The Coming Trade War and Global Depression

By Henry C K Liu

Many historians have suggested that the 1929 stock market crash was not the cause of the Great Depression. If anything, the 1929 crash was the technical reflection of the inevitable fate of an overblown bubble economy. Yet stock market crashes can recover within a relatively short time with the help of effective government monetary measures, as demonstrated by the crashes of 1987 (23% drop, recovered in nine months), 1998 (36% drop, recovered in three months) and 2002 (37% drop, recovered in two months).

Structurally, the real cause of the Great Depression, which lasted more than a decade, from 1929 until the US entry to World War II in 1941, was the 1930 Smoot-Hawley tariffs that put world trade into a tailspin from which it did not recover until the war began. While the US economy finally recovered through war mobilization after the Japanese attack on Pearl Harbor, Hawaii, on December 7, 1941, most of the world's market economies sank deeper into war-torn distress and did not fully recover until the Korean War boom in 1951.

Barely five years into the 21st century, with a globalized neo-liberal trade regime firmly in place in a world where market economy has become the norm, trade protectionism appears to be fast re-emerging and developing into a new global trade war of complex dimensions. The irony is that this new trade war is being launched not by the poor economies that have been receiving the short end of the trade stick, but by the US, which has been winning more than it has been losing on all counts from globalized neo-liberal trade, with the European Union following suit in lockstep. Japan, of course, has never let up on protectionism and never taken competition policy seriously. The rich nations need to recognize that their efforts to squeeze every last drop of advantage out of already unfair trade will only plunge the world into deep depression. History has shown that while the poor suffer more in economic depressions, the rich, even as they are financially cushioned by their wealth, are hurt by political repercussions in the form of either war or revolution, or both.

Cold War and moral imperative

During the Cold War, there was no international free trade. The economies of the two contending ideology blocs were completely disconnected. Within each bloc, economies interacted through foreign aid and memorandum trade from their respective superpowers. The competition was not for profit but for the hearts and minds of the people in the two opposing blocs, as well as those in the non-aligned nations in the Third World. The competition between the two superpowers was to give rather than to take from their separate fraternal economies.

The population of the superpowers worked hard to help the poorer people within their separate blocs, and convergence toward equality was the policy aim even if not always the practice. The Cold War era of foreign aid and memorandum trade had a better record of poverty reduction in both camps than post-Cold War globalized neo-liberal trade dominated by one single superpower. The aim was not only to raise income and increase wealth, but also to close income and wealth disparity between and within economies. Today, income and wealth disparity is rationalized as a necessity for capital formation. The New York Times reports that from 1980 to 2002, the total income earned by the top 0.1% of earners in the United States more than doubled, while the share earned by everyone else in the top 10% rose far less and the share of the bottom 90% declined.

For all its ill effects, the Cold War achieved two formidable ends: it prevented nuclear war and it introduced development as a moral imperative into superpower geopolitical competition with rising economic equality within each bloc. In the years since the end of the Cold War, nuclear terrorism has emerged as a serious threat and domestic development is preempted by global trade, even in the rich economies, while income and wealth disparity has widened everywhere.

Since the end of the Cold War some 15 years ago, world economic growth has shifted to rely exclusively on globalized neo-liberal trade engineered and led by the US as the sole remaining superpower, financed with the US dollar as the main reserve currency for trade and anchored by the huge US consumer market made possible by the high wages of US workers. This growth has been sustained by knocking down national tariffs everywhere around the world through supranational institutions such as the World Trade Organization (WTO), and financed by a deregulated foreign-exchange market working in concert with a global central-banking regime independent of local political pressure, lorded over by the supranational Bank of International Settlement (BIS) and the International Monetary Fund (IMF).

Redefining humanist morality, the United States asserts that world trade is a moral imperative and as such trade promotes democracy, political freedom and respect for human rights in trade participating nations. Unfortunately, income and wealth equality is not among the benefits promoted by trade. Even if the validity of this twisted ideological assertion is not questioned, it clearly contradicts the US practice of trade embargo against countries Washington deems undemocratic, lacking in political freedom and deficient in respect for human rights. If trade promotes such desirable conditions, the practice of linking trade to freedom is tantamount to denying medicine to the sick.

US President George W Bush defends his free-trade agenda in moralistic terms. "Open trade is not just an economic opportunity, it is a moral imperative," he declared in a May 7, 2001, speech. "Trade creates jobs for the unemployed. When we negotiate for open markets, we're providing new hope for the world's poor. And when we promote open trade, we are promoting political freedom." Such claims remain highly controversial when tested by actual data.

Phyllis Schlafly, a syndicated conservative columnist, responded three weeks later in an article "Free trade is an economic issue, not a moral one". In it, she noted that while conservatives should be happy finally to have a president who added a moral dimension to his actions, "the Bible does not instruct us on free trade and it's not one of the Ten Commandments. Jesus did not tell us to follow Him along the road to free trade ... Nor is there anything in the US constitution that requires us to support free trade and to abhor protectionism. In fact, protectionism was the economic system believed in and practiced by the framers of our constitution. Protective tariffs were the principal source of revenue for our federal government from its beginning in 1789 until the passage of the 16th Amendment, which created the federal income tax, in 1913. Were all those public officials during those hundred-plus years remiss in not adhering to a "moral obligation" of free trade?" Hardly, argued Schlafly, whose views are noteworthy because US politics is currently enmeshed in a struggle between strict-constructionist paleo-conservatives and moral-imperialist neo-conservatives. Despite the ascendance of neo-imperialism in US foreign policy, protectionism remains strong in US political culture, particularly among conservatives and in the labor movement.

Bush also said China, which reached a trade agreement with the United States at the close of the administration of his predecessor Bill Clinton, and became a member of the WTO in late 2001, would benefit from political changes as a result of liberalized trade policies. This pronouncement gives clear evidence to those in China who see foreign trade as part of an anti-China "peaceful evolution" strategy first envisaged by John Forster Dulles, US secretary of state under president Dwight Eisenhower in the 1950s. It is a strategy of inducing through peaceful trade the Chinese Communist Party (CCP) to reform itself out of power and to eliminate the dictatorship of the proletariat in favor of bourgeois liberalization. Almost four decades later, Deng Xiaoping criticized CCP chairman Hu Yaobang and premier Zhao Ziyang for having failed to contain bourgeois liberalization in their implementation of China's modernization policy. Deng warned in November 1989, five months after the Tiananmen incident: "The Western imperialist countries are staging a third world war without guns. They want to bring about the peaceful evolution of socialist countries towards capitalism." Deng's handling of the Tiananmen incident prevented China from going the catastrophic route of the USSR, which dissolved in 1991.

Hostility in the name of 'freedom'

Yet it is clear that political freedom is often the first casualty of a garrison-state mentality and such mentality inevitably results from hostile economic and security policy toward any country the US deems as not free. Whenever the US pronounces a nation to be not free, that nation will become less free as a result of US policy. This has been repeatedly evident in China and elsewhere in the Third World. Whenever US policy toward China turns hostile, as it currently appears to be heading, political and press freedoms inevitably face stricter curbs. For trade mutually and truly to benefit the trading economies, three conditions are necessary: 1) the de-linking of trade from ideological/political objectives, 2) maintenance of equality in the terms of trade and 3) recognition that global full employment at rising, living wages is the prerequisite for true comparative advantage in global trade.

The developing rupture between the sole superpower and its traditionally deferential allies lies in mounting trade conflicts. The United States has benefited from an international financial architecture that gives the US economy a structural monetary advantage over those of the EU and Japan, not to mention the rest of the world. Trade issues range from government-subsidy disputes between Airbus and Boeing to those regarding bananas, sugar, beef, oranges and steel, as well as disputes over fair competition associated with mergers and acquisition and financial services. If either government is found to be in breach of WTO rules when these disputes wind through long processes of judgment, the other will be authorized to retaliate. The US could put tariffs on other European goods if the WTO rules against Airbus and vice versa. So if both governments are found in breach, both could retaliate, leading to a cycle of offensive protectionism. When the US was ruled to have unfairly supported its steel industry, tariffs were slapped by the EU on Florida oranges to make a political point in a politically important state in US politics.

Trade competition between the EU and the US is spilling over into security areas, allowing economic interests to conflict with ideological sympathy. Both of these production engines, saddled with serious overcapacity, are desperately seeking new markets, which inevitably leads them to Asia in general and China in particular, with its phenomenal growth rate and its 1.2 billion eager consumers bulging with rapidly rising disposable income. The growth of the Chinese economy will lift all other economies in Asia, including Australia, which has only recently begun to understand that its future cannot be separated from its geographic location and that its prosperity is interdependent with those of other Asia-Pacific economies. Australian iron ore and beef and dairy products are destined for China, not the British Isles. The EU is eager to lift its 15-year-old arms embargo on China, much to the displeasure of the US. Israel, with its close relations with the US, faces a similar dilemma on military sales to China.

Even the US defense establishment has largely come around to the view that the US arms industry must export, even to China, to remain on top. It was reported recently that US Defense Secretary Donald Rumsfeld tried to sell to Thailand F-16 warplanes capable of firing advanced medium-range air-to-air missiles two days after he lashed out in Singapore at China for upgrading its own military when no neighboring nations are threatening it (see Rumsfeld pitches in for F-16s, June 9). The sales pitch was in competition with Russian-made Sukhoi Su-30s and Swedish JAS-39s. The open competition in arms export had been spelled out for the US Congress years earlier by Donald Hicks, a leading Pentagon technologist in the administration of president Ronald Reagan. "Globalization is not a policy option, but a fact to which policymakers must adapt," he said. "The emerging reality is that all nations' militaries are sharing essentially the same global commercial-defense industrial base." The boots and uniforms worn by US soldiers in Afghanistan and Iraq were made in China.

