FOREIGN PRESS REVIEW (FPR)

Exporters of oil are saving more of their recent windfall than in previous price booms. It's hard to spot where the money is going

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MANY American politicians and pundits explain their country's enormous current-account deficit by pointing at the surpluses of Asian economies, especially China. Undervalued currencies and unfairly cheap labour, they complain, have undermined America's competitiveness. In fact, looking at the world as a whole, the group of countries with the biggest current-account surpluses is no longer Asia but oil exporters, on which high prices have bestowed a gigantic windfall.

This year, oil exporters could haul in $700 billion from selling oil to foreigners. This includes not only the Organisation of Petroleum Exporting Countries (OPEC) but also Russia and Norway, the world's second- and third-biggest earners (see chart 1 below). The International Monetary Fund estimates that oil exporters' current-account surplus could reach $400 billion, more than four times as much as in 2002. In real terms, this is almost double their dollar surpluses in 1974 and 1980, after the twin oil-price shocks of the 1970s—when Russia's hard-currency exports were tiny. The combined current-account surplus of China and other Asian emerging economies is put at only $188 billion this year (see chart 2 below).

Relative to their economies, the oil producers' current-account surpluses are far bigger than China's. Whereas the IMF forecasts China's surplus to be about 6% of GDP this year, it predicts Saudi Arabia's—not much different in money terms, at just over $100 billion this year—to be a whopping 32%. On average, Middle East oil exporters are expected to have an average surplus of 25% of GDP. Russia might record 13% and Norway 18%.

The rise in oil prices represents a big redistribution of income from those who buy oil to those who produce it. Past periods of high prices have not lasted long, but this time oil producers' extra revenues might prove to be more durable. The futures market expects oil to stay expensive, even though the price of a barrel of West Texas Intermediate, an industry benchmark, recently slipped back to around $60.

An enviable choice

What will happen to all these petrodollars? In essence, they can be either spent or saved. Either way, a lot of the money can be recycled to oil-consuming economies and thus soften the impact on them of higher oil prices. If oil exporters spend their bonanza, they import more from other countries and thus help to maintain global demand. They are unlikely to spend the lot, however, because they tend to have higher saving rates than oil consumers: saving is around 40% of GDP in the United Arab Emirates (UAE) and Kuwait, for instance. A transfer of income from oil consumers to oil producers will therefore lead to a slowdown in global demand.

If they save their windfall, but invest it in global capital markets, they can finance oil importers' bigger current-account deficits—in effect, lending the increase in fuel bills back to consumers. And by increasing the demand for foreign financial assets, they can boost asset prices and push down bond yields in oil-importing countries. This in turn can help to support economic activity in these economies.

Experience shows that oil booms can be a blessing or a curse for producing economies, depending on how wisely the extra revenue is spent or saved. Too often, past windfalls have been celebrated with budgetary blow-outs, while the abundance of money has encouraged the postponement of economic reforms. This time, however, oil exporters seem to be spending less, instead running larger external surpluses, repaying debts and building up assets. In 1973-76, 60% of the increase in OPEC's export revenues was spent on imports of goods and services. In 1978-81, the proportion rose to 75%. But the IMF estimates that only 40% of the windfall in the three years to 2005 will have been spent.

In Russia, the government has taken the sensible step of setting up an oil stabilisation fund, which will be used to reduce its large foreign debt. That said, the country has been more eager than members of OPEC to spend its extra money. Around two-thirds of the increase in Russia's export revenues since 2002 has gone on imports. Some analysts also suspect that the government may yet raid the stabilisation fund for a spending spree. The main concern, however, is that while the economy is flush with cash important structural reforms will be postponed.

In most of the Middle East, governments are being more cautious than usual with their extra revenue. Mohsin Khan, the director of the IMF's Middle East and Central Asia department, reckons that most governments in the region are budgeting on an oil price of only $30-40 a barrel for next year. He estimates that governments have on average spent only 30% of their extra oil revenue since 2002, compared with 75% in the 1970s and early 1980s, after previous steep climbs in the oil price. Their average budget surplus has increased from 2% of GDP in 2002 to nearly 15% this year.

