Dollar dives to historic euro low ahead of G7 meet

LONDON (AFP) — The ailing US dollar hit another record low versus the euro on Friday as the market fretted over gloomy US economic prospects and G7 finance ministers gathered in Washington, dealers said.

In early European trade, the euro jumped to a record 1.4319 dollars, the highest level since the single currency's creation in 1999.

That was an increase of 14 percent over the past year and 22 percent up on its initial rate of 1.1665 dollars set on December 31, 1998.

In late European deals, it stood at 1.4250 dollars, down from 1.4297 late on Thursday.

The dollar slid to to 114.96 yen, from 115.62 late on Thursday.

The dollar's dwindling value has been thrown into the limelight ahead of the gathering of Group of Seven (G7) finance ministers and central bank chiefs in Washington on Friday which was due to start at 1715 GMT.

US Treasury Secretary Henry Paulson continues to voice confidence in a "strong dollar" but the currency has declined sharply in the past year.

Nervousness about the health of the global economy and the meeting also pushed up the yen, which is often sold by speculators to fund risky "carry trade" investments in high-yielding assets.

Dealers said players were betting that G7 chiefs would refrain from taking any action to try to bolster the sagging dollar despite growing concern in Europe about the strong euro's effect on eurozone exporters.

"There is already some speculation that officials will attempt to prop up the dollar at the G7 finance ministers' meeting," said Julian Jessop of Capital Economics.

"But we expect this meeting to be a non-event for the markets."

In recent years, G7 officials have refrained from any direct signal to impact currencies.

While French and Italian politicians have voiced concerns about the euro's rise, Germany and other eurozone countries appear more relaxed about it.

On the sidelines of a European Union summit meeting in Portugal French President Nicolas Sarkozy said he saw a consensus among EU leaders that some currencies were too weak ahead of the Washington G7 meeting.

"Not everybody considers that the euro is too high but everybody considers that other currencies are too weak," Sarkozy told reporters.

The French president did not specify which currencies he had in mind. Analysts said, however, coordinated action by the G7 was unlikely because the strength of the euro reflected the good health of the eurozone economies.

"The strong euro reflects robust growth in the eurozone, while concerns over the outlook for the US economy grew" after higher than expected weekly jobless claims, said Hiroshi Sakurai, analyst at Mizuho Investors Securities.

The market was also keeping an eye on oil prices, which hit a record high 90.07 dollars per barrel in New York on concerns about tensions between Turkey and Iraq, dealers said.

In recent weeks, the dollar has been undermined by the increased prospect of another US interest rate cut later this month, after the Federal Reserve slashed its key rate last month by a half-point to 4.75 percent.

Lower borrowing costs in the United States reduce interest in the dollar and boost the attractiveness of the euro.

In late European trade Friday, the euro changed hands at 1.4250 dollars, against 1.4297 dollars late Thursday, 163.82 yen (165.32), 0.6963 pounds (0.6992) and 1.6709 Swiss francs (1.6721).

The dollar stood at 114.96 yen (115.62) and 1.1726 Swiss francs (1.1693).

The pound was at 2.0470 dollars (2.0444).

In London, the price of gold slipped to 763.00 dollars per ounce at the evening fixing from 764.15 dollars late Thursday.

Bernanke speaks; market crashes

salon

"In a world of uncertainty," Ben Bernanke said in a speech Friday morning, "informing the public about the central bank's objectives, plans and outlook can affect behavior and macroeconomic outcomes."

Case in point? He also said, "Indeed, intuition suggests that stronger action by the central bank may be warranted to prevent particularly costly outcomes." Following which, the stock market went into freefall. The Dow Jones industrial average dropped 366 points, with the other major indexes in similar disarray.

Let's be fair. Investors have a lot more to worry about right now than the shape of Bernanke's nuance. The woeful quarterly earnings numbers reported by four big banks -- Citigroup, Bank of America, Washington Mutual and Wachovia -- are distressing. The news that two "structured investment funds" are having trouble paying back their debts is also nerve-racking. The continued terrible performance of the housing sector, along with oil prices that briefly broke through $90 a barrel on Friday, has the word "recession" front and foremost. The much ballyhooed plan to pull Wall Street's coals out of the fire by creating a "super-conduit," aka "The Entity," may have backfired, by signaling to financial markets that the credit crunch is much worse than people had begun to hope.

As the central banker in charge, Bernanke certainly has the power to move markets with no more than an infelicitous phrase, but we can't give him all the blame for this one.

Nevertheless, what he said was very interesting and deserves close attention. The speech was ostensibly an appraisal of the contributions to economic theory made by Bill Poole, the soon-to-be-retiring president of the St. Louis branch of the Federal Reserve. Poole's academic work focused on the challenge of conducting appropriate monetary policy in the absence of certainty about the true state of the economy.

To simplify vastly, one school of thought argues that, absent total certainty about what is really going on, the Fed should move slowly, carefully and gradually, surprising no one, and thus minimizing potential shocks or disruption to the economy. Another school of thought says that such actions won't make any real difference, because the public will factor into their expectations of what's going to happen any such gradualist moves, and thus negate their impact. Therefore, the only actions the Fed can take that would make a real difference would be surprising ones.

All very interesting, and seemingly theoretical; every speech by Bernanke has the feel of a brilliant lecturer at an Ivy League school stretching his muscles just for the intellectual fun of it.

But then he concluded by saying that a) the Fed should be ready to take "stronger action" to "prevent particularly costly outcomes" and b) that it is very important to keep the public informed about the central bank's plans.

So was he saying to the world: Get ready -- at any moment I might do something shocking? That's almost what it sounds like. And although one might think that Wall Street would be heartened by this warning -- yippee, another big fat rate cut could be coming! -- the flip side is that if Bernanke is preparing the way for strong action, that means strong action could be necessary in the near future. Which, in turn, could explain why the bloom is suddenly off Wall Street's rose, again.

On the 20th anniversary of Black Monday, no less, to the very day. How spooky is that?

UPDATE 1-Fed's Poole: too much transparency clouds message

ST. LOUIS, Oct 19 (Reuters) - St. Louis Federal Reserve President William Poole on Friday said that it was possible to be too transparent when trying to communicate with the public.

"Transparency can really interfere with sending the message," Poole told a conference hosted by the St Louis Fed.

"Everything that we do and say is going to be read by the market as having something to do with (our) price-setter responsibility (as) the central bank," he said.

"You have to explain what the message is, why you are doing it, what do you want people to conclude from it. You just don't just throw a whole (out a) bunch of raw data," he said. "That does not create genuine communication."

Poole, a voting member of the Fed's interest rate-setting committee this year, was speaking at a monetary policy conference in his honor before his retirement in March.

"You might ask if it would be more useful to release (the Fed's forecast) on a quarterly basis, or a monthly basis, or every FOMC (Federal Open Market Committee) meeting, and you might come to a judgment that some interval more often than semi-annual might be worthwhile," he said.

He stressed that if that were the case, it should be done in the context of explaining the central bank's message.

The Fed is currently reviewing how it communicates with the public, including whether this task would be aided by adopting an explicit numerical inflation target, something that Poole has long ardently advocated.

Chinese growth 'to overtake US'

By Edmund Conway, Economics Editor in Washington

Last Updated: 5:35pm BST 19/10/2007

telegraph - uk

For the first time in modern history, China will next year contribute more to global economic growth than the United States.

Dollar dives as US slump spreads

IMF says credit crunch may persist for months

Ambrose Evans-Pritchard: Did the Fed hit the brakes too hard?

	China, India and Russia combined have already 'accounted for one half of global growth'

The landmark moment was predicted yesterday by the International Monetary Fund and is the latest illustration of the fast-growing Asian country's importance to the world economy.

While China's economy is still far smaller than America's, it has overtaken the UK as the world's fourth biggest economy. With the IMF projecting 10pc growth this year, the country will pump more new money into the global system next year than the US, which is expected to grow by just 1.9pc.

If the forecasts spelled out in the IMF's World Economic Outlook prove correct (and the institution did not foresee the recent credit crunch), China's continued resilience will come at just the right time for the global economy, as the developed world enters a period of slower growth.

It is what many have called the "happy handover" scenario and is already taking place as China, India and Russia combined have already "accounted for one half of global growth over the past year".

As the IMF points out in its biannual report, the US and western European economies are facing a major slowdown. It has made major cuts to growth forecasts for the developed world. Worse could be in store, according to the IMF's chief economist Simon Johnson.

"The principal risk going forward is that prolonged disruptions in financial markets and a possible weakening of asset prices and confidence could have a more severe impact on economic activity than anticipated in our baseline projections," he said.

There are reasons to mark the 1987 crash

Darling in Washington spotlight at IMF

Eastern Europe to reap its own sub-prime crisis

The main worry is that the credit crunch, in which concerns about the US housing market have caused major jitters about other kinds of debt, persists for longer than another few months.

Mr Johnson compared the pre-crunch markets to a "forest that has not seen a fire in many years", adding: "When problems ignited in the US sub-prime mortgage market, the fire 'jumped' in surprising ways to other areas."

