China expands Central Asia pipelines...All that Gas-Jazz....

China expands Central Asia pipelines...All that Gas-Jazz....



http://www.2point6billion.com/news/2008/07/14/central-asia-asias-central-focus-804.html



http://www.uscc.gov/hearings/2003hearings/written_testimonies/031030bios/mengesremarkscontents.htm

In the last 1990s, when China first began signalling its interest to construct a gas pipeline from Turkmenistan to Xinjiang, sceptics mocked at it as the dragon’s pipedream. Well, the pipeline with the impressive capacity of 30 bcm annually has been operational since 2009 and already delivered 13.8 bcm gas to China, as per Beijing’s figures. Now comes a bombshell. China National Petroleum Corporation says it plans to have a 500% increase in gas imports from Central Asia by 2015. To this end, China is expanding the capacity of the pipeline and the construction of two new branch lines will be completed by 2013 so that the pipeline system can deliver a staggering 55-60 bcm annually by 2015.....


http://bbs.chinadaily.com.cn/viewthread.php?gid=2&tid=641484



The Chinese move also means Beijing is not overly anxious to do a gas deal with Russia. During President Hu Jintao’s visit to Moscow in July, Beijing desperately tried to swing a gas deal with Russia after years of negotiations but failed in its diplomacy due to differences over the price of gas. The next round of talks is due in September and the timing of the announcement of the expansion of the Central Asian pipeline suggests that Russia’s plans to export gas to China may no longer be such a priority for China as was imagined. In short, China is signalling that it has other options and is not in such a tearing hurry. The Russian plan was to supply China with 68 bcm of gas per year through two pipelines.
The big question is whether China can do without Russian gas. China hopes to increase the share of gas in its energy mix from about 3% currently to 10% by 2020, but its main fuel remains coal and China has plenty of coal. But this is also a geopolitical question since energy cooperation forms a strategic template of Russia-China ties. Besides, Europe which is a major consumer of Russian gas will also be watching whether or not Moscow would have a ‘China card’. Most certainly, Moscow would be uneasy about the lengthening shadows of China on Central Asia’s energy map. President Dmitry Medvedev is planning two summit meetings with his Turkmen counterpart in the coming 4-month period.



http://landdestroyer.blogspot.com/2011/07/advanced-course-on-color-revolutions.html




Above all, the Chinese announcement signifies that Beijing is becoming a big stakeholder in the stability and security of Central Asia. The Chinese move comes amidst reports that the US hopes to establish permanent military presence in Afghanistan ans NATO would have plans to expand its influence in Central Asia. China is trumping the US in the scramble for energy in the Caspian and Central Asia....

Zardari Fronting for New World Order In China and Central Asia...

2 09 2011

[Quite an elegant pitch of American proposals by the Pakistani President, first in Tajikistan, now in Urumqi, China (SEE: Washington’s Silk Road Pipe Dream). The Pakistani people should be troubled by all of this. What is Mr. 10% up to? Washington's plans involve the militarization of the entire area that has been envisaged in their "Silk Road" scenario. This means that an entire region, which is now at total peace, will be agitated and destabilized until widespread violence erupts in the most tortured areas. Even if the tortured souls refuse to turn to violence in their struggle to survive and to be free, plans are made to commit violent false flag actions on their behalf, or in their names. And all of this will be done, as usual, with the full consent of the targeted governments, just as it has been done in Pakistan throughout the years. Zardari and others like him enrich their own lives by serving the will of Empire, even if that will involves acceptance of the killing of their friends and their own countrymen (SEE: Obama's Wars). Maybe he is just thinking of his friends, the whole misery loving company thing. It is true that development of the energy corridor will help everybody in the region, but it will be at terrible cost. It doesn't have to be accomplished by the power of the gun. In fact, it cannot be accomplished this way. Militarizing Central Asia, in order to justify pacifying it, will not only make the task of securing the roads and pipelines that much harder, it will multiply the costs of all of the pending projects, because of the added costs of maintaining heavily-armed security forces indefinitely. If the pipeline, road and other corridor projects get built at all, it will be because of massive popular support for them, because of the weight of overwhelming citizens' demands (SEE: The Peace Pipeline ). Governments must work on convincing their constituents to become as excited for the corridor idea as they all are.]

Pakistan supports revival of Eurasian corridor: Zardari

APP

URUMQI: Terming enhanced rail, road and air connectivity as key to regional development, President Asif Ali Zardari on Thursday said Pakistan sees great potential in the Eurasian corridor and fully supports its revival.

“Pakistan is for enhanced rail, road and air connectivity in the region as it is the key to regional development,” President Zardari said while addressing the China-Eurasia Economic Development and Cooperation Forum soon after the opening ceremony of first China-Eurasia Expo here in the capital of Xinjiang Uygur Autonomous Region from September 1 to 5.

The President who reached Urumqi on Tuesday to attend the mega event said the Chinese government by hosting the China-Eurasia Expo has built economic bridges between Europe and Asia, the East and the West. “This is a timely and laudable initiative,” he remarked.

Foreign Minister Hina Rabbani Khar, Commerce Minister Makhdoom Amin Fahim, Defence Minister Chaudhry Ahmed Mukhtar, Petroleum and Natural Resources Minister Dr Asim Hussain, Information Minister Dr Firdous Ashiq Awan, Chief Minister Gilgit-Baltistan Syed Mehdi Shah, Prime Minister Azad Jammu and Kashmir Chaudhry Abdul Majeed, Chairman Board of Investment Salim H. Mandviwala, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Senator Haji Ghulam Ali, Pakistan’s Ambassador to China Masood Khan and Spokesperson to the President attended the event.

“The need for a forum that brings China and Eurasia together has never been greater. We see great potential in the Eurasian corridor and fully support its revival,” said President Zardari.

Tracing the history of centuries old Silk route that passed through this region and was a link between East and West, President Zardari said the China-Eurasia Expo’s venue carries great significance.

“The earliest exchanges between the East and the West took place through the historic Silk Road that passed through this region,” he said adding it was a conduit for the exchange of ideas and knowledge as well as goods and merchandise between Pakistan and China.

President Zardari said that since Xinjiang was in close proximity to Pakistan, the Chinese monks and envoys, as far back as the fifth century, travelled to what today are known as Chitral, Swat, Peshawar and Taxila in Pakistan.

He said Xinjiang is connected with Pakistan’s Gilgit-Baltistan region through the Karakoram Highway as well as other modes of communication, adding, soon, a railway link between the two sides would shorten distance between the two regions.

President Zardari said development of the western parts of China including Xinjiang was truly remarkable and Pakistan viewed Xinjiang’s development and prosperity as its own.

He said China’s policy of developing Xinjiang offered tremendous opportunities for economic collaboration between our two regions.

Pakistan and China are already working towards an “integrated border management” to promote trade ties between our two countries, he added.

President Zardari said Pakistan was keen to participate in the Kashgar Special Economic Zone.

He said Pakistan and China were time-tested friends and the two countries enjoy a high degree of mutual trust and confidence.

“We have a history of fruitful cooperation in a wide range of areas of mutual interest,” he said.

President Zardari said it was a matter of great satisfaction to see Pak-China friendship flourishing in all its dimensions.

China’s economic progress was a source of inspiration for many countries including Pakistan, he said and added that without China’s economic strength the world’s economy would have been in a deeper crisis in the post-recession era.

Talking about terrorism, President Zardari said this menace has spread all over, with Pakistan hit hard. “We have suffered greatly on this count”, he remarked.

“The recent incidents of terrorism in Xinjiang dismayed us,” President Zardari said, adding that Pakistan would extend all possible cooperation to China in overcoming the challenge.

President Zardari expressed his conviction that terrorism would not discourage the march towards development and prosperity.

He also expressed his confidence that the China-Eurasia Expo will be a milestone in promoting development in the region and beyond.

“I wish our Chinese friends and the participants of the Expo all success,” he added.

Exxon wins BP's lost Russian Arctic fields....

Exxon wins BP's lost Russian Arctic fields....& Timor's oil: blessing or curse?
By Robert M Cutler


http://www.businessinsider.com/map-of-the-day-bp-rosneft-deal-2011-3


ExxonMobil, the United States oil major and the world's biggest company, and Russia's Rosneft have signed an agreement to develop the three offshore areas in Russia's Arctic shelf.

In January, Rosneft had agreed with BP to develop the three areas involved, a deal that eventually and acrimoniously collapsed under the weight of an earlier partnership between the British company and another leading Russian outfit.

The Exxon agreement covers the Vostochno-Prinovozemelskoe field, between the Novaya Zemlya archipelago (where the USSR once carried out atomic testing) and the Yamal Peninsula (site of still other energy exploration), in the South Kara Sea.

The latest Rosneft deal also foresees continuing cooperation in an offshore Black Sea region called the Tuapse Trough. Exxon agreed this year to finance exploration there to the tune of about


US$1 billion. The joint-venture company to operate the project will be two-thirds owned by Rosneft.

Russian Prime Minister Vladimir Putin, announcing the deal, floated the figure of US$500 billion as the possible level of eventual investment. Exxon sources indicated that this would be closer to $3.2 billion for the Kara and Black Sea combined in the near term. Exxon will own only one-third of the joint venture developing the blocks. Rosneft, itself three-quarters owned by the Kremlin, will own the other two-thirds.

