bitterlemons-international.org
Middle East Roundtable
Edition 41 Volume 6 - November 06, 2008
What are the vital challenges facing the region in the coming decade: III
• The credit crunch and the Dubai model - Christopher Davidson
The year 2008 will expose the fundamental flaws in the new post-oil economies.
• Lebanese enigmas - Michel Nehme
Einstein once noted that problems cannot be solved with the same mentality that created them.
• Little shop of horrors - Mark Perry
All of the region's issues fade to insignificance, so long as the solutions to them remain in the hands of single party thugs.
• The decline of religious fundamentalism in Iran - Sadegh Zibakalam
Rafsanjani warned that the failure of the present government would be interpreted as the failure of radical Islam.
The credit crunch and the Dubai model
Christopher Davidson
The credit crunch is moving around the world, claiming new scalps every week. Toxicity has spread from mature US financials to Europe and Britain and now it is the turn of the developing world. When the crunch hits a region, confidence rapidly falls, banks are jeopardized and credit dries up. The western extractive states have been able to rescue their financial sectors by part-nationalizing banks and injecting liquidity. These are abilities that weaker states do not have.
Thus far, the Gulf states have remained fairly isolated from the impact of the crunch, partly due to the cushioning effect of surplus liquidity in their immediate neighborhood and the unspoken guarantee that massive sovereign wealth can be used to shore up any domestic collapse. Indeed, up until a few months ago the mood had been one of optimism, with many stakeholders in these economies contending that the region is impervious to the West's problems and that it is has successfully decoupled from any global recession. Rightly, it has been argued that even plummeting oil prices are not a problem, as the annualized returns from the various overseas investment funds in many cases exceed total oil revenues.
This view does not however appreciate the heterogeneity of Gulf states' economies. Certainly, Kuwait, Qatar and the UAE's Abu Dhabi are in very good shape: they have massive oil and gas exports and the largest sovereign wealth assets in the world. They also have relatively small national populations to distribute their wealth to. But in contrast, the more resource-scarce Gulf states, notably Bahrain, Oman and the UAE's Dubai are now highly exposed to the credit crunch.
Since the 1990s, these economies have sought to diversify their economies away from hydrocarbon exports and heavy, energy-reliant industries, often by building up new sectors such as real estate and tourism. On paper this diversification has been successful: other, associated sectors such as construction have boomed, and in Dubai's case the non-oil share of the emirate's GDP has grown to over 90 percent. Moreover, the rapid economic liberalization required to kick-start these new sectors and the many lavish projects they have involved have won these countries international recognition and praise.
The year 2008 will, however, expose the fundamental flaws in these new post-oil economies. They have been built on a wave of global boom, relying on excess liquidity in their oil-rich neighbors and massive and uninterrupted foreign direct investment from further afield, often from the West. Indeed, they have never been put to the test as they have yet to really experience a true boom-bust cycle. The sectors that have been developed are particularly sensitive to a global downswing, indeed are prime examples of "peripheral economies" that have to respond in a dependent fashion to circumstances and retrenchment decision-making in the world's "core economies".
The biggest victim is likely to be Dubai, as real estate and tourism (and by extension construction) have been allowed to develop into the key pillars of the economy. No moratorium has been placed on the expansion of these sectors and the city state has grown wildly in the last few years, with growth rates that would normally be associated with an overheating economy and rampant, unrestrained speculation. Furthermore, few sustainable economic activities have been introduced and attempts to build a vibrant knowledge economy have remained stalled.
International financial observers and realtors have now begun to identify worrying trends: rapidly declining house prices, a stagnant resale market, the inability of off-plan property investors to keep up with their payment schedules, a marked decline in hotel occupancy rates and wage and hiring freezes in property companies. To make matters worse, they have highlighted the government's indebtedness: Dubai has borrowed heavily in recent years to finance all of the physical infrastructure needed to support and connect these new economic sectors. Thus, if the situation should deteriorate further--as it may well be doing given that large mortgage lenders have already had to be merged--there is a question mark as to whether the government can step in and come to the rescue.
But in some ways, the true merits or demerits of the Dubai model may never come to light, as the UAE brand is likely to be resurrected should Abu Dhabi intervene and bail out its close neighbor. - Published 6/11/2008 © bitterlemons-international.org
Dr. Christopher Davidson is a fellow of the Institute for Middle Eastern Studies at Durham University. He is the author of Dubai: The Vulnerability of Success and The United Arab Emirates: A Study in Survival.
Lebanese enigmas
Michel Nehme
Einstein once noted that problems cannot be solved with the same mentality that created them. This is the state of affairs now prevailing in the Middle East. More conflict and less cooperation are still predominant in the democracy-resistant Arab world. Yet this stubborn mentality is challenged by the changing material and organizational conditions that stem from the trends of both regionalization and globalization.
The big question is how to perceive the Middle East in the forthcoming decade. Today, the world's biggest issues are global and governments are losing relevance because economic interdependence, balance of power standards, technological issues, financial stability and demographic and cultural realities disregard borders and idiosyncratic sensitivities.
The challenges in the Middle East are multifaceted. Here, from a Lebanese perspective, we deal with five of them.
First, sectarian divisions are reflective of the entire Middle East arena. This time they are taking a form that is unprecedented in Lebanon. It replicates the division that prevails in Iraq and the Gulf at large between the two opposing major branches of Islam, Sunni and Shi'ite. The tension between these two sectarian communities is indeed quite sharp in Lebanon. The old Arab-Israel balance of power is no longer the same. Iran as a Shi'ite Islamic power is very much at the core of the new multi-polar Middle Eastern system; Turkey is a de-facto contender with the potential to be a major player in the near future, supported by the US.
In an effort to shield itself from potential Arab threats against it and to avoid a replay of the Iran-Iraq war of the 1980s, Iran has resorted to pan-Islamic rhetoric and has been outbidding all Arab regimes in anti-Israeli speechmaking, including provocative stances on the Holocaust, just to play the Arabs against Israel and keep them busy on that front. Tehran is also building up a protective shield in the form of a network of alliances that goes beyond the Shi'ite realm. Thus, Hizballah is keen on not appearing as a purely sectarian force. It has an alliance with Michel Aoun, who is a major force among Lebanese Christians, and is trying to cozy up to certain Sunni forces, including Lebanese Sunni Islamic fundamentalists and any other allies it can find outside the Shi'ite community.
Then there is American policy in the region. The United States continues to wield an iron fist to pressure Iran to abandon its nuclear ambitions and to encourage continued dialogue between Iran and Saudi Arabia. The capture of Baghdad by the Shi'ites and the ethnic cleansing of most Sunnis from it have set the stage for a big Sunni-Shi'ite battle in Iraq that could potentially lead to all-out sectarian hostilities in the region. Yet calm is absolutely essential to Gulf security and to American energy security; Saudi Arabia and Iran must not be drawn into a devastating Sunni-Shi'ite proxy war. Maintaining close contact with each other and with Iraqis of the other sects is the best way for them to avoid a replay of the Iran-Iraq war of the 1980s.
The US government will also continue to be serious about the threat of terrorism. Congress will probably expand funding for the Combating Terrorism Center at West Point. Its researchers analyze the writings and activities of the Salafeyien Jihadeyien and project how best to combat them in order to undermine the threat of al-Qaeda, which is likely to remain with us for some time in the future.
With the election of a new American president, the US is bound to find itself mediating the Israeli siege of Gaza. That siege will continue to be used as an element of pressure until a breakthrough on the Syrian track is realized. Learning from the past and projecting to the future on the Palestinian track, it is one of the multiple ironies of the Middle East that when the US pushes hard on one door, another one opens instead. Meanwhile, sponsoring Israeli-Syrian negotiations does not require the US to drop any of its other concerns, from maintaining the independence of Lebanon to pressing Damascus to end its human rights abuses and sponsorship of terrorist organizations.
Yet unless something drastic happens, Syria will cling to its involvement in Lebanon. This is also one of the problems projected by Hizballah's strategy: its links with Syria. Indeed, most of the Lebanese opposition is pro-Syrian. One of the critical points for the future is the ability of Syria and its allies to block the international tribunal on Rafiq Hariri's assassination (Hariri was killed on February 14, 2005 by a car bomb for which the Syrian security services have been implicated) that Washington is pushing through the UN in order to use as a tool to exert pressure on Damascus.
Suffice it to mention as a concluding statement that despite or alongside its current despair, the Middle East stands right at the center of the developing world. Threats such as terrorists, insurgents and radical Islamists in the Middle East are the tip of an iceberg concealing a much deeper and wider movement for world change. They merit the attention of the major western powers.- Published 6/11/2008 © bitterlemons-international.org
Michel G. Nehme is director of Exchange and Partnership at Notre Dame University in Lebanon.
Little shop of horrors
Mark Perry
I once asked one of my Palestinian friends what he thought the United States should do to help the peoples of the Middle East. He was incredulous: "Haven't you done enough?" In retrospect that pained reply seems the perfect answer to my presumption: I'm from America and I'm here to help.
Sadly, the self-congratulation attendant on Barack Obama's election has seemingly revived this tradition of selfless altruism. As a former Clinton administration official told me several weeks ago: "We're going back into the Middle East, but this time we're going to get it right." That it did not occur to this official that we aren't exactly "out" of the Middle East is a testament to American optimism--and amnesia. "Really," he added, "our capacity for doing good is limitless."
Spare me.
When asked recently to list the five goals of his presidency, then-candidate Obama ticked them off: improving the economy, working for energy independence, providing affordable health care to all Americans, cleaning up the environment and improving education. The Middle East did not make the list. For good reason: it appears that we've "done enough." And for those who claim, with Colin Powell, that "if you break the china, you own it" here's a bit of news--no we don't. America is busy dog-paddling its way out of Iraq, is looking for someone to negotiate with in Afghanistan, has so offended the leaders of Egypt and Saudi Arabia that we are barely on speaking terms and has abandoned the Israeli-Palestinian peace process. We are leaving the china shop in a shambles, but too bad. You don't "own it" if you can't pay for it. And we can't.
That the new Obama administration will reengage in the Middle East is not in question. It will. But, in the wake of the failed "war on terrorism" (the definition of a "terrorist" has been broadened, apparently, to include anyone who's not a Republican), the Bush administration's dream of spreading democracy (so long as you are not Hamas or live in Pakistan) and the galactically stupid war in Iraq (whose purpose is yet to be determined), America will be focused more on--as one of my colleagues described it--"doing politics." Which is to say: after nearly 2,500 years of bumbling interventions (from Alexander the Great to Anthony Eden to George Bush), the future of the region is finally in the hands of the people who live there. The challenge for them is simply stated: they have to determine what they want.
On May 17, 2005, George Bush told the International Republican Institute that sixty years of American diplomacy in the Middle East had yielded sixty years of failure. The fault, he said, was America's--because it had failed to promote democracy. "If the Middle East remains a place where freedom does not flourish, it will remain a place of stagnation and resentment and violence ready for export."
While Americans now doubt that democracy can be "promoted" and have turned against the policies (and leaders) that, in the name of democracy, cost tens of thousands of Iraqi lives, this does not obviate his statement's essential truth: all of the region's issues fade to insignificance, so long as the solutions to them remain in the hands of single party thugs, ruling cliques and family kleptocracies. The single most important issue facing the region is whether that will continue.
Unfortunately (or blessedly), the people of the Middle East will not have Americans attempting to "help" them in their search for democracy. We're leaving your shop, shattered china and all, because our shop is on fire. By the way, it was arson.- Published 6/11/2008 © bitterlemons-international.org
Mark Perry is a director of the Washington and Beirut-based Conflicts Forum and the author of Partners in Command: George Marshall and Dwight Eisenhower in War and Peace.
The decline of religious fundamentalism in Iran
Sadegh Zibakalam
During the past three decades the rise of militant Islam has in many ways dominated political events in the region. The consequences of Iranian religious radicalism can be observed in the Persian Gulf region, in the Arab-Israel conflict, in Iraq and in Afghanistan. Although Iranian Islamic militancy appears to be as dominant as ever, this may not be the case during the next decade.
The main reason for this conjuncture lies with the present Iranian government headed by President Mahmoud Ahmadinezhad, who came to power in July 2005. Ahmadinezhad's rise to power was indeed a watershed in post-Islamic revolution Iran. His presidency marked a new political configuration in the Islamic republic. Hitherto, although the Iranian regime was described as radical and Islamic, it was far from a united political group. It consisted of diverse currents that all described themselves as Islamist. They included hardline conservatives on the "right", the "left", the pragmatists headed by Akbar Hashemi Rafsanjani, the moderates and those who with some qualification could even be described as "liberal". During the reign of the late Imam Khomeini the left had the upper hand. After his death, the pragmatists headed by Hashemi Rafsanjani held the center stage; then it was the turn of the moderate-liberal currents headed by the reformist president, Mohammad Khatami. No matter who had been elected as Iran's president, all the other currents were, albeit to various degrees, present in the government.
The elections of July 2005 and the rise of Ahmadinezhad to power changed that political complexion. The conservative hardliners purged almost all the other currents from power. For the first time since the emergence of the Islamic republic in 1979, one particular political group dominated the main three branches of the Iranian political establishment.
This group, which with some justification has become known as the hardliners, has tried to change much of Iranian domestic as well as foreign policy. At the international level, Iran's stand on its nuclear program has become much more uncompromising. The Islamic regime's anti-western and anti-American attitude has intensified, as has its anti-Israel approach. Instead, Tehran has tried to establish ties with anti-American regimes in South America and elsewhere. Internally, the hardliners have intensified the state's role in the economy and curtailed political freedom and have tried to expand the country's military capabilities.
We come now to the main point of our thesis: the anticipated demise of militant Islam during the next decade. Given the widespread grip on power that the hardliners have maintained since 2005, why should their power decline in the future? The short answer lies with the performance of the hardliners since they came to power three years ago. They have alienated much of the country's intelligentsia. Students, university graduates, professionals, intellectuals, writers, journalists, artists and many similar social groups have turned increasingly critical of the hardliners' overall policies during the past three years. Civil servants, the urban middle class and the politically powerful bazaar merchants have increasingly turned against the hardliner government of Ahmadinezhad.
Politically, too, the hardliners have been in retreat. The reformists, the left, the so-called liberal-religious nationalist groups such as "nehzat azadi", Hashemi Rafsanjani and his influential political groups, all now oppose the hardliner government. In fact, Ahmadinezhad's policies have turned many conservatives as well as more moderate and pragmatist hardliners against his government. There is yet another powerful and influential group that has become openly critical of the hardliner president and some of his decisions: during the past two years, a number of senior clerical leaders have voiced their opposition to some of Ahmadinezhad's decisions.
Last but by no means least is the Iranian parliament, or Majlis. The 300-member assembly that was inaugurated in July 2008 elected Ali Larijani by a large majority as its speaker. Since the conservatives have a considerable majority in the present majlis, Larijani's election was an implicit message of defiance to President Ahmadinezhad. Larijani was until last April head of the High Council of Security Affairs, a powerful body that is responsible for the country's military and security issues, including conducting negotiations with the International Atomic Energy Agency. Larijani was critical of Ahmadinezhad's radical approach regarding Iran's nuclear program. He preferred a more moderate stand, searching for compromise with the West on the nuclear issue. Ahmadinezhad dismissed Larijani, thereby eventually paving the way for Iran to adopt a more militant and confrontational approach vis-a-vis its nuclear program.
Here we must address two important questions about the hardline government of Iran. First, given his formidable internal opposition, where does Ahmadinezhad get the support to survive and even to contemplate another term? Second, what are the reasons for so much opposition?
The bulk of Ahmadinezhad's support comes from the supreme leader, Ayatollah Ali Khamenei and the various institutions he leads, including the powerful Revolutionary Guards, the Baseej, the national Iranian Radio and Television and government-run newspapers, as well as a number of religious and political leaders close to him. The widespread opposition stems from Ahmadinezhad's overall poor performance. The country suffers from rampant inflation; unemployment hasn't come down, nor has endemic corruption and the country's brain drain continues--witness the queue of Iranian professionals outside western embassies in Tehran, seeking to emigrate in spite of the fact that the country's oil revenues have quadrupled during the past three years.
It was against this irony that Hashemi Rafsanjani, the leading moderate Iranian leader, warned last month that the failure of the present government would not simply constitute the defeat of a particular political group but rather would be interpreted as the failure in practice of radical Islam when it had all the power at its disposal.- Published 6/11/2008 © bitterlemons-international
Sadegh Zibakalam is professor of Iranian studies at Tehran University.
Bitterlemons-international.org is an internet forum for an array of world perspectives on the Middle East and its specific concerns. It aspires to engender greater understanding about the Middle East region and open a new common space for world thinkers and political leaders to present their viewpoints and initiatives on the region. Editors Ghassan Khatib and Yossi Alpher can be reached at ghassan@bitterlemons-international.org and yossi@bitterlemons-international.org, respectively.
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Thursday, November 6, 2008
Wednesday, November 5, 2008
ECONOMIC ANALYSIS: More from the Front Lines of the Financial Crisis by Stephen Lendman
ECONOMIC ANALYSIS:
More from the Front Lines of the Financial Crisis
by Stephen Lendman
Monday, 3 November 2008
What's needed, but not proposed, is a 1930s type Home Owners' Loan Corporation (HOLC) plan that refinanced homes at affordable rates and prevented foreclosures. One on a grand scale as part of an enlightened New Deal agenda.
In its latest economic outlook, Merrill Lynch economists "worry about inflation, or more precisely," a lack of it. From crashing global equity markets, falling commodity prices, rising unemployment, stagnant wages, over-indebted households, declining production, the continuing housing crisis, and more. All pointing to several future quarters of negative growth. Showing that Fed chairman Bernanke will face "his greatest fear: deflation." An analysis of the coincident to lagging indicators signals "deep recession."
In his October 24, commentary, Merrill's North American economist David Rosenberg sees "economic data deteriorating in a very serious way (and says) we are witnessing unprecedented stuff happen:"
* the two-year housing recession "is still far from over" with new lows in a number of key readings;
* it's "morphed into a capex recession, industrial production" had its worst decline in 34 years;
* consumer confidence showed record declines;
* retail sales keep falling; evidence is that auto and chain store sales will show four straight down months; it's happened only four other times since 1947, so "we're living through a 1-in-200 event;"
* based on CPI data, prices are falling; at a rapid pace also seen only four other times since 1947;
* GDP will decline at 2% annual rate in Q 4; 4% in Q 1 2009 and 3.3% in Q 2.
Conclusion: "This recession is unlike any seen in the last five decades." Typically caused by inflation, inventory cycles or aggressive Fed tightening. "This is a balance sheet recession deeply rooted in asset liquidation and debt repayment, and would seem to have more in common with pre-WW I cycles."
Going back to 1855, "a typical recession lasts 18 months." It's no assurance this one won't be longer. Rosenberg thinks it started in January and believes will end "within a month of the National Bureau of Economic Research (NBER) making the call." It defines recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Some say that occurs when economic growth is negative for two or more consecutive quarters.
