attributed the under-representation of women in science and engineering to gender differences in “intrinsic aptitude,” describing “socialization and continuing discrimination” as “lesser factors.”

While he at first attempted to defend this ignorant contention, he was subsequently forced to acknowledge that his assertions were unsupported by research or scientific evidence.

…While Summers’s tenure at Harvard will end with the current school year—making it the shortest for any president in the university’s history—the political and social pressures that his policies expressed will certainly persist.

These pressures are directed at subordinating academic institutions and intellectual inquiry as a whole to government policies and the corporate economic interests which they defend. It is a process that inevitably involves the shattering of humanities programs that do not directly further these interests.

Under conditions of aggressive war abroad and increasing social and economic polarization at home, the drive to ideologically discipline academia becomes all the more acute. This is why the failure of Lawrence Summers at Harvard has provoked such cries of outrage from the establishment press.

Fascism cannot tolerate truly free inquiry, and universities are clearly in the fascists’ sights.

In case anyone has any doubts as to the fascist sympathies of multinational corporations, take a look at what the Ford Motor Company did in Argentina during the Dirty War of the 1970s. Given how U.S. corporations cooperated with the Nazis before and even during World War II, and given their thuggish behavior in the labor struggles of the 1930s, the burden of proof is on those who would say things are somehow different now. Since the U.S. economy will soon resemble Argentina’s, the following article is particularly chilling:

Ford Motor charged as accomplice in Argentina’s “dirty war”

By Bill Van Auken

25 February 2006

Ford Motor Company has been charged in an Argentine court with playing a direct part in the illegal detention, torture and “disappearances” of its own workers under the dictatorship that ruled the South American country from 1976 to 1983.

The US automaker is accused in both a criminal and a civil lawsuit filed this week of carrying out “management terrorism” under the military regime in order to suppress worker militancy at its Argentine production plants.

The lead plaintiff in the case, Pedro Norberto Troiani, was a union delegate at the automaker’s plant in General Pachecho, outside Buenos Aires, in 1976, when the Argentine military seized power in a US-backed coup. He is suing on behalf of more than two dozen of union committee members and other workers who were seized at gunpoint by security forces, many of them as they worked on Ford’s assembly lines, others at their homes.

“Some of us were kidnapped by the security forces inside the factory and transferred to a makeshift clandestine detention center set up at a sports area of the factory,” Troiani, now 64 years old, recalled. “There, they hooded us and beat us; we suffered mock executions and were tortured,” he said, adding that their captors shocked them with an electric probe.

The case, which was initiated three years ago, has gathered documentary evidence as well as testimony establishing that Ford management collaborated intimately with the dictatorship in identifying militants and providing direct assistance in their abduction and torture.

“After evaluating all of the material, we reached the conclusion that the company wanted to get rid of the delegates who were bothering it,” explained Tomas Ojea Urquiza, the lawyer in the case.

Witnesses testified that their kidnappers had received detailed files from the company’s personnel office and used company identification card photographs to identify them. In a number of cases, the workers were paraded through the plant surrounded by military personnel in a clear attempt to intimidate the rest of the workforce.

Some 5,000 workers were employed at the plant at the time. One of the principal vehicles that they produced was the Ford Falcon, which became infamous as the car of choice for the so-called ‘task forces” that were used in rounding up perceived opponents of the military, nearly 30,000 of whom “disappeared” under the dictatorship.

Ford, the suit charges, in addition to providing the space for the clandestine detention center, donated vehicles to the military for the express purpose of carrying out the roundup of its own employees.

Monday, February 20, 2006

Signs of the Economic Apocalypse, 2-20-06

From Signs of the Times, 2-20-06:

Gold closed at 555.20 dollars an ounce on Friday, up 0.2% from 554.20 for the week. The dollar closed at 0.8375 euros Friday, down 0.3% from 0.8401 at the end of the previous week. That puts the euro at 1.1940 dollars, compared to 1.1904 the Friday before. Gold in euros would be 464.99 euros an ounce, down 0.1% from 465.56 the week before. Oil closed at 59.88 dollars a barrel, down 3.3% from $61.84 for the week. Oil in euros would be 50.15 euros a barrel, down 3.6% from 51.95 the week before. The gold/oil ratio closed at 9.27 up 3.5% from 8.96 at the end of the previous week. In the U.S. stock market, the Dow closed at 11,115.32, up 1.8% from 10,919.05 the Friday before. The NASDAQ closed at 2,282.36, up 0.9% from 2,261.88 the week before. The yield on the ten-year U.S. Treasury note closed at 4.54 down four basis points from 4.58 last Friday.

There was much optimism about the U.S. economy from mainstream analysts last week, buoyed by rising stocks and falling oil prices (down 3.3%) and, for a while, falling gold prices (gold actually ended up a bit). The hope is that fresh quarterly earnings reports from major retailers this week will keep the U.S. stock market rising:

Stocks could see 3rd week of gains

By Caroline Valetkevitch
Stock bulls will push for a third week of gains after last week's slide in oil to below $60 a barrel, but investors will be on the alert for signs of inflation and higher interest rates.

The Presidents' Day holiday-shortened week will include a rush of earnings from retailers, including Wal-Mart Stores Inc., which will grab investors' attention. After this coming Tuesday's closing bell, China's leading Web search company,, also will report quarterly results. The reports will put the finishing touches on the fourth-quarter corporate profit picture, which analysts said has improved since January when some high-profile companies disappointed Wall Street.

Minutes on Tuesday from the Federal Reserve's January policy-setting meeting and consumer price data on Wednesday will be picked apart for further clues about the interest-rate outlook. Investors are worried signs of rising inflation will force the Fed to keep extending its long campaign of raising interest rates. The Fed has been tightening credit since June 2004 in an attempt to rein in inflation.

New Fed Chairman Ben Bernanke, in congressional testimony last week, suggested that more rate increases may be needed to contain inflation. But analysts said his reassuring comments on the economy and the absence of any big surprises in his remarks helped push stocks higher.

"His testimony not only played well to Congress, but to Wall Street. So we should continue to get a little honeymoon spillover from that," said Fred Dickson, senior vice president and market strategist at D.A. Davidson & Co. in Montana.

In another positive sign for higher stock prices, crude oil last week fell below $60 for the first time this year. U.S. crude for March delivery was still below that level on Friday; it settled at $59.88 a barrel, up $1.42 on the New York Mercantile Exchange.

"Investors are going to go into the week feeling a little bit better about the shape of consumer spending and feeling much better about the emergence of Bernanke as he heads the Fed," Dickson said.

By Friday's closing bell, all three major U.S. stock indexes had finished the week with gains. The blue-chip Dow Jones industrial average rose 1.8 percent, while the broad S&P 500 advanced 1.6 percent, and the Nasdaq Composite Index gained 0.9 percent.

Oil's Drop Below $60

Forecasts of higher U.S. crude and gasoline inventories triggered the fall in oil to below $60 a barrel last Tuesday. On Wednesday, when a larger-than-expected rise in crude stockpiles was reported by the government, oil fell below $58 for the first time since late December.

Lower energy prices tend to boost stocks because they mean reduced costs for consumers and corporations.

But analysts said continued tensions between the Western powers and Iran over Iran's nuclear ambitions, as well as fighting in Nigeria, the eighth-largest crude exporter, between government forces and militants, could keep oil prices higher.

On Saturday, three American oil workers were abducted in Nigeria and the United States has called for their unconditional release. Militants stormed an offshore barge operated by U.S. oil services company Willbros Group Inc. in predawn attacks and abducted nine workers in all.

Crude hit an all-time high of $70.85 in late August after Hurricane Katrina struck the U.S. Gulf Coast.

"We don't think $60 is sustainable. We just had the warmest January in 100 years, but we're expecting colder temperatures in New York this weekend. Investors are being very short-sighted," said Philip Orlando, senior portfolio manager at Federated Investors.

"We're sitting on a geopolitical powder keg with Iran that could blow at any moment. It would not surprise us to see crude back in the $70-plus neighborhood by the end of the quarter."

Fed Minutes, Cpi And Durable Goods

The financial markets will be closed on Monday for the Presidents Day holiday.
But Wall Street will reopen on Tuesday anxiously awaiting the release of minutes from the Federal Open Market Committee meeting on January 31 -- Alan Greenspan's last.

In the week ahead, the FOMC news will be followed on Wednesday by the consumer price index and on Friday by durable goods orders. Both reports, for January's data, will shed more light on the U.S. economy's health.

"The market is hypersensitive to any clues that they can get as to what the Fed will do over the course of the tightening cycle," Orlando said.

On Friday, a report from the Labor Department showing the core Producer Price Index, excluding volatile food and energy prices, climbed 0.4 percent in January -- twice market expectations -- was a negative influence for stocks.

Economists polled by Reuters expect the overall CPI for January to rise 0.5 percent, after December's decline of 0.1 percent. They see core CPI, excluding volatile food and energy prices, up 0.2 percent in January, following December's gain of just 0.1 percent.

