The Rag Blog

08/11/07 “ICH’ — — Twenty-four hours after I reported China’s announcement that China, not the Federal Reserve, controls US interest rates by its decision to purchase, hold, or dump US Treasury bonds, the news of the announcement appeared in sanitized and unthreatening form in a few US news sources.

The Washington Post found an economics professor at the University of Wisconsin to provide reassurances that it was “not really a credible threat” that China would intervene in currency or bond markets in any way that could hurt the dollar’s value or raise US interest rates, because China would hurt its own pocketbook by such actions.

US Treasury Secretary Henry Paulson, just back from Beijing, where he gave China orders to raise the value of the Chinese yuan “without delay,” dismissed the Chinese announcement as “frankly absurd.”

Both the professor and the Treasury Secretary are greatly mistaken.

First, understand that the announcement was not made by a minister or vice minister of the government. The Chinese government is inclined to have important announcements come from research organizations that work closely with the government. This announcement came from two such organizations. A high official of the Development Research Center, an organization with cabinet rank, let it be known that US financial stability was too dependent on China’s financing of US red ink for the US to be giving China orders. An official at the Chinese Academy of Social Sciences pointed out that the reserve currency status of the US dollar was dependent on China’s good will as America’s lender.

What the two officials said is completely true. It is something that some of us have known for a long time. What is different is that China publicly called attention to Washington’s dependence on China’s good will. By doing so, China signaled that it was not going to be bullied or pushed around.

The Chinese made no threats. To the contrary, one of the officials said, “China doesn’t want any undesirable phenomenon in the global financial order.” The Chinese message is different. The message is that Washington does not have hegemony over Chinese policy, and if matters go from push to shove, Washington can expect financial turmoil.

Paulson can talk tough, but the Treasury has no foreign currencies with which to redeem its debt. The way the Treasury pays off the bonds that come due is by selling new bonds, a hard sell in a falling market deserted by the largest buyer.

Paulson found solace in his observation that the large Chinese holdings of US Treasuries comprise only “one day’s trading volume in Treasuries.” This is a meaningless comparison. If the supply suddenly doubled, does Paulson think the price of Treasuries would not fall and the interest rate not rise? If Paulson believes that US interest rates are independent of China’s purchases and holdings of Treasuries, Bush had better quickly find himself a new Treasury Secretary.

Now let’s examine the University of Wisconsin economist’s opinion that China cannot exercise its power because it would result in losses on its dollar holdings. It is true that if China were to bring any significant percentage of its holdings to market, or even cease to purchase new Treasury issues, the prices of bonds would decline, and China’s remaining holdings would be worth less. The question, however, is whether this is of any consequence to China, and, if it is, whether this cost is greater or lesser than avoiding the cost that Washington is seeking to impose on China.

American economists make a mistake in their reasoning when they assume that China needs large reserves of foreign exchange. China does not need foreign exchange reserves for the usual reasons of supporting its currency’s value and paying its trade bills. China does not allow its currency to be traded in currency markets. Indeed, there is not enough yuan available to trade. Speculators, betting on the eventual rise of the yuan’s value, are trying to capture future gains by trading “virtual yuan.” The other reason is that China does not have foreign trade deficits, and does not need reserves in other currencies with which to pay its bills. Indeed, if China had creditors, the creditors would be pleased to be paid in yuan as the currency is thought to be undervalued.

Despite China’s support of the Treasury bond market, China’s large holdings of dollar-denominated financial instruments have been depreciating for some time as the dollar declines against other traded currencies, because people and central banks in other countries are either reducing their dollar holdings or ceasing to add to them. China’s dollar holdings reflect the creditor status China acquired when US corporations offshored their production to China. Reportedly, 70% of the goods on Wal-Mart’s shelves are made in China. China has gained technology and business knowhow from the US firms that have moved their plants to China. China has large coastal cities, choked with economic activity and traffic, that make America’s large cities look like country towns. China has raised about 300 million of its population into higher living standards, and is now focusing on developing a massive internal market some 4 to 5 times more populous than America’s.

The notion that China cannot exercise its power without losing its US markets is wrong. American consumers are as dependent on imports of manufactured goods from China as they are on imported oil. In addition, the profits of US brand name companies are dependent on the sale to Americans of the products that they make in China. The US cannot, in retaliation, block the import of goods and services from China without delivering a knock-out punch to US companies and US consumers. China has many markets and can afford to lose the US market easier than the US can afford to lose the American brand names on Wal-Mart’s shelves that are made in China. Indeed, the US is even dependent on China for advanced technology products. If truth be known, so much US production has been moved to China that many items on which consumers depend are no longer produced in America.

Now let’s consider the cost to China of dumping dollars or Treasuries compared to the cost that the US is trying to impose on China. If the latter is higher than the former, it pays China to exercise the “nuclear option” and dump the dollar.

The US wants China to revalue the yuan, that is, to make the dollar value of the yuan higher. Instead of a dollar being worth 8 yuan, for example, Washington wants the dollar to be worth only 5.5 yuan. Washington thinks that this would cause US exports to China to increase, as they would be cheaper for the Chinese, and for Chinese exports to the US to decline, as they would be more expensive. This would end, Washington thinks, the large trade deficit that the US has with China.

This way of thinking dates from pre-offshoring days. In former times, domestic and foreign-owned companies would compete for one another’s markets, and a country with a lower valued currency might gain an advantage. Today, however, about half of the so-called US imports from China are the offshored production of US companies for their American markets. The US companies produce in China, not because of the exchange rate, but because labor, regulatory, and harassment costs are so much lower in China. Moreover, many US firms have simply moved to China, and the cost of abandoning their new Chinese facilities and moving production back to the US would be very high.

When all these costs are considered, it is unclear how much China would have to revalue its currency in order to cancel its cost advantages and cause US firms to move enough of their production back to America to close the trade gap.

