Tuesday, September 30, 2008

Misplaced Victimhood, Javedbhai

Hey, you liberal-Subverse-Opinion-The Times of India:

Kapil Sibal made a private visit to Mumbai to talk to a gathering of around 200 Muslims. It was an honest attempt to understand why Muslims are feeling so insecure, ignored and alienated. In the gathering were two maulanas. When it was their turn to speak, both broke down, cried like children and could not continue. On September 18, the Mumbai edition of only one national daily published a picture showing minister for minorities affairs A R Antulay crying, with Sibal and another Union minister, Ram Vilas Paswan, trying to console him. The caption did not say why the minister, a Muslim, was crying. Why do you think he was crying, liberal Indian? (Hey, you liberal-Subverse-Opinion-The Times of India).

Javedbhai ...

While you are busy accusing the media of selective amnesia, there are 4 aspects of Indian system which you are either ignorant of or possibly you suffer from amnesia yourself! Either be specific as this article is, which shows cases where the system has failed - or if you are being general, some balance is essential.

  1. India has the lowest prison population in the world - bar none. At 250,000-350,00o for a population of 110 crores, it is remarkable achievement in crime management. Why not talk about this?
  2. India has also the lowest police-to-population ratio in the world. So, India does not qualify for being a 'police state' either. No go!
  3. Just like Muslims are being detained 'illegally' by the police, so are 'Hindu' naxalites and Christian 'extremists' in North East. So this does not wash either.
  4. India has the largest Muslim minority in the world - and in fact the 3rd largest Muslim population in the world. Unlike many other countries of the world, the Muslim population in India is increasing. So, no Muslim pogroms! Bad luck, Brother Javed!

Causes and Effects

Now MJ Akbar (reportedly) pointed out the 'probable' problem - the 'loss of Muslim leadership', from emigration to Pakistan and the West. From being the 'rulers of Hindustan', if Muslims are asking for reservations, it is misplaced sense of victimhood being fanned by a 'motivated' and ineffective leadership.

The Indian Dalits are an excellent role model - for all minorities. From being at the bottom of the ladder (possibly due to colonial perversions in Indian society), I am looking forward to the Mayawati becoming the Prime Minister of India. In another few years, we will see no need for any reservations - unless, some minorities decide to stake a claim for benefits that were earlier meant for the Dalits. In the new Bombay Parsi Panchayat elections, some candidates have promised that they will 'fight with the Government' for reservations for the Parsi community.

Another set of role models are the Bollywood Khans. Gone are the days, when Yusufbhai had to become Dilip Kumar to succeed. Now (possibly) the Kapoors and Kumars are wanting to become Khans. Salman Khan in a recent interview said that due to his prosecution in the poaching case, possibly, the Chinkara (Black Buck) has made a come back in the wilds of Rajasthan. Salman did not lay down and die - or start crying like the 'sobbing maulanas' and you are! He did not allege that the 'Hindu' state was out to get him!

Some faith and more हरकत ('harkat') can do wonders, Javedbhai. There is nothing wrong with India.

Find something real or someone else to blame, Javedbhai!

Monday, September 29, 2008

China And India - 2 Books, Two Views, Take a 2ndlook

The India China Relationship

To most in India, China is possibly the biggest defence threat and is a 'feared' competitor.

However, the 2ndlook blog has discounted the 'threat of the Chinese dragon' based on an active engagement with China - and not benign neglect.

No less than Arun Shourie has weighed in on the 'Chinese threat' side of perception. This puts the 2ndlook blog in a minority. In the 2ndlook blog dated May 31st 2008, there was a significant analysis of the China-India face off. More on that later.

Two Books - Opposite Themes

In the meantime, Arun Shourie's book has evoked scant interest - excerpted below.

... important parallels, as Shourie points out, between the situation pre-1962 and the situation now. Border talks are regressing, Chinese claims on Indian territories are becoming publicly assertive, Chinese cross-border incursions are rising, and India’s China policy is becoming feckless ... India has always been on the defensive against a country that first moved its frontiers hundreds of miles south by annexing Tibet, then furtively nibbled at Indian territories before waging open war, and now lays claims to additional Indian territories. By contrast, on neuralgic subjects like Tibet, Beijing’s public language still matches the crudeness and callousness with which it sought in 1962, in Premier Zhou Enlai’s words, to “teach India a lesson”. (Stagecraft and Statecraft: Lessons for today's India from the 1962 Chinese invasion). The lack of coverage in Indian media for an important book like this is a matter of concern.

At the same time, another book on a similar subject, from an American perspective is vastly different - and closer to the views of the 2ndlook blog.

This one, ... (by) Ms Shirk (former deputy assistant secretary of state who dealt with China) ... should become a must read for every Indian who cowers and cringes at the very mention of China. For, as Shirk shows, there is no reason to do so. The core of her message is that only one thing has changed over the last two decades: instead of being a paper tiger, China has become a cardboard tiger.

