With an ice-cold disdain for public opinion and an obsession worthy of Lenin, President Obama and Speaker Nancy Pelosi rammed ObamaCare through the House by unprecedented parliamentary trickery, bribery and deceit. The President has thereby poisoned the national political well.
But the health care fight has just begun. Substantive constitutional court challenges are coming. Congressional elections are around the corner, and there's a growing opposition that wants to undo what Obama has just done. The President will discover that, ultimately, the American people's tenacity will overwhelm his--and he will be a failed President. But the cost of his public-be-damned attitude will be immense.
Socialists believe that the way to paradise is for governments to own "the means of production." Thus, decades ago even democratic countries such as France and Britain nationalized considerable swathes of their economies to achieve "social justice." That didn't work so well; therefore, since the days of Margaret Thatcher there have been wave after wave of privatizations in Europe and around the world.
Today's neosocialists are smarter than their ancestors. Instead of outright takeovers, they are achieving much the same goal through rigid regulations. ObamaCare is a prime example. Health insurers will eventually be private in name only, as the details of their policies will be dictated by governmental decrees. About the only thing companies will have any autonomy over--perhaps--will be their corporate logo.
Entitlements go hand in hand with sweeping, overbearing regulations. President Obama wants higher education in this country to be free of charge, which is why his Administration is pushing for a government takeover of student lending. With such powers it will be but a wee stretch to intrude even further into the governance of the nation's colleges and universities--including, ultimately, admissions.
Senator Chris Dodd's (D--Conn.) recently unveiled package of financial regulatory reforms is a neosocialist's dream. It is also destructively stupid. The bill doesn't address the key causes of the recent economic crisis: the Fed's too loose monetary policy, the behavior of Fannie Mae and Freddie Mac in buying or guaranteeing almost $1.5 trillion in junk mortgages and the failure to properly regulate credit default swaps and other derivatives.
Dodd's punting on swaps is astonishing. Years ago Washington should have mandated that such instruments go through clearinghouses so there'd be full transparency and proper margin requirements. After all, classic derivatives such as soybeans and currency futures have had margin requirements and clearing mechanisms.
In the name of fighting Washington's too-big-to-fail doctrine for major financial institutions, Dodd's bill is a de facto institutionalization of them. Financial outfits that are deemed a threat to financial stability will actually be protected by the government. The bill establishes a $50 billion fund to deal with big failures, but the fact that such a fund exists tells the market that when trouble comes big banks will be saved. Thus these biggies, like Fannie and Freddie, will have lower costs of borrowing--debt is by far the biggest component of their capital--which will put their smaller competition at a crippling disadvantage.
Moreover, the bill doesn't address the problem small businesses have with the current credit system. Bank examiners are applying a mark-to-market mentality in evaluating bank loans. This is an unfair bias toward bigger-sized borrowers and, of course, the debt-hungry U.S. government. Thus the paradox of today: bargain-basement rates of interest for larger firms and higher costs--or no credit at all--for smaller borrowers.
With favored access to low-cost debt the big will get bigger--and they will be beholden to Washington.
Dodd's scheme would create a new regulatory bureaucracy, the Financial Stability Oversight Council (FSOC), with sweeping powers for itself (and the Fed). Chief among its tasks would be assessing risk of banks and their products and activities, yet Washington has demonstrated that it is incapable of judging risk. Washington would have vast sway over the operations of the U.S. financial system. In this new world banks would have to get permission from Washington for any innovation. If an institution incurred Washington's displeasure, bureaucrats could order divestitures of businesses or could even put a firm out of business.
--------------------------------------------------------------------------------
The Dodd bill is an open invitation for government to micromanage the whole breadth of finance in America, including even your local pawnshop. Nationalizing the U.S. financial system without formally nationalizing it--Karl Marx would be drooling in delight.
Washington already has the power to impose requirements--for instance, if you want to buy stock on margin, you have to put 50% down. In 2004 debt restrictions on investment banks were lifted by the SEC. Reimpose them. One overdue action is repealing the 2000 law banning the Commodity Futures Trading Commission from regulating new financial derivatives.
Sensible debt-to-equity ratios, including stiffer equity requirements for volatile short-term debt, and clearinghouses for almost all derivatives would efficiently accomplish what Dodd's monstrosity purports to do and manifestly does not.
Wednesday, March 31, 2010
Marx Would Be Impressed
With an ice-cold disdain for public opinion and an obsession worthy of Lenin, President Obama and Speaker Nancy Pelosi rammed ObamaCare through the House by unprecedented parliamentary trickery, bribery and deceit. The President has thereby poisoned the national political well.
But the health care fight has just begun. Substantive constitutional court challenges are coming. Congressional elections are around the corner, and there's a growing opposition that wants to undo what Obama has just done. The President will discover that, ultimately, the American people's tenacity will overwhelm his--and he will be a failed President. But the cost of his public-be-damned attitude will be immense.
Socialists believe that the way to paradise is for governments to own "the means of production." Thus, decades ago even democratic countries such as France and Britain nationalized considerable swathes of their economies to achieve "social justice." That didn't work so well; therefore, since the days of Margaret Thatcher there have been wave after wave of privatizations in Europe and around the world.
Today's neosocialists are smarter than their ancestors. Instead of outright takeovers, they are achieving much the same goal through rigid regulations. ObamaCare is a prime example. Health insurers will eventually be private in name only, as the details of their policies will be dictated by governmental decrees. About the only thing companies will have any autonomy over--perhaps--will be their corporate logo.
Entitlements go hand in hand with sweeping, overbearing regulations. President Obama wants higher education in this country to be free of charge, which is why his Administration is pushing for a government takeover of student lending. With such powers it will be but a wee stretch to intrude even further into the governance of the nation's colleges and universities--including, ultimately, admissions.
Senator Chris Dodd's (D--Conn.) recently unveiled package of financial regulatory reforms is a neosocialist's dream. It is also destructively stupid. The bill doesn't address the key causes of the recent economic crisis: the Fed's too loose monetary policy, the behavior of Fannie Mae and Freddie Mac in buying or guaranteeing almost $1.5 trillion in junk mortgages and the failure to properly regulate credit default swaps and other derivatives.
Dodd's punting on swaps is astonishing. Years ago Washington should have mandated that such instruments go through clearinghouses so there'd be full transparency and proper margin requirements. After all, classic derivatives such as soybeans and currency futures have had margin requirements and clearing mechanisms.
In the name of fighting Washington's too-big-to-fail doctrine for major financial institutions, Dodd's bill is a de facto institutionalization of them. Financial outfits that are deemed a threat to financial stability will actually be protected by the government. The bill establishes a $50 billion fund to deal with big failures, but the fact that such a fund exists tells the market that when trouble comes big banks will be saved. Thus these biggies, like Fannie and Freddie, will have lower costs of borrowing--debt is by far the biggest component of their capital--which will put their smaller competition at a crippling disadvantage.
Moreover, the bill doesn't address the problem small businesses have with the current credit system. Bank examiners are applying a mark-to-market mentality in evaluating bank loans. This is an unfair bias toward bigger-sized borrowers and, of course, the debt-hungry U.S. government. Thus the paradox of today: bargain-basement rates of interest for larger firms and higher costs--or no credit at all--for smaller borrowers.
With favored access to low-cost debt the big will get bigger--and they will be beholden to Washington.
Dodd's scheme would create a new regulatory bureaucracy, the Financial Stability Oversight Council (FSOC), with sweeping powers for itself (and the Fed). Chief among its tasks would be assessing risk of banks and their products and activities, yet Washington has demonstrated that it is incapable of judging risk. Washington would have vast sway over the operations of the U.S. financial system. In this new world banks would have to get permission from Washington for any innovation. If an institution incurred Washington's displeasure, bureaucrats could order divestitures of businesses or could even put a firm out of business.
--------------------------------------------------------------------------------
The Dodd bill is an open invitation for government to micromanage the whole breadth of finance in America, including even your local pawnshop. Nationalizing the U.S. financial system without formally nationalizing it--Karl Marx would be drooling in delight.
Washington already has the power to impose requirements--for instance, if you want to buy stock on margin, you have to put 50% down. In 2004 debt restrictions on investment banks were lifted by the SEC. Reimpose them. One overdue action is repealing the 2000 law banning the Commodity Futures Trading Commission from regulating new financial derivatives.
Sensible debt-to-equity ratios, including stiffer equity requirements for volatile short-term debt, and clearinghouses for almost all derivatives would efficiently accomplish what Dodd's monstrosity purports to do and manifestly does not.
But the health care fight has just begun. Substantive constitutional court challenges are coming. Congressional elections are around the corner, and there's a growing opposition that wants to undo what Obama has just done. The President will discover that, ultimately, the American people's tenacity will overwhelm his--and he will be a failed President. But the cost of his public-be-damned attitude will be immense.
Socialists believe that the way to paradise is for governments to own "the means of production." Thus, decades ago even democratic countries such as France and Britain nationalized considerable swathes of their economies to achieve "social justice." That didn't work so well; therefore, since the days of Margaret Thatcher there have been wave after wave of privatizations in Europe and around the world.
Today's neosocialists are smarter than their ancestors. Instead of outright takeovers, they are achieving much the same goal through rigid regulations. ObamaCare is a prime example. Health insurers will eventually be private in name only, as the details of their policies will be dictated by governmental decrees. About the only thing companies will have any autonomy over--perhaps--will be their corporate logo.
Entitlements go hand in hand with sweeping, overbearing regulations. President Obama wants higher education in this country to be free of charge, which is why his Administration is pushing for a government takeover of student lending. With such powers it will be but a wee stretch to intrude even further into the governance of the nation's colleges and universities--including, ultimately, admissions.
Senator Chris Dodd's (D--Conn.) recently unveiled package of financial regulatory reforms is a neosocialist's dream. It is also destructively stupid. The bill doesn't address the key causes of the recent economic crisis: the Fed's too loose monetary policy, the behavior of Fannie Mae and Freddie Mac in buying or guaranteeing almost $1.5 trillion in junk mortgages and the failure to properly regulate credit default swaps and other derivatives.
Dodd's punting on swaps is astonishing. Years ago Washington should have mandated that such instruments go through clearinghouses so there'd be full transparency and proper margin requirements. After all, classic derivatives such as soybeans and currency futures have had margin requirements and clearing mechanisms.
In the name of fighting Washington's too-big-to-fail doctrine for major financial institutions, Dodd's bill is a de facto institutionalization of them. Financial outfits that are deemed a threat to financial stability will actually be protected by the government. The bill establishes a $50 billion fund to deal with big failures, but the fact that such a fund exists tells the market that when trouble comes big banks will be saved. Thus these biggies, like Fannie and Freddie, will have lower costs of borrowing--debt is by far the biggest component of their capital--which will put their smaller competition at a crippling disadvantage.
Moreover, the bill doesn't address the problem small businesses have with the current credit system. Bank examiners are applying a mark-to-market mentality in evaluating bank loans. This is an unfair bias toward bigger-sized borrowers and, of course, the debt-hungry U.S. government. Thus the paradox of today: bargain-basement rates of interest for larger firms and higher costs--or no credit at all--for smaller borrowers.
With favored access to low-cost debt the big will get bigger--and they will be beholden to Washington.
Dodd's scheme would create a new regulatory bureaucracy, the Financial Stability Oversight Council (FSOC), with sweeping powers for itself (and the Fed). Chief among its tasks would be assessing risk of banks and their products and activities, yet Washington has demonstrated that it is incapable of judging risk. Washington would have vast sway over the operations of the U.S. financial system. In this new world banks would have to get permission from Washington for any innovation. If an institution incurred Washington's displeasure, bureaucrats could order divestitures of businesses or could even put a firm out of business.
--------------------------------------------------------------------------------
The Dodd bill is an open invitation for government to micromanage the whole breadth of finance in America, including even your local pawnshop. Nationalizing the U.S. financial system without formally nationalizing it--Karl Marx would be drooling in delight.
Washington already has the power to impose requirements--for instance, if you want to buy stock on margin, you have to put 50% down. In 2004 debt restrictions on investment banks were lifted by the SEC. Reimpose them. One overdue action is repealing the 2000 law banning the Commodity Futures Trading Commission from regulating new financial derivatives.
Sensible debt-to-equity ratios, including stiffer equity requirements for volatile short-term debt, and clearinghouses for almost all derivatives would efficiently accomplish what Dodd's monstrosity purports to do and manifestly does not.
Tuesday, March 30, 2010
China: Crunch Time
The global system is undergoing profound change. Three powers — Germany, China and Iran — face challenges forcing them to refashion the way they interact with their regions and the world. We are exploring each of these three states in detail in three geopolitical weeklies, highlighting how STRATFOR’s assessments of these states are evolving. First we examined Germany. We now examine China.
U.S.-Chinese relations have become tenser in recent months, with the United States threatening to impose tariffs unless China agrees to revalue its currency and, ideally, allow it to become convertible like the yen or euro. China now follows Japan and Germany as one of the three major economies after the United States. Unlike the other two, it controls its currency’s value, allowing it to decrease the price of its exports and giving it an advantage not only over other exporters to the United States but also over domestic American manufacturers. The same is true in other regions that receive Chinese exports, such as Europe.
What Washington considered tolerable in a small developing economy is intolerable in one of the top five economies. The demand that Beijing raise the value of the yuan, however, poses dramatic challenges for the Chinese, as the ability to control their currency helps drive their exports. The issue is why China insists on controlling its currency, something embedded in the nature of the Chinese economy. A collision with the United States now seems inevitable. It is therefore important to understand the forces driving China, and it is time for STRATFOR to review its analysis of China.
An Inherently Unstable Economic System
China has had an extraordinary run since 1980. But like Japan and Southeast Asia before it, dramatic growth rates cannot maintain themselves in perpetuity. Japan and non-Chinese East Asia didn’t collapse and disappear, but the crises of the 1990s did change the way the region worked. The driving force behind both the 1990 Japanese Crisis and the 1997 East Asian Crisis was that the countries involved did not maintain free capital markets. Those states managed capital to keep costs artificially low, giving them tremendous advantages over countries where capital was rationally priced. Of course, one cannot maintain irrational capital prices in perpetuity (as the United States is learning after its financial crisis); doing so eventually catches up. And this is what is happening in China now.
STRATFOR thus sees the Chinese economic system as inherently unstable. The primary reason why China’s growth has been so impressive is that throughout the period of economic liberalization that has led to rising incomes, the Chinese government has maintained near-total savings capture of its households and businesses. It funnels these massive deposits via state-run banks to state-linked firms at below-market rates. It’s amazing the growth rate a country can achieve and the number of citizens it can employ with a vast supply of 0 percent, relatively consequence-free loans provided from the savings of nearly a billion workers.
It’s also amazing how unprofitable such a country can be. The Chinese system, like the Japanese system before it, works on bulk, churn, maximum employment and market share. The U.S. system of attempting to maximize return on investment through efficiency and profit stands in contrast. The American result is sufficient economic stability to be able to suffer through recessions and emerge stronger. The Chinese result is social stability that wobbles precipitously when exposed to economic hardship. The Chinese people rebel when work is not available and conditions reach extremes. It must be remembered that of China’s 1.3 billion people, more than 600 million urban citizens live on an average of about $7 a day, while 700 million rural people live on an average of $2 a day, and that is according to Beijing’s own well-scrubbed statistics.
Moreover, the Chinese system breeds a flock of other unintended side effects.
There is, of course, the issue of inefficient capital use: When you have an unlimited number of no-consequence loans, you tend to invest in a lot of no-consequence projects for political reasons or just to speculate. In addition to the overall inefficiency of the Chinese system, another result is a large number of property bubbles. Yes, China is a country with a massive need for housing for its citizens, but even so, local governments and property developers collude to build luxury dwellings instead of anything more affordable in urban areas. This puts China in the odd position of having both a glut and a shortage in housing, as well as an outright glut in commercial real estate, where vacancy rates are notoriously high.
There is also the issue of regional disparity. Most of this lending occurs in a handful of coastal regions, transforming them into global powerhouses, while most of the interior — and thereby most of the population — lives in abject poverty.
There is also the issue of consumption. Chinese statistics have always been dodgy, but according to Beijing’s own figures, China has a tiny consumer base. This base is not much larger than that of France, a country with roughly one twentieth China’s population and just over half its gross domestic product (GDP). China’s economic system is obviously geared toward exports, not expanding consumer credit.
Which brings us to the issue of dependence. Since China cannot absorb its own goods, it must export them to keep afloat. The strategy only works when there is endless demand for the goods it makes. For the most part, this demand comes from the United States. But the recent global recession cut Chinese exports by nearly one fifth, and there were no buyers elsewhere to pick up the slack. Meanwhile, to boost household consumption China provided subsidies to Chinese citizens who had little need for — and in some cases little ability to use — a number of big-ticket products. The Chinese now openly fear that exports will not make a sustainable return to previous levels until 2012. And that is a lot of production — and consumption — to subsidize in the meantime. Most countries have another word for this: waste.
This waste can be broken down into two main categories. First, the government roughly tripled the amount of cash it normally directs the state banks to lend to sustain economic activity during the recession. The new loans added up to roughly a third of GDP in a single year. Remember, with no-consequence loans, profitability or even selling goods is not an issue; one must merely continue employing people. Even if China boasted the best loan-quality programs in history, a dramatic increase in lending of that scale is sure to generate mountains of loans that will go bad. Second, not everyone taking out those loans even intends to invest prudently: Chinese estimates indicate that about one-fourth of this lending surge was used to play China’s stock and property markets.
It is not that the Chinese are foolish; that is hardly the case. Given their history and geographical constraints, we would be hard-pressed to come up with a better plan were we to be selected as Party general secretary for a day. Beijing is well aware of all these problems and more and is attempting to mitigate the damage and repair the system. For example, it is considering legalizing portions of what it calls the shadow-lending sector. Think of this as a sort of community bank or credit union that services small businesses. In the past, China wanted total savings capture and centralization to better direct economic efforts, but Beijing is realizing that these smaller entities are more efficient lenders — and that over time they may actually employ more people without subsidization.
But the bottom line is that this sort of repair work is experimental and at the margins, and it doesn’t address the core damage that the financial model continuously inflicts. The Chinese fear their economic strategy has taken them about as far as they can go. STRATFOR used to think that these sorts of internal weaknesses would eventually doom the Chinese system as it did the Japanese system (upon which it is modeled). Now, we’re not so sure.
