Full Report: Chinese Credit Rating Institute Downgrades Us's Credit Rating

Surveillance Report for Sovereign Credit Rating

The United States of America Sovereign Credit Rating:
Local currency/outlook: A+/negative
Foreign currency/outlook: A+/negative
Rating date: November, 2010
Analyst: LU Sinan, DU Mingyan
http://www.dagongcredit.com

Rating History:
Local currency/outlook: AA/negative
Foreign currency/outlook: AA/negative
Rating date: June, 2010

Dagong has downgraded the local and foreign currency long term sovereign credit rating of the United States of America (hereinafter referred to as “United States” ) from “AA” to “A+“, which reflects its deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment.

The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency. The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of credit crisis in the U.S. Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government’s intention of debt repayment. Analysis shows that the crisis confronting the U.S. cannot be ultimately resolved through currency depreciation. On the contrary, it is likely that an overall crisis might be triggered by the U.S. government’s policy to continuously depreciate the U.S. dollar against the will of creditors.

The rating bases for downgrading the sovereign credit rating of the United States by Dagong are as follows:

I. The U.S. government has not introspected on the question of the development and management model of the national economy from the global strategic perspective, which makes it very difficult for the U.S. to fundamentally change the passive situation of economic development.

After the outbreak of the financial crisis, the United States government has adopted a series of policies and measures aiming at rescuing the crisis and recovering the economy, such as: the government has purchased bad assets directly, injected capital to financial institutions and entity enterprises seriously hit by the crisis, increased investment in social security, education and energy, cut the tax rate of low and middle income families, and adjusted financial supervision, etc.. Looking at the effects, the U.S. government's efforts have achieved little success, falling short of initial expectations. The credit crunch is still proceeding and even deepening. The development course of credit crisis has shown a chart of debt crisis - economic crisis - monetary crisis - overall crisis. Currently, the U.S. credit crisis has developed into the monetary crisis phase. In order to rescue the national crisis, the U.S. government resorted to the extreme economic policy of depreciating the U.S. dollar at all costs and this fully exposes the deep-rooted problem in the development and the management model of national economy. It would be difficult for the U.S. to find the correct path to revive the U.S. economy should the U.S. government fail to understand the source of the credit crunch and the development law of a modern credit economy, and stick to the mindset of traditional economic management model, which indicates that the U.S. economic and social development will enter a long-term recession phase. The main evidences for this judgment are as follows:

First, the credit expansion policy has changed both the economic fundamentals and the operating mechanism of the U.S. economy. It is a basic state policy of the U.S. to take credit expansion as an engine of economic development. As a result of the highly developed domestic credit policy, the credit relations between the creditors and debtors have become the basic economic relations between social members. In addition, an international credit system, with the U.S. at the core, has been built up on the basis of international credit expansion, and international credit relations have become the basic economic relations between the United States and other members of the international community. Thus, the formation of the U.S. economic foundation has been changed, and credit relations have become a dominant driving force for economic and social development, the paradoxical movement of credit relations determines the direction of U.S. economic and social development. Due to the abuse of credit, the United States became a net debtor country in 1985. From then on, its economic and social activities have been completely based on the huge amount of debts. The status of the creditor-debtor relations not only influences the development model and performance of the U.S. economy, but also constitutes the basis for the nation to choose economic regime and make strategic choices.

Credit expansion has also changed the forming mechanism of United States credit demand, and the market has become the governing force to create the credit demand.

The U.S. globalization of social credit has also reached a high level, 30% of which comes from foreign capital. Therefore, the national capacity to adjust social credit demand through monetary policy instruments such as the money supply and interest rate has been greatly weakened. The change in the forming mechanism of credit demand has fundamentally strengthened the dominant role of market in the economy, which indicates the market-oriented social credit relationship would fully influence the U.S. economic and social development. The status of credit relationships in the United States restricts the country’s creative capability of actual value by affecting its economic structure. The heavy debt burden which exceeds the real debt repayment capability forces the state apparatus to satisfy the country’s capital demand in the manner of surpassing the speed of value creation by the real economy. The over-expansion of virtual economy is the result of the paradoxical movement of the credit relationship in the United States. Thus, Dagong believes that as long as the policy of credit expansion remains intact in United States, the development model of financialization of the national economy would not be changed and the key factors to induce long term economic recession would continue to play a role.

Second, the economic financilization and industrial hollowing-out in the United States has broken the normal relationship between the financial system and real economy, leading to the pursuit of the virtual wealth. As social capital was largely sucked into the financial system, the value of a huge amount of financial assets operating away from the underlying assets and basic economy is amplified in a surprising manner, making people more concerned about the increase in virtual wealth and less interested in creating real wealth; and a large number of entities were transferred overseas, resulting in a serious industrial hallowing-out, thus the country’s creative capability of actual wealth has been severely weakened. In addition, as the government has long relied on borrowing to carry out its administrative functions, it would gradually lose the autonomy to manage the economy though effective exploration of fiscal policy, and finally has to resort to the banknote printing machine, like killing the goose that lays the golden eggs. The improvement in the creative capability of actual wealth depends on the reasonable positioning of the financial system and real economy, and the adjustment process will determine the U.S. economic recovery and vision for future development.

Third, the U.S. global hegemonic strategy has consumed enormous national financial resources, but its own capacity of wealth production is insufficient to support its huge strategic target. The dependence on issuing national debt or U.S. dollars to carry out its strategy not only lacks sustainability, but also becomes the root of yielding fiscal deficit. A balance of state revenue and expenditures is advantageous to the sustained development of the U.S. economy. However, it is almost impossible for the U.S. government to abandon its global strategy. Hence, it will become a long-term factor to hinder the U.S. economy.

Fourth, long-term dependence on the U.S. dollar depreciation to export debt is not only harmful to the creditor’s interests, but is also unable to solve its debt dilemma. The problem of the national development strategy is that it causes the U.S. government to bear a huge debt burden; however the U.S. government is unwilling to adjust its strategy to reduce debt; rather, it believes that exporting debt through the U.S. dollar depreciation is more compliant with the interests of the United States. Although the U.S. dollar depreciation forces creditors to transfer their interests to the US, it will reduce the market confidence in U.S. dollars, which may trigger the trend of selling U.S. dollars. Hence, it will change the international currency system pattern, and the U.S. dollar hegemonic status will be shaken inevitably, which will ultimately affect the backflow of U.S. dollars, hindering the international financing channel of the U.S. government directly, and reducing its debt income. The debt income concerns the prosperity of the United States. To avoid the outbreak of debt crisis, it has to issue additional currency to solve the problem of insufficient debt income. Hence, the U.S. dollar starts a new round of depreciation, circulating on and on, which intensifies the risk of debt repayment inevitably.

Fifth, the reform of financial and rating systems has failed to fully reflect the essential requirements of the credit economy, and it is difficult to establish a basic service system of national economy that accommodates the development law of a credit economy, so as to push the U.S. economy into a path of revival. "Financial Regulatory Reform Act" is the main measure of the U.S. government to prevent further crisis, but its content shows that they have not really found the root of the problems within the U.S. financial system. The root cause of credit crisis can not be eradicated by simply resting on regulatory reforms.

The U.S. financial system has created a myriad of financial products, which attract the continuous influx of global USD capital. Foreign capitals make up the most important part of the U.S. economic ecosystem, and it is the driving force of this very system to obtain capital revenue through credit expansion, but the consequent problems are serious:

(1) social capitals are encouraged to engage in financial speculations, and the pursuit of virtual wealth rather than material wealth is not conducive for the United States to enhance its capacity of value creation; (2) credit activities have deviated from the proper role of supporting the development of real economy, the social credit demand is mainly determined by the market, and the extra credit created by the market becomes hot money that jeopardizes the country’s economic development. Furthermore, the government’s ability to regulate social credit is largely impaired by financial innovation products; (3) the financial system is composed of complicated credit relationships, which exacerbates the asymmetry of credit risk information and augments the probability of systemic risks.

