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Friday, December 28, 2007

Bhutto Dies; US Hard Power Increasingly Ineffective

Assassination of Bhutto

Bhutto lost her life in a society where womens' rights are primitive. Pakistan joins Iraq as a place where the status of women has declined. I talked in my last post about the outrage of a Saudi rape victim being lashed; the dominant idea of male superiority enshrined in these fundamentalists leads to the debasement of women in general.

It is no surprise therefore that a political ambitious woman politician is assassinated by al Qaeda, who think of themselves as the caretakers of the Muslim male ego and the medieval Sharia codes that demean women under the mantle of male dominance.

Bhutto's climb to the position of the Harvard-educated, two-time Prime Minister was simply too much for these traditionalists to bear, or so we are led to believe. With the radical fundamentalists fervently anti-Western, and invariably anti-women, Bhutto was an ideal target. Her popularity also threatened to give progressives a leadership position in running the country.

Also possible is that al Qaeda became a convenient party to blame for the murder. Musharraf could wash his hands, declare another state of emergency, and remove a potential political rival. In trying to restore law and order, Musharraf could use dictatorial powers and further cement his control over the regime.

Musharraf may not want to stay in power. He must not wantto leave Pakistan in a state of crisis so he could hardly be pleased with the far-flung ramifications of Bhutto's death. Now while Bhutto supporters, and Bhutto herself, pointed the finger of blame at Musharraf for providing inadequate security, it's uncertain if Musharraf was involved. Attacking the regime for its failure to protect Bhutto might just encourage a broader clampdown on democracy.

Troubling indeed is the notion that al Qaeda and Musharraf both wanted Bhutto gone. Friday, on CNN, the Pakistani government claimed to have intercepted a call from an al Qaeda leader in the Tribal Areas of western Pakistan congratulating an operative for the successful strike.

Taliban and al Qaeda sympathizers actually had little to fear from Musharraf. In late 2006, Musharraf's commanders actually signed a peace agreement called the Miramshah Agreement with tribal leaders from North Waziristan who were sympathetic to the Taliban. The Pakistani military agreed to stay out of the Tribal Areas and the tribesmen promised not to go after the Pakistani government.

For those who knew, the agreement testified to the inability of the Pakistani government to eliminate the Taliban. Pakistani troops had been trying to find and eliminate Taliban sympathizers for years. Militarily, the agreement could have been construed as tacit appeasement, with Musharraf buying time in exchange for leaving him alone (he'd survived several assassination attempts blamed on radical fundamentalist sympathetic to the Taliban.)

In the official US narrative which placed Pakistan as an important ally in the war on terror, the Miramshah agreement was a Public Relations nightmare. The news stayed out of the mainstream, it was only in the December(?) 2006 print edition of The Economist that I came across a little quib about the agreement, which had said that the US had accepted the Miramshah in principle. [I'm currently trying to track down the article on The Economist's website.] I presume the US feared what might happen if Musharraf continued to fail in US-encouraged efforts to deploy force in the ungovernable tribal areas.

Gareth Porter describes the agreement with border tribes, those who hosted Taliban, as "deals with the jihadi leadership in the border provinces in 2004 and 2006 that emboldened the Taliban to escalate the war against the Kharzai regime in Afghanistan" (HuffPo)

Militarily, the agreement allowed the Taliban to regroup and resupply, an issue which I've brought up here on my blog. With the supply lines secure, the Taliban could strengthen themselves in preparation for new offensives. The supply routes were, ironically, used by anti-Soviet mujhadeen in the Afghan guerilla war of the 1980's.

I can't emphasize enough how no one since Alexander the Great has been able to govern Afghanistan. Militarily, Afghanistan represents a doubling down after the strategic defeat in Vietnam, which remains fresh in the neocon consciousness. If the US could control the nation, it could claim authority to rival that of the ancient Greek conqueror, which would surely be a powerful testimony to the strength of US hard power. Instead, our commander-in-chief elected to go into Iraq and thereby divide our strength and weaken our occupation.

Alexander, as it should be remembered, did delegate through power-sharing, and would use soft power to consolidate the far-flung possessions of his empire. Obviously a few hundred thousand Greeks could not conquer and hold Alexander's vast domain, so in a process not unlike that used by the Romans, former enemies and the conquered tribes were absorbed by the empire, which lent its stature and resources back out to secure the periphery of the empire.

Hard Power

I'd discussed hard power, which is the use of military inducements and coercive methods to establish influence abroad. Hard power attempts to push all international relations towards the fundamental paradigm of superior military force, where the US can ostensibly bring its influence to bear.

The type of hard power used varies by definition but most uses involve military assistance, including arms sales. Hard power can involve the outright use of force but more useful is the value of hard force as a means of intimidating strategic rivals.

Pakistan has been the recipient of a massive amount of US military aid, which has been sold to the American public as instrumental in fighting the War on Terror. On HuffPo, Gareth Porter claims the US "provided $4.5 billion in disguised subsidies to the Pakistan military by 2006 and agreed to sell $3 billion worth of arms, including new F-16 fighter planes to Pakistan." Dispensations of military aid are a familiar way of rewarding pro-US regimes and Pakistan's help has been called a bribe by some.

Hard power used in the Middle East helps establish hegemony for Israel, which is the number one recipient of US aid in the world. Nations like Egypt and Jordan receive huge amounts of military assistance in exchange for mollifying anti-Israeli impulses in their populations. The noble intention of bringing democracy to the Middle East really spotlighted the fact that none of the nations are pure democracies. And as the election of Hamas in Palestine showed, democracy allowed anti-US and anti-Israeli political constituencies to win big. Torture and repression have become tools of our despotic friends who, like Musharraf, are squeezed between broad anti-Israeli sentiments and US power.

Supporting Israel has caused the US great consternation on the Arab street; the US would surely be better served by trying to push for multilateral diplomacy and meaningful results in the Palestinian-Israeli dialogue. Such an exercise of soft power would likely go far in convincing average Arabs we do care about the fate of their Palestinian brethren, who are suffering horribly under Israeli occupation.

Among the neocons, Iraq was posed as a war that would make irrelevant the trend toward mulitlateralism. Players like John Bolten and Richard Perle had taken great pride in inflating their egos by casting the macho image of a US doing it alone, in the face of international norms of conduct. Patriotically erotic, the notion of the US triumphant over the world stirs nationalist sentiments that are central to popularizing right wing political views.

Like a big bully, the US has abandoned the pursuit of international law framed in the Geneva Conventions. One binding force behind the treaties was to prevent one nation from bullying another. The League of Nations--the UN's predecessor--spawned a potentially awesome soft power weapon: multilateral diplomacy.

No one country could do as they wanted with a weaker neighbor. Geneva stipulated the people in the Occupied land could not be moved to other nations, that civilian non-combatants were subject to certain rights. Laws in the occupied nation could not be rewritten by the invader. The intent of Geneva was to minimize civilian casualties--as well as destruction--in order to minimize the impact of wars, which by 1919 had savaged one part of the European continent or another almost continually since the Middle Ages. If the warring could not be stopped, at least it's effects could be minimized.

The UN, created after World War Two, sought to pursue the lofty visions laid out in the talks after the First World War. Paramount in this internationalization of politics was the fundamental principle of equality, that no one nation was superior over another. Every nation, from the mightiest to the weakest, would be subject to the rule of international law. World War Two's Nuremburg Trials, very much aware of the failures of diplomacy that led to that war, established quite clearly that waging war based on false pretenses was a gross violation of international law: a war crime.

Contrast this nobility with the depredations of the current regime. Their intent as to Iraq was conspiratorial, based on false, not faulty, intelligence.

A characteristic of hard power is its ability to displace soft power, which involves gentler forms of persuasion like cultural influence and diplomacy. It's no coincidence therefore that soft power--and the potentially potent diplomacy it could wield--would become irrelevant if the US established a unipolar world, with it as the sole undisputed champion. In such a scenario, might made right and the US would not need, nor be burdened by, the rules that other nations had better follow.

Abandoning international law and historically diplomatic regimes made the US depend even more on projecting hard power both to intimidate enemies and convince everyone else that we were the New Centurions. Part of this new reality meant showing that we exercise hard power indiscriminately, at our whim, with conclusive results. And other nations can exempt themselves from international law as well, encouraging bullies worldwide to strike at weaker neighbors.

The strength of soft power is in its receptivity and attractiveness to the host. American cultural identity is the perfect honey trap by which we can pander to the world. Like the john who temporarily sobers up, the world community has come to see us as the prostitute robbing him. Instead of a banner appealling to freedom-seeking people everywhere, our flag comes to represent our uglier side, one of violence and racism.

We see the impact of this strutting in the loss of global stature the US has endured under the Bush regime. The attractiveness of American cultural icons has been twsited into a ugly grimace, a mask of Abu Ghraib, a water-boarding, secret prisons, a xenophobic type of Amerika.

Hard power must maintain a viable threat, which the Soviets did through the Cold War, if it is to be effective. For the War on Terror to work as a mechanism for the use of hard power, the terrorists must present a threat. If they were ever eliminated, the need for hard power would collapse.

It's been said that all great empires need enemies. In 1992, when the end of the Cold War threatened militarists with cutbacks, a Defense Planning Guidance policy group determined that radical Islamic fundamentalists were the threat to eclipse the Soviets. The first strike on the World Trade Center followed soon after. It's probably not a coincidence that Cheney sought out a replacement enemy for the Soviets: he would use his ties as Bush I's Defense Secretary to lead up Halliburton, a company that has benefitted greatly from our subsequent interventions under Bush II/Cheney.

A country that is threatened, or feels threatened, is one susceptible to military influence, which can be projected through alliances, military aid, or Status of Force Agreements, which are de facto treaties signed not subject to Congressional ratification. One such arrangement recently made between the al Maliki and Bush administration forged an enduring US military presence in Iraq. Under the terms of the agreement, the US would come to the aid of the al Maliki government should it be attacked or threatened by foes internally in Iraq or from abroad. The agreements are a perfect example of an entanglement our Founders sought to avoid.

Unlike domestic politics, where a Rovian emphasis on perception management rules, military and geopolitical considerations loom supreme in the use of hard power abroad, alongside the ramifications of abandoning soft power alternatives.

Realpolitik demands that tangible results be produced in order to preserve the notion that US is superior. Otherwise our regional and global competitors steal our influence.

Typically hard power is expressed in terms of a favorable outcome, but wars are notorious for how political gamesmanship delays or negates one side's advantage on the battlefield. Hard power can't work if it only perpetuates a crisis. The problem that neocons facce with Iran is that while we have a massive military superiority, hard power seems to be able to do nothing to overcome the bonds of cultural and ethnicity betwen Shia in Iran and those in Iraq. In essence "the border crossed them"--to borrow the expression used by Latinos along our Southwestern border.

Trying to control such natural alliances has also been proven a problem in Pakistan, where a wild collection of tribesmen in Waziristan share a common cultural identity with their Taliban brethren across the (artificially drawn) border with Afghanistan. According to the CFR, the border between Afghanistan and Pakistan was drawn by a British diplomat not out of ignorance or hubris but specifically to separate powerful tribes. It should come as no surprise then that the people whose lands were split by the border would ignore the arbitrary line and the governments that claimed to police the two sides.

Historical Precedents

So many nations' borders were drawn artificially. The Balfours Declaration and the Treaty of Versailles were party of a process that split up the Middle East after the First World War. The Western powers, victorious, took to breaking up the possessions of the Ottoman Empire.

Splitting up the Middle East by arbitrary stroke of pen thousands of miles away was bound to leave a host of unrelated groups stuck together on the verge of independence. Often the only unifying force keeping people of one nationality together was the influence of colonialism. So diversified and so huge were some of these colonies-turned-countries that their only commonality was the language and culture of their European conqueror.

Another nasty belated consequence of arbitrary borders is balkanization, an unravelling a country's political fabric resulting in a patchwork of isolated racial and ethnic groups. Intentional balkanization would be a process that preys on internal differences to weaken the overall nation-state and often condemn it to internal struggle and ethnic cleansing.

The process of balkanization might appeal to nations who might fear the threat posed by a unified neighbor. Balkanization could be useful to implement a strategy of divide and conquer. The US has been accused, one this website and elsewhere, of setting one group of Iraqis against another, in order to control the country and its resources.

