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September 29, 2006

New York Times comes late to the party

Here’s what happens when this irresponsible Congress railroads a profoundly important bill to serve the mindless politics of a midterm election: The Bush administration uses Republicans’ fear of losing their majority to push through ghastly ideas about antiterrorism that will make American troops less safe and do lasting damage to our 217-year-old nation of laws — while actually doing nothing to protect the nation from terrorists. Democrats betray their principles to avoid last-minute attack ads. Our democracy is the big loser.

Republicans say Congress must act right now to create procedures for charging and trying terrorists — because the men accused of plotting the 9/11 attacks are available for trial. That’s pure propaganda. Those men could have been tried and convicted long ago, but President Bush chose not to. He held them in illegal detention, had them questioned in ways that will make real trials very hard, and invented a transparently illegal system of kangaroo courts to convict them.

It was only after the Supreme Court issued the inevitable ruling striking down Mr. Bush’s shadow penal system that he adopted his tone of urgency. It serves a cynical goal: Republican strategists think they can win this fall, not by passing a good law but by forcing Democrats to vote against a bad one so they could be made to look soft on terrorism.

Last week, the White House and three Republican senators announced a terrible deal on this legislation that gave Mr. Bush most of what he wanted, including a blanket waiver for crimes Americans may have committed in the service of his antiterrorism policies. Then Vice President Dick Cheney and his willing lawmakers rewrote the rest of the measure so that it would give Mr. Bush the power to jail pretty much anyone he wants for as long as he wants without charging them, to unilaterally reinterpret the Geneva Conventions, to authorize what normal people consider torture, and to deny justice to hundreds of men captured in error.

These are some of the bill’s biggest flaws:

Enemy Combatants: A dangerously broad definition of “illegal enemy combatant” in the bill could subject legal residents of the United States, as well as foreign citizens living in their own countries, to summary arrest and indefinite detention with no hope of appeal. The president could give the power to apply this label to anyone he wanted.

The Geneva Conventions: The bill would repudiate a half-century of international precedent by allowing Mr. Bush to decide on his own what abusive interrogation methods he considered permissible. And his decision could stay secret — there’s no requirement that this list be published.

Habeas Corpus: Detainees in U.S. military prisons would lose the basic right to challenge their imprisonment. These cases do not clog the courts, nor coddle terrorists. They simply give wrongly imprisoned people a chance to prove their innocence.

Judicial Review: The courts would have no power to review any aspect of this new system, except verdicts by military tribunals. The bill would limit appeals and bar legal actions based on the Geneva Conventions, directly or indirectly. All Mr. Bush would have to do to lock anyone up forever is to declare him an illegal combatant and not have a trial.

Coerced Evidence: Coerced evidence would be permissible if a judge considered it reliable — already a contradiction in terms — and relevant. Coercion is defined in a way that exempts anything done before the passage of the 2005 Detainee Treatment Act, and anything else Mr. Bush chooses.

Secret Evidence: American standards of justice prohibit evidence and testimony that is kept secret from the defendant, whether the accused is a corporate executive or a mass murderer. But the bill as redrafted by Mr. Cheney seems to weaken protections against such evidence.

Offenses: The definition of torture is unacceptably narrow, a virtual reprise of the deeply cynical memos the administration produced after 9/11. Rape and sexual assault are defined in a retrograde way that covers only forced or coerced activity, and not other forms of nonconsensual sex. The bill would effectively eliminate the idea of rape as torture.

•There is not enough time to fix these bills, especially since the few Republicans who call themselves moderates have been whipped into line, and the Democratic leadership in the Senate seems to have misplaced its spine. If there was ever a moment for a filibuster, this was it.

We don’t blame the Democrats for being frightened. The Republicans have made it clear that they’ll use any opportunity to brand anyone who votes against this bill as a terrorist enabler. But Americans of the future won’t remember the pragmatic arguments for caving in to the administration.

They’ll know that in 2006, Congress passed a tyrannical law that will be ranked with the low points in American democracy, our generation’s version of the Alien and Sedition Acts.

September 26, 2006

Crash dead ahead! You bet!

