American Afflictions – Afghanistan, Iraq and a Growing Culture of Violence

A little more than a year after Barack Obama succeeded George W Bush as president, United States military hardware and troops are transferring to the Afghan theater in yet another attempt to control the insurgency. Despite the ‘surge’ that General Stanley McChrystal asked for and President Obama approved after weeks of reflection, militants on both sides of the Afghanistan-Pakistan border continue to defy American power. High-profile military operations against the Taliban in Helmand, and more recently in Kandahar, illustrate both abilities and limitations of a superpower. This is not new. The Soviet occupation forces went through a similar experience during their occupation of Afghanistan in the 1980s. Like the Soviets, the Americans are increasingly finding that it is possible to wrest control of specific areas, but only as long as their troops are in occupation of those areas. As they move on for other operations, the insurgents make a come back.

There are similarities between the recent American surge approved by President Obama and the increase in the Soviet occupation forces in Afghanistan after Mikhail Gorbachev became leader of the USSR in 1985. Early on, Gorbachev had decided to bring his troops home following a costly war in Afghanistan. But he also ordered reinforcements similar in size to the American surge now. Ostensibly, it was to give the Soviet armed forces one last chance to win the Afghan war, but more realistically because before a planned withdrawal, the Soviet Union needed to reinforce. Troops being withdrawn have to partially disarm. The heavy equipment to be transported cannot be operational at the same time. Soldiers moving out carry light arms for self-defense, not heavy lethal weapons for attack. At the same time, the surge of more mobile units is intended to warn the enemy of more trouble coming.

President Obama has already announced that American troops will begin to leave Afghanistan by the middle of 2011. My recent visit to South Asia reinforced this impression. Obama is smart enough to know history and its lessons. He has disappointed many of his liberal supporters who had expected much more from him. But there is not much doubt that he would like to withdraw from Afghanistan. Re-election in 2012 would depend on it to a considerable degree, along with the economy. The wreckage of military ventures abroad and economic collapse at home left by the preceding administration must be prominent on Obama’s mind. What Obama will achieve is by no means certain. But there are lessons to be learned from the past.

The presidency of George W Bush was rooted in a manifesto we know as the Project for the New American Century. The project was born in reaction to the Clinton presidency in the post-Cold War decade of the 1990s. The alliance of neoconservatives and the Christian Right provided George W Bush with core support. Above all, the Bush presidency will be remembered for America’s foreign military ventures in the shape of three wars: the Afghan war, the Iraq war, and a third war, borderless and timeless – the ‘global war on terror’.

The events of 9/11 posed an unprecedented security challenge. The most important questions in Washington at the time should have been: Where to start and where to stop? What should be the scale and proportion of America’s response? However, such considerations were absent as the talk of a ‘long war’ or ‘generational war’ illustrated, certainly in the first term of President Bush.

The record of great powers fighting long or generational wars against insurgents is not good. The United States learned this in Vietnam. The Soviet Union did so in Afghanistan. A long war suits insurgent forces deeply embedded in the locale and culture of the theater. They enjoy considerable support in the battleground. Denial of this reality is often fatal. A United States president has numerous issues to deal with. But the overwhelming weight of events of the last decade leads to the conclusion that the Bush presidency was all about war. The foreign ventures he embarked on within months of inauguration eclipsed everything else during his presidency. It is therefore appropriate to evaluate the Bush presidency’s legacy in terms of the ‘war on terrorism’.

The objective of the invasion of Afghanistan in October 2001 was regime change. There has been a long debate about the true objective of the March 2003 invasion of Iraq: weapons of mass destruction or regime change. Time and events seem to have settled that debate. It was claimed that Saddam Hussein had chemical and biological weapons that could be activated within 45 minutes. Such weapons were not found. A lot more about the considerations and deliberations between Washington and London, and in each capital, has come to light. We know more about the private communication between President Bush and the British Prime Minister Tony Blair in the run up to the Iraq invasion – communication that other significant figures who should have been made aware of did not know. And we have learned from Tony Blair that even with knowledge of there being no weapons of mass destruction, he would have employed other arguments to remove Saddam Hussein.

Much has been said about mistakes being made in Afghanistan and, more specifically, Iraq. The biggest error of judgment was that two very different countries were given the same treatment of military power. In doing do, the intervenors appeared to act with vengeance more than a planned strategy. Otherwise, why would Afghanistan – an utterly failed state – be subjected to sustained destructive air power and left without a serious attempt at rebuilding for so long. And the primary intervenor moved on to Iraq to dismantle a well-organized state structure, after the dictator had been overthrown. By treating Afghanistan and Iraq in the same way, the intervenors did the opposite of what was needed in each country.