The signs are evident and growing, yet NBER is usually late making its call. It may hold off until housing shows signs of stabilizing. For some analysts, it's the core economic problem, and as long as it keeps eroding no end of recession is in sight. The latest data aren't encouraging:
* Case-Shiller's 10 and 20-city composite indexes set new record declines of 17.7% and 16.6% respectively; year-over-year dropping for 20 consecutive months; Case-Shiller predicts a peak to trough 28.6% drop in its 10-city composite index; it also sees up to 50% declines in some areas;
* nominal house prices down 20% from their 2006 peak; according to the Center for Economic Policy Research (CEPR), this implies a 27% real decline; a loss of $5 trillion in housing wealth, and 60% of the bubble deflated so more is yet to come; at least another 10 - 15% to return to trend levels; another question is "whether markets will overshoot on the downside;" a very distinct possibility;
* on October 29, CEPR reported record high ownership vacancies according to Census Bureau data at 2.8%; for rental units at 9.9%, slightly below the peak first quarter 10.1% level; CEPR predicts a fully deflated housing bubble by mid-2009 but added a caveat; "With the employment picture turning bleaker and the plunge in the stock market," housing is certain to be even more negative in coming months; "the tens of millions of workers....fearful about their future job prospects will be very reluctant to buy a new home;" compounded by trillions of lost personal wealth (from home and stock market losses) will make households "much more cautious in all their expenditures;"
* the Office of Federal Housing Enterprise Oversight (OFHEO) index fell .6% in its latest July reading and is down 5.3% on a year-over-year basis; its sharpest decline ever;
* Fitch expects home prices to fall another 10% in the next 18 months and will decline by an average 25% in real terms over the next five years; beginning from the second quarter 2008; they're now back to early 2004 levels and heading lower;
* the PMI Group predicts home price declines will double to a national average of 20% by next year with lower values in areas experiencing the sharpest increases;
* economist Paul Krugman cites his "preferred metric;" the ratio of housing prices to rental rates; it shows the former got way overvalued; will retrace and result in about a 25% home valuation decline;
* Goldman Sachs forecasts a 15% home price decline with no recession and 30% with one; and
* The Economist sees "no end in sight....to America's housing bust as prices continue to fall fast."
On October 28, economist Nouriel Roubini was even more alarming on housing citing "The recessionary macro effect of the worst US housing bust ever." He reported the view of a "senior professional in one of the (world's) largest financial institutions" who emailed him "privately and confidentially." As early as a year ago, he predicted "the worst housing recession in US history" and described "a bust process" in four phases:
1. "rising mortgage defaults, home prices start falling, sale volumes fall, housing starts and permits decline;" it's been happening and we're beginning phase two;
2. "home-builders' bankruptcies, housing starts and permits crash, substantial layoffs in construction and real estate-related fields (mortgage brokers, mortgage lenders, etc.);"
3. "substantial price declines in major metro areas, large rise in defaults of prime but low-equity mortgages;"
4. "large-scale government intervention to help households going bankrupt;" a political phenomenon so its timing and nature can't be reliably forecast.
He cites clear phase two evidence already:
* countless smaller builder and subcontractor bankruptcies;
* Levitt Corp. home-building unit getting loan default notices;
* national home builder Tousa with $1 billion in senior notes and subordinated debt hired law firm Akin Gump Strauss Hauer Feld as a precaution in case of bankruptcy; and
* Neumann Homes and Enterprise Construction file for bankruptcy.
Roubini agrees with his emailer "with one caveat." He believes we're past the beginning of phase two; most of its aspects have occurred, and we're heading into phase three or close to it; he cites sharply falling home prices; rising defaults in prime and near prime mortgages; also some prime and near prime lenders in trouble; we're also getting close to phase four as "over a dozen proposals to rescue 2 million plus households on the way to default and foreclosure are now being debated in Washington." Debate is one thing. Meaningful action another and likely a ways off at best. Possibly once a new president is in office for something substantial if it comes at all.
Rubini's emailer followed up with another. That consensus now "admits" what it denied last year. The reality of a severe housing downturn. In price action and foreclosures. The worst since the 1930s. But they're still behind the curve by acknowledging "only minor macro effects." He called it extraordinary that a decline this severe is being taken dismissively. "Perhaps the most astonishing aspect of this event is the refusal to recognize the possible dimensions, the impact of what is coming." It's "delusional" to believe that the "biggest housing recession in US history will not have severe macro effect. Most of the consensus (according to Bloomberg earlier)" was for 1.8% fourth quarter growth. It then predicted a Q 4 slow growth bottom with "economic growth recover(ing) in soft landing territory (2.5%)."
On what basis, he asks? "Mostly wishful thinking (because of) the economic and financial shocks leading to falling demand (and a worsening housing bust); anemic capex spending; slowdown in commercial real estate demand; sharp private consumption slowdown and weak supply (from weakening ISM - Institute of Supply Management;" falling employment; a glut of new and existing homes; weak auto sales; consumer durables; "a capacity overhang;" and excess inventory); these factors will persist well into the new year.
The latest Q 3 GDP report hints at what's coming. A minus .3% with personal consumption (PCE) dropping 3.1%. The first decline since 1991 and largest drop since falling 8.6% in 1980. Residential construction also fell at a 19.1% annual rate. Its 11th straight quarter drop. It now represents 3.3% of GDP. Its lowest level since 1982. Non-residential investment fell 1% and will likely fall further in Q 4. A quarter likely to be much weaker than Q 3 as most private activity is slowing. Only government spending remains strong.
On October 31, still another disturbing report. Bloomberg reported that the "US Chicago Purchasers Index (the Institute for Supply Management-Chicago, ISM) Falls by Most on Record." To 37.8 down from 56.7 in September, and its lowest reading since the 2001 recession. A clear indication of a deepening downturn. Readings below 50 signal contraction.
Another Shoe to Drop: Credit Cards
Even The New York Times published a rare ahead-of-the-curve October 28 admission. In an Eric Dash article headlined: "Consumers Feel the Next Crisis: Credit Cards." As they're squeezed by an "eroding economy." An "already beleaguered banking industry" is threatened as lenders are sharply curtailing credit card offers and "sky-high credit lines." Even creditworthy consumers are affected because of growing amounts of bad loan losses. An estimated $21 billion in the first half of 2008.
With layoffs increasing, analysts forecast at least another $55 billion in the next 18 months. Around 5.5% of outstanding debt now and may "surpass the 7.9% level reached after the technology bubble burst in 2001." As a result, lenders like American Express, Bank of America, MasterCard and Visa are "tightening standards (and) culling their portfolios of the riskiest customers." Credit lines are being reduced as well, and lenders are avoiding over-indebted consumers. Treading carefully in housing ravaged areas and with customers employed by troubled industries.
It's impacting already strapped households. With lower credit scores. Higher rates for those rated creditworthy. Less willingness to allow high balances. Less availability of loans with many needing them shut out. "The depth of the financial crisis has shocked a credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards....At the same time," lenders are retrenching with one CEO saying "If you're not fearful, you're crazy."
It's seen in mail solicitations slowing to a trickle. "Credit card issuers have realized their market is shrinking and that there is no room for extra credit cards, so they have to scale back," according to Mintel analyst Lisa Hronek. "People are completely maxed out with mortgages, home equity lines and credit card debt."
It's hitting hard on both ends. Rising losses and shrinking profits for issuers. Less credit availability for consumers already strapped and cutting back of necessity. At a time the only bull market is in bailouts. Amidst towering debt levels. Soaring defaults. Wobbly global economies. Some cratering. America teetering. Confidence shattered, and everyone wondering what's next.
First the Banks. Next "the Coming Insurance Meltdown"
According to analyst Mike Larson of Weiss Research. AIG was just the beginning. Falsely called an "anomaly (and that) the rest of the insurance industry is doing just fine." Larson and Weiss disagree and identified "46 insurers with $500 million or more in assets that are at an elevated risk of failure." It's seen in their share prices. Down 80 - 90% for some because the largest US and Bermuda-based insurers have lost $98 billion year-to-date, and they have more in unrealized losses.
A Possible Gotterdammerung?
On October 28, from the Financial Times forum in a Peterson Institute for International Economics Anders Aslund article titled: "It can be worse than the Great Depression." A possibility, not a prediction. Because of "the worst global asset bubble and financial panic" since that time. Because lessons learned then haven't prevented new mistakes, and unlike in the 1920s, "CNBC and Bloomberg can spread worldwide panic instantly." Old blunders may not be repeated, but "new policies (may be) even worse."
Anders laid out a "then" and "now" comparison:
* Then: exchange rates over-zealously defended; Now: floating exchange rates could cause a trade panic;
* Then: the money supply shrank dramatically; Now: monetary expansion and budget deficits are dangerously excessive; currency collapses may result; the fundamentals don't justify the current dollar surge;
* Then: nations didn't go bankrupt; some may today; some major ones; Italy, for example, had over 100% of GDP in public debt before the crisis; it risks major state bankruptcies; America was unmentioned, but the rapidly mounting public debt and money supply growth alone pose immense risks, including default and future hyperinflation;
* Then: subprime loans existed at modest levels, but that era didn't have "non-transparent collateralized debt obligations;" Now: derivatives "created the mother of all bubbles; the deeper the financial system, the harder we may fall;"
* Then: the Great Depression "largely emanated from two countries, the US and Germany; Now: "never before has the world seen such a monstrous and truly global bubble;"
* Then: financial institutions engaged in minimal overleveraging; Now: it's mirror opposite; "never have big financial institutions been as overleveraged as Fannie Mae and Freddie Mac or the former US investment banks, not to mention the hedge funds;"
* Then: protectionism froze global trade; Now: frozen finances in countries like Iceland, Ukraine and possibly others have temporarily left them outside the world financial system;"
* Then: the dollar and gold "were unchallenged sources of value;" Now: the dollar is neither stable nor the uncontested world currency;
* Then: policymakers made mistakes but "stood for principles;" Now: "George Bush is assembling (Group 20 leaders) for a photo opportunity in Washington on November 15;" failure to come up with meaningful corrective policies "could unleash untold (global) financial panic;" and
* Then: the 1920s lacked television and the internet for fast information dissemination; Now: information and decisions move instantly; often with no transparency; the combination is potentially harmful.
The Global Europe Anticipation Bulletin (GEAB), LEAP/E2020's Disturbing Prediction
In its October 15 28th edition. About a "global systemic crisis." An alert because its researchers believe that before summer 2009 "the US government will be insolvent (and will) default and be prevented to pay its creditors (holders of US Treasury Bonds, of Fannie May and Freddy Mac shares, etc.)." It envisions "the setting up of a new Dollar to remedy the problem of default and of induced massive drain from the US." It gives five reasons for its prediction:
* the current US dollar surge is temporary; the result of world stock market collapses;
* the Euro has become "a credible 'safe haven;' " an alternative to the dollar;
* the out-of-control US public debt;
* the collapsing US economy; and
* future "strong inflation or hyper-inflation;" by 2009.
GEAB states: "the whole planet has become aware that a global systemic crisis is unfolding, characterised by the collapse of the US financial system and its contagion to the rest of the world." As a result, "a growing number of global players are beginning to act on their own." In their own self-interest. Because US policies are ineffective. The crisis is very serious and "far more important, in terms of impact and outcome, than" in 1929. With the US economy weaker now than then. Because of unmanageable public debt. Reckless consumer borrowing and spending. Enormous current account and budget deficits. A hollowed out industrial base, and a highly inflated dollar.
With that in mind, it's up to "vigilant" citizens and "clear-sighted" leaders to assure that America won't "drive the planet into a disaster." It will take divergent policies. What's "good for the rest of the world will not be good for the US." America defaulting will be partly from "this decoupling of decision-making...." A new dollar will be "imposed." And "one morning (in) summer 2009....after a long week-end or bank holiday," Americans will discover that their "US T-Bonds and Dollars are only worth 10 per cent of their value...."
A Jesse's Cafe Americain commentary suggests something similar. That in 2009, "the US will be forced to selectively default and devalue its debt." Because of its extraordinary financial needs. A $2 trillion annual deficit. It will take a terrible toll on Treasuries. Forcing a significant drop by 2011. We're approaching "the apogee of the Treasury bubble, with the credit bubble" already broken.
Once market deleveraging subsides, "the dollar and Treasuries will drop, perhaps with momentum, as the rest of the world realizes that the US has no choice but to default." Unless foreign sources (for a while at least) keep buying American debt despite the risk. Offer debt forgiveness. The dollar is devalued short of default. Taxes raised substantially, and debt instruments pay higher interest rates. Even then, these measures may fall short and prove ineffective.
America way exceeded its debt service ability from real cash flows. A turnaround will require a "severe devaluation and selective default." For GEAB down to 10 cents on the dollar. Following on its March 2008 prediction that by yearend "a formidable debacle will affect pension funds (worldwide) endangering the entire system of capital-based pensions." Their revenues collapsing "at the very moment when they should be making their first large series of payments to pensioners." A disturbing picture in the current climate that may reveal other unexpected hazards in the coming months.
On October 28, Bloomberg reported on the Treasury's "unprecedented" 2009 financing needs. To fund a growing budget deficit and raise hundreds of extra billions to contain the current financial crisis. To assure guarantees the government committed for. Almost $6 trillion alone for Fannie and Freddie debt and mortgage securities. With continued growing demands as other obligations arise. Plus over $1 trillion annually for national defense with all expenditure categories included. An impossible burden Bloomberg didn't mention. A deepening dilemma as the financial crisis grinds toward more unsettling realities.
What Euro Pacific Capital's Peter Schiff writes about in his 2007 book "Crash Proof: How to Profit from the Coming Economic Collapse." What he adds to in commentaries on his web site: europac.net. His latest on October 31 titled "The Tales Get Taller." Debunking mainstream explanations for recent dollar strength. A currency he's very bearish on. Because of our extreme profligacy. Decades of borrowing trillions we can't repay. How we blew it on consumption and by letting our industrial base erode.
Our problems are now too big to contain. A possible bankruptcy is ahead. "The main lesson our creditors will learn from this crisis is not to lend American consumers any more money. Once the lending stops, our 'cart before the horse' borrow to spend economy will crumble. While the rest of the world absorbs their losses and moves on, we will be digging our way out of the rubble for years to come. Earthquakes are caused by the fundamental shifts of tectonic plates beneath the Earth's surface. A similar move is underway in the global economy."
America's salad days are over, he believes. We've gone from a nation of savers, investors and producers to one of borrowers, consumers and gamblers. Official government statistics lie. They conceal hidden truths. America's house of cards is crumbling. It won't be pretty when it collapses. His advice is get out of the dollar. Get your money out of the country while you can, and gold is one of his recommendations.
Gold is on Paul Amery's mind as well in his Prudent Bear.com October 31 commentary titled "The Credit Crisis Endgame." He sees it likely becoming "a bloody standoff between investors and governments (on a) market for government bonds" battlefield.
He reviewed the unfolding credit crunch stages:
* its beginning with liquidity drying up in "esoteric, structured-finance securities, linked to riskier types of mortgages;"
* it then spread "to more mainstream mortgage bonds, structured finance in general, and other types of debt;"
* by early summer 2008, it hit many non-financial companies having trouble refinancing loans;
* by late summer, it affected sovereign states; mostly ones with high current account deficits like Iceland, Hungary and Ukraine;
* it points globally to a spreading ailment affecting major economies and their bond markets.
The US for example. While nominal Treasury bond yields declined (10 year T-bonds at 4% October 31), their credit risk component has been increasing since last year. Credit specialists CMA DataVision shows the 10 year credit default swap (CDS) spread rose steadily. From 1.6 basis points in July 2007; to 16 basis points in March 2008; to 30 basis points in September; and to over 40 basis points on October 27. In other words, insuring against a US government bond default rose 25-fold in the past 15 months. The same is true for Britain and Germany.
Some observers find this astonishing. How could America or other major states default on their debt? It would be "the equivalent of a (financial market) nuclear explosion" smashing global economies with it.
Further, the dollar is the world's reserve currency. The Fed can create unlimited amounts of them, so any default would likely be through inflation and devaluation, some argue.
Maybe not, according to University of Maryland's Carmen Reinhart and Harvard's Kenneth Rogoff in their April 2008 paper: "The Forgotten History of Domestic Debt." They explained that throughout history debt defaults have been more common than realized. They're the rule, not the exception, in times of severe economic stress.
Again America for example. Budget and national debt levels have exploded. Bailout amounts will increase them and cause enormous strains. Morgan Stanley forecasts a sharply rising 2009 fiscal deficit. Besides the escalating national debt, to more than double the previous 1983 record. As a percent of GDP, it's expected to be around 70% in 2009. The tip of the iceberg, some say, compared to the private debt to GDP ratio. At an unprecedented 300%, according to University of Western Sydney economist Steve Keen.
He saw the storm coming before most others. He's also very skeptical about the rescue plan and compares it to King Canute's effort against the tide. Given the enormity of the problem, he sees the possibility of the debt pyramid crashing from a violent and uncontrollable chain of defaults, taking the government bond market down with it.
Strains in the US Treasury market are already evident in spite of their historically low yields. Recent auctions have had poor bid-to-cover ratios and long "tails" indicate weak demand. Secondary market delivery failures are also at record levels. Another sign of poor liquidity. If the worst of all possible worlds happens - a US debt default - the consequences will be "cataclysmic for the financial economy." The entire system will be bankrupt.
Where to hide if it happens? Amery suggests a few safe havens. The "ultimate" one being in precious metals. Think gold. Understand also that the $725/ounce October 31 spot price reflects market manipulation (over the short term) to drive it down from its March 2008 high above $1000. As one analyst puts it: I'll "give you three good reasons why gold is (underperforming). First: manipulation. Second: rampant manipulation. Third: incessant, nonstop, unabated, fiendish manipulation."
He also believes the process is only temporary and won't stop the metal's eventual rise. Given the current crisis and its likely duration, it won't surprise experts to see its price above $1000 again before it ends.
A Final Comment
In spite of trillions of asset losses. American and global households hardest hit. Wobbly world economies getting weaker. The virtual certainty of a deep and protracted recession, and the likelihood of no robust recovery when it ends.
Despite all this and Wall Street's worst year in decades, it's celebrating like it always does. With big bonuses. In the many billions of dollars. According to Bloomberg, Merrill Lynch plans $6.7 billion. Goldman Sachs about $6.85 billion and Morgan Stanley about $6.44 billion.
Bloomberg noted that Goldman, Morgan Stanley, Merrill, Lehman Bros. and Bear Stearns paid their employees "a cumulative $145 billion in bonuses from 2003 through 2007," or more than the Philippines' GDP. In 2007, the firms paid out a record $39 billion. In a year when three of them posted their worst quarterly losses ever and their shareholders lost over $80 billion. Two of them no longer exist. Another went into forced liquidation. Their combined 2008 losses should way exceed last year when they're reported.
