By George Friedman
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After a three-month hiatus, Iran seems set to re-emerge near the top of the U.S. agenda. Last week, the Iranian government congratulated U.S. President-elect Barack Obama on his Nov. 4 electoral victory. This marks the first time since the Iranian Revolution that such greetings have been sent.
While it seems trivial, the gesture is quite significant. It represents a diplomatic way for the Iranians to announce that they regard Obama’s election as offering a potential breakthrough in 30 years of U.S. relations with Iran. At his press conference, Obama said he does not yet have a response to the congratulatory message, and reiterated that he opposes Iran’s nuclear program and its support for terrorism. The Iranians returned to criticizing Obama after this, but without their usual passion.
The warming of U.S.-Iranian relations did not begin with Obama’s election; it began with the Russo-Georgian War. In the weeks and months prior to the August war, the United States had steadily increased tensions with Iran. This process proceeded along two tracks.
On one track, the United States pressed its fellow permanent members of the U.N. Security Council (Russia, China, France and the United Kingdom) and Germany to join Washington in imposing additional sanctions on Iran. U.S. Undersecretary for Political Affairs William J. Burns joined a July 19 meeting between EU foreign policy adviser Javier Solana and Iranian national security chief Saeed Jalili, which was read as a thaw in the American position on Iran. The Iranian response was ambiguous, which is a polite way of saying that Tehran wouldn’t commit to anything. The Iranians were given two weeks after the meeting to provide an answer or face new sanctions.
A second track consisted of intensified signals of potential U.S. military action. Recall the carefully leaked report published in The New York Times on June 20 regarding Israeli preparations for airstrikes against Iran. According to U.S. — not Israeli — sources, the Israeli air force rehearsed for an attack on Iran by carrying out a simulated attack over Greece and the eastern Mediterranean Sea involving more than 100 aircraft.
At the same time, reports circulated about Israeli planes using U.S. airfields in Iraq in preparation for an attack on Iran. The markets and oil prices — at a high in late July and early August — were twitching with reports of a potential blockade of Iranian ports, while the Internet was filled with lurid reports of a fleet of American and French ships on its way to carry out the blockade.
The temperature in U.S.-Iranian relations was surging, at least publicly. Then Russia and Georgia went to war, and Iran suddenly dropped off the U.S. radar screen. Washington went quiet on the entire Iranian matter, and the Israelis declared that Iran was two to five years from developing a nuclear device (as opposed to a deliverable weapon), reducing the probability of an Israeli airstrike. From Washington’s point of view, the bottom fell out of U.S. policy on Iran when the Russians and Georgians opened fire on each other.
There were two reasons for this.
First, Washington had no intention of actually carrying out airstrikes against Iran. The United States was far too tied down in other areas to do that. Nor did the Israelis intend to attack. The military obstacles to what promised to be a multiday conventional strike against Iranian targets more than a thousand miles away were more than a little daunting. Nevertheless, generating that threat of such a strike suited U.S. diplomacy. Washington wanted not only to make Iran feel threatened, but also to increase Tehran’s isolation by forging the U.N. Security Council members and Germany into a solid bloc imposing increasingly painful sanctions on Iran.
Once the Russo-Georgian War broke out, however, and the United States sided publicly and vigorously with Georgia, the chances of the Russians participating in such sanctions against Iran dissolved. As the Russians rejected the idea of increased sanctions, so did the Chinese. If the Russians and Chinese weren’t prepared to participate in sanctions, no sanctions were possible, because the Iranians could get whatever they needed from these two countries.
The second reason was more important. As U.S.-Russian relations deteriorated, each side looked for levers to control the other. For the Russians, one of the best levers with the Americans was the threat of selling weapons to Iran. From the U.S. point of view, not only would weapon sales to Iran make it more difficult to attack Iran, but the weapons would find their way to Hezbollah and other undesirable players. The United States did not want the Russians selling weapons, but the Russians were being unpredictable. Therefore, while the Russians had the potential to offer Iran weapons, the United States wanted to reduce Iran’s incentive for accepting those weapons.
The Iranians have a long history with the Russians, including the occupation of northern Iran by Russia during World War II. The Russians are close to Iran, and the Americans are far away. Tehran’s desire to get closer to the Russians is therefore limited, although under pressure Iran would certainly purchase weapons from Russia, just as it has purchased nuclear technology in the past. With the purchase of advanced weapons would come Russian advisers — something that might not be to Iran’s liking unless it were absolutely necessary.
The United States did not want to give Iran a motive for closing an arms deal with Russia, leaving aside the question of whether the Russian threat to sell weapons was anything more than a bargaining chip with the Americans. With Washington rhetorically pounding Russia, pounding Iran at the same time made no sense. For one thing, the Iranians, like the Russians, knew the Americans were spread too thin. Also, the United States suddenly had to reverse its position on Iran. Prior to Aug. 8, Washington wanted the Iranians to feel embattled; after Aug. 8, the last thing the United States wanted was for the Iranians to feel under threat. In a flash, Iran went from being the most important issue on the table to being barely mentioned.
Different leaks about Iran started to emerge. The Bush administration posed the idea of opening a U.S. interest section in Iran, the lowest form of diplomatic recognition (but diplomatic recognition nonetheless). This idea had been floated June 23, but now it was being floated after the Russo-Georgian War. The initial discussion of the interest section seemed to calm the atmosphere, but the idea went away.
Then, just before U.S. presidential elections in November, the reports re-emerged, this time in the context of a new administration. According to the leaks, U.S. President George W. Bush intended to open diplomatic relations with Iran after the election regardless of who won, in order to free the next president from the burden of opening relations with Iran. In other words, if Obama won, Bush was prepared to provide cover with the American right on an opening to Iran.
If we take these leaks seriously — and we do — this means Bush has concluded that a formal opening to Iran is necessary. Indeed, the Bush administration has been operating on this premise ever since the U.S. troop surge in Iraq. Two things were clear to the Bush administration in 2007: first, that the United States had to make a deal with the Iraqi Sunni nationalist insurgents; and second, that while the Iranians might not be able to impose a pro-Iranian government in Baghdad, Tehran had enough leverage with enough Iraq Shiite factions to disrupt Iraq, and thus disrupt the peace process. Therefore, without an understanding with Iran, a U.S. withdrawal from Iraq would be difficult and full of potentially unpleasant consequences, regardless of who is in the White House.
The issue of Iran’s nuclear program was part of this negotiation. The Iranians were less interested in building a nuclear weapon than in having the United States believe they were building one. As Tehran learned by observing the U.S. reaction to North Korea, Washington has a nuclear phobia. Tehran thus hoped it could use the threat of a nuclear program to force the United States to be more forthcoming on Iranian interests in Iraq, a matter of fundamental importance to Iran. At the same time, the United States had no appetite for bombing Iran, but used the threat of attacks as leverage to get the Iranians to be more tractable.
