Ambrose still bent on sustaining the unsustainable

Sabre rattling with talk of "aircraft carrier battle groups" is the gunboat diplomacy Ambrose has begun to allude to; several times he has hinted that the US should use its military might to force purchase of its debt.The UK will be cap in hand to the IMF before the year is out, imo..


Et tu Tokyo? If Washington is counting on Japan to act as last-resort buyer of US dollar bonds, it may have to think again. Masaharu Nakagawa, finance chief of the Democratic Party of Japan (DPJ), told the BBC that his country should not purchase any more US debt unless issued in yen as "Samurai" bonds, akin to "Carter bonds" in 1978.

This is the sort of petulance that tends to emerge in the late phase of slumps (1840s, early 1930s) when mass lay-offs provoke a populist backlash and hotheads run away with the agenda. Mr Nakagawa later played down the comments, calling them private thoughts, but the genie is out of the bottle.

We have come to assume that Japan under the Liberal Democratic Party (LDP) will always cleave to America, if only to safeguard US protection against Chinese naval expansion. Backed by Washington after the war as a rural counterweight to the urban left, the LDP has held an almost unbroken grip on power since 1955.

But crashes have a habit of bringing regime change. Brian Reading, a Japan veteran at Lombard Street Research, predicts a "seismic shock" over the next four months as voters rebel.

"With unemployment heading for 5 million by end-year, something must happen," he said.

The tremors from Japan follow near-weekly fulminations from Beijing, which suspects that Washington is engineering a stealth default on America's debt by the trickery of quantitative easing. This was put bluntly in February by Luo Ping, head of China's banking commission: "We hate you guys. Once you start issuing $1 trillion-$2 trillion, we know the dollar is going to depreciate." Premier Wen Jiabao picked up the theme more politely, asking whether the "massive amount of capital" lent to the US was still safe. Since then the People's Bank has floated ideas for a world currency.

China and Japan together hold 23pc of America's $6,369bn federal debt. This has caused alarm on the US talk radio circuit, but fears of imminent "dollardämmerung" and a collapse of American economic power may prove far off the mark. Who ultimately holds a gun to the head of whom?

If Asia's leaders give free rein to frustrations and crater the US bond market, they will ensure their own political destruction. Japan already risks descent into demographic death, deflation, and debt atrophy (its public debt is nearing 200pc of GDP). China's regime depends on perma-boom for post-Maoist legitimacy. Could it survive the wrath of jobless graduates and rural migrants if it provokes America into erecting trade barriers, killing the globalisation goose that lays the golden egg?

American can if necessary retreat into its vast home market and rebuild its industrial base, well-armed with 12 aircraft carrier battle groups.

The last 12 months should be lesson enough that Asia cannot yet stand on its own two feet. Its mercantilist export model remains a "high-beta" play on the West, to use trader parlance.

Japan's industrial output has fallen 34pc. China's exports are down 23pc.

Ray Maurer, from Qatar's QNB Capital, said China may be too busy closing factories it should never have built to challenge US primacy over coming years.

"China is not going to be a juggernaut until it creates a viable economy based on home consumption. It's just a tiger, living a myth," he said.

Lombard's Charles Dumas says the "super-savers" (China, Japan, Germany) have warped their own economies by relying on exports and, therefore, on perpetual debt build-up by the West.

"Their currencies are due to decline against the dollar as weak US recovery throws a few scraps from its table, over which the world's exporters will have to scrabble, cutting their prices and currencies in the process. The US is not, and is not about to become, Argentina or Zimbabwe," he said.

Let us not forget how we got here. Japan amassed a quarter trillion dollars of US bonds from January 2003 to March 2004 in a frantic effort to drive down the yen and stave off deflation. It has not yet won that battle. Producer prices fell to minus 3.8pc in April, a 22-year low.

China's holdings of US bonds are a consequence of its own policy of holding down the yuan to boost exports. Beijing may rage about America's "helicopter" stimulus, but what would have happened to the factories of Guangdong if the Fed had not taken emergency action or if the US Treasury had allowed the banks to collapse? China wants it both ways.

The world economy has long been running on fumes. The debt appetite of the Anglo-sphere and Club Med kept demand afloat, concealing excess capacity. The deformed interplay of Asia's Confucian model and Western consumption ran unchecked, until the imbalances blew up.