Yet there's plenty of money for bonuses. Courtesy of ESSA/TARP. For executive pay and dividends as well. At a time all these companies are insolvent. Their survival dependent on federal handouts. US taxpayers are on the hook for them as their consumption declines. According to the Commerce Department at the fastest rate in 28 years. Because they don't get big bonuses. Are maxed out on credit and haven't the money to spend.
But the Fed and US Treasury do and plan to dispense more of it. To other takers lining up. Sovereign nations. Insurance companies. GM and Chrysler perhaps for their reported merger. Dependent on government cash to complete it. Any other company as well deemed worth saving. Big campaign contributors with friends in high places. What beleaguered homeowners don't have.
Floated proposals to help them appear meager at best. For a fraction of the millions in trouble with inadequate suggested funding amounts. A suggested $40 billion for 20 million or more homeowners facing foreclosure. With more at issue as well, according to The New York Times. Giving qualified borrowers a few grace years. Perhaps three. For lower mortgage payments that won't reduce their principal balance. It would only provide temporary relief and delay today's problem for a later time. When households may be no better off than now, yet face higher ARM reset obligations.
What's needed, but not proposed, is a 1930s type Home Owners' Loan Corporation (HOLC) plan that refinanced homes at affordable rates and prevented foreclosures. One on a grand scale as part of an enlightened New Deal agenda.
In lieu of "trickle down" to fraudsters, "trickle up" for beleaguered households. An idea so far with no traction for a new administration to consider. The one now in charge has no "imminent" plan, according to White House spokesperson, Dana Perino. On October 30, she added only that "If we find one that we think strikes the right notes....then we would move forward and announce it." Ones so far advanced are for Wall Street. Main street apparently can wait.
Steve Lendman
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM to 1PM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs are archived for easy listening.
Mr. Lendman's stories are republished in the Baltimore Chronicle with permission of the author.
Copyright © 2008 The Baltimore News Network. All rights reserved.
More from the Front Lines of the Financial Crisis
by Stephen Lendman
Monday, 3 November 2008
What's needed, but not proposed, is a 1930s type Home Owners' Loan Corporation (HOLC) plan that refinanced homes at affordable rates and prevented foreclosures. One on a grand scale as part of an enlightened New Deal agenda.
In its latest economic outlook, Merrill Lynch economists "worry about inflation, or more precisely," a lack of it. From crashing global equity markets, falling commodity prices, rising unemployment, stagnant wages, over-indebted households, declining production, the continuing housing crisis, and more. All pointing to several future quarters of negative growth. Showing that Fed chairman Bernanke will face "his greatest fear: deflation." An analysis of the coincident to lagging indicators signals "deep recession."
In his October 24, commentary, Merrill's North American economist David Rosenberg sees "economic data deteriorating in a very serious way (and says) we are witnessing unprecedented stuff happen:"
* the two-year housing recession "is still far from over" with new lows in a number of key readings;
* it's "morphed into a capex recession, industrial production" had its worst decline in 34 years;
* consumer confidence showed record declines;
* retail sales keep falling; evidence is that auto and chain store sales will show four straight down months; it's happened only four other times since 1947, so "we're living through a 1-in-200 event;"
* based on CPI data, prices are falling; at a rapid pace also seen only four other times since 1947;
* GDP will decline at 2% annual rate in Q 4; 4% in Q 1 2009 and 3.3% in Q 2.
Conclusion: "This recession is unlike any seen in the last five decades." Typically caused by inflation, inventory cycles or aggressive Fed tightening. "This is a balance sheet recession deeply rooted in asset liquidation and debt repayment, and would seem to have more in common with pre-WW I cycles."
Going back to 1855, "a typical recession lasts 18 months." It's no assurance this one won't be longer. Rosenberg thinks it started in January and believes will end "within a month of the National Bureau of Economic Research (NBER) making the call." It defines recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Some say that occurs when economic growth is negative for two or more consecutive quarters.
The signs are evident and growing, yet NBER is usually late making its call. It may hold off until housing shows signs of stabilizing. For some analysts, it's the core economic problem, and as long as it keeps eroding no end of recession is in sight. The latest data aren't encouraging:
* Case-Shiller's 10 and 20-city composite indexes set new record declines of 17.7% and 16.6% respectively; year-over-year dropping for 20 consecutive months; Case-Shiller predicts a peak to trough 28.6% drop in its 10-city composite index; it also sees up to 50% declines in some areas;
* nominal house prices down 20% from their 2006 peak; according to the Center for Economic Policy Research (CEPR), this implies a 27% real decline; a loss of $5 trillion in housing wealth, and 60% of the bubble deflated so more is yet to come; at least another 10 - 15% to return to trend levels; another question is "whether markets will overshoot on the downside;" a very distinct possibility;
* on October 29, CEPR reported record high ownership vacancies according to Census Bureau data at 2.8%; for rental units at 9.9%, slightly below the peak first quarter 10.1% level; CEPR predicts a fully deflated housing bubble by mid-2009 but added a caveat; "With the employment picture turning bleaker and the plunge in the stock market," housing is certain to be even more negative in coming months; "the tens of millions of workers....fearful about their future job prospects will be very reluctant to buy a new home;" compounded by trillions of lost personal wealth (from home and stock market losses) will make households "much more cautious in all their expenditures;"
* the Office of Federal Housing Enterprise Oversight (OFHEO) index fell .6% in its latest July reading and is down 5.3% on a year-over-year basis; its sharpest decline ever;
* Fitch expects home prices to fall another 10% in the next 18 months and will decline by an average 25% in real terms over the next five years; beginning from the second quarter 2008; they're now back to early 2004 levels and heading lower;
* the PMI Group predicts home price declines will double to a national average of 20% by next year with lower values in areas experiencing the sharpest increases;
* economist Paul Krugman cites his "preferred metric;" the ratio of housing prices to rental rates; it shows the former got way overvalued; will retrace and result in about a 25% home valuation decline;
* Goldman Sachs forecasts a 15% home price decline with no recession and 30% with one; and
* The Economist sees "no end in sight....to America's housing bust as prices continue to fall fast."
On October 28, economist Nouriel Roubini was even more alarming on housing citing "The recessionary macro effect of the worst US housing bust ever." He reported the view of a "senior professional in one of the (world's) largest financial institutions" who emailed him "privately and confidentially." As early as a year ago, he predicted "the worst housing recession in US history" and described "a bust process" in four phases:
1. "rising mortgage defaults, home prices start falling, sale volumes fall, housing starts and permits decline;" it's been happening and we're beginning phase two;
2. "home-builders' bankruptcies, housing starts and permits crash, substantial layoffs in construction and real estate-related fields (mortgage brokers, mortgage lenders, etc.);"
3. "substantial price declines in major metro areas, large rise in defaults of prime but low-equity mortgages;"
4. "large-scale government intervention to help households going bankrupt;" a political phenomenon so its timing and nature can't be reliably forecast.
He cites clear phase two evidence already:
* countless smaller builder and subcontractor bankruptcies;
* Levitt Corp. home-building unit getting loan default notices;
* national home builder Tousa with $1 billion in senior notes and subordinated debt hired law firm Akin Gump Strauss Hauer Feld as a precaution in case of bankruptcy; and
* Neumann Homes and Enterprise Construction file for bankruptcy.
Roubini agrees with his emailer "with one caveat." He believes we're past the beginning of phase two; most of its aspects have occurred, and we're heading into phase three or close to it; he cites sharply falling home prices; rising defaults in prime and near prime mortgages; also some prime and near prime lenders in trouble; we're also getting close to phase four as "over a dozen proposals to rescue 2 million plus households on the way to default and foreclosure are now being debated in Washington." Debate is one thing. Meaningful action another and likely a ways off at best. Possibly once a new president is in office for something substantial if it comes at all.
Rubini's emailer followed up with another. That consensus now "admits" what it denied last year. The reality of a severe housing downturn. In price action and foreclosures. The worst since the 1930s. But they're still behind the curve by acknowledging "only minor macro effects." He called it extraordinary that a decline this severe is being taken dismissively. "Perhaps the most astonishing aspect of this event is the refusal to recognize the possible dimensions, the impact of what is coming." It's "delusional" to believe that the "biggest housing recession in US history will not have severe macro effect. Most of the consensus (according to Bloomberg earlier)" was for 1.8% fourth quarter growth. It then predicted a Q 4 slow growth bottom with "economic growth recover(ing) in soft landing territory (2.5%)."
On what basis, he asks? "Mostly wishful thinking (because of) the economic and financial shocks leading to falling demand (and a worsening housing bust); anemic capex spending; slowdown in commercial real estate demand; sharp private consumption slowdown and weak supply (from weakening ISM - Institute of Supply Management;" falling employment; a glut of new and existing homes; weak auto sales; consumer durables; "a capacity overhang;" and excess inventory); these factors will persist well into the new year.
The latest Q 3 GDP report hints at what's coming. A minus .3% with personal consumption (PCE) dropping 3.1%. The first decline since 1991 and largest drop since falling 8.6% in 1980. Residential construction also fell at a 19.1% annual rate. Its 11th straight quarter drop. It now represents 3.3% of GDP. Its lowest level since 1982. Non-residential investment fell 1% and will likely fall further in Q 4. A quarter likely to be much weaker than Q 3 as most private activity is slowing. Only government spending remains strong.
On October 31, still another disturbing report. Bloomberg reported that the "US Chicago Purchasers Index (the Institute for Supply Management-Chicago, ISM) Falls by Most on Record." To 37.8 down from 56.7 in September, and its lowest reading since the 2001 recession. A clear indication of a deepening downturn. Readings below 50 signal contraction.
Another Shoe to Drop: Credit Cards
Even The New York Times published a rare ahead-of-the-curve October 28 admission. In an Eric Dash article headlined: "Consumers Feel the Next Crisis: Credit Cards." As they're squeezed by an "eroding economy." An "already beleaguered banking industry" is threatened as lenders are sharply curtailing credit card offers and "sky-high credit lines." Even creditworthy consumers are affected because of growing amounts of bad loan losses. An estimated $21 billion in the first half of 2008.
With layoffs increasing, analysts forecast at least another $55 billion in the next 18 months. Around 5.5% of outstanding debt now and may "surpass the 7.9% level reached after the technology bubble burst in 2001." As a result, lenders like American Express, Bank of America, MasterCard and Visa are "tightening standards (and) culling their portfolios of the riskiest customers." Credit lines are being reduced as well, and lenders are avoiding over-indebted consumers. Treading carefully in housing ravaged areas and with customers employed by troubled industries.
It's impacting already strapped households. With lower credit scores. Higher rates for those rated creditworthy. Less willingness to allow high balances. Less availability of loans with many needing them shut out. "The depth of the financial crisis has shocked a credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards....At the same time," lenders are retrenching with one CEO saying "If you're not fearful, you're crazy."
It's seen in mail solicitations slowing to a trickle. "Credit card issuers have realized their market is shrinking and that there is no room for extra credit cards, so they have to scale back," according to Mintel analyst Lisa Hronek. "People are completely maxed out with mortgages, home equity lines and credit card debt."
It's hitting hard on both ends. Rising losses and shrinking profits for issuers. Less credit availability for consumers already strapped and cutting back of necessity. At a time the only bull market is in bailouts. Amidst towering debt levels. Soaring defaults. Wobbly global economies. Some cratering. America teetering. Confidence shattered, and everyone wondering what's next.
First the Banks. Next "the Coming Insurance Meltdown"
According to analyst Mike Larson of Weiss Research. AIG was just the beginning. Falsely called an "anomaly (and that) the rest of the insurance industry is doing just fine." Larson and Weiss disagree and identified "46 insurers with $500 million or more in assets that are at an elevated risk of failure." It's seen in their share prices. Down 80 - 90% for some because the largest US and Bermuda-based insurers have lost $98 billion year-to-date, and they have more in unrealized losses.
A Possible Gotterdammerung?
On October 28, from the Financial Times forum in a Peterson Institute for International Economics Anders Aslund article titled: "It can be worse than the Great Depression." A possibility, not a prediction. Because of "the worst global asset bubble and financial panic" since that time. Because lessons learned then haven't prevented new mistakes, and unlike in the 1920s, "CNBC and Bloomberg can spread worldwide panic instantly." Old blunders may not be repeated, but "new policies (may be) even worse."
Anders laid out a "then" and "now" comparison:
* Then: exchange rates over-zealously defended; Now: floating exchange rates could cause a trade panic;
* Then: the money supply shrank dramatically; Now: monetary expansion and budget deficits are dangerously excessive; currency collapses may result; the fundamentals don't justify the current dollar surge;
* Then: nations didn't go bankrupt; some may today; some major ones; Italy, for example, had over 100% of GDP in public debt before the crisis; it risks major state bankruptcies; America was unmentioned, but the rapidly mounting public debt and money supply growth alone pose immense risks, including default and future hyperinflation;
* Then: subprime loans existed at modest levels, but that era didn't have "non-transparent collateralized debt obligations;" Now: derivatives "created the mother of all bubbles; the deeper the financial system, the harder we may fall;"
* Then: the Great Depression "largely emanated from two countries, the US and Germany; Now: "never before has the world seen such a monstrous and truly global bubble;"
* Then: financial institutions engaged in minimal overleveraging; Now: it's mirror opposite; "never have big financial institutions been as overleveraged as Fannie Mae and Freddie Mac or the former US investment banks, not to mention the hedge funds;"
* Then: protectionism froze global trade; Now: frozen finances in countries like Iceland, Ukraine and possibly others have temporarily left them outside the world financial system;"
* Then: the dollar and gold "were unchallenged sources of value;" Now: the dollar is neither stable nor the uncontested world currency;
* Then: policymakers made mistakes but "stood for principles;" Now: "George Bush is assembling (Group 20 leaders) for a photo opportunity in Washington on November 15;" failure to come up with meaningful corrective policies "could unleash untold (global) financial panic;" and
* Then: the 1920s lacked television and the internet for fast information dissemination; Now: information and decisions move instantly; often with no transparency; the combination is potentially harmful.
The Global Europe Anticipation Bulletin (GEAB), LEAP/E2020's Disturbing Prediction
In its October 15 28th edition. About a "global systemic crisis." An alert because its researchers believe that before summer 2009 "the US government will be insolvent (and will) default and be prevented to pay its creditors (holders of US Treasury Bonds, of Fannie May and Freddy Mac shares, etc.)." It envisions "the setting up of a new Dollar to remedy the problem of default and of induced massive drain from the US." It gives five reasons for its prediction:
* the current US dollar surge is temporary; the result of world stock market collapses;
* the Euro has become "a credible 'safe haven;' " an alternative to the dollar;
* the out-of-control US public debt;
* the collapsing US economy; and
* future "strong inflation or hyper-inflation;" by 2009.
GEAB states: "the whole planet has become aware that a global systemic crisis is unfolding, characterised by the collapse of the US financial system and its contagion to the rest of the world." As a result, "a growing number of global players are beginning to act on their own." In their own self-interest. Because US policies are ineffective. The crisis is very serious and "far more important, in terms of impact and outcome, than" in 1929. With the US economy weaker now than then. Because of unmanageable public debt. Reckless consumer borrowing and spending. Enormous current account and budget deficits. A hollowed out industrial base, and a highly inflated dollar.
With that in mind, it's up to "vigilant" citizens and "clear-sighted" leaders to assure that America won't "drive the planet into a disaster." It will take divergent policies. What's "good for the rest of the world will not be good for the US." America defaulting will be partly from "this decoupling of decision-making...." A new dollar will be "imposed." And "one morning (in) summer 2009....after a long week-end or bank holiday," Americans will discover that their "US T-Bonds and Dollars are only worth 10 per cent of their value...."
A Jesse's Cafe Americain commentary suggests something similar. That in 2009, "the US will be forced to selectively default and devalue its debt." Because of its extraordinary financial needs. A $2 trillion annual deficit. It will take a terrible toll on Treasuries. Forcing a significant drop by 2011. We're approaching "the apogee of the Treasury bubble, with the credit bubble" already broken.
Once market deleveraging subsides, "the dollar and Treasuries will drop, perhaps with momentum, as the rest of the world realizes that the US has no choice but to default." Unless foreign sources (for a while at least) keep buying American debt despite the risk. Offer debt forgiveness. The dollar is devalued short of default. Taxes raised substantially, and debt instruments pay higher interest rates. Even then, these measures may fall short and prove ineffective.
America way exceeded its debt service ability from real cash flows. A turnaround will require a "severe devaluation and selective default." For GEAB down to 10 cents on the dollar. Following on its March 2008 prediction that by yearend "a formidable debacle will affect pension funds (worldwide) endangering the entire system of capital-based pensions." Their revenues collapsing "at the very moment when they should be making their first large series of payments to pensioners." A disturbing picture in the current climate that may reveal other unexpected hazards in the coming months.
On October 28, Bloomberg reported on the Treasury's "unprecedented" 2009 financing needs. To fund a growing budget deficit and raise hundreds of extra billions to contain the current financial crisis. To assure guarantees the government committed for. Almost $6 trillion alone for Fannie and Freddie debt and mortgage securities. With continued growing demands as other obligations arise. Plus over $1 trillion annually for national defense with all expenditure categories included. An impossible burden Bloomberg didn't mention. A deepening dilemma as the financial crisis grinds toward more unsettling realities.
What Euro Pacific Capital's Peter Schiff writes about in his 2007 book "Crash Proof: How to Profit from the Coming Economic Collapse." What he adds to in commentaries on his web site: europac.net. His latest on October 31 titled "The Tales Get Taller." Debunking mainstream explanations for recent dollar strength. A currency he's very bearish on. Because of our extreme profligacy. Decades of borrowing trillions we can't repay. How we blew it on consumption and by letting our industrial base erode.
Our problems are now too big to contain. A possible bankruptcy is ahead. "The main lesson our creditors will learn from this crisis is not to lend American consumers any more money. Once the lending stops, our 'cart before the horse' borrow to spend economy will crumble. While the rest of the world absorbs their losses and moves on, we will be digging our way out of the rubble for years to come. Earthquakes are caused by the fundamental shifts of tectonic plates beneath the Earth's surface. A similar move is underway in the global economy."
America's salad days are over, he believes. We've gone from a nation of savers, investors and producers to one of borrowers, consumers and gamblers. Official government statistics lie. They conceal hidden truths. America's house of cards is crumbling. It won't be pretty when it collapses. His advice is get out of the dollar. Get your money out of the country while you can, and gold is one of his recommendations.
Gold is on Paul Amery's mind as well in his Prudent Bear.com October 31 commentary titled "The Credit Crisis Endgame." He sees it likely becoming "a bloody standoff between investors and governments (on a) market for government bonds" battlefield.
He reviewed the unfolding credit crunch stages:
* its beginning with liquidity drying up in "esoteric, structured-finance securities, linked to riskier types of mortgages;"
* it then spread "to more mainstream mortgage bonds, structured finance in general, and other types of debt;"
* by early summer 2008, it hit many non-financial companies having trouble refinancing loans;
* by late summer, it affected sovereign states; mostly ones with high current account deficits like Iceland, Hungary and Ukraine;
* it points globally to a spreading ailment affecting major economies and their bond markets.