The widening wealth gap

The WTO is the only global international organization dealing with the rules of trade among its 148 member nations. At its heart are the WTO agreements, known as the multilateral trading system, negotiated and signed by the majority of the world's trading nations and ratified in their parliaments. The stated goal is to help producers of goods and services, exporters and importers conduct their business, with the dubious assumption that trade automatically brings equal benefits to all participants. The welfare of the people is viewed only as a collateral aim based on the doctrinal fantasy that "balanced" trade inevitably brings prosperity equally to all, a claim that has been contradicted by facts produced by the very terms of trade promoted by the WTO itself.

Two decades of neo-liberal globalized trade have widened income and wealth disparity within and between nations. Free trade has turned out not to be the win-win game promised by neo-liberals. It is very much a win-lose game, with heads, the rich economies win, and tails, the poor economies lose. Domestic development has been marginalized as a hapless victim of foreign trade, dependent on trade surplus for capital. Foreign trade and foreign investment have become the prerequisite engines for domestic development. This trade model condemns those economies with trade deficits to perpetual underdevelopment. Because of dollar hegemony, all foreign investment goes only to the export sector where US dollars can be earned. Even the economies with trade surpluses cannot use their dollar trade earnings for domestic development, as they are forced to hold huge dollar reserves to support the exchange rate of their currencies.

In the fifth WTO ministerial conference held in Cancun, Mexico, in September 2003, the richer countries rejected the demands of poorer nations for radical reform of agricultural subsidies that have decimated Third World agriculture. Failure to get the Doha Round back on track after the collapse of Cancun runs the danger of a global resurgence of protectionism, with the US leading the way. Larry Elliott reported on October 13, 2003, in The Guardian on the failed 2003 Cancun ministerial meeting: "The language of globalization is all about democracy, free trade and sharing the benefits of technological advance. The reality is about rule by elites, mercantilism and selfishness." Elliot noted that the process is full of paradoxes: why is it that in a world where human capital is supposed to be the new wealth of nations, labor is treated with such contempt?

Sam Mpasu, Malawi's commerce and industry minister, asked at Cancun for his comments about the benefits of trade liberalization, replied dryly: "We have opened our economy. That's why we are flat on our back." Mpasu's comments summarized the wide chasm that divides the perspectives of those who write the rules of globalization and those who are powerless to resist them.
Exports of manufactures by low-wage developing countries have increased rapidly over the past three decades due in part to falling tariffs and declining transport costs that enable outsourcing based on wage arbitrage. It grew from 25% in 1965 to nearly 75% over three decades, while agriculture's share of developing-country exports has fallen from 50% to less than 10%. Many developing countries have gained relatively little from increased manufactures trade, with most of the profit going to foreign capital. Market access for their most competitive manufactured export, such as textiles and apparel, remains highly restricted, and recent trade disputes threaten further restrictions. Still, the key cause of unemployment in all developing economies is the trade-related collapse of agriculture, exacerbated by the massive government subsidies provided to farmers in rich economies. Many poor economies are predominantly agriculturally based and a collapse of agriculture means a general collapse of the whole economy.

The Doha Development Agenda negotiations, sponsored by the WTO, collapsed in Cancun over the question of government support for agriculture in rich economies and its potential impacts on causing more poverty in developing countries. Negotiations since Cancun have focused on the need to understand better the linkages between trade policies, particularly those of the rich economies, and poverty in the developing world. While poverty reduction is now more widely accepted by establishment economists as a necessary central focus for development efforts and has become the main mission of the World Bank and other development institutions, very few effective measures have been forthcoming.

The UN Millennium Development Goals (UNMDG) commit the international community to halving world poverty by 2015, a decade from now. With current trends, that goal is likely to be achievable only through the death of half of the poor by starvation, disease and local conflicts. The UN Development Program warns that 3 million children will die in sub-Saharan Africa alone by 2015 if the world continues on its current path of failing to meet the UNMDG agreed to in 2000. Several key avenues to this goal supposedly lie in international trade, but the record of poverty reduction has been exceedingly poor, if not outright negative. The fundamental question whether trade can replace or even augment socio-economic development remains unasked, let alone answered. Until such issues are earnestly addressed, protectionism will re-emerge in the poor countries. Under such conditions, if democracy expresses the will of the people, democracy will demand protectionism more than government by elite.

While tariffs in the past decade have been coming down like leaves in autumn, flexible exchange rates have become a form of virtual countervailing tariff. In the current globalized neo-liberal trade regime operating in a deregulated global foreign-exchange market, the exchanged value of a currency is regularly used to balance trade through government intervention in currency-market fluctuations against the world's main reserve currency - the US dollar, as the head of the international monetary snake.

Purchasing power parity (PPP) measures the disconnection between exchange rates and local prices. PPP contrasts with the interest rate parity (IRP) theory, which assumes that the actions of investors, whose transactions are recorded on the capital account, induce changes in the exchange rate. For a dollar investor to earn the same interest rate in a foreign economy with a PPP of four times, such as the purchasing power parity between the US dollar and the Chinese yuan, local wages would have to be at least four times (75%) lower than US wages. PPP theory is based on an extension and variation of the "law of one price" as applied to the aggregate economy.

The law of one price says that identical goods should sell for the same price in two separate markets when there are no transportation costs and no differential taxes applied in the two markets. But the law of one price does not apply to the price of labor. Price arbitrage is the opposite of wage arbitrage in that producers seek to make their goods in the lowest wage locations and to sell their goods in the highest price markets. This is the incentive for outsourcing, which never seeks to sell products locally at prices that reflect PPP differentials. What is not generally noticed is that price deflation in an economy increases its PPP, in that the same local currency buys more. But the cross-border one-price phenomenon applies only to certain products, such as oil, thus for a PPP of four times, a rise in oil prices will cost the Chinese economy four times the equivalent in other goods, or wages, than in the US. The larger the purchasing power parity between a local currency and the dollar, the more severe is the tyranny of dollar hegemony on forcing down wage differentials.

The origins and effects of dollar hegemony

Ever since 1971, when US president Richard Nixon, under pressure from persistent fiscal and trade deficits that drained US gold reserves, took the dollar off the gold standard (at US$35 per ounce), the dollar has been a fiat currency of a country of little fiscal or monetary discipline. The Bretton Woods Conference at the end of World War II established the dollar, a solid currency backed by gold, as a benchmark currency for financing international trade, with all other currencies pegged to it at fixed rates that changed only infrequently. The fixed-exchange-rate regime was designed to keep trading nations honest and prevent them from running perpetual trade deficits. It was not expected to dictate the living standards of trading economies, which were measured by many other factors besides exchange rates. Bretton Woods was conceived when conventional wisdom in international economics did not consider cross-border flow of funds necessary or desirable for financing world trade, precisely for this reason. Since 1971, the dollar has changed from a gold-backed currency to a global reserve monetary instrument that the US, and only the US, can produce by fiat. At the same time, the US has continued to incur both current-account and fiscal deficits.

That was the beginning of dollar hegemony. With deregulation of foreign-exchange and financial markets, many currencies began to free-float against the dollar, not in response to market forces but to maintain export competitiveness. Government interventions in foreign-exchange markets became a regular last-resort option for many trading economies for preserving their export competitiveness and for resisting the effect of dollar hegemony on domestic living standards.

World trade under dollar hegemony is a game in which the US produces paper dollars and the rest of the world produces real things that paper dollars can buy. The world's interlinked economies no longer trade to capture comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies in foreign-exchange markets. To prevent speculative and manipulative attacks on their currencies in deregulated markets, the world's central banks must acquire and hold dollar reserves in corresponding amounts to market pressure on their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces all central banks to acquire and hold more dollar reserves, making it stronger. This anomalous phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The denomination of oil in dollars and the recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.

By definition, dollar reserves must be invested in dollar-denominated assets, creating a capital-accounts surplus for the US economy. A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets denominated in dollars expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effects of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies.

The adverse effect of this type of globalization on the US economy is also becoming clear. In order to act as consumer of last resort for the whole world, the US economy has been pushed into a debt bubble that thrives on conspicuous consumption and fraudulent accounting. The unsustainable and irrational rise of US equity and real-estate prices, unsupported by revenue or profit, has meant a de facto devaluation of the dollar. Ironically, the recent fall in US equity prices from their 2004 peak and the anticipated fall in real-estate prices reflect a trend to an even stronger dollar, as the same amount of dollars can buy more deflated shares and properties. The rise in the purchasing power of the dollar inside the United States impacts its purchasing-power disparity with other currencies unevenly, causing sharp price instability in the economies with freely exchangeable currencies and fixed exchange rates, such as Hong Kong and until recently Argentina. For the US, a falling exchange rate of the dollar actually causes asset prices to rise. Thus with a debt bubble in the US economy, a strong dollar is not in the US national interest. Debt has turned US policy on the dollar on its head.

