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Credit rating downgrade fallout

First among the reactions globally was that of China:

China bluntly criticized the United States after the S&P ratings cut to AA-plus, saying Washington had only itself to blame and calling for a new stable global reserve currency.

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China’s official Xinhua news agency said in a commentary.

[…]

Xinhua scorned the United States for a "debt addiction" and "short sighted" political wrangling. China, it said, "has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets."

"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," Xinhua said.

If you think it is bad now, consider our predicament if the dollar was to be replaced as the new global reserve currency.  However it is ironic to be lectured by the Chinese on economic matters given their ideological bent.  Communists telling Capitalists (pseudo anyway) how they should conduct their business. 

France, on the other hand is expressing faith in the US’s ability to get its house in order, as is Poland’s Prime Minister:

France’s Baroin said France had faith in the United States to get out of this "difficult period." Friday’s U.S. unemployment numbers were better than expected and so things were heading in the right direction, he said.

"One should not dramatis, one needs to remain cool-headed, one should look at the fundamentals," he told France’s iTele.

"There is no need for panic," Polish Prime Minister Donald Tusk said. "We will see in August, and maybe more intensively in September what the effects for the world economy will be."

Of course, with the huge problems in Europe, both France and Poland are inclined to play down the significance of a US downgrade.  And  more interesting than what will happen later this month or next may be what happens on Monday, the first day global markets will mark their reaction to the US credit downgrade:

Because the S&P move was expected, the impact on markets may be modest when they reopen on Monday. But the ratings cut may have a long-term impact for U.S. standing in the world, the dollar’s status and the global financial system.

"The consequence will be far reaching," said Ciaran O’Hagan, fixed income strategist at Societe Generale in Paris.

"It will weigh on secure assets. The bigger reaction will be on risky assets, including equities and on agencies (Freddie Mac, Fannie Mae) and states backed directly by the federal government."

But he added: "U.S. Treasuries will remain a benchmark. This is a ship which takes a long time to turn around."

Norbert Barthle, a budget expert for German Chancellor Angela Merkel’s conservatives, said the downgrade would certainly provoke further turbulence in markets.

Everything mentioned is very important to the future of the US economy and its financial health.  Unfortunately most of it is negative.  In the next few months we’ll see how this shakes out, but at this point, even the optimists are pessimistic.

~McQ

Twitter: @McQandO


Iran Policy – What Is Going On?

National Review Online does a little review of the run up to the announcement by President Obama at the G20 summit concerning Iran and wonders what is going on. For instance, NRO points to Joe Biden 8 days ago. This was in answer to why the US was pulling its missile defense shield from Poland and the Czech Republic:

“[Biden said] Iran — a key concern for the United States — was not a threat.

“I think we are fully capable and secure dealing with any present or future potential Iranian threat,” he told CNN’s Chris Lawrence in Baghdad, where he is on a brief trip.

“The whole purpose of this exercise we are undertaking is to diminish the prospect of the Iranians destabilizing that region in the world. I am less concerned — much less concerned — about the Iranian potential. They have no potential at this moment, they have no capacity to launch a missile at the United States of America,” he said.

So 8 days ago, Iran was a diminished threat that was much less of a concern than previously.

Suddenly:

President Obama and the leaders of France and Britain blasted Iran’s construction of a previously unacknowledged uranium enrichment facility and demanded Friday that Tehran immediately fulfill its obligations under international law or risk the imposition of harsh new sanctions.

The new Iranian plant, the country’s second uranium enrichment facility, is believed by U.S. officials to be part of a broad effort by Iran’s leadership to pursue the ability to build nuclear weapons. Iran has repeatedly denied having any such goal, insisting that its nuclear program is aimed at generating electricity. U.S. officials said they believe the Qom plant is not yet operational but is intended to produce highly enriched uranium — suitable for nuclear weapons — and will be capable within months of producing enough material for at least one bomb per year.

Says NRO:

Boy, the Obama administration must have just been profoundly misguided and dangerously misinformed about Iran’s capabilities and intentions. Right?

Right – because, as pointed out 8 days ago, the reason the missile defense shield was pulled, per the VP of the US, was because the US considered Iran a much diminished threat. So obviously this is “new” information which has profoundly changed the game and required the US to completely rethink its policy since it has emerged.

Right?

@markknoller US officials say Obama first told of Iran secret nuclear plant during the transition — as President-elect. 9/25 10:28 A.M.