Since its economic opening in 1978, China has taken advantage of a remarkably friendly economic and political environment. In the 1980s, Washington didn’t obsess overmuch about China, given its focus on the “Evil Empire.” In the 1990s, it was easy for China to pass inconspicuously in global markets, as China was still a relatively small player. Moreover, with all the commodities from the former Soviet Union hitting the global market, prices for everything from oil to copper neared historic lows. No one seemed to fight against China’s booming demand for commodities or rising exports. The 2000s looked like they would be more turbulent, and early in the administration of George W. Bush the EP-3 incident landed the Chinese in Washington’s crosshairs, but then the Sept. 11 attacks happened and U.S. efforts were redirected toward the Islamic world.
Believe it or not, the above are coincidental developments. In fact, there is a structural factor in the global economy that has protected the Chinese system for the past 30 years that is a core tenet of U.S. foreign policy: Bretton Woods.
Rethinking Bretton Woods
Bretton Woods is one of the most misunderstood landmarks in modern history. Most think of it as the formation of the World Bank and International Monetary Fund, and the beginning of the dominance of the U.S. dollar in the international system. It is that, but it is much, much more.
In the aftermath of World War II, Germany and Japan had been crushed, and nearly all of Western Europe lay destitute. Bretton Woods at its core was an agreement between the United States and the Western allies that the allies would be able to export at near-duty-free rates to the U.S. market in order to boost their economies. In exchange, the Americans would be granted wide latitude in determining the security and foreign policy stances of the rebuilding states. In essence, the Americans took what they saw as a minor economic hit in exchange for being able to rewrite first regional, and in time global, economic and military rules of engagement. For the Europeans, Bretton Woods provided the stability, financing and security backbone Europe used first to recover, and in time to thrive. For the Americans, it provided the ability to preserve much of the World War II alliance network into the next era in order to compete with the Soviet Union.
The strategy proved so successful with the Western allies that it was quickly extended to World War II foes Germany and Japan, and shortly thereafter to Korea, Taiwan, Singapore and others. Militarily and economically, it became the bedrock of the anti-Soviet containment strategy. The United States began with substantial trade surpluses with all of these states, simply because they had no productive capacity due to the devastation of war. After a generation of favorable trade practices, surpluses turned into deficits, but the net benefits were so favorable to the Americans that the policies were continued despite the increasing economic hits. The alliance continued to hold, and one result (of many) was the eventual economic destruction of the Soviet Union.
Applying this little history lesson to the question at hand, Bretton Woods is the ultimate reason why the Chinese have succeeded economically for the last generation. As part of Bretton Woods, the United States opens its markets, eschewing protectionist policies in general and mercantilist policies in particular. Eventually the United States extended this privilege to China to turn the tables on the Soviet Union. All China has to do is produce — it doesn’t matter how — and it will have a market to sell to.
But this may be changing. Under President Barack Obama, the United States is considering fundamental changes to the Bretton Woods arrangements. Ostensibly, this is to update the global financial system and reduce the chances of future financial crises. But out of what we have seen so far, the National Export Initiative (NEI) the White House is promulgating is much more mercantilist. It espouses doubling U.S. exports in five years, specifically by targeting additional sales to large developing states, with China at the top of the list.
STRATFOR finds that goal overoptimistic, and the NEI is maddeningly vague as to how it will achieve this goal. But this sort of rhetoric has not come out of the White House since pre-World War II days. Since then, international economic policy in Washington has served as a tool of political and military policy; it has not been a beast unto itself. In other words, the shift in tone in U.S. trade policy is itself enough to suggest big changes, beginning with the idea that the United States actually will compete with the rest of the world in exports.
If — and we must emphasize if — there will be force behind this policy shift, the Chinese are in serious trouble. As we noted before, the Chinese financial system is largely based on the Japanese model, and Japan is a wonderful case study for how this could go down. In the 1980s, the United States was unhappy with the level of Japanese imports. Washington found it quite easy to force the Japanese both to appreciate their currency and accept more exports. Opening the closed Japanese system to even limited foreign competition gutted Japanese banks’ international positions, starting a chain reaction that culminated in the 1990 collapse. Japan has not really recovered since, and as of 2010, total Japanese GDP is only marginally higher than it was 20 years ago.
China’s Limited Options
China, which unlike Japan is not a U.S. ally, would have an even harder time resisting should Washington pressure Beijing to buy more U.S. goods. Dependence upon a certain foreign market means that market can easily force changes in the exporter’s trade policies. Refusal to cooperate means losing access, shutting the exports down. To be sure, the U.S. export initiative does not explicitly call for creating more trade barriers to Chinese goods. But Washington is already brandishing this tool against China anyway, and it will certainly enter China’s calculations about whether to resist the U.S. export policy. Japan’s economy, in 1990 and now, only depended upon international trade for approximately 15 percent of its GDP. For China, that figure is 36 percent, and that is after suffering the hit to exports from the global recession. China’s only recourse would be to stop purchasing U.S. government debt (Beijing can’t simply dump the debt it already holds without taking a monumental loss, because for every seller there must be a buyer), but even this would be a hollow threat.
First, Chinese currency reserves exist because Beijing does not want to invest its income in China. Underdeveloped capital markets cannot absorb such an investment, and the reserves represent the government’s piggybank. Getting a 2 percent return on a rock-solid asset is good enough in China’s eyes. Second, those bond purchases largely fuel U.S. consumers’ ability to purchase Chinese goods. In the event the United States targets Chinese exports, the last thing China would want is to compound the damage. Third, a cold stop in bond purchases would encourage the U.S. administration — and the American economy overall — to balance its budgets. However painful such a transition may be, it would not be much as far as retaliation measures go: “forcing” a competitor to become economically efficient and financially responsible is not a winning strategy. Granted, interest rates would rise in the United States due to the reduction in available capital — the Chinese internal estimate is by 0.75 percentage points — and that could pinch a great many sectors, but that is nothing compared to the tsunami of pain that the Chinese would be feeling.
For Beijing, few alternatives exist to American consumption should Washington limit export access; the United States has more disposable income than all of China’s other markets combined. To dissuade the Americans, China could dangle the carrot of cooperation on sanctions against Iran before Washington, but the United States may already be moving beyond any use for that. Meanwhile, China would strengthen domestic security to protect against the ramifications of U.S. pressure. Beijing perceives the spat with Google and Obama’s meeting with the Dalai Lama as direct attacks by the United States, and it is already bracing for a rockier relationship. While such measures do not help the Chinese economy, they may be Beijing’s only options for preserving internal stability.
In China, fears of this coming storm are becoming palpable — and by no means limited to concerns over the proposed U.S. export strategy. With the Democratic Party in the United States (historically the more protectionist of the two mainstream U.S. political parties) both in charge and worried about major electoral losses, the Chinese fear that midterm U.S. elections will be all about targeting Chinese trade issues. Specifically, they are waiting for April 15, when the U.S. Treasury Department is expected to rule whether China is a currency manipulator — a ruling Beijing fears could unleash a torrent of protectionist moves by the U.S. Congress. Beijing already is deliberating on the extent to which it should seek to defuse American anger. But the Chinese probably are missing the point. If there has already been a decision in Washington to break with Bretton Woods, no number of token changes will make any difference. Such a shift in the U.S. trade posture will see the Americans going for China’s throat (no matter whether by design or unintentionally).
And the United States can do so with disturbing ease. The Americans don’t need a public works program or a job-training program or an export-boosting program. They don’t even have to make better — much less cheaper — goods. They just need to limit Chinese market access, something that can be done with the flick of a pen and manageable pain on the U.S. side.
STRATFOR sees a race on, but it isn’t a race between the Chinese and the Americans or even China and the world. It’s a race to see what will smash China first, its own internal imbalances or the U.S. decision to take a more mercantilist approach to international trade.
U.S.-Chinese relations have become tenser in recent months, with the United States threatening to impose tariffs unless China agrees to revalue its currency and, ideally, allow it to become convertible like the yen or euro. China now follows Japan and Germany as one of the three major economies after the United States. Unlike the other two, it controls its currency’s value, allowing it to decrease the price of its exports and giving it an advantage not only over other exporters to the United States but also over domestic American manufacturers. The same is true in other regions that receive Chinese exports, such as Europe.
What Washington considered tolerable in a small developing economy is intolerable in one of the top five economies. The demand that Beijing raise the value of the yuan, however, poses dramatic challenges for the Chinese, as the ability to control their currency helps drive their exports. The issue is why China insists on controlling its currency, something embedded in the nature of the Chinese economy. A collision with the United States now seems inevitable. It is therefore important to understand the forces driving China, and it is time for STRATFOR to review its analysis of China.
An Inherently Unstable Economic System
China has had an extraordinary run since 1980. But like Japan and Southeast Asia before it, dramatic growth rates cannot maintain themselves in perpetuity. Japan and non-Chinese East Asia didn’t collapse and disappear, but the crises of the 1990s did change the way the region worked. The driving force behind both the 1990 Japanese Crisis and the 1997 East Asian Crisis was that the countries involved did not maintain free capital markets. Those states managed capital to keep costs artificially low, giving them tremendous advantages over countries where capital was rationally priced. Of course, one cannot maintain irrational capital prices in perpetuity (as the United States is learning after its financial crisis); doing so eventually catches up. And this is what is happening in China now.
STRATFOR thus sees the Chinese economic system as inherently unstable. The primary reason why China’s growth has been so impressive is that throughout the period of economic liberalization that has led to rising incomes, the Chinese government has maintained near-total savings capture of its households and businesses. It funnels these massive deposits via state-run banks to state-linked firms at below-market rates. It’s amazing the growth rate a country can achieve and the number of citizens it can employ with a vast supply of 0 percent, relatively consequence-free loans provided from the savings of nearly a billion workers.
It’s also amazing how unprofitable such a country can be. The Chinese system, like the Japanese system before it, works on bulk, churn, maximum employment and market share. The U.S. system of attempting to maximize return on investment through efficiency and profit stands in contrast. The American result is sufficient economic stability to be able to suffer through recessions and emerge stronger. The Chinese result is social stability that wobbles precipitously when exposed to economic hardship. The Chinese people rebel when work is not available and conditions reach extremes. It must be remembered that of China’s 1.3 billion people, more than 600 million urban citizens live on an average of about $7 a day, while 700 million rural people live on an average of $2 a day, and that is according to Beijing’s own well-scrubbed statistics.
Moreover, the Chinese system breeds a flock of other unintended side effects.
There is, of course, the issue of inefficient capital use: When you have an unlimited number of no-consequence loans, you tend to invest in a lot of no-consequence projects for political reasons or just to speculate. In addition to the overall inefficiency of the Chinese system, another result is a large number of property bubbles. Yes, China is a country with a massive need for housing for its citizens, but even so, local governments and property developers collude to build luxury dwellings instead of anything more affordable in urban areas. This puts China in the odd position of having both a glut and a shortage in housing, as well as an outright glut in commercial real estate, where vacancy rates are notoriously high.
There is also the issue of regional disparity. Most of this lending occurs in a handful of coastal regions, transforming them into global powerhouses, while most of the interior — and thereby most of the population — lives in abject poverty.
There is also the issue of consumption. Chinese statistics have always been dodgy, but according to Beijing’s own figures, China has a tiny consumer base. This base is not much larger than that of France, a country with roughly one twentieth China’s population and just over half its gross domestic product (GDP). China’s economic system is obviously geared toward exports, not expanding consumer credit.
Which brings us to the issue of dependence. Since China cannot absorb its own goods, it must export them to keep afloat. The strategy only works when there is endless demand for the goods it makes. For the most part, this demand comes from the United States. But the recent global recession cut Chinese exports by nearly one fifth, and there were no buyers elsewhere to pick up the slack. Meanwhile, to boost household consumption China provided subsidies to Chinese citizens who had little need for — and in some cases little ability to use — a number of big-ticket products. The Chinese now openly fear that exports will not make a sustainable return to previous levels until 2012. And that is a lot of production — and consumption — to subsidize in the meantime. Most countries have another word for this: waste.
This waste can be broken down into two main categories. First, the government roughly tripled the amount of cash it normally directs the state banks to lend to sustain economic activity during the recession. The new loans added up to roughly a third of GDP in a single year. Remember, with no-consequence loans, profitability or even selling goods is not an issue; one must merely continue employing people. Even if China boasted the best loan-quality programs in history, a dramatic increase in lending of that scale is sure to generate mountains of loans that will go bad. Second, not everyone taking out those loans even intends to invest prudently: Chinese estimates indicate that about one-fourth of this lending surge was used to play China’s stock and property markets.
It is not that the Chinese are foolish; that is hardly the case. Given their history and geographical constraints, we would be hard-pressed to come up with a better plan were we to be selected as Party general secretary for a day. Beijing is well aware of all these problems and more and is attempting to mitigate the damage and repair the system. For example, it is considering legalizing portions of what it calls the shadow-lending sector. Think of this as a sort of community bank or credit union that services small businesses. In the past, China wanted total savings capture and centralization to better direct economic efforts, but Beijing is realizing that these smaller entities are more efficient lenders — and that over time they may actually employ more people without subsidization.
But the bottom line is that this sort of repair work is experimental and at the margins, and it doesn’t address the core damage that the financial model continuously inflicts. The Chinese fear their economic strategy has taken them about as far as they can go. STRATFOR used to think that these sorts of internal weaknesses would eventually doom the Chinese system as it did the Japanese system (upon which it is modeled). Now, we’re not so sure.
Since its economic opening in 1978, China has taken advantage of a remarkably friendly economic and political environment. In the 1980s, Washington didn’t obsess overmuch about China, given its focus on the “Evil Empire.” In the 1990s, it was easy for China to pass inconspicuously in global markets, as China was still a relatively small player. Moreover, with all the commodities from the former Soviet Union hitting the global market, prices for everything from oil to copper neared historic lows. No one seemed to fight against China’s booming demand for commodities or rising exports. The 2000s looked like they would be more turbulent, and early in the administration of George W. Bush the EP-3 incident landed the Chinese in Washington’s crosshairs, but then the Sept. 11 attacks happened and U.S. efforts were redirected toward the Islamic world.
Believe it or not, the above are coincidental developments. In fact, there is a structural factor in the global economy that has protected the Chinese system for the past 30 years that is a core tenet of U.S. foreign policy: Bretton Woods.
Rethinking Bretton Woods
Bretton Woods is one of the most misunderstood landmarks in modern history. Most think of it as the formation of the World Bank and International Monetary Fund, and the beginning of the dominance of the U.S. dollar in the international system. It is that, but it is much, much more.
In the aftermath of World War II, Germany and Japan had been crushed, and nearly all of Western Europe lay destitute. Bretton Woods at its core was an agreement between the United States and the Western allies that the allies would be able to export at near-duty-free rates to the U.S. market in order to boost their economies. In exchange, the Americans would be granted wide latitude in determining the security and foreign policy stances of the rebuilding states. In essence, the Americans took what they saw as a minor economic hit in exchange for being able to rewrite first regional, and in time global, economic and military rules of engagement. For the Europeans, Bretton Woods provided the stability, financing and security backbone Europe used first to recover, and in time to thrive. For the Americans, it provided the ability to preserve much of the World War II alliance network into the next era in order to compete with the Soviet Union.
The strategy proved so successful with the Western allies that it was quickly extended to World War II foes Germany and Japan, and shortly thereafter to Korea, Taiwan, Singapore and others. Militarily and economically, it became the bedrock of the anti-Soviet containment strategy. The United States began with substantial trade surpluses with all of these states, simply because they had no productive capacity due to the devastation of war. After a generation of favorable trade practices, surpluses turned into deficits, but the net benefits were so favorable to the Americans that the policies were continued despite the increasing economic hits. The alliance continued to hold, and one result (of many) was the eventual economic destruction of the Soviet Union.
Applying this little history lesson to the question at hand, Bretton Woods is the ultimate reason why the Chinese have succeeded economically for the last generation. As part of Bretton Woods, the United States opens its markets, eschewing protectionist policies in general and mercantilist policies in particular. Eventually the United States extended this privilege to China to turn the tables on the Soviet Union. All China has to do is produce — it doesn’t matter how — and it will have a market to sell to.
But this may be changing. Under President Barack Obama, the United States is considering fundamental changes to the Bretton Woods arrangements. Ostensibly, this is to update the global financial system and reduce the chances of future financial crises. But out of what we have seen so far, the National Export Initiative (NEI) the White House is promulgating is much more mercantilist. It espouses doubling U.S. exports in five years, specifically by targeting additional sales to large developing states, with China at the top of the list.
STRATFOR finds that goal overoptimistic, and the NEI is maddeningly vague as to how it will achieve this goal. But this sort of rhetoric has not come out of the White House since pre-World War II days. Since then, international economic policy in Washington has served as a tool of political and military policy; it has not been a beast unto itself. In other words, the shift in tone in U.S. trade policy is itself enough to suggest big changes, beginning with the idea that the United States actually will compete with the rest of the world in exports.
If — and we must emphasize if — there will be force behind this policy shift, the Chinese are in serious trouble. As we noted before, the Chinese financial system is largely based on the Japanese model, and Japan is a wonderful case study for how this could go down. In the 1980s, the United States was unhappy with the level of Japanese imports. Washington found it quite easy to force the Japanese both to appreciate their currency and accept more exports. Opening the closed Japanese system to even limited foreign competition gutted Japanese banks’ international positions, starting a chain reaction that culminated in the 1990 collapse. Japan has not really recovered since, and as of 2010, total Japanese GDP is only marginally higher than it was 20 years ago.
China’s Limited Options
China, which unlike Japan is not a U.S. ally, would have an even harder time resisting should Washington pressure Beijing to buy more U.S. goods. Dependence upon a certain foreign market means that market can easily force changes in the exporter’s trade policies. Refusal to cooperate means losing access, shutting the exports down. To be sure, the U.S. export initiative does not explicitly call for creating more trade barriers to Chinese goods. But Washington is already brandishing this tool against China anyway, and it will certainly enter China’s calculations about whether to resist the U.S. export policy. Japan’s economy, in 1990 and now, only depended upon international trade for approximately 15 percent of its GDP. For China, that figure is 36 percent, and that is after suffering the hit to exports from the global recession. China’s only recourse would be to stop purchasing U.S. government debt (Beijing can’t simply dump the debt it already holds without taking a monumental loss, because for every seller there must be a buyer), but even this would be a hollow threat.