... recall how China responded to the Tibetan uprising just before the Olympics to get a sense of its vulnerabilities and the resultant paranoia. The Chinese embassy in New Delhi was surrounded by three rings of defence against attacks by Tibetan women. You don’t become a super power merely because you have some money and some guns.

the Chinese leadership no longer has to fear the foreign devil who speaks English; it has to fear the average Chinaman who does so. She also shows how there is no shortage in the variety of unrests in China: you name a type of discontent, and it is there. But unlike India, China has not had the sense to develop political outlets for the head of steam that is building up. The only way it knows of dealing with mass discontent is repression.

Shirk also deals with the aspect that the Chinese leadership is most anxious to hide: a split not in the ranks of the party, but in the highest echelons of the leadership. And the second- and third-level Chinese leadership knows this. The drive against corruption, for example, when mayors are hanged, is seen as just a tea leaf, a straw in the wind that the big boys are pulling in opposite directions.

contrary to popular belief, especially in India, China can’t get along with anyone. Japan, Taiwan, Korea, India all have difficulties with a neighbour whose word can’t be trusted and who tends to rely more on strong-arm tactics than diplomacy. This, too, seems to be a part of the Communist party repertoire, merely their way.

As we see in this book, when push comes to shove, China always backs down. Its leaders simply don’t have the stomach for a confrontation because they don’t know how it will turn out for them personally. That’s the key thing: the personal interests of the Chinese communist leaders. It now always comes before the country’s interests, or is at least seen as being coterminous with it. (Book Review of FRAGILE SUPERPOWER by Susan L Shirk).

The Chinese Paper Dragon

The Chinese success is similar story. Much like USSR’s break-up, the Chinese monolith is more fragile than apparent. Apart from the usual suspects of democracy, economic disparities, social upheavals, etc, there are 3 factors, which most Chinese analysts miss.

One, the Tibetan’s are held together by force - and no one imagines that this holding them together by force, can be in perpetuity. The Muslim provinces of Xinjiang (another one-third of China) is usually ignored. These issues are usually minimized by the current strength with which China holds these provinces together.

But possibly, the biggest issue is the share of revenues of the Chinese central governments.

Secondly, the Chinese Central Government commands less than 25% of the total tax revenues - and the 75% goes to provinces. This, possibly is why the Chinese Government cannot reduce cigarette usage in China. Most expenditures on health, education, pension, unemployment, housing etc. are borne by the local government - and hence there is patchwork of systems which run across China. Most of executions and imprisonments of bureaucrats (including the Mao’s Cultural Revolution) is to demonstrate central authority. The PLA is the only factor that keeps China together. A Chinese Lech Walesa or a Nelson Mandela could unwind China very quickly.

Significantly, and thirdly, the Chinese diaspora and Western MNCs are biggest investors in China - and also the main beneficiaries. This currently keeps resentments of the local Chinese under control - as the neighbour is not getting much richer. But at one stage the domestic Chinese will want to greater say and control over the Chinese economy. He may not be happy with just a well paying job and abundant, low quality goods.

India vs China

On these three counts India scores significantly better than China. India’s problems with Kashmir are a British legacy, an external creation - as is the North East problem, to a degree. India’s significant issue (probably temporary) is the Naxalite problem. India’s central Government has greater control and share over total revenues - than the Chinese. India’s recent economic and political successes are entireley home bred - with the exception of remittances from the expat workers in the Middle East.

2ndlook blog proposes a different way out of this India-China stalemate.

The Detritus

As various colonial powers were forced out of various colonies, left behind was the garbage of colonialism. This post-colonial debris has become the ballast, that is dragging down many newly de-colonized countries.

Vietnam suffered from a prolonged war (1956-1976) - and finally peace had a chance after 20 years of war. Korea remains divided. The Cyprus problem between Turkey, Greece and the Cypriots has been simmering for nearly 100 years. The role of the Anglo Saxon Bloc, in Indonesia, the overthrow of Sukarno, installation of Suharto and finally the secession of East Timor is another excellent example. The Israeli-Palestinian conflict (1935 onwards) will soon enter its 75th year. The entire Arab-Israeli-Palestinian conflict is a creation of the Anglo-French-American axis. The many other issues in the West Asia and Africa are living testimony of the Western gift to the modern world.

Closer home is the Kashmir problem. After 60 years of negotiations, India-Pakistan relations have remained hostage to the Kashmir issue. Similarly, between China and India, the border issues remain 60 years after the eviction of Britain from India.

We Hereby Resolve

Let us (India and China) decide that for the next 60 years, these legacy border issues will remain in cold storage! There are far more pressing issues that need our attention. Let us focus on those issues. We have a lot of catching up to do.

