Subprime Neoconservative Leadership

Tomgram: The End of a Subprime Administration
Foreclosed: The George W. Bush Story By Tom Engelhardt
They may have been the most disastrous dreamers, the most reckless gamblers, and the most vigorous imperial hucksters and grifters in our history. Selling was their passion. And they were classic American salesmen -- if you're talking about underwater land in Florida, or the Brooklyn Bridge, or three-card monte, or bizarre visions of Iraqi unmanned aerial vehicles armed with chemical and biological weaponry let loose over the U.S., or Saddam Hussein's mushroom clouds rising over American cities, or a full-scale reordering of the Middle East to our taste, or simply eternal global dominance. When historians look back, it will be far clearer that the "commander-in-chief" of a "wartime" country and his top officials were focused, first and foremost, not on the shifting "central theaters" of the Global War on Terror, but on the theater that mattered most to them -- the "home front" where they spent inordinate amounts of time selling the American people a bill of goods. Of his timing in ramping up a campaign to invade Iraq in September 2002, White House Chief of Staff Andrew Card infamously explained: "From a marketing point of view, you don't introduce new products in August."
Indeed. From a White House where "victory strategies" meant purely for domestic consumption poured out, to the Pentagon where bevies of generals, admirals, and other high officers were constantly being mustered, not to lead armies but to lead public opinion, their selling focus was total. They were always releasing "new product." And don't forget their own set of soaring inside-the-Beltway fantasies. After all, if a salesman is going to sell you some defective product, it always helps if he can sell himself on it first. And on this score, they were world champs. Because events made it look so foolish, the phrase "shock and awe" that went with the initial attack on Iraq in March 2003 has now passed out of official language and (together with "mission accomplished") into the annals of irony. Back then, though, as bombs and missiles blew up parts of Baghdad -- to fabulous visual effect in that other "theater" of war, television -- the phrase was constantly on official lips and in media reports everywhere. It went hand-in-glove with another curious political phrase: regime change. Given the supposed unique technological proficiency of the U.S. military and its array of "precision" weapons, the warriors of Bushworld convinced themselves that a new era in military affairs had truly dawned. An enemy "regime" could now be taken out -- quite literally and with surgical precision, in its bedrooms, conference rooms, and offices, thanks to those precision weapons delivered long-distance from ship or plane -- without taking out a country. Poof! You only had to say the word and an oppressive regime would be, as it was termed, "decapitated." Its people would then welcome with open arms relatively small numbers of American troops as liberators. It all sounded so good, and high tech, and relatively simple, and casualty averse, and clean as a whistle. Even better, once there had been such a demonstration, a guaranteed "cakewalk" -- as, say, in Iraq -- who would ever dare stand up to American power again? Not only would one hated enemy dictator be dispatched to the dustbin of history, but evildoers everywhere, fearing the Bush equivalent of the wrath of Khan, would be shock-and-awed into submission or quickly dispatched in their own right. In reality (ah, "reality" -- what a nasty word!), the shock-and-awe attacks used on Iraq got not a single leader of the Saddamist regime, not one of that pack of 52 cards (including of course the ace of spades, Saddam Hussein, found in his "spiderhole" so many months later). Iraqi civilians were the ones killed in that precise and shocking moment, while Iraqi society was set on the road to destruction, and the world was not awed. Strangely enough, though, the phrase, once reversed, proved applicable to the Bush administration's seven-year post-9/11 history. They were, in a sense, the awe-and-shock administration. Initially, they were awed by the supposedly singular power of the American military to dominate and transform the planet; then, they were continually shocked and disbelieving when that same military, despite its massive destructive power, turned out to be incapable of doing so, or even of handling two ragtag insurgencies in two weakened countries, one of which, Afghanistan, was among the poorest and least technologically advanced on the planet.

The Theater of War
remarkably short order, historically speaking, the administration's soaring imperial fantasies turned into planetary nightmares. After 9/11, of course, George W. and crew promised Americans the global equivalent -- and Republicans the domestic equivalent -- of a 36,000 stock market and we know just where the stock market is today: only about 27,000 points short of that irreality. Once upon a time, they really did think that, via the U.S. Armed Forces, or, as George W. Bush once so breathlessly put it, "the greatest force for human liberation the world has ever known," they could dominate the planet without significant help from allies or international institutions of any sort. Who else had a shot at it? In the post-Soviet world, who but a leadership backed by the full force of the U.S. military could possibly be a contender for the leading role in this epic movie? Who else could even turn out for a casting call? Impoverished Russia? China, still rebuilding its military and back then considered to have a host of potential problems? A bunch of terrorists? I mean… come on! As they saw it, the situation was pretty basic. In fact, it gave the phrase "power politics" real meaning. After all, they had in their hands the reins attached to the sole superpower on this small orb. And wasn't everyone -- at least, everyone they cared to listen to, at least Charles Krauthammer and the editorial page of the Washington Post -- saying no less? I mean, what else would you do, if you suddenly, almost miraculously (after an election improbably settled by the Supreme Court), found yourself in sole command of the globe's only "hyperpower," the only sheriff on planet Earth, the New Rome. To make matters more delicious, in terms of getting just what you wanted, those hands were on those reins right after "the Pearl Harbor of the twenty-first century," when Americans were shocked and awed and terrified enough that anything-goes seemed a reasonable response? It might have gone to anyone's head in imperial Washington at that moment, but it went to their heads in such a striking way. After all, theirs was a plan -- labeled in 2002 the Bush Doctrine -- of global domination conceptually so un-American that, in my childhood, the only place you would have heard it was in the mouths of the most evil, snickering imperial Japanese, Nazi, or Soviet on-screen villains. And yet, in their moment of moments, it just rolled right out of their heads and off their tongues -- and they were proud of it. Here's a question for 2009 you don't have to answer: What should the former "new Rome" be called now? That will, of course, be someone else's problem.