WTF? Mark Knoller of CBS says this was something the administration has known for almost a year? So what was all this nonsense about a diminished Iranian threat as a reason to pull the promised missile shield that the administration had promised the Poles and Czechs a mere 6 months before?

Asks NRO:

Astonishingly incompetent, perilously naive, or deliberately dishonest? Which is it?

I’d suggest all three. And I think that will become alarmingly apparent as this crisis continues to unfold.

I’ll also toss this out there as well – it was saved for a forum in which the President would have the attention of the world focus on him (a much tighter focus than the UN) and staged to maximize that. All politics all the time. He wanted the non-binding non-proliferation resolution from the security council before he took on Iran.  Meanwhile Joe Biden’s (and the DoD’s) credibility is left twisting in the wind.

So now the staging has been accomplished and the spotlight turned on the President. That’s the easy part. The usual talking the talk, something at which he’s quite good. Now comes the hard part – walking the walk – something he’s yet to demonstrate he’s capable of doing.

Oh – and where in the world is Hillary Clinton?

~McQ


Quote of the Day

Lech Wałęsa, former President of Poland had this to say about the Obama announcement that the US was pulling the anti-missile defense system from Poland:

“Americans have always cared only about their interests, and all other [countries] have been used for their purposes. This is another example,” Mr Walesa told TVN24. “[Poles] need to review our view of America, we must first of all take care of our business,” he added.

“I could tell from what I saw, what kind of policies President Obama cultivates,” the former president added. “I simply don’t like this policy, not because this shield was required [in Poland], but [because of] the way we were treated,” he concluded.

Another foreign policy coup. Treating our allies shabbily while sucking up to the Putins and Chavezs of the world.

~McQ


Iran, Nukes and Anti-Missile Shields

The IAEA announced, almost simultaneously with the US unilateral withdrawal of its planned eastern European anti-missile shield, that Iran now has the capability and materials to build a nuclear weapon. Why did the IAEA come to that conclusion?

• The IAEA’s assessment that Iran worked on developing a chamber inside a ballistic missile capable of housing a warhead payload “that is quite likely to be nuclear.”

• That Iran engaged in “probable testing” of explosives commonly used to detonate a nuclear warhead — a method known as a “full-scale hemispherical explosively driven shock system.”

• An assessment that Iran worked on developing a system “for initiating a hemispherical high explosive charge” of the kind used to help spark a nuclear blast.

Additionally it noted, “The agency … assesses that Iran has sufficient information to be able to design and produce a workable implosion nuclear device (an atomic bomb) based on HEU (highly enriched uranium) as the fission fuel.”

And it has enriched enough uranium for fuel that it could be turned into enough weapons grade uranium for a single nuclear weapon.

So we have the capacity for a nuclear weapon and apparently proof, or at least some pretty heavy indications, that Iran has been working assiduously toward developing a ballistic missile capable of carrying a nuclear payload as well as developing and testing an explosive trigger for such a device.

Obviously this didn’t come as a surprise to the US. Iran’s capability in both missiles and nuclear weapons technology continues to grow.

So excuse me if I don’t buy this “redefinition” of the threat the Obama administration is claiming is better addressed by its focus on short and medium range Iranian missiles. Any defense against missiles is a layered defense. That means you address all possible missile threats.

The fact remains that the only threat to Europe, for whom the Bush-era anti-missile shield was intended, is ballistic missiles. Iran (or Russia) must use them to reach that continent. Iranian short and medium range missiles are not a threat Europe.

The point, of course, is should Iran develop an ICBM, Europe would be defenseless because the systems which are designed for the short and medium range missiles aren’t designed to go after ICBMs.

Or said another way, the proper announcement would have been “the US is adding the missing two layers to the anti-missile defense system, thereby making the system complete.”

Instead we pulled the long-range system. Why?

Well that’s the $64,000 question, isn’t it? Most feel it was a capitulation in answer to Russia’s fears of the system. Russia had claimed that the small and supposed defensive system could be turned into offensive system aimed at them. Of course that would require a completely different sort of missile than would have been deployed there, and, probably, a different sort of radar system as well.

Speaking of the radar system, Russia objected to the sophisticated X-band radar saying it would be able to look in 360 degrees and would be monitoring Russian missiles much too closely. Seems a bit absurd to make that claim when Russia knows we have satellites that can read the bumper numbers off their mobile missile launchers at will.