Exxon has apparently been promised access to further concessions in the Black Sea if the Tuapse Trough project is successful.

Rosneft estimates that the Arctic licenses hold 4.9 billion recoverable barrels of crude oil, and the Tuapse Trough 1.2 billion.
Rosneft and ExxonMobil have had experience working together since the 1990s as partners in the Sakhalin-1 natural gas project, where two Rosneft subsidiaries hold a 20% stake and the American company holds 30% and is the project operator.

There is still a cautionary tale for Exxon not only in the BP saga but in Royal Dutch Shell's experience in Sakhalin-2, where it invested some $20 billion before being forced out of the project in 2006.

The three license blocks in the Arctic were awarded in October 2010 to Rosneft, which announced in January 2011 the formation of a strategic alliance with BP for their exploration and development. This move ran afoul of BP's prior agreement with TNK-BP that the latter should be BP's principal partner in Russia.

The three Russian oligarchs who own TNK-BP sued the British firm in London, obtaining an injunction that stayed the entry into force of BP's agreement with Rosneft. BP's relations with Russian entities have only worsened and become more complicated since then.

The Exxon agreement also gives Rosneft equity stakes in at least a half-dozen of Exxon's projects in Texas and the Gulf of Mexico. This is a more advantageous arrangement for Exxon than Rosneft's deal, now a dead letter, with BP, which was conditioned upon $16 billion in share swaps between the two companies, with BP trading a 5% stake in itself for 9.4% of Rosneft.

The Exxon projects in the Gulf of Mexico utilize deep-water drilling, and in Texas hydraulic fracturing ("fracking"). Exxon also has experience drilling in the Arctic regions of Canada. Rosneft does not have any of these technologies and would like to have access to them. It is not a done deal, however, since the last large-scale foreign attempt to acquire American energy properties, the Chinese firm CNOOC's 2005 attempt to buy Unocal, fell apart under the weight of congressional criticism.

Rosneft's Arctic fields lack almost any infrastructure and are covered by ice for most of the year. It is very likely that ExxonMobil has been promised some tax advantages in return for investment in the exploration.

The agreement followed by one day the announcement of a new oil tax regime to take effect in October (conditioned upon Prime Minister Putin's signature on the reforms), designed to lessen the burden on crude exporters with a countervailing hit on refiners. Russia's current system imposes tax according to the number of barrels produced rather than according to the more complicated economics involved in developing new fields.

Press commentaries both in and outside Russia are calling the agreement a comeback for Deputy Prime Minister Igor Sechin, who is best known for having allegedly engineered the seizure of Yukos by the Russian state for back taxes and the jailing of its CEO Mikhail Khodorkovsky, enabling the company's assets eventually to be acquired by none other than Rosneft itself.

Sechin estimated eventual total investment in the Arctic project at about half the figure bruited by Putin, or $200-$300 billion. Russian President Dmitry Medvedev successfully forced Sechin's resignation from Rosneft's chairmanship earlier this year when he said that state officials should not have executive roles in such industrial concerns.

As such, the agreement is also a plus for Putin, who is seen as a patron to Sechin and who would therefore be viewed as weaker if he were unable to protect his political client.

Dr Robert M Cutler (http://www.robertcutler.org

Timor's oil: blessing or curse?
By Guteriano Neves

Oil has different meanings for different societies. For developed societies like the United States, Japan, and Western Europe, oil is like an addictive drug that people only want more and more of. It enables them to go everywhere. It helps them cook and regulate the temperature of their dwellings. Without oil, people in these societies couldn't sustain their way of life. For these reasons, many countries go to war for the sake of securing access to oil.

However, oil has different significance for developing countries whose economies heavily depend on exporting oil and gas. When oil was discovered in their territory, it was their expectation that oil exports would help to boost their domestic economy through creating jobs, improving human resources, developing the non-oil economy, building infrastructure, and funding other social


services. But this has rarely come to pass.

Most countries in the global south that depend on oil have discovered that oil comes with disaster, civil war, foreign intervention, human rights violations, authoritarian regimes, environmental degradation, corruption, social inequality, and endemic poverty.

Chad, Nigeria, Angola, Ecuador, and Iraq are only a few of the countries to learn this difficult lesson. Peter Maas in his book Crude: The Violent Twilight Oil elegantly put it this way, "one of the ironies of oil-rich countries is that most are not rich, that their oil brings trouble rather than prosperity." Christian Aid, in its report "Fuelling Poverty: Oil War and Corruption", found that at the global level, the oil economy is irrelevant to poor people, who have no access to electricity or to cars, and whose fuel comes not from oil but from wood. As Nnimmo Bassey, a Nigerian poet and current president of Friends of the Earth International, once wrote, "We thought it was oil, but it was blood."

Timor's oil
The situation is even more complex in post-conflict countries like Timor-Leste (TL). Indonesia, which occupied Timor-Leste illegally for decades, signed most of the oil deals with oil companies like ConocoPhilips and Woodside. When Timor-Leste won its independence in 2002, it had no freedom to make its own decision about its natural resources. Much of the revenue, which should have belonged to Timor-Leste, was already flowing to Australia and Indonesia.

Moreover, Timor-Leste's non-oil economic sectors remains very poor, and sturdy public institutions aren't in place. Those that are in place are still fragile, and law enforcement is weak. This means that the risk of corruption involving high officials and oil companies is very high given the weak oversight mechanisms. High dependency on oil is leading Timor-Leste to what scholars call a rentier economy, in which the state generates its revenues not from taxing its citizens but merely from extracting oil. This in turn undermines the state's relationship with its citizens, and citizens are less likely to demand accountability from their officials.

After the Indonesian military destroyed the country, the Timorese were left in a state of disarray. Around 80% of infrastructures were destroyed, public administration was in collapse, 50% of the population was illiterate, and other social and economic problems proliferated as well. Billions of dollars spent by the international community in the form of foreign aid did not lift up the country's economy.

In this circumstance, Timor-Leste might have initially been considered blessed in discovering a small reserve of oil. If used wisely, this small reserve could boost Timor-Leste's economy. Such a resource could also help non-oil sectors, primarily agriculture, as well as social services such as education and health. Timor-Leste's Prime Minister, Xanana Gusmao, summed up these expectations in a 2009 speech, declaring that if Timor-Leste's petroleum is wisely and transparently managed, "it will allow us, as a sovereign nation, to use our own resources to improve our infrastructure, invest in health and education and grow our economy so that we can build our country and provide a brighter future for our children."

These expectations are not far-fetched, given Timor-Leste's small population. Nevertheless, until now, these dreams are still far away. Timor-Leste is obviously following a familiar pattern in which oil does not lead to economic development. Rather than a blessing, it has increasingly become a curse.

The Petroleum Fund's successes
The government of Timor-Leste has tried to a certain extent to ensure that the country would not follow the same pattern as other developing countries. In 2005, Timor-Leste's legislative body unanimously voted to establish a Petroleum Fund Law.

This law, modeled on Norway's pension fund model, is the cornerstone of Timor-Leste's petroleum revenues management. Timor-Leste's petroleum fund was established on principles like intergenerational equity, transparency, and accountability, and it was designed to provide fiscal stability for the government. To guarantee inter-generational equity, the fund set guidelines for the government not to spend all of the money as it came in or when oil prices were high.

This law also established several measures for transparency through quarterly performance reports, annual reports, and audits. Finally, the law also defined the roles and responsibilities of public institutions like parliament, government, the central bank, and civil society organizations. Former prime minister Mari Alkatiri affirmed that "good management of petroleum revenues, sustained economic growth, alleviating of poverty, and a stable political future are essential parts of this law".

Parliament approved the law in 2005 in a unanimous vote. It was considered one of the best petroleum management laws in the world. Overall, the petroleum fund has provided a strong foundation for the fiscal stability of the Timor-Leste government. As of the end of June 2011, the petroleum fund balance had reached US$8.3 billion, $7.1 billion of it sitting in the US Federal Reserve Bank, and the rest invested in international equities and bonds from other governments.

The fund also helped stabilize the economy as a whole. As the International Monetary Fund observed in its 2010 report, "Driven by higher oil-financed public spending and a rebound in agriculture from the 2007 drought, non-oil growth averaged 11% during 2007-09. A recent estimate by the World Bank also shows a decline of poverty incidence from 50% in 2007 to 41% in 2009."

The fund's failures
Despite these successes, the petroleum fund has proven to be insufficient. Timor-Leste's current state of development possesses certain features of the resource curse, which even Nuno Rodriquez, a member of the Petroleum Fund Consultative Council acknowledged in an interview with the author.

First, there is no indication that Timor-Leste's dependence on petroleum revenues is lessening, at least for the near future. From 2005 to 2011, more than 90% of the government's revenue came from petroleum. On the other hand, non-oil revenues during this period were less than 10%, even dropping to 3% as recently as 2007. Every year since 2005, transfers from the petroleum fund accounted for more than 90% of the government's annual budget. This number will only increase as the government increases its annual budget.

Second, since Timor-Leste's independence, investments in productive sectors have been very low. Despite billions of dollars in foreign aid and the government's huge spending over the last several years, the real impact on the domestic economy has been very small. The country still imports everything.

According to Timor-Leste's Bank and Payment Authority's December 2010 report, Timor-Leste's trade deficit for goods and services has reached $881.2 million - an increase from $261.1 million in 2008 and $297.0 million in 2009. Timor-Leste's Ministry of Finance recently admitted that 70% of government spending flees the country.