The Cast of Characters
And what a debacle the Bush Doctrine proved to be. What a legacy the legacy President and his pals are leaving behind. A wrecked economy, deflated global stock markets, collapsing banks and financial institutions, soaring unemployment, a smashed Republican Party, a bloated Pentagon overseeing a strained, overstretched military, enmired in an incoherent set of still-expanding wars gone sour, a network of secret prisons, as well as Guantanamo, that "jewel in the crown" of Bush's Bermuda Triangle of injustice, and all the grim practices that went with those offshore prisons, including widespread torture and abuse, kidnapping, assassination, and the disappearing of prisoners (once associated only with South America dictatorships and military juntas). They headed a government that couldn't shoot straight or plan ahead or do anything halfway effectively, an administration that emphasized "defense" -- or "homeland security" as it came to be called in their years -- above all else; yet they were always readying themselves for the last battle, and so were caught utterly, embarrassingly unready for 19 terrorists with box cutters, a hurricane named Katrina, and an arcane set of Wall Street derivatives heading south. As the supposed party of small government, they succeeded mainly in strangling civilian services, privatizing government operations into the hands of crony corporations, and bulking up state power in a massive way -- making an already vast intelligence apparatus yet larger and more labyrinthine, expanding spying and surveillance of every kind, raising secrecy to a first principle, establishing a new U.S. military command for North America, endorsing a massive Pentagon build-up, establishing a second Defense Department labeled the Department of Homeland Security with its own mini-homeland-security-industrial complex, evading checks and powers in the Constitution whenever possible, and claiming new powers for a "unitary executive" commander-in-chief presidency. No summary can quite do justice to what the administration "accomplished" in these years. If there was, however, a single quote from the world of George W. Bush that caught the deepest nature of the president and his core followers, it was offered by an "unnamed administration official" -- often assumed to be Karl Rove -- to journalist Ron Suskind back in October 2004:
"He] said that guys like me were 'in what we call the reality-based community,' which he defined as people who 'believe that solutions emerge from your judicious study of discernible reality.' I nodded and murmured something about enlightenment principles and empiricism. He cut me off. 'That's not the way the world really works anymore,' he continued. 'We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors.... and you, all of you, will be left to just study what we do.'"

"We create our own reality… We're history's actors."
It must for years have seemed that way and everything about the lives they lived only reinforced that impression. After all, the President himself, as so many wrote, lived in a literal bubble world. Those who met him were carefully vetted; audiences were screened so that no one who didn't fawn over him got near him; and when he traveled through foreign cities, they were cleared of life, turned into the equivalent of Potemkin villages, while he and his many armored cars and Blackhawk helicopters, his huge contingent of Secret Service agents and White House aides, his sniffer dogs and military sharpshooters, his chefs and who knows what else passed through. Of course, the President had been in a close race with the reality principle (which, in his case, was the principle of failure) all his life -- and whenever reality nipped at his heels, his father's boys stepped in and whisked him off stage. He got by at his prep school, Andover, and then at Yale, a c-level legacy student and, appropriately enough when it came to sports, a cheerleader and, at Yale, a party animal as well as the president of the hardest drinking fraternity on campus. He was there in the first place only because of who he wasn't (or rather who his relations were). Faced with the crises of the Vietnam era, he joined the Texas Air National Guard and more or less went missing in action. Faced with life, he became a drunk. Faced with business, he failed repeatedly and yet, thanks to his dad's friends, became a multi-millionaire in the process. He was supported, cosseted, encouraged, and finally -- to use an omnipresent word of our moment -- bailed out. The first MBA president was a business bust. A certain well-honed, homey congeniality got him to the governorship and then to the presidency of the United States without real accomplishments. If there ever was a case for not voting for the guy you'd most like to "have a beer with," this was it. On that pile of rubble at Ground Zero on September 14, 2001, with a bullhorn in his hands and various rescuers shouting, "USA! USA!" he genuinely found his "calling" as the country's cheerleader-in-chief (as he had evidently found his religious calling earlier in life). He not only took the job seriously, he visibly loved it. He took a childlike pleasure in being in the "theater" of war. He was thrilled when some of the soldiers who captured Saddam Hussein in that "spiderhole" later presented him with the dictator's pistol. ("'He really liked showing it off,' says a... visitor to the White House who has seen the gun. 'He was really proud of it.'") He was similarly thrilled, on a trip to Baghdad in 2007, to meet the American pilot "whose plane's missiles killed Iraq's Al Qaeda leader, Abu Musab al-Zarqawi" and "returned to Washington in a buoyant mood." While transforming himself into the national cheerleader-in-chief, he even kept "his own personal scorecard for the war" in a desk drawer in the Oval Office -- photos with brief biographies and personality sketches of leading al-Qaeda figures, whose faces could be satisfyingly crossed out when killed or captured. He clearly adored it when he got to dress up, whether in a flight suit landing on the deck of an aircraft carrier in May 2003, or in front of hoo-aahing crowds of soldiers wearing a specially tailored military-style jacket with "George W. Bush, Commander In Chief" hand-stitched across the heart. As earlier in life, he was supported (Karl Rove), enabled (Condoleezza Rice), cosseted (various officials), and so became "the decider," a willing figurehead (as he had been, for instance, when he was an "owner" of the Texas Rangers), manipulated by his co-president Dick Cheney. In these surroundings, he was able to take war play to an imperial level. In the end, however, this act of his life, too, could lead nowhere but to failure. As it happened, reality possessed its own set of shock-and-awe weaponry. Above all, reality was unimpressed with history's self-proclaimed "actors," working so hard on the global stage to create their own reality. When it came to who really owned what, it turned out that reality owned the works and that possession was indeed nine-tenths of one law that even George Bush's handlers and his fervent neocon followers couldn't suspend.