To understand the shortcomings of the statements by the Wisconsin professor and Treasury Secretary Paulson, consider that if China were to increase the value of the yuan by 30 percent, the value of China’s dollar holdings would decline by 30 percent. It would have the same effect on China’s pocketbook as dumping dollars and Treasuries in the markets.

Consider also, that as revaluation causes the yuan to move up in relation to the dollar (the reserve currency), it also causes the yuan to move up against every other traded currency. Thus, the Chinese cannot revalue as Paulson has ordered without making Chinese goods more expensive not merely to Americans but everywhere.

Compare this result with China dumping dollars. With the yuan pegged to the dollar, China can dump dollars without altering the exchange rate between the yuan and the dollar. As the dollar falls, the yuan falls with it. Goods and services produced in China do not become more expensive to Americans, and they become cheaper elsewhere. By dumping dollars, China expands its entry into other markets and accumulates more foreign currencies from trade surpluses.

Now consider the non-financial costs to China’s self-image and rising prestige of permitting the US government to set the value of its currency. America’s problems are of its own making, not China’s. A rising power such as China is likely to prove a reluctant scapegoat for America’s decades of abuse of its reserve currency status.

A BUZZFLASH GUEST CONTRIBUTION
by Daniel Ellsberg

[Remarks of Daniel Ellsberg at a press conference August 9, 2007 at which Cindy Sheehan announced her independent candidacy for the 8th Congressional District of California, an office now held by Nancy Pelosi, Speaker of the House.]

I don’t speak for Cindy Sheehan — whom I admire unreservedly — or for her campaign. When I say “we” in what follows, I’m really just giving my own perspective on this campaign, as one of her supporters.

I see this campaign as aiming much higher than putting Cindy Sheehan in Congress in 2009. Well before that time, we aim to help restore our Constitution, to end a war and avert starting a new one, and to remove from power, two officials — George W. Bush and Richard Cheney — who block those objectives before they can do more harm in their remaining months in office.

That’s an ambitious project; but there’s a clear path to achieving it. We will work to change public awareness and, as a result, Nancy Pelosi’s policies as Speaker of the House well before the election, by revealing to the public real alternatives to the courses she and the Democrats have followed so far, and demonstrating the breadth and strength of public support for those alternatives.

The truth is that Democrats, and even Republicans, can do much better than they have been doing, under Pelosi’s leadership in the House, to protect our freedoms and our security. In this campaign, we will publicize specifics of what can and should be done, and let the public tell the politicians which approach they want.

One essential demand is for Pelosi to encourage, rather than to block, Congressional investigations of past and ongoing Administration deception, unwisdom, illegality, and unconstitutionality in pursuing an aggressive war and in curtailing our rights. Such investigations, calling forth testimony under oath of current and former officials, many of whom are eager to tell the truth at last, as well as demonstrating continued Administration stonewalling will almost surely lead to what does not yet exist: irresistible pressure from a belatedly informed public for the impeachment and removal of Bush and Cheney.

Further, we need Pelosi’s leadership in rescinding the unconstitutional parts — which will not leave much — of the PATRIOT Acts, the Military Commissions Act, and the recent, outrageous legislation purporting to legalize warrantless wiretaps and data mining. And — absolutely essential to ending our war in Iraq, ever — public pressure is needed to demand that Congress defund our indefinite occupation, providing funds only for the orderly, safe withdrawal of all our troops, contractors, and bases on an announced timetable.

If this campaign can help bring about even the first of these, it will also, almost incidentally, put Cindy Sheehan within reach of success in the election. This is, in fact, a historic campaign opportunity, exploiting an opening unique in American politics. At this moment, Cindy appears to face insuperable odds, opposing without party support, a powerful, heavily funded incumbent. But we aim to change that. All we are asking is for Nancy Pelosi to do what she should: to uphold her oath of office, which is not to obey a Commander-in-Chief or to enlarge a Democratic majority but to uphold and defend the Constitution.

If we can induce her to do that, then a year from now, Cindy Sheehan should be running for an open seat, or against a brand-new incumbent appointed by our Republican governor. Nancy Pelosi, third in line for succession when Bush and Cheney are impeached and removed, will be in the White House. That will, as it happens, leave an open field for Cindy.

So you see, it’s nothing personal for us. After all, as representatives of big business go, Nancy Pelosi is better than most. We don’t aim to kick her out of politics; we aim to kick her upstairs. And there’s a bonus: President Pelosi as a write-in candidate in November. She’s far from ideal, from the point of view of members of this campaign, but for Democrats, we could do a lot worse. Off the record, some of us see this as the best strategy for keeping Hillary out of the White House without letting a Republican in.

So there it is: a vision for 2009 that can evoke some real enthusiasm: Cindy in the House, Pelosi in the White House, the U.S. out of Iraq, our Constitution back, and Bush and Cheney under criminal indictment.

A BUZZFLASH GUEST CONTRIBUTION

George Bush’s pronouncements on the relationship between Iran and Afghanistan lower his credibility even further.

On Monday, the Iranophobia of US president George Bush was once again on display. The occasion was the joint press conference he gave at his Camp David resort along with Afghanistan’s president, Hamid Karzai.

Contradicting Karzai’s statement in a CNN interview on Sunday that Iran was “a helper and a solution” to his country, Bush urged him to be “very cautious about whether or not the Iranian influence there in Afghanistan is a positive force”.

Such a statement could only come from someone ignorant of the recent history of Tehran’s relationship with its eastern neighbour.

Long before 9/11, the Iranian regime was at loggerheads with the Taliban who captured Kabul in September 1996. As orthodox Sunnis of the Hanafi code, the Taliban held Shias in low esteem, and banned their annual ritual of Ashura.

When the Taliban authorities held a dozen Iranian diplomats hostage in Mazar-e Sharif in the summer of 1998, relations between the two neighbours deteriorated to the point when a war between them seemed imminent. In the end cool heads prevailed. Iran withdrew the revolutionary guard troops it had amassed along the Afghan-Iranian border.

