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The New World Order
It's An Evil And Sinister Conspiracy That Involves Very Rich And Powerful People Who Mastermind Events And Control World Affairs Through Governments And Corporations And Are Plotting Mass Population Reduction And The Emergence Of A Totalitarian World Government!   By Using Occult Secret Societies The ILLUMINATI Will Bring All Of The Nations Of This World Together As One.   We'll Have No Recourse But To Submit And Be Under Their Control Utilizing Their Digital Central Bank Currency Or To Reject This Ill-Fated Digital Identification.   The Goal Is UN Agenda 2030!   This Is The Beginning Of The End!
WEATHER AS A FORCE MULTIPLIER: OWNING THE WEATHER IN 2025


MILITARY APPLICATIONS OF WEATHER MODIFICATION
In 2025 US aerospace forces can "own the weather" by capitalizing on emerging technologies and focusing development of those technologies to warfighting applications. Such a capability offers the warfighter tools to shape the battlespace in ways never before possible. It provides opportunities to impact operations across the full spectrum of conflict and is pertinent to all possible futures. The purpose of this paper is to outline a strategy for the use of a future weather modification system to achieve military objectives rather than to provide a detailed technical road map.
A high risk/high reward endeavor, weather modification offers a dilemma not unlike the splitting of the atom. While some segments of society will always be reluctant to examine controversial issues such as weather modification, the tremendous military capabilities that could result from this field are ignored at our own peril. From enhancing friendly operations or disrupting those of the enemy via small-scale tailoring of natural weather patterns, to complete dominance of global communications and counter-space control, weather modification offers the warfighter a wide range of possible options to defeat or coerce an adversary.
Technology advancements in five major areas are necessary for an integrated weather modification capability: (1) advanced nonlinear modeling techniques, (2) computational capability, (3) information gathering and transmission, (4) a global sensor array, and (5) weather intervention techniques. Some intervention tools exist today and others may be developed and refined in the future.
Current technologies which will mature over the next thirty years will offer anyone who has the necessary resources the ability to modify weather patterns and their corresponding effects, at least on the local scale. Current demographic, economic, and environmental trends will create global stresses that provide the impetus necessary for many countries or groups to turn this weather modification ability into a capability. In the US, weather modification will likely become a part of national security policy with both domestic and international applications. Our government will pursue such a policy, depending on its interests, at various levels. These levels could include: unilateral actions, participation in a security framework such as NATO, membership in an international organization such as the UN, or participation in a coalition. Assuming that in 2025 our national security strategy includes weather modification, its use in our national military strategy will naturally follow. Besides the significant benefits an operational capability would provide, another motivation to pursue weather modification is to deter and counter potential adversaries.
In this paper we show that appropriate application of weather modification can provide battlespace dominance to a degree never before imagined. In the future, such operations will enhance air and space superiority and provide new options for battlespace shaping and battlespace awareness. "The technology is there, waiting for us to pull it all together;" in 2025 we can "Own the Weather." 


A RESEARCH PAPER PRESENTED TO AIR FORCE 2025
 
2025 is a study designed to comply with a directive from the chief of staff of the Air Force to examine the concepts, capabilities, and technologies the United States will require to remain the dominant air and space force in the future. Presented on 17 June 1996, this report was produced in the Department of Defense school environment of academic freedom and in the interest of advancing concepts related to national defense. The views expressed in this report are those of the authors and do not reflect the official policy or position of the United States Air Force, Department of Defense, or the United States government.
This report contains fictional representations of future situations/scenarios. Any similarities to real people or events, other than those specifically cited, are unintentional and are for purposes of illustration only.
This publication has been reviewed by security and policy review authorities, is unclassified, and is cleared for public release.



WEATHER AS A FORCE MULTIPLIER: OWNING THE WEATHER IN 2025   Pdf file



UN Seeking Global Internet Surveillance for Terror, Propaganda

Alex Newman     New American    Oct 27, 2012

The United Nations and a broad coalition of its totalitarian-minded member governments  are increasingly demanding  that a global regulatory regime be imposed over the Internet, with supposed concerns about “terrorism” becoming just the most recent argument advanced to support the controversial scheme. In a massive report  released this week, the UN claimed a planetary agreement on surveillance, data retention, and more would be needed for “terror” purposes.
Of course, the latest round of UN scheming drew swift criticism from Internet-freedom advocates. But as the effort by governments to seize control over the World Wide Web gains traction, activists from across the political spectrum argue that the Internet should remain free and unregulated in the hands of citizens and the private sector — certainly not under the purview of a scandal-plagued international organization composed largely of dictatorial regimes.
Unveiled at a recent conference in Vienna, the 148-page UN Office on Drugs and Crime (UNODC) report, entitled The Use of the Internet for Terrorist Purposes, presents a broad wish list of powers that self-styled international “authorities” believe are needed. It was prepared in collaboration with the UN “Counter-Terrorism Implementation Task Force,” which includes the World Bank, Interpol, the World Health Organization, and the International Monetary Fund as members.
However, the dubious document quickly sparked global concerns. Among the most alarming claims in the report, according to critics, is that “one of the major problems confronting all law enforcement agencies is the lack of an internationally agreed framework for retention of data held by [Internet Service Providers].”
In other words, the UN wants a planetary regime to force companies to spy on their customers, keep the data, and hand it over to authorities. The international organization noted approvingly that entities such as the European Union were already working to impose the measures. However, not all governments are on board yet, the report complained.
Social networking services such as Facebook and Twitter were specifically highlighted as potential tools for “terrorists” to spread “propaganda” and “extremist rhetoric.” Apparently now “terrorists” are able to “abuse” free speech by spreading their messages more easily, according to the report, which also notes that search engines have made it easier to find “terror propaganda” online.
“Content that might formerly have been distributed to a relatively limited audience … has increasingly migrated to the Internet,” the UN observed in what analysts ridiculed  as “sort of obvious.” It also added, unsurprisingly, that “such content may be distributed using a broad range of tools.”
So, the UN and its members must take action, the report claims. “Terrorist use of the Internet is a transnational problem, requiring an integrated response across borders and among national criminal justice systems,” the global body argued, echoing similar calls for UN empowerment on everything from finance, taxes, “climate change” (formerly known as “global warming” and “global cooling”), mental health, food markets, oceans, sustainability, and virtually every sphere of human existence.
There is much more where that came from, however. The report also claims, for example, that websites and services such as Skype should keep records of users’ communications. Mobile phone services should also keep tabs on consumers’ locations, it added. Even publicly accessible wireless (WiFi) Internet providers should work to abolish anonymity because some potential criminal or “terrorist” might try to use the Web anonymously.
“Potential terrorists use advanced communications technology, often involving the internet to reach a worldwide audience with relative anonymity and at a low cost,” UNODC Executive Director Yury Fedotov said  in releasing the report, citing arguments long-relied upon by the ruthless Communist Chinese dictatorship to justify its Orwellian censorship of the Internet. “Just as internet use among regular, lawful citizens has increased in the past few years, terrorist organizations also make extensive use of this indispensable global network for many different purposes.”
To deal with the alleged problems, the UN highlights multiple proposed schemes. The document touts certain “legal instruments” adopted by regional regimes in the fight to rein in the free Internet, for example. Also promoted in the report is the adoption of “model legislation” around the world. “While model legislation provides advisory guidelines, rather than legally binding obligations, it plays an important role in harmonizing legal standards among States,” the report observed.
One of the primary UN entities being groomed to become the global Internet policing authority  is the International Telecommunications Union, which dictators around the world have been working hard to empower in recent years. “ITU has developed the Toolkit for Cybercrime Legislation (2010) to promote harmonized national cybercrime legislation and procedural rules, including with respect to acts of terrorism committed by using the Internet,” the latest report explains.
Ironically, all of the efforts to allegedly deal with “terrorists” using the Internet would be made more difficult by the fact that the UN has not even defined terrorism. “There is currently no comprehensive United Nations treaty on terrorism, nor is there an official definition of the term ‘terrorism,’” the document acknowledges on page 133. What exactly the UN means by “propaganda” and “extremist rhetoric” is also unclear, but communist regimes hope to ban criticism of their own autocracies while Islamists hope to criminalize criticism of Islam. 
Analysts, however, said the UN plot to take over the Internet and expand its powers has essentially nothing to do with either terror or propaganda. Instead, critics of the scheme argued, the establishment is getting nervous about the Internet — possibly the final bastion of true free speech in the world — and is working to crack down on it now, before the people of the world wake up and remove the shackles of tyranny.
“The powers-that-be have decided that they need to track user details on the Internet to prevent crime…. The ultimate goal is world government and it is being built via ever-more authoritarian means,” noted  analysts at the liberty-minded Daily Bell, which has been vigorously defending Internet freedom as the potential key to advancing human freedom throughout the world.
In essence, then, the UN hopes to facilitate tyranny. “What we call the Internet Reformation has made it more difficult for the power elite to utilize dominant social themes — fear-based promotions — to frighten middle classes into giving up wealth and control to globalist institutions like the UN,” the analysts observed. “As a result, the elites wish to attack and control the Internet.”
Heavyweight defenders of free speech and an open Internet, however, insist that the fight must go on. “For the first time in human history, supporters of liberty around the world can share information across borders quickly and cheaply. Without the filter of government censors, this information emboldens millions to question governments and promote liberty,” wrote  Rep. Ron Paul (R-Texas), a hero to freedom activists around the world. “This is why liberty-minded Americans must do everything possible to oppose — and stop — government attempts to censor or limit the free flow of information online.”
While the coalition of communist and Islamist tyrants try to rein in Internet freedom at the global level, the United States has also seen an unprecedented federal assault on the open Internet as well. The Department of Justice, various special interests groups, and lawmakers in both parties, for instance, have been fiendishly working to adopt everything from a federal “cybersecurity” regime to data-retention schemes similar to the plan outlined by the UN.
For Internet freedom activists, though, government regulation or control of the Internet is off the table and non-negotiable. First of all, the U.S. Constitution does not allow even the federal government to regulate the Web, much less the UN; and if either gets its foot in the door, restoring liberty online would be extremely difficult. Even if it were constitutional, however, activists say letting any government regulate the Internet would be a terrible idea for numerous reasons.






