Nobel Economist: Dollar Not Good Store of Value, Has High Degree of Risk

Nobel Prize-winning economist Joseph Stiglitz recently voiced his rather pessimistic view of the US currency, saying, “The dollar is not a good store of value," and "anybody looking at the dollar has to say there’s a high degree of risk.”

Stiglitz, a Columbia University economics professor, also told a conference in Bangkok this month that he is concerned about the growing specter of inflation.

Under the leadership of Ben Bernanke, over the past year the Fed cut its benchmark lending rate to as low as zero while creating an additional $1.1 trillion in credit that was subsequently unleashed into the economy.

“As the balance sheet of the Fed has blown up, as the deficit of the U.S. and the debt has increased, people have asked the obvious question: will there be inflation in the future? Right now we’re facing deflation, but some time in the future, there will be consequences," said Stiglitz.

He is not alone in this view. Curtis Mewbourne, a portfolio manager at Pacific Investment Management Co., the world’s biggest manager of bond funds, says the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy.

“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his August Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.

China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.

Stiglitz concurs.

“There is a need for a global reserve system,” Stiglitz told the Bangkok conference. "The current reserve system is in the process of fraying.”

Mewbourne has a similar view, writing, “While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative.”

Proposals for a new global currency are based on a weighted basket of international currencies, plus gold. Economists argue that such an alternative could be a less volatile alternative than the U.S. dollar. At present, other nations are affected by the dollar's vulnerability to swings in the U.S. economy and changes in U.S. fiscal and monetary policy.

Bill Gross, Mewbourne's PIMCO colleague, is also warning that the U.S. currency will fall. In June, Gross urged holders of dollars to diversify before central banks and sovereign wealth funds do the same because of concerns that government budget deficits will deepen.

International Energy Agency: Oil Running Out Far Faster Than Previously Predicted

Dr Fatih Birol, the chief economist at the respected International Energy Agency, says the world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production.

Dr Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilization depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.

But the first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace calculated just two years ago.

The IEA estimates that the decline in oil production in existing fields is now running at 6.7 percent a year compared to the 3.7 percent decline it had estimated in 2007, which it now acknowledges to be wrong.

In its landmark assessment of the world's major oil fields, the IEA concluded that global consumption of oil was "patently unsustainable", with expected demand far outstripping supply.

Oil production has already peaked in non-OPEC countries and the era of cheap oil has come to an end, it warned.

In most fields, oil production has now peaked, which means that other sources of supply have to be found to meet existing demand.

Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030, Dr Birol said.

"One day we will run out of oil. It is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us, and we have to prepare ourselves for that day," Dr Birol said. "The earlier we start, the better, because all of our economic and social system is based on oil. So to change from that will take a lot of time and a lot of money and we should take this issue very seriously," he said.

US Income Inequality Reaches Record Level

According to research done by Emmanuel Saez, a professor of economics at U.C Berkeley, in 2007, the top 10% of income and wage earners got half (49.74%) of all income and the other 90% split the other half.

The previous peak level was 49.29% in 1928, the height of the 1920s stock market bubble.

If capital gains are excluded, we were not quite at the Roaring 20’s levels of inequality, but were close at 45.51% vs. 46.09% in 1928.

The average from the end of WWII through 1980 was 32.3% excluding capital gains and 34.0% including them.

But the disparity began widening in the early 1990s. According to Saez, "The top 1% incomes captured half of the overall economic growth over the period 1993-2007."

And the disparity became especially distorted during the current decade.

"While the bottom 99 percent of incomes grew at a solid pace of 2.7 percent per year from 1993-2000, these incomes grew only 1.3 percent per year from 2002-2007. As a result, in the economic expansion of 2002-2007, the top 1 percent captured two-thirds of income growth," reports Saez.

Even while the stock market surged, employment expanded, and home prices inflated at historic levels, things were not nearly so rosy for the vast majority of U.S. workers.

The full report can found at: http://elsa.berkeley.edu/~saez/TabFig2007.xls

"As in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped." -- Marriner S. Eccles (1951), FDR's Fed Chairman, on events leading to the Great Depression

US Bank Closings

2007 - 3
2008 - 25 (more than in the previous five years combined)
2009 - 74, the most since 1992 (122). It's only August.

Bank closures typically take place on Fridays, and this past Friday was no exception. Colonial Bank was the latest bank to fall, and it was the biggest failure this year.

The FDIC’s list of “troubled banks” stood at 305 at the end of the first quarter, the latest data available.

On August 14, Bloomberg News reported that more than 150 publicly traded U.S. lenders had nonperforming loans above 5% of their total holdings. Former regulators say that this is the level that can wipe out a bank's equity and threaten its survival.

Last September, Christopher Whalen, managing director of Institutional Risk Analytics, which sells its analysis of FDIC data to investors, predicted that 100 U.S. banks would fail by the end of 2009. The current pace of closures could easily surpass that.

By the end of 2008, the FDIC expected bank failures to cost its insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. However, its problems have grown continually worse.

As of March 31, the FDIC had $13 billion to cover $4.83 trillion in deposits. Does that make you feel insured?

The August 14th failure of Colonial Bank (the biggest failure this year) will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said.

So far, failures this year have cost the insurance fund nearly $18 billion.

Think about that: $13 billion in assets, $18 billion in losses. Does that make any sense? It seems that the FDIC's insurance fund is already broke.

History and context:

- In 1930, 1300+ banks failed, 600 in just the final two months of the year.

- During the savings-and-loan crisis (1986-95), 2,377 banks failed.