Following 9/11, as the Bush administration prepared to attack the Taliban, the Iranians shared intelligence with it surreptitiously.

At their urging, Ismail Khan, the anti-Taliban Afghan leader based in the Iranian city of Mashhad, along with his fighters, coordinated his attack on the Taliban in western Afghanistan with the Pentagon’s campaign in the north and the east. Ismail Khan’s militia captured Herat, an important city near the Iranian border.

At the international conference held in Bonn, Germany, in late December 2001, Iran’s foreign minister, Kamal Kharrazi, actively co-operated with the Americans to install Hamid Karzai as the leader of the post-Taliban Afghanistan.

At the subsequent international donors’ gathering, in Tokyo, Iran pledged $500m aid to Afghanistan over five years. Unlike many other nations at the Tokyo conference, it has fulfilled its initial promise. It has been involved in several infrastructure and health care projects, particularly in western Afghanistan.

In 2003, when Ismail Khan, an ethnic Tajik, refused to send an envoy to Kabul when Karzai, an ethnic Pashtun, was formally installed as president, it was the Iranian government which persuaded him to fly his son for the inaugural ceremony. In return, Karzai appointed Khan’s son as a cabinet minister.

Furthermore, ever since the Islamic revolution in Iran in 1979, the Iranian regime has been battling the Afghan drug dealers who use Iran as a transit route for shipping their products to Europe. In the course of hundreds of fire fights between the smugglers and the Iranian Revolutionary Guards (charged with monitoring the national borders), a few thousand guards have lost their lives.

The anti-narcotic campaign by Iran, which has continued since the overthrow of the Taliban in December 2001, has been praised not only by the Karzai government but also by the UN.

However, given Bush’s deep-seated aversion towards the Islamic Republic, it was unlikely that a brief history of Iran’s anti-narcotic campaign was conveyed to him during the “more than a fair amount of time” he spent with Karzai discussing the fact that Afghanistan accounted for 95% of the world’s poppy production used to produce heroin.

Overall, in the light of the recent history of the region, Karzai’s description of Iran as “a helper and a solution” of Afghanistan was rooted in facts.

By contrast, Bush damaged his already low credibility in foreign affairs when he went on to claim that Iran had a government “that has proclaimed its desire to build a nuclear weapon.”

This statement is false. On September 12 2004, Iran’s supreme leader Ayatollah Ali Khamanei issued a fatwa (religious decree) that it was “un-Islamic” to use an atom bomb.

In his Friday prayer sermon on November 5 2004, Khamanei declared that “developing, producing or stockpiling nuclear weapons is forbidden under Islam” and for “our believing nation”, and added: “They accuse us of pursuing nuclear weapons program. I am telling them as I have said before that we are not even thinking about nuclear weapons.” (See Middle East International, Issue December 4 2004.)

WASHINGTON — President Bush charged Thursday that Iran continues to arm and train insurgents who are killing U.S. soldiers in Iraq, and he threatened action if that continues.

At a news conference Thursday, Bush said Iran had been warned of unspecified consequences if it continued its alleged support for anti-American forces in Iraq. U.S. Ambassador to Iraq Ryan Crocker had conveyed the warning in meetings with his Iranian counterpart in Baghdad, the president said.

Bush wasn’t specific, and a State Department official refused to elaborate on the warning.

Behind the scenes, however, the president’s top aides have been engaged in an intensive internal debate over how to respond to Iran’s support for Shiite Muslim groups in Iraq and its nuclear program. Vice President Dick Cheney several weeks ago proposed launching airstrikes at suspected training camps in Iran run by the Quds force, a special unit of the Iranian Revolutionary Guard Corps, according to two U.S. officials who are involved in Iran policy.

The debate has been accompanied by a growing drumbeat of allegations about Iranian meddling in Iraq from U.S. military officers, administration officials and administration allies outside government and in the news media. It isn’t clear whether the media campaign is intended to build support for limited military action against Iran, to pressure the Iranians to curb their support for Shiite groups in Iraq or both.

Nor is it clear from the evidence the administration has presented whether Iran, which has long-standing ties to several Iraqi Shiite groups, including the Mahdi Army of radical cleric Muqtada al Sadr and the Badr Organization, which is allied with the U.S.-backed government of Prime Minister Nouri al Maliki, is a major cause of the anti-American and sectarian violence in Iraq or merely one of many. At other times, administration officials have blamed the Sunni Muslim group al Qaida in Iraq for much of the violence.

For now, however, the president appears to have settled on a policy of stepped-up military operations in Iraq aimed at the suspected Iranian networks there, combined with direct American-Iranian talks in Baghdad to try to persuade Tehran to halt its alleged meddling.

The U.S. military launched one such raid Wednesday in Baghdad’s predominantly Shiite Sadr City district.

But so far that course has failed to halt what American military officials say is a flow of sophisticated roadside bombs, known as explosively formed penetrators, into Iraq. Last month they accounted for a third of the combat deaths among U.S.-led forces, according to the military.

Cheney, who’s long been skeptical of diplomacy with Iran, argued for military action if hard new evidence emerges of Iran’s complicity in supporting anti-American forces in Iraq; for example, catching a truckload of fighters or weapons crossing into Iraq from Iran, one official said.

The two officials spoke on condition of anonymity because they weren’t authorized to talk publicly about internal government deliberations.

Secretary of State Condoleezza Rice opposes this idea, the officials said. Defense Secretary Robert Gates has stated publicly that “we think we can handle this inside the borders of Iraq.”

Lea Anne McBride, a Cheney spokeswoman, said only that “the vice president is right where the president is” on Iran policy.

Bush left no doubt at his news conference that he intended to get tough with Iran.

“One of the main reasons that I asked Ambassador Crocker to meet with Iranians inside Iraq was to send the message that there will be consequences for . . . people transporting, delivering EFPs, highly sophisticated IEDs (improvised explosive devices), that kill Americans in Iraq,” he said.