As Iraq stabilizes and policymakers in Washington take credit for a successful surge, the real scope of ethnic cleansing is becoming clear. Iraq is peaceful because it's been divided along ethnic and religious lines, by force.

Playing by the rules of the hard power game means the weaker of the tribes or groups must submit to the more powerful lest they be beat up or blown up. In this regard, Iraq represents the destruction of a modern secular state and the ascent of politics dominated by repression of weaker ethnic groups.

By applying ever more hard power, and dispensing military assistance to various inter-ethnic rivalries, the US has created a destabilized and likely unmanageable country in Iraq. The situation will result in more destruction and bloodshed than would have occurred had international treaty law been followed. The occupier is also confounded by the absence of any reliable political authority to which it could relinquish control.

The goal of the Israeli/Lebanese border war in 2006 was clearly not to invade and conquer but rather to destabilize. Oil silos and Beirut's airport were hit; Lebanon's beaches, so vital to its burgeoning tourist economy, were spoiled. Entire blocks were ravaged in sections of Beirut sympathetic to Hezbollah--a form of collective punishment that is a war crime under Geneva. The Geneva Convention aims to curtail such a wanton use of force by a militarily superior neighbor. The treaty also sought to humanize conflict by applying arbitrary rules governing its dispensations. The US is a signator.

The framers of the Geneva convention were determined to prevent wars launched simply to destabilize a neighbor. We are now seeing the Turks invade North Iraq, without the ability to re-establish any normalcy in their wake. The strategic intent is to make a neighbor weaker and therefore less of a threat. Destabilization is the the sought-after end result. On the downside, the chaos of the invasion can destabilize other regions beyond the targetted area of effect. Unresolved hostilities can easily lead to flare-ups and have a contagion effect as larger Powers and more countries are drawn into the conflict due to treaty obligations like defense pacts.

Europeans have experienced the far-reaching consequences of stirring up nascent cross-border ethnic bonds. Hitler in the late 1930's claimed that Hungarians and Czechs shared a racial heritage with Germans and those countries could therefore be allowed to "join" the Reich. Hitler would later attribute his invasion of Poland to the need to protect Germans in that country, whose borders had been redrawn at Versailles to include East Prussia, a largely Germanized portion of eastern Poland which had been part of Germany Proper before the First World War.

The ethnic unity of Kurds can be seen in Turkey's long-standing Kurdish insurgency and its recent invasion of Northern Iraq. The borders crossed the region despite the cultral and tribal links. In short, the border split Kurdistan, which had simply been an afterthought. Kurds are spread now from Northern Syria to Iran, Iraq and Turkey. The PKK, the Kurds' nationalistic faction, has fought an insurgency claiming the lives of more than 37,000 in Turkey since 1984, according to Wikipedia.

Following Geneva's tenets would have and could still help resolve hostilities, if an end to the war and occupation is in fact sought. Resolving conflicts without a clear end point or victory conditions is both a necessity and inevitable prerequisite to victory. In this regard, rejecting Geneva and the rule of international law has hurt the interests of the US.

Better multilateral cooperation would also help share the cost of occupation, a crucial consideration that advocates of hard power consistently underestimate. In contrast to Gulf War I, the US relied on a much narrower contingent of allied nations in Gulf II. As the occupation drags on with no end in sight, our partners continue to abandon Iraq, faced with the absence of any clear resolution to the conflict and the demands of a never-ending occupation.

Transcending Differences

Nations can and do transcend their internal differences; the nations whose borders were so haphazardly drawn at Versailles live on. The ability of these nations to not only get along but prosper testifies to the power of nationalism as a unifying force. When these melting pots of tribal and ethnic identities do get along we realize that humans are bound to each other in ways far deeper than sharing the same color of skin or eyes.

As I write in the top right of this blog, I think the term "globalization" is a word hijacked by economic fundamentalists and should mean a process of socio-cultural unification that the human species seems destined to achieve--with plenty of setbacks along the way.

A student of history should look at the examples of disintergrating states to see how globalization can fail. Surprisingly, where they are left to themselves, the nations of the Mideast do somewhat well--problems tend to start when outside nations meddle. The best example was Iraq, although Afghanistan was reportedly also a wonderful place before its Civil War. The CIA's intervention in Iran in 1953 ushered in the reign of the Shah who, unlike the King of Afghanistan, ruled with a corrupt and evil hand. As the Shah was a staunch capitalist, and Iran a major recipient of US military aid, he fell on the good guys side of the line, like the Cuban regime of Batista or the Somoza dynasty in Nicaragua.

Saddam Hussein's Iraq was secular and quite progressive; I wonder sometimes if the real target of the Iraq invasion weren't Hussein, but rather Arab dignity and progressive social values. Looking at how Iraq has digressed from a modernized, efficient state to the mullah-ruled catastrophe of corruption and incompetence it is today, I have to assume that at the least the US doesn't care, like a dispassionate occupier. At the worst, we've nurtured a state of internal warfare to suit our colonial impulses and to feed an economy dependent on endless war--a warfare state.

Strategically, unification of Muslim countries is thought to pose a direct risk to Israel, which we have set up as our hegemon in the region. As long as US forces remain engaged, the Israelis have been acting with impunity in cutting off Gaza and colonizing the West Bank.

We have fielded Musharraf in much the same manner as we would have done with an anti-Soviet ally during the Cold War. We've been willing to tolerate his indiscretions, such as his willingness to sign a peace agreement with Taliban militants in Waziristan. See a summary on Pakistan's tribal areas at the CFR website.

The US has been content to look the other way, content to check Pakistan off as an ally in the War on Terror while living in denial of the long-term military implications of an uncontrolled and uncontrollable border to Afghanistan's southeast. Unless our goal were to nurse along an insurgency, it appears that hard power, on which so much of our foreign policy is now based, is not working. The next question is fundamentally political: at what point will the US leadership be willing to accept that the situation has deteriorated and make changes in policy?

Getting Results

Hard power is losing to geopolitical realities and military limitations. Projecting force has begun to yield ever-diminishing returns. We must spend more and more on our war machine in order to convince others that it can resolve our challenges in the Middle East. Military aid dispensations appear to go towards preserving undemocratic regimes in clear contrast to our stated intent to spread democracy. The death of Bhutto has personified both the tyranny of Pakistan's ruling elite and the tragedy of diminished expectations in the artificial War on Terror.

The fruit of American intervention in the Middle East has been nothing but bad. I've made an effort to explain the limits of military power in the past, but I'm always shocked with the ignorance of Americans in regard to the political side of fighting wars. It's as if Americans todays embrace a culture of individualism that's made people completely self-absorbed in their own wants and needs. If something doesn't directly affect someone, in the course of their day, it simply doesn't exist. Like Good Germans, millions and millions of Americans have become content to let our nation slide towards despotism and the reign of an uncontrolled State ruled with total authority by an illegitimately elected would-be dictator.

I will not rave, but at some point the failure to bring an successful end to the War on Terror--if such a victory is even achievable--will make its impact on our entire country, through either a successful terror strike, a draft, or some gross economic depredations brought onn by excessive spending and borrowing. I guess many Americans will just keep digging deeper foxholes andd hunkering in their bunkers, ever in denial. The regime will get away with precisely all that it can and no less, such is the nature of the State.

Much of our problems have to do with the politicization of our military. While 9/11 served as a unifier, it wasn't long before the Bush Adminsitration divided us by launching an elective invasion of Iraq, which has been fraudulently connected to terrorism and WMD.

Seeking a second term in office motivated the Bush junta to make Iraq part of the War on Terror. Trying to defend the intelligence they used to start the war, Bush operatives outted Joe Wilson's wife in an effort to keep others quiet. From that point forward, the Bush Administration used every means available to undermine any limits on eavesdropping, as well as block Congressional oversight, in a cover-up that continues to this day.

Our new Attorney General, Murkasey, claimed to be an apolitical candidate during his confirmation hearings but in his first appearance in defense of a destroyed CIA waterboarding tape, he obfuscated Congressional efforts to determine who was responsible for its destruction.

Teethless, and in the corporate thrall, Congress has become an enabler of a National Security State that praises secrecy and embraces many of the tactics used by fascist regimes.

Beyond our shores, setting up the terror boogeyman--a convenient domestic political fear button--has generated massive anti-US blowback which has destroyed our credibility in the Arab region if not worldwide. At this point we have little soft power to draw, depending as it does on a positive and receptive audience to work its charms. On the military front, our overuse of hard power, our classic overextension invites counterstrike, if not with conventional means than whatever force multiplier that could be used to level the massive imbalance in conventional force strength.

The Occupied can be quite ingenious in throwing off a larger foe, Vietnam showed. And miliiary actions are never contained in a vaccuum free of political gamesmanship. Even if the US can maintain military superiority, the ruling party must face elections back home. The timing of election cycle actually encouraged invading Iraq, as an invasion of the country in my opinion offered the perfect opportunity to capitalize on nationalist sentiments in the wake of 9/11. Iraq had been a target of the neocons for quite some time; Iraq, not Afghanistan, was reputedly Bush's first target of choice, despite the reality Iraq had no terrorist ties to Al Qaeda or 9/11. I remember reading that Tony Blair had to commit British forces to the eventual invasion of Iraq in order to convince Bush not to attack Iraq right after 9/11.

By incenting violence, the use of hard power justifies its use in a cycle of attack and reprisal. Knocking off Bhutto pushes away one advocate of peace, one person who could have made soft power work in combatting extremism in the region. Musharraf gains by losing a political rival, but only at the expense of stability. Musharraf may not see much more political office though, and his chief motive might be easing his transition out of office, which is hardly reason to stir up more chaos by assassinating Bhutto, unless the violence is meant to encourage the State to exercise additional powers.

Like 9/11, it remains possible that the Pakistani government hadn't done enough. In the Pakistan case, it's been accused of not protecting Bhutto. Police and symbols of authority were attacked in rioting, which has been somewhat restrained, at least according to MSM sources. CNN on Thursday brought up an e-mail sent to the Pakistani by three Senators requesting that the Pakistanis take additional measures to protect Bhutto. This unheeded request comes on top of relevations about security lapses made in a failed assassination attempt in October, when Bhutto had just returned to Pakistan from exile.

I can't help think of conspiracy theories about 9/11, though, when I see something bad happen. I guess my conspiratorial mindset forces me to contemplate every eventuality. For instance, I recently read about how broccoli can cure cancer, a truly startling possibility. The writer, Mike Adams, then said that Big Pharma had tried to isolate the compounds in the broccoli that fight cancer, in order to commercialize the natural health benefits. Instead, Adams says we should simply eat the broccoli, not cooked. See the article here.

I immediately began thinking of how some pills forbid their takers from consuming things like grapefruit, which is known to be great for the heart. What better way, I thought, than to keep someonne on their pills than managing their condition and denying them the things they need to get well? This is why pharmacology has not cured a disease since Salk's polio vaccine in 1954: there is only money in treating disease, stomping symptoms, not ending the cause. There's not enough cash in broccoli.

9/11 presented an opportunity to big to pass up. The neocons had wanted an attack on Iraq. The only question to resolve is how much they knew before 9/11 happened. Serious questions remain about 9/11--the everything changed chesnut that Bush to this day uses to frame virtually all of his foreign policy decisions. 9/11 was full of instances where the command-and-control infrastructure broke down. There may likely never be a means to determine if the breakdown was intentional, or who may have done what to let the attacks succeed. Negligence is a far more appetising concept than the idea the government actually participated. Still, what if al Qaeda were itself coopted by the governments that purport to be chasing the terrorists down? A thorough investigation of connections between Western governments and al Qaeda might reveal all kinds of dirty secrets.

At a minimum, we know al Qaeda members were financed by the CIA during their battle with the Soviets in Afghanistan. al Qaeda simply means the base in Arabic, and was a list compiled by the CIA that listed anti-Soviet allies.

We also know that the mastermind of the London bombings in 2006 was thought by the British spy services to be a double agent loyal to the Crown. As it turns out Haroon Rashid Aswat, used his status as a means to recruit and travel in and out of the UK. See the video from Fox News here; a related link on Aswat is here. No one can really know, only guess, as to allegiances and motives. This is especially true after the alleged perpetrators have blown themselves up.

