"Tens of thousands of Iraqis rallied in the streets of Baghdad Saturday against a proposed American-Iraqi deal that would allow US troops to stay in the country for three more years," McClatchy Newspapers reported. "Muqtada al Sadr, a widely influential Shiite cleric who called for the demonstration, issued a statement demanding that Iraq's parliament reject the deal. " 'These are the Iraqi people in front of you, rejecting this agreement,' Sadr's statement said. 'The treaty is in your hands, so the destiny and reputation of Iraq also is in your hands ... If (the government) told you that this agreement will give you sovereignty, they are liars.' "After seven months of wearying back and forth, negotiators completed a draft deal this week. For it to take effect, however, the proposal must win approval from Iraq's Political Council for National Security, the prime minister's cabinet and parliament. "US officials are desperately hoping to finalise the agreement before Dec 31, when a United Nations mandate that has allowed American troops to operate in Iraq will expire. If a deal isn't in place by the end of the year, American forces in Iraq could technically become illegal occupiers." The New York Times said: "At a Friday night meeting with the leaders of the political blocs in Parliament, there were no clear statements of support except from the Kurds, who strongly backed the pact. " 'Most of the political leaders asked for time to review the draft and then present their suggestions,' said Haider al Abbadi, a senior member of Dawa, the party of Prime Minister Nuri Kamal al Maliki. "He said that Mr Maliki had reviewed the positive and negative aspects of the draft with the group, and several other people who were there said they thought it would take several more days before there was a clear sense of whether the pact could win approval. "Even leaders from the Islamic Supreme Council of Iraq, one of the country's main Shiite parties and a major player in negotiating the security agreement, appeared to be having second thoughts on Saturday. Historically, the Council has had close ties to Iran, and the Iranians are wary of the agreement because it would maintain a large American military presence near Iran's borders. " 'We warn the Iraqi Government not to submit to pressure to accept this agreement,' said Latif al Amidi, spokesman for the Council in Najaf, where the party dominates local politics." The Los Angeles Times reported that Mr Maliki: "warned in comments broadcast Friday that the top US commander in Iraq 'had risked his position' by suggesting that Iran tried to bribe Iraqi lawmakers to oppose a security agreement with the United States... "US Army Gen Ray Odierno, who took command of US forces last month, told The Washington Post in an interview published Monday that American intelligence reports alleged that Iran had attempted to bribe Iraqi lawmakers to sabotage the agreement. "The comments, which drew the ire of Iraqi politicians all week, brought an angry retort from Maliki. " 'The American commander risked his position when he talked about this issue and in this manner. He has regretfully made relations complex,' Maliki said in remarks made to Kuwaiti journalists on Thursday and aired Friday. 'The man is known for his goodness, but [I don't know] how he made such a statement, and there is no reality in this subject. The parliament does not take any bribes, neither from Iran or any other party. This is regretful.' " Time magazine noted: "it may not be the situation on the ground in Iraq that determines the future of the US military mission there. For one thing, the fragile calm in Iraq coincides with an increasingly perilous Taliban resurgence in Afghanistan, raising pressure on the US to divert more combat resources from its over-stretched military into that theatre - an expanded military commitment favoured by both John McCain and Barack Obama. Sending more troops to Afghanistan will require drawing down in Iraq. "Then, there's the financial crisis and looming global recession that will inevitably impose a far greater austerity on Washington. America's military deployments in Iraq and Afghanistan are expected to cost close to $200 billion for 2008 alone, and maintaining that commitment will become considerably more burdensome as Washington is forced to funnel many hundreds of billions of dollars into simply averting financial collapse. The looming global economic recession will further slash tax revenues available to the US government. "A year ago, the Congressional Budget Office estimated the cost of funding the Iraq and Afghanistan wars from 2001-2017 to be around $2 trillion, or more - factoring in some $705 billion in interest payments in recognition of the fact that the war is being funded with borrowed money. (Nations typically increase taxes in order to finance protracted military conflicts; the Bush Administration, having cut taxes, has had to rely on the credit of others to wage its wars.) The current credit crisis and economic slowdown will considerably raise the pressure on the US national debt, which had already grown from around $6 trillion in 2001 to near $10 trillion today. "Financial pressure is not, in itself, sufficiently strong right now to hasten a pullout from Iraq. But the fact that it coincides with a gloomy intelligence assessment of that country's political prospects, growing demands for US reinforcements in Afghanistan, and the elected Iraqi government's insistence on a withdrawal deadline, suggests that the end of the US mission in Iraq may be coming into view - and that its terms may fall short of victory as defined by the war's authors."
