By unwittingly tying together their fortunes as they pursued their own interests, the 2 nations have put themselves on an economic path of mutually assured destruction.
Imagine becoming so successful at your job that you stack up $2 trillion in income, which you conservatively place in short-term U.S. Treasury bonds for safekeeping.
Now imagine that when you try to cash in those bonds to buy a few things for your kids, the clerk at the bank abruptly shuts her window and tells you to go away.
That is essentially the situation faced by China these days as it wonders whether its plan to manufacture goods for U.S. consumers over the past two decades in exchange for a pile of credit slips was really such a hot idea.
The answer is coming up as a big, fat "uh-oh" as the U.S. deficit and debt obligations balloon to levels never before contemplated, and Beijing is denied requests to buy U.S. and Australian mines and oil properties. And as Beijing leaders talk openly, if obliquely, about their angst, they are unsettling world credit, currency and stock markets, which don't know what to make of the idea that the world's largest Ponzi scheme might be coming to an abrupt end.
This is a good time to assess the chilling possibilities, as the resolution of this pending crisis will afflict investors, workers and business owners alike.
Dangerous symbiosis
What's so Ponzi about the Chinese-U.S. relationship? Basically everything. Look at it this way:
After a currency debacle in 1998 left its economy in tatters, Beijing decided to radically restructure its financial relationship with the West. Policymakers pegged the value of China's currency to the U.S. dollar, which had the effect of keeping it artificially low.
The cheap renminbi made it irresistibly inexpensive for U.S. companies to manufacture goods in China, even after shipping costs. As more companies shifted their operations to China, the U.S. manufacturing base was hollowed out in the name of globalization and profitability. Americans who once enjoyed high-paying factory jobs moved on to lower-paying service jobs.
China didn't need much of anything made in America, so instead of buying cars from Detroit and furniture from North Carolina with its factory profits, it bought Treasury bills. The purchase of all those bills drove down U.S. interest rates. So as middle-class and blue-collar Americans saw their wages stagnate or decline, they discovered they could still keep their old lifestyles by borrowing.
Over the past decade, Americans were able to outspend their incomes by easily rolling their debts forward through serial home refinancing. The situation was never ideal, but it worked as long as the value of their collateral -- their homes -- kept rising.
As long as China kept buying Fannie Mae (FNM.N), Freddie Mac (FRE.N) and U.S. Treasury credits, the scheme worked in a strange and beautiful way: Our driveways filled up with cars and boats, shopping malls spread out across the suburban landscape, and the retailer with the closest ties to China, Wal-Mart (WMT.N), became the United States' largest company.
Land-mine economics
Was that so bad? Well, now think about this in the context of a Ponzi scheme such as the one perpetrated by disgraced financier Bernie Madoff.
Madoff's clients for years thought they were rich because he sent them brokerage statements that said so. But that scheme worked only as long as new money kept coming in. When international money flows seized up last year and too many people wanted to redeem their accounts at once, Madoff's $50 billion game fell apart. Then his victims suddenly discovered that their brokerage statements were worthless pieces of paper. Madoff clients' households crashed, and now one-time millionaires are broke. The reality is that they were always broke; they just didn't know it yet.
The credit that has kept American families afloat for the past 10 years is similar to those Madoff-produced brokerage statements. The credit is good only so long as China keeps recycling funds through the Ponzi scheme. But if Beijing leaders ever decide that it's just too risky to own U.S. dollars and debt, then the system is going to come crashing down.
Of course, it is not really in China's interest to stop the scheme, even if it wanted to, because its own economy would likewise blow up. Satyajit Das, a credit derivatives expert in Australia, likens this to stepping on one of those land mines that are activated by the weight of a victim's body. As soon as the weight is lifted, the mine explodes, and the person's leg is blown off.
China is thus frozen in place, damned if it does and damned if it doesn't. It's a classic Catch-22. China's cache of U.S. bonds isn't worth anything unless the bonds are sold. But selling them on any kind of scale will gut their value.
But if they're sold on any kind of scale, they won't be worth much either.