Ten reasons the reign of the U.S. Dollar is about to end

By Business Insider  2012

The U.S. dollar has probably been the closest thing to a true global currency that the world has ever seen. This is about to change.

For decades, the use of the U.S. dollar has been absolutely dominant in international trade. This has had tremendous benefits for the U.S. financial system and for U.S. consumers, and it has given the U.S. government tremendous power and influence around the globe.

Today, more than 60 percent of all foreign currency reserves in the world are in U.S. dollars. But there are big changes on the horizon. The mainstream media in the United States has been strangely silent about this, but some of the biggest economies on earth have been making agreements with each other to move away from using the U.S. dollar in international trade.

There are also some oil-producing nations which have begun selling oil in currencies other than the U.S. dollar, which is a major threat to the petrodollar system which has been in place for nearly four decades. And big international institutions such as the UN and the IMF have even been issuing official reports about the need to move away form the U.S. dollar and toward a new global reserve currency.

So the reign of the U.S. dollar as the world reserve currency is definitely being threatened, and the coming shift in international trade is going to have massive implications for the U.S. economy.

A lot of this is being fueled by China. China has the second largest economy on the face of the earth, and the size of the Chinese economy is projected to pass the size of the U.S. economy by 2016. In fact, one economist is even projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.

So China is sitting there and wondering why the U.S. dollar should continue to be so preeminent if the Chinese economy is about to become the number one economy on the planet.

Over the past few years, China and other emerging powers such as Russia have been been quietly making agreements to move away from the U.S. dollar in international trade. The supremacy of the U.S. dollar is not nearly as solid as most Americans believe that it is.

As the U.S. economy continues to fade, it is going to be really hard to argue that the U.S. dollar should continue to function as the primary reserve currency of the world. Things are rapidly changing, and most Americans have no idea where these trends are taking us.

The following are 10 reasons why the reign of the dollar as the world reserve currency is about to come to an end....

#1 China And Japan Are Dumping the U.S. Dollar In Bilateral Trade

A few months ago, the second largest economy on earth (China) and the third largest economy on earth (Japan) struck a deal which will promote the use of their own currencies (rather than the U.S. dollar) when trading with each other. This was an incredibly important agreement that was virtually totally ignored by the U.S. media. The following is from a BBC report about that agreement....

China and Japan have unveiled plans to promote direct exchange of their currencies in a bid to cut costs for companies and boost bilateral trade.

The deal will allow firms to convert the Chinese and Japanese currencies directly into each other.

Currently businesses in both countries need to buy US dollars before converting them into the desired currency, adding extra costs.

#2 The BRICS (Brazil, Russia, India, China, South Africa) Plan To Start Using Their Own Currencies When Trading With Each Other

The BRICS continue to flex their muscles. A new agreement will promote the use of their own national currencies when trading with each other rather than the U.S. dollar. The following is from a news source in India....

The five major emerging economies of BRICS - Brazil, Russia, India, China and South Africa - are set to inject greater economic momentum into their grouping by signing two pacts for promoting intra-BRICS trade at the fourth summit of their leaders here Thursday.

The two agreements that will enable credit facility in local currency for businesses of BRICS countries will be signed in the presence of the leaders of the five countries, Sudhir Vyas, secretary (economic relations) in the external affairs ministry, told reporters here.

The pacts are expected to scale up intra-BRICS trade which has been growing at the rate of 28 percent over the last few years, but at $230 billion, remains much below the potential of the five economic powerhouses.

#3 The Russia/China Currency Agreement

Russia and China have been using their own national currencies when trading with each other for more than a year now. Leaders from both Russia and China have been strongly advocating for a new global reserve currency for several years, and both nations seem determined to break the power that the U.S. dollar has over international trade.

#4 The Growing Use Of Chinese Currency In Africa

Who do you think is Africa's biggest trading partner?

It isn't the United States.

In 2009, China became Africa's biggest trading partner, and China is now aggressively seeking to expand the use of Chinese currency on that continent.

A report from Africa’s largest bank, Standard Bank, recently stated the following....

"We expect at least US$100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015."

China seems absolutely determined to change the way that international trade is done. At this point, approximately 70,000 Chinese companies are using Chinese currency in cross-border transactions.

#5 The China/United Arab Emirates Deal

China and the United Arab Emirates have agreed to ditch the U.S. dollar and use their own currencies in oil transactions with each other.

The UAE is a fairly small player, but this is definitely a threat to the petrodollar system. What will happen to the petrodollar if other oil producing countries in the Middle East follow suit?

#6 Iran

Iran has been one of the most aggressive nations when it comes to moving away from the U.S. dollar in international trade. For example, it has been reported that India will begin to use gold to buy oil from Iran.