The Iranians in 2007 withdrew their support from destabilizing elements in Iraq like Muqtada al-Sadr, contributing to a dramatic decline in violence in Iraq. In return, Iran wanted to see an American commitment to withdraw from Iraq on a set timetable. Washington was unprepared to make that commitment. Current talks over a Status of Forces Agreement (SOFA) between Washington and Baghdad revolve around just this issue. The Iraqi Shia are demanding a fixed timetable, while the Kurds and Sunnis — not to mention foreign governments like Saudi Arabia — seem to be more comfortable with a residual U.S. force in place to guarantee political agreements.
The Shia are clearly being influenced by Iran on the SOFA issue, as their interests align. The Sunnis and Kurds, however, fear this agreement. In their view, the withdrawal of U.S. forces on a fixed timetable will create a vacuum in Iraq that the Iranians eventually will fill, at the very least by having a government in Baghdad that Tehran can influence. The Kurds and Sunnis are deeply concerned about their own security in such an event. Therefore, the SOFA is not moving toward fruition.
There is a fundamental issue blocking the agreement. The United States has agreed to an Iraqi government that is neutral between Washington and Tehran. That is a major defeat for the United States, but an unavoidable one under the circumstances. But a U.S. withdrawal without a residual force means that the Iranians will be the dominant force in the region, and this is not something United States — along with the Iraqi Kurds and Sunnis, the Saudis and Israelis — wants. Therefore the SOFA remains in gridlock, with the specter of Russian-Iranian ties complicating the situation.
Obama’s position during the election was that he favored a timed U.S. withdrawal from Iraq, but he was ambiguous about whether he would want a residual force kept there. Clearly, the Shia and Iranians are more favorably inclined toward Obama than Bush because of Obama’s views on a general withdrawal by a certain date and the possibility of a complete withdrawal. This means that Obama must be extremely careful politically. The American political right is wounded but far from dead, and it would strike hard if it appeared Obama was preparing to give Iran a free hand in Iraq.
One possible way for Obama to proceed would be to keep Russia and Iran from moving closer together. Last week, Obama’s advisers insisted their camp has made no firm commitments on ballistic missile defense (BMD) installations in Poland and the Czech Republic, repudiating claims by Polish President Lech Kaczynski that the new U.S. president-elect had assured him of firm support during a Nov. 8 phone conversation. This is an enormous issue for the Russians.
It is not clear in how broad of a context the idea of avoiding firm commitments on BMD was mentioned, but it might go a long way toward keeping Russia happy and therefore making Moscow less likely to provide aid — material or psychological — to the Iranians. Making Iran feel as isolated as possible, without forcing it into dependence on Russia, is critical to a satisfactory solution for the United States in Iraq.
Complicating this are what appear to be serious political issues in Iran. Iranian President Mahmoud Ahmadinejad has been attacked for his handling of the economy. He has seen an ally forced from the Interior Ministry and the head of the Iranian central bank replaced. Ahmadinejad has even come under criticism for his views on Israel, with critics saying that he has achieved nothing and lost much through his statements. He therefore appears to be on the defensive.
The gridlock in Baghdad is not over a tedious diplomatic point, but over the future of Iraq and its relation to Iran. At the same time, there appears to be a debate going on in Iran over whether Ahmadinejad’s policies have improved the outlook for Iran’s role in Iraq. Finally, any serious thoughts the Iranians might have had about cozying up to the Russians have dissipated since August, and Obama might have made them even more distant. Still, Obama’s apparent commitment to a timed, complete withdrawal of U.S. forces poses complexities. His advisers have already hinted at flexibility on these issues.
We think that Bush will — after all his leaks — smooth the way for Obama by opening diplomatic relations with Iran. From a political point of view, this will allow Bush to take some credit for any breakthrough. But from the point of view of U.S. national interest, going public with conversations that have taken place privately over the past couple of years (along with some formal, public meetings in Baghdad) makes a great deal of sense. It could possibly create an internal dynamic in Iran that would force Ahmadinejad out, or at least weaken him. It could potentially break the logjam over the SOFA in Baghdad, and it could even stabilize the region.
The critical question will not be the timing of the U.S. withdrawal. It will be the residual force — whether an American force of 20,000 to 40,000 troops will remain to guarantee that Iran does not have undue influence in Iraq, and that Sunni and Kurdish interests are protected. Obama promised to end the war in Iraq, and he promised to withdraw all U.S. troops. He might have to deal with the fact that he can have the former only if he compromises on the latter. But he has left himself enough room for maneuver that he can do just that.
It seems clear that Iran will now return to the top of the U.S. foreign policy agenda. If Bush re-establishes formal diplomatic relations with Iran at some level, and if Obama responds to Iranian congratulations in a positive way, then an interesting dynamic will be in place well before Inauguration Day. The key will be the Nov. 10 meeting between Bush and Obama.
Bush wants to make a move that saves some of his legacy; Obama knows he will have to deal with Iran and even make concessions. Obama also knows the political price he will have to pay if he does. If Bush makes the first move, it will make things politically easier for Obama. Obama can afford to let Bush take the first step if it makes the subsequent steps easier for the Obama administration. But first, there must be an understanding between Bush and Obama. Then can there be an understanding between the United States and Iran, and then there can be an understanding among Iraqi Shia, Sunnis and Kurds. And then history can move on.
There are many understandings in the way of history.
This report may be forwarded or republished on your website with attribution to www.stratfor.com
If you think that the current economic crisis is something that has never happened in history before, you may be wrong! After the collapse of the agriculture sector in Zimbabwe in 2000, the inflation in that country skyrocketed to 231 million percent a year! Just think about it - 231 000 000%! Unemployment went up to 80% and a third of country’s population left it.
Let`s now have a look at the photos that you may not be able to see anywhere else in the world.
Here is a boy getting change in 200 000 dollar notes!
One 200 000 dollar note equals less than $0.10 cents.
December 22nd, a new note of 500 000 dollars introduced to the market!
Next - 750 000 dollars.
January - new note of 10 million dollars.
This US $10 dollar note is 10 times worth more than the 10 million dollars Zimbabwe note.
A case worth 65 billion Zimbabwe dollars which equals to $2000 US dollars.
This guy is going to a supermarket. The exchange rate is 25 million Zimbabwe dollars for 1 US dollar.
This mountain of cash is worth $100.
50 Million note is then introduced!
Next is 250 million dollars note!
Sorry, how much is this t-shirt?
- It`s cheap, only about 3 billion dollars!
May - a note of 500 million dollars is introduced!
June - note worth 25 and 50 billion are printed.
And finally - 100 billion dollars note!
What can you buy for it? Well, these 3 eggs for example.
That's how people went to restaurants!
And the bills:
In August, the government devalued Zimbabwe dollar by removing 10 zeros from notes.
