Drones, computers new weapons of US waging shadow wars!

 AP FILE - This Jan. 31, 2010 file photo shows an unmanned U.S. Predator drone flies over Kandahar Air Field, southern Afghanistan, on a moon-lit night. After a decade of costly conflict in Iraq and Afghanistan, the American way of war is evolving toward less brawn, more guile. Drone aircraft spy on and attack terrorists with no pilot in harm's way. Small teams of special operations troops quietly train and advise foreign forces. Viruses sent from computers to foreign networks strike silently, with no American fingerprint. (AP Photo/Kirsty Wigglesworth, File)

Supporters of Pakistani religious party Jamiat Ulema-e-Islam, burn a representation of a US flag during a rally condemning US drone strikes in tribal areas and the reopening of the NATO supply line to neighboring Afghanistan, in Hyderabad, Pakistan, Friday, June 15, 2012. (AP Photo/Pervez Masih)

FILE - In this Sept. 7, 2011 file photo, John Brennan, Assistant to the President for Homeland Security and Counterterrorism, speaks in Washington. After a decade of costly conflict in Iraq and Afghanistan, the American way of war is evolving toward less brawn, more guile. Drone aircraft spy on and attack terrorists with no pilot in harm's way. Small teams of special operations troops quietly train and advise foreign forces. Viruses sent from computers to foreign networks strike silently, with no American fingerprint. (AP Photo/Susan Walsh, File) — AP

 
WASHINGTON — After a decade of costly conflict in Iraq and Afghanistan, the American way of war is evolving toward less brawn, more guile.

Chart shows the number of air attacks in Pakistan — AP

Drone aircraft spy on and attack terrorists with no pilot in harm's way. Small teams of special operations troops quietly train and advise foreign forces. Viruses sent from computers to foreign networks strike silently, with no American fingerprint. 

It's war in the shadows, with the U.S. public largely in the dark. 

In Pakistan, armed drones, not U.S. ground troops or B-52 bombers, are hunting down al-Qaida terrorists, and a CIA-run raid of Osama bin Laden's hide-out was executed by a stealthy team of Navy SEALs. 

In Yemen, drones and several dozen U.S. military advisers are trying to help the government tip the balance against an al-Qaida offshoot that harbors hopes of one day attacking the U.S. homeland. 

In Somalia, the Horn of Africa country that has not had a fully functioning government since 1991, President Barack Obama secretly has authorized two drone strikes and two commando raids against terrorists. 

In Iran, surveillance drones have kept an eye on nuclear activities while a computer attack reportedly has infected its nuclear enrichment facilities with a virus, possibly delaying the day when the U.S. or Israel might feel compelled to drop real bombs on Iran and risk a wider war in the Middle East. 

The high-tech warfare allows Obama to target what the administration sees as the greatest threats to U.S. security, without the cost and liabilities of sending a swarm of ground troops to capture territory; some of them almost certainly would come home maimed or dead. 

But it also raises questions about accountability and the implications for international norms regarding the use of force outside of traditional armed conflict. The White House took an incremental step Friday toward greater openness about the basic dimensions of its shadowy wars by telling Congress for the first time that the U.S. military has been launching lethal attacks on terrorist targets in Somalia and Yemen. It did not mention drones, and its admission did not apply to CIA operations. 

"Congressional oversight of these operations appears to be cursory and insufficient," said Steven Aftergood, an expert on government secrecy issues for the Federation of American Scientists, a private group. 

"It is Congress' responsibility to declare war under the Constitution, but instead it appears to have adopted a largely passive role while the executive takes the initiative in war fighting," Aftergood said in an interview. 

That's partly because lawmakers relinquished their authority by passing a law just after the Sept. 11 terrorist attacks that essentially granted the White House open-ended authority for armed action against al-Qaida. 

Secret wars are not new. 

For decades, the CIA has carried out covert operations abroad at the president's direction and with congressional notice. It armed the mujahedeen in Afghanistan who fought Soviet occupiers in the 1980s, for example. In recent years the U.S. military's secretive commando units have operated more widely, even in countries where the U.S. is not at war, and that's blurred the lines between the intelligence and military spheres. 

In this shroud of secrecy, leaks to the news media of classified details about certain covert operations have led to charges that the White House orchestrated the revelations to bolster Obama's national security credentials and thereby improve his re-election chances. The White House has denied the accusations. 

The leaks exposed details of U.S. computer virus attacks on Iran's nuclear program, the foiling of an al-Qaida bomb plot targeting U.S. aircraft, and other secret operations. 

Two U.S. attorneys are heading separate FBI investigations into leaks of national security information, and Congress is conducting its own probe. 

It's not just the news media that has pressed the administration for information about its shadowy wars. 

Some in Congress, particularly those lawmakers most skeptical of the need for U.S. foreign interventions, are objecting to the administration's drone wars. They are demanding a fuller explanation of how, for example, drone strikes are authorized and executed in cases in which the identity of the targeted terrorist is not confirmed. 

"Our drone campaigns already have virtually no transparency, accountability or oversight," Rep. Dennis Kucinich, D-Ohio, and 25 other mostly anti-war members of Congress wrote Obama on Tuesday. 

A few dozen lawmakers are briefed on the CIA's covert action and clandestine military activity, and some may ask to review drone strike video and be granted access to after-action reports on strikes and other clandestine actions. But until two months ago, the administration had not formally confirmed in public its use of armed drones. 

In an April speech in Washington, Obama's counterterrorism chief, John Brennan, acknowledged that despite presidential assurances of a judicious use of force against terrorists, some still question the legality of drone strikes. 

"So let me say it as simply as I can: Yes, in full accordance with the law - and in order to prevent terrorist attacks on the United States and to save American lives - the United States government conducts targeted strikes against specific al-Qaida terrorists, sometimes using remotely piloted aircraft, often referred to publicly as drones," he said. 