Pakistan has been put in the midst of one of these cycles. Terrorists are used but we know not who they serve. While there are undoubtedly fanatics eager to launch terror attacks, the vast majority of Muslims harbors no ill will towards us. The use of US military force abroad may be feeding the desire for revenge and is giving aid and comfort to the recruitment efforts of the radicals.

Americans will be held directly accountable for our nation's conduct abroad eventually. Ironically, the apologists for the ongoing occupations claim that we must stop the terrorists over there before they strike us here, but every dead innocent, every careless use of force can only encourage more terror. And it most likely won't be the hardened targets and politicians who sent us to war that get struck--it will be the undefended, soft target where average folks are vulnerable.

We need to break the cycle of attack and counterattack and it's clear that whatever we do militarily in the Middle East won't improve relations or relieve pressures. Only seriously tackling the Israeli-Palestinian divide will get us anywhere. And for that to happen, Americans need to get the real facts, avoid entertainment posing as news, and participate politically, holding to account any who continue to support the war.


Thursday, December 20, 2007

Perils of Fundamentalism; Spending, Debt, and the Middle Class

Merry Christmas!

I'm not a big fan of wearing my Christianity on my shoulder, but I'm glad to have a religion. Trying to be all things to all people means dumbing down the principle of faith, which is an intimate concept matching one person to one particular God. Faith is the exercise of a fixed set of beliefs. Religious conviction in its purest form shouldn't allow for hedging, or compromise.

In many parts of the world, for far too many centuries, man has slaughtered man simply because they don't share ethnicity, or religions, or nationality. Often religion justifies holy war, or the systemic liquidation of people of another race or religion.

I would hope that the exercise of Christian values can be more than a political exercise. Far too often, people with fundamentalist views use their extremism to confront non-believers, to justify their values by demonstrating them publicly--in the face of non-believers or anyone who doesn't share the depth of their convictions.

I see this approach in many American fundamentalist Christians and I think the public exercise of their faith hurts the Church. Religious opinions are different from politics, and the Bible contains references to the "demons of nations" which hardly complements the idea of nationalism, yet all too often Christian fundamentalists will let their conviction in their brand of Christianity spill over to matters of patriotism.

Marx called religion the opiate of the masses. In his seminal "The Docile American: The Nexus of God, Labor, Health Care and the Fear to Strike", Zbignew Zingh hits on the problem of faith in politics:
Faith in a higher authority also marches with faith in political authority, faith in elections and the judicial system, and an unwillingness to believe that leaders are anything less than wise and well-meaning. Faith can lead one blindly to accept the mysteries of religion and, when exalted to a level of jingoism, can cause one blindly to accept the mysteries of foreign and domestic policy. (link)

Zingh goes on to describe religion's role as "a brake on political activity and not the slightest threat to established power" that "tends to dissipate resistance to authority while celebrating the wholesomeness of non-confrontation..."

Of course faith in God and Christ translates to politics among fundamentalists who are eager to show off the depth of their convictions to public, where all manner of atheists and non-believers are able to see how strongly they believe they are right.

Wearing Your Faith on (a chip on) Your Shoulder

I'm irritated by these "In God We Trust" license plates we have in my state. I've taken to calling the cars with these plates "Blue-Platers" after the plates' color--a solid blue.

I don't bear any particular grudge against Blue-Platers, other than the fact that they feel compelled to let others know they are Christians. Instead, the idea that members of a congregation will inevitably feel the need to buy the special license plates in order to fit in bothers me. I don't see how such a superificial display of piety should be allowed to exclude others, those without the Blue Plates, who are presumably not sufficiently pious to be wearing their faith on their license plate.

Many congregants are also dependent on their fellow churchgoers for business, which also generally irks me because that means the reason for their participation is chiefly economic. The Bible does state quite convincingly that one either worships a God of money or a God of Love, and that these two Gods are mutually exclusive.

Whatever my irritations with these superficial displays of faith, I'm troubled far more specifically with fundamentalists who use their church to send messages of hate. These fanatics aim not to spread love but rather use their extremist views to repress and control.

I don't think the fundamentalist can win any hearts and minds by demonstrating or showing off just how much they hate sin, or despise one group or another that doesn't share their values. One church group from Kansas actually took to blaming Iraq war deaths on America's tolerance for homosexuality. Until several states took to passing laws banning the practice, these wierdos would actually go to the funerals and accost those paying their respects with signs and shouting, proclaiming that the soldier had died because mainstream America didn't share their obedience to scripture.

Christian fundamentalism is usually not an issue if believers keep to themselves, or don't arrange marriages like Warren Jeffs, the head of a band of Utah polygamists. Jeffs is now serving time in a state prison for his role in arranging the marriage of an underage girl to a much older man, who had apparently bestowed Jeffs and his church with money in exchange for the arranged marriage. Little information escapes these very closed communities, cloistered behind walls where most Americans can only guess what goes on. The polygamist structure of Jeffs' group meant that many young males were being tossed from their groups simply because older men took all the younger women for themselves, and didn't want any strapping young men around to tempt their would-be possessions.

I'm disturbed by the demand put on the women in these compounds, who are seen in public clustered together wearing long-sleeve blouses. Establishing dictates over clothing I see as a troubling hint of an underlying pattern of exerting control and repressing individuality, which is often considered a threat to the patriarchical authority typified by these sects. In a fundamentalist world, even the slightest display of femininity is construed as an enticement. Manifestations of sexual identity threaten the established order, which revolves around the idea of displaying devotion through repressing sexual desire. Women are presumed to be fully responsible for whatever sexual urges they might encourage from males.

So much of the fundamentalist climate is geared towards controlling women, and in particular their bodies. Abortion is viewed as the greatest sin, the taking of the life. Underlying this hatred of abortion is the concept that a women is controlling her body in defiance of God, which by their logic means impregnation by males and carrying to full term regardless of personal choice.

Ironically, these groups who have placing faith in abstinence-only sex ed have increased the incidence of pregnancy among teenage girls, who are the most likely group to have an unwanted pregnancy and thus seek an abortion. Abortion rates soar in Red states, which have more teenage pregnancies than Blue states. Odd how a presumption of girls being able to control their desires simply by abstaining leads to more unwanted pregnancies. Despite their role in a pregnancy, the male is typically not held responsible for his failure to abstain nor for the long-term consequences of bearing an unwanted child.

All over the world fundamentalists keep their women in some form of bondage. A woman in Saudi Arabia was recently pardoned after being gang-raped. Her crime: going out without a male escort. For the Saudis' extreme interpretation of Sharia law, women must avoid all kinds of behaviors. The medieval origins of this Wahhabi-type interpretation of Islam claims to represent traditions and the purest form of worship.

Sharia is praised as a fix to the woes of a secular society yet underneath the placid exterior, these societies reel with repressed human instincts. Whatever evil is done happens behind closed doors, often to women, whose word in court is worth one-half a man's.

The idea that a court could sentence a rape victim to 200 lashes and prison time violates every standard of human decency imaginable. It's only because this case came to international media attention that the Saudi monarchy intervened--God knows how much brutalization of women really goes on.

Sharia law is implemented in the mullah-controlled portions of Iraq and is on the increase in Afghanistan. If the results of our interventions are to be evaluated today, we have managed to splinter Iraq and place a good chunk of it under the rule of Islamic fundamentalist mini-tyrants. The religious leaders running the country contrast with Saddam quite radically since Iraq under Hussein made women's rights integral to his secular regime, which had been the most advanced in the Middle East.

Odd how our liberation of the Iraqis seems to be taking their society backwards. We've succeeded in Balkanizing the country in fiefdoms that can be more easily paired off against each other, an obvious advantage in devising a strategy for long-term occupation. The magnanimous results of the glorious surge include the lowering of violence, we are led to believe, but at what cost? While the death toll can be approximated and the consequences of military force reckoned with, far less quantifiable is the impact on Iraqi society.

We can't put a price on a girl's future that's been lost, or assign a value to friendships between Shia and Sunni that until recently prospered in Iraq. Strategically, we've lowered our expectations and with that are diminished rights for women and the abandonment of values which I think we stand for as Americans.

If we are to succeed in Iraq--if success can be defined or, more importantly, if withdrawal conditions (which is the real fruit of success) can ever be met, we have to do it our way. American interventions have to result in strategic victories not just in military terms but in ways that show how we've made the world a better place. It's a huge irony that the neocons who hungered for an invasion of Iraq were eager to avenge the loss in Vietnam but instead sowed the seeds of another quagmire where American goals will go unmet.

Anyway, talking about Iraq is probably not how you'd like to approach Christmas. So many Americans don't want to think about the unpleasantness over there. There enough problems in their lives, they might say, so why make more trouble?

This is an apathetic attitude great for Trotsky-ite policymakers who hunger for permanent revolution or--to be more specific--endless war. The way Iraq is going, the seemingly inevitable shift away from achieving US geopolitical goals in the region, has created a negative status quo.

While the average American may not be affected by Iraq, the consequences of the ongoing occupation will be felt for years to come, mostly in the pocketbook.

Continuing to occupy Iraq is a lot like going into debt. For many months, the debtor can steadily eat up their credit and things can seem to be going quite well. Offers of new credit cards seem to appear almost daily; you're spending and plenty of creditors seem to want to lend to you. The easy credit encourages you to spend and spend until eventually the lenders realize that to lend you more might encourage bankruptcy. They've got you at that point--you must now service the debt and pay back what you borrowed. This repayment is no easy thing, though, as the debtor is trying to repay while simultaneously trying to give up the high flying habits that incurred the debt.

The long-term result is usually extreme emotional distress. The debtor's income flows into paying off debts. Consumption--the cradle of American capitalism--is curtailed by force. While many debtors can and do get out of debt, the process is long and arduous. Clearly the benefits of over-consumption are easily forgotten; these are typically things left to rot in basement and stowed away in attics, unused. The debts incurred by buying too much are impossible to dismiss save through bankruptcy, the rules of which I previously explained to have changed under Bush.

We Americans do like our things, which is why Christmas is a perfect capitalist holiday packaged as it is for our consumption. Everyone loves gifts--they make us happy, if for a minute. The idea that buying and spending us makes us happy is so ingrained in the American mentality that we rarely notice it or its inverse, which is that often unacknowledged and internalized conviction that if we don't buy something we aren't happy. Marketers of course use this distinction to encourage us to buy things we really don't need.

A generous and fun-seeking people, we do have a habit of valuing happiness above all over emotions. Victor Frankl, author of Man's Search for Meaning, talked about trying to be content while also feeling unhappy. While we don't need to be happy about being unhappy, we can at least not be unhappy about being unhappy. This acceptance is a choice over our attitude that is under our control.

Anchoring our psyche in a cycle of gratifying consumer urges leaves us open to exploitation by marketers in our screen-driven, 24/7 media world. If we can't turn off these screens, or deprogram ourselves, we owe it to our fiscal resources, and our sanity, to at least accept the fact that making ourselves happy through consumption is not the most important thing in life. {Translation: that big screen isn't a necessity; chances are if you can afford to buy it and it will make you happy, you will buy it sooner or later.}

Spreading the Consumer Mantra

The US's greatest export is its culture and many foreigners interpret the American ideal to be one of living well, in a big house, driving a nice car, getting plastic surgery, and shopping til you drop. Of course it takes money to do these things and there's only so much to go around, so well, you know, not everyone can do what we do...

People take pleasure in the creature comforts and crass consumerism can make its way to the bosom to many regardless of their ethnicity or nationality. Perhaps this is why so many non-natives excel when they immigrate here, not because it's easy, but because the American ideal is achievable and therefore a real possibility-taking perhaps more than a generation, but possible nonetheless.

Still, by America's own standards of achievement, many cannot win at life. The rise to the top is competitive, requires ambition and a lot of hard work. Success can be lonely, too, depending on how high the bar is set. Like our consumerist mentality, the high wage-earner can be pestered by the feeling that there can always be more money and more things to acquire. No real contentment can ever come life fashioned around perpetually getting richer, where simply being rich is not enough.

