-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Espionage China Steals . . . But What Did They Buy? White House solicited money during security investigation Most Americans will not be shocked to learn that China has spies. Nor would they be shocked to discover that these spies would be especially interested in the goings-on at our Los Alamos National Laboratory in New Mexico, ground zero for sensitive nuclear-weapons research. But what should disturb all Americans is the reluctance of the White House officials to do anything even after an Energy Department intelligence official alerted them that there was a spy in their midst--a warning both the FBI and CIA directors personally passed on to then Department of Energy chief Federico Pena. On their own the security lapses would be serious enough. According to the New York Times, which broke the story Saturday, stolen information about the U.S.'s most advanced miniature W-88 nuclear warhead from Los Alamos helped the Chinese close a generation gap in the development of its nuclear force. In particular it aided the development of small nuclear bombs that could hit multiple targets from a single missile, launched from land or submarine. But the story's context invites an even more chilling conclusion. The Clinton Administration's inaction, after all, did not occur in a vacuum. It came in the thick of a 1996 re-election effort we now know included campaign contributions from those with ties to the Chinese government, its military and even its intelligence organizations In other words, at the same time the FBI and CIA were investigating the source of the Los Alamos leak, Vice President Al Gore was passing the hat among inexplicably wealthy Buddhist nuns, Mr. Clinton was serving coffee at the White House to PLA arms dealer Wang Jun and the Administration responded favorably to a request from a man who would be the Democratic Party's largest donor in 1996--Loral Chairman Bernard L. Schwartz--to transfer authority over licensing of satellite technology from the State to Commerce Department. Two years later Loral would be granted a Presidential waiver to export its technology to China, even though it was under criminal investigation by the Justice Department for previous technology transfers. No wonder the Administration line has been to blame the Reagan and Bush administrations, the same reason it gave for signing the technology waivers in the first place. It is true that the original theft of the W-88 technology came in the mid-1980s, and that Mr. Clinton's predecessors bear the blame for lax security precautions at the time. But George Bush and Ronald Reagan did not have the repeated warnings about a spy in their midst. Nor were they playing host to PLA coffee klatches. Nor would they have waited until the New York Times put something on the front page to fire a suspected spy for a foreign interest. More to the point here, neither of Mr. Clinton's predecessors involved their foreign policy people in campaign politics the way this Administration has. What makes Sandy Berger's lack of action on the espionage front so scandalous is that as deputy National Security Adviser in 1996 he sat in on the weekly White House meetings about the re-election campaign. And he wasn't alone. The President himself chaired a September 13, 1995, meeting after which Johnny Huang--Lippo's man at the Commerce Department--was transferred to the Democratic National Committee. The result was that a man suspected of having compromised national security continued at his post, and foreign scientists were allowed to visit lab facilities without background checks. Indeed, the White House began to tighten things at Los Alamos only late last year, after the arrival of Bill Richardson at Energy and after a bipartisan committee convened by Rep. Chris Cox looked into issues of Chinese espionage and technology transfer. Over at Justice, meanwhile, the Attorney General resolutely refused to follow the recommendations of either FBI director Louis Freeh or her handpicked prosecutor, Charles La Bella, to appoint an independent counsel to look into any Chinese connection to the 1996 campaign. Doubtless we will learn more about the extent of China's espionage efforts if the the Cox committee overcomes White House objections to releasing all 700 pages of its report later this month. Sen. Richard Shelby, head of the Intelligence Committee, promises more hearings. But to get to the bottom of the issue we also need to know why Ms. Reno rejected an independent counsel, and if the campaign's money goals accounted for the Administration's reluctance to move on evidence of Chinese espionage. While we're at it, why was the DOE intelligence officer who first brought the theft of the W-88 technology to the attention of the CIA, FBI and Mr. Berger ordered not to talk to Congress about his concerns? And why was he later demoted? The Chinese, after all, are not stupid: they got the nuclear plans they were after. Presumably a country that is able to pull off an espionage coup of this magnitude is not likely to try to channel hundreds of thousands of dollars into a U.S. Presidential campaign without some quid pro quo in mind. The real scandal may not be what the Chinese were able to steal, but what they were able to buy. The Wall Street Journal, March 11, 1999 Deflation