The development of credit socialization should not suggest any change in the orientation of financial services. The essence of finance lies in the credit relations between the creditors and debtors. This relationship constitutes the whole of the social credit system, providing a system for distribution of funds for the real economy to create social wealth. As a result of the pursuit of value adding by means of credit innovation, the scale of social credit in the United States is in wild expansion, so that the threat of systemic credit risk becomes a constant phenomenon. With the continued depreciation of U.S. dollar, once its dominant position around the world is severely challenged, the financial system that relies heavily on the strong dollar will no longer support the national economy to operate in the current model. In this context the government will have to rebuild the national economic system, the social cost of which will be enormous. The U.S. government failed to make a master plan for the reform of the financial system from a strategic level, and the principles as well as the approach of the reform are ambiguous.

The ongoing reform aimed at practical interests is one that addresses the symptoms not the cause. Such a reform can not adapt to the historical requirement necessary for the recovery of the U.S. economy and improving the U.S. economic system. The crisis triggered by the failure of its credit rating system has almost destroyed the U.S. financial system. However the current reform measures do not address the fundamental problems and the U.S. rating system, tested by the financial crisis, is going to lose a historical opportunity of recovery. The main problem in the U.S. credit rating system is it treats the CRAs as general players in the market and does not encourage competition amongst them, and such a mechanism cannot ensure the CRAs will fulfill their public responsibilities. The U.S. credit rating systems lack of institutional guarantees to reveal credit risk cannot provide reliable credit risk information to the public and it is falling behind the development of the credit system. Therefore, to a certain extent, the credit system cannot provide effective funding to support the economic recovery and development.

Dagong believes that the deep-rooted reason for the credit crisis that happened in the United States is that the current model of economic development and management has deviated from the laws of credit economic development. Radically, it is the problem in the idea of governing the country and national strategy. The fact that the traditional way did not save the United States economy further proves that the U.S. government lacks the capability to rule the country by following the law of credit economy. The economic recovery in the U.S. depends on the change in the way of thinking of its government; however such a change is very difficult to realize whether the Republican or Democratic Party is in power. Therefore, the U.S. government will follow its lingering notion, consequently the economic recovery will last a long time and the government’s debt repayment capability will deteriorate even further.

II. Subject to the economic development model of the United States, the credit crisis is far from over, and the U.S. economy will be in a long-term recession.

The key economic data of the United States in three consecutive years since the financial crisis indicates a declining or slight recovery trend in GDP, the size of the banking industry and fiscal revenue, money supply, unemployment rate, fiscal deficit and the outstanding government debt remain at a high level. Adopting the extreme measure of continuous issuance of currency in the context of unconventional use of monetary and fiscal policies to save its economy indicates that the credit crisis in the U.S. financial field is evolving into a national crisis. The root cause is that something is wrong with the economic development model adopted by the United States. The consequent imbalance in the national economic structure requires the government to adjust its economic strategy in order to realize a new balance and create a new economic architecture for economic recovery. Therefore, Dagong analyzes and judges the prospects of the U.S. economy from the following aspects:

First, the motivational force of the U.S. economic growth is credit expansion and at present the huge debt is the result of long-term accumulation of credit expansion. Gone are the basic conditions that the economic recovery is realized through repeated use of credit expansion. Therefore, it is impossible for the U.S. economy to generate a driving force for healthy development unless it can return to the real economy and discover new areas of value creation. As of the end of 2009, the total debt, including that of the U.S. government, enterprises and household, amounted to 52.3 trillion U.S. dollars, while the GDP was just 14.3 trillion U.S. dollars in the same period. Without a massive increase in the real value of domestic production, it is impossible for the United States to acquire the capability of paying off its stock debt by relying solely on its current capability of value creation. Therefore, the U.S. economy would be bound to sink even deeper into the mire if it continues to rely on the credit expansion model of economic development.

Second, the U.S. capability of creating real wealth can not support its huge consumption. Under the current circumstance it is difficult to increase the speed of wealth growth; the only correct way out of debt reduction is mitigation of expenditure. Since the U.S. government will not adjust its national strategy, it is inevitable for the United States to increase debt or transfer debt by depreciating the U.S. dollar. The inevitability of such a move makes the dominant factor in the lasting stagnancy of the U.S. economy. In the components of the U.S. GDP in 2009, the financial services sector accounted for 21.4% while the real economy sector accounted for 65%.The total output value of the U.S. financial services industry is composed of two major parts: one is the transferred production value, most of which comes from value distribution of participating in international production. Another part is the inflated value originated from credit innovation, which belongs to bubble value. In addition, due to the high economic financialization, more than half of the profits in the real economy come from the returns of financial activities. If we exclude the factor of virtual economy, the U.S. actual GDP is about 5 trillion U.S. dollars in 2009, per capita GDP about $ 15,000. Meanwhile, the total domestic consumption was 10.0 trillion U.S. dollars and government expenditure was 4.5 trillion U.S. dollars. The production capacity of real value in the national economy is the material base to arrange social distribution and consumption. As the U.S. government arranges its budget according to the GDP including the virtual value, its revenue must fall short of its expenditure, so the socialization and normalization of debts will exacerbate the environment of economic development. It is predicted that the average real GDP per year of the United States will not reach 6 trillion U.S. dollar and per capita GDP will be less than 20,000 in the coming 3-5 years.

Third, the international division of labor and the import and export policies will make it difficult for the United States to realize balance of international payment. Based on the U.S. industrial structure, exports are mainly comprised of high-tech products, but the U.S. limits the export of technical products for strategic reasons; however, what the U.S. needs the most are daily necessities and energy, etc. In this case, imports are rigid, while exports are elastic. On the one hand, American products are not essential items for many countries; on the other hand, due to the policy restraint, it is difficult to effectively raise the export volume, all of these causes the U.S. to have long-term structural trade deficit. Ever since 1983, the current account deficit of the United States has been increasing by an average of 20% year on year. Even if considering the stimulation effect of U.S. dollar depreciation to export, the current account deficit is expected to maintain 4% of GDP for the next 3-5 years. The U.S. dollars outflow through current account deficit flows back to the United States through the capital account and financial projects, which supports its financial system to realize the transfer of international production value to the U.S. The U.S. imbalance of trade becomes an international wealth plundering system by exchanging domestic necessities with the export of the U.S. dollars. It is the barometer to measure whether the U.S. has the creative capability of actual value.

Fourth, it is difficult for the renewable energy development strategy to become the new focus of economic growth. The renewable energy development strategy proposed by the Obama administration is beneficial to inspiring people’s confidence in economic recovery, but it is still impossible to become an effective power to reverse the American economic development situation in a moderately long time, because the U.S. lacks the strategic investment capability that would make renewable energy an industry to transform the national economy. In addition, it is confronted with the formidable competition from Northern Europe in terms of the new energy technologies. Therefore, this strategy will exert very weak influence on changing the American economic structure and development model within a long period of time.

In general, it is difficult for the current economic structure used in U.S. economic development model to create sufficient material base to support its domestic consumption. Virtual economy gives tremendous impact on the safety of the national economic system.

The reform of the development model of the national economy forms the decisive factor to stop the economic recession and to realize the sustained development of the national economy in the post-crisis era.

III. Continuous economic downturn leads to increasing risks in the financial system and the trend of the U.S. dollar depreciation will cripple the value transfer capability of the financial system to attract dollar capital reflow.

After the crisis, the stability of the American financial system has not improved fundamentally; rather, it will face increasingly more serious rising trend of risks. After the financial crisis broke out in 2008, the large scale bailout program of the Federal Reserve and the U.S. government temporarily stabilized the financial system; the too-big-to-fail financial institutions benefited a lot. However, there are still toxic assets such as the huge financial derivatives hidden in the financial system waiting for effective disposal, and the future deleveraging process will take time. In addition, the long term high unemployment rate caused a rise in loan defaults. By the end of Q2 2010, the default rate of bank loans in the United States has achieved 7.32%, increasing for 17 consecutive quarters, in which the default rate in the housing loans has increased to 11.4%. Since the government withdrew the housing stimulus measures in April 2010, the real estate market has been in recession and the problem of foreclosure tends to become serious. It is estimated that the banks will face the repurchase pressure of nearly 220 billion U.S. dollars worth of real estate mortgage bond, which cannot be satisfied by the current provision for repurchase.

