Some Excellent Questions About Iran

What to Ask Before the Next War
Don't Let the People Who Brought Us Iraq Define the Questions

By Paul R. Pillar
Sunday, February 4, 2007; B07, Washington Post

Imagine that the famously flawed intelligence judgments about Iraq's programs to develop unconventional weapons had been correct. What difference would that have made to the American effort in Iraq?

The Bush administration would have had fewer rhetorical difficulties in defending its decision to go to war, even though any discoveries of weapons programs would have confirmed nothing about the use to which Saddam Hussein might someday have put such weapons or whether Iraq would eventually have acquired nuclear weapons.

But the war itself would be the same agonizing ordeal. An insurgency driven by motives having nothing to do with weapons of mass destruction and little to do with Hussein would still be going on.

Iraq's sectarian divisions and intolerant political culture would still have pushed it into civil war. Iraq would still have become the latest and biggest jihad, winning recruits and donors for al-Qaeda and boosting the militant Islamic movement worldwide. And the United States would still be suffering the same drain of blood and treasure in Iraq and most of the same damage to its global standing and relationships.

This thought experiment highlights how problems with the policy process (or, rather, the lack of a process) that led the United States into the Iraq quagmire went beyond the administration's manipulation of intelligence on weapons programs and terrorist relationships. The administration so successfully shaped the policy question around its chosen selling points involving these two issues that what passed for a national debate gave little attention to important questions about the likely nature and consequences of a war. The debate was largely reduced to contemplating the terms of a pseudo-syllogism: Hussein has weapons of mass destruction; Hussein supports terrorism; therefore, we must use force to remove Hussein.

Now, an accelerating debate about Iran and its nuclear program shows signs of the same dangerous reductionism. Some argue for an airstrike against Iranian nuclear facilities sooner rather than later. Whether the Bush administration will act on such advice in the next two years is uncertain, but it is taking confrontational steps, including augmenting forces in the Persian Gulf and raiding an Iranian consulate, that increase the chance of heightened tension escalating into a military clash.

A long argument over many barely addressed issues would be needed to get from a belief that Iran is seeking nuclear weapons to a conclusion that a military strike, or even policies that increase the risk of U.S.-Iranian hostilities, is advisable. One issue is the uncertainty of the intelligence about Iran's nuclear program, although this is getting some discussion thanks to the recriminations about the intelligence on Iraq.

Other questions that need answering include:

What would be the urgency of taking forceful action, given that the announced estimate is that Iran is still several years from acquiring a nuclear weapon?

How malleable (and how well-defined) are Tehran's intentions, and what changes in Washington's policy might lead Tehran to abandon a weapons program? Even if Tehran's intentions do not change, what other options would impede or slow its nuclear program? If Iran were to acquire nuclear weapons, how would that change its behavior and affect U.S. interests? In particular, why would deterrence, which has kept nuclear peace with other adversaries, not work with Iran?

The likely hardening, concealment and dispersal of Iran's nuclear facilities raise questions about the impact any military strike would have on the program. How much would Iran's nuclear efforts be set back, especially given that bombs are not very good at destroying knowledge and expertise? Would the Iranian response be appreciably different from that of Iraq after Israel bombed its nuclear reactor in 1981 (Iraq redoubled its nuclear efforts while turning to different methods for producing fissile material)?

The most neglected questions concern other consequences of a U.S. strike or any other U.S.-Iranian combat, even if such combat did not lead to a prolonged occupation. How would Tehran respond to an act of war? What terrorism might it launch against the United States? How would it exploit U.S. vulnerabilities next door in Iraq, where it has barely begun to exploit the influence it has assiduously been cultivating? What other military action might it take, with the risk of a wider war in the Persian Gulf?

Other effects concern Iranian politics. How much would the direct assertion of U.S. hostility strengthen Iranian hard-liners, whose policies are partly premised on such hostility? How much would it add to all Iranians' list of historical grievances against the United States and adversely affect relations with future governments?