He also appeared to call on the Iranian people to change their government.

“My message to the Iranian people is, you can do better than this current government,” he said. “You don’t have to be isolated. You don’t have to be in a position where you can’t realize your full economic potential.”

The Bush administration has launched what appears to be a coordinated campaign to pin more of Iraq’s security troubles on Iran.

Last week, Lt. Gen. Raymond Odierno, the No. 2 U.S. military commander in Iraq, said Shiite militiamen had launched 73 percent of the attacks that had killed or wounded American troops in July. U.S. officials think that majority Shiite Iran is providing militiamen with EFPs, which pierce armored vehicles and explode once inside.

Last month, Brig. Gen. Kevin Bergner, a multinational force spokesman, said members of the Quds force had helped plan a January attack in the holy Shiite city of Karbala, which lead to the deaths of five American soldiers. Bergner said the military had evidence that some of the attackers had trained at Quds camps near Tehran.

Bush’s efforts to pressure Iran are complicated by the fact that the leaders of U.S.-supported governments in Iraq and Afghanistan have a more nuanced view of their neighbor.

Maliki is on a three-day visit to Tehran, during which he was photographed Wednesday hand in hand with Iranian President Mahmoud Ahmadinejad. Unconfirmed media reports said Maliki had told Iranian officials they’d played a constructive role in the region.

Asked about that, Bush said he hadn’t been briefed on the meeting. “Now if the signal is that Iran is constructive, I will have to have a heart-to-heart with my friend the prime minister, because I don’t believe they are constructive. I don’t think he in his heart of hearts thinks they’re constructive either,” he said.

Bush and Afghan President Hamid Karzai differed on Iran’s role when they met last weekend, with Karzai saying in a TV interview that Iran was “a helper” and Bush challenging that view.

The toughening U.S. position on Iran puts Karzai and Iraqi leaders such as Maliki in a difficult spot between Iran, their longtime ally, and the United States, which is spending lives and treasure to secure their newly formed government.

A senior Iraqi official in Baghdad said the Iraqi government received regular intelligence briefings from the United States about suspected Iranian activities. He refused to discuss details, but said the American position worried him.

The United States is “becoming more focused on Iranian influence inside Iraq,” said the official, who requested anonymity to discuss private talks with the Americans. “And we don’t want Iraq to become a zone of conflict between Iran and the U.S.”

Proposals to use force against Iran over its actions in Iraq mark a new phase in the Bush administration’s long internal war over Iran policy.

Until now, some hawks within the administration — including Cheney — are said to have favored military strikes to stop Iran from furthering its suspected ambitions for nuclear weapons.

Rice has championed a diplomatic strategy, but that, too, has failed to deter Iran so far.

Patrick Clawson, an Iran specialist at the Washington Institute for Near East Policy, said a strike on the Quds camps in Iran could make the nuclear diplomacy more difficult.

Early this morning China let the idiots in Washington, and on Wall Street, know that it has them by the short hairs. Two senior spokesmen for the Chinese government observed that China’s considerable holdings of US dollars and Treasury bonds “contributes a great deal to maintaining the position of the dollar as a reserve currency.”

Should the US proceed with sanctions intended to cause the Chinese currency to appreciate, “the Chinese central bank will be forced to sell dollars, which might lead to a mass depreciation of the dollar.”

If Western financial markets are sufficiently intelligent to comprehend the message, US interest rates will rise regardless of any further action by China. At this point, China does not need to sell a single bond. In an instant, China has made it clear that US interest rates depend on China, not on the Federal Reserve.

The precarious position of the US dollar as reserve currency has been thoroughly ignored and denied. The delusion that the US is “the world’s sole superpower,” whose currency is desirable regardless of its excess supply, reflects American hubris, not reality. This hubris is so extreme that only 6 weeks ago McKinsey Global Institute published a study that concluded that even a doubling of the US current account deficit to $1.6 trillion would pose no problem.

Strategic thinkers, if any remain who have not been purged by neocons, will quickly conclude that China’s power over the value of the dollar and US interest rates also gives China power over US foreign policy. The US was able to attack Afghanistan and Iraq only because China provided the largest part of the financing for Bush’s wars.

If China ceased to buy US Treasuries, Bush’s wars would end. The savings rate of US consumers is essentially zero, and several million are afflicted with mortgages that they cannot afford. With Bush’s budget in deficit and with no room in the US consumer’s budget for a tax increase, Bush’s wars can only be financed by foreigners.

No country on earth, except for Israel, supports the Bush regimes’ desire to attack Iran. It is China’s decision whether it calls in the US ambassador, and delivers the message that there will be no attack on Iran or further war unless the US is prepared to buy back $900 billion in US Treasury bonds and other dollar assets.

The US, of course, has no foreign reserves with which to make the purchase. The impact of such a large sale on US interest rates would wreck the US economy and effectively end Bush’s war-making capability. Moreover, other governments would likely follow the Chinese lead, as the main support for the US dollar has been China’s willingness to accumulate them. If the largest holder dumped the dollar, other countries would dump dollars, too.

The value and purchasing power of the US dollar would fall. When hard-pressed Americans went to Wal-Mart to make their purchases, the new prices would make them think they had wandered into Nieman Marcus. Americans would not be able to maintain their current living standard.

Simultaneously, Americans would be hit either with tax increases in order to close a budget deficit that foreigners will no longer finance or with large cuts in income security programs. The only other source of budgetary finance would be for the government to print money to pay its bills. In this event, Americans would experience inflation in addition to higher prices from dollar devaluation.

This is a grim outlook. We got in this position because our leaders are ignorant fools. So are our economists, many of whom are paid shills for some interest group. So are our corporate leaders whose greed gave China power over the US by offshoring the US production of goods and services to China. It was the corporate fat cats who turned US Gross Domestic Product into Chinese imports, and it was the “free trade, free market economists” who egged it on.