Tensions between the U.S. and Iran are not likely to go away any time soon, and Iran is likely to continue to do what it can to inflict pain on the United States in the financial world.

#7 The China/Saudi Arabia Relationship

Who imports the most oil from Saudi Arabia?

It is not the United States.

Rather, it is China.

China imported 1.39 million barrels of oil per day from Saudi Arabia in February, which was a 39 percent increase from one year earlier.

Saudi Arabia and China have teamed up to construct a massive new oil refinery in Saudi Arabia, and leaders from both nations have been working to aggressively expand trade between the two nations.

So how long is Saudi Arabia going to stick with the petrodollar if China is their most important customer?

That is a very important question.

#8 The United Nations Has Been Pushing For A New World Reserve Currency

The United Nations has been issuing reports that openly call for an alternative to the U.S. dollar as the reserve currency of the world.

In particular, one UN report envisions "a new global reserve system" in which the U.S. no longer has dominance....

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency."

#9 The IMF Has Been Pushing For A New World Reserve Currency

The International Monetary Fund has also published a series of reports calling for the U.S. dollar to be replaced as the reserve currency of the world.

In particular, one IMF paper entitled "Reserve Accumulation and International Monetary Stability" that was published a while back actually proposed that a future global currency be named the "Bancor" and that a future global central bank could be put in charge of issuing it....

"A global currency, bancor, issued by a global central bank would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. As trade and finance continue to grow rapidly and global integration increases, the importance of this broader perspective is expected to continue growing."

#10 Most Of The Rest Of The World Hates The United States

Global sentiment toward the United States has dramatically shifted, and this should not be underestimated.

Decades ago, The United States was one of the most loved nations on earth.

Now it is one of the most hated.

Even in Europe, Americans are treated like dirt. Many American travelers have resorted to wearing Canadian pins so that they will not be treated like garbage while traveling over there.

If the rest of the world still loved America, they would probably be glad to continue using the U.S. dollar. But because the nation is now so unpopular, that gives other nations even more incentive to dump the dollar in international trade.

So what will happen if the reign of the U.S. dollar as the world reserve currency comes to an end?

Well, some of the potential effects were described in a recent article by Michael Payne....

"The demise of the dollar will also bring radical changes to the American lifestyle. When this economic tsunami hits America, it will make the 2008 recession and its aftermath look like no more than a slight bump in the road. It will bring very undesirable changes to the American lifestyle through massive inflation, high interest rates on mortgages and cars, and substantial increases in the cost of food, clothing and petrol."

Most Americans don't realise how low the price of petrol in the United States is compared to much of the rest of the world.

Some Europeans they pay about twice what Americans do for petrol. Yes, taxes have a lot to do with that, but the fact that the U.S. dollar is used for almost all oil transactions also plays a significant role.

Today, America consumes nearly a quarter of the world's oil. The entire economy is based upon the ability to cheaply transport goods and services over vast distances.

So what happens if the price of petrol doubles or triples from where it is at now?

In addition, if the reign of the U.S. dollar as global reserve currency ends, the U.S. government is going to have a much harder time financing its debt.

Right now, there is a huge demand for U.S. dollars and for U.S. government debt since countries around the world have to keep huge reserves of U.S. currency lying around for the sake of international trade.

But what if that all changed?

What if the appetite for U.S. dollars and U.S. debt dried up dramatically?

That is something to think about.

At the moment, the global financial system is centered on the United States.

But that will not always be the case.

The things talked about in this article will not happen overnight, but it is important to note that these changes are picking up steam.

Under the right conditions, a shift in momentum can become a landslide or an avalanche.

Clearly, the conditions are right for a significant move away from the U.S. dollar in international trade.

So when will this major shift occur?

Only time will tell.







The $1.4 Trillion Question


The Chinese are subsidizing the American way of life. Are we playing them for suckers—or are they playing us?

By James Fallows
Stephen Schwarzman may think he has image problems in America. He is the co-founder and CEO of the Blackstone Group, and he threw himself a $3 million party for his 60th birthday last spring, shortly before making many hundreds of millions of dollars in his company’s IPO and finding clever ways to avoid paying taxes. That’s nothing compared with the way he looks in China. Here, he and his company are surprisingly well known, thanks to blogs, newspapers, and talk-show references. In America, Schwarzman’s perceived offense is greed—a sin we readily forgive and forget. In China, the suspicion is that he has somehow hoodwinked ordinary Chinese people out of their hard-earned cash. 


From the archives:

"Cashing Out" (September 2007)
Is private equity just another bubble, or a sign of sickness in America's public stock markets? By Clive Crook

Interviews: "Private Equity Deconstructed" (August 14, 2007)

Atlantic senior editor Clive Crook weighs in on the private-equity business—why it's booming, where it's headed, and what it means for American capitalism.
Last June, China’s Blackstone investment was hailed in the American press as a sign of canny sophistication. It seemed just the kind of thing the U.S. government had in mind when it hammered China to use its new wealth as a “responsible stakeholder” among nations. By putting $3 billion of China’s national savings into the initial public offering of America’s best-known private-equity firm, the Chinese government allied itself with a big-time Western firm without raising political fears by trying to buy operating control (it bought only 8 percent of Blackstone’s shares, and nonvoting shares at that). The contrast with the Japanese and Saudis, who in their nouveau-riche phase roused irritation and envy with their showy purchases of Western brand names and landmark properties, was plain.
Six months later, it didn’t look so canny, at least not financially. China’s Blackstone holdings lost, on paper, about $1 billion, during a time when the composite index of the Shanghai Stock Exchange was soaring. At two different universities where I’ve spoken recently, students have pointed out that Schwarzman was a major Republican donor. A student at Fudan University knew a detail I didn’t: that in 2007 President Bush attended a Republican National Committee fund-raiser at Schwarzman’s apartment in Manhattan (think what he would have made of the fact that Schwarzman, who was one year behind Bush at Yale, had been a fellow member of Skull and Bones). Wasn’t the whole scheme a way to take money from the Chinese people and give it to the president’s crony?
The Blackstone case is titillating in its personal detail, but it is also an unusually clear and personalized symptom of a deeper, less publicized, and potentially much more destructive tension in U.S.–China relations. It’s not just Stephen Schwarzman’s company that the laobaixing, the ordinary Chinese masses, have been subsidizing. It’s everyone in the United States.
Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economics, this one can’t go on indefinitely, and therefore won’t. But the way it ends—suddenly versus gradually, for predictable reasons versus during a panic—will make an enormous difference to the U.S. and Chinese economies over the next few years, to say nothing of bystanders in Europe and elsewhere.
Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.
Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. But because of political tensions in both countries, and because of the huge and growing size of the imbalance, the arrangement now shows signs of cracking apart.
In an article two and a half years ago (“Countdown to a Meltdown,” July/August 2005), I described an imagined future in which a real-estate crash and shakiness in the U.S. credit markets led to panic by Chinese and other foreign investors, with unpleasant effects for years to come. The real world has recently had inklings of similar concerns. In the past six months, relative nobodies in China’s establishment were able to cause brief panics in the foreign-exchange markets merely by hinting that China might stop supplying so much money to the United States. In August, an economic researcher named He Fan, who works at the Chinese Academy of Social Sciences and did part of his doctoral research at Harvard, suggested in an op-ed piece in China Daily that if the U.S. dollar kept collapsing in value, China might move some of its holdings into stronger currencies. This was presented not as a threat but as a statement of the obvious, like saying that during a market panic, lots of people sell. The column quickly provoked alarmist stories in Europe and America suggesting that China was considering the “nuclear option”—unloading its dollars.
A few months later, a veteran Communist Party politician named Cheng Siwei suggested essentially the same thing He Fan had. Cheng, in his mid-70s, was trained as a chemical engineer and has no official role in setting Chinese economic policy. But within hours of his speech, a flurry of trading forced the dollar to what was then its lowest level against the euro and other currencies. The headline in the South China Morning Post the next day was: “Officials’ Words Shrivel U.S. Dollar.” Expressing amazement at the markets’ response, Carl Weinberg, chief economist at the High Frequency Economics advisory group, said, “This would be kind of like Congressman Charlie Rangel giving a speech telling the Fed to hike or cut interest rates.” (Cheng, like Rangel, is known for colorful comments—but he is less powerful, since Rangel after all chairs the House Ways and Means Committee.) In the following weeks, phrases like “run on the dollar” and “collapse of confidence” showed up more and more frequently in financial newsletters. The nervousness only increased when someone who does have influence, Chinese Premier Wen Jiabao, said last November, “We are worried about how to preserve the value” of China’s dollar holdings.
When the dollar is strong, the following (good) things happen: the price of food, fuel, imports, manufactured goods, and just about everything else (vacations in Europe!) goes down. The value of the stock market, real estate, and just about all other American assets goes up. Interest rates go down—for mortgage loans, credit-card debt, and commercial borrowing. Tax rates can be lower, since foreign lenders hold down the cost of financing the national debt. The only problem is that American-made goods become more expensive for foreigners, so the country’s exports are hurt.
When the dollar is weak, the following (bad) things happen: the price of food, fuel, imports, and so on (no more vacations in Europe) goes up. The value of the stock market, real estate, and just about all other American assets goes down. Interest rates are higher. Tax rates can be higher, to cover the increased cost of financing the national debt. The only benefit is that American-made goods become cheaper for foreigners, which helps create new jobs and can raise the value of export-oriented American firms (winemakers in California, producers of medical devices in New England).
The dollar’s value has been high for many years—unnaturally high, in large part because of the implicit bargain with the Chinese. Living standards in China, while rising rapidly, have by the same logic been unnaturally low. To understand why this situation probably can’t go on, and what might replace it—via a dollar crash or some other event—let’s consider how this curious balance of power arose and how it works. 