- In 1989, 534 banks were closed, the most since 1934.

- According to the FDIC, since 1934, the only two years with no bank failures were 2005 and 2006.

- From 2000=2007, only 32 US banks failed.

Deutsche Bank Makes Dire Housing Projections

In June, Deutsche Bank forecast that home prices – covering 100 U.S. metropolitan areas – will decline an additional 14% from the first quarter of this year through the first quarter of 2011, for a total drop of 41.7%.

In March, it had projected that the total decline would be 39.6%.

By this measure, we are at least a year-and-a-half away from the end of this housing recession/crisis.

But that isn't the worst of the bank's predictions.

According to Deutsche Bank, 48% percent (or nearly half) of all US mortgages will be underwater by early 2011. This is a stunning, and dire, prediction that would affect some 25 million homes.

Deutsche Bank also predicts that 41% of all prime conforming mortgages will be underwater by early 2011. For prime "jumbo" mortgages (principal values larger than the conforming maximum), the underwater condition is projected to rise to 46%.

"Underwater" defines the condition of the mortgage balance outstanding being larger than the market value of the house. Prime mortgages are those issued to borrowers with the highest credit ratings. Conforming mortgages are those that come within the size limits prescribed for Fannie Mae and Freddie Mac underwriting. Prime conforming mortgages are considered the least risky of all mortgages.

As of March 31, the share of homes mortgaged for more than their value was 26 percent, or about 14 million properties, according to Deutsche Bank. Further deterioration will depress consumer spending and boost defaults by borrowers who face unemployment, divorce, disability or other financial challenges, the bank analysts said.

If the employment picture were to improve, the number of underwater mortgagees staying in their homes would be greater than it will be if unemployment doesn't peak for another 1-2 years, which was the situation after the last recession in 2001.

The Deutsche bank projections imply that it does not see an improved employment picture developing.

Some of the millions of currently unemployed are going to become future defaults, unless the unlikely event of increased employment occurs in the coming months.

At present, the average California foreclosure has a total loan balance of $425,134 on a home that is now worth $236,739 — meaning the average foreclosure is 45% underwater.

And the fallout may get worse; 72% of foreclosures aren't being put on the market because lenders are waiting to see how much additional loan modification assistance will be provided by the federal government.

However, being that our government is massively in debt — to the tune of $13 trillion — it may have reached the limit in bailouts and assistance that it can provide.

The Fed Rules All

Despite the fact that more than half of the House of Representatives signed on as co-sponsors, and despite the efforts of Senators as disparate as Jim DeMint and Bernie Sanders, the Senate still managed to block a bill to audit the Federal Reserve on procedural grounds.

In July, the Senate brazenly chose not to have the Government Accountability Office increase its scrutiny of the Federal Reserve by auditing it and then issuing a report with its conclusions.

It's worth noting that DeMint is a southern, Christian conservative, and the liberal Sanders is a self-described socialist. The two rarely agree on anything, except that the Fed needs to be audited for the good of the nation.

As DeMint put it, " The value of our dollar, our whole economic system, rides on this unelected, secret agency called the Federal Reserve. We're not sure what they're doing right now.... Frankly, a lot of us here in this country, and around the world, are concerned that we're going to destroy the American dollar and the worldwide reserve currency."

DeMint said that he and some of his colleagues are concerned that the Federal Reserve will monetize the debt (by printing more money), buy our own debt, and ultimately devalue the dollar in the process.

Yet, despite the Fed's utter lack of transparency, the Obama administration has proposed giving it the power to regulate all financial institutions — banks, insurance companies, brokerage houses, etc.

And now we have seen a concerted effort to keep the GAO, and the Congress, from taking a look at the Fed's books. Clearly, the Fed fears oversight. It must feel quite relieved that it will continue operating in secrecy.

The fact hat a bill with 250 co-sponsors in the House could still fail in the Senate says a lot about the awesome power of the Fed.

For what it's worth, DeMint says he will keep bringing the bill up as an amendment to other Senate bills, hopefully getting it passed that way.

Why should you and all Americans care?

The Federal Reserve’s balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit. That's what Jim Grant, editor of Grant’s Interest Rate Observer, recently told CNBC.

With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview.

In other words, it's all a giant charade.

Perhaps Americans are finally getting hip to the Fed's smoke and mirrors act.

According to a recent Gallup Poll, the Federal Reserve has the lowest approval rating of nine various federal agencies -- including the IRS.

In the July poll, only 30% of respondents gave a thumbs up to the Fed, while 40% said the IRS was doing an excellent or good job. A majority of the public (57%) sees the Fed’s current performance as either poor or fair.

That amounts to a serious public relations problem for the Fed.

But why should they worry? They've got the Senate under their thumb and on their side.

This is beyond politics. "We the people", and our interests, are not being represented. Instead, we are being blinded and then robbed.

"To understand how unwise it is to have the Federal Reserve, one must first understand the magnitude of the privileges they have. They have been given the power to create money, by the trillions, and to give it to their friends, under any terms they wish, with little or no meaningful oversight or accountability. Thus the loudest arguments against greater transparency are likely to come from those friends, and understandably so."
- Rep. Ron Paul

The Cost of War & Our Military Empire

While America debates how soon we can bring our troops home from Iraq, it's worth noting that -- more than 60 years after the end of WWII -- the US still has more than 50,000 troops in Germany and 30,000 in Japan.

In fact, the US has over 500,000 military personnel deployed on over 700 bases, with troops in 150 countries -- including 37 European nations.