Yet it is easier to blame Uncle Sam, subprime, and friendless bankers. A folk tale has captured political discourse everywhere, from Beijing, to Tokyo, Moscow, and Berlin. If they are foolish enough to act on this self-serving illusion, they will pay the higher price.

The comments make more sense....
Asia does not need the US. It can simply dump it`s exports in the ocean and start its own `funny money` printing presses.

The US has nothing to offer but nostalgia.

This is too much attention, given to a mere shill for the print-a-living nations.

This so called economic journalist ''Ambrose'', has no clue what so ever. China has won the game hands down. It is very easy to explain. China accumalates USD and than buys all of the worlds tangible assets, copper, gold, oil, cobalt etc etc. He who controls the tangible assets weilds the power. It is really that simple. The next step down the line is war over these commodities. Very easy to understand plain and simple.

Ambrose an apologist for Keyensian-militarist lunacy? Didn't expect that...

Sir, you are SO wrong on this one. The US is finished as an empire, which is a GOOD thing. The Chinese have intentionally positioned themselves to pick up all the pieces from this crash. The economic fundamentals are overwhelmingly on their side (and I'm not exactly happy to be saying this). The US is beyond bankrupt and the dollar is toast. One of the last props holding the dollar up - the hope that Obama might restore some credibility to the US govt - is now gone. The world now knows that Obama is GWB2, and so the common shares of USA Inc. will soon reflect the corrupt and criminal management.
The Chinese commies are evil as well, but they are NOT stupid.

So lets get this straight. Asia has all the productive capacity and savings pool, the west has a ponzi scheme economy based on speculation and vendor financing using worthless fiat money and they are the ones in trouble! In the madcap world of the Keynesians, all we need to do is print our way to prosperity. God save us from the opinions of "experts" like you Ambrose!

No Ambrose, you're in denial.

If the Chinese stop buying US government bonds, the dollar will collapse and Americans will be too broke to buy Chinese products. However, as the dollar falls China's currency will rise, and along with it will rise the purchasing power of the Chinese people. China's vast population will start to consume their own products.

The only reason foreigners continue to finance America's current account deficit by buying US bonds is because the dollar is the world's reserve currency. If they allowed the dollar to collapse their foreign currency reserves would decline in value. However, China is diversifying out of the dollar by purchasing gold, copper and other currencies. When they finish this process of diversification they will stop buying US bonds and start selling the ones they already have.

It is the producing/saving economies that have power, not the debt/consumption countries. Production is difficult, not consumption.

�America can if necessary retreat into its vast home market and rebuild its industrial base, well-armed with 12 aircraft carrier battle groups�.
How would America raise capital to rebuild its industrial base, it has no domestic savings. Who do you think pays for the US military? It's foreigners, by purchasing US bonds.
America eventually will have to stop its phony borrow and consume economy and rebuild a real economy based on domestic savings and production. This will take a long time, and will start when Obama's ridiculous Keynesian stimulus packages based on deficit spending fail.

U.S. supply routes to Afghanistan suffer two huge blows

Tom Lasseter and Jonathan S. Landay | McClatchy Newspapers

last updated: February 03, 2009 07:59:35 PM


MOSCOW — The U.S.-led campaign against the Taliban suffered two logistical blows Tuesday as the president of Kyrgyzstan announced that he'd shut a U.S. airbase in his country and insurgents in Pakistan blew up a bridge, disrupting the main U.S. supply route into Afghanistan.

The developments were the latest reminders of the vulnerability of the long and complex transportation system on which the 60,000 U.S.-led forces in Afghanistan depend for fuel, ammunition, construction materials and a great deal more.

The announcement by Kyrgyzstan President Kurmanbek Bakiyev that he will close the Manas Air Base also gave President Barack Obama a first taste of the challenge he faces from Russia, which is trying to restore its clout in countries that were part of the former Soviet Union.

Bakiyev made his announcement in Moscow, not in his own capital, shortly after the Russian government reportedly agreed to lend Kyrgyzstan $2 billion, write off $180 million in debt and add another $150 million in aid. The timing and place of the announcement indicated the Kremlin's involvement.