This meant the "fire" spread to the wider credit markets in the US and further afield, including the UK, to bank lending and to commercial paper markets, where companies borrow. Even further cuts in interest rates might not be enough to bring confidence back, the IMF warned. However, while interest rate cuts seem likely in many countries, it also emphasised that inflation remains a threat with oil prices at record highs.

Food prices will also remain high because of increased demand, poor harvests, and global warming, which has contributed to falling crop yields and to arable land being diverted for biofuels.

The IMF said yesterday it was beginning a major study into the economics of global warming.

America is Going the Way of Argentina

Debtor Nation
The rising risks of the American Dream, on a borrowed dime
Jonathan Shaw
Harvard Magazine

Consumerism is as American as cherry pie. Plasma TVs, iPods, granite countertops: you name it, we’ll buy it. To finance the national pastime, Americans have been borrowing from abroad on an increasingly stunning scale. In 2006, the infusion of foreign cash required to close the gap between American incomes and consumption reached nearly 7 percent of gross domestic product (GDP), leaving the United States with a deficit in its current account (an annual measure of capital flows to and from the rest of the world) of more than $850 billion. In other words, the quantity of goods and services that Americans consumed last year in excess of what we produced was close to the entire annual output of Brazil. “Brazil is the tenth largest economy on the planet,” points out Laura Alfaro, an associate professor of business administration who teaches a class on the current account deficit at Harvard Business School (HBS). “That is what the U.S. is eating up every year—a Brazil or a Mexico.”

Whether this practice is sustainable—and if not, how it might end—are questions that divide scholars and investors alike. We have borrowed so much from abroad—between half a trillion and a trillion dollars a year for the past six or seven years—that in 2006, our investment balance with the rest of the world (what we pay foreign investors on their U.S. assets versus their payments to us on our investments abroad, historically nearly equal) tipped to became an outflow for the first time in more than 50 years. We are a debtor nation swiftly heading deeper into debt.

The global imbalances created by this dynamic of American borrowing and foreign lending appear stable for now, but if they slip suddenly, that could pose serious dangers for middle- and working-class Americans through soaring interest rates, a crash in the housing market, and sharply higher prices for anything no longer made domestically. Harvard economists and political scientists see possible threats to globalization (the opening of markets and trade that has made the economy a world phenomenon): the risk of rising protectionism; the potential for a world recession if market forces unwind the imbalances too quickly; and even the possibility that political considerations could trump shared economic interests, causing nations to use their international financial positions as weapons.

That last idea—that nations can wield power through their accumulation of currency reserves—is rooted in our own history. When President Dwight D. Eisenhower learned in 1956 that Britain, in collusion with France and Israel, had invaded Egypt without U.S. knowledge, he was infuriated. “Many people remember Suez,” notes Jeffrey Frankel, Harpel professor of capital formation and growth at the Kennedy School of Government (KSG), but few recall “the specific way that Eisenhower forced the British to back down.” At the time, there was a run on the pound sterling and he blocked the International Monetary Fund (IMF) from stabilizing the currency. With sterling on the verge of collapse, says Frankel, “Eisenhower told them, ‘We are not going to bail out the pound unless you pull out of Suez.’” Facing bankruptcy, the British withdrew. This incident, notes Frankel, “marked the end of Great Britain’s ability to conduct an independent foreign policy.”

Putting international politics aside for a moment, “When a country gets a capital inflow [such as the United States has now], generally speaking things are pretty good,” observes Jeffry Frieden, Stanfield professor of international peace. “It allows you to invest more than you save, and consume more than you produce. There is nothing necessarily wrong with that,” he notes. Firms do it all the time, and so do households. They borrow on the expectation that they will be more productive and better able to pay the money back in the future. The United States, for example, was “the world’s biggest debtor for a hundred years,” Frieden notes, “but the money was used to build the railroads and the canals and the factories and to improve the ports and to build our cities. It was used productively, and it worked. The question to ask now is not, ‘Is the country living beyond its means?’ The question is, ‘Is the money going to increase the productive capacity of the economy?’ Because if it just goes to getting everybody another iPod,” he warns, “then unless iPods make people more productive, there is going to be trouble down the road when the debt has to be serviced.”

Trouble struck Mexico in 1995, Thailand, Malaysia, and other countries in 1997, and Argentina in 2001, after those countries borrowed vast sums in the international marketplace. Argentina before the crash had been a model developing nation and a darling of the IMF, closely following the fund’s economic prescription for integration into the global system of finance and trade. But even the IMF could not save the country from the destabilizing effects of international capital flows. When global investors realized that Argentina’s debt load was unsustainable, they sold their assets, called in their loans, and exited the country. Overnight the Argentine peso plummeted in value against the dollar, the currency in which debt had been issued, and staggering obligations suddenly became unpayable. Argentines who had financed their mortgages in dollars lost their homes. There was a run on the banks, and the government imposed a limit on cash withdrawals. In a country abounding with wheatfields and cattle ranches, starving people began raiding garbage bags in wealthy neighborhoods.

Paul Blustein, a financial reporter for the Washington Post who wrote And the Money Kept Rolling In (and Out), describes a vivid scene after the crash when a truck carrying Angus steers overturned on a highway: a crowd of machete-wielding shantytown residents slaughtered and butchered them, fighting each other for the bloody chunks of meat. He recounts stories of middle-class families riding a government-provided train into Buenos Aires each night to pick through garbage, searching for bottles, cardboard, and newspapers—anything that could be sold for recycling. This—in a country that had been prosperous, with no inflation and 6 percent annual economic growth.

Despite the differences between Argentina’s borrowing and our own (especially the fact that we borrow in our own currency, eliminating exchange-rate risk), Blustein finds unsettling “the manner in which the flow of foreign capital into the United States has rendered its policymakers complacent about the nation’s budget and trade deficits….” Official assurances “that foreigners will continue to provide the funding the United States needs as long as the country remains a good place to invest bear eerie similarities,” he writes, “to the logic employed by Argentine policymakers.”

Drowning in Liquidity?

Money flowing into the United States injects purchasing power into the economy unevenly—it affects certain sectors, such as housing, more than others. “Assume the world is divided into things that are tradable and things that are not,” says Jeffry Frieden. Hard goods, clothing, and most foods are tradable: they are transported easily across borders and are therefore subject to international competition. Haircuts, housing, medical care, restaurant food, and public transportation, on the other hand, are consumed where they are produced. Because these kinds of goods and services can’t be exported or imported, they are considered non-tradable. When foreigners are buying our currency, the dollar appreciates, making international goods relatively inexpensive. That leaves consumers with even more money to spend on non-tradables, such as housing and land. And because housing and land are not subject to foreign competition, their price goes up. Relative price indices from 1980 to 1985, a period characterized by large capital inflows resulting from the huge Reagan-era federal deficits, show that the price of industrial commodities, finished goods, and motor vehicles rose between 18 and 28 percent, but the price of non-tradables rose two to three times faster. “Relative price trends over the last seven years show a similar phenomenon,” Frieden reports.

“It drives me crazy,” he adds, “when I read in Business Week or the Wall Street Journal all the idiosyncratic reasons that people come up with to explain why the cost of housing has been going up. The reason is because the dollar has been rising” as capital has flowed into the country and kept interest rates down.

Goldman Sachs: Traitors And Con Artists

Elaine Meinel Supkis
321 Gold
Oct 16, 2007

Goldman Sachs conspires to make themselves richer at the expense of the American economy. I collected a number of articles, most of which were sent by a group of wonderful readers who send me many links. Thank you! Goldman Sachs should be raided by the SEC and the Secret Service. Remember, the Secret Service was set up to go after counterfitters and fraudsters as well as tax cheats! And Goldman Sachs has taken over our entire economic and banking systems and are utterly destroying them and should be arrested and charged with treason. Alas, they have also taken over our election system via ‘campaign contributions.’

From CNN:

The glitter is already coming off Goldman Sachs’ golden quarter.

Goldman (Charts, Fortune 500) wowed just about everyone when it reported very strong earnings for its fiscal third quarter, a period when rival investment banks did poorly because of the steep downturn in bond markets, from which investment banks try to generate trading profits.

However, Goldman’s blow out quarter benefited from large gains in hard-to-value financial instruments, and its trading results in the period were particularly volatile, according to data contained in a Goldman filing of quarterly financial results with the Securities and Exchange Commission.

Goldman Sachs controls our Treasury and quite a few aspects of the banking system and has a huge influence on more than one country’s central banks. A Goldman Sachs man took over the banking system of Canada this week, for example. Just last month, Bernanke had a lunch with Paulson, the Goldman Sachs head of the Treasury. This meeting was all about Goldman Sachs screaming at Bernanke, ‘There is BLOOD in the streets!’ Bernanke, impressed by the tearful wails that the world was coming unglued, assented to a huge interest rate cut via selling securities to itself, thus causing inflation to rise and the dollar to fall against the euro. Paulson’s further meetings and phone calls that day are not known yet but before anyone supposedly knew of the big rate cut/inflation creation announcement, Goldman Sachs drove up the stock market from minus 400 pts to above 100 pts in only one hour.