To view al Qaeda and the various nationalist movements in the Arab world as one ‘enemy’ in the ‘war on terror’ was an historic miscalculation. The determination under the Bush presidency to crush nationalism in the Muslim world exacted a high price from the West. But countries in the region paid, and continue to pay, a price even greater. Al Qaeda’s terrorist violence has been answered by the terror of American military power. Differing agendas of regional powers became fused with America’s aims in the ‘war on terror’. The impact was huge across the region, producing anger, resentment and outright rebellion in the wider populace.

In a country without national infrastructure, or where infrastructure is destroyed, there will be certain consequences. The essence of the state’s role is maintaining order. It does so by means of coercion, taxation and distribution. In a country such as Afghanistan, self, family, clan, tribe and ethnic group acquire much greater significance. In a failed or weak state, other agencies – a village elder, tribal chief or warlord – replace the state. They command popular following, because they make things happen.

In Iraq, two early decisions by the American administrator Paul Bremer after the 2003 invasion triggered a multi-layered conflict. By Order Number 1 of May 16, Bremer dissolved the Ba’ath Party. In an article in Le Monde diplomatique, the British academic Toby Dodge described the Iraqi population a month after the arrival of the US forces as dominated by a Hobbesian nightmare. Dodge estimated that between 20000 and 120000 senior and middle-ranking Iraqi officials lost their jobs in the civil service purge alone. They would have constituted the very force capable of restoring order amid chaos and violence. Dodge wrote that 17 of Baghdad’s 23 ministries were completely gutted, stripped of all portable items like computers, furniture and fittings – all within three weeks. There were not enough American troops to stop it.

Bremer’s Order Number 2 dismantled the most important state institutions and subordinates such as government ministries, Iraqi military and paramilitary organizations, the National Assembly, courts and emergency forces. To be prepared with alternatives to take over the functions of these organizations was essential in a country of 30 million people. Bremer’s two edicts left a vacuum that was rapidly filled by new violent players.

I want to offer a brief explanation of the nature of the other conflict – Afghan war – since the 1970s. It also applies to an extent to Iraq. Afghanistan has striking parallels with other conflicts in Palestine, Yemen and elsewhere. These conflicts can be seen in four separate yet overlapping, often simultaneous stages. This is how.

Stage 1: internal conflict. In Afghanistan, internal conflict is a fact of history. For simplicity, let’s begin from the ‘decade of liberalism and modernization’ in the 1960s. The conflict escalated after the overthrow of the monarchy in 1973 – and again after the 1978 coup by young Soviet-oriented military officers, who feared that President Daud was taking the country too close to the United States.

Stage 2: increase in great power involvement. External intervention fuels the unrest, and upsets the balance of forces locally. This, in turn, attracts more external forces, until they begin to dictate the scale and course of events. But their unacceptability among local players, and active resistance by local groups, hinder the creation and functioning of institutions.

Stage 3: state disintegration. In Afghanistan, the death of the state was slow, taking more than two decades. In Iraq, too, considering the effects of sanctions and isolation, we are talking about more than a decade. After Saddam Hussein’s overthrow, the final blow came relatively quickly.

Stage 4: foreign indifference and rise of extremism. I have in mind the decade of the 1990s and the rise of the Taliban in Afghanistan. The Soviet state had been defeated and had disintegrated. For the United States, exhausted and occupied with the urgency to manage the wreckage of the Soviet Union, most importantly its nuclear arsenal, Afghanistan was simply not a priority.

There is a general lesson to be learned. A prolonged war leads to fatigue and indifference among external intervenors. A culture of violence matures. Expectations on all sides are altered and violence becomes a way of life. Actors left behind acquire a habit of using coercion. And citizens come to expect solutions to be found through violence. That few intervening powers grasp this lesson is a tragedy.

We have at present a mix of the McChrystal plan of military surge and counterinsurgency and President Obama’s wish to start drawing down the combat forces in mid-2011. His wish is driven by the 2012 presidential election in America. And it is dependent upon recruitment, training and ultimately guaranteed discipline of a 300000-strong Afghan national force.