Orders for durable goods, which are manufactured goods like washing machines, computers and cars designed to last three years or more, are expected to drop 1.0 percent in January, according to the Reuters poll. In December, durable goods orders rose 1.8 percent. Excluding transportation, January durable goods orders are forecast to rise 0.5 percent, compared with December's gain of 1.7 percent.

From Wal-Mart To Nordstrom

Earnings will be on the watch list, too.

In the week ahead, investors will get more insight into consumer spending when earnings come in from retailers ranging from discounters to purveyors of luxury goods.

Quarterly earnings are due on Tuesday from Wal-Mart, the discount behemoth and the world's largest retailer, as well as from Federated Department Stores Inc., the parent of Macy's and Bloomingdale's, and Home Depot Inc., the world's largest home improvement retailer.

On Thursday, quarterly results are expected from Gap Inc., the largest specialty apparel chain; Nordstrom Inc., an upscale department store chain known for service and designer clothes; Kohl's Corp., a moderately priced department store chain, and Limited Brands Inc., owner of Victoria's Secret and Bath & Bodyworks stores.

They follow higher profits reported last week by J.C. Penney Co. Inc. and Target Corp., which were boosted by strong holiday season sales. The fourth quarter generates the biggest portion of retailers' annual profit.

"Good news on retailers should be a sigh of relief," Dickson said

Yet, this optimism is coming at a time of record triple deficits, the hollowing out of productive capacity and the end of the asset bubble. And by productive capacity, I don’t mean only industrial production. The offshoring of jobs has spread to core white collar jobs as well.

The Pace of White-Collar Outsourcing

How rapidly will outsourcing of U.S. white collar jobs proceed? The consensus bet is 300,000 a year, but it all depends on how rapidly the English-literate populations of emerging markets expand:

India's Outsourcing Industry Is Facing a Labor Shortage - New York Times

By SARITHA RAI MUMBAI, India, Feb. 16 — India’s leadership in global outsourcing may be in jeopardy unless it increases its supply of skilled workers.... Experts... said Thursday that an incipient skills shortage was the biggest threat to the industry’s blazing growth.... Pramod Bhasin, chief executive of Genpact, a back-office outsourcing company once owned by General Electric, set the tone when he said, “If the talent in India is scarce, we will go wherever the labor pool is available.”

Lower-cost centers like Eastern Europe and China could become serious rivals for outsourcing business from Western multinational companies.

Until now, corporations mainly looked to India to do work from customer support to writing software code to designing chips. But the supply of India’s famed “skilled, low-cost, English-speaking” work force may not quite match the sizzling demand.

India’s $23.4 billion outsourcing industry accounts for most of the country’s software and services industry, which makes up nearly 5 percent of gross domestic product. The industry employs 1.2 million workers, has sparked a consumer revolution in India, and is accelerating at more than 30 percent a year.

On the sidelines of the Nasscom meeting, B. Ramalinga Raju, chairman of India’s fourth- largest outsourcing company, Satyam Computer Services, said that India produced three million college graduates every year, including nearly 400,000 engineers. “But most of these are uncut diamonds that have to go through polishing factories, as the trade requires only polished stones,” Mr. Raju said.

In a country of 1.1 billion people, raw talent is plentiful, he said, but not all of it is market-ready.... The supply shortfall is even more acute in mid-level jobs, like software engineers. Salaries in this segment are rising an average 20 percent a year, and in some segments even 50 percent annually, compared with 5 percent annual raises for software engineers in the United States.

“The irony is that while the outsourcing industry partially fueled an economic boom amongst the middle classes, the growth has now spilled onto other areas offering ambitious young college graduates an array of job options outside of the outsourcing industry,” said M. S. Krishnan , professor of business information technology at the Stephen M. Ross School of Business at the University of Michigan....

Outsourcing companies are taking matters into their own hands to meet mid-level skills shortages by setting up vast, dedicated training centers. Tata Consultancy Services... has a large training center in Trivandrum... its nearest rival, Infosys Technologies, has a training campus in Mysore.... “At any given point in time, there are 4,000 people in the pipeline at Infosys’s training center,” Mr. Krishnan said.

Many companies believe the skills deficit will only grow. “We are in the people business, and the situation will become more challenging in five years,” said Amitabh Ray, director of global delivery, IBM Global Services India....

The situation is much the same in the back-office and call center jobs: of 100 college graduates applying, only 8 are immediately employable. Another 20 require considerable training to be hired, according to Nasscom data...

The fact that the demand for Indian engineers is so strong that even a country as populous as India cannot keep up with it says a lot for the rapid pace of the gutting of higher-paid western office and professional workers. The type of shift that used to take a generation, enough time to be trained, to work for a career then retire, now takes place in less than a decade. Even India is fearing that their boom will end and their new jobs will go to lower-paid workers in China.

One reason this is important is that standard economics says that if the dollar falls in value, the trade deficit can be turned around. Yet that presupposes productive capacity in the United States that can produce goods for export. But if that capacity has been completely gutted, then there can be no rebalancing. The following is from Stephen Roach, Chief Economist of Morgan Stanley:

Global: Trade Deficits and Asset Bubbles

Stephen Roach (New York)
Most believe that the dollar holds the key to global rebalancing. Academics are especially adamant on this point, with many maintaining that it will take at least a 20-30% drop in the greenback to “fix” the US external imbalance. Yet that remedy doesn’t square with the raison d’être of America’s trade deficit. The problem is concentrated on the import side of the equation, driven largely by the excesses of asset-dependent consumption. That means higher real interest rates are likely to be far more important than a weaker dollar in resolving America’s external imbalances.

The latest US trade report says it all. In December 2005, imports of foreign goods and services ($177.2 billion) were fully 59% larger than exports ($111.5 billion). Moreover, it turns out that a -$70.6 billion deficit on goods was cushioned by a $4.9 billion surplus on services. Within the goods component of the December trade gap, the disparity between imports ($149.6 billion) and exports ($79.0 billion) was even larger. This underscores the daunting arithmetic of a turnaround to America’s external imbalance. With goods imports fully 89% larger than goods exports, even if exports grow at twice the rate of imports, the deficit on goods will remain essentially unchanged. In other words, just from an arithmetic point of view, it will be exceedingly difficult for the United States to export its way out of its trade deficit.

The export solution also suffers from an even more glaring deficiency -- the hollowing of Smokestack America. With manufacturing capacity and jobs moving steadily offshore over the past 20-plus years, the US simply lacks the wherewithal to spark an export-led turnaround in foreign trade. In all too many cases, the loss of US manufacturing prowess has been a permanent, or structural, erosion. The list of “lost industries” -- from steel and autos to textiles and even computers -- speaks of a competitive dynamic that makes it all but impossible for the US to recapture its once leading market share as an industrial powerhouse.
As I noted recently, that leaves the US on the outside looking in when one of its formerly large trading partners like Japan springs back to life (see my 10 February dispatch, “Rebalancing Made in Japan?”).

I am certain there is a level of the dollar that might reverse this process. But I think it is well in excess of the 20-30% decline that many believe is the answer to America’s massive trade imbalance. Given the structural tilt to the global playing field, my guess is that in order to make a meaningful difference to America’s trade dynamics on both the export and import sides of the equation, the US currency would have to be sustained at an exchange rate on the order of 30-50% below present levels on a broad trade-weighted basis. And the key word here is “sustained.” A trading blip will not give US exporters the confidence -- or the economics -- they need to go back into business. Needless to say, the odds are quite low that either the US or other global authorities would accept such a dollar-collapse scenario as a palliative for America’s trade deficit. Largely for those reasons, I think it is safe to conclude that a weaker dollar is not the answer for the US external imbalance.

And that takes us to the essence of the problem -- America’s massive import overhang. Import fluctuations in any economy are, of course, a derivative of the cyclical ups and downs of domestic demand. But there is also an important secular overlay that is traceable to the same structural pressures noted above. On both counts, the United States qualifies as “importer extraordinaire.” The shift in the global competitive playing field leaves an increasingly hollow US economy with little choice but to rely more and more on foreign production to source internal demand. And the extraordinary burst of domestic consumer demand in recent years -- with personal consumption expenditures holding at a record 71% of GDP since early 2002 -- pushes the internal-demand underpinnings of US imports into an entirely different realm. Little wonder the US continues to lead the global import sweepstakes, with some $1.7 trillion in imports in 2005 --well in excess of dollar-based import bills of the Euro zone (US$1.5 trillion), UK ($0.5 trillion), Japan ($0.5 trillion), and China ($0.7 trillion).

In terms of fixing America’s external imbalance, for reasons also noted above, I am not optimistic that the answer can be found in the structural, or competitive, angle. Instead, my sense is that the answer lies mainly in the cyclical piece of the equation -- specifically, in the asset-driven excesses of US consumption. With consumption growth running well ahead of labor income growth over the entire four years of the current economic expansion, there can be no mistaking the importance of property-driven wealth effects in closing the gap. Estimates conducted by none other than former Fed Chairman Alan Greenspan put the equity extraction from residential property in excess of $600 billion in 2005 alone -- enough, by his reckoning, to have accounted for all of the decline in household saving since 1995 (see the September 2005 Federal Reserve working paper by Alan Greenspan and James Kennedy, “Estimates of Home Mortgage Originations, Repayments, and Debt on One-to-Four-Family Residences”). In short, look no further than the asset-dependent consumption binge as a major cyclical culprit behind America’s import overhang.