Friday, September 26, 2008

Real Reasons For The Unclear Deal

Democrat chairman of the house foreign affairs committee and non-proliferation hard-liner Howard Berman continued with his negative tactics and introduced a new version of the nuclear deal bill in the House Representatives that would be unacceptable to India. The Berman bill also has a killer provision on Iran that links India’s cooperation on Iran to the nuclear agreement, sources said. - (N-Deal: Berman introduces killer amendment, in Economic Times, dated 26 Sep, 2008, 0439 hrs IST, ET Bureau)
My post dated , September 20, 2008,123 Agreement - What Manubhai Does Not Tell Us, But Hurts Us talked about what could be the real reason why the US is so eager to do this deal with India. Iran with its Iran Oil Borse is a significantly determined effort to shake up the dollar hegemony. And that is something that has the USA rattled. No question!
With the 123 Deal - or without it, India will get the technology. That is not in question. It is another question whether India can at all partner with Iran to establish an alternate world currency (system).

So, my friends at the ET bureau, please note that the 'negative tactics' by Howard Berman are really desperate measures - to save the dollar hegemony.

Outline of Nuclear Reactor Design

Catholic monarchs in Britain? Wowee

Justice Minister Jack Straw said in March that the government was "certainly ready to consider" reviewing the "antiquated" ban on Catholic monarchs.

Rules laid out in the Bill of Rights 1688, the Act of Settlement 1700 and the Act of Union 1706 state that the monarch must be a Protestant, and any royal who marries a Catholic is barred from the line of succession. (from'Britain mulls allowing Catholic monarchs: report in Hindustan Times)

Wow! This is indeed a major step for 'multi-cultural' Britain! I am so highly impressed!

Now that this Catholic issue is resolved, what happens to Presbyterians, Methodists, Calvinists, Quakers, Seventh Day Adventists, Mormons, Lutherans, Greek Orthodox, Russian Orthodox, Armenian Orthodox, Serbian Orthodox, Baptists, Jehovah's Witnesses, The Episcopal Church? Are they not Christian enough?

Tony Blair Becomes A Catholic

What if Prince Harry marries a Buddhist?

Does the 'modern State Of Great Britain differentiate between people based on choice of faith made 7 generations ago? Are people of different faith not 'people' enough?

What was the reason for Tony Blair to convert to Catholicism? Is that 'dog-whistle' religiosity with a unified Christian army against the 'evil forces of Islamic Fundamentalists?' Jeb Bush, brother of George Bush has already converted to Catholicism - and will George Bush follow?

Daniel Burke writes Washington Post thus,

Bush attends an Episcopal church in Washington and belongs to a Methodist church in Texas, and his political base is solidly evangelical. Yet this Protestant president has surrounded himself with Roman Catholic intellectuals, speechwriters, professors, priests, bishops and politicians. These Catholics -- and thus Catholic social teaching -- have for the past eight years been shaping Bush's speeches, policies and legacy to a degree perhaps unprecedented in U.S. history.

Wednesday, September 24, 2008

Nixon Chop & Bush Whack

The Dollar-Oil Tango

From the Nixon Chop to the Bush Whack final months of Dubya's Presidency, the Bush Family has been in the Presidency for 12 years of the 37 years. And in positions of lesser power for the entire period. George Bush Sr. was the US representative to the UN during the Nixon era - when Nixon made his infamous remarks to Kissinger about the 'sanctimonious Indians' who had pissed on us (the US) on the Vietnam War'. George Bush Sr. was also the US Vice President during the 8 years of Reagan Presidency.

During these 37 years - between the Nixon Chop (1971) and the Bush Whack (2008), the world has changed significantly.

Every Few Years

Every 10-25 years, the world seems to go from one financial crisis to another. Trucks full of economic analysis follow each crisis - and everyone agrees after each meltdown, that there will not be another catastrophe. What the poor (and not so poor) economists don’t see is that the Anglo Saxon bloc with 80% of the world’s gold production in a choke-hold does what it wants. And the second element - they also control and influence 80% of the Oil production.

Why has this system been such a failure? Simple!

Oil & Dollars

After the Nixon Chop, the OPEC went into a huddle. After all they were selling a limited resource against payment through pieces of paper. Afte the Nixon Chop, the chain of events, post 1970 developments were as follows: -

The international monetary developments as of 15 August 1971 prompted OPEC, in its meeting in Beirut on 22 September 1971, to call for negotiations with the oil companies holding concessions in member countries. By 14 January 1972 there was no progress in negotiations. OPEC, in spite of a total loss of more than 11.5%, was asking for a hike of only 8.57% –- which was the loss in value of the US dollar relative to gold. In fact, what OPEC was asking for was very close to what the International Maritime Conference had, at the time, announced: a minimum increase in the dollar freight rates of 8.6%. Finally, an agreement was reached in Geneva on 20 January 1972 that provided an immediate increase in the posted prices by 8.49%. The settlement also included provisions for further adjustments until 1975 based on an index that reflected changes in the dollar and other key currencies.

Concurrently, on October 17th 1973, OAPEC members (OAPEC, consisting of the Arab members of OPEC plus Egypt and Syria) announced embargo against shipping oil to all countries supporting Israel in the the ongoing Yom Kippur War against Syria, Egypt and Iraq. (the United States, Western Europe, and Japan). Non Arab OPEC members decided to leverage their power to raise world oil prices, after the failure of negotiations with the Oil Companies (then popularly called "Seven Sisters").