Broader regional and global ramifications include the impact on the oil market, whether other Middle Eastern nations would be less willing to cooperate with the United States and the prospect of exacerbating the damage the Iraq war already has dealt to U.S. standing worldwide.

Some might argue that the worst case that could ensue from an Iranian nuclear weapon is so bad that it trumps all other considerations. But there is no more reason than there was with Iraq to consider the worst case of only one side of the policy equation. And the worst case that could result from U.S.-Iranian combat is plenty frightening: thousands of Americans dead from retaliatory terrorist attacks, a broader war in the Persian Gulf, $150-per-barrel oil, a global recession and more.

That's not the most likely case -- neither is a vision of Iranian-generated mushroom clouds -- but it is plausible that substantial portions of that scenario would materialize.

Avoiding the next military folly in the Middle East requires that the agenda for analysis and debate not be so severely and tendentiously truncated as before Iraq. Not only must proponents of military action not be allowed to manipulate the answers, they also should not be allowed to define the questions.

The writer, a former national intelligence officer for the Near East and South Asia, teaches security studies at Georgetown University.

How Globalization Went Bad

This is a really worthwhile article, even if the title is not really right for the content. In my mind, a better title would have been: "The Risks of a Unipolar World". To read the whole article and see what I mean, click on the post title above.

How Globalization Went Bad

By Steven Weber, Naazneen Barma, Matthew Kroenig, Ely Ratner Page 1 of 4

January/February 2007, Foreign Policy

From terrorism to global warming, the evils of globalization are more dangerous than ever before. What went wrong? The world became dependent on a single superpower. Only by correcting this imbalance can the world become a safer place. The world today is more dangerous and less orderly than it was supposed to be. Ten or 15 years ago, the naive expectations were that the “end of history” was near. The reality has been the opposite. The world has more international terrorism and more nuclear proliferation today than it did in 1990. International institutions are weaker. The threats of pandemic disease and climate change are stronger. Cleavages of religious and cultural ideology are more intense. The global financial system is more unbalanced and precarious. It wasn’t supposed to be like this. The end of the Cold War was supposed to make global politics and economics easier to manage, not harder. What went wrong? The bad news of the 21st century is that globalization has a significant dark side. The container ships that carry manufactured Chinese goods to and from the United States also carry drugs. The airplanes that fly passengers nonstop from New York to Singapore also transport infectious diseases. And the Internet has proved just as adept at spreading deadly, extremist ideologies as it has e-commerce....

Cognitive Decision Theory Applied to International Relations

This is a most interesting article on cognitive decision theory applied to international relations. Well-worth reading. Click on post title to access article.

Why Hawks Win

By Daniel Kahneman, Jonathan Renshon Page 1 of 1

January/February 2007

Why are hawks so influential? The answer may lie deep in the human mind. People have dozens of decision-making biases, and almost all favor conflict rather than concession. A look at why the tough guys win more than they should. Elizabeth Glassanos/FOREIGN POLICY Should Hawks Win? Matthew Continetti of the conservative Weekly Standard and Matthew Yglesias of the liberal American Prospect square off in an FP web exclusive debate. National leaders get all sorts of advice in times of tension and conflict. But often the competing counsel can be broken down into two basic categories. On one side are the hawks: They tend to favor coercive action, are more willing to use military force, and are more likely to doubt the value of offering concessions. When they look at adversaries overseas, they often see unremittingly hostile regimes who only understand the language of force. On the other side are the doves, skeptical about the usefulness of force and more inclined to contemplate political solutions. Where hawks see little in their adversaries but hostility, doves often point to subtle openings for dialogue. As the hawks and doves thrust and parry, one hopes that the decision makers will hear their arguments on the merits and weigh them judiciously before choosing a course of action. Don’t count on it. Modern psychology suggests that policymakers come to the debate predisposed to believe their hawkish advisors more than the doves. There are numerous reasons for the burden of persuasion that doves carry, and some of them have nothing to do with politics or strategy. In fact, a bias in favor of hawkish beliefs and preferences is built into the fabric of the human mind. Social and cognitive psychologists have identified a number of predictable errors (psychologists call them biases) in the ways that humans judge situations and evaluate risks. Biases have been documented both in the laboratory and in the real world, mostly in situations that have no connection to international politics. For example, people are prone to exaggerating their strengths: About 80 percent of us believe that our driving skills are better than average. In situations of potential conflict, the same optimistic bias makes politicians and generals receptive to advisors who offer highly favorable estimates of the outcomes of war. Such a predisposition, often shared by leaders on both sides of a conflict, is likely to produce a disaster. And this is not an isolated example. In fact, when we constructed a list of the biases uncovered in 40 years of psychological research, we were startled by what we found: All the biases in our list favor hawks. These psychological impulses—only a few of which we discuss here—incline national leaders to exaggerate the evil intentions of adversaries, to misjudge how adversaries perceive them, to be overly sanguine when hostilities start, and overly reluctant to make necessary concessions in negotiations. In short, these biases have the effect of making wars more likely to begin and more difficult to end....