Goldman Sachs has always irritated me because they are the ultimate insider traders. This is why they spend so much bribing politicians as well as gaining access to the very innermost workings of the machinery of the banking and financial systems. They are not geniuses, they are conspirators.

When Goldman Sachs announced they had an amazingly profitable summer, I was astounded. Of course, their blasted stocks shot up in value upon this amazing announcement. How could there be blood in the streets if Goldman Sachs was doing just wonderfully? I was quite puzzled when they announced this so smugly. I decided, to cut to the chase, that they were lying. After all, these criminals lie all the time. They are such habitual liars that even if blood WAS running down Wall Street’s gutters and they were standing in in their rubbers and umbrellas, I still won’t believe them.

Misleading people about the true value of paper assets is a crime. We call this ‘fraud’ and people who do this, ‘confidence men.’ Confidence men take people into their confidence and then lie. Our entire economic system has been taken over by such people. Half of their system is self-delusional and half, plots to conceal and lie. They, themselves, can no longer see the difference and are now in the process of destroying themselves along with us all in the US/EU/UK empire.

I was very serious about suggesting HU of China get the Nobel Economics Prize. He seems to understand the true meaning of capitalism and is using it quite masterfully. In the West, the fondness for using game theory systems is exactly why we are screwing ourselves. Yes, people play these evolutionary-sort of games in the dog eat dog world of economic exploitation but this leaves out the accumulation of raw power whereby there is no ‘game’ in the sense that everyone is playing on a level field and using strategies.

Raw power means ruthlessly twisting any system to do as one wants no matter what. For example, whatever systems and customs are used to elect leaders and run democracies, they are constantly destroyed by raw power as the military joins with the rich to take over or revolutionaries make frontal, armed assaults on the system or assassins attack candidates, etc. I have played power politics in the past and know how that rather brutal game works. It isn’t a mathematical formula. That works only when systems work.

So it is here: the mathematical formulas used in game theory and in expressing economic actions are beginning to fail as we approach those inevitable ‘break points’ whereby all systems suddenly shatter and a free-for-all ensues or a free fall occurs. I have looked long into the analysis of many such events in the past and so far, have discovered that no one ever agrees on what really happened. Even with the Great Depression, there is total confusion as to why this global recession caused the value of money to rise and prices of all assets and raw materials to fall. Our present head of the Fed wrote very astute papers on this very topic and quite frankly, didn’t understand a thing because he looked at it with his microscope rather than a telescope.

From Bloomberg:

But that view could get revised, now that it can be seen in the numbers that a large proportion of its third quarter profits were ‘unrealized’ - i.e. paper gains, and not hard cash payments from fully closed out trades - and came from financial instruments that Goldman values largely according to its own estimates.

The game theory here is, ‘If someone can unilaterally declare the value of assets, they will do this in such a way as to profit themselves.’ Whenever anyone tells me something is worth $X, I usually tell them, ‘It is worth only what someone will pay and that varies greatly.’ Goldman Sachs was whining that they couldn’t access ‘liquidity’ within the same time frame they then claimed they were sitting on a mountain of very valuable paper that people would be willing to pay lots of money for! If this were true, all they had to do was sell some of these papers if they wanted money. If I want money, this is what I have to do: sell either my labor or my stuff.

But they couldn’t sell a thing. Since they could only sell at a loss or not at all, this meant their paper was worthless. Their stocks had been falling for over a month. They needed to bring the stock market back up and they needed to make their business look good. So they lied. To Bernanke. To the US people. To the world. The game theory stuff is silly if it doesn’t include powerful people cheating quite blatantly and openly and often, violently. The governments of the world should be purged of all Goldman Sachs conspiritors. They have bent the world banking and trade systems all out of whack and they are responsible for the path the empire has taken. To line their own pockets and fill their own wallets, they have set up a system that must collapse, therefore, they are the agents of this collapse. Once Goldman Sachs got their paws on the levers of power, they yanked them in such a way, they would get richer no matter what.

Every sane person knows there are inevitable economic ups and downs. This is due to capitalism being a dynamic system. There is no way anyone can become constantly richer and never lose money. The desire of Goldman Sachs to do exactly that will create a depression. Depressions can last a very long time. This is when all systems get stuck on a steady-state that is around 0%. Look at Japan: that depression is entirely driven by the people at the top wanting to make money no matter what, while running a 0% system. It literally crushes people to death under such a regime. Japan’s domestic economy isn’t growing, only their export economy and the wealth of the elites running these Japanese export corporations.

Since Japan’s depression is considered to be a gold mine by Goldman Sachs, they conspire to keep it going. This is why we never, ever see any calls to bring up the value of the yen.

From Bloomberg:

Citigroup Inc., the biggest U.S. bank, said mortgage delinquencies and consumer lending will deteriorate for the rest of the year after earnings fell 57 percent in the third quarter.

Citigroup had its biggest drop in more than a month in New York trading after Chief Financial Officer Gary Crittenden on a conference call said borrower defaults are “accelerating.”

There are many economists who think that ‘confidence’ rather than ‘confidence men’ run our systems. Since money is created via magic wands waving and numbers appearing, all we need is to think positive. This bizarre idea mixing up cause and effect shows up clearly in the news this year: the men at the top are very confident and want to keep the ball rolling and the ball they are rolling is quite simple. It is debt. The more they put people into debt, the more money they ‘create’ or better still, ‘capture’ grows. As the capture more and more FUTURE finances (debt being all about future promises) the more they make via fees. So filled with confidence, these con men have shoved more and more future payments onto more and more payers. Addicted to this easy money, they went nuts and tried to shove it on everything and anything. It didn’t matter how flimsy.

They ended up shoving it onto people who couldn’t possibly pay in the future. I call these people ‘dead beats.’ Dead beats trail after con men, hoping to score a hit. They love it when con men go nuts and offers them free money. Since dead beats have no hope or prayer of repaying, they are quite happy to play with the free money and live it up even if they lose everything later. Losing everything is OK with them, the chance to live in a big house and drive a big car even if only for two years is very tempting.

So here we are: the entire banking system now rests upon a basis that expects these irresponsible people to pour future money into accounts held by these bankers. And this is, of course, failing. Never in my life have I seen so many people ask for loans and then default in less than two years. This default climb didn’t happen after a grinding recession, it is CAUSING the recession. Statistics show that the defaults on these loans are not connected with the interest rates going up suddenly. They are happening while still under the super-low, sub prime teaser rates!

Goldman Sachs knows all of this. But they have to pretend to be clueless in order to sell their CDOs which are bonds for future payments on housing bought by dead beats who can’t even afford teaser rates. And since everyone is lying, the buyers and sellers both lying, this leads to the inevitable collapse in confidence. Ergo: the system isn’t based on people thinking confidently, it is based on TRUST. If everyone from top to bottom lies, the system collapses because everyone is cheating each other. This usually happens when the con men take over the banking systems and end rules set up in response to previous collapses.

From CNN Money:

In a speech to the New York Economic Club Monday night, Federal Reserve Chairman Ben Bernanke said the central bank’s rate cut in September has shown signs of success, but cautioned that lenders and investors must bear responsibility for financial decisions that caused the subprime mortgage meltdown.

“Although the Federal Reserve can seek to provide a more stable economic background that will benefit both investors and non-investors, the truth is that it can hardly insulate investors from risk, even if it wished to do so,” Bernanke said, adding that “over the past few months…those who made bad investment decisions lost money.”

Bernanke is lying, of course. The only success of the rate cuts was to drive up the value of stocks while driving down the value of the dollar. Soon, Americans will be trapped in this country like the Russians under the Soviets because our currency will be so worthless, we couldn’t eat or drink anywhere but at home. Our demented government hopes that the dollar will fall so far, the Chinese will cease shipping manufactured goods here. This certainly is one way to empty out store shelves but it also creates inflation. This is the trap we are in: if we make imports more expensive, we get inflation. This is because, the only way we could deal with energy inflation has been to import cheaper labor goods and outsource all our manufacturing jobs!

This is why inflation is now beginning to rage but mostly in the sector of ‘must buy’ items like food, fuel and medicine. To pay for these, people are not buying manufactured stuff. I do see lots of things on front lawns now with ‘for sale’ signs on them. I see more and more ‘house for auction’ signs and New York has been dead last in the collapse of the housing bubble.

Bernanke is also lying when he talks about creating a system that benefits investors (speculators) and non-investors. Always, when he can save speculators by tossing non-investors to the wolves, he does this. As for lenders paying the price: the president of Countrywide, Mozilla the Gorilla has not lost a penny. He has made over $400 million selling off his own stake in the company he is bankrupting! It is all the speculators at the bottom who are being burned, the ones who bought Countrywide stocks from him. Dropping interest rates doesn’t fix all these losses. The people who couldn’t afford their houses even at teaser rates and the investors who bought Countrywide stocks without knowing that the president was dumping them in order to get maximum profits since he could see the rising defaults before anyone else (there is a significant timelag difference). Everyone listening to Bernanke knows that the rate drop is a bandaid on a gaping wound and stocks will, like they did yesterday, begin a relentless fall, the con men simply needed some ‘up market’ time so they could dump lousy stocks. Goldman Sachs, for example, was so anxious to sell their stocks off, they openly lied in order to make it look like their company was healthy and strong rather than sitting on a mountain of toxic, dead paper that has little or no present value.