I wonder sometimes if the allure of being rich is such a motivator that so many of the inevitable losers--comparatively speaking--are willing to accept their failure, be second best, even if it means accepting an income which is miniscule in proportion to the top earners in our society. Income inequity is a huge issue nowadays; it's not been since 1929 that the wealthiest 1% has made controlled so much of the nation's wealth.

Political scientists look at an income imbalance like ours as a threat of political instability. Historically, underclasses have sought to correct the imbalance in wealth through mass political actions, using the weight of numbers to their advantage. Governments fall in response.

Revolutions are often the product of a Middle Class that seeks to remedy injustice through political action. If the Middle Class is large enough, the theory goes, it can sustain the revolution and overturn the existing political order, which has an entrenched aristocracy at its top.

Some have gone as far as to suggest that the elite classes are systematically dismantling the Middle Class in the US, presumably as a means of dissipating the potential political threat they represent. I just read an article by Paolo Caruso which claimed that the Middle Class was being systematically disenfranchised "with the loss of civil rights, omnipresent video survellience, electronic data intrusions, privatized penal institutions, and the build-up of war-hardened national guard assets - all taxpayer funded to guard the wealth of the elites."

Caruso explains the dichotomy, with the Middle Class perched vulnerably between:
The middle class is being hemmed in on two sides. On the top of the hill, they will face the electronic clad security walls of the wealthy gated communities; guarded by private, well equipped security firms. These little fiefdoms along the waterfronts and hilltops will be the lairs of the employers, politicians, lawyers and financiers. But at the bottom of the hill is the other menacing border that encloses their precarious level of society - the increasing boiling cauldron of the underclass.

The idea of a widening chasm between have's and have-not's is supported by the rise in income inequity. The argument that the Middle Class is being gutted finds fertile ground with CNN's Lou Dobbs, who points out that illegal immigration and outsourcing have taken a huge numbers of jobs.

Corporate America's unprecedented influence is being used to engineer massive increases in H1B visas being issued to non-US nationals, which reduces wages. Issuing H1Bs might be preferrable to losing jobs overseas, but the concept of replacing labor by bringing non-US nationals to our shores is cheap. With the number of non-citizens willing to work here infinite, we could eventually become a nation of unemployed citizens serviced by a transient workforce composed of non-citizens. Corporations would likely rotate visa holders, to prevent temporary workers from becoming citizens and demanding higher wages or--God forbid--unionizing.

The owners of the means of production benefit as corporate profits soar by displacing American workers, but does the benefit to this exclusive group justify the societal effects of lower wages? If Americans make less, it is more likely that most people in our country will suffer a lower standard of living. (See Resources at bottom of this post.)

The aggregate increases in income can be expressed in average terms, which ignore the fact the median wages are falling. Taking inflation into account, the income of the American below the median have barely increased since 1979 or so. Meanwhile incomes for the top 10% and especially the top 1-2% have gone up by double digits per annum under Bush, helped by the tax deferment, which lowered taxes on wealthiest Americans. Many of the ultra-rich have doubled their incomes since Bush took office.

The US may be an economy which revolves around the extravagant spending of the wealthy few, which can "trickle down" to lower income folks. Servicing the needs of the rich may have become central to sustain Middle Class jobs. Looking back at Bush I, in 1991 we saw taxes go up on luxury goods like yachts, which actually ended up cutting jobs in yacht-building, according to this Time article from '91. Taxes on domestic producers of luxury goods undermined the competitiveness of US goods and sent yacht-buyers and the like to overseas markets.

Taxes can stimulate or stifle an economy, but government spending can't go up indefinitely without the taxes to support it. Bush II may have taken the lower tax concept well beyond the point of stimulating employment to benefitting the wealthy at the expense of our government's fiscal stability. The deficit has doubled under Bush, in just seven years, in part due to the tax cuts, so it's fair to say taxes unpaid now will have to paid back, with interest, in the future.

Bush II isn't solely responsible for the soaring deficits--the rise of so-called entitlements is a big part--but he didn't advocate fiscal restraint either. The US fiscal deficits are growing to the point the debt is unservicable and the interest payments consume a huge portion of federal spending, even as Boomers retire and put further stress on the system. The lack of any restraint on Congress' part would seem to make fiscal solvency like that faced by the maxed-out debtor inevitable. If the government is accumulating these deficits now, wait for later.We could see the equivalent of a subprime crisis on government debt, where creditors would rush to liquidate for pennies on the dollar. The purchasing power of currency would be sacrificed; money simply issued to creditors as it spiralled ever lower in value.

Perpetually increasing the federal debt will mean creditors will one day stop lending, which will mean inflation, itself a major problem for retirees on fixed incomes and Middle Class families. The rich meanwhile, will simply move assets overseas, or to gold and capture the benefit of higher interest rates on their investments. Even if they take a hit, they will in comparative terms fare far better than lower income Americans (although Buffy having to lose the Mercedes convertible will likely be a traumatic event for these people.)

Unfolding Environmental Impact of Rampant Consumerism

Maybe we aren't so different from other cultures though, and differ from all the poorer nations of the world not as much as we'd like to admit. However, if other countries emulate us, and seek to live an American-style lifestyle down the road, the Earth will suffer mightily. I've heard that each and every American consumes an amount of goods that requires the equivalent of 3 acres of raw resources to produce. Total up the amount of paper (trees), water (in soda, too), beef (and its feed source) and other resources we use.

There are these direct depletions, but many indirect ones as well, including huge quantities of water and energy used to make electronic goods and consumer products (especially packaging and plastics in particular). As I've pointed out, here in the Midwest energy comes from coal, which may mean mountaintop removal, which is a process that provides in vivid relief (see the tag on the right of the .gif logo) the consequences of coal mining as acre after acre of pristine Appalachian woodland is torn off the face of the planet to feed mercury-polluting coal furnaces.

We need to stop the use of wasteful energy and destructive mining practices, yes, but stop the demand for energy as well to the extent that we can control how much we use and how much we don't have to use. At a certain point complaining about colonizing Iraq for its oil makes no sense if we aren't reducing our demand for oil. Every day that goes by without reducing non-renewable energy use is a loss for our country, our children, and the environment.

I'm trying energy conservation, something which appears to be an alien concept to our heavily Big Energy-lobbied government today. Unfortunately I'm in a big house with lots of leaks and generally unfavorable furnaces. I'm looking to make changes once I do what I can to cut energy consumption, hopefully incorporating solar and/or some biofuels. I need to approach the process carefully: biofuels might mean ethanol and other sources of energy that require huge quantities of conventional energy to produce. For instance, I read that batteries in a Toyota Prius may require more energy to produce than the car can save over a fuel-efficient Honda, which takes less energy to make.

Ethanol gives back something like 1.4 units of energy for every unit of energy invested in its production. To make ethanol, we need corn and corn devoted to ethanol means displacing agricultural space reserved for food production, which means food prices may be higher and scarcer. Because of the demand for ethanol, more corn is now being growed than at any time in our history. To grow corn, vast holdings of land are being converted to productive use from a dormant (read environmentally-friendly) state, which is a very energy-intensive process where trees are cut and brush is cleared and/or burnt.

That said, I think brewing biofuels from post-consumer oils and fats is a great idea. Even if commercial viability is a few years off, the act of thousands of Americans demanding biofuels will encourage their production. I'm hoping that biofuel enthusiasts in our area will produce high-quality biofuels in the future, which I can then use in a diesel generator.

I hope to put these ideas into action. I'm looking forward to seeking out practical alternatives to coal-based energy because of mountaintop removal and the rising contamination of our waterways with mercury. Global Climate Change from the CO2 is another huge reason for seeking sustainable alternatives now.

A good summary on coal is available from alternet here.


"Nuking The Economy: Immigration Numbers Outnumber US Job Growth By 7,000,000" by Paul Craig Roberts offers hard economic data on employment, etc. here.

"U.S. economy leaving record numbers in severe poverty" by McClatchy Newspapers. Poor get poorer.

Report on financial security of the Middle Class from the Center for American Progress. The number don't lie. Incomes are flat for most and financial insecurity puts at risk meager savings, imperiling millions.


Tuesday, December 11, 2007

Trillions at Risk in Mortgage-Backed Fiasco

Housing Issue Basics

The money supply under Bush has approximately doubled. Now the cash stays mostly in accounts where it isn't spent, usually. However, during the housing boom, much of the money worked its way into the housing market. As home values shot up, more people borrowed on their equity. Subprime lending also skyrocketed as realtors were eager to sell into a bull market, to keep prices going upward. People with weak credit got into homes they're not able to afford. Attracted to teaser rates, many home purchasers wound up with too much houses and Adjustable Rate Mortgages (ARMs). These are expected to reset to much higher interest rates, which means people with marginal credit and lower income will be forced to pay even more of their income to housing.

Traditionally mortgage lenders established a fixed percentage of income to payment of housing. If for instance someone with $50,000/year income wanted a house, a more scrupulous lender would deny a mortgage application if the hypothetical payments on the loan--interest, principal, escrowed property and Private Mortgage Insurance (PMI)--were to exceed 30-35% of total income.

The 50K earner would be able to devote about 17K/year to housing, about $1400/month. Income caps mean a homeowner would be less likely to have to file bankruptcy. The 30-35% is not an arbitrary number, it's been calculated as a historically tested average maximum amount of income that borrowers can devote to their housing budget. While some people may be able to handle devoting more of their income to housing, with so many fixed expenses like insurance, taxes, car and loan payments, food, travel, as well as unexpected emergencies, increasing this amount is statistically imprudent.

Pushing past 40% is dangerous, but this became routine in the housing market bubble. Essentially, once the income threshold was crossed, this means the house payments would be less likely to be made, defaults and foreclosures would rise.

A rational and prudent lender understood that it was in their best interest to screen the borrower's credit worthiness in order to determine the likelihood that the mortage would be paid. Banks lose big when they have to take possession of a home--I've heard it said that banks want to be in the loan business, not the housing business.

In the irrational exuberance of the housing bull market, loan originators lost their minds. In the rush to cash in on the rising home values, issues like credit worthiness and ability to pay became secondary to the rising values of the homes, which most lenders and borrowers saw as rising so quickly as to make the long-term consequences of over-borrowing irrelevant. Borrowers could simply flip their homes and make huge profits quickly, and move on to the next better grade of housing.

Like all bubbles, equity or housing, this type of buying is simply unsustainable. Looking back with the benefit of completely rational hindsight, such buying and lending behaviors appear idiotic. Caught up in the moment, housing speculators enjoyed mind-boggling rates of return. Second and even third homes became common.

Limit on lending can be circumvented by faking the borrower's income, but this is mortgage fraud, a crime when and if the law is enforced. Under Bush, regulatory oversight of the housing industry--or any industry--has been woefully inadequate at the federal level. Still, assuming lenders and borrowers retain a shred of credibility, another method to get around lower incomes by creating a mortgage structured around artificially low payments. These include exotic mortgage products where the interest could reset later, or a giant balloon payment be required at some arbitrary point later, or a combination of methods.

Borrowers were eager to get into McMansions and other homes their parents could have only dreamt about at their comparable ages. They may not lied on their mortgage applications outright, but borrower incomes were undoubtedly inflated with full complicity by realtors and lenders. The idea was that everyone could benefit by taking the shortcuts. Lenders would sell their new homes quickly and buy new bigger ones, feeding the bubble to ever greater heights. To lenders and borrowers, the adjustable payments and balloons would never be an issue, as the steady upward housing prices meant refinancing in the future would be easy. And home equity loans could take care of living expenses--these loans would be available as long as the value of the homes went up.

The lender liked the riskier mortgages because they allowed them to sell more mortgages. The balloons required new loans to be taken out later. Balloon payments can require a borrower to find a whole new loan on a house that could easily exceed the value of the house--not a very easy loan to get.

Now the value of the house is a crucial consideration over the longer term. If the amount borrowed exceeds the house's value, the borrower is in a situation called negative equity. Every day that that the home's resale value falls is a day when the homeowner loses equity. Whereas during the bubble the higher values allowed homeowners to take out home equity loans, a crashing market meant that such loans weren't available and could not be secured by the difference of what is owed on a home and what it's worth.

The biggest threat of associated with negative equity is that the borrower would simply walk away from the house.

