Brave New World?

[muse]

Dollar crisis looms, China ponders reform


VALENCIA, Spain: A major dollar crisis could come within five years and China is discussing reforms to the global monetary system to protect its $1.6 trillion reserves pile, says Nobel Prize-winning economist Robert Mundell.

Mundell, who has regular contacts with Beijing officials, said they are considering proposing ways to fix major currencies including the dollar and the euro, in a system similar to the one which operated under the Bretton Woods agreement from the end of World War Two until the 1970s.

“There’s no doubt about it that inside the Chinese government there’s a lot of discussion going on. I’m not sure how they’re doing it but I know they’re going to get an input from me,” Mundell told Reuters in an interview.

Without reform, the global monetary system is headed for a dollar crisis within years, Mundell believes. However, he thinks the United States will avoid a technical recession during the current downturn and that the weak dollar will help it to make a recovery around autumn of this year.

But its growing liabilities accumulated by its current account deficit means that it would eventually pay a high price if the current monetary set-up continues, he said. “I see the problem coming maybe in the next recession,” he said. “There could be a real dollar crisis in five years.”

Chinese concerns: China is worried about its pile of about $1.6 trillion in foreign reserves, built up during years of US trade deficits, which loses value as the greenback depreciates.

“What you need to have is an International Monetary Fund that’s going to take some of these excess dollars, put them into a substitution account inside the IMF or some other institution and then use that and create what is a new international currency,” said Mundell.

“This kind of proposal would be very acceptable inside China. The Chinese are thinking in terms of this,” he said.

Mundell, awarded the Nobel Prize for Economics in 1999 for his work on exchange rates and optimum currency areas, travels regularly to China, where he has advised senior government officials.

For years, China has come under pressure from US and European authorities to allow its currency, the yuan, to appreciate, in order to make Western goods more competitive. But Beijing has resisted.

“They don’t have many pre-conceptions. They don’t have a belief obviously that floating is a good idea, whereas the European Central Bank and the Americans think that floating is the best of all possible worlds,” Mundell said.

Fixing exchange rates would favour the euro zone, which is now battling with a euro at around record highs against the dollar, said Mundell, who has often been referred to as one of the intellectual fathers of the single European currency.

“I think the risk now is that the high euro is going to build in pressure which is going to involve deflationary pressure in the asset markets, housing and so on, and that’s going to cause a problem, a nagging problem, that’s going to go on for a long time as long as the euro is as high as this,” he said.

“The swings in the dollar-euro exchange rate are big problems, and the problem is exacerbated by the fact that the Americans get the benefit of these swings and Europe gets the wrong end of the stick.”

But Western policy makers, particularly in the United States which receives an economic stimulus from a weak dollar, would be reluctant to accept monetary change, Mundell said.

“The US Bush administration isn’t much interested in it, they’re quite happy with the dollar the way it’s working, and the Europeans are really behind the zone on this. Nobody in Europe is thinking about international monetary reform and Europe would be a major beneficiary of it.”

“Bernanke and Trichet are very much behind the curve on this,” he said, referring to Federal Reserve chief Ben Bernanke and ECB head Jean-Claude Trichet. Reuters


PS: Apologies - am unable to put up the URL -- cuz I don't have it

 

[muse]

From the Christian Science Monitor


U.S. DOLLAR FACES THREATS TO ITS REIGN
War spending, trade deficits, and devaluation against foreign currencies weigh on the greenback.
By David R. Francis
from the June 2, 2008 edition

The United States dollar has been the king currency in the world for decades. Could it now lose its throne?

It's "definitely a possibility," says Barry Eichengreen, an economist at the University of California, Berkeley.

The US has been spending hundreds of billions on the Iraq war, suffered massive trade deficits for many years ($708 billion in 2007), and now is paying about $1.2 billion a day for imported oil. Moreover, the dollar has been hugely devalued against the euro (the currency of 15 nations in the European Union), the British pound, and some other currencies.

Conventional wisdom among economists is that currency ascendancy gives a nation an economic advantage. The US, for instance, finances much of its international payments deficit by issuing Treasury bonds and other debt instruments denominated in dollars. So when the dollar loses value, as it has on foreign-exchange markets, the debts are paid in those same cheaper dollars.

Other nations cannot finance an international payments deficit in their own currency. So they can be more easily pressured by external forces to take unpopular domestic policy measures to restore an external balance. Those forces may include the International Monetary Fund (IMF) or a group of wealthy nations demanding repayment on loans.

In effect, the dominance of the dollar has enabled the US to live beyond its real means for decades. Charles de Gaulle, founder of France's fifth republic, complained in the 1960s about the "exorbitant privilege" the dollar gave the US. (It turns out that his finance minister, Valery Giscard d'Estaing, first used this famous phrase usually attributed to de Gaulle.) Loss of the privilege could lower US living standards a little.

Another piece of conventional wisdom is that loss of the key currency role can take many decades to happen. "This is not what history tells us," Professor Eichengreen says. It is usually thought that it took some 50 years, World War II, and the loss of the British Empire for the dollar to overtake the pound in 1945 with the creation of what is known as the Bretton Woods fixed exchange rate system. From that point, the value of most significant currencies were pegged to the dollar.

Eichengreen points out that in fact the dollar beat out the pound as the leading currency held by central banks in their official international monetary reserves in 1924. These reserves are held by nations to give them more time to manage an international financial crisis or a bad turn in their trade balance.
Further, Brazil switched in 1930 to pricing its coffee exports in dollars, rather than pounds.

Today oil and most other commodities are priced in international trade in dollars. A few nations, including El Salvador, Panama, and Ecuador, have adopted the dollar as their national currency. They thereby lost the benefit of seigniorage, the free money governments receive when they issue new money. More than 100 nations do not allow foreign exchange markets to set the value of their currency, pegging its value to the dollar or euro by buying or selling that currency in those markets.

But with the jump in the price of oil and the tumble in the dollar, the psychology of world financial markets and perhaps central bankers is changing.

For one thing, the dollar has a serious competitor now – the euro, says Robert Hormats, vice chairman of Goldman Sachs (International). Euro member nations had a combined output of goods and services of about $12.7 trillion last year, not too far from that of the US. It also has a major financial market, even though it doesn't include that of London. Britain has stayed outside the euro area.

Already, central banks hold close to 30 percent of their international foreign exchange reserves in euros (about $1 trillion), a currency created in 1999, notes Mr. Hormats. Bankers are hedging against further drops in the dollar.
Another trend is for nations to peg their currency to the euro or a basket of currencies, which may include the dollar. In effect, both governments and private investors are seeking to diversify their international investment portfolios.

An IMF Working Paper (not official policy) released last week noted that "a sudden decrease in the willingness of nonresidents to continue funding ongoing trade deficits" [such as that of the US] could lead to a "currency crisis" with "a critical number" of nations switching their currency pegs or letting foreign exchange markets decide the value of their currencies.
Investors "are in the middle of hedging their bets," says Hormats, buying oil and other commodities on the futures markets. Such moves reflect concerns about US budget deficits, its dependence on imported oil, and a lack of consumer savings.

Some US hedge funds are now betting that certain Middle East nations will drop their dollar pegs and let their currencies soar. Last year Kuwait pegged its currency to a basket of currencies. Qatar has talked about doing the same. Ukraine last week altered its peg against the dollar to make its hryvnia more valuable.

 

[muse]

From "The Hindu"



The rise of Asia & West’s petulant response
Hasan Suroor
.

The western response to the collapse of the Soviet Union and East European communist states was to declare, triumphantly, that it marked the end of history and that the ideological debate had been settled in favour of Western-style liberal democracy and free market economy. Francis Fukuyama, a neo-con American academic, wrote a whole book, ‘The End of History,’ whose central theme was the West had won the battle of ideas and henceforth democratic capitalism was going to be the only show in town.