Then there was the claim that the US and Russia had an agreement that US troops and weapons wouldn’t be stationed or deployed in the former Warsaw Pact nations. The US doesn’t seem to remember that, but Russia claims its the case. That certainly can’t be the concern since Obama has said that in the future the new anti-missile systems might be deployed in Poland and the Czech Republic.

Obama says his decision was driven by the “unanimous advice” of the Secretary of Defense and the Joint Chiefs of Staff. Said the man who recommended the deployment of the missile shield to President Bush three years ago:

“Those who say we are scrapping missile defence in Europe are either misinformed or misrepresenting the reality of what we are doing in Europe,” said Robert Gates, US defence secretary.

In a word: nonsense!

Someone please explain the spurious claim that the best missile defense system for Europe – which can only be hit by an Iranian ICBM – is one which targets short and medium range Iranian missiles. It makes absolutely no sense.

It makes no sense until Russia is dragged into the equation. Then it starts to become somewhat clear. This is a risky bet meant to appease Russia while at the same time hoping Iran is unable to develop a long-range nuclear capable missile before its nuclear weapons program can be stopped. It is also clearly a bow to Russia and a part of the Obama administration’s unilateral attempt to “reset” relations with that country. And it is a display of weakness.

What about our allies? How do they feel about this? Well perhaps the best way to answer that is to understand why they were so interested in the anti-missile system promised by the Bush administration:

During negotiations with the Bush administration, Warsaw pushed hard for a missile defence agreement that would reward them with a Patriot short-range air defence unit supported by US troops. In the end, Poland agreed in principle to host the US base during last year’s war between Russia and Georgia, which sparked fears about Russian intentions towards central Europe.

Eastern Europe doesn’t trust Russia as far as they can throw them (a lesson we should have learned as well). The invasion and virtual annexation of two provinces of Georgia underscored Russia intent to dominate what it calls it’s “near abroad” (or Post-Soviet Space). Russia literally thumbed its nose at the US and the rest of the world with its military incursion there. Poland and other former Warsaw pact nations took the lesson for what it was – a declaration that Russia was back and intended to play hardball.

Max Boot reminds us of the last time this sort of thing happened:

That Obama has now bowed to Putin’s demands sends a dangerous signal of irresoluteness and weakness—similar to the signal another young president sent when he met with a Russian leader in Vienna in 1961. Nikita Khrushchev emerged from his summit with John F. Kennedy convinced that the president was “very inexperienced, even immature” and that he could be rolled. We all know the result: the Cuban Missile Crisis.

Except this time we’re playing in Russia’s backyard, not our own. Again, leadership is absent in a very critical area of national security.

~McQ


Did Obama Trade Missile Defense For Iranian Sanctions?

Regardless of the reason, he’s left both Poland and the Czech Republic very unhappy with the announcement today that the US is “scrapping” the promised missile defense shield in Eastern Europe:

The former Czech prime minister, Mirek Topolanek, said: “This is not good news for the Czech state, for Czech freedom and independence. It puts us in a position wherein we are not firmly anchored in terms of partnership, security and alliance, and that’s a certain threat.”

The Polish deputy foreign minister, Andrzej Kremer, saidthat Warsaw had heard from different sources there were “serious chances” the anti-missile system would not be deployed.

Russia, of course, is sure to be quite happy with the plan, although it hasn’t yet reacted to the news.

Mr Obama, who is due to meet the Russian prime minister Dmitry Medvedev next week in New York, says he wants better ties with Russia so that the two former Cold War foes can co-operate on Afghanistan and reduce the risk of nuclear proliferation.

He may also have been reassured by Moscow’s growing willingness to discuss further sanctions against Iran.

Not exactly a sign that the US is a solid and dependable ally to the former eastern satellites of Russia. It has been interesting to watch the foreign policy of this administration develop. Thus far, it has certainly made all sorts of overtures to those we haven’t exactly had great relationships with – but for the most part, as in this case, those overtures have come at the expense of existing relationships with supposed “allies”.

For the 600th time – Russia is not our friend and never will be.   Cooperation in various areas is fine but it shouldn’t be bought at the expense of our allies’ security or pursued from a position of weakness. While the missile defense shield may have only been a token defense, to those it was promised, it meant a solid commitment from the US to their defense. Withdrawing it without notice makes the US much less of a reliable ally in their eyes and may see them trying to seek some sort of accommodation with Russia now. If the intent of US foreign policy to this point was to keep them out of Russia’s orbit, this sort of move is sure to force them more into it.

~McQ

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