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Thursday, December 30

A timely reminder about the IMF-Ukraine Central Bank scandal

An alert reader sent Pundita a 11/29 report, The Yuschenko Mythos , written by Justin Raimondo of Antiwar.com. The reader believes the report supports the thesis presented in Pundita's 12/28 post .

I think the passage that caught the reader's eye is, "The Yushchenko-Timoshenko forces want to align with Georgia, Uzbekistan, Azerbaijan, and Moldova (the other nations in the GUUAM configuration of junior league NATO aspirants) in erecting a ring of iron around Putin and the former Soviet Union."

(Ms. Timoshenko, or The Robber Baroness, as she is fondly dubbed by her critics, is one of the more colorful oligarchs to be involved in the Ukraine election.)

I don't dispute Raimondo's observation as far as it goes. Yet my thesis is broader in the sense that I see the oligarch clans represented by Yuschenko, et al. as pawns of a west European plan to hem in Russia--a plan the US Department of State (and seemingly the Clinton administration) supported.

However, I was interested in one of the links provided in Raimondo's report, which is a September 2003 article by the Canadian newspaper, The Globe and Mail. The article is titled "Former Soviet republics poised to sign trade deal. Critics fear economic pact signals attempt to consolidate power in hands of Kremlin."

The countries involved in the discussion, which included Russia and Ukraine, were essentially proposing their own version of the European Union. The deal was abandoned, or at least suspended, according to the report. But the fears of EU leaders about such discussion help explain the knockdown battle that emerged in Ukraine between Yushchenko's State Department/European supporters and Yanukovich's Russian supporters.

And if you're looking for dirt on Yuschenko beyond the link that Pundita's 12/28 post provides, Raimondo's report is a great place to start. The caveat is that Raimondo's report takes aim at so many corrupt situations involving Ukraine and the oligarchs and takes so many pot shots at the Bush administration and American oil companies that the total effect is dizzying.

Yet we can't assume that even a remnant of the Bush administration will be in Washington after the next presidential election. However, the US Department of State will still be there. For all the wealth of information in Raimondo's report there is no mention of State's role in the Ukraine election campaigns and the aftermath. He does mention the words "US Treasury" and "George Soros" in passing, and it's possible that one of the many links he provides mentions State. But in the actual report, not a mention. Yet discussing the situation in Ukraine without mentioning State is akin to discussing Saddam's rise to power without mentioning the CIA.

This is not to discourage Pundita's readers from reading the report, which touches on the larceny of Ukraine's central bank under Yushchenko's leadership. Pundita confesses that the UN Oil for Food Program scandal had shoved the IMF-Ukraine scandal to the back of her mind. Raimondo's report is a timely reminder. The Ukraine central bank under Yushchenko's leadership embezzled $613 million or $200 million, depending on which source you favor, from the International Monetary Fund.

The IMF-Ukraine affair is a sobering reminder of the connection between the FSU oligarchs and the West European banks. The Ukraine Central Bank's scheme to embezzle the IMF depended on laundering funds through European banks. That's a tactic the oligarchs perfected while carving up the Soviet Union's government-controlled industries. The tactic underscores that the oligarchs' mind-boggling wealth can't be separated from banks outside the USSR regions.

When the electronic transfers get into the billions, the deposits the banks hold onto, if even only for a few hours or days, help them underwrite lots of business loans and make big investments in the financial markets, which oils the wheels of commerce.

So there is a house-of-cards situation looming for West Europe, if the Russian government continues to wrest back control of the major industries that the oligarchs took off the Soviet government's hands. This would be provided Moscow uses control of the profits to build up Russia's bank reserves.

The dollar figures involved in the Ukraine-IMF Affair are chump change when measured against the billions that were bilked by Saddam Hussein and many UN Oil for Food Program participants.

I interject that with hindsight, Bush should have just told other members of the UN Security Council, "We're going to invade Iraq because it's the only way to shut down the UN Oil for Food Program, you crooks."

Of course some American companies were involved in the faud but those companies are a drop in the bucket; probably companies from every nation were involved. But since recalling the Ukraine-IMF Affair, Pundita is beginning to worry. If the FSU oligarchs ever stop doing much of their banking in West Europe, and with the skimmed profits from the UN Oil for Food Program cut off, what's left to support the western part of the Eurozone economy?


Wednesday, December 29

The America Desk at State: The Office for Commercial and Business Affairs

"Looks like Rumsfeld was right when he said maybe it was time to install [an] American desk at the State Dept." --a reader's comment on Pundita's 12/28 post.

Ah, but there is an American desk at State; it was established in 1995. The desk is officially called the Office for Commercial and Business Affairs (CBA). The CBA falls under the massive Bureau for Commercial and Business Affairs at State.

The catch is that the America Desk is a business desk: ". . .committed to promoting U.S. economic and commercial interests overseas." Here is an excerpt from the 1995 mission statement:

"The America Desk

"The State Department has a China Desk, a Haiti Desk and a Poland Desk. Secretary Christopher has established an "America Desk." The Secretary and all State Department officers serve on the "America Desk" to ensure that the vital concerns of the American people and the American business community are represented in the State Department and in our foreign policy. Coordinator for Business Affairs.

"As part of the "America Desk" commitment, the Secretary has designated a Coordinator for Business Affairs to act as an ombudsman for business within the State Department. The Coordinator reports to the Under Secretary for Economic, Business and Agricultural Affairs, and works closely with our Embassies abroad and the State Department regional and functional bureau coordinators in Washington to promote U.S. economic and commercial interests through:

-- ADVOCACY ON BEHALF OF U.S. FIRMS COMPETING OVERSEAS.

-- LEVELING THE PLAYING FIELD AND PROBLEM SOLVING FOR U.S. BUSINESS OVERSEAS.

-- BRINGING BUSINESS CONCERNS TO THE FOREFRONT OF THE FOREIGN POLICY PROCESS. "

The last sentence above speaks volumes about the State Department's direction during and since the Clinton presidency. If we dig into the activities of the CBA during the past decade I feel sure we'll find many pieces to the puzzle of how Foggy Bottom managed to eclipse the Pentagon's power.

Also, in light of the election situation in Ukraine, it would be helpful to learn whether the CBA helped smooth business deals launched by [ex-USSR] oligarchs who found favor during Clinton's administration and at the pre-9/11 Bush White House. I am thinking in particular of Khodorkovsky, who has been cooling his heels in Russian jail for several months.

With Apologies to Ayn Rand: Whereupon Pundita discovers the World Socialist Website is a good source for news on State's doings in former USSR

Capitalist readers of Pundita's blog mustn't worry for our safety; Pundita always takes the precaution of squirting demon repellent along the floor moldings and door jambs before visiting a socialist website.

But stop and think: who better than the socialists to keep close tabs on the doings in Russia and USSR regions? The World Socialist Web Site writers dislike Putin as much as they dislike the European and American Imperialists. That gives them, if not exactly an unbiased opinion, at least an attention to news stories that American news media have studiously ignored since the Soviet Union dissolved.

After reading through 10 reports on the WSWS page , which posts news from Russia and the former USSR, the light dawned. Pundita now glimpses the reason for the state department's mysterious belligerence toward Russia and why the state department and George Soros were so anxious to be rid of Bush. I hasten to add that Pundita's observations are not explicitly stated in the reports on the WSWS; they are the result of rumination and discussion with our foreign policy team. Without further introduction:

During the Clinton era, State's idea was to isolate Russia militarily by bringing as many former Soviet republics into NATO as they could manage. It's doubtful State came up with the idea on their own; the EU Big Three (Germany, France, Britain) saw the writing on the wall surely even before Gorbachev dissolved the Soviet Union.