On the basis of 140 cases of bank failure in 2009, another 86 banks went bankrupt in the first half of 2010 and the current number of troubled banks has reached nearly 500. The end of 2010 is likely to witness a new rise in bankruptcy for small and medium-sized banks in the U.S.

The U.S. monetary policy used in dealing with the crisis has almost lost its effect in promoting economic growth. As a new economic driving force has not formed in the United States, the declining intention of individual consumption and corporate investment leads to the shrinking of monetary demand. Although the continuous loose monetary policy of the Federal Reserve has largely increased the basic monetary supply, it has failed to promote the expansion of domestic credit scale. The insufficient credit demand of real economy combined with the bank’s mood of reluctant lending during the period of economic downturn due to asymmetry of credit risk information, has resulted in the decreasing credit scale in the United States. Following the 10.3% decline in the amount of commercial bank credit and leasing in 2009, another 7.2% decline happened in the first three quarters in 2010 on a year-on -year basis. The large amount of liquidity accumulated within the financial system is mainly used for speculative financial transactions and flowing into foreign markets, which is neither conducive to promoting the development of real economy nor helpful for improving the chronic overexpansion of virtual economy.

The Federal Reserve’s monetary policy of continuous quantitative easing has temporarily reduced the long-term debt interest rate, but the consequent dollar depreciation trend will trigger the financial system’s long-term recession. The monetary policy of a new round of quantitative easing launched by the Federal Reserve on November 3, 2010 plans to release another 600 billion U.S. dollars of long-term U.S. treasury bond by the end of June next year. The direct objective of this policy is tomaintain the current low yield of the Treasury. The continuous U.S. economic downturnand the government’s increasing debt burden have undermined the foreign investors’ confidence in the Treasury. These investors turn to buy gold to avoid risk, which pushesup the price of gold and increases the pressure of a rise in long-term interest rate.

Especially for a highly-indebted economy as the United States, a large amount of financial derivative contracts in the financial system is related with the interest rate; the increase of long-term interest rates will cause another big fluctuation in the financial system, restrict the economic recovery, and increase the government’s burden of debt service. The Federal Reserve’s monetary policy can temporarily decrease the long-term interest rate, but it can also trigger the dollar’s depreciation and reduce the attraction of dollar-denominated assets to foreign investors. From June, 2010 until now, the U.S. dollar index has dropped about 6% and has depreciated 15% relative to the Euro, 11% relative to the Sterling Pound, 13% relative to the Yen, 18.5% relative to the Australian dollar, 11.4% relative to the Korean Won. The dollar’s continuous depreciation will cripple the value transfer capability of the U.S. financial system to attract the dollar capital to reflow, and the status of the U.S. as the global financial center is on the decline. Therefore, the room for implementing of monetary policy in the United States is increasingly being squeezed. On the one hand, the long-standing quantitative easing policy will only play a temporary role in decreasing interest rate, as a consequence the dollar depreciation is not conducive to the financing requirement of the United States as the largest debtor country and the interest assertion of the creditor will be the potential pressure to the increasing interest rate. On the other hand, the long-term economic downtown makes it impossible for the government to increase interest rate and regain a strong dollar policy. In this dilemma, any policies chosen by the Federal Reserve will hurt itself. Though it is likely for the current loose monetary policy to postpone the occurrence of the difficulties, yet in the long run, it will be proven to be a practice resembling drinking poison to quench thirst.

IV. New round of liquidity injection can not substantially reverse the trend of increasing the federal government’s fiscal deficit and debt burden in the long term.

The U.S. Monetary Authority launched the monetary policy of a new round of quantitative easing, announcing the release of a large amount of federal government Treasury bond continuously. However, it only has a limited positive influence for easing the current embarrassed fiscal conditions of the federal government. In 2009, the U.S. increased another 1 trillion U.S. dollars fiscal deficit in response to the financial crisis, making the ratio of year-end fiscal deficit to GDP a record 10.6%, and consequently led to more difficult fiscal operation for the government. Under these circumstances, the Federal Reserve took the measure of direct debt monetization, on the one hand, financing for the federal government’s fiscal deficit, and on the other hand, keeping the U.S. Treasury interest rate at a low level. The federal government’s financing cost and interest burden, therefore, are both controlled at relatively favorable levels.

Additionally, further depreciation of the U.S. dollar is inevitable due to the liquidity increased by the monetary policy of a new round of quantitative easing, and the U.S. government’s current debt burden, to some extent, is expected to be released. By the end of 2009, the balance of the U.S. government’s outstanding debts reached 12.3 trillion U.S. dollars, of which over 7.8 trillion U.S. dollars debts were held by the public including foreign investors. This is to say, if the U.S. dollar depreciates by 1%, the actual decrease of government’s debt burden will exceed 123 billion U.S. dollars, about 5.5% of its fiscal revenue in 2009. The U.S. base currency will be supplied with an increase of 30% on the existing basis in the coming eight months, therefore, in full consideration of such factors as economic recession and slowdown of currency circulation caused by shrinkage of private credit, a conservative estimate would be U.S. domestic inflation increase of about 1.5 percentage points and U.S. exchange rate index down approximately 10% before Q2 2011. As a result, federal debts will actually be reduced by over 250 billion U.S. dollars.

Public creditors’ interests are invisibly eroded due to the depreciation of U.S. dollar; especially the foreign creditors will suffer even greater losses from fluctuation of U.S. dollar exchange rate. Although the federal government could ease its actual debt burden to some extent via this channel, its sovereign credit will be adversely affected as it ignores the responsibilities of credit contracts and the legitimate rights and interests of creditors.

For a long time, the U.S. authority has not been temperate in its government credit expansion, resulting in large fiscal deficit and increasingly high government debts in consecutive years. Under current governance framework in the U.S., rigid expenditure accounted for a larger proportion of the fiscal expenditure to satisfy its global hegemonic strategy, which, on one side, increased the difficulty for the U.S. federal government to optimize its fiscal expenditure structure and control deficit growth, while, on the other side, made the federal government unable to have sufficient operating space in smoothing economic periodic fluctuation by fiscal policy instruments so that sustainable and steady economic growth cannot be guaranteed. After the breakout of the global financial crisis, the weak economic growth in the U.S., increase of the fiscal expenditure and the launch of the monetary policy of a new round of quantitative easing will all drive the U.S. debt burden to increase further. The pattern that the U.S. government has of a high fiscal deficit and heavy debt burden is essentially because of its terribly-flawed development model of debt economy, which can not be significantly improved by simply increasing channels for issuance of the U.S. dollar. Dagong predicts that the U.S. fiscal deficit will remain moderately high in 2010 and 2011, about 10.8% and 8% of the year’s GDP respectively. The federal debts will also increase in 2010 and 2011 on the basis of 2009, and the ratio to the year’s GDP will be as high as 95% and 97% respectively.

V. In essence the depreciation of the U.S. dollar adopted by the U.S. government indicates that its solvency is on the brink of collapse, therefore it wants to cut its debt through the act of devaluation with the national will; such a move has severely harmed the interests of creditors. The whole world, consequently, will have to face a period of dramatic adjustment of interest pattern.

The status of the U.S. dollar as the dominant international reserve currency determines that its depreciation gives an inevitable impact to the interests of all creditors.

In addition to the shrinking of creditors’ assets, the utter chaos in the international currency system triggered by the depreciation of the U.S. dollar will definitely damage the interests of all the creditors in the world at various levels. Together with the possibility of inflation in the future, the wealth of creditors will be plundered once again by the malicious act of currency devaluation conducted by the U.S. government after it suffered the losses during the financial crisis since 2007.

