Archive for March 2009

The Weimar Solution

March 27, 2009

By  Patrick J. Buchanan




“The best way to destroy the capitalist system is to debauch the currency,” said Lord Keynes.


Ben Bernanke disagrees. A student of the Depression, the Fed chair appears far more fearful of deflation — a vicious cycle of falling prices, debt defaults, home foreclosures and rising unemployment.

Deflation is what America underwent in the 1930s. A Fed-created bubble burst, causing margin calls to go out to stockholders, who ran to their banks that, besieged, collapsed, wiping out a third of our money. As Milton Friedman, who won a Nobel for his thesis that the Federal Reserve caused the Great Depression, told PBS in 2000:

“For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing … with millions of people having their savings essentially washed out, that decline was utterly unnecessary.

“(T)he Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were … urging them to do that. So it was … clearly a mistake of policy that led to the Great Depression.”

Is Bernanke fighting the war of 1929 in 2009? Surely, today, with the explosion in M1, the basic money supply, there is no shortage of dollars out there, even if they are not circulating fast enough.

To end our recession, Bernanke may be running an even greater risk: hyper-inflation. This has destroyed more nations than deflation or even depression.

Recall: It was French military intervention in the Ruhr in 1923, to force payment of war reparations, and Weimar’s decision to let the currency fall and pay the French in cheap marks that led to the wipeout of the German middle class, the discrediting of that democratic republic and the Munich beer-hall putsch of Adolf Hitler.

“The first panacea for a mismanaged nation,” said Ernest Hemingway, “is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

Which brings us to last week’s shocker.

The Fed will buy up $300 billion in long-term Treasury bonds and spend $750 billion more buying sub-prime mortgages to remove them from the balance sheets of ailing big banks, to get the banks lending again.

Bernanke is printing money to buy U.S. bonds.

This new gusher from the Fed, after the $700 billion TARP bailout, comes on top of a Congressional Budget Office estimate that this year’s deficit will be $1.85 trillion, 13.1 percent of gross domestic product, more than twice the share of the U.S. economy of the largest previous postwar deficit.

Concluding the dollar is being abandoned in a frantic Fed effort to stop the recession, markets reacted instantly. The dollar plunge was the steepest since the Plaza Agreement of 1985. Gold shot up to $950 an ounce. Silver had a 12 percent run-up, the sharpest ever. Oil prices surged above $50 a barrel. Commodity markets advanced.

The Fed seems to have confirmed the fears of Premier Wen Jiabao, who said that China is “definitely a little worried” about the value of the U.S. bonds Beijing has purchased with the dollars piled up from her trade surpluses with the United States.

Can one blame the Chinese? They have already been burned on their U.S. investments. And if the defense of the dollar against its ancient enemy inflation is being abandoned, and protecting the dollar is to take a back seat to the Fed’s fight to avoid deflation, than it is indeed time to get out of the dollar and dollar-denominated assets.

For inflation is theft. It make liars and cheats of governments. By eroding the value of a currency, inflation punishes savers and creditors and rewards debtors. And what nation is the biggest debtor of them all? The United States of America.

Insidiously, inflation consumes the value of cash, savings, municipal bonds, corporate bonds, Treasury bonds and T-bills. Friends who lent America money, who bought our debt in good faith, are robbed and made fools of, while speculators who bet against America by shorting the dollar in the currency markets are vastly rewarded.

Given the $3.6 trillion budget Obama plans, the $1.8 trillion in red ink he will run by Oct. 1 and the trillions the Fed is pumping into the economy, gross domestic product should spike, as it did after the far smaller stimulus package of 2008.

We will feel a healthy glow, and folks will begin to sing, “Happy Days Are Here Again.”

Yet, one senses that we are doing again exactly what we have done before in this generation. Rather than endure the pain and accept the sacrifices to cure us of our addiction, we are going back to the heroin. And this time, with Dr. Bernanke handling the needle, we may just overdose.


Organized Crime Is Increasingly Active in Film Piracy

March 23, 2009

Rand Corporation Report


Organized crime increasingly is involved in the piracy of feature films, with syndicates active along the entire supply chain from manufacture to street sales of pirated movies, according to a new RAND Corporation report.

While crime syndicates have added piracy to criminal portfolios that include drugs, money laundering, extortion and human smuggling, the profits from film piracy also have been used on occasion to support the activities of terrorist groups, according to researchers.