"It's a direct challenge to the new American administration. Russia is going out of its way to close an American base," said Pavel Felgenhauer, a Moscow-based military analyst.

Manas is the main transit point through which U.S. troops fly into and out of Afghanistan. As such, it is vital to plans to send 30,000 more American troops to stabilize Afghanistan. A U.S. Air Force Web site calls it "the premier air-mobility hub" for U.S. and allied operations in Afghanistan, with about 1,000 military personnel from America, Spain and France stationed there.

A senior U.S. military official said the U.S. military hopes Bakiyev's decision is not final but is the latest gambit in what has been a lengthy effort to squeeze more money out of Washington.

"There is a long list of things that he wants, some of which we can't do, like debt relief, relieving the debt he owes other governments," said the U.S. military official. "The bottom line, we hope, is that this is simply a card being played as part of the negotiating process. Obviously, we don't want to lose Manas."

Another U.S. official, who also spoke on condition of anonymity, said Bakiyev had been trying to play the U.S. off against Russia for months in order to secure more funds. The official could not be identified by name because he was unauthorized to speak to reporters.

The U.S. has been paying Kyrgyzstan about $63 million a year to use Manas. The money is part of some $150 million in annual direct and indirect U.S. aid.

Gen. David Petraeus, the head of the U.S. Central Command, which oversees U.S. military operations in the Middle East and South Asia, said senior Kyrgyz officials had assured him that there were no discussions between the country and Russia about closing the base in exchange for aid.

The senior U.S. military official said the base is also used to "bed down" U.S. tanker aircraft used for mid-aid refueling operations over Afghanistan.

Bakiyev explained in Moscow that the decision had been made because "we have repeatedly raised with the U.S. the matter of economic compensation for the existence of the base in Kyrgyzstan, but we have not been understood," Russian media reported.

Bakiyev said that after the base opened in 2001 the understanding was that "it was one or two years that were being talked about. Eight years have passed."

The Soviet invasion of Afghanistan in 1979 touched off 30 years of war, and Moscow is again turning into a player in Afghan politics. Two days before Obama's inauguration, the Afghan government said that Russia had accepted a request from President Hamid Karzai for military aid.

And last month, the Kremlin said it would open transportation lines through Russia to Afghanistan to help U.S. forces circumvent the violence-plagued route across the Pakistani border.

Although he didn't cite the base closing, Russian President Dmitry Medvedev made a point of saying in Moscow that Kyrgyzstan and Russia "are open to coordinated action" with the U.S.-led coalition in Afghanistan.

Analyst Felgenhauer said the message from the two actions was clear: The Kremlin is willing to help the American military in Afghanistan, but only on the condition that the U.S. recognizes its authority in central Asia.

Or, more simply put, "we will not allow their bases in our sphere of influence," said Felgenhauer, a critic of Kremlin policy.

In Pakistan, meanwhile, Islamic insurgents allied with the Taliban blew up a bridge in the Khyber Pass, disrupting one of two truck routes from the port of Karachi by which U.S.-led NATO forces in Afghanistan receive about 80 percent of their supplies.

(Landay reported from Washington.)