I am not a lawyer and do not provide legal advice, but the legal ramifications of walking away from a house need to be considered. In many states, a battery of fees could be levied to cover the costs of foreclosure in what is called a "deficiency judgment" directed at the departed homeowner. The costs of repaying a mortgage could be far lower once all the legal penalties are assessed.

Bankruptcy generally allows the home to be retained, but qualifying might be harder under changes in the law made during the Bush years. Many financially stressed home buyers may be unable to file a Chapter 7 because their incomes are too high. A Chapter 13 filing will require ongoing bill payments that may not be lower, which means the home may be secured but high debts loads remain.

A "deed in lieu of foreclosure" is a safety valve for debtors considering leaving their house. This legal maneuver avoids the fees that could come by just walking away and basically means the bank gets the house back and new terms can be arranged. Consequences might include damage to the credit rating, but certainly the overall financial damage would be far less than if a "deficiency judgment" were made against the borrower by the Court should they abandon a home.

Research your legal options if you're in over your head. Many people don't and suffer gravely in the Courts as a result.

Economic Impacts

Reducing home equity loans--which have skyrocketed over the past decade--has dampened consumer spending, but perhaps this effect is delayed. Before the loss of borrowing capacity is felt in lower consumer spending, new home construction will likely lead the economy downward. For decades new home construction has been used as the key benchmark for economic activity in the United States. If we are to judge our economy strictly by the demand for new housing, we're surely in for dark times ahead. Maybe the government is seeking a new economic indicator as we seek, so the picture doesn't seem as bleak.

There is of course the direct employment of millions at stake in a general economic slowdown, but specifically at greatest risk are all the service jobs relating to the mortgage industry. Buying homes generates a lot of work. If fewer people buy homes, it figures that there will be less employment. The housing and mortgage industries have contributed to about one third of all new jobs during the Bush years, so the stakes are high.

We've been told that the American economy is migrating away from economic cycles, that recessions and depressions are a thing of the past. Looking at the housing peak, and how dependent the US economy is on the housing market, we will see a serious drop in economic activity, GDP, and employment, which will of course lead to cascading social effects like higher poverty and crime. Divorcing the US from the ups and downs of the economic cycle would have been a great achievement, but this recent housing downturn will prove a serious test of any new economic paradigm that excludes recessions.

In truth, housing is cyclical--what goes up must go down. It's only the severity of the inclines and depths and heights of the peaks and valleys that are unknown.

While predicting the peak was impossible in the most recent bubble, predictable indeed was the notion that a peak would most certainly one day arrive. For this reason it's the lenders who bear the most blame for they knew the housing market would eventually stop going up. Accepting the inevitable and doing something about it are two entirely different options, though.

Looking for a Way Out

Printing money won't save us. As I said, the increase in the money supply is huge, but this isn't an indication that the money is being spent. It could be left in money markets or overseas, in the banks of foreign countries. The Fed can offer up huge sums for banks to lend, but if the consumer is tapped out, or economic conditions worsen, the banks will lend more but only at greater risk of default.

Government bonds compete with borrowing by corporations. US debt has grown readily and borrowing appears to be the method by which we pay for our wars and social programs. As a hardcore borrower, government has a vested interest in keeping the cost of its borrowing down by lowering interest rates. The same can be said of consumers, who are also heavily in debt, to the point any spending increases must come from more borrowing.

Lower rates means more borrowing, and borrowing, especially by consumers, is the leading source of spending. Unfortunately, Americans don't save much anymore, which means all income is devoted to servicing debt, taxes, and consumer spending.

Ignoring the obvious consequences of millions of baby boomers going into retirement, the lack of investments means our economy is dependent on borrowing. Our economy is based on lending--if lending shrinks, GDP shrinks. Less growth also makes it that much harder for lenders to expand economic activity, as sales revenues drop.

The Fed is now caught in a serious dilemna. To continue to lower interest rates will sustain the economy. Money will be getting cheaper and people and corporate lenders will be able to expand purchases and growth, by achieving rates of return that pay off the relative lower level of interest required by lenders. Eventually, though, the sheer quantity of borrowing will be so great as to make repayment of debt increasingly less plausible. In other words, the debt will become unwieldy, even if low interest rates suppress the real impact of the borrowing.

Debts will be so huge that increasing amount of money available to lend will simply sustain bad loans and other imprudent decisions. Banks could continually lend, but the asset prices used to back them may not go up forever. Then banks would be in the business of subsidizing hoemowners--a quasi-governmental function, not the exercise of caution in a free market environment which capitalism requires in order to function as intended.

A command control type economy will become unwieldy, as the Soviet model showed us. No matter how much lending the Fed can encourage, the dollars that are lent must be repaid. If at some point the loans appear unmanageable, creditors will cut off further lending. An end to the borrowing addiction is what the borrower fears most. This will happen to our government last, as our government retains very useful method to reduce the cost of repayment: inflation. It can simply spend faster than the rate of underlying economic growth, to the point the currency loses value. In other words, when too much money chases too few goods, and purchasing power erodes, paying off debt is easier.

In an inflationary situation, prices rise because money--a commodity--is both more plentiful and more in demand. Were the supply of money to be relativelyconstant--increasing only in proportion to how much overall production increases--it would be valued more and people would spend less. Yet the underlying money bubble that has emerged out of Fed monetary policies and housing price increases means too much money is already out there, existing somewhere, where it could be put into play and spent on goods and services--magnifying the oversupply of money. As long as money lies dormant and salaries stay flat and productivity is good, inflation is no problem.

Now if the economy were growing not too fast then spending the money might not cause inflation if more were gradually spent and production rose in response. But human factors shape economics--economics is after all a science based on the sum total of human behaviors. So when people have more money, they spend more. If too many people spend too much money, prices will rise too fast. Initially, the rising prices at first should discourage spending; this Christmas will be a good test as it's the first that has come at the end of the housing bubble. If after the slowdown in purchases, prices stay high or continue to go up, consumers might realize that prices are going up for good and spend more before prices get too high. This exacerbates inflation as more and more money is pumped into buying consumer goods.

Unfortunately all fiat currencies seem go this way eventually--or at least this is what advocates of a gold standard say. The discipline required to preserve the currency's value just erodes. There are two big contributory causes--government spending is the first. Congress must choose between fiscal discipline and disappointing their constituencies--the same people that they must please in order to get re-elected. Our spending has been skyrocketing. The second problem is that inflation is very tempting for heavy borrowers. The old debt can be paid off with newly printed dollars.

Inflation and the marketplace ultimately determine the value of a fiat currency value in terms of how much it can buy. Money is a commodity with a price, supply, and demand. If the Federal debt becomes unmanageable (many have argued it has crossed this point) then the Federal Reserve will end up selling Treasuries to itself, basically creating money out of thin air under the promise to repay its debts. The interest on the Treasuries will be simply printed up, a envious possibility denied all borrowers save governments which issue fiat currrency.

Now if governments were forced to base their currency on a real asset like gold, they'd be forced to make repayments out of tax revenues here and now. Such a government would be therefore less likely to lend, knowing the true opportunity cost and the fact that they only had so much gold in their reserves out of which they could pay their debts. Another technique is "starving the beast", or forcing governments to burn through their credit and slash spending out of necessity--see a description of this concept at the bottom of this post.

What Happened to our Money?

In 1913, when the Federal Reserve was created, Congress essentially outsourced its ability to make money--both literally and figuratively--, as the issuance of money is its right under the Constitution. The Federal Reserve lent to banks on behalf of the government, which then owed the Fed, which in turned owed the Federal Government. Banks could then charge interest on the money they borrowed at low rates from the Federal Reserve.

Traditionally the banks would make sure that the supply of money was constrained through two mechanisms: fractional reserves and lending risk. Lending meant the possibility of default--no banks would loan against its own best interest if it could avoid it. Reserve requirements also forced banks to keep some capital in reserve, which meant they couldn't loan out whatever they wanted (still the fractional reserve system does mean they can loan out virtually unlimited amounts of money just as long as they keep some--1/9th or so--back.)

Things have changed. Money no longer represent purely an asset, but represents a claim to a debt. Therefore when you have money you have nothing but a promise to receive money, in itself an odd concept. Into this upside down world, banks have created assets out of thin air, called derivatives. Rather than keep deposits, they can loan them out in exchange for a promise to be repaid. In their quest to increase returns, banks turned to risky mortgage-backed securities, which are bundles of mortgages that are promises to pay backed only by the value of the homes, which we know is falling.

Now how much derivates are there? Well, I've been trying to read a report called the Call Report, which gathers information on the "notional amount of deriviates contracts." As far as I can tell, the Top 25 Commercial Banks have about $6.4 trillion in assets and $152 trillion in derivatives. I might be misreading the report (page 22), because that number seems unbelievable.

On page 6, the report explains that "the notional amount of derivatives contracts does not provide a useful measure of either market or credit risks." It clarifies that 42% of the derivatives are from 1-5 years out, which would be a generally positive sign if they were a more conventionally structured form of debt. The derivates are also highly rated, but this could be misleading, as one recent sale of MBS held by E-Trade suggests (see Engdahl article below).

Now a good chunk of the derivates might be offsetting, where one group of forwards to buy is counterbalanced with another group of forwards to sell. So we can't assume the size of the derivates market is an indicator of the risk. But the sheer amount of derivatives makes me seriously question the stability of our banking system. Some banks are worse than others--JP Morgan Chase has $79 trillion in derivatives and only $1.2 trillion in assets. Even if 90% of the derivatives could be liquidated without any losses, the bank would still be forced to cover $7.9 trillion with only $1.2 in the bank.

The huge imbalance might reflect the fractional reserve system where 11 cents are kept in reserve for every dollar lent. One dollar of assets under such a system could create many times more in borrowings. It may be that the $79 trillion to $1.2 trillion ratio reflects the maximum extension of lending under the reserve system, where 8/9ths of all money lent is lent out in turn. However the amount of derivatives relative to assets varies, and some banks elect to avoid derivates. Regions Bank has a ratio of approximately 3 dollars in assets for every dollar of derivates, as does the US Bank Association of Ohio.

A lot of the derivates are based on--you guessed it--housing loans! So the banks future revenues are very much tied to the ability of homeowners to pay their mortgages in the future. And because of the fractional reserve's mutliplier effect, the effect of one bad loan could be magnified many times over because the bank has sold off its future rights to receive mortgage income. In other words, the mortages have been packaged and discounted in the present based on the assumption of the repayment of principal and continued interest, as well as certain rates of default.

Even if the bank hasn't sold off its future income stream, it likely owns mortgage-backed securities from other financial entities. Therefore, the financial system is very vulnerable overall as derivatives might only be worth a fraction of their value as stated on the books. To make matters worse, many derivates based their value on other derivatives, so the collapse of one card could send the whole pyramid crashing down as the credit contagion spirals out of control. Subprime defaults might be the catalyst to a wider crisis involving higher rated debt instruments, which might be outside the mortgage markets entirely, seeded in presumably safe money markets and the like.

Many banks are also responsible for insuring the mortgages as a condition of their sale. So even if they no longer own the security, they could be on the hook for losses. Non-bank insurers would quickly collapse without access to infinite capital offered through the Federal Reserve, so don't expect financial relief from them.

The crisis could quickly escalate. The price tumble on some bond funds in August was not revealed in the mainstream media for good reason. I saw that the value on many fixed income funds had collapsed 50% in one week! It was early or mid-August, I believe. I don't know how closley you follow the markets, but a one week collapse of that magnitude gives one reason to pause. Fixed income is viewed as safer and a good choice for retirement investments, but risks may be far higher than most investment managers would admit. While mortgage-backed securities may offer income, the underlying principal may be eroding as the result of a deteriorating housing market and problems with defaults. As defaults rise and insurers are overwhelmed, the value of these debts--stacked atop each other as they are--can crumble.

The massive "injection" of Federal funds coinciding with the fixed income price depreciation appeared to stabilize the rapid spiral toward asset liquidation, but the potential for a similar meltdown remains today. The Fed basically offered money at ultra-low rates to banks so they could pay off the people who wanted to liquidate their investments. Rather than prevent a run on the banks like what happened to a major British bank (Northern Rock) last summer, the Fed opened up a dsiscount window with over $100 billion to lend cheap.

