Diminishing Marginal Utility

Source: The Tribune Democrat

Published: August 24, 2007 01:31 pm
By ZACHARY HUBBARD

All eyes in Washington are focused on the Middle East as the war there continues, the troop surge in Iraq nears its climax and the ever-elusive Osama bin Laden, assuming he’s still alive, continues to evade capture. Iran is rattling its sword and the hawks in Washington are demanding satisfaction. The 2008 election countdown has started and politicians on both sides of the aisle have begun the traditional blame game of finger pointing, name calling and jockeying for political advantage. The American political process is once again paralyzed by the politicians’ lust to retain power. Forget the business of running the nation; there’s an election to be won! And so it will go until November of next year.

Meanwhile, in a country far, far away, the political, military and economic downfall of the United States is being planned by an intelligent, patient, industrious enemy who hopes never to fire a shot in anger, yet fully expects to win. Its goal: To replace the United States as the world’s reining superpower. The war, by all indications, may have already begun.

China’s grasp of history

China counts its history in millennia. It has seen enemies come and go, yet one thing remains constant – China continues. Why should the Chinese expect America to be different from their enemies of yore? Chinese politicians and military officers study history. They know the writings of Sun Tzu, a legendary warrior-philosopher whose 6th century BC military treatise “The Art of War” is mandatory reading for military officers worldwide.

Sun Tzu has dozens of notable quotes, but the greatest may be, “For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.”

The Chinese may have already begun a campaign to subdue the United States following Sun Tzu’s model. As Sun Tzu said, you can subdue an enemy without fighting. In fact, it is best to win without having to go to war. Some would argue that this is what diplomacy is about. Certainly, diplomacy is part of the strategy, but there is far more to the Chinese game plan.

Reflecting Sun Tzu’s philosophy, many recent Chinese writings have focused on asymmetric warfare as a means of defeating a militarily superior enemy. Asymmetric warfare uses political, economic, informational and military power. Military power is the least emphasized.

A different kind of war

Qiao Liang and Wang Xiangsui, two colonels in China’s Peoples’ Liberation Army, published a treatise in 1999 titled “Unrestricted Warfare.” The treatise was not an official publication of the Chinese government, but it was published by the official PLA publishing house, indicating at least some degree of acceptance. “Unrestricted Warfare” contains chilling instructions on how to defeat an enemy using asymmetric attacks in such a manner that the enemy may not even realize they are under attack until it is too late to respond effectively. The techniques they describe include cyber warfare, attacks against financial institutions and critical infrastructure, terrorism, manipulating the media, biological warfare, chemical warfare and a variety of other ruthless methods.

Developments since “Unrestricted Warfare” was published seem to suggest that China may be waging such warfare today. China now faces many of the same problems that Germany faced in the buildup to World War II. Like Nazi Germany, China has a booming economy, a growing population and a hunger for energy and other resources to fuel its economic growth.

The Germans needed to expand their “lebensraum” (living space) to attain the natural resources needed to fuel their economy. China appears to be implementing a sort of “lebensraum” program of its own. As the United States was engaged in returning the Panama Canal Zone to Panama, China was busy establishing a beachhead there. Through land deals with Panama, the Chinese have gained control of both ends of this critical waterway, today controlling port facilities in Balboa, the canal's only Pacific port, and a major Atlantic port in Cristobol. The agreements allow China to run them for the next half-century.

China’s hunger for natural resources

China also is stretching out to grasp resources needed to fuel its economy. In January 2005, Venezuelan President Hugo Chavez (no friend of the U.S.) and Chinese Vice President Zeng Qinghong signed 19 agreements covering oil, agriculture and technology. These included five agreements between Venezuela and the Chinese National Petroleum Corporation. In 2006 China signed an oil exploration agreement with Nigeria, one of the largest oil exporters to America. Today China is conducting a diplomatic “love-in” across Africa.

The BBC reported in January 2006 that there were an estimated 700 Chinese-funded ventures in Africa. Many are in the fields of energy and natural resources, including oil and gas development, copper, cobalt, coal and gold mining. Unlike many Western powers whose diplomatic policies prevent or restrict dealing with ruthless regimes, China has no qualms about making deals with repressive governments having human rights issues. The Chinese are busy cutting deals to gobble up resources in such countries in Africa. For example, the U.S. Public Broadcasting System reported in April 2006 that China imports 10 percent of its oil from Sudan. Not surprisingly, China has worked diligently in the U.N. Security Council to water down potential punitive measures against Sudan, thereby helping to prolong the Darfur crisis.

Cuban oil is in China’s crosshairs as well. While environmentalists continue to block offshore drilling along Florida’s coastline, China is moving to capitalize on Cuba’s oil potential. In February 2005 the Havana Journal reported that Cuba’s Ministry of Basic Industry announced that the Cuba Oil Company (Cubapetroleo) signed a production contract with the China Petroleum & Chemical Corp (SINOPEC) to explore areas around Cuba believed to contain petroleum deposits. The agreement means that while Americans continue to squabble about the wisdom of offshore drilling in Florida, the Cubans and Chinese are beginning exploration some 50 miles from the Florida coastline.

China recently has begun to extend its oil search into the Caspian Sea region of Asia. The German army pushed towards the Caspian oil fields in the summer of 1942, nearly reaching the Soviet oil center of Grozny before the attack faltered. You may recall Grozny is the embattled capital of the Russian region of Chechnya, where Russia has fought against a violent Islamic separatist movement for nearly 10 years. Grozny today is an important transit route and confluence for petroleum pipelines coming out of the Caspian oil fields headed towards Europe. Although in this instance the immediate impact is on Europe, China’s thirst for oil is affecting global oil markets and forcing prices higher.

‘Loot a burning house’

Can China succeed in bringing America to its knees without firing a shot? It is not inconceivable given today’s global situation.

Sun Tzu said, “Loot a burning house.” By this he meant kick your enemies when they are down. How is China doing this? By arming America’s global adversaries and attacking the U.S. economy.

North Korea, a thorn in the sides of President Bush and former President Clinton, is overflowing with Chinese arms. North Korea’s nuclear program and missile tests in the Sea of Japan have caused President Bush great consternation. Fortunately, recent diplomatic efforts by the Bush Administration appear to have put an end to Korea’s quest for nuclear weapons, but at great cost in aid paid to the North Korean regime.

Meanwhile, China is arming the Middle East and other potential hot spots. In February 2004 the Washington Post reported that Chinese nuclear weapons design plans provided to Pakistan made it into the hands of Libya. CNN later reported that China was concerned about these allegations and was conducting an investigation. The Pentagon reported in May 2007 that Chinese-made armor-piercing missiles fell into the hands of anti-American militants in Iraq. It is assumed the missiles came through Iran.

The Iranians, who have nuclear ambitions of their own, depend upon Chinese and North Korean technology to keep their nuclear missile delivery program moving forward. The Iranians also have purchased sophisticated Chinese cruise anti-ship missiles that can be employed to interdict the free flow of oil from the Persian Gulf. The conservative think tank Heritage Foundation suggested in September 2006 that China is providing Iran diplomatic cover for its nuclear ambitions in exchange for lucrative oil and gas deals.

In January 2002, the Congressional Research Service published a report titled “China: Possible Missile Technology Transfer from U.S. Satellite Export Policy.” The report chronicles how in 1996, after a series of NASA satellite launch failures, the Clinton administration moved export control of commercial satellite technology from the State Department to the Department of Commerce. China subsequently launched numerous American satellites into orbit. A New York Times exposé in 1998 prompted a criminal investigation into whether Loral Space and Communications Ltd. and Hughes Electronics Corporation, both parties to the Chinese satellite launches, had provided technology information to the Chinese which enhanced their ballistic missile technology and ergo their nuclear weapons delivery capability. A subsequent congressional investigation produced the classified Cox Report in December 1998, indicating that indeed China’s military capabilities had benefited from U.S. exports for the past 20 years, including the launching of American communications satellites.

China recently has extended its realm of influence closer to the U.S. border. In July 2006, the conservative Web site Human Events reported that China has been working actively to developing North American Free Trade Agreement ports in Mexico. Using the economic shield of the NAFTA agreement between the United States, Mexico and Canada, China can avoid U.S. tariffs by shipping Chinese manufactured goods through Mexico into the United States. The plan reportedly could reduce Chinese transportation costs to the United States by as much as 50 percent and could flood the U.S. market with more cheap Chinese goods, further weakening the struggling U.S. dollar.

China’s high-tech military developments in the field of cyber warfare also are alarming. The technology Web site ZDNet News reported in November 2005 that U.S. officials had revealed details of Chinese computer hacking attacks against the U.S. government. The Chinese reportedly obtained information about Falconview, the flight-planning software used by the U.S. Army and Air Force. Such information could be used to help interdict U.S. flight operations against Chinese forces in a future conflict. The PLA has also developed a sizable force of professional computer hackers trained to disrupt the computer networks of China’s enemies. Potential targets include banking and electronic commerce networks and electric power grids, transportation networks and oil and gas pipelines, all of which are at least partially controlled by computers through SCADA systems (short for Systems Control and Data Acquisition).

The situation today

Today, the United States finds itself in an untenable position with China. American industry’s compulsion for outsourcing manufacturing to cheap overseas labor markets has resulted in American stores being glutted with shoddy Chinese products while the American manufacturing base that was once the envy of the world is vanishing. The situation has become so serious that a number of congressmen are formulating a political plank based upon revamping the U.S. manufacturing base.

The Chinese, in turn, have enacted tariffs against many American goods. The U.S. government has accused China of manipulating the value of the Chinese currency, the yuan, in international currency markets to give Chinese exports an unfair advantage in U.S. markets. The Chinese have tied the yuan’s value to the U.S. dollar at a fixed rate. China regulates its import market and the exchange of foreign currency with an iron fist in order to keep the yuan strong against the dollar. In the process of supporting the yuan, China has purchased more than $1 trillion in U.S. debt through international markets.