The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. Europe tied with Russia for the trans Europe gas pipeline. North Sea Oil production was ramped up. Norway and other countries also increased their output. Thus while not fully dependent on the OPEC, this served an important purpose - to demonstrate that the West and OPEC were on opposite sides, whereas the truth was opposite.

OPEC and West - Partners In Loot

Actually, the West saw a transfer of wealth, all over again from the Third World, via the OPEC Petro Dollars. The dollar regime was particularly beneficial to the Western World in general - and US in particular. The Oil dollar linkage allowed the US to create global reserves of US$6 trillion in just foreign exchange reserves. Other debt and trade add upto another US$14 trillion. Approx US$20 trillion is the amount of dollars that the OPEC has managed to transfer from the Third World to the West. But the unhappy outcome of the Oil Crisis of the '73 (for the West) was the riches and power of the Arab countries. What followed was a rising crescendo of Islamic Demonization for the last 37 years.

Oil output is currently over-valued as Western producers and OPEC jointly rig up prices. The Rest of the world pays (recently its is largely India and China) - and pays in dollars which again benefits the West.

The West limits its own output to keep up high prices. OPEC has the advantage of high oil prices. The petro dollars are reinvested back in the West. Finally, OPEC gained - and so did the West.

Who paid!

Mostly poor Indians and Chinese. And even poorer Africans.

Bush Whacked
Bush Whacked

War, Oil , Dollars & The Middle East

The justifications for invading Iraq given by the USA, were finally found to be false. The invasion was finally not related to 9/11. Iraq did not have any WMDs either. So, what was were the reasons for Iraqi invasion?

A ring side observer, former Indian Ambassador to Iraq, Ranjit Singh Kalha's book, 'The Ultimate Prize' makes some interesting observations on the genesis of the Iraq invasion.

"The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, ...under the UN 'oil-for-food' programme." Saddam also converted Iraq's USD 10 billion reserve fund from US dollars to Euros. "Although this act of Saddam was not of very great economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions," ... in his just-released book, "The Ultimate Prize". Iran followed Saddam's move and Venezuela started initiating barter deals outside the dollar system. "If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake," Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Sidelined to the (Indian) National Human Rights Commission, Kalha's book was also buried under a mound of silence, not reviewed and made no impression in the popular media. One press release by PTI was recycled by The Economic Times, Outlook, Sahara Samay, The Hindu, India Today, and NDTV. Google and Live Search hardly turned up anything. Yahoo.co.in showed some these links.

Bush Whacking Iraq
Bush Whacking Iraq

Venezuela and Iran have also moved away from designating oil sales in US dollars. After the Bretton Woods collapse, instead of gold, it was oil that anchored the US currency. West Asian Oil producers agreed to denominate oil in dollars after the Nixon Chop - and in turn there was no real resistance by the West to OPEC oil cartel increase oil prices by a factor of 10.

Western Oil companies also acted in concert with OPEC by limiting their own oil production. From around 4 dollars a barrel to US$40. The West was relatively unscathed - as these petro-dollars were re-invested back in the West. Europe managed to insulate itself with the North Sea Oil (Britain, Norway were the main producers along with Germany and Denmark. Europe also concluded a deal with Russia for a pipeline into Europe. North Sea Oil Production peaked in 1999-2000 with a 6 million barrels per day.

India was also not highly impacted as Bombay High started production in 1974. It was the rest of the Third World which paid this bill.

Bretton Woods - I & II

As Ron Paul noted,

“The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year.”

The Bretton Woods-I system worked for from 1945-1971 (26 years) years because Indians were not allowed to buy gold. India’s finance minster during that crucial period, Morarji Desai, (allegedly on CIA payroll during Lyndon Johnson’s Presidency 1963-1968), presented a record 10 budgets, between February 1958, up to 1967.

Bretton Woods-II, based on oil-dollar anchor, worked for another 35 years (1973-2008) till now. Oil exploration is a 5-10 year investment. Oil should be made another commodity. An easy option is to create a Republic of Pacific Islands - Haiti, Cuba, Grenada, and other West Indies. These islands can become vast oil production centres - and can feed Asia with oil, peacefully.

The third currency bloc is essential - and it can happen only if India and South Africa decide to make it happen.

What Now, Ben?

The whole world seems to be blaming Ben Bernanke for the USWhat N dollar crisis. Is it fair? Look at his record below.

Thus Spake Ben Bernanke

Remarks by Governor Ben S. Bernanke, Before the National Economists Club, Washington, D.C. November 21, 2002 (ellipsis mine)

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press … that allows it to produce as many U.S. dollars as it wishes at essentially no cost. … …the Fed could find other ways of injecting money into the system–for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities … If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

A terse anouncement by the Federal Reserve Board said,

"On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

On November 10, 2006 Ben Bernanke justified,

"As I have already suggested, the rapid pace of financial innovation in the United States has been an important reason for the instability of the relationships between monetary aggregates and other macroeconomic variables."