I don't give investment advice, but I'd be extremely careful with bonds and fixed income and financial services stocks. Well-informed investors have sought to diversify internationally. Going outside the US might not save you, as one example shows that the shaky debt was sold to firms overseas.

Bill Engdahl's "The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg" brings up a court ruling against the US branch of Deutschbank.

The Judge asked the Deutschbank's US subsidiary to show documents proving legal title and the bank could not, Engdahl says in his article. Apparently the "global securitization" of bundled mortgages means that no one bank owns any one home but rather the homeowner debts are spread through a basker of lenders, of which Deutschbank's US branch is merely one stakeholder. According to Engdahl, no single house that is part of a mortgage-backed pool can be claimed as the exclusive property of a single lender.

Some mortgages might default within the portfolio, but no lender can do much to take possession of the properties until foreclosure has run its course. Foreclosure might punish the borrower, but it hurts lenders because they can struggle to liquidate foreclosed homes. The subprime portions of these mortgage-backed securities may be worth pennies on the dollar. And to make matter worse, the more foreclosures worsens the housing glut and pushes price down. Lenders might require higher interest to compensate for their higher risks.

Legal protection for individual homeowners means that the real market value of mortgage-backed securities is much lower than their initial value. The collateral on which the securities are based is unfounded and a rising number of foreclosures needs to be anticipated. Therefore in a secondary market, where the Collateralized Debt Obligations sold, they could fetch nowhere near the prices which they sold for.

In his article "Saint Joe and the impending global financial crisis" Mike Whitney explains the impact of one recent liquidation of mortgage-backed securities:
What is particularly distressing about the E*Trade sale is that over 60 percent of the $3 billion portfolio “WERE RATED DOUBLE-A OR HIGHER.” That means that even the best of these mortgage-backed bonds are pure, unalloyed garbage. This is really the worst possible news for Wall Street. It means that trillions of dollars of bonds which are currently held by banks, insurance companies, retirement funds, foreign banks and hedge funds will be slashed to 27-cents on the dollar OR LOWER.

To Bail Or Bail Out

The recent intervention is an effort to head off foreclosures. The so-called bail out for subprime mortgages is an industry-headed effort and takes no federal funds. Nonetheless, the effort has been heavily critized as interventionist, as meddling.

The criticism of help comes largely from the right, which loves to blame politicians and their predisposition to meddle with the free markets as the greatest source of problems in the markets, which they view as functioning best when left alone by government.

I sympathize with the leave-the market-alone people, but the human costs of massive defaults is staggering. Also, I think laissez faire economic is an easy choice when times are generally good, but almost no government can resist the temptation to start bailing out cherished industries which housing and banking must be considered. The anti-interventionists seem certain to lose--the Depression saw the rise of their much-despised social programs under FDR's New Deal. Later, we saw interventions with Chrysler under Carter, and tariff protections for the steel industry under George W. Bush. Political considerations trump economic ones in Washington, particularly during times of economic upheaval.

Government action may more of a threat than a benefit. Now helping out over-stretched buyers is a commendable idea and disproportionally helps minorities. Higher borrowing costs could come out of any intervention, though, if lenders are limited in their legal rights. It is after all their money they lend out, and no lender will be inclined to lend if it means their money isn't protected by contract law.

Mortgages subject to renegotiation are unattractive to investors. Mortgage-backed securities lose much of their appeal when mortgages are vulnerable to restructure in terms favorable to the borrower, which often comes at the expense of the lender and their shareholders and creditors.

The government--lender of last resort--likely steps in to buy mortgages no one else wants. Already the quasi-governmental corporations Fannie Mae and Freddie Mac have taken a beating on their MBS holdings. Unlike private lenders though, those companies have the strength of the federal government behind their obligations; if need be the money could be printed up and sent to their shareholders to cover losses suffered from investing in mortgages.

Crowding private lenders out could lead to a market for mortgage securities dominated by government, which would make the market for borrowers far less efficient in the long-term. Faced with the infinite quantities of money available to government at no cost, private sources of financing for home financing would dry up. This would be like a middleman competing with their supplier for the same customers; the Feds have the benefit of essentially free money. The banks pay interest to the Federal Reserve, which as the middleman gets its cut on any borrowing. Now the government could go direct, which would require cutting out private mortgage originators, and replace the bank, and take its profits and assume its risks. The banking industry would likely be crippled forever and the Fed proven to be unnecessary, which would be a wholly unacceptable development for those who profit from lending what is essentially our money back to us.

Interest rates on mortages--and therefore their attractiveness to investors--would be set not by what the market was willing to pay but what a government acting in the capacity of a command and control economy would determine. Little distinction might be made between risky and less risky mortgages if government caps were instituted, or the legal rights of lenders subjugated to government decree. Shouldn't lenders be allowed to control how much they get back in turn for their risk?

Maybe the comparison would be easier to make if you had enough money to lend yourself. Would you lend your own money out without any guarantee? Why should a bank or an investor lend money out if the legal contracts they use aren't honored? The risk of government intervening on the behalf of borrowers must offer a corresponding risk premium to the potential extender of credit. If the government controls the mortgage market ad nauseum, private lenders will be shut out and capital will flee.

Rather than abandon any intervention, I support earnest enforcement of regulations already on the books--an area of enforcement much neglected under Bush (see my "Wild Ride..." entry last month). Many rules have been avoided and laws flaunted under the idea that the best government is one that governs least.

While it'd be great to imagine that our free markets are so flawless as to punish every mistake, I think this credit crisis shows that the real cultprits will not be the ones who pay the greatest price for their mistakes. Those people will be off jetting around the Islands, leaving investors with mortgage-backed securities worth pennies on the dollar and millions out of work.

Ben Stein blames fund manager greed for the problem:
It's now clear that some of the major players on Wall Street were making fortunes bundling junky subprime mortgage instruments and selling this garbage into the financial markets. The heads of some of the major brokerages and investment banks approved of this conduct and reaped the rewards when the market was hot -- i.e., when the market was fooled by what was being sold.

Now some of these people are being fired. But when they leave, they get immense pay and benefits packages that would leave the rest of us speechless if we got them for good conduct.

There's something drastically wrong when a conspiracy of men and women can do this kind of damage to the financial well-being of the nation and get away with it. On a local level, hundreds of thousands of borrowers were sold on mortgages with terms they barely understood. Now some of them will lose their homes. As far as I know, punishment for this sort of misconduct is barely meted out at all.link

Regulatory oversight is required to prevent certain abuses. The political aim to increase home ownership might not be what it is claimed to be (see Clive Crook's article Housebound in The Atlantic Monthly/ subs. req'd).

Politically, I'm supportive of trying to help strapped homeowners but economically, I think meddling in the mortgage industry is a big mistake. A government bailout could also send the message that irresponsibility by the lenders--extending too much money too easily and packaging the debt in multilayered MBSs--will be rewarded. Perhaps the best course of action long-term is to make the lenders suffer defaults and losses, take their punishment for lending out too easily. Perhaps investors should be punished for chasing the too-good-to-be-true rates offered by highly collateralized debt obligations.

But the MBS problem wasn't created by individual investors. Starting in the early 00's, under Bush, money markets began buying huge quanitites of Collateralized Debt Obligations. Have you ever tried to read a money market prospectus or annual report? Trying to understand what these debt securities were requires an advanced finance degree which is fundamentally a bad sign. I guess I prescribe to the Peter Lynch school of investing in that I think people should buy what they know. While I found the prolific legalese garbage worrisome, but what was I to do? Money markets are very large pools of capital, so the increase in CDOs was largely insignificant, then it grew and grew as fund managers sought any means available to repackage and sell mortgage debt. Eventually the securities bore no direct relationship to the underlying assets on which they were based.

So I, like so many other investors, just went along, albeit with not very much money invested. Am I therefore to be punished for taking more risks than I thought, for investing in something broadly considered to be the safest form of fixed income: the money market fund? The market isn't perfect; it doesn't punish perfectly, or even fairly. Despite the obvious imperfection of the capital markets, they remain the most efficient when left alone. Actions and regulations need to be pursued against lenders, but out of due diligence and routine procedural requirements, not as part of an ad hoc response to a crisis engineered by underregulated and irresponsible lending.

Concept (from Above)

"Starve the beast" is a pseudo-libertarian concept that the excesses of federal spending can be limited by drawing down the ability of the Feds to borrow. In other words, make borrowing harder so money can't be borrowed; spending should drop as a result. While great in principle, there appears to be no limitation on the part of the Feds to borrow at present, so it will take a total end to all borrowing to stop the runaway train. Since we are now borrowing about $1 billion a day to sustain federal spending, this cratering could one day come and stop the train, but it will also greatly shock the economy, in a way maybe not that different from shock and awe disaster capitalism, which could usher in a libertarian fantasy of limited government and pay-as-you-go spending, once the shock waves subsided.

Stopping our borrowing may in fact be impossible until we can no longer borrow, at which point money can be printed and spent, which could easily lead to hyperinflation and a rapid economic collapse like that seen in Germany after World War One, leading to the rise of Hitler. Trying to ignore the consequences of unrestrained and completely uncontrolled capitalism could destroy the American economy and cripple our way of life. Transitions need to be eased in; the shock of ending virtually all federal spending overnight could decimate the economy, especially considering how the federal government is our country's largest employer and how dependent on federal spending so many corporations have become.

Look at suppliers of our war machine, builders of submarines--not exactly a platform known for its counter-terrorist value--and the like. Appeasing the warfare state is popular on the right because militarism and nationalism are their sources of strength. By feeding the war machine, we sustain our economy, but the war and level of spending is itself unsustainable. Therefore the wars will have to one day end, out of necessity, as we will simply run out of money. As a progressive, I'd much rather see the war machine starved, but starving the beast is usually defined in terms of going after "social spending" and entitlements--the so-called welfare state--and very rarely refers to stopping the warfare state, which I believe represents a tapeworm far worse for our economy than "social spending."


Tuesday, December 04, 2007

Hard Power Drained, Soft Power Ignored

A referendum was held in Venezuela which would make changes to the Constitution in that country. The Presidential term of office would be extended, and changes would allow Chavez to remain in office indefinitely, assuming he could be re-elected. Recent news indicates that the proposed changes have not been ratified, in a close vote.

An article by Robin Hahnel from MRZine provides a fuller explanation of the changes proposed by Chavez and the connotations of the referendum.

The mainstream media narrative has been flaming Chavez. It's as if Cointelpro, the CIA infiltration of US media during the Cold War, was back in control of our supposedly unbiased media. Stephen Lendman's article on Venezuela, "Coup D'Etat Rumblings in Venezeula", explains the covert efforts of our government to overthrow Chavez. This despite the clear popular mandate the populist firebrand leader carries.

Perception management is a crucial game in geopolitics. In most cases, propaganda is subtle, but for some reason efforts at subtlety are dropped when dealing with the Empire's backyard in Latin America. Perhaps it's the idea that we control our Hemisphere--with Iraq taking the level of hubris it did, on the other side of the world, it's perhaps no wonder Cuba and Venezuela make the Empire boil in rage. How dare Chavez nationalize his oil industry! How dare Chavez not take our money! Well, Chavez has been content to sell to the Yanquitos, but he's now threatening to stop exports of oil.

Chavez is trying to move away from the dollar, and a partial sale of Citgo, the US distribution outlet owned by Venezuela, is in the works. The deal would relinquish ownership over several refineries and many stations, and comes alongside a threat by Chavez to stop Venezuela exports of crude to the US (the refineries process the crude--Venezuela's oil is the heavier type). Thousands of jobs could be at stake if Citgo isn't sold and Venezuelan oil dries up.

Some might remember Chavez's gift of heating oil to lower income Americans in New England not too long ago.

Chavez clearly understands the game of perception management, which is really political scheming through the media. Yet the media in Venezuela can be quite anti-Chavez, yet manage to continue to broadcast. So even without a State-owned media monopoly, Chavez can mobilize a popular base which has been marginalized and under-represented for decades under more despotic leadership in the past.

Is Chavez a dictator? Our media has framed the referendum as if Chavez were seeking appointment for life. Chavez has apparently turned the referendum into a plebiscite on his popularity, which is a crafty bit of perception management considering he is not facing re-election.