Today the Chinese appear ready to foreclose on the United States. In recent days the Chinese have hinted they may flood the international market with dollars to force the dollar value down. The mere suggestion sent U.S. stocks tumbling. President Bush responded that China would be foolhardy to act in such a manner. But what is to stop the Chinese? The Federal Reserve was forced to release billions in U.S. dollar reserves to calm the jittery markets.

Conflict looms in the Taiwan straits

The Pentagon has been warning about a Chinese military buildup for years. In November 2005 the Christian Science Monitor reported on this buildup. The Monitor stated that about 15 percent of the PLA’s 2 million-man force has been converted into a modern, highly mobile force designed to conduct rapid operations against smaller foes. The military buildup includes amphibious ships capable of transporting and landing military ground forces by sea.

What is the ultimate purpose of this buildup? Taiwan of course! Such an operation against Taiwan would involve highly mobile airborne and amphibious forces, naval and air operations to secure the Taiwan straits, and a massive missile and cyber warfare attack aimed at paralyzing Taiwan’s ability to react.

With the U.S. bogged down in the Middle East and Afghanistan, the time is quickly approaching when the Chinese will be able to deal a strategic death blow against Taiwan with impunity. This could be the death knell for U.S. superpower status. Already alienated from many of its traditional allies as a result of the war in Iraq, a Chinese attack on Taiwan would reveal the extent of the United States’ military’s weakened state and the inability of the U.S. government to stand by its alliances and obligations.

Food for thought

Not worried about China? Then here’s some food for thought: A series of recent China-related events, all potentially tied to asymmetric warfare against the United States, warrant close observation. These include toxic gluten in pet food, antifreeze in toothpaste, lead paint on toys, toxic levels of formaldehyde on pajamas, the recall of hundreds of thousands Chinese-manufactured tires in the United States for safety concerns … and the list goes on.

Potential problems with imported Chinese-produced foodstuff are particularly worrisome, as are the joint Russian-Chinese military exercises that recently took place for the first time in history. Coincidence? Maybe. Unrelated? Maybe. Worth watching? Certainly.

As Sun Tzu said, “All war is deception.”

Is China already at war with America?

Zachary Hubbard is a retired Army officer residing in Upper Yoder Township, Cambria County. He holds a master’s degree in military art and science from the U.S. Army Command and General Staff College. Since 1998 he has been involved in the study and teaching of asymmetric warfare. Hubbard is a member of The Tribune-Democrat Readership Advisory Committee.

Posted by Hugo Albert Orwell at 12:05 PM | Permalink | TrackBacks (0)

Source: Oh My News

When will the country's oil bourse finally start trading?

Angelique van Engelen (clixy123)
Published 2007-08-15 15:08 (KST)

Iranian President Mahmoud Ahmadinejad is reshuffling the oil ministry. He says, this way, he hopes to deliver on his promise to redistribute wealth. He's also sacked the industry minister. And next on the agenda is the Foreign Affairs Ministry.

It's not the first time Ahmadinejad's gone about rearranging the furniture back home. But so far, he's tended to project his zest for change to officials dealing with the outside world. Shortly after coming into power two years ago, his replacing 40 ambassadors sent out a strong message -- the Iranian president was unlikely to budge over the nuclear program his country was running.

The replacement of the oil and industry ministers is explained as a tactical move by the Iranian president to increase his control over areas that he believes key to economic prosperity. So now, there's no outside world that he can pitch the rationale for his action against. What's more, the move draws attention to one of Ahmadinejad's failures as president. Having been elected on a highly populist agenda, he's not delivered many of the goodies he promised in his election campaign in 2005. His luring promises to a young population faced with high levels of unemployment, were to the average Iranian just what the country needed.

Ahmadinejad offered to drag the fledgling economy out of the mess it was in and oil revenues were going to be a key factor in this plan. However, Ahmadinejad's plan to reshape the oil sector has been met with strong resistance from within the industry. The oil minister that was sacked, Kazem Vaziri Mahaneh, is known to be highly opposed to restructuring the industry.

Plans to open an Iranian oil bourse to compete with NYMEX in New York and the IPE in London have been continuously deferred for the past two years. At least three deadlines have expired without any progress being made. The bourse, which will be located in the Iranian Free Trade Zone on the island of Kish, is meant to attract international oil trading to the Middle East.

Outside observers say the potential for an oil-trading platform in the Middle East is promising but its main risk will be stability. Oil markets, like currency markets, react much more intensely to political instability than other capital markets. The Iranian nuclear issue won't do the country any favors in creating the best circumstances for a successful oil bourse.

According to many observers, Saddam Hussein's plan to swap dollars into euros was the main reason behind the U.S. invasion of Iraq.

Posted by Hugo Albert Orwell at 02:12 PM | Permalink | TrackBacks (0)

Source: Yahoo - Associated Press

By IVAN SEKRETAREV, Associated Press Writer 1 minute ago

CHEBARKUL TESTING RANGE, Russia - President Vladimir Putin placed strategic bombers back on long-range patrol for the first time since the Soviet breakup, sending a tough message to the United States on Friday hours after a major Russian military exercise with China.

Putin reviewed the first Russian-Chinese joint exercise on Russian soil before announcing that 20 strategic bombers had been sent far over the Atlantic, Pacific and Arctic oceans — showing off Moscow's muscular new posture and its growing military ties with Beijing.

"Starting today, such tours of duty will be conducted regularly and on the strategic scale," Putin said. "Our pilots have been grounded for too long. They are happy to start a new life."

Putin said halting long-range bombers after the Soviet collapse had hurt Russia's security because other nations — an oblique reference to the United States — had continued such missions.

"I have made a decision to resume regular flights of Russian strategic aviation," Putin said in nationally televised remarks. "We proceed from the assumption that our partners will view the resumption of flights of Russia's strategic aviation with understanding."

U.S.-Russian relations have been strained over Washington's criticism of Russia's democracy record, Moscow's objections to U.S. missile defense plans and differences over crises such as the Iraq war. But the Bush administration downplayed the significance of the renewed patrols.

"We certainly are not in the kind of posture we were with what used to be the Soviet Union. It's a different era," State Department spokesman Sean McCormack said. "If Russia feels as though they want to take some of these old aircraft out of mothballs and get them flying again, that's their decision."

Soviet bombers routinely flew missions to areas where nuclear-tipped cruise missiles could be launched at the United States. They stopped in the post-Soviet economic meltdown. Booming oil prices have allowed Russia to sharply increase its military spending.

Russian Air Force spokesman Col. Alexander Drobyshevsky said that Friday's exercise involved Tu-160, Tu-95 and Tu-22M bombers, tanker aircraft and air radars. NATO jets were scrambled to escort the Russian aircraft over the oceans, he said, according to the ITAR-Tass news agency.

Eleven Russian military planes — including strategic bombers and fighter jets — carried out maneuvers west of NATO member Norway on Friday, a military official said.

Norway sent F-16 fighter jets to observe and photograph the Russian planes, which rounded the northern tip of Norway and flew south over the Norwegian Sea toward the Faeroe Islands before turning back, said Brig. Gen. Ole Asak, chief of the Norwegian Joint Air Operations Center.

A pair of Russian Tu-95 strategic bombers approached the Pacific Island of Guam — home to a major U.S. military base — this month for the first time since the Cold War.

Last month, two similar bombers briefly entered British air space but turned back after British fighter jets intercepted them. Norwegian F-16s were also scrambled when the Tu-95s headed south along the Norwegian coast in international air space.

"This is a significant change of posture of Russian strategic forces," Alexander Pikayev, a senior military analyst with the Moscow-based Institute for World Economy and International Relations, told The Associated Press. "It's a response to the relocation of NATO forces closer to Russia's western border."

NATO has expanded in recent years to include the former Soviet republics of Latvia, Lithuania and Estonia as well as the Czech Republic, Hungary and Poland.

As of the beginning of the year, Russia had 79 strategic bombers, according to data exchanged with the United States under the START I arms control treaty. At the peak of the Cold War, the Soviet long-range bomber fleet numbered several hundred.

Friday's war games with China near the Urals Mountain city of Chelyabinsk involved some 6,000 troops from both countries, along with soldiers from four ex-Soviet Central Asian nations that are part of the Shanghai Cooperation Organization, a regional group dominated by Moscow and Beijing.

The former Cold War rivals share a heightening distrust of what they see as the United States' outsized role in global politics, and they have forged a "strategic partnership" aimed at counterbalancing Washington's policies.

The United States, Russia and China are locked in a tense rivalry for influence in Central Asia, the site of vast hydrocarbon resources. Washington supports plans for pipelines that would carry oil and gas to the West and bypass Russia, while Moscow has maneuvered to control exports. China also has shown a growing appetite for energy to power its booming economy.

Putin, Chinese leader Hu Jintao and other leaders of the SCO nations attended the joint exercise, which followed their summit Thursday in Kyrgyzstan's capital Bishkek.

The summit concluded with a communique that sounded like a thinly veiled warning to the United States to stay away from the region: "Stability and security in Central Asia are best ensured primarily through efforts taken by the nations of the region on the basis of the existing regional associations."

Putin hailed the exercise — which involved dozens of aircraft and hundreds of armored vehicles countering a mock attack by terrorists and insurgents striving to take control of energy resources — "as another step to strengthen relations between our countries." Hu said the maneuvers "underlined the SCO's readiness to confront terror."

The exercises underlined that "the SCO wants to show that Central Asia is its exclusive sphere of responsibility," said Ivan Safranchuk, an analyst at World Security Institute

Russian Deputy Foreign Minister Alexander Losyukov said the exercise was not aimed at the United States.