The US for example. While nominal Treasury bond yields declined (10 year T-bonds at 4% October 31), their credit risk component has been increasing since last year. Credit specialists CMA DataVision shows the 10 year credit default swap (CDS) spread rose steadily. From 1.6 basis points in July 2007; to 16 basis points in March 2008; to 30 basis points in September; and to over 40 basis points on October 27. In other words, insuring against a US government bond default rose 25-fold in the past 15 months. The same is true for Britain and Germany.
Some observers find this astonishing. How could America or other major states default on their debt? It would be "the equivalent of a (financial market) nuclear explosion" smashing global economies with it.
Further, the dollar is the world's reserve currency. The Fed can create unlimited amounts of them, so any default would likely be through inflation and devaluation, some argue.
Maybe not, according to University of Maryland's Carmen Reinhart and Harvard's Kenneth Rogoff in their April 2008 paper: "The Forgotten History of Domestic Debt." They explained that throughout history debt defaults have been more common than realized. They're the rule, not the exception, in times of severe economic stress.
Again America for example. Budget and national debt levels have exploded. Bailout amounts will increase them and cause enormous strains. Morgan Stanley forecasts a sharply rising 2009 fiscal deficit. Besides the escalating national debt, to more than double the previous 1983 record. As a percent of GDP, it's expected to be around 70% in 2009. The tip of the iceberg, some say, compared to the private debt to GDP ratio. At an unprecedented 300%, according to University of Western Sydney economist Steve Keen.
He saw the storm coming before most others. He's also very skeptical about the rescue plan and compares it to King Canute's effort against the tide. Given the enormity of the problem, he sees the possibility of the debt pyramid crashing from a violent and uncontrollable chain of defaults, taking the government bond market down with it.
Strains in the US Treasury market are already evident in spite of their historically low yields. Recent auctions have had poor bid-to-cover ratios and long "tails" indicate weak demand. Secondary market delivery failures are also at record levels. Another sign of poor liquidity. If the worst of all possible worlds happens - a US debt default - the consequences will be "cataclysmic for the financial economy." The entire system will be bankrupt.
Where to hide if it happens? Amery suggests a few safe havens. The "ultimate" one being in precious metals. Think gold. Understand also that the $725/ounce October 31 spot price reflects market manipulation (over the short term) to drive it down from its March 2008 high above $1000. As one analyst puts it: I'll "give you three good reasons why gold is (underperforming). First: manipulation. Second: rampant manipulation. Third: incessant, nonstop, unabated, fiendish manipulation."
He also believes the process is only temporary and won't stop the metal's eventual rise. Given the current crisis and its likely duration, it won't surprise experts to see its price above $1000 again before it ends.
A Final Comment
In spite of trillions of asset losses. American and global households hardest hit. Wobbly world economies getting weaker. The virtual certainty of a deep and protracted recession, and the likelihood of no robust recovery when it ends.
Despite all this and Wall Street's worst year in decades, it's celebrating like it always does. With big bonuses. In the many billions of dollars. According to Bloomberg, Merrill Lynch plans $6.7 billion. Goldman Sachs about $6.85 billion and Morgan Stanley about $6.44 billion.
Bloomberg noted that Goldman, Morgan Stanley, Merrill, Lehman Bros. and Bear Stearns paid their employees "a cumulative $145 billion in bonuses from 2003 through 2007," or more than the Philippines' GDP. In 2007, the firms paid out a record $39 billion. In a year when three of them posted their worst quarterly losses ever and their shareholders lost over $80 billion. Two of them no longer exist. Another went into forced liquidation. Their combined 2008 losses should way exceed last year when they're reported.
Yet there's plenty of money for bonuses. Courtesy of ESSA/TARP. For executive pay and dividends as well. At a time all these companies are insolvent. Their survival dependent on federal handouts. US taxpayers are on the hook for them as their consumption declines. According to the Commerce Department at the fastest rate in 28 years. Because they don't get big bonuses. Are maxed out on credit and haven't the money to spend.
But the Fed and US Treasury do and plan to dispense more of it. To other takers lining up. Sovereign nations. Insurance companies. GM and Chrysler perhaps for their reported merger. Dependent on government cash to complete it. Any other company as well deemed worth saving. Big campaign contributors with friends in high places. What beleaguered homeowners don't have.
Floated proposals to help them appear meager at best. For a fraction of the millions in trouble with inadequate suggested funding amounts. A suggested $40 billion for 20 million or more homeowners facing foreclosure. With more at issue as well, according to The New York Times. Giving qualified borrowers a few grace years. Perhaps three. For lower mortgage payments that won't reduce their principal balance. It would only provide temporary relief and delay today's problem for a later time. When households may be no better off than now, yet face higher ARM reset obligations.
What's needed, but not proposed, is a 1930s type Home Owners' Loan Corporation (HOLC) plan that refinanced homes at affordable rates and prevented foreclosures. One on a grand scale as part of an enlightened New Deal agenda.
In lieu of "trickle down" to fraudsters, "trickle up" for beleaguered households. An idea so far with no traction for a new administration to consider. The one now in charge has no "imminent" plan, according to White House spokesperson, Dana Perino. On October 30, she added only that "If we find one that we think strikes the right notes....then we would move forward and announce it." Ones so far advanced are for Wall Street. Main street apparently can wait.
Steve Lendman
Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM to 1PM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs are archived for easy listening.
Mr. Lendman's stories are republished in the Baltimore Chronicle with permission of the author.
Copyright © 2008 The Baltimore News Network. All rights reserved.
Tuesday, November 4, 2008
Dramatic Consequences in Iraq? by Immanuel Wallerstein
Dramatic Consequences in Iraq? by Immanuel Wallerstein
1 Nov 2008
"Dramatic consequences" are what U.S. Secretary of Defense, Robert Gates, predicts if, on Jan. 1, 2009, there is no agreement concerning the rights of U.S. troops to operate in Iraq, either via a so-called Status-of-Forces Agreement (SOFA) between Iraq and the United States or, second best, an extension of the United Nations mandate that is at the moment the juridical basis of the presence and rights of U.S. military activity there, but which expires on Dec. 31, 2008.
The negotiations between the United States and Iraq have reached an impasse, as almost everyone now acknowledges. There could be a last-minute breakthrough, but it seems unlikely. It seems more probable that the U.N. Security Council will meet at the very end of December to authorize a time-limited extension of the present mandate. This would throw the question into the hands of the next U.S. president to negotiate. This is not at all what the Bush administration had wanted or ever expected to happen.
A year ago or so, the Bush administration was confident that it could negotiate a SOFA agreement with a presumed-to-be friendly al-Maliki government in Iraq. It wanted an agreement that would more or less renew the current rules governing U.S. military operations in Iraq and one that would also thereby tie the hands of the next U.S. administration for at least several years. The U.S. negotiators proposed an agreement at the level of the two governments, one that would not have to be ratified by the legislatures of either country.
Everything went wrong with this plan. First of all, the legislatures insisted that they wanted to be part of the arrangements, especially the Iraqi legislature. Secondly, there were important political voices within Iraq who were against any arrangement that would keep U.S. forces in Iraq. These included, of course, the group led by Moktada al-Sadr, who has consistently raised the banner of Iraqi nationalism against a continued U.S. presence.
But al-Sadr was not alone. It turned out that there were serious reservations among all three groups on whom the United States had counted to be sympathetic to an extension -- the two main Shi'a parties other than the Sadrists (SCIRI and al-Maliki's party, Dawa), the so-called moderate Sunnis, and of course the Kurds. The rumblings on all sides led Prime Minister Nouri al-Maliki to take a far tougher line in the negotiations than the United States had anticipated. He started to act as though his greatest worry was that he might be outflanked as an Iraqi nationalist leader by others, and in particular by Moktada al-Sadr.
Al-Maliki therefore made two primary demands in the negotiations. He wanted a firm date for the withdrawal of U.S. troops. And he wanted to submit U.S. troops and civilian contractors to Iraqi jurisdiction, whenever they were accused of serious crimes committed outside of legitimate military activity. Both demands were totally anathema to the United States.
But al-Maliki held firm. And after many months he got concessions. There was agreement on a terminal date of 2011 for U.S. combat troops, and there was agreement on Iraqi jurisdiction on behavior in the non-military arena. But the wording of each concession also included escape clauses. The withdrawal in 2011 was to be subject to "conditions on the ground." And Iraqi jurisdiction was to be subject to someone (presumably the United States) deciding that the alleged behavior was indeed outside of legitimate military activity.
The escape hatches turned out to be too much for Iraqi politicians to accept. As one of them recently put it, "they have given with the right hand what they have taken away with the left hand." So, one after the other, they said they would not vote to approve the present "compromise" draft. The most important voice along these lines was Grand Ayatollah al-Sistani who indicated that the present proposal was unacceptable. The largest Shi'a party, SCIRI, refused the draft. The moderate Sunnis and the Kurds indicated that they wanted changes. The entire Iraqi cabinet then voted to insist on amendments. It then indicated that one of the amendments would be to give the Iraqi (and not the U.S.) government the power to decide on whether behavior of Americans was outside legitimate military activity. It doesn't seem that such amendments are at all acceptable to the United States.
In this situation, Secretary of Defense Gates and Secretary of State Condoleezza Rice have tried to issue careful diplomatic comments. Other Americans were not as restrained. The commander of U.S. troops in Iraq, Gen. Raymond T. Odierno, said that Iraqi reluctance was due to Iranian bribes. Al-Maliki immediately said that Odierno had "risked his position."
Then the Chairman of the U.S. Joint Chiefs of Staff, Adm. Michael Mullen, opined that, without U.S. troop support, Iraqi forces would not "be ready to provide for their own security." The Iraqi government's spokesman, Ali al-Dabbagh, immediately responded angrily that "it is not correct to force Iraqis into making a choice and it is not appropriate to talk with the Iraqis in this way." Other Iraqis were more blunt. They called Mullen's comments about ending all U.S. assistance if a SOFA agreement was not signed a form of "blackmail."
When the United States launched its recent raid against presumed al-Qaeda elements located on Syrian soil, and did this from a base in Iraq, it threw further cold water on the proposed agreement. A prominent Kurdish politician said that the raid was made without the knowledge of the Iraqi government and would give Iraqi's neighbors "a good reason to be concerned about the continued U.S. presence in Iraq." Another amendment the Iraqi cabinet now wants in one forbidding attacks on neighbors by U.S. forces located in Iraq.
Russia's Foreign Minister, Sergei Lavrov, has made it clear that Russia would not oppose an extension of U.N. authorization, provided it is the government of Iraq that requests it. Lavrov added that Russia supports "the government of Iraq as far as the need to ensure the sovereignty of Iraq on its own territory is concerned." Why should Russia not do this? Russia is quite happy to see U.S. troops tied down in Iraq for the time being. It constricts U.S. ability to use them anywhere else. In any case, there is a question whether the Iraqi government, if and when it requests an extension of the U.N. mandate, would ask that the new provisions the United States is opposing in the SOFA agreement be included in the extension, in which case the United States might veto the extension.
The person who is quietly relishing what is going on is Moktada al-Sadr. His mere existence as a voice on the Iraqi scene has forced all other Iraqi political forces to express Iraqi nationalist demands more openly and more aggressively. The tide is moving in his direction. It is now quite probable that the Iraqi government will ask the United States to withdraw entirely even before the hypothetical date of 2011 in the present proposal, and very long before the 100 years of which John McCain once spoke.
Will there be "dramatic consequences"? The world will judge. So of course will the Iraqis. And so will U.S. public opinion. But dramatic or not, it is probably going to happen.
1 Nov 2008
"Dramatic consequences" are what U.S. Secretary of Defense, Robert Gates, predicts if, on Jan. 1, 2009, there is no agreement concerning the rights of U.S. troops to operate in Iraq, either via a so-called Status-of-Forces Agreement (SOFA) between Iraq and the United States or, second best, an extension of the United Nations mandate that is at the moment the juridical basis of the presence and rights of U.S. military activity there, but which expires on Dec. 31, 2008.
The negotiations between the United States and Iraq have reached an impasse, as almost everyone now acknowledges. There could be a last-minute breakthrough, but it seems unlikely. It seems more probable that the U.N. Security Council will meet at the very end of December to authorize a time-limited extension of the present mandate. This would throw the question into the hands of the next U.S. president to negotiate. This is not at all what the Bush administration had wanted or ever expected to happen.
A year ago or so, the Bush administration was confident that it could negotiate a SOFA agreement with a presumed-to-be friendly al-Maliki government in Iraq. It wanted an agreement that would more or less renew the current rules governing U.S. military operations in Iraq and one that would also thereby tie the hands of the next U.S. administration for at least several years. The U.S. negotiators proposed an agreement at the level of the two governments, one that would not have to be ratified by the legislatures of either country.
Everything went wrong with this plan. First of all, the legislatures insisted that they wanted to be part of the arrangements, especially the Iraqi legislature. Secondly, there were important political voices within Iraq who were against any arrangement that would keep U.S. forces in Iraq. These included, of course, the group led by Moktada al-Sadr, who has consistently raised the banner of Iraqi nationalism against a continued U.S. presence.
But al-Sadr was not alone. It turned out that there were serious reservations among all three groups on whom the United States had counted to be sympathetic to an extension -- the two main Shi'a parties other than the Sadrists (SCIRI and al-Maliki's party, Dawa), the so-called moderate Sunnis, and of course the Kurds. The rumblings on all sides led Prime Minister Nouri al-Maliki to take a far tougher line in the negotiations than the United States had anticipated. He started to act as though his greatest worry was that he might be outflanked as an Iraqi nationalist leader by others, and in particular by Moktada al-Sadr.
Al-Maliki therefore made two primary demands in the negotiations. He wanted a firm date for the withdrawal of U.S. troops. And he wanted to submit U.S. troops and civilian contractors to Iraqi jurisdiction, whenever they were accused of serious crimes committed outside of legitimate military activity. Both demands were totally anathema to the United States.
But al-Maliki held firm. And after many months he got concessions. There was agreement on a terminal date of 2011 for U.S. combat troops, and there was agreement on Iraqi jurisdiction on behavior in the non-military arena. But the wording of each concession also included escape clauses. The withdrawal in 2011 was to be subject to "conditions on the ground." And Iraqi jurisdiction was to be subject to someone (presumably the United States) deciding that the alleged behavior was indeed outside of legitimate military activity.
The escape hatches turned out to be too much for Iraqi politicians to accept. As one of them recently put it, "they have given with the right hand what they have taken away with the left hand." So, one after the other, they said they would not vote to approve the present "compromise" draft. The most important voice along these lines was Grand Ayatollah al-Sistani who indicated that the present proposal was unacceptable. The largest Shi'a party, SCIRI, refused the draft. The moderate Sunnis and the Kurds indicated that they wanted changes. The entire Iraqi cabinet then voted to insist on amendments. It then indicated that one of the amendments would be to give the Iraqi (and not the U.S.) government the power to decide on whether behavior of Americans was outside legitimate military activity. It doesn't seem that such amendments are at all acceptable to the United States.
In this situation, Secretary of Defense Gates and Secretary of State Condoleezza Rice have tried to issue careful diplomatic comments. Other Americans were not as restrained. The commander of U.S. troops in Iraq, Gen. Raymond T. Odierno, said that Iraqi reluctance was due to Iranian bribes. Al-Maliki immediately said that Odierno had "risked his position."
Then the Chairman of the U.S. Joint Chiefs of Staff, Adm. Michael Mullen, opined that, without U.S. troop support, Iraqi forces would not "be ready to provide for their own security." The Iraqi government's spokesman, Ali al-Dabbagh, immediately responded angrily that "it is not correct to force Iraqis into making a choice and it is not appropriate to talk with the Iraqis in this way." Other Iraqis were more blunt. They called Mullen's comments about ending all U.S. assistance if a SOFA agreement was not signed a form of "blackmail."
When the United States launched its recent raid against presumed al-Qaeda elements located on Syrian soil, and did this from a base in Iraq, it threw further cold water on the proposed agreement. A prominent Kurdish politician said that the raid was made without the knowledge of the Iraqi government and would give Iraqi's neighbors "a good reason to be concerned about the continued U.S. presence in Iraq." Another amendment the Iraqi cabinet now wants in one forbidding attacks on neighbors by U.S. forces located in Iraq.
Russia's Foreign Minister, Sergei Lavrov, has made it clear that Russia would not oppose an extension of U.N. authorization, provided it is the government of Iraq that requests it. Lavrov added that Russia supports "the government of Iraq as far as the need to ensure the sovereignty of Iraq on its own territory is concerned." Why should Russia not do this? Russia is quite happy to see U.S. troops tied down in Iraq for the time being. It constricts U.S. ability to use them anywhere else. In any case, there is a question whether the Iraqi government, if and when it requests an extension of the U.N. mandate, would ask that the new provisions the United States is opposing in the SOFA agreement be included in the extension, in which case the United States might veto the extension.
The person who is quietly relishing what is going on is Moktada al-Sadr. His mere existence as a voice on the Iraqi scene has forced all other Iraqi political forces to express Iraqi nationalist demands more openly and more aggressively. The tide is moving in his direction. It is now quite probable that the Iraqi government will ask the United States to withdraw entirely even before the hypothetical date of 2011 in the present proposal, and very long before the 100 years of which John McCain once spoke.
Will there be "dramatic consequences"? The world will judge. So of course will the Iraqis. And so will U.S. public opinion. But dramatic or not, it is probably going to happen.
Leon HadarL Islam and the West: The Myth of the Green Peril
http://www.energytribune.com/articles.cfm?aid=1009#
By Leon Hadar
Islam and the West: The Myth of the Green Peril
Sept.
The 9/11 attacks and the ensuing "war on terror" have provided an opportunity for the U.S. foreign policy establishment, suffering from Enemy Deprivation Syndrome since the Cold War's end, to settle on a potential new bogeyman. It is radical Islam, or the "Green Peril" – a term I used in an article 15 years ago in Foreign Affairs Spring 1993. I challenged Samuel Huntington's clashofcivilizations paradigm, which predicted that the West and Islam would engage in a long and bloody struggle over control of the Middle East, including its oil resources.
The neoconservative ideologues who hijacked President George W. Bush's foreign policy apparatus have embraced Huntington's notion of a confrontation between Islam and the West. They see it as a way to justify American military power to establish U.S. hegemony in the Middle East while imposing American values, the socalled "freedom agenda," to deal with the rise of Islamofascism a Khomeinilike creature, armed with a radical ideology, equipped with nuclear weapons, and intent on launching a violent jihad against Western civilization.