Ben Bernanke has given ample (and more) indications about what he will do. In fact, more than indications, he was brazen enough to say, what exactly he would do! How can the world blame him now?

What Did Others Do

Some other countries tried feebly, and failed, in creating a third currency bloc as an alternative to the US dollar and the Euro. Japan and Asean tried setting up the Asian Monetary Fund - after 1997, currency crisis - and were arm twisted by the US to drop the idea. Malaysia proposed The Gold Dinar in 2002-2003. This was initially limited to the Islamic World only. Neither of the proposals got far.

What would be the US reaction to this such attempts?

War, Oil , Dollars & The Middle East

Cut to the Iraqi invasion by the USA.

The justifications for invading Iraq given by the USA, were finally found to be false. The invasion was finally not related to 9/11. Iraq did not have any WMDs either. So, what was were the reasons for Iraqi invasion?

A ring side observer, former Indian Ambassador to Iraq, Ranjit Singh Kalha's book, 'The Ultimate Prize' makes some interesting observations on the genesis of the Iraq invasion.

"The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, ...under the UN 'oil-for-food' programme." Saddam also converted Iraq's USD 10 billion reserve fund from US dollars to Euros. "Although this act of Saddam was not of very great

economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions," ... in his just-released book, "The Ultimate Prize". Iran followed Saddam's move and Venezuela started initiating barter deals outside the dollar system. "If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake," Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Sidelined to the (Indian) National Human Rights Commission, Kalha's book was also buried under a mound of silence, not reviewed and made no impression in the popular media. One press release by PTI was recycled by The Economic Times, Outlook, Sahara Samay, The Hindu, India Today, and NDTV. Google and Live Search hardly turned up anything. Yahoo.co.in showed some these links.

Another post which made waves was posted in currencytrading.net - which highlighted how some countries were possibly moving away from the dollar peg or /and diversifying dollar reserves.

These 7 countries were Saudi Arabia, South Korea, China, Venezuela, Sudan, Iran and Russia. Venezuela and Iran have already moved away from designating oil sales in US dollars.

The only plausible reason why US worked so hard to get the 123 Agreement for India was to keep India (and hence, South Africa also) away from any third currency bloc efforts - for some time at least .

Let The Games Begin

In the last 5 years, more than US$10 trillion were printed and the world is awash with dollars. Where did this money go? How was this used? Lendings by US commercial banks in the period 2000 to 2004 soared by altogether USD 1,500bn to USD 6,750bn. In the European Monetary Union lending to the private sector by monetary financial institutions (MFI) climbed from roughly EUR 6,200bn end-1999 to not quite EUR 8,700bn at the end of last year.” - Allianz Report, Dresdner Bank. The recipients of this largesse, mainly Western banks have made (it is whispered) bad loans worth 300-400 billions dollars. I am confident that the actual figure is much higher.

The loans story does not end there.

These loans were in turn sold and re-sold, then packaged and mortgaged, derived and contrived - finally ballooning into the ’sub-prime’ crisis. Welfare payouts by another name? Who will pay for this “lending”? US Consumers are not repaying their housing loans.

Some one has to!

The Federal Reserve & Ben Bernanke

From March 23, 2006, information regarding M3 data was no longer published. The US printing presses started working 24 x 7 x 365.

From there it was a short step away to predict a financial crisis. Nouriel Roubini started off with an estimate of US$1 trillion to US$2.7 trillion write offs. Charles Morris wrote a book, “The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash”.

Yet $1 trillion is the amount of defaults and writedowns Americans will likely witness before they emerge at the far side of the bursting credit bubble, estimates Charles R. Morris in his shrewd primer, ``The Trillion Dollar Meltdown.'' That calculation assumes an orderly unwinding, which he doesn't expect. ``The sad truth,'' he writes, ``is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008.'' wrote Roubini.

Asians Are Funding the US

Total US debt has crossed 300% of GDP (all sectors). What this means is that if every income earning member of the US were to assign 30% of their income, every year, for the next 25 years (at current interest rates and borrowing rates) ), US debt will come to possible close to zero level. Government debt in comparison to GDP is fluctuating between 50% to now nearly 100%. Some claim that the debt burden is actually declining.

Who is stuck with this hoard of dollars - getting devalued daily. China (with more than 2 trillion dollars), Japan (another trillion dollars), Russia (400 billion dollars), India (300 billion dollars) are the top 4 countries.

Asia lost last year (my estimate) more than US$300 billion dollars due to the monetary policy of the USA. Deliberate, well thought out monetary policy by the USA Government.

The truth is that American lifestyle is being maintained due to Asian stupidity. The Chinese, Japanese, Indian, and other ASEAN countries have lent the USA - which is in the hock by over, US$4 trillion dollars. They will lose US$ 400 billion for the privilege of lending US$4 trillion to the USA. They designate trade in US dollars worth another few trillion dollars a year - which is zero-cost-to-US depreciating currency ‘float’ that the US benefits from.