"I don't see anything anti-American in the SCO exercise," he was quoted as saying by the ITAR-Tass news agency.

The SCO was created 11 years ago to address religious extremism and border security issues in Central Asia. In recent years, the group has grown into a bloc aimed at defying U.S. interests in the region.

In 2005, the SCO called for a timetable to be set for the withdrawal of U.S. troops from two member countries, Uzbekistan and Kyrgyzstan. Uzbekistan evicted U.S. forces later that year, but Kyrgyzstan still has a U.S. base, which supports operations in nearby Afghanistan. Russia also maintains a military base in Kyrgyzstan.

Iranian President Mahmoud Ahmadinejad, whose country has SCO observer status, attended the summit for the second consecutive year. On Thursday, he echoed Russia's criticism of U.S. plans to deploy missile interceptors in Poland and a radar in the Czech Republic, saying they were a threat to the entire region.

___

Associated Press Writer Vladimir Isachenkov contributed to this report from Moscow.

Posted by Hugo Albert Orwell at 12:20 PM | Permalink | TrackBacks (0)

Source: WashingtonPost.com

U.S. Moving Against Revolutionary Guard

By Robin Wright
Washington Post Staff Writer
Wednesday, August 15, 2007; A01

The United States has decided to designate Iran's Revolutionary Guard Corps, the country's 125,000-strong elite military branch, as a "specially designated global terrorist," according to U.S. officials, a move that allows Washington to target the group's business operations and finances.

The Bush administration has chosen to move against the Revolutionary Guard Corps because of what U.S. officials have described as its growing involvement in Iraq and Afghanistan as well as its support for extremists throughout the Middle East, the sources said. The decision follows congressional pressure on the administration to toughen its stance against Tehran, as well as U.S. frustration with the ineffectiveness of U.N. resolutions against Iran's nuclear program, officials said.

The designation of the Revolutionary Guard will be made under Executive Order 13224, which President Bush signed two weeks after the Sept. 11, 2001, attacks to obstruct terrorist funding. It authorizes the United States to identify individuals, businesses, charities and extremist groups engaged in terrorist activities. The Revolutionary Guard would be the first national military branch included on the list, U.S. officials said -- a highly unusual move because it is part of a government, rather than a typical non-state terrorist organization.

The order allows the United States to block the assets of terrorists and to disrupt operations by foreign businesses that "provide support, services or assistance to, or otherwise associate with, terrorists."

The move reflects escalating tensions between Washington and Tehran over issues including Iraq and Iran's nuclear ambitions. Iran has been on the State Department's list of state sponsors of terrorism since 1984, but in May the two countries began their first formal one-on-one dialogue in 28 years with a meeting of diplomats in Baghdad.

The main goal of the new designation is to clamp down on the Revolutionary Guard's vast business network, as well as on foreign companies conducting business linked to the military unit and its personnel. The administration plans to list many of the Revolutionary Guard's financial operations.

"Anyone doing business with these people will have to reevaluate their actions immediately," said a U.S. official familiar with the plan who spoke on the condition of anonymity because the decision has not been announced. "It increases the risks of people who have until now ignored the growing list of sanctions against the Iranians. It makes clear to everyone who the IRGC and their related businesses really are. It removes the excuses for doing business with these people."

For weeks, the Bush administration has been debating whether to target the Revolutionary Guard Corps in full, or only its Quds Force wing, which U.S. officials have linked to the growing flow of explosives, roadside bombs, rockets and other arms to Shiite militias in Iraq and the Taliban in Afghanistan. The Quds Force also lends support to Shiite allies such as Lebanon's Hezbollah and to Sunni movements such as Hamas and the Palestinian Islamic Jihad.

Although administration discussions continue, the initial decision is to target the entire Guard Corps, U.S. officials said. The administration has not yet decided when to announce the new measure, but officials said they would prefer to do so before the meeting of the U.N. General Assembly next month, when the United States intends to increase international pressure against Iran.

Formed in 1979 and originally tasked with protecting the world's only modern theocracy, the Revolutionary Guard took the lead in battling Iraq during the bloody Iran-Iraq war waged from 1980 to 1988. The Guard, also known as the Pasdaran, has since become a powerful political and economic force in Iran. Iranian President Mahmoud Ahmadinejad rose through the ranks of the Revolutionary Guard and came to power with support from its network of veterans. Its leaders are linked to many mainstream businesses in Iran.

"They are heavily involved in everything from pharmaceuticals to telecommunications and pipelines -- even the new Imam Khomeini Airport and a great deal of smuggling," said Ray Takeyh of the Council on Foreign Relations. "Many of the front companies engaged in procuring nuclear technology are owned and run by the Revolutionary Guards. They're developing along the lines of the Chinese military, which is involved in many business enterprises. It's a huge business conglomeration."

The Revolutionary Guard Corps -- with its own navy, air force, ground forces and special forces units -- is a rival to Iran's conventional troops. Its naval forces abducted 15 British sailors and marines this spring, sparking an international crisis, and its special forces armed Lebanon's Hezbollah with missiles used against Israel in the 2006 war. The corps also plays a key role in Iran's military industries, including the attempted acquisition of nuclear weapons and surface-to-surface missiles, according to Anthony H. Cordesman of the Center for Strategic and International Studies.

The United States took punitive action against Iran after the November 1979 takeover of the U.S. Embassy in Tehran, including the breaking of diplomatic ties and the freezing of Iranian assets in the United States. More recently, dozens of international banks and financial institutions reduced or eliminated their business with Iran after a quiet campaign by the Treasury Department and State Department aimed at limiting Tehran's access to the international financial system. Over the past year, two U.N. resolutions have targeted the assets and movements of 28 people -- including some Revolutionary Guard members -- linked to Iran's nuclear program.

The key obstacle to stronger international pressure against Tehran has been China, Iran's largest trading partner. After the Iranian government refused to comply with two U.N. Security Council resolutions dealing with its nuclear program, Beijing balked at a U.S. proposal for a resolution that would have sanctioned the Revolutionary Guard, U.S. officials said.

China's actions reverse a cycle during which Russia was the most reluctant among the veto-wielding members of the Security Council. "China used to hide behind Russia, but Russia is now hiding behind China," said a U.S. official familiar with negotiations.

The administration's move comes amid growing support in Congress for the Iran Counter-Proliferation Act, which was introduced in the Senate by Gordon Smith (R-Ore.) and in the House by Tom Lantos (D-Calif.). The bill already has the support of 323 House members.

The administration's move could hurt diplomatic efforts, some analysts said. "It would greatly complicate our efforts to solve the nuclear issue," said Joseph Cirincione, a nuclear proliferation expert at the Center for American Progress. "It would tie an end to Iran's nuclear program to an end to its support of allies in Hezbollah and Hamas. The only way you could get a nuclear deal is as part of a grand bargain, which at this point is completely out of reach."

Such sanctions can work only alongside diplomatic efforts, Cirincione added.

"Sanctions can serve as a prod, but they have very rarely forced a country to capitulate or collapse," he said. "All of us want to back Iran into a corner, but we want to give them a way out, too. [The designation] will convince many in Iran's elite that there's no point in talking with us and that the only thing that will satisfy us is regime change."

Staff researcher Madonna Lebling contributed to this report.

Posted by Hugo Albert Orwell at 01:19 AM | Permalink | TrackBacks (0)

Source: PrudentBear.com

By rasputin
8/11/2007 5:43:39 AM

Yesterday evening I posted a long-winded missive on the events of the last few years that have led us to this present period of, um, “uncertainty” in the housing, debt, and stock markets.

This morning I will make a weak and futile attempt to prognosticate where we are going from here. Again, I'll try to keep it brief, but you know how it is once my little runaway Rasputin fingers get to typing along...

First, please allow me to reiterate the crucial points made in yesterday's rant. To wit:

-$2 trillion of very suspect MBS have been created by private label securitizers over the last few years and were sold to bahgolders.

-Currently, Fannie and Freddie hold and/or guarantee about $3 trillion in their MBS.

-Also during this time frame the home-equity/ATM securitizers created $600 billion in HELOC-backed MBS.

-The banking system, in addition to snapping up $1 trillion of the MBS that Fannie/Freddie and the private label boys created, also loaned, directly to homedebtors, an additional $3.4 trillion.

Finally, the Wall Street Quants created approximately $600 billion of CDO-sausages, which included MBS as part of their “mystery meat”, and of course CLOs, CMBS, and other grissle, fat and bone.

Again, let's total all this up and see what we have:

Private Label MBS: $2 trillion

Fannie/Freddie: $3 trillion

HELOC: $600 billion

Banks Direct: $3.4 trillion

CDOs: $600 billion

Total: $9.6 trillion

Setting aside the $3.4 trillion in death pledges that the banks are directly sitting on, that leaves about $6 trillion in securitized debt.

Which was stuffed into every:

-Pension fund
-Mutual fund
-Money market fund
-Foreign Central Bank
-God only knows who else

And now to recap where we are now:

The world is stuffed with $6 trillion in highly-suspect MBS, CDOs, CDO-squareds, ad infinitum.

The cash ain't flowin',

The “value” of the MBS/CDOs are plummeting.

Margin calls are going out all over the place. Stuff is being dumped at fire-sale prices—if they can even GET a bid.

Investors in the various tranches are trying to exit the burning building. But the hedgies and investment banks are locking the exits.

Into the fray this week steps the world's central banks. And like pyromaniacs in charge of the fire station, they offer more gasoline “liquidity” to fight the fires they themselves set with their fiat/fractional reserve lending/central banking/securitization/derivatives matches. They have, literally, offered “Infinite Fiat.”

