Monday, January 29, 2007

America's Unsustainable Current Account Deficit

The current account deficit of the United States has reached $880 billion dollars (U.S.) a year. News such as this is generally greeted with incomprehension or a yawn. This is, however, a number worth noting for its far reaching global implications.

The current account summarizes a country’s balance of commerce with other countries over the course of a year. It includes two sides---the merchandise trade side, the record of a country’s trade in commodities; and the services side, the record of a country’s flows in profits, dividends, interest payments and tourism. The U.S. runs a deficit on both sides of the current account----an enormous $837 billion deficit on the merchandise side and an additional $43 billion deficit on the services side.

The United States has had a current account deficit for decades. What makes it so important today is its scale---the American current account deficit is now equivalent to 6.3 per cent of the country’s Gross Domestic Product. Americans are importing far more merchandise than they are exporting and they are borrowing far more from foreigners than they are lending to them. In simple terms, Americans are living well beyond their means and their indebtedness to the rest of the world is rising at an exceptionally rapid rate.

The United States has long been the country with the world’s highest net debt. That debt has reached several trillion dollars and is surging. One indicator of the debt is that between them China and Japan hold well over a trillion dollars in U.S. securities.

Normally when a country runs a current account deficit over a period of years and its international indebtedness mounts, one consequence is a fall in the exchange rate of the country’s currency. Not surprisingly, the U.S. dollar has depreciated over the past couple of years against other currencies---the Euro, the British pound, the Japanese Yen and the Canadian dollar.

The problem is that with the present level of the U.S. current account and indebtedness, the dollar remains highly over-valued and ought to fall much further.

One of the reasons this has not happened as yet is that foreign central banks are loathe to allow the dollar to plunge. From the standpoint of Chinese, Japanese and other central banks, it is preferable to hold massive quantities of U.S. securities (even if the return on them is very poor) to letting the U.S. dollar drop in value. Were the U.S. dollar to crash, the American ability to import goods from abroad with reckless abandon would be halted. The enormous markets for their products that Asians, Europeans and Canadians enjoy in the United States would shrink dramatically with a sizeable impact on their economic growth rates.

With their huge consumer market, their global military and political power and their dollar---still the reserve currency of the world---the Americans have been allowed to do what no one else could get away with. But, the game of running up deficits and debts cannot go on for ever. Reckoning will come either through a long and painful process of adjustment or with a sudden shock.

One of the most important aspects of the current, and unsustainable, trade pattern is the way China and Wal Mart have combined to inflict deindustrialization on the United States. China’s trade surplus with the U.S. has now reached $200 billion a year. Through the Wal Mart outlets that dot the landscape of all regions of the United States, Chinese products are hungrily purchased by Americans. In the process, American industry and industrial employment are in steep decline.

When the present arrangement reaches the breaking point, the Chinese market in the U.S. will be scaled back, Wal Mart will loses its unprecedented corporate role and Americans will be forced to endure the painful process of paying for all the borrowing they have done. In the process, the U.S. dollar is likely to lose its privileged position as the world’s reserve currency. That role could be taken over, in whole or in part, by the Euro, a currency that is not massively overvalued.

The Euro, in contrast to the dollar, is scrupulously managed by the tight-fisted European Central Bank, a banker’s bank if there ever was one. The policies of the bank help keep European economic growth rates too low and unemployment too high. But they promise the rest of the world the benefits of a reserve currency that is not perched haphazardly on an unsustainable base of over-consumption and borrowing.

The mismanagement of America’s global position by the Bush administration has not only been military and geo-strategic. It has been economic as well---a failure, which while less immediately dramatic, may well be as consequential.

Guest Column on Daily Canuck

This is to let readers know about my guest column on dailycanuck.com on the opening of the new session of Parliament. Sorry this alert is a few days late. I was away from Internet access.

Saturday, January 20, 2007

Heightened Danger of U.S.-Israeli Attack on Iran

The danger signs of an impending U.S. and/or Israeli aerial assault on Iran are flashing once again.