Iran Vows Large-Scale Retaliation if U.S. Attacks

If U.S. forces strike Iranian nuclear facilities, Iranian officials say Tehran will respond by triggering all-out regional war.
“Ballistic missiles would be fired in masses against targets in Arab gulf states and Israel,” one Foreign Ministry official said. “The objective would be to overwhelm U.S. missile defense systems with dozens and maybe hundreds of missiles fired simultaneously at specific targets.”
Tehran’s primary targets would be U.S. military installations and strategic targets in U.S.-allied Arabian Gulf states, including oil depots, refineries, power plants and desalination facilities. U.S. warships would also face waves of surface-to-surface cruise missiles sent to overwhelm their countermeasures, said several senior Iranian officials whose comments reflect the official line but who could not obtain permission to speak on the record at short notice.
“The name of the game is simply to saturate strategic targets with missile firepower in order to render the Patriots and other defenses useless,” said Hassan Fahs, a journalist and political analyst based here.
One Iranian official with knowledge of the leadership’s national-security discussions said his country’s leaders anticipate that U.S. forces will strike with no warning against the military’s command-and-control network, and have ordered ballistic- and cruise-missile battery crews to launch the retaliation plan within an hour after a U.S. attack begins.
“The U.S. will be as surprised with Iranian military capabilities as the Israelis were with Hizbollah in last summer’s war in Lebanon,” he said. “Most of our people are confident we would give the Americans hell and likely emerge victorious.”
Special targets would include Arabian Gulf states that help Washington to justify a strike, said Adm. Ali Shamkhani, a former Iranian defense minister. Sham-khani runs the Center of Strategic Studies, a think tank comprised of former senior foreign, defense and interior ministers who advise Ayatollah Ali Khameni, the country’s supreme leader.
“Allegations by some Arab gulf states that the Iranian nuclear program poses an environmental threat to the area and that it would spark a nuclear arms race are aimed at helping the U.S. establish legitimacy for its anticipated aggression against Iran,” Shamkhani said.
U.S. military action threatens Iran’s existence, he said, “but most of those who speak about the war option are well aware that Iran has the capability to face this choice.”
Tehran would also allow al-Qaida and other Islamic terrorist groups free passage across its borders from Afghanistan and Asia into the Middle East, Iranian officials said.
“Iran will open a freeway for terrorists from Afghanistan all the way to Lebanon, enabling the terrorists to strike in almost every country in the Middle East,” said the official with knowledge of national-security discussions. He added that Iran currently bans such transits from Afghanistan, forcing them to take longer routes and risk capture in other countries. “This positive action would not continue if Iran is attacked by the U.S.”
One Kuwaiti analyst said Iran-backed terror attacks are expected if war breaks out.
“Most Arab gulf states expect to face a series of terrorist attacks in their major cities carried out by either Iranian sleeper cells or al-Qaida members in case of a war with Iran,” said Sami Al-Faraj, head of the Kuwait Center for Strategic Studies.
All this tough talk makes some Iranian analysts nervous.
“Iran regards itself as a regional superpower who is conducting a Cold War-style confrontation with the U.S.,” said one. “The risks involved in playing such a dangerous game with a world superpower are so big that many Iranian officials are anxious about the hardline policies of the current leadership in Tehran, and are pressing for political engagement and de-escalation of tension with the U.S.”
Info Campaign
Iranian military officials are providing data to local think tanks and journalists to show that leaders, aware of U.S. intentions and capabilities, are prepared to overpower them.
“The Iranian street is now more aware of the threat of war than it used to be a year ago, but authorities here are raising the morale and assuring the people by showing they were a step ahead of the Americans,” Fahs said.
In the past few months, the Iranian Revolutionary Guards has shown off new weapons in testing or deployment: ballistic missiles such as Scud variants and the Shihab-3, anti-ship cruise missiles such as the Chinese C-802 and Silkworm, a new high-speed torpedo and spying drones. Guards troops displayed several of the weapons in war games in the past few months, and broadcast on local TV channels and some government-run Web sites what it called UAV-shot footage of the USS Eisenhower aircraft carrier.
“This was to tell the Iranian people that we know where the Americans are and what they are up to, and we can strike them any time,” Fahs said.
The public release of information is a marked change for the often secretive Iranian military, which has widely distributed claims that it has put a spy satellite in orbit, acquired advanced S-300 high-altitude anti-aircraft missiles from Russia, built stealth drones that cannot be picked up on American radars, and deployed missiles that cannot be defeated by the U.S. Navy.
Shamkhani said Tehran has blocked U.S. moves in many parts of the region, boosting Iran’s regional influence, especially in relatively unstable Afghanistan, Iraq, Lebanon and the occupied Palestinian territories.
This puts “Iran today in control of about 70 percent of the U.S. game in the region,” he said.
Iranian officials held talks with U.S. officials in Baghdad on May 28 on the security situation there and offered to help reduce tension in Lebanon.
Shamkhani and other Iranian officials denied U.S. charges Iran is building nuclear weapons and inciting sectarian violence in Iraq.
“All the talk about a Sunni-Shiite divide and Iranian expansionist or hegemonic ambitions are lies spread by the U.S. and Israel to rally regional support and justify a military attack on Iran,” he said. “All the troubles in the region are caused by the U.S. military presence and Israel.” •
E-mail: rkahwaji@defensenews.com.