Based on this data, the Bank and Payment Authority warned that "if policy makers fail to take decisive action to improve budget deficit and investing productively, by 2030 the current account deficit will continue increasing and increasing. The nation could be continuing transferring most of fund resources and its percentage of GDP annually to foreigners."

This data clearly indicates that the huge spending of petroleum revenue has not led to the development of a non-oil sector, not even to substitute for imported goods.

Third, unemployment, one of the biggest problem facing post-conflict countries, is a time bomb that can explode into conflict and civil unrest. The oil industry traditionally does not produce many jobs because it's a high-tech industry and mostly requires highly educated people. Very few Timorese have qualifications for that kind of work. The situation is even worse in Timor's case because upstream processing takes place in Australia, so Timor-Leste gets little out of the production, including few of the spin-off effects.

Further, since non-oil sectors remain weak, job opportunities for young people are few. With Timor-Leste's fertility rate the highest in the world, more people keep entering the job market. The agriculture sector, which employs most Timorese, is still underdeveloped. The Timorese even have to depend on imported rice from nearby countries like Vietnam.

Social disruption
The dark side of the economic growth connected to oil exports is social inequality. Most economic activity at present takes place in the capital Dili, whereas the rural regions are characterized by poor infrastructure. During the last four years, the government has invested more than $2 billion to improve rural infrastructure. But because of poor planning, poor execution, and lack of oversight and quality control, the gap between urban and rural Timorese remains.

Many people have left the agriculture sector to try to find jobs in Dili. Massive government spending benefits only a small elite in Dili, especially those that get contracts from the government. However, it has negative impacts on the majority of people who live outside of Dili. For those who do not share the benefits, or those who work in low-paid jobs, the increase in prices, especially for food, means that economic growth is not a benefit at all for the vast majority.

The case of Timor-Leste proves once again how petroleum dependency turns out to be a curse rather than a blessing. The petroleum fund model, in and of itself a good idea, cannot solve the complexities that post-conflict countries like Timor face.

"The petroleum fund is only one mechanism to help achieve good governance," says Jose Texeira, a member of the parliament from the opposition party. "But to avoid the resource curse also requires a political commitment from all parties."

2008 could soon look a relatively minor financial crisis....

2008 could soon look a relatively minor financial crisis....LOL, Greed and utter corruption working over-time on Wall Street and in the US Dark rooms of Power in DC & Tel-Aviv....

The just concluded Jackson Hole conference of global central bankers and other assorted bigwigs including the heads of International Monetary Fund and the World Bank highlighted significant fears of underlying weaknesses.

Christine Lagarde, the former finance minister of France who succeeded the hapless Dominique Strauss-Kahn as head of the IMF after the gentleman's career was brought up short after a to do with a hotel maid, warned of a "dangerous new phase" that would see a "fragile recovery derailed". Other central bankers, including Federal Reserve chairman Ben Bernanke and the European Central Bank's Jean-Claude Trichet, warned of risks emanating from the sovereign debt crises in Europe and the decline of US credit ratings.

The background to Jackson Hole (or "the hole" in common slang) couldn't have been more fraught if the central bankers had been


concerned about media coverage explicitly. Over the past few weeks, one question has come up repeatedly given recent market gyrations - namely, are we back to a 2008 situation for the markets. The first two weeks of August witnessed significant spikes in volatility. The much-heralded recovery looks not just anaemic but also poised for a reversal.

If indeed the pace of negative economic data continues - and I have no reason to expect this not to happen - then the key question of whether 2008 is about to repeat itself must be answered thus: no, 2011 is not 2008 but rather its much worse. The reason is the same that a doctor would give if a patient lapses back into symptoms of a disease after receiving treatment for a period of time: not only does he know that the patient has a particularly virulent form of the disease, he also understands that the disease is able to resist the treatments he knows.

In much the same way, a downturn in economic data in 20111 comes after three years of pump-priming by the Fed and ECB, among others. If there is no recovery - and I have argued that for a while - then market reaction has to be concomitantly worse than it was in 2008.

The first clue of the market's glass jaw came when Ben Bernanke refused to give in to market hopes for another round of quantitative easing (or QE3 as it is dubbed). After the initial market disappointment that pushed stock markets lower, the recovery in the form of corporate earnings expectations helped to create ideal conditions for a sell-off in gold, which tumbled over 7% over just two days.

However, it is my view after reviewing the speeches at the hole that QE3 will be announced by the end of September, particularly if markets continued to drift downwards in the interim. In that event, the safest asset for investors to hold is gold.

Poor economic data aside, the other key concern for the markets is a recurrence of a crisis in financial companies just as in 2008. By the summer, various companies including big investment banks (Lehman Brothers, Morgan Stanley, Merrill Lynch), financial institutions (AIG, Fannie Mae, Freddie Mac) were rumored to be in all sorts of trouble.

This time around, the dubious distinction has fallen at the feet of the giant Bank of America, which saw its equity trading to around 40% of book value (a sign of poor investor confidence in the stated figures). It did not help matters that various folks on the Internet - who may or may not have known what they were on about - started publishing estimates of new capital required by the bank exceeding $100 billion. For context, the bank's stock price implied a capitalization of $65 billion at its lowest point last week.

The famous investor Warren Buffett, aka the Sage of Omaha, after failing to rescue Lehman Brothers in 2008 (he instead invested $5 billion each in GE and Goldman Sachs), jumped to the rescue of Bank of America by plonking in $5 billion on preferred stock carrying a 6% coupon (against 10% in 2008 that he charged Goldman Sachs and GE), leading to a smart recovery in the company's share price.

On paper, the fact that Mr Buffet's $5 billion was made available for less coupon than in 2008 is good news. However, the move itself does beg a bunch of questions:
a. Berkshire Hathaway owns 6.67% of Wells Fargo, valued at $8.6 billion, and has $5 billion each invested in Goldman Sachs and GE Capital. All three firms will see their stock prices blown to bits if something happened to Bank of America. In that context, the money may be considered more of a safeguard of existing investments than "risky" money. In any event, with over 10% of American deposits in its coffers, it is extremely unlikely that any government will allow Bank of America to go bust: Mr Buffett is a preferred shareholder rather than a common stock shareholder, therefore he will (or at least most likely) not be wiped out by a government takeover. b. The timing of the investment, a day after Bank of America publicly rebuked Internet rumors and reiterated that it had no need for capital, left much to be desired; suggesting as it did that not only was the bank in need of capital, it also could raise rather expensive capital. c. Then came reports of the bank wanting to sell down at least half of its 10% stake in China Construction Bank: another sign of weakness.

All that said, it is not as if Bank of America is the only problem in global banking today. A casual look at the LIBOR - OIS spreads for the euro on Bloomberg shows a recurrence of the "credit / counterparty" worries that rollicked the markets sharply over the course of 2008. (The spread between the London Interbank Offered Rate or LIBOR and the Overnight Indexed Swap or OIS shows the relative risk for banks to lend to each other rather than merely exchange floating rate versus fixed rate payments. This spread, which no one in the financial markets paid attention to before 2007, has since then assumed great importance.)

In contrast to the widening spread in the euro, the picture for the US dollar is relatively stable. This would suggest (all other things being equal including the "natural" demand for a currency) that euro-domiciled banks are poorer credit risks than US-domiciled banks.

The primary area of market concern for markets with respect to European banks is their exposure to highly indebted European sovereigns. Weeks after a much-heralded 135 billion euro (US$196 billion) rescue of Greece, the dust hasn't yet settled, with a number of questions that I raised at the time still being unaddressed.

Worse (if that is indeed possible), Greece on Friday warned it may scrap the 135 billion euro swap if less than 90% of private investors voted in favor of the deal. Here is a borrower playing tough with its lenders who are going quite literally out of their way to accommodate its various requests and conditions ... gee, thanks Keynes.

No wonder Christine Lagarde of the IMF at the hole over the weekend, called for a "mandatory" capitalization of European banks, which would suggest a number of equity shareholders are in for a bit of shock when they return from their long European summer holidays.

On Friday, all eyes were on Federal Reserve Bank chairman Ben Bernanke at the annual conference of US Federal Reserve Banks in Jackson Hole.

As an expert on the Great Depression of the 1930s, Bernanke knows that a further round of quantitative easing (QE3) will lead to negative interest rates in the US, and the danger of debt deflation. He also implied, in his oracular way, that the only solution to current problems lies in fiscal action through taxation or spending, which is not within his power.

In other words, the Fed steering wheel has come off in his hands, so forward progress will be difficult. But if he were to look in the rear view mirror, he would see that the recent completion of the


QE2 round of US$1.6 trillion of Fed purchases of US Treasuries might now be having unforeseen consequences.

Hedging inflation
The concept of "hedging inflation" was originated in the mid-1990s by the "smartest kids on the block", Goldman Sachs, as a marketing narrative for their Goldman Sachs Commodity Index (GSCI) fund. This innovative fund was invested in a portfolio of commodities - of which oil had the greatest share - through buying and "rolling over" futures contracts from month to month.

This concept gradually gained traction among investors over the years, and by 2005 other market participants were cottoning on to the potential. Oil producers wishing to lay off or hedge the risk that oil would lose value relative to the dollar found that these risk averse 'inflation hedgers' aimed to do precisely the opposite by hedging the risk that the dollar would lose value relative to oil.