It makes you wonder, as Ron Paul asks, in this time of deep economic crisis, why not just bring them all home?

The $3.1 trillion budget for fiscal 2009, signed by President Bush, raised military spending to inflation-adjusted levels not seen since World War II.

Defense spending is the third largest expense in the federal budget. Only Medicare-Medicaid ($739b), and Social Security ($700b) are bigger.

According to the Stockholm International Peace Research Institute, this year, the Pentagon will spend $607 billion for its day-to-day operations. Winslow Wheeler, a sharp-eyed bean counter at the Government Accountability Office and the Senate Budget Committee before joining the Center for Defense Information, a Washington think tank, puts the figure at $609 billion.

But who's counting?

Either way, the figure is more than the total combined military spending of every other country in the world. Put another way, the spending amounts to $1.2 million per minute, or $1.7 billion per day.

But the defense budget didn't include supplemental requests to fund the wars in Iraq and Afghanistan. The White House later asked Congress for $70 billion in supplemental war funding. Requesting the funding in installments allowed the White to avoid revealing the true costs of the wars.

Money for the Energy Department to work on the nation’s nuclear arsenal, the Selective Service, Homeland Security, healthcare for war veterans, and other defense-related spending pushes the total far higher.

Add up all projected defense-related spending for fiscal 2009 and $607 billion balloons to $750 billion — almost a third of all U.S. federal spending today. To put it another way, if the Pentagon were an independent country, it would be the 10th richest in the world.

By year's end, the cost of the Iraq war will rise to $694 billion, making the conflict the most expensive in US history, besides WWII.

To get a feel for the true costs of the Wars in Iraq and Afghanistan, check out the following. It illustrates one of the many reasons that our budget is busted and our debt ballooning:

http://costofwar.com/

What Does $1 Trillion Look Like?

According to Goldman Sachs, the U.S. government may sell a record $3.25 Trillion of debt this fiscal year ending September 30, in an attempt to end the steepest U.S. recession in half a century.

This additional debt will be added to the current $11.25 Trillion national debt, meaning the total debt will probably exceed the entire GDP before the year is over. Last year, the GDP was $14 Trillion, but it is undergoing a serious contraction this year.

Meanwhile the budget deficit has already reached $1 Trillion — the first time it has ever reached that lofty sum — and it is expected to reach $1.84 Trillion by the end of this fiscal year (Sept. 30).

We shouldn't be surprised if the deficit reaches $2 Trillion, as these numbers have already gotten so completely out of hand. And once you're talking a about a trillion, what's a few billion more, right?

With all this talk of trillion of dollars, and the figure being tossed around rather casually, perhaps we should put $1 Trillion in perspective.

A stack of $1,000 dollar bills four inches high would equal $1 million.

A stack of $1,000 dollar bills 358 feet high would equal $1 billion.

A stack of $1,000 dollar bills 67.9 miles high would equal $1 Trillion.

You could line the side of the road from Springfield, MA to Albany, NY with $1,000 dollar bills — stacked on their sides — and that would equal $1 trillion.

The following graphic provides a better understanding of amount of money we're talking about. Bear in mind, this is only $1 Trillion; the federal budget for ONE YEAR is $3.6 Trillion, and our debt will soon exceed $13 Trillion.

http://www.pittsburghgrapevine.com/forums/display_topic/id_84/

The Debt and Interest Rates; a Vicious Cycle

The interest on this year’'s debt will cost taxpayers $565 billion, or 4 percent of GDP. That number will only increase in coming years. And naturally, with a shrinking GDP, it will become an ever increasing percentage of the overall economy.

While budget expenditures are increasing, government revenues so far this year have dropped 18 percent from a year ago. Government income and revenues are going in the wrong directions.

Our massive debt will put upward pressure on interest rates.

According to government projections, each 1% rise in interest rates will add $50 billion annually to the debt, and eventually $170 billion annually over time.

If the economy were to recover, demand for credit by the private sector would rise, meaning the government’s borrowing costs would also increase. That would raise interest rates for everyone. This makes for an odd conundrum; do we hope for a recovery at the expense of higher interest rates?

So we've begun a vicious cycle; the growing debt will eventually increase interest rates, and increasing interest rates will only further add to the national debt. Paying debt interest gets us nothing in return; it doesn't generate economic growth.

The government's falling revenues will spur the government to issue more bond debt, which will eventually have to be paid back with interest.

According to Citi Group, the federal government will sell more than $5 trillion in new debt this year and next.

The cavernous hole we're in just keeps getting continually deeper.

Budget Deficit Highest Since WWII

The Office of Management and Budget estimates that the budget deficit this fiscal year (which ends Sept. 30) will be $1.84 trillion. For the 2010 fiscal year, the estimate is $1.26 trillion.

Measured against the economy, this year’'s shortfall is 13 percent of the gross domestic product. Next year’'s deficit would be 8.5 percent of GDP. These deficit projections are the highest in more than 60 years, since the end of World War II.

Economists generally agree that a country'’s annual deficits should not exceed 3 percent of economic output.

US Bank Closings

2007 - 3
2008 - 25 (more than in the previous five years combined)
2009 - 53, and counting. It's only July.

The FDIC’s list of “troubled banks” stood at 305 at the end of the first quarter, the latest data available. By the end of 2008, the agency expected bank failures to cost its insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. However, its problems have grown continually worse.

The FDIC has $53 billion to cover $4.4 trillion in deposits. Does that make you feel insured?

POLITICS, SEMANTICS AND A REALITY CHECK

Most political observers feel that next month's mid-term elections will be a referendum on Iraq, and even on the president's handling of that war. Considering the latest polling data, Republicans, who've been arguing "stay the course" for well over a year, should be worried.