So, we have now blown a multi-trillion dollar (I'm still gonna stick with my $3 trillion prognostication) hole in the Good Ship Real Estate Titanic.

Okay, that sums up yesterday's diatribe as succinctly as I am capable of doing.

Oops, I forgot to add one, little, detail yesterday:

The ENTIRE credit system—not just the mortgage/MBS/CDO-related stuff—has seized up, with LBOs not getting sold, banks refusing to lend to each other, even overnight, and the hedge funds and investment banks scrambling to make margin calls and liquidate positions to meet margin calls. All of which prompted the world's central banks to create a nice, round, quarter of a trillion dollars in “temporary liquidity” on one, 24-hour period to attempt to keep the inter-connected, amplified, edifice from collapsing in on itself.

There, NOW I am finally ready to move forward with my prognostication of what might happen next.

What happens next?

Nothing.

That's right. I stated “Nothing”.

Now, to be fair, I need to extend that one-word sentence to its logical point:

Nothing DIFFERENT, that is.

For, we are so far down the road in this journey to “Infinite Fiat” there is NO turning back—at least voluntarily.

Nope, it's gonna be NOT only “Business as Usual”, but also very much “Business as UNUSUAL”, with the type of action you saw from the governments and CBs on Thursday and Friday torqued up to an extreme level. Yes, extreme even BEYOND the quarter-trillion dollar “Temporary” hot-beef liquidity injection you just witnessed.

By the way, last night I dispelled the MYTH that the Fed “can't” buy anything but U.S. treasuries/agencies, as some posters here have incorrectly insisted is the case. And, at the risk of making this missive massive, I reprint below and excerpt of just what the Fed is authorized to buy, IN THEIR OWN WORDS:

...paper:

"The Fed could replace Treasury debt in its portfolio with assets such as discount window loans to depository institutions, repurchase agreements with private counterparties, securities of private businesses, debt of state, local or foreign governments, and liabilities of federal agencies or federal government sponsored enterprises, to name several possibilities."

This comes directly from the Richmond, VA Fed and I provided a link to it in the thread where I was asking the esteemed Mr. Moto for some clarification on Fed actions.

Now, back to “We're scroomed!”, er, What will happen next.

Okay, so now “the cat is outta the bag” and even the slow, slovenly, central bankers and governments know we have a genuine, first-class, up-in-your face liquidity crisis going on. And the numbers are HUGE. Huge as in at least:

[$3 trillion in soon-to-be-defaulted home debt, owed by bankrupt sheeple who are sitting in:

Somewhere between 7 million and ten million soon-to-be empty homes.

Trillions more of MBS/CDO/Squared/Cubed/CDS/other derivatives that are more intertwined and inter-tangled than an Appalachian family, and are stuffed into literally every corner of the world's financial system.

$500 billion in LBS sitting on the books of the mezzanine banks, which can't be offloaded onto bagholders

A potential loss of at least $1 trillion per year in mortgage originations (and with it, all the related “Real Estate Industrial Complex industries of sales, building, securitization, furnishings, etc.)

Not to mention a general stock and (other than sovereign, for now) bond market crisis.

So, what do the CBs and governments do?

Simple.

They monetize.

Now, before the two remaining deflationists in the world jump up and say “NO WAY!!!”, please allow me to softly remind them to sit down, look at that one quarter of a trillion dollar TOMO-Tofu the CBs just swallowed, and then reconsider this before making fools of themselves.

To be fair, though, to the die-hard deflationists, I will modify the above statement to:

They will ATTEMPT to monetize.

And they will ALSO do each and every thing I have been predicting for months on this very board, some of which are happening right now:

Debt forbearance (Which the FDIC woman said to Kudlow was now called “Restructuring” on his show on Thursday. And not just homedebtors either, but rather ALL debtors whether they be corporate, financial, or otherwise.

Continued TOMOs and even POMOs from the CB crowd. Hey, it's ONLY electronic fiat credits, right?

Government-sponsored programs to nationalize entire industries and segments of the economies. “RTC II, the Sequel” comes right to mind for the homedebting sheeple, and “Super Duper Ginnie” comes to mind to buy up ALL the outstanding MBS, should the Fed not want to be coerced into taking them on their balance sheet.

Of course, lots and lots of “jawboning” to keep the sheeps complacent. However, if this should fail and the sheeps start a bank run, then another “bank holiday” will certainly be implemented. And it will ALSO include stopping capital flight, so don't get cute and think you will just move your electronic fiat credits to some off-shore haven. Or even keep them there if they are there now. I won't even get into what will happen to the Gold Hoarding Seditionist crowd. But trust me, it will make Gitmo look like a five-star hotel stay!!!

As all this plays out over the next few months, look for wild market gyrations, tons of back-and-forth debate, panic and fear at all levels, more seizures in various markets (including at least trading curbs on the stock exchanges as well as entire shut downs), corporations refusing to extend credit to customers.

Oh, and did I mention that there might be a problem or two getting our communist and muslim debt-enablers to buy off on more MBS/CDOs? Oops.

In conclusion, I believe that the attempts at monetization will ultimately fail and that not only will about $5 trillion be lopped right off the top of the REGULAR debt pyramid, but also at least $10 trillion or more from “The Great Derivatives Edifice”. Not to mention untold trillions in world GDP.

And maybe a few trade wars, some oil disruptions, and perhaps even a larger, regional war as well, for good measure.

Well, I promised to keep this short. And I obviously lied, but what's new?

In any event this is as clear a picture as my teeny, tiny, paranoid, nihilistic, little Rasputin brain is capable of projecting events out into the future.

You are certainly welcome to offer your own vision of the future.

I am willing to cling to ANYTHING that is less pessimistic than my own prognostications.

Posted by Hugo Albert Orwell at 08:34 AM | Permalink | TrackBacks (0)

Source: Reuters

Fri Jul 20, 2007 3:20PM EDT
By Lucia Mutikani

NEW YORK, July 20 (Reuters) - Iran's decision to switch some dollar-based oil revenues to the Japanese yen was negative for U.S. government bond market sentiment, but would not make a dent on the flow of petrodollars into Treasuries.

Analysts said although Iran held a small fraction of government bonds, its initiative to ditch the falling dollar was further confirmation of diversification away from the currency and related assets.

"It's negative for Treasuries overall because it does fit with the idea that there is a diversification away from the use of the dollar by various means," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. in New York.

Iran, the world's fourth biggest oil producer, confirmed this week it had asked Japanese customers to pay for crude oil in yen instead of dollars, a move it said was aimed at maximizing oil export revenue. It is locked in a row with the United States over its nuclear program.

Foreign purchases of Treasuries by institutions such as central banks and oil producing countries have helped keep government bonds yields lower in recent years even as the Federal Reserve raised its benchmark overnight lending rate to 5.25 percent.

But the dollar's poor performance has resulted in a gradual diversification in the composition of foreign central bank currency reserves.

"The proportion of money held by central banks in dollars is shrinking. It was once 70 percent and now it's in the mid-60s. Diversification is a key theme that is negative for the dollar and Treasuries, and that has been the case this year," said Crescenzi.

IDEAglobal currency strategist David Powell estimates Iran supplies about 15 percent of Japan's oil imports, roughly translating into $10 billion annually and suggesting little or no impact on petrodollar flows.

"It does not have a huge implication. They probably weren't keeping this $10 billion in Treasuries, more likely in short-term instruments. Iran is not a country that is flush with cash as other oil producing countries are," said Powell.

U.S. government data on Tuesday showed oil exporting nations raised their Treasury holdings by $9.1 billion to $121.3 billion in May.

When British holdings, viewed as including Middle Eastern accounts using London-based accounts, are factored in, about $42.2 billion worth of petrodollars were pumped into Treasuries in May.

"That is more than four times the annual sales in oil from Iran to Japan. Iran is not leading the trend for oil producing or Middle Eastern countries as far as the data shows us," said Powell.

Posted by Hugo Albert Orwell at 08:31 AM | Permalink | TrackBacks (0)

Source: Telegraph.co.uk

By Ambrose Evans-Pritchard
Last Updated: 9:23am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US Treasury bonds if Washington imposes trade sanctions to force a yuan revaluation.

US Treasury secretary Henry Paulson and Chinese president Hu Jintao: China threatens to trigger US dollar crash
Henry Paulson, the US Treasury secretary, met with Chinese president Hu Jintao in Beijing last week

Two Chinese officials at leading Communist Party bodies have given interviews in recent days warning, for the first time, that Beijing may use its $1,330bn (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession.

It is estimated that China holds more than $900bn in a mix of US bonds.

Xia Bin, finance chief at China's Development Research Centre (which has cabinet rank), kicked off what appears to be government policy, with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he said.

He Fan, an official at the Chinese Academy of Social Sciences, went further yesterday, letting it be known that Beijing had the power to set off a dollar collapse, if it chose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US Treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency," he told China Daily. "Russia, Switzerland and several other countries have reduced their dollar holdings. China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar.

"The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar."

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decisions being made in Beijing, Shanghai or Tokyo". She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the sub-prime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Treasury secretary, said any such sanctions would undermine US authority and "could trigger a global cycle of protectionist legislation".

Posted by Hugo Albert Orwell at 12:44 PM | Permalink | TrackBacks (0)

Source: The New York Times

By JAMES E. McWILLIAMS
Published: August 6, 2007
Austin, TX

THE term “food miles” — how far food has traveled before you buy it — has entered the enlightened lexicon. Environmental groups, especially in Europe, are pushing for labels that show how far food has traveled to get to the market, and books like Barbara Kingsolver’s “Animal, Vegetable, Miracle: A Year of Food Life” contemplate the damage wrought by trucking, shipping and flying food from distant parts of the globe.