Lessons learned, perhaps too well

Oil-exporting governments seem to have taken to heart the lessons of the 1970s and 1980s. First: don't assume that oil prices will stay high for ever: in real terms, OPEC's annual average oil revenue in 1981-2000 was only one-third of that in 1980. Second, don't waste your windfall. In previous booms, oil-producing countries gaily spent their petrodollars on lavish construction projects that required imported equipment and skilled foreign workers, but did little to create local jobs or to diversify economies. In its recently published Regional Economic Outlook for the Middle East and Central Asia, the IMF advises governments to give priority to spending that will have a more lasting impact on growth and living standards.

In fact, believes Mr Khan, Middle East oil exporters have greater capacity to spend petrodollars at home than in the 1970s and 1980s, because their populations have been rising rapidly and because their infrastructure needs upgrading after many years of dwindling government revenues. High unemployment means that there is social pressure for more spending on education and health, and for schemes to encourage private-sector employment.

Saudi Arabia, with one of the world's fastest growing populations, has an unemployment rate of perhaps 20%. After nearly two decades of large budget deficits, the government's debt was 100% of GDP by 2000. Even this year, Saudi Arabia's oil revenues per head will be about 70% less in real terms than in 1980, owing in part to a near tripling of its population. It is using some of its extra money to repay debt, and the government has recently raised civil servants' pay by 15%—the first across-the-board increase in more than 20 years.

As well as spending more on health, education and infrastructure, the Middle East also needs to invest in oil production and refining capacity, to ease future supply shortages and so stabilise prices. The International Energy Agency gave warning this week that oil prices will keep rising over the next two decades unless the region's producers invest substantially more than they currently intend.

The IMF is also—unusually—encouraging these economies to be less thrifty. Increased spending will not only, through diversification, allow Middle East countries to support their future economic development, but by boosting imports from the rest of the world it will also allow a more orderly narrowing of global imbalances. This should help to cushion the world economy against the negative impact of rising oil prices.

So far most of the extra money is being saved, not spent, so where is it going? In the 1970s and early 1980s surplus petrodollars were largely deposited in banks in America or Europe. These banks then lent too many of them to oil-importing developing countries, sowing the seeds of Latin America's debt crisis. This time it is proving much harder to track the money, but much more seems to be going into foreign shares and bonds rather than into western banks. This may reflect a greater reluctance to hold deposits in foreign banks, because of the increase in official scrutiny after the terrorist attacks of September 11th 2001. Figures from the Bank for International Settlements (BIS) show that in 2002 and 2003 OPEC deposits with banks in the BIS reporting area actually fell. Since last year, they have increased, but only modestly. In contrast, Russian bank deposits abroad have risen much more sharply, as have the central bank's official reserves, from $73 billion at the end of 2003 to $161 billion this October.

Russian investment, whether in bank deposits, London property or football clubs, is relatively conspicuous. But even the experts at the IMF and the BIS are finding it hard to track Middle Eastern money, because a large chunk of the surplus is held not as official reserves, but as foreign investment by government oil stabilisation and investment funds and by national oil companies. Official reserves of Middle East oil exporters (including the total net foreign assets of the Saudi Arabia Monetary Agency) have risen by around $70 billion this year, accounting for less than 30% of their current-account surplus.

Follow the money

One puzzle is that, according to data published by America's Treasury Department, OPEC members' holdings of American government securities fell from $67 billion in January this year to $54 billion in August. But Middle East purchases of American securities are probably being channelled through London. Mr Khan reckons that although the bulk of OPEC's surplus revenues has so far gone into dollar-denominated assets, those assets are increasingly held outside the United States. A big chunk is also going into hedge funds and offshore financial institutions, which are unregulated and so impossible to track.

There has also been a flood of petrodollars into private equity abroad. In January, Dubai International Capital took a $1 billion stake in DaimlerChrysler. In March, it bought the Tussauds Group, a theme-park firm. This month, DP World, Dubai's state-owned ports operator, made a £3 billion ($5.2 billion) bid for P&O, Britain's biggest ports and ferries group.