President George W. Bush authorized drone strikes in Pakistan and elsewhere, but Obama has vastly increased the numbers. According to Bill Roggio of The Long War Journal, an online publication that tracks U.S. counterterrorism operations, the U.S. under Obama has carried out an estimated 254 drone strikes in Pakistan alone. That compares with 47 strikes during the Bush administration. 

In at least one case the target was an American. Anwar al-Awlaki, an al-Qaida leader, was killed in a U.S. drone strike in Yemen in September. 

According to a White House list released late last year, U.S. counterterrorism operations have removed more than 30 terrorist leaders around the globe. They include al-Qaida in East Africa "planner" Saleh Ali Saleh Nabhan, who was killed in a helicopter strike in Somalia. 

The drone campaign is highly unpopular overseas. 

A Pew Research Center survey on the U.S. image abroad found that in 17 of 21 countries surveyed, more than half of the people disapproved of U.S. drone attacks targeting extremist leaders in such places as Pakistan, Yemen and Somalia. In the U.S., 62 percent approved of the drone campaign, making American public opinion the clear exception. 

The U.S. use of cyberweapons, like viruses that sabotage computer networks or other high-tech tools that can invade computers and steal data, is even more closely shielded by official secrecy and, arguably, less well understood. 

Sen. John McCain, R-Ariz., has been a leading critic of the administration's handling of information about using computers as a tool of war. 

"I think that cyberattacks are one of the greatest threats that we face," McCain said in a recent interview, "and we have a very divided and not very well-informed Congress addressing it." 

Defense Secretary Leon Panetta and national security officials often talk publicly about improving U.S. defenses against cyberattack, not only on U.S. government computer systems but also against defense contractors and other private networks linked, for example, to the U.S. financial system or electrical grid. Left largely unexplained is the U.S. capacity to use computer viruses and other cyberweapons against foreign targets. 

In the view of some, the White House has cut Congress out of the loop, even in the realm of overt warfare. 

Sen. James Webb, D-Va., who saw combat in Vietnam as a Marine, introduced legislation last month that would require that the president seek congressional approval before committing U.S. forces in civil conflicts, such as last year's armed intervention in Libya, in which there is no imminent security threat to the U.S. 

"Year by year, skirmish by skirmish, the role of the Congress in determining where the U.S. military would operate, and when the awesome power of our weapon systems would be unleashed has diminished," Webb said.

By ROBERT BURNS, LOLITA C. BALDOR and KIMBERLY DOZIER, Associated Press

Online: Pew Research Center: www.pewresearch.org The Associated Press

Related posts:

Rightways: American drone wars and state secrecy! Jun 03, 2012

US loses AAA credit rating, why? Dollar sluggish, Trade in RMB!

Tweet

US loses AAA credit rating from Standard & Poor’s

 
The White House maintained silence in the immediate aftermath of S&P downgrade. — Photo by AFP

NEW YORK: The United States lost its top-notch AAA credit rating from Standard & Poor’s on Friday in an unprecedented reversal of fortune for the world’s largest economy.

S&P cut the long-term US credit rating by one notch to AA-plus on concerns about the government’s budget deficits and rising debt burden. The move is likely to raise borrowing costs eventually for the American government, companies and consumers.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilise the government’s medium-term debt dynamics,” S&P said in a statement.

The decision follows a fierce political battle in Congress over cutting spending and raising taxes to reduce the government’s debt burden and allow its statutory borrowing limit to be raised.

On August 2, President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years. But that was well short of the $4 trillion in savings S&P had called for as a good “down payment” on fixing America’s finances.

The White House maintained silence in the immediate aftermath of S&P downgrade.

The political gridlock in Washington and the failure to seriously address US long-term fiscal problems came against the backdrop of slowing US economic growth and led to the worst week in the US stock market in two years.

The S&P 500 stock index fell 10.8 per cent in the past 10 trading days on concerns that the US economy may head into another recession and because the European debt crisis has been growing worse as it spreads to Italy.

US Treasury bonds, once undisputedly seen as the safest security in the world, are now rated lower than bonds issued by countries such as Britain, Germany, France or Canada.

‘Daunting implications’

As the focus for investors shifted from the debate in Washington to the outlook for the global economy, even with the prospect of a downgrade, 30-year long bonds had their best week since December 2008 during the depth of the financial crisis.

Yields on 10-year notes, a benchmark for borrowing rates throughout the economy fell as far as 2.34 per cent on Friday — their lowest since October 2010 — also very low by historical standards.

“To some extent, I would expect when Tokyo opens on Sunday, that we will see an initial knee-jerk sell-off (in Treasuries) followed by a rally,” said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.

The outlook on the new US credit rating is “negative,” S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.

“The long-term implications are daunting. Short-term, Treasuries remain a premier safe-haven refuge,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.



Borrowing costs could rise

The impact of S&P’s move was tempered by a decision from Moody’s Investors Service earlier this week that confirmed, for now, the US Aaa rating. Fitch Ratings said it is still reviewing the rating and will issue its opinion by the end of the month.

“It’s not entirely unexpected. I believe it has already been partly priced into the dollar. We expect some further pressure on the US dollar, but a sharp sell-off is in our view unlikely,” said Vassili Serebriakov, currency strategist at Wells Fargo in New York.

“One of the reasons we don’t really think foreign investors will start selling US Treasuries aggressively is because there are still few alternatives to the US Treasury market in terms of depth and liquidity,” Serebriakov added.

S&P’s move is also likely to concern foreign creditors especially China, which holds more than $1 trillion of US debt. Beijing has repeatedly urged Washington to protect its US dollar investments by addressing its budget problem.