Exit Stage Right
The results were sadly predictable. The bubble world of George W. Bush was bound to be burst. Based on fantasies, false promises, lies, and bait-and-switch tactics, it was destined for foreclosure. At home and abroad, after all, it had been created using the equivalent of subprime mortgages and the result, unsurprisingly, was a dismally subprime administration. Now, of course, the bill collector is at the door and the property -- the USA -- is worth a good deal less than on November 4, 2000. George W. Bush is a discredited president; his job approval ratings could hardly be lower; his bubble world gone bust. Nonetheless, let's remember one other theme of his previous life. Whatever his failures, Bush always walked away from disastrous dealings enriched, while others were left holding the bag. Don't imagine for a second that the equivalent isn't about to repeat itself. He will leave a country functionally under the gun of foreclosure, a world far more aflame and dangerous than the one he faced on entering the Oval Office. But he won't suffer. He will have his new house in Dallas (not to speak of the "ranch" in Crawford) and his more than $200 million presidential "library" and "freedom institute" at Southern Methodist University; and then there's always that 20% of America -- they know who they are -- who think his presidency was the greatest thing since sliced bread. Believe me, 20% of America is more than enough to pony up spectacular sums, once Bush takes to the talk circuit. As the president himself put it enthusiastically,"'I'll give some speeches, just to replenish the ol' coffers.' With assets that have been estimated as high as nearly $21 million, Mr. Bush added, 'I don't know what my dad gets -- it's more than 50-75' thousand dollars a speech, and 'Clinton's making a lot of money.'" This is how a legacy-student-turned-president fails upward. Every disaster leaves him better off. The same can't be said for the country or the world, saddled with his "legacy." Still, his administration has been foreclosed. Perhaps there's ignominy in that. Now, the rest of us need to get out the brooms and start sweeping the stables.

Tom Engelhardt, co-founder of the American Empire Project, runs the Nation Institute's TomDispatch.com. He is the author of The End of Victory Culture, a history of the American Age of Denial. The World According to TomDispatch: America in the New Age of Empire (Verso, 2008), a collection of some of the best pieces from his site and an alternative history of the mad Bush years, has recently been published. To listen to a podcast in which he discusses Bush's record abroad, click here.

Georgia: McCain's Lost War?

Bank analyst forecast Georgian crisis 2 days early
Thu Aug 14, 2008 1:12pm EDT
By Guy Faulconbridge MOSCOW, Aug 14 (Reuters)

The outbreak of war between Georgia and Russia shocked most of the world last week, but an investment bank analyst predicted it two days in advance

Georgian President Mikheil Saakashvili sent troops into the breakaway, pro-Russian region of South Ossetia on Aug. 7, on the eve of the Beijing Olympic Games, and Russia responded with overwhelming military force.Geoff Smith, a Kiev-based analyst for Renaissance Capital investment bank, had anticipated the Georgian move with uncanny prescience in an e-mail two days earlier to a fellow strategist."So whaddaya think? I say Saakashvili is going to 'restore the territorial integrity of Georgia' five minutes before the opening ceremony starts in Beijing and dare the Russians to invade while the games are on?" the note said.Reuters has seen a copy of the e-mail and confirmed its validity with both the sender and recipient of the message.The Kremlin swiftly asserted its vastly superior military might and thousands of Russian troops pushed out Georgian troops from the rebel region. Russian units are still operating inside Georgia proper.Russian sovereign Eurobond spreads, a measure of investment risk, widened on the hostilities, and shares tumbled."It was just intuition," Smith said by telephone. "I said nothing about the possible Russian response, but if you had asked me I would say that Moscow could not have taken it lying down," Smith said. Explaining his reasoning, the former journalist said the upcoming presidential election in the United States could have played a role in Saakashvili's decision to send troops into South Ossetia."Certainly the next White House will not be as supportive of Saakashvili as this one and so if Saakashvili wanted to reunite Georgia he really had to do it this year and he was probably hoping the Olympic Games gave him the right cover," he said. He refused to forecast how the crisis would end.

http://www.reuters.com/article/asiaCrisis/idUSLE696364

McCain Talked With Georgia President On The Same Day McCain Aide Sealed Georgia Lobbying Contract
By Andrew Tilghman - August 13, 2008, 12:11PM
Randy Scheunemann earned about $70,000 serving as Sen. John McCain's top foreign policy adviser between the January 2007 and May 15, 2008. During the same period, the government of Georgia paid his firm $290,000 in lobbying fees. Today's Washington Post reports a stark illustration of the conflict of interest that Scheunemann faced while advising McCain on foreign policy matters related to the former Soviet Republic and also working for the Georgia embassy. On April 17, McCain got on the phone with Georgia President Mikheil Saakashvili about Russian efforts to gain leverage over two of Georgia's troubled provinces. That same day, McCain issued a public statement condemning Russia and expressing strong support for the Georgian position. And also on that same day, Georgia signed a new, $200,000 lobbying contract with Scheunemann's firm, Orion Strategies, according to the Post. [McCain Campaign spokesman Brian] Rogers said Orion's representation of Georgia had no bearing on McCain's decision to speak with Saakashvili in April. "The Embassy of Georgia requested the call because of Georgian concerns over recent Russian actions dealing with South Ossetia and Abkhazia," he said.The McCain campaign said Scheunemann has not received any payments from his lobbying firm since May 15 -- a few weeks after the Georgia contract was signed -- when the campaign imposed strict new restrictions on lobbying by campaign staffers. And the campaign notes that Scheunemann de-registered as a lobbyist for Georgia in March. But Scheunemann remains owner of the firm, according to the Wall Street Journal. It's not a big firm -- essentially including only one other person, Scheunemann's partner, Mike Mitchell. The firm has lobbied McCain's senate office a lot over the past few years. Orion reports making at least 71 phone calls to McCain and his staffers since 2004 to lobby on behalf of foreign clients, including Georgia.

http://tpmmuckraker.talkingpointsmemo.com/2008/08/mccain_talked_with_georgia_pres.php

The Military Murder of LaVena Johnson

http://www.youtube.com/watch?v=2Slc552ScRg

PFC LaVena Johnson Was Raped, Beaten, Set On Fire And Worse - Army Calls It Suicide