However, history shows that integrity in the Afghan armed forces is difficult to achieve. Tribal realities among Pashtun officers and rank-and-file soldiers – and distrust for Pashtuns among non-Pashtuns – cannot be wished away. It would require a generation to transform the culture of the armed forces and the country even if the United States and allies had the will. In the absence of that will, I have some fears. They are –

1. As soon as President Obama begins to draw down the combat forces in mid-2011, altering the balance of power, or that prospect is near, dramatic shifts of loyalties will occur in the Afghan armed forces. This has happened before and could happen again.

2. The Karzai government cannot survive if the military disintegrates along tribal and ethnic lines. The Afghan armed forces and police lack cohesion already.

3. Afghanistan has weapons in abundance. Guns poured into the country, with the best possible intention of equipping the military, would fall into the wrong hands. And I am not even talking about increased activity by Pakistan’s ISI and other regional players.

All these are ingredients of a state of nature again.

The answer is a long-term regional project, led but not dictated by the United States, involving Iran, Russia, Turkey, Saudi Arabia, Pakistan, China and India; and a deliberate policy of demilitarization, however difficult and painful. Internally, a type of tribal democracy, certainly outside Kabul and other main cities, is what is realistic to hope for.

But the current state of America’s relations with China, Iran and Russia does not favor such a prospect. Tensions have grown with Pakistan and Turkey. And I know there is uncertainty, if not outright unhappiness, over the Obama administration’s policies elsewhere in the region. This makes cooperation much more difficult. The current strategy in Afghanistan lays too much emphasis on military tactics. And it does not appreciate nearly enough how objectionable, how provocative, foreign military presence is to Afghans. The sentiment goes beyond the Taliban.

Ref: Counterpunch

Deepak Tripathi is the author of two forthcoming books – Overcoming the Bush Legacy in Iraq and Afghanistan and Breeding Ground: Afghanistan and the Origins of Islamist Terrorism (Potomac, 2010). His works can be found on http://deepaktripathi.wordpress.com and he can be reached at: DandATripathi@gmail.com.

Beyond Copenhagen: Dialogue, not diktat

As it drifts from the present into the past, the Copenhagen climate change conference looks both better and worse. Worse, because a considered reading of the accord, which was its only tangible output, reveals that it is not just inadequate but in fact utterly empty. Better, because of the novel manner in which this ultimate failure was reached. As the sight of the daily chaos drops out of view, it becomes easier to appreciate that the rich world was forced to haggle with the bigger emerging economies on more equal terms than ever before.

As the dust has settled on the “meaningful agreement” proclaimed late on Friday, it has become plain that it was scarcely an agreement at all. For one thing it was “noted” rather than adopted by the assembly, and for another it contains no commitments with real bite. The gaping hole where emissions targets should have been was immediately apparent, but it took a little longer to spot that seemingly firm pledges on aid were hedged with lawyerly language, and that passages dealing with supposed “easy wins” – such as on forestry – were devoid of all detail. But amid all the multiple omissions in the three pages of waffle that constitute the accord, the most damning of all was a lack of anything firm about what happens next.

Failure to fix the climate in Copenhagen might have been forgiven, had the delegates emerged with a credible timetable for getting the job done. Instead, progress made under the text’s inaction plan is to be “assessed” in 2015, with a view to considering whether to tighten the 2C lid on temperature rises to 1.5C. This may sound a noble idea, but the review is set to be futile, since the science says that rises above 1.5C will probably be guaranteed by the middle of the new decade. About the only action committed to at an earlier date is for the rich countries to come up with targets by the end of next month, an obligation which the big players could fully discharge by simply repeating the pledges each has already made.

While the Copenhagen product is every inch the sham that campaigners say it is, the Copenhagen process has set important precedents. Most obviously, although the haggling proved fruitless, the sheer fact that it took place – and at such a high political level – means it will probably do so again. Many of the presidents and prime ministers who swanned off to Denmark told their people that their mission was saving the world. Before Copenhagen, across much of the planet, the highly complex risks faced by the climate had rarely been discussed in such dramatic terms. Now that leaders from Beijing to Brasilia have shown that they believe that the clear and present threat is sufficiently serious for them to turn up in person, they would have a tough time explaining why they were not going to bother next time.

Just as significant is what the summit revealed about the terms on which the ultimate climate deal will have to be brokered. Two moments were particularly instructive. The first involved the derailment of a western-led stitch-up, which became known as the Danish text. It would have done away with the Kyoto protocol, with its explicit acknowledgement of the industrialised world’s unique responsibility for the pollution it has pumped out over the centuries. When the poor countries made plain they would not wear it, the rich felt forced to back down. The second, which occurred only moments before stumps were finally drawn, was an American concession on monitoring emissions designed to sooth Chinese anxieties about sovereignty. Hours before, President Obama had taken a pointedly tough tone towards Beijing, but despite justified concerns about holding it to account, in the end he rightly recognised the need to compromise.