After the Warsaw Pact collapsed, the US would eventually make deep cuts in troops stationed in Europe. That would leave Europe, with no military to speak of and with no nukes, to face the prospect of a nuclear-armed ultra-nationalist Russia. And a Russia with a crumbled infrastructure and a military in disarray, and yet still wielding great influence on former vassal states.

But how could West Europe bring the former vassals into the NATO sphere without risking the wrath of Russian generals? Here I recall one of Dr. Stephen Cohen's crash courses last year on recent Russian history for John Batchelor's audience. Vladimir Putin was set in power by the very oligarchs he's now battling. One of the WSWS reports supports Cohen's observation. I think the general idea was to first weaken the Russian military's influence in Russia. This was done by offering the oligarchs very lucrative Euro Big Three/US trade and banking-loan deals. Once the oligarchs' hold on power in Russia was strengthened, a pliant national leader would be set in place in Russia.

At the same time, the Big Three and the US would pour aid money and low-cost development loans into former Soviet republics that were closest to Europe.

The next step was to engineer the rise of politicians in the former Soviet republics who would lean toward joining NATO.

Surprisingly (given the Western media's demonizing of him since the Ukraine election), Kuchma was our Man in Ukraine for years. It was Kuchma, with US and EU backing, who initiated a drive to lead Ukraine into the European Union and NATO. And he welcomed US aid for democracy programs in Ukraine.

But then Kuchma crossed an oligarch and by doing so got on the wrong side of the state department. Thus, State began to groom Yushchenko (the Orange candidate) for the leadership post in Ukraine.

But Kuchma dug in. After he scurried to the Kremlin for help, he held onto the support of Ukrainians who leaned toward Russia and away from joining NATO. Kuchma backed Yanukovich (the Blue Candidate) when he saw he could no longer maintain hold on power. (See the above link to Yushchenko for the skinny on Yanukovich.)

How, then, could State and the Big Three deal with that pesky obstructionist Kuchma and his toady? In the same way Georgia's Schevardnadze was dealt with: through a "peaceful" putsch designed by George Soros and backed by US and EU money, and which was crafted to seem a spontaneous uprising of the people. Ukraine's Orange Revolution is a knockoff of Georgia's Rose Revolution.

Now here is where it gets interesting. Schevardnadze was our Man in Georgia. He was pro-American. So why did the state department drop him like a hot potato and fall all over themselves to hail his EU-backed successor?

The answer is not entirely clear from the WSWS reports I read (there are scores of reports I left unread). I do know that Schevardnadze had worn out his welcome with the Georgians. Yet since when has that drawback prevented a US backed leader from remaining in power? Thus, a more likely reason for his fall from grace is that Schevardnadze didn't think the best course for Georgia was to join NATO.

With the above ruminations finished, it's plain as day why Soros and State moved heaven and earth in the effort to prevent Bush's reelection. After all those years of Soros and State slaving away to help the EU isolate Russia, the president of the world's lone superpower gave Putin a ride in his pickup and to seal the friendship, bestowed the nickname "Pooty-poo" on him. To grasp the full foreign-policy import, Bush nicknamed Jacques Chirac "Jackass Chirac."

We must also look at things from the viewpoint of the Russian oligarchs and the leaders of Germany and France to grasp their irritation with Bush. Yes, 9/11 was an unfortunate event. But in the grand scheme, the deaths of a few thousand Americans were not enough to justify an American president wheeling US foreign policy on it's heel and romancing the anti-NATO Vladimir Putin. (As for Blair, his position was very complex; we'll discuss that someday.)

To top it off, Bush's war on terror allowed Rumsfeld to order that US military bases be thrown up in some former Soviet vassal countries. This is just what Europe didn't want. They were trying to encircle Russia softly, softly. Not with anything so alarming as missiles and fighter jets perched on Russia's doorstep.

Here, the reader might ask whether Soros and the State faction aren't in the right -- at least, in their view if not their tactics. After all, we must be loyal to the NATO alliance for as long as the alliance stands. And by all accounts in the Western mainstream media, the Rose and Orange Revolutions -- even if they weren't really revolutions -- and getting rid of Milosevic are big gains for democracy.

I think the best answer is that one must be suspicious of the idea that democracy is served by a putsch masquerading as the Will of the People -- particularly if the putsch is engineered by governments and business interests from outside the country. The suspicion gathers force from the WSWS report on what has happened to democracy in Serbia and Georgia since the "People's Will" triumphed. Even though the report is biased against Running Dogs of Capitalism, it raises enough troubling points to sound a warning. Orchestrating the rise of governments that will march in lockstep with EU geopolitical designs is not necessarily the same as scoring a win on behalf of democracy.

All the above supports Stephen Cohen's observations, after Batchelor mentioned the impending announcement of joint China-Russia military exercises. Cohen enumerated reasons why Russia has come to feel encircled by the US. He finished by saying that the heavy-handed US involvement in the Ukraine election was the final straw. As Dr. Cohen put it, "It was too much."

I think Russia would have agreed to join the maneuvers in any case (reference the Shanghai Cooperative -- China's answer to Bush's Coalition of the Willing for fighting terrorism). Yet Russia's anger at the US about the Ukraine Affair probably caused Moscow to plan for much greater involvement with the maneuvers than originally planned.

And Cohen's stark summary of how Moscow would react to US involvement in Ukraine has been amply supported by recent pronouncements from Putin, which lambaste the USA. Alert readers might ask how it came to be that America was left holding the bag. That is the question, isn't it? It's well-documented that the Big Three and their go-fer countries in the EU did just as much meddling in Ukraine and other former Soviet republics as the USA and Russia. But to hear Putin tell it, it's all our fault. How did we end up in that position?

The best Pundita could do toward getting a handle on the answer was ask the crows for their opinion and brace herself for the inevitable disagreements between them, which usually only end when Pundita blows up a paper bag and pops it. However, those two members of the foreign policy team are Pundita's best source on Russian matters. They spend so much time flitting about the Russian embassy grounds in Washington that my nickname for them is Da and Nyet.

To my surprise, the crows were in perfect agreement in their reply. They strongly support the Russian embassy's policy toward free-ranging cats and evidentially anything that creeps and which could possibly be wired with a microphone.

From this, I'd surmise that we're getting the blame because Russia has an ocean between America, whereas Russia can't avoid attending EU barbecues and backyard sales. And perhaps Putin knows he can't afford to alienate all the oligarchs, particularly those who want to do big business with Europe. Another point is that Western Europe is a big buyer of Russian natural gas.

Having escaped the fate that Soros planned for him, how is our president elect dealing with the Russian frost? From his soft-pedal comments about the Ukraine election controversy, which were in sharp contrast to Powell's blunt and even rude language to Moscow, it seems he's trying to thread the camel.

One can appreciate the dilemma. Bush shouldn't alienate France, Germany and Jack Straw any more than he's already done. At the same time, he needs to find a way to reassure Putin and the Russian generals that the US doesn't want to restart the Cold War, any more than State has already helped to restart it.