The setting of exchange values of currencies is practiced not only by sovereign governments on their own currencies as a sovereign right. The US, exploiting dollar hegemony, usurps the privilege of dictating the exchange value of all foreign currencies to support its own economic nationalism in the name of global free trade. And the US position on exchange rates has not been consistent. When the dollar was rising, as it did in the 1980s, the US, to protect its export trade, hailed the stabilizing wisdom of fixed exchange rates. When the dollar falls as it has been in recent years, the US, to deflect blame for its trade deficit, attacks fixed exchange rates as currency manipulation, as it now targets China's currency, which has been pegged to the dollar for more than a decade. How can a nation manipulate the exchange value of its currency when it is pegged to the dollar at the same rate over long periods? Any manipulation came from the dollar, not the yuan.

Economic nationalism

The recent rise of the euro against the dollar, the first appreciation wave since its introduction on January 1, 2002, is the result of an EU version of the 1985 Plaza Accord on the Japanese yen, albeit without a formal accord. The strategic purpose is more than merely moderating the US trade deficit. The record shows that even with a 30% drop of the dollar against the euro, the US trade deficit continued to climb. The strategic purpose of driving up the euro is to reduce it to the status of the yen, as a subordinated currency to dollar hegemony. The real effect of the Plaza Accord was to shift the cost of support for the dollar-denominated US trade deficit, and the socio-economic pain associated with that support, from the United States to Japan. What is happening to the euro now is far from being the beginning of the demise of the dollar. Rather, it is the beginning of the reduction of the euro into a subservient currency to the dollar to support the US debt bubble.

Six and a half years since the launch of the European Monetary Union, the eurozone is trapped in an environment in which monetary policy of sound money has in effect become destructive and supply-side fiscal policy unsustainable. National economies are beginning to refuse to bear the pain needed for adjustment to globalization or the EU's ambitious enlargement. The European nations are beginning to resist the US strategy to make the euro economy a captive supporter of a rising or falling dollar as such movements fit the shifting needs of US economic nationalism.

It is the modern-day monetary equivalent of the brilliant Roman strategy of making a dissident Jew a Christian god to preempt Judaism's rising cultural domination over Roman civilization. Roman law, the foundation of the Roman Empire, gained in sophistication from being influenced by, if not directly derived from, Jewish Talmudic law, particularly on the concept of equity - an eye for an eye. The Jews had devised a legal system based on the dignity of the individual and equality before the law four centuries before Christ. There was no written Roman law until two centuries before Christ. The Roman law of obligatio was not conducive to finance as it held that all indebtedness was personal, without institutional status. A creditor could not sell a note of indebtedness to another party and a debtor did not have to pay anyone except the original creditor. Talmudic law, on the other hand, recognized impersonal credit, and a debt had to be paid to whoever presented the demand note. This was a key development of modern finance. With the Talmud, the Jews under the Diaspora had an international law that spanned three continents and many cultures.

The Romans were faced with a dilemma. Secular Jewish ideas and values were permeating Roman society, but Judaism was an exclusive religion that the Romans were not permitted to join. The Romans could not assimilate the Jews as they did the Greeks. Early Christianity also kept its exclusionary trait until Paul, who opened Christianity to all. Historian Edward Gibbon (1737-94) noted that Rome recognized the Jews as a nation who as such were entitled to religious peculiarities. The Christians, on the other hand, were a sect and, being without a nation, subverted other nations. The Roman Jews were active in government and, when not resisting Rome against social injustice, fought side by side with Roman legionnaires to preserve the empire. Roman Jews were good Roman citizens. By contrast, the early Christians were social dropouts, refused responsibility in government and civic affairs and were conscientious objectors and pacifists in a militant culture. Gibbon noted that Rome felt that the crime of a Christian was not in what he did, but in being who he was.

Christianity gained control of Roman culture and society long before Constantine, who in AD 324 sanctioned it with political legitimacy and power after recognizing its power in helping to win wars against pagans, as pope Urban II in 1095 used the Crusade to prolong papal temporal power. When early Christianity, a secular Jewish dissident sect, began to move up from the lower strata of Roman society and began to find converts in the upper echelons, the Roman polity adopted Christianity, the least objectionable of all Jewish sects, as a state religion. Gibbon estimated that Christians killed more of their own members over religious disputes in the three centuries after coming to secular power than did the Romans in three previous centuries. Persecution of the Jews began in Christianized Rome. The disdain held by early Christianity for centralized government gave rise to monasticism and contributed to the fall of the Roman Empire.

By allowing a trade surplus denominated in dollars to be accumulated by non-dollar economies such as the yen, euro, or now the Chinese yuan, the cost of supporting the appropriate value of the US dollar to sustain perpetual economic growth in the dollar economy is then shifted to these non-dollar economies, which manifest themselves in perpetual relative low wages and weak domestic consumption. For the already high-wage EU and Japan, the penalty is the reduction of social-welfare benefits and job security traditional to these economies. China, now the world's second-largest creditor nation, it is reduced to having to ask the US, the world's largest debtor nation, for capital denominated in dollars the US can print at will to finance its export trade to a US running recurring trade deficits.

Market impotence against trade imbalance

The IMF, which has been ferocious in imposing draconian fiscal and monetary "conditionalities" on all debtor nations everywhere in the decade after the Cold War, is nowhere to be seen on the scene in the world's most fragrantly irresponsible debtor nation. This is because the US can print dollars at will and with immunity. The dollar is a fiat currency not backed by gold, not backed by US productivity, not backed by US export prowess, but backed by US military power. The US military budget request for Fiscal Year 2005 is $420.7 billion. For Fiscal Year 2004, it was $399.1 billion; for 2003, $396.1 billion; for 2002, $343.2 billion; and for 2001, $310 billion. In the first term of George W Bush's presidency, the US spent $1.5 trillion on its military. That is more than the entire gross domestic product of China in 2004. The US trade deficit is about 6% of its GDP, while it military budget is about 4%. In other words, the trading partners of the US are paying for one and a half times the cost of a military that can some day be used against any one of them for any number of reasons, including trade disputes. The anti-dollar crowd has nothing to celebrate about the recurring US trade deficit.

It is pathetic that Rumsfeld tries to persuade the world that China's military budget, which is less that one-tenth of that of the United States, is a threat to Asia, even when he is forced to acknowledge that Chinese military modernization is mostly focused on defending its coastal territories, not on force projection for distant conflicts, as is US military doctrine. While Rumsfeld urges more political freedom in China, his militant posture toward China is directly counterproductive toward that goal. Ironically, Rumsfeld chose to make his case about political freedom in Singapore, the bastion of Confucian authoritarianism.

Normally, according to free-trade theory, trade can only stay unbalanced temporarily before equilibrium is re-established or free trade would simply stop. When bilateral trade is temporarily unbalanced, it is generally because one trade partner has become temporarily uncompetitive, inefficient or unproductive. The partner with the trade deficit receives more goods and services from the partner with the trade surplus than it can offer in return and thus pays the difference with its currency that someday can buy foods produced by the deficit trade partner to re-established balance of payments. This temporary trade imbalance can be due to a number of socio-economic factors, such as terms of trade, wage levels, return on investment, regulatory regimes, shortages in labor or material or energy, trade-supporting infrastructure adequacy, purchasing power disparity, etc. A trading partner that runs a recurring trade deficit earns the reputation of being what banks call a habitual borrower, ie, a bad credit risk, one that habitually lives beyond its means. If the trade deficit is paid with its currency, a downward pressure results in the exchange rate. A flexible exchange rate seeks to remove or moderate a temporary trade imbalance while the productivity disparities between trading partners are being addressed fundamentally.

Dollar hegemony prevents US trade imbalance from returning to equilibrium through market forces. It allows a US trade deficit to persist based on monetary prowess. This translates over time into a falling exchange rate for the dollar even as dollar hegemony keeps the fall at a slow pace. But a below-par exchange rate over a long period can run the risk of turning the temporary imbalance in productivity into a permanent one. A continuously weakening currency condemns the issuing economy into a downward economic spiral. This has happened to the United States in the past decade. To make matters worse, with globalization of deregulated markets, the recurring US trade deficit is accompanied by an escalating loss of jobs in sectors sensitive to cross-border wage arbitrage, with the job-loss escalation climbing up the skill ladder. Discriminatory US immigration policies also prevent the retention of low-paying jobs within the US and exacerbate the illegal-immigration problem.

Regional wage arbitrage within the US in past decades kept its economy lean and productive internationally. Labor-intensive US industries relocated to the low-wage south of the country through regional wage arbitrage, and despite temporary adjustment pains from the loss of textile mills, the northern economies managed to upgrade their productivity, technology level, financial sophistication and output quality. The economies in the southern US also managed to upgrade these factors of production and in time managed to narrow the wage disparity within the national economy. This happened because the jobs stayed within the nation. With globalization, it is another story. Jobs are leaving the United States mercilessly. According to free-trade theory, the US trade deficit is supposed to cause the dollar to fall temporarily against the currencies of its trading partners, causing export competitiveness to rebalance, thereby removing or reducing the US trade deficit. Jobs that have been lost temporarily are then supposed to return to the US.

But the persistent US trade deficit defies trade theory because of dollar hegemony. The broad trade-weighted dollar index stays in an upward trend, despite selective appreciation of some strong currencies, as highly indebted emerging market economies attempt to extricate themselves from dollar-denominated debt through the devaluation of their currencies. While the aim is to subsidize exports, this ironically makes dollar debts more expensive in local-currency terms. The moderating impact on US price inflation also amplifies the upward trend of the trade-weighted dollar index despite persistent US expansion of monetary aggregates, also known as monetary easing or money printing.