According to the latest Newsweek poll, conducted just last week, a majority of Americans (54%) think that military action in Iraq was wrong and 65% think the U.S. is losing ground in Iraq. In a CNN poll, conducted two weeks ago, 64% of respondents said they oppose the war.

Perhaps with that in mind, this week the White House announced it will no longer use the term "stay the course" in discussions about Iraq. Press Secretary Tony Snow said the White House wants to emphasize its flexibility on achieving its goals and no longer wants to talk about sticking to one approach.

Timing is everything in politics and with elections looming, its difficult to say if the president's timing couldn't be better, or worse. Does this change in semantics make the president seem as if he finally "gets it", or does it simply make him seem out of touch and out of step with the rest of the country?

While many Democrats running for office this fall have been calling for a phased redeployment of U.S. troops from Iraq, Republicans have consistently derided the idea as "cutting and running."

Meanwhile, polling data aside, the recent White House move was likely prompted by the fact that a commission backed by President Bush has agreed that 'stay the course' is not working and that a phased withdrawal is now on the table.

While it weighs alternatives, the 10-member commission headed by former Secretary of State James A. Baker III has agreed on one principle.

"It's not going to be 'stay the course,' " said one participant. "The bottom line is, [current U.S. policy] isn't working…. There's got to be another way."

In a recent television interview, Baker, a longtime Republican and Secretary of State in the first Bush Administration, said, "There'll probably be some things in our report that the administration might not like."

Two options under consideration would represent reversals of U.S. policy: withdrawing American troops in phases, and, incredibly, bringing neighboring Iran and Syria into a joint effort to stop the fighting.

Iran, if you remember, was famously on President Bush's "axis of evil" list, along with Iraq and North Korea. Now the U.S. may use one "evil" nation to help subdue another.

While the president talks of "winning" in Iraq, many wonder just what exactly that means. To spell it out, communications strategists working with House Republicans circulated a three-page memo last week that describes winning as, "helping the Iraqis achieve stability and security and doing it as quickly and effectively as possible in order to bring our troops home.''

Of course that says nothing about democracy, which many thought the U.S. had been fighting for all along. But then again, the reasons for the war have changed numerous times. Now it's about stability and security. Sometimes you take what you can get, if you can get anything at all.

According to Baker, instead of trying to bring democracy to all nations in the Middle East, the U.S. should define success as achieving "representative government, not necessarily democracy."

So much for good intentions. Perhaps we'll have to leave it to the history books to decide why over 2,800 U.S. military personnel have died in Iraq.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.

ON GOD, RELIGION AND THE LAW

No matter how much things have changed through the ages, much remains quite the same.

We still live in a time when Christian conservatives would like to legislate their religious beliefs on the rest of us, though we might not necessarily share their views. These people claim to know God's will — it's in the Bible, they say.

Of course, Muslims think that God's will is found in their holy Koran. Yet, Buddhists and Hindus have their own religious texts and views.

But some of us believe that God is infinitely unknowable to our limited, and comparatively meager, human minds. God is vast; we are small and meek. Who are we to speak for God, and determine His or Her divine will?

None of this deters those who claim to have divine wisdom, or a window into God's heart and mind. They seem to know God's position on matters such as Terri Shiavo, and other unfortunate souls like her. They also know what God thinks about contraception and gay marriage.

But to claim knowledge of God's will certainly isn't a humble position. It is bold and brash, perhaps even insolent.

In fact, some Christian conservatives are so assertive in their views, and so convinced of their own righteousness, that they'd like to force the rest of us to adopt their views — to think like they do. And if we can't — or won't — they'd still like to impose their will on all of us in the form of laws. After all, in their view, those are God's laws. So their religion, by this logic, should dictate the laws for everyone.

Well, not in my view. I prefer a more Libertarian perspective. You live your life, and I'll live mine -- as long as we don't hurt each other.

Here's a fine definition of Libertarianism:

"Libertarianism is a political philosophy advocating that individuals should be free to do whatever they wish with their person or property, as long as they do not infringe on the same liberty of others. Libertarians hold as a fundamental maxim that all human interaction should be voluntary and consensual. They maintain that the initiation (or threat) of physical force against another person or his property, or the commission of fraud, is a violation of that principle."

Laws don't exist naturally. They have to be written and enacted by people. They are not written to allow things, but to disallow them. In the natural state, all things are allowed. People then develop a consensus of what is not allowed and subsequently make laws proclaiming certain behaviors illegal.

For example, people of the same sex marrying wasn't illegal until people decided to make it illegal. That required action.

Those who oppose gay marriage, for instance, might say that its legalization would force them to accept it. But allowing people to exercise their free will is not the same as imposing your will upon them. That's the difference between a Libertarian view, and the views of others who are comfortable telling the rest of us what to do.

I'm not gay, or even a strong supporter of gay marriage, but Libertarians oppose any laws restricting personal or consensual behavior.

I wouldn't force two people, of any persuasion, to get married. And I wouldn't keep two people, of any persuasion, from getting married -- assuming they're both legal adults (it's worth noting that age of consent laws are set by each state and vary from 14-18 years).

But there are people who want to prevent others from getting married. There is a huge difference between those two positions.

Freedom shouldn't be measured in how little we're constrained by authority, or how much we're allowed to do, but rather by how much we're able to do.

Throughout the ages, philosophers and have contended that the paramount natural rights are the rights to life and liberty, which have long been considered the two highest priorities.