First, Chinese currency reserves exist because Beijing does not want to invest its income in China. Underdeveloped capital markets cannot absorb such an investment, and the reserves represent the government’s piggybank. Getting a 2 percent return on a rock-solid asset is good enough in China’s eyes. Second, those bond purchases largely fuel U.S. consumers’ ability to purchase Chinese goods. In the event the United States targets Chinese exports, the last thing China would want is to compound the damage. Third, a cold stop in bond purchases would encourage the U.S. administration — and the American economy overall — to balance its budgets. However painful such a transition may be, it would not be much as far as retaliation measures go: “forcing” a competitor to become economically efficient and financially responsible is not a winning strategy. Granted, interest rates would rise in the United States due to the reduction in available capital — the Chinese internal estimate is by 0.75 percentage points — and that could pinch a great many sectors, but that is nothing compared to the tsunami of pain that the Chinese would be feeling.
For Beijing, few alternatives exist to American consumption should Washington limit export access; the United States has more disposable income than all of China’s other markets combined. To dissuade the Americans, China could dangle the carrot of cooperation on sanctions against Iran before Washington, but the United States may already be moving beyond any use for that. Meanwhile, China would strengthen domestic security to protect against the ramifications of U.S. pressure. Beijing perceives the spat with Google and Obama’s meeting with the Dalai Lama as direct attacks by the United States, and it is already bracing for a rockier relationship. While such measures do not help the Chinese economy, they may be Beijing’s only options for preserving internal stability.
In China, fears of this coming storm are becoming palpable — and by no means limited to concerns over the proposed U.S. export strategy. With the Democratic Party in the United States (historically the more protectionist of the two mainstream U.S. political parties) both in charge and worried about major electoral losses, the Chinese fear that midterm U.S. elections will be all about targeting Chinese trade issues. Specifically, they are waiting for April 15, when the U.S. Treasury Department is expected to rule whether China is a currency manipulator — a ruling Beijing fears could unleash a torrent of protectionist moves by the U.S. Congress. Beijing already is deliberating on the extent to which it should seek to defuse American anger. But the Chinese probably are missing the point. If there has already been a decision in Washington to break with Bretton Woods, no number of token changes will make any difference. Such a shift in the U.S. trade posture will see the Americans going for China’s throat (no matter whether by design or unintentionally).
And the United States can do so with disturbing ease. The Americans don’t need a public works program or a job-training program or an export-boosting program. They don’t even have to make better — much less cheaper — goods. They just need to limit Chinese market access, something that can be done with the flick of a pen and manageable pain on the U.S. side.
STRATFOR sees a race on, but it isn’t a race between the Chinese and the Americans or even China and the world. It’s a race to see what will smash China first, its own internal imbalances or the U.S. decision to take a more mercantilist approach to international trade.
Monday, March 29, 2010
Another ObamaCare mandate we had to discover after its passage
Nancy Pelosi told the public that we’d have to pass ObamaCare to find out all of the surprises Democrats had loaded into it. Since its passage, we’ve discovered a number of them, including the elimination of a tax credit that kept seniors on private medication coverage that has forced publicly-held corporations like AT&T, Caterpillar, John Deere, and Verizon to take massive charges against this year’s earnings. Earlier this week, the Associated Press discovered a new mandate, this time on chain restaurants, that is at once petty, paternalistic, and anti-growth:
A requirement tucked into the nation’s massive health care bill will make calorie counts impossible for thousands of restaurants to hide and difficult for consumers to ignore. More than 200,000 fast food and other chain restaurants will have to include calorie counts on menus, menu boards and even drive-throughs.
The new law, which applies to any restaurant with 20 or more locations, directs the Food and Drug Administration to create a new national standard for menu labeling, superseding a growing number of state and city laws. President Barack Obama was expected to sign the health care legislation Tuesday.
The idea is to make sure that customers process the calorie information as they are ordering. Many restaurants currently post nutritional information in a hallway, on a hamburger wrapper or on their Web site. The new law will make calories immediately available for most items.
“The nutrition information is right on the menu or menu board next to the name of the menu item, rather than in a pamphlet or in tiny print on a poster, so that consumers can see it when they are making ordering decisions,” says Iowa Sen. Tom Harkin, chairman of the Health, Education, Labor and Pensions Committee, who wrote the provision.
What’s wrong with getting calorie counts? Nothing, really. As a Type II diabetic myself, it helps to know calories and carbs when planning meals or medication responses. A friend of mine, Col. Joe Repya, gave me a handy wallet-sized card shortly after my diagnosis that allows me to estimate carbs and calories while at home or away, and plenty of other resources exist for the same purpose, many of them on the Internet.
In fact, many chain restaurants already provide this information to consumers on the Internet. Just to take one example: Chili’s. Their website features a prominent link to the nutritional information for their standard menu items. That’s how I know that their Oldtimer burger is 1260 calories, including the fries, the lowest-calorie burger dinner they offer. The Jalapeno Smokehouse Burger w/ Jalapeno Ranch dinner comes in at a whopping 2,130 calories.
But let’s be serious. No one who’s seriously concerned about caloric intake is going to order the gigantic Jalapeno Smokehouse Burger w/ Jalapeno Ranch dinner. Most people have the common sense to know that big burgers and whopping mounds of fries will total a huge number of calories, no matter where one buys or makes dinner. Responsible adults can navigate a menu on their own to choose the healthier options, if they want to do so, without forcing restauranteurs to conduct the kind of lab analyses necessary to give accurate calorie counts for menus.
The impact on businesses will be disproportionate to their size. Large restaurant chains with standardized menus can handle this mandate less expensively per dinner sold, thanks to the economies of scale, which is why Chili’s has the information on their national website. Chains under 20 locations will get exempt. But what about those chains with just over 20 locations?
Davanni’s, a local pizzeria-sandwich restaurant with 22 locations around the Twin Cities, will now have to comply with this mandate. A caller to my Saturday show (who wished to remain anonymous) told my radio partner Mitch Berg during a commercial break that it will cost Davanni’s approximately $200,000 to comply with the new mandate — just to start. Every menu change will require Davanni’s to have the new or modified items re-analyzed, which means that Davanni’s will probably resist adding new options for their customers. Meanwhile, larger chains with more economy of scale for such efforts such as Pizza Hut can do the tests once for all of their locations, keeping their prices lower for their customers — which they already do, thanks to consumer demand for the information.
Under those circumstances, will Davanni’s feel compelled to keep the extra three locations open, or to scale back to 19 to avoid the mandate? Even if they do keep all of their locations, that $200,000 will now get spent on something other than new jobs for teenagers and adults, and customers will pay higher prices for their food. Local and regional chains with 15-19 locations have a big economic disincentive to expand any further. I don’t know much about Davanni’s bottom line, but I’m pretty sure that even though they make some of the best pizza and hoagies in the area, they don’t have $200,000 lying around the pizza sauce to blow on lab analyses this year, or any other.
This is a fundamentally anti-growth policy — and in service of what? A federal mandate to treat adults like children, as though someone buying a pizza might be under the delusion that they’re ordering health food. That’s not even considering the question of jurisdiction on chains like Davanni’s which don’t cross state lines, and therefore shouldn’t have to answer to federal regulators at all. This is a textbook case of elitist snobbery trumping common sense, where the governing elite just assumes that Americans can’t decide for themselves what foods to eat.
http://hotair.com/archives/2010/03/28/another-obamacare-mandate-we-had-to-discover-after-its-passage/
A requirement tucked into the nation’s massive health care bill will make calorie counts impossible for thousands of restaurants to hide and difficult for consumers to ignore. More than 200,000 fast food and other chain restaurants will have to include calorie counts on menus, menu boards and even drive-throughs.
The new law, which applies to any restaurant with 20 or more locations, directs the Food and Drug Administration to create a new national standard for menu labeling, superseding a growing number of state and city laws. President Barack Obama was expected to sign the health care legislation Tuesday.
The idea is to make sure that customers process the calorie information as they are ordering. Many restaurants currently post nutritional information in a hallway, on a hamburger wrapper or on their Web site. The new law will make calories immediately available for most items.
“The nutrition information is right on the menu or menu board next to the name of the menu item, rather than in a pamphlet or in tiny print on a poster, so that consumers can see it when they are making ordering decisions,” says Iowa Sen. Tom Harkin, chairman of the Health, Education, Labor and Pensions Committee, who wrote the provision.
What’s wrong with getting calorie counts? Nothing, really. As a Type II diabetic myself, it helps to know calories and carbs when planning meals or medication responses. A friend of mine, Col. Joe Repya, gave me a handy wallet-sized card shortly after my diagnosis that allows me to estimate carbs and calories while at home or away, and plenty of other resources exist for the same purpose, many of them on the Internet.
In fact, many chain restaurants already provide this information to consumers on the Internet. Just to take one example: Chili’s. Their website features a prominent link to the nutritional information for their standard menu items. That’s how I know that their Oldtimer burger is 1260 calories, including the fries, the lowest-calorie burger dinner they offer. The Jalapeno Smokehouse Burger w/ Jalapeno Ranch dinner comes in at a whopping 2,130 calories.
But let’s be serious. No one who’s seriously concerned about caloric intake is going to order the gigantic Jalapeno Smokehouse Burger w/ Jalapeno Ranch dinner. Most people have the common sense to know that big burgers and whopping mounds of fries will total a huge number of calories, no matter where one buys or makes dinner. Responsible adults can navigate a menu on their own to choose the healthier options, if they want to do so, without forcing restauranteurs to conduct the kind of lab analyses necessary to give accurate calorie counts for menus.
The impact on businesses will be disproportionate to their size. Large restaurant chains with standardized menus can handle this mandate less expensively per dinner sold, thanks to the economies of scale, which is why Chili’s has the information on their national website. Chains under 20 locations will get exempt. But what about those chains with just over 20 locations?
Davanni’s, a local pizzeria-sandwich restaurant with 22 locations around the Twin Cities, will now have to comply with this mandate. A caller to my Saturday show (who wished to remain anonymous) told my radio partner Mitch Berg during a commercial break that it will cost Davanni’s approximately $200,000 to comply with the new mandate — just to start. Every menu change will require Davanni’s to have the new or modified items re-analyzed, which means that Davanni’s will probably resist adding new options for their customers. Meanwhile, larger chains with more economy of scale for such efforts such as Pizza Hut can do the tests once for all of their locations, keeping their prices lower for their customers — which they already do, thanks to consumer demand for the information.
Under those circumstances, will Davanni’s feel compelled to keep the extra three locations open, or to scale back to 19 to avoid the mandate? Even if they do keep all of their locations, that $200,000 will now get spent on something other than new jobs for teenagers and adults, and customers will pay higher prices for their food. Local and regional chains with 15-19 locations have a big economic disincentive to expand any further. I don’t know much about Davanni’s bottom line, but I’m pretty sure that even though they make some of the best pizza and hoagies in the area, they don’t have $200,000 lying around the pizza sauce to blow on lab analyses this year, or any other.
This is a fundamentally anti-growth policy — and in service of what? A federal mandate to treat adults like children, as though someone buying a pizza might be under the delusion that they’re ordering health food. That’s not even considering the question of jurisdiction on chains like Davanni’s which don’t cross state lines, and therefore shouldn’t have to answer to federal regulators at all. This is a textbook case of elitist snobbery trumping common sense, where the governing elite just assumes that Americans can’t decide for themselves what foods to eat.
http://hotair.com/archives/2010/03/28/another-obamacare-mandate-we-had-to-discover-after-its-passage/
EMP: Answer to a Jewish prayer
If the king of Saudi Arabia were to be invited to the White House, President Obama would make the usual deep bow, have a long conversation with lots of photo ops, and then give the king a grand halal dinner. But it was not a Muslim king who was the honored guest last week. It was the Jewish Prime Minister of Israel, Benjamin Netanyahu, here to provide the president with another opportunity to embarrass himself and the United States.
There were no handshakes in the White House last week, no negotiations, no photographs, no joint statements, and definitely no kosher dinner. Just the presentation of a list of demands, take it or leave it. When the stunned Netanyahu hesitated, the president left the room, saying, “Let me know if there are any changes. I’ll be around.” Then mainstream media obliged their White House masters, as usual, with a complete news blackout. It was as if the leader of the only democracy in the Middle East had never been in town.
What was the prime minister thinking as he ate his dinner on the plane taking him home? Did his thoughts go back to the days of atmospheric tests of nuclear weapons, and what they might mean to Israel today?
In 1962, at Johnson Island in the Pacific, the United States conducted a test code-named Starfish Prime. A nuclear device was to be detonated in near space, 260 miles above the island, and instruments were ready to monitor effects on the ionosphere. When the 1-megaton explosion flared there was no radiation or blast felt on the island below. Instead, a man-made aurora borealis appeared and an electromagnetic pulse (EMP) knocked out streetlights and a communications microwave link in Hawaii—930 miles away! The age of EMP weapons had begun.
The Soviet Union’s spies told Moscow about Starfish Prime and the effects of the EMP pulse. The Soviets, worried about underground bunkers built to house the government and command centers in the event of a nuclear war, conducted their own tests. They were horrified. The EMP pulse could fry computers, communications, and all kinds of electrical equipment on the surface and hidden far underground. Our own concern was heightened when Russia shared that data with us during the happy days of Perestroika. The Pentagon began to take steps to harden key military equipment against EMP, like ICBM silos and Air Force One.
The next shoe dropped in 1998, when Iran tested missiles fired from a barge in the Caspian that exploded a hundred miles above the surface. The Iranians knew about EMP too, and were making plans to menace any nation they could reach from a cargo ship as soon as they had the necessary nuclear warheads. Concerned at last, Congress established a commission in 2001 to examine the potential damage to the United States from an EMP attack. The final report was published in 2008, and the news was not good. Attacked by EMP weapons, the United States infrastructure would suffer catastrophic and irreversible damage—unless defensive preparations were made. The cost for hardening vulnerable things such as electrical power transmission lines, communications, and computer-controlled systems like refineries and water supplies would cost billions of dollars. Speeches were made, but expensive action was left to disappear from congressional agendas.
EMP, however, did not disappear. It is a hot topic these days, and getting hotter. The signs were evident over 20 years ago:
•Iran tried to buy nuclear warheads from Pakistan as early as 1987.
•Ten years later, Iran tested a sea-launched ICBM capable of delivering an EMP attack.
•Contemplating Israel’s potential use of tactical nuclear weapons, the Center for Strategic and International Studies recently said, “…some believe that nuclear weapons are the only weapons that can destroy targets deep underground…”
•The Heritage Foundation is calling for an EMP Recognition Day to bolster adoption of defensive measures and a national recovery plan.
•US Navy EMP team of engineers, inactive for ten years, has been resurrected and is finding ways to protect the fleet from EMP attacks.
Now, let us go back to Prime Minister Netanyahu, drinking an after-dinner coffee in his plane, deep in thought. He never got to ask the American president for bunker-busters, refueling tanker planes, and other critical support needed for an attack on Iran’s nuclear weapons factories. He knew that if he tried it without that help, it would be almost impossible to inflict enough damage to completely stop the weapons program. Casualties in men and material would be very high. And if an attack was made without prior notice to Washington, the American president would surely refuse to resupply Israel with aircraft. Nevertheless, an Iran with nuclear weapons is out of the question—they already said that tiny Israel is a “one bomb target.” So Israel is alone, as always. What to do?
The prime minister knows the calculus well. First, he thinks, will be the salvo of Jericho III missiles. EMP from their nuclear warheads will destroy Iran’s electrical power grid, communications, television, radio, air defenses, and most of the industrial infrastructure. At noon the flashes will not even be noticed, so high there is no blast or radiation on the ground. Then cruise missiles from submarines for high value targets. They should save one for Ahmadinejad’s presidential palace. With chaos in the dark streets, maybe our commandos have time to open that Evin prison hellhole and let out the political prisoners. Those kids, that ‘Green’ opposition—they can deal with the mullahs if they like. And the best part, with the radar and air defenses inoperative, our air force can overfly Iran. They will finish the job with none of my boys lost, God willing. And when no parts for American aircraft come, there are always Russian aircraft. Avigdor will love it—like he loves being Foreign Minister. If the Russians tell him to get lost like last time, I’ll send him to China. They sell anything to anyone, especially if it annoys Washington.
Netanyahu smiled for the first time in days. Afterwards, he thought, to show no hard feelings I invite President Obama to make a visit to Jerusalem. If he comes I will make him a present. Perhaps a little framed photo from our satellite that shows such a peaceful Iran. And he can go home after Sarah gives him a nice kosher dinner.
Chet Nagle is the author of IRAN COVENANT [1].
There were no handshakes in the White House last week, no negotiations, no photographs, no joint statements, and definitely no kosher dinner. Just the presentation of a list of demands, take it or leave it. When the stunned Netanyahu hesitated, the president left the room, saying, “Let me know if there are any changes. I’ll be around.” Then mainstream media obliged their White House masters, as usual, with a complete news blackout. It was as if the leader of the only democracy in the Middle East had never been in town.
What was the prime minister thinking as he ate his dinner on the plane taking him home? Did his thoughts go back to the days of atmospheric tests of nuclear weapons, and what they might mean to Israel today?
In 1962, at Johnson Island in the Pacific, the United States conducted a test code-named Starfish Prime. A nuclear device was to be detonated in near space, 260 miles above the island, and instruments were ready to monitor effects on the ionosphere. When the 1-megaton explosion flared there was no radiation or blast felt on the island below. Instead, a man-made aurora borealis appeared and an electromagnetic pulse (EMP) knocked out streetlights and a communications microwave link in Hawaii—930 miles away! The age of EMP weapons had begun.
The Soviet Union’s spies told Moscow about Starfish Prime and the effects of the EMP pulse. The Soviets, worried about underground bunkers built to house the government and command centers in the event of a nuclear war, conducted their own tests. They were horrified. The EMP pulse could fry computers, communications, and all kinds of electrical equipment on the surface and hidden far underground. Our own concern was heightened when Russia shared that data with us during the happy days of Perestroika. The Pentagon began to take steps to harden key military equipment against EMP, like ICBM silos and Air Force One.