The value fluctuation of the world’s major currencies caused by the continuous devaluation of the U.S. dollar will push the adjustment in world interest pattern through the value comparison of the monetary system. The essence is to transfer the interests of the creditors to the debtor free of charge, and that will fundamentally destroy the international credit system and global economic system comprised of the creditor system and debtor system, resulting in an overall crisis around the world.

Outlook

Dagong believes that the occurrence and development process of the credit crisis in the U.S. resulted from the long-standing accumulation of the contradictions in its economic system; the U.S. debt burden can be relieved only to a certain extent through large-scale printing and issuance of the U.S. dollar; however the consequent decline of the U.S. dollar status and national credit will block the debt revenue channel which is vital to the existence of the United States to a greater extent. The potential overall crisis in the world resulting from the U.S. dollar depreciation will increase the uncertainty of the U.S. economic recovery. Under the circumstances that none of the economic factors influencing the U.S. economy has turned better explicitly it is possible that the U.S. will continue to expand the use of its loose monetary policy, damaging the interests the creditors. Therefore, given the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years. Accordingly, Dagong assigns negative outlook on both local and foreign currency sovereign credit ratings of the United States.

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The Real US Deficit With China – Knowledge

Americans are out of touch with today's China. It's a knowledge deficit that carries more weight in the long-term bilateral relationships between China and the United States than the ballooning US trade deficit with China. And as China makes a comeback on the world stage, it's one that the US should address.

Chinese visitors to the US have shared the shock of witnessing a severe dichotomy between how much Americans seem to talk about China and yet how little they know about it. The US status as the world's superpower, coupled with its location, warrants people this type of benign negligence.

But what about those experts who have the power to impose their perceptions of China on others? All too often China experts in the US cannot even speak the language. How can they claim to understand a culture without knowing how its people communicate?

This knowledge deficit accounts directly for widespread and deep-rooted misperceptions about China.

There are three faulty, recurring talking points in the American media.

First, China is a rising power, and a rising power is dangerous. The first part of this argument is incomplete, and the latter part is misplaced. China is not only a rising power; it is a returning power. China, as a united continental power, has existed for more than 2,000 years.

As a returning player, China is composed, restrained, and mature, just like a former champion returning to the title game after a short lapse. Also, if history is any guide, Chinese-ruling regimes have not been considered aggressive or expansive; they were famous for building walls. This fact alone should call into question the comparison of China's current resurgence with Japan's and Germany's disastrous rising path before World War II.

Second, China is a Communist country, and Communism is evil. Repeatedly placed upon China by media commentators, most notably CNN's anchorman Lou Dobbs, this characterization is both simplistic and utterly misleading.

To today's China, Marxism is as foreign as liberal democracy. When you look back at China's past, no alien cultures have uprooted Chinese tradition; instead, they were either localized, or submerged. China can still be Chinese without the Communism title.

Likewise, today's ruling Chinese Communist Party (CCP) could easily be renamed the Chinese Confucian Party (CCP) without changing much of its ideological belief or organizational structure, or even its acronym for that matter.

Both the "ruling by virtue" policy promoted by former President Jiang Zemin and the "harmonious society" guideline proposed by current leader Hu Jintao were derived more from the Confucian doctrine than from the Marxist ideology. Singling out "Communist" as the definer confuses the reality.

Third, Tiananmen Square in 1989 is an iconic image that lingers in the minds of the Chinese. American observers' obsession with this tragic event reflects how deep their perception gap about China runs. There is no question that what happened that summer was historic. However, it was a generation ago, and sea changes have occurred since then.

Those who were born in 1989 are turning 19. What this new Chinese generation cares about is not the guy who blocked those tanks, but the Chinese Super Girl Singer and Yao Ming. America's unyielding interest in Tiananmen is out of touch. Is the Watergate scandal still the dominant issue facing the US today?

This lack of updated information about China becomes more problematic in a larger context. Chinese students are required to study English beginning in primary school. Students are exposed to both American culture and the Western way of thinking by college. For at least two decades, tens of thousands of the best and the brightest Chinese students attend American's top-tier graduate schools, channeling back the most updated perceptions and information about the US.

Although the number of American students studying in China witnessed a huge jump over the past few years, the accumulated knowledge deficits and language barriers are still immense.

This imbalance of knowledge, just like the imbalance of trade, is unsustainable. With the trade problem, Chinese leaders outlined a "win-win partner" scenario, and American policymakers have mapped out the "responsible stakeholder" blueprint. However, no strategy will be feasible if the two parties cannot understand each other well enough to weather the uncertainties ahead.

It is highly probable that the next generation of Americans will live in a world where China is the largest economic power. Are they prepared? When and how are they going to fix this current knowledge deficit with China?

• Xu Wu is an assistant professor in strategic media and public relations at the Walter Cronkite School of Journalism and Mass Communication at Arizona State University. He is the author of "Chinese Cyber Nationalism."

The article comes from http://www.csmonitor.com/2008/0501/p09s02-coop.html

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US-design Runs into Trouble Again

Right after Mattel's late apology to China for its own design flaws that caused 85% of its toys recalls, another US company, Simplicity, is recalling one million infant cribs after 3 deaths caused by its design flaws.

This time many western medias became smarter a little bit. They did not put "made in China" phrase in their news titles, but some indecent, misleading medias such as ABC Action News in Florida, WNBC in New York, RTT news in New York, Medical News in UK, The Gate - National Journal in Washington DC，Conde Nast Portfolio in New York, Kansas City Star in Missouri, Forbes, Reuters, CBC News, CNN, ... are still associating "China-made" with the recalls and ignoring the root of the cause: US-design.

China is a scapegoat of US-design again!!

US Media Still Trying to Save Their Own Face After Mattel's Apology to China

Just in my previous post, Mattel openly aplogied to China for the damage caused by its own mistakes. It openly acknowledged that most of recent toy recalls were caused by its own design flaws. This late confession vastly differentiates with US media's unanimous blame on China companies' production quality and misleading their own readers.

Even before this simple and straight facts, US media are still trying to misleading their readers. For example, Newsweek just published Daniel Gross's artile on its web. They still stubbornly think Mattel's apologied because it must save face with China for business purpose. They don't blame themselves and Mattel for their own corrupt moral standard.

Newsweek and its writer Daniel Gross will never know how open this world is. US media cannot hide the truth and misleading readers now. Mattel is a dead company because its product quality and more important its moral standard. Newsweek is not very far.

Anyhow, they have to acknowledge that America can’t afford to offend or alienate China—not because it would suddenly stop selling goods to us, but because the U.S. economy has evolved in such a way that its health depends on China.

Congratuations, you can make some progress. Keep going! Thanks Newsweek to show their true face before the world and before the truth. This could be a very classic case in Journalists' class in colleges.

When Americans are High about Darfur, How About the Real Genocide In Iraq?

According to a new study, 1.2 million Iraqis have met violent deaths since the 2003 invasion, the highest estimate of war-related fatalities yet. The study was done by the British polling firm ORB, which conducted face-to-face interviews with a sample of over 1,700 Iraqi adults in 15 of Iraq's 18 provinces. Two provinces -- al-Anbar and Karbala -- were too dangerous to canvas, and officials in a third, Irbil, didn't give the researchers a permit to do their work. The study's margin of error was plus-minus 2.4 percent.

Field workers asked residents how many members of their own household had been killed since the invasion. More than one in five respondents said that at least one person in their home had been murdered since March of 2003. One in three Iraqis also said that at least some neighbors "actually living on [their] street" had fled the carnage, with around half of those having left the country.

In Baghdad, almost half of those interviewed reported at least one violent death in their household.

(Source)

Where is the voice from Steven Spielberg about genocide in Iraq?

Greenspan's late confession: Iraq war was really for oil

AMERICA’s elder statesman of finance, Alan Greenspan, has shaken the White House by declaring that the prime motive for the war in Iraq was oil.