However, inflation kept going up and in September for this amount of cash you could only buy 4 tomatoes.
And for this - some bread.
And then it started again: 20 000 dollars note in September.
50 000 a couple of weeks ago!
They`ve got a pretty good chance of hitting billion dollar notes again by the end of this year!
syrena (guest) Yesterday: 5:42 am haha miket…
u really do not know much about life! u are still on the safe ground, as i see.
we, everybody white, in europe, have enormous inflation not long time ago.
our asses works more than 16 h every day.
MikeT (guest) Yesterday: 6:35 am Your asses sit under a TREE all day. Us white Europeans have been there and watched you.
jogleason (guest) Yesterday: 8:09 am Show me an organization,town, city or country run by black people that isnt corrupt. That is their culture.
mikel (guest) Yesterday: 9:42 am As always, this must be the fault of the US. It always is. And stupid people will always believe it.
Qatar Boy (guest) Yesterday: 10:31 am This is amazing. I wander if they had a trillion note - with a speed our gov is handing out right now they may as well print a trillion dollar one.
Cheers,
Amar
De verdad os creeis que hay inflaccion??? - Page 2 - Burbuja Econ (guest) Yesterday: 10:39 am [...] Inflaci
Ella (guest) Yesterday: 4:08 pm Oh my gosh…that’s really sad and funny at the same time.
daisy (guest) Yesterday: 5:53 pm Isn’t socialism wonderful?
Harry Tran’s Daily 101 » Blog Archive » Housing October 30, 2008 (guest) Yesterday: 9:00 pm [...] tells banks to start using that money on homes Home prices still falling amid gloomy forecast What the real crisis is like Evil Wall Street Exports Boomed With `Fools’ Born to Buy Debt Another plunge in home prices [...]
mouse209 (guest) Today: 9 hours ago Basically they are printing “annual currency”. A new dollar - a new picture -a new year. They need a barter-type non-currency system (e.g. 1bundle of wheat=3eggs… or…1week of work=1live chicken). imho
Inflação e crescimento económico « O Insurgente (guest) Today: 5 hours ago [...] retirada daqui (via Incentives [...]
From breadbasket to basket case (guest) Today: 5 hours ago The stronger the political centre, the more pervasive the level of incompetence.
See what happens when a country is taken over by leaders who know nothing about economics. JFK, LBJ, Nixon, Ford, Carter, Reagan, Bush I, Clinton, Bush II, Clinton II, Obama, McCain, etc….
Ron Paul is the only candidate who knew anything about economics. And the media made sure he got minimal treatment because the corporate sponsors want to keep the borrowing in place so that all the position holders can keep living well whilst creating nothing to society.
In the US, the UK, Spain, and many other countries, structural reform is not possible - the idiot complex is in charge and support is given to clueless showmen like Show-Bama.
PHD in Absurdity, University of Poshness and PC-ness (guest) Today: 5 hours ago Can we have a more politically correct interpretation of events ? I mean what about the feminist perspective ? Are the giraffes on the currency representative of the various sexual orientations ? And how many currency notes does it take to pay for a lazy useless feminist academic in a job in a posh university in Zimbabwe ? What about the planet ? Are the newspapers able to voice concern over the fact that Sarah Palin might become President of the United States, and that she might tell feminists to start behaving like real women instead of masters of absurdity ? Perish the thought, that such critical concerns are not relevant in the ordinary lives of the inhabitants !! Where is the sexual revolution ? Where are the young women and their contraceptives and their liberation revolution and their pop music ? Where is the fashion industry to express the importance of triviality in everyday life ? What about celebrations for the Marxist achievements of the regime ? What about university studies to extrapolate the new dimensions to living in such as profoundly expressive and stimulating society ? What about celebrations of the pride that has been recovered from colonialism - and the fact that male domination is positively circumcised ?
Jam Kam (guest) Today: 2 hours ago There is nothing funny about anyhting going on in Zimbabwe. Talk politics, talk economics…. What’s happening there is absolutely surreal.
war (guest) Today: 18 seconds ago jogleason (guest) Yesterday: 8:09 am. “Show me an organization,town, city or country run by black people that isnt corrupt. That is their culture.”
Right. ‘Cos there’s no corruption in the US or Europe is there? Oh wait, yes there is.
The American Government just robbed the US taxpayers of 850 billion dollars and gave all that money to their buddies in the banks who are already turning all that loot into fat bonuses for their top boys. Think of all the schools, hospitals, they could have built with that.
The same is happening all across Europe.
Western Governments are the kings of corruption. They just rely on a population of morons to not notice, that’s all.
The Fed is privately owned. Its shareholders are private banks.
"Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders." The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s
The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations.1 In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world's largest insurance company. The Fed announced on September 16 that it was giving an $85 billion loan to American International Group (AIG) for a nearly 80% stake in the mega-insurer. The Associated Press called it a "government takeover," but this was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie Mae and Freddie Mac the week before, the Fed is not a government-owned agency. Also unprecedented was the way the deal was funded. The Associated Press reported:
"The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs."2
This is extraordinary. Why is the Treasury issuing U.S. government bonds (or debt) to fund the Fed, which is itself supposedly "the lender of last resort" created to fund the banks and the federal government? Yahoo Finance reported on September 17:
"The Treasury is setting up a temporary financing program at the Fed's request. The program will auction Treasury bills to raise cash for the Fed's use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters."
Normally, the Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government's I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes. Now, it seems, the government is issuing bonds, not for its own use, but for the use of the Fed! Perhaps the plan is to swap them with the banks' dodgy derivatives collateral directly, without actually putting them up for sale to outside buyers. According to Wikipedia (which translates Fedspeak into somewhat clearer terms than the Fed's own website):
"The Term Securities Lending Facility is a 28-day facility that will offer Treasury general collateral to the Federal Reserve Bank of New York's primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. . . . The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable."
"To switch debt that is less liquid for U.S. government securities that are easily tradable" means that the government gets the banks' toxic derivative debt, and the banks get the government's triple-A securities. Unlike the risky derivative debt, federal securities are considered "risk-free" for purposes of determining capital requirements, allowing the banks to improve their capital position so they can make new loans. (See E. Brown, "Bailout Bedlam," webofdebt.com/articles, October 2, 2008.)
In its latest power play, on October 3, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. Reuters reported on October 3:
"The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank."3
If the Fed's money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks' own reserves reserves maintained for their own private profit. These increasingly controversial encroachments on the public purse warrant a closer look at the central banking scheme itself. Who owns the Federal Reserve, who actually controls it, where does it get its money, and whose interests is it serving?
Not Private and Not for Profit?
The Fed's website insists that it is not a private corporation, is not operated for profit, and is not funded by Congress. But is that true? The Federal Reserve was set up in 1913 as a "lender of last resort" to backstop bank runs, following a particularly bad bank panic in 1907. The Fed's mandate was then and continues to be to keep the private banking system intact; and that means keeping intact the system's most valuable asset, a monopoly on creating the national money supply. Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads.4 The Fed's website attempts to gloss over its role as chief defender and protector of this private banking club, but let's take a closer look. The website states:
* "The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year."