Now they want to shift their funds into speculating in raw material markets. They imagine the Asian powerhouse will continue eternally so the competition for raw materials will continue and they can all earn pennies on the dollars flowing through commodities. This is pure silliness, of course. As we go into an economic negative spiral, the value of all these things will drop, too. So basically, they want to jump from one escalator going down to one that is about to begin going down, too.

The entire concept behind banking from the start is the idea that one can put one’s profits or wealth at the disposal of a banker who would then pay one ‘interest’ while re-investing this money as loans to other people who then pay this ‘interest’ which the banker shares with the depositor. This has totally collapsed in the last 35 years. People put their money in a bank and it LOSES value. And the people making money are the ones collecting FEES, not interest. And this is entirely the fault of the central bankers and the Treasury. They have tilted the playing field to benefit speculators and not depositors. This was shown clearly by Greenspan and now, Bernanke, deliberately throwing depositors looking for a fair return on their savings, under the wheels of Wall Street.

From Reuters:

Central banks which signed the Central Bank Gold Agreement sold 475.75 tonnes of gold in the third year of the agreement ending September 26, said a statement released on Wednesday by the Bank for International Settlements on behalf of the signatories.

Also on Wednesday, Germany’s Bundesbank told Reuters that it will hold on to the vast bulk of its gold reserves in the next 12 months, selling only enough bullion to mint coins.

In March 2004, 15 European central banks renewed a 1999 pact to limit their sales over a five-year period to 2,500 tonnes — with annual sales limited to 500 tonnes — up from 2,000 tonnes in the first agreement.

Central banks and the International Monetary Fund (IMF) collectively hold 30,374 tonnes of gold in their reserves, but have been gradually reducing their holdings.

It is amazing to see the price of gold jump from $250 an ounce to nearly $800 an ounce while the central banks conduct increasing sales. If they didn’t do this, the price of gold would be over $1000 an ounce by now. Throughout the weak gold prices of the previous 20 years, the central bankers boasted that gold was worthless and useless as an investment and everyone should trust fiat paper money instead. To prove this, they kept the price of gold down by feeding just enough gold into the system to keep it static. Now, it is out of control because world inflation is out of control. Suspicious people are no longer holding fiat currencies.

I noticed this summer, the G7 dwarves decided to drive down the value of gold drastically. So they had the irresponsible International Monetary Fund declare that gold was worthless and even the Swiss decided to sell off ALL their gold in a mad demonstration that gold was worthless. So here we are: I suspect this was all aimed at one country and only one—RUSSIA. Russia is a major gold and energy producer. If gold climbs in value, Russia’s FOREX and Sovereign Wealth Funds climb and Russia dominates Europe more and more. Instead of petting the Russian bear and giving it a jar of honey, the Europeans have been barking at the Russian bear and throwing missiles at it. So they are playing economic warfare.

This is why charts, graphs and magic number formulas are so useless. One should heed diplomatic dispaches and figure out what violent or sneaky imperial or international games are being played. Decoupling gold from wealth runs alongside the desire to decouple war and oil from inflation. I read so many professional commentaries that desperately use various game-based systems to prove there is no connection between gold and wealth and oil and war and inflation. For example, China’s inflation is due to the rising cost of energy. And they buy from the same people who are right next to our oil wars in the Middle East. Turkey is about to go to war with the Kurds right in the middle of yet another oil field. The threat of this has already added another $5 to to price of oil and this causes inflation in China and the US and nothing seems to be stopping any of this since the US has decided to use extreme violence when it comes to diplmacy in the Middle East.

The economists want to decouple these things from the effects they cause because it enables them to keep on playing with their beloved formulas which are obviously falling apart under the hammer blows of history. Just for example, Europe’s long climb out of the perpetual post-Roman Empire depression was based mostly on the invention of the cannon and then mounting it on ships and then going out and blasting their way across global trade, quite violently. It was a material conquest based entirely on military power. These imperial power plays collapse when the world’s largest naval power goes bankrupt as we are going bankrupt.

Therefore, the chief chart, the main graph, the most important formula isn’t all those piddling little things but the one that tracks imperial naval power, tax revenues and debt levels. The minute a naval empire starts running in the red, it is inevitable they will collapse within a 100 year time frame. We are now at year 35 of our total collapse. The Chinese are willing to wait another 35 years for the end result. I fear the US might push this time frame forwards via WWIII. This is because all naval powers hammered by bad debts and a collapsing economy usually lash out and try to lunge at all rivals and trade partners in the hopes of fending off financial collapse.

From Coin Inflation:

On September 13th, the U.S. Mint announced they were suspending Gold Eagle coin sales due to the recent rise in the gold price. And just recently, the Buffalo Gold coin series suffered a similar fate and its product page states, “Due to the increasing market value of gold, the American Buffalo Gold Proof One Ounce Coin is temporarily unavailable while pricing for this option can be adjusted; therefore, no orders can be taken at this time.”

Exactly how long does a price adjustment take?

It’s unlikely they ran out of gold, but it’s not impossible. They’re going to have a difficult time obtaining it from the open market at some point. More people are realizing every day that the U.S. dollar is becoming worth less and less (or just plain worthless) and are scrambling to purchase gold and silver. Anyone who quotes government inflation statistics as a sign “inflation is contained” is completely out of touch with reality. I mean 2% inflation, are you flipping kidding me? There has to be a point where U.S. media outlets stop reporting these numbers.

I went off to the Fed web page that sells these coins. Note the price! $899 an ounce. They get a nice overhead cut, don’t they? 10% profit. I wonder where this gold comes from. In the 1960’s, the US sold off 3/4ths of the gold in Fort Knox. We know that Europe is madly selling off its gold reserves. Is our Fed buying this gold and then turning it into coins? Or is this only excess gold from mining here in the US?

From the Chicago Tribune:

Despite potential tax and investment problems, more investors have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months, some retirement plan providers say.

Many in the field expect more borrowing in 2008, as consumers struggle with tighter credit and potentially higher mortgage payments.

When I was young, I decided the baby boom retirement would be pure hell. And so it is. We are not preparing for the future and this is concurrent with our collective refusal to face reality today. Congress just voted record spending not just on our stupid oil war in Iraq but for all our military. And our tax revenues are now falling as corporate profits either flee to Elizabethean pirate coves or are reduced as the economy retracts. And the spendthrift generation isn’t saving much of anything, our gross debts have ballooned lately. We are no longer net savers and no wonder. Savers have been sacrificed in order to stop the blood that is running through Wall Street.

Thanks to inflation, we are now seeing people hollowing out their retirement funds. Many boomers expect to sell their homes for a profit when they retire but this is silly. When everyone is selling their homes so they can move to Florida, the value of homes of baby boomers will decline in value! So expecting this is fantastical. And our government should be encouraging savings, savings, savings. Not spending. And this means, being honest about inflation and then forcing banks to pay a realistic interest on savings. Whenever this happens, we have a contraction since rewarding savers for their risks makes no profits for banks. They want to LEND, not attract savers. And savers can’t save if they are lured into loans.

I just got a letter from Sunoco. I use a card to fill my diesel work truck. They want me to have $1,400 and even included a very real check with this letter. As usual, I read the fine print. It is at a 22.74% rate! Wow! Wish my savings got that kind of return. And if you have credit problems of any sort, they can raise it to 31.74% without warning! Usurious rates coupled with Bernanke dropping interest rates into the cellar. The differential between this rate and Bernanke’s funny money land is astonishing. These stupid loans from Sonoco is around 19% higher than the Fed rates. So they figure, even if someone can’t pay this off for years and years, if they default after 4 years, Sonoco still makes some money. Credit cards are taking off as desperate debtors juggle more and more debts. I remember when 21% interest was if one had defaulted on loans or was in financial trouble, not as an opening rate! Also, I am furious that Sonoco has sent me a real check in the mail. Anyone could activate it by various means. This sort of reckless finances is part of our corrupt system.

They were obviously bottom fishing and hoping the sight of a check would lure me into signing it and then getting caught in this impossible financial trap. In other words, they are con men. Why is Sonoco, an oil company, needing to do this?

This is because they have oodles of money, tons of money burning a hole in their pockets. They can’t bank it, that earns no real interest. So they want me to give them money for their money that they first got from me when I pump their fuel into my truck!

From the Telegraph:

What the candidates all have in common is inflation, the ever-higher penalty they pay for chaining their destinies through currency pegs and dirty floats to the dollar and the euro, the currencies of two enfeebled blocs ­ one a fat roué at the end of his credit, the other a stooped old gentleman with a stick.

The global M3 money supply is growing at 10.6pc as stimulus from America, Europe ­ and Japan, through the carry trade ­ leaks out to the vibrant parts of the world economy.

Money is expanding at 18pc in Saudi Arabia, 19pc in China, 24pc in India, 36pc in the United Arab Emirates, 41pc in Russia and 69pc in Venezuela.