Continues Deflation Spreads Thoughout Asia Excess capacity increases SINGAPORE - When East Asia's financial crisis began in July 1997, officials and economists worried that it would cause runaway inflation. Now, they are more concerned about the specter of deepening deflation. Persistent price decreases in Japan, China, South Korea, Taiwan, Hong Kong and Singapore, triggered by too much capacity and too little demand, are depressing manufacturing production and profits. If deflation intensifies or spreads to other countries in the western Pacific, officials fear it will worsen unemployment and recession in the region. ''A major constraint to an early recovery, not yet adequately quantified, is the extent of overcapacity in the region, particularly in the property and industrial sectors,'' Foreign Minister Alexander Downer of Australia warned recently. ''The closure of factories and the loss of jobs as a result of the crisis will make it all the more difficult for economies to grow again quickly.'' Unfinished or unoccupied office blocks, apartment buildings and hotels in East Asian cities are an obvious legacy of the boom that went bust. Less obvious is the slump in demand that is forcing factories to close or lay off workers across the region. Many banks are unable or unwilling to lend to companies in East Asia because of perceived risks. Analysts said a deflationary spiral would make them even more reluctant to lend. ''Deflationary trends will exacerbate the banking-sector credit crunch, as banks are reluctant to lend in an environment of falling nominal returns,'' said Kate O'Donoghue, an associate director in the Singapore office of Barclays Capital, a unit of Barclays Bank. ''This will undermine already weak private consumption and investment.'' If banks won't extend new credits or roll over existing loans, more cash-starved borrowers and companies will have to sell assets to pay off debts. ''Deflation translates into higher real debt burdens, leading to low demand and an economic contraction, as we have seen in Japan from 1991 onward,'' said Ajay Kapur, an executive director at Morgan Stanley Dean Witter & Co. in Hong Kong. ''Corporate profits decline substantially, and the weakened banking system is a drag on the economy.'' In Japan, producer prices fell 4.4 percent in 1998, and the slide is intensifying; in the three months to December, they plunged 10.8 percent. Japanese consumer prices are projected to fall 0.6 percent this year. ''Clearly, the most likely place for a deflation downdraft to gain momentum is Japan,'' said Ian Harper, professorial fellow at Melbourne University's business school. ''Given the size and importance of the Japanese economy, the possibility of worldwide deflation led by Japan is undeniable and worrying.'' Japan is the second-largest economy in the world, after the United States, and accounts for two-thirds of Asia's output of goods and services. In China, where industry is plagued by stockpiles of unsold goods, retail prices have dropped for the past 14 months. In Taiwan, East Asia's best-performing economy after China, producer prices fell 10 percent in January, and core consumer prices dropped 1 percent. ''The Taiwan economy is flirting with deflation,'' said Guonan Ma, head of Asia-Pacific economic research in the Hong Kong office of the securities firm Salomon Smith Barney Inc. ''Tightening financial conditions, continued sluggish domestic demand and stronger overseas deflationary forces from China, Japan and Latin America could be the main contributing factors.'' South Korea's producer price index dropped 4.3 percent in February, against a 15.3 percent rise in the same month last year, while consumer prices rose just 0.2 percent, against a 9.5 percent rise in February 1998. ''Korea will experience price deflation for a number of months,'' said Rob Subramaniam, an economist in the Seoul office of Lehman Brothers. ''It's a reflection of the substantial amount of excess capacity, lack of demand and the strong Korean won, which makes imports cheaper.'' Consumer prices in Hong Kong are expected to decline 2.8 percent this year; in Singapore they will probably fall 0.5 percent, say forecasts by J.P. Morgan & Co., the U.S. investment bank. Other economists expect consumer prices in Singapore to drop as much as 1 percent in 1999, the second successive year of deflation. The official consumer price index declined 0.3 percent in 1998, crimping profits as companies were unable to raise prices. For some countries in East Asia, such as Indonesia and Thailand, the fall in inflation is welcome. For others, modest deflation may be tolerable. Price declines represent real income gains for consumers, said Vicky Wong, an economist in the Hong Kong office of J.P. Morgan. But she cautioned that any spending increase was liable to be outweighed by deteriorating business profits, rising job insecurity and depressed consumer sentiment. Some of the developing downward pressure on prices in East Asia is benign because it reflects technological advances and deregulation, said Russell Jones, an economist in the Tokyo office of Lehman Brothers. ''But the bulk is malign and a function of demand deficiency,'' he added. ''Anemic demand, business and consumer pessimism, and financial stress could feed off each other and encourage much steeper declines in the