Mr. Fukuyama wrote: “The triumph of the West, of the western idea, is evident first of all in the total exhaustion of viable systematic alternatives to western liberalism …What we may be witnessing is not just the end of the cold war, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalisation of western liberal democracy as the final form of human government.”

Essentially, Mr. Fukuyama predicted two broad global centres of power: America and Europe which between them would dictate the new world order.

It was a thesis developed on the hope and inspired more by the post-“cold war” euphoria in the West than based on a serious analysis of hard objective realities. Mr. Fukuyama, who has since abandoned neo-conservatism and recanted some of his theories, was in such a hurry to hail the supremacy of the western system that either he was not able to see or chose to ignore.

The early signs of a new battleground taking shape in Asia with India and China finally waking up from their slumber to stake their claim as the new kids on the block.

A vindication

Possibly, the end-of-history campaigners in their eagerness to prove that socialism was dead misread the developments in New Delhi and Beijing as a vindication of Mr. Fukuyama’s theory of western triumph. It is now widely acknowledged that Mr. Fukuyama and company over-egged the thesis.

Arguably, a particular phase of history might have ended with the fall of the Berlin Wall but history continued with its onward march. It simply took another turn and moved the battle to Asia—a battle that could prove even more testing for the West than the cold war was. For, this time the challenge is not from an ideological foe but from its own economic allies as India and China sit on the same side of the free-market fence as the West. But they are also competing with it, demanding greater access to western markets in return for opening up their own economy. The idea of globalisation as a one-way street is being aggressively challenged by Asia’s new converts to free market.

“Restart of history”

In a sense, after the “end of history,” we are witnessing the “restart of history” in a way that does not suit the entrenched Western interests. The world is on the threshold of a new historical epoch that will see a profound shift in global power relations. And how it pans out will depend, to a very large extent, on the western response to the rise of new Asian powers, notably India and China. Will it embrace them as partners in pursuit of real globalisation, or will it regard them as a threat to their domination and seek refuge in protectionism?

A debate has already begun over fears of a western backlash against this “reverse” globalisation in which, for the first time, the momentum lies with Asia. Kishore Mahbubani, a Singapore-based academic and former diplomat who has followed the debate closely, has warned that any western attempt to resist the rise of Asia will be disastrous. In his new book, ‘The New Asian Hemisphere: the Irresistible Shift of Global Power to the East,’ which Amartya Sen has commended for its “penetrating” analysis, he lays bare the West’s hypocritical stance on globalisation, pointing out that leading nations on both sides of the Atlantic are rushing to pull the drawbridge in the face of the Asian challenge.

Globalisation was good so long as it worked for the West but at the first sign of a shift of balance panic has broken out in Western capitals.

Countries that lectured Third World countries on the harmful effect of state subsidies are now themselves fighting to retain massive agricultural subsidies to protect their own farmers from cheap food imports. It is the democracy debate replaying itself: democracy is good when it delivers the West’s wish list but bad when the outcome is a victory for a Hamas or a Chavez.

Prof. Mahbubani says he is “astonished” at the West’s refusal or inability (or perhaps both) to recognise the new global realities.

“As a frequent traveller to western intellectual gatherings, I often come away from them astonished that at a time when western minds should be opening themselves to completely new realities, they are actually becoming more closed. I often despair when I read the op-ed pages of The New York Times and the Financial Times. Newspapers are filled with an incestuous discourse among minds who believe that the 12 per cent of the world’s population who live in the West can continue to dominate the remaining 88 per cent who live outside the West,” he writes.

Prof. Mahbubani argues that the West has not even started to grasp the full implications of what is going on in Asia — namely that it marks the “end of the era of western domination.” And, he warns, the West’s “reluctance” to acknowledge that the tectonic plates are shifting presents a “great danger.”
It’s like the Industrial Revolution

But it is not just (allegedly partisan) south Asian commentators like Prof. Mahbubani who are critical of the western response. Prominent independent western scholars have also cautioned their leaders against the danger of ignoring the enormity of the Asian “drama” that has just started to unfold. Lawrence H. Summers of Harvard University, for instance, has likened it to the Industrial Revolution and in his opinion the rise of Asia and the events it triggers will be the “dominant story in history books written 300 years from now.”

It is important to point out that Prof. Mahbubani is not ideologically anti-West and has chums in high places in America and Europe. Zbigniew Brzezinski, a leading American intellectual, has hailed him as a “friend of America” whose “advice” U.S. policy-makers would do well to heed if the country wants to continue to play a “pre-eminent global role.”

Prof. Mahbubani makes clear that the rise of Asia should not be mistaken as the decline of the West which, he says, will remain “the single strongest civilisation for decades more.” The new emerging powers while demanding a piece of the global action are seeking not to “dominate” the West but simply to “replicate” its successes and achievements, he says arguing that the West should see them not as rivals but as partners in pursuit of true globalisation.

West should share the spoils

This means the West would have to share the spoils with their new Asian competitors. Which, in turn, would entail removing barriers to free trade; creating a level-playing field for all; restructuring the western-dominated global institutions to reflect the 21st century realities; and acknowledging the stark fact that “the 5.6 billion people who live outside the Western hemisphere will no longer accept decisions made on their behalf in Western capitals.”

But what are the realistic chances of this happening? Will the West give up its supremacy without a fight? Or will it have the courage to put its money where its mouth is and accept the logic of true globalisation?

On present form, it looks that both America and Europe will retreat into protectionism at least in the short term though Prof. Mahbubani (perhaps betraying his pro-U.S. bias) is more critical of Europe where he says a “fortress” mentality is already evident in the way it is trying to retain agricultural subsidies and obstructing reforms of international bodies like the United Nations, the World Bank and the International Monetary Fund.
Growing inflexibility

“This growing inflexibility of Europe to accommodate change would well be replicated in the United States if Americans begin to share the same degree of insecurity as Europeans. It has not happened so far, but the trends point in this direction. If this were to happen, the painful scenario of ‘Retreat into Fortresses’ may well be realised,” he warns.

There are others who believe that it is America whose response to the rise of Asia has been more protectionist. In the end, though, history tells us that faced with a common “enemy” America and Europe have always hunted in a pack. And there is no reason to presume that they will behave differently.

 

[muse]

From "The Hindu"


A forum to counter G-8’s supremacy
Vladimir Radyuhin
The first standalone meeting of Brazil, Russia, India and China at the level of Foreign Ministers, hosted by Russia, has signalled a “new quality cooperation.”
— Photo: AP

New equations: External Affairs Minister Pranab Mukherjee with Russian Foreign Minister Sergey Lavrov at Yekaterinburg on May 15.

When Russian Prime Minister Yevgeny Primakov first broached the idea of a Russia-India-China triangle in 1998, it was dismissed as a pipe dream. Ten years later, the triangle is not only very much alive but is on course to expand beyond its Eurasian confines to acquire a global dimension and even challenge the Group of Eight (G-8).

Earlier this month, Russia hosted the first standalone meeting of BRIC — involving Brazil, Russia, India and China, at the level of their Foreign Ministers. The meeting signalled “new quality cooperation” in the quadripartite format, Russia’s Foreign Minister Sergei Lavrov said.

The BRIC and RIC (minus Brazil) meetings were held separately but concurrently in the city of Yekaterinburg, which straddles the geographic border between Europe and Asia in the Ural mountains. The choice of venue served to underscore Russia’s dual European and Asian identity and its multi-vector foreign policy as it shaped up under President Vladimir Putin.