The red ink in the US, EU and UK are flooding the world. And I am glad the British reporter here connects all this to Japan’s .5% interest carry trade business. Even as I am offered loans at 23-32%, Japan is offering corporate America loans at 1%. This differential is tremendous and is a sign of impending bankruptcy. This lending cycle is inflating all things as money pours into the system via magic. The magicians at the center of this are not in China, they are in Japan. And since Japan is a closed economic system, this means they DEFLATE while they INFLATE the rest of the world’s monetary and asset values. I was one of the very, very few people writing about economics to talk about this monetary black hole. At Brad Setser’s web site, I was told in no uncertain terms to shut up about Japan and start my own news service because he was sick and tired of me talking about the yen when he wanted to discuss only the yuan.

From the Telegraph:

Kuwait became the first Gulf state to ditch its dollar peg. Others are hanging on, but inflation has reached 10pc in the United Arab Emirates and 11.8pc in the gas-rich neighbour of Qatar.

They have balked at cutting interest rates in lockstep with the Fed. So have the Saudis. This makes pegs untenable over time. Matt Vogel, of Barclays Capital, says a riyal “carry trade” has already begun in Saudi Arabia. Speculative flows are surging into the kingdom.

The Gulf region has $3,500bn under management in reserves and wealth funds. It has the firepower to shoot wolves, but does it make any sense to do so? Buying dollars leads to even more inflation. In any case, Qatar has already slashed the dollar share of its $50bn investment fund from 99pc to 40pc. The game is up.

Further east, Vietnam is throwing in the towel as inflation hits 9pc. It said it will no longer hold down the dong by massive purchases of US bonds. Singapore, Taiwan, and Korea have begun to change tack, slowing dollar accumulation before inflation gets out of control. “There is evidence that foreign-exchange intervention strategies are changing across the region,” said Goldman Sachs.

Goldman Sachs notices that the inflation launched by Paulson twisting Bernanke’s arms is now causing many government banks in Asia to cease buying our lousy bonds and that this is ‘changing…strategies’? HAHAHA. No kidding! Of course, this is changing, rapidly! Everyone smells blood flowing down Wall Street and are now taking measures to protect themselves. The need to fuel speculation here is causing it to rise rapidly across the planet. This is because anyone trying to save the old fashioned way is hammered by inflation. If we got 22% interest on savings, there would be a savings glut here, not a dearth. And traditionally, the government tried to encourage and protect savings precisely so people would not do wild speculation, this was considered TULIP BULB BAD. We know, not from professors writing formulas based on game theory, that this is BAD, we know this from HISTORY.

From Bloomberg:

Hong Kong’s most expensive stock market in three years looks cheap to investors at Templeton Asset Management Ltd. and Baring Asset Management Inc.

The Hang Seng Index, dominated by Chinese companies, traded at 19.2 times earnings last week, the highest since March 2004, after the benchmark rallied 41 percent since mid-August. That doesn’t faze Templeton’s Mark Mobius and Baring’s Hayes Miller, who together oversee almost $100 billion, because stocks in Shanghai are three times as expensive. Based on cash flow, Hong Kong is the cheapest among the 20 biggest markets, data compiled by Bloomberg show.

Everyone rushes off to Asia to collect loot. They hope that all the systems there will flourish via the Japanese financial black hole but this is stupid. There is NO WAY Japan can continue this much longer. If they succeed in keeping out raging inflation caused by themselves for much longer, there won’t be many Japanese left with a roof over their heads or children. Already, their birth rate is in full collapse and the number of children are well below the rate of replacement. And this is getting worse, not better. Just as Russia’s population collapsed when they went into a depression. The whole reason we had a baby boom here was the flow of money after the WWII victory. During the Great Depression, the rate of birth fell. So Japan’s long depression is literally killing the Japanese people.

Japan’s foreign trade markets soared in the last 15 years. But their stock market did much worse than all of Asia. And the rush for profits in Chinese stocks are going to end badly when either Hu or Paulson strangle the trade between China and the US. Hong Kong is the last frontier. There aren’t too many other stock markets to dump money into and make huge profits. Everyone needs to make more than 10% profits to keep up with real inflation.

From Bloomberg:

Reserves of $1,430bn are no help. They are the problem. As Nomura’s chairman, Junichi Ujiie, told me in Tokyo: “We’re all trying to get money into China any way we can because we know the renminbi has to rise. It’s a one way bet. It’s wonderful.”

This quote is very signficant. Japan is trying to pour money into China TO KEEP THEIR OWN DEPRESSION GOING. They also want the yuan to rise in value so they can gain more US trade. Japan is now boasting, the huge FOREX reserves of China are ‘useless’ and they now have an upper hand on China’s finances.

I see a dragon rising up and saying, ‘So, they thought they conned me when the Bank of Japan had that secret meeting? I’ll show them!’ I am betting the Dragon will make a countermove now that will upset these stab in the back Japanese plans.

From CNN:

A wide-open presidential race and a willingness by candidates, interest groups, unions and corporations to buy TV time will lead to historic spending for political and issue-advocacy advertising in the 2008 election cycle, an analysis shows.

The cost to try to influence the 2008 election could exceed $3 billion, according to TNS Media Intelligence/Campaign Media Analysis Group, CNN’s consultant on political television advertising.

This is nearly twice as much than what was spent in 2004 when political and issue-advocacy television advertising rang in at $1.7 billion. In 2006, $2.3 billion was spent on political and issue-advocacy TV commercials.

Corruption in American politics is now nearly total. This is disgusting news.

From the NYT:

Much of this money is being put to work at home. “Now countries like China are generating enormous amounts of capital,” says Felix G. Rohatyn, the veteran banker who engineered the financial rescue of New York in the 1970s. “And of course they are going to want a piece of this distribution and the marketing.” China is staging the initial public offerings of state-owned companies on local exchanges as a means of building up Chinese capital markets - the $7.7 billion I.P.O. of China Construction Bank in Shanghai last month is just one example.

This growth represents a triumph of everything Wall Street stands for - the ability of capital to seek returns across borders, the growing integration of the world’s economy and the triumph of market activity in previously closed areas. And to a degree, this is good news for New York’s asset managers, as private-equity firms and hedge funds now can raise capital from fresh sources. Nonetheless, the diffusion of wealth has unleashed angst among New York’s financial elite, who may soon rue the excesses of recent years as a last-gasp blowout.

Um, there is no triumph of open markets. Japan is closed. And the US isn’t winning, Japan is winning. The US trade with Japan is all about a growing trade deficit with Japan and Japan colonizing our industrial base here at home, not the US colonizing Japan’s industrial base.

Like London, NY wants to be the center of financing forever. London can still preen itself in this regard but this is only due to them being the servants of the oil Arabs who now own half of the Footsie and a great deal of the English banking system. The death of the princess Diana while in the company and under the protection of Muslim wealth is a clue as to where this is all going. The muted response years later to her death/murder are due to the uneasy knowledge that this woman at the very apex of British society had to turn to the Muslims for money and assistance. It is always interesting to see where the British royals go during dynastic disputes. For example, before WWII, the dynastic dispute centered on the USA due to the king marrying an American divorcee.

So it is here: Princess Di was signalling to the British, their shifting dependencies are now in Arab lands, not the USA.

The NYT:

Like automakers and consumer-products companies (Coca-Cola derives 70 percent of it sales outside North America), New York’s leading financial institutions are trying to become global operators less reliant on domestic markets. In the last few years, the N.Y.S.E., the iconic symbol of Wall Street, has gone public, hired an aggressive, worldly C.E.O. (the former Goldman Sachs president John Thain) and merged with Euronext, which owns a derivatives market in London and stock exchanges in Paris, Brussels and Amsterdam. In its most recent quarter, NYSE Euronext derived 44 percent of its revenue and 62 percent of its operating income from outside the United States. Nasdaq, the second-largest New York exchange, was thwarted in its bid to buy the London Stock Exchange, but is taking a stake in OMX, which operates stock exchanges in Nordic countries in partnership with a Dubai investment firm.

Once again, we see Goldman Sachs in a news story about money. The NY stock exchange is now run by Goldman Sachs. They are aggressively moving things so Goldman Sachs gets richer. Asian powers are manipulating and luring Goldman Sachs into doing things that are very bad for the US in order to get rich quick. Note how they cheerfully announce, the operating income of Wall Street will be outside of America and so they can kiss us goodbye as they shove us off the cliff! Note also how Goldman Sachs is trying to buy up other stock exchanges and how they are working ‘in partnership; with the sovereign wealth fund nation of the UAE to buy up other exchanges! Note also that Goldman Sachs has taken Wall Street and fused it with a derivatives market! The very place that is collapsing even as it seeks to gain traction, buying and selling promises and playing FOREX markets and who controls that?

Japan! And none of these people give a hoot about Americans surviving. If the Japanese running the schemes in the heart of Tokyo don’t give a hoot if their own tribe starves to death, will they be kindly towards us? And this attitude is part of Goldman Sachs: ‘Let them eat NO cake!’

Cheney Believed Behind Bogus Syrian Nuke Program Propaganda

US intelligence does not show Syrian nuclear weapons program, officials say
Larisa Alexandrovna
October 18, 2007

Allegations that a Syrian envoy admitted during a United Nations meeting Oct. 17 that an Israeli air strike hit a nuclear facility in September are inaccurate and have raised the ire of some in the US intelligence community, who see the Vice President’s hand as allegedly being behind the disinformation.