“Given the enormous profit margins, it’s no surprise that organized crime has moved into film piracy,” said Greg Treverton, the report’s lead author and director of the Center for Global Risk and Security at RAND, a nonprofit research organization. “The profits are high and penalties for being caught are relatively low.”

RAND researchers found no evidence terrorists are widely involved with film piracy, but they outline three cases where film piracy supported terror groups and warn that such connections could grow in the future.

“If you buy pirated DVDs, there is a good chance that at least part of the money will go to organized crime and those proceeds fund more-dangerous criminal activities, possibly terrorism,” Treverton said.

Much film piracy involves making copies to share with friends or individuals swapping copies on the Internet, activities that usually do not generate any payment. The RAND report, supported by a grant from the Motion Picture Association, was intended to examine to what extent criminal and terrorist groups are engaging in counterfeiting, using film piracy as an example.

RAND researchers detail 14 case studies of film piracy, providing compelling evidence of a broad, geographically dispersed and continuing connection between piracy and organized crime. As well as documenting cases in North America and Europe, the report outlines the involvement of organized crime with film piracy in South America, Russia and many parts of Asia.

The report draws on a global pool of research that produced case studies to explore the extent of the connections among organized crime, terrorism and counterfeiting. The research is based upon 2,000 pages of documents and interviews with more than 120 law enforcement and intelligence agents from more than 20 countries.

Because of its image as a victimless crime and the fact that those who buy are complicit in the crime, information about counterfeiting is sparse and information about the involvement of organized crime sparser still, Treverton said. Because most instances of counterfeiting go unaddressed, there is reason to believe that the more formal data, like arrests and convictions, understate the extent of counterfeiting.

The RAND report outlines three cases where film piracy has helped support terrorist groups:

Historically the best documented case involves the Irish Republican Army that used many criminal activities, including film piracy, to support its efforts to drive the British from Northern Ireland. A political agreement in 1998 ended its violent acts, but at least parts of the IRA continue to operate as a criminal enterprise that remains involved in counterfeiting activities.
The D-Company is an organized crime group active for generations in India. Since the 1980s, it has been the major syndicate involved with film piracy in India. The group was transformed into a terrorist organization when it carried out the “Black Friday” bombings in Mumbai in 1993 that killed more than 257 people and injured hundreds more. It continues to advance a political agenda with its actions funded at least partly by the proceeds of crime.
Another case involves the tri-border area of Brazil, Argentina and Paraguay that has emerged as the most important financing center for Islamic terrorism outside of the Middle East, channeling $20 million annually to Hezbollah. At least one transfer of $3.5 million was made to Hezbollah by known DVD pirate Assad Ahmad Barakat, who received a thank-you note from the Hez­bollah leader. Barakat was labeled a “specially designated global ter­rorist” by the U.S. government in 2004.
Researchers say that the losses from film piracy have grown as the expansion of digital technology makes it easier to create high-quality counterfeit copies of movies.

Film piracy can be even more profitable than drug trafficking or other enterprises commonly linked to organized crime. In one example cited in the report, a pirated DVD made in Malaysia for 70 cents was marked up more than 1,000 percent and sold on the street in London for about $9. The profit margin was more than three times higher than the markup for Iranian heroin and higher than the profit for Columbian cocaine, according to the report.

Worldwide, the criminal penalties for counterfeiting are relatively light and prosecution is sparse, researchers say. In France, for example, selling counterfeit products is punishable by a two-year prison term and a $190,000 fine, while selling drugs is punishable by a 10-year prison term and a $9.5 million fine. Meanwhile, just 134 people were sentenced in U.S. federal courts for intellectual property crimes during 2002, contrasted to more than 1.5 million arrests for drug offenses nationally in 2003.

The RAND report says that counterfeiting levels are not likely to decline unless governments worldwide commit more resources and create greater accountability for intellectual property protections. Such a commitment would need to produce stronger anti-counterfeiting laws, consistent enforcement against pirating and stronger penalties, including larger fines and prison sentences.

Other potential solutions include customs and immigration efforts to stop counterfeit goods at national borders, and help from the financial community in spotting piracy syndicates’ money-laundering tactics.

The study, “Film Piracy: Organized Crime and Terrorism,” is available at Other authors of the study are Carl Matthies, Karla Cunningham, Jeremiah Goulka, Greg Ridgeway and Anny Wong.