"People need to realize that China doesn't actually have any real U.S. money," Das says. "Unless they can turn in their bonds and exchange them for something else, they're only paper assets. Yet if they try to exit the position, they'll destabilize the (U.S.) dollar, and the value of the rest of their assets will plunge. And that's not even their biggest problem. It's that they also need to keep buying Treasurys, or interest rates will go up and their capital losses will be terrible."
In short, Das says, Beijing thought it had discovered the perfect scheme for establishing independence from the West, yet it has instead made its dependence worse than ever. And he observes that one unspoken reason that China has gone whole-hog on its massive, $650 billion fiscal stimulus program -- creating more factory capacity in a country that is already reeling from overcapacity -- is that the effort gives it cover to stockpile copper, oil, iron ore and other hard assets that it considers to be better stores of value than U.S. dollars.
The long, unwinding road
Now here's why this affects all of us: China and the U.S. together built the most monstrous liquidity bubble in world history as each pursued what it believed to be logical self-interest without any regulator, such as a stern global central banker, telling them that they were on a path of mutually assured destruction.
Now it's reached the point where global capital markets will impose their own discipline. Because most money generated over the past decade was spent on consumption rather than investment -- it's as if Madoff's clients blew their fake money on chartering jets rather than buying real property as a store of wealth -- there are few new buyers of goods. This has killed U.S. retail sales, crushed employment, lifted the foreclosure rate, stymied homebuilders and undercut loan demand.
There are no good solutions. The Chinese need to open their markets and let their currency float on the open market, but they won't for political reasons. And the U.S. needs to either halt its runaway deficit spending so that the world is not even more flooded with our debt, or swallow its pride and issue Treasurys denominated in Chinese currency. That probably won't happen either. Which means there is only one solution left: a long, slow, boring, lonely, soul-crushing process of digging out from under the piles of debt that got us into this mess.
You might even say that the bursting of the credit Ponzi scheme has left us all in jail now with Madoff. Let's hope that our sentence is shorter than his.
An Egyptian sheikh living in Qatar has given Hamas $21 million to buy buildings in eastern Jerusalem, where the outlawed terrorist organization as well as the Palestinian Authority are trying to establish a power base, Israel Security Agency (Shin Bet) Yuval Diskin director told the Cabinet Sunday.
He also informed ministers that Hamas officials have indicated an interest in teaming up with the Fatah-led PA, which also is trying to strengthen its presence in the city. Diskin also revealed that the PA, headed by Mahmoud Abbas, is trying to locate and prevent Arabs from renting their houses to Jews, especially in the Old City. The PA also is trying to buy properties eastern Jerusalem.
The money from Sheik Yusef al-Qaradawi, a Muslim Brotherhood senior cleric who lives in Qatar, is being used by Hamas to buy buildings for its re-activated social welfare groups that operate under the guise of “charities.”
Diskin explained to the Cabinet that Hamas is exploiting what it sees as a weak Israeli policy and is considering cooperating with its arch-rival Fatah.
PA and Hamas never stopped their activities but they were less in recent years until now, he added. “Public statements of senior Hamas officials testify the efforts they are interested in a solution to the dispute in exchange for a long-term ceasefire” between Hamas and Fatah.
There would be no change in Hamas ideology, but cooperation would take Hamas out of diplomatic isolation.
The head of domestic intelligence noted that Israel continues to allow the transfer to the PA tax revenues it collects, although most of it is goes to Gaza. Fifty million shekels ($12 million) recently was transferred in addition to $200 million that the United States is giving the Fatah government this month. The money will be used to cover its debts, which include salaries for Arabs in Gaza.
The Palestinian Authority and Iran marked a historic first last week with an official high-level meeting between representatives of the two. Senior PA negotiator Saeb Erekat met in Sharm el-Sheikh with Iranian Foreign Minister Manouchehr Mottaki, on the sidelines of a meeting of non-aligned nations.
Dr. Erekat told PA media that the two had discussed internal PA issues, primary among them the ongoing tension between Fatah and Hamas. Talks between Fatah and Hamas have been mediated by Egypt, which is seen as one of Iran's primary rivals for dominance in the Middle East.
An Israeli official quoted by AFP slammed the PA, saying it apparently “has no qualms about meeting the most extremist and violent enemies of peace.”
Erekat downplayed the importance of the meeting. “It was just a regular meeting,” he told Israel Radio. Erekat noted that he had spoken to Mottaki during pan-Arab conferences earlier in the year.