A United Nations press release discussing the General Assembly’s Disarmament Committee meeting mistranslated comments ascribed to an unnamed Syrian diplomat as saying that Israel had on various occasions “taken action against nuclear facilities, including the 6 July attack in Syria.”

The UN has since gone through the tape recordings of the meeting and found that there was no mention of the word “nuclear” at all. According to the UN, the error was one of translation, involving several interpreters translating the same meeting.

Recent news articles, however, continue to make allegations and suggest that a nuclear weapons facility was hit — something that the Syrian government has denied, the Israeli government has not officially confirmed and US intelligence does not show.

According to current and former intelligence sources, the US intelligence community has seen no evidence of a nuclear facility being hit.

US intelligence “found no radiation signatures after the bombing, so there was no uranium or plutonium present,” said one official, wishing to remain anonymous due to the sensitivity of the subject.

“We don’t have any independent intelligence that it was a nuclear facility — only the assertions by the Israelis and some ambiguous satellite photography from them that shows a building, which the Syrians admitted was a military facility.”

Their statements come as officials claim Syria has begun to ‘disassemble’ the site. An article today quotes former Administration hawk and onetime Bush United Nations Ambassador John Bolton, who links Syria’s alleged action with Iran.

Israel has not spoken publicly about the air raid, other than to confirm that it happened. The confirmation came nearly a month after the Sept. 6 bombing, and provided only that “Israeli officials said the strike took place deep inside Syria.”

“‘Radiation signatures’ are just the particular type of radiation that some activity would give off,” Dr. Ivan Oelrich, a nuclear weapons expert at the Strategic Security Project at the Federation of American Scientists, told RAW STORY. “For example, a nuclear bomb would produce a lot of radioactivity and a nuclear reactor explosion would produce a lot of radioactivity but if you measure it carefully so you can tell, not just that it is radioactive, but exactly what particular isotopes are contributing, then it is easy to tell the difference.

“If a reactor explodes or is blown up then I can, with careful measurements of the particular types of radiation, tell what the fuel was for the reactor and how long the reactor had been running when it was hit,” Oelrich added. “It gets complicated because you have to take into account how different species are transported in the air, how fast they decay, etc. but it can be done.”

An earlier report by Raw Story cited Vincent Cannistraro, Director of Intelligence Programs for the National Security Council under President Ronald Reagan and Chief of Operations at the Central Intelligence Agency’s Counterterrorism Center under President George H. W. Bush, as saying that what the Israelis hit was “absolutely not a nuclear weapons facility.”

The Central Intelligence Agency, through a spokesman, declined to comment.

Administration said to leak stories to press

One US intelligence source familiar with the events expressed concern about recent news reports describing Syria as having a functioning nuclear weapons program and cautioned against attributing those reports to the US intelligence community.

“The allegations that North Korea was helping to build a nuclear reactor have not been substantiated by US intelligence,” said this intelligence official, adding, “ but that hasn’t stopped Dick Cheney and his minions at the NSC, Elliot Abrams and Steve Hadley, from leaking the information [to the press], which appears to be misleading in the extreme.”

Requests for comment to the National Security Council went unanswered.

Elliot Abrams, who currently serves as the Deputy National Security Adviser for Global Democracy Strategy, was convicted during the Iran-Contra scandal for withholding information from Congress. He was pardoned by President George H. W. Bush along with other Iran-Contra players, some of whom have reappeared in the current Bush administration.

Iran Contra was a criminal scandal in which the Reagan-Bush White House sold weapons to Iran – an avowed enemy of the United States – then funneled the money to extremist anti-Communist group of guerrilla fighters called the Contras, who were fighting the democratically elected government of Nicaragua.

A failed coup in 2002 against Venezuelan President, Hugo Chavez, is also attributed to the approval of Abrams, according to an investigation by the UK Guardian.

Prior to the Iraq war, now-National Security Advisor Stephen Hadley was an integral part of misleading intelligence dissemination and approved clandestine meetings between Iranian arms dealer Manucher Ghorbanifar and members of a secretive cabal inside the Department of Defense’s controversial Office of Special Plans.

During a 2006 interview with neoconservative scholar Michael Ledeen, Raw Story was able to obtain the first on the record confirmation of the trips having been approved by the National Security Council, including the then National Security Advisor, Condoleezza Rice:

“Obviously Hadley did not unilaterally do anything. The Pentagon paid for the expenses of the two DOD officials, and the American ambassador in Rome was fully briefed both before and after the meetings,” Ledeen said.

What concerns intelligence officials is what appears to be manipulation of the press and strategic leaks to the public of false information, undercutting professional intelligence analysis, similar to what occurred before the Iraq war in an apparent effort to bolster support for engaging Iran.

Mukasey Backs Executive Power

Dan Eggen and Paul Kane
Washington Post
October 19, 2007

President Bush’s choice for attorney general, Michael B. Mukasey, embraced some of the administration’s most controversial legal positions yesterday, suggesting that Bush can ignore surveillance statutes in wartime and avoiding a declaration that simulated drowning constitutes torture under U.S. laws.

Mukasey struck a different tone on the second and final day of his confirmation hearing, after earlier pleasing lawmakers from both parties by promising new administrative policies at the Justice Department and by declaring that the president cannot override constitutional and legal bans on torture and the inhumane treatment of prisoners.

His shift prompted an unexpected clash with key Democrats on the Senate Judiciary Committee, although none said Mukasey’s confirmation was in question.

The panel’s chairman, Sen. Patrick J. Leahy (D-Vt.), who had heaped praise on the former judge’s qualifications and testimony on Wednesday, told him that, “on a number of your answers yesterday, there was a very bright line on the questions of torture and the ability of the executive or inability of an executive to ignore the law. That seems nowhere near as bright a line today.”

Mukasey aroused Democrats’ concerns by testifying that there may be occasions when the president’s powers as commander in chief could trump a federal law requiring that a special court approve intelligence-related wiretaps. That answer jibes with one of the legal rationales used by the Bush administration in defense of its controversial Terrorist Surveillance Program, under which the National Security Agency eavesdropped on calls between persons in the United States and those overseas without first securing a court warrant.

Mukasey also repeatedly demurred when asked whether an interrogation technique that involves simulated drowning, known as waterboarding, constitutes torture and is therefore illegal. “I don’t know what’s involved in the technique,” Mukasey said. “If waterboarding is torture, torture is not constitutional.”

“That’s a massive hedge,” responded Sen. Sheldon Whitehouse (D-R.I.). “I mean, it either is or it isn’t.” Mukasey never directly answered the question.

White House spokesman Tony Fratto defended Mukasey, saying he “is not in a position to discuss interrogation techniques, which are necessarily classified,” because he was not briefed on such programs.

Waterboarding generally involves strapping the prisoner to a hard surface, covering his face or mouth with a cloth, and pouring water over his face to create the sensation of drowning, according to human rights groups. The practice has been prosecuted as torture in U.S. military courts since the Spanish-American War.

U.S. intelligence sources have said the tactic was used by the CIA during interrogations of the alleged mastermind of the Sept. 11, 2001, terrorist attacks, Khalid Sheik Mohammed, and several others.

“The United States’ chief law enforcement officer should be able to say — without hesitation — that strapping someone to a board, stuffing a rag in his mouth, and pouring water over his head so he fears drowning is torture,” Jennifer Daskal, senior counterterrorism counsel for Human Rights Watch, said in a statement after Mukasey’s testimony.

While Whitehouse and several other Democrats said Mukasey’s new answers were disappointing, they did not indicate that they will oppose his confirmation. A committee vote on Mukasey’s nomination could occur as early as next Thursday, with a full Senate confirmation vote likely by the end of the month.

“He’s at least answered the questions, which is better than his predecessor,” Leahy said, referring to the habit of Alberto R. Gonzales, who resigned last month as attorney general, of being unable to recall details or make clear declarations. “He’s going to be different than Gonzales on all the issues, I think. He will certainly be better than Gonzales on morale.”

Amid charges by lawmakers from both parties that Gonzales had inappropriately politicized the Justice Department, Mukasey drew bipartisan praise Wednesday for promising to resign rather than implement any policies that he believes violate the Constitution. But Mukasey also suggested that he would side with the Bush administration’s views on presidential authority, a stance he made clearer yesterday.

Asked about executive privilege, a legal doctrine presidents have cited to avoid disclosing records related to their deliberations, Mukasey endorsed the administration’s argument that it covers more than communications directly involving the president. He also said that it would be inappropriate, in a battle between Congress and the White House over access to such documents, for a U.S. attorney to pursue contempt charges against a White House official who is following the legal advice of the Justice Department in refusing access.

Several contempt citations were approved this summer by the House Judiciary Committee against current and former White House officials over their refusal to testify in the ongoing congressional investigations of the firings of nine U.S. prosecutors. Leahy suggested yesterday a “real probability” that more citations are on the way.