* "[The Federal Reserve] is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."
* "The Federal Reserve's income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. . . . After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury."5
So let's review:
1. The Fed is privately owned.
Its shareholders are private banks. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government.
2. The fact that the Fed does not get "appropriations" from Congress basically means that it gets its money from Congress without congressional approval, by engaging in "open market operations."
Here is how it works: When the government is short of funds, the Treasury issues bonds and delivers them to bond dealers, which auction them off. When the Fed wants to "expand the money supply" (create money), it steps in and buys bonds from these dealers with newly-issued dollars acquired by the Fed for the cost of writing them into an account on a computer screen. These maneuvers are called "open market operations" because the Fed buys the bonds on the "open market" from the bond dealers. The bonds then become the "reserves" that the banking establishment uses to back its loans. In another bit of sleight of hand known as "fractional reserve" lending, the same reserves are lent many times over, further expanding the money supply, generating interest for the banks with each loan. It was this money-creating process that prompted Wright Patman, Chairman of the House Banking and Currency Committee in the 1960s, to call the Federal Reserve "a total money-making machine." He wrote:
"When the Federal Reserve writes a check for a government bond it does exactly what any bank does, it creates money, it created money purely and simply by writing a check."
3. The Fed generates profits for its shareholders.
The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed's operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered "for profit" corporations.
In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their "reserves." The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in "reserve" can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H.8 puts the total "loans and leases in bank credit" as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.
The banks earn these returns from the taxpayers for the privilege of having the banks' interests protected by an all-powerful independent private central bank, even when those interests may be opposed to the taxpayers' -- for example, when the banks use their special status as private money creators to fund speculative derivative schemes that threaten to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other corporations) can borrow at the low Fed funds rate of about 2%. They can then turn around and put this money into 30-year Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers, just by virtue of their position as favored banks. A long list of banks (but not other corporations) is also now protected from the short selling that can crash the price of other stocks.
Time to Change the Statute?
According to the Fed's website, the control Congress has over the Federal Reserve is limited to this:
"[T]he Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute."
As we know from watching the business news, "oversight" basically means that Congress gets to see the results when it's over. The Fed periodically reports to Congress, but the Fed doesn't ask; it tells. The only real leverage Congress has over the Fed is that it "can alter its responsibilities by statute." It is time for Congress to exercise that leverage and make the Federal Reserve a truly federal agency, acting by and for the people through their elected representatives. If the Fed can demand AIG's stock in return for an $85 billion loan to the mega-insurer, we can demand the Fed's stock in return for the trillion-or-so dollars we'll be advancing to bail out the private banking system from its follies.
If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves. Among other benefits to the taxpayers. a truly "federal" Federal Reserve could lend the full faith and credit of the United States to state and local governments interest-free, cutting the cost of infrastructure in half, restoring the thriving local economies of earlier decades.
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are www.webofdebt.com and www.ellenbrown.com .
Recommended by: http://dum-spiro-spero.info/infopreneur
Free market is dead - long live the free market
(Don’t pull the Devil by the tail)
The current financial crisis has provoked a multitude of problems and fierce discussions over the reasons, consequences and the prospects of the attempted bail-outs, reaching even the fundamental values of capitalism - the free market and democracy. After all, Government regulation in the form of a temporary cash bail-out via partial or total nationalization is an unprecedented intervention. Whether associated with “socialism” or not, the fact is that someone else in a bureaucratic entity, possibly an ordinary non-elected poor employee, is going to gain control over a private person’s assets, money and actions. It also means that taxpayers and future generations will bear the burden of someone else’s debts.
Is it not an irony of history that those who proclaimed collective state ownership the worst evil and worshipped privatization now plead for nationalization and turn to the state to bail them out of bankruptcy? What does this portend in the long run – an end to privatization or a complex reform of the free market system, or its collapse, especially when the inevitable international consequences are taken into account?
One thing is already clear: economic changes of such a gravity cannot but lead to very deep and far-reaching political and social effects transforming our societies and the world at large.
Apologists for capitalism all over the world who are aware of these long-term prospects are fearful of the return of Marx's specter.
Z. Brzezinski sees this specter in US self-complacency: “We had a strong alternative in the face of the Soviet block which stimulated us to move forward, to be an example of humanism for the whole world and to achieve results that were approved and envied by the oppressed all over the world. Now this has disappeared, we have relaxed and fallen back into our own self-complacency that we had achieved a victory over communism.”
George Soros – one of the richest self-made men in the world - sees the specter in the form of the anarchy of finance capital. A long time ago he claimed that the global finance system was out of control and needed to be regulated. His calls for a return to an "international regulator" like Bretton Woods, or some body attached to the IMF, have been repeatedly disregarded. He feared that the casino of finance capital would bring an end to the new world order and provoke a return to anarchy and social revolution. Have his warnings been heeded? Not until recently.
Anthony Giddens – another prominent apologist for capitalism - sees the specter in the rise of left or right fundamentalist ideologies and social upheavals.
A famous New York humor columnist ridiculed the harsh language on workers, class struggle and revolution as the midwife of history of Marxists as being out of zinc with today’s realities.
“I know you want to help the workers, guys, but with language like that, how many actual workers are going to read this thing? And, FYI, we don't like to be called "workers" or "laborers" or even "employees" - we prefer to be called "consumers." As consumers, we are not "forced" to do anything. As consumers, we are empowered to make important daily decisions about whether we will consume the GAP or Old Navy; Iraq or Venezuela; salmonella or E. coli; unaffordable health insurance or no health insurance.”
However, both the professional and less serious apologists for capitalism have hopes or plans to avoid a global collapse like the Great Depression during the 30’s of the 20th Century leading to the rise of fascism and the Second World War. In fact all of us hope to avoid such a global catastrophe.
However, the current financial crisis has brought us down to earth and re-opened the gate for a some open rethinking of what is going on in today’s world, for discussions of capitalism and democracy as a system, for criticisms against it, for ideas and proposals of alternatives, and, of course, for practical actions.
Some critically minded authors versed in the Marxist tradition have already sarcastically noted that apologists for capitalism have posed the current problem in terms long time familiar to them: the contradiction between dead and living labor and the rise of the dead reclaimed by the living.
Others have remarked that any analogy with 19 Century conditions and social recipes based on those conditions are ridiculous and not the best approach to today’s problems.
There is one thing in common though with the above vastly different view-points. This is the big question: is there a way out for capitalism from the dead-end created by itself?
