WIRED MAGAZINE: 16.06
The People's Republic Leads the Way in Alternative-Energy Hardware
By Spencer Reiss 05.19.08 | 6:00 PM
INCONVENIENT TRUTHS: Get Ready to Rethink What it Means to Be Green
1: Live in Cities
2: A/C Is OK
3: Organics Are Not The Answer
4: Farm the Forests
5: China Is the Solution
6: Accept Genetic Engineering
7: Carbon Trading Doesn't Work
8: Embrace Nuclear Power
9: Used Cars — Not Hybrids
10: Prepare for the Worst
IT'S NOT JUST CARBON, STUPID: Dangers of Focusing Solely on Climate Change
Pop quiz: Who's the volume dealer in alternative-energy hardware? If you said choking, smoking, coal-toking China, give yourself a carbon credit.

Consider solar cells, the least carbon-intensive option after nuclear, wind, and biomass, according to an analysis by the International Atomic Energy Agency. In 2007, photovoltaic factories in the People's Republic tripled production, grabbing 35 percent of the global market and making China the world's number one producer. How about rechargeable lithium-ion batteries, critical for superefficient electric vehicles? Chinese manufacturers will soon rule that world, too. Windmills? "Prepare for the onslaught of relatively inexpensive Chinese turbines," says Steve Sawyer, head of the Global Wind Energy Council. His forecast: China will produce enough gear to generate 10 gigawatts of power annually by 2010 — more than half the capacity that the whole world installed in 2007.

China has three big reasons for jumping feetfirst into the carbon fight. Obviously, there's the threat of climate change — flooding in China's coastal cities, drought in the country's interior. Second, there's political instability: Air and water pollution is already a flash point for public protests. And then there's the burgeoning export market for green products stamped made in china.

Will renovating the planet spur the first wave of homegrown Chinese tech innovation? Jeff Immelt, CEO of General Electric, thinks so. "China has as much or more at stake than anyone," he said at a recent corporate summit. "Solar energy, carbon sequestration — we're going to be blown away by China's progress over the next couple of decades." If only they could clean up Beijing's air in time for the summer Olympics.

May 11, 2008
ALMIGHTY
The Dollar: Shrinkable but (So Far) Unsinkable

By PETER S. GOODMAN
If the United States were any other country, these would surely be days of panic and austerity in Washington. With debts spiraling higher, a trade deficit exceeding $700 billion a year, and its currency plunging for years, the government would be forced to cut spending and jack up interest rates in a frantic bid to attract investment.

But the United States is not any other country. For more than half a century, Americans have enjoyed a unique privilege in the global economy: The dollar has been the world’s dominant currency, the money used in most transactions and the repository for the national savings of many countries, including China, Japan and Saudi Arabia.

Come what may — a financial crisis here, a military misadventure there — Americans could count on money sloshing up thick on their shores. Virtually limitless demand for American government bonds has supported the dollar’s value, and kept domestic interest rates down. Americans have been emboldened to spend in blissful disregard of their debts, secure that foreigners would always supply finance. And that devil-may-care spending has in turn fueled economic growth around the world.

This dynamic may be so deeply embedded in the workings of the global economy that it could endure for many years to come: The costs of weaning the United States from its credit habit would ripple far and wide.

But what are the chances that a day of reckoning is coming, when the dollar would be so weak that America would have to play by the rules that apply to every other country? Recent signs do suggest some fraying in the American relationship with its many foreign creditors. The balance of trade has gotten so lopsided and the question marks hovering over the American economy so thick that some foreign governments are beginning to hedge their bets on the dollar.

Russia has been diversifying its hoard of foreign exchange, plunking more into other currencies like the rising euro. In the oil-drenched Middle East, signs suggest a slight shifting to other flavors of money. And markets have been parsing every utterance from Beijing for hints that China may moderate its voracious appetite for dollars.

Meanwhile, China, Russia and Middle Eastern nations have been injecting hundreds of billions of dollars into state-controlled investment pools known as sovereign wealth funds, which have mandates to seek out better gains on their capital than they get from American government bonds.

“These central banks know that holding these low-yielding Treasury bills is just an aid program to the United States, and they want to get out of that business,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund. “They are very keen to diversify.”

Over all, dollars have never been purchased in as large quantities. But, that said, the dollar has been slipping as a percentage of total foreign currency reserves, as nations increasingly sock away other currencies as well, to cushion themselves against crisis. Between 2001 and the end of 2007, the dollar’s share of the world’s total foreign exchange reserves shrank from about 73 percent to 64 percent, as the euro expanded from about 18 percent to more than 25 percent, according to the International Monetary Fund.