Why a poor country has so much money 


By 1996, China amassed its first $100 billion in foreign assets, mainly held in U.S. dollars. (China considers these holdings a state secret, so all numbers come from analyses by outside experts.) By 2001, that sum doubled to about $200 billion, according to Edwin Truman of the Peterson Institute for International Economics in Washington. Since then, it has increased more than sixfold, by well over a trillion dollars, and China’s foreign reserves are now the largest in the world. (In second place is Japan, whose economy is, at official exchange rates, nearly twice as large as China’s but which has only two-thirds the foreign assets; the next-largest after that are the United Arab Emirates and Russia.) China’s U.S. dollar assets probably account for about 70 percent of its foreign holdings, according to the latest analyses by Brad Setser, a former Treasury Department economist now with the Council on Foreign Relations; the rest are mainly in euros, plus some yen. Most of China’s U.S. investments are in conservative, low-yield instruments like Treasury notes and federal-agency bonds, rather than showier Blackstone-style bets. Because notes and bonds backed by the U.S. government are considered the safest investments in the world, they pay lower interest than corporate bonds, and for the past two years their annual interest payments of 4 to 5 percent have barely matched the 5-to-6-percent decline in the U.S. dollar’s value versus the RMB.
Americans sometimes debate (though not often) whether in principle it is good to rely so heavily on money controlled by a foreign government. The debate has never been more relevant, because America has never before been so deeply in debt to one country. Meanwhile, the Chinese are having a debate of their own—about whether the deal makes sense for them. Certainly China’s officials are aware that their stock purchases prop up 401(k) values, their money-market holdings keep down American interest rates, and their bond purchases do the same thing—plus allow our government to spend money without raising taxes.
“From a distance, this, to say the least, is strange,” Lawrence Summers, the former treasury secretary and president of Harvard, told me last year in Shanghai. He was referring to the oddity that a country with so many of its own needs still unmet would let “this $1 trillion go to a mature, old, rich place from a young, dynamic place.”
It’s more than strange. Some Chinese people are rich, but China as a whole is unbelievably short on many of the things that qualify countries as fully developed. Shanghai has about the same climate as Washington, D.C.—and its public schools have no heating. (Go to a classroom when it’s cold, and you’ll see 40 children, all in their winter jackets, their breath forming clouds in the air.) Beijing is more like Boston. On winter nights, thousands of people mass along the curbsides of major thoroughfares, enduring long waits and fighting their way onto hopelessly overcrowded public buses that then spend hours stuck on jammed roads. And these are the showcase cities! In rural Gansu province, I have seen schools where 18 junior-high-school girls share a single dormitory room, sleeping shoulder to shoulder, sardine-style.
Better schools, more-abundant parks, better health care, cleaner air and water, better sewers in the cities—you name it, and if it isn’t in some way connected to the factory-export economy, China hasn’t got it, or not enough. This is true at the personal level, too. The average cash income for workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.
So why is China shipping its money to America? An economist would describe the oddity by saying that China has by far the highest national savings in the world. This sounds admirable, but when taken to an extreme—as in China—it indicates an economy out of sync with the rest of the world, and one that is deliberately keeping its own people’s living standards lower than they could be. For comparison, India’s savings rate is about 25 percent, which in effect means that India’s people consume 75 percent of what they collectively produce. (Reminder from Ec 101: The savings rate is the net share of national output either exported or saved and invested for consumption in the future. Effectively, it’s what your own people produce but don’t use.) For Korea and Japan, the savings rate is typically from the high 20s to the mid-30s. Recently, America’s has at times been below zero, which means that it consumes, via imports, more than it makes.
China’s savings rate is a staggering 50 percent, which is probably unprecedented in any country in peacetime. This doesn’t mean that the average family is saving half of its earnings—though the personal savings rate in China is also very high. Much of China’s national income is “saved” almost invisibly and kept in the form of foreign assets. Until now, most Chinese have willingly put up with this, because the economy has been growing so fast that even a suppressed level of consumption makes most people richer year by year.
But saying that China has a high savings rate describes the situation without explaining it. Why should the Communist Party of China countenance a policy that takes so much wealth from the world’s poor, in their own country, and gives it to the United States? To add to the mystery, why should China be content to put so many of its holdings into dollars, knowing that the dollar is virtually guaranteed to keep losing value against the RMB? And how long can its people tolerate being denied so much of their earnings, when they and their country need so much? The Chinese government did not explicitly set out to tighten the belt on its population while offering cheap money to American homeowners. But the fact that it does results directly from explicit choices it has made—two in particular. Both arise from crucial controls the government maintains over an economy that in many other ways has become wide open. The situation may be easiest to explain by following a U.S. dollar on its journey from a customer’s hand in America to a factory in China and back again to the T-note auction in the United States. 