I sense that Bush will delegate the problem to Condi; if so, we'll have to wait until Dr. Rice has settled into her duties at State before we can gauge whether the frost can be melted. Thank goodness she's fluent in Russian and knows more Russian history than most Russians. Also, she speaks fluent Petroleum. She probably has the planned location of every pipeline on the planet punched into her PDA. So it may be that another large check handed to Putin's government to help with oil exploration and/or pipeline building will figure somehow into smoothing ruffled feathers.

But here I recall another warning from Dr. Cohen, given many months ago. He told Batchelor's audience that throwing money at the situation won't cut it, if the Russians become truly angered at America's designs on their country. The warning makes sense. Just as we couldn't be placated with a large Saudi check after 9/11, one can presume the Russian generals -- and the Russian populace at large -- would spit on our money if it's not accompanied by a halt in what they now fear is a US attempt to bring Russia to her knees.

However, there's much more at stake for the US than cooled relations with Moscow. The US should encourage democracy movements around the globe and use our power to support and yes, even pressure nervous governments to stick with democratic reforms. But the story of State's actions in former USSR that emerges from reports posted on WSWS suggest that's not exactly what we've been doing.

To whatever extent our democracy programs have had good results in former Soviet regions, this seems to have come as a byproduct of supporting European Union geopolitics. That's putting the cart before the horse. It's also a threat to US national security interests because US support for EU strategies has been uncritical, if not blind.

From all the above, it should be clear that Americans got it somewhat backward, when we asked why France and Germany betrayed America on Iraq. They didn't betray us, from their point of view; it's just that we stopped going along with their program. That this program included selling weapons to Saddam on the eve of the US invasion -- well, such sales were not a new wrinkle.

Granted, the extent to which we'd been going along with the EU program, and exactly what we'd been doing in the process, was known only to a virtual handful of Americans inside the Beltway during the Clinton era. And because this is a representative democracy we elect people to do oversight of US government agencies for us. Yet clearly the oversight process broke down with regard to State -- and to such an extent that US defense policy took a back seat to serving Europe's geopolitical aims.

The good news is that we no longer need wonder why the Euro Three (actually, now the Euro Six) broke rank with the United States on how to deal with Tehran's nuclear weapon program. The answer is that they didn't break rank with us, we broke rank with them.

Perhaps all the above is another way of saying that we didn't have a good plan for how to proceed in relation to Russia after the Soviet Union collapsed. So we went with the European plan. Which brought us to today.

If you groan at the thought of spending hours on the World Socialist Web Site, I would urge you to at least skim the reports I hyperlinked above, and look through the two reports linked at the end of this post. One can't read back through the years of news stories on the WSWS without sensing that a huge mess is threatening to build in Eurasia. It shouldn't turn out that way -- not after all the American blood, sweat, tears, and tax dollars that went into winning the Cold War.

For those readers who would like to find a more objective assessment than the WSWS offers about US relations with Russia since the end of the Cold War, a good place to start is Stephen Cohen's cheerily titled Failed Crusade: America and the Tragedy of Post-Communist Russia."

"Great power rivalries erupt over disputed election in Ukraine"

"US intervenes in disputed Ukraine election: Who the hell asked you, Mr. Powell?"

Wednesday, December 22

To the ramparts, fellow billionaires! Save Russian Democracy!

"Pundita! Do you and your foreign policy team get TV reception in your cave? I just read your last post. What do you mean Bush wants to put democracy before expediency? Did you see him dodging all over the place about Putin in yesterday's press conference? Putin has announced he's going to appoint 80 governors instead of allowing them to be elected.

"There's no more democracy in Russia, just a show. Look at Putin's so-called election. Look at Russian interference in the Ukraine election. They can't hold an election there or anywhere in a former Soviet satellite without half a million outside observers and even that doesn't stop the ballot stuffing!
[Signed] Not Born Yesterday"

Dear NBY:

Let me see if I understand this correctly. All Russian elections are fixed. Ergo, Putin destroys Russian democracy by appointing governors instead of allowing elections.

My memory may faulty here, but I seem to recall that Khodorkovsky was arrested on one of his rare visits to Russia, on his return from Sun Valley. Yes, this is the same Sun Valley in America where billionaires such as George Soros schmooze. In any case, Khodorkovsky is part of the Sun Valley crowd -- or he was, until his arrest.

And I seem to recall that at the time of Khodorkovsky's arrest, an American was president of Yukos. Let me see if I can come up with an appropriate analogy here....this would be something like a Russian citizen being president of Boeing.

Dear reader, it's time for Americans to wise up about our dear allies across the Pond. It was Vladimir Putin who warned the Bush administration that the Belgium Faction of the EU and Saddam Hussein were plotting petrocurrency war against the USA.

Out of a survey of corruption in 90 countries, Russia comes in at around 8. But most Americans can't appreciate the meaning of that statistic because the corruption in this country is of a different order. Or to be more precise, Russia has types of corruption that long ago disappeared from this country -- to the extent that such corruption existed here.

Russia not only has political and business corruption; the country also has administrative corruption, and of an order that is mind-boggling. Can you imagine having to pay a bribe just to register your child for public school? Or to get any kind of license, including a driver's license? This on top of license and registration fees.

And Russia has something called verticalization of corruption. That kind of corruption is distinct from the corruption represented by the financial clout of the Oligarchs, although both kinds of corruption intersect. But the Oligarchs had so much power when Putin came into office that it's misleading to think of it as corruption. It was an oligarchical government, which formed the woof of the tapestry of governments in Eurasia. That government is not gone yet, and the remanants are fighting tooth and nail to retain power.

Putin has the backing of the Russian public in his fight against corruption and his struggle to wrest power from the Oligarchs. As to his report card -- well, by coincidence, the more Putin has gone after corruption, the more trouble he's had from terrorist attacks. All of which supposedly carried out by Chechen separatists.

Much has been made of Putin's KGB background. If not for that background, he would have been dead of "natural causes" within a week of launching his anti-corruption campaign. This is because the big players are aware that Putin knows the corruption in Russia inside out, thanks to his KGB background. If anyone can take down the big players, it's Putin.

We can do our part by making sure that American oil interests stop using the war on terror as an excuse to meddle in former Soviet countries. We can also prod the state department to stop using every excuse to push Russia back into the Cold War posture.


Monday, December 20

Stop, Look, Listen

"Pundita, I owe you an apology. I spent the past hour reading news stories and opinion about the US involvement in Ukraine's election. There is definitely another side to the story. I have two questions. Is Brzezinski insane? Why didn't the Guardian's Garton Ash throw a hissy fit about US meddling in Ukraine?
[Signed] Born Yesterday, After All"

Dear BYAA:

I'd say your tartness was within the margin of spirited debate, so no apology is necessary. However, Pundita's web log exists to point out the necessity for Americans outside government to become more knowledgeable about foreign affairs and US foreign policy. The flood of information makes this exercise difficult, so the tendency is to fall back on pundits and experts who will sort things out for us.

That is why I advised one reader to start at the start line, if he wanted reliable information on US foreign policy -- the start line being the White House and State Department. Those sources aren't going to tell the public all that's going on with US foreign policy initiatives; neither do the sources necessarily reflect the right (or wrong) policy approaches. But before you can have an informed opinion, first you need to get informed.

It's putting the cart before the horse to attempt to get informed by first following what reporters dig up, then reading "expert" analysis of the reports, then reading what pundits say about what the experts say about what the news reports say.

Reporting, expert analysis, and your favorite pundits can be valuable in helping you understand the actions of State and the White House, but first we need a ballpark idea about what State and the White House are doing. The easiest way to find out is to go the source for news on State and White House doings, which is their websites.