How did a people as stupid as Americans get so full of hubris?

The Bush Administration is now incriminated in the recent scandal involving Chiquita Brands International Inc. financially supporting a Colombian terrorist organization.

Chiquita was forced to pay a $25 million settlement to the U.S. Justice Department for providing $1.7 million in “protection money” to United Self-Defense Forces of Colombia (AUC), a group the State Department designated a “Foreign Terrorist Organization” in October 2001.

In April 2003 a former Chiquita executive told Secretary of Homeland Security (who at the time was assistant attorney general) Michael Chertoff that the company was paying off this paramilitary group. Chertoff recognized that the payments were illegal, but wasn’t quite sure whether they were really that wrong. It was reported that he told the company to wait to do anything–like possibly stop financing a terrorist group–until he got back to them. He never did, and Chiquita made an additional $134,000 in payments over the next year.

In 2002, the Justice Department under John Ashcroft issued an indictment charging leaders of AUC with “trafficking over 17 tons of cocaine into the United States and Europe since 1997.” In addition, “In 2001, the AUC killed at least 1,015 civilians, a statistic that greatly surpasses the 197 civilians killed by the FARC. The AUC also committed over 100 massacres in 2001, a typical terror tactic used to displace large portions of the peasant population…the U.S. State Department noted that the AUC was responsible for about 43 percent of Colombia’s internally displaced people in 2001.” So what Chiquita calls “protection money”, others might call blood money.

“Even though Chiquita didn’t murder anyone, that’s what the money was used for — to buy weapons,” a former prosecutor in the Chiquita case told the Wall Street Journal.

The Washington Post reported that Chiquita’s illegal activities in Colombia may have gone beyond financing weapons–the company actually helped smuggle them. It reported that “An Organization of American States report in 2003 said that Chiquita participated in smuggling thousands of arms for paramilitaries into the Northern Uraba region, using docks operated by the company to unload thousands of Central American assault rifles and ammunition.”

The Post also uncovered that “For some high-level administration officials, Chiquita’s payments were not aiding an obvious terrorism threat such as al-Qaeda; instead, the cash was going to a violent South American group [even though it is designated a terrorist group by the State Department] helping a major U.S. company maintain a stabilizing presence in Colombia.”

Venezuela´s Bolivarian Revolution and in particular its experiments with workers co-management and in some instances workers control, is at the cutting edge of the global movement against capitalism. With the bosses’ lockout in 2002-2003, which shut down much of the Venezuelan economy for a period of two months, hundreds of factories were closed down and workers turned out onto the streets to fend for themselves. However, workers have stepped up to the challenge and it is estimated that some1200 factories have been taken over and occupied after being shut down. In 2005 the Chavez government initiated a series of decrees to allow for expropriation of industry and workers’ co-management in the interests of ‘public utility.’ On July 24 I was able to visit Inveval, a valve manufacturing company that has been under workers control since April 2005, with a delegation from the International Miranda Center to talk to the workers and find out more about their struggle, their history, their experience of workers control, the challenges they face as well as the broader question of how workers are strategizing to transform Venezuelan society in the struggle for ‘Socialism in the 21st Century’.

Whilst showing us around the factory Francisco Pinero, Inveval’s treasurer, explained that although Inveval is legally constituted as a cooperative with 51% owned by the state and 49% owned by the workers, “real power lies with the workers assembly.” Rather than supervisors, the workers at Inveval elect, through a workers assembly, recallable ‘coordinators of production,’ for a period of one year.

“Everyone here gets paid exactly the same, whether they work in administration, political formation, security or keeping the grounds clean,” another worker, Marino Mora added.

“We want the state to own 100%, but for the factory to be under workers control, for workers to control all production and administration. This is how we see the new productive model; we don’t want to create new capitalists here,” Pinero made clear.

This contrasts sharply with the experience of Invepal, (a Venezuelan paper company) where a workers’ cooperative became private owners of 49% of the company, and began to contract out the work to casual workers, becoming bosses themselves in the process and reproducing capitalist relations within the factory.

“Initially we never had in mind workers control, we were just struggling for our jobs,” Pinero added.

However, he said, the formation of the workers’ assembly in the factory developed organically, “We were members of the union [Sintrametal – formerly aligned to the old corrupt CTV], however, when we wanted to take over the factory we asked the union for legal help, but they didn’t help us. Because the union didn’t help us we began to form assemblies, and through that process began to negotiate with the Minister [of Labor, then Maria Christina Iglesias], who helped us a lot.”

When the first atomic bomb fell on Hiroshima on Aug. 6, 1945, two-year-old Sadako Sasaki was at home with her family. Unlike tens of thousands of others, she was fortunate enough to survive the immediate blast of the 15-kiloton Uranium-235 bomb.

But the young, athletic girl who liked to run could not escape the grim reality of what it meant to live through an atomic blast. Nine years later Sadako would contract leukemia, dying a year later in a Hiroshima hospital at the age of 12. In death she joined the legions of the hibakusha, the Japanese term for the victims of radiation poisoning.

An estimated 140,000 people died as a result of the Hiroshima blast, tens of thousands of them instantly or within the next few months and almost all of them noncombatants and children. Three days later at Nagasaki, another bomb was dropped, killing thousands more. Eventually over 200,000 people would die as a result of the attacks, either during the bombings or later from illness. By any objective measure the nuclear attacks by the U.S. military constitute the largest acts of mass murder in the history of the world.

They also constitute acts shrouded in lies. At the time President Truman told Americans the targets were military sites. It was necessary to use the bombs to force Japan’s surrender, he declared. The public was also told-falsely-that leaflets were dropped prior to the bombings warning people to leave. Later, Secretary of War Henry L. Stimson claimed that the atom bomb saved the United States from an invasion of Japan that might have cost a million American casualties.