Even though the Yekaterinburg meetings took place after Mr. Putin stepped down on May 7, they crowned his outstanding record in international diplomacy. Moscow arranged the first RIC Foreign Ministers’ meeting in New York during a United Nations General Assembly meeting in 2002, hosted the first standalone meeting in Vladivostok in 2005, and presided over the first summit of the three nations’ leaders, on the sidelines of a G-8 meeting in St. Petersburg in 2006.

The BRIC acronym for a group of four fastest growing emerging economies was coined by a Goldman Sachs economist, but it was Mr. Putin who cast the concept in flesh and blood and projected it as an alternative forum to G-8

Even though Russia has been a G-8 member for more than 10 years, it has few reasons to be happy with its involvement in the forum. During Russia’s G-8 rotating presidency in 2006, Mr. Putin sought to launch the process of transforming the West’s rich men’s club into a wider forum of the world’s major players — an informal Security Council of sorts. The Ministers of Finance, Foreign Affairs, Education and Public Health of the five outreach nations — India, China, Brazil, South Africa and Mexico — took part in the pre-summit meetings of G-8 for the first time. Mr. Putin also spoke in favour of enlarging G-8 and stressed the need to adopt a new political agenda for it — “to try and work out a new architecture of international relations.”
However, after the Russian presidency the G-8 dialogue with the outreach nations has been downgraded again. Japan, which will host this year’s G-8 summit in Hokkaido in July, has limited interaction with the outreach countries to a working breakfast. Mr. Lavrov said Tokyo had rebuffed Moscow’s efforts to secure a more substantive involvement of the outreach countries rather than give them a place at the dining table.

“It’s no secret, and you perfectly know it, that the main opposition to G-8 expansion comes from the U.S. and Japan,” the Russian Minister told his BRIC partners.

Meeting less than two months before the G-8 summit in Japan, the BRIC countries strongly rejected Western unilateralism and called for a new world order.

“Building a more democratic international system founded on the rule of law and multilateral diplomacy is an imperative of our time,” the Foreign Ministers of the four countries declared in a joint communiqué.

Even as they favoured “continued cooperation” of the outreach countries with G-8, the BRIC Ministers made it clear that this interaction must be fair and equal.

“Sustainable development of global economy in the long-term as well as finding solutions to the acute global problems of our time, such as poverty, hunger and diseases are only possible if due account is taken of the interests of all nations and within a just global economic system,” the BRIC communiqué said.

In Yekaterinburg, the BRIC Foreign Ministers undertook to turn the group into a powerful instrument to change the world. The four nations are home to 40 per cent of humanity, three times as many people as the G-8 countries have. Their combined GDP, measured in terms of purchasing power, is only half that of G-8, and it is expected to overtake that of G-8 by 2020.

“We are the world’s fastest growing economies, we have many common interests in the globalised world and share many views on how to build a more democratic, fair and stable world,” Russia’s Foreign Minister said.
“We are changing the way the world order is organised,” Brazil’s Foreign Minister Celso Amorim summed up the Yekaterinburg deliberations.

The only disagreement that marred the first BRIC meeting was China’s refusal to commit itself to supporting the bids by India and Brazil for U.N. Security Council seats as proposed by Russia. However, this did not shake the four nations’ resolve to institutionalise BRIC as a political and economic forum. The Foreign Ministers agreed to meet again on the margins of the 63rd U.N. General Assembly in September 2008 and hold their next standalone meeting in India in 2009, once again along with an RIC conference.

It would be logical to expect closer interaction between the two groups and also with the IBSA (India-Brazil-South Africa) Dialogue Forum, which met in South Africa a few days before the Yekaterinburg meetings. India, incidentally, is the only country among the members of RIC, BRIC and IPSA, which participates in all the three groups and is therefore uniquely positioned to provide additional linkages among them.

BRIC is being built on the foundation of successful trilateral collaboration in the RIC format, which rose to a distinctly higher plane in Yekaterinburg compared to the previous RIC meeting in Harbin in China.

In Yekaterinburg, the Foreign Ministers of Russia, India and China dropped in the Harbin communiqué a dubious reference to their “divergent interests” and “reaffirmed the commonality in the approaches of the three countries” to global and regional problems. They noted progress in starting practical cooperation in agriculture, health and medicine, disaster mitigation and relief, as well as business-to-business and academic contacts.

The RIC communiqué for the first time set forth the troika’s shared views on separate international issues. This became possible primarily because India turned around on Kosovo and Iran.

On Kosovo, India joined Russia and China in denouncing the Serbian enclave’s unilateral independence as being “contrary to the U.N. Security Council Resolution 1244” and calling for a resumption of talks between Belgrade and Pristina. Earlier, India had only said it was “studying the evolving situation.”
On Iran, External Affairs Minister Pranab Mukherjee said India supported Tehran’s right to peaceful uses of nuclear energy, provided it fulfilled its international obligations. He called for all outstanding issues of Iran’s nuclear programme to be resolved through the IAEA, and warned that “confrontation and destabilisation” in the region were adversely affecting the situation. The joint communiqué called for “a political and diplomatic settlement” of the Iran problem “through negotiations.”

Remarkable shift

But the most remarkable shift in India’s position came on the issue of joining the Shanghai Cooperation Organisation (SCO), which unites Russia, China and four Central Asian states. Less than a year ago India, which has observer status in this six-nation grouping, indicated it would like to steer clear of aligning with the SCO in military, strategic and political terms, even as it favoured cooperation with it on trade and economic issues. However, in Yekaterinburg Mr. Mukherjee for the first time went on record to say that India aspired to full membership in the group.

“Of course India would like to be a member in SCO,” he said, replying to a question at a press conference in Yekaterinburg. He did add a caveat, though: “Our full membership is not imminent in any way,” because “currently, as I understand, it has been decided not to give full membership to any country.”

Mr. Mukherjee thanked Russia and China for encouraging India to be a hands-on participant “in all activities of SCO.” The RIC communiqué said Russia and China “welcome India’s aspirations for playing an enhanced role as an Observer State within the SCO framework.”

It remains to be seen whether the Yekaterinburg meeting marked a policy shift in Delhi towards closer cooperation with Russia and China or was a tactical manoeuvre to persuade the UPA’s Left partners to lift their opposition to the India-U.S. nuclear deal.

For Russia under Mr. Putin, the pursuance of multilateral arrangements — RIC, BRIC and SCO — was a high priority item, and it remains so under his successor. The RIC and BRIC meetings in Yekaterinburg were the first major international forums Russia hosted after President Dmitry Medvedev assumed office on May 7. Last week, Mr. Medvedev paid his first foreign visits — to Kazakhstan and China. A political declaration Mr. Medvedev signed in Beijing with Chinese President Hu Jintao said Russia and China would jointly work to strengthen both BRIC and RIC.

 

[muse]

AMID ECONOMIC SLOWDOWN, SIGNS OF NEW WORLD ORDER
Emerging markets are helping buoy global growth.
By Mark Trumbull | Staff writer of The Christian Science Monitor
from the June 2, 2008 edition

The world economy is cooling this year thanks to a slowdown in the United States, but something new is playing out: This slowdown is serving to amplify a shift in financial power toward Asia and developing nations.

Countries such as China and India are now big enough to help guide the global economy. In the past, a sharp downshift in the US and Europe would decisively slow the rate of global growth.

This time, emerging markets appear poised to grow collectively by 6.7 percent this year, according to recent forecasts by the International Monetary Fund. As a result, the IMF sees world gross domestic product (GDP) growing 3.7 percent, even though the US might experience a recession.