This takes us to the most controversial piece of the debate -- the so-called real interest conundrum. In my view, led by the world’s major central banks at the short end of the curve, and augmented by the conundrum at the longer end of the curve, the super-liquidity cycle has played the decisive role in taking asset markets to excess over the past decade. First with equities, then bonds, and now property, American consumers, in particular, have come to take excessive rates of asset appreciation as an entitlement. As I see it, the Federal Reserve played a critical role in fostering this outcome -- first by condoning the equity bubble in the late 1990s and then by setting up the now infamous serial-bubble syndrome by slashing its nominal policy rate to the rock-bottom 1% level once the equity bubble burst. The overall level of real interest rates was artificially depressed throughout this period -- sustaining the rise of asset-dependent consumption and a concomitant overhang of excess imports.

The Fed, of course, has attempted to normalize real interest rates over the past 18 months, but its 350 basis points of tightening at the short end of the curve has had next to no impact at the long end. Policy-related buying of dollar-denominated assets by Asian central banks has been an important, but by no means exclusive explanation of this conundrum. So has the globalization of disinflation. But for me, the bottom line is clear: If the US wants to come to grips with this imbalance, or if the world wants to address this increasingly worrisome source of instability, the answer can probably be found more in the real interest rate than in the dollar.

What Roach leaves out here is what the consequences of raising real interest rates to a sufficient level in an environment of consumer and government overindebtedness: another Great Depression.
Whatever the reason, there can be little doubt that the excesses of asset-dependent consumption lie at the heart of America’s import problem -- and therefore at the heart of the world’s biggest imbalance, the US trade deficit. And, of course, the saving problem is the mirror image of this statement. Lacking in domestic saving -- America’s net national saving rate fell into negative territory for the first time in modern history in late 2005 -- the US has turned heavily to foreign saving in order to fill the void. And it has had to run massive current account and trade deficits to attract the foreign capital. Yet there is no free lunch. The imported saving comes at a real cost -- overly-indebted and asset-stretched American consumers, on the one hand, and a collection of US creditors that are under-consuming at home and massively overweight dollars in their rapidly growing stashes of official foreign exchange reserves. I don’t buy the idea that these tensions are manifestations of a glorious new era for a dollar-centric world economy. I worry, instead, that as the liquidity cycle turns, asset-driven global imbalances are reaching the breaking point.

Yet the optimists have taken to questioning the math behind statistics that they don’t want to acknowledge. Here’s Brad Setser:

Is national income accounting biased against the US?

Feb 05 2006

In a fake news classic, Rob Corddry and Jon Stewart of the Daily Show once pondered how to report "the facts" when "the facts themselves were biased."

Michael Mandel seems to think the facts are biased against the US economy.

Not really the facts. National income accounting.

According to Mandel, national income accounting is biased against the US. It was designed for countries that invest heavily in factories that make things. The US in the 1920s and 1930s and above all the 1940s. Or China today.

National income accounting doesn't work for the current knowledge-driven American economy, driven by platform companies that have outsourced all the dirty work of manufacturing. Rather than obsess about all the weaknesses that US shows in the conventional national income accounts - low savings, not-so-wonderful investment, big current account deficits - we should embrace a set of new metrics designed for the Ipod (designed in California, assembled in Asia) economy.

Time and other worry warts have it all wrong, in part because it looked at the wrong measures. National income accounting understates both US investment in "knowledge" and brand equity and US "knowledge" exports.

To be fair to Michael Mandel, I am exaggerating his argument a bit for effect, and ignoring the caveats in his Business Week cover story. But he clearly thinks the "doom and gloom caucus, trade deficit division" doesn't get the new knowledge economy. Is he right?

Mandel's core argment is that the national accounts understate US investment in the knowledge economy and other intangible assets, understate savings by counting investment as consumption and fails to capture US knowledge exports.

I do not have an informed opinion on the question of whether the national accounts definition of investment is dated, and too narrow. Should some of McDonald's advertising budget be considered a long-term investment in McDonald's brand - an investment with a longer half-life than a new PC - rather than just an attempt to sell more burgers today. That would drive up US investment rates. And US savings rates, as both business investment and business savings would rise.

Maybe the US invests (and saves) more than the national income accounts show. I don't think, though, that mismeasured advertising investment changes the bottom line: the US now saves a lot less than it used to. The US savings rate may not be negative, but it still fall short of what the US needs to finance all the investment the US does.

But that's old thinking according to Mandel. The Gloom and Doom caucus - trade deficit division (I suspect most would consider me a member) misses all the fantastic profits that US firms are making exporting their know-how. It mismeasures the Ipod economy. A country that is the home of the company that owns Eurodisney, Tokyo Disney and Hong Kong Disney and profits from all the Brits lining up to get into Orlando's Disney World must be doing well ...

One caveat. Eurodisney is not my example. It belongs to the Harvard economists who conjured up dark matter. I suspect it isn't the best of all examples of US prowess abroad ...

According to Mandel, the doom and gloom caucus, trade deficit division, doesn't get the Ipod economy. It also ignores all the gains the US gets from importing human capital. Immigrants educated abroad generate large big windfall gains when they come to the US. India pays for the world class education at Indian Institutes of Technology (IITs), US firms (and therefore US economy) reap the benefits.

Perhaps the trickiest and most controversial aspect of the shadow economy is how it alters our assessment of international trade. The same intangible investments not counted in GDP, such as business know-how and brand equity, are for the most part left out of foreign trade stats, too. Also largely ignored is the mass influx of trained workers into the U.S. They represent an immense contribution of human capital to the economy that the U.S. gets free of charge, which can substantially balance out the trade deficit of goods and services. "I don't know that the trade deficit really tells you where you are in the global economy," says Gary L. Ellis, chief financial officer of Medtronic Inc., a world leader in medical devices such as implantable defibrillators. "We're exporting a lot of knowledge."

I want to touch (hopefully briefly) on both parts of Mandel's arguments.

Should a country that is importing human capital also be importing savings from abroad, as Mandel argues?

Perhaps. Consider Australia in the 1800s. It imported people and capital from the British Isles. But those resources were invested in the export sector, producing wool, wheat and iron to sell back to Britain.

Taking on external debt to build up an export sector (staffed with immigrant labor) is one thing. But that is not what the US seems to be doing. The debt seems to be financing the housing sector. And lots of immigrants seem to be employed in the US service sector. Visit a restaurant kitchen in New York. Or look for domestic help ...

Still, I can see why the US might be importing capital from other advanced economies whose labor forces are forecast to fall. Though it isn't immediately obvious why Japan is financing the US rater than say emerging Asia. Or why the emerging world and its rapidly expanding urban labor force is financing the US.

…But maybe my concern is misplaced - the US isn't importing savings to build houses and a domestic services sector, but successful, global platform companies that stride the world, sucking up profits from their activities abroad that "old" metrics like the current account don't capture. That too is part of Mandel's argument.

US knowledge exports that make Intel's plants in Israel, Costa Rica, Ireland, Singapore and no doubt many other places hum. Pepsi exports knowledge to Ireland, where it now produces Pepsi concentrate for sale back to the US. OK, not that one. It is too obviously tax arbitrage. Coke does it too.

I don't buy the broader argument, at least not in full.

Mandel didn't mention the Japanese knowledge Toyota exports to its US plants. Or the German knowledge that Mercedes and BMW export to their US (and Eastern European) plants. Or the French knowledge exported in the perfume, fashion and wine businesses ...

The flow of intangibles in the global economy is not one way.

Nor do US firms capture all of the benefits of their "intangible" knowledge exports. A US firm sets up a plant in China, and teaches its employees the secrets of building cars or computer chips. And then a Chinese firm poaches its US firms' employees. This is no doubt good for economic development, as it helps increase the productivity of Chinese firms. But it makes it harder for the US to continue to reap monopoly profits on its knowledge. Or its brands.

I also don't think the current account is quite as outdated a concept as Mandel suggests.

The current account deficit is not just the trade deficit. It also includes US overseas "income" - as well as the payments the US makes on its external debt.

There are obviously enormous issues about the correct measurement of the overseas profits of US firms. But the overseas income of US firms is a big part of the US current account. Indeed, it is the income that the US gets from its firms abroad that has keep the US from making (net) interest and dividend payments on the world. Dark matter and all.

Forcing the numbers to reflect your fantasy (creating your reality) is what Enron did. And Ken Lay is still unrepentant, blaming the crash of Enron on a ‘run on the bank’. The parallels are disturbing:

Greed, Debt, Incompetence
The United States of Enron
February 15, 2006

Jeff Skilling had a vision for Enron. In February of 2001, he told the company’s employees that Enron, would, within five years, “be the leading company in the world.”