The leaders of USA and Europe have pinned their hopes and actions on a number of attempts to bail-out the banking sector. More or less this strategy is clear to all. The keyword is nationalization. Its implementation has already started. But is it going to work? Is it possible to implement solutions of a large array of particular problems related to the financial crisis or underlying it like rising unemployment, global competition for scarce resources, product quality, environment deterioration, supra-national regulation and so on without a radical change in the basic institutions of society and the present world order?
The most obvious thing to do is to look back into the recent past and see how similar policies have worked. Bail-outs in the form of nationalization are not new. There are plenty of examples of successful and unsuccessful bail-outs, both inside and outside the financial sector. The BBC has already presented a number of cases, namely:
- the successful bail out by the US Government of the airline industry after September 11th;
- the unsuccessful bail-out of Leyland Co. by the British Government via a cash injection in 1975;
- the nationalization of Rolls-Royce in 1971.
The diagram below borrowed from BBC’s website shows in figures the current banking sector bail-out:
Source: BBC News, 6 October 2008
Another possible check of the volatile prospects of this endeavor is to monitor the performance
of the stock markets. Fortunately enough, there is abundant information on the immediate reaction and downturn trend of investors whose behavior is often compared to that of a rein-deer sensing an upcoming storm. Take a look at the diagrams below of a few of the major indexes:
Stock markets: FTSE 100 index
Dow Jones:
Based on these facts and volatile data, it is too early to predict the final outcome of the corrective measures undertaken at the moment. We still have to see the positions of the new large international players. Therefore, at this stage we can engage primarily in futuristic speculations and historic analogies.
A few words on the skeptically minded. They have their arguments based also on hard facts.
The first argument is that the current financial crisis cannot be solved by the USA and the EU alone – a fact acknowledged by political leaders and reflected in the decision to convene a global meeting with the participation of new economic powers like China, Russia, India, Brazil, Mexico, etc.
The second argument is based on the convergence of a number of other crises beyond human control - the global energy crisis (depletion of crude oil resources and end of hydro-carbon era), the climate changes, the food and drinking water crises – all of which are pre-determined in the final analysis by natural factors.
The third argument is proverbially simple but no less convincing: “you cannot cook an omelet without breaking the egg” which is obviously an ideological cliche.
For this reason no scenarios for the development of the current financial-economic crisis can be excluded, especially the worst one – a global depression, social upheavals or even a series of regional wars (for energy resources).
Whatever the outcome of the pending international negotiations on the solution of the current global financial crisis, there is still another important political question that cannot be avoided: Should the ruling classes be trembling at the prospect of a social upheaval?
Obviously, the specter of social revolution is a far-fetched and unpopular idea today, especially having in mind the notion of previous “classic revolutions” like the French or Russian ones.
However, violence has many faces – for instance terrorism, and it might become a part of a worst case scenario that should not be underestimated.
As a minimum this prospect reminds us that classes, class struggle and revolutions have taken place and are facts of our history. Matter of fact speaking, they were not invented by K. Marx but by A. Smith – the father of political economy. Marx only deepened the study of these facts and commented on history: “History likes to repeat itself – the first time as a tragedy, after that as a farce”.
David Singer wrote an article “Dancing on the Grave of Revolution: 1789 and All That” that was published by the American magazine The Nation back in 1989. I am tempted to quote, in conclusion, a thought provoking piece from it:
“It is our duty, when the occasion arises, to remind them that revolutions are not just the handiwork of active minorities but the combined result of accumulated discontent and the inability of a system to offer solutions. To remind them, too, borrowing the words of Bertolt Brecht, about the violence not just of the current but of "the riverbanks that squeeze the current between them." Yet in the present Western context, the danger is not remotely of shortcuts or premature action. As higher productivity in the West produces great unemployment, revealing the contrast between our technological genius and the absurdity of our social and political organization, the image that springs to mind is not one of premature birth but of the monsters that result from an overextended, unending pregnancy.
"Pregnancy" leads to "midwife," which opens up a potentially dangerous metaphor: Marx's reference to revolutionary violence as the midwife of history has sometimes been taken too literally, reducing the historical process to its most spectacular outbursts. In practice, 1789 and 1917 were very different in nature. Whereas the French bourgeoisie gained its ascendancy within the feudal order, the Russian proletariat did nothing of the sort. Yet can one envisage a socialist revolution that would gain power at all levels before it seized power at the top-that is to say, winning cultural hegemony in the Gramscian sense as part of its conquest of power?
In any case, the historians who dismiss revolution as the curse of the Third World or merely a historical feature are not maintaining that the next social upheaval will inevitably be different from the storming of the Bastille or the seizure of the Winter Palace. They are really arguing that there will be no such upheaval at all. Clearly they are too clever, and too keen on their profession, to proclaim openly the end of history. Yet like all faithful servants of an established order, they treat that order as something filled in perpetuity. By denying its class nature, by dismissing the possibility of radically altering property and other social relations, they allow for quantitative but not qualitative change. Precluding an alternative, they limit their own vision, and that of their readers, to the capitalist horizon.
Europe's deep freeze may be drawing to an end… Who knows when a new climate will take hold in Paris, London or Berlin? ….If they stand by the ornate column that now graces the vast square where the symbolic prison fortress of the Bastille once stood and listen carefully, they may hear the rising echo of Rosa Luxemburg's parting words: "You stupid lackeys, your order is built on sand. Tomorrow the Revolution will raise its head again and proclaim to your sorrow amid a brass of trumpets: I was, I am, I shall always be...."
Author:
Petar Mitov
http://infopreneur.dum-spiro-spero.info
By Fred Burton and Scott Stewart
Over the last year or so, a lot of debate has arisen over the physical strength of al Qaeda. Some experts and government officials believe that the al Qaeda organization is now stronger than at any time since the 9/11 attacks, while others believe the core organization has lost much of its leadership and operational capability over the past seven years. The wide disparity between these two assessments may appear somewhat confusing, but a significant amount of the difference between the two can be found in the fundamental way in which al Qaeda is defined as an entity.
Many analysts supportive of the view that al Qaeda has strengthened tend to lump the entire jihadist world into one monolithic, hierarchical organization. Others, like Stratfor, who claim al Qaeda’s abilities have been degraded over the years, define the group as a small vanguard organization and only one piece of the larger jihadist pie. From Stratfor’s point of view, al Qaeda has evolved into three different — and distinct — entities. These different faces of al Qaeda include:
We believe, as we did last summer, that the core al Qaeda group has weakened and no longer poses the strategic threat to the U.S. homeland that it did prior to 9/11. However, this does not mean it is incapable of re-emerging under less pressured circumstances.
On the franchise level, some groups — such as AQIM, the Yemen franchises and the franchises in Pakistan and Afghanistan — have gained momentum over the past few years. Others — such as those in Iraq, Indonesia, Saudi Arabia, the Sinai Peninsula and Morocco — have lost steam. In our estimation, this ebb and flow has resulted in a constant threat on the franchise level, though the severity has migrated geographically as groups wax and wane in specific regions. The franchises have done little to expand their operations outside of their regions of interest and to conduct attacks against the “far enemy” — that is, attacks in the United States or Europe.