According to this neoconservative dogma, which Bush has attempted to apply in Mesopotamia, a free and democratic Iraq would become a model for political and economic reform in the Arab world and the broader Middle East, and a series of mostly peaceful democratic revolutions would be unleashed from the Islamic frontiers of China, through Iran, Syria, Lebanon, and Palestine, to the Balkan borders. Hence, following the fall of Saddam Hussein, the Bush supporters recalling the dramatic changes in Eastern Europe after the Soviet Union's collapse expected the democratic dominoes to fall in Syria and Iran, while arguing that Lebanon's "Cedar Revolution" and the planned election in Palestine reflected the shape of things to come.
At the same time, even the more liberal and internationalist foreign policy pundits like New York Times columnist Tom Friedman, critical of some aspects of the neoconservative agenda, insisted that the U.S. needed to launch a massive campaign to help modernize/democratize/liberalize/secularize the Arab Middle East and by extension the entire Muslim world, preferably through public diplomacy and education, and as a last resort, military force.
Indeed, against the backdrop of U.S. involvement in two major wars in the Middle East and the increasingly assertive position of Iran and its regional allies, a consensus is evolving among Washington's chattering class about the obligation to launch a Wilsonian campaign to bring the Middle East into the modern age, while extinguishing radical Islam. Washington's failure to do that would not only endanger Israel and other Mideast allies. With stratospheric energy prices igniting anxiety in Washington over access to Persian Gulf oil resources, the civilizationclash theory has acquired a geoeconomic veneer. Imagine if Osama bin Laden controlled the Middle East's energy assets a.k.a., "Arab Oil" and used them as a "weapon" against the West!
New foreign policy paradigms like new religions and political ideologies are produced by intellectual entrepreneurs hoping to win status and influence over those seeking power. At the same time, politicians use these worldviews to mobilize public support as they lead the nation/people/class against an outside threat that allegedly challenges core interests and values. >From this perspective, the new Islamic bogeyman promoted by entrepreneurial neocons has clearly served the interests of Washington''s Iron Triangle of bureaucrats, lawmakers, and interest groups, as well as foreign players who have pressed for growing U.S. military engagement in the Middle East.
For the Iron Triangle, the Islamic threat – very much like Communism during the Cold War – helps create expanding budget pressure for defense, covert operations, and the current favorite interest group, while allowing foreign players like the Israelis, the Indians, or the many 'Stans to highlight their own roles as Washington''s regional surrogates. At the same, neocon intellectuals and their adjunct brigades of "terrorism experts" have increased their access to governmental decisionmaking and the media, and reaped other political and financial rewards.
The problem is that foreign policy paradigms are intellectual constructs that reflect the imaginations of their producers and the interests of their promoters, not necessarily reality. As a result, when policies formed on the basis of such conceptual frameworks are implemented, reality tends to bite. Hence, during the Cold War, the notion of a global and monolithic Sovietled Communism made it inevitable that the U.S. would confuse the national interests that drove the policies of Vietnam, China, and Cuba with the global interests of the Soviet Union, leading to disastrous U.S. policy outcomes. Similarly, after the Soviet Union had vanished into thin air, Americans discovered that the collapse of Communism failed to unleash political and economic freedom in the former Soviet Empire. Hungary, Poland, and Czechoslovakia have acquired membership in the Western club a reflection of their European political cultures, while many of the more backward 'Stans have embraced authoritarian political and statist economic systems. Russia seems to have chosen its own unique Third Way of state capitalism.
During the 1990s there was talk in Washington about the challenge the West was supposedly facing from a new East Asian model, represented by Japan and other emerging economies in the region. The champions of this model included Lee Kwan Yew, Singapore's leader, and Huntington, who embraced the idea of a "Sinic" civilization. They argued that unique East Asian Confucian values such as family, corporate, and national loyalty, the precedence of society''s stability and prosperity over personal interests and freedoms, and a strong work ethic and thriftiness are why East Asians support authoritarian governments and the collective wellbeing rather than democracy, and why statemanaged capitalist economies are more successful than AngloAmerican ones. But the Asian financial crisis of the 1990s and the region's diverging political and economic systems Singapore vs. Taiwan have undermined the notion of a monolithic and successful Asian model although China's dramatic economic rise may have revived it.
Similarly, the time has come to challenge the grand idea that the Muslim world or the Middle East, or the Arab world – terms that seem interchangeable in the American media has a unique and monolithic political and economic culture that makes it resistant to the West's modernizing effects. Note that here again, a multitude of labels, including democracy, capitalism, secularism, and feminism, are used is association with modernity and Westernization.
The proponents of this idea suggest that only an American-led effort to "export" democracy to that region of the world would bring about the necessary cultural, political, and economic reforms, making Middle Easterners/Arabs/Muslims "more like us." "Us" includes a not-very-monolithic West, with America's Deep South where racist legislation predominated until the 1960s and Switzerland where women were finally given the right to vote in 1971, the AngloSaxon model of capitalism, Germany's social capitalism, libertine Las Vegas and prudish Salt Lake City, and "law-abiding" Northern Europe and "corruption-infested" Southern Europe. And so it goes.
Hence, careful study of the cultural, political, and economic entity called the West reveals diverse and evolving attitudes about what it means to be a Westerner in the 21st century. This depends very much on values and interests, political principles, religious faiths, racial background, economic and social status, gender, education, sexual orientation, and even the political and the economic systems citizens embrace under certain environmental conditions and historical settings.
The fact that there isn't a onedimensional Westerner makes it easier to understand why the onedimensional Muslim or Arab doesn't exist either – except, that is, in the rival twin minds of Radical Islam Muslims who promote the ideology of Al Qaeda and the Christian Right Westerners who advance the neoconservative dogma.
Notwithstanding Washington's propaganda regarding the global threat of Islamofascism, there are no common ideological foundations that unite the various strains of Islamicinfluenced groups. The hugely divergent groups include the secular Arab nationalist movements of Ba'athism and Nasserism combining socialist and Fascist ideologies imported from Europe Saudi Arabia's dominant and strict religious doctrine of Wahhabism the revolutionary and Millennialist dogma that guides the ruling Shiites in Iran and their Middle Eastern satellites the Kemalist secular, republican, and statist tradition of Turkey challenged now by modernist and profreemarket and democratic Islamist parties that want Turkey to join the European Union the tolerant and multicultural societies and capitalist economies of Indonesia and Malaysia the radical Islamists of South and Central Asia Westernized, multiethnic, and multireligious Lebanon and, finally, Moammar Kaddafi's strict and somewhat bizarre form of the Islamic revolutionary system in Libya.
From this perspective, the Muslim world or the Middle East or the Arab Middle East is a mosaic of nationstates, ethnic groups, religious sects, and tribal groups, and a mishmash of political ideologies, economic systems, and cultural orientations. Some of these players have gradually joined the modern age and play an active role in the global economy Malaysia, Indonesia, Turkey, and the U.A.E.. Others have clearly remained on the margins of the recent economic and technological revolutions Sudan, Mauritania, the Gaza Strip, and Yemen. Most Islamicdominated states find themselves somewhere in between Egypt, Jordan, Saudi Arabia, and Libya.
There is no doubt that some parts of the Middle East are "notable for its disturbingly low profile in matters of economics and globalization," as Zachary Karabell, a Middle East expert and investment banker, put it. After all, the region, with its 350 million people, located at the intersection of Europe, Asia, and Africa and renowned for its historical legacy as the Cradle of Civilization as well as its huge energy resources, would be expected to be on par with other leading emerging economies. Its G.D.P. is more than $900 billion a year. Its economic growth rate is about 5 percent per year.
The recent rise in energy prices has benefited some parts of the region, in particular the booming oil states in the Persian Gulf. In contrast to the oil explosion of the 1970s, these states are now investing their profits in the region, encouraging stock market growth, a surge in real estate developments, and the building of modern economic infrastructure that is helping to turn the U.A.E. and other Persian Gulf states into centers of global commerce and finance like Singapore.
At the same time, there are signs that Arab economies that have been ruled for decades by military dictators – Egypt, Tunisia, Jordan, and now perhaps even Iraq, Syria, Palestine, and Libya – are taking important steps to reform their economies and open them to foreign investment and trade. Through the efforts of France and the rest of the E.U., creation of the EuropeanMediterranean economic club could accelerate this process and encourage the return of expatriates, including many professionals and businessmen, from the West.
In a way, Western powers have been responsible for the fact that military dictatorships retarding economic reform have controlled Mideast nationstates for so long. The geostrategic competition among outside powers, especially during the Cold War, encouraged the U.S. and its allies to exploit regional conflicts like the Arab-Israeli one, and to provide military and economic support to local strongmen who were supposed to serve the outsiders' interests. But the time has come for Western powers, particularly the E.U., to focus efforts on an end to the Arab-Israeli conflict, and to create incentives for the region to open up to the global economy. This includes liberalizing their economies, reducing tariff barriers, and encouraging direct foreign investment.
While free trade is not a panacea, it could be a necessary building block for a more peaceful and prosperous Middle East. It could encourage the rise of a professional middle class with values more in tune with modern ideas and technologies. That effort could also help reduce poverty and economic inequality, and all of these could foster what Erik Gartzke, a Canadian political economist, describes as "capitalist peace."
Indeed, when globalization seems to be bypassing the Middle East, it's important to remember that the region was once a center of global commerce, and that its merchants and traders – Syrians, Lebanese, Jews, Armenians, Greeks, and others – helped spread the culture of business across the Mediterranean and throughout the world. That old Spirit of the Levant could be revived under these conditions of capitalist peace and help transform the Middle East from the global economy's backwater into one of its most powerful engines.
By Leon Hadar
Islam and the West: The Myth of the Green Peril
Sept.
The 9/11 attacks and the ensuing "war on terror" have provided an opportunity for the U.S. foreign policy establishment, suffering from Enemy Deprivation Syndrome since the Cold War's end, to settle on a potential new bogeyman. It is radical Islam, or the "Green Peril" – a term I used in an article 15 years ago in Foreign Affairs Spring 1993. I challenged Samuel Huntington's clashofcivilizations paradigm, which predicted that the West and Islam would engage in a long and bloody struggle over control of the Middle East, including its oil resources.
The neoconservative ideologues who hijacked President George W. Bush's foreign policy apparatus have embraced Huntington's notion of a confrontation between Islam and the West. They see it as a way to justify American military power to establish U.S. hegemony in the Middle East while imposing American values, the socalled "freedom agenda," to deal with the rise of Islamofascism a Khomeinilike creature, armed with a radical ideology, equipped with nuclear weapons, and intent on launching a violent jihad against Western civilization.
According to this neoconservative dogma, which Bush has attempted to apply in Mesopotamia, a free and democratic Iraq would become a model for political and economic reform in the Arab world and the broader Middle East, and a series of mostly peaceful democratic revolutions would be unleashed from the Islamic frontiers of China, through Iran, Syria, Lebanon, and Palestine, to the Balkan borders. Hence, following the fall of Saddam Hussein, the Bush supporters recalling the dramatic changes in Eastern Europe after the Soviet Union's collapse expected the democratic dominoes to fall in Syria and Iran, while arguing that Lebanon's "Cedar Revolution" and the planned election in Palestine reflected the shape of things to come.
At the same time, even the more liberal and internationalist foreign policy pundits like New York Times columnist Tom Friedman, critical of some aspects of the neoconservative agenda, insisted that the U.S. needed to launch a massive campaign to help modernize/democratize/liberalize/secularize the Arab Middle East and by extension the entire Muslim world, preferably through public diplomacy and education, and as a last resort, military force.
Indeed, against the backdrop of U.S. involvement in two major wars in the Middle East and the increasingly assertive position of Iran and its regional allies, a consensus is evolving among Washington's chattering class about the obligation to launch a Wilsonian campaign to bring the Middle East into the modern age, while extinguishing radical Islam. Washington's failure to do that would not only endanger Israel and other Mideast allies. With stratospheric energy prices igniting anxiety in Washington over access to Persian Gulf oil resources, the civilizationclash theory has acquired a geoeconomic veneer. Imagine if Osama bin Laden controlled the Middle East's energy assets a.k.a., "Arab Oil" and used them as a "weapon" against the West!
New foreign policy paradigms like new religions and political ideologies are produced by intellectual entrepreneurs hoping to win status and influence over those seeking power. At the same time, politicians use these worldviews to mobilize public support as they lead the nation/people/class against an outside threat that allegedly challenges core interests and values. >From this perspective, the new Islamic bogeyman promoted by entrepreneurial neocons has clearly served the interests of Washington''s Iron Triangle of bureaucrats, lawmakers, and interest groups, as well as foreign players who have pressed for growing U.S. military engagement in the Middle East.
For the Iron Triangle, the Islamic threat – very much like Communism during the Cold War – helps create expanding budget pressure for defense, covert operations, and the current favorite interest group, while allowing foreign players like the Israelis, the Indians, or the many 'Stans to highlight their own roles as Washington''s regional surrogates. At the same, neocon intellectuals and their adjunct brigades of "terrorism experts" have increased their access to governmental decisionmaking and the media, and reaped other political and financial rewards.
The problem is that foreign policy paradigms are intellectual constructs that reflect the imaginations of their producers and the interests of their promoters, not necessarily reality. As a result, when policies formed on the basis of such conceptual frameworks are implemented, reality tends to bite. Hence, during the Cold War, the notion of a global and monolithic Sovietled Communism made it inevitable that the U.S. would confuse the national interests that drove the policies of Vietnam, China, and Cuba with the global interests of the Soviet Union, leading to disastrous U.S. policy outcomes. Similarly, after the Soviet Union had vanished into thin air, Americans discovered that the collapse of Communism failed to unleash political and economic freedom in the former Soviet Empire. Hungary, Poland, and Czechoslovakia have acquired membership in the Western club a reflection of their European political cultures, while many of the more backward 'Stans have embraced authoritarian political and statist economic systems. Russia seems to have chosen its own unique Third Way of state capitalism.
During the 1990s there was talk in Washington about the challenge the West was supposedly facing from a new East Asian model, represented by Japan and other emerging economies in the region. The champions of this model included Lee Kwan Yew, Singapore's leader, and Huntington, who embraced the idea of a "Sinic" civilization. They argued that unique East Asian Confucian values such as family, corporate, and national loyalty, the precedence of society''s stability and prosperity over personal interests and freedoms, and a strong work ethic and thriftiness are why East Asians support authoritarian governments and the collective wellbeing rather than democracy, and why statemanaged capitalist economies are more successful than AngloAmerican ones. But the Asian financial crisis of the 1990s and the region's diverging political and economic systems Singapore vs. Taiwan have undermined the notion of a monolithic and successful Asian model although China's dramatic economic rise may have revived it.
Similarly, the time has come to challenge the grand idea that the Muslim world or the Middle East, or the Arab world – terms that seem interchangeable in the American media has a unique and monolithic political and economic culture that makes it resistant to the West's modernizing effects. Note that here again, a multitude of labels, including democracy, capitalism, secularism, and feminism, are used is association with modernity and Westernization.
The proponents of this idea suggest that only an American-led effort to "export" democracy to that region of the world would bring about the necessary cultural, political, and economic reforms, making Middle Easterners/Arabs/Muslims "more like us." "Us" includes a not-very-monolithic West, with America's Deep South where racist legislation predominated until the 1960s and Switzerland where women were finally given the right to vote in 1971, the AngloSaxon model of capitalism, Germany's social capitalism, libertine Las Vegas and prudish Salt Lake City, and "law-abiding" Northern Europe and "corruption-infested" Southern Europe. And so it goes.
Hence, careful study of the cultural, political, and economic entity called the West reveals diverse and evolving attitudes about what it means to be a Westerner in the 21st century. This depends very much on values and interests, political principles, religious faiths, racial background, economic and social status, gender, education, sexual orientation, and even the political and the economic systems citizens embrace under certain environmental conditions and historical settings.
The fact that there isn't a onedimensional Westerner makes it easier to understand why the onedimensional Muslim or Arab doesn't exist either – except, that is, in the rival twin minds of Radical Islam Muslims who promote the ideology of Al Qaeda and the Christian Right Westerners who advance the neoconservative dogma.
Notwithstanding Washington's propaganda regarding the global threat of Islamofascism, there are no common ideological foundations that unite the various strains of Islamicinfluenced groups. The hugely divergent groups include the secular Arab nationalist movements of Ba'athism and Nasserism combining socialist and Fascist ideologies imported from Europe Saudi Arabia's dominant and strict religious doctrine of Wahhabism the revolutionary and Millennialist dogma that guides the ruling Shiites in Iran and their Middle Eastern satellites the Kemalist secular, republican, and statist tradition of Turkey challenged now by modernist and profreemarket and democratic Islamist parties that want Turkey to join the European Union the tolerant and multicultural societies and capitalist economies of Indonesia and Malaysia the radical Islamists of South and Central Asia Westernized, multiethnic, and multireligious Lebanon and, finally, Moammar Kaddafi's strict and somewhat bizarre form of the Islamic revolutionary system in Libya.
From this perspective, the Muslim world or the Middle East or the Arab Middle East is a mosaic of nationstates, ethnic groups, religious sects, and tribal groups, and a mishmash of political ideologies, economic systems, and cultural orientations. Some of these players have gradually joined the modern age and play an active role in the global economy Malaysia, Indonesia, Turkey, and the U.A.E.. Others have clearly remained on the margins of the recent economic and technological revolutions Sudan, Mauritania, the Gaza Strip, and Yemen. Most Islamicdominated states find themselves somewhere in between Egypt, Jordan, Saudi Arabia, and Libya.
There is no doubt that some parts of the Middle East are "notable for its disturbingly low profile in matters of economics and globalization," as Zachary Karabell, a Middle East expert and investment banker, put it. After all, the region, with its 350 million people, located at the intersection of Europe, Asia, and Africa and renowned for its historical legacy as the Cradle of Civilization as well as its huge energy resources, would be expected to be on par with other leading emerging economies. Its G.D.P. is more than $900 billion a year. Its economic growth rate is about 5 percent per year.
The recent rise in energy prices has benefited some parts of the region, in particular the booming oil states in the Persian Gulf. In contrast to the oil explosion of the 1970s, these states are now investing their profits in the region, encouraging stock market growth, a surge in real estate developments, and the building of modern economic infrastructure that is helping to turn the U.A.E. and other Persian Gulf states into centers of global commerce and finance like Singapore.
At the same time, there are signs that Arab economies that have been ruled for decades by military dictators – Egypt, Tunisia, Jordan, and now perhaps even Iraq, Syria, Palestine, and Libya – are taking important steps to reform their economies and open them to foreign investment and trade. Through the efforts of France and the rest of the E.U., creation of the EuropeanMediterranean economic club could accelerate this process and encourage the return of expatriates, including many professionals and businessmen, from the West.
In a way, Western powers have been responsible for the fact that military dictatorships retarding economic reform have controlled Mideast nationstates for so long. The geostrategic competition among outside powers, especially during the Cold War, encouraged the U.S. and its allies to exploit regional conflicts like the Arab-Israeli one, and to provide military and economic support to local strongmen who were supposed to serve the outsiders' interests. But the time has come for Western powers, particularly the E.U., to focus efforts on an end to the Arab-Israeli conflict, and to create incentives for the region to open up to the global economy. This includes liberalizing their economies, reducing tariff barriers, and encouraging direct foreign investment.