Under constant pressure from Right wing critics inside and outside the country, Chavez must know his popularity is his best insurance against a coup. Knowing the US and the corporatist interests it represents would dearly love a regime change, Chavez is under constant threat. Because of Iraq, gunboat diplomacy might not be too effective; as a matter of fact a US-led attack could backfire and unite Venezuelans behind Chavez, who's largely considered anti-American (although Chavez's anti-Americanism may simply reflect his opinion of Bush and the neocons.)

Interestingly, military options have been taken off the table by the Iraq and Afghan quagmires. Tough-talking Bush simply can't take military action against Chavez, should it digress into a protracted guerrila war. A broad US covert action to end Chavez's rule clearly persists--an intercepted CIA memo outlining the effort was recently made public in Venezuela. {See the Petras article in Counterpunch.}The US could support anti-Chavez elements in the country, but little more.

The US's closest ally is in neighboring Colombia. Utilizing Colombian armed forces would be tantamount to starting a whole new front as Venezualan allies come to their aid--not necessarily in Latin America but perhaps even in the Middle East. Threatening to a war with more than two participants invites an arms race. Weaker nations have no choice but to form alliances to protect themselves from aggression by neighbors with superior military strength.

Many of the US' problems in dealing with Chavez arise frm the abandonment of soft power in favor of using hard power, which can be defined as deploying military force and projecting State power regardless of its appeal to the host country. While hard power may allow for easy regime change, decisive victories can't be assured.

Hard power also tends to push out soft power, which is more cultural and economic, and may require multinational cooperation. The effectiveness of soft power is measured by its receptivity and staying power. Hard to measure, soft power comes in many shapes and sizes, and its impact can be measured in terms of personal interconnectedness, shared cultural values, and economic interdependence.

In Venezuela's case, the US has insufficient hard power at its disposal. Using military force would not be prudent at this juncture, even if the resources were available. The US has simply used to much hard power up in Iraq to

Shunning Multilateralism

Before the war, diplomacy with Iraq was viewed by neocons to be a means by which Saddam could avoid accountability. Looking back, we see that he had nothing to hide. The multinational organizations the UN and IAEA provided accurate assessments of Iraq's WMD capability that were ignored by the war-hungry neocons.

The neocons emphasis on punitive sanctions and miltary aid or action--hard power--really undermines the effectiveness of soft power. The problem with hard power is not so much that soft power wanes, but more how much policymakers disdain alternatives to hard power.

The UN is the best example of ignoring soft power. Neocons resented the way the UN had fallen under Communist influence. Seeking strength in numbers, the Soviet Union fought European/American supremacy by gathering under its banner many third world countries, who would vote in unison to give Communism an advantage within the multinational environment of the UN. General distrust of the UN among fervently anti-communist, pro-hard power Americans followed.

A fear of world government is common among the far right. Conspiracy theories envisions rule over the US by an international body, the New World Order, etc.. This paranoia was mirrored in the idea that American troops would be commanded by non-Americans, a hallmark of cooperation of multilateral military actions. Someone may be commanding who is not an American.

Memories of the UN's anti-American bias would shape Bush/Cheney's opinion of multilateralism. Look at John Bolton's contentious period as Ambassador to the UN.

Hard power enthusiuasts tend to think multilateral military engagements minimize American power. Most long-term actions by multinational forces aren't that effective from a hard power point of view, although they excel at peace-keeping. Unleash American armies, under American control, unrestrained by international law or treaty, and anything would be possible, or so the idea went.

Nothing the neocons have done would seem to value international cooperation or the rule of international law. And in an ironic twist, it's been the use of torture tactics that has done the most to tarnish American image, which is crucial in efforts to win hearts and minds through the exercise of soft power. The Abu Ghraib scandal, followed with revelations concerning the treatment of prisoners at Guantanamo and the practice of rendition have undermined the role of multilateralism, dragging the US slowly into the league of a pariah state. Coincidentally, one other state is a role model for the US in this regard: Israel. Israel comes into constant friction with UN mandates. American treatment of Arabs mirrors Israel's behavior in the West Bank and Gaza, with an addiction to hard power in dealing with its neighbors. Israel receives limited multinational support as a result. Absent any meaningful participation by multinational bodies, peace discussions find it that much harder to gain traction. The recent Annapolis conference is a perfect example.

Unlike Israel, the US has to protect its international stature to preserve its leadership position. More is at risk because we strive not to dominate our region militarily, but rather establish a unipolar precedent as the leader of the world. If our goal were simply to exist--like Israel--we might be content to dominate our neighbors militarily and perhaps economically. We, on the other hand, seek to extend US cooperations to satisify sociopolitical demands that are chiselled into the American psyche.

The nationalist pop that Bush got out of invading Iraq helped him win re-election (along with massive disenfranchisement of Ohio voters.) He was hardly the first to drape himself in the flag to win some votes, nor shall he be the last. Hillary has announced her intention to keep the US in Iraq, proving the unthinking exercise of hard power is by no means limited to the GOP. So the problems and afflicitons unique to the exercise of military force will continue to plague us for quite some time.

Using hard power intoxicates those who wield it.

If unchecked, hard power enthusiasts will pursue ever more military spending on hardware. Many hard power backers are vested financially in the military industrial complex, where their lobbying influence earns contracts to supply the war machine. Still, not all advocates for the use of military force are participating in the windfall; they are to their credit idealogues, at least those whose financial dealings are known.

Building submarines and planes satisfies domestic political constituencies dependent upon the War economy, far more than does financing the actual fighting of wars. Making toys that go boom is simply better, and drawn-out productions and development cycles provide a more steady and predictable source of income.

There is little profit in using soft power for the merchants of death, the people who make money from war and profits from colonial exploitation. It's this tapeworm segment of our society that presents the greatest threat. By creating a state of permanent war, they hope to turn fear and suffering into privilege and power, no matter what the cost. Unless a society is willign to confront its advocates of hard power, and contain their influence, war is inevitable. Reason cannot fall to madness, and the use of war comes always at greater cost than benefit, excepting of course the warmongers and their bloody profits.

Soft Power Multilateralism

Soft power, on the other hand, could be very useful in containing Soviet influence. Multilateralism helped containing hard power gone mad during the Cold War, especially when it was clear nothing could change the outcome.

During the Cold War, both the US and Soviets could devote nearly endless resources to their war machines. If hard power enthusiasts took over, they could keep the war going on indefinitely. A method was needed to stop the dogs of war; in an age where both sides can exercise the Doctrine of Mutual Assured Destruction, hard power in ts purest form represent an unlimited exchange of nuclear weapons, an unequivocable lose/lose for all participants.

Communist military forces were weaker qualitatively but not quantitatively, so they engaged in a nuclear arms race that seemed to push the Doomsday Clock ever closer to midnight. Balance-of-forces agreements with the Soviets were a successful of the use of soft power to restrain and contain Soviet hard power.

Nations not involved with the fray have so much to contribute in mediating the conflict. Non-participants can contribute vastly to the recovery and reconciliation required in the aftermath of victory.

Arms control agreements might not be as sexy as blowing some heathen commies to hell, but looking at Reagan's legacy, the negotiated end to the arms race signified American victory over the Soviets. Bilateral agreements and Reagan's firm caveat "trust but verify" testify to the importance of restraining hard power. No bullets were fired to achieve the victory; in the end all that was required was a handshake and a pair of signatures.

Soft power can do almost everything that hard power can, given patience, and require far less sacrifice. With decisive victories through military intervention becoming quite rare, using soft power can easily surpass the results earned through the exercise of hard power, and come with far fewer consequences.

Multinational Hard Power

Multinational participation can ease the demands that military force brings, sharing the casualties and costs. While Iraq has suffered, and our military has been worn done with it, drained by the task of nation-building with miminum multilateral participation.

While a coalition of the willing was ostensibly created, the lack of staying power shows that multilaterism rarely works in the exercise of hard power, or for that long. UN peacekeeping efforts in places like Cyprus and elsewhere have shown that multilaterism can use hard power effectively over the long term, however. UN-led, the Korean intervention also held back the communist tide, but did lack a decisive end like that of WW2, the "signing peace treaties on a battleship"-type ending.

For political types seeking re-election, no glorious end could have come out of Korea short of destroying China, who'd entered the war. The UN-led effort didn't have the stomach to go after China, in the same way the Coalition formed to throw Saddam out of Kuwait wouldn't end his regime. In the eyes of some, the US had abandoned the Shia marsh Arabs who'd risen up in rebellion to end Saddam's reign in 1991. The Kurds were similiarly victimized by the US' inability to deploy military force, the argument goes.

Compared to the emphasis on global cooperation during Gulf war of '90-'91 under George Herbert Walker Bush, a true globalist, his son's efforts at coalition-building look anemic. The lack of broader military participation in the current campaign can be traced to the perception that the US--if unhindered by the sensitivities of its coalition partners--could have easily replaced Hussein instead of ending that war. Neocons also looked glumly upon the lack of clear winning outcome in Gulf 1, which they may have seen as contributing to Bush 41's loss to Clinton in 1992. Clinton's "It's the Economy, Stupid" had far more to do with the victory, but in the starry eyes of the hardcore believers in the exercise of hard power, the road to Baghdad beckoned and the prize lay in finishing Saddam once and for all.

Post-invasion, the US intends to monopolize Iraq. Whatever benefits multilateralism offers are diminished if other participants join in the looting of Iraq oil, share the plunder, and deprive us of more. With hundreds of billions and thousands of lives "invested" in Iraq, leaving now and suddenly would run counter to our colonialist aims.

If multilateralism means losing control over Iraq's oil, or ceding any authority to non-US military leadership, we don't want it. Yet our unwillingness to share in the spoils means we have no one to share the burden of continuing the occupation. The British, up to a point, sustained their military presence, and while they did so had access to bidding on Iraqi oil development contracts offered select firms. Now, with their military presence scaled back dramatically, I don't where British companies now stand vis-a-vis the bidding.

As long as the US remains alone in Iraq, the image of an imperial US will remain. Our colonialist intentions will seem clear. Also, our international stature will continue to be diminished and potential alliances which serve US interests will be unavailable both in the Middle East and elsewhere.

Traditionally, groups of nations grouped under a common ideology have been viewed as a hard threat, rather than a soft one. For instance, the spread of communism to Cuba led to the stationing of Soviet missiles there in 1962. Communism was really framed as a threat to capitalism, in a bipolar black and white world. America really couldn't see her cultural strength or economic superiority ever threatened by communism so the threat was never perceived to be anything other than hard power. Yet the Soviet bloc in the UN came to dictate many international polocy positions, to the chagrin of Americans who saw the UN as enabling Soviet manipulation.

We see in a pan-Arab block a tremendous threat perceived to the security of Israel, which we know is the tail that wags the dog when it comes to US foreign policy in the Mideast, which will tolerate no challenge to Israeli hegemony. Osama bin Laden represents the largest threat because he could unify Muslims. Should the Arabs unite, Israel would presumably be targetted; by keeping Muslims divided, so too is the theoretically quantity of hard power that the combined bloc could bring to bear against the US and Israel.

The idea of an us vs. them, bipolar world may serve as a comfortable post from which to confront a Communist-type rival, but it just isn't accurate any more. The era of two ideologies competing on the global stage is over--capitalism won, much to the chagrin of the recipients of billions in government contracts during the Cold War. Radical Islamic terrorism was made an enemy of choice, one theory goes, in an effort to sustain the war economy so threatened by the demise of the Soviet Union. Early papers from people like Wolfowitz, Perle, and others who'd go on to become neocons outlined a new enemy in Saddam Hussein. A Defense Policy Guidance paper by Wolfowitz was eerily prescient of the later Clean Break (1996) strategy formulated in essence to fight Israel's enemies. A webpage elaborates:

Wolfowitz...had objected to what he considered the premature ending of the 1991 Iraq War. In the new document, he outlined plans for military intervention in Iraq as an action necessary to assure "access to vital raw material, primarily Persian Gulf oil" and to prevent the proliferation of weapons
of mass destruction and threats from terrorism.
...The guidance called for preemptive attacks and ad hoc coalitions but said that the U.S. should be ready to act alone when "collective action cannot be orchestrated.
...These concepts are now part of the new U.S. National Security Strategy. "

Neocon philosophies flowed from there, worming their way up to the highest echelons of US foreign policy with the appointment of Bush by a 5-4 vote of the Supreme Court.