Getting into the ballpark is especially important during this period, during which we're fighting a hot war, working out a new direction for foreign policy, and implementing a new national security doctrine. It's easy to lump those three very distinct endeavors into one because they intersect at many points.

Yet we need to keep the distinctions clear if we want to think hard about US foreign policy. Otherwise, we find ourselves shutting out international news and analysis that contradicts our view of the war and national security, or vice versa.

In keeping with the spirit of the above advice, before going deeper into the flap about US involvement in Ukraine, we should first review State's position on Ukraine. The official site also provides information on how much and what kind of aid the US gave Ukraine (up to FY 2003).

So, first let's head to Foggy Bottom to bone up on the latest available country assessment for Ukraine.

It's important to consider that none of the official US aid was under the table. This means that whatever democracy programs the US funded in Ukraine through official channels, these were welcomed by the Ukraine government. Thus, none of that aid can be considered meddling.

Okay, now that we have the official view under our belt, we can proceed to question it. I don't know of any American old enough to remember the height of the Cold War who enjoys finding himself in the ungainly position of calling for a balanced view of the election situation in Ukraine. Yet the situation in Ukraine lays bare how US foreign policy developed in the post-Soviet era, which has given way to the post-9/11 era. And the situation in Ukraine illustrates that those two eras have collided.

Many Americans new to this stuff assume there was a US foreign policy vacuum after the Soviet Union ended. The only vacuum was in the reporting in the US news media; a post-Soviet US policy had taken shape even before Gorbachev dissolved the Soviet Union.

Americans who are new to following US foreign policy are just discovering Soros and Brzezinski, but those two have been around a long time. Brzezinski is not insane. He's a Cold War warrior. Old Cold War warriors don't fade away. They keep thinking up strategies for dealing with any projected geopolitical situation that could possibly be a threat to America.
Such warriors are part and parcel of being a superpower, with or without a war going on.

But there is a big difference between theory and how it's put into practice. Let's assume for a moment that Brzezinski is right -- that Ukraine represents one of the five key nations on earth. That assessment, if correct, would of course imply that Ukraine is strategically important to the USA. Even so, it wouldn't necessarily follow that America should alienate the other great nuclear power (Russia) by trying to promote a particular Ukrainian candidate on the proffered reason of "promoting democracy."

As I noted in the "Suggestions, anyone?" post, the Bush foreign policy is moored to the proper use of foreign policy, which is to defend and further US interests. The Clinton foreign policy was cut loose from that mooring; policy drifted toward "rescue" -- whether or not the rescue operation served US interests.

I interject that one should not leap to the conclusion that this rescue policy was in the spirit of the Good Samaritan -- unless we want to consider Europe the needy traveler. I joke that during the Clinton years, which saw Soros's great influence on State, US foreign policy was run out of a post box in Belgium. The joke probably overstates the point, but it does seem the US during the Clinton era was always acting in the EU's best interests, whether or not this served US interests. I suppose that's why Rumsfeld once observed that perhaps what State needed was an American desk.

In any case it's mixing apples with oranges, if you'll pardon the expression, to say that US support for the Orange candidate is support for democracy. And it's sophistry to argue that supporting the Orange candidate is perfectly in line with Bush's call for this to be Liberty's century.

Of course we want to see democracy spring up everywhere. This is on the theory that democratic countries don't fall prey to widespread civil unrest and aggression against neighbors, and don't produce terrorists who will lob bombs at us. However, the way the US players went about promoting democracy in Ukraine helped bring that country to the edge of civil war, and raised the specter of a breakup of the country.

The US does not carry all the blame for what happened in the aftermath of the disputed Ukraine election. And even with no US involvement, the situation might easily have played out exactly the same. But if we are trying to feel our way toward Liberty's century, we must closely study US involvement in Ukraine for lessons and warnings.

There is good reason to suggest that Soros's tactics, which were perfected in Georgia (and used in this country in the attempt to put Kerry in the White House) were misapplied in Ukraine. This was pointed out by one of John Batchelor's experts on Russia and ex-USSR countries, Dr. Stephen Cohen, during Batchelor's 11/30 broadcast. Cohen noted that everyone in Georgia was sick of Schevardnadze and wanted him out of power. In Ukraine the population is sharply and passionately divided in support of the Orange or Blue candidate. Thus, indiscriminately applying Soros's tactics in Georgia to the situation in Ukraine had a very different result in Ukraine.

One might ask how State overlooked the striking difference between the situation in Georgia and Ukraine. I don't know the answer yet -- or even whether State overlooked in ignorance. Leaping to conclusions in this area is unwise. In any case, by accident or design, State-supported actions in Ukraine got Putin and his generals hopping mad.

If you say nuts to that -- well, if we had nothing else on our plate, it might even be fun to rub Russia's nose in it, just for some payback. But seeings how we're in the middle of a hot war and all that, we do need to pick our hazing wisely. Or at least, watch our timing. Sitting Putin on a whoopee cushion at this particular moment in history does carry unpleasant consequences for the US.

With regard to your second question, kindly refer to my post on British pundits, in which I touch on the Guardian Unlimited newspaper. That the Guardian is a leftist publication and that Garton-Ash is a Bush basher has to be seen against the larger picture. The Guardian is a United Kingdom publication. So of course the Guardian's columnists support British activities that are perceived by the Guardian columnists as in the best interests of the UK.

Recommended reading:

"U.S. Money Helped Opposition in Ukraine"
Details the US organizations involved in Ukraine

"Is US Meddling in Ukraine Election?"
Washington Post; story links to Guardian Unlimited's Steele and Garton-Ash opinion pieces

"EU Promises More Aid to Ukraine After Elections" and check out several stories on the Ukraine election and controversy in this Ukraine newspaper


First Things First

"Pundita, I've been trying hard to get better informed about US foreign policy but the more I learn from reading blogs, journals and online newspapers, the more I realize how much I don't know. You wrote that Americans should be learning more about US foreign policy decisions and I agree, but there are so many angles, so many facts to consider. I wish there was one source I could trust to do a good job with reporting on US foreign policy. Can you suggest such a source? Thanks.
[Signed] Dan in Chicago"

Dear Dan:

I put your question to the possum, who asked, "Has he visited the state department?"

I think the possum put it clearly enough, but allow me to expand on her observation. You're doing things backward. Before you learn what pundits, scholars, reporters, journalists, and newspaper editors are saying about US foreign policy, first learn what the US government says about US foreign policy.

The first step is to visit the White House web site. Of course, everything you will read on the White House site is slanted toward the US and the Bush administration view. But that's exactly what you need to learn first -- the administration view.

At the site you can sign up for weekly news briefs, skim the White House daily press briefings, read about various White House foreign policy initiatives and Bush's foreign policy speeches, and use the site's search engine.

The White House search engine is very helpful; you can simply type in the name of a head of state or a country to about learn the most recent administration's statements on the subject.

Next, tackle the US Department of State web site, which you will find tons of information about what the US actually does to implement policy. Check this link to gain an idea of how much information State posts about US aid and how it's used to implement foreign policy.

Once you've read through the above link, click back to the Countries and Regions section on State's website, and take a look at the list and links. Those links are your homework.

When you come to a discussion about a particular country that you're unfamiliar with, go the CIA website, which has short articles on every country. The articles will remind you of a high school textbook. You'll find out how much rainfall the country receives, how many people in the country are literate, and so on. But the articles provide a good overview of the country and its current political system.