Obama administration officials grew increasingly frustrated with the rating agency through the debt limit debate and have accused S&P of changing the goal posts in its downgrade warnings, sources familiar with talks between the administration and the ratings firm have said.

The downgrade could add up to 0.7 of a percentage point to US Treasuries’ yields over time, increasing funding costs for public debt by some $100 billion, according to SIFMA, a US securities industry trade group.

S&P had placed the US credit rating on review for a possible downgrade on July 14 on concerns that Congress was not adequately addressing the government fiscal deficit of about $1.4 trillion this year, or about 9.0 per cent of gross domestic product, one of the highest since World War II.

The unprecedented downgrade of the nation’s AAA credit rating by a major ratings agency comes only 15 months before the next presidential election where the downgrade and the debt will be top issues for debate.

Bitter political battles remain over the ideologically fraught issues of spending cuts and tax reform.

The compromise reached by Republicans and Democrats this week calls for the creation of a bipartisan congressional committee to find $1.5 trillion of deficit cuts by late November, beyond the $917 billion already identified.

Why S&P downgrades US credit rating?

The credit rating agency Standard & Poor's on Friday cut the United States' credit rating to AA+ from AAA, citing three fundamental reasons for the downgrade, the first ever in US history.

Debt burden worry

According to S&P's judgment, the debt situation of the United States doesn't satisfy the requirement of an AAA rating.

S&P compared US debt with the other four countries with AAA ratings: Canada, France, Germany and Britain.

It estimated the five countries will have net general government debt to GDP ratios this year ranging from 34 percent of Canada to 80 percent of Britain, with the US debt burden at 74 percent.

S&P predicted the net public debt to GDP ratios will range between 30 percent of Canada and 83 percent of France, with the US debt burden at 79 percent.

Although the US ratio of net public debt to the GDP was not the highest among the five countries, the rating agency projected that the net public debt burden of the other four countries will begin to decline, either before or by 2015.

Fiscal plan "not enough"

On August 2, US President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years.

However, according to S&P's calculations, a good "down payment" on fixing the country's finances would be at least $4 trillion.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said.

The rating agency believed the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicated that further near-term progress containing the growth in public spending, especially on entitlement, or on reaching an agreement on raising revenues is less likely than previously assumed and will remain a contentious and fitful process.

Lose faith on policy makers

S&P questioned US policy makers' eagerness to solve the debt problems by bipartisan efforts. Also, the rating agency blamed Democrats and Republicans for ignoring its earlier warnings.

On April 18, S&P assigned a negative outlook to US then-AAA rating, warning the debt ceiling should be raised to avoid a default. However, the action didn't draw much attention from policy makers who had decisive power to take quick measures.

The US debt would reach its ceiling of 14.3 trillion on August 2. If the debt ceiling was not raised, the United States would face an unprecedented default.

Through long, testy negotiations between the two parties in Congress, the plan was finally passed just before the August 2 deadline. However, patience and trust in US policy makers diminished as time went by.

"The effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned," S&P said.

Also, as the difficulties behind the debt problems still loom ahead, S&P worried that US policy makers could not react properly and effectively to the "government debt dynamics" any time soon, given their recent performance on dealing with the debt ceiling.

Related Reading

1. Chinese agency downgrades US credit rating


2. Chinese rating agency downgrades U.S. credit rating after debt limit increase


3. Chinese ratings agency Dagong puts U.S. on watch for downgrade

US loses AAA credit rating after S&P downgrade

One of the world's leading credit rating agencies, Standard & Poor's, has downgraded the United States' top-notch AAA rating for the first time ever. 

 

News of the downgrade ended a tumultuous week for US finances

 

S&P cut the long-term US rating by one notch to AA+ with a negative outlook, citing concerns about budget deficits.

The agency said the deficit reduction plan passed by the US Congress on Tuesday did not go far enough.

Correspondents say the  downgrade could erode investors' confidence in the world's largest economy.

It is already struggling with huge debts, unemployment of 9.1% and fears of a possible double-dip recession.

The downgrade is a major embarrassment for the administration of President Barack Obama and could raise the cost of US government borrowing.

This in turn could trickle down to higher interest rates for local governments and individuals.

Analysis - Robert Peston Business editor, BBC News

The US losing its AAA rating matters. It is a very loud statement that there has been an appreciable increase in the risk - which might still be tiny, but it exists - that the US might one day struggle to pay back all it owes. Another important certainty in the world of finance has gone.

Of course many will argue - and already have - that the record of ratings agencies such as Standard & Poor's of getting these things right in recent years has been lamentably poor.

Think of all the subprime CDO products rated AAA by S&P that turned out to be garbage.

But S&P, Moody's and Fitch (and particularly the first two) still have a privileged official position in the world of finance: they determine what collateral can be taken by central banks from commercial banks, when those central banks lend to commercial banks.

However, some analysts said with debt woes across much of the developed world, US debt remained an attractive option for investors.

The other two major credit rating agencies, Moody's and Fitch, said on Friday night they had no immediate plans to follow S&P in taking the US off their lists of risk-free borrowers.

'Flawed judgement'

Officials in Washington told US media that the agency's sums were deeply flawed.

Unnamed sources were quoted as saying that a treasury official had spotted a $2 trillion [£1.2 trillion] mistake in the agency's analysis.

"A judgment flawed by a $2tn error speaks for itself," a US treasury department spokesman said of the S&P analysis. He did not offer any immediate explanation.

John Chambers, chairman of S&P's sovereign ratings committee, told CNN that the US could have averted a downgrade if it had resolved its congressional stalemate earlier.

"The first thing it could have done is raise the debt ceiling in a timely matter so the debate would have been avoided to begin with," he said.

International reaction to the S&P move has been mixed.