Don't Forget Afghanistan

Among all the havoc in the world, Americans all-too-often forget their oblications and interests in Afghanistan. This article does an excellent job of summarizing where we have been, where we are, and what we still have to do.

To read whole, long, article, click on the post title above.

Saving Afghanistan
Barnett R. Rubin
From Foreign Affairs, January/February 2007

Summary: With the Taliban resurgent, reconstruction faltering, and opium poppy cultivation at an all-time high, Afghanistan is at risk of collapsing into chaos. If Washington wants to save the international effort there, it must increase its commitment to the area and rethink its strategy -- especially its approach to Pakistan, which continues to give sanctuary to insurgents on its tribal frontier.

Barnett R. Rubin is Director of Studies and a Senior Fellow at New York University's Center on International Cooperation and the author of The Fragmentation of Afghanistan. He served as an adviser to the Special Representative of the Secretary-General at the UN Talks on Afghanistan in Bonn in 2001.

[continued...]

U.S. policymakers have misjudged Afghanistan, misjudged Pakistan, and, most of all, misjudged their own capacity to carry out major strategic change on the cheap. The Bush administration has sown disorder and strengthened Iran while claiming to create a "new Middle East," but it has failed to transform the region where the global terrorist threat began -- and where the global terrorist threat persists. If the United States wants to succeed in the war on terrorism, it must focus its resources and its attention on securing and stabilizing Afghanistan.

Carter on Israel and Palestine

I have recently finished reading (actually listening to the audio book) on President Jimmy Carter's recent book entitled "Palestine Peace Not Apartheid” (Simon & Schuster, November 2006). As you can see from the sample commentaries below and these web references, this book has been controversial, to say the least.

For a Zionist view of the errors of the Carter book, see:

http://zionism-israel.com/israel_news/2006/12/carters-palestine-israel-book-its-even.html


The Anti-Discrimination League has also checked in to condemn the book:

http://www.adl.org/israel/carter_book_review.asp

The following web address presents Carter's summary chapter:

http://abcnews.go.com/GMA/Books/story?id=2680021&page=1

Read this (or, preferably, the whole book) and draw your own conclusions. As for me, here are a few thoughts:

1. The title is certainly controversial, perhaps un-necessarily so. On the other hand, this provocative title has probably served to get the book's ideas debated.
2. Presumably, there are many errors of fact and appreciation in Carter's presentation. I am not really competent to judge these. But even if we discount the questionable "facts", Carter's main line of reasoning seems plausible.
3. Carter's prescriptions, summarized in the last chapter of the book, seem evident to me and have seemed so long before I read this book. Israel is simply not promoting its long-term interests by its current policies and practices. Likewise, the United States should encourage a change in Israel's approach, rather than support current erroneous approaches either explicitly or implicitly.

The following web site presents the so-called "Geneva Accord" referred to in the book and its summary chapter:

http://www.bitterlemons.org/docs/geneva.html

[By the way, the Bitterlemons site provides very interesting Israeli and Palestinian opinions on matters important in that region. If you are really interested in this subject, sign up for their free electronic newsletters.]