While Iran's mullahs have expressed support for the PA's demand for a state of “Palestine,” Iranian representatives had not held an official meeting with the PA since it was formed in 1994. Relations were initially cool due to the PA's warm ties with Iraq, Iran's enemy, and remained cool in recent years due to Iran's strong support for Fatah rival Hamas and other Islamic groups.
PA Chairman Mahmoud Abbas criticized Iran earlier this year, saying in March that the Islamic Republic should “stop interfering” in PA affairs. Iranian involvement in PA and Hamas affairs serves to increase the rift between the rival groups, he said.
Between the years 2000 and 2007, as the PA worked with Hamas and engaged in attacks on Israel, ties with Iran began to warm. In 2006, former Defense Minister Shaul Mofaz revealed that Iran had secretly agreed to provide aid to the PA in exchange for permission to build bases in PA-controlled areas of Gaza, Judea and Samaria.
Also in 2006, Iran provided tens of millions of dollars to the PA after western nations cut aid in response to Hamas' prominent role in the PA leadership.
U.S. President Barack Obama is making a big mistake by insisting that Israel freeze all building for Jews in Judea and Samaria, former Prime Minister Ehud Olmert wrote Friday in the Washington Post, considered one of the most influential American newspapers.
In his opinion article, which in effect was an open letter to the president, Olmert reminded the American government that Israel is the only democracy in the Middle East and that its friendship with the United States is one of the country’s “greatest strategic asserts.”
The former Prime Minister wrote that the Annapolis, Maryland Middle East conference in the Middle East in November, 2007 was based on previous agreements with the Bush administration that Jewish population centers in Judea and Samaria would remain part of the State of Israel in any agreement establishing a Palestinian Authority state.
“During the run-up to Annapolis and in meetings there, I elaborated to the U.S. administration and the Palestinian leadership that Israel would continue to build in the settlements in accordance with the above criteria," Olmert wrote. "Let me be clear: Without those understandings, the Annapolis process would not have taken on any form. Therefore, the focus on settlement construction now is not useful.
“The issue of settlement construction commands the agenda between the United States and Israel. This is a mistake that serves neither the process with the Palestinians nor relations between Israel and the Arab world. Moreover, it has the potential to greatly shake U.S.-Israeli relations.”
Olmert noted that a total building freeze is “impossible to completely enforce” and would not help security for Arabs or Jews.
“Only a political process that demands courageous decisions from leaders on both sides will bring a solution to the issue of settlements,” he added.
Referring to his own offers for a new PA state, he declared that the U.S. should investigate “why the Palestinian leadership did not accept the far-reaching and unprecedented proposal I offered them. My proposal included a solution to all outstanding issues: territorial compromise, security arrangements, Jerusalem and refugees. It would be worth exploring the reasons that the Palestinians rejected my offer and preferred, instead, to drag their feet, avoiding real decisions.”
Prime Minister Binyamin Netanyahu issued a sharp response Sunday to United States pressure to stop Jews from building in parts of Jerusalem claimed by the Palestinian Authority. Israel's sovereignty in Jerusalem is “not up for debate,” Netanyahu said, and Jews are permitted to build in any part of the capital city, as are Arabs.
Netanyahu implied that the U.S. request was racist, saying before the weekly Cabinet meeting, “Imagine what would happen if Jews were forbidden to live or to buy apartments in certain parts of London, New York, Paris or Rome. There would be an international outcry."
"All the more, we cannot to a decree like this regarding Jerusalem,” he said.
Over the weekend, the U.S. State Department summoned Israeli envoy Michael Oren and demanded that Israel halt construction of Jewish homes in the Sheikh Jarrah neighborhood, near the ancient grave of Shimon HaTzaddik (Simon the Just). The property on which the homes are to be built has been owned by Jewish activist Dr. Irving Moskowitz for more than 20 years.
Oren told U.S. officials that Israel would not agree to stop building in the area.
Israel annexed Sheikh Jarrah and other Jerusalem neighborhoods following the Six Day War, in which the city was reunified after 19 years of Jordanian rule in the eastern half of the city. While Israel has maintained sovereignty in the capital city for more than 40 years, the Palestinian Authority continues to demand all areas controlled by Jordan in the 1950s.