On January 7, the Sunday Times of London reported that Israeli pilots have been training to carry out a pin point attack on three Iranian targets in which it is believed that nuclear facilities and uranium enrichment sites are housed. The Sunday Times says that Israeli planes have flown to Gibraltar to practice for the three thousand kilometer return flight to Iran, possibly by way of Turkey. The story included speculation from unnamed Israeli military sources that to destroy facilities housed many meters underground, the Israelis could use low yield nuclear weapons.

Spokespersons for the Israeli government have responded tartly that they don’t comment on articles in the Sunday Times. The Sunday Times story ran just over a week before Dr. Mohammad Al Baradi, the chief of the International Atomic Energy Agency visited Paris and warned in a television interview that Iran could be in a position to produce a nuclear weapon within three years.

Meanwhile in Washington, leading Democratic Senators John D. Rockefeller IV of West Virginia, Senate Majority Leader Harry Reid of Nevada and Joseph Biden of Delaware have been warning Americans that the Bush administration is preparing public opinion for an attack on Iran at a time when the U.S. does not the possess the military resources for such an attack, does not have the support of its allies and does not have the backing of Congress.

Rockefeller, a man who measures his words, which are taken seriously because as Chairman of the Senate Committee on Intelligence he sees classified documents, was scathing in his assessment of George W. Bush in an interview with the New York Times.

“I don’t think he understands the world,” Rockefeller said. “I don’t think he’s particularly curious about the world. I don’t think he reads like he says he does.”

“Every time he’s read something he tells you about it, I think.”

For the president and his closest collaborators, including Vice President Dick Cheney and Secretary of State Condoleezza Rice, the temptation to widen the Middle Eastern regional struggle to include Iran is readily understandable. At best, the Bush administration’s wars in Iraq and Afghanistan have bogged down and could well be headed toward irreversible disaster. Moreover, the administration has been repudiated by the American people in last November’s Congressional elections and by establishment heavyweights James Baker and Lee Hamilton in their Iraq Study Group Report.

For the White House, the prospect of unleashing America’s awesome air power beckons. Pinpoint, but massive, bombing of Iranian nuclear facilities could advance a number of objectives simultaneously.

The attack could destabilize, even topple, the belligerent regime of Iranian President Mahmoud Ahmedinajad. It would demonstrate to the Europeans, who are now inclined to turn up their noses at the U.S., that American firepower can get the job done in a way that European talk cannot. And a successful attack would reinforce the position of Israel as the regional top power, teaching lessons to Palestinians and Iraqis alike.

For the Bush administration and the Olmert government in Israel, the prospect of a glittering win that would wipe away recent defeats, shines before them.

It is precisely these sorts of delusional fantasies that have the Democratic senators worried.

It wouldn’t be the first time that an American president decided to widen a war that was going badly. Richard Nixon tried it in South East Asia when the Vietnam War was careening toward defeat. Steeling himself with repeated screenings in the White House of the movie Patton, starring George C. Scott, Nixon launched his secret and unauthorized assaults on Cambodia and Laos. It was all for naught. The Americans continued down the road to final defeat in Vietnam.

Bush and his desperate entourage could be on the verge of a similar reckless gamble. It is to be hoped that a sufficient volume of warnings against such a course will have an effect.


Tuesday, January 16, 2007

Sarkozy: France's Top Cop goes for the Presidency

Menton, France: Nicolas Sarkozy, president of the UMP (Union pour un Mouvement Populaire) and Minister of the Interior, was anointed this week as the candidate of the mainstream right in the race for the French presidency this spring.

It is not often that a politician uses his position as the country’s top cop to run for the nation’s highest political office. But France after twenty-one nights of riots in the country’s great suburbs in the autumn of 2005 is not any country, and Nicolas Sarkozy is not just any politician.