While free trade is not a panacea, it could be a necessary building block for a more peaceful and prosperous Middle East. It could encourage the rise of a professional middle class with values more in tune with modern ideas and technologies. That effort could also help reduce poverty and economic inequality, and all of these could foster what Erik Gartzke, a Canadian political economist, describes as "capitalist peace."
Indeed, when globalization seems to be bypassing the Middle East, it's important to remember that the region was once a center of global commerce, and that its merchants and traders – Syrians, Lebanese, Jews, Armenians, Greeks, and others – helped spread the culture of business across the Mediterranean and throughout the world. That old Spirit of the Levant could be revived under these conditions of capitalist peace and help transform the Middle East from the global economy's backwater into one of its most powerful engines.
The U.S. Doesn't Know How Alone It is in Iraq Friends Like These
The U.S. Doesn't Know How Alone It is in Iraq
Friends Like These
By PATRICK COCKBURN
Over the past five years, America and its Iraqi allies have pointed triumphantly at a series of spurious milestones meant to mark turning points on the road to stability and security. But the ongoing stalemate over a new Status of Forces Agreement (SOFA), which the Iraqi government refuses to sign despite intense American pressure, marks a true turning point in the conflict: it is a clear sign that American political influence in Iraq is weaker than ever.
It is the first time that an Iraqi government has rebuffed the US on a crucial issue since the invasion of 2003. The agreement, the subject of prolonged and divisive negotiations since March, was rejected by the Iraqi cabinet and is unlikely to be submitted to parliament in its present form. The Iraqi prime minister, Nouri al Maliki, who could not have obtained nor held his job without American backing, says he will not sign it as it is.
Meanwhile the US is increasingly desperate to conclude the status agreement before the UN mandate that legalises the US occupation runs out at the end of the year. The US ambassador Ryan Crocker petulantly threatened that without an agreement “we do nothing – no security training, no logistical support, no border protection, no training, equipping, manning checkpoints, no nothing.” President Bush has himself pushed hard for the accord over the last eight months without success. His failure to secure the pact shows that the US is unable to get its way despite exaggerated claims of military success by the White House and the Pentagon.
The accord that has been rejected is markedly less favourable to the US than the original draft that was first discussed in March. The Americans, who could have presented the agreement to the Iraqis as a means of bringing the occupation to an end or eliminating its most objectionable aspects, instead produced a blank cheque that suggested no limit to the number of American troops in the country and no date for eventual withdrawal.
The March draft was a typical example of the US tendency to overplay its hand in Iraq, where the agreement was denounced as a successor to the 1930 Anglo-Iraqi treaty that gave Britain de facto control over a nominally independent Iraq. The draft provoked a nationalist backlash, and many Iraqi politicians who supported the agreement did so covertly for fear of being labelled American pawns.
The final draft of the accord agreed by negotiators on October 13 was very different. By then the Bush administration had been forced to concede a timetable for an American military withdrawal: combat troops were to leave Iraqi cities, towns and villages by the end of June 2009, and all American forces were to depart by the end of 2011. Contractors lost their immunity from Iraqi law. The US tried to make the military retreat from Iraq conditional on the security situation at the time, but by the end of the negotiations even this had been conceded.
Nothing better illuminates the real political landscape in Iraq – and the absurdity of the fantasies pumped out in Washington and broadly accepted in the US – than the concessions forced on the Americans. The American problem in Iraq since the overthrow of Saddam Hussein has always been political rather than military. Simply put, the Americans have had too few friends in Iraq, and their allies have sided with the US for tactical reasons alone. The majority Shia community initially co-operated with the US in order to achieve political domination, and it needed American military force to crush the Sunni Arab uprising of 2004-7. But the Shia leaders always wanted power for themselves and never intended to share it with the Americans in the long term. The Sunni guerrillas did surprisingly well against the American army, but their community was decisively defeated in the bloody battle for Baghdad fought by government death squads and sectarian militias. It was this defeat – and not simply hostility to al Qa’eda in Iraq – that led the Sunni rebels to seek their own alliance with the US.
I was in Baghdad during the first half of October and then flew to New York. Never has there been such a deep gap between what Americans think is happening in Iraq and the reality on the ground. Senator John McCain keeps celebrating the supposed triumph of the “surge”, and seems to imagine that “victory in Iraq” is now in sight. His exotic running mate Sarah Palin sneers at the “defeatist” Barack Obama. And Obama, afraid to appear unpatriotic, has recanted his earlier doubts about the surge and attempted to avoid discussion of Iraq in general. With American voters understandably absorbed by the financial crash and coming depression, attention to events in Iraq has evaporated: the American media have barely mentioned the rejection of the SOFA.
In New York I found it strange that so many people believed the surge had brought an end to violence in Iraq. It was a curious sort of military victory, I observed, that required more troops in Iraq today – 152,000 – than before the surge began. The best barometer for the real state of security in Iraq, I kept telling people, is the behaviour of the 4.7 million Iraqi refugees inside and outside the country. Many are living in desperate circumstances but dare not go home. Ask an Iraqi in Baghdad how things are, and he may well say “better”. But he means better than the bloodbath of two years ago: “better” does not mean “good”.
Driving around Baghdad I tried to avoid particularly dangerous areas like Tahrir Square in the centre of the city. This turned out to be very sensible: a few days after I left, a suicide car bomb attack there on the convoy of the Labour and Social Affairs minister killed 12. The suicide bomber had reached Tahrir Square despite the fact that there are military and police checkpoints every hundred yards and gigantic traffic jams throughout the city. There is now a little more activity after dark, particularly in Karada and Jadriyah districts, but Baghdad is still the most dangerous city in the world.
The government should be able to do better. It has money. Reserves total $79 billion. The state is vast and employs some two million people. But it is also dysfunctional. Government employees like teachers and army officers are better paid but half the population is unemployed. The Labour and Social Affairs Ministry, the head of which was so nearly assassinated, is meant to help millions of impoverished Iraqis but has only spent 10 per cent of its budget. The private sector is languishing. One sure sign of economic activity is cranes, but in Baghdad I do not recall seeing a single one of them aside from those rusting beside Saddam Hussein’s uncompleted mosques.
The inability of the Iraqi government, many of whose members have long co-operated with the US, to reach a new accord with the US underlines a simple truth about Iraqi politics. The occupation has never been popular. The only part of the country where it is acceptable is Kurdistan, which has never been occupied by US forces. Some Sunni Arabs, under pressure from the Shia, may now look to the US as their protectors, but overall Iraqis blame the occupation for their present miseries. Dislike of the occupation is so great that many Shia politicians think they would be signing their political death warrant to go along with it – though they are also nervous about coping without American military support.
The Kurds say privately that Maliki is overconfident. This may be so, but he has a strong hand. It is too late for the Americans to try replace him. He owes his greatest triumph – facing down the Mahdi Army of Muqtada al Sadr in Basra, Sadr City and Amara earlier this year – as much to Iranian restraint of the Sadrists as to American military support. It would be dangerous for him to make an enemy of Iran by signing a deal to which they are vehemently and openly opposed.
Maliki seems to have been of two minds about the SOFA: uncertain whether the greater danger is signing or not signing. He is looking ahead to the provincial and parliamentary elections next year when he will want to present himself as a patriotic Iraqi leader who stood up to the Americans. If he does not then the Sadrists and possibly the Islamic Supreme Council of Iraq will denounce him as an American pawn.
The danger in Iraq is that neither McCain nor Obama seem to understand how far the US position in Iraq has weakened this year or why Iraq refuses to sign the security accord. The overselling of the surge as a great victory means that few Americans see that they are increasingly without allies in Iraq. The US no longer makes the political weather there. No matter who inherits the White House, American military retreat is now inevitable. The only question that remains is who will hold power in Baghdad after they have gone.
Patrick Cockburn is the Ihe author of "Muqtada: Muqtada Al-Sadr, the Shia Revival, and the Struggle for Iraq.
A version of this article originally appeared in The National (www.thenational.ae), published in Abu Dhabi.
http://www.counterpunch.org/patrick11032008.html
Friends Like These
By PATRICK COCKBURN
Over the past five years, America and its Iraqi allies have pointed triumphantly at a series of spurious milestones meant to mark turning points on the road to stability and security. But the ongoing stalemate over a new Status of Forces Agreement (SOFA), which the Iraqi government refuses to sign despite intense American pressure, marks a true turning point in the conflict: it is a clear sign that American political influence in Iraq is weaker than ever.
It is the first time that an Iraqi government has rebuffed the US on a crucial issue since the invasion of 2003. The agreement, the subject of prolonged and divisive negotiations since March, was rejected by the Iraqi cabinet and is unlikely to be submitted to parliament in its present form. The Iraqi prime minister, Nouri al Maliki, who could not have obtained nor held his job without American backing, says he will not sign it as it is.
Meanwhile the US is increasingly desperate to conclude the status agreement before the UN mandate that legalises the US occupation runs out at the end of the year. The US ambassador Ryan Crocker petulantly threatened that without an agreement “we do nothing – no security training, no logistical support, no border protection, no training, equipping, manning checkpoints, no nothing.” President Bush has himself pushed hard for the accord over the last eight months without success. His failure to secure the pact shows that the US is unable to get its way despite exaggerated claims of military success by the White House and the Pentagon.
The accord that has been rejected is markedly less favourable to the US than the original draft that was first discussed in March. The Americans, who could have presented the agreement to the Iraqis as a means of bringing the occupation to an end or eliminating its most objectionable aspects, instead produced a blank cheque that suggested no limit to the number of American troops in the country and no date for eventual withdrawal.
The March draft was a typical example of the US tendency to overplay its hand in Iraq, where the agreement was denounced as a successor to the 1930 Anglo-Iraqi treaty that gave Britain de facto control over a nominally independent Iraq. The draft provoked a nationalist backlash, and many Iraqi politicians who supported the agreement did so covertly for fear of being labelled American pawns.
The final draft of the accord agreed by negotiators on October 13 was very different. By then the Bush administration had been forced to concede a timetable for an American military withdrawal: combat troops were to leave Iraqi cities, towns and villages by the end of June 2009, and all American forces were to depart by the end of 2011. Contractors lost their immunity from Iraqi law. The US tried to make the military retreat from Iraq conditional on the security situation at the time, but by the end of the negotiations even this had been conceded.
Nothing better illuminates the real political landscape in Iraq – and the absurdity of the fantasies pumped out in Washington and broadly accepted in the US – than the concessions forced on the Americans. The American problem in Iraq since the overthrow of Saddam Hussein has always been political rather than military. Simply put, the Americans have had too few friends in Iraq, and their allies have sided with the US for tactical reasons alone. The majority Shia community initially co-operated with the US in order to achieve political domination, and it needed American military force to crush the Sunni Arab uprising of 2004-7. But the Shia leaders always wanted power for themselves and never intended to share it with the Americans in the long term. The Sunni guerrillas did surprisingly well against the American army, but their community was decisively defeated in the bloody battle for Baghdad fought by government death squads and sectarian militias. It was this defeat – and not simply hostility to al Qa’eda in Iraq – that led the Sunni rebels to seek their own alliance with the US.
I was in Baghdad during the first half of October and then flew to New York. Never has there been such a deep gap between what Americans think is happening in Iraq and the reality on the ground. Senator John McCain keeps celebrating the supposed triumph of the “surge”, and seems to imagine that “victory in Iraq” is now in sight. His exotic running mate Sarah Palin sneers at the “defeatist” Barack Obama. And Obama, afraid to appear unpatriotic, has recanted his earlier doubts about the surge and attempted to avoid discussion of Iraq in general. With American voters understandably absorbed by the financial crash and coming depression, attention to events in Iraq has evaporated: the American media have barely mentioned the rejection of the SOFA.
In New York I found it strange that so many people believed the surge had brought an end to violence in Iraq. It was a curious sort of military victory, I observed, that required more troops in Iraq today – 152,000 – than before the surge began. The best barometer for the real state of security in Iraq, I kept telling people, is the behaviour of the 4.7 million Iraqi refugees inside and outside the country. Many are living in desperate circumstances but dare not go home. Ask an Iraqi in Baghdad how things are, and he may well say “better”. But he means better than the bloodbath of two years ago: “better” does not mean “good”.
Driving around Baghdad I tried to avoid particularly dangerous areas like Tahrir Square in the centre of the city. This turned out to be very sensible: a few days after I left, a suicide car bomb attack there on the convoy of the Labour and Social Affairs minister killed 12. The suicide bomber had reached Tahrir Square despite the fact that there are military and police checkpoints every hundred yards and gigantic traffic jams throughout the city. There is now a little more activity after dark, particularly in Karada and Jadriyah districts, but Baghdad is still the most dangerous city in the world.
The government should be able to do better. It has money. Reserves total $79 billion. The state is vast and employs some two million people. But it is also dysfunctional. Government employees like teachers and army officers are better paid but half the population is unemployed. The Labour and Social Affairs Ministry, the head of which was so nearly assassinated, is meant to help millions of impoverished Iraqis but has only spent 10 per cent of its budget. The private sector is languishing. One sure sign of economic activity is cranes, but in Baghdad I do not recall seeing a single one of them aside from those rusting beside Saddam Hussein’s uncompleted mosques.
The inability of the Iraqi government, many of whose members have long co-operated with the US, to reach a new accord with the US underlines a simple truth about Iraqi politics. The occupation has never been popular. The only part of the country where it is acceptable is Kurdistan, which has never been occupied by US forces. Some Sunni Arabs, under pressure from the Shia, may now look to the US as their protectors, but overall Iraqis blame the occupation for their present miseries. Dislike of the occupation is so great that many Shia politicians think they would be signing their political death warrant to go along with it – though they are also nervous about coping without American military support.
The Kurds say privately that Maliki is overconfident. This may be so, but he has a strong hand. It is too late for the Americans to try replace him. He owes his greatest triumph – facing down the Mahdi Army of Muqtada al Sadr in Basra, Sadr City and Amara earlier this year – as much to Iranian restraint of the Sadrists as to American military support. It would be dangerous for him to make an enemy of Iran by signing a deal to which they are vehemently and openly opposed.
Maliki seems to have been of two minds about the SOFA: uncertain whether the greater danger is signing or not signing. He is looking ahead to the provincial and parliamentary elections next year when he will want to present himself as a patriotic Iraqi leader who stood up to the Americans. If he does not then the Sadrists and possibly the Islamic Supreme Council of Iraq will denounce him as an American pawn.
The danger in Iraq is that neither McCain nor Obama seem to understand how far the US position in Iraq has weakened this year or why Iraq refuses to sign the security accord. The overselling of the surge as a great victory means that few Americans see that they are increasingly without allies in Iraq. The US no longer makes the political weather there. No matter who inherits the White House, American military retreat is now inevitable. The only question that remains is who will hold power in Baghdad after they have gone.
Patrick Cockburn is the Ihe author of "Muqtada: Muqtada Al-Sadr, the Shia Revival, and the Struggle for Iraq.
A version of this article originally appeared in The National (www.thenational.ae), published in Abu Dhabi.
http://www.counterpunch.org/patrick11032008.html
Sunday, November 2, 2008
West Asia and the Next President: More of the Same Won't Do
West Asia and the Next President: More of the Same Won't Do
Remarks to the National Council on US-Arab Relations
Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
31 October 2008
Washington, DC
http://www.mepc.org/whats/cwf081031.asp
Next Tuesday, just four days from now, we Americans will select a new president and his back-up. Exactly eleven weeks later they will take office. They will inherit a dog's breakfast of policy catastrophes from the outgoing administration. Everyone will look to them to clean these up. In West Asia, the Bush Administration's legacy to America and the world includes two ongoing wars, a hostile relationship with Arabs and Muslims, and the loss of our ability to inspire others elsewhere to follow our lead.
Here at home, we've spent ourselves into socialized banking. The incomprehensibly huge operations of our government, including its military operations and those of our vastly expanded public sector, continue to rely on foreign-financed credit rollovers for their sustainment. We've more than doubled our national debt over the past eight years and are driving hard for a debt level equal to our GDP.
The next president must help us survive a deep recession. At the same time, he must restore pay-as-you-go government. He must talk Americans into paying the taxes and foreigners into lending us the money needed to make this transition. Our financial system and economic model have been discredited. The next administration will have to come up with a financial workout plan. We need to convince creditors that we are en route to national solvency. Those we are asking to buy our debt – Arabs, Brazilians, Chinese, Europeans, Russians and others – are the very peoples who object to the self-righteousness and global dominance we have unilaterally asserted. They have seen our recent behavior as bullying. Persuading them to pay for continuing military adventurism will be far from easy. It's said that salesmanship starts when the other party says no. The next president is going to have to be a wicked good salesman.
In 1967, Britain was forced to the conclusion that it could no longer afford to police the world East of Suez. The United States is not at such a moment but we are much too close to it for comfort. Our sticks are foreign-financed; the repo man has his eye on our carrots. Long wars cannot be fought on other peoples' money, especially when those who must lend us the money suspect that we see them as eventual targets of the military campaigns and modernization we want them to finance. For the first time in living memory, resource constraints will compel the United States to choose between domestic and overseas, and between civilian and military priorities. These constraints will also force us to stop trying to do everything on our own and to seek partners to share the human and financial costs of global and regional order and energy security
The fact that you and I haven't heard a lot from either presidential candidate about these challenges is instructive. It suggests that much of what both have been saying on the campaign trail is irrelevant. The campaign rhetoric provides no guide to what the next president will actually do in the radically changed circumstances of post-meltdown America. Very likely he doesn't know himself. So rather than try to predict what the next president will do, perhaps we should ask what he ought to try to do. One way or another, there will be major changes in how America operates at home and abroad. Given the terrible mess in the Middle East in particular, thinking about new approaches there seems especially appropriate. Let me offer a few thoughts on the current situation and what may be in store for us.
I'd like to begin on a note of optimism. Miracles evidently still happen in the Middle East. After all, God just spoke, though somewhat belatedly, to Ehud Olmert. And, lo! God convinced Mr. Olmert that there can be no two-state solution in Palestine without ample land for the Palestinians and that creating a single Eretz Yisrael but dividing it into two zones – in one of which Arabs have limited rights as second-class citizens and in the other of which they have no rights at all – is a very good way to destroy the state of Israel. It promises, among other things, to set off an international campaign to isolate and punish the Jewish state for the practice of apartheid and related sins. Earlier, God had spoken on the same subject to our retired president, Jimmy Carter.
Since God now seems to be into counseling retirees, perhaps He'll also speak to Calamitous George as he leaves office, to convey the insight that writing blank checks to Israel harms it by depriving Israelis of any immediate incentive to make the hard choices they must make to achieve long-term security for themselves and their state. In our own interest, we must act to create conditions that allow Israelis and Arabs to accept and coexist with each other on a mutually respectful basis. In this connection, it benefits no one for the United States to continue to underwrite the injustices, indignities, and humiliations of the occupation. These injustices have corrupted Israel's moral standing. These indignities inspire terrorism. These humiliations are so intolerable as to make peaceful coexistence with Israel impossible for Palestinians and unacceptable to other Arabs. They therefore preclude the broad regional embrace of Israel proposed in the Saudi peace plan of 2002.