In his long-awaited memoir, to be published tomorrow, Greenspan, a Republican whose 18-year tenure as head of the US Federal Reserve was widely admired, will also deliver a stinging critique of President George W Bush’s economic policies.

However, it is his view on the motive for the 2003 Iraq invasion that is likely to provoke the most controversy. “I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil,” he says.

Greenspan, 81, is understood to believe that Saddam Hussein posed a threat to the security of oil supplies in the Middle East.

Britain and America have always insisted the war had nothing to do with oil. Bush said the aim was to disarm Iraq of weapons of mass destruction and end Saddam’s support for terrorism.

Investors be Aware: Credit-rating Companies May not Have Credit

The following article come from here. Hope investors don't ignore this news.

(Fortune Magazine) -- While Bear Stearns is the most recent financial institution to find itself caught up in the subprime-mortgage quagmire, the three credit-rating agencies - Standard & Poor's, Moody's (Charts), and Fitch - may be the next ones to see their good names dragged through the mud.

The reason? Ohio attorney general Marc Dann is building a case against them based on the role he believes their ratings played in the marketing of risky mortgage-related securities.

"The ratings agencies cashed a check every time one of these subprime pools was created and an offering was made," Dann told Fortune, referring to the way the bond issuers paid to get their asset-backed securities (ABSs) and collateralized debt obligations (CDOs) rated by the agencies. These ratings run from AAA for debt with the lowest risk of default all the way down to noninvestment- grade bonds, which many pension funds are prohibited from purchasing in their charters. "[The agencies] continued to rate these things AAA . [So they are] among the people who aided and abetted this continuing fraud," adds Dann.

Ohio has the third-largest group of public pensions in the United States, and they've got exposure: The Ohio Police & Fire Pension Fund has nearly 7 percent of its portfolio in mortgage- and asset-backed obligations.

Moody's says that Dann's accusations are nonsense. "We perform a very significant but extremely limited role in the credit markets. We issue reasoned, forward-looking opinions about credit risk," says Fran Laserson, vice president of corporate communications at Moody's. "Our opinions are objective and not tied to any recommendations to buy and sell." She further points out that while some securities have lost significant value, none have actually defaulted. (S&P and Fitch declined to comment.)

Dann and a growing legion of critics contend that the agencies dropped the ball by issuing investment-grade ratings on securities backed by subprime mortgages they should have known were shaky. To his mind, the seemingly cozy relationship between ratings agencies and investment banks like Bear Stearns only heightens the appearance of impropriety. In addition to receiving fees from bond issuers that want ratings, S&P, Moody's, and Fitch do not vet data provided by these customers - information the agencies use to make their credit assessments. It's a bit like a take-home final. Or as Moody's puts it in its own code of conduct, "Moody's has no obligation to perform, and does not perform, due diligence." The other two agencies have similar provisions.

Moody's and its cohorts might have some wiggle room. "The agencies are on fairly strong ground that their ratings are just opinions, but that doesn't absolve them from liability risk," says Steve Thel, a securities law professor at Fordham University.

Dann contends also that the ratings are used as benchmarks by institutional investors. He is not alone in this assessment. According to experts in structured finance valuations, the ratings agencies are the central drivers, particularly in the riskier areas of asset-backed securities markets. The pool of buyers would be much smaller without a rating because pension and mutual funds hold only investment-grade bonds, says Christopher Whalen, who sold asset-backed securities at Bear Stearns and is now a principal at Institutional Risk Analytics, which provides tools to credit officers to assess bonds.

"The rating drives everything," adds Sylvain Raynes, a former Moody's analyst and currently a principal at R&R Consulting, a firm that examines these securities.

Others point out that CDOs are too complex for even sophisticated investors to parse, so the ratings take on great importance. "It is unreasonable to think that people could do the quantum math to figure out the ultimate aggregate default rate on a CDO. So, yes, there is a greater expectation that the gatekeepers will scrutinize the underlying credit," says Doug Cifu, a partner who specializes in private equity and finance at Paul Weiss Rifkind Wharton & Garrison.

Regardless of whether a lawsuit materializes, the ratings agencies already seem to be policing themselves. Of the pool of securities created from 2006 subprime mortgages, Moody's has downgraded 19 percent of the issues they've rated and put 30 percent on a watch list. Sadly for Wall Street, if the ratings agencies feel the need to downgrade even more, it will certainly constrict the cheap debt that has fueled the bull market.

Or as Whalen puts it, "The Street dragged everyone into increasingly bizarre and illiquid instruments, and there was huge profitability there, but what it did was buy itself a lot of trouble."

What US Media's Report on Chinese Products can Prove?

Black pepper with salmonella from India. Crabmeat from Mexico that is too filthy to eat. Candy from Denmark that is mislabeled.

At a time when Chinese imports are under fire for being contaminated or defective, federal records suggest that China is not the only country that has problems with its exports.

In fact, federal inspectors have stopped more food shipments from India and Mexico in the last year than they have from China, an analysis of data maintained by the Food and Drug Administration shows.



China has had much-publicized problems with contaminated seafood — including a temporary ban late last month on imports of five species of farm-raised seafood from China — but federal inspectors refused produce from the Dominican Republic and candy from Denmark more often.

For instance, produce from the Dominican Republic was stopped 817 times last year, usually for containing traces of illegal pesticides. Candy from Denmark was impounded 520 times.

By comparison, Chinese seafood was stopped at the border 391 times during the last year.

This is a part from New York Times.

But the question is that why China is singled out by US government and its propaganda machines? The bombing by US media make everyone have a strong impression that China is the only place that low-quality products originate. The gust of US media on Chinese products in recent month only proves some views:
1. US is not a media free country. The voice of the media in US is controlled by some interest or political group or even government.
2. US media's reports do not reflect the fact of this world. They are often misleading.
If you understand the above two abvious points, you can understand why Americans are so stupid about what is going on on this world.

Thanks for US media bombing, a stupid US company event plans to label its products "China-free"

Are China's products really so dangerous? Other than the above report from NYT, another article appeared on ActionNews about the seafood from China. The director of the Mississippi Poison Control Center says Chinese catfish tainted with outlawed antibiotics pose no threat to those who eat it. A medical toxicologist who works as an emergency room physician at the University of Mississippi Medical Center, says a person would have to eat 220,000 pounds of the fish to get a full adult dose of the antibiotic. Do any American eat 220,000 pounds of fish in their life? It is impossible. The official claimed that the seafood from China is safe and he himself feed his family with the products from China.

It is for sure there are some low-quality products are from China. But low-quality products are from any conrner of this world. US is not problem-free. That why I said the company is stupid that plans to lable its products "China-free"?China supplies 70-80% of the toys in this world. Do the 80% of the toy recalls in US regard China products?

Some low-quality products from China can not blame China alone. Greedy American companies should take a lot of the responsiblities.

Many people know the outsourcing. Outsourcing does not only happens in IT industry, but also in manufacturing. Huge a lot of products from China are actually designed by US companies. They give the design and provide the material requirement or even provide materials.

Greedy American companies also push the product price to unreasonable low when they buy products from China. Every one know that you get what you pay. The unreasonable price can only force producers to make low quality products. I am pretty sure that many products in those supper-low price stores are pro-problems no matter they are made in China or not. We take wal-mart as an example: wal-mart pays Chinese companies US$20 billion each year and Chinese products account for 80% of its sales of more than US$300 billion. Simple calculation will tell you that Wal-mart makes $12 for every dollar it pays to China. Do you see the problem?

China is a country that can supply products from low-end textile or even some substandard to high-end electronics or even parts for commercial planes. But one thing is for sure that China can produce the same products at same quality at much lower cost. "China-free" does not mean "problem-free", but it surely means one thing: Unreasonably expensive.

Efforts to cut spending veiled effort to end war

President Bush has asked Congress for $100 billion to carry on the war in Iraq and Afghanistan. That's a lot of money. I wish there was not a war in Iraq and Afghanistan, which is really being run by Iran and Syria. The fact of the matter is that they have in mind to kill us and destroy our society. Is $100 billion too much to keep these fanatics at bay?