Investment banks and traders, for their part, found that there are huge advantages in bringing these two opposing but complementary constituencies together. Based upon their superior market knowledge, massive profits may be made, at little risk and use of capital, by providing financial services to these funds, such as brokerage and liquidity provision/market -making.

These financial investments in the oil market were accommodated by oil producers such as BP - which has had a long association with Goldman Sachs, for 12 years of which they had the same chairman - and from 2005 by Shell's transparent relationship with a provider of Exchange Traded Funds, ETF Securities.

Through opaque sale and repurchase transactions in off-exchange Brent/BFOE (Brent, Forties, Oseberg, Ekofisk) crude oil contracts, oil producers were essentially able to lend oil to the funds and in return to borrow dollars interest-free from the funds.

Accompanied by a drumbeat of hype in respect of oil market supply and demand, the price was inexorably ramped up, until in early 2008 there was a "spike" in price to $147/barrel; US gasoline prices reached painful levels, and demand reduced.

At this point, not only did speculators/manipulators (according to who you believe) liquidate their positions, but speculators actually reversed their position to go "short" of oil. The oil price fell rapidly, and in late 2008 many of the "inflation hedgers" - who are the complete opposite of speculators and had by now taken a beating - also pulled out, and the oil price fell as low as $30/barrel, which was an extremely painful level for oil producers that had so recently been laughing all the way to the bank.

Printing oil
In October 2008, the collapse of Lehman Brothers led to extraordinary measures by the Fed to keep the sinking dollar-based global financial system afloat. Firstly, the zero interest rate policy (ZIRP), and secondly, QE1 - massive injections of freshly manufactured dollars by the Fed as emergency liquidity - which was analogous to a massive transfusion into an accident victim.

But while this patient's visible wounds were stitched up by capital injections to banks, internal bleeding from the colossal overhang of unsustainable property loans has continued, and this led to the need for $1.6 trillion of what became known as QE2.

Now, these new Fed dollars had to go somewhere, and with dollar interest rates at zero, investors wanted anything but dollars, whether potentially income-bearing (equity), or not (commodities); and whether useful (oil; base metals; agricultural commodities) or not (gold). A tidal wave of dollars flowed into the markets, and in the oil market the sheer scale of these financial purchases could be accommodated only by two producers: either Saudi Arabia - a long-standing US partner - or Russia, a long standing rival.

From early 2009, for well over a year, there was clearly an accommodation between the Saudis and the United States whereby the Saudis leased oil - through sale and repurchase agreements - to financial intermediaries, who in turn either leased it to the flood of new inflation hedging funds, or sold complex - and remunerative - structured products instead.

Through this market manipulation on a cosmic scale, the global oil price was kept pegged between an upper level, which would not endanger US presidential prospects of re-election, and a lower level, which would provide sufficient funding to meet the needs of an increasingly restless young Saudi population.

To all intents and purposes the Saudis have - through the good offices of the best financial brains money can rent - been printing oil, which as Bernanke has jokingly said, even the biggest central bank in the world cannot do.

For over a year, this strategy went swimmingly and the secretary-general of the Organization of the Petroleum Exporting Countries routinely said at completely boring OPEC meetings how comfortable his membership was with the oil price, albeit ignoring half-hearted complaints by price hawks like Iran.

Unfortunately, this strategy was fundamentally unstable, like a car ferry with its bow doors open and with water swilling around on the car deck.

Water on the car deck
In March 2011 the oil market vessel was hit almost simultaneously by two waves. Firstly, and literally a wave, the Fukushima tsunami shut down a large part of Japan's energy supply and created an energy demand shock; while in Libya a supply shock took over a million barrels of high quality oil out of the market.

Genuinely speculative investors poured in, and the oil price spiked to over $120/barrel - a distinctly "uncomfortable" level for the Saudis, since it led to US gasoline prices rising to politically dangerous levels. The US and Saudis discussed an oil swap of US reserves against Saudi production, but apparently could not agree on price, and in the end the International Energy Agency (IEA), led by the US, released strategic reserves on the oil market, to little apparent effect.

But all is not as it seems. The US and their financial agents must keep up their side of the grand Saudi bargain by putting a financial floor under the oil price at just the point that the QE2 tap has been turned off. So fresh "inflation hedging" investment is now desperately sought, enticed by forecasts of increasing energy demand in countries which themselves rely as a market for their production on Western economies that are increasingly illiquid, insolvent, or both.

In the opinion of this observer, peddlers of inflation hedging are both wasting their time and opening themselves up to regulatory retribution for mis-selling, since investors will have little idea of the true risks to which their investment has been exposed.

The writing on the wall
The future market price of commodities may have one of two states: it is either in contango, when future prices are higher than today's price, or in backwardation, when the future price is below today's price.

Typically, markets are only ever in backwardation when current demand is high. But at the moment. market commentators are at a loss as to why it is that an over-supplied market can be in such a massive backwardation. There is in fact so much oil available that the Saudis - no doubt cheered on by the US - are making predatory offers to buyers of Iranian crude oil aimed specifically at undercutting Iran and thereby applying further financial pressure.

In my analysis, what we are seeing is what happens when the virtual oil claims printed by the Saudis and their collaborators are being liquidated. The resulting financial sales of oil depress the forward market price in a mirror image of the way that financial purchases inflated the forward price when funds were flowing into the oil market.

In other words, I suspect that the switching off of the QE2 dollar pump might be leading to the deflation of an oil market bubble. I hope I'm wrong, because while high oil prices may be bad for economic growth, they are good for the planet ... a statement which itself speaks volumes about the dysfunctional nature of a global financial system now once again at crisis point....

Decline by design...LOL
By Peter Morici

Forecasters expect the US Labor Department on Friday to report the economy added only 67,000 jobs in August - my estimate is 63,000. Either would be much less than the 130,000 the economy must create each month to stay even with adult population growth.

Overall, gross domestic product (GDP) and employment are growing more slowly than the population, and the private sector is much smaller than before the recent Great Recession, even with big boosts in federal spending on private health-care services and federal mandates for similar outlays by the states.

Employment grew in the second and third quarters despite very slow GDP growth, because labor productivity fell the first half of 2011. Consequently, real wages, per capita income and living


standards are dropping - all exacerbated by hungry state and local tax collectors who refuse to tighten belts as quickly as households and businesses.

A downsizing private sector, falling productivity per capita GDP, and a shrinking share of the adult population employed or even seeking employment are ominous signs of economic decline.

Recent economic data - retail sales, consumer spending, surveys of business sentiment, and housing/auto market activity - indicate an economy in neutral, and one that could slip into permanent stagnation or recession.

Near term, employment in healthcare, retail, and manufacturing should post modest gains, and construction may exhibit some bounce, because it fell to such low levels during the recent recession.

State and local governments will continue to shed jobs because state payments for Medicaid services are rising too rapidly and a downsized private sector generates too few tax receipts - together those shrink resources available for other public services.

The economy must add 13.9 million jobs over the next three years - 386,000 each month - to bring unemployment down to 6%. Considering layoffs at state and local governments and likely federal spending cuts, private sector jobs must increase at least 400,000 a month to accomplish that goal.

Growth in the range of 4 to 5% is needed to get unemployment down to 6% over the next several years. Recent GDP data put first-half growth at less than 1% .

Jobs creation remains weak, because temporary tax cuts, stimulus spending, large federal deficits, price raising health care mandates, and tighter but ineffective business regulations do not address, and indeed exacerbate, the permanent structural problems holding back dynamic growth and jobs creation - dysfunction energy and trade policies that cause a huge trade deficit.

Oil and trade with China account for nearly the entire $600 billion trade deficit. This deficit is a tax on domestic demand that erases the benefits of tax cuts and stimulus spending.

Simply, dollars sent abroad to purchase oil and consumer goods from China, that do not return to purchase US exports, are lost purchasing power and cannot be spent on US made goods and services. Consequently, the US economy is expanding at less than 1% a year instead of the 5% pace that is possible after emerging from a deep recession and with such high unemployment.

Also, America is not playing its advantages well. Strengths in finance, telecom and backbone technologies, pharmaceuticals, aerospace and autos, and other industries are not generating exports as much as those are creating offshore jobs. Mass layoffs recently announced in these sectors bode poorly.

Without prompt efforts to produce more domestic oil, redress trade imbalance and better regulatory and industrial policies, the US economy cannot grow and create enough jobs.

Weak demand, excessive and ineffective regulation, and the generally pessimistic outlook offered by Treasury Secretary Geithner and White House advisers depress consumer and business confidence.

The appointment of Alan Krueger to head the Council of Economic Advisors indicates business can expect continued emphasis on new spending, taxes, cumbersome regulation, and limits on domestic energy production, and few effective efforts to confront Chinese mercantilism or generally improve US trade competitiveness.

Until this policy direction is altered, the economy will continue to grow slowly or slip into recession, unemployment will rise, living standards will fall, and American standing in the global economy will decline.

An American policy of decline by design....! LOL, LOL, LOL....

Bill Gross is one of this generation’s great investors. On several occasions, as the head of research groups at Credit Suisse and Bank of America, I called on him and his team, and no shower is so cold as an interrogation by the Nabob of Newport Beach. One disagrees with him only with trepidation; nonetheless, I felt constrained to do so this evening, responding to his comments on Larry Kudlow’s CNBC show.