World defence update

March 21, 2009

US DoD defends surveillance ship’s actions in South China Sea


A US Military Sealift Command surveillance ship that jostled with five Chinese vessels in the South China Sea on 8 March did not violate international laws, according to the US Department of Defense (DoD). A Pentagon official told Jane’s on 11 March: “We conducted military operations in accordance with international law

Super Hornet IRST completes initial flight trials


The new infrared search and track (IRST) system development for the F/A-18E/F Super Hornet has successfully completed a series of risk-reduction flight-tests, Boeing reported on 11 March. The flights demonstrated the compatibility and effectiveness of the IRST system on the aircraft. Developed for Boeing by Lockheed Martin Missiles and Fire Control in Orlando, Florida, this IRST is a passive, long-range sensor system using an 8-12 µm mercury cadmium telluride detector array, which searches for and detects IR emissions within its field of view


Su-33 talks twist and turn as China seeks carrier-borne fighter

Negotiations for the sale of Sukhoi Su-33 carrier-capable combat aircraft to the Chinese People’s Liberation Army Navy (PLAN) are still continuing with both sides interested in coming to a final agreement, Russian industry sources have told Jane’s . “Previous reports that these discussions are at an end or that the ‘contract has been cancelled’ are incorrect,” said a Russian source close to the programme


Libyan Coast Guard boosts patrol fleet


The Libyan Coast Guard is considering further acquisitions after taking delivery of the six Croatian-built PV30-LS fast patrol craft and a small hydrographic survey vessel that were ordered in batches from 2005. The 30 m fast patrol craft were built by Zagreb-based Adria-Mar Shipbuilding at shipyards in Kali and Bakar Bay, with deliveries starting in August 2006


US shoots down Iranian UAV near Iraq’s tense Camp Ashraf


An Iranian drone shot down in late February by coalition aircraft in Diyala province is the second to have been brought down in the airspace near Camp Ashraf, home to some 3,500 Iranian exiles, according to a representative of the dissident People’s Mujahideen of Iran (PMOI). The aborted surveillance effort comes as the Iraqi armed forces stepped up their pressure on the camp, in line with a pronouncement by National Security Advisor Mowaffaq al-Rubaie in January that the camp would be closed by late March


Terma to win regardless of Danish fighter choice


Boeing and Terma have signed a memorandum of understanding (MoU) under which the Danish company will secure a minimum of 30 per cent of industrial co-operation investments if Copenhagen selects the F/A-18E/F Block II Super Hornet to meet its combat aircraft requirement. Terma has signed agreements with each of the three international participants seeking to meet the Royal Danish Air Force’s New Combat Aircraft requirement for 48 aircraft to replace the ageing Lockheed Martin F-16AD units JSF project could be worth $38bn to UK industry Industrial participation could generate business valued at USD38 billion for United Kingdom businesses through the system development and demonstration and production phases of the F-35 Lightning II Joint Strike Fighter (JSF) aircraft programme, programme leader Lockheed Martin estimated. The United States group added: “Much, much more value will be generated through any follow-on production and sustainment work.” The comments came on 18 March, following the announcement that the UK – the only level one partner in the international programme – will move ahead with its plan to purchase its first three F-35 aircraft despite significant pressure on the country’s procurement funds


Belarus develops new family of military trucks


Minsk Wheeled Tractor Plant has completed development of a three-axled prototype of a new family of modular military trucks, known as MZKT-6001. The family of vehicles was designed to maximise commonality across chassis configurations ranging from 4×4 (MZKT-5001), through 6×6 and 8×8 (MZKT-6002) to 10×10 (MZKT-6003), looking to meet Belarus’s truck requirements up to 2018


China develops cluster bomb to target power supplies


China has developed a cluster bomb loaded with carbon fibre filaments that is expressly designed to attack and disable a nation’s electrical power grid. The new weapon, the 250 kg Carbon Filament Cluster Bomb (CFCB), is being offered for sale by the Beijing-based Poly Technologies: one of China’s state-controlled arms export agencies Source: Janes defence journal

China likely to be stronger after crisis

March 17, 2009

International Herald Tribune  |  March 16, 2009

By Keith Bradsher 

GUANGZHOU, China: The global economic downturn, and efforts to reverse it, will probably make China an even stronger economic competitor than it was before the crisis.

China, the world’s third-largest economy behind the United States and Japan, had already become more assertive; now it is exploiting its unusual position as a country with piles of cash and a strong banking system, at a time when many countries have neither, to acquire natural resources and make new friends.

Last week, China’s prime minister, Wen Jiabao, even reminded Washington that as one of the United States’ biggest creditors, China expects Washington to safeguard its investment.