The US economy remains the world's mightiest. But even for Americans, this new economic order has immediate implications:
•Policymakers at the Federal Reserve must worry about upward price pressures for food and fuel – driven largely by rising demand in developing nations. That problem calls for tighter monetary policy, while the domestic consumer slump calls for the opposite policy.
•Demand for US exports from these new markets is providing a helpful cushion for growth, yet trade tensions could be an issue in the US presidential election.
•Money from emerging markets is playing an increasingly important role in the US financial system.

"We have a new pecking order in the world economy in terms of influence on global growth and economic power," says Michael Cosgrove, an economist in Dallas. "[Historically] we would see oil prices fall with a slowdown in the US and Europe…. That no longer holds."

The dynamism of the "BRIC" bloc – Brazil, Russia, India, and China – is not new, but their stunningly rapid rise in this past decade is now being tested in the laboratory of tough times.

For consumers and workers worldwide, what's playing out is a tug of war between two opposing problems.

First is the weakness in the US and some other advanced nations as a housing slump and related credit squeeze hits households. That's dragging GDP growth down on all continents.

Second is inflation, a symptom of the strength of emerging nations. Their demand for commodities explains much of the surge in fuel and food prices worldwide. It's this problem that is, at present, taking center stage as a global worry.

"The good news here is that the standard of living for a lot of people is improving," says Mr. Cosgrove, publisher of the EconoClast newsletter. But for now, "the bad news is that it pushes up prices."

What's changed in the world economy is not just the rate of growth of countries labeled developing or emerging. It's also the size of their economic output.

"What's different this time is that the emerging market economies have been growing so rapidly that they've emerged," says Ed Yardeni, an economic forecaster at Yardeni Research in Great Neck, N.Y. "They've become very large."

Now, these nations are accounting for more than half the world's economic growth in a given year. And, when measured in terms of the domestic purchasing power of their incomes, these countries are also approaching half of global economic output, according to IMF figures.

This makes it a different world from just seven years ago, the last time the US was in a recession. Then, America's nosedive brought global GDP growth down to 2.2 percent in 2001. Considering the expectation that GDP should keep pace with population growth, that was in effect a worldwide recession.
Oil prices were not a concern then. But growth in developing nations fell sharply to 3.8 percent from 5.9 percent in 2000.

This year, by contrast, the IMF forecasts a recession in the US but growth well above 6 percent in developing countries – down just a percentage point from last year.

Recession or not, how the American economy fares depends partly on trends in emerging markets.

One issue is cash supply. Historically, emerging economies are importers of capital. Now, "sovereign wealth funds," investment funds controlled by developing nation governments are helping US banks survive mortgage-related losses. More broadly, nearly half of US capital inflows over the past year and a quarter came from China, Brazil, Mexico, and Russia, according to Bank of America.

Emerging economies are also influencing monetary policy. The Federal Reserve has been lowering interest rates to stave off a banking crisis. But rising commodity prices mean the Fed has to be ready to fight inflation with higher interest rates.

Economists at Merrill Lynch predict that the current global economic cycle hinges on when monetary authorities in creditor nations – many in the developing world – clamp down on inflation.

Other economists caution against viewing emerging economies as being in the driver's seat. "The US is still the biggest by far," says Jay Bryson of Wachovia Corp in Charlotte, N.C.

He predicts that inflation pressures will abate as the world feels the cooling effect of the slowdown in US and Europe.

Developing nations are also trading more than ever, offsetting the US slowdown. But these trade ties are also controversial, especially with China.
A backlash against trade with developing nations is possible in the aftermath of the US election this fall.

It's a thorny political question – how to deal with policies that may not help every worker or that help some nations more than others. "Before, say, 1985, the United States got the majority of the gains from trade" with other nations, says Cosgrove. Since then, he reckons, "the US has a smaller share of the gains from trade."

Trade remains helpful for America and the world, but the danger is that voter psychology is shifting, he says

 

[muse]

DIPLOMACY THRIVING, BUT WITHOUT U.S.
The fall election and an era of diffused power may be factors.
By Howard LaFranchi | Staff writer of The Christian Science Monitor
from the June 3, 2008 edition

WASHINGTON - Just this spring, a number of diplomatic initiatives and conflict-settlement discussions are taking place without the United States, raising questions about the reach and strength of American global power.

The world may be simply witnessing a lull in US diplomatic results until voters pick a replacement for George W. Bush – a particularly unpopular American president on the international stage. But another reason could be at work: Is this the waning of American primacy and the dawn of an era of diffused power?

Consider these developments:

•Fierce fighting that threatened to engulf Lebanon in a new civil war last month was quelled when factions reached a political accord with the help of
Qatar – though with the US nowhere in sight.

•Israel and Syria have begun talks aimed at reaching a peace treaty – with Turkey as the go-between.

•Brazil, looking for partners with which to expand its diplomatic reach, suddenly finds China eclipsing the US – particularly in food trade.
In these and other examples, both the US election and the dawn of a new era – one with diffused power – are probably both factors, many analysts say.

"There's an enormous amount of diplomatic activity and geopolitical movement taking place without US participation. Much of this is new, and it's striking," says Charles Kupchan, an international-relations expert at Georgetown University in Washington. "Part of it is the world taking steps on its own as the US focuses on its changing of the guard. But certainly a crucial factor is the world's changing balance of power."

This "changing balance" is causing a shift to new words to describe how the world will work in the post-Iraq-war, globalized era. Gone is the first Bush term's vision of unipolarity. And while some experts speak of an emerging multipolarity, Council on Foreign Relations president Richard Haass goes so far as to envision an era of "nonpolarity" where no power will dominate.

For some experts, focus on the US presidential campaign and a half-decade preoccupation with Iraq are two factors pulling the US away from broader involvement in the world – while also obscuring the larger changes in global power distribution.

"We are seeing a diffusion of power to other actors," says Thomas Henriksen, an American foreign-policy expert at the Hoover Institution in Stanford, Calif. "But there are other things going on that make it hard to know if it's a major trend."

President Bush's unpopularity in the Middle East may be one explanation for diplomatic efforts such as those in Lebanon and between Israel and Syria moving ahead without the US, he says. A US overstretch in Iraq is another reason that others list.

Mr. Kupchan of Georgetown cites what he calls "mutually reinforcing explanations" for a world stage where the US is not playing the lead role.
First, "The clock is running out on the Bush administration," he says. That encourages others to try to solve problems without the US, especially in a regional context.

Second, a global shift in the distribution of power has de-emphasized American primacy. "The US is still No. 1," Kupchan says, "but globalization, the price of oil, a tanking US economy, all have joined to accelerate a dramatic shift of power towards China, the world's energy producers, and certain regional powers."

Third, he says, the post-cold-war assumption that the West's democracies "led the pack" is being challenged by the rising influence of countries such as China, Russia, and even Iran, which have a different vision for the exercise of global power. "Countries that are performing well economically or that hold a key to global prosperity are able to hold sway the way they couldn't before," Kupchan says.

This vision of the waning primacy of Western democratic ideals is developed by international-relations expert Robert Kagan in his recent book, "The Return of History and the End of Dreams." In it, he foresees a return to an era of competition for spheres of influence.

But that vision paints too dark a picture of the future, some experts say.
Mr. Henriksen of the Hoover Institution notes, for example, that China has played a crucial role in the US-led effort to shut down North Korea's nuclear program.

"Nonproliferation is on everyone's list of the top international challenges that lie ahead," he says. "And this is a case where we couldn't have got where we have without the Chinese."

That example is one leading some experts to suggest a dawning "era of opportunity" for the US to join a more equal and like-minded world in addressing what they see as key challenges: terrorism and nonproliferation, the threat of pandemic disease, and global warming.