China, the world's largest holder of US debt, had "every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," said a commentary in the official Xinhua news agency.

"International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," the commentary said.

However, officials in Japan, South Korea and Australia have urged a calm response to the downgrade.

The S&P announcement comes after a week of turmoil on global stock markets, partly triggered by fears over the US economy's recovery and the eurozone crisis.

With a bill to raise the US debt ceiling finally passed, the US has managed to avoid the catastrophic effects of a debt default. Now the focus has moved to the underlying economy and whether GDP is about to stall.

S&P had threatened the downgrade if the US could not agree to cut its federal debt by at least $4tn over the next decade. 

Instead, the bill passed by Congress on Tuesday plans $2.1tn in savings over 10 years.

S&P said the Republicans and Democrats had only been able to agree "relatively modest savings", which fell "well short" of what had been envisaged.

The agency also noted that the legislation delegates the lion's share of savings to a bipartisan committee, which must report back to Congress in November on where the axe should fall.

The bill - which also raises the federal debt ceiling by up to $2.4tn, from $14.3tn, over a decade - was passed on Tuesday just hours before the expiry of a deadline to raise the US borrowing limit.

S&P ratings (selected)

• AAA: UK, France, Germany, Canada, Australia


• AA+: USA, Belgium, New Zealand


• AA-: Japan, China

Source: S&P

S&P said in its report issued late on Friday: "The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilise the government's medium-term debt dynamics.

"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges."

The agency said it might lower the US long-term rating another notch to AA within the next two years if its deficit reduction measures were deemed inadequate.

S&P noted that the bill passed by Congress this week did not include new revenues - Republicans had staunchly opposed President Barack Obama's calls for tax rises to help pay off America's deficit.

The credit agency also noted that the legislation contained only minor policy changes to Medicare, an entitlement programme dear to Democrats.

"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed," it added.

Newscribe : get free news in real time

Moneychangers see sluggish trade in US dollar

By QISHIN TARIQ qishin.tariq@thestar.com.my
PETALING JAYA: Trade in the US dollar has been sluggish over the last week for moneychangers as customers “wait and see” which direction the currency will go.

“It has become a waiting game as people look for the best time to buy.

“Now, even trade in euros has slowed down,” said moneychanger Sahul Hamed, who operates the PJ Forex outlet at Bukit Bintang Plaza in Kuala Lumpur.

“With the current economic situation, customers are expecting the value to dip but are reluctant to buy when they feel it hasn't gone down by much.”

Anxious wait: The demand for US dollars could spike with a potential fall in the currency’s value following the downgrading of the US credit rating on Friday ->>

 

Moneychanger Jamil Akhbar Ali said there had been a dip in both sales and purchase of the US dollar despite the stable value of the currency over the last week.

“Most of our customers deal in Singapore and US dollars.

“While trade in the Singapore currency remains about the same, there are fewer people trading US dollars,” said the Petaling Jaya-based moneychanger.

Automotive engineer Meng Ng, 35, a Malaysian based in the United States for the last decade, said the exchange rate had not changed much since he last came to Malaysia four months ago.

“While the prices offered by moneychangers fluctuate slightly every day, on average the exchange rate has been pretty reasonable,” he said.

With the worsening US debt outlook and after US-based credit rating agency Standard & Poor's downgraded the US credit rating on Friday, speculation was rife that the US dollar would weaken considerably.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said while the US currency would probably dip in the short term, he expected it to recover fairly quickly.

“When Japan's credit rating was downgraded from AAA status to AA+, its debt market was hardly affected with bond yields remaining relatively unchanged,” he said.

“The weakening US dollar would make imports from the country cheaper not only for large industries, but even for something as small as an online purchase.

“It's a double-edged sword though, as the US will lower its demand and import less when its economy is going through a soft patch.”

Trade in renminbi, says FMM

By YUEN MEIKENG  meikeng@thestar.com.my

 PETALING JAYA: Malaysia should consider trading in a different currency from the US dollar, such as the Chinese renminbi, to avoid being affected by the dollar's devaluation.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Mustafa Mansur said people had to accept the fact that China was poised to be the largest economy in the world.

“We also export a lot to China and our business with the country has grown substantially since the enforcement of the Asean-China Free Trade Agreement,” he said yesterday.

Mustafa said many countries, which traded using the US dollar, including Malaysia, would stand to lose out as its exports would have a lesser value following the currency's downgrading.

“Based on this situation, we might have to look into the possibility of trading in a different currency,” he said.

Mustafa said this when asked to comment on the United States losing its coveted top AAA credit rating and its impact in Malaysia.

It was reported that credit rating agency Standard & Poor's downgraded the nation's rating for the first time since the US won the top ranking in 1917.

Mustafa added that it was also better for Malaysia to trade in ringgit as this would distance the country from any risk of further downgrading of the US dollar.

He said other currencies, which could also replace the US dollar were dinar, dirham or the Japanese yen.

Related Stories:

Traders told to brace for US credit rating cut's impact
Nor Mohamed: European crisis won't hurt economy 

US Debt deal reached to avoid default, what others are saying?

Tweet

What China, Others, Are Saying About US Debt Deal?

Debt ceiling raised...again.

President Barack Obama said Sunday night that both houses of Congress finally reached an agreement to reduce the budget deficit and avert a debt default that would have likely sent the country into a recession.

“Leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default — a default that would have had a devastating effect on our economy,” Obama said in his remarks to the White House press Sunday shortly after the bill was signed. The first part of the debt deal cuts nearly $1 trillion from the federal budget over the next decade. Exact details were not immediately available.

“The result would be the lowest level of annual domestic spending since Dwight Eisenhower was President,” Obama said. The debt limit and cut spending between $2 trillion and $3 trillion.