At the grassroots level, homegrown jihadists have posed a fairly consistent, though lower-level, threat. In the past, we have said that these jihadists think globally, but act locally. While there are far more grassroots jihadists than there are militants in the al Qaeda franchises and vastly more than in the small al Qaeda core, the grassroots jihadists tend to be highly motivated, but poorly equipped to conduct sophisticated terror attacks.
We believe that any realistic analysis of al Qaeda’s strength must assess more than a basic head count of militants willing and able to conduct attacks. As we have noted previously, there are two battlespaces in the war against jihadism: the physical and the ideological. Although the campaign against al Qaeda has caused the core group to become essentially marginalized in the physical battlespace, the core has undertaken great effort to remain engaged in the ideological battlespace.
In many ways, the ideological battlespace is more important than the physical battlespace in the war against jihadism, and in the jihadists’ war against the rest of the world. It is far easier to kill people than it is to kill ideologies. We have recently seen this in the resurgence of Bolivarian Revolution ideology in South America, despite the fact that Simon Bolivar, Karl Marx and Ernesto “Che” Guevara are long dead and buried. Ideology is the decisive factor that allows jihadists to recruit new fighters and gather funding for militant and propaganda operations. As long as the jihadists can recruit new militants, they can compensate for the losses they suffer on the physical battlefield. When they lose that ability, their struggle dies on the vine. Because of this, al Qaeda fears fatwas more than weapons. Weapons can kill people — but fatwas can kill the ideology that motivates people to fight and finance.
We are not the only ones who believe the ideological battlespace is critical. A video released earlier this month by al Qaeda mouthpiece As-Sahab entitled “The Word is the Word of Swords,” one of al Qaeda’s leading religious authorities, Abu Yahya al-Libi emphasized this point from within the network.
In the video, al-Libi said the jihadist battle “is not waged solely at the military and economic level, but is waged first and foremost at the level of doctrine.” He also said that his followers are in a war against an enemy that “targets all strongholds of Islam and invades the minds and ideas in the same way it invades lands and dares to destroy beliefs and meddle with the sacred things in the same way it dares to spill blood.”
Interestingly, although the video recording is dedicated to detailing the preparations for the attack on the Danish Embassy in Islamabad, the bulk of the 64-minute video addresses the ideological war against al Qaeda and how “true Islam” has been undermined by leaders such as King Abdullah and the Saudi religious establishment.
In an ironic twist, the progress of the combatants is easier to assess in the ideological rather than physical battlespace — largely because most militants plotting terror attacks attempt to stay invisible until they launch their operations, while the ideological battle is for the most part conducted in plain sight.
One such visible indication on the ideological battlefield was a book written by al Qaeda’s number two man, Ayman al-Zawahiri, which was released in March. The book — known as “The Exoneration” — is a long response to a book written by Sayyed Imam al-Sharif. Also known as Dr. Fadl, al-Sharif is an imprisoned Egyptian radical and a founder (with al-Zawahiri) of the Egyptian Islamic Jihad.
Published in 2007, al-Sharif’s book, “Rationalizing Jihadist Action in Egypt and the World,” provides theological arguments that counter many of the core jihadist teachings. Included among those teachings is the concept of takfir, or the practice of declaring a Muslim to be an unbeliever in order to justify an attack against him. Al-Sharif also spoke out against killing non-Muslims in Muslim countries and attacking members of other Muslim sects.
Al-Sharif was a significant player in the development of the jihadist theology that shaped the Egyptian Islamic Jihad (EIJ) and eventually, through al-Zawahiri and other EIJ members who became influential members of al Qaeda, al-Sharif’s concepts became instrumental in shaping the ideology of jihadism as promulgated by al Qaeda. One of his books, “The Essentials of Making Ready for Jihad,” was reportedly required reading for all new jihadist recruits at al Qaeda training camps in Afghanistan and Pakistan. The renunciation of jihadist ideology by such a pivotal figure was a significant threat — one serious enough to spur al-Zawahiri’s refutation.
The Saudi ulema or Muslim scholars and former jihadist ideologues are not the only people assailing the ideology of jihadism. Of course, Western figures, such as Dutch parliamentarian Geert Wilders have been highly critical of jihadism. But these outsiders have little ability to sway Muslim opinion on the street — a critical objective in fighting the ideological battle. In recent years, however, we have seen more Muslim figures speak out against jihadism, which they believe is a perversion of Islam. However, criticism is not without danger. Figures such as Egyptian political analyst Diaa Rashwan have been threatened with death because of their criticism of al Qaeda and jihadist ideology.
In addition to the previously discussed video, As-Sahab has released two other lengthy videos this month. The first, to commemorate the 9/11 anniversary, was called “The Harvest of Seven Years of Crusades.” The second, called “True Imam,” was released Sept. 29. Essentially, it was a tirade against the government of Pakistan and a tribute to Abdul Rashid Ghazi, who was killed in the July 2007 storming of the Red Mosque in Islamabad by the Pakistani military.
Sometimes, things that emerge in the ideological battlespace can provide indications of important developments in the physical battlespace.
For example, one of the As-Sahab videos featured clips of Mustafa abu al-Yazid (aka Sheikh Said al-Masri). An Egyptian al Qaeda military commander, al-Yazid had reportedly been killed in an Aug. 8 operation in Bajaur. But since al-Yazid makes reference in the video to the Aug. 18 resignation of former Pakistani President Pervez Musharraf, he obviously was not killed 10 days earlier.
Two others noticeably absent from these three videos were Osama bin Laden and Adam Gadahn. Bin Laden, who has not been heard from since a May 18 audio message, is once again rumored to be dead. Gadahn may also be dead, according to rumors that he was killed in a January airstrike in Pakistan’s North Waziristan agency in which senior al Qaeda military commander Abu Laith al-Libi was killed. Gadahn, who has appeared in several al Qaeda video messages since emerging on the scene in 2004, has been conspicuously absent from the organization’s propaganda since the January strike.
Typically, al Qaeda has been fairly forthcoming in “declaring the martyrdom” of fallen commanders like al-Libi. The death of a central figure such as bin Laden, however, could be seen as severely detrimental to the jihadist world’s morale. Therefore, the group could be motivated to conceal his death. If bin Laden is still alive, however, we anticipate a message from him by the U.S. presidential elections Nov. 4, given his appearance before the 2004 presidential elections.
It would be somewhat out of character, however, for al Qaeda to avoid publicizing the death of a lesser figure such as Gadahn. With all the rumors circulating about jihadists seeking to use European-looking operatives in attacks against the West, one wonders if the silence regarding the American-born jihadist’s fate is designed to keep U.S. authorities in suspense — or if it is a real indication that Gadahn is alive and has left his post in the ideological battlespace in order to go operational on the physical battlefield.