The next shoe dropped in 1998, when Iran tested missiles fired from a barge in the Caspian that exploded a hundred miles above the surface. The Iranians knew about EMP too, and were making plans to menace any nation they could reach from a cargo ship as soon as they had the necessary nuclear warheads. Concerned at last, Congress established a commission in 2001 to examine the potential damage to the United States from an EMP attack. The final report was published in 2008, and the news was not good. Attacked by EMP weapons, the United States infrastructure would suffer catastrophic and irreversible damage—unless defensive preparations were made. The cost for hardening vulnerable things such as electrical power transmission lines, communications, and computer-controlled systems like refineries and water supplies would cost billions of dollars. Speeches were made, but expensive action was left to disappear from congressional agendas.
EMP, however, did not disappear. It is a hot topic these days, and getting hotter. The signs were evident over 20 years ago:
•Iran tried to buy nuclear warheads from Pakistan as early as 1987.
•Ten years later, Iran tested a sea-launched ICBM capable of delivering an EMP attack.
•Contemplating Israel’s potential use of tactical nuclear weapons, the Center for Strategic and International Studies recently said, “…some believe that nuclear weapons are the only weapons that can destroy targets deep underground…”
•The Heritage Foundation is calling for an EMP Recognition Day to bolster adoption of defensive measures and a national recovery plan.
•US Navy EMP team of engineers, inactive for ten years, has been resurrected and is finding ways to protect the fleet from EMP attacks.
Now, let us go back to Prime Minister Netanyahu, drinking an after-dinner coffee in his plane, deep in thought. He never got to ask the American president for bunker-busters, refueling tanker planes, and other critical support needed for an attack on Iran’s nuclear weapons factories. He knew that if he tried it without that help, it would be almost impossible to inflict enough damage to completely stop the weapons program. Casualties in men and material would be very high. And if an attack was made without prior notice to Washington, the American president would surely refuse to resupply Israel with aircraft. Nevertheless, an Iran with nuclear weapons is out of the question—they already said that tiny Israel is a “one bomb target.” So Israel is alone, as always. What to do?
The prime minister knows the calculus well. First, he thinks, will be the salvo of Jericho III missiles. EMP from their nuclear warheads will destroy Iran’s electrical power grid, communications, television, radio, air defenses, and most of the industrial infrastructure. At noon the flashes will not even be noticed, so high there is no blast or radiation on the ground. Then cruise missiles from submarines for high value targets. They should save one for Ahmadinejad’s presidential palace. With chaos in the dark streets, maybe our commandos have time to open that Evin prison hellhole and let out the political prisoners. Those kids, that ‘Green’ opposition—they can deal with the mullahs if they like. And the best part, with the radar and air defenses inoperative, our air force can overfly Iran. They will finish the job with none of my boys lost, God willing. And when no parts for American aircraft come, there are always Russian aircraft. Avigdor will love it—like he loves being Foreign Minister. If the Russians tell him to get lost like last time, I’ll send him to China. They sell anything to anyone, especially if it annoys Washington.
Netanyahu smiled for the first time in days. Afterwards, he thought, to show no hard feelings I invite President Obama to make a visit to Jerusalem. If he comes I will make him a present. Perhaps a little framed photo from our satellite that shows such a peaceful Iran. And he can go home after Sarah gives him a nice kosher dinner.
Chet Nagle is the author of IRAN COVENANT [1].
Sunday, March 28, 2010
is this intimidation
In letters sent late Saturday night, Representative Henry Waxman called on the chief executive officers of AT&T Inc., Verizon Communications Inc., Caterpillar Inc. and Deere & Co. to provide evidence to support costs they said will result from the recently passed health-care reform bill.
Waxman has also requested access to the companies’ internal documents, which one committee Republican says is “an attempt to intimidate and silence opponents of the Democrats’ flawed health-care reform legislation.”
In the letter to AT&T, Waxman demands the company turn over “any documents, including e-mail messages, sent to or prepared or reviewed by senior company officials related to the projected impact of health care reform on AT&T.”
AT&T had said just hours before the letter arrived that taxes related to the health-care legislation will force it to take a $1 billion non-cash charge in the first quarter. And Verizon has said the new legislation will cause the company’s health-care costs to rise.
Waxman of California, chairman of the House Energy and Commerce Committee, and subcommittee Chairman Bart Stupak of Michigan released letters they wrote to the executives, saying their plans to record expenses against earnings as a result of the law contradict other estimates. The lawmakers requested the executives appear at hearing Stupak plans on April 21.
“The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern,” Waxman and Stupak, both Democrats, wrote in the letters yesterday. “They also appear to conflict with independent analyses.”
Waxman has also requested access to the companies’ internal documents, which one committee Republican says is “an attempt to intimidate and silence opponents of the Democrats’ flawed health-care reform legislation.”
In the letter to AT&T, Waxman demands the company turn over “any documents, including e-mail messages, sent to or prepared or reviewed by senior company officials related to the projected impact of health care reform on AT&T.”
AT&T had said just hours before the letter arrived that taxes related to the health-care legislation will force it to take a $1 billion non-cash charge in the first quarter. And Verizon has said the new legislation will cause the company’s health-care costs to rise.
Waxman of California, chairman of the House Energy and Commerce Committee, and subcommittee Chairman Bart Stupak of Michigan released letters they wrote to the executives, saying their plans to record expenses against earnings as a result of the law contradict other estimates. The lawmakers requested the executives appear at hearing Stupak plans on April 21.
“The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern,” Waxman and Stupak, both Democrats, wrote in the letters yesterday. “They also appear to conflict with independent analyses.”
Is a serious Israel-EU crisis in the works?
Israeli government sources say it is likely that after the current diplomatic crisis and pressure by the United States regarding the Palestinian issue, Israel will soon face an even more serious row with the European Union.
A government source in Jerusalem said this was the concern voiced during a conference call between Foreign Ministry Director-General Yossi Gal and seven of Israel's ambassadors in important world capitals.
Gal spoke last Thursday with Israel's ambassador to the United States, Michael Oren, and the envoys to the European Union, London, Rome, the UN, Moscow and Paris.
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Oren's laconic retelling of Benjamin Netanyahu's visit to Washington, revealing no details of the prime minister's meetings, roused the ire of the other ambassadors, who said they were not kept abreast of events and so could not represent Israel adequately regarding the dispute with the United States.
"The American embassy in London knows what went on in Netanyahu's meetings in Washington and I have no idea," said Israel's ambassador to Britain, Ron Prosor.
The envoys all said that if U.S. pressure continued, the European Union would go even further in condemning Israel and promoting diplomatic initiatives.
Netanyahu told the cabinet Sunday that he saw "no signs of moderation" among the Palestinians. "However, we will maintain a restrained framework of debate and continue our talks with the U.S. administration to move the process of dialogue forward," he said.
Netanyahu said the statements reported in Yedioth Ahronoth that an anonymous associate had called Obama "a disaster for Israel" were "improper," and that "we are trying to move the peace process ahead but also to serve our interests, and we continue to narrow the gaps with the administration."
In a first extensive statement by a senior minister on the diplomatic dispute with the United States, Defense Minister Ehud Barak said continued cooperation with America was necessary to protect Israel's security.
However, he added, "Only we have the exclusive responsibility when it comes to the fate and security of Israel, and only we can determine the matters pertaining to the fate of Israel and the Jewish people. But we must never lose sight of how important these relations are, or the ability to act in harmony and unity with the United States."
Barak said it was "crucial to remember that the United States is friendly to Israel in a deep and substantial way."
Barak underscored the key difference between his positions and those of most of Netanyahu's coalition partners. "The components of the agreement are clear," he said.
"I believe that it is our obligation to seek an agreement that sets a clear border within the Land of Israel based on security and demographic considerations, with the Jewish state, the State of Israel, on one side with a solid majority of Jews through the generations, and the demilitarized Palestinian state on the other side with territorial, economic and political viability."
A government source in Jerusalem said this was the concern voiced during a conference call between Foreign Ministry Director-General Yossi Gal and seven of Israel's ambassadors in important world capitals.
Gal spoke last Thursday with Israel's ambassador to the United States, Michael Oren, and the envoys to the European Union, London, Rome, the UN, Moscow and Paris.
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Oren's laconic retelling of Benjamin Netanyahu's visit to Washington, revealing no details of the prime minister's meetings, roused the ire of the other ambassadors, who said they were not kept abreast of events and so could not represent Israel adequately regarding the dispute with the United States.
"The American embassy in London knows what went on in Netanyahu's meetings in Washington and I have no idea," said Israel's ambassador to Britain, Ron Prosor.
The envoys all said that if U.S. pressure continued, the European Union would go even further in condemning Israel and promoting diplomatic initiatives.
Netanyahu told the cabinet Sunday that he saw "no signs of moderation" among the Palestinians. "However, we will maintain a restrained framework of debate and continue our talks with the U.S. administration to move the process of dialogue forward," he said.
Netanyahu said the statements reported in Yedioth Ahronoth that an anonymous associate had called Obama "a disaster for Israel" were "improper," and that "we are trying to move the peace process ahead but also to serve our interests, and we continue to narrow the gaps with the administration."
In a first extensive statement by a senior minister on the diplomatic dispute with the United States, Defense Minister Ehud Barak said continued cooperation with America was necessary to protect Israel's security.
However, he added, "Only we have the exclusive responsibility when it comes to the fate and security of Israel, and only we can determine the matters pertaining to the fate of Israel and the Jewish people. But we must never lose sight of how important these relations are, or the ability to act in harmony and unity with the United States."
Barak said it was "crucial to remember that the United States is friendly to Israel in a deep and substantial way."
Barak underscored the key difference between his positions and those of most of Netanyahu's coalition partners. "The components of the agreement are clear," he said.
"I believe that it is our obligation to seek an agreement that sets a clear border within the Land of Israel based on security and demographic considerations, with the Jewish state, the State of Israel, on one side with a solid majority of Jews through the generations, and the demilitarized Palestinian state on the other side with territorial, economic and political viability."
Israel fears Obama heading for imposed Mideast settlement
U.S. President Barack Obama's demands during his meeting with Prime Minister Benjamin Netanyahu last Tuesday point to an intention to impose a permanent settlement on Israel and the Palestinians in less than two years, political sources in Jerusalem say.
Israeli officials view the demands that Obama made at the White House as the tip of the iceberg under which lies a dramatic change in U.S. policy toward Israel.
Of 10 demands posed by Obama, four deal with Jerusalem: opening a Palestinian commercial interests office in East Jerusalem, an end to the razing of structures in Palestinian neighborhoods in the capital, stopping construction in Jewish neighborhoods in East Jerusalem, and not building the neighborhood of Ramat Shlomo.
But another key demand - to discuss the dispute's core issues during the indirect talks that are planned - is perceived in Jerusalem as problematic because it implies that direct negotiations would be bypassed. This would set up a framework through which the Americans would be able to impose a final settlement.
It is not just Obama's demands that are perceived as problematic, but also the new modus operandi of American diplomacy. The fact that the White House and State Department have been in contact with Israel's European allies, first and foremost Germany, is seen as part of an effort to isolate Israel and put enormous political pressure on it.
Israeli officials say that the Obama administration's new policy contradicts commitments made by previous administrations, as well as a letter from George W. Bush in 2004 to the prime minister at the time, Ariel Sharon. According to this view, the new policy is also incongruous with the framework posed by Bill Clinton in 2000.
Senior Israeli sources say that as a result of the U.S. administration's policies, the Palestinians will toughen their stance and seriously undermine the peace process' chances of success.
Moreover, sources in Jerusalem say that the new American positions undermine the principle of credibility that has guided U.S. foreign policy since the end of World War II. Ignoring specific promises made to its Israeli ally would make other American allies lose trust in its commitments to them.
Israeli officials warn that if the United States shirks its past commitments, the willingness of the Israeli public to put its trust in future American guarantees will be undermined - as will the superpower's regional and international standing.
Israeli officials view the demands that Obama made at the White House as the tip of the iceberg under which lies a dramatic change in U.S. policy toward Israel.
Of 10 demands posed by Obama, four deal with Jerusalem: opening a Palestinian commercial interests office in East Jerusalem, an end to the razing of structures in Palestinian neighborhoods in the capital, stopping construction in Jewish neighborhoods in East Jerusalem, and not building the neighborhood of Ramat Shlomo.
But another key demand - to discuss the dispute's core issues during the indirect talks that are planned - is perceived in Jerusalem as problematic because it implies that direct negotiations would be bypassed. This would set up a framework through which the Americans would be able to impose a final settlement.
It is not just Obama's demands that are perceived as problematic, but also the new modus operandi of American diplomacy. The fact that the White House and State Department have been in contact with Israel's European allies, first and foremost Germany, is seen as part of an effort to isolate Israel and put enormous political pressure on it.
Israeli officials say that the Obama administration's new policy contradicts commitments made by previous administrations, as well as a letter from George W. Bush in 2004 to the prime minister at the time, Ariel Sharon. According to this view, the new policy is also incongruous with the framework posed by Bill Clinton in 2000.
Senior Israeli sources say that as a result of the U.S. administration's policies, the Palestinians will toughen their stance and seriously undermine the peace process' chances of success.
Moreover, sources in Jerusalem say that the new American positions undermine the principle of credibility that has guided U.S. foreign policy since the end of World War II. Ignoring specific promises made to its Israeli ally would make other American allies lose trust in its commitments to them.
Israeli officials warn that if the United States shirks its past commitments, the willingness of the Israeli public to put its trust in future American guarantees will be undermined - as will the superpower's regional and international standing.
End to US 'special relationship'
More than 60 years after Winston Churchill first coined the expression to describe Britain's alliance with the United States, MPs have finally called time on the "special relationship".
The cross-party Commons Foreign Affairs Committee said that the well-worn phrase no longer accurately characterised the modern relationship between the two countries and should be dropped.
While the committee stressed Britain remained close to America, it said it was important to recognise it was just one a series of relationships the US had with key partners and allies.
As the UK's influence in Washington diminished with the decline of its economic and military power, it said the Government should be "less deferential" towards the Americans and take a more realistic view of the relationship.
"The use of the phrase 'the special relationship' in its historical sense, to describe the totality of the ever-evolving UK-US relationship, is potentially misleading, and we recommend that its use should be avoided," the committee said. "Overuse of the phrase serves simultaneously to de-value its meaning and to raise unrealistic expectations about the benefits the relationship can deliver to the UK."
As with much to do with the "special relationship", however, the recommendation proved controversial, with five members of the committee - three Labour and two Tories - voting unsuccessfully for it to be dropped. When Churchill first used the expression in the aftermath of the Second World War, he was inspired both by the shared struggle against Nazi Germany and the looming Cold War confrontation with the Soviet Union.
However, the committee said that in the eyes of the rest of the world, the relationship was now more likely to be defined by what was seen to be Britain's support for President George Bush over the Iraq War.
"The perception that the British Government was a subservient 'poodle' to the US administration leading up to the period of the invasion of Iraq and its aftermath is widespread," it said. "This perception, whatever its relation to reality, is deeply damaging to the reputation and interests of the UK."
A Foreign and Commonwealth Office spokeswoman said: "The British media's pre-occupation with the state of the 'special relationship' is frequently at the expense of coverage of the more substantive aspects of the relationship".
"It doesn't really matter whether someone calls it the "special relationship" or not. What matters is that the UK's relationship with the US is unique, and uniquely important to protecting our national security and promoting our national interest."
The cross-party Commons Foreign Affairs Committee said that the well-worn phrase no longer accurately characterised the modern relationship between the two countries and should be dropped.
While the committee stressed Britain remained close to America, it said it was important to recognise it was just one a series of relationships the US had with key partners and allies.
As the UK's influence in Washington diminished with the decline of its economic and military power, it said the Government should be "less deferential" towards the Americans and take a more realistic view of the relationship.
"The use of the phrase 'the special relationship' in its historical sense, to describe the totality of the ever-evolving UK-US relationship, is potentially misleading, and we recommend that its use should be avoided," the committee said. "Overuse of the phrase serves simultaneously to de-value its meaning and to raise unrealistic expectations about the benefits the relationship can deliver to the UK."
As with much to do with the "special relationship", however, the recommendation proved controversial, with five members of the committee - three Labour and two Tories - voting unsuccessfully for it to be dropped. When Churchill first used the expression in the aftermath of the Second World War, he was inspired both by the shared struggle against Nazi Germany and the looming Cold War confrontation with the Soviet Union.
However, the committee said that in the eyes of the rest of the world, the relationship was now more likely to be defined by what was seen to be Britain's support for President George Bush over the Iraq War.
"The perception that the British Government was a subservient 'poodle' to the US administration leading up to the period of the invasion of Iraq and its aftermath is widespread," it said. "This perception, whatever its relation to reality, is deeply damaging to the reputation and interests of the UK."
A Foreign and Commonwealth Office spokeswoman said: "The British media's pre-occupation with the state of the 'special relationship' is frequently at the expense of coverage of the more substantive aspects of the relationship".
"It doesn't really matter whether someone calls it the "special relationship" or not. What matters is that the UK's relationship with the US is unique, and uniquely important to protecting our national security and promoting our national interest."
Doing business in China getting tougher for U.S. companies
Just a few years ago, the mantra in Silicon Valley went like this: What's your China strategy? A 2010 update could be: What's your China headache?
China's allure is stronger than ever. It remains a cheap place to manufacture goods, and its rapidly growing domestic market includes 400 million Internet users and 700 million mobile-phone subscribers, numbers unmatched anywhere else in the world. But a country already known for obstacles is becoming less welcoming to foreign businesses.
Google's frayed relations with the Chinese government over intellectual property theft and censorship spotlight the growing discontent many Western companies are experiencing in the country. And American companies are certain to face even tougher conditions there if U.S.-China tensions continue to rise over issues such as China's currency controls, which experts say boost China's exports while limiting imports from the United States.
"It was inevitable after a certain time they would no longer roll out the red carpet for foreign companies and give them special treatment," said Susan Shirk, a former deputy assistant secretary of state in the Clinton administration responsible for U.S. relations with China. "But now we don't have a level playing field. We have nontariff barriers (in China) designed to protect local companies."
Much like Google, other companies are reviewing their commitments to China, longtime Silicon Valley forecaster Paul Saffo said. "I
think we will see more companies opt to quietly back away or at least limit their exposure in the Chinese market," he said.
American corporations for decades have been China's biggest boosters. Companies from Hewlett-Packard to General Electric have collectively spent billions of dollars to set up world-class research and development centers there.
But as China's business sectors mature, the government is shifting its emphasis to nurturing its own corporate champions to become global competitors. It has been emboldened in its demands on foreign companies, experts say, by the nation's rising economic stature. China emerged quickly from the global recession while other countries, including the United States, are still mired in the slowdown.