The Economic Times of India polled readers who said overwhelmingly that the Indian market would be impacted on Monday as investors in the US digest this weekend’s news. A total of 85% of the paper’s readers polled on line said it would impact India’s market all week.

Russian newswire columnist Andrei Fedyashin said recently, before Sunday’s deal, that “cuts in social spending and higher taxes are still the only way of reducing budget expenditures and a country’s sovereign debt.”



Yao Yang, director of the China Center for Economic Research at Peking University, weighed in at China Daily. He said that the US deficit problem “is ultimately the result of the conundrum of a welfare state following the capitalist system. Both are uncompromising ideals cherished by a substantial percentage of the population. The fight will resurface in the future even if the present deadlock is broken. There is a lesson for other countries here. The best a country can do is to fence off the contagious effects of such fights and rely more on the domestic economy for further growth.”

Also reprinted in China Daily, Mohamed El Erian, CEO of PIMCO, says, the next few weeks will provide plenty of political drama. “The baseline expectation, albeit subject to risk, is that Democrats and Republicans will find a way to avoid disruptions that would damage the fragile US economy, but that the compromise will not meaningfully address the need for sensible medium-term fiscal reforms.”

In Brazil, an article in Folha de São Paulo, the country’s largest daily newspaper, said that Americans woke up too late to its serious spending problems. Not only government spending, but consumer spending as well. A foreign correspondent for the paper interviewed US think tanks and scholars who said that the average US citizen was “uninformed” about the country’s economy and pending debt crisis. Despite having nearly every country south of Texas run into similar debt dead ends, the US — printers of the world’s reserve currency and the largest economy — didn’t seem to flinch when society, and government, became overweight with debt. The US is in a unique world situation because of its status as world’s reserve and trade currency, and issuers of the most trustworthy debt in the market.

“Americans are not well informed about the economic crises that occurred in other countries to learn from them,” said Isabel Sawhill, an analyst from the Brookings Institute in Washington. “They don’t see any parallels with crises in other countries because they think the US has the capacity to resolve all problems.
The population knows there is a problem, they just don’t know to what extent or where it comes from.”

Linda Bilmes, a former government consultant turned Harvard lecturer in Cambridge, the main problem with the debt deal is taxes and political ignorance over tax laws. “The biggest reason our debt is so high is because George W. Bush cut taxes two times exactly when we were spending money on two wars,” Bilmes told Folha. “In the last two major US wars, taxes went up to support those expenditures.”

See: White House, Congress Reach Debt Deal

 Newscribe : get free news in real time 

Frantic US debt talks!

Tweet

Frantic US debt talks resume

Oliver Knox

White House talks on averting a disastrous debt default have resumed and are closing in on a compromise with just three days to act, says US President Barack Obama's top senate ally.

Democratic US Senate Majority Leader Harry Reid has put off a contentious procedural vote on a White House-backed plan to avert a disastrous debt default, citing progress toward a compromise.

"There are negotiations going on at the White House to avert a catastrophic default on the nation's debt," said the Democrats' Senate leader Harry Reid in a late-night announcement on Saturday.

"There are many elements to be finalised and there is still a distance to go."

Obama, his Democratic allies and his Republican foes have been hunting for a breakthrough deal that would ensure the world's richest nation will have cash to pay its bills past next Tuesday's deadline.

Reid said that, at the White House's request, he was putting off until Sunday afternoon, Washington time, a test vote on his own plan to raise the $US14.3 trillion ($A13.03 trillion) American debt ceiling to allow time for a possible compromise.

"They've asked me to give everyone as much time as possible to reach an agreement - if one can be reached," Reid said.

"I'm glad to see this move toward cooperation and compromise. I hope that it bears fruit," said Reid, who said he was "confident" that a final deal would embrace a long-term increase in the US debt ceiling.

The US economy hit the debt limit on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally - but can do so only through August 2.

Business and finance leaders have warned that default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment of 9.2 per cent following the 2008 global meltdown.

Without a deal, the US government will have to cut an estimated 40 cents out of every dollar it spends, forcing grim choices between defaulting on its debt or cutting back on programs like those that help the poor, disabled and elderly.

Any compromise would still need to clear the divided Democratic-led Senate and Republican-held House of Representatives, where conservatives close to the Tea Party movement have called for draconian belt-tightening.

Reid's announcement came after Obama called him and Democratic House Minority Leader Nancy Pelosi to an urgent White House summit with Vice-President Joe Biden and spoke by telephone to top Senate Republican Mitch McConnell.

McConnell declared himself "confident and optimistic that we're going to get an agreement in the very near future" and predicted that most Democrats would "fall in line" behind any deal the president cut with Republicans.

Republican House Speaker John Boehner said in a joint press conference with McConnell on Saturday that they were both confident that "we're going to be able to come to some agreement with the White House and end this impasse".

Reid had poured cold water on the upbeat Republican message, bluntly telling McConnell that talk of a looming deal was "not true" and insisting that "merely saying you have an agreement in front of television cameras doesn't make it so".

Hours later, Reid changed his tune and announced he was putting off a test vote during the weekend aimed at ending the crisis.

Senate Republicans had been expected to kill the measure, citing what they considered to be insufficient guarantees of steep spending cuts to offset the increase in the US national debt.

Details of the burgeoning accord were not immediately available but Reid said he was "confident" that a final deal would meet Obama's condition of putting off another debt fight until after his November 2012 re-election bid.

Earlier, aides said key points of contention included the overall size and makeup of spending cuts, and the creation of a special committee of congressmen and senators tasked with finding more savings in the near future.

They also included a fight over an enforcement mechanism to ensure that the new panel agrees to future spending cuts, notably to cherished social safety net programs, according to a senior Republican senate aide.