By: Logan Murphy @ 9:28 AM - PDT Nicole and I have both written posts about the mysterious circumstances surrounding the death of PFC LaVena Johnson, and Democracy Now! had a heartbreaking interview with her family last week. LaVena’s family has worked hard to find the truth about her death and have finally had a breakthrough in the case. Unfortunately, the new details they uncovered are so disturbing that they could potentially make the Pat Tillman and Jessica Lynch stories pale in comparison. The above video from Cenk of The Young Turks captures my exact feelings about this horrific case. What you’re about to read will sicken and enrage you. The Army claims the 5’1” African-American soldier from North County died from a self-inflicted gunshot wound with a rifle on July 19, 2005. Her father, John H. Johnson, Ph.D. of Florissant, said color photos and documents obtained under the Freedom of Information Act from the military suggest otherwise. “Our worst fears were substantiated when we started going through information from the Army,” Johnson said. He said the pictures and documents from the incident proved that his daughter had been brutalized - raped, beaten, shot and set on fire.



“Someone poured lye in her vagina to destroy evidence,” her father said. “Her body was dumped in a dirty, filthy contractor’s tent. Read on…



This was not a suicide. Contact your representatives in the House and Senate to demand a full scale Congressional investigation begin immediately. This crime and obvious cover up cannot go unpunished.
BREAKING: The House Subcommittee on National Security and Foreign Affairs is holding a hearing now on Sexual Assault in the Military. You can watch the live stream here.

Afghan Karma & Rambo III

Seth Colter Walls
walls@huffingtonpost.com HuffPost Reporting From DC

Brzezinski: Surge In Afghanistan Risky, Some McCain Backers Want World War IV

All of a sudden, everyone seems to be in favor of sending more troops to Afghanistan. As Barack Obama encourages Europeans to dispatch more NATO forces and John McCain says that U.S. troops could be sent in greater numbers, the idea that a bigger military footprint is needed has become something of a consensus in the political mainstream.

But Dr. Zbigniew Brzezinski is not on board -- though it's not the first time President Jimmy Carter's national security adviser has cast a skeptic's eye on the usefulness of dispatching great numbers of troops to the country. In an famous 1998 interview with France's Le Nouvel Observateur, Brzezinski admitted his own role in funding Afghanistan's Mujahadeen in 1979, thereby "increasing the probability" that the Soviets would invade a tough, demoralizing, mountainous theater for combat.

And it's with a similar perspective that Brzezinski now doubts the that the answer to what ails Afghanistan is more troops. "I think we're literally running the risk of unintentionally doing what the Russians did. And that, if it happens, would be a tragedy," Brzezinski told the Huffington Post on Friday. "When we first went into Afghanistan to overthrow the Taliban, we were actually welcomed by an overwhelming majority of Afghans. They did not see us as invaders, as they saw the Soviets."

However, Brzezinski noted that just as the Soviets were able to delude themselves that they had a loyal army of communist-sympathizers who would transform the country, the U.S.-led forces may now be making similar mistakes. He said that the conduct of military operations "with little regard for civilian casualties" may accelerate the negative trend in local public opinion regarding the West's role. "It's just beginning, but it's significant," Brzezinski said.

His own program for improving the state of affairs in Afghanistan -- where U.S. casualties have surpassed those in Iraq for two months now -- revolves around pragmatism. He believes Europe should bribe Afghan farmers not to produce poppies used for heroin since "it all ends up in Europe." Moreover, he thinks the tribal warlords can be bought off with bribes, with the endgame being the isolation of Al-Qaeda from a Taliban that is "not a united force, not a world-oriented terrorist movement, but a real Afghan phenomenon."

Brzezinski, who has endorsed Obama, was far more critical of a few figures now surrounding McCain, who he suggested were pushing the presumptive GOP nominee towards a radical foreign policy on issues such as Iran.
"Well, if McCain is president and if his Secretary of State is Joe Lieberman and his Secretary of Defense is [Rudolph] Giuliani, we will be moving towards the World War IV that they have been both favoring and predicting," he said, calling that an "appalling concept" (and adding that by their lights, the Cold War counted as World War III). "So it depends on who are the principal officers. If it's [Richard] Armitage, or if it were to be Brent Scowcroft, I think it would be very different."

Asked who he would like to see in a potential Obama cabinet, Brzezinski said: "I think [Sen. Chuck] Hagel. I would like to see a bipartisan cabinet. I think we need one very badly -- and we did well in the Cold War when we had one. I would say Hagel and [Sen. Dick] Lugar would be very good Republicans [for Obama]." He also cited Sen. Joe Biden as a potential Secretary of State, in which case it would also be possible to "keep [Secretary of Defense Bob] Gates in the job for a few months."

Brzezinski said such a cabinet would be an important step in redressing the increased partisanship of foreign affairs in recent years, adding: "I think there is a tendency, because of the very complexity of the issues, for solutions to become polarized and more extreme. ... Republicans move toward neocon-ish formulas, and Democrats [follow] idealistically escapist formulas. In either case you don't end up with the necessary mix of idealism and realism."