First, he’s too pessimistic about the US economy. The aggregates stink — and I’ve argued for two years that they would — but the enduring desolation of the post-bubble part of the economy (and the bubble burst on Main Street) is outweighed by a stealth boom among large corporations, as I’ve argued before. If big corporations can engage the globalized economy, so can others, once the leaden lid of regulation and taxes is lifted off the startup sector.

Secondly, he does not appreciate how drastically the world has changed. Treasury bonds are no longer income instruments but rather put options on the price level (just as gold is a call option on the price level). That’s why gold and bonds have traded in lockstep: they’re both priced by volatility.

Bill was right the first time: stocks rather than bonds are the right thing to own. He was too early in the trade, and seems to have exited too early as well....lol lol lol ....

Chris Cook is a former director of the International Petroleum Exchange.

Complexity Theorists Predict Food Crisis, Riots and Civil Unrest By April 2013....

Mac Slavo
August , 2011
SHTFplan.com

Forecasting isn’t an exact science, but researches at the New England Complex Systems Institute may have come up with a formulaic approach that can help them to identify risk factors that contribute to political instability which may lead to riots and civil unrest similar to what we saw in the Middle East this year.

Their model is so accurate that they reportedly wrote a letter to the United States warning of imminent danger just days before the mid east and north African riots broke out:

On 13 December last year, the group wrote to the US government pointing out that global food prices were about to cross the threshold they had identified. Four days later, Mohamed Bouazizi set himself on fire in Tunisia in protest at government policies, an event that triggered a wave of social unrest that continues to spread throughout the middle east today. (source)

Using advanced complexity theory the researchers have come up with a number of indicators that can predict when a population reaches its breaking point. Specific details and assessments are provided in The Food Crises and Political Instability in North Africa and the Middle East [pdf]:

When the ability of the political system to provide security for the population breaks down, popular support disappears. Conditions of widespread threat to security are particularly present when food is inaccessible to the population at large. In this case, the underlying reason for support of the system is eliminated, and at the same time there is “nothing tolose,” i.e. even the threat of death does not deter actions that are taken in opposition to the political order. Any incident then triggers death-defying protests and other actions that disrupt the existing order.

Widespread and extreme actions that jeopardize the leadership of the political system, or the political system itself, take place. All support for the system and allowance for its failings are lost. The loss of support occurs even if the political system is not directly responsible for the food security failure, as is the case if the primary responsibilitylies in the global food supply system.

The following chart provides a visual guide:

(Larger Image)

Chart Explained: Time dependence of FAO Food Price Index from January 2004 to May 2011. Red dashed vertical lines correspond to beginning dates of “food riots” and protests associated with the major recent unrest in North Africa and the Middle East. The overall death toll is reported in parentheses. Blue vertical line indicates the date, December 13, 2010, on which we submitted a report tothe U.S. government, warning of the link between food prices, social unrest and political instability. Inset shows FAO Food Price Index from 1990 to 2011.

The group, led by researcher Marco Lagi, is now warning that their thresholds are about to be broken again. And, this time the implications may be much more serious than before:

The underlying trend of increasing prices will reach the threshold of instability in July 2012, if we consider current prices, and April 2013 if we correct prices for reported ination. Either way, the amount of time until the often warned global food crises appears to be very short. Indeed, consistent with our analysis, the current food price bubble is already subjecting large populations to reported distress, as described in a recent UN report warning of the growing crisis.

…

We identify a specic food price threshold above which protests become likely. These observations suggest that protests may reect not only long-standing political failings of governments, but also the sudden desperate straits of vulnerable populations. If food prices remain high, there is likely to be persistent and increasing global social disruption. Underlying the food price peaks we also find an ongoing trend of increasing prices. We extrapolate these trends and identify a crossing point to the domain of high impacts, even without price peaks, in 2012-2013. This implies that avoiding global food crises and associated social unrest requires rapid and concerted action.

It’s clear that Lagi and his colleagues have done the work, and their data make sense, especially given what we’ve seen geo-politically over the last year. Given the way government has thus far attempted to mitigate this economic crisis – which is to make it worse – we are pessimistic about their ability to stop the rising food price trend, and the loss of confidence that will be sure to follow.

As such, the analysis provided suggests that instability due, in large part, to rising food prices is imminent and we have, at best, twenty months before riots and civil unrest come to the streets of America.

Now would be a good time to speed up your SHTF Plans.

References: Cornell University Library, What Really Happened

Afghanistan invites bids for Hajigak iron deposits....

Afghanistan invites bids for Hajigak iron deposits....



http://www.khaama.com/afghanistan-invites-bids-for-hajigak-iron-deposit

Afghanistan on Wednesday invited 22 companies, including 15 from India, to bid for its giant Hajigak iron ore deposit despite concerns over a worsening insurgency.
The country’s Mines Ministry set Aug. 3, 2011 as the deadline for bids for what it says is the largest unmined iron deposit in Asia. It said it expected exploration to begin in 2012, pressing ahead with the project despite security concerns weighing on investors.
The Hajigak deposit straddles Bamiyan, Parwan and Wardak provinces, with only Bamiyan relatively peaceful. The ministry estimates the worth of its reserves at as much as $350 billion.
The United States has trumpeted Afghanistan’s rich mineral deposits as the key to future prosperity, but experts say the bounty is years, even decades away and point to massive security and infrastructure challenges for potential investors.
Violence in Afghanistan is at it worst since U.S-backed forces overthrew the Taliban in late 2001 with record casualties on all sides and a raging insurgency spreading to once-peaceful areas of the country.
The government has a specially trained force to protect mines and other infrastructure, with many of its members drawn from villages surrounding the asset under guard.
The ministry said the interested companies included India’s Jindal Steel and Power Ltd , JSW Steel , Tata Steel , NMDC , Steel Authority of India and Ispat Industries . UK-based Stemcor was also named, as well as Canadian-based Kilo Goldmines Ltd .
“The development of Hajigak will involve major infrastructure improvements and will stimulate the local economy and improve and lives of the citizens of Bamiyan province and beyond,” Mines Minister Wahidullah Shahrani said in a statement.
United Mining and Minerals Co. was the only Chinese company on the list, the ministry said.
China’s top integrated copper producer, Jiangxi Copper Co , and Metallurgical Corp of China are developing the vast Aynak copper mine south of Kabul after they were handed the contract in 2007. The $4 billion project is the biggest non-military investment in the country so far.
Metallurgical Corp pulled out of an earlier tender for Hajigak in 2009 following accusations it had won the Aynak contract by giving bribes. The firm denied the charges.
The Mines Ministry cancelled the tender, blaming the cancellation on the global recession and changes in the world market structure for iron. (Reporting by Matt Robinson, additional reporting by Hamid Shalizi, editing by Miral Fahmy)



http://www.khaama.com/iran%E2%80%99s-role-in-curtailing-afghan-opium

Euro bail-out in doubt as 'hysteria' sweeps Germany....

Euro bail-out in doubt as 'hysteria' sweeps Germany....


http://www.telegraph.co.uk/finance/financialcrisis/8728628/Euro-bail-out-in-doubt-as-hysteria-sweeps-Germany.html

German Chancellor Angela Merkel no longer has enough coalition votes in the Bundestag to secure backing for Europe's revamped rescue machinery, threatening a consitutional crisis in Germany and a fresh eruption of the euro debt saga.

Mrs Merkel has cancelled a high-profile trip to Russia on September 7, the crucial day when the package goes to the Bundestag and the country's constitutional court rules on the legality of the EU's bail-out machinery....

http://www.reuters.com/article/2011/08/29/us-europe-banks-idUSTRE77S29Q20110829

If the court rules that the €440bn rescue fund (EFSF) breaches Treaty law or undermines German fiscal sovereignty, it risks setting off an instant brushfire across monetary union.

The seething discontent in Germany over Europe's debt crisis has spread to all the key institutions of the state. "Hysteria is sweeping Germany " said Klaus Regling, the EFSF's director.

German media reported that the latest tally of votes in the Bundestag shows that 23 members from Mrs Merkel's own coalition plan to vote against the package, including twelve of the 44 members of Bavaria's Social Christians (CSU). This may force the Chancellor to rely on opposition votes, risking a government collapse.

Christian Wulff, Germany's president, stunned the country last week by accusing the European Central Bank of going "far beyond its mandate" with mass purchases of Spanish and Italian debt, and warning that the Europe's headlong rush towards fiscal union stikes at the "very core" of democracy. "Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies," he said.

A day earlier the Bundesbank had fired its own volley, condemning the ECB's bond purchases and warning the EU is drifting towards debt union without "democratic legitimacy" or treaty backing.

Joahannes Singhammer, leader of the CSU's Bundestag group, accused the ECB of acting "dangerously" by jumping the gun before parliaments had voted. The ECB is implicitly acting on behalf of the rescue fund until it is ratified.

A CSU document to be released on Monday flatly rebuts the latest accord between Chancellor Merkel and French president Nicholas Sarkozy, saying plans for an "economic government for eurozone states" are unacceptable. It demands treaty changes to let EMU states go bankrupt, and to eject them from the euro altogether for serial abuses.

"An unlimited transfer union and pooling of debts for any length of time would imply a shared financial government and decisively change the character of a European confederation of states," said the draft, obtained by Der Spiegel.