Fred Hickey is used to going against the crowd.
    Everyone scoffed in 1999 when the veteran Nashua, N.H., stock market guru, who publishes the influential High-Tech Strategist investment newsletter, warned that the tech bubble was going to pop.
    And they dismissed him as a wild alarmist early last year when he said house prices were going to slump.
    What’s his view now?
    “I think we’re going to have a crash, across the stock market,” he told me Friday.
    Yes, Wall Street has been flirting with new highs. And the stock market cheerleaders on TV are waving their pom-poms madly, urging you to put more money into the market.
    But people with long memories know that is exactly the time to get nervous.
    Think: 1929, 1987 and 1999.
    Hickey isn’t alone in his worries. As reported here, several top investment managers - from Warren Buffett to Jeremy Grantham to Manu Daftary - have been pulling back from the stock market and hoarding cash.
    Many simply think equity prices are too high.
    Hickey’s viewpoint is more alarming. He thinks the real estate slump is going to develop into a crisis that will spread across the economy.
    Hickey points out that housing sales have collapsed, prices are eroding, and a whole army of homeowners on adjustable-rate mortgages face sharp spikes in their monthly payments as their introductory periods expire.
    And he thinks it’s going to get a lot worse.
    “Even with everything we’ve witnessed to date, people still think it isn’t going to be that bad, that it’s going to be a nice, slow, measured (decline),” he said with disbelief.
    Early last year Hickey backed his prediction by betting his own money against shares in high-end homebuilding company Toll Brothers.
    He cleaned up. They’ve collapsed from $57 to just $27.81 as the housing bubble - to the astonishment of Realtors, naturally - finally popped.
    He’s closed that bet, but opened up two others: Against homebuilders WCI Communities and Lennar. Both, he notes, have big exposure to the wild Florida real estate market. WCI, he adds, is also running low on cash.
    But it doesn’t stop there, he argues. If housing crashes, the debt-ridden U.S. consumer will stop shopping. And the knock-on effects will follow through across the economy - and around the world.
    Is he right? We’ll see, one way or another.
    But he’s certainly putting his money where his mouth is. Hickey is betting against a wide range of U.S. stocks, including Google, IBM, Motorola, Intel, Apple, Research In Motion, Texas Instruments and Amazon. “I’ve got the biggest number of short positions I’ve ever had,” he says.
    The next few weeks should tell an interesting story. U.S. companies are due to start reporting in numbers on the summer season, which ends on Sunday.
    Companies generally tell investors by the end of the quarter, or soon afterwards, if profits are a long way short of expectations.
    Hickey’s been keeping count, and he says such pre-announcements are up around 150 percent from the same time three months ago.

September 21, 2006

Self Control

If, in fact, you can't control or manipulate the markets and the markets have absolutely no power or control over you, then the responsibility for what you perceive and for your resulting behavior resides only in you. The one thing you can control is yourself. As a trader, you have the power either to give yourself money or to give your money to other traders.----The Disciplined Trader,Mark Douglas

September 18, 2006

Faith, Reason and the University

Your Eminences, Your Magnificences, Your Excellencies,
Distinguished Ladies and Gentlemen,


It is a moving experience for me to be back again in the university and to be able once again to give a lecture at this podium. I think back to those years when, after a pleasant period at the Freisinger Hochschule, I began teaching at the University of Bonn. That was in 1959, in the days of the old university made up of ordinary professors. The various chairs had neither assistants nor secretaries, but in recompense there was much direct contact with students and in particular among the professors themselves. We would meet before and after lessons in the rooms of the teaching staff. There was a lively exchange with historians, philosophers, philologists and, naturally, between the two theological faculties. Once a semester there was a dies academicus, when professors from every faculty appeared before the students of the entire university, making possible a genuine experience of universitas - something that you too, Magnificent Rector, just mentioned - the experience, in other words, of the fact that despite our specializations which at times make it difficult to communicate with each other, we made up a whole, working in everything on the basis of a single rationality with its various aspects and sharing responsibility for the right use of reason - this reality became a lived experience. The university was also very proud of its two theological faculties. It was clear that, by inquiring about the reasonableness of faith, they too carried out a work which is necessarily part of the "whole" of the universitas scientiarum, even if not everyone could share the faith which theologians seek to correlate with reason as a whole. This profound sense of coherence within the universe of reason was not troubled, even when it was once reported that a colleague had said there was something odd about our university: it had two faculties devoted to something that did not exist: God. That even in the face of such radical scepticism it is still necessary and reasonable to raise the question of God through the use of reason, and to do so in the context of the tradition of the Christian faith: this, within the university as a whole, was accepted without question.

I was reminded of all this recently, when I read the edition by Professor Theodore Khoury (Münster) of part of the dialogue carried on - perhaps in 1391 in the winter barracks near Ankara - by the erudite Byzantine emperor Manuel II Paleologus and an educated Persian on the subject of Christianity and Islam, and the truth of both. It was presumably the emperor himself who set down this dialogue, during the siege of Constantinople between 1394 and 1402; and this would explain why his arguments are given in greater detail than those of his Persian interlocutor. The dialogue ranges widely over the structures of faith contained in the Bible and in the Qur'an, and deals especially with the image of God and of man, while necessarily returning repeatedly to the relationship between - as they were called - three "Laws" or "rules of life": the Old Testament, the New Testament and the Qur'an. It is not my intention to discuss this question in the present lecture; here I would like to discuss only one point - itself rather marginal to the dialogue as a whole - which, in the context of the issue of "faith and reason", I found interesting and which can serve as the starting-point for my reflections on this issue.