Adjusting for this debt-driven increase in the exchange value of dollars, the import volume into the US can be estimated in relationship to expanding monetary aggregates. The annual growth of the volume of goods shipped to the United States has remained around 15% for most of the 1990s, more than five times the average annual GDP growth. The US enjoyed a booming economy when the dollar was gaining ground, and this occurred at a time when interest rates in the US were higher than those in its creditor nations. This led to the odd effect that raising interest rates actually prolonged the boom in the US rather than threatened it, because it caused massive inflows of liquidity into the US financial system, lowered import-price inflation, increased apparent productivity and prompted further spending by American consumers enriched by the wealth effect despite a slowing of wage increases. Returns on dollar assets stayed high in foreign-currency terms.

This was precisely what Greenspan did in the 1990s in the name of preemptive measures against inflation. Dollar hegemony enabled the US to print money to fight inflation, causing a debt bubble of asset appreciation. These data substantiated the view of the US as Rome in a New Roman Empire with an unending stream of imports as the free tribute from conquered lands. This was what Greenspan meant by US "financial hegemony".

The Fed Funds Rate (FFR)target has been lifted eight times in steps of 25 basis points from 1% in mid-2004 to 3% on May 3, 2005. If the same pattern of "measured pace" continues, the FFR target would be at 4.25% by the end of 2005. Despite Fed rhetoric, the lifting of dollar interest rates has more to do with preventing foreign central banks from selling dollar-denominated assets, such as US Treasuries, than with fighting inflation. In a debt-driven economy, high interest rates are themselves inflationary. Raising interest rates to fight inflation could become the monetary dog chasing its own interest-rate tail, with rising rates adding to rising inflation, which then requires more interest-rate hikes. Still, interest-rate policy is a double edged sword: it keeps funds from leaving the debt bubble, but it can also puncture the debt bubble by making the servicing of debt prohibitively expensive.

To prevent this last adverse effect, the Fed adds to the money supply, creating an unnatural condition of abundant liquidity with rising short-term interest rates, resulting in a narrowing of interest spread between short-term and long-term debts, a leading indication for inevitable recession down the road. The problem of adding to the money supply is what John Maynard Keynes called the liquidity trap, that is, an absolute preference for liquidity even at near-zero interest-rate levels. Keynes argued that either a liquidity trap or interest-insensitive investment draft could render monetary expansion ineffective in a recession. It is what is popularly called pushing on a credit string, where ample money cannot find creditworthy willing borrowers. Much of the new low-cost money tends to go to refinancing existing debt taken out at previously higher interest rates. Rising short-term interest rates, particularly at a measured pace, would not remove the liquidity trap while long-term rates stay flat because of excess liquidity.

The debt bubble in the US is clearly having problems, as evident in the bond market. With just 14 deals worth $2.9 billion, May 2005 was the slowest month for high-yield bond issuance since October 2002. The late-April downgrades of the debt of General Motors and Ford Motor to junk status roiled the bond markets. The number of high-yield, or junk-bond, deals fell 55% in the March-to-May 2005 period compared with the same three months in 2004. They were also down 45% from the December-through-February period. In dollar value, junk-bond deals totaled $17.6 billion in the March-to-May 2005 period, compared with $39.5 billion during the same three months in 2004 and $36 billion from December 2004 through February 2005. There were 407 deals of investment-grade bond underwriting during the March-to-May 2005 period, compared with 522 in the same period 2004 - a decline of 22%. In dollar volume, some $153.9 billion of high-grade bonds were underwritten from March to May 2005, compared with $165.5 billion in the same period in 2004 - a 7% decline.

Oil at $50 a barrel, along with astronomical asset-price appreciation, particularly in real estate, is giving the debt bubble additional borrowed time. But this game cannot go on forever and the end will likely be triggered by a new trade war's effect on reduced trade volume. The price of a reduced US trade deficit is the bursting of the US debt bubble, which could plunge the world economy into a new depression. Given such options, the United States has no choice but to ride the trade-deficit train for as long as the traffic will bear, which may not be too long, particularly if protectionism begins to gather force.

The transition to offshore outsourced production has been the source of the productivity boom of the "New Economy" in the US in the past decade. The productivity increase not attributable to the importing of other nations' productivity is much less impressive. While published government figures of the productivity index show a rise of nearly 70% since 1974, the actual rise is between zero and 10% in many sectors if the effect of imports is removed from the equation. The lower productivity values are consistent with the real-life experience of members of the blue-collar working class and the white-collar middle class who have been spending the equity cash-outs from the appreciated market value of their homes. World trade has become a network of cross-border arbitrage on differentials in labor availability, wages, interest rates, exchange rates, prices, saving rates, productive capacities, liquidity conditions and debt levels. In some of these areas, the US is becoming an underdeveloped economy.

The Bush administration continues to assure the US public that the state of the economy is sound while in reality the country has been losing entire sectors of its economy, such as manufacturing and information technology, to foreign producers, while at the same time selling off part of the nation to finance its rising and unending trade deficit. Usually, when unjustified confidence crosses over to fantasized hubris on the part of policymakers, disaster is not far ahead.

The Clinton legacy

To be fair, the problems of the US economy started before the administration of George W Bush. The Clinton administration's annual economic report for 2000 claimed that the longest economic expansion in US history could continue "indefinitely" as long as "we stick to sound policy", according to chairman Martin Baily of the Council of Economic Advisers (CEA) as reported in the Wall Street Journal. A New York Times report differed somewhat by quoting Baily as saying: "stick to fiscal policy." Putting the two newspaper reports together, one got the sense that the Clinton administration thought its fiscal policy was the sound policy needed to put an end to the business cycle. Economics high priests in government, unlike the rest of us mortals who are unfortunate enough to have to float in the daily turbulence of the market, can afford to focus aloofly on long-term trends and their structural congruence to macro-economic theories. Yet outside of macro-economics, "long-term" is increasingly being redefined in the real world. In the technology and communication sectors, "long-term" evokes periods lasting less than five years. For hedge funds and quant shops, long-term can mean a matter of weeks.

Two factors were identified by the Clinton CEA Year 2000 economic report as contributing to the "good" news - technology-driven productivity and neo-liberal trade globalization. Even with somewhat slower productivity and spending growth, the CEA believed the economy could continue to expand perpetually. As for the huge and growing trade deficit, the CEA expected global recovery to boost demand for US exports, not withstanding the fact that most US exports are increasingly composed of imported parts.

Yet the United States has long officially pursued a strong-dollar policy that weakens world demand for US exports. The high expectation on e-commerce was a big part of optimism, which had yet to be substantiated by data. In 2000, the CEA expected the business to business (B2B) portion of e-commerce to rise to $1.3 trillion by 2003 from $43 billion in 1998. Goldman Sachs claimed in 1999 that B2B e-commerce would reach $1.5 trillion by 2004, twice the size of the combined 1998 revenues of the US auto industry and the US telecom sector. Others were more cautious. Jupiter Research projected that companies around the globe would increase their spending on B2B e-marketplaces from US$2.6 billion in 2000 to only $137.2 billion by 2005 and spending in North America alone would grow from $2.1 billion to only $80.9 billion. North American companies accounted for 81% of the total spending in 1998, but by 2005, that figure was expected to drop to 60% of the total. The fact of the matter is that Asia and Europe are now faster growth markets for communication and technology.
Reality proved disappointing. A 2004 UN Conference on Trade and Development (UNCTAD) report said that in the United States, e-commerce between enterprises, which in 2002 represented almost 93% of all e-commerce, accounted for 16.28% of all commercial transactions between enterprises. While overall transactions between enterprises (e-commerce and non e-commerce) fell in 2002, e-commerce B2B grew at an annual rate of 6.1%. As for business-to-consumer (B2C) e-commerce, UNCTAD reported that sales in the first quarter of 2004 amounted to 1.9% of total retail sales, a proportion nearly twice as large as that recorded in 2001. The annual rate of growth of retail e-commerce in the US in the year to the end of the first quarter of 2004 was 28.1%, while the growth of total retail in the same period was only 8.8%. Dow Jones reported on May 20, 2005, that first-quarter retail e-commerce sales in the US rose 23.8% compared with the year-ago period to $19.8 billion from $16 billion, according to preliminary numbers released by the Department of Commerce. E-commerce sales during the first quarter rose 6.4% from the fourth quarter, when they were $18.6 billion. Sales for all periods are on an adjusted basis, meaning the Commerce Department adjusts them for seasonal variations and holiday and trading-day differences but not for price changes.

E-commerce sales accounted for 2.2% of total retail sales in the first quarter of 2005, when those sales were an estimated $916.9 billion, according to the Commerce Department. Wal-Mart, the low-priced retailer that imports outsourced goods from overseas, grew only 2%, indicating spending fatigue on the part of low-income US consumers, while Target Stores, the upscale retailer that also imports outsourced goods, continued to grow at 7%, indicating the effects of rising income disparity.