World dominance was the main message that Skilling and Enron’s chairman, Ken Lay, imparted to their employees in the video of that 2001 meeting, which was re-played on Wednesday morning in courtroom 9B of the federal courthouse in Houston. Forget talk that Enron was short on cash, or that the mighty juggernaut was overextended and hobbled by competitors. Ignore the doubters, like the journalists at Fortune magazine, who had, a few days earlier, published a story saying that Enron’s business model was based on a “black box.” “The company is doing great,” Skilling told the Enron employees. “We’ve got a vision for the next century.”

It was during the playing of that video that it became clear: the Bush Administration has become Enron. World dominance.

The old rules don’t apply. Machiavellian vengeance toward naysayers. Corrupt accounting. And holding all of those ingredients together: a heaping helping of hubris, a hubris that leaves no room for doubt or uncertainty.

That George W. Bush has morphed into his old pal, “Kenny Boy” Lay shouldn’t be surprising. Enron was, until the 2004 campaign, Bush’s biggest career patron. The intrigue lies in the myriad parallels that can be drawn between the Bush regime and the Enron regime.

On a personality level, you have the similarities between Bush and Lay: both are the detached executives who couldn’t know -- or didn’t bother to pay attention to -- what was happening in their operations. Lay, his defense lawyers insist, had no idea that Enron’s chief financial officer, Andy Fastow, was cooking the books. Lay was in charge of the big picture. He was the public face of Enron, Mr. Outside. Never mind that Lay was a PhD. in economics who couldn’t read a cash flow statement. As for Bush, neither he nor his defense secretary, Donald Rumsfeld, can be held accountable for the torture of Iraqi prisoners that occurred at Abu Ghraib. That was done by rogue soldiers without approval from their commanders.

Both Lay and Bush have backed their subordinates, no matter how grievous their wrongdoing. In October of 2001, after Fastow’s double-dealing was exposed, Lay insisted that he and the Enron board “have the highest faith and confidence in Andy and think he's doing an outstanding job as CFO.” In May of 2004, right after the Abu Ghraib scandal broke, Bush insisted that Rumsfeld was “doing a superb job” and that America owes him “a debt of gratitude.”

The old rules no longer apply. For Enron, it was the old rules of accounting. As Skilling once told Enron’s chief accounting officer, Rick Causey, “Cash doesn’t matter. All that matters is earnings.” Enron had blown up the old methods. It was operating in a new paradigm, and those who didn’t understand that, well, as Skilling often put it, they just “didn’t get it.”

For the Bush Administration the old rules include anachronisms like the Geneva Convention. Bush insist that he’s fighting a new, stateless, enemy, and thus the “global war on terror” cannot be constrained by old treaties, old rules, or the countries that Rumsfeld calls “old Europe.” That means that “illegal enemy combatants” can be held at Guantanamo Bay, or in secret prisons in Syria, or elsewhere, for as long as Bush deems necessary.

Cheney, plays the role of Skilling. Like the monomaniacal Enron executive who never doubted that his vision for a business that would dominate global markets in everything from natural gas and electricity to paper and steel, Cheney is the true believer in America’s global dominance, the one who constantly pushes against old notions that might constrain America’s power. If that means torturing prisoners, no problem. As Cheney said shortly after the 9-11 attacks, the U.S. government must, “work through, sort of, the dark side.” And that means that it is “vital for us to use any means at our disposal, basically, to achieve our objective.”

Opponents of the regime must be dealt with quickly and harshly. For Enron, that meant that stock analysts like Merrill Lynch’s John Olson, who never parroted the company’s rosy predictions, had to be silenced. Merrill fired Olson after Enron made its displeasure known. For the Bush regime, it meant smearing former ambassador Joe Wilson and his wife, Valerie Plame. Wilson’s offense: publicly questioning the story that Iraq was trying to buy radioactive materials from Niger.

Opponents who don’t follow the script are “assholes.” That was made clear in September 2000, when Bush, unaware that his microphone was on, pointed to New York Times reporter Adam Clymer and told Cheney, who was standing nearby, that Clymer was a “major league asshole.” Cheney readily agreed.

Skilling used the same term a few months later during an April 2001 conference call with analysts. When Boston hedge fund manager Richard Grubman pressed Skilling on a financial question, Skilling cut him off, and let all of the analysts and his Enron pals know that Grubman, too, was an “asshole.”

Finally, the defense strategies adopted by Bush and his cronies at Enron are exactly the same. That is: everything we did was legal. From the beginning of their trial, the attorneys for Lay and Skilling, Mike Ramsey and Dan Petrocelli, have stuck to that theme. During his opening argument, Petrocelli declared that Enron was “no house of cards…It was a wonderful company, a shining star.” Ramsey told jurors that Enron didn’t fail because of the billions of dollars in accounting shenanigans, it failed because of a “market panic.”

That same tactic has been used consistently by the Bush Administration to defend the CIA’s rendition of terror and the indefinite imprisonment of terrorism suspects – without charges -- in places like Guantánamo Bay. Last week, about the same time that the first prosecution witness began testifying on the stand in Houston, Attorney General Alberto Gonzales was testifying before the Senate Judiciary Committee, telling the senators that the secret wiretaps that Bush has authorized are legal. And why are they legal? Well, because Gonzales and the president say it’s legal.

Unlike the execrable Gonzales who has yet to utter a credible word in defense of torture or wiretaps, the Enron attorneys are at least partially correct in their diagnosis of the failure of Enron. It’s true that the collapse of Enron was hastened by a “market panic.” That panic was a direct result of Lay’s incompetence. Lay simply did not know how much money Enron had borrowed to fund its global ambitions. Nor did he grasp just how deeply distrusted Enron was by its peer companies.

Incompetence. Huge debts. Lack of trust. Just another set of parallels for Kenny Boy and his pal, W. Robert Bryce is the author of Pipe Dreams: Greed, Ego, and the Death of Enron

No matter whom they want to blame it on, the fact is Enron collapsed. Will the U.S. empire and imperial economy collapse as well? Jared Diamond, best known as the author of Guns, Germs and Steel, published another book last year, called Collapse. Diamond defines ‘collapse’ as “a drastic decrease in human population size and/or political/economic/social complexity, over a considerable area, for an extended time” (Jared Diamond, Collapse: How Societies Choose to Fail or Succeed, New York: Viking Press, 2005, p. 3).

In Collapse, he argues that societies collapse when bad decisions are made by societies in the face of threats to the basic resources on which the societies are dependent. These bad decisions result from: 1. Failure to Anticipate, 2. Failure to Perceive, 3. Rational Bad Behavior, and 4. Disastrous Values. Rational bad behavior is interesting because it has to do with the character of the society’s leaders. After discussing conflicts of interest in societies, Diamond writes:
A further conflict of interest involving rational behavior arises when the interests of the decision-making elite in power clash with the interests of the rest of society. Especially if the elite can insulate themselves from the consequences of their actions, they are likely to do things that profit themselves, regardless of whether those actions hurt everybody else.

…Throughout recorded history, actions or inactions by self-absorbed kings, chiefs, and politicians have been a regular cause of societal collapses…(p.430-1)

Sound familiar?

According to Diamond, the challenges faced by today’s self-absorbed leaders are these twelve environmental problems:

1. At an accelerating rate, we are destroying natural habitats or else converting them to human-made habitats, such as cities and villages, farmlands and pastures, roads, and golf-courses. The natural habitats whose losses have provoked the most discussion are forests, wetlands, coral reefs, and the ocean bottom. (p. 487)

2. Wild foods, especially fish and to a lesser extent shellfish, contribute a large fraction of the protein consumed by humans. In effect, this is protein that we obtain for free (other than the cost of catching and transporting the fish), and that reduces our needs for animal protein that we have to grow ourselves in the form of domestic livestock. About two billion people, most of them poor, depend on the oceans for protein. If wild fish stocks were managed appropriately, the stock levels could be maintained, and they could be harvested perpetually. Unfortunately, the problem known as the tragedy of the commons has regularly undone efforts to manage fisheries sustainably, and the great majority of valuable fisheries already either have collapsed or are in steep decline… (p. 488)

3. A significant fraction of wild species, populations, and genetic diversity has already been lost, and at present rates a large fraction of what remains will be lost within the next half-century… (p. 488)

4. Soils of farmlands used for growing crops are being carried away by water and wind erosion at rates between 10 and 40 times the rates of soil formation, and between 500 and 10,000 times soil erosion rates on forested land… (p. 489)

The next three problems involve ceilings—on energy, freshwater, and photosynthetic capacity. In each case the ceiling is not hard and fixed but soft: we can obtain more of the needed resource, but at increasing costs.