December 14, 2006, New York Times

Carter View Of Israeli' Apartheid' Stirs Furor

By JULIE BOSMAN

On Tuesday night in Phoenix, after signings and interviews to promote his new book, ''Palestine Peace Not Apartheid,'' President Jimmy Carter made a hastily arranged visit: an hourlong gathering with a group of rabbis.

''We ended up holding hands and circled in prayer,'' Mr. Carter said in a telephone interview from Phoenix, adding that the rabbis requested the meeting to discuss his book.

It was an unusual interruption during an unusually controversial book tour, which began with a few faint complaints last month and has escalated to a full-scale furor, with Mr. Carter being trailed by protesters at book signings, criticized on newspaper op-ed pages and, on the normally sedate ''Book TV'' program on C-Span2, being called a racist and an anti-Semite by an indignant caller.

Such backlash is triggered by Mr. Carter's assertions that pro-Israel lobbyists have stifled debate in the United States over the Israeli-Palestinian conflict; that Israelis are guilty of human rights abuses in Israeli-occupied Palestinian territories; and that the editorial pages of American newspapers rarely present anything but a pro-Israel viewpoint.

But the bulk of outrage has come from his use of the word apartheid in the title, apparently equating the plight of today's Palestinians to the former victims of government-mandated racial separation in South Africa.

Jewish groups have responded angrily, saying that Mr. Carter's claims are dangerous and anti-Semitic. But Mr. Carter is steadfastly defending the book, saying he believes there is a valid comparison between Israelis and the white South Africans who oppressed blacks.

''It was obviously going to be somewhat provocative,'' Mr. Carter said of the title. ''I could have said 'A New Path to Peace' or something like that.''

But Mr. Carter said he felt apartheid was the most pertinent word he could use, and in retrospect he would not change any of the book's content.

His book details his version of the history of the Israeli-Palestinian conflict, beginning with the 19th century. He concludes that Israel is now following a ''system of apartheid,'' in which Israelis are dominant and Palestinians are deprived of basic human rights.

The book was published Nov. 14 by Simon & Schuster. It is at No. 7 on The New York Times's best-seller list, and has sold more than 68,000 copies, according to Nielsen BookScan, which measures 60 to 70 percent of a book's sales.

In the interview Mr. Carter defined apartheid as the ''forced separation of two peoples in the same territory with one of the groups dominating or controlling the other.'' Under that definition, he said, the United States practiced a form of apartheid during its ''separate but equal'' years of segregation.

Opposition to the book has appeared widely on newspaper editorial pages, including in The Washington Post and The Atlanta Journal-Constitution.

In an essay titled ''It's Not Apartheid,'' Michael Kinsley lambasted the book in The Washington Post on Tuesday. ''It's not clear what he means by using the loaded word 'apartheid,' since the book makes no attempt to explain it, but the only reasonable interpretation is that Carter is comparing Israel to the former white racist government of South Africa,'' Mr. Kinsley wrote.

In The Jerusalem Post, David A. Harris, the executive director of the American Jewish Committee, called the book ''outlandishly titled.''

Abraham H. Foxman, the national director of the Anti-Defamation League, said: ''The title is to de-legitimize Israel, because if Israel is like South Africa, it doesn't really deserve to be a democratic state. He's provoking, he's outrageous, and he's bigoted.''

This week the Anti-Defamation League began running ads criticizing Mr. Carter in major newspapers, including The New York Times, The Washington Post, The Los Angeles Times and The Atlanta Journal-Constitution.

Mr. Carter has also fought off charges that he misappropriated material in a book by Dennis Ross, a former envoy to the Middle East who is now a foreign affairs analyst for Fox News.

And Kenneth W. Stein, an adviser to Mr. Carter, resigned last week from the Carter Center after calling the book ''replete with factual errors, copied materials not cited, superficialities, glaring omissions and simply invented segments.''