The CEA 2000 report did not address the question of whether e-commerce was merely a shift of commerce or a real growth. The possibility exists for the new technology to generate negative growth. It happened to IBM - the increased efficiency (lower unit cost of calculation power) of IBM big frames actually reduced overall IBM sales, and most of the profit and growth in personal computers went to Microsoft, the software company that grew on business that IBM, a self-professed hardware manufacturer, did not consider worthy of keeping for itself. The same thing happened to Intel, where in 1965 company co-founder Gordon Moore observed an exponential growth in the number of transistors per integrated circuit and predicted that this trend would continue the doubling of transistors every couple of years. But what this so-called Moore's Law did not predict was that this growth of computing power per dollar would cut into company profitability. As the market price of computer power continues to fall, the cost to producers to achieve Moore's Law has followed the opposite trend: research and development, manufacturing, and test costs have increased steadily with each new generation of chips. As the fixed cost of semiconductor production continues to increase, manufacturers must sell larger and larger quantities of chips to remain profitable. In recent years, analysts have observed a decline in the number of "design starts" at advanced process nodes. While these observations were made in the period after the year 2000 economic downturn, the decline may be evidence that the long-term global market cannot economically sustain Moore's Law. Is the Google bubble a replay of the AOL fiasco?

Joseph Alois Schumepter's creative destruction theory, while revitalizing the macro-economy with technological obsolescence in the long run, leaves real corporate bodies in its path, not just obsolete theoretical concepts. Financial intermediaries and stock exchanges face challenges from electronic communication networks (ECNs), which may well turn the likes of the New York Stock Exchange (NYSE) into sunset industries. ECNs are electronic marketplaces that bring buy/sell orders together and match them in virtual space. Today, ECNs handle roughly 25% of the volume in Nasdaq stocks. The NYSE and the Archipelago Exchange (ArcaEx) announced on April 20 that they had entered a definitive merger agreement that will lead to a combined entity, NYSE Group Inc, becoming a publicly held company. If approved by regulators, NYSE members and Archipelago shareholders, the merger will represent the largest-ever among securities exchanges and combine the world's leading equities market with the most successful totally open, fully electronic exchange. Through Archipelago, the NYSE will compete for the first time in the trading of Nasdaq -listed stocks; it will be able to indirectly capture listings business that otherwise would not qualify to list on the NYSE. Archipelago lists stocks of companies that do not meet the NYSE's listing standards.

On fiscal policy, US government spending, including social programs and defense, declined as a share of the economy during the eight years of the Clinton watch. This in no small way contributed to a polarization of both income and wealth, with visible distortions in both the demand and supply sides of the economy. This was the opposite of the Roosevelt administration's record of increasing income and wealth equality by policy. The wealth effect tied to bloated equity and real-estate markets could reverse suddenly and did in 2000, bailed out only by the Bush tax cut and the deficit spending on the "war on terrorism" after 2001. Private debt kept hitting all-time highs throughout the 1990s and was celebrated by neo-liberal economists as a positive factor. Household spending was heavily based on expected rising future earnings or paper profits, both of which might and did vanish on short notice. By election time in November 1999, the Clinton economic miracle was fizzling. The business cycle had not ended after all, and certainly not by self-aggrandizing government policies. It merely got postponed for a more severe crash later. The idea of ending the business cycle in a market economy was as much a fantasy as the assertion by the current vice president, Richard Cheney, in a speech before the Veterans of Foreign Wars in August 26, 2002, that "the Middle East expert Professor Fouad Ajami predicts that after liberation, the streets in Basra and Baghdad are sure to erupt in joy ..."

In their 1991 populist campaign for the White House, Bill Clinton and Al Gore repeatedly pointed out the obscenity of the top 1% of Americans owning 40% of the country's wealth. They also said that if you eliminated home ownership and only counted businesses, factories and offices, then the top 1% owned 90% of all commercial wealth. And the top 10%, they said, owned 99%. It was a situation they pledged to change if elected. But once in office, president Clinton and vice president Gore did nothing to redistribute wealth more equally - despite the fact that their two terms in office spanned the economic joyride of the 1990s that would eventually hurt the poor much more severely than the rich. On the contrary, economic inequality only continued to grow under the Democrats. Reagan spread the national debt equally among the people while Clinton gave all the wealth to the rich.

Rising resistance to globalization
Geopolitically, trade globalization was beginning to face complex resistance worldwide by the second term of the Clinton presidency. The momentum of resistance after Clinton would either slow further globalization or force the terms of trade to be revised. The Asian financial crises of 1997 revived economic nationalism around the world against US-led neo-liberal globalization, while the North Atlantic Treaty Organization (NATO) attack on Yugoslavia in 1999 revived militarism in the EU. Market fundamentalism as espoused by the United States, far from being a valid science universally, was increasingly viewed by the rest of the world as merely US national ideology, unsupported even by US historical conditions. Just as anti-Napoleonic internationalism was in essence anti-French, anti-globalization and anti-moral-imperialism are in essence anti-US. US unilateralism and exceptionalism became the midwife for a new revival of political and economic nationalism everywhere. The Bush Doctrine of monopolistic nuclear posture, preemptive wars, "either with us or against us" extremism, and no compromise with states that allegedly support terrorism pours gasoline on the smoldering fire of defensive nationalism everywhere.

Alan Greenspan in his October 29, 1997, congressional testimony on "Turbulence in World Financial Markets" before the Joint Economic Committee said that "it is quite conceivable that a few years hence we will look back at this episode [Asian financial crisis of 1997] ... as a salutary event in terms of its implications for the macro-economy". When one is focused only on the big picture, details do not make much of a difference: the Earth always appears more or less round from space, despite that some people on it spend their whole lives starving and cities get destroyed by war or natural disasters. That is the problem with macro-economics. As Greenspan spoke, many around the world were waking up to the realization that the turbulence in their own financial markets was viewed by the US central banker as having a "salutary effect" on the US macro-economy. Greenspan gave anti-US sentiments and monetary trade protectionism held by participants in these financial markets a solid basis and they were no longer accused of being mere paranoia.

Ironically, after the end of the Cold War, market capitalism has emerged as the most fervent force for revolutionary change. Finance capitalism became inherently democratic once the bulk of capital began to come from the pension assets of workers, despite widening income and wealth disparity. The monetary value of US pension funds is more than $15 trillion, the bulk of which belongs to average workers. A new form of social capitalism emerged that would gladly eliminate the worker's job in order to give him or her a higher return on his or her pension account. The capitalist in the individual is exploiting the worker in the same individual. A conflict of interest arises between a worker's savings and his or her earnings. As Pogo used to say: "The enemy: they are us." This social capitalism, by favoring return on capital over compensation for labor, produces overinvestment, resulting in overcapacity. But the problem of overcapacity can only be solved by high-income consumers. Unemployment and underemployment in an economy of overcapacity decrease demand, leading to financial collapse. The world economy needs low wages the way the cattle business needs foot-and-mouth disease.

The nomenclature of neo-classical economics reflects, and in turn dictates, the warped logic of the economic system it produces. Terms such as money, capital, labor, debt, interest, profits, employment, market, etc have been conceptualized to describe synthetic components of an artificial material system created by the power politics of greed. It is the capitalist greed in the worker that causes the loss of his or her job to lower-wage earners overseas. The concept of the economic man who presumably always acts in his self-interest is a gross abstraction based on the flawed assumption of market participants acting with perfect and equal information and clear understanding of the implication of his actions. The pervasive use of these terms over time disguises the artificial system as the logical product of natural laws, rather than the conceptual components of the power politics of greed.

Just as monarchism first emerged as a progressive force against feudalism by rationalizing itself as a natural law of politics and eventually brought about its own demise by betraying its progressive mandate, social capitalism today places return on capital above not only the worker but also the welfare of the owner of capital. The class struggle has been internalized within each worker. As people facing the hard choice of survival in the present versus well-being in the future, they will always choose survival, and social capitalism will inevitably go the way of absolute monarchism, and make way for humanist socialism.

Henry C K Liu is chairman of the New York-based Liu Investment Group.

(Copyright 2005 Asia Times Online Ltd

Would that even today you knew the things that make for peace! But now they are hid from your eyes. For the days shall come upon you, when your enemies will cast up a bank about you and surround you, and hem you in on every side, and dash you to the ground, you and your children within you, and they will not leave one stone upon another in you; because you did not know the time of your visitation.

Luke 19:42-44

From the Revised Standard Version of the Bible, copyright 1946, 1952, 1971 by the Division of Christian Education of the National Council of the Churches of Christ in the USA.

What Are You Going To Do Now America?

By Nolan K. Anderson 

06/14/05 "ICH" - - In reading articles on our present, progressive police state of today, I am impressed that some of we (Americans) are beginning to notice the decay of our government that has been going on for years - and not just under this administration that has slithered into the White House for a second time. All the things we are seeing in our mestasizing society have been going on for years. The School Of the Americas was founded in 1946 in Panama and then moved to Ft. Benning Georgia. One of the items on the income side of the "Balance of Payments Ledger" for the US has been the SOA’s export of terrorism and tyranny for almost 60 years. We Americans, who have closed our eyes to this pus filled pustule are beginning to see what it means to be on the receiving end of American style terrorism. We must be careful to remember that it is we Americans who elect the political maggots that design and implement these techniques for export to the rest of the world. General Smedley Butler gave us a detailed description of our war-mongering 70 years ago. We Americans will soon wake up to find that while we worry about the “lesser of the evils” at the ballot box, either of the “evils” is going to continue exporting terrorism through the CIA, The School of the Americas and the cultivation of “valuable” despots and tyrants around the world. 