It was unclear whether the deal would be enough to talk ratings agencies from downgrading the sterling Triple-A US debt rating, causing a lift in interest rates that would throw a wrench into the gears of the already sputtering US economy.

The acrimonious talks came after the Republican-led House of Representatives voted to kill Reid's proposal for raising the debt limit, a day after the Democratic-held Senate did the same to Boehner's plan.

© 2011 AFP  
Newscribe : get free news in real time

US debt ceiling: Senate rejects Republican 'cut, cap and balance' bill

Tweet

Senate rejects Republican 'cut, cap and balance' bill

 

 "If we don't solve it, every American will suffer," Mr Obama said of the debt ceiling debate

The Democratic-led US Senate has rejected a "cut, cap and balance" bill passed by the Republican-led House.

The bill would have severely cut public spending and forced the government to balance its budget.

 The move highlights divisions within Congress as a deadline nears to raise the US debt limit, analysts say.

On Friday, House of Representatives Speaker John Boehner said a deal to avoid a possible default on 2 August was "not close".

'No agreement'

Republicans and Democrats appeared on Friday to harden their respective positions over the debt issue.

Mr Boehner was quick to quash reports that he was close to hammering out a deal with President Barack Obama.

What happens if US defaults?

Uncharted territory but two scenarios emerge
Worst case:

• Higher interest rates on mortgages, credit cards and loans
• Government unable to pay wages to staff, including military
• Social security cheques stopped
• Turmoil on international markets

Better case:

• Default could be avoided by paying creditors, at expense of slashing spending

Sources: Associated Press, CBS, ABC

"There was no agreement, publicly [or] privately, never an agreement and frankly not close to an agreement," Mr Boehner, a Republican, told reporters following a private meeting with House Republicans.

Meanwhile, Senate Democrats complained they had been left out of negotiations, with some warning the president against an agreement that would disproportionately burden the poor by exacting big cuts to social programmes.

In a town hall-style meeting with voters in Maryland on Friday, President Obama warned that every American would feel the economic pain if Congress failed to reach an agreement to raise the US debt limit.

"If we don't solve it, every American will suffer," he said. "Businesses will be less likely to invest and hire in America. Interest rates will rise for people who need money to buy a home or a car, or go to college."

The US national debt is currently about $14.3tn (£8.8tr), fed by an annual government budget deficit that reached $1.5tr this year.

The US government's authority to borrow money is limited by statute.

Historically, Congress has raised that debt limit as a matter of routine, but this year, the Republican party - buoyed by a group of newly elected hardline fiscal conservatives in the House of Representatives - has demanded steep cuts to the US budget as the price of an increase.

Who owns the $14.3tn debt?

• US government owes itself $4.6tn
• Remaining $9.7tn owed to investors
• They include banks, pension funds, individual investors, and state/local/foreign governments
• China: $1.16tn, Japan: $0.91tn, UK: $0.35tn
• Deficit is annual difference between spending and revenue, $1.29tn in 2010
• Congress has voted to raise the US debt limit 10 times since 2001

Source: US Treasury, May 2011, Congressional Research Service, Congressional Budget Office

The Obama administration has warned the US risks defaulting on its debt if Congress does not raise the limit by 2 August.

In recent weeks, Republican and Democratic congressional leaders have worked with the White House to devise an agreement that would raise the limit while trimming the budget deficit, but the talks have collapsed several times.

Republicans have fiercely resisted Democratic proposals to raise additional tax revenue by closing tax loopholes that Democrats say primarily benefit the wealthy, while Democrats have vowed to protect social programmes for the elderly and poor from Republican-proposed cut backs.

In recent weeks, the White House and a bipartisan "gang of six" senators have floated proposals to trim trillions of dollars over the next decade.

The plans would cut the deficit through a mix of spending cuts and tax increases, but hardline conservative Republicans in the House of Representatives have urged Republican leaders to reject those.

Meanwhile, Senate Democratic and Republican leaders are crafting a fall-back plan that would enable Mr Obama to raise the debt ceiling unilaterally.

The Republican-led House of Representatives approved the "cut, cap and balance" plan on Tuesday of this week.

It would have reduced government spending by cut spending by $5.8tr over 10 years, capped future government spending at a certain percentage of the US economy, and amended the US constitution to require a balanced budget.

Mr Obama vowed to veto the bill, and the Democratic-led Senate on Friday rejected it, saying it would bring about steep cuts in social programmes.

Newscribe : get free news in real time 

How Capitalist is America?

Tweet

The Rules Of The Game  COMMENT By MARK ROE

IF capitalism's border is with socialism, we know why the world properly sees the United States as strongly capitalist. State ownership is low, and is viewed as aberrational when it occurs (such as the government takeovers of General Motors (GM) and Chrysler in recent years, from which officials are rushing to exit). The government intervenes in the economy less than in most advanced nations, and major social programmes like universal healthcare are not as deeply embedded in the United States as elsewhere.

But these are not the only dimensions to consider in judging how capitalist the United States really is. Consider the extent to which capital that is, shareholders rules in large businesses: if a conflict arises between capital's goals and those of managers, who wins?

Looked at in this way, America's capitalism becomes more ambiguous. American law gives more authority to managers and corporate directors than to shareholders. If shareholders want to tell directors what to do say, borrow more money and expand the business, or close off the money-losing factory well, they just can't. The law is clear: the corporation's board of directors, not its shareholders, runs the business.

Someone naive in the ways of US corporations might say that these rules are paper-thin, because shareholders can just elect new directors if the incumbents are recalcitrant. As long as they can elect the directors, one might think, shareholders rule the firm. That would be plausible if American corporate ownership were concentrated and powerful, with major shareholders owning, say, 25% of a company's stock a structure common in most other advanced countries, where families, foundations, or financial institutions more often have that kind of authority inside large firms.