2008 Global Recession-Depression

BANK FOR INTERNATIONAL SETTLEMENTS

78th Annual Report78th Annual Report 2007/08: an overview
30 June 2008

Chapter I: Introduction: the unsustainable has run its course
After a number of years of strong global growth, low inflation and stable financial markets, the situation deteriorated rapidly in the period under review. Most notable was the onset of turmoil in the US market for subprime mortgages, which rapidly affected many other financial markets and eventually called into question the adequacy of capital at a number of large US and European banks. At the same time, US growth slowed markedly, reflecting setbacks in the housing market, while global inflation rose significantly under the particular influence of higher commodity prices. This sudden change in financial conditions was blamed by some on shortcomings in the extension of the long-standing originate-to-distribute model to new mortgage products in recent years. Others, however, noted that the sudden deterioration in both financial and macroeconomic conditions looked more like a typical “bust” after a credit “boom”. Indeed, several factors seem to support this second hypothesis: the previous rapid growth of global monetary and credit aggregates; an extended period of low real interest rates; the unusually high price of many assets (both financial and real); and the way in which spending patterns in different countries (the United States and China in particular) reflected their different stages of financial development (encouraging consumption and investment respectively). While central banks in all the major financial centres took action to reliquefy financial markets, the setting of policy rates diverged markedly in light of domestic macroeconomic circumstances. Some central banks were more concerned about actual inflation and raised policy rates, whereas others focused on the disinflationary pressures likely to emerge as growth slowed, and lowered policy rates instead.
Chapter II: The global economy
The global economy has slowed since the second half of 2007 against the backdrop of the financial turmoil and a deepening US downturn. At the same time, global inflation has risen, led by rapid increases in prices of energy and key food items. The current consensus view is still that the global economy will slow only modestly further in 2008. Developments up to the first quarter have been broadly consistent with this view as growth in the euro area, Japan and major emerging market economies continued to be strong. Unfolding developments at the core of the global financial system have, however, also created great uncertainty about future economic prospects. Banks in several advanced industrial economies have been tightening lending standards, and thus a generalised squeeze in the availability of credit remains a distinct possibility, with potentially more severe implications for demand than are reflected in consensus forecasts. These developments have been compounded by the recent rapid rise in oil prices and increased inflation expectations in a number of major economies. The extent to which households with overstretched balance sheets in the United States and some other advanced industrial economies will have to retrench in the face of these negative shocks is hard to predict. While a substantial rise in US household saving could bring about a further sizeable reduction in the US current account deficit, it would do so at the price of weakening demand in the rest of the world. At the same time, inflation risks are greater than they have been for many years.
Chapter III: Emerging market economies
Growth in emerging market economies (EMEs) last year once again significantly exceeded that in the rest of the world. Foreign currency inflows were large, reflecting continued growth in current account surpluses and capital inflows in 2007. Nevertheless, the potential knock on effects of financial market turmoil in the major centres increased the risk of a slowdown in EMEs. At the same time, recent increases in headline inflation have caused inflation targets to be breached in many EMEs, reflecting the impact of steep increases in oil and food prices. As in the advanced industrial economies, these conflicting forces have created a major dilemma for monetary policy. Efforts to resist currency appreciation have introduced additional complications, having been associated with a sharp increase in foreign reserves and in credit growth in a number of EMEs.
Developments in the advanced industrial economies could also pose major challenges. First, a pronounced slowdown in the United States would hurt the EMEs which, although remarkably resilient so far, still depend significantly on external demand. Second, tighter conditions in global financial markets could constrain EMEs with large current account deficits, particularly those relying on more volatile portfolio financing. Countries heavily dependent on cross-border bank borrowing could also be especially vulnerable.
Chapter IV: Monetary policy in the advanced industrial economies
Monetary policy in the advanced industrial economies faced two conflicting challenges during the period under review. On the one hand, tensions in financial markets threatened to spill over into the real economy by way of tighter credit conditions and a loss in confidence. On the other hand, inflationary pressures that stemmed from rising commodity prices, together with high capacity utilisation and tight labour markets in many economies, threatened to feed into longer-term inflation expectations. Differences in the manifestation of these challenges across countries and regions can explain, at least in part, why central banks dealt with them in different ways. For example, the Federal Reserve reacted forcefully by cutting its policy rate from 5.25% to 2%, whereas the ECB and the Bank of Japan kept their policy rates unchanged. Changes in interest rates were only one measure through which central banks responded to the dislocation in financial markets. Even before the turbulence led to any changes in policy targets, central banks in several countries had adjusted their operations in a number of extraordinary and unprecedented ways to keep reference rates near targets and to provide financing in markets where liquidity had evaporated. The various types of operations and the reasoning behind them are discussed in the final section of the chapter.
Chapter V: Foreign exchange markets
Foreign exchange market volatility picked up sharply in the latter half of 2007 and has remained at elevated levels since. This was associated with a faster rate of decline of the US dollar as well as a substantial appreciation of the euro, yen and Swiss franc. As carry trades became less attractive, expected growth differentials became more of a focal point for market sentiment than prevailing levels of interest rates. While exchange rate policies continued to shape the behaviour of some emerging market currencies, developments in commodity prices and specific trends in capital flows also exerted a considerable influence on exchange rates. Notwithstanding some significant exchange rate movements and tensions in certain foreign exchange swap and cross-currency swap markets, foreign exchange spot markets generally continued to function smoothly throughout the period of higher volatility. From a longer-term perspective, there have been a number of notable developments that could potentially have a bearing on the resilience of foreign exchange markets. These include higher turnover, greater diversity in foreign exchange market activity and improvements in the risk management infrastructure. While generally positive, it is possible that the full implications of these developments for market dynamics at times of stress have not yet become apparent. It is important, therefore, to sustain the impetus for better risk management practices in foreign exchange markets going forward.
Chapter VI: Financial markets