One thing for sure, standing on the corner of 10th and White Sands in Alamogordo with a sign calling for "Peace, Unity and Love" will probably not scare the Iranians and Syrians away. Being nice to them is interpreted, by them, as weakness and an invitation to redouble their efforts to bring down the Great Satin, i.e. us.

The Democrats, who cling to a slim majority in both houses of Congress, have replied to President Bush's request for funds by offering a bill. The Wall Street Journal on March 17 reported the first chapter of that bill contains, among other things, $25 million for spinach, $20 million to restore farmland damaged by freezing temperatures, $1.46 billion for livestock farmers, $78 million to ensure proper storage of peanuts, $500 million for urgent wild land fire suppression and though not part of this bill there is the raise in the minimum wage nationwide.

That money has to come from somewhere. For God's sake, we are at war, people are trying to kill us and destroy our civilization and we are heaping this on top of our funds to support our troops. It was Nero who fiddled while Rome burned. Why are the Democrats trying to do the same thing?

I understand that the Democratic leadership and the liberals who want to end the war yesterday or this afternoon at the latest, are too cowardly to try to just shut off the funds for the war. That would make them publicly responsible for the consequences of doing so. They are trying to do the same thing by stealth, by imposing conditions on the use of the funds for the war, and time limits that will tie the president's hands and those of the military commanders conducting day to day operations, if the Iraq parliament fails to meet our Democrats' deadlines. The conduct of any war is an executive responsibility, not a legislative one.

I submit that Nancy Pelosi and the Democratic leadership of the House and Senate are just plain incompetent to govern. God help the United States if the likes of Hillary Clinton, Barack Obama or John Edwards are ever handed the presidency. President George W. Bush's judgment respecting the conduct of the war is open to Monday morning quarterbacking. Let's put it this way, have you made any mistakes in judgment since March 2003? Suffice it to say that, at least the president does not favor irresponsible, immediate surrender and damn the consequences.

The article was posted on Alamogordo Daily News

Please don't think I agree with this author, insead, I feel it is very funny to see how Americans view internal and external issues. I need to point out this author should be a educated American and interested in the political affairs.

Think Again: India

The following came from the article on Foreign Policy website. The author, Barbara Crossette, reported for the New York Times on the killing of Sikhs in New Delhi in 1984 and was later the Times chief correspondent for South Asia 1988-1991 and bureau chief at the United Nations 1994-2001. This article speaks out something about India's situation.

“India and the United States are natural allies”

Not so fast. It was not until the collapse of its champion and friend, the Soviet Union, that Delhi saw reasons to improve ties dramatically with the United States. Recent mutual overtures to warm U.S.-Indian ties are still works in progress on both sides. Though the world’s most populous democracy seems to be increasingly in sync with free-market American thinking, India’s interests often conflict with those of the United States.

Consider India’s relationship with Iran. The energy-hungry subcontinent looks at Iran in the same way that the United States views Saudi Arabia. Iran and India reached a “strategic partnership” in 2003, cementing the “historical ties” between the two nations. India is now chafing at Western demands that it stop backing Iran’s right to develop its nuclear capacities. Despite a new American deal to share advanced nuclear technology with India, Delhi is likely to resist opening its own nuclear facilities to serious international inspection and remains steadfast in its refusal to sign major international arms-control agreements. The father of its clandestine nuclear bomb, A.P.J. Abdul Kalam, is now the country’s president.


“India is a responsible world power”

Not yet. India has a history of interference in the politics of its weaker South Asian neighbors. A rebellion in Pakistan split the country in two in 1971 with a lot of help from Delhi, whose army effectively created Bangladesh. Over a million people died in the bloody ethnic cleansing campaigns that followed. In the 1980s, Sri Lanka’s Tamil rebels started a vicious civil war from safe bases in India’s Tamil Nadu state, with generous assistance from Indian intelligence agencies. Sikkim, a little Tibetan Buddhist kingdom, disappeared altogether after a Machiavellian manipulation of its ethnic Nepali population by former Indian Prime Minister Indira Gandhi, who spent the better part of the 1970s and 1980s troublemaking in the region. Only recently, under former Prime Minister Atal Bihari Vajpayee and current Prime Minister Manmohan Singh, have these activities been curtailed.

India has nevertheless projected a positive image in the world, largely because the country is far more successful than the United States at public diplomacy. India’s outstanding diplomatic corps and government officials are more focused on winning all-or-nothing support for India in the international arena than they are on confronting India’s shortcomings.

Impressive economic growth and a nuclear arsenal have made India a world power, and may earn it a permanent seat on the U.N. Security Council. The question remains, however, whether India’s voice and vote would do any more than echo the mantras of the Nonaligned Movement and the Group of 77. Last year, for instance, India supported Venezuelan President Hugo Chávez’s bid for a Security Council seat. India contributed 0.4 percent of the United Nations budget in 2006, less than Israel, about the same as Poland, only slightly more than Ireland, and one fifth of the dues paid by China. India, unlike the United States, does field many international peacekeepers. The Indian armed forces are superbly well trained, urbane, and effective. Within India, however, U.N. activity is always under close scrutiny. The U.N.’s international monitoring mission for Kashmir, one of the first to be established more than half a century ago, is forced to work almost entirely on the Pakistani side of the border.


“India will surpass China”

Perhaps, But at What?. India, which currently has a population of 1.1 billion people, will be the world’s most populous nation sometime in the next few decades. But that may be the only arena in which it overtakes China.

Both countries have large urban-rural gaps and other income and living standard disparities, but China is now well ahead of India on a number of key indicators. China ranks at number 81 of 177 countries on the latest United Nations Human Development Index (in the neighborhood of Armenia or Peru), while India is 126 (below Namibia and just ahead of Cambodia). In China, a person’s chance of dying before the age of 40 is just under 7 percent. In India it’s over 16 percent, higher than in Pakistan or Bangladesh. Eighty percent of Indians live on $2 a day or less, compared with about 46 percent of the Chinese. Almost half the children under 5 in India are malnourished, compared with 8 percent in China.

India’s democratic system prevents it from taking draconian measures, such as China’s one-child policy, to keep population growth in check. India’s population is growing at 1.38 percent a year, a figure that may look low until it is multiplied by more than 1 billion. India adds more than 15 million people a year to its population, nearly twice the population of Austria. Indian leaders are aware that a “youth bulge,” which demographers expect to level off by 2025, can be conducive to economic growth. But countries in this position need to, “broaden the opportunities for young people to develop their human capital and use it productively,” in the words of the World Bank’s World Development Report 2007. That’s the route to prosperity followed by Japan, Taiwan, and South Korea—and now China. The adult literacy rate in China is above 90 percent. In India, it’s 61 percent. About one quarter of primary-school-age Indian children are not in school. In China, the figure is practically zero.


“India is becoming a high-tech, middle-class nation”

Prove it. India’s vaunted middle class is still a distinct minority. In reality, the gap between rich and poor remains enormous. An Oxfam report in 2006 predicted that even if India met all the U.N.’s Millennium Development Goals by 2015, which is almost impossible, 500 million Indians would still have no access to basic sanitation. The World Bank has concluded that India may have many highly skilled professionals, scientists, and engineers, “but they represent only a fraction of the population.” The information technology sector in India, which accounts for just 4 percent of GDP, employs only 1 million people, and most come from predictable, higher-caste, private-school-educated, English-speaking families. Although some parts of the country are becoming world centers of research and development in technology, just 32 out of every 1,000 Indians have access to the Internet. That’s 3.2 percent of the population.


“India is a model of tolerance”

No. Human rights abuses and corruption of political power are far more prevalent in India than in other democracies. Indians can use the courts for redress, but the justice system is incredibly backlogged, and large numbers of abuses go unpunished. Worse yet, the Hindu caste system is hopelessly discriminatory. Poor people can be killed for offenses as petty as trespassing in a high-caste Brahmin temple or drawing water from an upper-caste well.

