What kind of system could prevent the world from getting into the jam a falling dollar may cause now? I've been reading about the World Trade Organization. In some ways they are the polar opposite of the UN regarding their relationship with the United States. We fight hard when we disagree about something, but rarely attack the organization wholesale. We tend eventually to comply with rulings that go against us.

The organization is surprisingly powerful, but it works around rather than against nationalism and sovereignty. It you break WTO rules, they give the people harmed permission to charge import taxes or other tariffs on your goods without being penalized as violators themselves. So they aren't ordering other countries around or trying to punish them themselves, but rather creating a set of rules so a consensus can be achieved as to what is a fair penalty vs an arbitrary tax war. Everything is done by consensus. This may make you think of UN veto power and nothing getting done, but ...

The Uruguay Round agreement also made it impossible for the country losing a case to block the adoption of the ruling. Under the previous GATT procedure, rulings could only be adopted by consensus, meaning that a single objection could block the ruling. Now, rulings are automatically adopted unless there is a consensus to reject a ruling — any country wanting to block a ruling has to persuade all other WTO members (including its adversary in the case) to share its view.

Although much of the procedure does resemble a court or tribunal, the preferred solution is for the countries concerned to discuss their problems and settle the dispute by themselves. The first stage is therefore consultations between the governments concerned, and even when the case has progressed to other stages, consultation and mediation are still always possible.

Although the rules and panels are created by consensus, once this is done a similar consensus is required to overrule them.

Right now this has no application to the dollar at all. There are no rules against one or more governments buying the currency of another government for any reason they choose. In fact, the WTO avoids ruling on internal issues, only ruling on the actual construction or content or products being imported and exported. Even if it didn't, the actions that got us into this situation were victimless crimes, neither the buyers of the dollar (who wanted to keep dollars strong so their own economies could look artificially strong in the short and medium term) nor the sellers (the USA, financing government debt by taking advantage of the former even while whining about it) would really have complained.

But this may be what we need to have a global economy which is sustainably prosperous for more than a few decades at a time. At least, the WTO is the only global organization not crippled by politics, perhaps because the 900 pound gorilla has a big stake in it.

Apocalypse Not Yet?

Debi White of Heart, Soul & Humor left a pointer in my comment section a couple of posts down. I've been thinking about this article for the past couple of days. Ultimately I think the falling dollar might be a greater danger for the United States than Iraq.

James K. Galbraith has many amazing ideas. I'm not sure I agree with all of them, but here's one we need to think about.

The big action, however, must come on the international side. My supply-side friends pine for the gold standard, and they make a serious point. The experiment of worldwide floating exchange rates, inaugurated by global monetarists in 1971, has failed disastrously. The world was better off when we had fixed exchange rates. Indeed, in the most successful arena of global trade and finance we have fixed exchange rates right now, thanks to the unappreciated but sensible dollar-pegging of the Chinese. Fixing exchange rates in Europe (through the extreme measure of creating a single currency) also proved a boon for the poorer countries of Europe, eliminating speculative currency risk. Even though, overall, European policy remains terrible, unemployment has dropped sharply in Spain and Greece since the euro came in.

Global fixed exchange rates would help developing countries, by sharply curtailing the destabilizing role of private currency markets. They would therefore also help us, by creating stronger and more stable markets for our exports. But there is no simple return to global fixed exchange rates. It would be a terrible mistake to create a system that imposed deflationary pressure on us and through us on the world as a whole—the problem of the classical gold standard. To get where we need to go, we must also recreate a global financial network oriented toward the support of development and growth. When we have that, growth policies around the world will help rather than hurt each other. At that point, we could profitably put real effort into reintroducing full employment economics to Europe and Japan.

A little shy on details, but you can't expect anyone to coherently describe a viable replacement for our current global economic system in a few sentences.

'we must also recreate a global financial network oriented toward the support of development and growth'.

That's the tough part. I can't help thinking it's only part of the problem too. As long as you only have engines to create growth, it seems the bubble economy will be recreated on a larger and larger scale. We need a way to regulate it as well, on a global level.

It's not Saddam I'm concerned for. It's just that we made such a big thing about giving him a trial when he was first captured. This article from the Scotsman is the first I've heard about him for a long time - although you sometimes hear about 'Saddam loyalists'. The only other mention I've seen so far is in the Washington Times from UPI, and they don't fully explain the last minute cancellation and the inference that Americans are behind it. I'm not sure you can take the latter to the bank, but if the Iraqi government is blaming all their unpopular decisions on Americans, that could be a problem too. Are we going to try him or not - with or without free and unfettered access to his lawyers? Either could create serious problems, given that he could become a focus for Sunni obstructionists.

Ziad al-Khasawneh said in an interview that the Iraqi Bar Association obtained court permission last week for defence team member Khalil al-Duleimi, an Iraqi, to meet with Saddam today.