In the seventh conversation (*4V8,>4H - controversy) edited by Professor Khoury, the emperor touches on the theme of the holy war. The emperor must have known that surah 2, 256 reads: "There is no compulsion in religion". According to the experts, this is one of the suras of the early period, when Mohammed was still powerless and under threat. But naturally the emperor also knew the instructions, developed later and recorded in the Qur'an, concerning holy war. Without descending to details, such as the difference in treatment accorded to those who have the "Book" and the "infidels", he addresses his interlocutor with a startling brusqueness on the central question about the relationship between religion and violence in general, saying: "Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached". The emperor, after having expressed himself so forcefully, goes on to explain in detail the reasons why spreading the faith through violence is something unreasonable. Violence is incompatible with the nature of God and the nature of the soul. "God", he says, "is not pleased by blood - and not acting reasonably (F×< 8`(T) is contrary to God's nature. Faith is born of the soul, not the body. Whoever would lead someone to faith needs the ability to speak well and to reason properly, without violence and threats... To convince a reasonable soul, one does not need a strong arm, or weapons of any kind, or any other means of threatening a person with death...".

The decisive statement in this argument against violent conversion is this: not to act in accordance with reason is contrary to God's nature. The editor, Theodore Khoury, observes: For the emperor, as a Byzantine shaped by Greek philosophy, this statement is self-evident. But for Muslim teaching, God is absolutely transcendent. His will is not bound up with any of our categories, even that of rationality. Here Khoury quotes a work of the noted French Islamist R. Arnaldez, who points out that Ibn Hazn went so far as to state that God is not bound even by his own word, and that nothing would oblige him to reveal the truth to us. Were it God's will, we would even have to practise idolatry.

At this point, as far as understanding of God and thus the concrete practice of religion is concerned, we are faced with an unavoidable dilemma. Is the conviction that acting unreasonably contradicts God's nature merely a Greek idea, or is it always and intrinsically true? I believe that here we can see the profound harmony between what is Greek in the best sense of the word and the biblical understanding of faith in God. Modifying the first verse of the Book of Genesis, the first verse of the whole Bible, John began the prologue of his Gospel with the words: "In the beginning was the 8`(@H". This is the very word used by the emperor: God acts, F×< 8`(T, with logos. Logos means both reason and word - a reason which is creative and capable of self-communication, precisely as reason. John thus spoke the final word on the biblical concept of God, and in this word all the often toilsome and tortuous threads of biblical faith find their culmination and synthesis. In the beginning was the logos, and the logos is God, says the Evangelist. The encounter between the Biblical message and Greek thought did not happen by chance. The vision of Saint Paul, who saw the roads to Asia barred and in a dream saw a Macedonian man plead with him: "Come over to Macedonia and help us!" (cf. Acts 16:6-10) - this vision can be interpreted as a "distillation" of the intrinsic necessity of a rapprochement between Biblical faith and Greek inquiry.

In point of fact, this rapprochement had been going on for some time. The mysterious name of God, revealed from the burning bush, a name which separates this God from all other divinities with their many names and simply declares "I am", already presents a challenge to the notion of myth, to which Socrates' attempt to vanquish and transcend myth stands in close analogy. Within the Old Testament, the process which started at the burning bush came to new maturity at the time of the Exile, when the God of Israel, an Israel now deprived of its land and worship, was proclaimed as the God of heaven and earth and described in a simple formula which echoes the words uttered at the burning bush: "I am". This new understanding of God is accompanied by a kind of enlightenment, which finds stark expression in the mockery of gods who are merely the work of human hands (cf. Ps 115). Thus, despite the bitter conflict with those Hellenistic rulers who sought to accommodate it forcibly to the customs and idolatrous cult of the Greeks, biblical faith, in the Hellenistic period, encountered the best of Greek thought at a deep level, resulting in a mutual enrichment evident especially in the later wisdom literature. Today we know that the Greek translation of the Old Testament produced at Alexandria - the Septuagint - is more than a simple (and in that sense really less than satisfactory) translation of the Hebrew text: it is an independent textual witness and a distinct and important step in the history of revelation, one which brought about this encounter in a way that was decisive for the birth and spread of Christianity. A profound encounter of faith and reason is taking place here, an encounter between genuine enlightenment and religion. From the very heart of Christian faith and, at the same time, the heart of Greek thought now joined to faith, Manuel II was able to say: Not to act "with logos" is contrary to God's nature.