Mr. Carter contradicted those claims, saying he had never read Mr. Ross's book ''The Missing Peace.'' ''I wrote every word myself,'' he said. ''I didn't plagiarize anything.''

Mr. Carter has a longstanding interest in the Middle East conflict. When he won the 2002 Nobel Peace Prize, the prize committee cited his role in the 1978 Camp David accord between Israel and Egypt.

Mr. Carter wrote in an essay in The Los Angeles Times on Friday that the American Israel Public Affairs Committee's lobbying efforts have produced a reluctance to criticize the politics of the Israeli government. The editorial boards of major American newspapers and magazines, he continued, have exercised self-restraint on the subject of Israel and the Palestinians.

A vocal pro-Palestinian viewpoint, he said, is ''nonexistent in this country to any detectable degree.''

Which is the claim that Mr. Foxman said he found most offensive. ''The reason he gives for why he wrote this book is this shameless, shameful canard that the Jews control the debate in this country, especially when it comes to the media,'' he said. ''What makes this serious is that he's not just another pundit, and he's not just another analyst. He is a former president of the United States.''




A president remembers

The Carter version

Dec 13th 2006
From The Economist print edition

Palestine: Peace Not Apartheid By Jimmy Carter Simon & Schuster; 264 pages; $27. To be published in Britain by Simon & Schuster in February Buy it at Amazon.com Amazon.co.uk

JIMMY CARTER won a Nobel peace prize for bringing peace between Israel and Egypt at Camp David in 1978. Since then he has devoted his career to good causes, mainly through the Carter Centre, which helps to monitor elections and resolve conflicts around the world. Now he has stepped forthrightly back into the Middle East with a book promising to address “many sensitive political issues many American officials avoid”.

How daring. The book has certainly prompted a reaction. A former director of the Carter Centre resigned as one of the centre's fellows in protest at its inaccuracies. Harvard's Alan Dershowitz called the book so biased against the Jewish state as to be “indecent”. A luminary from the Washington Institute for Near East Policy was “saddened” by all the former president's historical errors.

Since some of these critics are what some would call the usual (pro-Israeli) suspects, pro-Palestinian readers may hope that Mr Carter takes on the fabled power of America's Jewish lobby. He does describe the misery of the occupied lands, calls for Israel to return to its pre-1967 borders and offers a few risqué paragraphs about a White House and Congress which the former president says have been “submissive” in the face of Israel's expansionism.

This may pass as daring in America. But tweaking the pro-Israel lobby is not the same thing as writing a good book. And this is a weak one, simplistic and one-sided as charged. Israeli expansionism gets the drubbing it deserves; Arab rejectionism gets off much too lightly.

Why? Perhaps because Mr Carter was had at Camp David. Egypt and Israel made the peace they craved by offering the Palestinians not much more than autonomy—and future talks. As Mr Carter now ruefully admits, Israel's Menachem Begin saw peace with Egypt as the main prize and intended to “finesse or deliberately violate” the undertaking to the Palestinians. What the former president does not dwell on enough is the extent to which the Palestine Liberation Organisation, and indeed most of the Arab world apart from Egypt, made Begin's job easy. They rejected the Camp David accords, and not until 1988—a full decade after Camp David—did Yasser Arafat grudgingly accept Israel's right to exist. By then it was a different Israel.

Palestine: Peace Not Apartheid.
By Jimmy Carter.
Simon & Schuster; 264 pages; $27. To be published in Britain by Simon & Schuster in February

A Practical (Cynical) View of the Mid East

As cynical as the following editorial souncs, I think that it is a realistic and practical guide. Is there any hope?

December 20, 2006

Op-Ed Columnist, New York Times

Mideast Rules to Live By

By THOMAS L. FRIEDMAN

For a long time, I let my hopes for a decent outcome in Iraq triumph over what I had learned reporting from Lebanon during its civil war. Those hopes vanished last summer. So, I’d like to offer President Bush my updated rules of Middle East reporting, which also apply to diplomacy, in hopes they’ll help him figure out what to do next in Iraq.