Though reluctant to complain publicly for fear of retribution from China, many U.S. companies are frustrated by official policies they say prop up homegrown companies at the expense of foreign competitors. The American Chamber of Commerce in Beijing released a survey last week that reported 37 percent of tech companies complained of lost sales because the Chinese government favors products from local companies over those from foreign corporations. And they fear future preferential policies will skew the competition further.
Silicon Valley giants HP, Intel and Applied Materials, all of which have extensive operations in China, declined to comment for this report, and several other valley companies with China operations did not respond to requests for interviews.
But the Information Technology Industry Council, which represents many U.S. companies, said one example of the new hurdles its members face in China is government procurement policies requiring that products contain intellectual property developed and owned in China.
That's a big chunk of business to miss out on. In 2008, the Chinese government spent an estimated $90 billion on tech and nontech products.
Tech companies also chafe against rules that require their products adopt China's local technology standards. That means they often must create two versions of a product: one for China and one for the global market. China Mobile, for example, is reportedly close to an agreement with Apple to use the iPhone on its 3G network — if Apple reconfigures the device to run on China's standard, which is used only in that country.
Foreign companies are "caught between a rock and a hard place," said Daniel Slane, an Ohio businessman who chairs a panel created by Congress called the US-China Economic Security Review Commission. "They've invested a lot of money and they're making a lot of money, but they're starting to see the pendulum move. I think some of them are starting to get nervous."
Google on Monday stopped censoring its Chinese search results, redirecting traffic to an unfiltered site in Hong Kong after the Mountain View company's China operation was hit with cyber attacks. The company is paying a price for its decision to pull back: State-owned China Unicom, the nation's second-largest mobile operator, is removing Google's search function from new Android handsets it developed with Google. And popular Chinese Internet sites announced they would stop using Google's search feature.
On Wednesday, the world's largest Internet domain registration company, Go Daddy, said it, too, was rejecting China's censorship rules after regulators began requiring more detailed information — including photographs — of its Chinese customers.
"The exchange of information is so much freer on the Internet and that really makes (the Chinese government) nervous," said Christine Jones, general counsel of Go Daddy, which has 27,000 domains under Chinese registration. "I wouldn't be surprised to see (other companies) follow suit."
The public retreat of two companies from China doesn't make a trend, said Emily Parker, a senior fellow at the Asia Society's Center on US-China Relations. Google, she added, is a special case.
But Google is not alone in facing new challenges in China. Last summer, PC makers, including Palo Alto-based HP, ran into a roadblock when the government demanded that all new computers sold in China be preloaded with the so-called "Green Dam" Web-filtering software to block pornography and banned political sites. After a domestic and international uproar, the government indefinitely set aside the requirement.
HP has said little publicly about the contretemps. China is clearly critical to the company's business.
In 2008, HP sold more than 4.4 million PCs in China, making it the nation's second-largest computer vendor after Lenovo, according to the IDC research firm. China, along with India and Brazil, are three developing countries where HP sees huge growth opportunity, Executive Vice President Todd Bradley, the head of the company's PC division, told analysts last fall.
But tensions between the United States and China have surged in recent months. Earlier this month, more than 100 members of Congress called on the Obama administration to label China a "currency manipulator" because they believe it keeps its currency artificially low, giving Chinese companies an unfair advantage in global trade.
"China is focused not on the world but on itself," said Ed Black, CEO of the Computer & Communications Industry Association. "We don't know how it will be in the long run. But right now it's a difficult situation."
Contact John Boudreau at jboudreau@mercurynews.com. Contact Brandon Bailey at bbailey@mercurynews.com.
China's allure is stronger than ever. It remains a cheap place to manufacture goods, and its rapidly growing domestic market includes 400 million Internet users and 700 million mobile-phone subscribers, numbers unmatched anywhere else in the world. But a country already known for obstacles is becoming less welcoming to foreign businesses.
Google's frayed relations with the Chinese government over intellectual property theft and censorship spotlight the growing discontent many Western companies are experiencing in the country. And American companies are certain to face even tougher conditions there if U.S.-China tensions continue to rise over issues such as China's currency controls, which experts say boost China's exports while limiting imports from the United States.
"It was inevitable after a certain time they would no longer roll out the red carpet for foreign companies and give them special treatment," said Susan Shirk, a former deputy assistant secretary of state in the Clinton administration responsible for U.S. relations with China. "But now we don't have a level playing field. We have nontariff barriers (in China) designed to protect local companies."
Much like Google, other companies are reviewing their commitments to China, longtime Silicon Valley forecaster Paul Saffo said. "I
think we will see more companies opt to quietly back away or at least limit their exposure in the Chinese market," he said.
American corporations for decades have been China's biggest boosters. Companies from Hewlett-Packard to General Electric have collectively spent billions of dollars to set up world-class research and development centers there.
But as China's business sectors mature, the government is shifting its emphasis to nurturing its own corporate champions to become global competitors. It has been emboldened in its demands on foreign companies, experts say, by the nation's rising economic stature. China emerged quickly from the global recession while other countries, including the United States, are still mired in the slowdown.
Though reluctant to complain publicly for fear of retribution from China, many U.S. companies are frustrated by official policies they say prop up homegrown companies at the expense of foreign competitors. The American Chamber of Commerce in Beijing released a survey last week that reported 37 percent of tech companies complained of lost sales because the Chinese government favors products from local companies over those from foreign corporations. And they fear future preferential policies will skew the competition further.
Silicon Valley giants HP, Intel and Applied Materials, all of which have extensive operations in China, declined to comment for this report, and several other valley companies with China operations did not respond to requests for interviews.
But the Information Technology Industry Council, which represents many U.S. companies, said one example of the new hurdles its members face in China is government procurement policies requiring that products contain intellectual property developed and owned in China.
That's a big chunk of business to miss out on. In 2008, the Chinese government spent an estimated $90 billion on tech and nontech products.
Tech companies also chafe against rules that require their products adopt China's local technology standards. That means they often must create two versions of a product: one for China and one for the global market. China Mobile, for example, is reportedly close to an agreement with Apple to use the iPhone on its 3G network — if Apple reconfigures the device to run on China's standard, which is used only in that country.
Foreign companies are "caught between a rock and a hard place," said Daniel Slane, an Ohio businessman who chairs a panel created by Congress called the US-China Economic Security Review Commission. "They've invested a lot of money and they're making a lot of money, but they're starting to see the pendulum move. I think some of them are starting to get nervous."
Google on Monday stopped censoring its Chinese search results, redirecting traffic to an unfiltered site in Hong Kong after the Mountain View company's China operation was hit with cyber attacks. The company is paying a price for its decision to pull back: State-owned China Unicom, the nation's second-largest mobile operator, is removing Google's search function from new Android handsets it developed with Google. And popular Chinese Internet sites announced they would stop using Google's search feature.
On Wednesday, the world's largest Internet domain registration company, Go Daddy, said it, too, was rejecting China's censorship rules after regulators began requiring more detailed information — including photographs — of its Chinese customers.
"The exchange of information is so much freer on the Internet and that really makes (the Chinese government) nervous," said Christine Jones, general counsel of Go Daddy, which has 27,000 domains under Chinese registration. "I wouldn't be surprised to see (other companies) follow suit."
The public retreat of two companies from China doesn't make a trend, said Emily Parker, a senior fellow at the Asia Society's Center on US-China Relations. Google, she added, is a special case.
But Google is not alone in facing new challenges in China. Last summer, PC makers, including Palo Alto-based HP, ran into a roadblock when the government demanded that all new computers sold in China be preloaded with the so-called "Green Dam" Web-filtering software to block pornography and banned political sites. After a domestic and international uproar, the government indefinitely set aside the requirement.
HP has said little publicly about the contretemps. China is clearly critical to the company's business.
In 2008, HP sold more than 4.4 million PCs in China, making it the nation's second-largest computer vendor after Lenovo, according to the IDC research firm. China, along with India and Brazil, are three developing countries where HP sees huge growth opportunity, Executive Vice President Todd Bradley, the head of the company's PC division, told analysts last fall.
But tensions between the United States and China have surged in recent months. Earlier this month, more than 100 members of Congress called on the Obama administration to label China a "currency manipulator" because they believe it keeps its currency artificially low, giving Chinese companies an unfair advantage in global trade.
"China is focused not on the world but on itself," said Ed Black, CEO of the Computer & Communications Industry Association. "We don't know how it will be in the long run. But right now it's a difficult situation."
Contact John Boudreau at jboudreau@mercurynews.com. Contact Brandon Bailey at bbailey@mercurynews.com.
Jim Rogers on Oil, Gold and the Biggest US Bubble
Debate on the scope and risks of the US health care plan still rages even as Pres. Obama unveiled a $14 billion plan to help homeowners. And the impact of a Greek bailout on the Eurozone economies is still a question.
Jim Rogers, chairman of Rogers Holdings, offered CNBC more insights into American and global markets.
"All governments around the world are debasing their currencies," he declared.
"There may come a time when we all have to have all of our money in real assets."
"I certainly own gold," he said. But he pointed out the precious metal's "extremely strong" moves since 2009: "Anything that goes up that far that fast should consolidate and rest."
"I like to buy what's cheapest. Silver is cheaper than gold, on a historical basis; natural gas is cheaper than oil."
"We see more and more speculation in oil and gold. And in these times, it's usually best to step back and let others speculate."
Rogers reiterated his take on the "two biggest bubbles in the world" right now — US Treasurys and Chinese real estate:
"There's no question that the United States government's long bond is a bubble."
"In particular, Hong Kong real estate is nuts," he added.
Jim Rogers, chairman of Rogers Holdings, offered CNBC more insights into American and global markets.
"All governments around the world are debasing their currencies," he declared.
"There may come a time when we all have to have all of our money in real assets."
"I certainly own gold," he said. But he pointed out the precious metal's "extremely strong" moves since 2009: "Anything that goes up that far that fast should consolidate and rest."
"I like to buy what's cheapest. Silver is cheaper than gold, on a historical basis; natural gas is cheaper than oil."
"We see more and more speculation in oil and gold. And in these times, it's usually best to step back and let others speculate."
Rogers reiterated his take on the "two biggest bubbles in the world" right now — US Treasurys and Chinese real estate:
"There's no question that the United States government's long bond is a bubble."
"In particular, Hong Kong real estate is nuts," he added.
Imagining an Israeli Strike on Iran
In 1981, Israel destroyed Iraq’s nuclear reactor at Osirak, declaring it could not live with the chance the country would get a nuclear weapons capability. In 2007, it wiped out a North Korean-built reactor in Syria. And the next year, the Israelis secretly asked the Bush administration for the equipment and overflight rights they might need some day to strike Iran’s much better-hidden, better-defended nuclear sites.
Related
Agencies Suspect Iran Is Planning New Atomic Sites (March 28, 2010) They were turned down, but the request added urgency to the question: Would Israel take the risk of a strike? And if so, what would follow?
Now that parlor game question has turned into more formal war games simulations. The government’s own simulations are classified, but the Saban Center for Middle East Policy at the Brookings Institution created its own in December. The results were provocative enough that a summary of them has circulated among top American government and military officials and in many foreign capitals.
For the sake of verisimilitude, former top American policymakers and intelligence officials — some well known — were added to the mix. They played the president and his top advisers; the Israeli prime minister and cabinet; and Iranian leaders. They were granted anonymity to be able to play their roles freely, without fear of blowback. (This reporter was invited as an observer.) A report by Kenneth M. Pollack, who directed the daylong simulation, can be found at the Saban Center’s Web site.
A caution: Simulations compress time and often oversimplify events. Often they underestimate the risk of error — for example, that by using faulty intelligence leaders can misinterpret a random act as part of a pattern of aggression. In this case, the actions of the American and Israeli teams seemed fairly plausible; the players knew the bureaucracy and politics of both countries well. Predicting Iran’s moves was another matter, since little is known about its decision-making process. —DAVID E. SANGER
1. ISRAEL ATTACKS
Without telling the U.S. in advance, Israel strikes at six of Iran's most critical nuclear facilities, using a refueling base hastily set up in the Saudi Arabian desert without Saudi knowledge. (It is unclear to the Iranians if the Saudis were active participants or not.)
Already-tense relations between the White House and Israel worsen rapidly, but the lack of advance notice allows Washington to say truthfully that it had not condoned the attack.
2. U.S. STEPS IN
In a series of angry exchanges, the U.S. demands that Israel cease its attacks, though some in Washington view the moment as an opportunity to further weaken the Iranian government, particularly the Islamic Revolutionary Guard Corps.
Telling Israel it has made a mess, Washington essentially instructs the country to sit in a corner while the United States tries to clean things up.
3. U.S. SENDS WEAPONS
Even while calling for restraint on all sides, the U.S. deploys more Patriot antimissile batteries and Aegis cruisers around the region, as a warning to Iran not to retaliate. Even so, some White House advisers warn against being sucked into the conflict, believing that Israel's real strategy is to lure America into finishing the job with additional attacks on the damaged Iranian facilities.
4. IRAN STRIKES BACK
Despite warnings, Iran fires missiles at Israel, including its nuclear weapons complex at Dimona, but damage and casualties are minimal. Meanwhile, two of Iran's proxies, Hezbollah and Hamas, launch attacks in Israel and fire rockets into the country.
Believing it already has achieved its main goal of setting back the nuclear program by years, Israel barely responds.
5. IRAN SEES OPPORTUNITIES
Iran, while wounded, sees long-term opportunities to unify its people - and to roll over its opposition parties - on nationalistic grounds. Its strategy is to mount low-level attacks on Israel while portraying the United States as a paper tiger - unable to control its ally and unwilling to respond to Iran.
Convinced that the Saudis had colluded with the Israelis, and emboldened by the measured initial American position, Iran fires missiles at the Saudi oil export processing center at Abqaiq, and tries to incite Shiite Muslims in eastern Saudi Arabia to attack the Saudi regime.
Iran also conducts terror attacks against European targets, in hopes that governments there will turn on Israel and the United States.
6. IRAN AVOIDS U.S. TARGETS
After a meeting of its divided leadership, Iran decides against directly attacking any American targets - to avoid an all-out American response.
7. STRIFE IN ISRAEL
Though Iran's retaliation against Israel causes only modest damage, critics in the Israeli media say the country's leaders, by failing to respond to every attack, have weakened the credibility of the nation's deterrence. Hezbollah fires up to 100 rockets a day into northern Israel, with some aimed at Haifa and Tel Aviv.
The Israeli economy comes to a virtual halt, and Israeli officials, urging American intervention, complain that one-third of the country's population is living in shelters. Hundreds of thousands flee Haifa and Tel Aviv.
8. ISRAEL FIRES BACK
Israel finally wins American acquiescence to retaliate against Hezbollah. It orders a 48-hour campaign by air and special forces against Lebanon and begins to prepare a much larger air and ground operation.
9. IRAN PLAYS THE OIL CARD
Knowing that its ultimate weapon is its ability to send oil prices sky high, Iran decides to attack Dhahran, Saudi Arabia, an oil industry center, with conventional missiles and begins mining the Strait of Hormuz.
A Panamanian-registered, Americanowned tanker and an American minesweeper are severely damaged. The price of oil spikes, though temporarily.
10. U.S. BOOSTS FORCES
Unable to sit on the sidelines while oil supplies and American forces are threatened, Washington begins a massive military reinforcement of the Gulf region.
11. REVERBERATIONS
The game ends eight days after the initial Israeli strike. But it is clear the United States was leaning toward destroying all Iranian air, ground and sea targets in and around the Strait of Hormuz, and that Iran's forces were about to suffer a significant defeat. Debate breaks out over how much of Iran's nuclear program was truly crippled, and whether the country had secret backup facilities that could be running in just a year or two.
A REPORTER'S OBSERVATIONS
1. By attacking without Washington's advance knowledge, Israel had the benefits of surprise and momentum - not only over the Iranians, but over its American allies - and for the first day or two, ran circles around White House crisis managers.
2. The battle quickly sucked in the whole region - and Washington. Arab leaders who might have quietly applauded an attack against Iran had to worry about the reaction in their streets. The war shifted to defending Saudi oil facilities, and Iran's use of proxies meant that other regional players quickly became involved.
3. You can bomb facilities, but you can't bomb knowledge. Iran had not only scattered its facilities, but had also scattered its scientific and engineering leadership, in hopes of rebuilding after an attack.
4. No one won, and the United States and Israel measured success differently. In Washington, officials believed setting the Iranian program back only a few years was not worth the huge cost. In Israel, even a few years delay seemed worth the cost, and the Israelis argued that it could further undercut a fragile regime and perhaps speed its demise. Most of the Americans thought that was a pipe dream. —D.E.S.
Illustrations by Alicia Cheng and Sarah Gephart, Mgmt. Design
Related
Agencies Suspect Iran Is Planning New Atomic Sites (March 28, 2010) They were turned down, but the request added urgency to the question: Would Israel take the risk of a strike? And if so, what would follow?
Now that parlor game question has turned into more formal war games simulations. The government’s own simulations are classified, but the Saban Center for Middle East Policy at the Brookings Institution created its own in December. The results were provocative enough that a summary of them has circulated among top American government and military officials and in many foreign capitals.
For the sake of verisimilitude, former top American policymakers and intelligence officials — some well known — were added to the mix. They played the president and his top advisers; the Israeli prime minister and cabinet; and Iranian leaders. They were granted anonymity to be able to play their roles freely, without fear of blowback. (This reporter was invited as an observer.) A report by Kenneth M. Pollack, who directed the daylong simulation, can be found at the Saban Center’s Web site.
A caution: Simulations compress time and often oversimplify events. Often they underestimate the risk of error — for example, that by using faulty intelligence leaders can misinterpret a random act as part of a pattern of aggression. In this case, the actions of the American and Israeli teams seemed fairly plausible; the players knew the bureaucracy and politics of both countries well. Predicting Iran’s moves was another matter, since little is known about its decision-making process. —DAVID E. SANGER
1. ISRAEL ATTACKS
Without telling the U.S. in advance, Israel strikes at six of Iran's most critical nuclear facilities, using a refueling base hastily set up in the Saudi Arabian desert without Saudi knowledge. (It is unclear to the Iranians if the Saudis were active participants or not.)
Already-tense relations between the White House and Israel worsen rapidly, but the lack of advance notice allows Washington to say truthfully that it had not condoned the attack.