There are many good reasons for eating local — freshness, purity, taste, community cohesion and preserving open space — but none of these benefits compares to the much-touted claim that eating local reduces fossil fuel consumption. In this respect eating local joins recycling, biking to work and driving a hybrid as a realistic way that we can, as individuals, shrink our carbon footprint and be good stewards of the environment.

On its face, the connection between lowering food miles and decreasing greenhouse gas emissions is a no-brainer. In Iowa, the typical carrot has traveled 1,600 miles from California, a potato 1,200 miles from Idaho and a chuck roast 600 miles from Colorado. Seventy-five percent of the apples sold in New York City come from the West Coast or overseas, the writer Bill McKibben says, even though the state produces far more apples than city residents consume. These examples just scratch the surface of the problem. In light of this market redundancy, the only reasonable reaction, it seems, is to count food miles the way a dieter counts calories.

But is reducing food miles necessarily good for the environment? Researchers at Lincoln University in New Zealand, no doubt responding to Europe’s push for “food miles labeling,” recently published a study challenging the premise that more food miles automatically mean greater fossil fuel consumption. Other scientific studies have undertaken similar investigations. According to this peer-reviewed research, compelling evidence suggests that there is more — or less — to food miles than meets the eye.

It all depends on how you wield the carbon calculator. Instead of measuring a product’s carbon footprint through food miles alone, the Lincoln University scientists expanded their equations to include other energy-consuming aspects of production — what economists call “factor inputs and externalities” — like water use, harvesting techniques, fertilizer outlays, renewable energy applications, means of transportation (and the kind of fuel used), the amount of carbon dioxide absorbed during photosynthesis, disposal of packaging, storage procedures and dozens of other cultivation inputs.

Incorporating these measurements into their assessments, scientists reached surprising conclusions. Most notably, they found that lamb raised on New Zealand’s clover-choked pastures and shipped 11,000 miles by boat to Britain produced 1,520 pounds of carbon dioxide emissions per ton while British lamb produced 6,280 pounds of carbon dioxide per ton, in part because poorer British pastures force farmers to use feed. In other words, it is four times more energy-efficient for Londoners to buy lamb imported from the other side of the world than to buy it from a producer in their backyard. Similar figures were found for dairy products and fruit.

These life-cycle measurements are causing environmentalists worldwide to rethink the logic of food miles. New Zealand’s most prominent environmental research organization, Landcare Research-Manaaki Whenua, explains that localism “is not always the most environmentally sound solution if more emissions are generated at other stages of the product life cycle than during transport.” The British government’s 2006 Food Industry Sustainability Strategy similarly seeks to consider the environmental costs “across the life cycle of the produce,” not just in transportation.

“Eat local” advocates — a passionate cohort of which I am one — are bound to interpret these findings as a threat. We shouldn’t. Not only do life cycle analyses offer genuine opportunities for environmentally efficient food production, but they also address several problems inherent in the eat-local philosophy.

Consider the most conspicuous ones: it is impossible for most of the world to feed itself a diverse and healthy diet through exclusively local food production — food will always have to travel; asking people to move to more fertile regions is sensible but alienating and unrealistic; consumers living in developed nations will, for better or worse, always demand choices beyond what the season has to offer.

Given these problems, wouldn’t it make more sense to stop obsessing over food miles and work to strengthen comparative geographical advantages? And what if we did this while streamlining transportation services according to fuel-efficient standards? Shouldn’t we create development incentives for regional nodes of food production that can provide sustainable produce for the less sustainable parts of the nation and the world as a whole? Might it be more logical to conceptualize a hub-and-spoke system of food production and distribution, with the hubs in a food system’s naturally fertile hot spots and the spokes, which travel through the arid zones, connecting them while using hybrid engines and alternative sources of energy?

As concerned consumers and environmentalists, we must be prepared to seriously entertain these questions. We must also be prepared to accept that buying local is not necessarily beneficial for the environment. As much as this claim violates one of our most sacred assumptions, life cycle assessments offer far more valuable measurements to gauge the environmental impact of eating. While there will always be good reasons to encourage the growth of sustainable local food systems, we must also allow them to develop in tandem with what could be their equally sustainable global counterparts. We must accept the fact, in short, that distance is not the enemy of awareness.

James E. McWilliams is the author of “A Revolution in Eating: How the Quest for Food Shaped America” and a contributing writer for The Texas Observer.

Posted by Hugo Albert Orwell at 10:54 AM | Permalink | TrackBacks (0)

Source: TheTrumpet.com

Tuesday, July 17, 2007

Iran has asked Japanese oil refiners to pay for all future deliveries in yen, as opposed to dollars, according to a letter obtained by Bloomberg News.

The request is “effective immediately” for all “forthcoming Iranian crude oil liftings” according to the July 10 letter signed by the National Iranian Oil Company’s general manager of crude oil marketing and exports.

Until now, most Japanese oil importers have used U.S. dollars to purchase Iranian oil. Although confirmation of Japanese oil payments in yen is still forthcoming, as one investment securities analyst in Tokyo said, “What else can Japan do but to accept the request, once the oil producer sent its wish?”

Japan needs the oil, and with energy markets as tight as they are, alternative supplies will be very difficult to come by. Iran is Japan’s third-largest supplier of crude, exceeded only by Saudi Arabia and the United Arab Emirates.

Since 1944, with the signing of the Bretton Woods agreement, the U.S. dollar has been the world’s reserve currency, meaning it is the currency used by governments and institutions to settle their debts and to transact trade in vital commodities such as gold and oil. To conduct international trade, countries were compelled to accumulate dollars and build reserves. Consequently, the increased demand for the dollar gave the U.S. economic benefits not available to other countries and permitted the U.S. to run large trade deficits and fiscal debts without experiencing most of the negative economic impacts normally associated with such large imbalances.

That is beginning to change.

Iran requiring Japan to pay for oil in yen is just the latest move by a nation seeking to reduce its dependence on the dollar. Earlier this year, officials from Chinese-owned Zhuhai Zhenrong Trading, Iran’s biggest crude oil customer, confirmed that they now pay for Iranian crude in euros.

Russia is preparing to sell oil priced in rubles and plans to open the Energy Stock Exchange in St. Petersburg in the first half of 2008, according to a ubs AG report dated June 14. In 2005, Norway’s Bourse Director Sven Arild Andersen said that a Scandinavian oil bourse conducting transactions primarily in euros should be set up.

Many nations are also beginning to diversify their foreign currency reserves away from the dollar, often to the euro.

Central banks in South Korea, China and Taiwan have all announced plans to diversify away from the dollar. Last year Russia, Syria and Italy also said they intended to reduce their dollar holdings. Last Wednesday, Japan’s adviser to the prime minister said Tokyo should diversify its reserves away from dollars, and spend its greenbacks on higher-yielding assets. Bloomberg notes that Japan is the largest overseas holder of U.S. treasuries; as such, it has historically been one of the strongest supporters of the dollar.

Announcements like these have caused the dollar to fall like a rock recently, hitting record lows against the euro, pound and other currencies.

Demand for the dollar is eroding—and trade for oil in other currencies is accelerating this trend. Time will tell how quickly other nations will break away from the dollar as the global currency of commerce. The result could be disastrous for Americans.

“Once the dollar loses its reserve currency status and the collapse ensues, the process of returning to economic viability will be a painful one,” says Peter Schiff, president of EuroPacific Capital, in his book Crash Proof. “Whether the United States is up to the task remains to be seen. Although I am skeptical, I nonetheless remain hopeful.”

Posted by Hugo Albert Orwell at 07:07 PM | Permalink | TrackBacks (0)

Source: Inteldaily.com

By Mike Whitney
Sun, 05 Aug 2007 04:26:00

It’s a Bloodbath. That’s the only way to describe it.

On Friday the Dow Jones took a 280 point nosedive on fears that that losses in the subprime market will spill over into the broader economy and cut into GDP. Ever since the two Bears Sterns hedge funds folded a couple weeks ago the stock market has been writhing like a drug-addict in a detox-cell. Yesterday’s sell-off added to last week’s plunge that wiped out $2.1 trillion in value from global equity markets. New York investment guru, Jim Rogers said that the real market is “one of the biggest bubbles we’ve ever had in credit” and that the subprime rout “has a long way to go.”

We are now beginning to feel the first tremors from the massive credit expansion which began 6 years ago at the Federal Reserve. The trillions of dollars which were pumped into the global economy via low interest rates and increased money supply have raised the nominal value of equities, but at great cost. Now, stocks will fall sharply and businesses will fail as volatility increases and liquidity dries up. Stagnant wages and a declining dollar have thrust the country into a deflationary cycle which has---up to this point---been concealed by Greenspan’s “cheap money” policy. Those days are over. Economic fundamentals are taking hold. The market swings will get deeper and more violent as the Fed’s massive credit bubble continues to unwind. Trillions of dollars of market value will vanish overnight. The stock market will go into a long-term swoon.

Ludwig von Mises summed it up like this:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." (Thanks to the Daily Reckoning)

It doesn’t matter if the “underlying economy is strong”. (as Henry Paulson likes to say) That’s nonsense. Trillions of dollars of over-leveraged bets are quickly unraveling which has the same effect as taking a wrecking ball down Wall Street.

This week a third Bear Stearns fund shuttered its doors and stopped investors from withdrawing their money. Bear’s CFO, Sam Molinaro, described the chaos in the credit market as the worst he'd seen in 22 years. At the same time, American Home Mortgage Investment Corp---the 10th-largest mortgage lender in the U.S. ---said that “it can't pay its creditors, potentially becoming the first big lender outside the subprime mortgage business to go bust”. (MarketWatch)

This is big news, mainly because AHM is the first major lender OUTSIDE THE SUBPRIME MORTGAGE BUSINESS to go belly-up. The contagion has now spread through the entire mortgage industry—Alt-A, piggyback, Interest Only, ARMs, Prime, 2-28, Jumbo,—the whole range of loans is now vulnerable. That means we should expect far more than the estimated 2 million foreclosures by year-end. This is bound to wreak havoc in the secondary market where $1.7 trillion in toxic CDOs have already become the scourge of Wall Street.