But U.S. official McGeorge Brundy came up with the million figure, based on nothing, as he later acknowledged. Consider only the assessment of Admiral William Leahy, chairman of the Joint Chiefs of Staff in 1945, who years later wrote: “It is my opinion that the use of this barbarous weapon at Hiroshima and Nagasaki was of no material assistance in our war against Japan.” The admiral compared the use of the bombs to adoption of “an ethical standard common to the barbarians of the Dark Ages.”

The Age of ‘Collateral Damage’…

Truman indeed knew Japan’s surrender was imminent, according to now declassified records. But if nuclear weapons were unnecessary to end the war, they did send a forceful global message about which country would dominate the post-war era. Truman did not intend for it to be the Soviet Union. And so the dead and victimized of Hiroshima and Nagasaki were not only the last casualties of World War II, but also the first casualties of the Cold War.

Dark ages indeed. In our world the deliberate slaughter of civilians in war is very much the norm. The atrocities of the Nazis and Japanese militarists are well known, but less so was the intentional targeting by Britain’s air force of the concentrated worker housing of Hamburg, Germany. Ignoring the factories and U-boat construction yards south of the Elbe, British bombers under the command of extreme reactionary Arthur Harris instead spent months dropping incendiaries and high explosives on Hamburg’s civilians. Some British military leaders did not support this policy, but it prevailed and was driven not only by strategic war aims but also by what science historian David Bodanis in “Electric Universe” describes as Harris’ acute hatred of the working classes.

More evidence. In the Errol Morris documentary, “Fog of War,” former Secretary of State Robert McNamara admits a reasonable case could have been made to have tried as war criminals the group that organized the mass death firebombing of Tokyo and other Japanese cities. It’s a significant admission since McNamara was part of that group. McNamara also acknowledges that the 1964 Gulf of Tonkin resolution passed by Congress, giving President Johnson the authority to unleash war in Vietnam, was based on a lie. The alleged torpedo attack by North Vietnam on the U.S.S. Maddox in 1964 never happened.

Fast forward 40 years. Other than Fox News Host Sean Hannity and other venerated thinkers, the whole world now knows the U.S. invasion of Iraq in 2003 was based on an equally fabricated justification: Iraq’s alleged possession of weapons of mass destruction. They didn’t exist. Nor does the shining “democracy” whose exportation became the fallback rationale to justify Iraq’s ongoing occupation. What does exist in Iraq’s chaotic civil strife is the more shadowy reality of regular indiscriminate killing by the U.S. military of Iraqi civilians. “A dead Iraqi is just another dead Iraqi,” says one member of the Third Brigade, First Infantry Division, to The Nation’s investigative reporters Chris Hedges and Laila Al-Arian. The GI was describing his impression of the general attitude among U.S. troops who operate the patrols and supply convoys, man checkpoints, and conduct raids and arrests.

And dead Iraqis there are. An estimated 68, 347 and 74,753 Iraqi civilians have died as a result of the military intervention, according to the log of reported deaths kept by Iraq Body Count. In the chaos of occupation and civil war, this is invariably a conservative figure.

…And Also Madness and Irony

What also exists are Democratic candidates identified as “antiwar” such as Hilary Clinton, who attacks Barack Obama because for about five seconds he said he would rule out the use of nuclear weapons as a foreign policy option. “I don’t believe that any president should make any blanket statements with respect to the use or non-use of nuclear weapons,” Clinton said.

Yes, they can. They can at minimum adopt a no-first strike policy. They can reaffirm support for non-proliferation treaties and work vigorously to eliminate nuclear weapons from their own and the world’s arsenals. They can question why the United States arms itself with a military force whose budget equals almost half of all world military spending. They can repudiate a foreign policy tradition that takes as a given the American right to send troops and establish bases anywhere in the world.

Unfortunately, Obama quickly scratched his anti-nuclear thought, keeping the one about invading Pakistan in pursuit of Al-Qaeda (and this is key) regardless of whether Pakistan approves. It’s a sad, imperial state of affairs when the President’s biggest critics scramble to show which among them is most willing to mimic the current administration’s belligerent posturing on world affairs.

Sad, and also dangerous. Because 62 years after the bombs were dropped on Hiroshima and Nagasaki, the world remains perilously trapped in conflict. “In the year 2007 the average yield of a nuclear weapon is about 10 times greater than the 15-kton Hiroshima bomb,” writes Raymond G. Wilson, professor emeritus of physics at Illinois Wesleyan University, for the Peace and Conflict Monitor. “Throughout the 50 years following 1945, the average rate of creation of nuclear weapons in world arsenals was the equivalent of about 70 Hiroshima bombs per day, every one of those 18,250 days.”

The threat of nuclear annihilation remains real. Yet the irony of our age is that for the first time in human history the science, technology, manufacturing and agriculture exist to eliminate all want. But in the context of a world also driven by the acquisition of corporate profits and deep-set class and nationalist divisions, the world’s people instead face an increasingly uncertain and violent future. Or even the possibility of no future.

When the bombs were dropped on Hiroshima and Nagasaki, the famous physicist Albert Einstein publicly protested. The U.S. government responded by adding Einstein’s protests to his FBI file. Now we have a President who effectively abandons nonproliferation treaties for a vision of a new generation of tactical nuclear and other weapons. The President who attacked a country based on a blatant lie also considers it his prerogative to warn non-nuclear states even they are not safe from his willingness to initiate a nuclear attack. Is it really that hard to grasp why such policies will invariably engender more nuclear proliferation and more jihadi terrorism?

No doubt there is plenty of reason to despair. But then there is also the story of young Sadako Sasaki, who did not deserve to die at age 12. Sadako’s story is only one among countless millions of tragic accounts of “man’s inhumanity to man,” of the innocents whose lives over the last century have been cheap fodder for the killing machines of state power, whether of the democratic, fascist, or other variety.