In all honesty, one must observe that in the late Middle Ages we find trends in theology which would sunder this synthesis between the Greek spirit and the Christian spirit. In contrast with the so-called intellectualism of Augustine and Thomas, there arose with Duns Scotus a voluntarism which, in its later developments, led to the claim that we can only know God's voluntas ordinata. Beyond this is the realm of God's freedom, in virtue of which he could have done the opposite of everything he has actually done. This gives rise to positions which clearly approach those of Ibn Hazn and might even lead to the image of a capricious God, who is not even bound to truth and goodness. God's transcendence and otherness are so exalted that our reason, our sense of the true and good, are no longer an authentic mirror of God, whose deepest possibilities remain eternally unattainable and hidden behind his actual decisions. As opposed to this, the faith of the Church has always insisted that between God and us, between his eternal Creator Spirit and our created reason there exists a real analogy, in which - as the Fourth Lateran Council in 1215 stated - unlikeness remains infinitely greater than likeness, yet not to the point of abolishing analogy and its language. God does not become more divine when we push him away from us in a sheer, impenetrable voluntarism; rather, the truly divine God is the God who has revealed himself as logos and, as logos, has acted and continues to act lovingly on our behalf. Certainly, love, as Saint Paul says, "transcends" knowledge and is thereby capable of perceiving more than thought alone (cf. Eph 3:19); nonetheless it continues to be love of the God who is Logos. Consequently, Christian worship is, again to quote Paul - "8@(46¬ 8"JD,\"", worship in harmony with the eternal Word and with our reason (cf. Rom 12:1).

This inner rapprochement between Biblical faith and Greek philosophical inquiry was an event of decisive importance not only from the standpoint of the history of religions, but also from that of world history - it is an event which concerns us even today. Given this convergence, it is not surprising that Christianity, despite its origins and some significant developments in the East, finally took on its historically decisive character in Europe. We can also express this the other way around: this convergence, with the subsequent addition of the Roman heritage, created Europe and remains the foundation of what can rightly be called Europe.

The thesis that the critically purified Greek heritage forms an integral part of Christian faith has been countered by the call for a dehellenization of Christianity - a call which has more and more dominated theological discussions since the beginning of the modern age. Viewed more closely, three stages can be observed in the programme of dehellenization: although interconnected, they are clearly distinct from one another in their motivations and objectives.

Dehellenization first emerges in connection with the postulates of the Reformation in the sixteenth century. Looking at the tradition of scholastic theology, the Reformers thought they were confronted with a faith system totally conditioned by philosophy, that is to say an articulation of the faith based on an alien system of thought. As a result, faith no longer appeared as a living historical Word but as one element of an overarching philosophical system. The principle of sola scriptura, on the other hand, sought faith in its pure, primordial form, as originally found in the biblical Word. Metaphysics appeared as a premise derived from another source, from which faith had to be liberated in order to become once more fully itself. When Kant stated that he needed to set thinking aside in order to make room for faith, he carried this programme forward with a radicalism that the Reformers could never have foreseen. He thus anchored faith exclusively in practical reason, denying it access to reality as a whole.

The liberal theology of the nineteenth and twentieth centuries ushered in a second stage in the process of dehellenization, with Adolf von Harnack as its outstanding representative. When I was a student, and in the early years of my teaching, this programme was highly influential in Catholic theology too. It took as its point of departure Pascal's distinction between the God of the philosophers and the God of Abraham, Isaac and Jacob. In my inaugural lecture at Bonn in 1959, I tried to address the issue, and I do not intend to repeat here what I said on that occasion, but I would like to describe at least briefly what was new about this second stage of dehellenization. Harnack's central idea was to return simply to the man Jesus and to his simple message, underneath the accretions of theology and indeed of hellenization: this simple message was seen as the culmination of the religious development of humanity. Jesus was said to have put an end to worship in favour of morality. In the end he was presented as the father of a humanitarian moral message. Fundamentally, Harnack's goal was to bring Christianity back into harmony with modern reason, liberating it, that is to say, from seemingly philosophical and theological elements, such as faith in Christ's divinity and the triune God. In this sense, historical-critical exegesis of the New Testament, as he saw it, restored to theology its place within the university: theology, for Harnack, is something essentially historical and therefore strictly scientific. What it is able to say critically about Jesus is, so to speak, an expression of practical reason and consequently it can take its rightful place within the university. Behind this thinking lies the modern self-limitation of reason, classically expressed in Kant's "Critiques", but in the meantime further radicalized by the impact of the natural sciences. This modern concept of reason is based, to put it briefly, on a synthesis between Platonism (Cartesianism) and empiricism, a synthesis confirmed by the success of technology. On the one hand it presupposes the mathematical structure of matter, its intrinsic rationality, which makes it possible to understand how matter works and use it efficiently: this basic premise is, so to speak, the Platonic element in the modern understanding of nature. On the other hand, there is nature's capacity to be exploited for our purposes, and here only the possibility of verification or falsification through experimentation can yield ultimate certainty. The weight between the two poles can, depending on the circumstances, shift from one side to the other. As strongly positivistic a thinker as J. Monod has declared himself a convinced Platonist/Cartesian.