All this reading could take you weeks or months to complete, depending on how much daily time you can give the effort. But the readings are the best grounding in US foreign policy and how it's implemented. Despite all the bad press about State and the CIA, their web sites are a gold mine of information.

Once you've gotten several State reports under your belt, you can bone up on the congressional committees that deal with US foreign relations. At that point you will be introduced to debates in the Congress about various foreign policy initiatives and how they impact specific countries.

Once you've done your homework, you'll have a feel for the Bush foreign policy, and for the problem (perhaps "failure" is a better word) that the policy was formulated to correct. I will address that failure in the next post.

For now, it's important to make a clear distinction between the foreign policy and its critics and between the policy and the Bush national security doctrine. Once you're grounded in the policy, you won't get lost in the data and analysis that are provided by various media, including the blogosphere.

Wednesday, December 15

The Casino is not Croquet

"Dear Pundita:
I read your Faustian Bargain post. I strongly disagree with the way you portrayed Bush. Sure he's a member of the ruling class but if he's so smart about money matters, why isn't his so-called "strong dollar" policy working?
[Signed]
Pro DOLLAR not euro!"

Dear PDNE:
Read the following excerpts four times to understand what Bush means when he says "strong dollar policy." George Soros was the only financial advisor to the Clinton administration who could find the craps table, let alone the front door to The Casino. This means that for eight years, US monetary policy was run out of a post box in Belgium. These days, the head of the European Central Bank is whining that Bush's croquet stick is weighted with lead. Awwwwwww........

" . . .there's also an impression [among Euro analysts] that [a falling dollar]. . .is forcing the central banks in places like the European region and in Japan to consider an easier monetary policy," Reid said. "[The U.S. administration has been critical of] America's partner countries, [saying that they] aren't doing enough to stimulate their growth. So one's tempted to think that perhaps they see a weaker U.S. dollar as putting pressure on the European Central Bank either not to raise interest rates any time soon, or even to think about cutting interest rates."

"That pressure is coming as Europe itself is concerned about the dollar's weakness, and the accompanying strength of the euro. The worry is that a strong euro will harm economic growth by making European goods more expensive abroad. The head of the European Central Bank, Jean-Claude Trichet, said earlier in November that the euro's rise was "brutal and not welcome."

"Hans Guenter Redeker, a foreign exchange strategist at BNP Paribas, said Europe has to play its part, too. "We have not to forget that the current-account deficit of the U.S. had been created while Europe was using the U.S. markets for their exports quite intensively," Redeker said. "We can't only blame the U.S. for its imbalance. We have to as well think about why Europe hasn't improved its own domestic demand conditions, so that it would become less dependent on exports."

Complete article

Faustian Bargain

"Dear Pundita:
I didn't know Saddam Hussein started a currency war against this country until I read your Fool's Gold post. I'm confused. If the petrocurrency war was quixotic at best, as you wrote, why did he launch the war? Was it just because he's crazy?"

Dear Confused:
It was not so much a war against the US as against the Saudi retrogrades at OPEC. They're called the retrogrades because by 1999, just about every other OPEC country wanted to abandon the petrodollar and replace it with the petroeuro. A powerful faction among the Saudi rulers was the holdout and the faction held sway at OPEC.

At first glance the push at OPEC to switch to euros seems premature. So I need to review some history. Certain members of the EU (notably Germany and France) wanted the euro to replace the dollar as the world's reserve currency. For this to happen, OPEC would have to officially agree to demand payment in euros, instead of dollars.

The impetus for such an agreement began to build even before 1991 but it snowballed after the EBRD was formed in 1991. The EBRD (European Bank for Reconstruction and Development) was formed by West European governments to write project loans exclusively to NIS (newly independent states of the Soviet Union, now called FSU -- former Soviet Union countries).

Meanwhile, every Western commercial bank on the planet had petroleum drilling engineers in West African nations. And NIS countries were set on modernizing and expanding oil production and exploration.

OPEC looked at the writing on the wall, which appeared a few years before the EBRD was official. The Middle East, and particularly Saudi Arabia, would remain king of oil supplies, but competition from other places meant that OPEC would be greatly weakened. If OPEC was to survive the new millennium, and survive as the price-setter for petroleum, this meant persuading the US or the EU to subsidize OPEC's continued existence.

However, the US government liked the idea of more competition between oil-producing countries. The Germany-France-Belgium club liked the idea of the euro as the world's reserve currency; for that to happen, OPEC oil would need to be re-priced in euros.

There were two obstacles. One was the British populace, who were still watching reruns of those bastions of British post-WW2 xenophobia, Fawlty Towers, Monty Python, and Are You Being Served? There was a growing segment among the populace that didn't like being greatly integrated with the EU. That segment wanted to keep the British pound instead of adopting the euro.

The other snag was the Saudi retrogrades who held sway at OPEC. The retrogrades pointed out that petroleum is not soybeans. So, if you switch to accepting euro payments, that means you're expecting the Eurozone army and their navy of rubber duckies to come to your rescue, if someone tries to walk off with your oil wells or overthrow your government.

The Saudis were aware of the petrodollar downsides, which had become increasingly evident over the decades. However, they questioned whether simply replacing the dollar with the euro was the best way to overhaul The Casino (the international monetary system). Perhaps a basket of currencies, to include the EU and US dollar (USD), was the way to go. This idea could not go forward until all the nations in the EU trading bloc agreed to adopt the euro. So, the Saudis argued for a wait-and-see approach.

Not everyone could afford to be patient, and least of all the large building contractors in the Islamic world. They knew that if OPEC tanked, they would have a hard time keeping their companies big enough to win big contracts in the New Europe and NIS. Those contractors had already built up every square inch of the Islamic countries with mosques. They didn't want to see mosques stamped "Made in Germany" going up in former Soviet countries.

So those building contractors were hyperfocused on the threat of competition from EU contractors, who would make a mint from EBRD project loans. The Islamic contractors knew they could still cut deals on World Bank project loans that would be made to NIS (as soon as the Soviet Union dissolved), but they feared they'd be shut out of bidding for EBRD projects. No amount of words can convey the import of this fear unless you are steeped in the world of building contractors.

To summarize to this point, by the late 1980s, building contractors in the Islamic countries were staring at the prospect of going belly up if OPEC didn't put its weight behind the euro. But the retrograde camp among the Saudis, who ruled at OPEC, stubbornly refused to give up on the US dollar.

By interesting coincidence, just around that time the guardians of Wahabism in Saudi Arabia took a very strident turn. The clerics began biting the hands of those Saudi princes who fed them, and who just happened to be among the retrograde camp.

And as coincidence would have it, the Global Islamic Terrorist Bogeyman also materialized around the same time. The Bogeyman declared a jihad against Christianity, the modern world, the West, America, and too much starch in shirts.

Thus, consensus began to build in West Europe that all things considered, it might be wise to subsidize the continued existence of OPEC and hurry up and get the euro adopted as the EU currency. But a large segment of the British populace still hung tough against adopting the euro. And the Saudi retrogrades refused to budge.

So, the ante needed to be upped. Thus, Saddam Hussein's petrocurrency war. By amazing coincidence, the euro climbed 17% against the dollar not long after Saddam began demanding euro payments for his oil. This meant Saddam made a killing on his oil deals in euros. This caused Iran and all the other OPEC members to say to the Saudi retrogrades, 'See? See?' Kim Jong-il chimed in, 'See? See?' but he was thrown out of the OPEC lunch meeting after his waiter's disguise was unmasked.