No, what we are seeing now did not start with George Bush. However, a few short years ago I would have thought our offshore gulags, incarceration for life without the benefit of indictment, trial, habeas corpus or access to legal counsel and subject to torture at any whim of the jailers to be something written by some Hollywood pervert for a new horror film. Today, all these things are just "business as usual" for our merry bunch of War Criminals who dominate our country and the rest of the world safely from The White House and Pentagon. Today we Americans close our eyes to these things, pretend they are retaliation for 9/11, feel secure in knowing that our government is only bringing "democracy" to a nation sitting on the power to keep our SUV's on the road or in the garage. ("Why, they really could have been responsible for 9/11"). We listened to Rush Limbaugh and Neal Boortz as they beat the drums for the invasion of a virtually powerless country based on the lies and deceit of a megalomaniac and his poodle. We listen and applaud as Limbaugh compares Abu Ghraib interrogation techniques to normal college fraternity pranks. (No, we don’t cut people’s heads off in front of a camera, but then again, we don’t hang a handcuffed prisoner on his cell door and beat him to death with a baseball bat over four days in front of a camera either. We did this off camera).

How did we Americans get to the point where sadists and torturers are accepted as the “norm” for our military, contract mercenaries and CIA interrogators? Why do we Americans know so little about our military’s part in the Afghan “convoy of death”? How do we explain to our children how the actions of our troops in Falluja differ from Hitler’s Waffen SS and Stalin’s NKVD? How do we explain the difference between our gulags and Stalin’s. How do we explain that we “bought” many of our gulag prisoners from Afghan warlords, tortured them for nonexistent or irrelevant intelligence, and now are trying to keep them prisoners indefinitely with no charges? Do we just continue to watch what is being done in our name and do what we have been doing – nothing - and hope for a different result?

We Americans closed our eyes while Henry Kissinger worked his magic with Nixon on Viet Nam, Laos and Cambodia. Not only did we close our eyes, but we gave Henry a Nobel Prize for "PEACE", before we turned him out to the pasture filled with other tyrants seeking advice on how to steal and kill the helpless ones of the world standing in the way of further riches and political power. Most Americans were and are unaware that there is even such a thing as “Economic Hit Men”. We have no idea that these “Economic Assassins” represent America, the World Bank and the International Monetary Fund in tandem with conventional CIA assassins in an enterprise of robbing poor nations of whatever resource wealth their countries may have.

We closed our eyes and minds to Ruby Ridge (except as entertainment during our six o'clock evening meal). We watched Waco unfold before our eyes with its black smoke and black clad Gestapo (luckily the sound was turned down so we didn't have to put up with the screams of the women and children as they were gassed and cremated). We were so terribly shocked at that wretch, Sadaam Hussein, using the chemical weapons we sold him to gas those pesky Kurds. We condemned Sadaam before the world for his crimes against humanity in "gassing his own people". (The Branch Davidians apparently weren't "our" people).

Sunday we will go to church and "pray for the divine guidance of our president". We will pray for a moral midget whose only claim to fame was being AWOL from the military and being so insignificant that he wasn't even missed for two years. 

Yes, in a mere 229 years we have robbed this beautiful country of ours from its owners, exploited its resources for the benefit of a few "philanthropists" and are powerful enough to convince the whole world that "might is right". (Some of us can even convince ourselves). Today, as we sit safely in front of our televisions, we are assured that our government would never use the techniques of Abu Ghraib against we citizens. We are Americans!!!. We are good!!! We are unique and the lessons of history don’t apply to us!!! 

We were careful not to let our government become too powerful, just as our founding fathers warned us not to do. It doesn't occur to us that our government's actions against others, even our enemies, is nothing more than a glimpse at the power it is willing and capable of exerting against us the moment it is convinced that WE, the people, present a problem to IT and ITS POWER. If you doubt this proposition, think about who Jose Padilla is and WHERE he has been for the last 3 years and one month. Think about Randy Weaver and the Branch Davidians. Think about the value of past Washington treaties and agreements with the American Indian. Ask yourself how a normally supine and corrupt American Congress could rally itself long enough to pass The Patriot Act I and begin the ritual of approving a forgone conclusion as it further debases the Constitution with the Patriot Act II. Ask yourself if you are going to feel safer with the new “National Identity Card” and a billion Muslims who hate the thought that any American is still breathing.

So, what are you going to do America? Now that the floodgates of duplicity have been opened in Britain concerning the manipulation of intelligence on Iraq’s WMD by our president and his advisors, what are you going to do America? Continue to pray for American success in Iraq? And after Iraq, will you pray for our success in Iran, and Syria and North Korea? Or, will you begin to think about the impeachment of a scoundrel who has robbed our country of its rightful place in the world of civilized nations? A scoundrel whose “defense” budget for next year will equal the defense budget of the rest of the world combined? When are you going to start objecting to the crass corruption involved with the destruction/reconstruction of a defeated country we invaded in order to steal its resources? When are you going to recognize the proof of our Scoundrel-in-Chief having lied us into invading a country that offered no threat to our country? Does it make you feel good Mr./Mrs./Ms. America that we have abandoned any semblance of humanitarianism by discarding the Geneva Convention and allowing such things as Abu Ghraib, Guantanamo and Diego Garcia to exist in our names? How safe do you feel walking the streets of Cairo or any other Muslim city/state as a tourist? Do you feel safe as a tourist in Tel Aviv? For that matter, how safe do you feel in climbing aboard an airplane in the United States even after that little old lady next to you has had her finger nail clippers confiscated?

Nolan K. Anderson is a retired engineer and a veteran of Korea who was once a “conservative” until he found there was nothing left to conserve. (He may be reached at nkanders@bellsouth.net ).

Copyright © Information Clearing House.

The Ties That Bind China, Russia and Iran

By Jephraim P Gundzik

The military implementation of the George W Bush administration's unilateralist foreign policy is creating monumental changes in the world's geostrategic alliances. The most significant of these changes is the formation of a new triangle comprised of China, Iran and Russia.

Growing ties between Moscow and Beijing in the past 18 months is an important geopolitical event that has gone practically unnoticed. China's premier, Wen Jiabao, visited Russia in September 2004. In October 2004, President Vladimir Putin visited China. During the October meeting, both China and Russia declared that Sino-Russian relations had reached "unparalleled heights". In addition to settling long-standing border issues, Moscow and Beijing agreed to hold joint military exercises in 2005. This marks the first large-scale military exercises between Russia and China since 1958.

The joint military exercises complement a rapidly growing arms trade between Moscow and Beijing. China is Russia's largest buyer of military equipment. In 2004, China was reported to have signed deals worth more than $2 billion for Russian arms. These included naval ships and submarines, missile systems and aircraft. According to the head of Russia's armed forces, Anatoliy Kvashnin, "our defense industrial complex is working for this country [China], supplying the latest models of arms and military equipment, which the Russian army does not have". Russia's relations with China are not limited to military trade. In the past five years, non-military trade between Russia and China has increased at an average annual rate of nearly 20%. Moscow and Beijing have targeted non-military trade to reach $60 billion by 2010, from $20 billion in 2004. One of the key components of commercial trade is Russian energy exports to China.

In early 2005, Moscow agreed to more than double electricity exports to China, to 800 million kilowatt hours (kWh), by 2006. Officials at Russia's electricity monopoly, Unified Energy Systems, are also courting Chinese investment in the development and renovation of Russia's electricity system. In October 2004, the China National Petroleum Corporation (CNPC) and Russia's Gazprom signed a series of agreements intended to study how Russia can best supply natural gas to China. At the same time, Russia signed specific agreements with China on oil exports.

Russia's oil shipments to China are slated to reach 10 million tons in 2005, increasing to 15 million tons in 2006. All of these shipments will be made by rail. However, this agreement was overshadowed by talks concerning the construction of an oil pipeline from Siberia to northern China. Russia has been pondering an oil pipeline to China for nearly 10 years. In 2002, plans for this pipeline received a boost when Moscow pledged to invest $2 billion in an oil pipeline running from the Siberian city of Angarsk to Daqing in northeastern China.

At the end of 2004, Russian officials announced that rather than running into China, the new mega pipeline would terminate in Russia's Pacific port of Nakhodka. Japan lobbied Moscow hard for this configuration, offering to finance the entire construction project, the cost of which is estimated to exceed $10 billion. In addition to a readily available financing source, the Nakhodka pipeline will remain entirely in Russian territory, allowing Moscow complete control over the oil flow.

Many analysts viewed Moscow's decision as a blow to relations with China. Though the pipeline does not terminate in China, it does pass within 40 miles of Russia's border with China. A spur from this pipeline to China would be inexpensive, while further diversifying the market for annual oil flows expected to reach 80 million tons. In other words, why should either Moscow or Beijing finance an eastern oil pipeline when Tokyo is bending over backwards to provide such financing?

More indicative of Russia's deepening energy relations with China are the circumstances surrounding the renationalization of Russian oil major Yukos. Yukos was the only Russian company exporting oil to China. Russia's government effectively renationalized Yukos in late 2004 when it seized the company's primary production unit, Yuganskneftegaz, and auctioned it off to the highest bidder. Yuganskneftegaz, located in Siberia, is Russia's second-largest oil producer.

Through somewhat twisted means, Russia's state-owned oil company, Rosneft, acquired Yuganskneftegaz for $9.3 billion. In December 2004, Russia's Industry and Energy Minister Viktor Khristenko offered the CNPC a 20% stake in Yuganskneftegaz. In February 2005, Russian Finance Minister Alexei Kudrin revealed that Chinese banks provided $6 billion in financing for Rosneft's acquisition of Yuganskneftegaz. This financing was secured by long-term oil delivery contracts between Rosneft and the CNPC.