price level.'' International Herald Tribune, March 11, 1999 Latin America Ecuador's Bond Price Collapse Monday's bank holiday extended through today The deteriorating state of Ecuador's banking system and increased risk of a default on its external obligations has pushed up the country's bond yields, making it the world's second riskiest market after Russia. The price of Ecuadorean Brady bonds has fallen sharply in the past month and has been particularly volatile since the government closed the country's banks indefinitely on Monday for a "holiday" to halt the run on deposits. The spread between the yield on Ecuador's bonds and on benchmark US Treasury bonds has widened by almost 10 percentage points (1,000 basis points) in the past month. The spread touched 2,300 basis points over US Treasuries yesterday. Russia's yield spread is almost 5,500 basis points. Peter West, chief economist at BBV Latinvest in London, said while yield spreads were not yet at default levels they reflected increased concern about the government's ability to service its external debt. Ecuador's government has declared a state of emergency and yesterday brought in troops to guard oil installations and electricity plants during a two-day general strike, staged to protest at the government's austerity plans. Riot police broke up protests with tear gas. Analysts say Ecuador had no choice but to reform its banking system and push for tough fiscal measures, including an increase in value added tax, if it wanted to reach an agreement with the International Monetary Fund and avoid economic collapse. The government is due to announce measures to restore investor confidence today. Joyce Chang, emerging markets debt strategist at Merrill Lynch in New York, said it would be wrong to compare Ecuador with Russia, which defaulted on its domestic debt last August. Unlike Russia, Ecuador is not in imminent danger of insolvency and the size of its domestic debt is negligible. But the risk of Ecuador going into a steep economic decline was high, she added. It only has to pay $240m this year in interest payments on its $4.4bn Brady bonds, but it is already in arrears on its Paris club debt (borrowings from other governments). The country has foreign exchange reserves of under $1.3bn. Ms Chang said the sharp falls in the price of its Brady bonds reflected the extreme risks investors were facing. "Ecuador's government only has two options: either to take difficult steps to secure IMF support, or to go into a downward spiral." The government has raised the possibility of introducing a currency board as a means of restoring stability to the battered sucre - which has fallen about 40 per cent against the US dollar since it was floated last month - and bringing confidence back to its financial system. Analysts said a currency board was unrealistic. "Nobody really believes they are in the position to introduce a currency board at this stage. The preconditions for this simply do not exist in Ecuador," Mr West said. The Financial Times, March 11, 1999 World Trade The Folly of "Fair Trade" by Jagdish Bhagwati President Clinton is widely credited with a successful trade policy. But nothing is further from the truth. His successes, principally with the Uruguay Round, reflect the completion of initiatives begun by his predecessors. His failures, dramatic indeed, have been his own. Mr. Clinton's trade policy during his first term was marred by an obsession with Japan. It resulted in the failure of the 1994 Hosokawa-Clinton summit in Washington as Japan turned down the administration's "managed-trade" demands for import targets. Washington also started and lost badly the high-profile dispute over automobiles. The president's second term has been no better. What else can one conclude from the first-ever failure by a president to secure fast-track authority from Congress? It should therefore come as no surprise that this administration is currently embroiled in a variety of disputes with foreign trading nations. It complains and fights over steel with Russia and Japan, bananas and hormone-fed beef with the European Union, genetically modified products with many nations, the insertion of a Social Clause into the World Trade Organization agreement with developing countries, cultural restraints with Canada, macroeconomic policies with the EU and Japan . . . the list, already frighteningly long, keeps expanding. Ironically, this is at a time when the U.S. enjoys unique prosperity in a world economy mired in the aftermath of the Asian financial crisis. America should, by all historical reckoning, be feisty about its trading fortunes rather than frustrated and fearful. Where have we gone wrong? It is tempting to argue that trade policy has been captured by lawyers and trade negotiators. The former aim to win cases and the latter seek concessions; both thrive on strategic confrontations, and neither has a sense of trade architecture. I once heard former U.S. Trade Representative Mickey Kantor profusely compliment a bureaucrat for having negotiated "several trade agreements"--all of which were bilateral textile accords that restricted trade. Some of the administration's key players in trade today, including the ambassador to the World Trade Organization, cut their teeth on such textile bilaterals. But this theme can be overdone. After