The treatment of most Indian women can be just as bad. Women are much more likely to be illiterate, earn one-third as much as men across the board, and die in the thousands annually as the victims of abusive spouses or in-laws. The same goes for religious minorities. In 1984, mobs in New Delhi, reacting to the assassination of Indira Gandhi, slaughtered around 3,000 Sikh men and boys. Witnesses identified Congress Party politicians directing some of the killings, yet none among them were ever convicted. In a more recent incident, 2,000 Muslims were killed in the state of Gujarat in 2002. As in the case of the Sikh massacres, where the army ultimately had to restore order, corrupt police forces in Gujarat stood aside and let the carnage go on.

This is to say nothing of Kashmir, whose people consider themselves ethnically and historically separate from India. Most Muslim Kashmiris have become united in their contempt for Indian rule. Over the last two decades, tens of thousands of people on all sides have died in Kashmir; thousands more have been arrested or “disappeared.” Human rights groups have decried abuses on both sides. But extrajudicial killings by the Indian military are common and well documented. It is a stinging indictment of democratic India.

The U.S. Role in Darfur, Sudan

This article should be able to answer many questions about Darfur crisis in Sudan

Publication time: 6 June 2006, 01:17

WHAT is fueling the campaign now sweeping the U.S. to "Stop Genocide in Darfur"? Campus organizations have suddenly begun organizing petitions, meetings and calls for divestment. A demonstration was held April 30 on the Mall in Washington, D.C., to "Save Darfur."

Again and again it is said that "something" must be done. "Humanitarian forces" and "U.S. peacekeepers" must be deployed immediately to stop "ethnic cleansing." UN troops or NATO forces must be used to stop "genocide." The U.S. government has a "moral responsibility to prevent another Holocaust."

Outrage is provoked by media stories of mass rapes and photos of desperate refugees. The charge is that tens of thousands of African people are being killed by Arab militias backed by the Sudanese government. Sudan is labeled as both a "terrorist state" and a "failed state." Even at anti-war rallies, signs have been distributed proclaiming "Out of Iraq-Into Darfur." Full-page ads in the New York Times have repeated the call.

Who is behind the campaign and what actions are they calling for?

Even a cursory look at the supporters of the campaign shows the prominent role of right-wing evangelical Christians and major Zionist groups to "Save Darfur."

A Jerusalem Post article of April 27 headlined "U.S. Jews Leading Darfur Rally Planning" described the role of prominent Zionist organizations in organizing the April 30 rally. A full-page ad for the rally in the New York Times was signed by a number of Jewish organizations, including the UJA-Federation of NY and the Jewish Council for Public Affairs.

But it wasn't just Zionist groups that called it. The rally was sponsored by a coalition of 164 organizations that included the National Association of Evangelicals, the World Evangelical Alliance and other religious groups that have been the strongest supporters of the Bush administration's invasion of Iraq. The Kansas-based evangelical group Sudan Sunrise helped arrange buses and speakers, did extensive fund raising and co-hosted a 600-person dinner.

This was hardly an anti-war or social justice rally. The organizers had a personal meeting with President George W. Bush just before the rally. He told them: "I welcome your participation. And I want to thank the organizers for being here."

Originally the demonstration was projected to draw a turnout of more than 100,000. Media coverage generously reported "several thousands," ranging from 5,000 to 7,000. The rally was overwhelming white. Despite sparse numbers, it got wide media coverage, focusing on celebrity speakers like Academy Award winner George Clooney. Top Democrats and Republicans gave it their blessing, including U.S. Sen. Barack Obama (D-Ill.), House minority leader Nancy Pelosi (D-Calif.), Assistant Secretary of State for African Affairs Jendayi Frazer and New Jersey Gov. Jon Corzine. Corzine, by the way, spent million of his own money to get elected.

The corporate media gave this rally more prominence than either the anti-war rally of 300,000 in New York City on the day before or the millionfold demonstrations across the country for immigrant rights on the day after.

U.S. Ambassador to the UN John Bolton, former Secretary of State Gen. Colin Powell, Secretary of State Condo leezza Rice, Gen. Wesley Clark and British Prime Minister Tony Blair have all argued in favor of intervention in Sudan.

These leading architects of imperialist policy often refer to another model when they call for this intervention: the successful "humanitarian" war on Yugoslavia that established a U.S./NATO administration over Kosovo after a massive bombing campaign.

The Holocaust Museum in Washington issued a "genocide alert"-the first such alert ever issued-and 35 evangelical Chris tian leaders signed a letter urging President Bush to send U.S. troops to stop genocide in Darfur. A special national curriculum for students was established to generate grassroots support for U.S. intervention.

Many non-governmental organizations (NGOs) funded by the National Endowment for Democracy (NED) have embraced the campaign. Liberal voices such as Amy Goodman of Democracy Now, Rabbi Michael Lerner of TIKKUN and Human Rights Watch have also pushed the campaign to "Save Darfur."


Diversion from Iraq debacle

The criminal invasion and massive bombing of Iraq, the destruction of its infrastructure that left the people without water or basic electricity, and the horrible photos of the U.S. military's use of torture at Abu Ghraib prison created a world outcry. At its height, in September 2004, then Secretary of State Gen. Colin Powell went to Sudan and announced to the world that the crime of the century-"a genocide"-was taking place there. The U.S. solution was to demand the United Nations impose sanctions on one of the poorest countries on earth and that U.S. troops be sent there as "peacekeepers."

But the rest of the UN Security Council was unwilling to accept this view, the U.S. "evidence" or the proposed action.

The campaign against Sudan increased even as evidence was being brought forward that the U.S. invasion of Iraq was based on a total lie. The same media that had given credibility to the U.S. government's claim that it was justified in invading Iraq because that country had "weapons of mass destruction" switched gears to report on "war crimes" by Arab forces in Sudan.

This Darfur campaign accomplishes several goals of U.S. imperialist policy. It further demonizes Arab and Muslim people. It diverts attention from the human rights catastrophe caused by the brutal U.S. war and occupation of Iraq, which has killed and maimed hundreds of thousands of Iraqis.

It is also an attempt to deflect attention from the U.S. financing and support of Israel's war on the Palestinian people.

Most important, it opens a new front in the determination of U.S. corporate power to control the entire region.

U.S. interest in Sudan

Sudan is the largest country in Africa in area. It is strategically located on the Red Sea, immediately south of Egypt, and borders on seven other African countries. It is about the size of Western Europe but has a population of only 35 million people.

Darfur is the western region of Sudan. It is the size of France, with a population of just 6 million.

Newly discovered resources have made Sudan of great interest to U.S. corporations. It is believed to have oil reserves rivaling those of Saudi Arabia. It has large deposits of natural gas. In addition, it has one of the three largest deposits of high-purity uranium in the world, along with the fourth-largest deposits of copper.

Unlike Saudi Arabia, however, the Sudanese government has retained its independence of Washington. Unable to control Sudan's oil policy, the U.S. imperialist government has made every effort to stop its development of this valuable resource. China, on the other hand, has worked with Sudan in providing the technology for exploration, drilling, pumping and the building of a pipeline and buys much of Sudan's oil.

U.S. policy revolves around shutting down the export of oil through sanctions and inflaming national and regional antagonisms. For over two decades U.S. imperialism supported a separatist movement in the south of Sudan, where oil was originally found. This long civil war drained the central government's resources. When a peace agreement was finally negotiated, U.S. attention immediately switched to Darfur in western Sudan.

Recently, a similar agreement between the Sudanese government and rebel groups in Darfur was rejected by one of the groups, so the fighting continues. The U.S. poses as a neutral mediator and keeps pressing Khartoum for more concessions but "through its closest African allies helped train the SLA and JEM Darfuri rebels that initiated Khartoum's violent reaction." (www.afrol.com)

Sudan has one of the most ethnically diverse populations in the world. Over 400 ethnic groups have their own languages or dialects. Arabic is the one common language. Greater Khartoum, the largest city in the country, has a population of about 6 million. Some 85 percent of the Sudanese population is involved in subsistence agriculture or raising livestock.