Of course, the fate of these individuals, even a central figure such as bin Laden, is not nearly as important as the fate of the ideology. And we will continue to focus on the ideological battlefield for significant developments there.
One place that needs to be watched carefully is Pakistan, where events like the Red Mosque operation and the assassination of Benazir Bhutto have potentially sown the seeds for a ripe ideological harvest for both sides. It will be important to watch and see if the Marriott bombing will, as some claimed, prove to be a watershed event that marks a change in public opinion capable of rallying popular support against the jihadist ideology in Pakistan.
This report may be forwarded or republished on your website with attribution to www.stratfor.com
By George Friedman
The Russo-Georgian war continues to resonate, and it is time to expand our view of it. The primary players in Georgia, apart from the Georgians, were the Russians and Americans. On the margins were the Europeans, providing advice and admonitions but carrying little weight. Another player, carrying out a murkier role, was Israel. Israeli advisers were present in Georgia alongside American advisers, and Israeli businessmen were doing business there. The Israelis had a degree of influence but were minor players compared to the Americans.
More interesting, perhaps, was the decision, publicly announced by the Israelis, to end weapons sales to Georgia the week before the Georgians attacked South Ossetia. Clearly the Israelis knew what was coming and wanted no part of it. Afterward, unlike the Americans, the Israelis did everything they could to placate the Russians, including having Israeli Prime Minister Ehud Olmert travel to Moscow to offer reassurances. Whatever the Israelis were doing in Georgia, they did not want a confrontation with the Russians.
It is impossible to explain the Israeli reasoning for being in Georgia outside the context of a careful review of Israeli strategy in general. From that, we can begin to understand why the Israelis are involved in affairs far outside their immediate area of responsibility, and why they responded the way they did in Georgia.
We need to divide Israeli strategic interests into four separate but interacting pieces:
The most important thing to understand about the first interest, the Palestinian issue, is that the Palestinians do not represent a strategic threat to the Israelis. Their ability to inflict casualties is an irritant to the Israelis (if a tragedy to the victims and their families), but they cannot threaten the existence of the Israeli state. The Palestinians can impose a level of irritation that can affect Israeli morale, inducing the Israelis to make concessions based on the realistic assessment that the Palestinians by themselves cannot in any conceivable time frame threaten Israel’s core interests, regardless of political arrangements. At the same time, the argument goes, given that the Palestinians cannot threaten Israeli interests, what is the value of making concessions that will not change the threat of terrorist attacks? Given the structure of Israeli politics, this matter is both substrategic and gridlocked.
The matter is compounded by the fact that the Palestinians are deeply divided among themselves. For Israel, this is a benefit, as it creates a de facto civil war among Palestinians and reduces the threat from them. But it also reduces pressure and opportunities to negotiate. There is no one on the Palestinian side who speaks authoritatively for all Palestinians. Any agreement reached with the Palestinians would, from the Israeli point of view, have to include guarantees on the cessation of terrorism. No one has ever been in a position to guarantee that — and certainly Fatah does not today speak for Hamas. Therefore, a settlement on a Palestinian state remains gridlocked because it does not deliver any meaningful advantages to the Israelis.
The second area involves the confrontation states. Israel has formal peace treaties with Egypt and Jordan. It has had informal understandings with Damascus on things like Lebanon, but Israel has no permanent understanding with Syria. The Lebanese are too deeply divided to allow state-to-state understandings, but Israel has had understandings with different Lebanese factions at different times (and particularly close relations with some of the Christian factions).
Jordan is effectively an ally of Israel. It has been hostile to the Palestinians at least since 1970, when the Palestine Liberation Organization attempted to overthrow the Hashemite regime, and the Jordanians regard the Israelis and Americans as guarantors of their national security. Israel’s relationship with Egypt is publicly cooler but quite cooperative. The only group that poses any serious challenge to the Egyptian state is The Muslim Brotherhood, and hence Cairo views Hamas — a derivative of that organization — as a potential threat. The Egyptians and Israelis have maintained peaceful relations for more than 30 years, regardless of the state of Israeli-Palestinian relations. The Syrians by themselves cannot go to war with Israel and survive. Their primary interest lies in Lebanon, and when they work against Israel, they work with surrogates like Hezbollah. But their own view on an independent Palestinian state is murky, since they claim all of Palestine as part of a greater Syria — a view not particularly relevant at the moment. Therefore, Israel’s only threat on its border comes from Syria via surrogates in Lebanon and the possibility of Syria’s acquiring weaponry that would threaten Israel, such as chemical or nuclear weapons.
As to the third area, Israel’s position in the Muslim world beyond the confrontation states is much more secure than either it or its enemies would like to admit. Israel has close, formal strategic relations with Turkey as well as with Morocco. Turkey and Egypt are the giants of the region, and being aligned with them provides Israel with the foundations of regional security. But Israel also has excellent relations with countries where formal relations do not exist, particularly in the Arabian Peninsula.
The conservative monarchies of the region deeply distrust the Palestinians, particularly Fatah. As part of the Nasserite Pan-Arab socialist movement, Fatah on several occasions directly threatened these monarchies. Several times in the 1970s and 1980s, Israeli intelligence provided these monarchies with information that prevented assassinations or uprisings.
Saudi Arabia, for one, has never engaged in anti-Israeli activities beyond rhetoric. In the aftermath of the 2006 Israeli-Hezbollah conflict, Saudi Arabia and Israel forged close behind-the-scenes relations, especially because of an assertive Iran — a common foe of both the Saudis and the Israelis. Saudi Arabia has close relations with Hamas, but these have as much to do with maintaining a defensive position — keeping Hamas and its Saudi backers off Riyadh’s back — as they do with government policy. The Saudis are cautious regarding Hamas, and the other monarchies are even more so.
More to the point, Israel does extensive business with these regimes, particularly in the defense area. Israeli companies, working formally through American or European subsidiaries, carry out extensive business throughout the Arabian Peninsula. The nature of these subsidiaries is well-known on all sides, though no one is eager to trumpet this. The governments of both Israel and the Arabian Peninsula would have internal political problems if they publicized it, but a visit to Dubai, the business capital of the region, would find many Israelis doing extensive business under third-party passports. Add to this that the states of the Arabian Peninsula are afraid of Iran, and the relationship becomes even more important to all sides.
There is an interesting idea that if Israel were to withdraw from the occupied territories and create an independent Palestinian state, then perceptions of Israel in the Islamic world would shift. This is a commonplace view in Europe. The fact is that we can divide the Muslim world into three groups.