During her months of hospitalization Sadako undertook a project to fold a thousand paper cranes in the hope that, according to Japanese legend, her prayer for life would be granted. It was perhaps just the wish of a child. But Sadako never gave up and folded the cranes up until the day of her death. In Japan, after her death young people inspired by her story organized to collect money to build a statue of Sadako, which was unveiled in Hiroshima Peace Park in 1958. There is also a statue of Sadako in Seattle’s Peace Park.

At the bottom of the statute in Japan of Sadako holding a golden crane is the inscription, “This is our cry, This is our prayer, Peace in the world.”

Sixty-two years after Hiroshima and Nagasaki were destroyed, they remain words to remember and live by in this mad age.

The sad truth about Iraq in the near future is that it will get much, much worse, whether American troops stay or leave.

The war in Iraq is about to get worse — much worse. The Democrats’ decision to let the war run its course, while they frantically wash their hands of responsibility, means that it will sputter and stagger forward until the mission collapses. This will be sudden. The security of the Green Zone, our imperial city, will be increasingly breached. Command and control will disintegrate. And we will back out of Iraq humiliated and defeated. But this will not be the end of the conflict. It will, in fact, signal a phase of the war far deadlier and more dangerous to American interests.

Iraq no longer exists as a unified country. The experiment that was Iraq, the cobbling together of disparate and antagonistic patches of the Ottoman Empire by the victorious powers in the wake of World War I, belongs to the history books. It will never come back. The Kurds have set up a de facto state in the north, the Shiites control most of the south and the center of the country is a battleground.

There are 2 million Iraqis who have fled their homes and are internally displaced. Another 2 million have left the country, most to Syria and Jordan, which now has the largest number of refugees per capita of any country on Earth. An Oxfam report estimates that one in three Iraqis are in need of emergency aid, but the chaos and violence is so widespread that assistance is impossible. Iraq is in a state of anarchy. The American occupation forces are one more source of terror tossed into the caldron of suicide bombings, mercenary armies, militias, massive explosions, ambushes, kidnappings and mass executions. But wait until we leave.

It was not supposed to turn out like this. Remember all those visions of a democratic Iraq, visions peddled by the White House and fatuous pundits like Thomas Friedman and the gravel-voiced morons who pollute our airwaves on CNN and Fox News? They assured us that the war would be a cakewalk. We would be greeted as liberators. Democracy would seep out over the borders of Iraq to usher in a new Middle East. Now, struggling to salvage their own credibility, they blame the debacle on poor planning and mismanagement.

There are probably about 10,000 Arabists in the United States — people who have lived for prolonged periods in the Middle East and speak Arabic. At the inception of the war you could not have rounded up more than about a dozen who thought this was a good idea. And I include all the Arabists in the State Department, the Pentagon and the intelligence community. Anyone who had spent significant time in Iraq knew this would not work. The war was not doomed because Donald Rumsfeld and Paul Wolfowitz did not do sufficient planning for the occupation. The war was doomed, period. It never had a chance. And even a cursory knowledge of Iraqi history and politics made this apparent.

BANGKOK, Thailand (AP) — Thai police officers who break rules will be forced to wear hot pink armbands featuring “Hello Kitty,” the Japanese icon of cute, as a mark of shame, a senior officer said Monday.

Police officers caught littering, parking in a prohibited area, or arriving late — among other misdemeanors — will be forced to stay in the division office and wear the armband all day, said Police Col. Pongpat Chayaphan. The officers won’t wear the armband in public.

The striking armband features Hello Kitty sitting atop two hearts.

“Simple warnings no longer work. This new twist is expected to make them feel guilt and shame and prevent them from repeating the offense, no matter how minor,” said Pongpat, acting chief of the Crime Suppression Division in Bangkok.

“(Hello) Kitty is a cute icon for young girls. It’s not something macho police officers want covering their biceps,” Pongpat said.

He said police caught breaking the law will be subject the same fines and penalties as any other members of the public.

“We want to make sure that we do not condone small offenses,” Pongpat said, adding that the CSD believed that getting tough on petty misdemeanors would lead to fewer cases of more serious offenses including abuse of power and mistreatment of the public by police officers.

The extraordinary secrecy surrounding the spying operations revealed in Alberto Gonzales’ Senate testimony is not aimed at al-Qaeda, but at the American people.

The dispute over whether Attorney General Alberto Gonzales committed perjury when he parsed words about George W. Bush’s warrantless surveillance program misses a larger point: the extraordinary secrecy surrounding these spying operations is not aimed at al-Qaeda, but at the American people.

There has never been a reasonable explanation for why a fuller discussion of these operations would help al-Qaeda, although that claim often is used by the Bush administration to challenge the patriotism of its critics or to avoid tough questions.

On July 27, for instance, White House press secretary Tony Snow fended off reporters who asked about apparent contradictions in Gonzales’s testimony by saying:

“This gets us back into the situation that I understand is unsatisfactory because there are lots of questions raised and the vast majority of those we’re not going to be in a position to answer, simply because they do involve matters of classification that we cannot and will not discuss publicly.”

Discussion closed.

But al-Qaeda terrorists always have assumed that their electronic communications were vulnerable to interception, which is why 9/11 attackers like Mohamed Atta traveled overseas for face-to-face meetings with their handlers. They limited their phone calls to mostly routine conversations.

The terrorists also had no reason to know or to care that the U.S. government was or wasn’t getting wiretap approval from the secret court created by the Foreign Intelligence Surveillance Act. They simply took for granted that their communications could be intercepted and acted accordingly.

It never made sense to think that al-Qaeda terrorists suddenly would get loose-lipped just because the FISA court was or wasn’t in the mix. The FISA court rubber-stamps almost all wiretap requests from the Executive Branch for domestic spying, and overseas calls don’t require a warrant.

Can anyone really imagine a conversation like “Gee, Osama, since Bush has to get FISA approval, we can now call our sleeper agents and plan the next attack.”