Mr. Olmert is a bit late but far from alone among Israelis in his recognition of what must be done. The prerequisite for both peace and the survival of Israel as a Jewish state is the end of the Jewish holy war for Arab land and the withdrawal of Jewish colonists from the properties they have grabbed from Palestinian owners since 1967. There is, of course, a common retort to this observation. It is that, even if decolonization is both right and necessary to achieve acceptance for Israel's existence where it counts, it is politically impossible for Israel to do it. This amounts to saying that it is politically impossible for Israel to do either what is right or what it must do to achieve acceptance for its existence as a state in the Middle East. The long-term implications of this self-imposed moral and political incapacity are not pleasant to contemplate. Israel is a small country surrounded by much larger neighbors of growing wealth and power. It has done much to secure their enmity and nothing to win their affection.
Meanwhile, divine intervention is unlikely to be required for US taxpayers to choose between alleviating the suffering of Americans made destitute by the collapsing economy here at home and subsidizing a prosperous lifestyle for some but not all inhabitants of the Holy Land. If Americans are asked to make tough choices and pay our own way – as we will be – most will not see it as either unreasonable or anti-Semitic to ask Israelis to do likewise. Given the attitudes of our creditors on the matter, it's also possible that, at some point, when Israel tries to cash an American subsidy check, it will bounce.
Whatever the next president does to encourage peace between Israelis, Palestinians, and their neighbors, the last eight years show that doing and demanding nothing can and will make things worse. But, even as he repositions the United States to promote peace in the Levant, the next president must deal with the challenges of the Afghan-Pakistan region and Iraq. The seven-year-old war in Afghanistan is not going well for anyone except opium farmers, Pashtun nationalists, and al Qa`ida. More than five and a half years after we invaded Iraq, changes in our campaign plan there, backed by higher troop levels and lots of money to pay off insurgents, have stabilized both our occupation of Iraq and the politics of the war here, but they have not stabilized Iraq itself. The $859 billion we have so far committed to the so-called "Global War on Terror" has yet to win us a significant victory anywhere. In Afghanistan and Iraq too, more of the same is not an option.
This is not just because we can't sustain the current pace of military operations or their costs without breaking our army or bankrupting ourselves. It is also because much of what we are doing in these two very different countries seems to be harming rather than advancing our interests. Reconnecting our policies to those interests, tying our core objectives narrowly to them, and not allowing ourselves to be diverted from the efficient pursuit of them will be the keys to success.
Let me start with Afghanistan. I am sure I am not alone in recalling that we went there to accomplish two straightforward things. First, to avenge ourselves on the sponsors of 9/11 – to kill or bring to justice the leaders of al Qa`ida. Second, to punish those who had given safe haven to them. We sought to ensure that neither the Taliban nor anyone else would ever again risk the consequences of harboring terrorists who plot violence against the United States. Our enemy, we understood, was al Qa`ida. Our dislodgement of the Taliban from power was the means by which we expected to ensure that that enemy could not reconstitute itself in Afghanistan.
In broad terms, what we sought was strategic denial of Afghanistan to terrorists with global reach. We had pretty much achieved this by the time of the battle of Tora Bora, only two months after our invasion began. It is not clear that we have advanced much since then. We may in fact have slipped backwards. Al Qa`ida has not been smashed. The Taliban and its fellow travelers in other Muslim lands no longer view us as too formidable to defy.
What began as a punitive raid aimed at beheading al Qa`ida and chastising its Afghan household staff has somehow morphed – with no real discussion or debate – into a prolonged effort to pacify Afghanistan and transform its society. This moving of the goal posts gratified neo-conservatives and liberal interventionists alike. Our new purpose became giving Afghanistan a centrally directed state – something it had never had. We now fight to exclude reactionary Muslims from a role in governing the new Afghanistan. Our aid programs focus on making it safe for women's rights and a growing list of other noble causes, regardless of how many Afghans these programs agitate into enmity. The fact is: we lost our strategic focus in Afghanistan well before we shifted our attention from it to the unrelated issue of Saddam Hussein's secular regime in Iraq.
Most observers judge our position in the Afghan-Pakistan theater to have become precarious. Pakistan's support for us and our military operations is increasingly shaky. Our intervention is fostering attitudes among Afghans conducive to terrorism (and congenial to the poppy cultivation that funds terrorist insurgents). The Pashtun homeland that straddles the Afghan-Pakistan border has become a zone of lawlessness in which terrorists operate with reliable local support. That is the very opposite of what we hoped to achieve. While intelligence operatives and special forces do continue to hunt al Qa`ida, our overall war effort now seems mainly aimed at keeping "our guys" in power in Kabul by suppressing uppity Pashtun warlords and a resurgent Taliban.
Almost everyone believes we need a different strategy and approach. Both presidential candidates have pledged to add many more American soldiers to the 31.000 now in Afghanistan and to escalate our military struggle there. But a strategy that continues to rely primarily on military means seems likely to deepen our confrontation with Pashtun nationalism, push the destabilization of Pakistan to a new stage, and promote the further spread of anti-American terrorism.
We need to recall the reason we went to Afghanistan in the first place. Our purpose was not to reform it or to rectify our lamentable lack of attention to it after the Soviet defeat there twenty years ago. It was to deny the use of Afghan territory to terrorists with global reach. That was and is an attainable objective. It is a limited objective that can be achieved at reasonable cost. We must return to a ruthless focus on this objective. We cannot afford to pursue goals, however worthy, that contradict or undermine it. The reform of Afghan politics, society, and mores must wait. First things first. Our policies and programs toward that country must aim above all to reduce the likelihood of its involvement in terrorist attacks on the United States or Americans abroad. Bombing, strafing, seizing, and mercilessly interrogating villagers from a warrior culture do not support this objective. Nor does denigrating and seeking to erase aspects of Afghan culture we consider benighted – even if they are. A little collateral damage and disparagement can convert a lot of formerly harmless people into supporters of terrorism.
We must now ask ourselves some very basic questions, drawing on our experience in Iraq as well as in Afghanistan. In a struggle to dominate and deny human rather than physical terrain, is the large scale use of force an effective way to achieve positive political results? Can measures that produce less collateral damage, like intelligence and law enforcement efforts, backed as required by commandos, obviate the need for conventional military operations? Does foreign military occupation of xenophobic Muslim societies inevitably evoke an allergic reaction that generates rather than inhibits terrorism? If so, can counterterrorist operations be staged without occupying the countries in which their targets are located? And how are we to avoid reprisal from those whose sovereignty we violate?
In the case of Afghanistan in particular, does our effort to prop up a largely ineffectual national government raise or lower Afghan support for terrorists who have us in their sights? Can we coopt hostile local authorities and insurgents with respectful dialog, cash, and programs of material assistance, as we did in Iraq? Are there allies with Islamic credentials who could do better than we at this task? If so, how do we enlist them? Arab governments are threatened by the same extremists who threaten us. Would they be willing to design, fund and staff religious curricula in Afghanistan and adjacent areas of Pakistan that could discredit extremist ideology and delegitimize terrorism, as Saudi Arabia has finally done at home? Should we be talking to the Taliban about a deal that drives al Qa`ida from the Pakistani part of Pashtunistan as well as from all of Afghanistan? Should we be talking to Afghanistan's powerful neighbors – China and Iran, as well as Pakistan – about this?
If our next president listens, he will find that these questions and others like them, absent as they are from public discussion in this country, are very much on the minds of our allies and friends. The lack of evidence that we have seriously considered them or are prepared to answer them accounts in large part for our allies' unwillingness to commit more forces to the US-led "Global War on Terror" in Afghanistan. The Bush Administration has just launched a thorough review of our strategy there. The next president will receive its recommendations. He doesn't have to agree with what he hears, but he does have to decide how to steer us on a new course. We cannot succeed with more of the same in Afghanistan. That is also true in Iraq.
We finally know where we are headed in Iraq. We are headed out. At the insistence of the Iraqi authorities, the US military will spend the next three years redeploying. Our patrols are to leave Iraq's cities by next summer. All US combat forces are to be gone from Iraq no later than the end of 2011. It will be quite a trick to accomplish this disengagement without tipping the country back into anarchy and civil war or facilitating even greater political inroads by Iran.
The purpose of the "surge" was to create the preconditions for political reconciliation in Iraq. Its focus on Baghdad prevented the fall of that city, stabilized the foreign occupation of Iraq, and took the war off the front pages of US newspapers. In the process, our military became active participants in Iraqi politics and governance at the local level. But the only reconciliation there has been is between the US armed forces and Iraq's Sunni Arab insurgents, whom we have put on our payroll. There has been no reconciliation and there is no trust between the Sons of Iraq and the Shiite-dominated administration in Baghdad, still less the various Shiite militias that support or sympathize with that administration, or the Iranians on whom some of them rely.
It was the US military, assisted by Iraqi troops and militias, not the Iraqi government, that impartially separated communities and combatants and kept the lid on intercommunal strife in Iraq. Iraqis still look first to their American occupiers for the just and efficient provision of community services and support. Many of them see their own government as inefficient, sectarian, and corrupt. Not a few regard it as a running dog of Tehran. In short, stability in Iraq, such as it is, has depended on foreign occupation authorities doing what the Iraqi government has been either unable or unwilling to do. The withdrawal of US forces will rebalance power and patronage in Iraq with consequences that are difficult to predict.
Iraq's infrastructure has been smashed, its domestic tranquility shattered, and a fifth of Iraqis – the equivalent of sixty million Americans – are displaced from their homes, driven into exile, or dead. Iraq resembles nothing so much as many of the American veterans who have served there: it is battered, embittered, and in physical and mental pain. The fact that the Iraqi polity has somewhat stabilized in this condition is better than the alternative, but it does not provide much cause for celebration.
As Ambassador Ryan Crocker has observed, "in today's Iraq, Sunni Arabs fear the future; Shiites fear the past; and Kurds fear both the past and the future." Our current attempt to hand off to the Maliki government responsibility for command, control, and cash transfers to the Sons of Iraq is a test, but only the first test, of whether that government can and will conduct itself in such a way as to gain the confidence of those beyond its political base and avoid renewed communal violence. If Iraqis pass this test, as we must hope they will, there will be many more tests ahead of them.
The jihadi movement in Iraq was a by-product of our invasion and Iraqi resistance to it, on which its members gorged like jackals after a slaughter. It never consisted of very many people, but it succeeded in igniting the sectarian hatred that now casts such a shadow over the Iraqi future. In the laboratory for terror that Iraq became, it innovated and learned. It invented weaponry and techniques of asymmetric warfare that are now being applied not just in Afghanistan but in many other places – from Chechnya to Colombia, and from Sri Lanka to Spain.
In the end, we had the good sense not to interrupt al Qa`ida as it made the mistake of making enemies of our enemies. With our help, Sunni Arab tribal leaders and their forces have now mopped up most but not all of al Qa`ida's adherents in Iraq. But the defeats extremists have suffered in Iraq do not equate to decisive victory on any level. The preconditions for intercommunal mayhem have not been eliminated. We are not yet out of Iraq. No one knows who will be king of the mountain in Mesopotamia. There may be quite a fight among Iraqis to decide this. Al Qa`ida's focus has shifted to other opportunities but a rebirth of anarchy or civil war in Iraq could quickly revive its franchise there.
By now it is a cliché that the only victor in Iraq has been Iran. For five years, Iraqis have been struggling to regain their freedom from foreign domination. Many have turned to their coreligionists in Iran for support. The result has been the emergence of something resembling an Iranian political occupation of Iraq to parallel the Anglo-American military occupation. The only effective or long-term counterbalance to Iranian dominance of Iraqi politics remains Iraqi nationalism. The withdrawal of US forces upon which Iraqis now insist offers them an opportunity to take back the independence they have yielded not just to us but to their Persian neighbors.
The United States and the countries of the Arab League and Gulf Cooperation Council (GCC) have every reason to back the aspirations of Iraqi nationalists. The rebirth of Iraq as a strong regional actor independent of Iran and with close ties to its Arab and Turkish neighbors is essential to regional stability. The US military presence in the Gulf must now be reduced to affordable levels. The only way to do this is to adopt a strategy of using our weight and that of our allies from over the horizon. Our purpose would be to buttress the independence of the states of the region and to help them achieve and sustain a balance of power. A less intrusive approach like this is also needed to reduce the US military presence to levels that do not feed terrorist reaction in the conservative Muslim societies of the region. But for "offshore balancing" of this kind to work, the Gulf must recreate the possibility of an equilibrium that the US and others can tip toward stability. No such equilibrium is conceivable without the return of Iraq to full independence.
Offshore balancing would return primary responsibility for regional peace and stability to the states of the region. But it would not end US military involvement in the Gulf. It is a burden-shifting strategy, not a cop-out. It would require the United States to retain – and occasionally to demonstrate – a credible capability to intervene rapidly and decisively in support of regional balance. A framework for accomplishing this might in time be supplemented by burden-sharing arrangements with major energy-consuming nations. It is not unreasonable to expect them to help defend the energy supplies and supply lines on which they, like Americans, depend.
Drawing Iraq out of the Iranian orbit is also a prerequisite for peace and stability in Iraq itself. Sunni Arab Iraqis must learn to live with Shiite-domination of their country's politics but neither they nor other patriotic Iraqis will accept a government in Baghdad that they see as a pawn of Persia. Iraq's neighbors will react badly to this too. Iran must be brought to realize that overly ambitious policies excite opposition that threatens rather than serves its national interests. But we must acknowledge that Iran has legitimate security interests and that it cannot be excluded from an appropriate role in its own region.
American ambivalence over what to do about Iran has given Iranian hardliners everything they have wanted – a justification for building a nuclear deterrent and an excuse to develop the capacity to conduct asymmetric warfare directly and through proxies. We have continually said and done things that increase Iran's concerns about its security from attack, even as we demand its disarmament. We have professed a desire to contain Iran's influence and the threat it may pose to Israel, but we have simultaneously driven Palestinians into an unnatural dependence on Tehran, cemented Syria to it, and empowered it in Lebanon. Both presidential candidates have recognized that our Iran policy is bankrupt and that we need to engage Iran rather than ignore it. (They just differ on whether to take it on with bombers or at the negotiating table.) The next president will have to develop a coherent policy toward Iran, persuade our allies and friends that it is workable, and press forward with it. Without military power, diplomacy is toothless, but without diplomacy, the use of force yields no political outcome.
On every issue I have mentioned today, the United States cannot succeed without Arab and Muslim allies. We need their cooperation to bolster peace in Iraq, to balance Iran, and to achieve acceptance for Israel in its region. We need them to combat extremist ideology among their compatriots and coreligionists. We need them to prevent Muslim youth from turning their anger at perceived humiliation and injustice into the vicious retaliation of terrorism. We need them to help us identify and eliminate active threats to our nation, its citizens, and our allies. These threats are also threats to Arab and Muslim leaders and their societies. So they need us too. But they want us to act in ways that limit collateral political damage. They need US policies that can enlist Muslim support, that harness our military prowess to their political strength, and that reflect consideration of their long-term interests as well as our short-term ones.
There is a widespread sense among Muslims that their modern societies have wandered off the straight path. Many are attracted to the argument that, to renew these societies and themselves, Muslims must revisit the earliest days of their faith. That is perhaps right. It is not for non-Muslims to say. But it is up to Muslims to insist that the extremist vision of early Islam as a totalitarian faith with a closed mind, intolerant of other religions, systematically unkind to women, and dedicated to the imposition of joylessness on humanity is wrong. The achievements of the Beit al Hikma; the flourishing of non-Muslim communities in the midst of the first Muslim societies; the participation of Jews and Christians in their governance; and the great contributions of early Islam to the world's sciences and arts, including music, all stand as a rebuke to the parody of Islam espoused by al Qa`ida and its like. Muslims who seek to renew their faith by reference to its tolerant and humane traditions should be able to look to Americans as well-wishers, as friends, and as allies. We have the same enemies.
But Muslims cannot ally with us safely or in good conscience if our policies and our statements feed fears that we are engaged in a Crusade against their religion. We cannot enjoy their sympathy and support – or, for that matter, that of other foreigners – if we allow assertive ignorance and aggressive xenophobia to dominate our national discourse. By the same token, we help no one but Osama Binladin when we accept his deviant views as an authentic description of the religion he has done so much to discredit. The next president must adjust our policies to make them more effective. But he must also help Americans to persuade the world that we are still fitting partners in the pursuit of global prosperity and tranquility. Nowhere is this task more urgent than in the realm of Islam.
In my travels in Arab and Muslim lands I find the same nostalgia for America as it was before 9/11 that one encounters in other parts of the world. No one likes how we now behave or what we have become, but they remember when we behaved with greater humility and when we more closely resembled what we aspire to be. They admire that America. They are ready to work with it, if it can be restored. The next president must restore that America. The world is ready to meet him halfway.
Remarks to the National Council on US-Arab Relations
Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
31 October 2008
Washington, DC
http://www.mepc.org/whats/cwf081031.asp
Next Tuesday, just four days from now, we Americans will select a new president and his back-up. Exactly eleven weeks later they will take office. They will inherit a dog's breakfast of policy catastrophes from the outgoing administration. Everyone will look to them to clean these up. In West Asia, the Bush Administration's legacy to America and the world includes two ongoing wars, a hostile relationship with Arabs and Muslims, and the loss of our ability to inspire others elsewhere to follow our lead.
Here at home, we've spent ourselves into socialized banking. The incomprehensibly huge operations of our government, including its military operations and those of our vastly expanded public sector, continue to rely on foreign-financed credit rollovers for their sustainment. We've more than doubled our national debt over the past eight years and are driving hard for a debt level equal to our GDP.
The next president must help us survive a deep recession. At the same time, he must restore pay-as-you-go government. He must talk Americans into paying the taxes and foreigners into lending us the money needed to make this transition. Our financial system and economic model have been discredited. The next administration will have to come up with a financial workout plan. We need to convince creditors that we are en route to national solvency. Those we are asking to buy our debt – Arabs, Brazilians, Chinese, Europeans, Russians and others – are the very peoples who object to the self-righteousness and global dominance we have unilaterally asserted. They have seen our recent behavior as bullying. Persuading them to pay for continuing military adventurism will be far from easy. It's said that salesmanship starts when the other party says no. The next president is going to have to be a wicked good salesman.