“It simply can’t be appropriate for the same department that offered the opinion [allowing wide use of executive privilege] then to turn around and prosecute somebody who followed it,” Mukasey said.

Some of the most tense exchanges at the hearing centered on whether the president must strictly abide by provisions of the Foreign Intelligence Surveillance Act, a 1978 law that governs clandestine spying in the United States. Mukasey suggested that the president can ignore a law, including the surveillance act, if it unduly impinges on his constitutional authority as commander in chief during wartime.

“The president is not putting somebody above the law; the president is putting somebody within the law,” Mukasey said. “The president doesn’t stand above the law. But the law emphatically includes the Constitution.”

Leahy said he was “troubled” by the answer: “I see a loophole big enough to drive a truck through.”

Sen. Russell Feingold (D-Wis.), who had questioned Mukasey on the same topic on Wednesday, complained that the nominee had gone from being “agnostic” to holding a “disturbing view.”

“You’ve suggested that I’ve gone overnight from being an agnostic to being a heretic. . . . I haven’t,” Mukasey responded, though he did not elaborate.

Mukasey also amplified his opposition to a proposed federal shield law for journalists that the Judiciary Committee has already approved. The bill attracted bipartisan support after several high-profile cases in which reporters were jailed or threatened with contempt charges for refusing to divulge the identities of sources.

Mukasey said that the current system has worked “passably well” and that any problems could be solved by changes to internal Justice Department rules. He noted that he worked briefly as a wire service reporter and later represented media organizations as a lawyer in private practice, but he echoed Bush administration arguments that such a law could be used to protect journalists who are acting as spies or terrorists.

At one point, a flustered Leahy asked Mukasey “whether you received some criticism from anybody in the administration last night after your testimony,” leading to a different set of answers at yesterday’s hearing.

“I received no criticism,” said Mukasey, who was measured and soft-spoken throughout his testimony. “I had dinner with my family last night.”

Staff researcher Madonna Lebling contributed to this report.

Round Up the Usual Suspects: Al-Qaeda Blamed in blast near Bhutto convoy

Sify News
19 October , 2007

Bhutto’s husband blames “elements sitting within the government”

Karachi: A top provincial security official said on Friday that the suicide attack on Benazir Bhutto bore the hallmarks of an al-Qaeda-linked, pro-Taliban warlord based near the Afghan border.

President Gen. Pervez Musharraf labelled the attack part of a “conspiracy against democracy,” reaching out to the former prime minister with whom he is trying to forge a pro-US, anti-militant alliance.

The “signature at the blast site and the modus operandi” suggested the involvement of militants linked to warlord Baitullah Mehsud and al-Qaeda, said Ghulam Muhammad Mohtarem, the head security official in the province where Mehsud is based.

“We were already fearing a strike from Mehsud and his local affiliates and this were conveyed to the (Bhutto’s Pakistan’s) People’s Party but they got carried away by political exigencies instead of taking our concern seriously,” Mohtarem said.

There was no claim of responsibility for the bombing of Bhutto’s convoy, which killed up to 136 people as she triumphantly paraded through her hometown of Karachi on Thursday.

On the eve of her return from eight years in self-imposed exile, a provincial government official had cited intelligence reports that three suicide bombers linked to Mehsud were in Karachi. The local government had also warned Bhutto could be targeted by Taliban or al-Qaeda.

Local media reports this month quoted Mehsud — probably the most prominent leader of Islamic militants destabilising its north-western border regions near Afghanistan — as vowing to meet Bhutto’s return to Pakistan with suicide attacks.

It remained unclear if the attack would stiffen Bhutto and Musharraf’s resolve to fight militancy together or strain the already bad relations between Bhutto and the ruling party supporting Musharraf.

Bhutto’s husband said on Dawn News television that he suspected “elements sitting within the government,” who would lose out if Bhutto returned to power, were involved in the bombing.

He didn’t elaborate, though Bhutto has accused conservatives in the ruling Pakistan Muslim League-Q party and the security services of secretly supporting religious extremists. Bhutto has made enemies of Islamic militants by taking a pro-US line and negotiating a possible alliance with Musharraf, who is detested by militants for his alliance with the Bush administration.

Musharraf and Bhutto have been long-time rivals despite their shared liberal values, but his camp said he was “deeply shocked” by the midnight explosions, which went off near the armored truck carrying Bhutto, tearing victims apart and throwing a fireball into the night sky.

Officials at six hospitals in Karachi reported 136 dead and around 250 wounded, making it one of the deadliest bombings in Pakistan’s history. Karachi police chief Azhar Farooqi said that 113 people died, including 20 policemen, and that 300 people were wounded. It was not immediately possible to reconcile the death tolls.

The attack shattered the windows of the truck but police said Bhutto was unhurt and was hurried to her house. An Associated Press photo showed a dazed-looking Bhutto being helped away from the scene.

The general “condemned this attack in the strongest possible words. He said this was a conspiracy against democracy,” the state-run Associated Press of Pakistan said.

Musharraf appealed for calm, promised an exhaustive investigation and stiff punishment for those responsible, APP reported.

Presidential spokesman Rashid Qureshi said he doubted the attack would deflect Bhutto from her move toward an alliance with Musharraf, who seized power in a coup and has been under growing pressure to return Pakistan to a more democratic system.

“If someone thinks that by spreading this kind of terror they will stop the political process in Pakistan, I don’t think that’s correct, I don’t think that will happen,” Qureshi told The AP.

Musharraf won re-election to the presidency in a vote by lawmakers this month that is being challenged in the Supreme Court. If he is confirmed for a new five-year presidential term, Musharraf has promised to quit the military and restore civilian rule.

Musharraf believes that “all political forces need to combine to face this (militant) threat which is basically the major, major issue that faces Pakistan,” Qureshi said.

Leaders of Bhutto’s Pakistan People’s Party were meeting at her Karachi residence Friday, and Bhutto was expected to hold a news conference afterward.

Police were collecting forensic evidence � picking up pieces of flesh and discarded shoes � from the site of the bombing. The truck was hoisted away using a crane. One side of the truck, including a big portrait of the former premier was splattered with blood and riddled with shrapnel holes.

Interior Minister Aftab Khan Sherpao said 18 police died in the attack, and two police vehicles on the left side of Bhutto’s truck had borne the brunt of the blast.

He said authorities had done everything possible to protect the huge gathering, but noted that electronic jammers fitted to the police escort vehicles were ineffective against a manually detonated bomb.

In Karachi, which lies in the far south of Pakistan but has been buffeted by militant attacks in recent years, schools were closed and traffic was thin, with residents wary of venturing into the streets.

Unrest broke in two districts but did not appear serious. Hundreds of Bhutto supporters hurled stones at vehicles and shops during a funeral procession for two victims, forcing police to cordon off the area. Elsewhere, Bhutto supporters ordered shops to close and burned tires in the road.

Bhutto had paved her route back to Pakistan through negotiations with Musharraf that yielded an amnesty covering the corruption charges that made Bhutto leave Pakistan.

Authorities had warned Bhutto that extremists sympathetic to the Taliban and al-Qaeda could target her in Karachi and urged her in vain to use a helicopter to reduce the risk.

“I am not scared. I am thinking of my mission,” she had told reporters on the plane from Dubai.

On arrival, she told AP Television News she was fighting for democracy and to help this nuclear-armed country of 160 million people defeat the extremism that gave it the reputation as a hotbed of international terrorism.

“That’s not the real image of Pakistan,” she said.

Leaving the airport, Bhutto refused to use the bullet-proof glass cubicle that had been built atop the truck taking her toward the tomb of Pakistan’s founding father, Mohammed Ali Jinnah. An AP photographer who saw the cubicle of the wrecked truck on Friday said it appeared to have shrapnel holes from the bombing.

Her procession had been creeping toward the centre of Karachi for 10 hours, as supporters thronged her truck, when a small explosion erupted near the front of the vehicle.

That was quickly followed by a larger blast, destroying two escorting police vans.

The former premier had just gone to a downstairs compartment in the truck for a rest when the blast occurred, said Christina Lamb, Bhutto’s biographer.

“So she wasn’t on top in the open like rest of us, so that just saved her,” Lamb told Sky News.

The United States, the United Nations and the European Union condemned the attack.

“Extremists will not be allowed to stop Pakistanis from selecting their representatives through an open and democratic process,” said Gordon Johndroe, President Bush’s foreign affairs spokesman.

Why, Even If You Have Nothing To Hide, Government Surveillance Threatens Your Freedom

The Case Against Expanding Foreign Intelligence Surveillance Act Powers

JOHN W. DEAN
Find Law
Friday October 19, 2007

"I've got nothing to hide, so electronic surveillance doesn't bother me. To the contrary, I'm delighted that the Bush Administration is monitoring calls and electronic traffic on a massive scale, because catching terrorists is far more important that worrying about the government's listening to my phone calls, or reading my emails." So the argument goes. It is a powerful one that has seduced too many people.

Millions of Americans buy this logic, and in accepting it, believe they are doing the right thing for themselves, their family, and their friends, neighbors, community and country. They are sadly wrong. If you accept this argument, you have been badly fooled.