The United States, along with most of the world, has refused to recognize Israeli sovereignty in Jerusalem in deference to the PA. The American embassy is located in Tel Aviv, not Jerusalem, and American citizens born in Jerusalem may not list “Israel” as their country of birth on their American documents.
Israeli Muslim Children told Jerusalem Occupied, Raise Millions for Al Aksa
While Israeli leaders proclaim Jerusalem to be the unified capital of Israel, Israeli Muslim leaders teach their children that Jerusalem is rightfully Arab and Muslim. On Saturday, the Islamic Movement bussed thousands of Israeli Arab Muslim children to the Al Aksa Mosque on the Temple Mount, where they heard speeches referring to the Temple Mount and Jerusalem as areas “occupied” by Israel.
"We must remove the occupying forces from the mosque, and from all of Jerusalem,” said Sheikh Khamel Khatib, a senior Islamic Movement leader.
The children brought money which they had gathered throughout the year on behalf of the Islamic Movement. Donations came to roughly 3 million shekels, which Islamic Movement leaders said would be used for the Al Aksa Mosque and Islamic Movement institutions.
A bilingual global statesman would be an ideal first European president, but the job will go to a milder candidate.
How Journalism Works, lesson 94: Timing is All. Eighteen months ago, Gordon Brown was forced through gritted teeth to say: "Tony Blair would be an excellent president."
Then, as now, the Lisbon Treaty seemed likely to create the post of President of the European Council. Since then, the Irish electorate rejected the treaty, but now opinion polls suggest that they are likely to vote the other way in a new referendum on 2 October.
So when Glenys Kinnock, the Europe Minister, said last week, "The UK Government is supporting Tony Blair's candidature for president of the Council", it set off a riot of speculation about who would get the job. In one sense, she wasn't saying anything new. In another, not only was she pre-empting the democratic decision of the Irish people, but she was formally committing the British Government in a way that the Prime Minister had not, quite.
The timing, though, is most important. For a while, the Lisbon Treaty went away. The Irish were not the only road block to its ratification. There were the Czechs, the Poles and the German constitutional court.
Suddenly, all the barriers are lifting, and it looks as if it really will happen. The German Bundestag will pass the laws required by the constitutional court before the general election in September. The Polish and Czech presidents have to do something involving sealing wax or similar, but they are hardly likely to scupper the whole deal now that their parliaments have approved it.
The horse-trading could start as soon as the result of the Irish referendum is known, and it could all be decided by Christmas. So it is no wonder that Lady Kinnock's unguarded comments provide the occasion to ask, once again, will Blair get it?
For much of the British media, this is merely an excuse in turn, to ask, should Blair get it? And to answer it in the negative. I am still surprised by the extent to which so many of my fellow journalists have been infected with the cult-like B-liar belief set (war criminal, million dead, David Kelly murdered), which is a fascinating psycho-social phenomenon but not one that I am well qualified to analyse.
Wider public opinion is much less hostile. Many people would be proud to see a Briton in such a high-profile European post, and have a reasonably positive view of the prime minister whom, after all, they re-elected four years ago.
The question ought to be, of course, would Blair be any good at it? That depends on what the job is for, or what purpose its holder could fashion for it. In one sense, it is a ridiculous post. "Just a chairman," says Jean-Luc Dehaene, the former Belgian prime minister. It creates a new position that clashes with two existing posts – those of José Manuel Barroso, about to be confirmed in a second term as head of the Commission, who is also called "President", and of Javier Solana, whose foreign affairs role will be enhanced by the Lisbon Treaty. Barroso already represents the EU at global junkets.
It is an unappealing muddle, a miserable and contradictory end for the foolish ambition of drafting a constitution for Europe – without reference to its peoples (except, too late, to some of them) – and it is fitting that its final act should be the affront to democracy of re-running a referendum that gave the wrong answer.
But if the new post is created, the question is whether it would be better for it to be filled by a nobody, or by an energetic, bilingual global statesman? For me, that's a no-brainer. Blair could use it not only to represent the EU more effectively to the world, but to its own citizens, and to mobilise European opinion on climate change and single market reform. Tactically it would also make sense for the core European countries to bind in the semi-detached Brits by giving them such an identifiable stake in the project.