During the period from June 2007 to mid-May 2008, concerns over losses on US subprime mortgage loans escalated into widespread financial stress. What initially appeared to be a contained problem quickly spread across other credit segments and broader financial markets to the point where sizeable parts of the financial system became largely dysfunctional. Surging demand for liquidity, coupled with growing concerns about counterparty risk, led to unprecedented pressures in major interbank markets, while bond yields in advanced industrial economies tumbled as investors sought safe havens amid fears that economic growth would weaken. Equity markets in advanced industrial countries were also weak, with financial shares selling off particularly sharply. A brighter spot was emerging financial markets, which in contrast to previous episodes of broad-based asset market weakness proved to be more resilient than those in the advanced industrial economies. The financial market turmoil unfolded in six stages, starting in mid-June 2007: (i) a dramatic widening of spreads on subprime mortgage products following large-scale rating downgrades on mortgage-backed securities and the closure of a number of hedge funds with subprime exposure; (ii) the extension of the sell-off to a wide variety of credit and other markets from mid-July, including structured products more generally; (iii) the expansion of the turmoil into short-term credit and, particularly, interbank money markets from end-July; (iv) broader problems for the financial sector from mid-October, including for companies acting as financial guarantors; (v) increasingly dysfunctional markets, against the backdrop of a marked worsening of the US macroeconomic outlook from early 2008, accompanied by rising fears about systemic risks which caused spreads of even the highest-quality assets to move out to unusually wide levels; (vi) recovery, except in the interbank term market, in the wake of the Federal Reserve-facilitated takeover of a troubled US investment bank in March 2008.
Chapter VII: The financial sector in the advanced industrialised economies
Several years of growth and enhanced profitability for financial firms came to an abrupt halt during the period under review as strains stemming primarily from exposures to residential real estate spread throughout the financial system. What had started as a problem specific to the US subprime mortgage market became a source of outsize losses for financial firms worldwide on their holdings of related securities. Uncertainty about the size and distribution of losses was exacerbated by the complexity of the new structures used in the securitisation process. Retrenchment from risk-taking led to illiquidity, exposing weaknesses in the funding arrangements of many financial firms. Indeed, the situation was punctuated by the near failure of sizeable financial firms, prompting intervention by the public sector to avert potential systemic repercussions from a disorderly collapse. With many financial institutions nursing weakened balance sheets, even as the macroeconomic environment continues to worsen, a turn in the credit cycle seems likely to imply persistent headwinds for economic activity. How the situation will evolve depends critically on the dynamic interactions between the financial sector and the macroeconomy. Reduced credit availability, due to efforts by the financial sector to preserve its capital base, could prolong the period of weak profitability by affecting aggregate spending, economic activity and asset quality. These effects could also be transmitted across borders if weakened banking systems tend to cut back on their international exposures. Beyond the cyclical implications, this period of intense stress also heralds some structural shifts. Financial firms are revisiting assumptions that supported a move towards a business model focused on origination and distribution of loans through securitisation. At the same time, policymakers are reviewing aspects of the prudential framework that failed to perform as intended.
Chapter VIII: Conclusion: the difficult task of damage control
In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation. The crucial questions at the present juncture have to do with the severity of these individual trends as they now appear and how they might interact. While difficult to predict, their interaction does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect. At the same time, inflationary forces, particularly in emerging market economies, could also prove unexpectedly strong and persistent. A major factor in inflation prospects everywhere is likely to be the behaviour of wages, but in some countries the effect of a depreciating exchange rate on domestic prices could also play an unwelcome role. With inflation a clear and present threat, and with real policy rates in most countries very low by historical standards, a global bias towards monetary tightening would seem appropriate. That said, the circumstances of different countries, both actual and prospective, currently rule out a "one size fits all" response. Moreover, should the global economy slow sharply and inflationary pressures recede, the bias to tightening would evidently also be reduced. In the current and prospective environment, it should nonetheless be borne in mind that the effectiveness of a lowering of policy rates might be significantly reduced in the aftermath of a credit-induced spending boom. In view of the potential negative side effects of such a policy, not least the risk of encouraging further financial imbalances and misallocations of real resources, complementary policies might be envisaged to avoid overburdening monetary easing. Expansionary fiscal policy could have some merit, but in many countries current debt levels mean there is little room for manoeuvre. Steps to recognise and deal with losses and debt overhang problems, in a timely and orderly way, and subject to conditionality, must then be a high priority.
Perhaps the principal conclusion to be drawn from today's policy challenges is that it would have been better to avoid the build-up of credit excesses in the first place. In future, this could be done through the establishment of a new macrofinancial stability framework, which would call for both monetary and macroprudential policies to "lean against the wind" of the credit cycle. Recognising that cycles can be attenuated but not eliminated, a number of preparatory steps are also suggested that would allow periods of financial turmoil or crisis to be more effectively managed.
Organisation, governance and activities
This chapter provides an overview of the internal organisation and governance of the Bank for International Settlements. It also reviews the activities of the Bank, and of the international groups it hosts, over the past financial year. These activities focus on promoting cooperation among central banks and other financial authorities, and on providing financial services to central bank customers. Many of the Bank's activities were refocused in the second half of the year to deal with the financial market turmoil that emerged in August 2007. In addition to an acceleration and modification of committees' work plans, other notable responses to the turmoil were: a special meeting of central bank Governors to discuss the underlying causes and potential economic consequences of the turmoil; more frequent and detailed discussions among central bankers and financial market participants more broadly, facilitated by the BIS and the committees it hosts; increased research devoted to the causes and policy implications of the turmoil; publication of information on monetary policy frameworks to complement central banks' market operations, with a view to enhancing transparency and the understanding of central bank actions; initiatives by the Basel Committee on Banking Supervision to help make the banking system more resilient to financial shocks; and close cooperation with other organisations following the turmoil, in particular support for the Financial Stability Forum's working groups on enhancing market and institutional resilience. Furthermore, the BIS took a number of measures in its banking and risk management activities to address the challenges that have emerged as a result of the financial turmoil. The Bank's balance sheet grew to SDR 311 billion (USD 511 billion) at end-March 2008, representing a year-on-year increase of 15%. Some SDR 236 billion (USD 388 billion) of official foreign exchange reserves are deposited with the BIS, around 6% of the world's total. Net profits for the Bank's 78th financial year amounted to SDR 545 million (USD 847 million), compared with SDR 619 million (USD 920 million) in the preceding year.