5. The world’s major energy sources, especially for industrial societies, are fossil fuels: oil, natural gas, and coal. While there has been much discussion about how many big oil and gas fields remain to be discovered, and while coal reserves are believed to be large, the prevalent view is that known and likely reserves of readily accesible oil and natural gas will last for a few more decades. This view should not be misinterpreted to mean that all of the oil and natural gas within the Earth will have been used up by then. Instead, further reserves will be deeper underground, dirtier, increasingly expensive to extract or process, or will involve higher environmental costs. (p. 490)

6. Most of the world’s freshwater in rivers and lakes is already being utilized for irrigation, domestic and industrial water, and in situ uses such as boat transportation corridors, fisheries, and recreation… Throughout the world, freshwater underground aquifers are being depleted at rates faster than they are being naturally replenished. (p. 490)

7. It might at first seem that the supply of sunlight is infinite, so one might reason that the Earth’s capacity to grow serious crops and wild plants is also infinite. Within the last 20 years, it has been appreciated that that is not the case, and that’s not only because plants grow poorlyin the world’s Artic regions and deserts unless one goes to the expense of supplying heat or water. More generally, the amount of solar energy fixed per acre by plant photosynthesis, hence plant growth per acre, depends on temperature and rainfall… The first calculation of this photosynthetic ceiling, carried out in 1986, estimated that humans then already used (e.g., for crops, tree plantations, and golf courses) or diverted or wasted (e.g., light falling on concrete roads and buildings) about half of the Earth’s photosynthetic capacity. Given the rate of increase in human population, and especially of population impact…, since 1986, we are projected to be utilizing most of the world’s terrestrial photosynthetic capacity by the middle of this century. That is, most energy fixed from sunlight will be used for human purposes, and little will be left over to support the growth of natural plant communities, such as natural forests. (pp. 490-1)

The next three problems involve harmful things that we generate or move around: toxic chemicals, alien species, and atmospheric gases.

8. The chemical industry and many other industries manufacture or release into the air, soil, oceans, lakes and rivers many toxic chemicals, some of them “unnatural” and synthesized only by humans, others present naturally in tiny concentrations (e.g., mercury) or else synthesized by living things but synthesized and released by humans in quantities much larger than natural ones (e.g, hormones)… (p. 491)

9. The term “alien species” refers to species that we transfer, intentionally or inadvertently, from a place where they are native to another place where they are not native…. (p. 492)

10. Human activities produce gases that escape into the atmosphere, where they either damage the protective ozone layer… or else act as greenhouse gases that absorb sunlight and thereby lead to global warming. (p. 493)

The remaining two problems involve the increase in human population:

11. The world’s human population is growing. More people require more food, space, water, energy and other resources… (p. 494)

12. What really counts is not the number of people alone, but their impact on the environment…Our numbers pose problems insofar as we consume resources and generate wastes. The per-capita impact… varies greatly around the world, being highest in the First World and lowest in the Third World. On the average, each citizen of the U.S., western Europe, and Japan consumes 32 times more resources such as fossil fuels, and puts out 32 times more wastes, than do inhabitants of the Third World. But low-impact people are becoming high-impact people for two reasons: rises in living standards in Third World countries whose inhabitants see and covet First World lifestyles; and immigration, both legal and illegal, of individual Third World inhabitants to the First World. (pp. 494-5)

Now, let’s say you are a ruling psychopath, part of the pathocracy, which means you have no conscience whatsoever. But you are smart and you can see these facts. What to you would be the easiest solution? Reduce population! Do it purposefully so that you can direct the “reductions” to be in your best interests. Why would the pathocracy care to rationally steward resources to provide basics for the most amount of people when wars, genocides, and ethnic-specific weapons can not only solve the population problem but also put (or so they think) themselves on top of the world of survivors?

Monday, February 13, 2006

Signs of the Economic Apocalypse, 2-13-06

From Signs of the Times, 2-13-06:

Gold closed at 554.20 dollars an ounce on Friday, down 3.2% from $571.90 the week before. The dollar closed at 0.8401 euros, up 1.0% from 0.8317 at the end of the previous week. The euro, then, closed at 1.1904 dollars compared to 1.2024 the Friday before. Gold in euros would be 465.56 euros an ounce down 2.2% from 475.63 the week before. Oil closed at 61.84 dollars an barrel, down 5.7% from $65.37 at the close of the previous Friday. Oil in euros would be 51.95 euros a barrel, down 4.7% from 54.37 for the week. The gold/oil ratio closed at 8.96, up 2.4% from 8.75 at the end of the previous week. In the U.S. stock market, the Dow Jones Industrial Average closed at 10,919.05, up 1.2% from 10,793.62 the week before. The NASDAQ closed at 2,261.88, virtually unchanged from 2,262.58 at the end of the previous week. The yield on the ten-year U.S. Treasury note closed at 4.58%, up five basis points from 4.53 the week before.

With gold down substantially, oil down even more and the dollar up a bit against the euro, it looks like a good week for the imperial economy.

Ben Bernancke takes over as U.S. Federal Reserve Chairman this week. He is said to be a proponent of using controlled inflation to avoid deflationary depressions. This has earned him the scorn of the hard money crowd (gold standard supporters). He once said that he would drop money out of helicopters to keep the financial system from a crash, hence his nickname, Helicopter Ben. That was the actual policy of Greenspan and it worked. This type of policy works until it doesn’t work. Greenspan’s critics maintain that the more you postpone a market correction the worse the correction ultimately becomes.
Inflation does not avert deflation

by Chris Laird
February 7, 2006

Christopher Laird is editor of the PrudentSquirrel newsletter.

I keep reading inflation and deflation analyses that say:

“The Fed can print until there is no tomorrow, so deflation will never happen..”

Ok. So the Fed prints until the dollar’s value drops to zero. Who says that means there will still be demand/transacting from the consumer?

If the value of a currency drops to zero, then it hyperinflates but that does nothing for real economic demand. The US consumer is 70% of the US economy, and if he is hurt financially he cannot buy anything. Hyper inflation hurts the consumer drastically and real economic demand collapses. Basically here is the issue:

When the economy is wounded badly, the ability of consumers to provide real economic demand disappears. It does not matter if the cause/effect is deflationary or hyperinflationary, in either case real economic demand collapses.

The idea that hyper inflation will stimulate real economic demand enough to outrun a drop in real economic demand is a false concept. Sure, before a currency loses all its value, inflating that can create some modicum of real economic demand because people are willing to borrow against the future and buy physical and financial things.(this process is involved and has many facets).

But once the rate of hyperinflation reaches a certain level, the real drop in the purchasing power of that money falls behind the acceptable transacting curve, and real purchasing power of all the currency out there drops no matter how fast the monetary authorities try to keep ahead. The currency at this point is mortally wounded. At this juncture, the economy collapses from a lack of real purchasing power and demand, and a vicious cycle of falling real wages and real demand leads to an economic collapse (demand contraction). That leads to either a hyperinflationary depression or a deflationary depression. I have written several times that the ultimate outcome of hyperinflation and deflation is the same, an economic depression.

Take a look at the definition of depression:

Economics. A period of drastic decline in a national or international economy, characterized by decreasing business activity, falling prices, and unemployment.

Take a note of the definition. It means collapse of demand and falling prices.
There are two routs to a depression, hyperinflationary or deflationary.

I can provide two good examples, no three, to show this point that ultimately inflation cannot stop a deflation.

Germany in the 1920’s: hyperinflationary depression
Real purchasing power collapses, result: hyperinflationary depression and a new currency.

After WW1, Germany was forced to pay the victors gigantic financial and economic reparations. For a few years, Germany was barely able to keep ahead of this drain on their economy and currency, but, soon, they had to print more and more marks to stay “ahead” and that destroyed the net purchasing power of their total money supply.

At first, economic demand continued apace, but there reached a point where the Germans could not print enough money to keep the purchasing power of the accumulated money mass ahead of its accelerating deflation. Once that point was reached, the German mark collapsed in a final five months of hyperinflation. In that period, the economy collapsed as commerce disappeared because people would not sell anything for Marks.

Germans in that time would be paid at lunch each day in paper Marks and give their pay to relatives to go buy anything ASAP. Eventually that process failed, and no one would take Marks for anything.

The total transacting power of all the marks printed was falling faster than the Germans could print the new money. The value of the money supply disappeared. Once the net real value of the currency falls enough, the economy stalls for lack of transactable money! (acceptable money). During this process, the total value of all the marks circulating contracted until there was not enough ‘money’ to run the economy.

The point here is that the transacting power of the currency fell off a cliff and commerce in the economy disappeared. Result: monetary collapse, and severe economic depression.

Now, when people talk about the Fed being able to avoid deflation by dropping money by helicopters, if necessary, they miss the crucial issue that, at some point, the Fed would not be able to stay ahead of the accelerating fall of the currency. Ultimately, they would not be able to maintain real total purchasing power of the currency, people would stop taking dollars, and commerce and demand would stop altogether.

Inflation cannot keep real purchasing power alive, ultimately, and a collapse of demand and a depression is the ultimate end. Hence, deflation and depression.

The US in the 1930’s
Deflationary depression

After the collapse of the real estate and stock and finance bubbles of the Roaring 20’s, the US entered a drastic ten year depression that began in 1929.

The financial losses were so great and widespread that there was not enough money and earning power left in the economy to sustain normal commerce. The value of the dollar was all right, but people lost their money and jobs, and we got a depression. The US GDP dropped 30% in that period!