The silver that glistens within the dark cloud of Copenhagen’s failure is the west’s recognition that the world will not be rescued by diktat, but only through genuine dialogue.

Ref: Guardian

The demise of the dollar- Business Oil’s dollar pricing ‘under review’

The demise of the dollar

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading. In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

Read the rest of the article…

Ref: The Independent

De-Dollarization: Dismantling America’s Financial-Military Empire (bye bye US fucking A!)

The city of Yakaterinburg, Russia’s largest east of the Urals, may become known not only as the death place of the tsars but of American hegemony too – and not only where US U-2 pilot Gary Powers was shot down in 1960, but where the US-centered international financial order was brought to ground.

Challenging America will be the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) today and tomorrow (June 15-16) for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It will be joined on Tuesday by Brazil for trade discussions among the BRIC nations (Brazil, Russia, India and China).

The attendees have assured American diplomats that dismantling the US financial and military empire is not their aim. They simply want to discuss mutual aid – but in a way that has no role for the United States, NATO or the US dollar as a vehicle for trade. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. That is what a multipolar world means, after all. For starters, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia. Two years later the SCO countries formally aligned themselves with the former CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO.

Yet the meeting has elicited only a collective yawn from the US and even European press despite its agenda is to replace the global dollar standard with a new financial and military defense system. A Council on Foreign Relations spokesman has said he hardly can imagine that Russia and China can overcome their geopolitical rivalry,1 suggesting that America can use the divide-and-conquer that Britain used so deftly for many centuries in fragmenting foreign opposition to its own empire. But George W. Bush (“I’m a uniter, not a divider”) built on the Clinton administration’s legacy in driving Russia, China and their neighbors to find a common ground when it comes to finding an alternative to the dollar and hence to the US ability to run balance-of-payments deficits ad infinitum.

What may prove to be the last rites of American hegemony began already in April at the G-20 conference, and became even more explicit at the St. Petersburg International Economic Forum on June 5, when Mr. Medvedev called for China, Russia and India to “build an increasingly multipolar world order.” What this means in plain English is: We have reached our limit in subsidizing the United States’ military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate in exchange for paper money of questionable worth.

“The artificially maintained unipolar system,” Mr. Medvedev spelled out, is based on “one big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks.”2 At the root of the global financial crisis, he concluded, is that the United States makes too little and spends too much. Especially upsetting is its military spending, such as the stepped-up US military aid to Georgia announced just last week, the NATO missile shield in Eastern Europe and the US buildup in the oil-rich Middle East and Central Asia.

The sticking point with all these countries is the US ability to print unlimited amounts of dollars. Overspending by US consumers on imports in excess of exports, US buy-outs of foreign companies and real estate, and the dollars that the Pentagon spends abroad all end up in foreign central banks. These agencies then face a hard choice: either to recycle these dollars back to the United States by purchasing US Treasury bills, or to let the “free market” force up their currency relative to the dollar – thereby pricing their exports out of world markets and hence creating domestic unemployment and business insolvency.

When China and other countries recycle their dollar inflows by buying US Treasury bills to “invest” in the United States, this buildup is not really voluntary. It does not reflect faith in the U.S. economy enriching foreign central banks for their savings, or any calculated investment preference, but simply a lack of alternatives. “Free markets” US-style hook countries into a system that forces them to accept dollars without limit. Now they want out.

This means creating a new alternative. Rather than making merely “cosmetic changes as some countries and perhaps the international financial organisations themselves might want,” Mr. Medvedev ended his St. Petersburg speech, “what we need are financial institutions of a completely new type, where particular political issues and motives, and particular countries will not dominate.”

When foreign military spending forced the US balance of payments into deficit and drove the United States off gold in 1971, central banks were left without the traditional asset used to settle payments imbalances. The alternative by default was to invest their subsequent payments inflows in US Treasury bonds, as if these still were “as good as gold.” Central banks now hold $4 trillion of these bonds in their international reserves – land these loans have financed most of the US Government’s domestic budget deficits for over three decades now! Given the fact that about half of US Government discretionary spending is for military operations – including more than 750 foreign military bases and increasingly expensive operations in the oil-producing and transporting countries – the international financial system is organized in a way that finances the Pentagon, along with US buyouts of foreign assets expected to yield much more than the Treasury bonds that foreign central banks hold.