It is unclear whether the CNPC owns a portion of Yuganskneftegaz. However, in March, Russian authorities approved a merger between state-owned gas company Gazprom and Rosneft. This merger excludes Yuganskneftegaz, which will remain a separate state-owned company. It is possible that Yuganskneftegaz was left a stand-alone unit to facilitate China's investment in the company.

China's involvement in the renationalization of Yukos represents the most significant foreign participation in Russia's highly guarded oil sector. The CNPC is also involved in several joint ventures with Russia's state-owned gas company, Gazprom. These include ventures to develop energy reserves in Iran, the home of China's largest energy-related investments.

Beijing and Moscow warm to Tehran.
In March 2004, China's state-owned oil trading company, Zhuhai Zhenrong Corporation, signed a 25-year deal to import 110 million tons of liquefied natural gas (LNG) from Iran. This was followed by a much larger deal between another of China's state-owned oil companies, Sinopec, and Iran, signed in October 2004. This deal, worth about $100 billion, allows China to import a further 250 million tons of LNG from Iran's Yadavaran oilfield over a 25-year period. In addition to LNG, the Yadavaran deal provides China with 150,000 barrels per day of crude oil over the same period.

This huge deal also enlists substantial Chinese investment in Iranian energy exploration, drilling and production as well as in petrochemical and natural gas infrastructure. Total Chinese investment targeted toward Iran's energy sector could exceed a further $100 billion over 25 years. At the end of 2004, China became Iran's top oil export market. Apart from the oil and natural gas delivery contracts, the massive investment being undertaken by China's state-owned oil companies in Iran's energy sector contravenes the US Iran-Libya Sanctions Act. This law penalizes foreign companies for investing more than $20 million in either Libya or Iran.

Side-stepping US laws is nothing new for China. Beijing, as well as Moscow, has supplied Tehran with advanced missiles and missile technology since the mid-1980s. In addition to anti-ship missiles like the Silkworm, China has sold Iran surface-to-surface cruise missiles and, along with Russia, assisted in the development of Iran's long-range ballistic missiles. This assistance included the development of Iran's Shihab-3 and Shihab-4 missiles, with a range of about 2,000 kilometers. Iran is also reportedly developing missiles with ranges approaching 3,000 kilometers.

In late 2004, former secretary of state Colin Powell asserted that Iran was working to adapt its long-range ballistic missiles to carry nuclear warheads. China was also believed to be producing several new types of guided anti-ship missiles for Iran in 2004. China's and Russia's sales of missiles and missile technology as well as missile development assistance contravenes the US-Irannon-proliferation act of 2000. This act specifically states that sanctions will be "imposed on countries whose companies provide assistance to Iran in its efforts to acquire weapons of mass destruction and missile delivery systems".

In the past several years a number of Chinese and Russian companies have faced US sanctions for selling missiles and missile technology to Iran. Rather than slowing or stopping such sales, the pace of missile acquisition and development in Iran has accelerated. Like relations between China and Russia and China and Iran, Russia's relations with Iran have also advanced considerably in the past 18 months. In addition to increased investment in Iran by Russia and burgeoning arms trade between the two countries, Russia has been heavily involved in Iran's nascent nuclear energy industry.

After much wrangling and repeated US intervention, Russia and Iran finally signed, in February, a deal clearing the way for the shipment of Russian nuclear fuel to Iran's nuclear power plant at Bushehr. Washington's primary concern about Bushehr is the intended use of the plant's spent nuclear fuel. This fuel can be discarded, reprocessed, or used in the manufacture of weapons-grade plutonium. In an effort to assure Washington that the last of these three possibilities will not come to pass, Moscow has promised that all the spent fuel from Bushehr will be returned to Russia.

Nonetheless, Washington continues to believe that Bushehr's start-up will advance Tehran's supposed nuclear weapons program. Though evidence of an Iranian weapons program is sparse, the US remains convinced that Iran is working to develop nuclear weapons with Russian assistance.

The new geostrategic alliance
Along with energy trade, investment and economic development, the China-Iran-Russia alliance has cultivated compatible foreign policies. China, Iran and Russia have identical foreign policy positions regarding Taiwan and Chechnya. China and Iran fully support the Putin government's war against the Chechen separatists (Iran's self-described status as an "Islamic republic" notwithstanding). Russia and Iran support Beijing's one-China policy. The recent promulgation of China's anti-secession law, aimed at making Beijing's intolerance of Taiwanese independence explicit, was heartily commended in both Moscow and Tehran.

The most compelling aspect of this alliance is revealed in China's and Russia's support for Iran's much-maligned nuclear energy program. The Putin government has consistently maintained that Russia would not support UN Security Council resolutions that condemn Iran's nuclear energy program or apply economic sanctions against Iran. In February, Putin said he was convinced Iran was not seeking to develop nuclear weapons and announced plans to visit the country, in support of Tehran, just prior to his summit with President Bush.

Beijing has echoed Moscow's opposition to UN action against Iran. After concluding the historic gas and oil deal between China and Iran in October 2004, China's Foreign Minister Li Zhaoxing announced that China would not support UN Security Council action against Iran's nuclear energy program. Opposition in Moscow and Beijing to UN action against Iran is significant because both countries hold UN Security Council veto power.

The endorsement of Tehran's nuclear energy program by Moscow and Beijing reveals the primary impetus behind the China-Iran-Russia axis - to counter US unilateralism and global hegemonic intentions. For Beijing and Moscow, this means minimizing US influence in Asia, Central Asia and the Middle East. For the regime in Tehran, keeping the US at bay is a matter of survival.

The joint statement issued at the conclusion of Putin's state visit to China in October 2004 was a clear indication of Beijing's and Moscow's abhorrence of the Bush administration's unilateral foreign policy. The statement noted that China and Russia "hold that it is urgently needed to [resolve] international disputes under the chairing of the UN and resolve crisis [sic] on the basis of universally recognized principles of international law. Any coercive action should only be taken with the approval of the UN Security Council and enforced under its supervision..."

Two weeks after this statement was released, and just prior to the US presidential election, Beijing's position against US unilateralism was again made explicit by China's former foreign minister Qian Qichen - arguably China's most distinguished diplomat.

In an opinion piece published in the state-controlled China Daily, Qian ripped Washington's unilateralism: "The United States has tightened its control of the Middle East, Central Asia, Southeast Asia and Northeast Asia." He noted that this control "testifies that Washington's anti-terror campaign has already gone beyond the scope of self defense". Qian went further, stating that: "The US case in Iraq has caused the Muslim world and Arab countries to believe that the superpower already regards them as targets [for] its ambitious democratic reform program."

To China and Russia, Washington's "democratic reform program" is a thinly disguised method for the US to militarily dispose of unfriendly regimes in order to ensure the country's primacy as the world's sole superpower. The China-Iran-Russia alliance can be considered as Beijing's and Moscow's counterpunch to Washington's global ambitions. From this perspective, Iran is integral to thwarting the Bush administration's foreign policy goals. This is precisely why Beijing and Moscow have strengthened their economic and diplomatic ties with Tehran. It is also why Beijing and Moscow are providing Tehran with increasingly sophisticated weapons.

Jephraim P Gundzik is president of Condor Advisers, Inc. Condor Advisers provides emerging markets investment risk analysis to individuals and institutions globally. Please visit us for further information.

(Copyright 2005 Asia Times Online Ltd.

Tomgram: Jonathan Schell on Crossing Nuclear Thresholds

Call it Star Wars, parts VII-XXII; but last week, just as Revenge of the Sith was opening galaxy-wide -- multiplexes on Tatooine alone were expected to pull in billions -- reporter Tim Weiner revealed on the front page of the New York Times that a new presidential directive will soon essentially green-light the future U.S. militarization of space. (When, in December 2001, the administration withdrew from the Antiballistic Missile Treaty, which forbade the weaponization of space, it opened the way for exactly the kind of Pentagon R&D that now threatens to come to mutant fruition in the heavens.) Just three days before Weiner's piece appeared, military analyst William Arkin reported in the Washington Post that "[e]arly last summer, Defense Secretary Donald H. Rumsfeld approved a top secret 'Interim Global Strike Alert Order,'" preparing the way for devastating attacks against hostile powers developing weapons of mass destruction, air strikes that could be carried out more or less on demand anywhere on the planet and, if so desired, included a "nuclear option."

These two actions don't represent separate worlds of planning. One of the imagined future weapons for Rumsfeld's "global strike" force, for instance, turns out to be a CAV (Common Aero Vehicle) which, from space, could theoretically hit any target on Earth with a massive dose of conventional munitions on half an hour's notice. Of this weapon, the Washington Post's Walter Pincus wrote, "The first-generation CAV, expected to be ready by 2010, will have ‘an incredible capability to provide the warfighter with a global reach capability against high payoff targets,' Gen. Lance W. Lord, commander of Air Force Space Command, told the House Armed Services Committee… The system could, Lord said, ‘deliver a conventional payload precisely on target within minutes of a valid command and control release order.'"

Such "global strike" space weaponry, while not (yet) nuclearized, would not be far off in impact. For instance, according to Weiner, one such weapon, Hypervelocity Rod Bundles (nicknamed "Rods from God"), aims "to hurl cylinders of tungsten, titanium or uranium from the edge of space to destroy targets on the ground, striking at speeds of about 7,200 miles an hour with the force of a small nuclear weapon." In this way, the boundaries between the previously almost unusable nuclear option and more conventional war-fighting options are slowly -- and quite consciously -- being blurred by the Bush administration.