The following definition of Natural Law is useful:

"Natural rights are universal rights that are seen as inherent in the nature of the world, and not contingent on human actions or beliefs. The theory of natural rights was developed from the theory of natural law during the Enlightenment in opposition to the divine right of kings, and provided a moral justification for liberalism.

The concept of a natural right can be contrasted with the concept of a legal right : A natural right is one that is claimed to exist even when it is not enforced by the government or society as a whole, while a legal right is a right specifically created by the government or society, for the benefit of its members."

As a society, we must join together in deciding which laws should be adopted. But we must remain free from constraints that have evolved, or resulted, from religious beliefs, sacred myths, patriarchal teachings, or any dogmatic concepts that remain open to interpretation.

If a law is proposed that doesn't suit you, make a rational argument about why it is impractical, or harms somebody, or is in opposition to another useful law; but don't tell me it offends God.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.

NEW PENTAGON REPORT RAISES CONCERNS OF CIVIL WAR

The latest Pentagon report on the Iraq war, issued Friday, says that the Sunni Arab insurgency has now been overshadowed by the battle between Shiite and Sunni militias.

That struggle, referred to as the “core conflict”, has the Pentagon quite concerned.

“Conditions that could lead to civil war exist in Iraq, specifically in and around Baghdad, and concern about civil war within the Iraqi civilian population has increased in recent months,” the report stated.

Attacks have increased by 15 percent in the past three months and casualties among Iraqis surged 51 percent. According to the report, the increasing sectarian violence is being fed in part by interference from neighboring Iran and Syria.

Of particular concern is that the militias have become entrenched in various neighborhoods, especially in Baghdad, where they are seen as providers of security as well as basic social services.

The report said the U.S. is currently facing its greatest challenge since the war began in March 2003. “The security situation is currently at its most complex state since the initiation of Operation Iraq Freedom,” it read.

Though notably gloomy in its acknowledgment of the potential for civil war, the report said the current violence does not amount to that just yet and asserted that the momentum toward such a war can be stopped.

But just last week, a statement purportedly from al-Qaida’s Iraqi umbrella group urged Sunnis, who form the majority among the world’s Muslims but a minority in Iraq, to launch a holy war against Shiites.

Many Iraqis fear a divided capital, separated by the Tigris River in the middle as the sectarian boundary, resulting in a Sunni west and a Shiite east. Trying govern under those conditions would be nearly impossible for the fledgling government.

DIVIDE AND CONQUER?

MIGHT PITTING SUNNIS AND SHIITES AGAINST ONE ANOTHER BE A SOLUTION TO THE PROBLEMS IN IRAQ AND IRAN?

In Iraq, the daily barbarism and savagery continue unabated.

And yet, the Bush Administration and Pentagon continue to protest that, despite evidence to the contrary, Iraq is not in the midst of a civil war.

Though the civilian death toll Iraq exceeded 3400 in July, with all signs pointing to at least the initial stages of a civil war -- if not the middle of one -- the powers that be deny it. President Bush, VP Cheney, Sec. Rumsfeld, Sec.Rice, and the top generals in the field, Peter Pace and John Abizaid, think that by denying the truth that they can reassure, and even fool, the American public.

But July was the most deadly month for civilians since the war began, and clearly the fighting is not waning in any way.

With a population of approximately 28 million, it requires quite a leap to suggest that 3400 hundred citizens killing each other in just one month isn't civil war. For comparisons sake, consider the following; the July death toll represented about .012% of Iraq's population. The U.S. has about 11 times Iraq's population. If we were to have suffered a relative civilian death toll in July (.012%), it would have resulted in 36,000 American deaths.

Does anybody really doubt that, if there were that many Americans killed at the hands of fellow Americans, we wouldn't be calling it a civil war?

Since the war started in March of 2003, roughly 2600 Americans have died in Iraq. That death toll is shocking to most of our civilian population, and many of them want out troops out now. Just imagine how shocked we'd all be if there were 36,000 deaths in just one month this summer, and if were the result of Americans killing each other.

Military officials fear that Iraq's civil war -- let's call it exactly what it is -- will spill over into a regional conflict. It could result in more than just country versus country, but could rather be a matter of Shiites versus Sunnis, regardless of borders.

According to U.S. intelligence sources, in recent months the Saudis and Jordanians, who are predominantly Sunni, have quietly moved to support the insurgency with money and intelligence, fearing that Shiite Iran will dominate the new Iraqi government if the U.S. decides to leave.

The Bush Administration has gotten the U.S. into a no-win situation. We are stuck between the proverbial rock and a hard place, where none of the choices are very good, and all outcomes are uncertain.

What's most ironic is that the Sunni insurgency, which has long been fighting for a U.S. withdrawal, is now hoping the U.S. will stay put to protect them from the majority Shiites, whose death squads have been indiscriminately, yet methodically, killing Sunni civilians and government officials alike. Who could have imagined that turn of events?

And according to retired Marine Colonel Thomas X. Hammes, author of The Sling and the Stone: On War in the 21st Century, that's just what the Sunnis now fear. "They absolutely think we're leaving. This is what happened in Afghanistan when it became clear the Russians were leaving. The factions began fighting each other."

Afghanistan is instructive: civil war led to the Taliban government; the Taliban provided a safe haven for al-Qaeda; and we all know the rest of the story. A U.S. withdrawal from Iraq could lead to far worse consequences, given Iraq's strategic location and potential oil wealth.

But remaining in Iraq in the middle of a civil war is as mad as it is fruitless. Choosing sides would be picking the lesser of two evils. One way or another, the U.S. would be in bed with the devil -- and that's not a good bed partner.