Related information
Annual General Meeting (30 June 2008)
Annual Report 2008

The Last Empire

Very interesting look at the decline and fall of Pax Americana...

Both George Bush and Dick Cheney have emphatically proclaimed the American Way of Life as “non-negotiable.” As hard as it may be for the feeble-minded, deluded, conscienceless, or hopelessly addicted to grasp, Mother Nature and billions of human beings are going to force us to the bargaining table. We can kick, scream, stomp our feet, and hold our breath all we want, but our abhorrent mode of existence is going down. Aside from the fact that they are utterly unsustainable, why is it such a certainty that American Capitalism, consumerism, militarism, and the myriad associated ills that exist to maintain our obscene lifestyle are a house of cards on the verge of collapse?



Quite simple really. With our overwhelming wealth, power, and military firepower, the United States exercises virtual hegemony over the globe. Granted our influence is waning, but we still call most of the shots. As lord and master of the planet, we are doing a miserable job. Emotionally infantile, we have a sense of entitlement that dwarfs Mt. Everest, we are absolutely certain that we are center of the universe, and we throw incredibly destructive tantrums when we don’t get our way, the American Way that is. We are massive toddlers inflicting our version of the “terrible twos” on the world. Were we not wielding such a massive cudgel, our childishness would be laughable. Under our “good stewardship,” as our current unitary executive loves to call it, the world is careening down the highway at break-neck speed with an infant at the wheel. And if he crashes before an adult can wrest control from him, we’re looking at a major accident with multiple fatalities. We’ve already pushed the world to the verge of economic collapse, the brink of starvation, the initiation of perpetual war, and impending environmental disaster.



Collectively, we act without conscience or concern for the consequences of our actions. The American Way of Life is “all about me and to hell with everyone else.” We revere narcissism, hyper-individualism, greed, wealth, and status as virtues. Becoming a rich, acquisitive careerist by clawing one’s way to the top of the hierarchy through deceit, betrayal, sycophancy, and whoring oneself out in any way imaginable is enshrined as the penultimate achievement in our sewer of a society. Contrary to the common misconception, the psychological umbilical cord between our mothers and us is severed at a very young age. Nearly the instant we are able to intellectualize we drop mom like a hot potato and become psychically parasitic, our hosts being those ubiquitous devices known as televisions.



When we were in the womb, our mothers’ rich and nurturing blood flowed through our veins, quite literally providing the essence of our physical being. Fast forward a few years. Our psychic umbilical cord detaches from mom and is immediately seduced to fuse itself to that seemingly innocent yet deeply nefarious pusher of mind crack. In stark contrast to our mother’s wholesome blood that nourished us in a way that ensured healthy physical growth, the rancid filth we derive from television cripples and malforms our psyches in profound and perverse ways. Planned or not, television has become the power elite’s primary weapon in the daily propaganda war they wage to maintain the American Way of Life, furiously beating down any and all challengers. Calling the content of television “programming” is quite fitting. Through our addiction to pixilated images, the lords and masters of American Capitalism manipulate us into participating in the banality of evil without giving it a first thought, let alone a second one. Much like the Leatherman, TV is an incredibly multi-faceted tool that enables the ruling elites in the US to hone the masses into the infantilized little sociopaths they need to man the bulwarks of American Capitalism, spreading our “corporatocracy and freedom from the pangs of conscience and critical thought” the world over.



If you don’t know the stats, you’ve been somnambulating, but here are a few:
1. We are 5% of the population and siphon off 30% of the world’s goodies, while 35,000 people starve to death each day.2. We, the land of the free, exercise a higher degree of social control than even those “tyrants” in China and Russia. We have the world’s largest prison population, many of whom are non-violent drug offenders. And then there’s our clever way of imposing our agenda in Latin America via the “War on Drugs…..”3. We lost about 500,000 people in WWII while Russia lost over 20 million yet we arrogantly boast that WE “defeated fascism.” And that’s not to mention the fact that many of our beloved capitalists, including members of the Bush dynasty, supported Hitler until they faced potential criminal prosecution.4. We have staged coups and incursions the world over (our interventions are far too numerous to document in this dispatch, but visit this site to familiarize yourself with the reach of our malevolent imperialist tentacles: http://www.thirdworldtraveler.com/Foreign_Policy/US_ForeignPolicy.html)5. Ironically, we justify our trillion dollar a year military budget by waging wars against nations with phantom weapons of mass destruction–while we are the only nation to have deployed such weapons. Ask Japan about the devastating impact.6. We pour billions of dollars into the support of those miserable Zionist squatters in Palestine because a very small percentage of our population (which has very deep pockets, a strangle-hold on mass media, and a juggernaut lobbying organization) has many of us brain-washed into believing “poor little Israel” is fighting for its very existence—when the reality is that it has a more formidable military than all of its alleged threats combined and has ruthlessly brutalized the Palestinians like the terrorist state that it is.7. We slaughtered over two million Vietnamese in an attempt to keep the world safe for capitalism and are poised to consider putting one of the perpetrators in the White House.8. We have murdered untold millions of Iraqis since the Gulf War via invasion, brutal economic sanctions, fomenting civil war and chaos, illegal occupation, and destruction of infrastructure. And neither of the performers in the theater of the absurd we call a “presidential election” has promised to bring an immediate end to this moral and legal abomination. If we enforced the Nuremberg Laws that WE crafted, all responsible would be hanged, including whoever replaces Bush and perpetuates this genocide.



And that is just a brief and very incomplete summary of the evil that we openly or tacitly support simply by being Americans, even if our role is very banal or pedestrian. As cogs in a murderous machine built on stolen land and primarily with the blood, sweat and tears of slaves and poor immigrants, we all bear a degree of responsibility for the atrocities we commit. Even those who choose to remain and fight the system from within are still buttressing the American Way to some extent. How do we sleep at night? Some of us don’t and some of us have pharmaceutical help. But by and large our television programming has given us the “gifts” of a pathologically muted conscience, heavy doses of blissful ignorance, and the attention span of anencephalic sheep.