All this is why cynics who have been following the petrocurrency war believe the real Bush national security doctrine reads, 'Nobody re-prices oil in euros, nobody gets bombed.'

The cynics overlook that Bush was raised as a member of the ruling class. That means he understands how the world works without having to study books on the subject or read newspapers. Bush knew that Saddam's petrocurrency war risked pumping up the euro too soon against the dollar; that would backfire on EU zone exporters. Thus, the quixotic aspect of Saddam's petrocurrency war.

Also, Bush knew that the pressure to re-price oil in euros was just another sign that a sea change was building. The Casino needs overhaul. The international monetary system is the linchpin of global trade, not to mention the keystone of modern civilization. Despite the fact that the dollar is the key ingredient, the US will have limited say in how the new monetary system, whenever it gets off the ground, will work out in practice. The best any US president can do is blow on the dice and steer this country through another hairy night at The Casino.

If the Lords of the Craps Table don't screw up terribly, many of the world's current economic problems will vanish after The Casino is renovated. However, macroeconomics being what is, we must steel ourselves for screw-ups.

I should stop at this point and identify for Confused reader The Lords of the Craps Table. They are World Bank and IMF governors, the Bank for International Settlements (central bankers acting in concert to manage The Casino), central bankers in the G club (major trading nations), heads of major transnational commercial banks (Citibank and various Swiss banks, for example) and currency traders and economists who labor for major OPEC producers.

Which lord has the greatest power? The Federal Reserve board, of course. We are the world's lone superpower nation, after all. Americans need to remember this when reading headlines that scream, 'X country set to dump US debt instruments!'

Saddam Hussein and his buddies at the EU didn't exactly overlook America's clout. However, they assumed that another hayseed would be elected US president. When they discovered that a member of the ruling class had been ushered into the White House they knew the plan to make the euro the world's reserve currency had hit a snag.

Just to rub it in, Bush asked Chirac to hold his bag of pretzels when he elbowed his way to the craps table to blow on the dice. Gossip has it that's the real reason Chirac dislikes the 43rd President of the United States.

How will the craps game play out? As of last year, the consensus was leaning toward a 'trading band' composed of the euro and the USD and maybe the SDR thrown in. What would that band do to OPEC? Hard to predict; too many variables and unknowns to consider.

However, one thing that's certain is that change always causes dislocations until a new system shakes out. Change in this case would mean a rough patch for the USA. This is because ever since Japan and South Korea walked off with much of the US manufacturing sector, the biggest US export industry has been US dollars, although much of the exporting is in the form of electronic transfers. Americans are not clearly aware of the dollar export industry, unless they remember the front-page stories of the late 60s and early 70s. So let's do a quick review:

The US government went broke funding domestic programs in combination with fighting the Cold War, which included the Vietnam campaign. Instead of cutting back on the mega-spending, the US began printing dollars in massive amounts. That created an international run on the US gold supply, which backed up the dollar.

So, the US government faced a choice: start practicing fiscal responsibility, or de-link the dollar from gold. The government chose the latter. That left the dollar with no backing except the productivity of the American worker. Thus, Americans learned the hard way that the sweat of our brows was not enough to persuade the world's central bankers outside the US to keep the dollar as their reserve currency. The bankers wanted to see the dollar backed by something more tangible; if not, they were going to dump the greenback in favor of the Swiss franc or something.

So, to prevent the US government and international financial system from collapsing, the US struck a Faustian bargain with Saudi Arabia. Although OPEC oil was already priced in USD, the Saudis agreed to hold the line against all challenges from within OPEC to the payment system.

Once it was official that OPEC would only accept payment in USD, this calmed those worked in The Casino, who were alarmed after Nixon ended the Bretton Woods agreement that currency floats would inject too much uncertainty into global financial markets.

The stabilization of the oil pricing mechanism gave assurance that despite America's profligate defict spending the US dollar would continue as the world's reserve currency. Thus, stability returned to financial markets and gave rise to what's been termed the petrodollar.

The 'new' international monetary system meant that central bank currency traders could use the price of OPEC oil as their benchmark. So one needs to see the bright side of an oil cartel. The fact that OPEC is a cartel, and can fix the price for a critically important commodity, brings a stable component to the international monetary system -- indeed, it is the linchpin of the system.

The downside is that the system artificially controls the price of oil instead of allowing the market to hold sway. Another downside is that the system set the developing world on a dollar chase that their governments could not afford.

The "world's reserve currency" means that virtually all major imports, not only petroleum, are priced in USD. Second and third-tier countries can't use their funny money to pay companies such Bechtel to build a city or subway system for them. First they have to buy tons of US dollars -- or to be more precise, their currency payments are much higher, when converted to USD.

That's why Gorbachev had no choice but to dissolve the Soviet Union. As early as 1989, the Bundesbank was running a pool at The Casino on whether Gorbachev would have to read the dissolution speech by candlelight. Russia needed huge infusions of USD because the government couldn't buy much-needed materials without first buying or bartering for dollars. The only way Gorbachev could get the infusions was by dissolving the union so that the World Bank would start writing project loans to Russia to beat the band. World Bank loans are made in USD, of course.

The World Bank's dollar loans would be a drop in the bucket against what Gorbachev needed, but the Bank was (still is) the lead ship for the big international commercial banks. This returns me to the subject of building projects.

Once the commercial banks see the World Bank commit to a country, this is a sign that the country has reached a certain level of political stability. (Translation: The country's military won't cart off all the heavy equipment from the project sites and resell it along the Silk Route.) So then it's worthwhile for the commercial banks to underwrite projects in that country. All of which are denominated in US dollars.

Do not ask whether Islamic terrorists understand how the World Bank works. Everyone on earth except Americans understands how the Bank works. But if you must ask, the EBRD is a RDB (regional development bank), as versus an MDB (multilateral development bank) such as the World Bank. The word on the EBRD, years before it was formed, was that bin Laden and his crowd -- here I'm speaking of Islamic building contractors -- would be shut out of the building projects gold rush in the NIS.

Before you feel sorry for Islamic building contractors, they have their own RDB -- the Islamic Development Bank, which makes project loans exclusively to Islamic countries. During the Soviet Union era, the Muslim-country contractors had a steady infusion of projects generated by Islamic commercial banks that follow in the wake of the IDB. But the Muslim building contractors were running out of space to put up mosques, unless they moved into NIS countries.

I interject that someday, a building materials procurement specialist will write a history of the world. Then innumerable mysteries will be solved. While we're waiting for illumination, and if you want to know what's really going on in the world, don't watch the news feeds or the financial pages. Watch the bids on large-scale building contracts.

If you see a certain group of contractors consistently shut out the bidding, you can set your clock by what happens next. On goes the war paint. Welcome to The Revolution. The contractors hire The Natives to stage a revolution that will beat the war drums until development and commercial banks roll over and dole out more building contracts.

To return to The Casino, the dollar chase put governments and building contractors on a merry-go-round that kept going faster and faster. This was a recipe for disaster in Asia, where the banks lived to make bad loans to businesses. The contraption finally exploded with the Asian banking crisis. That's when the Lords of the Craps Table knew they had to renovate The Casino. They've been piddling around ever since with the project.