Many smaller private investors in the Middle East are keeping their money closer to home. In the 1970s and early 1980s equity markets barely existed in the Gulf. This time money has flooded into them. Share prices in Saudi Arabia have increased fourfold since 2003, and its bourse now has the largest capitalisation of any emerging stockmarket. The average price/earnings ratio in the region is over 40 and recent share offerings have been oversubscribed several hundred times. A spectacular property boom is under way in many places, notably Dubai, which has become a regional financial centre and leisure playground. The world's biggest shopping mall is being built there and Emirates, the state's airline, has virtually underwritten the launch of the Airbus A380, ordering no fewer than 45 of the super-jumbos, a third of the total (see article).

Despite the lack of hard data, many economists are sure that a big dollop of petrodollars is going into American Treasury securities. If so, the recycling of money via bond markets could have very different effects on the world economy from the bank-mediated recycling of previous oil booms. If petrodollars not spent flow into global bond markets, they reduce bond yields and thus support consumer spending in oil-importing countries.

Buy from Europe, lend to America

Indeed, this leads Stephen Jen, an economist at Morgan Stanley, to challenge the popular notion that Europe is being hurt less by higher oil prices than America. It is certainly true that Europe's exports to oil producers have risen faster than America's in recent years. Europe's share of OPEC's imports has climbed to 32%, compared with America's 8%. A recent report by ABN Amrofinds that while America's trade deficit with OPEC has grown markedly since 1999, the European Union's balance has barely changed (see chart 3).

On the other hand, around two-thirds of petrodollars are thought to have gone into dollar assets, pushing down American bond yields. In addition, America's economy is more sensitive to interest rates than that of the euro zone. Mr Jen therefore suggests that America may have gained more from lower interest rates than the euro area has from higher exports, especially because OPEC still buys less than 5% of the currency zone's exports. Although higher oil prices have increased America's current-account deficit, Mr Jen reckons that it probably runs a balance-of-payments surplus in oil, with capital inflows from exporting countries exceeding its net oil import bill.

How might the flow of oil money affect the dollar? Because oil is traded in dollars, rising prices initially increase the demand for greenbacks. But what happens next depends on whether oil producers buy dollar assets or swap their dollars for euros. Saudi Arabia, Kuwait, the UAE and most other Gulf states peg their currencies to the dollar, which might suggest that, like Asian central banks, they will continue to favour dollars. But unlike China's export surpluses, petrodollars are mostly not managed within official reserves, but by oil stabilisation funds and so forth. These are not subject to the same constraints as central banks to hold liquid assets and their aim is to maximise returns.

This means, says Mr Jen, that oil exporters' assets are more footloose than those of Asian central banks. So far, the bulk of petrodollars may have gone into relatively liquid dollar assets, helping to support the greenback this year. But this money could flit if the dollar starts to slide again. And there is lots of it: for example, the Abu Dhabi Investment Authority, with assets of maybe $250 billion, is one of the wealthiest players in global financial markets. Russia's central bank has reduced the share of dollars in its foreign reserves over the past couple of years, but it is still around 65%. The central bank has said that it wishes to hold more euros.

That leaves the dollar dangerously vulnerable. But what about the exchange-rate policies of the oil exporters themselves? Most oil exporters peg their currencies to the dollar or resist appreciation through heavy intervention, in much the same way as China and other Asian countries have done. So should America and others demand that oil exporters revalue their currencies, as they have called on the Asians to do? In fact, revaluation of oil exporters' currencies would do little by itself to reduce America's deficit (nor, for that matter, would a dearer Chinese yuan). The correct solution to global imbalances is for America to save more and for surplus countries, including both the oil exporters and the Asians, to spend more.

Nevertheless, Brad Setser of Roubini Global Economics, a research firm, argues that oil economies should not peg their currencies to the dollar in any case. The currencies of commodity producers, he says, should follow commodity prices. Instead, Middle East oil exporters' currencies have tracked the dollar—mainly downwards—since 2002, even as oil revenues have soared. By raising the relative price of foreign goods, this has discouraged imports. Equally perversely, economies were hurt in the late 1990s when the dollar rose at the same time as oil prices sank.