The main political issue confronting the world’s central banks is therefore how to avoid adding yet more dollars to their reserves and thereby financing yet further US deficit spending – including military spending on their borders?

For starters, the six SCO countries and BRIC countries intend to trade in their own currencies so as to get the benefit of mutual credit that the United States until now has monopolized for itself. Toward this end, China has struck bilateral deals with Argentina and Brazil to denominate their trade in renminbi rather than the dollar, sterling or euros,3 and two weeks ago China reached an agreement with Malaysia to denominate trade between the two countries in renminbi.[4] Former Prime Minister Tun Dr. Mahathir Mohamad explained to me in January that as a Muslim country, Malaysia wants to avoid doing anything that would facilitate US military action against Islamic countries, including Palestine. The nation has too many dollar assets as it is, his colleagues explained. Central bank governor Zhou Xiaochuan of the People’s Bank of China wrote an official statement on its website that the goal is now to create a reserve currency “that is disconnected from individual nations.”5 This is the aim of the discussions in Yekaterinburg.

In addition to avoiding financing the US buyout of their own industry and the US military encirclement of the globe, China, Russia and other countries no doubt would like to get the same kind of free ride that America has been getting. As matters stand, they see the United States as a lawless nation, financially as well as militarily. How else to characterize a nation that holds out a set of laws for others – on war, debt repayment and treatment of prisoners – but ignores them itself? The United States is now the world’s largest debtor yet has avoided the pain of “structural adjustments” imposed on other debtor economies. US interest-rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programs that Washington forces on other countries via the IMF and other Washington vehicles.

The United States tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets to squeeze out money to pay creditors. And at home, Congress blocked China’s CNOOK from buying Unocal on grounds of national security, much as it blocked Dubai from buying US ports and other sovereign wealth funds from buying into key infrastructure. Foreigners are invited to emulate the Japanese purchase of white elephant trophies such as Rockefeller Center, on which investors quickly lost a billion dollars and ended up walking away.

In this respect the US has not really given China and other payments-surplus nations much alternative but to find a way to avoid further dollar buildups. To date, China’s attempts to diversify its dollar holdings beyond Treasury bonds have not proved very successful. For starters, Hank Paulson of Goldman Sachs steered its central bank into higher-yielding Fannie Mae and Freddie Mac securities, explaining that these were de facto public obligations. They collapsed in 2008, but at least the US Government took these two mortgage-lending agencies over, formally adding their $5.2 trillion in obligations onto the national debt. In fact, it was largely foreign official investment that prompted the bailout. Imposing a loss for foreign official agencies would have broken the Treasury-bill standard then and there, not only by utterly destroying US credibility but because there simply are too few Government bonds to absorb the dollars being flooded into the world economy by the soaring US balance-of-payments deficits.

Seeking more of an equity position to protect the value of their dollar holdings as the Federal Reserve’s credit bubble drove interest rates down China’s sovereign wealth funds sought to diversify in late 2007. China bought stakes in the well-connected Blackstone equity fund and Morgan Stanley on Wall Street, Barclays in Britain South Africa’s Standard Bank (once affiliated with Chase Manhattan back in the apartheid 1960s) and in the soon-to-collapse Belgian financial conglomerate Fortis. But the US financial sector was collapsing under the weight of its debt pyramiding, and prices for shares plunged for banks and investment firms across the globe.

Foreigners see the IMF, World Bank and World Trade Organization as Washington surrogates in a financial system backed by American military bases and aircraft carriers encircling the globe. But this military domination is a vestige of an American empire no longer able to rule by economic strength. US military power is muscle-bound, based more on atomic weaponry and long-distance air strikes than on ground operations, which have become too politically unpopular to mount on any large scale.

On the economic front there is no foreseeable way in which the United States can work off the $4 trillion it owes foreign governments, their central banks and the sovereign wealth funds set up to dispose of the global dollar glut. America has become a deadbeat – and indeed, a militarily aggressive one as it seeks to hold onto the unique power it once earned by economic means. The problem is how to constrain its behavior. Yu Yongding, a former Chinese central bank advisor now with China’s Academy of Sciences, suggested that US Treasury Secretary Tim Geithner be advised that the United States should “save” first and foremost by cutting back its military budget. “U.S. tax revenue is not likely to increase in the short term because of low economic growth, inflexible expenditures and the cost of ‘fighting two wars.’”6

At present it is foreign savings, not those of Americans that are financing the US budget deficit by buying most Treasury bonds. The effect is taxation without representation for foreign voters as to how the US Government uses their forced savings. It therefore is necessary for financial diplomats to broaden the scope of their policy-making beyond the private-sector marketplace. Exchange rates are determined by many factors besides “consumers wielding credit cards,” the usual euphemism that the US media cite for America’s balance-of-payments deficit. Since the 13th century, war has been a dominating factor in the balance of payments of leading nations – and of their national debts. Government bond financing consists mainly of war debts, as normal peacetime budgets tend to be balanced. This links the war budget directly to the balance of payments and exchange rates.