This gives rise to two principles which are crucial for the issue we have raised. First, only the kind of certainty resulting from the interplay of mathematical and empirical elements can be considered scientific. Anything that would claim to be science must be measured against this criterion. Hence the human sciences, such as history, psychology, sociology and philosophy, attempt to conform themselves to this canon of scientificity. A second point, which is important for our reflections, is that by its very nature this method excludes the question of God, making it appear an unscientific or pre-scientific question. Consequently, we are faced with a reduction of the radius of science and reason, one which needs to be questioned.

I will return to this problem later. In the meantime, it must be observed that from this standpoint any attempt to maintain theology's claim to be "scientific" would end up reducing Christianity to a mere fragment of its former self. But we must say more: if science as a whole is this and this alone, then it is man himself who ends up being reduced, for the specifically human questions about our origin and destiny, the questions raised by religion and ethics, then have no place within the purview of collective reason as defined by "science", so understood, and must thus be relegated to the realm of the subjective. The subject then decides, on the basis of his experiences, what he considers tenable in matters of religion, and the subjective "conscience" becomes the sole arbiter of what is ethical. In this way, though, ethics and religion lose their power to create a community and become a completely personal matter. This is a dangerous state of affairs for humanity, as we see from the disturbing pathologies of religion and reason which necessarily erupt when reason is so reduced that questions of religion and ethics no longer concern it. Attempts to construct an ethic from the rules of evolution or from psychology and sociology, end up being simply inadequate.

Before I draw the conclusions to which all this has been leading, I must briefly refer to the third stage of dehellenization, which is now in progress. In the light of our experience with cultural pluralism, it is often said nowadays that the synthesis with Hellenism achieved in the early Church was a preliminary inculturation which ought not to be binding on other cultures. The latter are said to have the right to return to the simple message of the New Testament prior to that inculturation, in order to inculturate it anew in their own particular milieux. This thesis is not only false; it is coarse and lacking in precision. The New Testament was written in Greek and bears the imprint of the Greek spirit, which had already come to maturity as the Old Testament developed. True, there are elements in the evolution of the early Church which do not have to be integrated into all cultures. Nonetheless, the fundamental decisions made about the relationship between faith and the use of human reason are part of the faith itself; they are developments consonant with the nature of faith itself.

And so I come to my conclusion. This attempt, painted with broad strokes, at a critique of modern reason from within has nothing to do with putting the clock back to the time before the Enlightenment and rejecting the insights of the modern age. The positive aspects of modernity are to be acknowledged unreservedly: we are all grateful for the marvellous possibilities that it has opened up for mankind and for the progress in humanity that has been granted to us. The scientific ethos, moreover, is - as you yourself mentioned, Magnificent Rector - the will to be obedient to the truth, and, as such, it embodies an attitude which belongs to the essential decisions of the Christian spirit. The intention here is not one of retrenchment or negative criticism, but of broadening our concept of reason and its application. While we rejoice in the new possibilities open to humanity, we also see the dangers arising from these possibilities and we must ask ourselves how we can overcome them. We will succeed in doing so only if reason and faith come together in a new way, if we overcome the self-imposed limitation of reason to the empirically verifiable, and if we once more disclose its vast horizons. In this sense theology rightly belongs in the university and within the wide-ranging dialogue of sciences, not merely as a historical discipline and one of the human sciences, but precisely as theology, as inquiry into the rationality of faith.

Only thus do we become capable of that genuine dialogue of cultures and religions so urgently needed today. In the Western world it is widely held that only positivistic reason and the forms of philosophy based on it are universally valid. Yet the world's profoundly religious cultures see this exclusion of the divine from the universality of reason as an attack on their most profound convictions. A reason which is deaf to the divine and which relegates religion into the realm of subcultures is incapable of entering into the dialogue of cultures. At the same time, as I have attempted to show, modern scientific reason with its intrinsically Platonic element bears within itself a question which points beyond itself and beyond the possibilities of its methodology. Modern scientific reason quite simply has to accept the rational structure of matter and the correspondence between our spirit and the prevailing rational structures of nature as a given, on which its methodology has to be based. Yet the question why this has to be so is a real question, and one which has to be remanded by the natural sciences to other modes and planes of thought - to philosophy and theology. For philosophy and, albeit in a different way, for theology, listening to the great experiences and insights of the religious traditions of humanity, and those of the Christian faith in particular, is a source of knowledge, and to ignore it would be an unacceptable restriction of our listening and responding. Here I am reminded of something Socrates said to Phaedo. In their earlier conversations, many false philosophical opinions had been raised, and so Socrates says: "It would be easily understandable if someone became so annoyed at all these false notions that for the rest of his life he despised and mocked all talk about being - but in this way he would be deprived of the truth of existence and would suffer a great loss". The West has long been endangered by this aversion to the questions which underlie its rationality, and can only suffer great harm thereby. The courage to engage the whole breadth of reason, and not the denial of its grandeur - this is the programme with which a theology grounded in Biblical faith enters into the debates of our time. "Not to act reasonably, not to act with logos, is contrary to the nature of God", said Manuel II, according to his Christian understanding of God, in response to his Persian interlocutor. It is to this great logos, to this breadth of reason, that we invite our partners in the dialogue of cultures. To rediscover it constantly is the great task of the university.