Pakistan may need IMF aid
"President Asif Ali Zardari returned from China late Friday without a commitment for cash needed to shore up Pakistan's crumbling economy, leaving him with the politically unpopular prospect of having to ask the International Monetary Fund for help," The New York Times reported. "Pakistan was seeking the aid from China, an important ally, as it faces the possibility of defaulting on its current account payments. "With the United States and other nations preoccupied by a financial crisis, and Saudi Arabia, another traditional ally, refusing to offer concessions on oil, China was seen as the last port of call before the IMF. "Accepting a rescue package from the fund would be seen as humiliating for Mr Zardari's government, which took office this year." The Financial Times said: "Pakistan officials on Saturday announced fresh plans to restore investor confidence and avoid default on foreign payments. The plans include the option of returning to an International Monetary Fund programme to stem a further fall in already depleted foreign exchange reserves. " 'Pakistan cannot wait for long. Pakistan has to take action in the next 30 days' said Shaukat Tarin, financial adviser to the prime minister. Mr Tarin acknowledged for the first time that a future IMF programme was one of the options on the table, in addition to significant financial assistance from industrialised western countries and China. Mr Tarin said a default on foreign debt payments was 'out of the question,' adding that friendly countries and international financial multilateral institutions such as the World Bank and the Asian Development Bank were expected to give more than $4.5bn to help fill a financing gap for the current financial year. "Mr Tarin said Pakistan was seeking an additional $5bn-$6bn to not only fill the gap, but also build up quickly depleting foreign currency reserves within the central bank. However economists said Pakistan needs $10bn-$12bn in additional external resources to overcome the crunch." Meanwhile, The Guardian reported: "A deep rift over anti-terror policy has opened up within Pakistan's political class, as extremist violence and an economic crisis push the country to the verge of collapse. A special session of parliament called by the government to forge a political consensus on the 'war on terror' has backfired spectacularly as parties, including some in the ruling coalition, denounced the alliance with Washington and Nato rather than backing the army to take on the Pakistani Taliban." The Australian said: "Maulana Fazlur Rehman, leader of the Jamiat Ulema-e-Islam party that is a key component of the coalition dominated by the Pakistan People's Party, emerged as 'a spokesman for the Taliban' yesterday as the parliament concluded its second week of debate on how to deal with the jihadi militants sweeping the country. "A spokesman for the Pakistan Taliban added to the momentum for negotiations by saying 'unconditional talks' could be held if the government stopped its military operations. Maulvi Omar, speaking from a hideout in the strategic valley of Swat, where intense fighting is going on between the Pakistan army and the militants, said peace talks would start if military action was halted. " 'We are willing to negotiate with the government ... we are also willing to lay down our arms once the military ceases operations against us,' he said.
Keynes and the next American presidency
"The hurricane sweeping through financial markets has changed the character of the US presidential contest. The consequences of the crash, political and economic, will have a still more profound effect on the course of the next presidency," Philip Stephens wrote in The Financial Times. "The failures of financial markets and the rehabilitation of John Maynard Keynes have handed Barack Obama a strong lead in the race for the White House. America is living through one of those rare moments when government is seen as the answer not the obstacle. The voters want shelter from the storms." In The Washington Post, Robert Skidelsky, an economist and also biographer of Mr Keynes wrote: "Keynes first became convinced of the instability of unregulated economies in the boom years of the 'Roaring '20s'. In many ways, the 1920s were like the last 15 years in their technological dynamism, the extravagant lifestyles of the very rich and in their 'irrational exuberance'. But they were especially like the recent past in their belief that prosperity would continue without interruption. "The magical formula for success was supposed to be the new 'science' of monetary management. From the fact that depressions were associated with falling prices and booms with rising prices, the economist Irving Fisher concluded that economic cycles could be eliminated by keeping prices stable. Under his influence, the Federal Reserve Board set itself the goal of price stability. And the price level did stay remarkably stable for most of the 1920s. "Fisher's views were discredited by the stock market crash of 1929, but his doctrines were revived by Milton Friedman in the 1970s. Plagued by inflation, governments around the world took up Friedman's monetarism, which maintained that inflation was due to governments' printing too much money. Central banks were made independent (the Fed already was) and were given the single task of keeping prices stable. Moreover, financial innovation in increasingly deregulated markets was said to make investment less and less risky. The formula seemed to work. Not only did inflation stay low - not once did it exceed 4 per cent between 1991 and 2006 - with very little price volatility from the 1990s onward, but the US economy showed strong, though not particularly steady, growth of 3.22 per cent on average. Once again, perpetual prosperity beckoned. "So what went wrong? "What was wrong was the theory. The price level is not a leading, but a lagging, indicator. Asset bubbles can coexist with a stable price level, even while the rest of the economy is starting to slide into depression. And this, in essence, is what Keynes believed was happening in the late 1920s. Money, he argued, was being switched from production to speculation. The rich were getting very much richer, while the incomes of the rest were stagnating. 'Profit inflation,' fueled by collateralised debt, went together with an 'income deflation.' Share prices were being driven up to dizzying heights even as farmers were finding it harder to service agricultural mortgages. Every financial crash is different in detail - today's started in the banking system, not the stock market - but the anatomy of all is surprisingly similar: A speculative frenzy, triggered by some technical innovation such as mortgage-backed securities, that collapses when reality - in the form of more sober valuations - kicks in."
pwoodward@thenational.ae