Foreign nations see themselves stuck with unpayable IOUs – under conditions where, if they move to stop the US free lunch, the dollar will plunge and their dollar holdings will fall in value relative to their own domestic currencies and other currencies. If China’s currency rises by 10% against the dollar, its central bank will show the equivalent of a $200 million loss on its $2 trillion of dollar holdings as denominated in yuan. This explains why, when bond ratings agencies talk of the US Treasury securities losing their AAA rating, they don’t mean that the government cannot simply print the paper dollars to “make good” on these bonds. They mean that dollars will depreciate in international value. And that is just what is now occurring. When Mr. Geithner put on his serious face and told an audience at Peking University in early June that he believed in a “strong dollar” and China’s US investments therefore were safe and sound, he was greeted with derisive laughter.7

Anticipation of a rise in China’s exchange rate provides an incentive for speculators to seek to borrow in dollars to buy renminbi and benefit from the appreciation. For China, the problem is that this speculative inflow would become a self-fulfilling prophecy by forcing up its currency. So the problem of international reserves is inherently linked to that of capital controls. Why should China see its profitable companies sold for yet more freely-created US dollars, which the central bank must use to buy low-yielding US Treasury bills or lose yet further money on Wall Street?

To avoid this quandary it is necessary to reverse the philosophy of open capital markets that the world has held ever since Bretton Woods in 1944. On the occasion of Mr. Geithner’s visit to China, “Zhou Xiaochuan, minister of the Peoples Bank of China, the country’s central bank, said pointedly that this was the first time since the semiannual talks began in 2006 that China needed to learn from American mistakes as well as its successes” when it came to deregulating capital markets and dismantling controls.8

An era therefore is coming to an end. In the face of continued US overspending, de-dollarization threatens to force countries to return to the kind of dual exchange rates common between World Wars I and II: one exchange rate for commodity trade, another for capital movements and investments, at least from dollar-area economies.

Even without capital controls, the nations meeting at Yekaterinburg are taking steps to avoid being the unwilling recipients of yet more dollars. Seeing that US global hegemony cannot continue without spending power that they themselves supply, governments are attempting to hasten what Chalmers Johnson has called “the sorrows of empire” in his book by that name – the bankruptcy of the US financial-military world order. If China, Russia and their non-aligned allies have their way, the United States will no longer live off the savings of others (in the form of its own recycled dollars) nor have the money for unlimited military expenditures and adventures.

US officials wanted to attend the Yekaterinburg meeting as observers. They were told No. It is a word that Americans will hear much more in the future.

Ref: Global Research

Notes
1 Andrew Scheineson, “The Shanghai Cooperation Organization,” Council on Foreign Relations,

Updated: March 24, 2009: “While some experts say the organization has emerged as a powerful anti-U.S. bulwark in Central Asia, others believe frictions between its two largest members, Russia and China, effectively preclude a strong, unified SCO.”

2 Kremlin.ru, June 5, 2009, in Johnson’s Russia List, June 8, 2009, #8.

3 Jamil Anderlini and Javier Blas, “China reveals big rise in gold reserves,” Financial Times, April 24, 2009. See also “Chinese political advisors propose making yuan an int’l currency.” Beijing, March 7, 2009 (Xinhua). “The key to financial reform is to make the yuan an international currency, said [Peter Kwong Ching] Woo [chairman of the Hong Kong-based Wharf (Holdings) Limited] in a speech to the Second Session of the 11th National Committee of the Chinese People’s Political Consultative Conference (CPPCC), the country’s top political advisory body. That means using the Chinese currency to settle international trade payments …”

4 Shai Oster, “Malaysia, China Consider Ending Trade in Dollars,” Wall Street Journal, June 4, 2009.

5 Jonathan Wheatley, “Brazil and China in plan to axe dollar,” Financial Times, May 19, 2009.

6 “Another Dollar Crisis inevitable unless U.S. starts Saving – China central bank adviser. Global Crisis ‘Inevitable’ Unless U.S. Starts Saving, Yu Says,” Bloomberg News, June 1, 2009. http://www.bloomberg.com/apps/news?pid=20601080&sid=aCV0pFcAFyZw&refer=asia

7 Kathrin Hille, “Lesson in friendship draws blushes,” Financial Times, June 2, 2009.

8 Steven R. Weisman, “U.S. Tells China Subprime Woes Are No Reason to Keep Markets Closed,” The New York Times, June 18, 2008.