But even before the Asian crisis, governments in the developing world were driven to or near ruin in their chase to buy USD so they could purchase OPEC oil. This created a big black market in OPEC oil. The official oil price became a Disneyland figure, as individual OPEC members cut deals on the side. For example, Venezuela began accepting payment for their oil in barter when a government purchaser was too broke to cough up USD. Also, if the currency could be traded up, OPEC members started accepting any currency in payment from the poorer nations.

Of course all this discounting and barter is unofficial. OPEC can't mess too much with the official price of oil, if they don't want to crash the price of the dollar and thus, bring down The Casino.

At first glance, all this seems a good deal for the United States because we have a captive market for dollars. It is a good deal, but it's not called a Faustian bargain for nothing.

The problem with petrodollars is that the USD became a critical commodity. So, the US had to create large quantities of dollars. Again, this was so countries could purchase dollars to purchase petroleum and other big-ticket imports. If other US commodity exports are strong, and the manufacturing export sector is strong, large amounts of dollars sloshing around The Casino is not a problem. But after the US manufacturing sector became weak, the US became increasingly dependent on the dollar export industry. This meant the US became increasingly vulnerable.

Now you know why President Bush remains on speaking terms with some Saudis despite many questions about Saudi funding of Islamic terrorist organizations. The Saudis Bush has on speed-dial are the retrogrades, who aren't really retrogrades; they are realists.

The realists know the only way to return stability to the international monetary system would be if governments returned to the gold standard. That will happen when the cows come home because gold-backed currency would mean that all national governments would have to practice fiscal responsibility. This is unless they wanted to see a run on their gold supply by other governments. Realists know that governments and fiscal responsibility rarely mix. However, the petrodollar is hideously expensive. Yet switching from petrodollars to petroeuros would not solve the underlying problem.

So the question is, what do you replace the USD with, if not gold? And if you want a trading band of the euro/dollar, what backs up that band? Would it be your faith that the American and EU economies won't suffer severe downturns?

There are many other vexing questions when considering how to renovate The Casino. It's all very well to say, 'Dismantle OPEC and get rid of petrodollars.' Replace them with what? Trying to find the answer is the work of macroeconomists who labor for large universities, The Lords of the Craps Table, and cabinets in major trading nations. But it's also a dice game because the mathematical models can't predict every surprise. So maybe the Saudi retrogrades are right. If you don't know for certain what you're doing, just leave the dang thing alone if you don't want to crash The Casino. But then, maybe The Casino will crash if it isn't renovated.

In short, it's all very complex, and even the experts have no idea how a renovation will pan out. Big-ticket building contractors don't like that much complexity and uncertainty. They just want to survive and unlike companies that pump petroleum, they have to be very adaptable.

As to how long we've got before The Casino might collapse if it's not renovated -- I don't know and I don't think anyone knows; too many variables to consider. I do know that within 72 hours of the 9/11 attack, the EU pumped $40 billion into the US financial markets. That's all that prevented the US stock market from going into freefall. The rescue was a cooperative effort between the Bank of London and the European Central Bank. The rescue was a reminder of the strength of the NATO alliance. Yet it also served as a demonstration of the growing power and integration of the EU and America's growing economic vulnerability.

The USA has been skating on the edge for a long time; the dotcom bubble did nothing to skate us back from the edge. The 9/11 attack, the US response and the Enron-type scandals continued to divert our attention from the reality that time is running out on our Faustian bargain.

I'm not sure whether all the above does anything to resolve Confused reader's confusion. But Confused should consider that behind all the charts, graphs, mathematical models and supercomputers, The Casino is just a bunch of people. The bunch recognizes that global trade has gotten too interconnected to let the whole shebang crash.

We'll struggle through the sea change somehow. However, we would be wise to struggle through while we have a member of the ruling class in the White House because when it comes to any game at The Casino it's hard to catch Bush napping. But Bush also has the war on the terror to oversee, so the Lords of the Craps Table might just have to rely on duct tape and prayer a while longer.

Tuesday, December 14

Hypocrisy in Motion

"Dear Pundita, I was just reading about a proposal put forward at the 2004 Jerusalem Summit. The summit is establishing a Council of Civilizations to act as the voice of ethics for the international community. The 12 civilizations in the council amount to world geographic regions. The representatives will be the wisest people in a nation according to independent public opinion polls. The proposal is that the UN recognize the council as an independent, nonpolitical body. The council's resolutions about world problems will not have binding force but the hope is that the resolutions will inspire UN nations and the UN organization to adhere to higher ethical standards. Do you think this council is a good idea?"

The wise to be decided by public opinion poll, eh? Pundita wonders which Americans a public opinion poll would find to be wise. She has trouble seeing the Chinese Military Command -- or the British Parliament, for that matter -- hanging on Oprah's every word. Not that Oprah isn't wise, it's just that these days, UN members listen to only two things: Money or enough firepower to blow them to kingdom come if they don't listen.

Nonetheless, I put what I assume is the spirit of your question to the possum, who looked at me oddly after I summarized the United Nations record. Finally she asked whether America belongs to the United Nations clan. When I replied yes, she asked, "Why?"

The strangest criticism I've heard of the UN is that their peacekeeping force is useless. We should all be glad spiders can't fly. If the UN is half as inefficient, wasteful, corrupt, thuggish and antidemocratic as the critics claim, for any UN member to attempt to reform the UN is akin to joining AA with no intention of giving up booze. So what's the story behind the calls for reform?

As always, the crows are sharply divided in their opinion -- a problem I once tried to solve by excluding one of them from foreign policy meetings. That's how I learned crows have butter for brains without each other to caw at.

So, take your pick. If you don't have much faith in human nature the calls are not really for reform; they're an attempt to regain control of a situation that got away from the United States decades ago.

Or you can choose to assume that American calls for reform of the UN represent a failure to think the matter through. Since the end of WW2 the USA has set the world's standard for ethical conduct. If we do it, it must be okay. So, if we're willing to deal with despotic governments, who is going to listen if we call for reform of the UN without first reforming ourselves?

Every street kid who's gotten away from a gang could advise the US government on how to reform the United Nations. First clean up your own act. When other kids in the hood see you can do it, that inspires them to try. Sure, it's hard, as any ex-gang member could attest. Once you get in deep getting out always involves pain. But the first step is to leave the gang. Otherwise, you're hypocrisy in motion.


Fool's Gold

"Dear Pundita:
I am so upset I am having trouble writing. I think it all started when I switched to the Atkins diet, the insomnia, I mean. Anyway, I couldn't sleep so I started listening to an all-night radio show called Coast to Coast AM, which has been really hard because I have a day job. I don't know if you've ever heard it, the show I mean. It's about ghosts and alien sightings, aliens from outer space, but they have a lot of other stuff also, including terrorism. About 10 days ago there was a terrorism expert on, Steven Quayle. Have you ever heard of him? Anyway, he told the Coast to Coast host that the real jihad against America is not military but to destroy the dollar. He said the terrorists plan to make Islamic money, the gold dinar, into the world's reserve currency and they are conspiring with governments like China and Russia to destroy the dollar.

"It all sounded crazy, but then I went to Steve Quayle's website and found an article by Jim Sinclair, a gold expert. Have you ever heard of him? Anyway, he said the same things as Quayle but only worse. Then I went to Jim Sinclair's website and found a recent article where he said that while he was in India he met with influential Muslim leaders who told him the real jihad against America was always to destroy the dollar! They told him just what the terrorism expert Quayle said on Coast to Coast! But that's not why I'm so upset. After rereading what I just wrote, I think I better start a new paragraph.