By pegging their currencies to the dollar, these economies have in effect had to adopt America's monetary policy. With interest rates too low, excess domestic liquidity has stoked inflation and asset prices. The broad money supply of the Middle East oil exporters has grown by almost 24% in each of the past two years and the average inflation rate has risen to almost 9% this year. To curb inflation, Gulf economies need more flexible exchange rates and monetary policies.

Russia officially operates a “managed float” for its exchange rate. But the rouble's rate against the dollar has been held relatively steady over the past couple of years by heavy intervention. Consequent excess liquidity and a boom in domestic consumption have pushed inflation to 12%.

It does not make sense for a country with a large current-account surplus to tie its currency to that of a country with a large deficit—such as America. A fully floating exchange rate may not be desirable, because it may be too volatile, but more flexibility could help oil exporters to adjust better to fluctuations in commodity prices.

If oil prices remain high, so will oil exporters' surpluses. The IMF forecasts an average annual current-account surplus of $470 billion over the next five years (assuming an average oil price of $59 a barrel). The oil exporters will have to play a role in helping to reduce global imbalances. Importing more and letting their currencies rise, as well as increasing government spending and liberalising their economies, would be steps in the right direction

... China's extraordinary demographics  ... could shape the country's destiny over the coming decades.

One reason for China's stellar growth is that it is at a demographic sweet-spot. The massive reduction in infant mortality achieved by China's barefoot doctors in the 1960s and 1970s is now yielding a surge of young workers - an extra 10m working-age adults a year. China's challenge now is just to absorb them into the labour force. Add to that the massive population flow from the countryside and you can see why wages are low and growth is so fast. There are few pensioners and there are not many children either. The rabbit is indeed in the middle of the python.

As early as 2015, China's working age population will actually start falling. By 2040, today's young workers will be pensioners - in fact the world's second largest population, after India, will be Chinese pensioners. There could well be 100m Chinese people aged over 80, more than the current worldwide total, as Richard Jackson and Neil Howe point out in their excellent paper, The Graying of the Middle Kingdom (CSIS 2004).

Because of China's one-child policy there will be fewer new workers under its so-called "4,2,1" population structure - four grandparents, two parents and one child. This is a demographic transition that many countries go through. But a process that is taking a century in the west will take 40 years there. The desperate rush for economic growth is fuelled by fears that China could grow old before it grows rich.

Not so long ago, China was one of the world's most youthful countries, with a median age of 20. Its median age is now estimated at 33. By 2050, the United Nations forecasts, China's median age could be 45, against 43 for the UK and 41 for the US.

Older countries are good at incremental improvements in productivity that come from age and experience. But they are not good at the type of performance improvements that come from doing things differently. Radical innovation seems to come from youth.

Another important dimension to all this is that China does not have a strong civil society. What it does have instead is strong family ties. Old people are the responsibility of their families, and about two-thirds of people aged over 65 in China live with their children. Only 1 per cent of those over 80 are in old people's homes, compared with 20 per cent in the US.

Imposing the one-child policy on these long established customs is having an extraordinary effect. A son is responsible for looking after his parents; a daughter looks after the family into which she marries and often delivers the care. If you can have only one child, it becomes highly desirable to have a boy. The rule is not as strictly enforced as it was, but you can now see its effect. For every 100 female second children, there are 152 males. Overall, there are now about 120 boys for every 100 girls in China.

The country is waking up to this extraordinary imbalance. Last yearit banned ultrasound testing to try to stop gender-based abortion. But already it means China is facing a world not unlike a traditional Oxbridge college, with far too many men relative to women. That is why wecan already read in the media accounts of young women being bribed or even kidnapped from places such as North Korea or Vietnam. China is going to have to attract large-scale female immigration or many of its young men will leave.

Gender balance can shape a society's values. If men are in the majority, their negotiating position is weak and they have to be prudent and hard-working to win a wife. If women are in the majority, it is their negotiating position that is weak and men can get away with being irresponsible and feckless. (One theory about the problems of America's inner cities is that there is a shortage of young men because of large-scale incarceration and high levels of military service.)

So China is going to be full of old people and rather earnest, frustrated young men. It will be one of the most dramatic and unusual demographic changes the world will have seen for a very long time, and Chinese leaders now would do well to plan for such a future.