Desensitized to violence, mentally malnourished by a steady diet of brain candy, conditioned to putting our brains in neutral and letting the “idiot box” do our thinking for us, psychologically beaten down by constant reminders that the subjects of our idolatry are “better than us,” and manipulated into believing that the spiritually vacuous American Dream is more than just a mirage that keeps the working class trudging through the desert of perpetual corporatism, many of us remain true believers, prefer wage slavery to sleeping under a bridge, or recognize that (despite the shop-worn and inane rhetoric about freedom and democracy) the system has harsh consequences for those who don’t at least ostensibly toe the line. Regardless of our individual level of consciousness or level of participation in this criminal enterprise known in some circles as the American Empire, we Americans as a collective are an intriguingly repulsive synthesis of excessively spoiled brats and sociopaths. We want what we want when we want it, consequences be damned. We have the means to get what we desire, virtually no capacity to delay gratification, and the ability to punish those who stand in our way. To top it off, we don’t let trivialities like conscience restrain us. We are a nation of sociobrats.



Individually, we can change. Many have transformed and many more will. But there are some pretty long odds against enough of us shedding our grotesquely malformed psyches and evolving beyond our state of infantilization before the American Way of Life collapses under the weight of its own excrement or is eradicated by its hordes of victims.



Jason Miller is the associate editor of Cyrano’s Journal Online.
About Author
Jason Miller is a wage slave of the American Empire who has freed himself intellectually and spiritually. He writes prolifically and his essays have appeared widely on the Internet. He welcomes constructive correspondence at willpowerful@hotmail.com or via his blog, Thomas Paine's Corner, at http://civillibertarian.blogspot.com/.

The Fall of Capitalism

The Cure for High Gas and Food Prices: Vital Businesses Need Nationalization

SAN ANTONIO--The gas station attendant came outside. Wow, I thought, full serve! Ignoring me, she flung a magnetic price decal on top of the price per gallon. Regular unleaded had gone up 20 cents in the time it took me to drive from the curb to the pump. "You're kidding me," I moaned. "It's 3 o'clock," she shrugged. "Just got the new price." There has to be a better way, I thought. And there is. It isn't drilling in the Alaskan wilderness. It sure isn't John McCain's plan to offer $300 million to the first person to come up with a longer-lasting car battery. Gas prices could hit $7 a gallon before long, Wall Street analysts say, but Americans--always optimists!--take a little comfort in the fact that Europeans have paid more than that for years. But a lot of foreigners are laughing at us even harder than we're laughing at the Euros. Did you know that Venezuelans pay a mere 19 cents per gallon? It's 38 cents in Nigeria. Turkmenistanis might not have electoral democracy, but they only shell out $4.50 to fill a 15-gallon tank. Before we replaced Saddam Hussein with...with whatever they have in Iraq now, Iraqis paid less than a dime for a gallon of gas. One of the things that these countries have in common, of course, is that they're oil-producing states. Countries that export oil and gas have trouble explaining to their citizens why they should pay for their own natural resources--and most are smart enough not to try. Iran, Saudi Arabia, Egypt, Burma, Malaysia, Kuwait, China and South Korea are just a few of the countries that keep fuel prices low in order to stimulate economic growth. But they also share something else: common sense. Strange it might sound to Americans used to reading about big oil windfalls, they consider cheap gas more of an economic necessity than lining the pockets of energy company CEOs. So they don't consider energy a profit center. To the contrary; government subsidies (Venezuela spends $2 billion a year on fuel subsidies) and nationalized oil companies keep gas prices low. Unlike corporations, governments don't care about turning a profit. They care about remaining in power. Their reliance on political support (or, if you're cynical, pandering) allows them to do things our much-vaunted free market system can't, such as make sure that people can afford to eat and buy enough gas to get to work. Like the rest of the world, Venezuelan consumers have been squeezed by rising prices, and even shortages, of groceries. In 2007 Venezuela's socialist-leaning government decided to do something about it. First they imposed price controls on staple items. When suppliers began to hoard supplies to drive up prices, President Hugo Chavez threatened to nationalize them. "If they remain committed to violating the interests of the people, the constitution, the laws, I'm going to take the food storage units, corner stores, supermarkets and nationalize them," he said. Food profiteers grumbled. Then they straightened up. Not even international corporations are immune from Chavez's determination to put the needs of ordinary Venezuelans ahead of the for-profit food industry. Faced with severe shortages of milk earlier this year, Chavez threatened Nestle and Parmalat's Venezuelan operations with nationalization unless they opened the spigot. "This government needs to tighten the screws," he said in February 2008, promising to "intervene and nationalize the plants" belonging to the two transnational corporations. Miraculously, milk is turning up on the shelves. When it works, nothing is better at creating an endless variety of reality TV shows than free market capitalism. But when it doesn't, it isn't just that extra brand of clear dishwashing liquid that goes away. Businesses fold. Banks foreclose. People starve. And no one can stop it. The G8 nations met in Osaka last week to try to address soaring food and energy prices--a double threat that could plunge the global economy into a ruinous depression. But the summit ended in failure. "Any hope that the G8 meeting would result in coordinated monetary action--or concerted intervention in foreign exchange markets--to counter rises, principally in commodity prices, was dispelled by their failure to agree on the phenomenon's underlying causes," reported Forbes. So the G8 ministers punted. "Due to the lack of consensus, they have stated the need for further study," wrote the magazine. The problem isn't the weak dollar or the non-existent housing market. It's capitalism. A sane government doesn't leave essential goods and services--food, fuel, housing, healthcare, transportation, education--to the vicissitudes of "magic" markets. Non-discretionary economic sectors should be strictly controlled by--indeed, owned by--the government. Consider, on the one hand, snail mail and public education. The Postal Service and public schools both have their flaws. But what if they were privatized? It would cost a lot more than 42 cents to mail a letter from Tampa to Maui. And poor children wouldn't get an education. Privatization, particularly of essential services, has always proven disastrous. From California's Enron-driven rotating blackouts to for-profit healthcare that has left 47 million Americans uninsured to predatory lenders pimping the housing bubble to Blackwater's atrocities in Iraq, market-based corporations' fiduciary obligation to maximize profits that is inherently incompatible with a stable economy whose goal is to provide people with a decent quality of life.

P.S. If you're reading this in Caracas, please mail me some gas.