Mrs Merkel faces mutiny even within her own Christian Democrat (CDU) family. Wolfgang Bossbach, the spokesman for internal affairs, said he would oppose the package. "I can't vote against my own conviction," he said.

The Bundestag is expected to decide late next month on the package, which empowers the EFSF to buy bonds pre-emptively and recapitalize banks. While the bill is likely to pass, the furious debate leaves no doubt that Germany will resist moves to boost the EFSF's firepower yet further. Most City banks say the fund needs €2 trillion to stop the crisis engulfing Spain and Italy.

Mrs Merkel's aides say she is facing "war on every front". The next month will decide her future, Germany's destiny, and the fate of monetary union.

CHRISTINE LAGARDE, the new managing director of the International Monetary Fund (IMF), warned the world economy was in a “dangerous new phase” and that officials must take new steps to strengthen growth.
Ms Lagarde, speaking to international finance officials and economists in Jackson Hole, Wyoming, said the US should arrest a slide in house prices, while European banks must be required to boost capital to prevent the Continent’s debt crisis from affecting more countries.
The US and European Union should enforce long-term budget discipline to free up cash for short- term stimulus, she said.
“We risk seeing the fragile recovery derailed,” Ms Lagarde (55) said. “So we must act now.”
Ms Lagarde spoke near the end of a month when the value of global equities dropped by $5.7 trillion (€5.17 trillion) on concern global growth is slowing and governments will be unable to tackle sovereign debt burdens.
UBS AG and Citigroup Inc cut their forecasts for expansion of the world economy and predicted major central banks will leave interest rates on hold through 2012.
The slowdown provided the impetus for three days of debate at the conference, with Federal Reserve chairman Ben Bernanke saying the US central bank still has tools to boost its economy, without specifying what they were or whether they would be deployed.
“The stakes for the world economy are high,” said Allen Sinai, president of Decision Economics in New York, who put the likelihood of another global recession at 30 per cent.
Europe is struggling to contain a sovereign debt crisis that is nearing its third year and has left many banks from Spain to Greece in or close to insolvency.
Stress tests on 90 European banks published on July 15th showed eight lenders had a combined €2.5 billion capital shortfall, failing to ease concerns many of them remain vulnerable to a potential sovereign default.
Without an “urgent” recapitalisation, “we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis”, Ms Lagarde said. Bolstering banks’ balance sheets “is key to cutting the chains of contagion”.
The former French finance minister, who took the helm at the Washington-based IMF in July, said recapitalisation should be “substantial”, and called a mandatory move “the most efficient solution”. Banks should seek funds in financial markets first and later public money if necessary, including from the €440 billion European bailout fund, she said.
European Central Bank president Jean-Claude Trichet echoed Ms Lagarde’s call for banks to strengthen their balance sheets while saying any talk of a liquidity crisis was “plain wrong” because his institution had taken steps to aid banks, offering them unlimited cash for up to six months.
Attending his final Jackson Hole conference before retiring in October, Mr Trichet (68) avoided mentioning the debt crisis at length, preferring instead to defend the euro against critics who say its members are too diverse to unite under a single currency.
He used new research to show how the US has regional divergences similar to the euro area’s and noted how Europe has grown almost as quickly as the US and generated more jobs than it in the past decade.
While Ms Lagarde urged lawmakers to shrink budget deficits over time, she said they could still take steps now to stimulate expansion.
Making European budgets more sustainable “does not necessarily mean drastic upfront belt-tightening” because by addressing long-term risks such as rising pension costs, governments will have more leeway in the short term to fund policies that support job creation, she said.


http://www.thisismoney.co.uk/money/news/article-2031066/IMF-chief-Lagarde-urges-action-help-European-banks.html?ito=feeds-newsxml

China's Economic Sword...

China's Economic Sword...

By Jed Babbin

http://www.realclearpolitics.com/articles/2011/08/27/chinas_economic_sword_111109.html

According to a new Pentagon report, the Beijing regime thinks the first two decades of the 21st Century are a “strategic window of opportunity” in which China’s “comprehensive national power” can be enhanced. A close reading of that report reveals that the continuing the US economic crisis is a principal reason for that belief.
The facts that our economic slump has gone on so long is, in China’s view, a validation of China’s strategy of conventional and asymmetric force buildup at a time when China is a rising power and America is apparently in decline.
The prolonged weakness of the US economy is a double-edged sword for the Communist Chinese. Though they are advantaged by the Obama administration’s increasing unwillingness to fund our defense, our economic instability threatens one of the foundations of the regime. As the Pentagon report says, continued economic development is, to Beijing, a “bedrock of social stability” as well as the means of underwriting the rapid expansion of Chinese military power. They believe that any economic slump could undermine their hold on domestic power.
Though we believe that China’s population would not likely be as dangerous to Beijing as its Egyptian equivalent was to the Mubarak regime, the Chinese rulers – and those likely to succeed them soon -- are of the opposite opinion. (We have to keep in mind that Hu Jintao, and his contemporaries, were young leaders at the time of the Tiananmen Square massacre. Hu was the first party official stationed abroad to congratulate the men who ordered that slaughter. Their view of the regime’s instability is almost certainly shared by their likely successors.)
According to House Armed Services Committee sources briefed by the Pentagon, any threat to the continued growth of the Chinese economy is considered of ultimate strategic importance to Beijing. China’s economy -- threatened by our economic weakness and Europe’s -- faces a rapid contraction caused in part by a diminution of trade.
But the other side of China’s economic sword poses a great danger to the United States. China watchers have, for nearly a decade, observed Beijing’s enormous military buildup with concern. It’s been more than 500 years since China built a deep-water navy, and it’s well on the way to having a force that can effectively block US intervention in defense of allies such as Taiwan and Japan. China’s air forces are also building to an effective area denial force. The Chinese chose to unveil their new stealthy J-20 fighter while then-Defense Secretary Robert Gates was visiting China, a gesture timed to cause Gates – and the United States – to lose face. The Chinese see themselves as a rising power and America as a global has-been. And they believe that is true in both the military and economic spheres.
However great China’s conventional military buildup is (and we don’t really know because their military spending is well-concealed) China’s dedication to the development of asymmetric weapons is even more intense. In cyberwar, China is probably the world leader and is, as the report cites, responsible for a massive cyberespionage effort. Though the Pentagon report alludes to the likelihood that China is behind major cyberattacks (principally espionage) against the US and other nations, other sources have told me repeatedly that China is clearly behind those and other cyberattacks – some successful – which were aimed at disrupting of destroying US classified computer networks.
China is also developing more exotic weapons such as “kinetic kill” weapons designed to destroy satellites and even directed-energy weapons intended for the same mission.
It is in these areas – cyberwar and anti-satellite weapons, among others -- that American economic weakness may be having the greatest effect. As one source told me, the Pentagon is enormously concerned that we are on the wrong side of the economic equation: it’s far more expensive to defend satellites and computer networks against the weapons China is developing than it is for China to develop them.
Because defense is a lot more expensive than offense, our weak economy and President Obama’s affinity for continued military spending cuts threaten our ability to build the defenses we need.
The president, months ago, credited the departing Bob Gates with $400 billion in defense cuts and set the goal of another $400 billion in cuts over ten years. Secretary Panetta is now conducting a study on how to achieve those cuts.
Panetta’s study suffers the same defect that Gates’ earlier work did. It begins with the number to be cut rather than with an assessment of the threats the armed forces are expected to deter or defeat, including China’s cyberwar threat and its development of anti-satellite weapons.
The direct effect of further US defense cuts is the validation of China’s asymmetric warfare strategy. Their offensive capabilities are affordable while our defensive capabilities are not. To the extent we abandon those capabilities, we also abandon the battlefield to those who choose to oppose us. The latest administration action seems to push the Pentagon harder for the new round of cuts.
OMB Director Jacob Lew, in an August 17 letter to all department heads, said “Unless your agency has been given explicit direction otherwise by OMB, your overall agency [budget] request for 2013 should be at least 5 percent below your 2011 enacted discretionary appropriation. As discussed at the recent cabinet meetings, your 2013 budget submission should also identify additional discretionary funding reductions that would bring your request to a level that is at least 10 percent below your 2011 enacted discretionary appropriation.”
The Defense Department, according to congressional sources, has not received any “explicit direction otherwise” and is preparing multiple options for the White House to consider in meeting those goals for further defense spending cuts.
In about ten days, President Obama will return from his vacation in Martha’s Vineyard to deliver another speech on the economy. From many leaks to the press and trial balloons floated by the White House, Obama’s “new” policies are likely to be little more than more “stimulus” spending, small tax cuts and nothing to restore growth to America’s economy. Beijing will be listening closely. They will not hear anything to dissuade them from the view that this century -- or at least the first two decades of it -- is theirs, not ours.
Jed Babbin served as a deputy undersecretary of defense under George H.W. Bush....

As US and Western Economies enter a severe double dip, "New Normal" Police State Takes Shape...

Forget your rights....

As corporate overlords position themselves to seize what little remains of a tattered social net (adieu Medicare and Medicaid! Social Security? Au revoir!), the Obama administration is moving at break-neck speed to expand police state programs first stood-up by the Bush government.