The voyage of a dollar 


Let’s say you buy an Oral-B electric toothbrush for $30 at a CVS in the United States. I choose this example because I’ve seen a factory in China that probably made the toothbrush. Most of that $30 stays in America, with CVS, the distributors, and Oral-B itself. Eventually $3 or so—an average percentage for small consumer goods—makes its way back to southern China.
When the factory originally placed its bid for Oral-B’s business, it stated the price in dollars: X million toothbrushes for Y dollars each. But the Chinese manufacturer can’t use the dollars directly. It needs RMB—to pay the workers their 1,200-RMB ($160) monthly salary, to buy supplies from other factories in China, to pay its taxes. So it takes the dollars to the local commercial bank—let’s say the Shenzhen Development Bank. After showing receipts or waybills to prove that it earned the dollars in genuine trade, not as speculative inflow, the factory trades them for RMB.
This is where the first controls kick in. In other major countries, the counterparts to the Shenzhen Development Bank can decide for themselves what to do with the dollars they take in. Trade them for euros or yen on the foreign-exchange market? Invest them directly in America? Issue dollar loans? Whatever they think will bring the highest return. But under China’s “surrender requirements,” Chinese banks can’t do those things. They must treat the dollars, in effect, as contraband, and turn most or all of them (instructions vary from time to time) over to China’s equivalent of the Federal Reserve Bank, the People’s Bank of China, for RMB at whatever is the official rate of exchange.
With thousands of transactions per day, the dollars pile up like crazy at the PBOC. More precisely, by more than a billion dollars per day. They pile up even faster than the trade surplus with America would indicate, because customers in many other countries settle their accounts in dollars, too.
The PBOC must do something with that money, and current Chinese doctrine allows it only one option: to give the dollars to another arm of the central government, the State Administration for Foreign Exchange. It is then SAFE’s job to figure out where to park the dollars for the best return: so much in U.S. stocks, so much shifted to euros, and the great majority left in the boring safety of U.S. Treasury notes.
And thus our dollar comes back home. Spent at CVS, passed to Oral-B, paid to the factory in southern China, traded for RMB at the Shenzhen bank, “surrendered” to the PBOC, passed to SAFE for investment, and then bid at auction for Treasury notes, it is ready to be reinjected into the U.S. money supply and spent again—ideally on Chinese-made goods.
At no point did an ordinary Chinese person decide to send so much money to America. In fact, at no point was most of this money at his or her disposal at all. These are in effect enforced savings, which are the result of the two huge and fundamental choices made by the central government.
One is to dictate the RMB’s value relative to other currencies, rather than allow it to be set by forces of supply and demand, as are the values of the dollar, euro, pound, etc. The obvious reason for doing this is to keep Chinese-made products cheap, so Chinese factories will stay busy. This is what Americans have in mind when they complain that the Chinese government is rigging the world currency markets. And there are numerous less obvious reasons. The very act of managing a currency’s value may be a more important distorting factor than the exact rate at which it is set. As for the rate—the subject of much U.S. lecturing—given the huge difference in living standards between China and the United States, even a big rise in the RMB’s value would leave China with a price advantage over manufacturers elsewhere. (If the RMB doubled against the dollar, a factory worker might go from earning $160 per month to $320—not enough to send many jobs back to America, though enough to hurt China’s export economy.) Once a government decides to thwart the market-driven exchange rate of its currency, it must control countless other aspects of its financial system, through instruments like surrender requirements and the equally ominous-sounding “sterilization bonds” (a way of keeping foreign-currency swaps from creating inflation, as they otherwise could).
These and similar tools are the way China’s government imposes an unbelievably high savings rate on its people. The result, while very complicated, is to keep the buying power earned through China’s exports out of the hands of Chinese consumers as a whole. Individual Chinese people have certainly gotten their hands on a lot of buying power, notably the billionaire entrepreneurs who have attracted the world’s attention (see “Mr. Zhang Builds His Dream Town,” March 2007). But when it comes to amassing international reserves, what matters is that China as a whole spends so little of what it earns, even as some Chinese people spend a lot.
The other major decision is not to use more money to address China’s needs directly—by building schools and agricultural research labs, cleaning up toxic waste, what have you. Both decisions stem from the central government’s vision of what is necessary to keep China on its unprecedented path of growth. The government doesn’t want to let the market set the value of the RMB, because it thinks that would disrupt the constant growth and the course it has carefully and expensively set for the factory-export economy. In the short run, it worries that the RMB’s value against the dollar and the euro would soar, pricing some factories in “expensive” places such as Shanghai out of business. In the long run, it views an unstable currency as a nuisance in itself, since currency fluctuation makes everything about business with the outside world more complicated. Companies have a harder time predicting overseas revenues, negotiating contracts, luring foreign investors, or predicting the costs of fuel, component parts, and other imported goods.
And the government doesn’t want to increase domestic spending dramatically, because it fears that improving average living conditions could paradoxically intensify the rich-poor tensions that are China’s major social problem. The country is already covered with bulldozers, wrecking balls, and construction cranes, all to keep the manufacturing machine steaming ahead. Trying to build anything more at the moment—sewage-treatment plants, for a start, which would mean a better life for its own people, or smokestack scrubbers and related “clean” technology, which would start to address the world pollution for which China is increasingly held responsible—would likely just drive prices up, intensifying inflation and thus reducing the already minimal purchasing power of most workers. Food prices have been rising so fast that they have led to riots. In November, a large Carre­four grocery in Chong­qing offered a limited-time sale of vegetable oil, at 20 percent (11 RMB, or $1.48) off the normal price per bottle. Three people were killed and 31 injured in a stampede toward the shelves.
This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on. 