Rule 1: What people tell you in private in the Middle East is irrelevant. All that matters is what they will defend in public in their own language. Anything said to you in English, in private, doesn’t count. In Washington, officials lie in public and tell the truth off the record. In the Mideast, officials say what they really believe in public and tell you what you want to hear in private.

Rule 2: Any reporter or U.S. Army officer wanting to serve in Iraq should have to take a test, consisting of one question: “Do you think the shortest distance between two points is a straight line?” If you answer yes, you can’t go to Iraq. You can serve in Japan, Korea or Germany — not Iraq.

Rule 3: If you can’t explain something to Middle Easterners with a conspiracy theory, then don’t try to explain it at all — they won’t believe it.

Rule 4: In the Middle East, never take a concession, except out of the mouth of the person doing the conceding. If I had a dollar for every time someone agreed to recognize Israel on behalf of Yasir Arafat, I could paper my walls.

Rule 5: Never lead your story out of Lebanon, Gaza or Iraq with a cease-fire; it will always be over before the next morning’s paper.

Rule 6: In the Middle East, the extremists go all the way, and the moderates tend to just go away.

Rule 7: The most oft-used expression by moderate Arab pols is: “We were just about to stand up to the bad guys when you stupid Americans did that stupid thing. Had you stupid Americans not done that stupid thing, we would have stood up, but now it’s too late. It’s all your fault for being so stupid.”

Rule 8: Civil wars in the Arab world are rarely about ideas — like liberalism vs. communism. They are about which tribe gets to rule. So, yes, Iraq is having a civil war as we once did. But there is no Abe Lincoln in this war. It’s the South vs. the South.

Rule 9: In Middle East tribal politics there is rarely a happy medium. When one side is weak, it will tell you, “I’m weak, how can I compromise?” And when it’s strong, it will tell you, “I’m strong, why should I compromise?”

Rule 10: Mideast civil wars end in one of three ways: a) like the U.S. civil war, with one side vanquishing the other; b) like the Cyprus civil war, with a hard partition and a wall dividing the parties; or c) like the Lebanon civil war, with a soft partition under an iron fist (Syria) that keeps everyone in line. Saddam used to be the iron fist in Iraq. Now it is us. If we don’t want to play that role, Iraq’s civil war will end with A or B.

Rule 11: The most underestimated emotion in Arab politics is humiliation. The Israeli-Arab conflict, for instance, is not just about borders. Israel’s mere existence is a daily humiliation to Muslims, who can’t understand how, if they have the superior religion, Israel can be so powerful. Al Jazeera’s editor, Ahmed Sheikh, said it best when he recently told the Swiss weekly Die Weltwoche: “It gnaws at the people in the Middle East that such a small country as Israel, with only about seven million inhabitants, can defeat the Arab nation with its 350 million. That hurts our collective ego. The Palestinian problem is in the genes of every Arab. The West’s problem is that it does not understand this.”

Rule 12: Thus, the Israelis will always win, and the Palestinians will always make sure they never enjoy it. Everything else is just commentary.

Rule 13: Our first priority is democracy, but the Arabs’ first priority is “justice.” The oft-warring Arab tribes are all wounded souls, who really have been hurt by colonial powers, by Jewish settlements on Palestinian land, by Arab kings and dictators, and, most of all, by each other in endless tribal wars. For Iraq’s long-abused Shiite majority, democracy is first and foremost a vehicle to get justice. Ditto the Kurds. For the minority Sunnis, democracy in Iraq is a vehicle of injustice. For us, democracy is all about protecting minority rights. For them, democracy is first about consolidating majority rights and getting justice.

Rule 14: The Lebanese historian Kamal Salibi had it right: “Great powers should never get involved in the politics of small tribes.”

Rule 15: Whether it is Arab-Israeli peace or democracy in Iraq, you can’t want it more than they do.