"By the time I finished reading the article, this was around 2 in the morning and I couldn't sleep. So I turned on Coast to Coast (it's on seven days a week) and JUST as I tuned in, I heard an ad saying gold could double in price and now was the time to invest in gold! Pundita, THINK OF THE ODDS! I JUST tuned in and right away heard the price of gold could double! After JUST reading Jim Sinclair's warnings that gold is going much higher! So I am thinking it might all be true. What do you think? PLEASE post a reply on your blog!! By the way, I hope the raccoon liked the crab bisque I sent.

[Signed] Sleepless in St. Louis"

Dear Sleepless:

People are always trying to pry from Pundita how her foreign policy team is so wise about so many things. For some reason, and I don't think this has to do with the crab bisque, the raccoon has taken a liking to you, or at least is gravely concerned about the state of your health. Thus, after I read your letter to the team, the raccoon prodded Pundita to reveal the policy team's secret for staying calm in the face of news that revolves around leaks to the news media and "exclusive" reports that quote unnamed officials or unnamed influential leaders, unnamed diplomats, unnamed Capitol Hill aides, or the pesky "unnamed source at the state department."

The team thinks according to Wildlife Logic, which, to come down to it, is rather Darwinian. Put another way, the team thinks in terms of a pecking order. So the team zips through mountains of foreign policy questions simply by asking Pundita, "Is [X] a chieftain?"

Now let us apply this secret to your particular worries by asking the following questions. Is the host of Coast to Coast AM radio show a member of the ruling class? No. Is Steven Quayle a member of the ruling class? No. Is Jim Sinclair a member of the ruling class? No. That means all these people are on the outside looking in.

Now, what about those "influential Muslim leaders" who told Sinclair that the real jihad against America is financial? Are they members of the ruling class? Here we must try to reason in the manner of wildlife.

No, they are not members of the ruling class because members of the ruling class don't communicate with gold traders. They leave such chores to underlings, who turn the chore over to other underlings who are even lower in the pecking order.

Now ask yourself whether George W. Bush is a member of the ruling class. The answer is yes of course. Now, what does it mean to have a member of the ruling class as President of the United States? It means Bush doesn't need to depend on advisors, books, newspapers, or inside sources to understand how The Casino works and know what the Lords of the Craps Table are up to. All that knowledge is in his molecules. So, when it comes financial warfare, it's very hard for the enemy to get the jump on the 43rd US president

(The Casino is Pundita's name for the international monetary system; the Lords are Pundita's way of referring to the bosses of The Casino.)

Now, to address your specific questions. You want to know whether gold has entered a bull market. You want to know whether there is any truth to the talk about making the Islamic gold dinar (IGD) the world's reserve currency. I'll deal with the IGD question first.

Of course the enemy schemes to destroy the US economy by any way he can. This did not receive headlines in the US but around November 2000, Saddam Hussein openly declared war against the US dollar (USD). He refused to accept payment for oil in dollars and demanded payment in euros.

However, if you have a general idea of the floor plan of The Casino , you know that Saddam's petrocurrency war was quixotic at best. The same can be said for any scheme to replace the USD with the IGD as the world's reserve currency.

The idea for the IGD came from the Iranian government, which is another way of saying it came from mobsters. However, those particular mobsters are very familiar with The Casino and know how the Lords of the Craps Table operate. That means they know the IGD would have a very limited use in the international monetary system. So why try to sell the fantasy that the IGD (or any gold instrument) could become the world's reserve currency?

The answer is a matter for speculation. Certainly, the financial brains employed by the mobsters don't collect paychecks for thinking up quixotic currency schemes. So what are they really up to?

Well, Tehran is not a model for transparency in government. What is known for certain about Tehran is that they are always scrounging for vast amounts of cash. This is to pay off the armies of terrorist mercenaries they employ and to make clandestine/black market purchases of services and materials relating to weapons, particularly WMD.

So the first question is how the IGD scheme might fit with cash-on-the-barrelhead payments. I've not researched the question. But taking a shot in the dark, maybe they seek to cash in on the runs on gold in China and India. The runs started just around the time that the Islamic Gold Dinar scheme came to the table, which was around 1991. If I recall, the first IGD was issued in 1992.

Another guess would be that the Tehran mob knows that many of the people they pay off with cash don't have the Financial Times on their reading list; indeed, many of them can't read. They don't know squat about The Casino, and they wouldn't care to know. I'm talking about sheep and goat herders who perform double duty as smugglers, couriers, and contraband producers. And you have to stop and think: companies that manufacture suicide belts are not listed on the stock exchange.

None of those people like paper for pay. They prefer payment in gold. They can melt down the Islamic Gold Dinars and make them into something useful, such as dowry jewelry. And they can use the coins for bartering and bribes.

Next, your question as to whether gold is headed into a bull market.

The Casino is long overdue for renovation; how gold might fit into a revised international monetary system has always been a subject for debate.

And until China and India clean up their respective banking systems, which are models of inefficiency, obstructionism, and corruption, the people in those countries won't trust their banks. So, the people park their savings in gold, gems, and other tangibles that can be converted easily to cash when needed.

The past decade saw a runaway demand for gold in those two countries. This is because the economic liberalization programs set in place by the Indian and Chinese governments meant that large numbers of their citizens moved out of the most extreme poverty. Thus, they moved into a position where they had money for more than the basic necessities and money to save.

So until the Chinese and Indian governments cry Uncle! and fix their banking systems, demand for gold in those countries will only increase at a galloping rate.

Meanwhile, the price of oil had been kept artificially low, and for decades. The upside is that the relatively cheap oil fueled economic growth in "developing" countries, which contributed to stability in the global trade markets. That in turn kept the price of gold low. Gold is the refuge of the OPEC crowd when they get especially nervous about the stability of global trade. If they're not especially nervous, they scale back their position in gold.

The downside is that the low price of gold meant that exploring for veins of gold and more efficient ways to mine gold didn't have much impetus. Once demand for gold leapfrogged in China and India, that meant more and more people were chasing a very limited pot of gold.

In short, the investment philosophy of the OPEC crowd no longer has a virtual monopoly on the price of gold. The Asian gold hoarding factor is now significant.

The alert reader might ask whether Indians and Chinese trust plastic any more than they do their neighborhood bank. The answer is, of course not; credit cards are associated with banks.

Asian distrust of plastic is a situation that Citibank and every other plastic issuer on the planet are trying to correct. For all I know, this extends to every credit card company in the galaxy and beyond. Come to think of it, there could be a connection between the recent increase in UFO sightings in China and the competition to persuade the citizens of China to sink up to their eyeballs in credit-card debt.

By now, I hope dear reader can see that the fundamental factors fueling the rise in gold price have nothing to do with the enemy's desire to financially ruin the US economy. Gold has long been overdue for a rise in price.

The question is how much the current price of gold might fall when Beijing and Delhi finally have no choice but to move their banking system into the 21st century. The other side of the coin, so to speak, is how far the price of gold might rise before those governments clean up their banking system.

As to whether gold can be pushed into an "artificial" fall during the near term -- never say never. If it happens, it would not be the first time that the Lords of the Craps Table went to war on gold speculators. Indeed, one way to define the difference between a gold trader and a gold speculator is to say that the traders remember the last time the Lords made mincemeat out of them. That was before many Americans who listen to Coast to Coast AM were born.

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