Wikileaks, a Movement

Rumoured attempts by Australia to withdraw Assange's passport will not deter Wikileaks. It is more than a website, and more than Julian Assange.  It is now a Movement, one for transparence in foreign policy and for putting an end to hypocritical public utterances by governments. Crowley's statement that US diplomats are only diplomats is nonsense, a blatant lie. Every US embassy employs in its staff a "political officer" whose job is to gather intelligence. Yet the spineless US media never questions such assertions.

The Korean Option

The present problems are, in part, the fault of both parties. The paranoid and unpredictable regime in the North is highly sensitive to any perceived threat, justified or not, and I believe the joint military exercises of the US/South Korea were  unwise. They served no purpose except to provoke and give the North an excuse for hostile action. The North knows full well that the US will not attack them for two reasons: 1) the US cannot afford to engage in another ground war, particularly against this well armed million man army (and 7 million reservists) with nuclear capability; 2) the second reason is China, which would not tolerate the presence of foreign troops above the 38th parallel and on their border. The answer to this conundrum is to come to an agreement with China that would involve the overthrow of the Kim government and reunification of Korea, but guarantee China no foreign troops on the Korean peninsula, i.e. demilitarise the entire peninsula with Korean security being mutually guaranteed by the US and China. China is not interested in instability in North Korea and an influx of refugees that would bring into China but, they want assurance that the US would have no military presence near its border.

 The US should accept that the Pacific Ocean is no longer an offshore lake of California and that it belongs as much to China as the US. China is just as sensitive to foreign powers being off its shoreline and on its borders in Korea and Japan as the US would be if there were Chinese troops in Mexico or Canada! 

QE2, Bailout of an imperilled Boat

With the announcement of QE2 this well balanced guide to QE is worthwhile reading. 

http://www.bbc.co.uk/blogs/newsnight/paulmason/2010/11/the_wall_of_money_a_guide_to_q.html

As good as the US election  news was for many Americans, there remain serious fault lines in the US political landscape and difficult decisions to be taken on the economy. The latter will have to be addressed on an "as needed" basis, not for political gain and without regard to political party affiliation. In order to put matters right drastic sacrifices will have to be made both by the US public and government. Therein lies the rub....

In this regard attached is an excellent recent article from Foreign Affairs. This article, America Profligacy and American Power, deals with the impact of US indebtedness on both  the domestic economy and America's foreign policy. 

American Profligacy and American Power.pdf (application/pdf) 137K

The article is a long  one of six pages, but I have copied and extracted below the opening paragraphs as a sampler and I hope you will read the entire piece.

"The U.S. government is incurring debt at a historically unprecedented and ultimately unsustainable rate. The Congressional Budget Office projects that within ten years, federal debt could reach 90 percent of GDP, and even this estimate is probably too optimistic given the low rates of economic growth that the United States is experiencing and likely to see for years to come. The latest International Monetary Fund (IMF) staff paper comes closer to the mark by projecting that federal debt could equal total GDP as soon as 2015. These levels approximate the relative indebtedness of Greece and Italy today. Leaving aside the period during and immediately after World War II, the United States has not been so indebted since recordkeeping began, in 1792.

Right now, with dollar interest rates low and the currency more or less steady, this fiscal slide is more a matter of conversation than concern. But this calm will not last. As the world's biggest borrower and the issuer of the world's reserve currency, the United States will not be allowed to spend ten years leveraging itself to these unprecedented levels. If U.S. leaders do not act to curb this debt addiction, then the global capital markets will do so for them, forcing a sharp and punitive adjustment in fiscal policy.

The result will be an age of American austerity. No category of federal spending will be spared, including entitlements and defense. Taxes on individuals and businesses will be raised. Economic growth, both in the United States and around the world, will suffer. There will be profound consequences, not just for Americans' standard of living but also for U.S. foreign policy and the coming era of international relations.

THE ROAD TO RUIN

It was only relatively recently that the United States became so indebted. Just 12 years ago, its national debt (defined as federal debt held by the public) was in line with the long-term historical average, around 35 percent of GDP. The U.S. government's budget was in surplus, meaning that the total amount of debt was shrinking. Federal Reserve officials even publicly discussed the possibility that all of the debt might be paid off.

At that time, the United States had no history of excessive federal debt. This was not surprising since, on fiscal matters, it has always been a conservative nation. The one exception was the special and sudden borrowing program to finance U.S. participation in World War II, which caused debt to briefly exceed 100 percent of GDP in the mid-1940s, before beginning a steady return to traditional levels.

But over the first ten years of this century, a fundamental shift in fiscal policy occurred. When the George W. Bush administration took office, it initiated, and Congress approved, three steps that turned those budget surpluses into large deficits. The 2001 and 2003 tax cuts, which will reduce federal revenue by more than $2 trillion over ten years, had the biggest impact. But adding the prescription-drug benefit to Medicare also carried a huge cost, as did the war in Afghanistan and, even more so, the war in Iraq.

These steps were also accompanied by the outbreak of an especially partisan period in American politics. In Congress, the Democratic center of gravity moved left, and the Republican one moved right. This caused the historically bipartisan support for fiscal restraint to vanish. In particular, both the individuals and groups working to lower taxes and those working to expand entitlements were strengthened.

These anti-tax and pro-spending forces joined with President George W. Bush to terminate the strict budget rules of the 1990s. The result was a swelled deficit. Because there was no longer a requirement that any spending increase or tax cut be paid for by a corresponding and deficit-neutralizing budget action, the giant tax cuts were not offset. The "hard cap" on nondefense domestic discretionary spending (which limited increases in such spending to the rate of inflation) also disappeared.

The consequences were predictable. Federal spending grew at two and a half times the rate it did during the 1990s. Two large rounds of tax cuts substantially reduced the ratio of federal revenue to GDP. The overall budget shifted dramatically, from a surplus representing one percent of GDP in 1998 to a deficit equal to 3.2 percent of GDP in 2008. Public debt per capita rose by 50 percent, from $13,000 to more than $19,000 over this period. The eight years of the Bush administration saw the largest fiscal erosion in American history.

Then, on top of this, the financial and economic crisis struck in 2008, and the United States confronted the possibility of a 1930s-style depression. Washington correctly chose to enact a large stimulus program and rescue tottering financial institutions. So far, such efforts have worked, at least to the degree that a depression was averted. A recovery (albeit one that is halting and weak by historical standards) is under way. But the gap between spending and revenues has widened much further. Revenues, which had averaged 20 percent of GDP during the 1990s, fell to nearly 15 percent, while spending reached 25 percent in 2009. The deficit for fiscal year 2009 hit a staggering $1.6 trillion, or nearly 12 percent of a GDP of just over $14 trillion. In nominal terms, it was by far the largest in U.S. history. The deficit for 2010, at $1.3 trillion and nine percent, was nearly as huge.