Repairing Bush's Foreign Policy Mess

Nothing new or radical, but a good summary critique of Bush's foreign policy. To read rest of article, click on the post title above

How Bush can start fixing his policy failures

By Strobe Talbott

Published: December 19 2006 02:00 | Last updated: December 19 2006 02:00, Financial Times

The US faces in Iraq what could be the most consequential foreign-policy debacle in its history. The only other contender for that distinction is the Vietnam war. But Vietnam was a unitary state that had been artificially - and therefore temporarily - divided, while Iraq was an artificially united state that perhaps has now been permanently divided. Moreover, Iraq, unlike Vietnam, is surrounded by dominoes.

The origins of the looming -catastrophe go back to the beginning of George W. Bush's presidency. In his first nine months in office, the administration virtually suspended diplomacy in the Middle East and weakened or nullified a range of multilateral agreements. The result was widespread resentment over America's apparent disregard for international law, institutions, treaties and alliances.

After the September 11 2001 terrorist attacks, the Bush administration squandered an instantaneous outpouring of goodwill. It rejected an unprecedented offer from Nato to deploy troops alongside US forces in Afghanistan and used the 9/11 attacks as a pretext for invading Iraq, in part by "connecting the dots" between Afghan-based terrorism and Iraqi totalitarianism, even though the two phenomena were separate. The Iraq invasion was the high-water mark of Bush unilateralism and the low-water mark of America's standing in the world's eyes.

In the years ahead, the US will need maximum participation and trust from the international community, especially for the "diplomatic offensive" recommended by the Baker-Hamilton Study Group on Iraq. That will require not just a new approach to Iraq but an overhaul of US foreign policy. Yet the reluctance with which Mr Bush gave up on his effort to keep John Bolton as US ambassador to the United Nations suggests either that he does not understand the extent to which Mr Bolton personified the administration's contempt for the world body - or worse, does not care. Whatever course the president chooses in Iraq, he will need the UN. He should appoint a new UN ambassador who is inclined and empowered to strengthen an institution the US has systematically undercut in recent years. With this in mind, Mr Bush should meet early in the new year with Ban Ki-moon, incoming secretary-general, and help him establish the best possible relationship between the UN and the Congress....

The writer, president of the Brookings Institution, was deputy secretary of state in the Clinton administration and is writing a book on global governance

More Dollar Decline

I am hardly an expert on international finance, but this article makes sense to me. Until (and unless) we Americans change our profligate ways (I definitely include myself in that categorization), spending less and saving more, there is no reason to expect the dollar decline to abate. The only real question is whether the ongoing decline will be measured or dramatic. Sooner or later, unless we mend our ways, foreign dollar holders will give up on us and then "Katy Bar the Door".

The saga of the falling dollar still has a long way left to go

By Martin Wolf, Financial Times

Published: December 6 2006 02:00 | Last updated: December 6 2006 02:00

Richard Nixon's Treasury secretary, John Connolly, famously remarked that "the dollar is our currency, but your problem". He would be right again now. The rest of the world normally wants a strong dollar. Yet the dollar is now in a bear market. How long might this go on? The plausible answer must be: a while yet.

Since early 2002 the dollar has been on a steep downward path: on JPMorgan's trade-weighted real exchange rate it has depreciated by 23 per cent since February 2002 (see chart). This is the third such sustained decline since Mr Connolly's remarks. The first was during the early 1970s. The second was from 1985 to 1988. On each of the two previous occasions, the depreciating real exchange rate also helped generate a big adjustment in the balance of payments. This was strikingly true in the 1980s. The same thing is happening again.

Between 1996 and 2004, real US domestic demand grew faster than real gross domestic product every year (see chart). This was necessary, I have previously argued, if GDP was to rise in line with potential, given the prevailing real exchange rates and the weak rate of growth of demand in much of the rest of the world. Over these years, cumulative growth in US real demand was 39 per cent, while GDP grew by 33 per cent. The difference was the real increase in the deficit in trade in goods and non-factor services.