"When it comes to the two or three issues that really matter, we actually have much more in common than we ever have" with other world powers, says Nina Hachigian, a visiting scholar at Stanford University's Center for International Security and Cooperation.

China and Russia are working closely with the US on proliferation and other security issues in ways that suggest how the US can benefit from an era of more equal world powers, says Ms. Hachigian, coauthor with Mona Sutphen of "The Next American Century: How the U.S. Can Thrive as Other Powers Rise."

She notes that the current "hand-wringing" over China's rise is reminiscent of similar consternation over Japan in the 1980s. "Now, as then, we can get worked up about other countries having power," she says, "or we can focus on the opportunities this new era presents."

Another example is Russia, she says: With Russia a key player in international weapons security efforts and in negotiations with Iran, "it doesn't make sense to talk in terms of minimizing engagement with the Russians, as in kicking them out of the G-8."

But it will take two changes for the US to take advantage of this "new era," she says: first, a US that no longer sees global power in the "zero-sum" terms of the cold-war era and second, an America that remains strong economically and diplomatically by investing more in education, infrastructure, and sciences at home.

 

[muse]

From the IHT


Roger Cohen: The world is upside down
By Roger Cohen
Sunday, June 1, 2008

RIO DE JANEIRO: For a while the world was flat. Now it's upside down.

To understand it, invert your thinking. See the developed world as depending on the developing world, rather than the other way round. Understand that two-thirds of global economic growth last year came from emerging countries, whose economies will expand about 6.7 percent in 2008, against 1.3 percent for the United States, Japan and Euro zone states.

The sharp rise in prices for energy, commodities, metals and minerals produced mainly in the developing world explains part of this shift. That has created the balance of payments surpluses fueling dollar-dripping sovereign wealth funds in countries like China. They amuse themselves picking up a stake in BP here, a chunk of Morgan Stanley there, and why not a sliver of Total.

We of the developed-world Paleolithic species are fair game for the upstarts now, our predator role exhausted. The U.S. and Europe may soon need all the charity they can get.

To place this inversion in focus, it helps to be in Brazil, where winter (so to speak) arrives with the Northern Hemisphere summer, and economic optimism, as exuberant as the vegetation, increases at the same brisk clip as U.S. foreclosures.

Huge offshore oil finds, a sugarcane ethanol boom, vast reserves of unused arable land, mineral wealth and abundant fresh water contribute to Brazilian buoyancy. But natural resources are only part of the story. As in China and India, an expanding internal market is bolstering growth. So is increasing corporate sophistication and global ambition.

At the annual National Forum, a gathering of business leaders, I felt like a first-world pipsqueak as leaders of the national energy company Petrobas (bigger than BP, Shell and Total) and Companhia Vale do Rio Doce, or CVRD (the world's second largest mining company), reeled off head-turning statistics.

Petrobras, which has spearheaded Brazil's push to self-sufficiency from heavy dependence on imported oil 30 years ago, will more than double oil production to 4.2 million barrels a day in 2015 from 1.9 million barrels today.

"With the latest discoveries, the South Atlantic will become a huge oil producer," predicted José Sergio Gabrielli de Azvedo, its chief executive.
Roger Agnelli of CVRD waved away the United States ("It's full of debt") to focus on the company's ambitions in Asia. It was imperative to be there, he said, because that's where growth, capital and ambition are. China, he noted, will account for 55 percent of iron ore consumption, 31.6 percent of nickel, and 42 percent of aluminum by 2012. Case closed.

Like many other big emerging-market corporations, CVRD has been on a buying-spree. It's not just sovereign wealth funds that are acquiring first-world companies these days. It's the new giants of the NAN (Newly Acquisitive Nations).

Emerging-market mergers and acquisitions are up 17 percent this year to $218 billion, while for the rest of the world they're down 43 percent to $991 billion, according to Thomson Reuters.

The 2007 Unctad World Investment Report said developing-world direct foreign investment totaled $193 billion in 2006, compared to a 1990s annual average of $54 billion. The U.S. 2006 figure was $216.6 billion.

CVRD bought Canada's Inco, a nickel miner, for $17 billion in 2006. It came close to acquiring the Anglo-Swiss miner Xstrata for $90 billion this year. Just last week, India's Vedanta Resources reached a $2.6 billion deal to buy U.S. copper miner, Asarco. That deal is being challenged by Grupo Mexico, creating a Latin-American-Asian fight for a U.S. company.

If you have trouble getting your mind around that, try standing on your head.
That's also a good position from which to view India's Tata Motors agreeing to buy Land Rover and Jaguar from Ford for $2.3 billion, or Tata Steel's acquisition last year of the Anglo-Dutch Corus Group steel company for $12 billion.

Globalization is now a two-way street; in fact it's an Indian street with traffic weaving in all directions.

"In an inverted world, not only have developing economies become dominant forces in global exports in the space of a few years, but their companies are becoming major players in the global economy, challenging the incumbents that dominated the international scene in the 20th century," said Claudio Frischtak, a Brazilian economist and consultant.

A shift in economic power is underway whose implications the developed world has not grasped. Of course the G-8 and the permanent membership of the UN Security Council need to be expanded to reflect this change. The 21st century can't be handled with 20th-century institutions.

That's obvious. Less obvious is how the United States, which underwrites global security at vast expense, begins to share this burden, so that the new multi-polarity of wealth is reflected in a multi-polarity of security commitments.

Headstands are in order for the next U.S. president.


Readers are invited to comment at my blog: Passages » Opinion Blog » International Herald Tribune.

 

[muse]

From today's Daily Times


Global order without US —Muqtedar Khan

The deal in Doha has diminished US influence in Lebanon and, by empowering Hezbollah, has also hurt US interests. Above all, Doha has sent the message that US diplomacy is not always indispensable

We live in an era of global governance. Through a complex network of international organisations like the United Nations, the World Bank, the International Court of Justice and the World Trade Organisation, we have succeeded in creating a pattern of governance without government at the global level.

Much of this global order was created under the leadership, the financial assistance and the persuasive powers of the United States. It all began with President Woodrow Wilson’s vision of creating a League of Nations.

For six decades — since the end of World War II — the US has been the primary mover behind, and the main underwriter of, the emerging global order. But for a while now, experts of international relations have been wringing their hands wondering what would happen to this Wilsonian World once American global prominence and leadership declines.

If the US turned its back on the global order and refused to sustain it, or lost the capacity to do so, would it collapse?

A possible answer has come from Qatar.

Qatar is a tiny oil-rich emirate in the Gulf and in fact quite comparable to the State of Delaware. Qatar has a population of about 950,000, and Delaware, about 850,000. Qatar’s GDP [the size of its total national income] is $67 billion and Delaware’s (Delaware had the highest per capita income in the US of $59,000) is about $63 billion.

Last month, the Delaware of the Middle East stepped up to the plate and pulled off a coup in diplomacy and peacemaking. It resolved a conflict between feuding Lebanese factions that was threatening to break out into another civil war with the dangerous possibility of embroiling Iran, Israel and the US.

Lebanon has been politically unstable since Israel’s devastating invasion in 2006. Its US-backed government had become dysfunctional with the withdrawal of the opposition, the position of the President remained vacant and attempts by the pro-US government to limit Hezbollah’s influence had backfired resulting in the Iranian-backed group’s takeover of Beirut and its defeat of pro-US militias. As violence escalated and the death toll reached 65, a civil war seemed inevitable.

Usually in such circumstances, the US would intervene by sending a prominent ambassador or the Secretary of State to conduct shuttle diplomacy, and resolve the conflict. But not this time. President Bush, who just last week described himself as a “man of peace”, abstained from taking any peace initiative.