Let's put a label on these developments: Proliferation. In space as on Earth, the Bush strategists have an almost primal urge to cross strategic and weapons barriers and thresholds of all sorts, and head into uncharted territory; or, as an old TV space opera used to put it, "boldly to go where no man has gone before." (On Star Trek, though, the voyages of the USS Enterprise were, at least theoretically, peaceful in nature, and the announcement of the next destination didn't automatically end with an explosion.)

Perhaps there's another label that might capture even better the administration's primal global urge -- in this case, a label much beloved by the Air Force Space Command, those "Guardians of the High Frontier" (as they so flatteringly like to call themselves): "dominance" or "space superiority." ("Space superiority is not our birthright, but it is our destiny," [Space Command's General Lord] told an Air Force conference in September. "Space superiority is our day-to-day mission. Space supremacy is our vision for the future.") In the old Army Air Corps anthem, airmen sang of taking off "into the wild blue yonder, climbing high into the sun"; now I suppose it should be "the wild, black yonder."

There has been much on-line controversy lately about whether the new Star Wars movie is an attack on the Bush administration. One thing can certainly be said: Where Star Wars went long ago, Bush administration fantasies are now heading. After all, what is a CAV, but a little "Death Star," that terrible, planet-destroying instrument of the on-screen Evil Empire. As Theresa Hitchens of the Center for Defense Information pointed out in a recent article, "[O]rbiting 'death stars' to attack ground targets are being considered. Pete Teets, the former acting secretary of the U.S. Air Force has said: 'We haven't reached the point of strafing and bombing from space - nonetheless, we are thinking about those possibilities.'"

In fact, "thinking" turns out to be something of a euphemism, given that the first tests of parts of the CAV program are to be carried out later this year. Of course, the Bush high-frontiersmen and the high-frontiersmen of the military-industrial complex (into which so many space-based tax dollars are already flowing) are just dying to test new generations of threshold-busting weapons (can't wait!). And yet, most of these bizarre weapons are technologically daunting and deficit-bustingly expensive. As Weiner points out: "Richard Garwin, widely regarded as a dean of American weapons science, and three colleagues wrote in the March issue of IEEE Spectrum, the professional journal of electric engineering, that 'a space-based laser would cost $100 million per target, compared with $600,000 for a Tomahawk missile.'"

In addition, based on past history, such futuristic dream-weaponry is likely to be about as successful as our $100 billion (so far) Star Wars anti-missile system which has proved incapable of intercepting anything smaller than the Queen Mary or faster than a tractor; and -- irony of ironies -- the decision to test, and then try to deploy, such systems is likely not only to start a space arms race, but to make us all (and the satellites we now depend on for so much) far more vulnerable than at present. According to Demetri Sevastopulo of the British Financial Times, the Russian answer to the news in the New York Times piece was instantaneous and grim: "Russia would consider using force if necessary to respond if the US put a combat weapon into space, according to a senior Russian official."

Space domination -- meaning war-fighting in space -- is a form of Earthly madness. But the path of proliferation, once started down has its own mad logic. Bush's top officials have been stuck on global dominance since they took power. Dominance has just turned out to be a little harder to come by on Earth than advertised… but, ah, space… All those boys who grew up on sci-fi movies and moon shots, now have their moment. And a boy can always dream, can't he?

The only problem is that Bush's dreamers, having swallowed their inside-the-beltway global-power fantasies whole, turn out to play the dominance game like the global klutzes they are. Admittedly, they've been in their Darth Vader outfits breathing hard for quite a while -- every day another threat (and if John Bolton makes it to the UN, change that to a threat a second) -- but they seem to lack the power effectively to demand a pizza delivery for 1600 Pennsylvania Ave.

None of this makes what they're doing any less dangerous. As Jonathan Schell points out below (in his latest "Letter from Ground Zero" in the new issue of the Nation magazine), the new "global strike" plans revealed by Arkin represent part of a revolution in what passes for nuclear policy-making in this country.

So, proliferation planet? Sure, that's on the way. Now, though, we're intent on proliferating in the heavens as on Earth. Think of it as a package deal. Tom

A Revolution in American

Nuclear Policy

By Jonathan Schell

A metaphorical "nuclear option" -- the cutoff of debate in the Senate on judicial nominees -- has just been defused, but a literal nuclear option, called "global strike," has been created in its place. In a shocking innovation in American nuclear policy, recently disclosed in the Washington Post by military analyst William Arkin, the administration has created and placed on continuous high alert a force whereby the President can launch a pinpoint strike, including a nuclear strike, anywhere on earth with a few hours' notice. The senatorial "nuclear option" was covered extensively, but somehow this actual nuclear option -- a "full-spectrum" capability (in the words of the presidential order) with "precision kinetic (nuclear and conventional) and non-kinetic (elements of space and information operations)" -- was almost entirely ignored.

The order to enable the force, Arkin writes, was given by George W. Bush in January 2003. In July 2004, Gen. Richard Myers, Chairman of the Joint Chiefs of Staff, stated to Adm. James Ellis Jr., then-commander of Stratcom, "the President charged you to ‘be ready to strike at any moment's notice in any dark corner of the world' [and] that's exactly what you've done." And last fall, Lieut. Gen. Bruce Carlson, commander of the 8th Air Force, stated, "We have the capacity to plan and execute global strikes."

These actions make operational a revolution in US nuclear policy. It was foreshadowed by the Nuclear Posture Review Report of 2002, also widely ignored, which announced nuclear targeting of, among others, China, North Korea, Iraq, Iran, Syria and Libya. The review also recommended new facilities for the manufacture of nuclear bombs and the study of an array of new delivery vehicles, including a new ICBM in 2020, a new submarine-launched ballistic missile in 2029, and a new heavy bomber in 2040. The review, in turn, grew out of Bush's broader new military strategy of pre-emptive war, articulated in the 2002 White House document, the National Security Strategy of the United States of America, which states, "We cannot let our enemies strike first." The extraordinary ambition of the Bush policy is suggested by a comment made in a Senate hearing in April by Linton Brooks, head of the National Nuclear Security Administration, who explained that the Defense Secretary wanted "bunker buster" nuclear bombs because "it is unwise for there to be anything that's beyond the reach of US power."

The incorporation of nuclear weapons into the global strike option, casting a new shadow of nuclear danger over the entire planet, raises fundamental questions. Perhaps the most important is why the United States, which now possesses the strongest conventional military forces in the world, feels the need to add to them a new global nuclear threat. The mystery deepens when you reflect that nothing could be more calculated to goad other nations into nuclear proliferation. Could it be that the United States, now routinely called the greatest empire since Rome, simply feels the need to assert its dominance in the nuclear sphere?

History suggests a different explanation. In the past, reliance on nuclear arms has in fact varied inversely with reliance on conventional arms. In the very first weeks of the nuclear age, when the American public was demanding demobilization of US forces in Europe after World War II, the U.S. monopoly on the bomb gave it the confidence to adopt a bold stance in postwar negotiations with the Soviet Union over Europe. The practice of offsetting conventional weakness with nuclear strength was soon embodied in the policy of "first use" of nuclear weapons, which has remained in effect to this day. The threat of first use under the auspices of the global strike option is indeed the latest incarnation of a policy born at that time.

This compensatory role for nuclear weapons emerged in a new context when, after the protracted, unpopular conventional war in Korea, President Eisenhower adopted the doctrine of nuclear "massive retaliation," intended to prevent limited Communist challenges from ever arising. And it was in reaction to the imbalance between local "peripheral" threats and the world-menacing "massive" nuclear threats designed to contain them that, in the Kennedy years, the pendulum swung back in the direction of conventional arms and a theory of "limited war" to go with them. Meanwhile, nuclear arms were officially assigned the more restricted role of deterring attacks by other nuclear weapons -- the posture of "mutual assured destruction."

Today, though the Cold War is over, the riddle of the relationship between nuclear and conventional force still vexes official minds. Once again, the United States has assigned itself global ambitions. (Then it was containing Communism, now it is stopping "terrorism" and proliferation of weapons of mass destruction.) Once again, the United States is fighting a limited war -- the war in Iraq -- and other limited wars are under discussion (against Iran, North Korea, Syria, etc.). And once again, nuclear arms appear to offer an all too tempting alternative. Arkin comments that a prime virtue of the global strike option in the eyes of the Pentagon is that it requires no "boots on the ground." And Everett Dolman, a professor at the Air Force School at Maxwell Air Force Base, recently commented to the San Francisco Chronicle that without space weaponry, "we'd face a Vietnam-style buildup if we wanted to remain a force in the world."

For just as in the 1950s, the boots on the ground are running low. The global New Rome turns out to have exhausted its conventional power holding down just one country, Iraq. But the 2000s are not the 1950s. Eisenhower's overall goal was mainly defensive. He wanted no war, nuclear or conventional, and never came close to ordering a nuclear strike. By contrast, Bush's policy of preventive war is inherently activist and aggressive: The global strike option is not only for deterrence; it is for use.

A clash between the triumphal rhetoric of global domination and the sordid reality of failure in practice lies ahead. The Senate, on the brink of its metaphorical Armageddon, backed down. Would the President, facing defeat of his policies somewhere in the world, do likewise? Or might he actually reach for his nuclear option?

Jonathan Schell, author of The Unconquerable World, is the Nation Institute's Harold Willens Peace Fellow. The Jonathan Schell Reader was recently published by Nation Books.

Copyright 2005 Jonathan Schell