What the Chinese hope will happen 


The Chinese public is beginning to be aware that its government is sitting on a lot of money—money not being spent to help China directly, money not doing so well in Blackstone-style foreign investments, money invested in the ever-falling U.S. dollar. Chinese bloggers and press commentators have begun making a connection between the billions of dollars the country is sending away and the domestic needs the country has not addressed. There is more and more pressure to show that the return on foreign investments is worth China’s sacrifice—and more and more potential backlash against bets that don’t pay off. (While the Chinese government need not stand for popular election, it generally tries to reduce sources of popular discontent when it can.) The public is beginning to behave like the demanding client of an investment adviser: it wants better returns, with fewer risks.
This is the challenge facing Lou Jiwei and Gao Xiqing, who will play a larger role in the U.S. economy than Americans are accustomed to from foreigners. Lou, a longtime Communist Party official in his late 50s, is the chairman of the new China Investment Corporation, which is supposed to find creative ways to increase returns on at least $200 billion of China’s foreign assets. He is influential within the party but has little international experience. Thus the financial world’s attention has turned to Gao Xiqing, who is the CIC’s general manager.
Twenty years ago, after graduating from Duke Law School, Gao was the first Chinese citizen to pass the New York State Bar Exam. He returned to China in 1988, after several years as an associate at the New York law firm Mudge, Rose (Richard Nixon’s old firm) to teach securities law and help develop China’s newly established stock markets. By local standards, he is hip. At an economics conference in Beijing in December, other Chinese speakers wore boxy dark suits. Gao, looking fit in his mid-50s, wore a tweed jacket and black turtleneck, an Ironman-style multifunction sports watch on his wrist.
Under Lou and Gao, the CIC started with a bang with Blackstone—the wrong kind of bang. Now, many people suggest, it may be chastened enough to take a more careful approach. Indeed, that was the message it sent late last year, with news that its next round of investments would be in China’s own banks, to shore up some with credit problems. And it looks to be studying aggressive but careful ways to manage huge sums. About the time the CIC was making the Blackstone deal, its leadership and staff undertook a crash course in modern financial markets. They hired the international consulting firm McKinsey to prepare confidential reports about the way they should organize themselves and the investment principles they should apply. They hired Booz Allen Hamilton to prepare similar reports, so they could compare the two. Yet another consulting firm, Towers Perrin, provided advice, especially about staffing and pay. The CIC leaders commissioned studies of other large state-run investment funds—in Norway, Singapore, the Gulf States, Alaska—to see which approaches worked and which didn’t. They were fascinated by the way America’s richest universities managed their endowments, and ordered multiple copies of Pioneering Portfolio Management, by David Swensen, who as Yale’s chief investment officer has guided its endowment to sustained and rapid growth. Last summer, teams from the CIC made long study visits to Yale and Duke universities, among others.
Gao Xiqing and other CIC officials have avoided discussing their plans publicly. “If you tell people ahead of time what you’re going to do—well, you just can’t operate that way in a market system,” he said at his Beijing appearance. “What I can say is, we’ll play by the international rules, and we’ll be responsible investors.” Gao emphasized several times how much the CIC had to learn: “We’re the new kids on the block. Because of media attention, there is huge pressure on us—we’re already under water now.” The words “under water” were in natural-sounding English, and clearly referred to Blackstone.
Others familiar with the CIC say that its officials are coming to appreciate the unusual problems they will face. For instance: any investment group needs to be responsible to outside supervisors, and the trick for the CIC will be to make itself accountable to Communist Party leadership without becoming a mere conduit for favored investment choices by party bosses. How can it attract the best talent? Does it want to staff up quickly, to match its quickly mounting assets, by bidding for financial managers on the world market—where many of the candidates are high-priced, not fluent in Chinese, and reluctant to move to Beijing? Or can it afford to take the time to home-grow its own staff?
While the CIC is figuring out its own future, outsiders are trying to figure out the CIC—and also SAFE, which will continue handling many of China’s assets. As far as anyone can tell, the starting point for both is risk avoidance. No more Blackstones. No more CNOOC-Unocals. (In 2005, the Chinese state oil firm CNOOC attempted to buy U.S.–based Unocal. It withdrew the offer in the face of intense political opposition to the deal in America.) One person involved with the CIC said that its officials had seen recent Lou Dobbs broadcasts criticizing “Communist China” and were “shellshocked” about the political resentment their investments might encounter in the United States. For all these reasons the Chinese leadership, as another person put it, “has a strong preference to follow someone else’s lead, not in an imitative way” but as an unobtrusive minority partner wherever possible. It will follow the lead of others for now, that is, while the CIC takes its first steps as a gigantic international financial investor.
The latest analyses by Brad Setser suggest that despite all the talk about abandoning the dollar, China is still putting about as large a share of its money into dollars as ever, somewhere between 65 and 70 percent of its foreign earnings. “Politically, the last thing they want is to signal a loss of faith in the dollar,” Andy Rothman, of the financial firm CLSA, told me; that would lead to a surge in the RMB, which would hurt Chinese exporters, not to mention the damage it would cause to China’s vast existing dollar assets.
The problem is that these and other foreign observers must guess at China’s aims, rather than knowing for sure. As Rothman put it, “The opaqueness about intentions and goals is always the issue.” The mini-panics last year took hold precisely because no one could be sure that SAFE was not about to change course.
The uncertainty arises in part from the limited track record of China’s new financial leadership. As one American financier pointed out to me: “The man in charge of the whole thing”—Lou Jiwei—“has never bought a share of stock, never bought a car, never bought a house.” Another foreign financier said, after meeting some CIC staffers, “By Chinese terms, these are very sophisticated people.” But, he went on to say, in a professional sense none of them had lived through the financial crises of the last generation: the U.S. market crash of 1987, the “Asian flu” of the late 1990s, the collapse of the Internet bubble soon afterward. The Chinese economy was affected by all these upheavals, but the likes of Gao Xiqing were not fully exposed to their lessons, sheltered as they were within Chinese institutions.
Foreign observers also suggest that, even after exposure to the Lou Dobbs clips, the Chinese financial leadership may not yet fully grasp how suspicious other countries are likely to be of China’s financial intentions, for reasons both fair and unfair. The unfair reason is all-purpose nervousness about any new rising power. “They need to understand, and they don’t, that everything they do will be seen as political,” a financier with extensive experience in both China and America told me. “Whatever they buy, whatever they say, whatever they do will be seen as China Inc.”
The fair reason for concern is, again, the transparency problem. Twice in the past year, China has in nonfinancial ways demonstrated the ripples that a nontransparent policy creates. Last January, its military intentionally shot down one of its own satellites, filling orbital paths with debris. The exercise greatly alarmed the U.S. military, because of what seemed to be an implied threat to America’s crucial space sensors. For several days, the Chinese government said nothing at all about the test, and nearly a year later, foreign analysts still debate whether it was a deliberate provocation, the result of a misunderstanding, or a freelance effort by the military. In November, China denied a U.S. Navy aircraft carrier, the Kitty Hawk, routine permission to dock in Hong Kong for Thanksgiving, even though many Navy families had gone there for a reunion. In each case, the most ominous aspect is that outsiders could not really be sure what the Chinese leadership had in mind. Were these deliberate taunts or shows of strength? The results of factional feuding within the leadership? Simple miscalculations? In the absence of clear official explanations no one really knew, and many assumed the worst.
So it could be with finance, unless China becomes as transparent as it is rich. Chinese officials say they will move in that direction, but they’re in no hurry. Last fall, Edwin Truman prepared a good-governance scorecard for dozens of “sovereign wealth” funds—government-run investment funds like SAFE and the CIC. He compared funds from Singapore, Korea, Norway, and elsewhere, ranking them on governing structure, openness, and similar qualities. China’s funds ended up in the lower third of his list—better-run than Iran’s, Sudan’s, or Algeria’s, but worse than Mexico’s, Russia’s, or Kuwait’s. China received no points in the “governance” category and half a point out of a possible 12 for “transparency and accountability.”
Foreigners (ordinary Chinese too, for that matter) can’t be sure about the mixture of political and strictly economic motives behind future investment decisions the Chinese might make. When China’s president, Hu Jintao, visited Seattle two years ago, he announced a large purchase of Boeing aircraft. When France’s new president, Nicolas Sarkozy, visited China late last year, Hu announced an even larger purchase of Airbuses. Every Chinese order for an airplane is a political as well as commercial decision. Brad Setser says that the Chinese government probably believed that it would get “credit” for the Blackstone purchase in whatever negotiations came up next with the United States, in the same way it would get credit for choosing Boeing. This is another twist to the Kremlinology of trying to discern China’s investment strategy.
Where the money goes, other kinds of power follow. Just ask Mikhail Gorbachev, as he reflects on the role bankruptcy played in bringing down the Soviet empire. While Japan’s great wealth has not yet made it a major diplomatic actor, and China has so far shied from, rather than seized, opportunities to influence events outside its immediate realm, time and money could change that. China’s military is too weak to challenge the U.S. directly even in the Taiwan Straits, let alone anyplace else. That, too, could change. 