The Holy Father intends to supply a subsequent version of this text, complete with footnotes. The present text must therefore be considered provisional.


September 07, 2006

UN report warns Asian governments to prepare for financial downturn

 – (31 August 2006)

The United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) today warned the region’s governments to reduce exposure to the impact of a sudden or unexpected market downturn, urging a mood of protection and preparation rather than the celebratory atmosphere of current prosperity.

Asian countries have to stay alert despite the lull in financial markets recently, says UNESCAP in a new report, The Calm Before the Storm? Managing the Risks of an Asia-Pacific Financial Downturn. “There are a number of new emerging risks which may lead to more stormy weather ahead,” the report warns, citing possible interest rates hikes in developed countries, oil price shocks, housing market overheating, and investor overreaction and contagion.

The region evokes bitter memories of the Asian financial crisis in 1997 but notes that countries of the region “are now in a stronger position to handle turbulence.” Governments have improved economic policies, depend less on portfolio flows, and have bigger foreign reserves and better banking sectors.

The report cautions that “as Asian economies are becoming more integrated into the global economy, they also face a higher risk from the constantly shifting global environment.” It calls for governments to focus on controlling inflation and debt, improving banking regulations, and monitoring complex financial products.

“Countries in the Asia-Pacific region must improve regional cooperation to lessen the impact of financial market volatility,” the report says, recommending strengthening existing regional cooperation schemes by making more funds available against disruptive capital movements, ramping up regional surveillance of country policies and extending these schemes to more countries.

September 06, 2006

Gold call options may sniff competitive devaluations ahead

Submitted by cpowell on 06:43PM ET Sunday, September 3, 2006. Section: Daily Dispatches
Even the Sophisticated
Are Attracted
by the Lure of Autumn Gold

By Ambrose Evans-PritchardÂ
The Telegraph, London
Monday, September 4, 2006


Gold almost always rises in the autumn, sometimes a little, lately by leaps and bounds.

Even when it churned ever-down from a peak of $850 an ounce in 1980 to $255 in March 2001, it usually managed to eke out a meagre counter-rally each September.

The seasonal cycle is anchored in the ancient habits of the Orient, where buying picks up after the Indian monsoon and reaches a climax with the Chinese New Year.

Speculators have noticed this, of course, so it has become self-fulfilling. Hedge funds programme their black boxes with triggers to catch the anticipated rally, giving the seasonal effect ever-more leverage.

Be careful, however. Gold tends to catch a nasty cold in mid-October before resuming its upwards march towards a New Year peak.

Gold took a battering in May, crashing 26 percent from its quarter-century high of $730. It was scary for newcomers but not enough to reverse the five-year bull market. Gold bounced straight off the crucial 200-day moving average watched by chartists and is now forming a base around $620 -- technically undamaged.

Goldcorp's chief Ian Telfer predicts a surge to over $800 an ounce over the next two years, though perhaps he would say that to justify the outlandish premium offered in last week's $8.6 billion bid for rival Glamis.

Yet there are sophisticated investors who seem to agree. UBS has seen growing demand for gold "call options" dated December 2006 at strike prices of over $1,000, and up to $2,500 by late 2007. The options expire worthless if the price falls short.

John Reade, UBS's precious metals strategist, said gold may churn sideways until a deadline passes on September 26 for European central banks to sell their annual quota of 500 tonnes.

"There is a lot of talk about selling, and where there is smoke there may be fire. But it will be a bullish signal if they fail to take up their quota," he said. "We think gold could go up a lot this quarter if the dollar starts to fall fast."

So far the banks have sold just 340 tonnes, chiefly because the Bundesbank has clung to its bullion. "It's not a good idea to touch the stuff. Gold is an important factor for confidence in the euro," said Buba chief Axel Weber.

Quietly, Moscow is buying and Russia's foreign reserves ($258 billion and rising at $12 billion a month) will soon match those of the entire euro-zone.

And yet, and yet, I fret about those black clouds gathering over the United States, threatening to douse the world commodity boom with an icy downpour.

The resources cycle has been correlated for half a century with U.S. monetary policy, peaking as the Fed funds rate peaks. That bell rang in July.

There can no longer be much doubt that the U.S. housing market is crumbling. New home sales fell 21.6 percent in July from a year earlier and average prices are following, down from $250,000 in February to $230,000 in July.