It's time to consider a critical question; might it be in the best interests of the U.S. to let the war rage and allow the participants to exhaust themselves? The old axiom is "the enemy of my enemy my friend." With both groups hostile to the U.S., as long as they're fight one another instead of us, don't they both become our friends? A peculiar logic indeed, but perhaps useful nonetheless.

What if the U.S. military were to "help" the Syrian and Iranian governments by completely drawing back to, and sealing, those borders from the Iraqi side. That way the U.S. could keep out foreign fighters entering from those countries, as well as cutting off supply lines that feed the both the Sunni and Shiite insurgencies. Syria and Iran claim that either there is no problem at all, or that they're doing the best they can. Perhaps our military could do better while staying out of harms way.

Iran clearly sees itself as not only the most powerful nation in the region, but also as a burgeoning counter-balance to the U.S. on the world stage. The Bush Administration aren't the only ones concerned. The Egyptians, Saudis and Jordanians also fear Iranian hegemony in the region and would like to thwart the rise of Shiite dominance.

And over the past few months, the Iranian government has been setting the stage for a showdown with the U.S. over its nuclear program, betting that the Europeans will likely back down, leaving the U.S. to go it alone once again, as it did in Iraq. And they are also gambling that the U.S. is too burdened in Iraq to take them on militarily as well.

A military report earlier this year described the army as a "thin green line" that has already been stretched too far. It claims the U.S. lacks the resources in terms of money, manpower, or conventional weaponry to engage in another simultaneous conflict. Retired Gen. Barry McCaffrey backed the report's conclusions. Perhaps the Iranians read the report too.

That said, might not be in the best interests of the U.S. to pit the Sunnis and the Shiites against one another? It's a question worth asking.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.

THE MIDTERM ELECTION: CONTEMPLATION AND EXASPERATION

At present, the Republicans hold as massive fundraising advantage over the Democrats. In the seven biggest Senate races this cycle, Republicans have a combined advantage of more than $20 million. The Dems will use that as either a rallying cry, or an excuse, but one way or the other, the figure does sound surmountable.

If the Democrats can't bridge the gap, there'll be at least a couple more years of such Republican frivolity as trying to impose further limits on abortion, and passing constitutional amendments against gay marriage and flag burning; Senate Majority Leader Bill Frist has said as much himself. Meanwhile the Republicans haven't been able to find the time to work on Universal Healthcare -- the lack of which is making U.S. businesses highly uncompetitive -- or stem cell research, which has the potential to save lives. Instead, they'll continue using inflammatory wedge issues to divide the nation, because that's what's worked in the past.

There is so much important work to be done on behalf of the citizens of this country, yet the Republican leadership has wasted their time and energy pandering to the extreme interests of evangelical Christians and Big Business.

Instead of working on issues such as the growing trade debt, renewable energy, the environment and global warming, education, and paying down the federal debt, the Republican leadership spent their precious time interfering in the private matters of the Shiavo family. What they thought was the moral high ground turned out to be just one more low point among many.

Social Security reform went nowhere, which is exactly where immigration reform and lobbying reform seem to be headed.

The Republicans control the Congress, and thus have budgetary control -- or at least what passes for it. One look at the recent history of Republican spending tells us plenty about the Republican priorities.

According to the Wall Street Journal, when the Republicans took control of the purse strings in Congress in 1995 the federal budget was $1.5 trillion. It is now $2.55 trillion per year - or $ 5 million per minute - and the latest Treasury data reveal that in fiscal 2005 federal outlays grew by another $ 179 billion, an eight percent increase and more than twice the rate of inflation.

In 1995 there were 1439 earmarked federal projects, otherwise known as pork barrel spending, costing $10.1 billion. By 2005 the number had grown to 13,998 earmarked projects, for a total cost of $27.3 billion in taxpayer money.

Republicans controlled both houses of Congress during that decade.

In 2001, unemployment was 4.2% and is now 4.9% -- a 17% increase.

In 2001 the federal budget had a $281 billion surplus, today there is a $400 billion deficit -- a $681 billion loss.

In 2001 the federal debt was $5.7 trillion, it is now $8.2 trillion -- up 44%.

Whatever happened to the party of smaller government and fiscal responsibility?

As an Independent, I don't really have a dog in this fight, ideologically. However, I have nothing in common with the Christian Right or Big Business, so that's where the Republicans and I part company. As someone with a strong Libertarian streak, I fail to see how gay people marrying affects my life one iota. Nor, for that matter, does someone burning the flag. I may not like it, or respect it, but a Constitutional Amendment against it? Please! I'm more concerned about the fact that my health insurance went up 50% in less than 2 1/2 years -- with no claims!

I'm also more concerned about the effect the price of oil will have on our economy. Millions of Americans are already feeling the pinch every time they fill up their gas tanks. Meanwhile, every single day, cars and municipal busses across the U.S. are being run on biodiesel -- which is essentially vegetable oil -- as well as ethanol, and yet we're still paying $3 plus for petroleum. What a racket! How can Brazil, long known as a Third World country, declare itself energy independent, while we're still reliant on foreign countries for 50% of the oil we consume? How can that be? Perhaps the powers that be (i.e. the oil and automotive industries) have shut out these competing and revolutionary technologies in their own interests. As we know, those two industries are good friends of the Republican leadership, and as such any attempts at raising the fuel efficiency standards of autos has gone nowhere.