“But the syndicate called the lawyer earlier today to say the meeting has been indefinitely postponed,” said al-Khasawneh, who heads the Jordan-based legal team appointed by Saddam’s wife Sajida.

“The abrupt cancellation indicates that there was a last-minute decision to ban the meeting,” he said. “That decision appears to have come from the top, neither from the court nor from the Iraqi government because both have no say in front of Iraq’s real ruler, the United States of America.”

The worst-case scenario is much less pretty: Foreign investors, losing confidence in the U.S. dollar's stability and increasingly doubtful that the American economy can absorb the current account imbalance, yank money out of U.S. government bonds, in favour of safer harbours.

This exodus sends the dollar off a cliff. Interest rates spike higher, reflecting plunging demand for U.S.-dollar debt and the rising risk perceived by investors.

Stock markets tumble, as investors flee U.S. stocks to avoid the currency losses tied to U.S.-dollar-denominated stock prices, as well as the rising interest rates that imply less competitive returns at current stock valuations and the drag on corporate profits from rising credit costs. Corporate and consumer spending slump under the weight of rising interest rates and import prices. The U.S. economy slows to a recession, dragging the rest of the world down with it. Policy makers stand by helplessly; if the Federal Reserve Board were to cut interest rates to stimulate the economy, it would only put more downward pressure on the dollar.

Far-fetched? Maybe. Martin Barnes, who described just such a chain of events in his independent research report The Bank Credit Analyst, acknowledges that the scenario — he called it his "ugly" case — is "overly gloomy." But it has happened before.

Many people have been talking seriously about major meltdowns in the system due to US debt, but of course many countries have a major stake in preventing them. Remember how many times various Cassandras said the tech bubble was going to burst - and it didn't - until nobody believed the warnings? Then it burst. Something major may happen as soon as everyone stops taking the periodic strident warnings seriously. It might well be more serious than the article above suggests. I keep meaning to write about it, but I don't know what to say, I don't know more than anybody else. It seems almost a game of chicken, with the United States trying to force other nations to allow the value of the dollar to fall by spending more and more of them, while other nations try to force us to accept a strong dollar and cut our spending to support it. It is a battle the United States cannot lose - which will start a war they cannot win. It is painless for Bush to spend and cut taxes, and buying dollars gets more and more expensive for everyone else. Supposedly the dollar will go down just enough to increase increase our exports and decrease our imports, but that seems less and less likely. The only reason all these nations spend money supporting the dollar is to export, and when they stop trying they may well stop.

I've been thinking about the oddities of this situation. All these countries have manufacturing capacity - and people who need things (especially China). Yet the world economy is structured so that they would rather trade goods for ledger deposits of dollars despite open concern about dollar denominated debt than give these goods to their own people. Of course, the redistributive economies that came before didn't work either, but there has got to be a way to do better than this.

What we need is to rethink the world economy from the ground up.

Is this bigger news than Iraq?

Foreign Interest Appears to Flag as Dollar Falls

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Japan and China, which together have amassed nearly $900 billion in United States Treasury securities, have both slowed their buying sharply from the frenetic pace in February and March.

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Can China give up on attempts to keep the Yuan pagged to the dollar? It would be the ultimate irony if this lead to a collapse of the dollar - and American economic power.

I took an unplanned break from blogging, and Spiralsands of Wayward Winds suggested I get back to work. I'm glad somebody besides me noticed.

I guess it's a little early to start thinking about the next election, but it's been on my mind lately, and it may help understand and deal with the results of this one. I think the Democrats need an Evangelical next time around. At first some parts of our base may have trouble with an Evangelical candidate, but one who can talk sincerely about how W is always convinced that the hunch he feels in his gut is divine guidance might pay huge dividends. Those who believe in Papal infallibility only believe it happens under certain special circumstances, and other denominations often try to talk differences over with an open mind even when people on both sides have prayed and are convinced their opinions are revealed truth. Even if you're uncomfortable with certain kinds of religion, genuinely religious leaders are much better than fake ones. I'm not saying Bush's beliefs are phony, but more knowledgable leaders seem less likely to claim divine guidance for the hunches they can't justify when other well meaning people who share many of their beliefs disagree with those hunches.

What the heck, let's find a candidate before the slate for 2008 becomes set. Deborah White of Heart, Soul & Humor thinks the time may be right for moderate Evangelicals to play a greater role in politics, and quotes one:

"There's a lot of good in other religions. A lot to be learned from them. The only difference is belief in Jesus Christ." (Imagine the frustration of Christian apologetics professors at that glib statement.)

George Bush has not-so-subtly moved to the left from his pre-election hard-right stances. (See my post of Nov 17.) Rick Warren, stated admirer of politically-neutral Billy Graham and business world guru Peter Drucker as seminal figures in his ministry, has likewise been newly converted to the ranks of evangelical moderates.