This contention is being bantered about once again, so there is no better time than the present to set thinking people straight. Bush and Cheney want to make permanent unchecked Executive powers to electronically eavesdrop on anyone whom any President feels to be of interest. In August, before the summer recess, Congress enacted the Protect America Act, which provided only temporary approval for the expanding Executive powers under the Foreign Intelligence Surveillance Act (FISA). These temporary powers expire in February 2008, so Congress is once again addressing the subject.

The FISA Amendments: The Administration Is Seeking Immunity for Miscreants

Because of the way electronic traffic is directed from foreign countries through the United States, the FISA Court had previously rejected requests to intercept certain foreign-person- to-foreign-person communications in the United States. It was a technical problem, arising from the fact that FISA was written before modern data routing had been designed, and FISA thus needed fixing. On this, everyone agreed.

However, when the Bush Administration asked for the necessary fix to FISA, it also requested much more, including immunity under the existing laws for all the telecommunications companies that have been assisting the government in its illegal warrantless surveillance. Significantly, this practice - justified by reference to the "war on terror" - apparently started well before 9/11 under the Bush Administration.

Ironically, in requesting this immunity, the Bush White House has refused to disclose exactly what type of activities Congress would be retroactively immunizing. Preliminary congressional inquiry has revealed that a massive amount of electronic surveillance of Americans has gone on under the Bush/Cheney Administration. For example, one of the telecom giants, Verizon, reported that between January 2005 and September 2007 they provided information on 94,000 occasions. These numbers suggest that Verizon was operating as merely another (and a secret) extension of the federal intelligence establishment.

Many of the companies appear to be violating a number of federal criminal statutes - such as 18 U.S.C. 2511, which requires a warrant for such surveillance and 18 U.S.C. 2702, which prohibits any "entity providing an electronic communication service to the public" from knowingly divulging "to any person or entity the contents of a communication" without a court order.

Currently, the telecoms are not likely to be particularly worried about being prosecuted by the very same government that instructed them to violate the law, and is leading the way in doing so itself.

But what about under the next Administration? The five-year statute of limitations will make them potentially criminally liable after Bush is gone - at least, unless the Bush Administration gains for them retroactive and future immunity. In a new Administration, the telecoms may be viewed not as cooperative patriots, but rather as criminal co-conspirators.

Civil Liability Appears To Be Driving the Immunity Request

Meanwhile, civil liability for these companies is also a realistic prospect. For example, in a San Francisco federal court, AT&T customers are seeking to protect their privacy with actions under laws like 18 U.S.C. 2520, which provides a civil remedy and hefty damages -- ranging up to $10,000 per day per violation. Since it is possible that, over five-plus years, there have been tens upon tens of thousands of such violations, the, if liable telecoms could be looking at hundreds upon hundreds of millions of dollars of damages.

The Bush Administration clearly wants to help its partners in crime; it also wants to avoid accountability for what it has done and is still doing. If the civil litigation proceeds - and one judge already ruled that the "state secrets" privilege does not prevent the plaintiffs from going forward - the Bush Administration faces the risk of a federal court's forcing it to disclose its unsavory surveillance activities.

Privacy advocates are horrified at the prospect of Congress's potentially protecting this activity through immunity legislation. Yet, in sharp contrast, most people could care less. Indeed few people seem to care about their loss of privacy, notwithstanding the fact that, like an invisible pollutant to our air or water, it is increasingly eroding our freedom. Unfortunately, it seems that the invasion of our privacy, like the destruction of our atmosphere, may be tolerated until it is too late to fix it.

One of the leading causes of both problems is ignorance. Privacy is a highly complex issue, so people easily accept the claims of those who assert that, if you are not doing anything illegal, you have nothing to be concerned about government surveillance, and if you are, you have no right to privacy to break the law.

Understanding the Misunderstanding about Privacy

For several years I have been reading the work of George Washington University Law School Professor Daniel J. Solove, who writes extensively about privacy in the context of contemporary digital technology. The current apathy about government surveillance brought to mind his essay "'I've Got Nothing To Hide' And Other Misunderstandings of Privacy."

Professor Solove's deconstruction of the "I've got nothing to hide" position, and related justifications for government surveillance, is the best brief analysis of this issue I have found. These arguments are not easy to zap because, once they are on the table, they can set the terms of the argument. As Solove explains, "the problem with the nothing to hide argument is with its underlying assumption that privacy is about hiding bad things." He warns, "Agreeing with this assumption concedes far too much ground and leads to an unproductive discussion of information people would likely want or not want to hide." Solove's bottom line is that this argument "myopically views privacy as a form of concealment or secrecy."

In his work, Solove addresses the reality that privacy problems differ: Not all are equal; some are more harmful than others. Most importantly, he writes, "to understand privacy, we must conceptualize it and its value more pluralistically." Through several years of work, Solove has developed a more nuanced concept of privacy that rebuts the idea that there is a "one-size-fits-all conception of privacy."

The concept of "privacy" encompasses many ideas relating to the proper and improper use and abuse of information about people within society. Privacy protects information not only because it would cause others to think less of the person at issue, but also simply to give us all breathing room: "Society involves a great deal of friction," Solove writes, "and we are constantly clashing with each other. Part of what makes a society a good place in which to live is the extent to which it allows people freedom from the intrusiveness of others. A society without privacy protection would be suffocation, and it might not be a place in which most would want to live."

Professor Solove's work - much of which he makes available online - helps clarify thinking about privacy in its fuller context, and helps explain what is wrong with reductive dismissals of privacy using the mantra, "I've got nothing to hide." Before rushing to give the Bush Administration more ways to invade our privacy, not to mention absolving those who have confederated with him to engage in the most massive invasion of America privacy ever, members of Congress should look at Solove's work. Too many of them have no idea what privacy is all about, and grossly underestimate the value of this complex and essential concept.

Bomb scare disrupts Topoff drill

Joseph Rose
The Oregonian
Friday October 19, 2007

The Topoff dirty-bomb drill turned into a real-life bomb scare this afternoon after a trio of bomb-sniffing dogs alerted authorities to possible explosives on the first floor of the parking garage of the Doubletree Hotel Portland at 1000 NE Multnomah Street. Michael Chertoff, secretary of the U.S. Department of Homeland Security, was scheduled to be at the hotel for part of the Topoff counterterrorism exercise later in the day.

Here is what Faith Cathcart of The Oregonian found at the scene:

Turkish troops along Iraqi border on high alert

RIA Novosti
Friday October 19, 2007

Turkish troops amassed along the Iraqi border are on high alert, Turkish media reported on Friday.

On Wednesday, Turkey's parliament sanctioned military cross-border operations against some 3,500 Kurdish separatists in northern Iraq, following a government request earlier this week.

Prime Minister Recep Tayyip Erdogan said on Tuesday that parliamentary approval did not necessarily mean that the operation would begin immediately: "It will be conducted when the time is right, when necessary."

According to the Sabah newspaper, troops are still involved in operations against Kurdish militants in the Kato mountains in Turkey's southwest province of Sirnak.

Local media also report that the Turkish Army commander and other military officials are currently inspecting troops in the area.

Commenting on the situation, a Russian Foreign Ministry spokesman said: "We call on the Turkish and Iraqi parties to make discussions between the two countries' leaders as constructive as possible. In the search for a necessary political solution to the present acute problems, [the parties] should be guided by the interests of regional security and stability, as well as the strengthening of Iraqi state sovereignty and territorial integrity".

The U.S. has urged Turkey not to launch a cross-border offensive against Kurdish rebels and President George Bush said: "We are making it very clear to Turkey that we don't think it is in their interests to send troops into Iraq."

Iraq has protested against Turkish military action on its territory, calling it "aggression against Iraq and its territorial integrity." Erdogan responded that Ankara was not after Iraq's territory or sovereignty, but sought to counter the mounting terrorism threat emanating from the country.

Iraq's Deputy Prime Minister Barham Saleh earlier said he was relying on the U.S. to stop the Turkish armed forces from invading: "We hope that the U.S. will help us prevent any intrusion of regional forces."

He said any Turkish military intrusion would set a "dangerous precedent for the region." He also called on Turkey to develop bilateral cooperation with the Iraqi Kurdistan government.

"The elected Turkish government has a chance to develop economical and political cooperation with Kurdistan, putting an end to the vicious circle of violence," he said, adding that the dispute had a long history, and could not be solved by force.

Iraqi Kurds themselves have made it clear they are ready to answer any aggression. The AFP news agency quotes a statement issued from the office of Kurdish regional president Massoud Barzani as saying: "We say to all parties: if they attack the region or the Kurdistan experiment under whatever pretext, we will be completely ready to defend our democratic experiment and the dignity of our people and the sanctity of our homeland".

The Turkish armed forces conducted a number of operations in the area between 1992 and 2002. In the largest of these, 1997's operation "Hammer," some Kurdish 2,700 militants were killed.

Local media said the Turkish leadership was considering imposing sanctions against Massoud Barzani, president of the Autonomous Kurdish Government in Iraq and leader of the Kurdistan Democratic Party, accusing him of supporting the PKK. The party has been fighting for autonomy status in southeast Turkey for nearly 25 years. The conflict has so far claimed about 40,000 lives.