Even if the US had sought to address the crisis, it would have failed. As has been the case in recent years, the US found itself aligned with one side — the government and Sunni Muslim leaders — and not even on talking terms with the other. The “we talk only with those who agree with us” policy has disabled US diplomacy. The world’s most powerful player is finding itself on the margins of peacemaking.

Tiny Qatar moved into the leadership void, hosted the conflicting parties at a conference in Doha; five days of intensive negotiations later, they all came out with a peace deal. Lebanon now has a President, a new electoral law, a functioning government and above all, Hezbollah has withdrawn its fighters and peace prevails.

Qatar has shown that with the decline of the US, regional players who enjoy the respect, trust and confidence of all parties can play the role of peacemakers in the absence of the super power. Perhaps it is trust not power that is the currency of peacemaking.

The deal in Doha has diminished US influence in Lebanon and, by empowering Hezbollah, has also hurt US interests. Above all, Doha has sent the message that US diplomacy is not always indispensable.

Across the region we now see players stepping up to fill the diplomatic leadership gap. Turkey has taken the initiative to open indirect talks between Syria and Israel. For several months the two countries have been talking to each other through Turkey despite Washington’s passive-aggressive response.

Even the warring Palestinian factions, Hamas and Fatah, have launched their own effort towards a rapprochement. Pakistan has begun a complex effort to make peace with the Taliban and its allies. All of these initiatives are without American blessings.

Clearly all the above are small initiatives with limited scope but are full of promise nonetheless. No single nation, or a coalition of nations has so far emerged that can play the role of the US in sustaining our global order.

But tiny Qatar, with one giant step, is showing the way. Perhaps other regional players like India, Japan, South Africa, Brazil, Turkey, Saudi Arabia and the European Union can combine to give the US a much needed ‘staycation’ from global intrigue.

The world has benefited from the US sponsored global order; it is time for others to share.

Dr Muqtedar Khan is Director of Islamic Studies at the University of Delaware and Fellow of the Institute for Social Policy and Understanding ( Ijtihad, Islam, American Muslims, Terrorism, Globalization, Quran, Geopolitics, American Foreign Policy, Islam and democracy, islamic philosophy, Islam and politics)

 

[muse]

From Today's IHT


Exaggerating America's decline
By Michael Fullilove

Tuesday, June 17, 2008
SIZE="3"]A new international relations orthodoxy is coalescing, to the effect that America is slouching towards mediocrity. In newspaper columns articles and on TV talk shows you will hear journalists charting the "relentless relative decline" of the United States. The military is overstretched; the economy is exposed; the political system is broken; the punters are suffering from an Iraq-induced hangover; and when it comes to international legitimacy, the White House has maxed out America's credit card. And all the time, potential competitors such as China, the European Union, Russia, India and Iran are closing in.

The best works in this area, by Richard Haass and Fareed Zakaria, are full of insight. Yet as a non-American living in the United States, I'm struck by the gulf that still remains between America and the rest - in terms of hard power, soft power and what we could call "smart power."

In relation to hard power, the $14 trillion American economy dwarfs all the others. The United States spends roughly as much on its military as the rest of the world combined. Washington has been bloodied and diverted by its foolhardy invasion of Iraq, but it remains the only capital capable of running a truly global foreign policy and projecting military power anywhere on earth.

Almost every country thinks it has a special relationship with the United States, based on shared history or values - or clashing ones. None of the great challenges facing humanity can be solved without the Americans.

America has some worrying weaknesses - but we should not ignore the frailties of others: the cleavages in China, the divisions within Europe, the dark side of Russia, or the poverty of India.

In terms of soft power, too - the ability to get others to want what you want - the case for America's decline is easily overstated. America retains its hold on the world's imagination. For most non-Americans around the world, America's politics are, at some level, our politics as well.

Why is the world so interested? America's bulk is only part of the answer. Ultimately, it is not really the size of the U.S. economy that draws our attention. It is not even America's blue-water navy or its new bunker-busting munitions.

Rather, it is the idea of America which continues to fascinate: a superpower that is open, democratic, meritocratic and optimistic; a country that is the cockpit of global culture; a polity in which all candidates for public office, whether or not they are a Clinton, seem to come from a place called Hope.

It's worth noting that the declinist canon has emerged at the nadir of the Bush years; America's soft power account will look much healthier the instant the next president is inaugurated.

The final source of U.S. influence is the way in which American ideas continue to inform global narratives - its smart power. If you have an argument to make, or a book to publish, or a doctrine to expound, then the United States is the place where you must do it. It is not just that the market is so big, or that the world's attention means that events that occur in the United States today are fodder for pundits everywhere tomorrow. Just as important is the sheer quality of the creative output from America's great universities, think tanks, newspapers and magazines.

The effect of all this is that the opinions of Americans on the great issues of the day ripple out through the world and are repackaged everywhere.

Smart power flows from human creativity, which is why Americans should be happy about the migration flows that are replenishing their nation's human capital. Both blue-collar workers and gold-collar workers continue to be drawn here like iron filings to a magnet. It is hard to imagine future Fareed Zakarias - or, for that matter, future Barack Obamas - emigrating to China or Russia or Iran instead of the United States.

There is a long tradition of foreign visitors bemoaning that such a strong country as the United States is so stupid. They could not be more wrong: America is powerful because it is smart.[/SIZE]

Michael Fullilove is director of the global issues program at the Lowy Institute in Sydney, Australia, and a visiting fellow at the Brookings Institution in Washington.

 

[ejaz007]

muse,
Are you trying to scare every one.

 

[muse]

No, I'm not trying to scare anyone, I am pointing out how despite the best efforts of the present US administration to create a unipolar world, it has fundamentally screwed up - how it's refusal to lead has created a situation in which instead of renewing American prestige and ability to positively influence the world, it has brought about the opposite.

As the last piece makes the point, the world needs America, because it is inspired by ideals that this administration has a made a mockery of - people from all aroun dthe world still line up to legally emigrate to the US (and most illegally) - why? why do people still want to go to the US and start business?

Perhaps a new administration can revive the ideals the rest of the world admires about the US, perhaps the US can once again be at peace with the world, can once again listen and act in the interest of the world and not a small millenarian cabal in the US.

What should have scared everybody is a outlaw US, a beserker US, instead the world mostly ignored it and has gone to further their interests with out regard for the US, making it irrelvent. And that ought to bring some sobriety to those who still care about the US.

 

[muse]

In an earlier piece from the IHT, the author makes the point that the major players in the brave new world have inherent weakness, in particular the structure of their relations - below is an examination of one of these possible fissures:

Date:18/06/2008 URL: The Hindu : Opinion / Leader Page Articles : Looking beyond the border issue


Looking beyond the border issue

Subramanian Swamy

India could form a compact with China or become part of the U.S. efforts to keep China ‘contained.’ How and why the choice is to be made must be subject to an in-depth analysis and national debate.

In many ways, India and China are natural partners, being neighbours who share a long boundary. For more than 5,000 years they were culturally and religiously interacting with each other, peacefully and normally, except for a relatively brief period of 20 years from 1958 to 1978.

In fact, no two neighbours of any size in any continent can claim such a long period of peaceful co-existence and cultural contact. This is an encouraging fact of history. Except for the bitter memory of the 1962 conflict, there is no deep-seated sentiment mitigating against a future strategic partnership between them.

However, being a democracy India is more expressive about China than China is about India, since the Chinese press is controlled. Such a lack of articulation leaves the impression that China does not take India seriously. India could, at a future date, become a strategic partner or formidable adversary, or an economic collaborator or fierce competitor, and yet China’s perception of India is not yet explicitly articulated.