But you can see why others might not be so keen.
Public opinion in other European countries is likely to be mixed, at best. The only poll that has been carried out, by Harris Interactive in France, Germany, Great Britain, Italy and Spain in April last year, had Blair running second to Angela Merkel, the German chancellor. She was on 11 per cent, he on 9 per cent (averaging the five countries). Both of them, however, were soundly beaten by "There should not be a President of Europe", on 26 per cent, which even came out ahead of the don't knows on 25 per cent.
In any case, the decision is not going to be made by the peoples of Europe. It will be made – if necessary by "qualified majority vote" in which each country has a voting weight related to population – by the 27 leaders of EU member states.
Nicolas Sarkozy, the French president, is said to have gone off the idea of Blair, and Merkel was never keen. She was thought to want the job herself, but now it looks as though she will win her impending election, her own ambition is no longer a factor.
Her ego, however, and that of the other 26 national leaders, is very much still in play. These are self-important people, intensely jealous of the national power that they hold. One of Blair's most remarkable skills in the past was that of managing such jostling of egos, as when he held together the 19-member Nato coalition over Kosovo. But he couldn't manage it on Iraq, and this time they can see him coming.
I suspect that the leaders of the European Union's governments would rather have someone who is no threat to their power, pomp or prestige. Blair has been campaigning for the job, all right. In January last year he gave a speech – in French – to the conference of UMP, Sarkozy's centre-right party, in Paris. But, since he missed election to the shadow cabinet in 1987, this could be the first job that he has gone for and failed to get.
Edotors Note.....This office seems to be the office from which the Antichrist will arise.
The largest and most ambitious "green" project in Israel – and ranking up with the top urban reclamation projects worldwide – gets a huge boost Sunday night, when the lighting system at Sharon Park will be turned on for the first time. But the lights won't use power from the electrical grid. The system will instead be powered by the recycled trash upon which Sharon Park is being built, with bio-gasses that have been festering on the site for decades to be used to power the lights.
Sharon Park (Hiriya)
Israel news photo: ayalon-park.org.il/Eng
Development at Sharon Park, also known as the former site of the Hiriya Dump, has been underway since 2007. At 8,000 dunams, it is the largest urban green space in the country, and one of the largest in the world. Current estimates say the park will be completed only between 2015 and 2020, but various sections of the park, including the Menachem Begin Park section, have been opening slowly as development continues. Visitors can already hike or ride bikes on several footpaths and bikepaths, and a recycling museum and a small zoo are also currently open.
As befits what has turned into a worldwide symbol of urban land reclamation, the power used for the lighting system at the park will be generated by recycled garbage at the site, using the methane and other greenhouse gases generated by decomposition of the site's trash.
Attending the Sunday eve ceremony will be Environment Minister Gilad Arden, municipal officials from Tel Aviv and surrounding suburbs – and members of Ariel Sharon's family. Although Sharon is still alive (but comatose), government officials in 2007 decided to name the park after the former Prime Minister anyway, because the project was "very close to his heart," Omri Sharon said in an interview in 2007, when work on the park first began.
Biking in Sharon Park (Hiriya)
Israel news photo: ayalon-park.org.il/Eng
Hiriya was used as a dump between 1952 and 1998, and grew to encompass 112 acres, with its centerpiece a "garbage mountain" that reached 200 feet at its highest, with some 565 million cubic feet of garbage slowly decomposing underneath.
The park itself is also being developed with trash, which is being converted into mulch after recycling (and the removal of all dangerous components). According to officials in the Dan Region, the park will eventually save the Israel tens of millions of shekels, as hard-to-dispose-of items, such as building materials, will be recycled into sidewalks, pathways, and buildings in the park.
The Arabic-language Al Quds newspaper based in Jerusalem reported Monday morning that the United States has proposed to agree to Israel’s building a hotel on Jewish-owned property in eastern Jerusalem and several hundred homes elsewhere in return for the American government's setting new borders for Israel and the proposed Palestinian Authority state.
The U.S. also will include a provision that 300,000 foreign Arabs can immigrate into areas that Israel would cede to the PA in return for retaining Jewish towns and cities in Maaleh Adumim, Gush Etzion and possibly Ariel and nearby communities. The PA previously has rejected the idea.