Some of the country’s biggest banks are going to take a beating when AHM goes under. Bank of America is on the hook for $1.3 billion, Bear Stearns $2 billion and Barclay’s $1 billion. All told, AHM’s mortgage underwriting amounted to a whopping $9.7 billion. (Apparently, AHM could not even come up with a measly $300 million to cover existing deals on mortgages! Where’d all the money go?) This shows the downstream effects of these massive mortgage-lending meltdowns. Everybody gets hurt.

AHM’s stock plunged 90% IN ONE DAY. Jittery investors are now bailing out at the first sign of a downturn. Wall Street has become a bundle of nerves and the problems in housing have only just begun. Inventory is still building, prices are falling and defaults are steadily rising; all the necessary components for a full-blown catastrophe.

AHM warned investors on Tuesday that it had stopped buying loans from a variety of originators. 2 other mortgage lenders announced they were going out of business just hours later. The lending climate has gotten worse by the day. Up to now, the banks have had no trouble bundling mortgages off to Wall Street through collateralized debt obligations (CDOs). Now everything has changed. The banks are buried under MORE THAN $300 BILLION worth of loans that no one wants. The mortgage CDO is going the way of the Dodo. Unfortunately, it has attached itself to many of the investment banks on its way to extinction.

And it’s not just the banks that are in for a drubbing. The insurance companies and pension funds are loaded with trillions of dollars in “toxic waste” CDOs. That shoe hasn’t even dropped yet. By the end of 2008, the economy will be on life-support and Wall Street will look like the Baghdad morgue. American biggest financials will be splayed out on a marble slab peering blankly into the ether.

Think I’m kidding?

Already the big investment banks are taking on water. Merrill Lynch has fallen 22% since the start of the year. Citigroup is down 16% and Lehman Bros Holdings has dropped 22%. According to Bloomberg News: “The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year……Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.”

That’s right---“junk”.

We’ve never seen an economic tsunami like this before. The dollar is falling, employment and manufacturing are weakening, new car sales are off for the seventh straight month, consumer spending is down to a paltry 1.3%, and oil is hitting new highs every day as it marches inexorably towards a $100 per barrel.

So, where’s the silver lining?

Apart from the 2 million-plus foreclosures, and the 80 or so mortgage lenders who have filed for bankruptcy; a growing number of investment firms are feeling the pinch from the turmoil in real estate. Bear Stearns; Basis Capital Funds Management, Absolute Capital, IKB Deutsche Industrial Bank AG, Commerzbank AG, Sowood Capital Management, C-Bass, UBS-AG, Caliber Global Investment and Nomura Holdings Inc.—are all either going under or have taken a major hit from the troubles in subprime. The list will only grow as the weeks go by. (Check out these graphs to understand what’s really going on in the housing market. http://www.recharts.com/reports/CSHB031207/CSHB031207.html?ref=patrick.net

The problems in real estate are not limited to residential housing either. The credit crunch is now affecting deals in commercial real estate, too. Low-cost, low-documentation, “covenant lite” loans are a thing of the past. Banks are finally stiffening their lending requirements even though the horse has already left the barn. Commercial mortgage-backed securities are now nearly as tainted as their evil-twin, residential mortgage-backed securities (RMBS). There’s no market for these turkeys. The banks are returning to traditional lending standards and simply don’t want to take the risk anymore.

Bataan Death March?

Leveraged Buy Outs (LBOs) have been a dependable source of market liquidity. But, not any more. In the last quarter, there was $57 billion in LBOs. In the first month of this quarter that amount dropped to less than $2 billion. That’s quite a tumble. The Wall Street Journal’s Dennis Berman summed it up like this: “the Street is scrambling to finance some $220 billion of leveraged buy out deals” (but) the “mood has gone from Nantucket holiday to Bataan Death March”.

Berman nailed it. The investment banks took great pleasure in their profligate lending; raking in the lavish fees for joining mega-corporations together in conjugal bliss. Then someone took the punch bowl. Now the banking giants are scratching their heads-- wondering how they can unload $220B of toxic-debt onto wary investors. It won’t be easy.

“The banks and brokers are in the bull’s eye,” said Kevin Murphy. “There’s article after article not only on subprime, but also banks sitting on leveraged buy out loans.” (WSJ) Credit protection on bank debt is soaring just as investor confidence is on the wane. In fact, the VIX index (The “fear gauge”) which measures market volatility--- has surged 60% in the last week alone. The increased volatility means that more and more investors will probably ditch the stock market altogether and head for the safety of US Treasuries.

But, that just presents a different set of problems. After all, what good are US Treasuries if the dollar continues to plummet? No one will put up with 5% or 6% return on their investment if the dollar keeps sliding 10% to 15% per year. It would be wiser to one’s move money into foreign investments where the currency is stable.

And, that is (presumably) why Treasury Secretary Paulson is in China today---to sweet talk our Communist bankers into buying more USTs to prop up the flaccid greenback. (Note: The Chinese are currently holding $103 billion in toxic US-CDOs---and are not at all happy about their decline in value.) If the Chinese don’t purchase more US debt, then panicky US investors will start moving their dollars into gold, foreign currencies and German state bonds as a hedge against inflation. This will further accelerate the flight of foreign capital from American markets and trigger a massive blow-off in the stock and bond markets. In fact, this process is already underway. (although it has been largely concealed in the business media) In truth, the big money has been fleeing the US for the last 3 years. What passes as “trading” on Wall Street today is just the endless expansion of credit via newer and more opaque debt-instruments. It’s all a sham. America ’s hard assets are being sold off to at an unprecedented pace.

Credit Crunch: Whose ox gets gored?

When money gets tight; anyone who is “over-extended” is apt to get hurt. That means that the maxed-out hedge fund industry will continue to get clobbered. At current debt-to-investment ratios, the stock market only has to fall about 10% for the average hedge fund to take a 50% scalping. That’s more than enough to put most funds underwater for good. The carnage in Hedgistan will likely persist into the foreseeable future.

That might not bother the robber-baron fund-managers who’ve already extracted their 2% “pound of flesh” on the front end. But it’s a rotten deal for the working stiff who could lose his entire retirement in a matter of hours. He didn’t realize that his investment portfolio was a crap-shoot. He probably thought there were laws to protect him from Wall Street scam-artists and flim-flam men.

It’ll be even worse for the banks than the hedge funds. In fact, the banks are more exposed than anytime in history. Consider this: the banks are presently holding a half trillion dollars in debt (LBOs and CDOs) FOR WHICH THERE IS NO MARKET. Most of this debt will be dramatically downgraded since the CDOs have no true “mark to market” value. It’s clear now that the rating agencies were in bed with the investment banks. In fact, Joshua Rosner admitted as much in a recent New York Times editorial:

“The original models used to rate collateralized debt obligations were created in close cooperation with the investment banks that designed the securities”….(The agencies) “actively advise issuers of these securities on how to achieve their desired ratings” (Joshua Rosner “Stopping the Subprime Crisis” NY Times)

Pretty cozy deal, eh? Just tell the agency the rating you want and they tell you how to get it.

Now we know why $1.7 trillion in CDOs are headed for the landfill.

The downgrading of CDOs has just begun and Wall Street is already in a frenzy over what the effects will be. Once the ratings fall, the banks will be required to increase their reserves to cover the additional risk. For example, “As a recent issue of Grant’s explains, global commercial banks are only required to set aside 56 cents ($0.56) for every $100 worth of triple-A rated securities they hold. That’s roughly 178 to 1 ratio. Drop that down to double-B minus, and the requirement skyrockets to $52 per $100 worth of securities held---a margin increase of more than 9,000%”.

“56 cents ($0.56) for every $100 worth of triple-A rated securities”?!? Are you kidding me?

As Mugambo Guru says, "That is 1/18th of the 10% stock margin equity required in 1929"!! (Mugambo Guru; kitco.com)

The high-risk game the banks have been playing---of “securitizing” the loans of applicants with shaky credit---is falling apart fast. There’s no market for chopped up loans from over-extended homeowners with bad credit. The banks don’t have the reserves to cover the loans they have on the books and the CDOs have no fixed market value. End of story. The music has stopped and the banks can’t find a chair.

The public doesn’t know anything about this looming disaster yet. How will people react when they drive up to their local bank and see plywood sheeting covering the windows?

This will happen. There will be bank failures.

The derivatives market is another area of concern. The notional value of these relatively untested instruments has risen to $286 trillion in 2006---up from a meager $63 trillion in 2000. No one has any idea of how these new “swaps and options” will hold up in a slumping market or under the stress of increased volatility. Could they bring down the whole market?

That depends on whether they’re backed-up by sufficient collateral to meet their obligations. But that seems unlikely. We’ve seen over and over again that nothing in this new deregulated market is “as it seems”. It’s all stardust mixed with snake oil. What the Wall Street hucksters call the “new financial architecture of investment” is really nothing more than one overleveraged debt-bomb stacked atop another. Ironically, many of these same swindles were used in the run-up to the Great Depression. Now they’ve resurfaced to do even more damage. When the crooks and con-men write the laws (deregulation) and run the system; the results are usually the same. The little guy always gets screwed. That much is certain.

At present, the stock market is running on fumes. Another 4 to 6 months of wild gyrations and it’ll be over. The NASDAQ plunged 75% after the dot.com bust. How low will it go this time?