What will happen to the global economy when Americans stop drawing $600 billion a year in pocket money from home equity, or when $2,700 billion of floating rate mortgages come up for adjustment at much higher interest rates?

Gold will soon have to make up its mind whether it is a commodity like the rest of them or whether it is a safe-haven "currency" that shines in bad times -- a sort of AC/DC asset to hedge against both inflation and deflation.

The jury is still out on that big question. Gold passed the test in the dot-com recession when it parted company with its base cousins in the spring of 2001, pushing upwards as the Goldman Sachs index of industrial metals fell off a cliff. But it failed in the U.S. recessions of 1975 and 1991, holding hands with copper and zinc all the way down.

Contrary to belief, gold is not always a good hedge against trouble. It fell during the French Revolution, again during the Napoleonic Wars, and in the First World War. But then it was the world's currency. Now it is the counter-currency, waiting in the wings to challenge an ever-more deformed and fragile dollar system.

I suspect that gold was already starting to explore this new role in 2001.

Which is not to say that the dollar will crash. It ought to fall, perhaps, to correct the world's vast imbalances but it cannot easily do so because there is no credible currency for it to fall against -- except gold.

America has only just started to slow, yet Japan is already showing ominous signs of stalling -- yet again -- with vehicle sales down 5.9 percent in August and construction orders down 20.1 percent.

China remains a small economy (one ninth of U.S. consumption), over-dependent on exports for 35 percent of GDP.

The eurozone's short-lived expansion has already peaked, with German retail sales dropping 1.5 percent in July. Lehman Brothers is predicting an outright recession early next year.

Paris and Berlin both insist that the euro must not rise above $1.30. Should it do so, we can expect finance ministers to start threatening use of their Maastricht powers to dictate exchange policy to the European Central Bank.

No, the dollar cannot collapse because the Japanese and European governments will not let it happen, while the Chinese yuan is pegged in any case.

They will counter U.S. devaluation with devaluation of their own, setting off a fresh cycle of negative real interest rates. Is that what gold is sniffing as a few very rich men and women buy their call options at $2,500 an ounce?

IMF warns of ‘severe global slowdown’

By Javier Blas and Scheherazade Daneshkhu in London

Published: September 6 2006 00:20 | Last updated: September 6 2006 00:20

The world is set to enjoy a fifth record year of high growth next year, says the International Monetary Fund, but it warns that the risks of a sharp slowdown have significantly increased.

The IMF will say next week that the world economy is on track to grow at 5.1 per cent this year but the risk of a severe global slowdown in 2007 is stronger than at any time since the 2001 terror attacks on the US.

“Risk to the global outlook is clearly tilted to the downside,” the IMF said, adding, “there is a one-in-six chance of growth falling below 3.25 per cent in 2007.”

The warning comes in a report to finance ministers at next week’s meeting of the G7 in Singapore.

The report, seen by Expansión, the Financial Times’ Spanish partner paper, is based on the IMF’s World Economic Outlook, due for publication next week.

The IMF warns slower growth could be triggered by a sharp US housing market slowdown or by surging inflationary expectations that forced central banks to raise interest rates.

The report’s central forecast points to global growth of 4.9 per cent next year, with G7 economies slowing from 2.9 per cent in 2006 to 2.5 per cent in 2007.

Although the IMF has been warning for several years of mounting risk for the global economy, it is the first time it has warned so strongly about such a sharp potential slowdown.

“There is considerable uncertainty about whether the global economy will achieve a soft landing to a more sustainable pace of expansion or whether the world faces a period of sharply slower growth,” the Fund report says.

“Tight commodities markets are contributing to inflation concerns and the risk of a growth slowdown,” it warns. For that reason, “further [monetary] tightening cannot be ruled out” in the US, while “in the euro area, some further tightening will likely be needed to maintain price stability in the medium run”.

September 02, 2006

US: Bullish or Bearish?

On balance, I remain constructive on the structural prognosis while I have turned more pessimistic on the cyclical outlook.

Four months ago, I dared to pen my first constructive piece on the global macro outlook in years (see my 1 May dispatch, “World on the Mend”).  Yet recently, I have warned of the mounting downside risks to world economic growth in 2007 (see my 14 August dispatch, “Not Much Fizz Left in the Global Economy”).  How do I reconcile these seemingly contradictory points of view?

My optimistic assessment was primarily a call on the global policy architecture -- the structural framework that governs the cross-border interplay between national economies and world financial markets.  I was encouraged because the so-called stewards of globalization finally seemed to be taking the threat of mounting global imbalances seriously.  The 22 April meetings of the G-7 and the IMF were watershed events -- singling out global imbalances as an increasingly worrisome threat to sustainable growth in the world economy.  The IMF introduced a new paradigm of surveillance and consultation that moved from a single-country to a multilateral framework.  I drew added encouragement from pro-consumption rumblings in China that pointed to a rebalancing of that economy away from excess dependence on exports and fixed investment.  For years, I worried that the authorities were asleep at the switch as an increasingly unbalanced world veered toward a highly disruptive strain of global rebalancing.  With global policy makers finally waking up to the threat, I argued that it made sense to reduce the odds of a crisis endgame. 