Banks collapsed, credit collapsed, and businesses collapsed. That led to a vicious cycle of job losses, leading to less earning power, leading to business failures, to more job losses. It is said by some that, unless the US had entered WW2, we would have had another ten years of economic depression. (so would have the world).

Here, it is not necessary to explain why a deflation occurred. Economic demand fell off a cliff and prices fell. Farmers couldn’t even make enough to grow food. Ford closed their plants for “modernization” because of a collapse in demand for cars. And so on. A classic deflationary outcome.

Japan in the 1990’s
After the collapse of the Japanese real estate and stock bubbles, Japan entered a period of about 10 years of mild deflation. People stopped all unnecessary purchases, consumer demand fell precipitously, and the Japanese government tried to stimulate their way out of it.

The government lowered interest rates to literally zero. They spent a fortune with government fiscal stimulation, leaving Japan with a national debt of 160% of their GDP.

The stimulation did not work, and ultimately, Japan started to pull out by reviving through exports. The jury is still out on their economy, though it has strengthened significantly in 2005.

The point is that, by direct government spending and monetary flooding with ultra low interest rates, Japan did not pull out economically until normal economic forces did the lifting. Japan is still saddled with all those debts amassed fighting deflation.

Here is an example where, once the consumers pulled back significantly, they were reluctant to borrow more money, which negated the effects of monetary loosening. Also, the government deficit spending never did resolve the deflationary forces. Obviously, a government cannot replace a consumer in the economy. In the case of the US, if the consumer is 70% of the economy and pulls back a mere 10%, for the government to replace that spending power, it would have to deficit spend about $1 trillion in a single year! And that is just for that component, never mind the usual government expenses.

That cannot and will not happen for long. We would see hyperinflation with in a year probably. Then, the total aggregate value of the U.S. dollar would collapse, and the U.S. economy would stop transacting because there is not enough real acceptable currency to make things go round.

Result? Hyper inflationary depression followed by massive deflation in the end and a new US currency.

Hyperinflationary solutions to deflation do not succeed in keeping the aggregate value of a currency up enough to keep demand alive. Ultimately, when hyperinflation overruns any simulative effects to the economy, the net aggregate value of all the money in circulation collapses, and commerce stops. Hence, deflation in the end.

For a different view, but one that would have a similar outcome, Rob Lee claims that the Fed’s monetary policy has actually been tight enough to trigger a crash without going through the hyperinflationary phase:
The US Economy and Markets may be heading for a Bernanke 'Trap'

Rob Lee
February 8, 2006

Much has been written recently about Alan Greenspan’s tenure as Fed Chairman, most of it very positive. I recall the (apocryphal?) story of the Chinese history professor who was asked to sum up the impact on Europe of the French revolution. After some thought he replied “ It is too early to tell”. My feeling is that reviews of Mr Greenspan’s record written in five to ten years time will be much more critical than those written now.

Nevertheless, it is a remarkable fact the US economy suffered only two recessions during his 18 years at the Fed, both of which were relatively short and mild. Furthermore, Mr Greenspan dealt successfully (apparently) with a series of financial crises. These include the 1987* stock market crash, the savings and loans debacle of the early 90‘s, the Asian crisis, the LTCM rescue, the Millenium bug scare, and the Nasdaq crash of 2001/2. The “cure” for these ills was always the same - massive infusions of liquidity and aggressive cuts in short term interest rates. (Few seem to question whether the cure may itself be responsible for the unnerving recurrence of such crises, but that is a topic all of its own.)

In Mr Greenspan’s skilful hands monetary policy has apparently demonstrated itself to be virtually all powerful. This in turn has produced an extraordinary degree of confidence and complacency among US investors, businessmen, and consumers. In this state of mind truly staggering imbalances - most notably the huge current account deficit, the collapse in the savings rate, and an obvious housing bubble - are regarded with insouciance.

Enter stage left Ben Bernanke, former Fed Governor and incoming Fed chairman. Here is a successor who has promised to follow in Mr Greenspan’s footsteps. Indeed he is on record as supporting or contemplating an even more aggressive use of monetary policy in circumstances of crisis. So no problem then. If the economy or markets show signs of turning down, Mr Bernanke can be relied upon to work the same magic, and then some. This seems to be the consensus view, but I think it is wrong. I think that the US economy and markets are heading for a trap.

In my view US monetary policy already is tighter than intended or perceived, and is likely to become more so in the early part of Mr Bernanke’s term in office. Thus the US economy is heading for recession and the stock market for a major downturn. I expect this for the following reasons:

1. Monetary policy operates with long lags, in the US as much as 12-18 months. Therefore even if rates are not raised any further there is still a considerable degree of tightening to come. The remarkable growth in the use of adjustable rate mortgages in recent years may accentuate this factor, as very large numbers of mortgages revert to market rates over the next two years.

2. Although interest rates are relatively low in historical terms, whether real or nominal, they may still prove uncomfortably high in the context of unprecedented debt levels. Furthermore, the degree of tightening that has taken place - a cumulative 350 basis points in the Fed Funds rate - is already more than that which has led to recessions in the past.

3. The underlying economy is probably already weakening significantly. The very low level of growth recorded in 4Q 2005 has been dismissed as an aberration but I am not so sure. The housing market has been a key driver of growth in recent quarters. My impression from the data, and from various (admittedly) anecdotal sources, is that the boom is over. Bust is not yet here but history surely suggests it is coming.

4. The single most reliable leading indicator of future economic slowdowns/recessions is an inverting/inverted yield curve (that is short term rates higher than long term). The yield curve has been inverting sharply for some months and recently became (narrowly) inverted across most maturities. Many have dismissed the yield curve indicator, arguing that this time is different. Now where did I hear that one before…? Narrow measures of money supply growth also have a respectable record in predicting economic weakness. Although broad M3 money growth has risen sharply in recent months, M1 and M2 growth remains at levels more consistent with slowdown/recession.

5. The fiscal policy bullet was well and truly shot in reaction to the 2001/2 downturn. The Bush administration is now busy trying to control the federal deficit. These efforts may well prove ineffectual, but it seems very unlikely that the economy will be rescued by another fiscal boost. Naturally the fiscal deficit will increase in the event of a recession but by definition this will not have prevented one occurring.

6. The Fed statement after its last meeting indicated at least one more rate hike is likely, with more possible. Such expectations are now embedded in the Fed Funds futures markets. Clearly the Fed is at liberty to change its mind, but this is not typical of how institutions operate. There is usually a period of indecision before a change of course is possible. It is conceivable that Mr Greenspan would have been able to engineer a quick turnaround, given his undoubted credibility and authority within the Fed and in the markets. It is very doubtful that a novice Chairman could operate in the same way. This is part of the Bernanke trap that I see approaching.

7. The next part of the trap may be Mr Bernanke’s advocacy of inflation targets. Mr Greenspan shied away from this approach in order to give himself and the Fed maximum flexibility. Clearly it would take Mr Bernanke some time to persuade his colleagues and Congress to formally adopt an inflation target. In the meantime though it would appear inconsistent to ease policy while inflation was pushing up to or through potential target ceilings. Unfortunately for Mr Bernanke that is exactly what inflation is doing at present. Admittedly inflation targets are typically set two years into the future, so he could argue that inflation is forecast to fall in the future if he wished to cut rates. However, the subtlety of this argument may not appreciated by bond and forex traders contemplating massive trade deficits.

8. The trap is further deepened by the unfortunate reputation that Mr Bernanke has generated for himself. The following is an well known extract from a speech Mr Bernanke gave in November 2002:

“ Like gold, U.S dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S dollars at it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate …inflation.”

It should be emphasised that this was no off the cuff remark, but contained in a set speech while he was already a Fed governor. He has repeatedly expressed these and similar views since. Of course his analysis may very well be correct, but it was not wise of a potential future Fed Chairman to say so. Central bankers around the world were privately aghast. Let’s face it, the sobriquet “Helicopter Ben” is not helpful to the man now in charge of the world’s reserve currency. Mr Bernanke must be well aware that he has this reputation for being weak on inflation. Is it likely that his first move as Chairman will be to ease policy? No. Does he have less room for manoeuvre than Mr Greenspan, both within the Fed and with markets? Yes.

In summary, I think the US economy is already slowing significantly. Monetary policy is tighter than it appears. Mr Bernanke’s Fed will (partly inadvertently) tighten policy even further and initially be slow to react to the resulting downturn in the economy and markets. Later down the road Mr Bernanke may get to implement his wilder ideas on monetary policy. Interesting times lie ahead!

This week the U.S. trade deficit hit record levels:
U.S. Trade Deficit Hits All-Time High


The U.S. trade deficit soared to an all-time high of $725.8 billion in 2005, pushed upward by record imports of oil, food, cars and other consumer goods. The deficit with China hit an all-time high as did America's deficits with Japan, Europe, OPEC, Canada, Mexico and South and Central America.

The Commerce Department reported Friday that the gap between what America sells abroad and what it imports rose to $725.8 billion last year, up by 17.5 percent from the previous record of $617.6 billion set in 2004.

It marked the fourth consecutive year that America's trade deficit has set a record as American consumers continued their seemingly insatiable demand for all things foreign from new cars to televisions and electronic goods.