The U.S. corporate media is unanimous in simplistically describing the crisis in Darfur as atrocities committed by the Jan jawid militias, supported by the central government in Khartoum. This is described as an "Arab" assault on "African" people.

This is a total distortion of reality. As the Black Commentator, Oct. 27, 2004, points out: "All parties involved in the Darfur conflict-whether they are referred to as ‘Arab' or as ‘African,' are equally indigenous and equally Black. All are Muslim and all are local." The whole population of Darfur speaks Arabic, along with many local dialects. All are Sunni Muslim.

Drought, famine and sanctions

The crisis in Darfur is rooted in intertribal fighting. A desperate struggle has developed over increasingly scarce water and grazing rights in a vast area of Northern Africa that has been hit hard by years of drought and growing famine.

Darfur has over 35 tribes and ethnic groups. About half the people are small subsistence farmers, the other half nomadic herders. For hundreds of years the nomadic population grazed their herds of cattle and camels over hundreds of miles of grassy lowlands. Farmers and herders shared wells. For over 5,000 years, this fertile land sustained civilizations in both western Dar fur and to the east, all along the Nile River.

Now, due to the drought and the encroaching great Sahara Desert, there isn't enough grazing land or enough farmland in what could be the breadbasket of Africa. Irrigation and development of Sudan's rich resources could solve many of these problems. U.S. sanctions and military intervention will solve none of them.

Many people, especially children, have died in Sudan of totally preventable and treatable diseases because of a U.S. cruise missile attack, ordered by President Bill Clinton on Aug. 20, 1998, on the El Shifa pharmaceutical plant in Khartoum. This plant, which had produced cheap medications for treating malaria and tuberculosis, provided 60 percent of the available medicine in Sudan.

The U.S. claimed Sudan was operating a VX poison gas facility there. It produced no evidence to back up the charge. This simple medical facility, totally destroyed by the 19 missiles, was not rebuilt nor did Sudan receive a penny of compensation.

UN/NATO role in Sudan

Presently 7,000 African Union troops are in Darfur. Their logistical and technical back-up is provided by U.S. and NATO forces. In addition, thousands of UN personnel are overseeing refugee camps for hundreds of thousands dislocated by the drought, famine and war. All of these outside forces do more than hand out needed food. They are a source of instability. As capitalist would-be conquerors have done for hundreds of years, they consciously play one group off against another.

U.S. imperialism is heavily involved in the entire region. Chad, which is directly west of Darfur, last year participated in a U.S.-organized international military exer cise that, according to the U.S. Defense Depart ment, was the largest in Africa since World War II. Chad is a former French colony, and both French and U.S. forces are heavily involved in funding, training and equipping the army of its military ruler, Idriss Deby, who has supported rebel groups in Darfur.

For more than half a century, Britain ruled Sudan, encountering widespread resis tance. British colonial policy was rooted in divide-and-conquer tactics and in keeping its colonies underdeveloped and isolated in order to plunder their resources.

U.S. imperialism, which has replaced the European colonial powers in many parts of the world, in recent years has been sabotaging the economic independence of countries trying to emerge from colonial underdevelopment. Its main economic weapons have been sanctions combined with "structural adjustment" demands made by the International Monetary Fund, which it controls. In return for loans, the target governments must cut their budgets for development of infrastructure.

How can demands from organizations in the West for sanctions, leading to further underdevelopment and isolation, solve any of these problems?

Washington has often used its tremendous power in the UN Security Council to get resolutions endorsing its plans to send U.S. troops into other countries. None were on humanitarian missions.

U.S. troops carrying the UN flag invaded Korea in 1950 in a war that resulted in more than 4 million deaths. Still flying that flag, they have occupied and divided the Korean peninsula for over 50 years.

At the urging of the U.S., UN troops in 1961 were deployed to the Congo, where they played a role in the assassination of Patrice Lumumba, the country's first prime minister.

The U.S. was able to get a UN mandate in 1991 for its massive bombing of the entire Iraqi civilian infrastructure, including water purification plants, irrigation and food processing plants-and for the 13 years of starvation sanctions that resulted in the deaths of over 1.5 million Iraqis.

UN troops in Yugoslavia and in Haiti have been a cover for U.S. and European intervention and occupation-not peace or reconciliation.

The U.S. and European imperialist powers are responsible for the genocidal slave trade that decimated Africa, the genocide of the Indigenous population of the Americas, the colonial wars and occupations that looted three-quarters of the globe. It was German imperialism that was responsible for the genocide of Jewish people. To call for military intervention by these same powers as the answer to conflicts among the people of Darfur is to ignore 500 years of history.

(Sara Flounders went to Sudan just after the bombing of the El Shifa pharmaceutical plant in 1998 with John Parker as part of an International Action Center fact-finding delegation led by Ramsey Clark.)

Iraq, A People's War

What is the People"s War? According to the wikipedia it is a military-political strategy invented by Chairman Mao Zedong.

In its original formulation by Chairman Mao, people's war exploits the few advantages that a small revolutionary movement has-- broad-based popular support can be one of them-- against a state's power with a large and well-equipped army. People's war strategically avoids decisive battles, since a tiny force of a few dozen soldiers would easily be routed in an all-out confrontation with the state. Instead, it favours the strategy of protracted warfare, with carefully chosen battles that can realistically be won. As it grows in power, it establishes other revolutionary base areas and spreads its influence through the surrounding countryside, where it may become the governing power and gain popular support through some programmes.

Generally speaking, people's war has some characterristics:
1. It's the war between two sides, one side is very strong and another side is very weak.
2. The weak side can always get strong support from local residents (people) for political, economical, religious or any other reasons. On the contratry, the other side is more powerful, but cannot get support from local people.
3. The weak side has a central command center that defines the strategies and principle tasks. But all of its groups fight independently, flexibly, but in serving those strategies and tasks directly or indirectly.
4. The weak side fight by small units. They avoid the main or decisive battles. The aim of each battle is small, such as small casualties of enemy, some logistic supply, etc. But the accumulated harm on enemy could be huge in long run.
5. The the stronger side in aggression, the weak side retreat to other places since they can still get support from local people or hide themselves among those people.
6. The weak side becomes stronger and stronger and will win the war in the end.

Basically, people's war does not mean the fighting by massive people. It actually means the strong and decisive support from people.

In the world war II, China's KMT party fought in the frontline against Japanese troops, while the Red Army led by Communist Party fought in the areas KMT army lost and then occupied by Japanese. In 8 years, the Red Army had 125,000 battles against Japanese, killed or wounded 520,000 Japanese soldiers. The area controlled by Red Army expanded to 1 million square killometers (around 1/10 th of all China)with more than 100 million population (around 1/4 the of all China's population). The Red Army itself expanded to more than 1 million. (Source)

Lets back to Iraq. Even US said it invaded Iraq for kicking out Saddam regime. For the Iraq people that's a occupation by the force of outsiders who has different religion. No matter what, American invasion is not welcomed by Iraq majority.

It is now clear to everyone - apart from Donald Rumsfeld and his cronies - that, far from being a rump of Saddamist malcontents, the resistance enjoys broad based support among the Sunnis and increasingly the Shias too. The old truths are alive and well. People do not want to be ruled by an alien power from thousands of miles away whose interests are self-serving. The resistance in Iraq bears all the hallmarks of a people's war for self-determination.

(source)That's why US is till fighting Iraq rebellions after 3 years at cost of almost 2,500 American soldiers and thousands of Iraqi lives. (Source) In fact, there is a people's war in Iraq now.

History is a mirror for today. It would be very difficult for US to win the war if US continues its todays middle east and Iraqi policies. The most important thing US should do is winning support from Iraqi people and Muslim communities. US should call its troops back if it cannot get that precious support.