Neither Israel nor the Obama administration has commented on the report.
The issue of the proposed hotel in Jerusalem has left all three sides – the Obama and Netanyahu government and the PA –entrenching themselves into positions that have left virtually no room for compromise.
All sides agree on one critical point with different conclusions: They see no difference between the status of a hotel in eastern Jerusalem and the building of homes in predominantly Jewish neighborhoods populated by more than 250,000 Jews in the capital. The PA, with Obama’s backing, has demanded sovereignty over all of the areas – including Ramot, French Hill and Gilo – that were restored to the Jewish State in the Six-Day War in 1967.
The Netanyahu government, with wide support from virtually every party except Meretz and Arab factions, considers all of the areas part of a united Israeli city that will continue to serve as its capital, without a PA presence.
The current crisis began in early June, when U.S. President Barack Obama addressed the Muslim world in Cairo and said that a Jewish presence in Judea and Samaria is “illegitimate.” The State Department later widened the definition of “settlements” to the Jerusalem neighborhood of Har Homa, located directly across the road from Gilo.
President Obama sent U.S. Middle East envoy George Mitchell to try to reach an agreement with Prime Minister Netanyahu, but their positions were so far apart that the meeting was canceled. Instead, Mitchell met at least three times with Defense Minister Ehud Barak.
U.S. Secretary of State Hillary Clinton, who also has explicitly ruled out Israel’s right to build anywhere in eastern Jerusalem or Judea and Samaria, refused to comment on the dispute and Mitchell’s postponement of another trip to Israel.
The Prime Minister’s public statements on Sunday that Israel will not consider sacrificing its rights in Jerusalem were an attempt “to pre-empt further American efforts to stop Jewish building in east Jerusalem," according to Israeli officials quoted by The New York Times.
The deputy chief of the Islamist movement in Israel Kimal Al-Khatib told thousands of children in a Saturday Islamist protest on the Temple Mount that the Jewish Temple will never be rebuilt. His speech was published in the Jerusalem-based Al-Quds Al-Arabi newspaper Monday morning.
“If the Jews think that their mourning will end and they will rejoice by destroying the Al-Aqsa mosque and building their Temple, we say to them that their dream will not be fulfilled and they will continue to mourn. Al-Aqsa is for Muslims only,” he said.
Al-Khatib was referring to the traditional period of mourning Jews commemorate every summer for the destruction of the Holy Temples on Tisha B'Av (The ninth of the Hebrew month of Av). The Second Temple was destroyed in 70 CE by the Romans, while the Dome of the Rock and the Al-Aqsa mosque were erected in 691 and 705 CE.
The Head of the Islamist movement in Jerusalem, Icharma Savri, also spoke to the assembled children. He previously served as the Chief Mufti of the Palestinian Authority.
“I tell this gathering, swearing by Allah, and in defiance of our enemies. We pass this safekeeping from generation to generation. Al-Aqsa is the safekeeping of the future generations, one after the other, and the children are dedicated to Al-Aqsa. They are the generation which will free it from our enemies,” he said.
Art's Commentary....Ezekiel prophesied of this very attitude of Israel's enemies when he spoke 2600 years ago. "Thus saith the Lord God; Because the enemy hath said against you, Aha, even the ancient high places are ours in possession", Ezekiel 36:2. There is a God who knows the end from the beginning and His Word shall stand. Ezekiel spoke further of our day, "Therefore thus saith the Lord God; surely in the fire of my jealousy have I spoken against the residue of the heathen, And against all Idumea, (the PA who are descendants of the Edomites) which appointed my land into their possession with the joy of all their heart, with despiteful minds, to cast it out for a prey", Ezekiel36:5. The Palestinians can claim the land of Israel and boast about what they are going to do, but the God of Israel will have the last say. The God of the Bible has already told us the end from the beginning, what He has said in the past has been fulfilled in great detail, those things which He has promised to Israel will surely yet come to pass also.
The Lord has said that He will use Israel`s enemies to chasten her and bring her back to a perfect relationship with himself, Zechariah 13:8-9. Woe to the enemies of God and of Israel, they will ulimately be destroyed. Zechariah 14:1-3, 12.