VIDEO: A People’s History of American Empire by Howard Zinn

Chinese hacked into Pentagon

The Chinese military hacked into a Pentagon computer network in June in the most successful cyber attack on the US defence department, say American ­officials.

The Pentagon acknowledged shutting down part of a computer system serving the office of Robert Gates, defence secretary, but declined to say who it believed was behind the attack.

EDITOR’S CHOICE
Comment: China flexes its limited muscles – Sep-04

Editorial Comment: China’s cyber-spies – Sep-03

Beware: enemy attacks in cyberspace – Sep-03

Beijing pledges crackdown on hackers – Aug-27

Current and former officials have told the Financial Times an internal investigation has revealed that the incursion came from the People’s Liberation Army.

One senior US official said the Pentagon had pinpointed the exact origins of the attack. Another person familiar with the event said there was a “very high level of confidence…trending towards total certainty” that the PLA was responsible. The defence ministry in Beijing declined to comment on Monday.

Angela Merkel, Germany’s chancellor, raised reports of Chinese infiltration of German government computers with Wen Jiabao, China’s premier, in a visit to Beijing, after which the Chinese foreign ministry said the government opposed and forbade “any criminal acts undermining computer systems, including hacking”.

“We have explicit laws and regulations in this regard,” said Jiang Yu, from the ministry. “Hacking is a global issue and China is frequently a victim.”

George W. Bush, US president, is due to meet Hu Jintao, China’s president, on Thursday in Australia prior to the Apec summit.

The PLA regularly probes US military networks – and the Pentagon is widely assumed to scan Chinese networks – but US officials said the penetration in June raised concerns to a new level because of fears that China had shown it could disrupt systems at critical times.

“The PLA has demonstrated the ability to conduct attacks that disable our system…and the ability in a conflict situation to re-enter and disrupt on a very large scale,” said a former official, who said the PLA had penetrated the networks of US defence companies and think-tanks.

Hackers from numerous locations in China spent several months probing the Pentagon system before overcoming its defences, according to people familiar with the matter.

The Pentagon took down the network for more than a week while the attacks continued, and is to conduct a comprehensive diagnosis. “These are multiple wake-up calls stirring us to levels of more aggressive vigilance,” said Richard Lawless, the Pentagon’s top Asia official at the time of the attacks.

The Pentagon is still investigating how much data was downloaded, but one person with knowledge of the attack said most of the information was probably “unclassified”. He said the event had forced officials to reconsider the kind of information they send over unsecured e-mail systems.

John Hamre, a Clinton-era deputy defence secretary involved with cyber security, said that while he had no knowledge of the June attack, criminal groups sometimes masked cyber attacks to make it appear they came from government computers in a particular country.

The National Security Council said the White House had created a team of experts to consider whether the administration needed to restrict the use of BlackBerries because of concerns about cyber espionage.

Additional reporting by Richard McGregor in Beijing

To contact the reporter email demetri.sevastopulo@ft.com

Ref: FT.com

Is China the key to Africa’s development?

ARUSHA, Tanzania—Inside a dark shop opposite a frenetic bus station, transistor radios are stacked beneath newfangled LED flashlights and belts hang like snakes from the ceiling, their buckles emblazoned with the decidedly un-African word Guangzhou. Outside, in the equatorial sunshine, men who crowded inside the store become mobile versions of it, strapping to their backs 4-foot-wide square racks interlaced with watches, wallets, belts, and other items.
A lanky young vendor whom I’ll call Charles walks miles to the city’s outskirts shouldering a weighty rack of trinkets, hoping to unload it along the way. Charles, who asked that his real name not be used because it’s illegal to vend in the city center, hawks plastic watches for 40 cents and leather belts for $1.80, but his sales are consistent, and on a good day he takes home $45 in earnings. What is impressive about Charles’ operation is not only the low, low prices of the Chinese goods he sells but that he brings them to people in the slums who’ve never bought these things before.