The increased foreign competition has helped to keep the lid on prices in this country, but critics say the rising trade deficit is a major factor in the loss of nearly 3 million manufacturing jobs since mid-2000 as U.S. companies moved production overseas to lower-waged nations. Many economists believe those manufacturing jobs will never come back.

"Such a huge trade gap undercuts domestic manufacturing and destroys good U.S. jobs," said Richard Trumka, secretary-treasuer of labor's AFL-CIO. "America's gargantuan trade deficit is a weight around American workers' necks that is pulling them into a cycle of debt, bankruptcy and low-wage service jobs."

Sen. Byron Dorgan (news, bio, voting record), D-N.D., said the new deficit figure showed that "our trade policy is an unbelievable failure that is selling out American jobs and weakening our economy."

…The rising trade deficits must be financed by increased borrowing from foreigners, who so far have been happy to sell us their products and hold U.S. dollars in payment which they invest in U.S. stock, bonds and other assets. The concern is that at some point foreigners will want to reduce their dollar holdings. If the change occurs at a rapid pace it could send the value of the dollar, U.S. stocks and bond prices all plunging.

Things look bad enough looking just at the endogenous (internal to the system) economic statistics. Looking outside of standard economic news, the prospects look even worse. Perhaps sensing that the economic basis for the United States empire is now gone, and, therefore, the military basis will also soon be gone, it appears that the United States, Israel and the NATO countries are planning to start World War III. In a desperate attempt to forestall an economic collapse that would, in the current state of imperial overreach, spell the end of the U.S. Imperium’s “sole superpower” status, it appears that at best they will hasten the end of the U.S. Empire and at worse will bring everyone down with them.

The United States appears to be planning a nuclear attack on Iran, an invasion of Syria, as well as some sort of military action in Latin America, whether by proxy, covert action or even by outright invasion. There was a fierce war of words last week between the Bush and Blair administrations and the Chavez administration in Venezuela. Rumsfeld also made threatening mention of Bolivia, which is contemplating the ultimate sin, as far as the Bush gang is concerned: nationalizing energy production:
Bolivia Edges Close To Energy Takeover
New Leader May Nationalize Gas Reserves, Revive State-Owned Oil Company

By Alan Clendenning

Feb. 9, 2006, 10:28PM
Associated Press

Bolivian President Evo Morales is moving his country closer to nationalizing South America's second-largest natural gas reserves and reviving a state-owned petroleum company that now amounts to little more than a collection of bureaucrats and decrepit gas stations.

The latest rhetoric from Bolivia's new leadership seems ominous for foreign energy companies faced with the prospect of renegotiating their contracts to extract and export Bolivia's gas.

"Some multinationals already have conspiracies," Morales said Monday in one of his harshest speeches since taking office two weeks ago. He said Bolivia's military leaders are preparing a response, and he pledged to bring government control over all levels of oil and gas exploitation.

If that isn't enough leverage, Morales said he'll send Bolivians into the streets to defend his government's plans to keep more of the profits in Bolivia.
Analysts believe Morales will try to model Bolivia's energy industry after Venezuela's, where most multinational oil companies are managing to live under a system dominated by President Hugo Chavez's socialist government.

Just what are the global plans of the U.S. military machine? The Pentagon recently released Quadrennial Defense Review spells it out. Not only are these maniacs thinking of simultaneously fighting in Latin America, Middle East, and Africa but they are also planning on confronting China. I mention these things here because such military actions are the Bush gang’s only prescription for the economic crisis: concentrate all the wealth in a few (their) hands whether by tax and economic policy or by war:

Pentagon spells out strategy for global military aggression

By Bill Van Auken

9 February 2006

Only days before the Bush administration submitted its fiscal 2007 budget, which calls for a major increase in military spending, the Pentagon sent Congress a long-term strategy document that makes clear Washington’s intentions to use the additional billions to wage an aggressive campaign of global militarism.

Envisioned in the document, the Defense Department’s Quadrennial Defense Review (QDR), is a vaguely defined “long war” that will involve the use of military power all over the globe to suppress challenges to US interests both from popular insurgencies and geo-strategic rivals. In particular, the document singles out China as a potential military competitor that must be deterred.

President Bush’s budget calls for a 7 percent hike in military spending, to reach a total of $440 billion. The proposed increase has been coupled with calls for sweeping cuts in such core entitlement programs as Medicare and Medicaid.

With the increase, combined with tens of billions of dollars more for the wars in Iraq and Afghanistan as well as funds separately allotted to the Energy Department to maintain America’s nuclear arsenal, US military spending will climb well above the half-trillion-dollar mark in the coming year. This is more than the amount spent by all other countries combined, accounting for more than half of the estimated $1 trillion in worldwide arms expenditures.

The bloated Pentagon budget includes $5.1 billion—a 20 percent increase—for special operations, i.e., to expand elite killing squads, such as the Army’s Special Forces and the Navy Seals, which are trained for use in far-flung counterinsurgency interventions, including the deployment of assassination squads to kill insurgent leaders. The plan envisions adding 14,000 more troops to these units by 2011, bringing the ranks of such forces up to 64,000.

Another $6.1 billion is to be allotted to the Army to transform its forces into a more mobile brigade-based force, better suited for rapid deployment in counterinsurgency warfare.

…The administration is continuing its stealth funding of the war in Iraq, which is excluded from the Pentagon’s annual budget and procured under “emergency supplemental requests”—seven thus far. It has already gotten $50 billion more from Congress this year and is expected to return within the next two weeks for another $70 billion to finance its Iraq intervention for the rest of the current fiscal year. This will bring the total cost of the wars in Iraq and Afghanistan thus far to $440 billion, rapidly approaching the cost (when adjusted for inflation) of the 13-year-long war in Vietnam.

The anticipated spending rate of $10 billion a month is 50 percent higher than last year. The Pentagon said the dramatic hike was due, in part, to the inclusion of funding to repair and replace the large amount of military equipment that has been damaged or destroyed in Iraq.

This massive spending proposal is driven ultimately by a policy, supported by the decisive sections of the American ruling elite and both major parties, of utilizing US military superiority as a means of countering the relative decline of American capitalism on the world market. The buildup of the US armed forces is aimed not at countering some ubiquitous terrorist menace, but at defending American economic and political hegemony against challenges from both popular movements and powerful economic rivals.

This strategy is spelled out in the QDR document released in conjunction with the budget request. That the document uses the term “long war,” a phrase that is increasingly replacing the “global war on terrorism” in Washington official-speak, has ominous implications. The term is aimed at accustoming US military personnel and the American public at large to a state of permanent warfare that will continue regardless of the outcome of the current interventions in Iraq and Afghanistan.

As the document states: “Currently, the struggle is centered in Iraq and Afghanistan, but we will need to be prepared and arranged to successfully defend our Nation and its interests around the globe for years to come.”

In another significant terminological shift, the Pentagon document defines the main enemy not as terrorists, but rather as “violent extremists” or merely “extremists.” This choice of words is not accidental. The thrust of the strategic conceptions outlined by the Pentagon review is the organization of the US military to violently quell any and all opposition to US domination.

Those who resist Washington’s economic and political hegemony are to be branded “extremists,” no matter what their ideological conceptions, and ruthlessly suppressed. The counterinsurgency methods elaborated in the document are aimed not merely at Islamist terrorist groups, but at any popular movement that emerges against US imperialism and its client regimes.

Significantly, the QDR includes repeated references to both Latin America and Africa. In its sections on Special Operations Forces (SOF), the document states: “SOF will increase their capacity to perform more demanding and specialized tasks, especially long-duration, indirect and clandestine operations in politically sensitive environments and denied areas. For direct action, they will possess an expanded organic ability to locate, tag and track dangerous individuals and other high-value targets globally... For unconventional warfare and training foreign forces, future SOF will have the capacity to operate in dozens of countries simultaneously... while increasing regional proficiency specific to key geographic operational areas: the Middle East, Asia, Africa and Latin America.”

In regards to Latin America, the document presents as a growing concern in US military planning the “resurgence of populist authoritarian political movements in some countries, such as Venezuela,” which it says “threaten gains achieved and are a source of economic and political instability.”

…The document likewise spells out Washington’s intentions to increasingly deploy the US military for domestic purposes. The Pentagon, it states, will, on the order of the White House, use military forces to support “civil authorities for designated law enforcement and/or other activities.” It adds that it intends to “provide US NORTHCOM [the military command created in 2002 to oversee the US itself] with authority to stage forces and equipment domestically prior to potential incidents when possible.”

In a section entitled “Shaping the choices of countries at strategic crossroads,” the document makes clear that the buildup of the US military is aimed at deterring any country from challenging US domination in any region of the world.

It warns that Washington “will attempt to dissuade any military competitor from developing disruptive or other capabilities that could enable regional hegemony,” adding the explicit threat that “should deterrence fail, the United States would deny a hostile power its strategic and operational objectives.”

In particular, the document singles out China, describing it as “having the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional US military advantages.”