Keep an eye on the yen. The ongoing troubles in subprime and hedge funds are pushing the yen upwards which will unwind trillions of dollars of low interest, short term loans which are fueling the rise in stock prices. If the yen strengthens, traders will be forced to sell their positions and the market will tank. It’s just that simple. The Dow Jones will be a Dead Duck.

So far, Japan ’s monetary manipulations have been a real boon for Wall Street--enriching the investment bankers, the big-time traders and the hedge fund managers. They’re the one’s who can take advantage of the interest rate spread and then maximize their leverage in the stock market. It works like a charm in an up-market, but things can unravel quickly when the market retreats or starts to zigzag erratically. The recent rumblings suggest that the volatility will continue which will push the yen upwards and cut off the flow of cheap credit to the stock market. When that happens, the end is nigh.

The American People: “We’re not a dumb as you think”

It’s always refreshing to find out that the majority of Americans seem to have a grasp of what is really going on behind the fake headlines. For example, The Wall Street Journal/NBC conducted a poll this week which shows that two-thirds of Americans believe that “the economy is either in a recession now or will be in the next year.” That matches up pretty well with the 71% of Americans who now feel the Iraq War “was a mistake”. Americans are clearly downbeat in their outlook on the economy and haven’t been taken in by the daily infusions of happy talk about “low inflation” and “sustained growth” from toothy TV pundits. In fact, the mood of the country regarding the economy is downright gloomy. “Only 19% of Americans say things in the nation are headed in the right direction, while 67% say the country is off on the wrong track”. Iraq , of course, is the number one reason for the pessimism, but the dissatisfaction runs much deeper than just that.

“Only 16% expressed substantial confidence in the financial industry”—“18% in the energy or pharmaceutical industries”—“17% in large corporations and 11% in health-insurance companies”. Only 18% of the people have confidence in the corporate media and only 16% in the federal government.

These are encouraging numbers. They show that the vast majority of people have lost confidence in the system and its institutions. They also illustrate the limits of propaganda. People are not as easily indoctrinated as many believe. Eventually the “bewildered herd” catches on and sees through the lies and deception.

The American people know intuitively that something is fundamentally wrong with the economy. They just don’t know the details or the extent of the damage. Decades of neoliberal policies have inflated the currency, broadened the wealth gap, and destroyed manufacturing. Workers can no longer buy the things they produce because wages have stagnated through a stealth campaign of inflation which originated at the Federal Reserve. When wages shrink, prices eventually fall from overcapacity and the economy slips into a deflationary cycle. This downward spiral ultimately ends in depression. So far, that's been avoided because of the Fed’s massive expansion of cheap credit. But that won’t last.

Economic policy is not “accidental”. The Fed’s policies were designed to create a crisis, and that crisis was intended to coincide with the activation of a nation-wide police-state. It is foolish to think that Greenspan or his fellows did not grasp the implications of the system they put in place. These are very smart men and very shrewd economists. They knew exactly what they were doing. They all understand the effects of low interest rates and expanded money supply. And, they’re also all familiar with Ludwig von Mises, who said:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion.”

A crash is unavoidable because the policies were designed to create a crash. It’s that simple.

The Federal Reserve is a central player in a carefully considered plan to shift the nation’s wealth from one class to another. And they have succeeded. Nearly 4 million American jobs have been sent overseas, the country has increased the national debt by $3 trillion dollars, and foreign investors own $4.5 trillion in US dollar-backed assets. While the Fed has been carrying out its economic strategy; the Bush administration has deployed the military around the world to conduct a global resource war. These are two wheels on the same axel. The goal is to maintain control of the global economic system by seizing the remaining energy resources in Eurasia and the Middle East and by integrating potential rivals into the American-led economic model under the direction of the Central Bank. All of the leading candidates—Democrat and Republican---belong to secretive organizations which ascribe to the same basic principles of global rule (new world order) and permanent US hegemony. There’s no quantifiable difference between any of them.

The impending economic crisis is part of a much broader scheme to remake the political system from the ground-up so it better meets the needs of ruling elite. After the crash, public assets will be sold at firesale prices to the highest bidder. Public lands will be auctioned off. Basic services will be privatized. Democracy will be shelved.

The unsupervised expansion of credit through interest rate manipulation is the fast-track to tyranny. Thomas Jefferson fully understood this. He said:

“If the American people ever allow private banks to control the issue of our currency, first by inflation, then by deflation, the banks and the corporations that will grow up will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

We are now in the first phase of Greenspan’s Depression. The stock market is headed for the doldrums and the economy will quickly follow. Many more mortgage lenders, hedge funds and investment banks will be carried out feet first.

As the disaster unfolds, we should try to focus on where the troubles began and keep in mind Jefferson ’s injunction:

“The issuing of power should be taken from the banks and restored to the people to whom it properly belongs.”

Rep. Ron Paul is the only presidential candidate who supports abolishing the Federal Reserve.

Source: http://www.informationclearinghouse.info/article18119.htm

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Source: Yahoo/AP

By ELIANE ENGELER and ALEXANDER G. HIGGINS
Associated Press Writers
Sat Aug 4, 12:30 PM ET

BASEL, Switzerland - When tremors started cracking walls and bathroom tiles in this Swiss city on the Rhine, the engineers knew they had a problem.

"The glass vases on the shelf rattled, and there was a loud bang," Catherine Wueest, a teashop owner, recalls. "I thought a truck had crashed into the building."

But the 3.4 magnitude tremor on the evening of Dec. 8 was no ordinary act of nature: It had been accidentally triggered by engineers drilling deep into the Earth's crust to tap its inner heat and thus break new ground — literally — in the world's search for new sources of energy.

Basel was wrecked by an earthquake in 1365, and no tremor, man-made or other, is to be taken lightly. After more, slightly smaller tremors followed, Basel authorities told Geopower Basel to put its project on hold.

But the power company hasn't given up. It's in a race with a firm in Australia to be the first to generate power commercially by boiling water on the rocks three miles underground.

On paper, the Basel project looks fairly straightforward: Drill down, shoot cold water into the shaft and bring it up again superheated and capable of generating enough power through a steam turbine to meet the electricity needs of 10,000 households, and heat 2,700 homes.

Scientists say this geothermal energy, clean, quiet and virtually inexhaustible, could fill the world's annual needs 250,000 times over with nearly zero impact on the climate or the environment.

A study released this year by the Massachusetts Institute of Technology said if 40 percent of the heat under the United States could be tapped, it would meet demand 56,000 times over. It said an investment of $800 million to $1 billion could produce more than 100 gigawatts of electricity by 2050, equaling the combined output of all 104 nuclear power plants in the U.S.

"The resource base for geothermal is enormous," Professor Jefferson Tester, the study's lead author, told The Associated Press.

But there are drawbacks — not just earthquakes but cost. A so-called hot rock well three miles deep in the United States would cost $7 million to $8 million, according to the MIT study. The average cost of drilling an oil well in the U.S. in 2004 was $1.44 million, according to the U.S. Energy Information Administration.

Also, rocks tapped by drilling would lose their heat after a few decades and new wells would have to be drilled elsewhere.

Bryan Mignone, an energy and climate-change specialist with the Brookings Institution in Washington, D.C., said alternative sources of energy face stiff price competition.

"Currently in the U.S. new technologies in the power sector are competing against coal, which is very cheap," he said.

Humans have used heat from the earth for thousands of years. The ancient Romans drew on hot springs for bathing and heating their homes. Geothermal energy is in use in 24 countries, including the U.S.

But those sources — geysers and hot springs — are close to the surface. Hot dry rock technology, also called "enhanced geothermal systems" or EGS, drills down to where the layers of granite are close to 400 degrees Fahrenheit. The equipment is similar to that used for oil, but needs to go much deeper, and be wider to accommodate the water cycle.

Hot dry rock technology is meant to stay well away from the 99 percent of the Earth's interior that is over 1,000 degrees.

Aeneas Wanner, a Swiss expert, says that if you imagine Earth as an egg, "a bore hole would only scratch the shell of the egg a little bit."

The United States led the way in demonstrating the concept with the Los Alamos geothermal project at Fenton Hill, N.M. The project begun in the 1970s demonstrated that drilling 15,000 feet deep was possible and that energy could then be extracted.

But the project came to a halt in 2000 when it ran out of funds. Meanwhile, the MIT report said, problems encountered in testing have been solved or can be managed — such as controlling how the water flows underground or limiting earthquakes and chemical interactions between water and rock.

Backers in the United States hope government funding will increase as oil and gas prices rise. But Steve Chalk, deputy assistant secretary for renewable energy, said the Department of Energy won't spend more money beyond the $2 million it has already allocated to hot rock technology.

However, he said the MIT study, which was funded by the Department of Energy, serves as a basis for studying the idea further.

Major energy companies, including Chevron Corp., Exxon Mobil Corp. and American Electric Power, told the AP they are following the research but not investing in it.

"This is an interesting technology for Chevron and we are currently evaluating its potential," said spokesman Alexander Yelland.

In Basel, the first shaft was bored last year by a 190-foot-tall drilling rig towering above nearby apartment buildings. Water was pumped down the injection well in the test phase in December, and as expected, it heated to above 390 F as it seeped through the layers of rock below.

But that's where the water remains for the time being; it caused the rock layers to slip, causing the tremors and rumbles that spooked the townspeople.

Geopower Basel, had forecast some rock slippage. In fact, it said the location on top of a fault line — the upper Rhine trench — was an advantage because it meant the heat was closer to the Earth's surface.

But with $51 million already spent, drilling stopped and the official launch date was moved back from 2009 to 2012.

Still to be drilled are the two wells that would suck the pressurized, superheated water out of the cracks and up to the surface to create steam for driving a turbine and generating electricity. The water, having cooled to around 340 degrees, would heat hospitals, public buildings and homes before being pumped back into the ground for another waste-free, gas-free cycle.