This has now changed. US real GDP will have grown at almost exactly the same rate as real demand in 2005 and 2006, according to the most recent economic outlook from the Organisation for Economic Co-operation and Development. In real terms, the current account deficit is consequently stabilising at last, albeit at a very high level.

US exports are also at last growing at roughly the same rate as imports: between the third quarter of 2003 and the third quarter of this year exports of goods and services grew 27 per cent, in constant prices, while imports rose 26 per cent. This is a big change: over the previous eight years, US exports rose by a mere 31 per cent, while imports rose by 80 per cent, again in constant prices.

Does this suggest that the needed adjustment in the real exchange rate has come to an end? Probably not.

If the current account deficit were to remain close to 7 per cent of GDP, US net liabilities would probably stabilise at substantially more than 100 per cent of GDP. That would be an extraordinarily high level for such a big economy. Moreover, one would expect a rise in net liabilities from about 22 per cent of GDP at the end of last year to force substantial changes in asset prices. The larger the US share in the portfolios of the rest of the world, the higher the prospective returns that foreign investors would be expected to demand, to compensate for the risk.

Either a lower dollar, or lower US asset prices, or both, would seem the inevitable result. Moreover, it is hard to imagine that a falling exchange rate would not be a big part of this picture. The fact that the US borrows entirely in its own currency makes deficits safer for itself, but riskier for its creditors. For this reason a belief that the currency has become undervalued - and so can be expected to appreciate - would make it easier to sustain net liabilities on such a gigantic scale. This is one reason why such movements tend to overshoot.

Moreover, some three-fifths of gross US liabilities of $13,625bn (£6,903bn) at the end of last year took the form of bonds, currency, bank liabilities and similar claims. The value of such claims to foreign creditors is more vulnerable to inflation and so to the impact on domestic prices of a sizeable currency depreciation than claims on real assets. The US cannot guarantee the dollar against a fall and would not wish to, even if it could. So creditors are likely to come to a point at which they wish to see the depreciation before they continue to supply the capital flows that will be needed.

Creditors will also be more willing to go on buying US assets if they start to see a reduction in the country's deficits. That would require a period during which exports grew faster than imports, in real terms. It is at least plausible that this would also necessitate a lower real exchange rate than we have ever seen before.

Thus, even though the currency has fallen a long way, it is easy to imagine its falling more. How far it would need to fall would depend on how quickly demand grew in the rest of the world. It would also depend on what happened in the US economy itself: the weaker domestic demand and the lower the interest rate, the lower the dollar itself might go.

In short, the long bear market in the dollar is probably not over. But even if it were over, on a trade-weighted basis, that would not be the end of the story. An overall decline is only a part of what is required. Also important is some redistribution of the adjustment.

Hitherto, high-income countries that are not running large current account surpluses have experienced big appreciations against the dollar, while the developing countries that are running such surpluses have not (see charts). That is unlikely to be sustainable, not least because it has required colossal exchange rate intervention. Official reserves exceeded $4,500bn by the end of the first half of 2006, an increase of some $2,700bn since the end of 1999.

It is possible to imagine a world in which a substantial part of the US current account deficit were shifted to other high-income countries by a depreciation of the currencies of the entire extended dollar area. But it is hard to imagine the countries with floating exchange rates tolerating such a shift for long. The eurozone is a particularly unlikely candidate.

Where then have we arrived in the story? First, adjustment is beginning to happen, as the dollar has plunged substantially on a trade-weighted basis, while demand in the rest of the world has also picked up; second, the decline in the dollar has probably not reached the level needed to sustain either a big diminution of the external deficit or the needed financing; third, even if it has, the necessary adjustment of exchange rates between the countries in the extended dollar area and countries with floating exchange rates has still hardly begun.

This extended saga will finish with many chapters: the rise of the dollar while the US current account deficit exploded was the first; the fall of the dollar while the current account deficit went on rising was the second; we are now in the third, when the deficit stabilises at last. But this story is not yet over. What sort of problem the dollar will prove to be over the entire cycle is unclear. All we can say at the moment is: "So far, not too bad." Let us hope it remains so.