“These new Chinese products help low-income people because they can’t afford the European or American stuff,” says Mr. Abasi, who owns the store that supplies Charles and other vendors. “People know these products are not good quality, but they buy them because they look expensive.”

While the United States and Europe still loom large here as cultural and economic icons, China is making inroads into Africa in rivulets. In this city, Tanzania’s second largest, the rivulets take the form of manufactured goods, construction projects like roads and cell-phone towers, and a smattering of Chinese restaurants. For a desperately poor country like Tanzania, this “South-South” trade with China has created massive new opportunities for accelerating economic development.

In recent years, the increase in trade flows between sub-Saharan Africa and Asia has been dramatic—exports from Asia to Africa have grown at an annual rate of 18 percent since 2002. Part of the equation is that low-cost goods from China fit economies like Tanzania’s well. Goods like those sold by Charles are low-quality and sometimes fake, but they are creating new microenterprise opportunities for entrepreneurial Africans. Charles told me he, like many other Arusha vendors who had regular jobs before going independent, worked in a shoe shop until he was laid off.

The new opportunities to trade with China are so tantalizing for Africans that some are returning from abroad to invest in their homelands. Georgine Spake is an elegant, tall Congolese woman who speaks English with a thick French accent and lives in the leafy suburbs of Washington, D.C., with her American husband and four children. Upon visiting her birthplace of Kinshasa last June, after a nine-year hiatus, Spake told me she was dumbfounded to discover that most of her friends and family were traveling to and from China to do business. Lured by the promise of turning her own respectable profit, Spake flew to the bustling manufacturing hub of Guangzhou, China, to investigate import opportunities with a cousin who was already importing security cameras and telephones. She stayed for a month, paying a Congolese man who lived there $150 to be her translator and fixer throughout her stay. By the end, she arranged for the shipment of 30 tons of garlic to be sold at wholesale in Kinshasa. She chose garlic, she said, because there has been great demand for it since the eastern Democratic Republic of Congo, which traditionally cultivated garlic and onions, fell prey to conflict.

According to Spake, Guangzhou was swarming with Africans. Each night, many of them congregated at a bar called the Elephant, where African musicians and dancers performed. There she exchanged business tips in hushed tones with Senegalese, Cameroonians, and Zimbabweans, as their local handlers hovered nearby to prevent their clients from being poached by other handlers.

Spake now communicates with a Chinese partner by e-mail and phone and plans to return to Guangzhou this June to arrange more shipments of garlic and, perhaps, tomato paste.

Though the trade balance between China and Africa is heavily weighted toward Chinese exports, Africa’s exports to China grew by 48 percent annually between 1999 and 2004, according to the World Bank. Just as it has grown ravenous for Sudan’s oil and the DRC’s gold, China is discovering Tanzania’s natural resources. In the southern coastal region, Chinese companies are buying millions of dollars’ worth of indigenous hardwood logs to feed China’s construction and furniture industries, which supply companies like IKEA with products. Nonprofit organizations that monitor the trade in illicit goods have tracked the flow of ivory from and through Tanzania to China.

But as China’s investments grow increasingly hard to resist, the fast-flowing trade is ripe for corruption in weak African states like Tanzania. A report released in May 2007 by TRAFFIC International, a joint program of the WWF and IUCN—the World Conservation Union, found that Tanzania had lost $58 million in timber revenue to corruption, in part because the majority of the timber sales were illegal. Most of the benefits from the trade were lumped among a select few groups with little trickling down to the communities living closest to the forests.

One way to ensure that local communities benefit from the logging is to process timber products on African soil before exporting them, says Rogers Malimbwi, a professor of natural resources at Sokoine University in Dar es Salaam. Tanzania’s timber sector is beginning to build mills to process the timber, but much of it still leaves the country as intact logs, he said.

Meanwhile, African consumers are also beginning to experience the ugly side of trading with China, a lesson Americans learned all too well last year with the massive recalls of Chinese-made dog food and toys. In October 2007, counterfeit electrical equipment from China caused fatal electrical fires in Dar es Salaam, the country’s commercial capital, according to the Confederation of Tanzania Industries, which called for a crackdown on counterfeits.

“The Chinese medicines are making people sick, and the electrical wires are not safe,” said Spake. “But China is giving the African people a chance to do business and make more money, and for some people that means being able to buy food to eat.”

Eliza Barclay is a writer based in Washington, D.C. who reports on Latin America and Africa. She traveled to Tanzania as a fellow with the International Reporting Project at Johns Hopkins School of Advanced International Studies.

Ref: Slate