China’s leaders are turning economic crisis to competitive advantage, said economic analysts.

The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development. Construction has already begun on new highways and rail lines that are likely to permanently reduce transportation costs.

And while American leaders struggle to revive lending — in the latest effort with a $15 billion program to help small businesses — Chinese banks lent more in the last three months than in the preceding 12 months.

“The recent tweaks to the stimulus package indicate a sharper focus on the long-term competitiveness of Chinese industry,” said Eswar S. Prasad, a former China division chief at the International Monetary Fund. “Higher expenditures on education and research and development, along with amounts already committed to infrastructure investment, will boost the economy’s productivity.”

The international economic slowdown is also doing some things that Chinese authorities had tried and failed to do for four years: slow inflation, reverse what had been an ever-growing dependence on exports and pop a real estate bubble before it could grow even bigger.

The recession in most of the large economies in the world is inflicting real pain here — causing a record plunge in Chinese exports, putting 20 million migrant workers out of their jobs and raising the potential for increased and sustained social unrest. But as President Hu Jintao told the National People’s Congress last week, “Challenge and opportunity always come together — under certain conditions, one could be transformed into the other.”

To that end, Chinese companies are shopping for foreign businesses to acquire. The commerce ministry is leading a delegation of corporate executives to Europe this week for the ministry’s first mergers and acquisitions trip; the executives are looking at companies in the automotive, textiles, food, energy, machinery, electronics and environmental protection sectors.

The government initiatives coincide with some immediate benefits of the slowdown for China. For instance, air freight and ocean shipping costs have plunged by as much as two-thirds since last summer as demand has fallen.

Blue-collar wages, which had doubled in four years in some coastal cities, have fallen for many workers this winter, reviving China’s advantage in labor costs.

Unemployment has pushed down the piece rates that factories pay for each garment sewn or toy assembled. Overtime has practically disappeared.

Lao Shu-jen, a migrant worker from Jiangxi province who works at a blue jeans factory here, said that he earned $350 a month late last year but would be lucky to earn $220 a month this spring.

“There are a lot of blue jeans” piling up in the back of the factory with no sign of buyers, he said.

College graduates and highly qualified middle managers, in acutely short supply a year ago, are now widely available because of layoffs. They are likely to stay that way as universities expand — although white-collar unemployment could pose a threat of social unrest: limited job opportunities for students contributed to the Tiananmen Square protests 20 years ago.

Today some jobs are still available. Four days after a shoe factory closed here for lack of orders, laying off several hundred workers, there were four ads on the factory’s front gate from other shoe factories seeking to hire skilled workers.

Unskilled laborers face the greatest difficulty finding jobs. But with subsidies from Beijing, provincial governments have embarked on large-scale vocational training programs of the sort that the United States has discussed but not actually tried.

Guangdong province alone, here in southeastern China, is quadrupling its vocational training program this year to teach four million workers engaged in three-month or six-month programs.

The main comparable program in the United States, under the Workforce Investment Act, has been training fewer than 250,000 a year, although President Obama’s stimulus program provides funding that could more than double the number of American workers in training programs.

The Guangdong training programs are half in the classroom and half in the factory, usually the business that plans to employ the trainees. By increasing productivity, training programs can hold down corporate labor costs per unit of production for years to come.

China’s huge training programs may also help preserve social stability by keeping the unemployed off the streets, although Chinese officials deny that is their intention.

Multinationals are cutting back less in China than elsewhere — and some are even expanding.

Intel is shutting down semiconductor production lines sooner than previously planned at older, smaller operations in Malaysia and the Philippines as it opens a large, new factory in Chengdu in western China.

IMI Plc., the big British manufacturer that manufactures items as diverse as power plant valves and brewery equipment, has just announced an accelerated shift of operations to China, India and the Czech Republic, after cutting its global work force by 10 percent since December.

And Hon Hai, the 600,000-employee Taiwanese company that is one of the world’s largest contract manufacturers of products like the Apple iPhone and Nintendo Wii game console, has just increased employment by nearly 5 percent in China even as it cuts overall employment by 3 to 5 percent.

Yet China’s economy still has weaknesses. Little is being done to shift the economy away from a heavy reliance on capital spending and toward greater consumption. The social safety net of pensions, health care and education barely exists, so Chinese families save heavily.

And strict government policies on labor and the environment, imposed a year ago when China felt more confident of its economic strength, are prompting low-tech industries like toy manufacturing to move to other, less stringent countries.