The writer, the shadow trade and industry secretary, is a member of the Global Aging Initiative, established by the Centre for Strategic and International Studies in Washington DC

By Phyllis Bennis and Erik Leaverand the IPS Iraq Task Force

August 31, 2005

Full report with citations (.pdf document)

Key Findings

Highlights

• Costs to the United States
• Costs to Iraq
• Costs to the World

KEY FINDINGS

“The Iraq Quagmire” is the most comprehensive accounting of the mounting costs and consequences of the Iraq War on the United States, Iraq, and the world. Among its major findings are stark figures that quantify the continuing of costs since the Iraqi elections, a period that the Bush administration claimed would be characterized by a reduction in the human and economic costs.

Vietnam Echoes

• According to current estimates, the cost of the Iraq War could exceed $700 billion. In current dollars, the Vietnam War cost U.S. taxpayers $600 billion.
• Operations costs in Iraq are estimated at $5.6 billion per month in 2005. By comparison, the average cost of U.S. operations in Vietnam over the eight-year war was $5.1 billion per month, adjusting for inflation.
• Staying in Iraq and Afghanistan at current levels would nearly double the projected federal budget deficit over the next decade.
• Since 2001, the U.S. has deployed more than 1 million troops to Iraq and Afghanistan.
• Broken down per person in the United States, the cost so far is $727, making the Iraq War the most expensive military effort in the last 60 years.
• The number of journalists killed reporting the Iraq War (66) has exceeded the number of journalists killed reporting on the Vietnam War (63).

A New Kind of Quagmire

• More than 210,000 of the National Guard’s 330,000 soldiers have served in Iraq and Afghanistan.
• Guard mobilizations average 460 days.
• Nearly a third of active-duty troops, 341,000 men and women, have served two or more overseas tours.

Cost to Iraq

• The U.S. controls 106 military bases across Iraq. Congress has budgeted $236 million for permanent base construction in FY2005.
• At least 23,589 to 26,705 Iraqi civilians have been killed.
• On average 155 members of the Iraqi security forces have died every month since the January 2005 elections, up from an average of 65 before they were held.
• Suicide attack rates rose to 50 per month in the first five months of 2005, up from 20 per month in 2003 and 48 in 2004.
• Iraq’s resistance forces remain at 16,000-40,000 even with the U.S. coalition killing or capturing 1,600 resistance members per month.

And the World’s Less Safe

• The State Department reported that the number of “significant” terrorist attacks reached a record 655 in 2004, up from 175 in 2003.
• The Iraq War has weakened the UN’s authority and credibility.

HIGHLIGHTS OF THE IRAQ QUAGMIRE

I. Costs to the United States

A. Human Costs to the U.S. and Allies

U.S. Military Deaths: Between the start of war on March 19, 2003 and August 22, 2005 2,060 coalition forces have been killed, including 1,866 U.S. military personnel.

Over 14,065 U.S. troops have been wounded, 13,523 (96 percent) since May 1, 2003.

Contractor Deaths: There have been 255 civilian contractor deaths since the “end of major combat” on May 1, 2003, including 91 identified as Americans.

Journalist Deaths: Sixty-six international media workers have been killed in Iraq as of August 28, 2005. U.S. forces are responsible for at least eleven deaths, including employees from ABC, CNN, Reuters, BBC, ITN, Arab TV stations al-Arabiya and al-Jazeera and Spanish station Telecinco.

B. Security Costs

Terrorist Recruitment and Action: The State Department found that the number of “significant” international terrorist attacks in 2004 reached 655, three times the previous record of 175 in 2003. Terrorist incidents in Iraq also increased by a factor of nine—from 22 attacks in 2003 to 198 in 2004.

Overstretch of Military: Since 2001, the U.S. military has deployed more than 1 million troops for the wars in Iraq and Afghanistan, with 341,000 or nearly a third, serving two or more overseas tours. In August 2005 Army recruitment remained at 11 percent behind its yearly goal. The Reserve stands at 20 percent behind its goals and the Army National Guard is 23 percent short of its goals.