Diffused ownership

But that is neither how US firms are owned, nor how US corporate elections work. Ownership in large American firms is diffuse, with block-holding shareholders scarce, even today. Hedge funds with big blocks of stock are news, not the norm.

Corporate elections for the directors who run American firms are expensive. Incumbent directors typically nominate themselves, and the company pays their election expenses (for soliciting votes from distant and dispersed shareholders, producing voting materials, submitting legal filings, and, when an election is contested, paying for high-priced US litigation). If a shareholder dislikes, say, how GM's directors are running the company (and, in the 1980's and 1990's, they were running it into the ground), she is free to nominate new directors, but she must pay their hefty elections costs, and should expect that no one, particularly not GM, will ever reimburse her. If she owns 100 shares, or 1,000, or even 100,000, challenging the incumbents is just not worthwhile.

Hence, contested elections are few, incumbents win the few that occur, and they remain in control. Firms and their managers are subject to competitive markets and other constraints, but not to shareholder authority.



In lieu of an election that could remove recalcitrant directors, an outside company might try to buy the firm and all of its stock. But the rules of the US corporate game heavily influenced by directors and their lobbying organisations usually allow directors to spurn outside offers, and even to block shareholders from selling to the outsider. Directors lacked that power in the early 1980's, when a wave of such hostile takeovers took place; but by the end of the decade, directors had the rules changed in their favor, to allow them to reject offers for nearly any reason. It is now enough to reject the outsider's price offer (even if no one else would pay more).

Corporate elections

American corporate-law reformers have long had their eyes on corporate elections. About a decade ago, after the Enron and WorldCom scandals, America's stock-market regulator, the Securities and Exchange Commission (SEC), considered requiring that companies allow qualified shareholders to put their director nominees on the company-paid election ballot. The actual proposal was anodyne, as it would allow only a few directors not enough to change a board's majority to be nominated, and voted on, at the company's expense.

Fierce lobbying

Nevertheless, the directors' lobbying organisations such as the Business Roundtable and the Chamber of Commerce (and their lawyers) attacked the SEC's initiative. Lobbying was fierce, and is said to have reached into the White House. Business interests sought to replace SEC commissioners who wanted the rule, and their lawyers threatened to sue the SEC if it moved forward. It worked: America's corporate insiders repeatedly pushed the proposal off of the SEC agenda in the ensuing decade.

Then, in the summer of 2010, after a relevant election and a financial crisis that weakened incumbents' credibility, the SEC promulgated election rules that would give qualified shareholders free access to company-paid election ballots. As soon as it did, the US managerial establishment sued the SEC, and government officials felt compelled to suspend the new rules before they ever took effect. The litigation is now in America's courts.

Less capitalist

The lesson is that the United States is less capitalist than it is “managerialist.” Managers, not owners, get the final say in corporate decisions.

Perhaps this is good. Even some capital-oriented thinking says that shareholders are better off if managers make all major decisions. And often the interests of shareholders and managers are aligned.

But there is considerable evidence that when managers are at odds with shareholders, managerial discretion in American firms is excessive and weakens companies. Managers of established firms continue money-losing ventures for too long, pay themselves too much relative to their and the company's performance, and too often fail to act aggressively enough to enter new but risky markets.

When it comes to capitalism vs. socialism, we know which side the United States is on. But when it's managers vs. capital-owners, the United States is managerialist, not capitalist. - Project Syndicate

Mark Roe is a professor of law at Harvard Law School.

Divided We Fail, US midterm elections, 10 worst political ads

Tweet

 Divided We Fail

By PAUL KRUGMAN

Barring a huge upset, Republicans will take control of at least one house of Congress next week. How worried should we be by that prospect?

Not very, say some pundits. After all, the last time Republicans controlled Congress while a Democrat lived in the White House was the period from the beginning of 1995 to the end of 2000. And people remember that era as a good time, a time of rapid job creation and responsible budgets. Can we hope for a similar experience now?

No, we can’t. This is going to be terrible. In fact, future historians will probably look back at the 2010 election as a catastrophe for America, one that condemned the nation to years of political chaos and economic weakness.

Start with the politics.

In the late-1990s, Republicans and Democrats were able to work together on some issues. President Obama seems to believe that the same thing can happen again today. In a recent interview with National Journal, he sounded a conciliatory note, saying that Democrats need to have an “appropriate sense of humility,” and that he would “spend more time building consensus.” Good luck with that.

After all, that era of partial cooperation in the 1990s came only after Republicans had tried all-out confrontation, actually shutting down the federal government in an effort to force President Bill Clinton to give in to their demands for big cuts in Medicare.

Now, the government shutdown ended up hurting Republicans politically, and some observers seem to assume that memories of that experience will deter the G.O.P. from being too confrontational this time around. But the lesson current Republicans seem to have drawn from 1995 isn’t that they were too confrontational, it’s that they weren’t confrontational enough.

Another recent interview by National Journal, this one with Mitch McConnell, the Senate minority leader, has received a lot of attention thanks to a headline-grabbing quote: “The single most important thing we want to achieve is for President Obama to be a one-term president.”

If you read the full interview, what Mr. McConnell was saying was that, in 1995, Republicans erred by focusing too much on their policy agenda and not enough on destroying the president: “We suffered from some degree of hubris and acted as if the president was irrelevant and we would roll over him. By the summer of 1995, he was already on the way to being re-elected, and we were hanging on for our lives.” So this time around, he implied, they’ll stay focused on bringing down Mr. Obama.

True, Mr. McConnell did say that he might be willing to work with Mr. Obama in certain circumstances — namely, if he’s willing to do a “Clintonian back flip,” taking positions that would find more support among Republicans than in his own party. Of course, this would actually hurt Mr. Obama’s chances of re-election — but that’s the point.