Reality Check

The results are in! In Iraq, we've seen a rag-tag group of insurgents take the world's mightiest army to a standstill. And in Afghanistan, the Taliban control up to 50% of the territory. These hard metrics put hard power to test, and it fails. Hard power fails when rosy predictions are befouled by reality, and the first plan begins to stray, or military goals become political ones.

I've said that Iraq has been so mismanaged that it appears to be have been an intentional disaster, which would allow the US to continue the occupation. I've seen little to contradict this theory, although many people say that our leaders did actually believe that we'd be welcomed with open arms and be out by Christmas. Turns out that the same people who predicted an easy invasion, paid for by Iraqi oil money, were the same ones who'd been talking up the threat of WMD and Iraq's link to terrorism, both cherry-picked goals of the White House Iraq Group and its Pentagon liasons working at the Office of Special Plans.

Now, with Maliki and Bush working toward a Status of Forces Agreement, an enduring presence in Iraq seems inevitable. A Status of Forces Agreement requires Congressional approval, so Bush took advantage of Thanksgiving Break to call his long-term troop presence proposal something else. As a result, the US will most likely be forced to defend Maliki from all enemies foreign and domestic, for decades into the future.

Now if our initial intent, as spelled out by the neocons, were simply regime change, we're suffering from a horrible case of mission creep. If the original purpose of the invasion were to colonize Iraqi oil, though, we have very little to show for it. If however we invaded to Iraq to split Iraq into small manageable chunks, as part of a bigger plan to fracture a unified Arab front against Israel, then our pre-war planning, as bad it was, hasn't been a problem. If anything the incompetence early-on laid the seeds for intensification of hostilities in Iraq, not only between the US and Iraqis, but civil war as well.

It's my opinion that the civil war was engineered and desired, as a means of stretching the US occupation in Iraq on for years. Perhaps policymakers knew that harvesting Iraq's oil would take decades and the only way to control their oil was by coopting an Iraqi government, turning it into a US proxy, and maintaining it through force of arms that an occupation would both require and provide.

We have in short been had. Iraq is the symptom of a far deeper problem: which is bias in US foreign policy towards hard power. The Bush administration is rife with the influence of military industrialists who have much to gain from the pre-requisite spending needed to sustain the occupation. Somehow, our military spending is still very much focused on expensive weapons systems despite the fact that the US national security faces a assymetical threat, not a foe with a head that can be cut off or tanks to blow up.

In short, we've prepared to fight a conventional war, we're the best at using our hard power, but we can't use a hammer to kill a flea. Assymetrical warfare require a major emphasis on winning hearts and minds. It's not enough to spin a unconventional approach to fighting insurgencies, the occupying power must deploy its resources--always finite--to certain approaches which exclude alternatives. The exercise of conventional military power is not going to get the results, or do what it can cheaply.

Investing in rebuilding infrastructure is crucial. Looking at Iraq, what we see instead is crony capitalism gone wild, with large, no-bid contracts extended to players with administration ties, who in turn subcontract out the actual work. (For more, see my take on disaster shock capitalism, "Wild Ride Down the Path...") The end result is corruption and a reconstruction disaster, in which the rosy rhetoric of a noble rebuilding ("mission accomplished") is achieved only in the fantasy world of Presidential addresses, far from the streets of Baghdad (or New Orleans, for that matter.)

Results must be real to matter. Exercising hard power has the bad effect of making domestic political priorities matter more than how the occupation plays over there. After all, what matters more to politicians--a rebuilt Iraq or perpetuating a stream of political patronage through the next election cycle? Budgeting requires hard choices, and the exercise of hard force will mean one approach comes at the expense of another. Hard power is expensive and depletive of resources--in short unsustainable for even the strongest of empires.

As long as Iraq is economically weak, it remains dependent on the US. The amount of money needed to manage Iraq will continue to increase.

Without full political representation in Baghdad, resentment by Sunnis and Kurds will simmer and threaten the regime. Even if sectarian violence drops off, the seeds of it remain to threaten whatever future stability can be achieved. The US is actually supplying Sunnis with arms, in an example of the use of military aid to arm both sides in a conflict it created, a wholesale bonaza to arms traders no doubt.

And in the north of Iraq, Kurds are in a de facto state of war with Turks. The neo-terrorist PKK (one man's terrorist is another man's freedom-fighter) threatens to spread the Iraq contagion out of the country and ignite Kurdish separatists in Turkey, leading to a downward cycle of reprisals and human right abuses. Also, the persistent presence of the PKK nags the idea of Iraq as a sovereign entity, and makes the claims of the regime in Baghdad irrelevent outside its Shia sphere of influence.

American soft power will remain underutilized largely because the use of hard power and militarism over extended periods tends to crush any alternative solution to violence. Instead violence is simply piled atop previous violence, and simply produces more violence. Eventually it matters who fired the first shot, or the last, or who thinks they won. In the end there are only the people who get to go home.

Multilateralism: The Other Way

Declaring North Korean, Iran, and Iraq as the Axis of Evil as Bush did in January 2002 may have made a great sound byte in the War on Terror but it also drove those nations together. North Korean missiles were sent to Iran and Iranian technology may have accelerated North Korea's nuclear weapons development, culminating in the detonation of a device there last summer.

Bush was driven in his foreign policy decisions by an overarching desire to get re-elected. Foreign policy was made subordinate to domestic political priorities, which largely involved turning traditional enemies of the US and Israel into foes in the Global War on Terror. Whatreallyhappened's Mike Riviero once said that North Korea was only put in the Axis of Evil to make the case that GWOT wasn't only about Muslim nations. Judging by the apparent unwillingness of the US to deter or stop the North Koreans from going nuclear, Mike was right: North Korean is in their for PR-purposes, and Israel's enemies are the real target of the Global War on Terror.

Under the spell of Rove's fear-based manipulation of the electorate, Bush led our foreign policy in a direction away from reality. Neocons took over and militarism dominated. Foreign policy decisions went under the spell of neocon theorists and a five-time Vietnam draft deferree Vice President Dick Cheney, or Darth Vader as is he is sometimes known. Pushing the fear button worked well for the Republicans, who knew they had to win over suburban moms and NASCAR dads. The fear of terrorism won a second term, but our foreign policy had been sacrficed for short-term political advantage in the domestic arena.

As it turned out as our credibility shrank as the Iraqi insurgency accelerated in 2004. In an effort to root out the insurgents, Bush authorized harsh interrogation techniques, despite their apparent ineffectiveness and illegality. Rumsfeld transferred Guantanamo's superintendent, a Major General Miller, to oversee all of Iraq's prisons.

The gloves would come off. The propaganda war accelerated. Iraqi insurgents were labelled terrorists as if they'd been part of 9/11. Metrics to measure the effectiveness of hard power went back in vogue, with Vietnam-era terms like body counts reappearing in the military lexicon.

Hard power displaced whatever soft power we could have used. Negotiations were shunned. Other Arab nations were excluded from participating in the remediation efforts as our mission went from regime change to occupation. Meanwhile the insurgents resorted to guerilla tactics--countering hard power with their own in a downward spiral of tit-for-tat and sectarian killing.

Fast forward three years and we see the consequences of those mistakes. US credibility is greatly diminished and we couldn't get a coalition together to fight a Saddam Hussein, or intervene in a place where we could perhaps do some good--like Darfur or Burma. Using the military so exhaustively as the leading edge of our foreign policy, we are now little more than a paper tiger. We can barely sustain our military presence in Iraq, so any new adventures are implausible.

To make matters worse, we can't hide our military weakness. Absent a draft, we have nowhere near the force we would need to practice anything more than gunboat diplomacy. Using our hard power has depleted it, and our rivals can sense that limits on our use of military force have been reached. All empires face this moment, from the age of Alexander in Afghanistan to Napoleon and Hitler in the snows of Russia.

We retain tremendous hard power resources. We can lob some missiles at our enemies, but we can't do any real damage or implement regime change through force-of-arms. With no military card to play, Chavez, Ahmadinejad, and any anti-American leaders out there can say and do pretty much as they please. In hindsight, if we had utilized our soft power more effectively, our hard power could now be utilized more efficiently. Thus the Iraq adventure has shown that the exercise of hard power is most effective when used sparingly.

Bush and Cheney wanted to flout the US military power, so now we are left with a lot less of it by which we can cajole or exert influence. The end result is also that alliances have formed around Russia and China, who've taken our military weakness to mean that they can no longer be contained. The olive branch Putin extended after 9/11 has been retracted, due in part to Cheney's anti-Russian rhetoric, and the pushing of a missile shield in Eastern Europe, ostensibly to stop Middle Eastern rockets but not so coincidentally capable of stopping missiles from Russia as well. Could we be headed for a new arms race? See an article by Mike Whitney on Putin here.

If Chavez were to tie down considerable US military forces, Iran could be more or less immune from attack. The two nations have signed a mutual defense pact, continue to trade weapons, and could easily institute an oil embargo between them that could do havoc to oil-dependent economies or, if targetted toward the US, could eliminate access to Venezuelan crude while raising prices of the commmodity. Chavez has tried to sway OPEC towards taking political action through oil production cuts and/or price increases but has been stymied by the Bush-allied Saudi monarchy.

Like the case in Iran, military action against Chavez could backfire and strengthen anti-US resolve. Such is the price of using the military in wars-of-choice, open-ended and without conditions for victory. Victory has traditionally meant withdrawal but Bush has reminded us of our enduring presence in Korea and Germany, not so much as testimony to our victories there, but to flog us with the idea of nearly endless occupation over which we citizens, mere serfs, have no say. The power of Congress--the people's representatives--to ratify treaties under the Constitution can be subordinated, if treaties by another name--open-ended commitments and foreign entanglements--are made semi-permanent by the stroke of a President's pen.

War on the Dollar

No country can match the US' soft power: the ability of America to influence other nations by persuasion and cultural influence. Still, grouped together, transnational blocs can counterbalance the impact of US soft power. Nowhere is this clearer than with foreign governments' use of the dollar as their currency of choice in conducting international trade and banking.

Until very recently, international sales of oil were traded in London or New York markets only and denominated exclusively in US dollar or British pounds. Oil producers in the Gulf have been collecting petrodollars, occasionally spending them to buy military hardware from the US that they can't use, which gather sand in the desert. As a reserve currency, the dollar has been in higher demand than it otherwise would. If the petrodollars were to enter circulation in the US, they'd contribute to inflation and degrade their value.

Dozens of nations have sought to reduce their dollar holdings. The motive for the shift may be political or economic, considering how much the dollar has fallen against the English pound and euro. Whatever the reason, it's clear that the advantage that the US currency as the international reserve has had will be largely lost, if indeed a suitable replacement can be found. (It's also likely that political considerations will make the choice of a replacement for the dollar difficult, if not impossible.) The euro may be the best substitue at present, but it's unlikely that China, Japan and other big holders of dollars would liquidate holdings to buy it at the premium it now commands.

Linda Heard discussed a new alternative to dollar-denominated banking:

US influence is further being eroded in South America by Venezuelan-led plans for a new bank -- Banco del Sur -- that would eliminate the region's dependency on the World Bank and the International Monetary Fund; institutions that the Venezuelan President Hugo Chavez refers to as "tools of Washington".
The six other founder nations are Argentina, Bolivia, Brazil Ecuador, Paraguay and Uruguay, which may soon be joined by Chile, Colombia, Peru Guyana and Surinam.
If Latin American countries move out of their current holdings of US Treasury bonds -- estimated at around $500 billion -- the impact on the dollar could be enormous.
Bolivian President Evo Morales was recently interviewed on Democracy Now and brought up some of the issues important to Latin Americans. The interview is posted here.

Multilateralism may be a very effective tool to combine the soft power of many nations, and provide a credible alternative to a financial status quo revolving around the US dollar. In this regard, soft power exercised in the name of anti-Americanism could do far greater damage than any combined military alliance against us, which we could defeat or contain.