Security Costs Due to Loss of First Responders: Roughly 48,000 members of the National Guard and Reserve are currently serving in Iraq—making up nearly 35 percent of the total U.S. forces there. Their deployment puts a particularly heavy burden on their home communities because many are “first responders,” including police officers, firefighters, and emergency medical personnel. For example, 44 percent of the country’s police forces have lost officers to Iraq. In some states, the absence of so many Guard troops has raised concerns about the ability to handle fires and other natural disasters.

Use of Private Military Contractors: The Department of Defense estimates that there are at least 60 private security providers with perhaps as many as 25,000 employees.

Of the 44 incidents of abuse that have been documented at Abu Ghraib prison,16 have been tied to private contractors. While numerous soldiers have been courtmartialed for their roles in the scandal, no contractor has been brought up on charges.

C. Economic Costs

The Bill So Far: Congress has already approved four spending bills for Iraq with funds totaling $204.4 billion and is in the process of approving a “bridge fund” for $45.3 billion to cover operations until another supplemental spending package can be passed, most likely slated for Spring 2006. Broken down per person in the United States, the cost so far is $727, making the Iraq War the most expensive military effort in the last 60 years.

Long-term Impact on U.S. Economy: In August 2005, the Congressional Budget Office estimated that the cost of continuing the wars in Iraq and Afghanistan at current levels would nearly double the projected federal budget deficit over the next ten years. According to current estimates, during that time the cost of the Iraq War could exceed $700 billion.

Economic Impact on Military Families: Since the beginning of the wars in Iraq and Afghanistan, more than 210,000 of the National Guard’s 330,000 soldiers have been called up, with an average mobilization of 460 days. Government studies show that about half of all reservists and Guard members report a loss of income when they go on active duty—typically more than $4,000 a year. About 30,000 small business owners alone have been called to service and are especially likely to fall victim to the adverse economic effects of military deployment.

D. Social Costs

U.S. Budget and Social Programs: The Administration’s FY 2006 budget, which does not include any funding for the Iraq War, takes a hard line with domestic spending— slashing or eliminating more than 150 federal programs. The $204.4 billion appropriated thus far for the war in Iraq could have purchased any of the following desperately needed services in our country: 46,458,805 uninsured people receiving health care or 3,545,016 elementary school teachers or 27,093,473 Head Start places for children or 1,841,833 affordable housing units or 24,072 new elementary schools or 39,665,748 scholarships for university students or 3,204,265 port container inspectors.

Social Costs to the Military/Troop Morale: As of May 2005, stop-loss orders are affecting 14,082 soldiers—almost 10 percent of the entire forces serving in Iraq with no end date set for the use of these orders. Long deployments and high levels of soldier’s stress extend to family life. In 2004, 3,325 Army officer’s marriages ended in divorce—up 78 percent from 2003, the year of the Iraq invasion and more than 3.5 times the number in 2000.

Costs to Veteran Health Care: The Veterans Affairs department projected that 23,553 veterans would return from Iraq and Afghanistan in 2005 and seek medical care. But in June 2005, the VA Secretary, Jim Nicholson, revised this number to 103,000. The miscalculation has led to a shortfall of $273 million in the VA budget for 2005 and may result in a loss of $2.6 billion in 2006.

Mental Health Costs: In July 2005 the Army’s surgeon general reported that 30 percent of U.S. troops have developed stress-related mental health problems three to four months after coming home from the Iraq War. Because about 1 million American troops have served so far in the conflicts in Iraq and Afghanistan some experts predict that the number eventually requiring mental health treatment could exceed 100,000.

II. Costs to Iraq

A. Human Costs to Iraqis

Iraqi Civilian Deaths: As of August 22, 2005, between 23,589 and 26,705 civilians have been killed as a direct result of the U.S. invasion and ensuing occupation of Iraq. But the actual death toll may be much higher. The British medical journal, The Lancet, reported in October 2004 that Iraq suffered 98,000 “excess deaths” from March 2003 to September 2004.

Iraqi Civilians Wounded: The Project on Defense Alternatives estimates the number of wounded between 100,000 and 120,000.