We might add that should any Republicans in Congress find themselves considering the possibility of acting in a statesmanlike, bipartisan manner, they’ll surely reconsider after looking over their shoulder at the Tea Party-types, who will jump on them if they show any signs of being reasonable. The role of the Tea Party is one reason smart observers expect another government shutdown, probably as early as next spring.

Beyond the politics, the crucial difference between the 1990s and now is the state of the economy.

When Republicans took control of Congress in 1994, the U.S. economy had strong fundamentals. Household debt was much lower than it is today. Business investment was surging, in large part thanks to the new opportunities created by information technology — opportunities that were much broader than the follies of the dot-com bubble.

In this favorable environment, economic management was mainly a matter of putting the brakes on the boom, so as to keep the economy from overheating and head off potential inflation. And this was a job the Federal Reserve could do on its own by raising interest rates, without any help from Congress.

Today’s situation is completely different. The economy, weighed down by the debt that households ran up during the Bush-era bubble, is in dire straits; deflation, not inflation, is the clear and present danger. And it’s not at all clear that the Fed has the tools to head off this danger. Right now we very much need active policies on the part of the federal government to get us out of our economic trap.

But we won’t get those policies if Republicans control the House. In fact, if they get their way, we’ll get the worst of both worlds: They’ll refuse to do anything to boost the economy now, claiming to be worried about the deficit, while simultaneously increasing long-run deficits with irresponsible tax cuts — cuts they have already announced won’t have to be offset with spending cuts.

So if the elections go as expected next week, here’s my advice: Be afraid. Be very afraid.

US midterm elections 2010: the 10 worst political ads

The US midterm elections of 2010 will be remembered for a flood of toxic advertising. Here's 10 of the worst seen on TV

It used to be that TV attack advertising was the province of the most well resourced US election campaigns. But that changed in the midterm elections of 2010 as a torrent of donations, proliferating cable channels, the internet and falling production costs put the price tag within reach of even the most modest campaign.

The result was airwaves filled with outlandish claims and barely credible accusations from both parties – with corporate political spending unstopped by a recent court decision – obscure interest groups that sprung up almost over night.

Of the hundreds of ads aired on television during the 2010 election season, this can't claim to be a comprehensive list. But here's the 10 worst that we saw.

10. Ben Quayle, Arizona Republican primary

10. Ben Quayle trapped in a dark place Ben Quayle, the son of former Republican VP Dan Quayle, was in a contested primary for an Arizona House seat. His solution? An ad that begins with a ludicrous claim and ends with him wandering off into what could be a gloomy opium den. Just weird.

9. Jim Marshall, Georgia congressional election
9. Those damn San Francisco hippies A lot of ads attacked Nancy Pelosi, the Speaker of the House of Representatives from San Francisco. This one does more than most and even uses cliched images of California hippies. But what's most bizarre is that Marshall is a House Democrat, just like Pelosi. Not that you'd know it from watching this mendacious ad.

8. Carly Fiorina, California Republican primary
8. Carly Fiorina's silly Demon Sheep ad The silliest ad of the season, it became widely mocked as "Demon sheep". It looks as if it was conceived and executed by someone using heavy medication. Fiorina won the primary for California's Senate contest but this ad only harmed her image with mainstream voters.

7. Dale Peterson, Alabama Republican primary
7. Great ad but the wrong race This was a brilliant ad and only makes this list because it was so utterly inappropriate that it was almost a parody. Peterson was running in a primary for Alabama state agricultural commissioner, making this ad way over the top. Otherwise it's a masterpiece – unless you don't give a rrrrip about Alabama. (The voters didn't: Peterson lost.)

6. David Vitter, Louisiana Senate election
6. Why people distrust politicians such as David Vitter Louisiana doesn't share a border with Mexico but that doesn't stop Vitter from stooping as low as possible with these images and distortions aimed at his Democratic opponent Charlie Melancon. Just nasty.

5. Sharron Angle, Nevada Senate election
5. Viagra for sex offenders? Tax breaks for illegal aliens? The Nevada Senate contest between Angle and Harry Reid was toxic and several ads from either side could have appeared on this list. But this is the worst, with the outlandish claim that Reid voted to give Viagra to sex offenders. Other claims in the ad, such as Reid voting to give "illegal aliens special tax breaks" were also false.

4. Pat Quinn, Illinois governor's election
4. This man wants to kill your dog! An entirely vicious ad, claiming Republican Bill Brady wants to gas dogs. With the most glancing relationship to the truth, this is one of the nastiest attack ads of the cycle. And yet Quinn's staff also proved they could do far better and produced one of the best ads of 2010.

3. Christine O'Donnell, Delaware Senate election
3. I'm not a witch. Or a serious candidate Dogged by unwise public statements, including that she had "dabbled in witchcraft," O'Donnell's first ad was a chance for a fresh start. Instead the ad's opening line "I'm not a witch" confirmed in the minds of viewers that she was a flake. And the creepy "I'm you" catchphrase has become a punchline for a disastrous campaign.

2. Jack Conway, Kentucky Senate election
2. Aqua Buddha and Rand Paul Perhaps the dumbest ad of the season, "Aqua Buddha" may even have cost Conway a chance of defeating Republican Rand Paul. Dredging up an obscure event from Paul's student years, this ad lacks any subtleness while making hysterical smears that it couldn't possibly support. Idiotic.

1. Citizen's Against Government Waste, "Chinese Professor"
1. The worst of the worst A nakedly political ad aimed at the Democrats by a supposedly non-partisan organisation, this ad ladles out xenophobia and untruths in equal measures in conjuring up a new Red Menace. The cost of production must have been vast. As an example of the increasing spending power of outside groups distorting US politics, this is a prime exhibit. And a clever parody wasn't far behind.

Newscribe : get free news in real time