Top labor officials insisted during the National People’s Congress that they would resist suggestions from some Chinese executives that the new standards be relaxed.

Vatican refuses to recognize Kosovo

March 17, 2009

Serbian Foreign Minister Vuk Jeremic said that Vatican will not recognize the unilaterally declared Kosovo independence and that there are no indications it will alter its stance.

“After today’s talks there are no indications of changes in that position,” Jeremic commented on Vatican’s position on Kosovo.

Jeremic went to Vatican on an official visit on Monday.

The main topic of the meeting was the fifth anniversary from the pogrom against Christian Serbs that the separatist Muslim Albanians organized 5 years ago.

The organized pogrom has killed 19 civilians, wounded 950, 900 Serbian houses were destroyed while 4,000 Serbs were forcibly expelled.

“At this moment there is not a spot in Europe where its Christian legacy is endangered more then in Kosovo and Metohia,” said Jeremic.

Jeremic met with Vatican’s deputy for foreign policy Leonard Sandri and with Cardinal Walter Casper who is the president of the Pope’s committee for enhancing unity among Christians.

Jeremic said that the talk with the Vatican touched on the case at the World Court that is to rule on illegality of Kosovo’s unilateral declaration of independence.

The talks also focused on religious rights in Serbia.

Bosnia: New international administrator appointed

March 13, 2009

AP | International Herald Tribune
SARAJEVO, Bosnia-Herzegovina: An Austrian diplomat has been appointed as Bosnia’s new international administrator.
The appointment was made in Sarajevo on Friday at a meeting of the Peace Implementation Council, the body that oversees implementation of Bosnia’s 1995 peace agreement.

Austrian diplomat Valentin Inzko will replace Slovak Miroslav Lajcak.

Inzko, Austria’s ambassador in Slovenia, will take up his duties at the end of March.

He served as Austria’s Ambassador in Bosnia from 1996 to 1999, speaks the local language fluently, and is believed to fully understand Bosnia’s complicated political situation.

He will be Bosnia’s seventh international administrator since the 1992-96 war.

World defence update

March 7, 2009

US military opens transit route between Russia and Afghanistan


The US military has opened its transit route between Russia and Afghanistan almost a year after Moscow first agreed to allow its territory to be used for the transfer of non-lethal NATO cargo. Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan have all reached similar agreements with the United States in recent weeks following a diplomatic tour of the region by commander of US Central Command (CENTCOM) General David Petraeus





US forces in Japan face uncertain future as elections loom


The United States military faces an uncertain future in Japan, with the pro-US Liberal Democratic Party (LDP) seemingly set for an overwhelming defeat in forthcoming Japanese elections. Japan’s main opposition leader, Ichiro Ozawa, head of the Democratic Party of Japan (DPJ), said in February that the US 7th Fleet, based in Yokosuka, Kanagawa Prefecture, would be sufficient to secure the US presence in East Asia from a strategic viewpoint – suggesting that he supported the withdrawal of all other US forces




China’s defence budget set for continued double-digit growth



 China plans to increase its Fiscal Year 2009 (FY09) defence budget by 14.9 per cent to CNY480.7 billion (USD70.2 billion), a government spokesman said on 4 March. According to comments published by China’s state-run news agency, the spokesman said the proposed military expenditure accounts for 6.3 per cent of the country’s total budget for FY09, which is “slightly down” from previous years




Navantia begins construction of Spain’s third S-80A submarine


Navantia has started construction of the third of four S-80A air-independent propulsion submarines on order for the Spanish Navy. Steel for pressure hull rings on the S 83 is being cut at the shipbuilder’s Cartagena facility, the company announced on 18 February South Korea joins counterpiracy deployments The KDX 2-class destroyer Moonmu Daewang is expected to sail to east Africa in mid-March as South Korea joins the multinational counterpiracy effort in the region. The 5,500-ton warship will carry a Super Lynx Mk 99 anti-submarine warfare helicopter and 30 special forces personnel in what will be the Republic of Korea Navy’s first overseas mission against potentially hostile opponents, the country’s official Yonhap news agency reported on 4 March




Indian Navy to create base protection force following Mumbai attacks



 The Indian Navy (IN) has assumed overall responsibility for India’s maritime security, relegating the Indian Coast Guard (ICG) and state police and marine agencies to supporting roles. The move – which was announced alongside plans to create a naval base protection force and procure dozens of new craft – is intended to address failings in command and control that emerged during last November’s terrorist attacks in Mumbai




Source: Jane’s Defence Journal