Sarkozy is a man of almost unnatural energy with a single-minded focus on gaining power that is arresting, to use a neutral word. Scary and a little unbalanced are other words that come to mind. And that’s not just how people on the political left feel about him. Sarkozy has muscled a lot of people around in the mainstream right to get where he is today. Among those people is Jacques Chirac, the President of the Republic, whose policy of support for the admission of Turkey to the EU, was brusquely rejected in the UMP under the leadership of Sarkozy. Once close to Chirac, Sarkozy has become a rival. But Chirac’s desire to groom an alternative candidate to Sarkozy to replace him as president fizzled out. Alain Juppe, a former prime minister, had to be ruled out after he was found guilty in a corruption scandal. French Prime Minister Dominique de Villepin, once highly popular as a result of his leadership of France’s opposition to the Iraq War, while he was foreign minister, lost his standing when he was unable to deal effectively with domestic social issues.

And that left Sarkozy , a master of the fine art of backlash politics, as the only game in town for the mainstream right.

Sarko, as he is called, lays claim to having reduced the overall rate of crime in France since he took the job of minister in charge of the police in 2002. (He had a brief stint as minister of finance between his two terms as minister of the interior.) He can point to statistics to back up this assertion. Over his years on the job, the overall crime rate has fallen by 9 per cent. The problem is that this decrease, which has been paralleled in most other countries in Europe, refers mostly to rates of theft, the stealing of automobiles, thefts in stores, and thefts in residences. While this problem has been decreasing, assaults against persons have been increasing---over the course of his time as minister, by 27.5 per cent.

While the decline in thefts, in particular auto thefts, helped along by tougher auto security systems, is welcome, the rise in physical assaults has made life more insecure in France, as well as in other parts of Europe, where the trend is also evident.

The fact that the French statistics for both thefts and violence against persons is closely paralleled in other European countries suggests that Sarkozy’s personal record as minister in charge of the police has not had much effect on what has happened, either for better or for worse.

The evidence shows that the greatest increase in the rate of violent crime has occurred in the suburban zones that have been the most socially precarious. For instance, in one of the most troubled of the Paris suburbs, Seine-Saint-Denis, the incidence of violent crime increased by 12.1 per cent from the end of 2005 to the end of 2006.

The trouble in Seine-Saint-Denis, and in other similar quartiers in France, is that it is home to a large population of young people, many of them of North African descent, mostly born in France, who don’t feel that they are accepted in this country and who have concluded that they have no hope for the future.

In his run for the presidency, that suits Nicolas Sarkozy just fine. Sarko knows that what really counts for him is not solving France’s violent crime problem, but keeping it on the minds of French voters. That’s how backlash politics works.

Sarkozy’s theory of policing dovetails nicely with this. He has shown little interest in increasing the number of cops on the beat in the toughest quartiers in France. Instead, he sends in the highly mobile CRS, France’s military-like tough-guy cops, when tension erupts. Moreover, the government of which he is a part, has done little to sponsor basic reforms to create hope among young people in the suburbs that they can share in the general well-being in this wealthy country.

Sarkozy has been able to convince a very large number of people in France that the trouble in the suburbs has to do with the immigrant background of the people there. He is hoping to ride that narrative into the Elysee Palace.

Whether he can do so will depend a lot on his major rival, Segolene Royal, the Socialist presidential candidate. Her great strength is her ability to talk plainly about job creation, education, and grappling with homelessness. She never fails to remind people that if there are seething problems in France, the political right has been in power for the past five years. If the French want change, they should look to her, she says, and not to the “top cop” who’s had his own way for far too long.

Friday, January 05, 2007

George W. Bush: Executioner in Chief

Last week, before he retired for bed on the night Saddam Hussein was to be hanged, U.S. President George W. Bush issued a statement saying that Saddam was receiving the justice he had denied to his own victims.

Bush was not awakened to be told that Saddam had been put to death. As an experienced executioner, Bush has learned to take such events in stride.