After all, with world share prices gyrating wildly, employment and wages in a death spiral, and retirement funds and publicly-owned assets swallowed whole by speculators and rentier scum, the state better dust-off contingency plans lest the Greek, Spanish or British "contagion" spread beyond the fabled shores of "old Europe" and infect God-fearin' folk here in the heimat.

Fear not, they have and the lyrically-titled Civil Disturbances: Emergency Employment of Army and Other Resources, otherwise known as Army Regulation 500-50, spells out the "responsibilities, policy, and guidance for the Department of the Army in planning and operations involving the use of Army resources in the control of actual or anticipated civil disturbances." (emphasis added)

With British politicians demanding a clampdown on social media in the wake of London riots, and with the Bay Area Rapid Transit (BART) agency having done so last week in San Francisco, switching off underground cell phone service to help squelch a protest against police violence, authoritarian control tactics, aping those deployed in Egypt and Tunisia (that worked out well!) are becoming the norm in so-called "Western democracies."

Secret Law, Secret Programs

Meanwhile up on Capitol Hill, Congress did their part to defend us from that pesky Bill of Rights; that is, before 81 of them--nearly a fifth of "our" elected representatives--checked-out for AIPAC-funded junkets to Israel.

Secrecy News reported that the Senate Intelligence Committee "rejected an amendment that would have required the Attorney General and the Director of National Intelligence to confront the problem of 'secret law,' by which government agencies rely on legal authorities that are unknown or misunderstood by the public."

That amendment, proposed by Senators Ron Wyden (D-OR) and Mark Udall (D-CO) was rejected by voice vote, further entrenching unprecedented surveillance powers of Executive Branch agencies such as the FBI and NSA.

As Antifascist Calling previously reported, the Electronic Frontier Foundation filed a Freedom of Information Act lawsuit against the Justice Department "demanding the release of a secret legal memo used to justify FBI access to Americans' telephone records without any legal process or oversight."

The DOJ refused and it now appears that the Senate has affirmed that "secret law" should be guiding principles of our former republic.

Secrecy News also disclosed that the Committee rejected a second amendment to the authorization bill, one that would have required the Justice Department's Inspector General "to estimate the number of Americans who have had the contents of their communications reviewed in violation of the FISA Amendments Act of 2008 [FAA]."

As pointed out here many times, FAA is a pernicious piece of Bushist legislative detritus that legalized the previous administration's secret spy programs since embellished by our current "hope and change" president.

During the run-up to FAA's passage, congressional Democrats, including then-Senator Barack Obama and his Republican colleagues across the aisle, claimed that the law would "strike a balance" between Americans' privacy rights and the needs of security agencies to "stop terrorists" attacking the country.

If that's the case, then why can't the American people learn whether their rights have been compromised?

Perhaps, as recent reports in Truthout and other publications suggest, former U.S. counterterrorism "czar" Richard Clarke leveled "explosive allegations against three former top CIA officials--George Tenet, Cofer Black and Richard Blee--accusing them of knowingly withholding intelligence ... about two of the 9/11 hijackers who had entered the United States more than a year before the attacks."

Clarke's allegations follow closely on the heels of an investigation by Truthout journalists Jeffrey Kaye and Jason Leopold.

"Based on on documents obtained under the Freedom of Information Act and an interview with a former high-ranking counterterrorism official," Kaye and Leopold learned that "a little-known military intelligence unit, unbeknownst to the various investigative bodies probing the terrorist attacks, was ordered by senior government officials to stop tracking Osama bin Laden and al-Qaeda's movements prior to 9/11."

As readers are well aware, the 9/11 provocation was the pretext used by the capitalist state to wage aggressive resource wars abroad while ramming through repressive legislation like the USA Patriot Act and the FISA Amendments Act that targeted the democratic rights of the American people here at home.

But FAA did more then legitimate illegal programs. It also handed retroactive immunity and economic cover to giant telecoms like AT&T and Verizon who profited handily from government surveillance, shielding them from monetary damages which may have resulted from a spate of lawsuits such as Hepting v. AT&T.

This raises the question: are other U.S. firms similarly shielded from scrutiny by secret annexes in FAA or the privacy-killing USA Patriot Act?

Echelon Cubed

Last week, Softpedia revealed that "Google has admitted complying with requests from US intelligence agencies for data stored in its European data centers, most likely in violation of European Union data protection laws."

"At the center of this problem," reporter Lucian Constantin wrote, "is the USA PATRIOT ACT, which states that companies incorporated in the United States must hand over data administered by their foreign subsidiaries if requested."

"Not only that," the publication averred, "they can be forced to keep quiet about it in order to avoid exposing active investigations and alert those targeted by the probes."

In other words, despite strict privacy laws that require companies operating within the EU to protect the personal data of their citizens, reports suggest that U.S. firms, operating under an entirely different legal framework, U.S. spy laws with built-in secrecy clauses and gag orders, trump the laws and legal norms of other nations.

Given the widespread corporate espionage carried out by the National Security Agency's decades-long Echelon communications' intercept program, American firms such as Google, Microsoft, Apple or Amazon may very well have become witting accomplices of U.S. secret state agencies rummaging about for "actionable intelligence" on EU, or U.S., citizens.

Indeed, a decade ago the European Union issued its final report on the Echelon spying machine and concluded that the program was being used for corporate and industrial espionage and that data filched from EU firms was being turned over to American corporations.

In 2000, the BBC reported that according to European investigators "U.S. Department of Commerce 'success stories' could be attributed to the filtering powers of Echelon."

Duncan Campbell, a British journalist and intelligence expert, who along with New Zealand journalist Nicky Hager, helped blow the lid off Echelon, offered two instances of U.S. corporate spying in the 1990s when the newly-elected Clinton administration followed-up on promises of "aggressive advocacy" on behalf of U.S. firms "bidding for foreign contracts."

According to Campbell, NSA "lifted all the faxes and phone-calls between Airbus, the Saudi national airline and the Saudi Government" to gain this information. In a second case which came to light, Campbell documented how "Raytheon used information picked up from NSA snooping to secure a $1.4bn contract to supply a radar system to Brazil instead of France's Thomson-CSF."

As Softpedia reported, U.S.-based cloud computing services operating overseas have placed "European companies and government agencies that are using their services ... in a tough position."

With the advent of fiber optic communication platforms, programs like Echelon have a far greater, and more insidious, reach. AT&T whistleblower Mark Klein noted on the widespread deployment by NSA of fiber optic splitters and secret rooms at American telecommunications' firms:

What screams out at you when examining this physical arrangement is that the NSA was vacuuming up everything flowing in the Internet stream: e-mail, web browsing, Voice-Over-Internet phone calls, pictures, streaming video, you name it. The splitter has no intelligence at all, it just makes a blind copy. There could not possibly be a legal warrant for this, since according to the 4th Amendment warrants have to be specific, "particularly describing the place to be searched, and the persons or things to be seized." ...

This was a massive blind copying of the communications of millions of people, foreign and domestic, randomly mixed together. From a legal standpoint, it does not matter what they claim to throw away later in their secret rooms, the violation has already occurred at the splitter. (Mark Klein, Wiring Up the Big Brother Machine... And Fighting It, Charleston, South Carolina: BookSurge, 2009, pp. 38-39.)

What was Google's response?

In a statement to the German publication WirtschaftsWoche a Google corporate spokesperson said: "As a law abiding company, we comply with valid legal process, and that--as for any U.S. based company--means the data stored outside of the U.S. may be subject to lawful access by the U.S. government. That said, we are committed to protecting user privacy when faced with law enforcement requests. We have a long track record of advocating on behalf of user privacy in the face of such requests and we scrutinize requests carefully to ensure that they adhere to both the letter and the spirit of the law before complying." (translation courtesy of Public Intelligence)

Is the Senate Intelligence Committee's steadfast refusal to release documents and secret legal memos that most certainly target American citizens also another blatant example of American exceptionalism meant to protect U.S. firms operating abroad from exposure as corporate spies for the government?

It isn't as if NSA hasn't been busy doing just that here at home.

As The New York Times reported back in 2009, the "National Security Agency intercepted private e-mail messages and phone calls of Americans in recent months on a scale that went beyond the broad legal limits established by Congress last year."

Chalking up the problem to "overcollection" and "technical difficulties," unnamed intelligence officials and administration lawyers told journalists Eric Lichtblau and James Risen that although the practice was "significant and systemic ... it was believed to have been unintentional."

As "unintentional" as ginned-up intelligence that made the case for waging aggressive war against oil-rich Iraq!

In a follow-up piece, the Times revealed that NSA "appears to have tolerated significant collection and examination of domestic e-mail messages without warrants."

A former NSA analyst "read into" the illegal program told Lichtblau and Risen that he "and other analysts were trained to use a secret database, code-named Pinwale, in 2005 that archived foreign and domestic e-mail messages."

Email readily handed over by Google, Microsoft or other firms "subject to lawful access" by the Pentagon spy satrapy?

The Times' anonymous source said "Pinwale allowed N.S.A. analysts to read large volumes of e-mail messages to and from Americans as long as they fell within certain limits--no more than 30 percent of any database search, he recalled being told--and Americans were not explicitly singled out in the searches."

Nor, were they excluded from such illicit practices.

As Jane Mayer revealed in The New Yorker, "privacy controls" and "anonymizing features" of a program called ThinThread, which would have complied with the law if Americans' communications were swept into NSA's giant eavesdropping nets, were rejected in favor of the "$1.2 billion flop" called Trailblazer.