In the long term, will a strategic India-China relationship, if forged today, be abandoned by China? Indians cannot be sure because of the Chinese opaqueness in the discourse with India.

Once China attains the economic status it wants, its leaders may want to assert its political and military clout in South Asia against Indian interests. At present China assists Pakistan, Burma (Myanmar), Bangladesh, Nepal, and Sri Lanka with military supplies, but has not openly exercised its clout in these countries against India. But China has kept open the option to do so. There is also the festering border dispute that requires resolution.

It would be thus appropriate first to consider the centrality of the border dispute in the future prospect of a durable Sino-Indian strategic partnership, as this dispute can be a triggering factor for adverse Sino-Indian relations.

Between 1949 and 1957, the media in India mostly went by Prime Minister Jawaharlal Nehru’s pronouncements on Sino-Indian relations. Because of his perspective, the broad masses of India regarded relations between the countries to be extremely cordial. But this was only apparently so; the seeds of discord had been sown early. How these seeds had germinated since, is described in my study (Chapter 3, India’s China Perspective (Konark, 2001)). The core inference from the facts narrated there is: Neither China, nor indeed India, has a case of any undisputed merit in the cartographic border claims, and worse, neither had been honest to the other about the facts through the 1950s.

China did not reveal its territorial claims even when the two countries negotiated and signed the 1954 Agreement on Tibet. Though it was an agreement on trade and intercourse, it was concluded in order to settle all outstanding issues and to consolidate friendly relations. One of the Five Principles of Peaceful Co-existence (the Panch Sheel) was “mutual respect for each other’s territorial integrity and sovereignty,” which clearly implied that the borders of each party to the treaty were known to the other. Had China believed there was a substantial territorial dispute, then that was the time to raise the question, before solemnly pledging to respect mutually the “territorial integrity” of the other. Equally wrong was Nehru in not raising explicitly, and then clinching, the border issue, especially when India was clearing out of Tibet and recognising it to be a province of China.

In October 1954, Nehru while in Beijing mentioned to the Chinese leaders that he had seen some maps published in China that showed a wrong boundary between the countries, but added that he was not worried about it, because the boundaries of India were quite clear and not a matter of argument.

On January 23, 1959, Prime Minister Chou Enlai wrote to Nehru that it was “true that the border question was not raised in 1954 when negotiations were held for the Agreement on Trade and Intercourse between Tibet region of China and India. This was because conditions were not yet ripe for its settlement.” This was an amazing admission. How had the time become ‘ripe’ in 1959 for the dispute to be raised?

After administering a blistering defeat in 1962, the Chinese forces withdrew 20 km behind the McMahon Line, which China called “the 1959 line of actual control” in the Eastern Sector, and 20 km behind the line of its latest position in Ladakh, which was further identified with the “1959 line of actual control” in the Western Sector. This left China in possession of 23,200 sq km of territory in Ladakh. India asked for status quo ex-ante as of September 8, 1962 in all sectors, which China rejected. A stalemate resulted on the boundary dispute: in effect it remains even today.

Towards the end of December 1964, Chou Enlai, speaking to the National People’s Congress in Beijing, called the suggestion of restoration of the status quo as of September 8, 1962 “an unreasonable Indian pre-condition.” He declared that China would never dismantle its posts. He reminded India that China had not relinquished its claim to an additional 90,000 sq km south of the McMahon Line. This territorial demand was in addition to the 23,200 sq km in Ladakh that was already with China.

Thus, the border issue, if it is made central to further development of Sino-Indian relations, will effectively freeze any progress towards entente.

The first requirement of an effective Indian policy towards China is therefore to build a national consensus on how in a globalised world India defines its complex of interests vis-À-vis China, to deal with the situation on the border that has dramatically changed since 1962, and how best to communicate this consensus candidly to Chinese leaders. It is significant that while China denounces the McMahon Line as ‘imperialist,’ it has accepted a similarly imperialist line with Burma in toto. This contradiction is explainable by the issue of Tibet.

Second, Tibet will continue to play the defining role in Sino-Indian relations. India has reiterated its policy of regarding Tibet as an autonomous region of China, and not permitting any anti-China political activity by Tibetan elements on Indian soil. This statement of policy has been repeated during exchange of visits by the Prime Ministers of China and India. In 2003, Prime Minister Vajpayee specifically and categorically confirmed the position in Beijing. Yet the China views the émigré government of the Dalai Lama nominees in Dharamshala with suspicion.

The third is in the resolution of competitive interests between China and India. Any two large nations will have competitive aspirations and needs, and if these cannot be resolved satisfactorily then bilateral relations will weaken even if these can be cemented in other dimensions.

And finally, the fourth dimension is in matching the expectations of the peoples of the two nations. If one nation assumes that friendship means totality of convergence or submergence of all national interests, while the other expects it to be based on a purely give-and-take basis, relations are bound to sour because the expectations are not matched. That is the situation today in Sino-Indian bilateral affairs.

No apparent consensus


A fundamental problem in Indian policy-making towards China is that there is no apparent consensus in India even today, on the “end” objectives of engagement. The domestic strategic discourse has failed to come up with a clear criterion to evaluate the “means” to be adopted. There is as yet no clear China perspective in the Indian government. In this context, a review of contemporary Sino-Indian relations is needed before developing a stable strategic ‘Sino-Indian Partnership’ — the current buzzwords.

In particular, a crucial choice will have to be made. Choice I: India could form a compact with China. Choice II: It could become part of the U.S. efforts to keep China ‘contained’. How and why the choice is to be made must be subject to an in-depth analysis and national debate. Either India befriends China in a fundamental and strategic sense, or India confronts China. There is no third way.

The upshot of this analysis can be summarised in three points: (a) A strategic partnership between India and China has to be viewed in dimensions of economic, global influence, and national security. Hence, to opt for such a partnership there has to be a holistic approach. (b) For historical, cultural and geographical reasons, it is natural for India and China to be partners in global affairs. It is, however, too early for India to clinch a strategic partnership with China because of the upheaval in the international economy triggered by globalisation, and more important, the imminence of a financial crisis in China and India (see the author’s Financial Architecture and Comparative Development Economic of China and India, 2007). Thus, bilateral discussions for this partnership at all important levels should take place only after all scenarios are visualised and issues are thrashed out, to avoid misunderstanding. [/COLOR](c) For the time being, the U.S. is important as a market and as a pioneer in innovative technology. Hence, it is not a feasible for either India or China to come to any understanding that is inconsistent with U.S. global interest. This is more true for China than it is for India because the former is more vitally interlinked with the U.S. economy and foreign trade with the West and pro-U.S. East Asia.

(The author is a former Union Minister for Commerce. He is a specialist on China and on India-China relations.)

 

[Tang0]

Hmm, that is a whole lot of articles, some of the points from one contradict the others. It is a bit of a mess. Good articles, but maybe this should have been broken up into more than one thread? I don't even know what to discuss.

 

[muse]

To understand a crucial element of why the price of oil has beaved the way it has


Cost, abuse and danger of the dollar
By Rudo de Ruijter

Those who use dollars outside the US continuously pay a contribution to the US. It comes in the form of an inflation of $1.25 million per minute. This is the result of the fast increase of the US foreign debt. Half of all US’ imports are simply added to the foreign debt and paid for by the foreign dollar holders through inflation.

Moreover these dollar holders do not seem to realise, that the dollar rate they are looking at, is nothing more than a dangerous façade. If they don’t understand what is still keeping it upright, the façade may hit them by surprise. Meanwhile, the dollar is at the center of several US’ conflicts.