Notwithstanding the potential for an improvement in the global architecture, the cyclical outlook for the world economy has deteriorated in the past few months.  The major force at work is the long-awaited bursting of the US housing bubble.  In my view, this spells consolidation for the asset-dependent American consumer as well as for export-led economies elsewhere in the world -- especially in Asia but also in Europe and South America -- that are heavily dependent on end-market demand in the US (see my 28 August dispatch, “Global Fallout from America’s Post-Bubble Shakeout”).  At the same time, the odds of a China slowdown are rising, as the authorities in that country now have little choice other than to impose additional cooling off measures on an increasingly overheated Chinese economy.  And the European economic outlook seems to be deteriorating -- reflecting the likely headwinds imparted by looming fiscal consolidation, together with the lagged effects of monetary tightening and a stronger euro.  While the four-year global boom is not exactly giving way to a bust, there are good reasons to believe that the world’s growth cycle will shift markedly to the downside in 2007.

The macro prognosis always reflects a balance between structural and cyclical forces.  In early May, I drew comfort from the structural piece of this equation -- in particular, a shift in the policy response to the growing threat of global imbalances.  I noted at the time, however, that cyclical risks still seemed very much in evidence -- especially those bearing down on the American consumer.  As a result, I concluded that it was not appropriate “…to give an unbalanced world the green light.”  With the benefit of hindsight, I certainly wish I had placed greater emphasis on that caveat back in early May. 

Over the past four months, the balance between structural and cyclical forces has been more heavily influenced by rapidly changing developments on the cyclical side of the equation -- especially those that pertain to the bursting of the US housing bubble.  Largely for that reason, the near-term global prognosis has deteriorated relative to conditions prevailing in early May when I turned more optimistic on the structural story.  The surprise was more in the timing of the cyclical shift than in the tradeoff between these two sets of forces.  By definition, structural change is typically glacial while cyclical shifts unfold with considerably more speed.  The bursting of the US housing bubble is a fast-breaking cyclical development that has gathered considerable force in the past couple of months.  By contrast, there has been only modest follow-through to the late-April structural breakthroughs on the global policy architecture -- namely, the IMF’s prompt identification of the US, Europe, Japan, China, and Saudi Arabia as the first candidates for multilateral consultations.  In a world where the wheels of architectural change turn ever so slowly, this is actually speedy progress.  But when judged against the rapidly changing state of the US housing market -- or even the pressures building in an overheated Chinese economy -- progress on the structural front has been swamped by the emerging downside pressures on the global business cycle.

The upcoming IMF meetings in Singapore later this month will provide an important opportunity for the stewards of globalization to build on the efforts of last April.   Intent is one thing -- results are another.  Putting meat on the skeleton of multilateral surveillance and consultation is critical.  So, too, is providing better balance to IMF member voting rights.  Global rebalancing is a shared responsibility.  Yet for most of its 60-year history, the IMF has been dominated by the US and Europe -- with the developing world largely on the outside looking in.  Currently, a proposal is on the table to expand voting rights for China, South Korea, Turkey, and Mexico.  The intent of this US-sponsored initiative is to empower large developing economies as stakeholders in the governance of globalization.  Passage of this proposal would be another important milestone on the road to architectural reform.  So, too, of course, would be a restarting and successful completion of the Doha Round of trade liberalization.  Structural reform of the institutions of globalization is a long and arduous process.  Last April, an important breakthrough finally occurred.  It is critical for an unbalanced and increasingly integrated world to build on that momentum.  That won’t offset serious cyclical problems that may be brewing in the world, but it could go a long way in providing a more robust framework for the global economy to cope with these problems. 

The key message from my bullish call on the global economy pertains less to the near-term growth outlook and more to the risks of a crisis-type endgame for an unbalanced world.  Rewriting the rules of engagement that govern the institutions of globalization is an unambiguous plus, in my view.  It reduces the possibility that America’s current-account adjustment will eventually result in a sharp plunge in the dollar and a concomitant back-up in real long-term US interest rates -- outcomes that could have devastating consequences for a still-unbalanced world.  Alas, progress on the structural reform front does nothing to temper the cyclical risks that still pose more of an immediate threat to an unbalanced world.  As the air comes out of America’s housing bubble, those risks are now mounting.  The bad news is an unbalanced world remains highly vulnerable to a consolidation of the asset-dependent American consumer.  The good news is that the stewards of globalization are finally working together to temper the risks associated with such a shakeout.  On balance, I remain constructive on the structural prognosis while I have turned more pessimistic on the cyclical outlook.