Or perhaps they were always evangelical moderates. They just closeted it at election time. Perhaps all that arrogant, Pharasitic blather about only far-right voters having "values" was just so much.....clever election-year babble crafted to garner votes.

One can only hope. And pray.

I'm a big Fox critic (there are so many more people scrutinizing the New York Times than Fox) but credit where credit is due. This is an important story.

In a rush of pre-election business, Congress gave the Alaska pipeline fresh momentum by promising loan guarantees for 80 percent of the pipeline's cost, and gave developers other tax breaks as well as promises of less burdensome permitting requirements.

"After working for more than 20 years ... we have finally taken steps to make the Alaska natural gas pipeline happen," Sen. Ted Stevens, R-Alaska, said after Congress agreed to the incentive package.

The incentives were touted as a major breakthrough by Alaska's other senator, Lisa Murkowski (search), but quickly became fodder in her closely contested election race. Her opponent, Democratic former Gov. Tony Knowles (search), criticized her for failing to get a better incentive package, including gas price supports, to further ease pipeline developers' concerns.

Tax credits if Alaska gas fell below a certain price had been sought by the Alaska senators and some of the potential pipeline investors, but were strongly opposed by the Bush administration as being unfair to gas producers in the lower 48 states.

The companies that own the Alaska gas -- ExxonMobil Corp., ConocoPhillips and BP PLC -- have praised Congress' action, but remain reluctant to push headlong into a $20 billion investment. They are seeking more advantages and security from the state to mitigate their risk in what has been described as the largest private construction project ever in North America. If given the go-ahead the pipeline would take 10 years to plan and construct.

Two parties competing to see which one can offer more subsidies. The fossil fuel companies are nervous about the risks - but politicians are pushing the project. Limits on corporate welfare are imposed more by concerns of competing corporations than concern for the taxpayer.

Ambush Kills 50 Iraq Soldiers Execution Style

The NY Times has revised the headline - presumably before the print edition was printed. Pretty quick work on their part, the meaning is clearer now.

Usually I consider the critics of the New York Times to be excessively one sided, but in this case all the howls about the word 'executed' will be deserved.

Rebels Mount Grisly Ambush, Executing 49 Iraqi Soldiers
By EDWARD WONG

Published: October 24, 2004


AGHDAD, Iraq, Oct. 24 - In the single deadliest ambush of the insurgency, guerrillas dressed as police officers executed 46 freshly trained Iraqi soldiers and three civilian drivers in remote eastern Iraq as the unarmed men were going home on leave Saturday evening, Iraqi officials said today.

If murdered is too judgemental, how about slaughtered? Even killed would be better. I have heard the phrases 'mob execution' for the Mafia or 'gang style execution' for other gangs, but there's no call for using it in this context.

What do we do about this? It would be easy to go along, since we are worried about Iran interfering in Iraq. If we ignore any questions about evidence and due process and the Brigadier General, it will make it much harder to ask them later when he does something we don't like - or that moves constitutional democracy further away.


Neo-Baath v. the Shiites

Brig. Gen. Muhammad Abdullah Shahwani, the head of the Iraqi secret police, has charged 27 employees in the Iranian embassy in Baghdad with espionage and sabotage. He blames them for the assassination of over a dozen members of the Iraqi secret police in the past month. He claims to have seized from "safehouses" Persian documents that show that the Supreme Council for Islamic Revolution in Iraq and its militia, the Badr Corps, served as Iranian agents in helping with the assassinations.

SCIRI is represented in the caretaker government by Adil Abdul Mahdi, the Defense Minister, and the party has been an ally of convenience of the US against the Sadr Movement. The party was formed in Tehran by Iraqi exiles in 1982 and was close to Iranian hardliners. SCIRI officials vigorously denied Shahwani's charges on Thursday. They said that the neo-Baath network in the Allawi government is seeking to discredit Iraqis who fought against Saddam from Iran in the 1980s.


...

The two ex-Baath officials had reportedly ordered the secret police to raid "the office of Hizb Allah Movement in Baghdad and arrested some members, including the movement's general-secretary Hassan Al Sari, without any arrest warrant." [Thanks to Nicholas Blanford for information about HMI].

Complaints began surfacing about Shahwani in August. Iraqi Shiite leaders visiting London this summer contacted the Deccan Herald, a south Indian newspaper, among others, to express concern about the secret police chief:



' Despite earlier promises that no one in Iraq would be arrested without due process, Shahwani’s critics say he is using ex-criminals to round up suspects and hold them without charge in secret prisons.

“On the day the National Assembly was appointed three members were arrested, along with another 57 others, all this on the orders of Shahwani,” one prominent Iraqi visitor told Deccan Herald on condition he was not quoted by name.