2. U.S. STEPS IN
In a series of angry exchanges, the U.S. demands that Israel cease its attacks, though some in Washington view the moment as an opportunity to further weaken the Iranian government, particularly the Islamic Revolutionary Guard Corps.
Telling Israel it has made a mess, Washington essentially instructs the country to sit in a corner while the United States tries to clean things up.
3. U.S. SENDS WEAPONS
Even while calling for restraint on all sides, the U.S. deploys more Patriot antimissile batteries and Aegis cruisers around the region, as a warning to Iran not to retaliate. Even so, some White House advisers warn against being sucked into the conflict, believing that Israel's real strategy is to lure America into finishing the job with additional attacks on the damaged Iranian facilities.
4. IRAN STRIKES BACK
Despite warnings, Iran fires missiles at Israel, including its nuclear weapons complex at Dimona, but damage and casualties are minimal. Meanwhile, two of Iran's proxies, Hezbollah and Hamas, launch attacks in Israel and fire rockets into the country.
Believing it already has achieved its main goal of setting back the nuclear program by years, Israel barely responds.
5. IRAN SEES OPPORTUNITIES
Iran, while wounded, sees long-term opportunities to unify its people - and to roll over its opposition parties - on nationalistic grounds. Its strategy is to mount low-level attacks on Israel while portraying the United States as a paper tiger - unable to control its ally and unwilling to respond to Iran.
Convinced that the Saudis had colluded with the Israelis, and emboldened by the measured initial American position, Iran fires missiles at the Saudi oil export processing center at Abqaiq, and tries to incite Shiite Muslims in eastern Saudi Arabia to attack the Saudi regime.
Iran also conducts terror attacks against European targets, in hopes that governments there will turn on Israel and the United States.
6. IRAN AVOIDS U.S. TARGETS
After a meeting of its divided leadership, Iran decides against directly attacking any American targets - to avoid an all-out American response.
7. STRIFE IN ISRAEL
Though Iran's retaliation against Israel causes only modest damage, critics in the Israeli media say the country's leaders, by failing to respond to every attack, have weakened the credibility of the nation's deterrence. Hezbollah fires up to 100 rockets a day into northern Israel, with some aimed at Haifa and Tel Aviv.
The Israeli economy comes to a virtual halt, and Israeli officials, urging American intervention, complain that one-third of the country's population is living in shelters. Hundreds of thousands flee Haifa and Tel Aviv.
8. ISRAEL FIRES BACK
Israel finally wins American acquiescence to retaliate against Hezbollah. It orders a 48-hour campaign by air and special forces against Lebanon and begins to prepare a much larger air and ground operation.
9. IRAN PLAYS THE OIL CARD
Knowing that its ultimate weapon is its ability to send oil prices sky high, Iran decides to attack Dhahran, Saudi Arabia, an oil industry center, with conventional missiles and begins mining the Strait of Hormuz.
A Panamanian-registered, Americanowned tanker and an American minesweeper are severely damaged. The price of oil spikes, though temporarily.
10. U.S. BOOSTS FORCES
Unable to sit on the sidelines while oil supplies and American forces are threatened, Washington begins a massive military reinforcement of the Gulf region.
11. REVERBERATIONS
The game ends eight days after the initial Israeli strike. But it is clear the United States was leaning toward destroying all Iranian air, ground and sea targets in and around the Strait of Hormuz, and that Iran's forces were about to suffer a significant defeat. Debate breaks out over how much of Iran's nuclear program was truly crippled, and whether the country had secret backup facilities that could be running in just a year or two.
A REPORTER'S OBSERVATIONS
1. By attacking without Washington's advance knowledge, Israel had the benefits of surprise and momentum - not only over the Iranians, but over its American allies - and for the first day or two, ran circles around White House crisis managers.
2. The battle quickly sucked in the whole region - and Washington. Arab leaders who might have quietly applauded an attack against Iran had to worry about the reaction in their streets. The war shifted to defending Saudi oil facilities, and Iran's use of proxies meant that other regional players quickly became involved.
3. You can bomb facilities, but you can't bomb knowledge. Iran had not only scattered its facilities, but had also scattered its scientific and engineering leadership, in hopes of rebuilding after an attack.
4. No one won, and the United States and Israel measured success differently. In Washington, officials believed setting the Iranian program back only a few years was not worth the huge cost. In Israel, even a few years delay seemed worth the cost, and the Israelis argued that it could further undercut a fragile regime and perhaps speed its demise. Most of the Americans thought that was a pipe dream. —D.E.S.
Illustrations by Alicia Cheng and Sarah Gephart, Mgmt. Design
No impartiality between Israel, Palestinians
It is unfortunate that President Obama kept reporters out of his meeting at the White House yesterday with Israeli Prime Minister Benjamin Netanyahu. A closed meeting almost always suggests a serious rift has not been healed. In this case, it's another indication that Obama and Secretary of State Hillary Clinton are veering off the "road to peace" in the Middle East. Clinton told American supporters of Israel Monday that "our credibility in this process depends in part on our willingness to praise both sides when they are courageous, and when we don't agree, to say so, and say so unequivocally." This moral equivalence might be appropriate if she were refereeing a schoolyard brawl. The stakes for Israel in the Mideast conflict, however, are nothing less than national survival. For its part, the United States has a vital interest in maintaining a critically important strategic alliance.
Trouble is, the scales tip against Israel anytime the United States proclaims its determination to judge impartially between Israel and the Palestinian Authority. What Obama and Clinton seem not to understand is that concessions by Israel frequently represent a diminution of her ability to defend herself against enemies that have declared their determination to destroy the Jewish state. Israel is a nation of extraordinarily courageous people, but it is also a tiny country. As Netanyahu said Monday, "Iran's rulers say 'Israel is a one bomb country.'" The apartments in east Jerusalem that gave rise to the present tensions are within a five-minute drive from the Israeli Knesset. Imagine U.S. leaders being told they cannot build homes for their people in Anacostia.
So when Clinton pressures Netanyahu to stop building in areas of the Jewish national capital because "new construction in east Jerusalem or the West Bank undermines mutual trust and endangers the proximity talks that are the first step toward the full negotiations that both sides want and need," she is effectively putting America on the side of Israel's enemies. The United States needs to squarely face extremists like Hezbollah, whose leader, Hassan Nazrallah, recently said that "if all the Jews gather in Israel, it will save us the trouble of going after them worldwide." Hezbollah and the Palestinian Authority differ only on how to get to the final holocaust of the Jews, not whether they should be exterminated. For the United States, there can be no impartial choice between a democratic nation that strongly supports America and the butchers who cannot wait to spill more Jewish blood
Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/No-impartiality-between-Israel_-Palestinians-88961842.html#ixzz0jTiNhun4
Trouble is, the scales tip against Israel anytime the United States proclaims its determination to judge impartially between Israel and the Palestinian Authority. What Obama and Clinton seem not to understand is that concessions by Israel frequently represent a diminution of her ability to defend herself against enemies that have declared their determination to destroy the Jewish state. Israel is a nation of extraordinarily courageous people, but it is also a tiny country. As Netanyahu said Monday, "Iran's rulers say 'Israel is a one bomb country.'" The apartments in east Jerusalem that gave rise to the present tensions are within a five-minute drive from the Israeli Knesset. Imagine U.S. leaders being told they cannot build homes for their people in Anacostia.
So when Clinton pressures Netanyahu to stop building in areas of the Jewish national capital because "new construction in east Jerusalem or the West Bank undermines mutual trust and endangers the proximity talks that are the first step toward the full negotiations that both sides want and need," she is effectively putting America on the side of Israel's enemies. The United States needs to squarely face extremists like Hezbollah, whose leader, Hassan Nazrallah, recently said that "if all the Jews gather in Israel, it will save us the trouble of going after them worldwide." Hezbollah and the Palestinian Authority differ only on how to get to the final holocaust of the Jews, not whether they should be exterminated. For the United States, there can be no impartial choice between a democratic nation that strongly supports America and the butchers who cannot wait to spill more Jewish blood
Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/No-impartiality-between-Israel_-Palestinians-88961842.html#ixzz0jTiNhun4
Obama's perverse foreign policy
American presidents are often accused of being opaque or inconsistent in foreign affairs, but President Obama may be the first to be downright perverse, antagonizing our strongest allies, while trying to appease our most dangerous adversaries.Consider Obama's recent actions toward Israel and Russia.
Israeli Prime Minister Benjamin Netanyahu met twice this past week with Obama in the White House, for a total of more than two hours to discuss the Mideast "road to peace." As the Washington Examiner predicted, the meetings were argumentative and confrontational in tone and content, according to knowledgeable diplomatic sources. Angered that Israel is planning to build more apartments for its growing population in a contested neighborhood of Jerusalem, Obama laid down 13 demands that Netanyahu must meet in order to "restore confidence" in the peace process with the Palestinian Authority.
Among Obama's conditions are rigid demands that Israel cede control over parts of Jerusalem, its national capital, to the Palestinian Authority, which remains officially committed to destroying the Jewish state. Obama also demands that Netanyahu withdraw Israeli military units now patrolling areas formerly used by Palestinian fighters to launch attacks on Jewish citizens, and to release 1,000 Palestinian prisoners. If Netanyahu caves, hundreds of those released prisoners will soon be using the areas no longer secured by the Israeli military to again launchattacks on innocent civilians.
Contrast Obama's strong-arming of Israel with his sweet talk for Russia. On Friday, the White House announced that Obama and Russian PresidentDmitry Medvedev have agreed to terms for a new strategic arms reduction treaty to further reduce each nation's nuclear weapons inventory. The new proposed pact would replace the START treaty first sought by President Reagan and signed by President George H.W. Bush in 1991. To gain Senate ratification, however, Obama must secure support from at least eight Republicans. To that end, the White House disingenuously claimed that the new treaty has no "constraintson testing, development or deployment of current or planned U.S. missile defense programs or current or planned United States long-range conventional strike capabilities."
That's disingenuous because last September Obama canceled U.S. plans to build missile defense facilities in Poland and the Czech Republic, just as Russia had demanded. Worse yet, as Examiner Columnist James Jay Carafano noted last Monday, Obama also refuses "to fully modernize our nuclear weapons" while Russia uses its oil wealth to update its weapons. Thus, Carafano says, "our aging inventory is increasingly less usable and reliable. The continuing erosion of a credible deterrent force will only invite aggression."So, whether poking friends or coddling foes, Obama is inviting trouble for the United States and its allies.
Israeli Prime Minister Benjamin Netanyahu met twice this past week with Obama in the White House, for a total of more than two hours to discuss the Mideast "road to peace." As the Washington Examiner predicted, the meetings were argumentative and confrontational in tone and content, according to knowledgeable diplomatic sources. Angered that Israel is planning to build more apartments for its growing population in a contested neighborhood of Jerusalem, Obama laid down 13 demands that Netanyahu must meet in order to "restore confidence" in the peace process with the Palestinian Authority.
Among Obama's conditions are rigid demands that Israel cede control over parts of Jerusalem, its national capital, to the Palestinian Authority, which remains officially committed to destroying the Jewish state. Obama also demands that Netanyahu withdraw Israeli military units now patrolling areas formerly used by Palestinian fighters to launch attacks on Jewish citizens, and to release 1,000 Palestinian prisoners. If Netanyahu caves, hundreds of those released prisoners will soon be using the areas no longer secured by the Israeli military to again launchattacks on innocent civilians.
Contrast Obama's strong-arming of Israel with his sweet talk for Russia. On Friday, the White House announced that Obama and Russian PresidentDmitry Medvedev have agreed to terms for a new strategic arms reduction treaty to further reduce each nation's nuclear weapons inventory. The new proposed pact would replace the START treaty first sought by President Reagan and signed by President George H.W. Bush in 1991. To gain Senate ratification, however, Obama must secure support from at least eight Republicans. To that end, the White House disingenuously claimed that the new treaty has no "constraintson testing, development or deployment of current or planned U.S. missile defense programs or current or planned United States long-range conventional strike capabilities."
That's disingenuous because last September Obama canceled U.S. plans to build missile defense facilities in Poland and the Czech Republic, just as Russia had demanded. Worse yet, as Examiner Columnist James Jay Carafano noted last Monday, Obama also refuses "to fully modernize our nuclear weapons" while Russia uses its oil wealth to update its weapons. Thus, Carafano says, "our aging inventory is increasingly less usable and reliable. The continuing erosion of a credible deterrent force will only invite aggression."So, whether poking friends or coddling foes, Obama is inviting trouble for the United States and its allies.
If President Obama Cared About Jobs, He Would Have Tabled Becker's Nomination
As Congress begins its Easter break, President Obama is expected to recess appoint labor radical Craig Becker to the National Labor Relations Board (NLRB) even though Becker failed to receive bipartisan support in the U.S. Senate. At a time when Republicans and Democrats rarely agree on the issues confronting the nation, members of both parties were concerned enough with Becker’s extreme record to say “no” to his nomination.
But unfortunately, that does not seem to trouble a White House who is desperately working to “pay back” Big Labor who invested half a billion dollars to get them elected.
Senator Tom Harkin flatly stated that, “[i]t’s going to happen” when speaking with regard Becker’s nomination. His comments followed those of Labor Secretary Hilda Solis who told the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) they would receive “positive news” and would be “very pleased” with how the Becker nomination was resolved.
All of this conveniently ignores the fact that job creation is supposedly the top agenda item of this administration and Becker’s nomination to the NLRB is in conflict with that objective. Employers today are struggling to remain in business and instead of creating an environment that is conducive to job creation and investment, the administration has chosen to stand with union bosses and promote their job-killing policies, namely the Employee ‘Forced’ Choice Act (EFCA).
Craig Becker’s nomination is a threat to the economy because he believes small businesses “should have no right to be heard in either a representation case or an unfair labor practices case” meaning “employers have no standing to assert their employees’ right to fair representation.” These are Becker’s own words, which were published in the University of Minnesota Law Review in 1993.
This extreme nominee believes employers should have no “legal standing” in the unionization process of their own workplace. Really? So the AFL-CIO’s Rich Trumka and the SEIU’s Andy Stern should have a voice in the unionization process and the guy who started the business should not? It would be laughable if it weren’t so serious.
Becker also represents a threat to small business owners as he would almost certainly attempt to impose anti-job creation policies through the NLRB, which could not be achieved through Congressional action.
In fact, Stewart Acuff, a special assistant to the president of the AFL-CIO wrote recently when speaking of EFCA, “[w]e are very close to the 60 votes we need. It [sic] we aren’t able to pass the Employee Free Choice Act, we will work with President Obama and Vice President Biden and their appointees to the National Labor Relations Board to change the rules governing forming a union through administrative action...”
What the union bosses are unable to achieve in Congress – where representatives are directly responsible to the people – they expect a nominee to carry out through an agency in the executive branch most Americans are unfamiliar with.
For this very reason, just this week, Senators Orrin Hatch and John McCain drafted an open letter to President Obama in protest to the potential recess nomination saying, “[t]aking this action would install a rejected nominee for an appointed term to the NLRB, setting an unfortunate precedent for all future nominations and future administrations.” All 41 Republican Senators signed the letter, citing the bipartisan opposition Becker faced in the Senate.
These Senators know that Becker’s appointment would be a catalyst for Big Labor to push its self-proclaimed, top-agenda item – the Employee ‘Forced’ Choice Act.
EFCA has seen no movement in Congress and frustrated labor bosses will now use Becker as their attempt at getting pieces of the job-killing legislation made reality through “administrative action.”
A change to union formation and negotiation rules, EFCA would remove workers’ right to a private ballot in union elections and would allow a government arbitrator to write binding contracts that directly impact employers and employees. These contracts would affect every aspect of the business and neither the owner nor the workers would have any say regarding its contents.
This attempt to use Becker to enact regulation that would impose EFCA’s forced unionization scheme would be detrimental to businesses and workers around the country and simply stated, would cost us jobs.
A recent study found that over half a million jobs would be lost in one year alone if EFCA was enacted. And to make matters worse, the debts small businesses would have to assume when forced into bankrupt union pension plans would make them financially insolvent.
With so much vocal and public opposition to the Becker nomination, it is deeply disturbing that the Obama Administration would go forward with it and bypass the Congress all to reward union bosses at our expense.
At the end of the day, Americans understand that the economy is in an extremely fragile state and will hold politicians accountable for making decisions that hurt our nation’s top job creators – small businesses – and result in more job loss. If the Obama Administration is truly concerned with economic growth, they will follow the bipartisan will of Congress and table Craig Becker’s nomination.
http://townhall.com/columnists/KatiePacker/2010/03/27/if_president_obama_cared_about_jobs,_he_would_have_tabled_beckers_nomination?page=full
But unfortunately, that does not seem to trouble a White House who is desperately working to “pay back” Big Labor who invested half a billion dollars to get them elected.
Senator Tom Harkin flatly stated that, “[i]t’s going to happen” when speaking with regard Becker’s nomination. His comments followed those of Labor Secretary Hilda Solis who told the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) they would receive “positive news” and would be “very pleased” with how the Becker nomination was resolved.
All of this conveniently ignores the fact that job creation is supposedly the top agenda item of this administration and Becker’s nomination to the NLRB is in conflict with that objective. Employers today are struggling to remain in business and instead of creating an environment that is conducive to job creation and investment, the administration has chosen to stand with union bosses and promote their job-killing policies, namely the Employee ‘Forced’ Choice Act (EFCA).
Craig Becker’s nomination is a threat to the economy because he believes small businesses “should have no right to be heard in either a representation case or an unfair labor practices case” meaning “employers have no standing to assert their employees’ right to fair representation.” These are Becker’s own words, which were published in the University of Minnesota Law Review in 1993.
This extreme nominee believes employers should have no “legal standing” in the unionization process of their own workplace. Really? So the AFL-CIO’s Rich Trumka and the SEIU’s Andy Stern should have a voice in the unionization process and the guy who started the business should not? It would be laughable if it weren’t so serious.
Becker also represents a threat to small business owners as he would almost certainly attempt to impose anti-job creation policies through the NLRB, which could not be achieved through Congressional action.
In fact, Stewart Acuff, a special assistant to the president of the AFL-CIO wrote recently when speaking of EFCA, “[w]e are very close to the 60 votes we need. It [sic] we aren’t able to pass the Employee Free Choice Act, we will work with President Obama and Vice President Biden and their appointees to the National Labor Relations Board to change the rules governing forming a union through administrative action...”