The Big Mac index (based on two simple ideas of PPP and a standard industrial product) shows the dollar is overvalued against most currencies of the world. This over-valuation range is about 53% in case of India. What that means is that the US pays India only half the amount of what it should actually pay. And India pays double for whatever it buys from the USA.

The Tail That Wags The Dog

Kenichi Ohmae made his reputation with many books at the height of the Japanese boom - holding forth to spell bound audiences on the 'miracles of Japanese management.' One of his interesting observations was the quantification of currency trading - which he saw as a positive. "As Kenichi Ohmae observes in his book The Borderless World, the "tail" of foreign exchange trading has in recent years vastly outgrown the original "dog" (Money Meltdown, By Judy Shelton, Page 104).

Living upto his reputation, " Kenichi Ohmae, nicknamed ``Mr. Strategy'' during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ``international facility'' to be made available to financial institutions." as a solution to the 2008 US-dollar crisis.

What has happened as a result of unsustainable policies (simultaneous budget and current account deficits, and loose monetary and fiscal policies) in the US is that a huge liquidity bubble of $7-10 trillion has caused massive inflation in global prices for all asset classes: property, stocks, commodities, etc. - Percy S Mistry / New Delhi February 28, 2008 (bold letters mine).

The ICBC IPO received subscriptions of half a trillion dollars! IMF estimates of funds with Sovereign Wealth Funds (SWFs) is US$2-3 trillion - and “foreign assets under management of SWFs could reach US$6–10 trillion by 2013“. The same IMF study also estimates that global financial assets are currently valued at US$190 trillion. Commodity prices are going through the roof.

Very soon, major movements will be measured in trillions - thanks to the humongous printing presses, that the US has used in the last few years. Daily trading volumes total US$1.5 trillion in the Forex Markets. To that add trading volumes of debt markets, stock markets and commodity markets. Combined global trading volumes now cross US$3.0 trillion - and growing. This degree of hysterical trading had made the US$ into a giant wrecking ball - which goes out of control very few years.

To overcome this crisis, Kenichi Ohmae says it will require another US$ 5 trillion. The bill for US$ 62 trillion of CDS (Credit Default Swaps) write downs, has just started coming in. Credit card debt of another US$ 10 trillion has just started.

How Many Zeroes In A Trillion?

Does Dubya know?

To put it in perspective. The whole of India, produced last year, goods and services worth US$1 trillion. And the US - US$14 trillion.

Did banks lend out 7-10 trillion US$ in doubtful loans (Why didnt I get any of this?)? Who will pay the price for this? How will this get financed? Can we continue running the world financial system like this?

Saturday, September 20, 2008

What Manubhai Does Not Know about 123 ... But Hurts Us

"We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow" Lord Viscount Palmerston, 1848

Cost of Nuclear Power

Our own Manubhai has been promising the Indians that India will be a power surplus and /or a power-full country - thanks to his nuclear deal! Now, everyone who knows something about nuclear energy knows that this is not true.

At one end of the spectrum, on the true cost of nuclear power, an analyst, Bharat Karnad writes, "...if you thought Dabhol electric power at Rs7-8 per unit was scandalous, wait for electricity units priced at Rs.30 or more." This is based on a reactor cost of US$9-10 billion. Another writer estimates "Areva is pitching the new EPR reactor design ... earning between €2.5bn and €5bn for each reactor" ... Florida utility Progress Energy’s estimate of $14 billion for two AP-1000 designed by Westinghouse (...translates ... to ... $6,000/kW) ... imported nuclear reactors will produce electricity at costs that would be simply unaffordable.”

NPCIL Executive Director Sudhinder Thakur maintains: “The cost in France and the US and the cost in India are vastly different. The purchasing power parity index is also applicable to nuclear reactors. When you build a reactor here, costs come down dramatically.”

The US experience with nuclear power is vastly different. A study confirms, "commercial nuclear power from new nuclear plants has become the most expensive form of commonly used baseload electric power in the United States. Independently, US plans to refurbish old reactors that, "The Tennessee Valley Authority plans to reopen its Browns Ferry 1 nuclear reactor this month - 22 years after it was shut ...after spending ... $1.8 billion on the overhaul - almost as much as a new plant is supposed to cost ...The last one was Watts Bar 1, also a TVA plant, in Spring City, Tennessee, in 1996."

India's Nuclear Weaponization

For making weapons grade plotonium, the cost of CANDU reactors is much lower- and is also the cost of India built Pressurised Heavy Water Reactors (PHWR). So India's need for reactors to make weapons grade plutonium is not a feasible reason for the deal.

India today does not need to go anywhere for any reactors or weapons grade plutonium. If the technology denial regime continues for another 5-10 years, India will anyway, re-invent a better wheel, at a lower cost - and best of luck to France, which today has the best re-processing technology.