A Balance of Terror 


Let’s take these fears about a rich, strong China to their logical extreme. The U.S. and Chinese governments are always disagreeing—about trade, foreign policy, the environment. Someday the disagreement could be severe. Taiwan, Tibet, North Korea, Iran—the possibilities are many, though Taiwan always heads the list. Perhaps a crackdown within China. Perhaps another accident, like the U.S. bombing of China’s embassy in Belgrade nine years ago, which everyone in China still believes was intentional and which no prudent American ever mentions here.
Whatever the provocation, China would consider its levers and weapons and find one stronger than all the rest—one no other country in the world can wield. Without China’s billion dollars a day, the United States could not keep its economy stable or spare the dollar from collapse.
Would the Chinese use that weapon? The reasonable answer is no, because they would wound themselves grievously, too. Their years of national savings are held in the same dollars that would be ruined; in a panic, they’d get only a small share out before the value fell. Besides, their factories depend on customers with dollars to spend.
But that “reassuring” answer is actually frightening. Lawrence Summers calls today’s arrangement “the balance of financial terror,” and says that it is flawed in the same way that the “mutually assured destruction” of the Cold War era was. That doctrine held that neither the United States nor the Soviet Union would dare use its nuclear weapons against the other, since it would be destroyed in return. With allowances for hyperbole, something similar applies to the dollar standoff. China can’t afford to stop feeding dollars to Americans, because China’s own dollar holdings would be devastated if it did. As long as that logic holds, the system works. As soon as it doesn’t, we have a big problem.
What might poke a giant hole in that logic? Not necessarily a titanic struggle over the future of Taiwan. A simple mistake, for one thing. Another speech by Cheng Siwei—perhaps in response to a provocation by Lou Dobbs. A rumor that the oil economies are moving out of dollars for good, setting their prices in euros. Leaked suggestions that the Chinese government is hoping to buy Intel, leading to angry denunciations on the Capitol floor, leading to news that the Chinese will sit out the next Treasury auction. As many world tragedies have been caused by miscalculation as by malice.
Or pent-up political tensions, on all sides. China’s lopsided growth—ahead in exports, behind in schooling, the environment, and everything else—makes the country socially less stable as it grows richer. Meanwhile, its expansion disrupts industries and provokes tensions in the rest of the world. The billions of dollars China pumps into the United States each week strangely seem to make it harder rather than easier for Americans to face their own structural problems. One day, something snaps. Suppose the CIC makes another bad bet—not another Blackstone but another WorldCom, with billions of dollars of Chinese people’s assets irretrievably wiped out. They will need someone to blame, and Americans, for their part, are already primed to blame China back.
So, the shock comes. Does it inevitably cause a cataclysm? No one can know until it’s too late. The important question to ask about the U.S.–China relationship, the economist Eswar Prasad, of Cornell, recently wrote in a paper about financial imbalances, is whether it has “enough flexibility to withstand and recover from large shocks, either internal or external.” He suggested that the contained tensions were so great that the answer could be no.
Today’s American system values upheaval; it’s been a while since we’ve seen too much of it. But Americans who lived through the Depression knew the pain real disruption can bring. Today’s Chinese, looking back on their country’s last century, know, too. With a lack of tragic imagination, Americans have drifted into an arrangement that is comfortable while it lasts, and could last for a while more. But not much longer.
Years ago, the Chinese might have averted today’s pressures by choosing a slower and more balanced approach to growth. If they had it to do over again, I suspect they would in fact choose just the same path—they have gained so much, including the assets they can use to do what they have left undone, whenever the government chooses to spend them. The same is not true, I suspect, for the United States, which might have chosen a very different path: less reliance on China’s subsidies, more reliance on paying as we go. But it’s a little late for those thoughts now. What’s left is to prepare for what we find at the end of the path we have taken.



Europe advances towards single banking supervisor

By Julien Toyer and Andreas Rinke

BRUSSELS (Reuters) - European Union leaders took a big stride towards establishing a single banking supervisor for the euro zone, striking a deal under which the bloc's rescue fund could start recapitalising ailing banks next year, a French government source said.

The source told reporters at an EU summit that all 6,000 banks in the single currency area would come under European Central Bank supervision by 2014, but most day-to-day oversight would be delegated to national bodies.

Creating an effective banking union, for which this deal is just a first step, is regarded by the International Monetary Fund and market economists as a key step to overcome the euro zone's three-year-old debt crisis.

The French source said the agreement meant the European Stability Mechanism (ESM) could start injecting capital into troubled banks as early as the first quarter of 2013, but a German source said it was "very unlikely" to happen so soon.

The German government source said the ECB would be responsible for supervising systemically important banks and could oversee others if necessary, emphasizing that direct recapitalization of banks by the ESM could only happen once cross-border banking supervision was firmly in place.

The point when the ECB will effectively become the bloc's banking supervisor is important because it would open the way for the euro zone's bailout fund to inject capital directly into troubled banks, without adding to their host governments' debts.

EU Economic and Monetary Affairs Commissioner Olli Rehn said this was vital "to break the vicious circle between sovereigns and banks".

The legal framework would be completed by the end of this year so the ECB could begin working to implement supervision arrangements from January 1, 2013, starting with banks receiving state aid, the French source told a midnight briefing.

"The entire banking supervision mechanism -- that means the effective supervision of 6,000 banks -- will become reality on January 1, 2014," he said.

The agreement, still to be officially confirmed, appeared to be a defeat for German Finance Minister Wolfgang Schaeuble's efforts to limit the scope of European banking supervision.

The deal came after the leaders of France and Germany, Europe's central powers, held a private meeting after clashing in public over greater EU control of national budgets.

Germany has been reluctant to see its politically sensitive savings and cooperative banks come under outside supervision. It rejects any joint deposit guarantee under which richer countries might have to underwrite banks in poorer states.

German Chancellor Angela Merkel earlier demanded stronger authority for the executive European Commission to veto national budgets that breach EU rules, but French President Francois Hollande said the issue was not on the summit agenda and the priority was to get moving on a European banking union.

For once, the summit was not under intense pressure from financial markets, which have calmed since the ECB pledged last month to intervene decisively if needed to buy bonds of troubled euro zone states to preserve the euro.

"FISCAL CAPACITY"

Addressing parliament in Berlin earlier in the day, Merkel skirted the issue of a possible credit line for Spain, which EU officials expect Madrid to request within weeks, but reiterated her desire to keep Greece in the currency area despite chronic debt problems.

In Athens, police clashed with protesters hurling stones and petrol bombs during a general strike that brought much of the near-bankrupt country to a standstill.

"We have made good progress on strengthening fiscal discipline with the fiscal pact but we are of the opinion, and I speak for the whole German government on this, that we could go a step further by giving Europe real rights of intervention in national budgets," Merkel told the Bundestag lower house.

A proposal by Schaeuble to create a super-empowered European currency commissioner was a possible way forward, she said, and more European control called for a stronger European Parliament.

Merkel also advocated the creation of a European fund to invest in specific projects in member states which she said could be fuelled by a financial transaction tax which 11 euro zone countries have said they will adopt.

Her call echoed a proposal for the 17-member euro zone to have its own budget -- known in EU jargon as a "fiscal capacity" -- on top of the 27-nation union's common budget, which mostly funds agriculture and aid to poorer regions.

Several states, including the Netherlands, Finland and Austria, were uneasy at the idea but none rejected it outright.

Decisions on institutional reforms are not expected until a December summit.

Since the ECB said last month it was ready to buy the bonds of struggling euro zone states in unlimited amounts, state borrowing costs have fallen sharply, easing the immediate pressure for Spain to seek a bailout.

Spain's 10-year bond yields sank to their lowest since February at an auction on Thursday, helped by Moody's decision this week to leave its credit rating at investment grade.

But rather than signaling that Madrid does not need help, Moody's verdict was predicated on Spain soon applying for a euro zone assistance program to trigger ECB intervention.