What the union bosses are unable to achieve in Congress – where representatives are directly responsible to the people – they expect a nominee to carry out through an agency in the executive branch most Americans are unfamiliar with.
For this very reason, just this week, Senators Orrin Hatch and John McCain drafted an open letter to President Obama in protest to the potential recess nomination saying, “[t]aking this action would install a rejected nominee for an appointed term to the NLRB, setting an unfortunate precedent for all future nominations and future administrations.” All 41 Republican Senators signed the letter, citing the bipartisan opposition Becker faced in the Senate.
These Senators know that Becker’s appointment would be a catalyst for Big Labor to push its self-proclaimed, top-agenda item – the Employee ‘Forced’ Choice Act.
EFCA has seen no movement in Congress and frustrated labor bosses will now use Becker as their attempt at getting pieces of the job-killing legislation made reality through “administrative action.”
A change to union formation and negotiation rules, EFCA would remove workers’ right to a private ballot in union elections and would allow a government arbitrator to write binding contracts that directly impact employers and employees. These contracts would affect every aspect of the business and neither the owner nor the workers would have any say regarding its contents.
This attempt to use Becker to enact regulation that would impose EFCA’s forced unionization scheme would be detrimental to businesses and workers around the country and simply stated, would cost us jobs.
A recent study found that over half a million jobs would be lost in one year alone if EFCA was enacted. And to make matters worse, the debts small businesses would have to assume when forced into bankrupt union pension plans would make them financially insolvent.
With so much vocal and public opposition to the Becker nomination, it is deeply disturbing that the Obama Administration would go forward with it and bypass the Congress all to reward union bosses at our expense.
At the end of the day, Americans understand that the economy is in an extremely fragile state and will hold politicians accountable for making decisions that hurt our nation’s top job creators – small businesses – and result in more job loss. If the Obama Administration is truly concerned with economic growth, they will follow the bipartisan will of Congress and table Craig Becker’s nomination.
http://townhall.com/columnists/KatiePacker/2010/03/27/if_president_obama_cared_about_jobs,_he_would_have_tabled_beckers_nomination?page=full
Saturday, March 27, 2010
Can Israel survive friends like these?
This is the moment a certain number of a certain breed of Democrats have been waiting for. The latest outburst of bad feeling between Barack Obama and Benjamin Netanyahu can be the cover they seek for finally putting the Jews in their place.
First the president went to the Middle East to apologize to the Muslims for America being America, and couldn't find the time for a stopover in Israel, America's only true friend in the region. Then he dispatched Joe Biden, the vice president who says he is an "ardent Zionist," to Jerusalem to try to mollify the Israelis with a cheap and sentimental love song with lyrics that nobody believes. The mission quickly blew up when the veep used the occasion to lecture the Israelis for building 1,600 new apartments for Jews in East Jerusalem, which the Palestinian bomb-throwers and their American apologists insist on calling "settlements." Hillary Clinton, the secretary of state, followed up with some nasty remarks.
Then came Mr. Netanyahu's long-scheduled visit to Washington, and things went from troubling to bad, and then to really bad. The Israeli prime minister, speaking to the American Israel Public Affairs Committee, the influential organization of American Jews, reminded everyone that "Jerusalem is not a settlement; it is our capital." Israel's enemies are real. "The ingathering of the Jewish people to Israel has not deterred these fanatics. In fact, it has only whetted their appetite. Iran's rulers say, 'Israel is a one-bomb country.' The head of Hezbollah says, 'If all the Jews gather in Israel, it will save us the trouble of going after them worldwide. ...' The future of the Jewish state can never depend on the good will of even the greatest of men. Israel must always reserve the right to defend itself."
For this statement of fact, Mr. Netanyahu is rebuked as "defiant," and accused of trying to drive a wedge between Mr. Obama, who wishes the Israelis wouldn't be so beastly to the Palestinians, and Congress, which can, when propped up by angry constituents, sometimes do the right thing.
Democrats were once regarded as the best friends Israel had - Harry S. Truman, a Democratic president and a Southern Baptist, was the first head of state to recognize Israel - but now it's the Republicans who are steadfast in support of the Jewish state. Says Rep. Mike Pence of Indiana, chairman of the House Republican Conference: "I never thought I'd live to see the day that an American administration would denounce the Jewish state of Israel for rebuilding Jerusalem."
Some Democrats comfort themselves with the notion, understandable in the light of history, that American Jews will continue to vote Democratic no matter what Mr. Obama and his party do to undermine the Jewish state. The Israelis, under constant siege and occasional bombardment, are not so easily taken in. Benjamin Netanyahu's brother-in-law was widely scolded after he told an Israeli radio interviewer that he thinks Mr. Obama is "an anti-Semite." The prime minister distanced himself from the sentiment.
Accusations of anti-Semitism against the president are over the top, like the accusations of racism against anyone who sharply criticizes Mr. Obama, but it is true that Mr. Obama has sought the company of recognized anti-Semites in the past - a "milieu," in the words of New Yorker magazine, "supposedly composed of incendiary preachers, black nationalists, fading Weathermen and ... Palestinian intellectuals." Mr. Obama has explained that while he did indeed submit his family to the moral guidance of the Rev. Jeremiah Wright and he sat through 20 years of the preacher's Sunday-morning harangues about the perfidious Jews and other evil white folks, he never heard the anti-Semitic slights, thus establishing a mark, worthy of the Guinness Book of Records, of sleeping through more than a thousand sermons.
Benjamin Netanyahu is the bane of the Democrats, who only wish he would go away (or be taken away). He understands the stakes in the Middle East, and wastes no time on prissy talk over diplomatic teacups. "Throughout history," he said, "the slanders against the Jewish people always preceded the physical assaults and were used to justify these assaults."
This is the kind of rhetoric that warms and strengthens sensible and prudent men aware of the threat to their own extinction, but it upsets the tummies of certain Democrats secure behind the protection of other men. It makes their teeth itch. Better to think of bunnies, enjoy the music of little fairies and early spring flowers, and troubles will go away. Barack Obama insists he's not like that, but a friend of Israel. Israel won't long survive if has to depend on friends like him.
http://www.washingtontimes.com/news/2010/mar/26/can-israel-survive-friends-like-these/
First the president went to the Middle East to apologize to the Muslims for America being America, and couldn't find the time for a stopover in Israel, America's only true friend in the region. Then he dispatched Joe Biden, the vice president who says he is an "ardent Zionist," to Jerusalem to try to mollify the Israelis with a cheap and sentimental love song with lyrics that nobody believes. The mission quickly blew up when the veep used the occasion to lecture the Israelis for building 1,600 new apartments for Jews in East Jerusalem, which the Palestinian bomb-throwers and their American apologists insist on calling "settlements." Hillary Clinton, the secretary of state, followed up with some nasty remarks.
Then came Mr. Netanyahu's long-scheduled visit to Washington, and things went from troubling to bad, and then to really bad. The Israeli prime minister, speaking to the American Israel Public Affairs Committee, the influential organization of American Jews, reminded everyone that "Jerusalem is not a settlement; it is our capital." Israel's enemies are real. "The ingathering of the Jewish people to Israel has not deterred these fanatics. In fact, it has only whetted their appetite. Iran's rulers say, 'Israel is a one-bomb country.' The head of Hezbollah says, 'If all the Jews gather in Israel, it will save us the trouble of going after them worldwide. ...' The future of the Jewish state can never depend on the good will of even the greatest of men. Israel must always reserve the right to defend itself."
For this statement of fact, Mr. Netanyahu is rebuked as "defiant," and accused of trying to drive a wedge between Mr. Obama, who wishes the Israelis wouldn't be so beastly to the Palestinians, and Congress, which can, when propped up by angry constituents, sometimes do the right thing.
Democrats were once regarded as the best friends Israel had - Harry S. Truman, a Democratic president and a Southern Baptist, was the first head of state to recognize Israel - but now it's the Republicans who are steadfast in support of the Jewish state. Says Rep. Mike Pence of Indiana, chairman of the House Republican Conference: "I never thought I'd live to see the day that an American administration would denounce the Jewish state of Israel for rebuilding Jerusalem."
Some Democrats comfort themselves with the notion, understandable in the light of history, that American Jews will continue to vote Democratic no matter what Mr. Obama and his party do to undermine the Jewish state. The Israelis, under constant siege and occasional bombardment, are not so easily taken in. Benjamin Netanyahu's brother-in-law was widely scolded after he told an Israeli radio interviewer that he thinks Mr. Obama is "an anti-Semite." The prime minister distanced himself from the sentiment.
Accusations of anti-Semitism against the president are over the top, like the accusations of racism against anyone who sharply criticizes Mr. Obama, but it is true that Mr. Obama has sought the company of recognized anti-Semites in the past - a "milieu," in the words of New Yorker magazine, "supposedly composed of incendiary preachers, black nationalists, fading Weathermen and ... Palestinian intellectuals." Mr. Obama has explained that while he did indeed submit his family to the moral guidance of the Rev. Jeremiah Wright and he sat through 20 years of the preacher's Sunday-morning harangues about the perfidious Jews and other evil white folks, he never heard the anti-Semitic slights, thus establishing a mark, worthy of the Guinness Book of Records, of sleeping through more than a thousand sermons.
Benjamin Netanyahu is the bane of the Democrats, who only wish he would go away (or be taken away). He understands the stakes in the Middle East, and wastes no time on prissy talk over diplomatic teacups. "Throughout history," he said, "the slanders against the Jewish people always preceded the physical assaults and were used to justify these assaults."
This is the kind of rhetoric that warms and strengthens sensible and prudent men aware of the threat to their own extinction, but it upsets the tummies of certain Democrats secure behind the protection of other men. It makes their teeth itch. Better to think of bunnies, enjoy the music of little fairies and early spring flowers, and troubles will go away. Barack Obama insists he's not like that, but a friend of Israel. Israel won't long survive if has to depend on friends like him.
http://www.washingtontimes.com/news/2010/mar/26/can-israel-survive-friends-like-these/
The case against containment
Can the world live with a nuclear Iran? Just a few years ago, the answer seemed clear. The United States "will not tolerate" the emergence of a nuclear-armed Iran, President George W. Bush famously intoned back in 2002. Eight years later, however, America's stance on the issue is considerably less settled. Like its predecessor, the Obama administration still publicly opposes the idea of an Iranian bomb. But quietly, the policy consensus in official Washington appears to be shifting toward the idea that the emergence of a nuclear Iran would be a manageable - even benign - event. In recent weeks, a rash of articles and expert commentaries in such publications as The Washington Post, theNew York Timesand Foreign Affairshave floated the idea that, just like the Soviet Union in its day, a nuclear Iran can, in fact, be successfully contained and deterred.
But can it? A closer examination of Iranian ideology and of the dynamics of deterrence offers ample reason for skepticism that, when it comes to nuclear possession, Tehran will, in fact, behave just like Moscow.
For one thing, deterrence and containment aren't automatic, and nuclear possession is not necessarily stabilizing. Policymakers today tend to forget that the "balance of terror" that dominated relations between Washington and Moscow in the latter decades of the Cold War was preceded by about 15 years of bilateral crises that brought the world perilously close to nuclear annihilation. This instability had a great deal to do with the immaturity of both the United States and the Soviet Union, which back then were novice nuclear possessors uncertain of how to wield - and manage - their newfound atomic clout. Only later did Moscow and Washington (and subsequently, Beijing) manage to strike some sort ofmodus vivendi. Until they did, the world was a very dangerous place.
The Middle East is likely to go the same way. That is because, in the seven years since Iran's nuclear program broke out into the open, a veritable arms race has broken out in its neighborhood. Today, more than a dozen countries in the Middle East and North Africa are known to be seeking some level of nuclear capability, and most - despite their public protestations - are doing so in response to the emerging Iranian bomb. The geopolitical jockeying among these nearly nuclear states, and between them and a newly nuclear-armed Iran, is likely to make the Middle East a dramatically more dangerous place in the years ahead.
For another, the basic conditions for a stable deterrence relationship between Washington and Tehran simply don't exist. The sine qua non of real containment is the ability of the United States to shape how a nuclear Iran behaves under any and all circumstances. Here, the comforting comparisons between the Soviet Union and the Islamic republic fall flat. During the Cold War, the U.S. government and its Soviet counterpart communicated regularly, interacted extensively and, as a result, had a clear idea of each other's political "red lines." By contrast, despite the Obama administration's best efforts at "engagement," our contacts with Iran's leadership are sporadic and ad hoc and have yielded little insight into its strategic culture.
Nor can Iran's leaders be expected to behave in the same way Soviet elites would in the event of a crisis. "The Soviets were radical, but they were rational," former CIA Director R. James Woolsey is fond of pointing out. "They didn't believe in the next life, so they wanted to live well in this one." By contrast, Iranian President Mahmoud Ahmadinejad and his ilk believe that Iran is engaged in a "civilizational war" against the West that will bring about the second coming of the Islamic messiah - and they say so openly.
None of that necessarily means Iran is a suicide state. To the contrary, more than a few Iranian politicians (including former President and current Assembly of Experts and Expediency Council Chairman Ali Akbar Hashemi Rafsanjani) are known to be notoriously pragmatic. So, too, is the vibrant opposition to clerical rule that has emerged since this past summer's fraudulent presidential vote. What it does suggest, however, is that at least one segment of the Iranian leadership is not in fact seeking to avoid conflict with the West and may actually welcome it. And that demolishes the assumption that the U.S. can expect to successfully deter the Iranian regime under any conceivable conflict scenario.
Most of all, the current embrace of containment presupposes two things previously antithetical to American policy. The first is the existence of some level of a nuclear weapons capability in the hands of Iran's ayatollahs, since the principle of "mutual assured destruction" requires both countries to have strategic arsenals. In order for deterrence and containment to kick in, in other words, America must first be willing to live with a nuclear-armed Iran. Second, and related, is Washington's acquiescence to the logical consequence of such a nuclearization - an expanded sphere of influence for the Islamic republic in the Middle East.
Until recently, neither option was palatable to the United States. That it is now speaks volumes about the sorry state of U.S. strategy toward Iran. None of which should blind policymakers in Washington to the fact that the rise of a radical, nuclear-armed regional hegemon in the Middle East would constitute a major setback for international security and for long-term American interests. Adopting a policy of containment would only serve to make such an outcome more likely.
Ilan Berman is vice president of the American Foreign Policy Council in Washington.
http://www.washingtontimes.com/news/2010/mar/26/the-case-against-containment/
But can it? A closer examination of Iranian ideology and of the dynamics of deterrence offers ample reason for skepticism that, when it comes to nuclear possession, Tehran will, in fact, behave just like Moscow.
For one thing, deterrence and containment aren't automatic, and nuclear possession is not necessarily stabilizing. Policymakers today tend to forget that the "balance of terror" that dominated relations between Washington and Moscow in the latter decades of the Cold War was preceded by about 15 years of bilateral crises that brought the world perilously close to nuclear annihilation. This instability had a great deal to do with the immaturity of both the United States and the Soviet Union, which back then were novice nuclear possessors uncertain of how to wield - and manage - their newfound atomic clout. Only later did Moscow and Washington (and subsequently, Beijing) manage to strike some sort ofmodus vivendi. Until they did, the world was a very dangerous place.
The Middle East is likely to go the same way. That is because, in the seven years since Iran's nuclear program broke out into the open, a veritable arms race has broken out in its neighborhood. Today, more than a dozen countries in the Middle East and North Africa are known to be seeking some level of nuclear capability, and most - despite their public protestations - are doing so in response to the emerging Iranian bomb. The geopolitical jockeying among these nearly nuclear states, and between them and a newly nuclear-armed Iran, is likely to make the Middle East a dramatically more dangerous place in the years ahead.
For another, the basic conditions for a stable deterrence relationship between Washington and Tehran simply don't exist. The sine qua non of real containment is the ability of the United States to shape how a nuclear Iran behaves under any and all circumstances. Here, the comforting comparisons between the Soviet Union and the Islamic republic fall flat. During the Cold War, the U.S. government and its Soviet counterpart communicated regularly, interacted extensively and, as a result, had a clear idea of each other's political "red lines." By contrast, despite the Obama administration's best efforts at "engagement," our contacts with Iran's leadership are sporadic and ad hoc and have yielded little insight into its strategic culture.
Nor can Iran's leaders be expected to behave in the same way Soviet elites would in the event of a crisis. "The Soviets were radical, but they were rational," former CIA Director R. James Woolsey is fond of pointing out. "They didn't believe in the next life, so they wanted to live well in this one." By contrast, Iranian President Mahmoud Ahmadinejad and his ilk believe that Iran is engaged in a "civilizational war" against the West that will bring about the second coming of the Islamic messiah - and they say so openly.
None of that necessarily means Iran is a suicide state. To the contrary, more than a few Iranian politicians (including former President and current Assembly of Experts and Expediency Council Chairman Ali Akbar Hashemi Rafsanjani) are known to be notoriously pragmatic. So, too, is the vibrant opposition to clerical rule that has emerged since this past summer's fraudulent presidential vote. What it does suggest, however, is that at least one segment of the Iranian leadership is not in fact seeking to avoid conflict with the West and may actually welcome it. And that demolishes the assumption that the U.S. can expect to successfully deter the Iranian regime under any conceivable conflict scenario.
Most of all, the current embrace of containment presupposes two things previously antithetical to American policy. The first is the existence of some level of a nuclear weapons capability in the hands of Iran's ayatollahs, since the principle of "mutual assured destruction" requires both countries to have strategic arsenals. In order for deterrence and containment to kick in, in other words, America must first be willing to live with a nuclear-armed Iran. Second, and related, is Washington's acquiescence to the logical consequence of such a nuclearization - an expanded sphere of influence for the Islamic republic in the Middle East.
Until recently, neither option was palatable to the United States. That it is now speaks volumes about the sorry state of U.S. strategy toward Iran. None of which should blind policymakers in Washington to the fact that the rise of a radical, nuclear-armed regional hegemon in the Middle East would constitute a major setback for international security and for long-term American interests. Adopting a policy of containment would only serve to make such an outcome more likely.
Ilan Berman is vice president of the American Foreign Policy Council in Washington.
http://www.washingtontimes.com/news/2010/mar/26/the-case-against-containment/
Another time bomb in health care reform
Health reform is many things, but not a class act. The reason: the CLASS Act.
The health legislation signed into law last week by President Obama includes a provision called the CLASS Act, which provides long-term care at home. Few people know about it, but experts agree that it could well explode the federal budget deficit down the road.