That change does not reflect a selling of dollars, the monetary fund reports. Rather, it captures how the dollar has fallen in value against many currencies, making the total value of dollars a smaller percentage of all money. “It hasn’t been an active diversification,” said John Lipsky, first deputy managing director at the fund. “Central bankers tend to be the most conservative investors. Whatever they do is going to be done with exceeding caution.”

Now, however, people in international financial circles detect a subtle shifting of the ground in confidence about the dollar. A few years ago, the suggestion that another currency could rival the dollar would have been ridiculed. Today, some economists say the dollar could begin surrendering some of the advantages of dominance to the euro over the next decade or two. Longer term, the dollar could find itself eclipsed by China’s yuan as the primary money in usage in the world.

For Americans, losing that status could be painful, sending interest rates higher and raising the costs of buying homes and cars. A country that has been operating with essentially unlimited credit might have learn to live within a budget.

But many economists say that chatter about the demise of the dollar is overblown. The United States, despite its problems, has been a remarkably solid place to put money, making it singularly able to attract savings, they point out. The dollar is likely to continue to shed value, and the American economy will grow far slower than India’s and China’s, they acknowledge. Yet the dollar, they argue, remains one of the few entities that seem to have fundamental staying power in an age of risk and obsolescence. The size of the United States military alone reinforces confidence that America will endure to honor its debts.

Yes, foreigners have been lending alarming amounts of money to Americans, who have spent extravagantly in excess of their means, economists say. One day, balance will be restored in line with the basic laws of economics — perhaps chaotically, and probably via a substantial fall in the dollar’s value.

But “one day” could well get pushed into the future for a long time to come, for the simple reason that codependence governs the global economy: The current flows of capital lubricate world commerce, giving the American consumer the wherewithal to keep buying; those purchases, in turn, generate business and employment from Asia to Latin America.

When Americans head to the mall, backed by foreign largesse, they drive there burning gasoline made from oil pumped abroad, notably the Middle East. They drive home carrying electronics and clothing churned out in Chinese and Japanese factories. Making these goods absorbs commodities — energy from Australia and Africa; cotton from Texas and California; iron ore from Brazil and India.

Keeping this global assembly line humming has become a primary development strategy for China, as it continues a wrenching transformation from a predominantly agricultural nation into a rapidly industrializing trading power whose factories employ millions of poor farmers streaming toward cities.

China subsidizes many factories, handing out low-interest loans and making land available at below-market prices. Buying up United States Treasury bills helps goose production: China’s central bank buys dollars in part to keep the yuan valued lower, making Chinese goods cheaper on world markets. And by helping keep interest rates lower in the United States, China ensures that American consumers can keep buying.

The Chinese “recognize that they have to lend us the money if they want to maintain those markets,” said Michael P. Dooley, an economist and a partner in Cabezon Capital, a hedge fund specializing in emerging markets.

China’s leaders fear anything that threatens to crimp exports; that would eliminate jobs and send angry peasants back to their villages. So, with more than $1 trillion already invested in dollar-denominated assets, China is loath to do anything that could drive the dollar down precipitously. If it started selling dollars, that could trigger a panic that would send the dollar plummeting.

But some analysts wonder how much longer China can continue to win at this game. Investing money in the United States requires spending that much less on enormous problems at home, like pollution and a shortage of health care. By indirectly making mortgages cheap in the United States, China has helped foster the boom that saturated Miami with glittering condos even as tens of millions of Chinese live in dilapidated concrete block apartments.

On this side of the Pacific, the great real estate bonanza has, of course, ended badly. Some economists point to the real estate bubble as a prime example of the dangers of too much cheap money washing in: Speculators drive prices sky-high, setting markets up for a punishing fall.

“You can have too much of a good thing,” said Brad Setser, a former Treasury official now at the Council on Foreign Relations. In this view, if the dollar maintains its status as the global reserve currency, that would be good news for Americans only in the way that another offer for a credit card is good news for a family about to land in bankruptcy: It may stave off foreclosure for another spell, but it makes the ultimate day of reckoning that much worse.

“We continue to run deficits, and a larger share of our income goes to support this,” Mr. Setser said. “Our attitude seems to be, ‘Lord give us the strength to resist temptation, but not quite yet.’ ”

I never would have imagined that 10,000 readers would have visited by blog.
Its great to get comments from other interested in International affairs.
Cheers to the Readers!

Greetings,

The trend lines are clear. Iraq war seems to be winding-down. At this rate it is entirely conceivable that at the end of 2008 we will be able to say, in good conscience, that the Iraq war has ended.

Of course this is speculation.

Grabbing headlines today is the news that Australia is drawing down it’s forces from Iraq. The Australian military is comprised of some of the finest soldiers in the world. Yet the Australian government’s commitment to the war in Iraq has been militarily insignificant. The loss of the Australian military contingent is strategically irrelevant. 