Italy raised a bumper 18 billion euros from a four-year inflation-linked retail bond -- the most ever raised in a single debt offering in European markets -- reducing its need to issue debt before the end of this year.

The leaders agreed at their last summit in June to create a single banking supervisor under the ECB, but tricky legal issues remain and Germany and its north European allies had appeared to be backtracking on elements of the June decision.

The deeper the discussion on banking union goes, the more complex and problematic it will get.

Countries outside the euro zone -- particularly Britain, which has Europe's biggest banking sector -- are concerned their banks could be disadvantaged if a balance is not maintained between the ECB and its oversight of euro zone banks and the powers of other authorities to oversee non-euro zone banks.

And if non-euro zone countries such as Poland join the banking union, as policymakers are hoping, it is unclear what representation they would have within the ECB, since the central bank is currently answerable only to euro zone member states.

(Additional reporting by Stephen Brown and Madeline Chambers in Berlin, Jan Strupczewski and Luke Baker in Brussels, Harry Papachristou and Lefteris Papadimas in Athens and Gilbert Krijger in Amsterdam. Writing by Paul Taylor, editing by Mike Peacock)






FBI Celebrates Foiling Its Own Terror Plot, Again  

Alex Newman The New American October 18, 2012

Federal agents convinced a naïve, violence-inclined 21-year-old Bangladeshi that he was a member of “al-Qaeda,” giving the dupe fake bombs to blow up the Federal Reserve Bank of New York before swarming in and arresting him on October 17. As has become typical, government officials scrambled to put out press releases patting themselves on the back for their work protecting the “Homeland.”

In reality, however, there was no al-Qaeda, there was no threat, there were no bombs, and the only alleged “plot” the FBI “foiled” was the one it helped hatch with its dupe, Quazi Mohammad Rezwanul Ahsan Nafis. Like the vast majority of recent domestic “terror” schemes against the United States, the latest supposed “operation” was essentially run by authorities from start to finish.

“It is important to emphasize that the public was never at risk in this case, because two of the defendant’s ‘accomplices’ were actually an FBI source and an FBI undercover agent,” Acting Assistant FBI Director Mary Galligan admitted in a press release celebrating the arrest. “The FBI continues to place the highest priority on preventing acts of terrorism.”

 The criminal complaint filed in U.S. District Court also confirmed that authorities gave their dupe bogus explosives to carry out the bogus attack. “The material that purported to be the explosive material was actually inert and posed no threat to the safety of the public,” the document confirmed, fueling more criticism of the government’s terror-war tactics that include cultivating terrorists and supplying all their terror needs.

The apparently dim-witted young man from Bangladesh was in the United States on a student visa when he allegedly tried to find others to join him in carrying out an attack. According to the criminal complaint, he miraculously managed to find an FBI source to help on his mission. The confidential informant promptly introduced him to government agents who promised to assist.

“I don’t want something that’s like, small,” Nafis allegedly told an undercover agent who was posing as an al-Qaeda member and wearing a recording device. “I just want something big. Something very big. Very, very, very, very big, that will shake the whole country.” He was apparently hoping to “destroy America” with an attack that would bring Muslims closer to running “the whole world.”

Despite claiming to have “connections,” authorities had to convince Nafis that he really was part of al-Qaeda. “The thing that I want to ask you about is that, the thing I’m doing, is it under al-Qaeda?” the confused would-be “terrorist” asked one of his government handlers. The unidentified undercover law-enforcement officer assured the bewildered dupe that the attack would indeed be for “al-Qaeda.”

In numerous similar setups where the FBI has persuaded dupes to help plot “terror” attacks, the government offered big money in an effort to get the schemes off the ground. It remains unclear whether Nafis was given any cash reward for his “services.” However, most everything else was supplied by law enforcement — including the bogus bombs.

The undercover agent, for example, asked Nafis what he would need to carry out his “attack.” The dupe responded that he would need “a big car with lots of fruits and vegetables in there which can blow up the whole New York Stock Exchange building.” Nafis later proudly told a separate government informant, after being convinced by his handler, of course, that he was now officially a member of “al-Qaeda.”

At one point, Nafis told his handlers that he wanted to go home to see his family before the attack. However, the agents told him not to do that because law enforcement might “detect” its own plot. More than likely, Nafis was urged not to go home to ensure that the FBI would have somebody to arrest after hatching its complex bogus terror plot over a period of several months. His handlers told him “al-Qaeda” would stop helping him if he went home, court documents show.

As soon as news of the arrest was publicly announced, commentators across the Internet slammed and ridiculed the FBI and the federal government for continuing to prod dupes into carrying out bogus attacks. Perhaps anticipating that critics would cry foul at yet another “foiled” government-orchestrated “terror” plot, federal officials said they had to proceed with the setup to ensure that Nafis would not go plot an attack on his own.

“We have an obligation to take action to protect the public when an individual expresses a desire to commit violence and recruits others for an attack,” Justice Department spokesman Dean Boyd was quoted as saying. “Allowing such individuals to proceed without a government response is not an option, given that they may take action on their own or find others willing to assist them.”

Indeed, if the criminal complaint is to be believed, it is true that Nafis was anything but an upstanding citizen. After the FBI convinced him that he was a member of “al-Qaeda” and that his government handler was working with “al-Qaeda leadership,” for example, the would-be terrorist said he knew there would be innocent casualties, including women and children. Still, he told his handlers he was ready to proceed.

Nafis also purportedly hoped the plot he hatched with the FBI would disrupt the upcoming presidential election. According to the criminal complaint, he was apparently an admirer of former CIA asset Osama bin Laden, too.

The dupe was arrested after using a cellphone to try to detonate the fake bomb the FBI gave him. He was charged with attempting to use a weapon of mass destruction (WMD) and attempting to provide material support to al-Qaeda. If convicted, he could face life in prison.

Last year, federal authorities hatched a similar half-baked plot, using a convicted felon to deceive a group of young self-styled left-wing anarchists into trying to blow up a bridge near Cleveland. A separate case in 2009 in which a government informer convinced dupes to plant fake bombs in New York even drew criticism from the judge who oversaw the case, who said: “The government made them terrorists.”

Government-hatched terror attacks, despite generating a lot of headlines, paranoia, and budget increases for the terror war, have still come under increasing scrutiny in recent years. “Without the F.B.I., would the culprits commit violence on their own? Is cultivating potential terrorists the best use of the manpower designed to find the real ones?” wondered author David Shipler in a piece for theNew York Times earlier this year about the absurdity of manufacturing terror plots to stop terror.

Analysts speculated that the most recent bogus “terror” scheme would be seized upon by the privately owned Federal Reserve banking cartel to portray itself as a potential target. The fake attack might also pave the way to helping paint the Fed’s growing number of vocal critics as potentially dangerous — at least if the FBI can find them, radicalize them, and give them money and fake explosives.

While the FBI was busy convincing Nafis that he was a member of “al-Qaeda,” a terror group largely created and funded by the U.S. government decades ago, the Obama administration and Western powers were providing arms and money to real self-styled al-Qaeda fighters [8] waging “jihad” in Syria. Before that, known al-Qaeda leaders were benefiting from overwhelming support from the Obama administration [9] in the fight to oust Libya’s former despot, Moammar Gadhafi.

Whether Nafis would have been able or even willing to carry out any real attack without months of prodding by authorities will remain a mystery — he can be convicted based on current U.S. law regardless. What has become clear, though, is that the vast majority of “attacks” supposedly “foiled” over the last decade would never have made it into even the planning stages without government assistance.