And, as previously reported, when Wyden and Udall sought information from the Office of the Director of National Intelligence on just how many Americans had their communications monitored, the DNI stonewalled claiming "it is not reasonably possible to identify the number of people located in the United States whose communications may have been reviewed under the authority."

Why? Precisely because such programs act like a giant electronic sponge and soak-up and data mine huge volumes of our communications.

As former NSA manager and ThinThread creator Bill Binney told The New Yorker, that "little program ... got twisted" and was "used to eavesdrop on the whole world."

Three years after Barack Obama promised to curb Bush administration "excesses," illegal surveillance programs continue to expand under his watch.

A Permanent "State of Exception"

Under our current political set-up, "states of exception" and national security "emergencies" have become permanent features of social life.

Entire classes of citizens and non-citizens alike are now suspect; anarchists, communists, immigrants, Muslims, union activists and political dissidents in general are all subject to unprecedented levels of scrutiny and surveillance.

From "enhanced security screenings" at airports to the massive expansion of private and state databases that archive our spending habits, whom we talk to and where we go, increasingly, as the capitalist system implodes and millions face the prospect of economic ruin, the former American republic takes on the characteristics of a corporate police state.

Security researcher and analyst Christopher Soghoian reported on his Slight Paranoia blog, that according to "an official DOJ report, the use of 'emergency', warrantless requests to ISPs for customer communications content has skyrocketed over 400% in a single year."

This is no trifling matter.

As CNET News disclosed last month, "Internet providers would be forced to keep logs of their customers' activities for one year--in case police want to review them in the future--under legislation that a U.S. House of Representatives committee approved today."

Declan McCullagh reported that "the 19 to 10 vote represents a victory for conservative Republicans, who made data retention their first major technology initiative after last fall's elections."

Significantly, CNET noted that this is also a "victory" for Democratic appointees of Barack Obama's Justice Department "who have quietly lobbied for the sweeping new requirements."

According to CNET, a "last-minute rewrite of the bill expands the information that commercial Internet providers are required to store to include customers' names, addresses, phone numbers, credit card numbers, bank account numbers, and temporarily-assigned IP addresses."

However, by "a 7-16 vote, the panel rejected an amendment that would have clarified that only IP addresses must be stored."

Consider the troubling implications of this sweeping bill. While ultra-rightist "Tea Party" Republicans vowed to get "the government off our backs," when it comes to illicit snooping by securocrats whose only loyalty is to a self-perpetuating security bureaucracy and the defense grifters they serve (and whom they rely upon for plum positions after government "retirement"), all our private data is now up for grabs.

The bill, according to Rep. Zoe Lofgren (D-CA), who spearheaded opposition to the measure said that if passed, it would create "a data bank of every digital act by every American" that would "let us find out where every single American visited Web sites."

To make the poison pill legislation difficult to oppose, proponents have dubbed it, wait, the "Protecting Children From Internet Pornographers Act of 2011" even though, as CNET noted, "the mandatory logs would be accessible to police investigating any crime and perhaps attorneys litigating civil disputes in divorce, insurance fraud, and other cases as well."

Soghoian relates that the 2009 two-page Justice Department report to Congress took 11 months (!) to release under a Freedom of Information Act request.

Why the Justice Department stonewall?

Perhaps, as the Electronic Frontier Foundation disclosed last year, political appointees at the Department of Homeland Security and presumably other secret state satrapies, ordered "an extra layer of review on its FOIA requests."

EFF revealed that a 2009 policy memo from the Department's Chief FOIA Officer and Chief Privacy Officer, Mary Ellen Callahan, that DHS components "were required to report 'significant FOIA activities' in weekly reports to the Privacy Office, which the Privacy Office then integrated into its weekly report to the White House Liaison."

Included amongst designated "significant FOIA activities" were requests "from any members of 'an activist group, watchdog organization, special interest group, etc.' and 'requested documents [that] will garner media attention or [are] receiving media attention'."

Despite the appearance of reporting "emergency" spying requests to congressional committees presumably overseeing secret state activities (a generous assumption at best), "it is quite clear" Soghoian avers, "that the Department of Justice statistics are not adequately reporting the scale of this form of surveillance" and "underreport these disclosures by several orders of magnitude."

As such, "the current law is largely useless." It does not apply to "state and local law enforcement agencies, who make tens of thousands of warrantless requests to ISPs each year," and is inapplicable to "to federal law enforcement agencies outside DOJ."

"Finally," Soghoian relates, "it does not apply to emergency disclosures of non-content information, such as geo-location data, subscriber information (such as name and address), or IP addresses used."

And with Congress poised to pass sweeping data retention legislation, it should be clear that such "requirements" are mere fig leaves covering-up state-sanctioned lawlessness.

War On Terror 2.0.1: Looting the Global Economy

Criminal behavior by domestic security agencies connect America's illegal wars of aggression to capitalism's economic warfare against the working class, who now take their place alongside "Islamic terrorists" as a threat to "national security."

Despite efforts by the Obama administration and Republican congressional leaders to "balance the books" on the backs of the American people through massive budget cuts, as economist Michael Hudson pointed out in Global Research, the manufactured "debt ceiling" crisis is a massive fraud.

The World Socialist Web Site averred that "as concerns over a double-dip recession in the US and the European debt crisis sent global markets plunging--including a 512-point sell-off on the Dow Jones Industrial Average Thursday--financial analysts and media pundits developed a new narrative. Concern that Washington lacked the 'political will' to slash long-standing entitlement programs was exacerbating 'market uncertainty'."

Leftist critic Jerry White noted that "in fact, the new cuts will only intensify the economic crisis, while the slashing of food stamps, unemployment compensation, health care and education will eliminate programs that are more essential for survival than ever."

Indeed, as Marxist economist Richard Wolff pointed out in The Guardian, while the "crisis of the capitalist system in the US that began in 2007," may have "plunged millions into acute economic pain and suffering," the "recovery" that began in 2009 "benefited only the minority that was most responsible for the crisis: banks, large corporations and the rich who own the bulk of stocks. That so-called recovery never 'trickled down' to the US majority: working people dependent on jobs and wages'."

And despite mendacious claims by political officials and the media alike, the Pentagon will be sitting pretty even as Americans are forced to shoulder the financial burden of U.S. imperial adventures long into an increasingly bleak future.

Defense Secretary Leon Panetta "warned Thursday of dire consequences if the Pentagon is forced to make cuts to its budget beyond the $400 billion in savings planned for the next decade," The Washington Post reported.

The Post noted that "senior Pentagon officials have launched an offensive over the past two days to convince lawmakers that further reductions in Pentagon spending would imperil the country's security."

"Instead of slashing defense," Panetta urged lawmakers to "rely on tax increases and cuts to nondiscretionary spending, such as Medicare and Social Security, to provide the necessary savings."

But as Hudson points out, "war has been the major cause of a rising national debt." After all, it was none other than bourgeois icon Adam Smith who argued that "parliamentary checks on government spending were designed to prevent ambitious rulers from waging war."

Hudson writes that "if people felt the economic impact of war immediately--rather than postponing it by borrowing--they would be less likely to support military adventurism."

But therein lies the rub. Since "military adventurism" is the only "growth sector" of an imploding capitalist economy, the public spigot which finances everything from cost-overrun-plagued stealth fighter jets to multibillion dollar spy satellites, along with an out-of-control National Surveillance State, will be kept open indefinitely.

On this score, the hypocrisy of our rulers abound, especially when it comes to the mantra that "we" must "live within our means."

As Wolff avers, "where was that phrase heard when Washington decided to spend on an immense military (even after becoming the world's only nuclear superpower) or to spend on very expensive wars in Iraq, Afghanistan, Pakistan and Libya (now all going on at the same time)? No, then the talk was only about national security needed to save us from attacks."

"Attacks," it should be duly noted, that may very well have been allowed to happen as the World Socialist Web Site recently reported.

Driving home the point that war, and not social- and infrastructure investment fuel deficits, Hudson averred that "the present rise in in U.S. Treasury debt results from two forms of warfare. First is the overtly military Oil War in the Near East, from Iraq to Afghanistan (Pipelinistan) to oil-rich Libya. These adventures will end up costing between $3 and $5 trillion."

"Second and even more expensive," the economist observed, "is the more covert yet more costly economic war of Wall Street against the rest of the economy, demanding that losses by banks and financial institutions be passed onto the government balance sheet ('taxpayers'). The bailouts and 'free lunch' for Wall Street--by no coincidence, Congress's number one political campaign contributor--cost $13 trillion."

"Now that finance is the new form of warfare," Hudson wrote, "where is the power to constrain Treasury and Federal Reserve power to commit taxpayers to bail out financial interests at the top of the economic pyramid?"

And since "cutbacks in federal revenue sharing will hit cities and states hard, forcing them to sell off yet more land, roads and other assets in the public domain to cover their budget deficit as the U.S. economy sinks further into depression," Hudson wrote that "Congress has just added fiscal deflation to debt deflation, slowing employment even further."

While the global economy circles the drain, with ever more painful cuts in so-called "entitlement" programs meant to cushion the crash now on the chopping block, the corporate and political masters who rule the roost are sharpening their knives, fashioning administrative and bureaucratic surveillance tools, the better to conceal the "invisible hand" of that bitch-slaps us all.

And they call it "freedom."