Indo-US Strategic Relationship

India is the long-term, single-most and credible competitor for US economic, technological and political influence in the world. US will do nothing to dilute its own position and importance. All strategic engagements of the US are with small countries like Japan, Taiwan, UK, Singapore, etc. China and Russia are seen by the US as competitors and rivals - and, while currently not seen as in the same league, India is definitely on the horizon.

The Indian Left is against this deal as (they believe) it will make India closer to the US is totally of the mark. "The Communist Party of India (Marxist) on Saturday accused the government and the Congress leadership of mounting a “massive disinformation campaign” to push the nuclear deal, which “is a cover to promote strategic ties with the U.S.”

BJP is against the deal because they feel this treaty undermines Indian freedom (and sovereignty) to conduct nuclear tests. Nothing is possibly further from the truth. India can do all the tests it wants to - and come back to status quo ante - the current regime of technology and resource denial.

India’s intellectual vacuity is best demonstrated in this post by Gurcharan Das, an ex-MNC CEO, who started writing in various newspapers. His latest post in The Times Of India, plumbs the depth of misdirected warmth towards Western democracies. He writes, “thanks to the treaty, which paved the way for closer ties with the Western democracies. The West stood by India during its times of trouble and eventually India went on to balance power in Asia and the world”.

Gurcharan Das’ gullibility on matters of international relations is worth a bucketful of tears. Why would any country (let us keep Western powers aside for a minute) support India (or any other country) - except if it in their self interest? After 300 years of pillage, loot, murder, genocide, slavery are Western nations going to suddenly change become Good Samaritans, Mr.Das?

Your naivete, Shrimaan Das, makes me squirm.

What is the specific US interest that the US has that India will meet!

None, that Pakistan cannot do with fewer qualms, at a lesser cost and no questions. So, why has the US dumped its old ally, Pakistan for this nuclear deal. Pakistan is not going to get the nuclear deal. So, why is the US doing this deal with India! For a Indo-US strategic relationship.

Give me something better.

Indian Reasons For The Nuclear Deal

India's reasons for the 123 deal are fairly straight forward. The main reason for India agreeing to go for the 123 Agreement.

India’s expectation is to use thorium as an energy source in the long run. If the first phase of our programme is limited to 10,000 MW of PHWRs, the rate at which Fast Breeder Reactors can be built will be quite low. On the other hand, if the first phase programme can be augmented with LWRs of 20,000 to 30,000 MW by 2030, we shall have a strong base of Fast Breeder Reactors to be able to launch thorium utilisation in a significant way in the decades thereafter.

US Interests

So, what is the US interest in engaging India in the nuclear deal? I would even say, diverting India's attention by dangling the nuclear carrot!

The US does not need any allies - especially in this part of the world. Ex-SEATO allies, (now the ASEAN), are spread all over Asia. Most Middle East rulers are allied (maybe reluctantly or some eagerly) with the US. Closer home, Pakistan brought China and US together in 1973. Pakistan also helped the US to get Russia out of Afghanistan. So, US has no need for a 'difficult' ally like India.

There is some speculation that the US wants to use India for reviving their "moribund nuclear industry." But even before the first RFP for the first plant, Bush is doing everything to kill US business propects. His 'secret letter' clarifies that US assurances were "political commitments" and not "legally binding."

Excerpt from Bush's letter to Congress: "In Article 5(6) the Agreement records certain political commitments concerning reliable supply of nuclear fuel given to India. The Agreement does not, however, transform these political commitments into legally binding commitments because the Agreement, like other US agreements of its type, is intended as a framework agreement."

President Bush and the US industry know that they are getting nowhere close to any business with India without "legally binding commitments" on fuel supplies.

Srinivasan, former Chairman of AEC, said, "We expect the assurances on fuel supply from the potential US reactor vendors as per the 123 Agreement (a bilateral agreement between India and US) before they enter into a contract with Nuclear Power Corporation of India Limited (NPCIL)." So, the US Nuclear industry is also not the motivation for this deal.

So, there you have it. India wont buy and the US wont sell.

What Gives - Iraq, Iran, Venezuela

A ring side observer, former Indian Ambassador to Iraq, Ranjit Singh Kalha's book, 'The Ultimate Prize' makes some interesting observations on the genesis of the Iraq invasion.

"The first mistake Saddam made was when he decided in October 2000 to move away from using US dollars as the currency for oil exports, ...under the UN 'oil-for-food' programme." Saddam also converted Iraq's USD 10 billion reserve fund from US dollars to Euros. "Although this act of Saddam was not of very great economic significance in overall terms, it represented for the United States a direct challenge to the use of the dollar as a currency for transactions," ... in his just-released book, "The Ultimate Prize". Iran followed Saddam's move and Venezuela started initiating barter deals outside the dollar system. "If most other Organisation of Petroleum Exporting Countries (OPEC) followed the Iraqi and Iranian example, the stability of the US dollar would be at stake," Kalha, who was posted in Baghdad during the tumultuous 1992-94 period, says.