This marks a significant change over the last such QDR, issued in 2001, in which China was not even mentioned by name, though indirectly referred to as “a military competitor with a formidable resource base.”

The current review clearly suggests that the spending on new long-range weapons programs is aimed at preparing for a future military confrontation with China. Increased Chinese military capabilities, the documents states, as well as “the vast distances of the Asian theater, China’s continental depth, and the challenge of en route and in-theater US basing place a premium on forces capable of sustained operations at great distances into denied areas.”

This overt military threat provoked angry protests from the Chinese government. A Chinese Foreign Ministry spokesman said that his government had “lodged serious representation” with Washington over the Pentagon document, charging that it “interferes in China’s internal affairs.” He demanded that the US “stop its random and irresponsible remarks on China’s normal defense construction.”

A Chinese foreign policy spokesperson writing in the China Daily called the references to China in the document “anxiety on the part of the US that borders on the illusionary.”

“The speedup of China’s military modernization has its own logic, which is completely reasonable,” wrote Yuan Peng, vice director of the Institute of American Studies of China’s Institutes of Contemporary International Relations.
“It is a necessary step for a major power in a new phase of development, just like the US did at the end of the 19th century and the beginning of the 20th century, when it invested heavily in its naval power.”

No opposition to the escalation in military spending—or the growing threat of new wars and interventions—can be anticipated from the Democratic leadership in Congress. Many of the congressional Democrats have welcomed the multi-billion arms programs as a favor to defense contractors in their districts—such as Connecticut Senator Joe Lieberman, who praised the Pentagon for budgeting for yet another nuclear submarine, to be built at the General Dynamics shipyard in Groton.

The Democratic Party intends to contest the 2006 midterm election not as an opponent of the Iraq war and global US militarism, but as a critic of the administration’s performance in these pursuits. Some Democrats in Congress have criticized the Pentagon budget for its failure to fund a proposal approved by Congress last year to recruit an additional 30,000 troops to bolster the badly overstretched US ground forces in Iraq.

So this policy of war everywhere against nearly everyone has unanimous support among the ruling elite, while having little support among the public. The public can be frightened into supporting attacks against some single, hyped-up “threat” like Iran, but I would bet that if you asked in a poll whether the United States should attack two more countries in the Middle East, perhaps with nuclear weapons, while already bogged down in two countries, overthrow governments and send troops throughout Latin American and Africa and prepare for a war with China, the public would throroughly reject such a policy. The problem is, the bought-and-paid-for media presents such policies as the ONLY options.

Can they be serious? Yes, because they are crazy. But can they succeed? Of course not. Either they will destroy everyone and everything or China and Russia will join together and stop them. It is hard to see how such an economically and politically weakened empire can grab all power. According to Al Martin, Russia and China are now doing to the United States what the United States did to them in the Cold War:

The Dawning of the New Sino-Russian Global Supremacy As the Sun Sets Over the American Empire

(2-6-06) For the first time, the whole world saw the Chinese and the Russians flexing not only their new economic muscle, but their new political muscle as well. It is becoming evident that Russia and China are coming together to formulate a new Sino-Russian Middle East policy.

…The Russians and the Chinese to a lesser extent see this as an opportunity, not simply to exert influence in the Middle East because the Russians had already been doing that -- but to supplant U.S. influence in the Middle East completely and to become the dominating power.

Is it just like giving Bush the finger? No, it’s much more. It is power politics for the highest stakes. What the Russian government is saying is that the substantially economically weakened Bush-Cheney Regime (weakened as a result of the fiscal imprudence of Bushonomics) can no longer maintain sufficient military power in the Middle East, and is not capable of injecting sufficient military power.

Furthermore the Bush Cheney Regime does not have the economic capability to sustain a long term theater-wide peace initiative in the Middle East. The Russians and Chinese are in effect saying -- We now have that capability. We have the economic capability to do so in that we can now spend proportionately more on our militaries than can the United States because our economies are generating enormous surpluses, something that is, of course, an anathema in a Bush-Cheney Regime.

It is power politics and it is meant to send a message. It is why the Bush Cheney Regime went into an emergency session led by Dick Cheney. Calls went out of the White House to all of their allies in the media not to carry the story and not to debate the story. Even on the TV political talk shows, there has been very little debate about it because the Bush Cheney regime is frightened. This is the result of Bushonomics. It is really the economic deterioration of the United States, which would be shown up to the American people in all of this.

Because of that economic deterioration, the United States does not have the ability to meet its treaty commitments or exert political, economic or military power into theaters that it previously so exerted.

Even the newly ensconced King of Saudi Arabia who was in Beijing last week, was very chummy with the Chinese as he signed new oil and economic accords with the Chinese government. You may have seen him in Moscow doing the same thing with the Russians. We are in fact seeing the breakdown of the alliance -- for the very first time since the post-war confederation, when Saudi Arabia became the linchpin of U.S. domination in the Arab Middle East.

…What the Saudis are saying, in effect, is: We do not believe that the United States under the control of the Bush-Cheney Regime can sufficiently protect the kingdom of Saudi Arabia or Saudi Arabia’s interest within the region. And we, the Saudi government, now believe that the Russian and the Chinese are the new power on the planet. They’re the people we want to deal with. And that’s precisely what the Saudis are doing.

It is a global shift of power. And what irks the Saudis is that they are effectively financing the continued ability of the Bush Cheney Regime to increase military expenditure by being the leading purchaser of U.S. Treasury debt. They are effectively financing the regime’s continued ability to even prosecute war in Iraq. They’re getting tired of it. And I don’t blame them.

The Saudis (and this has been done very, very quietly) for the first time since the 1973 Kissinger protocol have begun to quietly reduce their holdings of U.S. Treasuries and U.S. dollars. They have quietly increased their holdings of gold. They’re reducing diplomatic protocol with the United States. They are trying to back away from the United States gradually because they’re so heavily exposed to Bushonomics.

Look at the map and see what’s happening. You don’t have to be a rocket scientist to see what the Russians and Chinese are doing. They are creating new spheres of influence all around the United States. They are effectively hemming in the United States by creating new geographical spheres of political, economic and geo-military interests around the United States.

We have talked before about the increasing relationships now between all of the South American countries and both Russia and China. We see Venezuela upgraded the relationship with both the Chinese and the Russians again last week. We are seeing increasing Chinese domination of Brazilian commodity production and we are seeing Russian domination of Argentine production increasingly.

In fact, this new relationship with South America, the new power bloc that the Chinese and Russians are creating in South America, proceeds apace. In 10 years they will control South American commodity production, and it will be Chinese gold-backed yuans and Russian gold-backed rubles that are propping up South American economies. No longer U.S. dollars. Why? Because, as the Russian government said, the United States no longer has the capability to bail out or even so much as prop up Central and Latin American regimes as they had in the past.

Thanks to Bushonomics, the United States no longer has the economic resources to do this, while the Russians said -- Look, we have paid down our IMF debt. We will be the first of the G-20 nation-states to be out of debt in 12 years. We can back up Latin American debt and Latin American economies. And, guess what, Bush Cheney Regime? We don’t have to go to the IMF to do it.

… What the Russians and Chinese are doing for the first time is using an economically weakened U.S., a U.S. that has been weakened by the Bush Cheney Regime, and they are bridging that to the geo-political and military sphere. Because all nation-states know that geo-economics are on top. The politics and military are secondary because they are paid for by the economics.

…But now we are seeing a new global axis of power – and it does not include the United States. It will simply grow stronger because it has all the right ingredients to grow larger. It will accumulate more allies and more supporters. But it’s not like the Russians and Chinese are putting troops in South America.

What they’re doing is what we used to do, how we used to hem in the Russians. Remember what U.S. post-war policy was for 50 years? It was to dominate the Russians economically. Now the Russians and the Chinese are going to dominate the United States economically. They’re not putting in troops in South America. We’re not going to put in troops. We don’t have them to put in. They’re simply buying out all of the land, the agri-businesses, the aqua-businesses, the refineries, etc. They’re lending money. They’re purchasing Argentine bonds and Brazilian bonds in huge quantities because they know the political control that this gives them.

As the United States power in Central and South America recedes, the Russians and Chinese are doing what they always wanted to do, but didn’t have the capability to do until very recent years -- and that is fill the power vacuum. As U.S. power recedes around the planet, the new Sino-Russian confederation is filling that power gap.

The Sino-Russian confederation’s influence will continue to grow, and the U.S. influences will continue to diminish as long as the practice of Bushonomics continues. Hence, the United States’ economic power becomes ever weaker.

What the Bush Cheney Regime has done to this nation is nothing short of treasonous. It has fiscally weakened the United States, and now we are seeing the consequences of an economically weakened United States with the new Sino-Russian confederation filling the void.

This is the dawning of a new Sino-Russian global supremacy as the sun continues to set over the American Empire.

The question then becomes, will the United States gracefully accept a less-powerful position in the world? The character of the Bush regime argues against that. So does the craven nature of the rest of the political establishment, including the so-called opposition. The danger is that they will escalate the situation into one in which they will either gain everything or lose everything. The problem is, they are playing with all our lives.