The rival project near the southern Australian town of Innamincka faces more benign geological conditions and less population. Its target date for operations is now two years ahead of Basel's, aiming to produce 40 megawatts of electricity by the end of 2010, enough to supply over 30,000 households.

Experts say hot rock geothermal energy can operate 24 hours a day and doesn't depend on sun or wind. But it's decades away from serious rivalry with existing energy sources.

Susan Petty, one of the 18 co-authors of the MIT study, works for Black Mountain Technology, a company promoting hot rock energy. She predicts that 10 percent of the world's power could come from geothermal sources in the next 50 years, from the current 0.3 percent, rising to half in around 100 years.

Promoters of the technology say that while geothermal drilling is costly, it's cheaper to run once it's in place. The MIT study said it could provide electricity at competitive prices. Price comparisons indicate it could be cheaper than other forms of renewable energy, including biomass and solar power. "The outlook is very good that we can do it," said Karl Gawell, executive director of the Washington D.C.-based Geothermal Energy Association.

But others are waiting for proof that it's worth the expenditure.

"This technology sounds very promising," said Nick Nuttall, chief-spokesman of the U.N. Environment Program, "but let's wait and see."

___

AP researcher Judith Ausuebel contributed to this report.

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Source: Treehugger.com

by Jeremy Elton Jacquot
Los Angeles on 08. 1.07

Narrowly edging out the previous record set by Spectrolab late last year, two scientists at the University of Delaware have just created a new device that can convert 42.8% of the light striking it into electricity. The solar cell, built by Christina Honsberg and Allan Barnett, splits light into three components — high, medium and low energy light — and directs it to several different materials which can then extract electrons out of its photons.

One of the device's key elements is an optical concentrator — a lens-type component that increases the cell's efficiency by directing more sunlight to it than would happen naturally (a boost that contributed in great measure to its record-setting performance). It measures in at just below 1 cm thick, a major improvement over the Spectrolab model which featured a concentrating lens about 1 foot thick. Unlike most concentrators that use a two-axis tracking system to follow the sun, this optical concentrator is also stationary — a major feat.

The Defense Advanced Research Projects Agency (DARPA) — which has been funding this and similar efforts through its Very High Efficiency Solar Cell (VHESC) program — hopes to eventually incorporate this technology into portable solar cell battery chargers for American troops. It will now fund a newly formed DuPont-University of Delaware VHESC Consortium to shift production from a lab-scale model to a full-on manufacturing prototype model.

UPDATE: A reader wanted us to clarify an important point — namely the fact that the concentrator itself doesn't increase the efficiency (it actually increases the power output by intensifying the beam of sunlight), the spectrum splitting optics and solar cells accomplish that.

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Source: Wired.com

by Will Wade
11.15.05 | 2:00 AM

The barren deserts of Southern California are known for relentless sunshine and miles of empty space -- the perfect combination for the world's most ambitious solar-energy projects.

Two Southern California utility companies are planning to develop a pair of sun-powered power plants that they claim will dwarf existing solar facilities and could rival fossil-fuel-driven power plants.

Southern California Edison and San Diego Gas & Electric are working with Stirling Energy Systems, a Phoenix startup that has paired a large and efficient solar dish with a 200-year-old Stirling engine design.

Stirling Energy Systems is planning to build two separate solar farms, one with the capacity to generate 500 megawatts of electricity in the Mojave Desert near Victorville, California, for SoCal Edison, and a 300-megawatt plant in the Imperial Valley, near Calexico, California, for SDG&E. The utilities have signed 20-year deals to buy all the juice the farms can turn out, and have options to expand the plants if they are successful.

"Without question, this will be the largest solar project in the world," said Gil Alexander, a spokesman for SoCal Edison. "It will be bigger than all U.S. solar-energy projects combined."

Alexander said traditional coal or gas plants typically generate 500 to 1,000 megawatts, and that current solar farms are much smaller -- generally in the 35- to 80-megawatt range. At the end of 2004, the United States had only 397 megawatts of solar-energy capacity, according to the U.S. Department of Energy's Energy Information Administration.

"There is a possibility with this project that solar energy could go commercial in a big way for the first time," said Alexander. "It's playing in the big leagues."

Instead of using panels of photovoltaic cells -- solar power's mainstay technology for decades -- Stirling Energy Systems uses 40-foot-tall curved dishes that focus the sun's energy onto Stirling engines.

Also called an external heat engine, the Stirling engine is a completely sealed system filled with hydrogen. Its design dates to 1816, and it's named for its inventor, a Scottish minister named Robert Stirling. The focused solar energy, which can reach 1,350 degrees Fahrenheit, heats the hydrogen, making it expand and drive the engine's four pistons.

Though Stirling engines have been around for almost two centuries, there have been few efforts in the past to harness the sun to run them, said Stirling Energy Systems CEO Bruce Osborn.

Osborn said the Stirling dishes are 30 percent efficient -- 30 percent of the sun's energy is converted into electricity -- which is two to three times as efficient as conventional photovoltaic cells.

"Solar panels are more common, and they have gotten more efficient, but they still have a long way to go," he said.

Osborn said his company's dishes are easy to maintain because the engine is a closed system that never needs to be refilled -- an important factor for a large-scale facility in the middle of the desert. In fact, the only resource it consumes is "a little bit of water to wash the mirrors off every few weeks," he said.

The company is currently operating a six-dish test site at Sandia National Laboratories to showcase the concept, but the SoCal Edison and SDG&E plants are Stirling Energy Systems' first commercial contracts.

The first phase of the SoCal Edison project will be to build a 1-megawatt test site using 40 dishes, which should be complete by spring 2007. Construction on the full, 500-megawatt facility is expected to begin in mid-2008, and should take three to four years. Each dish can produce up to 25 kilowatts, and the site will eventually have 20,000 dishes stretching across 4,500 acres of desert.

Stirling plans to begin construction on SDG&E's 300-megawatt project in late 2008, and it should take about two years to install the 12,000 dishes covering about 2,000 acres.

None of the companies would give a price for building the solar sites or disclose the rates the utilities will pay for power, but both said the cost would be similar to traditional coal or gas.

But as oil prices go up, so could the cost of electricity from fossil fuels.

"Soon, solar may be less expensive," Osborn said.

Joel Makower, co-founder of market-research firm Clean Edge, said Stirling Energy Systems' solar-thermal power systems are impressive but unproven. One promising sign is the utility companies' level of commitment to the new technology.

"This is all on paper so far," he said. "They haven't delivered anything yet. And until they do, we can't say what it will cost."

Still, Makower said he was optimistic.

"Photovoltaic was the first-generation, utility-scale solar technology," he said. "The Stirling engine looks like it will be the second generation."

Posted by Hugo Albert Orwell at 01:12 PM | Permalink | TrackBacks (0)

Source: The New York Times

By WAYNE ARNOLD
Published: August 1, 2007

SINGAPORE, Aug. 1 — Stock markets in Asia fell sharply today on concerns about widening mortgage woes in the United States and the threats they pose: that investors are being forced to sell Asian assets to cover losses in the United States, and that hard-pressed American homeowners will scale back their demand for Asian exports.

The Nikkei 225 stock average, the benchmark for the Japanese market, fell by more than 2 percent, erasing the gains it had made so far this year. Widely watched indexes in Hong Kong and Australia fell by more than 3 percent each. South Korea’s key index slid by 4 percent.

European stock markets followed the declines in Asia in their morning trading, and were generally down by 1 to 2 percent at midday there.

The FTSE 100 index in Britain was off 1.4 percent, the DAX in Germany dropped 0.9 percent and the CAC 40 in France slid nearly 1.8 percent.

In the United States, stock-index futures moved lower as well, presaging a lower opening for the American markets when the trading day begins at 9:30 a.m. Eastern time.

Despite broad consensus that the outlook for Asian economic and corporate profit growth remains bright, global investors have been scaling back their holdings in Asia and other emerging markets recently.

Analysts predict that markets there are likely to remain uncertain until a clearer picture emerges of how widespread the fallout will be from problems in the United States mortgage market.

“The whole world is depending on investors in U.S. markets to get a little conviction that things are not that bad,” said Tim Condon, head of financial markets research at ING Financial Markets in Singapore. “The markets don’t care that the rest of the world is booming.”

The trigger for today’s drop was a warning from American Home Mortgage Investment that increasing demands from its own creditors could force it to liquidate.

Fanning the flames was an announcement by Standard & Poor’s, the credit rating agency, that it was considering lowering its ratings of several major funds dealing in mortgage-backed securities or other kinds of collateralized debt obligations.

The most sanguine assessment of today’s turmoil came from analysts and traders who saw it as an inevitable and perhaps even welcome correction after a rally that has been lifting Asian stocks since the spring.

Similarly sharp declines — one last summer and another in February — proved to be brief setbacks in a three-year rally in Asian stocks.

But the latest retreat by global investors has been underway for two weeks now, according to data from Nomura Securities. After net buying of more than $27 billion in Asian equities this year, investors were net sellers by roughly $5 billion in the past fortnight.

“Fund managers are having to raise cash levels against potential redemptions, and others are taking profits to shore up against losses in the credit markets,” said Sean Darby, head of regional strategy at Nomura International in Hong Kong.

Analysts said the reaction in Asia raised important questions about the nature of Asia’s economic boom and the composition of its stock-market rallies.

The knee-jerk response to signs of weakness in the United States housing market threw into sharper relief a growing debate among economists in Asia over whether the rise of China and India are ending the region’s lockstep economic reliance on the United States.

“This myth has been perpetuated that Asia has been decoupled, which is a truckload of baloney in my view,” said Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer in Singapore.

Graham Bowley contributed reporting from New York.

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