Now sidelined to the National Human Rights Commission, Kalha's book was buried under a mound of silence, not reviewed and made no impression in the popular media. One press release by PTI was recycled by The Economic Times, Outlook, Sahara Samay, The Hindu, India Today, and NDTV. Google and Live Search hardly turned up anything. Yahoo.co.in showed some these links. Iraq was finally not related to 9/11 and did not have any WMDs. So, what was were the reasons for Iraqi invasion?

Venezuela and Iran have also moved away from designating oil sales in US dollars. After the Bretton Woods collapse, instead of gold, it was oil that anchored the US currency. West Asian Oil producers agreed to denominate oil in dollars after the Nixon Chop - and in turn there was no resistance by the West to OPEC oil cartel increase oil prices by a factor of 10. From around 4 dollars a barrel to US$40. The West was relatively unscathed - as these petro-dollars were re-invested back in the West.

India was also not highly impacted as Bombay High started production in 1974. It was the rest of the Third World which paid this bill. As Ron Paul noted, "The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year."

Another post which made waves was posted in currencytrading.net - which highlighted how some countries were possibly moving away from the dollar peg or /and diversifying dollar reserves.

"...seven countries currently considering a move from the dollar" Saudi Arabia refused to cut interest rates along with the US Federal Reserve ... a break from the dollar currency peg ... South Korea announced its intention to shift its investments ... There are whispers that the Bank of Korea is planning on selling $1 billion US bonds in the near future, after a $100 million sale ... After abandoning the dollar peg in 2005, ... China is threatening a “nuclear option” of huge dollar liquidation ... although China “doesn’t want any undesirable phenomenon in the global financial order,” ... As ... noted in the past, China has the power to take the wind out of the dollar.

Venezuela ... choosing to establish barter deals for oil ... under Hugo Chavez, ... to trade oil with 12 Latin American countries and Cuba without ... the dollar ... In 2000, Chavez recommended to OPEC that they “take advantage of high-tech electronic barter and bi-lateral exchanges of its oil with its developing country customers,” ... In September, Chavez instructed Venezuela’s state oil company Petroleos de Venezuela SA to change its dollar investments to euros and other currencies ...

Sudan is ... planning to convert its dollar holdings to the euro and other currencies. ... Officially, the (US) sanctions are reported to have little effect, but there are indications that the economy is suffering due to these restrictions. ... a Khartoum committee recently concluded that proposals ... are “not feasible.” ...it is clear that Sudan’s intent is to attempt a break from the dollar in the future.

... the most likely candidate for ... abandonment of the dollar...Iran requested that ... shipments to Japan be traded for yen ... has plans in the works to create an open commodity exchange called the Iran Oil Bourse. ... possible to trade oil and gas in non-dollar currencies, ... the oil bourse has missed at least three of its announced opening dates, ... make clear Iran’s intentions for the dollar. As of October 2007, Iran receives non-dollar currencies for 85% of its oil exports ... has plans to move the remaining 15% to currencies like the United Arab Emirates dirham.

... 2006, Russian President Vladmir Putin expressed interest in ... a Russian stock exchange ... allow “oil, gas, and other goods to be paid for in Roubles.” ... wary of holding too many dollar reserves. In 2004, Russian central bank First Deputy Chairmain Alexei Ulyukayev remarked, “Most of our reserves are in dollars, and that’s a cause for concern.” ... considering the dollar’s rate against the euro, ... “discussing the possibility of changing the reserve structure.” ... 2005, Russia put an end to its dollar peg ... towards a euro alignment. They’ve discussed pricing oil in euros, ... a large shift away from the dollar and towards the euro, ... (by the) world’s second-largest oil exporter.

The dollar’s status as a cheaply-produced US export is a vital part of our (US) economy. Losing this status could rock the financial lives of both Americans and the worldwide economy.

The Iran Bourse

So, that is the real reason.

For the Iran Bourse to take off, Iran can go to two countries in the world - US or India. Not even Europe. (Europe's main interest is increase acceptance of the Euro. The danger is that US and EU could form a duopoly and revert to 'rent-seeking' behaviour).

The Iran Bourse has one choice - for the hardware, software, systems, procedures, regulatory experience. For proof, look at the MCX, a privately developed, owned, funded, managed, commodity exchange - a first in the world. India is opening up electronic markets at the drop of a hat. India's home-grown regulatory systems are today world class.

All the above seven countries mentioned in the report above have thin democracies or not at all. The regulatory systems in these seven countries are primitive and arbitrary. A body of professional market participants these countries don't have. The central banks in these countries are adjuncts of a temporary political leadership. Hence, any kind of administrative predictability or reliability is chimerical.

Who Can You Trust

How far, how much would how many countries (rich or poor) in the world trust these seven countries? Practically none! For any of these proposals of an alternate currency bloc to come close to realization, India (and South Africa) is an essential. India's other qualification is the 25,000 tonnes of private gold reserves. Iran has not helped its cause when it tried re-negotiating the gas supply agreement with India.

As usual, no one in India is even remotely talking about this issue. And that is the tragedy of Indian economists.