World wide demand for dollars: Up to 1971, each US dollar represented a fixed amount of gold. The US disposed of enormous gold reserves, which covered the total value of all issued dollars. When foreign banks had more dollars than they wanted, they could exchange it into gold. That was the main reason why the dollar was accepted worldwide.

In 1971 the gold guarantee for the dollar was lifted. In fact, this was an emergency move of president Nixon: the Vietnam war had cost more than the US could afford and more dollars had been printed than the gold reserves allowed. Since then, the value of the dollar is established by the law of offer and demand on the exchange markets.

In the early seventies the US still produced enough oil for its own consumption. To protect its own oil enterprises against foreign competition, oil imports were limited. In exchange for the lift of limitations, the OPEC countries promised they would only accept dollars for their oil. The dollar was the most used currency in the world trade. So nothing special?

Since 1971 everyone who wants to import oil, has to buy dollars first. [1] That is where the fun starts for the US. Almost everybody needs oil, so everybody wants dollars.

Oil buyers from all over the world hand over their yens, crowns, francs and other currencies. They receive greenbacks in return. With those dollars they go and buy oil in the OPEC-countries. The OPEC-countries will spend the money again. Of course, they can do that in the US, but also in all other countries in the world. Everybody wants dollars, for everybody will need oil again.
Bankrupt and still continuing: You can see the current debt and you can see how much it grows each second… 45 percent of it is to be paid back to foreign borrowers. The foreign debt is that high, that the US cannot pay back her debt anymore. The US is bankrupt.

Nevertheless dollars are still traded normally. For the purchase of oil and gas they are still needed. And, misled by an apparently healthy exchange rate, the world trade continues to do its transactions in dollars. Business as usual?

According to the usual logic of economics, a lower rate of the dollar should lead to more exports from the US and less imports by the US, as foreign importers can buy cheaper in the US then. However, as long as foreigners are mad enough to accept dollars, the US doesn’t find it a problem to issue some more of these green debt bills.

Pay a bit more for Chinese socks and electronics from Japan? No problem. The US just increases the imports and foreign debt a bit harder. Paying more dollars for a product means inflation. And one percent of inflation means that at the same time the value of the tremendous foreign debt decreases with one percent. So the US has no interest at all in putting a break on its imports!

In the oil trade, generally, a lowering dollar rate does have a logical consequence.. oil exporters will not accept a lower return. When the dollar falls with 10 percent, they will raise the oil price 10 percent, so the value remains the same.

How do you steal oil reserves? There is still another aspect to the abuse of the dollar. During the demonstrations against the US-invasion of Iraq, a lot of demonstrators understood it was not about weapons of mass destruction. Iraq has world’s second largest oil reserves. Some demonstrators thought, the US was after the oil. And that is also true. But how can you steal oil reserves, which are in the ground and so huge you cannot take them with you?

You do it with currencies. By imposing, that this oil can only be traded in dollars, in one move the US becomes owner of this oil. The US is the only country, which has the right to print dollars and thus can dispose of the oil any time. Other countries that want to buy this oil, have to buy dollars first. In fact they pay their oil to the US at that moment. The dollars they receive are rights to collect a quantity of oil. (Just like when you go to Ikea to buy furniture, you pay first and you receive a note, with which you can collect your furniture at the shop’s back door.) So, basically, dollars are rights to collect oil. And because everybody needs oil, everybody wants these green notes.

So, Saddam’s switch to the Euro at the start of November 2000 was not just an attack on the rate of the dollar. The switch implied at the same time the US could not dispose freely of the oil anymore. The US would have to buy euros to dispose of it.

Since switching back the dollar on 5 June 2003 [21], the US has, financially, free disposal of the Iraqi oil again. Now it is a matter of installing a strawman-government and to prevent the Iraqi oil trade from switching away from the dollar once again. That is easy to say, but turns out to be more difficult than expected

 

[muse]

To make war, one has to go the American, but what if one to make peace? Do all roads lead to Washington as far as the israeli is concerned or is it that all roads lead to Washington as far as their adversaries are concerned?


Ready for peace? — Shlomo Ben-Ami


The resumption of peace talks between Israel and Syria after eight years of sabre-rattling is not a diversion from the political troubles of Israel’s lame-duck prime minister. Nor are the talks a Syrian ploy to avoid facing an international tribunal on the assassination of Lebanon’s former prime minister, Rafik Hariri. An Israeli-Syrian peace deal is strategically vital for both sides, and both sides know it.

The two major formative experiences of Syria’s Ba’ath regime have been Hafez al-Assad’s loss of the Golan Heights in the 1967 war with Israel, and the loss of Lebanon by his son, Bashar, who was forced to withdraw his army under irresistible American-led international pressure. Recovering the Golan Heights and protecting Syria’s vital interests in Lebanon are not only major strategic concerns for Syria’s president; they are also crucial to the regime’s drive for national legitimacy, and to Bashar’s assertion of his own leadership.

Peace with Israel is not Assad’s priority. Rather, it is the prerequisite without which superior goals — rapprochement with the United States, legitimisation of Syria’s special status in Lebanon, and avoidance of a potentially devastating war with Israel if the Golan Heights are not recovered by peaceful means — cannot be attained. Indeed, the regime has hinted that it may be willing to compromise on the issue — the delineation of the 1967 border along a tiny piece of land on the Eastern shore of the Sea of Galilee — that wrecked the negotiations eight years ago.

An Israeli-Syrian peace is a weighty strategic necessity for Israel, too. The complexities of the threats to Israel are such that a possible confrontation with Hamas in Gaza might trigger a flare-up with Hezbollah in Lebanon. Such a war could be won only by the total destruction of Lebanon by Israel’s air force. In that case, Syria would likely seize the opportunity to break the deadlock over the Golan Heights through a military move that could develop into a massive war of missiles targeting Israel’s vulnerable home front. And Iran, in its drive to protect its nuclear programme from an Israeli-American attack, might be very active in supporting this ominous scenario.

Admittedly, the strategic conditions in the region are far more complex today than they were eight years ago, when Israel’s requirements for a deal with Syria focused mainly on security arrangements on the Golan Heights, and on Syria using its leverage in Lebanon to permit an Israeli settlement with that country. Syria’s alliance with Iran was not a major issue.

Syria’s subsequent forced withdrawal from Lebanon was not good news for Israel. In the last round of Israeli-Palestinian peace talks eight years ago, it was clear that a deal with Syria would automatically pave the way to a settlement with Lebanon, and an end to Hezbollah’s threat to Israel’s northern border. Today, peace with Syria might facilitate an Israeli peace with Lebanon down the road, but that will not be an automatic outcome. Indeed, while Hezbollah prospered under Syrian occupation, it never reached the extraordinary political power that it has today.

Nevertheless, peace with Syria could be a major building block in a wider Israeli-Arab settlement, and consequently of a more stable Middle East, though it is unrealistic to expect that Syria would automatically sever its special relationship with Iran in exchange for the Golan Heights. These are peace talks, not a defence treaty, and Syria would not abruptly disengage from its Iranian friends.

But good relations between an Arab state at peace with Israel and Iran are not necessarily a bad thing. Syria’s stance might limit, rather than extend, the reach of Iran’s strategy of regional destabilisation.

As always, much will depend on America’s readiness to move away from military solutions and rigid ideological imperatives and instead embrace the pragmatic culture of conflict resolution. A US-backed Israeli-Syrian peace could transform the strategic environment, potentially drawing other Middle East spoilers into a system of regional cooperation and security. —DT-PS

Shlomo Ben-Ami is a former Israeli foreign minister who now serves as the vice-president of the Toledo International Centre for Peace. He is the author of Scars of War, Wounds of Peace: The Israeli-Arab Tragedy