I’m in constant communications with forces on the ground in Iraq. al-Qaeda continues to be hammered into the dirt. The Iraq Army has demonstrated great competence in Sadr City. They are at the fore front of destroying al-Qaeda in Nineveh province.

Washington Post reports growing success in Basra by the Iraq security forces. Violence in Iraq is reaching an all time low, perhaps lower than at anytime in several decades. But make no mistake Iraq and it’s people have been ravaged by decades of war. Finally they are getting their chance at freedom thanks to the sacrifice of the men and women who have set them free from tyrants. With any luck, on my next trip to Iraq I will see little to no combat.

There are several new dispatches on the website. Free copies of Moment of Truth in Iraq are available with a one year subscription to Town Hall Magazine.

V/R

Michae

June 1, 2008
OP-ED COLUMNIST
It’s All About Leverage

By THOMAS L. FRIEDMAN

Barack Obama is getting painfully close to tying himself in knots with all his explanations of the conditions under which he would unconditionally talk with America’s foes, like Iran. His latest clarification was that there is a difference between “preparations” and “preconditions” for negotiations with bad guys. Such hair-splitting word games do not inspire confidence, and they play right into the arms of his critics. The last place he wants to look uncertain is on national security.

The fact is, Mr. Obama was right to say that he would talk with any foe, if it would advance U.S. interests. The Bush team negotiated with Libya to give up its nuclear program, even after Libya had accepted responsibility for blowing up Americans on Pan Am Flight 103. Those negotiations succeeded, though, not because Mr. Bush was better “prepared,” but because, at the time, shortly after the invasion of Iraq, Mr. Bush had leverage. Iraq had yet to fall apart.

Mr. Obama would do himself a big favor by shifting his focus from the list of enemy leaders he would talk with to the list of things he would do as president to generate more leverage for America, so no matter who we have to talk with the advantage will be on our side of the table. That’s what matters.

Mr. Bush was also right: talking with Iran today would be tantamount to appeasement — but that’s because the Bush team has so squandered U.S. power and credibility in the Middle East, and has failed to put in place any effective energy policy, that negotiating with Iran could only end up with us on the short end. We don’t have the leverage — the allies, the alternative energy, the unity at home, the credible threat of force — to advance our interests diplomatically today.

As I have argued before: When you have leverage, talk. When you don’t have leverage, get some. Then talk.

Right now Iran & Friends — Hezbollah, Hamas and Syria — have a strategy that has produced leverage for them, and the next U.S. president is going to have to think afresh how to counter it. The “Iran & Friends” strategy is built on five principles:

Principle No. 1:

Always seek “control without responsibility.” In Lebanon, Gaza and Iraq, Iran & Friends have veto power over the politics, without being held fully responsible for the electricity. America’s allies, by contrast, tend to have “responsibility without control.”

Principle No. 2:

Always insist on being able to both run for political office and bear arms. In Lebanon, Gaza and Iraq, America’s opponents are both in the government and have their own militias.

Principle No. 3:

Use suicide bombing and targeted assassinations against any opponents who get in your way. In Lebanon, Syria is widely suspected to have been behind the spate of killings of anti-Syrian journalists and parliamentarians. One suicide attack on a major official in Iraq can neutralize superior U.S. power.

Principle No. 4:

Use the Internet as a free command and control system for raising money, recruiting and operations.

Principle No. 5:

Cast yourself as the “resistance” to Israel and America, so any opposition to you is equal to support for Israel and America and so no matter how badly you are defeated the mere fact that you “resisted” means you didn’t really lose.

Do the pro-American Arab moderates have a counterstrategy with leverage? I just got the new book, “The Arab Center,” by Marwan Muasher, the former foreign minister of Jordan. Retired Arab statesmen don’t often write books about their time in office, but Mr. Muasher has, and his argument is a powerful one:

Arab moderates have been on the defensive because they have been “one-dimensional moderates,” focused only on moderate proposals for making peace with Israel, while ignoring other issues important to Arab citizens: good governance, political reform, economic well-being, women’s rights and religious and cultural diversity.

“For the Arab moderates to have credibility, they have to assume more responsibility,” says Muasher. America could help by delivering on the Arab moderates’ main issue — a Palestinian-Israeli peace deal. But, ultimately, he said, if the Arab center is to shape the future and rid “itself of the image its opponents paint of an apologist for the West or a compromiser of Arab rights,” it will have to meet the challenge of building “a robust, diverse, tolerant, democratic, and prosperous Arab society.”

There has been some promising moderate push back against extremists in Iraq, Lebanon and the West Bank lately. It’s definitely worth watching, but is still very frail. America’s leverage will be limited as long our key allies do not have a strategy, with weight, to counter the hard-liners. Here’s hoping that once the primary silly season is over, the McCain and Obama camps will stop jousting over whether to talk with our enemies — which we must — and will start focusing instead about how we and our friends get more chips to bargain with — which we lack.