all, it is the political system that has chosen the lawyers and set them off on their mission. The underlying problem is the pervasive notion that the rest of the world engages in "unfair trade." The notion of "fair trade" is inherently vacuous. Economics teaches us that we generally gain from trade regardless of what our partners do. As the Cambridge economist Joan Robinson observed, we may think fairness requires that we throw stones into our harbor because our trading partners throw stones into theirs, but doing so only compounds our losses. Yet the idea of fair trade guides U.S. trade policy, instilling officials with a false sense of moral authority that sparks impatience and unilateral threats and actions. Protection-seeking lobbies love the concept because it is elastic and arbitrary enough to make virtually any trade look unfair if the going gets tough; and it also has political resonance in a society that prides itself on equal opportunity and fair competition. The objections to "unfair trade" by U.S. trading partners began in the 1980s, reaching a crescendo in the Clinton years. When Japan emerged as a major rival, American politicians began to demonize it as a wicked trader whose export policies were predatory and import policies exclusionary. When U.S. unions and politicians opposed the North American Free Trade Agreement, they condemned Mexico as a country with which free trade would be unfair because its environmental and labor standards were not up to snuff. This distrust of trading partners actually has the force of law. Section 301 of the U.S. trade law authorizes retaliatory tariffs against countries whose trade policies the U.S. deems "unreasonable." Not surprisingly, other countries hugely resent this law. The EU, with Japan's support, has asked the WTO to rule on whether Section 301 violates the organization's rules. The administration's handling of the clamor for protecting steel exemplifies the folly of "fair trade." The administration's two attack dogs on trade, Trade Representative Charlene Barshefsky and Commerce Secretary William Daley, have ceaselessly complained about America's increased trade deficit, a sure sign, they claim, that the U.S. has become an "importer of last resort" because the EU and Japan haven't "done enough" to accelerate their growth through appropriate macroeconomic policies. This has encouraged the notion that EU and Japan are therefore not playing fair, and that the responsibility for the outbreak of steel protectionism, and its indulgence by the administration, are the responsibility of these other nations. How absurd can you get? These are the best of times for the U.S., and the administration should focus on that and tell the public that the trade deficit is irrelevant to the total job situation right now. What's more, to add to the list of "unfair trade practices" the inadequacy of macroeconomic policies abroad is plainly foolish. An administration whose misjudgments helped create the Asian financial crisis, the worst man-made economic disaster since the Great Crash of 1929, should at least understand that macroeconomic-policy correctness is an elusive concept. If it is politically unavoidable to offer some protection for U.S. steel producers, the administration could have done so without zeroing in on specific suppliers, such as Russia and Japan, demonizing them and adding to the hysteria over unfair trade. Invoking Section 201, the Safeguards Clause, would permit legal restriction of imports in a neutral fashion without discriminating against particular suppliers. The skirmish with the EU over hormone-fed beef is another example of the administration converting a manageable trade issue into an unmanageable "unfair trade practice." Although the U.S. has won the battle at the WTO, the fact is that the Europeans were not being protectionist. They can use hormones as well as we can, but they face a consumer movement that simply will not let hormone-fed beef be sold in European markets. Rather than force the Europeans to shape up or accept retaliatory measures, surely it is in America's interests to assume that over time these consumer sentiments will abate. In the meantime it is sensible to propose a labeling solution that the Europeans must be urged to accept in lieu of hugely disruptive tariff retaliation. Ms. Barshefsky has recently made noises in this direction. But she cannot have been serious when she reportedly said that, rather than use the label "Hormone-Fed Beef," the administration would propose that we be allowed to say "Made in USA" since everyone knows that Americans use hormones. That's like saying "Made in India" is the equivalent of "Made with Child Labor," because everyone knows that India has child labor. Look at each trade skirmish and you will find American suspicion of "unfair trade." At times, this prompts a rush to unilateral action--as in the banana dispute with the EU, in which Washington refuses to wait for the legal process at WTO to run its course. It is time for the president to assert his leadership and restore a vision and coherence to trade policy--one that abandons the empty notion of fair trade and champions trade that is truly free. The Wall Street Journal, March 11, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. 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