President Bush and the Republicans spent too much time, and too much political capital, trying to "save Social Security" when in actuality its trust fund is expected to remain funded until at least 2041 -- 35 years down the road. Meanwhile the real fiscal crisis looms in the form of Medicare. The medical trust fund that benefits the elderly will run out of money in 2018 - just 12 years from now. Have you heard any public warnings about that? No, well the Republicans have been shamefully silent about it.

The point is that the Republicans have been the party in control and were expected to lead. But they haven't. Instead they've done virtually nothing except let Big Energy write the energy bill, and the pharmaceutical industry write the massively expensive new entitlement known as the Medicaid Prescription Drug Bill. What a legacy.

The midterm elections are just five months away, and scandals aside, the Republicans have plenty of reason to worry, not the least of which is that they've failed the American people miserably.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.

THE IMPORTANCE OF LANGUAGE IN CULTURAL UNITY

U.S. lawmakers have renewed an old debate over whether to make English the nation's official language. On Friday, the Senate passed two measures, one declaring English the nation's official language and the other its "common and unifying" tongue.

Interestingly, the White House initially voiced support for both measures. White House officials later waffled, trying to draw a distinction between an "official" language and a "national" language, the latter of which the President is said to endorse. If you're confused, you're not alone.

The proposal declaring English as the national language requires immigrants seeking citizenship to demonstrate a “sufficient understanding of the English language for usage in everyday life.” Sounds reasonable, right? Apparently most people agree. In an MSNBC online poll, 67% of respondents favored recognizing English as the national language of the U.S.

The idea is to promote assimilation and unity.

Legislation declaring English as a "common and unifying" language would accomplish nothing, other than stating the obvious. It's simply a feel good measure. Everyone already knows that English is the common language of the U.S. And if it's also unifying, then why not make it official? How can anyone argue against unity?

Some 158 nations have included a specific measure in their constitutions proclaiming one or more national languages. The United States is one of the relatively few without such a measure.

Canadian lawmakers have struggled to placate a divided nation by promoting bilingualism. Everything from cereal boxes to highway signs are written in both French and English. Except, that is, in the predominantly French-speaking province of Quebec, where English has been eliminated as the officially sanctioned language.

Culture is not only a unique part of a nation's identity, but an invaluable one as well. Culture has a unifying quality that pulls people together, giving them binding commonalities and collective characteristics. In countries around the world where citizens lack a common culture, there is often tremendous strife, as evidenced in the Balkans, regions of the African continent, the former Soviet Union, and the Middle East, to name a few. In the places where people have been able to identify, and in some cases exploit, their obvious differences, deadly consequences have often ensued. National customs, values and mores are all important aspects of culture, as is language.

In just the last decade alone, our northerly neighbor, Canada, has managed to survive intact despite repeated attempts by residents of Quebec to secede. The reason? They believe, rightly so, that their culture is distinctly different than that of the rest of their countrymen. Quebec is the French-speaking province of Canada, with a uniquely French flavor and flair. The competing languages of Canada, English and French, have long caused national dissension and discord.

When President Bush visited Canada for talks with then Prime Minister Paul Martin, every statement the two leaders made, the subsequent questions from reporters of both nations, and the leaders' responses to those questions, had to be recited in both English and French. This wasn't for the benefit of the citizens of both nations, but for the people of Canada alone. The process not only made the press conference long-winded and exhausting, but it also pointed out the division and lack of national unity in Canada.

The U.S. has never formally made English its official language, but that time has come. While Americans should be encouraged to be bilingual, or even multi-lingual, since that ability is so vital to business and trade, having to cow-tow to immigrants who've refused to be come Americanized is going too far. There are people who have lived in America for more than a generation who refuse to learn and speak English, and who are determined to maintain communities that represent their motherlands, more than America itself. In these communities English isn't even a second language. This is divisive and non-productive. The more things we have in common in America, the greater our unity. A common language is fundamental and critical to that end.

While multi-cultural elements such as food and the arts make America unique and diverse, the ability and willingness for all Americans to speak English and share a larger cultural identity is essential to our long-term success and health a nation. We need look no further than to our northern neighbor for a prime example of the consequences of not doing so.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.

EXECUTIVE EXCESS

Rep. Barney Frank of Massachusetts has introduced a House bill that would make executive compensation figures for the top three officials at publicly traded companies a matter of public record ⎯ including retirement packages ⎯ and would allow stock holders to vote on these compensation packages.

President Bush even weighed in on he issue this week.

“I am staggered by some of the compensation levels,” said Bush. “And I think it's very important for boards of directors to understand that they represent shareholders and that compensation packages need to be fully transparent, in easy-to-understand language, so that the shareholders can understand whether or not the compensation package is fair or not.”

The following illustrates why this issue is suddenly getting so much attention:

In 1980 the average CEO made 42 times the average worker.

In 2004 the average CEO made 431 times the average worker.

The average CEO of a Standard & Poor's 500 company made $11.75 million in total compensation in 2005, according to an analysis by The Corporate Library.

With a median income of $44,389 in 2004, the average American's earnings pale in relation to the average CEO's salary. If the average American worked for a half century at that income level, his $2.2 million aggregate earnings would still be dwarfed by the annual salary of a typical CEO.

And, sadly, the size of a CEO's salary doesn't always correlate to performance, or a return to investors.

Between 1991 and 2004, the stock of the previous year's most highly paid CEO underperformed the S&P 500 half the time, in some instances quite substantially.

But with the President publicly noting the problem while a bill is quietly working its way through the House, investors have reason for cautious optimism that the days unchecked, wildly outsized, CEO pay may eventually come to an end.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.