In 1967, Britain was forced to the conclusion that it could no longer afford to police the world East of Suez. The United States is not at such a moment but we are much too close to it for comfort. Our sticks are foreign-financed; the repo man has his eye on our carrots. Long wars cannot be fought on other peoples' money, especially when those who must lend us the money suspect that we see them as eventual targets of the military campaigns and modernization we want them to finance. For the first time in living memory, resource constraints will compel the United States to choose between domestic and overseas, and between civilian and military priorities. These constraints will also force us to stop trying to do everything on our own and to seek partners to share the human and financial costs of global and regional order and energy security
The fact that you and I haven't heard a lot from either presidential candidate about these challenges is instructive. It suggests that much of what both have been saying on the campaign trail is irrelevant. The campaign rhetoric provides no guide to what the next president will actually do in the radically changed circumstances of post-meltdown America. Very likely he doesn't know himself. So rather than try to predict what the next president will do, perhaps we should ask what he ought to try to do. One way or another, there will be major changes in how America operates at home and abroad. Given the terrible mess in the Middle East in particular, thinking about new approaches there seems especially appropriate. Let me offer a few thoughts on the current situation and what may be in store for us.
I'd like to begin on a note of optimism. Miracles evidently still happen in the Middle East. After all, God just spoke, though somewhat belatedly, to Ehud Olmert. And, lo! God convinced Mr. Olmert that there can be no two-state solution in Palestine without ample land for the Palestinians and that creating a single Eretz Yisrael but dividing it into two zones – in one of which Arabs have limited rights as second-class citizens and in the other of which they have no rights at all – is a very good way to destroy the state of Israel. It promises, among other things, to set off an international campaign to isolate and punish the Jewish state for the practice of apartheid and related sins. Earlier, God had spoken on the same subject to our retired president, Jimmy Carter.
Since God now seems to be into counseling retirees, perhaps He'll also speak to Calamitous George as he leaves office, to convey the insight that writing blank checks to Israel harms it by depriving Israelis of any immediate incentive to make the hard choices they must make to achieve long-term security for themselves and their state. In our own interest, we must act to create conditions that allow Israelis and Arabs to accept and coexist with each other on a mutually respectful basis. In this connection, it benefits no one for the United States to continue to underwrite the injustices, indignities, and humiliations of the occupation. These injustices have corrupted Israel's moral standing. These indignities inspire terrorism. These humiliations are so intolerable as to make peaceful coexistence with Israel impossible for Palestinians and unacceptable to other Arabs. They therefore preclude the broad regional embrace of Israel proposed in the Saudi peace plan of 2002.
Mr. Olmert is a bit late but far from alone among Israelis in his recognition of what must be done. The prerequisite for both peace and the survival of Israel as a Jewish state is the end of the Jewish holy war for Arab land and the withdrawal of Jewish colonists from the properties they have grabbed from Palestinian owners since 1967. There is, of course, a common retort to this observation. It is that, even if decolonization is both right and necessary to achieve acceptance for Israel's existence where it counts, it is politically impossible for Israel to do it. This amounts to saying that it is politically impossible for Israel to do either what is right or what it must do to achieve acceptance for its existence as a state in the Middle East. The long-term implications of this self-imposed moral and political incapacity are not pleasant to contemplate. Israel is a small country surrounded by much larger neighbors of growing wealth and power. It has done much to secure their enmity and nothing to win their affection.
Meanwhile, divine intervention is unlikely to be required for US taxpayers to choose between alleviating the suffering of Americans made destitute by the collapsing economy here at home and subsidizing a prosperous lifestyle for some but not all inhabitants of the Holy Land. If Americans are asked to make tough choices and pay our own way – as we will be – most will not see it as either unreasonable or anti-Semitic to ask Israelis to do likewise. Given the attitudes of our creditors on the matter, it's also possible that, at some point, when Israel tries to cash an American subsidy check, it will bounce.
Whatever the next president does to encourage peace between Israelis, Palestinians, and their neighbors, the last eight years show that doing and demanding nothing can and will make things worse. But, even as he repositions the United States to promote peace in the Levant, the next president must deal with the challenges of the Afghan-Pakistan region and Iraq. The seven-year-old war in Afghanistan is not going well for anyone except opium farmers, Pashtun nationalists, and al Qa`ida. More than five and a half years after we invaded Iraq, changes in our campaign plan there, backed by higher troop levels and lots of money to pay off insurgents, have stabilized both our occupation of Iraq and the politics of the war here, but they have not stabilized Iraq itself. The $859 billion we have so far committed to the so-called "Global War on Terror" has yet to win us a significant victory anywhere. In Afghanistan and Iraq too, more of the same is not an option.
This is not just because we can't sustain the current pace of military operations or their costs without breaking our army or bankrupting ourselves. It is also because much of what we are doing in these two very different countries seems to be harming rather than advancing our interests. Reconnecting our policies to those interests, tying our core objectives narrowly to them, and not allowing ourselves to be diverted from the efficient pursuit of them will be the keys to success.
Let me start with Afghanistan. I am sure I am not alone in recalling that we went there to accomplish two straightforward things. First, to avenge ourselves on the sponsors of 9/11 – to kill or bring to justice the leaders of al Qa`ida. Second, to punish those who had given safe haven to them. We sought to ensure that neither the Taliban nor anyone else would ever again risk the consequences of harboring terrorists who plot violence against the United States. Our enemy, we understood, was al Qa`ida. Our dislodgement of the Taliban from power was the means by which we expected to ensure that that enemy could not reconstitute itself in Afghanistan.
In broad terms, what we sought was strategic denial of Afghanistan to terrorists with global reach. We had pretty much achieved this by the time of the battle of Tora Bora, only two months after our invasion began. It is not clear that we have advanced much since then. We may in fact have slipped backwards. Al Qa`ida has not been smashed. The Taliban and its fellow travelers in other Muslim lands no longer view us as too formidable to defy.
What began as a punitive raid aimed at beheading al Qa`ida and chastising its Afghan household staff has somehow morphed – with no real discussion or debate – into a prolonged effort to pacify Afghanistan and transform its society. This moving of the goal posts gratified neo-conservatives and liberal interventionists alike. Our new purpose became giving Afghanistan a centrally directed state – something it had never had. We now fight to exclude reactionary Muslims from a role in governing the new Afghanistan. Our aid programs focus on making it safe for women's rights and a growing list of other noble causes, regardless of how many Afghans these programs agitate into enmity. The fact is: we lost our strategic focus in Afghanistan well before we shifted our attention from it to the unrelated issue of Saddam Hussein's secular regime in Iraq.
Most observers judge our position in the Afghan-Pakistan theater to have become precarious. Pakistan's support for us and our military operations is increasingly shaky. Our intervention is fostering attitudes among Afghans conducive to terrorism (and congenial to the poppy cultivation that funds terrorist insurgents). The Pashtun homeland that straddles the Afghan-Pakistan border has become a zone of lawlessness in which terrorists operate with reliable local support. That is the very opposite of what we hoped to achieve. While intelligence operatives and special forces do continue to hunt al Qa`ida, our overall war effort now seems mainly aimed at keeping "our guys" in power in Kabul by suppressing uppity Pashtun warlords and a resurgent Taliban.
Almost everyone believes we need a different strategy and approach. Both presidential candidates have pledged to add many more American soldiers to the 31.000 now in Afghanistan and to escalate our military struggle there. But a strategy that continues to rely primarily on military means seems likely to deepen our confrontation with Pashtun nationalism, push the destabilization of Pakistan to a new stage, and promote the further spread of anti-American terrorism.
We need to recall the reason we went to Afghanistan in the first place. Our purpose was not to reform it or to rectify our lamentable lack of attention to it after the Soviet defeat there twenty years ago. It was to deny the use of Afghan territory to terrorists with global reach. That was and is an attainable objective. It is a limited objective that can be achieved at reasonable cost. We must return to a ruthless focus on this objective. We cannot afford to pursue goals, however worthy, that contradict or undermine it. The reform of Afghan politics, society, and mores must wait. First things first. Our policies and programs toward that country must aim above all to reduce the likelihood of its involvement in terrorist attacks on the United States or Americans abroad. Bombing, strafing, seizing, and mercilessly interrogating villagers from a warrior culture do not support this objective. Nor does denigrating and seeking to erase aspects of Afghan culture we consider benighted – even if they are. A little collateral damage and disparagement can convert a lot of formerly harmless people into supporters of terrorism.
We must now ask ourselves some very basic questions, drawing on our experience in Iraq as well as in Afghanistan. In a struggle to dominate and deny human rather than physical terrain, is the large scale use of force an effective way to achieve positive political results? Can measures that produce less collateral damage, like intelligence and law enforcement efforts, backed as required by commandos, obviate the need for conventional military operations? Does foreign military occupation of xenophobic Muslim societies inevitably evoke an allergic reaction that generates rather than inhibits terrorism? If so, can counterterrorist operations be staged without occupying the countries in which their targets are located? And how are we to avoid reprisal from those whose sovereignty we violate?
In the case of Afghanistan in particular, does our effort to prop up a largely ineffectual national government raise or lower Afghan support for terrorists who have us in their sights? Can we coopt hostile local authorities and insurgents with respectful dialog, cash, and programs of material assistance, as we did in Iraq? Are there allies with Islamic credentials who could do better than we at this task? If so, how do we enlist them? Arab governments are threatened by the same extremists who threaten us. Would they be willing to design, fund and staff religious curricula in Afghanistan and adjacent areas of Pakistan that could discredit extremist ideology and delegitimize terrorism, as Saudi Arabia has finally done at home? Should we be talking to the Taliban about a deal that drives al Qa`ida from the Pakistani part of Pashtunistan as well as from all of Afghanistan? Should we be talking to Afghanistan's powerful neighbors – China and Iran, as well as Pakistan – about this?
If our next president listens, he will find that these questions and others like them, absent as they are from public discussion in this country, are very much on the minds of our allies and friends. The lack of evidence that we have seriously considered them or are prepared to answer them accounts in large part for our allies' unwillingness to commit more forces to the US-led "Global War on Terror" in Afghanistan. The Bush Administration has just launched a thorough review of our strategy there. The next president will receive its recommendations. He doesn't have to agree with what he hears, but he does have to decide how to steer us on a new course. We cannot succeed with more of the same in Afghanistan. That is also true in Iraq.
We finally know where we are headed in Iraq. We are headed out. At the insistence of the Iraqi authorities, the US military will spend the next three years redeploying. Our patrols are to leave Iraq's cities by next summer. All US combat forces are to be gone from Iraq no later than the end of 2011. It will be quite a trick to accomplish this disengagement without tipping the country back into anarchy and civil war or facilitating even greater political inroads by Iran.
The purpose of the "surge" was to create the preconditions for political reconciliation in Iraq. Its focus on Baghdad prevented the fall of that city, stabilized the foreign occupation of Iraq, and took the war off the front pages of US newspapers. In the process, our military became active participants in Iraqi politics and governance at the local level. But the only reconciliation there has been is between the US armed forces and Iraq's Sunni Arab insurgents, whom we have put on our payroll. There has been no reconciliation and there is no trust between the Sons of Iraq and the Shiite-dominated administration in Baghdad, still less the various Shiite militias that support or sympathize with that administration, or the Iranians on whom some of them rely.
It was the US military, assisted by Iraqi troops and militias, not the Iraqi government, that impartially separated communities and combatants and kept the lid on intercommunal strife in Iraq. Iraqis still look first to their American occupiers for the just and efficient provision of community services and support. Many of them see their own government as inefficient, sectarian, and corrupt. Not a few regard it as a running dog of Tehran. In short, stability in Iraq, such as it is, has depended on foreign occupation authorities doing what the Iraqi government has been either unable or unwilling to do. The withdrawal of US forces will rebalance power and patronage in Iraq with consequences that are difficult to predict.
Iraq's infrastructure has been smashed, its domestic tranquility shattered, and a fifth of Iraqis – the equivalent of sixty million Americans – are displaced from their homes, driven into exile, or dead. Iraq resembles nothing so much as many of the American veterans who have served there: it is battered, embittered, and in physical and mental pain. The fact that the Iraqi polity has somewhat stabilized in this condition is better than the alternative, but it does not provide much cause for celebration.
As Ambassador Ryan Crocker has observed, "in today's Iraq, Sunni Arabs fear the future; Shiites fear the past; and Kurds fear both the past and the future." Our current attempt to hand off to the Maliki government responsibility for command, control, and cash transfers to the Sons of Iraq is a test, but only the first test, of whether that government can and will conduct itself in such a way as to gain the confidence of those beyond its political base and avoid renewed communal violence. If Iraqis pass this test, as we must hope they will, there will be many more tests ahead of them.
The jihadi movement in Iraq was a by-product of our invasion and Iraqi resistance to it, on which its members gorged like jackals after a slaughter. It never consisted of very many people, but it succeeded in igniting the sectarian hatred that now casts such a shadow over the Iraqi future. In the laboratory for terror that Iraq became, it innovated and learned. It invented weaponry and techniques of asymmetric warfare that are now being applied not just in Afghanistan but in many other places – from Chechnya to Colombia, and from Sri Lanka to Spain.
In the end, we had the good sense not to interrupt al Qa`ida as it made the mistake of making enemies of our enemies. With our help, Sunni Arab tribal leaders and their forces have now mopped up most but not all of al Qa`ida's adherents in Iraq. But the defeats extremists have suffered in Iraq do not equate to decisive victory on any level. The preconditions for intercommunal mayhem have not been eliminated. We are not yet out of Iraq. No one knows who will be king of the mountain in Mesopotamia. There may be quite a fight among Iraqis to decide this. Al Qa`ida's focus has shifted to other opportunities but a rebirth of anarchy or civil war in Iraq could quickly revive its franchise there.
By now it is a cliché that the only victor in Iraq has been Iran. For five years, Iraqis have been struggling to regain their freedom from foreign domination. Many have turned to their coreligionists in Iran for support. The result has been the emergence of something resembling an Iranian political occupation of Iraq to parallel the Anglo-American military occupation. The only effective or long-term counterbalance to Iranian dominance of Iraqi politics remains Iraqi nationalism. The withdrawal of US forces upon which Iraqis now insist offers them an opportunity to take back the independence they have yielded not just to us but to their Persian neighbors.
The United States and the countries of the Arab League and Gulf Cooperation Council (GCC) have every reason to back the aspirations of Iraqi nationalists. The rebirth of Iraq as a strong regional actor independent of Iran and with close ties to its Arab and Turkish neighbors is essential to regional stability. The US military presence in the Gulf must now be reduced to affordable levels. The only way to do this is to adopt a strategy of using our weight and that of our allies from over the horizon. Our purpose would be to buttress the independence of the states of the region and to help them achieve and sustain a balance of power. A less intrusive approach like this is also needed to reduce the US military presence to levels that do not feed terrorist reaction in the conservative Muslim societies of the region. But for "offshore balancing" of this kind to work, the Gulf must recreate the possibility of an equilibrium that the US and others can tip toward stability. No such equilibrium is conceivable without the return of Iraq to full independence.
Offshore balancing would return primary responsibility for regional peace and stability to the states of the region. But it would not end US military involvement in the Gulf. It is a burden-shifting strategy, not a cop-out. It would require the United States to retain – and occasionally to demonstrate – a credible capability to intervene rapidly and decisively in support of regional balance. A framework for accomplishing this might in time be supplemented by burden-sharing arrangements with major energy-consuming nations. It is not unreasonable to expect them to help defend the energy supplies and supply lines on which they, like Americans, depend.
Drawing Iraq out of the Iranian orbit is also a prerequisite for peace and stability in Iraq itself. Sunni Arab Iraqis must learn to live with Shiite-domination of their country's politics but neither they nor other patriotic Iraqis will accept a government in Baghdad that they see as a pawn of Persia. Iraq's neighbors will react badly to this too. Iran must be brought to realize that overly ambitious policies excite opposition that threatens rather than serves its national interests. But we must acknowledge that Iran has legitimate security interests and that it cannot be excluded from an appropriate role in its own region.
American ambivalence over what to do about Iran has given Iranian hardliners everything they have wanted – a justification for building a nuclear deterrent and an excuse to develop the capacity to conduct asymmetric warfare directly and through proxies. We have continually said and done things that increase Iran's concerns about its security from attack, even as we demand its disarmament. We have professed a desire to contain Iran's influence and the threat it may pose to Israel, but we have simultaneously driven Palestinians into an unnatural dependence on Tehran, cemented Syria to it, and empowered it in Lebanon. Both presidential candidates have recognized that our Iran policy is bankrupt and that we need to engage Iran rather than ignore it. (They just differ on whether to take it on with bombers or at the negotiating table.) The next president will have to develop a coherent policy toward Iran, persuade our allies and friends that it is workable, and press forward with it. Without military power, diplomacy is toothless, but without diplomacy, the use of force yields no political outcome.
On every issue I have mentioned today, the United States cannot succeed without Arab and Muslim allies. We need their cooperation to bolster peace in Iraq, to balance Iran, and to achieve acceptance for Israel in its region. We need them to combat extremist ideology among their compatriots and coreligionists. We need them to prevent Muslim youth from turning their anger at perceived humiliation and injustice into the vicious retaliation of terrorism. We need them to help us identify and eliminate active threats to our nation, its citizens, and our allies. These threats are also threats to Arab and Muslim leaders and their societies. So they need us too. But they want us to act in ways that limit collateral political damage. They need US policies that can enlist Muslim support, that harness our military prowess to their political strength, and that reflect consideration of their long-term interests as well as our short-term ones.
There is a widespread sense among Muslims that their modern societies have wandered off the straight path. Many are attracted to the argument that, to renew these societies and themselves, Muslims must revisit the earliest days of their faith. That is perhaps right. It is not for non-Muslims to say. But it is up to Muslims to insist that the extremist vision of early Islam as a totalitarian faith with a closed mind, intolerant of other religions, systematically unkind to women, and dedicated to the imposition of joylessness on humanity is wrong. The achievements of the Beit al Hikma; the flourishing of non-Muslim communities in the midst of the first Muslim societies; the participation of Jews and Christians in their governance; and the great contributions of early Islam to the world's sciences and arts, including music, all stand as a rebuke to the parody of Islam espoused by al Qa`ida and its like. Muslims who seek to renew their faith by reference to its tolerant and humane traditions should be able to look to Americans as well-wishers, as friends, and as allies. We have the same enemies.
But Muslims cannot ally with us safely or in good conscience if our policies and our statements feed fears that we are engaged in a Crusade against their religion. We cannot enjoy their sympathy and support – or, for that matter, that of other foreigners – if we allow assertive ignorance and aggressive xenophobia to dominate our national discourse. By the same token, we help no one but Osama Binladin when we accept his deviant views as an authentic description of the religion he has done so much to discredit. The next president must adjust our policies to make them more effective. But he must also help Americans to persuade the world that we are still fitting partners in the pursuit of global prosperity and tranquility. Nowhere is this task more urgent than in the realm of Islam.
In my travels in Arab and Muslim lands I find the same nostalgia for America as it was before 9/11 that one encounters in other parts of the world. No one likes how we now behave or what we have become, but they remember when we behaved with greater humility and when we more closely resembled what we aspire to be. They admire that America. They are ready to work with it, if it can be restored. The next president must restore that America. The world is ready to meet him halfway.
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