Similarly, there’s no reason to think terrorists would change their behavior significantly if they knew that the U.S. government was engaged in massive data-mining operations, poring through electronic records of citizens and non-citizens alike.

The 9/11 attackers mostly stayed off the grid and many of their transactions, such as renting housing, would not alone have raised suspicions. Indeed, the patterns that deserved more attention, such as enrollment in flight-training classes and the arrival of known al-Qaeda operatives, were detected by alert FBI agents in the field but ignored by FBI officials in Washington — and by Bush while on a month-long vacation in Texas.

The 9/11 attacks were less a failure of intelligence than a failure of political attention by Bush’s national security team.

Americans in the Dark

So what’s the real explanation for all the secrecy about the overall structure of the so-called Terrorist Surveillance Program?

The chief reason, especially for the excessive secrecy around the data-mining operations, appears to be Bush’s political need to prevent a full debate inside the United States about the security value of these Big Brother-type procedures when weighed against invasions of Americans’ privacy.

Bush knows he could run into trouble if he doesn’t keep the American people in the dark. In 2002, for instance, when the Bush administration launched a project seeking “total information awareness” on virtually everyone on earth involved in the modern economy, the disclosure was met with public alarm.

The administration cited the terrorist threat to justify the program which involved applying advanced computer technology to analyze trillions of bytes of data on electronic transactions and communications. The goal was to study the electronic footprints left by every person in the developed world during the course of their everyday lives — from the innocuous to the embarrassing to the potentially significant.

The government could cross-check books borrowed from a library, fertilizer bought at a farm-supply outlet, X-rated movies rented at a video store, prescriptions filled at a pharmacy, sites visited on the Internet, tickets reserved for a plane, borders crossed while traveling, rooms rented at a motel, and countless other examples.

Bush’s aides argued that their access to this electronic data might help detect terrorists, but the data could prove even more useful in building dossiers on anti-war activists or blackmailing political opponents. A targeted individual would have almost no privacy in the face of an all-knowing government.

Despite the administration’s assurance that political abuses wouldn’t happen, the capability would be a huge temptation for political strategists like Karl Rove who have made clear that they view anyone not supporting Bush’s war on terror as a terrorist ally.

In 2002, the technological blueprint for this Orwellian-style project was on the drawing board at the Defense Advanced Research Projects Agency, the Pentagon’s top research and development arm. DARPA commissioned a comprehensive plan for this electronic spying — and did so publicly.

“Transactional data” was to be gleaned from electronic data on every kind of activity — “financial, education, travel, medical, veterinary, country entry, place/event entry, transportation, housing, critical resources, government, communications,” according to the Web site for DARPA’s Information Awareness Office.

What kind of philosophy says that it’s O.K. to subsidize insurance companies, but not to provide health care to children?

When a child is enrolled in the State Children’s Health Insurance Program (Schip), the positive results can be dramatic. For example, after asthmatic children are enrolled in Schip, the frequency of their attacks declines on average by 60 percent, and their likelihood of being hospitalized for the condition declines more than 70 percent.

Regular care, in other words, makes a big difference. That’s why Congressional Democrats, with support from many Republicans, are trying to expand Schip, which already provides essential medical care to millions of children, to cover millions of additional children who would otherwise lack health insurance.

But President Bush says that access to care is no problem — “After all, you just go to an emergency room” — and, with the support of the Republican Congressional leadership, he’s declared that he’ll veto any Schip expansion on “philosophical” grounds.

It must be about philosophy, because it surely isn’t about cost. One of the plans Mr. Bush opposes, the one approved by an overwhelming bipartisan majority in the Senate Finance Committee, would cost less over the next five years than we’ll spend in Iraq in the next four months. And it would be fully paid for by an increase in tobacco taxes.

The House plan, which would cover more children, is more expensive, but it offsets Schip costs by reducing subsidies to Medicare Advantage — a privatization scheme that pays insurance companies to provide coverage, and costs taxpayers 12 percent more per beneficiary than traditional Medicare.

Strange to say, however, the administration, although determined to prevent any expansion of children’s health care, is also dead set against any cut in Medicare Advantage payments.

So what kind of philosophy says that it’s O.K. to subsidize insurance companies, but not to provide health care to children?

Well, here’s what Mr. Bush said after explaining that emergency rooms provide all the health care you need: “They’re going to increase the number of folks eligible through Schip; some want to lower the age for Medicare. And then all of a sudden, you begin to see a — I wouldn’t call it a plot, just a strategy — to get more people to be a part of a federalization of health care.”

Now, why should Mr. Bush fear that insuring uninsured children would lead to a further “federalization” of health care, even though nothing like that is actually in either the Senate plan or the House plan? It’s not because he thinks the plans wouldn’t work. It’s because he’s afraid that they would. That is, he fears that voters, having seen how the government can help children, would ask why it can’t do the same for adults.

And there you have the core of Mr. Bush’s philosophy. He wants the public to believe that government is always the problem, never the solution. But it’s hard to convince people that government is always bad when they see it doing good things. So his philosophy says that the government must be prevented from solving problems, even if it can. In fact, the more good a proposed government program would do, the more fiercely it must be opposed.

This sounds like a caricature, but it isn’t. The truth is that this good-is-bad philosophy has always been at the core of Republican opposition to health care reform. Thus back in 1994, William Kristol warned against passage of the Clinton health care plan “in any form,” because “its success would signal the rebirth of centralized welfare-state policy at the very moment that such policy is being perceived as a failure in other areas.”

But it has taken the fight over children’s health insurance to bring the perversity of this philosophy fully into view.

There are arguments you can make against programs, like Social Security, that provide a safety net for adults. I can respect those arguments, even though I disagree. But denying basic health care to children whose parents lack the means to pay for it, simply because you’re afraid that success in insuring children might put big government in a good light, is just morally wrong.

And the public understands that. According to a recent Georgetown University poll, 9 in 10 Americans — including 83 percent of self-identified Republicans — support an expansion of the children’s health insurance program.