After it was over, the execution of Saddam Hussein swiftly became a major embarrassment not only for the U.S. client regime in Baghdad, but for Washington as well. Not only was the condemned man subjected to taunts and indignities at the gallows, his last words portrayed him as considerably more dignified than the howling pack in attendance.

The execution was filmed on a cell phone by one of the witnesses. He has since been arrested presumably for humiliating the regime.

It was not as though the process propelling Saddam to the hangman’s noose was not already an embarrassment. The first judge in the case was dismissed for being too soft on the defendant. Three defence lawyers were murdered over the course of the trial. American efforts to internationalize the trial failed because the U.S. was not prepared to countenance a sentence other than death. And Europeans, among others, regard the death penalty as barbaric. When it came to setting the date for the execution, Iraq’s President Jalal Talabani, an opponent of the death penalty, refused to sign the death warrant. Without his signature, the government just decided to go ahead anyway. Not least outrĂ© in the whole affair is the fact that Saddam was put to death for crimes committed in 1982 when the Reagan administration looked on his regime with considerable favour for the prosecution of its war against Iran.

The consequence of all this is that the Americans and their Iraqi clients have achieved something few would have thought possible. They have created considerable sympathy and respect in the Arab world for Saddam Hussein---a bloodthirsty tyrant whose crimes should have been much more judicially and thoroughly exposed before a sentence was handed down.

What made George W. Bush an experienced executioner---and not one to flinch in the face of the unpleasant---was the post he held prior to the presidency, the governorship of Texas. Texas is the capital punishment capital of the western world. While he was governor, Bush presided over 143 executions, more than any other governor in American history.

One of the most notorious of the Texas executions while Bush governed the Lone Star State was that of Karla Faye Tucker on February 3, 1998. Along with her boyfriend when she was a young woman, Tucker was guilty of a horrific crime in 1983. The two bludgeoned a man to death in Houston. Tucker’s boyfriend died in prison. In the years following her death sentence, Tucker underwent an extraordinary personal transformation, one attested to by a very large number of people. While it is not unusual for prisoners on death row to find religion, Tucker did much more than that. From her cell, she dispensed succor and advice to women in many parts of the United States. She had herself been a prostitute and a drug addict by her early teens. Tucker revealed a unique gift in her correspondence, an ability to understand and to counsel the women who wrote to her.

Despite pleas that she not be executed from people from all parts of the political and religious spectrum, Tucker was duly transferred to Huntsville where all executions in Texas are performed. Adding to the national and international interest in the case was the fact that Tucker was to be the first woman executed in Texas since the Civil War.

I drove to Texas from Toronto a few days before the execution to write about the Tucker case and the debate about capital punishment in Texas and the rest of the United States.

On the day of the execution, a dismal and boisterous carnival of sorts developed in Hunstville, a town of three or four thousand people whose main industry is the prison. Dozens of television trucks, in a large parking area next to the prison, aimed their transmitters skyward. Merchants posted notices in their shop windows advertising “Deals to Die For”, and “Killer Burgers”.

Several thousand people gathered outside the prison, for the countdown to the lethal injection of Karla Faye Tucker. They were about evenly divided between opponents of the execution who maintained a quiet vigil, and celebrants, many of them students, who cried out for her blood. One sign proclaimed that with her execution, Tucker would experience her last orgasm.

Shortly after 6.00 p.m., from his office in the State Capitol in Austin, Bush who had the power to halt the execution for thirty days, announced that he would leave it to a higher authority to judge Tucker. With this unctuous bow to the almighty, the governor cleared the last hurdle for the execution, which duly proceeded.

A year later, George W. Bush gave an interview to a reporter from Talk Magazine. The reporter insists that during their conversation Bush mimicked Karla Faye Tucker pleading for her life. “Please don’t kill me,” Bush was reported to have purred. In fact, there was no such plea on the part of the deeply religious Tucker who met her death with composure.

For George W. Bush who has presided over Abu Graib and Guantanamo, executions are run of the mill affairs.