The Community Living Services and Support (CLASS) Act was designed to assist people who need help with basic daily tasks and are willing to pay for in-home assistance. The plan, which was long championed by the late Sen. Edward M. Kennedy, would, in effect, enable elderly and disabled people to stay out of nursing homes.
All laudable goals.
The problem: The insurance plan, as currently constructed, can't possibly pay for itself over the long run and will blow a hole in the federal budget unless lawmakers somehow become more diligent than we generally expect them to be.
North Dakota Sen. Kent Conrad, chairman of the Senate Budget Committee, has called the measure a Ponzi scheme. He and other moderate Democrats wrote a letter last year expressing their concerns about the long-term fiscal soundness of the proposal.
Ace reporter Jennifer Haberkorn of The Washington Times wrote an excellent front-page article about the dangers of the CLASS Act in November. But no one paid much attention.
Ms. Haberkorn explained that the program would collect monthly premiums from all working Americans unless they opted out of the plan. People who stayed in it for five years would be eligible for federal subsidies that would help them purchase in-home care when they could no longer eat, shower or dress themselves.
The arrangement would work just fine for a while. In fact, initially, the program will take in tens of billions of dollars that will defray the overall cost of health reform. The CLASS Act is one reason reform looks so fiscally responsible in the short and medium terms.
But eventually the worm will turn. By the end of the decade, government and private estimates point out, the CLASS Act will take in billions of dollars less than the monthly premiums can cover and could, in fact, be insolvent by 2021.
Congress and executive branch officials will have to start jacking up the monthly payments fast and furiously if they expect the program to stay even. As we have seen too many times in the past, those kinds of sharp increases are often avoided by risk-averse politicians.
The likely outcome: an extra dollop of deficit spending, and we already have too much of that.
Longtime economic journalist Howard Gleckman wrote for the nonpartisan Tax Policy Center last year that the accounting for the CLASS Act was "both dangerous and dishonest."
"What some Democrats see as a short-term windfall threatens to become a long-term drain on the Treasury," he wrote.
The new law demands that the program must be judged as solvent for 75 years. That would be a lovely thing. But the higher the premiums are boosted, the fewer people who will participate in the program. And that means - if history is guide - that Congresses in the future will shovel out more borrowed money to save the program, which by then will be a much-loved entitlement.
The CLASS Act is just one of many budgetary tricks that will keep health reform fiscally afloat in the early years. Republicans complain that many of the reform's supposed savings are smoke and mirrors and that its widely advertised deficit cuts are really deficit increases.
Rep. Paul D. Ryan of Wisconsin, the ranking Republican on the House Budget Committee, estimates that health reform actually will widen the deficit by $662 billion over 10 years when the gimmicks and hidden costs are calculated correctly.
Among the sleights of hand, he says, are the provisions to allow physicians to avoid cutbacks in their Medicare reimbursements ($208 billion) and $71 billion needed to implement the entire health care effort, which includes $10 billion to hire 16,000 IRS agents.
Democrats reject those accusations. They also insist that the CLASS Act will be kept in the black by diligent lawmakers and bureaucrats in the years to come.
In addition, the Congressional Budget Office and other well-regarded estimators of federal budgets have a tradition of overestimating the cost of new initiatives and underestimating revenue collections. Health reform could well turn out to be a lot more economically prudent than the naysayers claim.
But don't bet the ranch. The CLASS Act is one of many time bombs planted in health care reform that are sure to go off, sooner or later.
A good bet, in fact, is sooner.
Jeffrey Birnbaum is a Washington Times columnist, a Fox News contributor and president of BGR Public Relations. His company represents health care firms.
http://www.washingtontimes.com/news/2010/mar/26/the-not-so-class-act/print/
The health legislation signed into law last week by President Obama includes a provision called the CLASS Act, which provides long-term care at home. Few people know about it, but experts agree that it could well explode the federal budget deficit down the road.
The Community Living Services and Support (CLASS) Act was designed to assist people who need help with basic daily tasks and are willing to pay for in-home assistance. The plan, which was long championed by the late Sen. Edward M. Kennedy, would, in effect, enable elderly and disabled people to stay out of nursing homes.
All laudable goals.
The problem: The insurance plan, as currently constructed, can't possibly pay for itself over the long run and will blow a hole in the federal budget unless lawmakers somehow become more diligent than we generally expect them to be.
North Dakota Sen. Kent Conrad, chairman of the Senate Budget Committee, has called the measure a Ponzi scheme. He and other moderate Democrats wrote a letter last year expressing their concerns about the long-term fiscal soundness of the proposal.
Ace reporter Jennifer Haberkorn of The Washington Times wrote an excellent front-page article about the dangers of the CLASS Act in November. But no one paid much attention.
Ms. Haberkorn explained that the program would collect monthly premiums from all working Americans unless they opted out of the plan. People who stayed in it for five years would be eligible for federal subsidies that would help them purchase in-home care when they could no longer eat, shower or dress themselves.
The arrangement would work just fine for a while. In fact, initially, the program will take in tens of billions of dollars that will defray the overall cost of health reform. The CLASS Act is one reason reform looks so fiscally responsible in the short and medium terms.
But eventually the worm will turn. By the end of the decade, government and private estimates point out, the CLASS Act will take in billions of dollars less than the monthly premiums can cover and could, in fact, be insolvent by 2021.
Congress and executive branch officials will have to start jacking up the monthly payments fast and furiously if they expect the program to stay even. As we have seen too many times in the past, those kinds of sharp increases are often avoided by risk-averse politicians.
The likely outcome: an extra dollop of deficit spending, and we already have too much of that.
Longtime economic journalist Howard Gleckman wrote for the nonpartisan Tax Policy Center last year that the accounting for the CLASS Act was "both dangerous and dishonest."
"What some Democrats see as a short-term windfall threatens to become a long-term drain on the Treasury," he wrote.
The new law demands that the program must be judged as solvent for 75 years. That would be a lovely thing. But the higher the premiums are boosted, the fewer people who will participate in the program. And that means - if history is guide - that Congresses in the future will shovel out more borrowed money to save the program, which by then will be a much-loved entitlement.
The CLASS Act is just one of many budgetary tricks that will keep health reform fiscally afloat in the early years. Republicans complain that many of the reform's supposed savings are smoke and mirrors and that its widely advertised deficit cuts are really deficit increases.
Rep. Paul D. Ryan of Wisconsin, the ranking Republican on the House Budget Committee, estimates that health reform actually will widen the deficit by $662 billion over 10 years when the gimmicks and hidden costs are calculated correctly.
Among the sleights of hand, he says, are the provisions to allow physicians to avoid cutbacks in their Medicare reimbursements ($208 billion) and $71 billion needed to implement the entire health care effort, which includes $10 billion to hire 16,000 IRS agents.
Democrats reject those accusations. They also insist that the CLASS Act will be kept in the black by diligent lawmakers and bureaucrats in the years to come.
In addition, the Congressional Budget Office and other well-regarded estimators of federal budgets have a tradition of overestimating the cost of new initiatives and underestimating revenue collections. Health reform could well turn out to be a lot more economically prudent than the naysayers claim.
But don't bet the ranch. The CLASS Act is one of many time bombs planted in health care reform that are sure to go off, sooner or later.
A good bet, in fact, is sooner.
Jeffrey Birnbaum is a Washington Times columnist, a Fox News contributor and president of BGR Public Relations. His company represents health care firms.
http://www.washingtontimes.com/news/2010/mar/26/the-not-so-class-act/print/
Mr. Obama and Israel
After taking office last year, Prime Minister Benjamin Netanyahu of Israel privately told many Americans and Europeans that he was committed to and capable of peacemaking, despite the hard-line positions that he had used to get elected for a second time. Trust me, he told them. We were skeptical when we first heard that, and we’re even more skeptical now.
Map of Settlements Around Jerusalem All this week, the Obama administration had hoped Mr. Netanyahu would give it something to work with, a way to resolve the poisonous contretemps over Jerusalem and to finally restart Israeli-Palestinian peace talks. It would have been a relief if they had succeeded. Serious negotiations on a two-state solution are in all their interests. And the challenges the United States and Israel face — especially Iran’s nuclear program — are too great for the leaders not to have a close working relationship.
But after a cabinet meeting on Friday, Mr. Netanyahu and his right-wing government still insisted that they would not change their policy of building homes in the city, including East Jerusalem, which Palestinians hope to make the capital of an independent state.
President Obama made pursuing a peace deal a priority and has been understandably furious at Israel’s response. He correctly sees the Israeli-Palestinian conflict as a factor in wider regional instability.
Mr. Netanyahu’s government provoked the controversy two weeks ago when it disclosed plans for 1,600 new housing units in an ultra-orthodox neighborhood in East Jerusalem just as Vice President Joseph Biden Jr. was on a fence-mending visit and Israeli-Palestinian “proximity talks” were to begin.
Last year, Mr. Netanyahu rejected Mr. Obama’s call for a freeze on all settlement building. On Tuesday — just before Mr. Obama hosted Mr. Netanyahu at the White House — Israeli officials revealed plans to build 20 units in the Shepherd Hotel compound of East Jerusalem.
Palestinians are justifiably worried that these projects nibble away at the land available for their future state. The disputes with Israel have made Mr. Obama look weak and have given Palestinians and Arab leaders an excuse to walk away from the proximity talks (in which Mr. Obama’s Middle East envoy, George Mitchell, would shuttle between Jerusalem and Ramallah) that Washington nurtured.
Mr. Obama was right to demand that Mr. Netanyahu repair the damage. Details of their deliberately low-key White House meeting (no photos, no press, not even a joint statement afterward) have not been revealed. We hope Israel is being pressed to at least temporarily halt building in East Jerusalem as a sign of good faith. Jerusalem’s future must be decided in negotiations.
The administration should also insist that proximity talks, once begun, grapple immediately with core issues like borders and security, not incidentals. And it must ensure that the talks evolve quickly to direct negotiations — the only realistic format for an enduring agreement.
Many Israelis find Mr. Obama’s willingness to challenge Israel unsettling. We find it refreshing that he has forced public debate on issues that must be debated publicly for a peace deal to happen. He must also press Palestinians and Arab leaders just as forcefully.
Questions from Israeli hard-liners and others about his commitment to Israel’s security are misplaced. The question is whether Mr. Netanyahu is able or willing to lead his country to a peace deal. He grudgingly endorsed the two-state solution. Does he intend to get there?
http://www.nytimes.com/2010/03/27/opinion/27sat1.html?hpw
Map of Settlements Around Jerusalem All this week, the Obama administration had hoped Mr. Netanyahu would give it something to work with, a way to resolve the poisonous contretemps over Jerusalem and to finally restart Israeli-Palestinian peace talks. It would have been a relief if they had succeeded. Serious negotiations on a two-state solution are in all their interests. And the challenges the United States and Israel face — especially Iran’s nuclear program — are too great for the leaders not to have a close working relationship.
But after a cabinet meeting on Friday, Mr. Netanyahu and his right-wing government still insisted that they would not change their policy of building homes in the city, including East Jerusalem, which Palestinians hope to make the capital of an independent state.
President Obama made pursuing a peace deal a priority and has been understandably furious at Israel’s response. He correctly sees the Israeli-Palestinian conflict as a factor in wider regional instability.
Mr. Netanyahu’s government provoked the controversy two weeks ago when it disclosed plans for 1,600 new housing units in an ultra-orthodox neighborhood in East Jerusalem just as Vice President Joseph Biden Jr. was on a fence-mending visit and Israeli-Palestinian “proximity talks” were to begin.
Last year, Mr. Netanyahu rejected Mr. Obama’s call for a freeze on all settlement building. On Tuesday — just before Mr. Obama hosted Mr. Netanyahu at the White House — Israeli officials revealed plans to build 20 units in the Shepherd Hotel compound of East Jerusalem.
Palestinians are justifiably worried that these projects nibble away at the land available for their future state. The disputes with Israel have made Mr. Obama look weak and have given Palestinians and Arab leaders an excuse to walk away from the proximity talks (in which Mr. Obama’s Middle East envoy, George Mitchell, would shuttle between Jerusalem and Ramallah) that Washington nurtured.
Mr. Obama was right to demand that Mr. Netanyahu repair the damage. Details of their deliberately low-key White House meeting (no photos, no press, not even a joint statement afterward) have not been revealed. We hope Israel is being pressed to at least temporarily halt building in East Jerusalem as a sign of good faith. Jerusalem’s future must be decided in negotiations.
The administration should also insist that proximity talks, once begun, grapple immediately with core issues like borders and security, not incidentals. And it must ensure that the talks evolve quickly to direct negotiations — the only realistic format for an enduring agreement.
Many Israelis find Mr. Obama’s willingness to challenge Israel unsettling. We find it refreshing that he has forced public debate on issues that must be debated publicly for a peace deal to happen. He must also press Palestinians and Arab leaders just as forcefully.
Questions from Israeli hard-liners and others about his commitment to Israel’s security are misplaced. The question is whether Mr. Netanyahu is able or willing to lead his country to a peace deal. He grudgingly endorsed the two-state solution. Does he intend to get there?
http://www.nytimes.com/2010/03/27/opinion/27sat1.html?hpw
Barack Obama’s humiliation of Israel is a disgrace
I wrote recently about Barack Obama’s sneering contempt for both Israel and Great Britain. Further confirmation of this was provided today with new details emerging regarding the President’s appalling reception for Israeli Prime Minister Benjamin Netanyahu at the White House earlier this week. As Adrian Blomfield reports for The Telegraph:
Benjamin Netanyahu was left to stew in a White House meeting room for over an hour after President Barack Obama abruptly walked out of tense talks to have supper with his family, it emerged on Thursday. The snub marked a fresh low in US-Israeli relations and appeared designed to show Mr Netanyahu how low his stock had fallen in Washington after he refused to back down in a row over Jewish construction in east Jerusalem.
… (Mr. Obama) immediately presented Mr Netanyahu with a list of 13 demands designed both to the end the feud with his administration and to build Palestinian confidence ahead of the resumption of peace talks. Key among those demands was a previously-made call to halt all new settlement construction in east Jerusalem.
When the Israeli prime minister stalled, Mr Obama rose from his seat declaring: “I’m going to the residential wing to have dinner with Michelle and the girls.” As he left, Mr Netanyahu was told to consider the error of his ways. “I’m still around,” Mr Obama is quoted by Israel’s Yediot Ahronot newspaper as having said. “Let me know if there is anything new.”
This is no way to treat America’s closest ally in the Middle East, and a true friend of the United States. I very much doubt that even third world tyrants would be received in such a rude fashion by the president. In fact, they would probably be warmly welcomed by the Obama White House as part of its “engagement” strategy, while the leaders of Britain and Israel are frequently met with arrogant disdain.
The ritual humiliation of the Israelis is an absolute disgrace, and yet another example of how the Obama administration views its allies with indifference, contempt, and at times outright hostility. It is extraordinary how far the Obama team has gone out of its way to grovel to state sponsors of terrorism, such as Mahmoud Ahmadinejad or Muammar Gaddafi, while kicking America’s friends in the teeth.
Israel is literally fighting for its survival on a daily basis against an array of vicious terrorist groups, from Hamas to Hizbollah, while facing a looming threat from a genocidal, nuclear-armed Iran. President Obama’s top priority in the Middle East should be preventing Iran from building a nuclear weapons programme. Instead he seems obsessed with kowtowing to America’s enemies by bashing Israel at almost every opportunity.
This is a foreign policy doctrine that is both destructive and fundamentally against the US national interest. The future security of the United States rests not upon the degree to which it can appease her enemies, but upon the strength of her enduring alliances with the rest of the free world. Israel needs Washington’s support and vice versa, not a slap in the face from a president whose idea of world leadership seems to consist largely of apologising for his country while throwing America’s friends to the wolves.
http://blogs.telegraph.co.uk/news/nilegardiner/100031523/barack-obama%E2%80%99s-humiliation-of-israel-is-a-disgrace/
Benjamin Netanyahu was left to stew in a White House meeting room for over an hour after President Barack Obama abruptly walked out of tense talks to have supper with his family, it emerged on Thursday. The snub marked a fresh low in US-Israeli relations and appeared designed to show Mr Netanyahu how low his stock had fallen in Washington after he refused to back down in a row over Jewish construction in east Jerusalem.
… (Mr. Obama) immediately presented Mr Netanyahu with a list of 13 demands designed both to the end the feud with his administration and to build Palestinian confidence ahead of the resumption of peace talks. Key among those demands was a previously-made call to halt all new settlement construction in east Jerusalem.
When the Israeli prime minister stalled, Mr Obama rose from his seat declaring: “I’m going to the residential wing to have dinner with Michelle and the girls.” As he left, Mr Netanyahu was told to consider the error of his ways. “I’m still around,” Mr Obama is quoted by Israel’s Yediot Ahronot newspaper as having said. “Let me know if there is anything new.”
This is no way to treat America’s closest ally in the Middle East, and a true friend of the United States. I very much doubt that even third world tyrants would be received in such a rude fashion by the president. In fact, they would probably be warmly welcomed by the Obama White House as part of its “engagement” strategy, while the leaders of Britain and Israel are frequently met with arrogant disdain.
The ritual humiliation of the Israelis is an absolute disgrace, and yet another example of how the Obama administration views its allies with indifference, contempt, and at times outright hostility. It is extraordinary how far the Obama team has gone out of its way to grovel to state sponsors of terrorism, such as Mahmoud Ahmadinejad or Muammar Gaddafi, while kicking America’s friends in the teeth.
Israel is literally fighting for its survival on a daily basis against an array of vicious terrorist groups, from Hamas to Hizbollah, while facing a looming threat from a genocidal, nuclear-armed Iran. President Obama’s top priority in the Middle East should be preventing Iran from building a nuclear weapons programme. Instead he seems obsessed with kowtowing to America’s enemies by bashing Israel at almost every opportunity.
This is a foreign policy doctrine that is both destructive and fundamentally against the US national interest. The future security of the United States rests not upon the degree to which it can appease her enemies, but upon the strength of her enduring alliances with the rest of the free world. Israel needs Washington’s support and vice versa, not a slap in the face from a president whose idea of world leadership seems to consist largely of apologising for his country while throwing America’s friends to the wolves.
http://blogs.telegraph.co.uk/news/nilegardiner/100031523/barack-obama%E2%80%99s-humiliation-of-israel-is-a-disgrace/
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