THE PRESIDENT'S CREDIBILITY PROBLEM

President Bush finds himself in yet another quandary.

The president has repeatedly stated his opposition to the leak of a CIA operative Valerie Plame's identity.

In September 2003, Bush said, "I don't know of anybody in my administration who leaked classified information. If somebody did leak classified information, I'd like to know it, and we'll take appropriate action." Specifically, Bush said he'd fire anyone who was found to have leaked the information.

But this week, through the release of court papers, it was revealed that Lewis Libby, Vice President Dick Cheney's former top aide, told investigators that the president himself authorized the leak of sensitive intelligence information about Iraq.

Before his indictment, Libby told a grand jury investigating the CIA leak that Cheney told him to pass on the information, and that Bush authorized the disclosure. That authorization led to the July 8, 2003, conversation between Libby and New York Times reporter Judith Miller. And according to Miller's grand jury testimony, it was during that conversation that Libby told her about Valerie Plame's CIA status.

Interestingly, the White House has not challenged the statements in the court documents, which state that Libby's passing of information to Miller "occurred only after the vice president advised defendant that the president specifically had authorized defendant to disclose certain information in the National Intelligence Estimate." The filing did not specify the "certain information."

Though the release didn't indicate whether Bush or Cheney specifically authorized Libby to disclose Plame's identity, the disclosure means that the president and the vice president used Libby to secretly provide information to reporters about prewar intelligence on Iraq. And one way or another, the president authorized the leak that led to this whole mess in the first place.

Libby's testimony also puts the president and the vice president in the awkward position of authorizing leaks -- a practice both men have claimed to vehemently detest. In fact, the administration has initiated criminal investigations to hunt down leakers, such as who leaked information about the warrantless domestic surveillance program authorized by Bush. And the president has chastised the Congress about leaks in the past. The White House prides itself on being in lock-step, and for being lock-lipped in its efforts to control the flow of information.

What's critical here is that President Bush has been caught contradicting himself by repeatedly railing against leaks of classified information, while it's now known he approved the release of classified information in an effort to bolster the case for war in Iraq. This illustrates the double standard that exists in the White House; leaks that benefit the President are acceptable, while those that don't are entirely unacceptable.

White House spokesman Scott McClellan argues that the president staunchly opposes releasing classified information that could affect U.S. security. And he pointed out that the president reserves the right to declassify material at will.

However, the President does not have the authority to out a clandestine intelligence operative. Nor does anyone else. The 1982 Intelligence Identities Protection Act makes it a federal offense to intentionally reveal a covert operative's identity. And Prosecutor Patrick Fitzgerald's investigation may uncover other crimes as well, such as perjury or obstruction of justice.

The outing of Plame was highly unscrupulous, irresponsible and apparently vindictive.

The first President Bush, a former head of the CIA, once described anyone who unmasked an undercover agent as "the most insidious of traitors." That seems to be a most apt description.

The president could have headed off this controversy two years ago if he'd just come clean about his involvement. If he believes that he had the authority to declassify intelligence at will, then why didn't he speak up sooner? What was he hiding? Why did he wait for the information to released in court testimony?

Hopefully the nation will soon have answers to those questions. The president clearly owes the country an explanation. His credibility, or what's left of it, is on the line here.

WITHOUT DELAY

With polls showing that he risked losing his seat in congressional elections this fall, Tom Delay announced that he will not seek reelection in his Texas district.

The shameful announcement was a major, and quite sobering, reckoning for a man not quite accustomed to such things.

Stuart Roy, once an aide to DeLay, said he thought his former boss was deterred by the prospect of a tough fight, and the possibility of life in Congress without a major leadership position - even if he were reelected. Delay came to love power, and in the absence of it, the job of serving his district and the country just wouldn't be satisfying enough.

Once one of the most influential Republicans in Congress, the embattled Delay is facing money-laundering charges in his home state of Texas. Perhaps he felt he needed to give his own defense his undivided attention.

Dropping out of the race allows Delay to use $1.3 million in left over campaign contributions to help bankroll his legal defense. So the move isn't just to save face, but to save his personal finances as well.

In an effort to consolidate Republican power and build a lasting political majority, DeLay engineered the controversial redrawing of Texas congressional district boundaries.

DeLay came to define the style and tone of the GOP over the last decade. He used his political power and influence to raise money from special interests to advance his party's interests. In the end, it is difficult to determine where once begins and the other ends.

DeLay demanded corporate support for the party, not only in terms of fundraising but also in choosing Republicans to fill jobs at lobbying firms and trade associations. Two dozen former DeLay staffers have prominent lobbying jobs around Washington. His tactics helped forge a close relationship between big business and the party.

As a prolific fundraiser for the party and for other members of Congress, DeLay earned the deep loyalty of his colleagues.

But on three occasions in a single week, the House Ethics Committee admonished DeLay for his questionable behavior. And that could be the legacy of the Texas Congressman. His quest for power led to a sense of entitlement and privilege, to being above the rules, and even above the law.

DeLay came to symbolize corruption in Washington and a 'win at all costs' mentality. DeLay didn't appear concerned about rules, or integrity, or decency. He cared about himself, the Republican Party, and the advancement of both. He is a partisan, not a patriot. And there are plenty of them in Washington these days, on both sides of the aisle.

And that is how he will be remembered. He will be remembered for excess. And depending on how his trial turns out, he could also be remembered as a politician who believed that the government is for sale to the highest bidder.

A shameful legacy indeed.

Copyright © 2006 Sean M. Kennedy. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without the author's consent.