First, there are those countries that already have formal ties to Israel. Second are those that have close working relations with Israel and where formal ties would complicate rather than deepen relations. Pakistan and Indonesia, among others, fit into this class. Third are those that are absolutely hostile to Israel, such as Iran. It is very difficult to identify a state that has no informal or formal relations with Israel but would adopt these relations if there were a Palestinian state. Those states that are hostile to Israel would remain hostile after a withdrawal from the Palestinian territories, since their issue is with the existence of Israel, not its borders.
The point of all this is that Israeli security is much better than it might appear if one listened only to the rhetoric. The Palestinians are divided and at war with each other. Under the best of circumstances, they cannot threaten Israel’s survival. The only bordering countries with which the Israelis have no formal agreements are Syria and Lebanon, and neither can threaten Israel’s security. Israel has close ties to Turkey, the most powerful Muslim country in the region. It also has much closer commercial and intelligence ties with the Arabian Peninsula than is generally acknowledged, although the degree of cooperation is well-known in the region. From a security standpoint, Israel is doing well.
Israel is also doing extremely well in the broader world, the fourth and final area. Israel always has needed a foreign source of weapons and technology, since its national security needs outstrip its domestic industrial capacity. Its first patron was the Soviet Union, which hoped to gain a foothold in the Middle East. This was quickly followed by France, which saw Israel as an ally in Algeria and against Egypt. Finally, after 1967, the United States came to support Israel. Washington saw Israel as a threat to Syria, which could threaten Turkey from the rear at a time when the Soviets were threatening Turkey from the north. Turkey was the doorway to the Mediterranean, and Syria was a threat to Turkey. Egypt was also aligned with the Soviets from 1956 onward, long before the United States had developed a close working relationship with Israel.
That relationship has declined in importance for the Israelis. Over the years the amount of U.S. aid — roughly $2.5 billion annually — has remained relatively constant. It was never adjusted upward for inflation, and so shrunk as a percentage of Israeli gross domestic product from roughly 20 percent in 1974 to under 2 percent today. Israel’s dependence on the United States has plummeted. The dependence that once existed has become a marginal convenience. Israel holds onto the aid less for economic reasons than to maintain the concept in the United States of Israeli dependence and U.S. responsibility for Israeli security. In other words, it is more psychological and political from Israel’s point of view than an economic or security requirement.
Israel therefore has no threats or serious dependencies, save two. The first is the acquisition of nuclear weapons by a power that cannot be deterred — in other words, a nation prepared to commit suicide to destroy Israel. Given Iranian rhetoric, Iran would appear at times to be such a nation. But given that the Iranians are far from having a deliverable weapon, and that in the Middle East no one’s rhetoric should be taken all that seriously, the Iranian threat is not one the Israelis are compelled to deal with right now.
The second threat would come from the emergence of a major power prepared to intervene overtly or covertly in the region for its own interests, and in the course of doing so, redefine the regional threat to Israel. The major candidate for this role is Russia.
During the Cold War, the Soviets pursued a strategy to undermine American interests in the region. In the course of this, the Soviets activated states and groups that could directly threaten Israel. There is no significant conventional military threat to Israel on its borders unless Egypt is willing and well-armed. Since the mid-1970s, Egypt has been neither. Even if Egyptian President Hosni Mubarak were to die and be replaced by a regime hostile to Israel, Cairo could do nothing unless it had a patron capable of training and arming its military. The same is true of Syria and Iran to a great extent. Without access to outside military technology, Iran is a nation merely of frightening press conferences. With access, the entire regional equation shifts.
After the fall of the Soviet Union, no one was prepared to intervene in the Middle East the way the Soviets had. The Chinese have absolutely no interest in struggling with the United States in the Middle East, which accounts for a similar percentage of Chinese and U.S. oil consumption. It is far cheaper to buy oil in the Middle East than to engage in a geopolitical struggle with China’s major trade partner, the United States. Even if there was interest, no European powers can play this role given their individual military weakness, and Europe as a whole is a geopolitical myth. The only country that can threaten the balance of power in the Israeli geopolitical firmament is Russia.
Israel fears that if Russia gets involved in a struggle with the United States, Moscow will aid Middle Eastern regimes that are hostile to the United States as one of its levers, beginning with Syria and Iran. Far more frightening to the Israelis is the idea of the Russians once again playing a covert role in Egypt, toppling the tired Mubarak regime, installing one friendlier to their own interests, and arming it. Israel’s fundamental fear is not Iran. It is a rearmed, motivated and hostile Egypt backed by a great power.
The Russians are not after Israel, which is a sideshow for them. But in the course of finding ways to threaten American interests in the Middle East — seeking to force the Americans out of their desired sphere of influence in the former Soviet region — the Russians could undermine what at the moment is a quite secure position in the Middle East for the United States.
This brings us back to what the Israelis were doing in Georgia. They were not trying to acquire airbases from which to bomb Iran. That would take thousands of Israeli personnel in Georgia for maintenance, munitions management, air traffic control and so on. And it would take Ankara allowing the use of Turkish airspace, which isn’t very likely. Plus, if that were the plan, then stopping the Georgians from attacking South Ossetia would have been a logical move.
The Israelis were in Georgia in an attempt, in parallel with the United States, to prevent Russia’s re-emergence as a great power. The nuts and bolts of that effort involves shoring up states in the former Soviet region that are hostile to Russia, as well as supporting individuals in Russia who oppose Prime Minister Vladimir Putin’s direction. The Israeli presence in Georgia, like the American one, was designed to block the re-emergence of Russia.
As soon as the Israelis got wind of a coming clash in South Ossetia, they — unlike the United States — switched policies dramatically. Where the United States increased its hostility toward Russia, the Israelis ended weapons sales to Georgia before the war. After the war, the Israelis initiated diplomacy designed to calm Russian fears. Indeed, at the moment the Israelis have a greater interest in keeping the Russians from seeing Israel as an enemy than they have in keeping the Americans happy. U.S. Vice President Dick Cheney may be uttering vague threats to the Russians. But Olmert was reassuring Moscow it has nothing to fear from Israel, and therefore should not sell weapons to Syria, Iran, Hezbollah or anyone else hostile to Israel.
Interestingly, the Americans have started pumping out information that the Russians are selling weapons to Hezbollah and Syria. The Israelis have avoided that issue carefully. They can live with some weapons in Hezbollah’s hands a lot more easily than they can live with a coup in Egypt followed by the introduction of Russian military advisers. One is a nuisance; the other is an existential threat. Russia may not be in a position to act yet, but the Israelis aren’t waiting for the situation to get out of hand.
Israel is in control of the Palestinian situation and relations with the countries along its borders. Its position in the wider Muslim world is much better than it might appear. Its only enemy there is Iran, and that threat is much less clear than the Israelis say publicly. But the threat of Russia intervening in the Muslim world — particularly in Syria and Egypt — is terrifying to the Israelis. It is a risk they won’t live with if they don’t have to. So the Israelis switched their policy in Georgia with lightning speed. This could create frictions with the United States, but the Israeli-American relationship isn’t what it used to be.
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