Iraqi Police and Security Forces Killed: Iraq Coalition Casualty Count reports that 2,945 Iraqi military and police forces have been killed since the war started while other reports estimate up to 6,000 have been killed. Up until December 2004, the monthly death figure was 65 but in 2005 the average has been 155 and the death toll reached a high of 304 in July 2005.

B. Security Costs

Failure to Train Security Forces: In June 2004 the State Department reported that 145,317 Iraqi troops were trained but one year later, State Department reports only note an additional 35,000 security forces were added to the ranks. The readiness of these troops cannot be ascertained. A March 2005 GAO report noted that “the departments of State and Defense no longer report on the extent to which Iraqi security forces are equipped with their required weapons, vehicles, communications equipment, and body armor.”

Rise in the Resistance: Despite 40,000-50,000 deaths and arrests, the resistance continues to thrive. The number of resistance fighters in Iraq increased from 5,000 in November 2003 to “no more than 20,000” in July 2005 and Iraq’s national intelligence service director estimates there are more than 200,000 sympathizers. Resistance attacks have risen 23 percent in the last four months. The rise in suicide attacks has skyrocketed. In 2003 there were 20, in 2004 there were 48 and in the first five months of 2005 there have been more than 50.

Rise in Crime: Baghdad’s central morgue counted 8,035 deaths by unnatural causes in 2004, up from 6,012 in 2003 and 1,800 before the war in 2002. 2005 is turning out to be even deadlier with the Baghdad morgue reporting 1,100 in July 2005.

C. Economic Costs

Unemployment: Unemployment figures today range from 20 percent to 60 percent. By comparison, during the Great Depression, U.S. unemployment peaked at 25 percent. Up to 60 percent of Iraqis depend on food handouts and the average income has dropped from $3,000 in the 1980s to $800 in 2004.

Corporate War Profiteering: Most of Iraq’s reconstruction has been contracted out to U.S. companies, rather than experienced Iraqi firms. U.S. auditors and the media have documented numerous cases of fraud, waste, and incompetence. The most egregious problems are attributed to Halliburton which has been awarded more than $10 billion in contracts. Pentagon auditors found that Halliburton failed to account adequately for $1.8 billion in charges for feeding and housing troops.

Iraq’s Oil Economy: Iraq’s oil production remains stalled at levels lower than before the U.S. invasion. In 2003, Iraq’s oil production dropped to 1.33 million barrels per day, down from 2.04 million one year earlier. In July 2005, oil production remained below pre-war levels. Iraq continues to import half its gasoline and thousands of tons of heating fuel, cooking gas and other refined products.

D. Social Costs

Electricity: By late July 2004, Iraq exceeded its pre-war electricity levels, providing nearly 5,000 megawatts of electricity across the country but since that date, levels have failed to improve; the average production in July 2005 was 4,446 megawatts

Health: A joint Iraqi-United Nations report released in May 2005 found that “the estimated number of persons living with a chronic health problem directly caused by war is 223,000 ... in the ongoing war, more children, elderly, and women have been disabled than in previous wars.”

Environment: During the war, water and sewage systems were destroyed, thousands of bombs were dropped leaving unexploded ordnance (UXO) strewn across the country, and the fragile desert ecosystem was damaged by tanks and U.S. temporary military outposts. Post-war looting further contributed to the damage. Three thousand nuclear compound storage barrels were looted and 5,000 barrels of chemicals were spilt, burned, or stolen. It is estimated that more than 12 million mines and UXO units are still present.

E. Human Rights Costs

Despite problems at U.S. detention centers, the use of arbitrary arrests continues.

The average prisoner level in June 2005 was 10,783, up from 7,837 at the time of the January 2005 elections, and double that of the June 2004 level of 5,335. The U.S. is expanding three existing facilities and opening a fourth, at a cost of $50 million with the goal of being able to detain 16,000 long-term prisoners. Illustrating the problems caused by widespread sweeps of arrests without cause, review processes indicate that six out of every 10 Iraqis arrested are released without charges.

F. Sovereignty Costs

Economic and Political Sovereignty: Despite the January elections, the country has severely limited political and economic independence. The transitional government has limited ability to reverse the 100 orders by former CPA head Paul Bremer that, among other things, allow for the privatization of Iraq’s state-owned enterprises and prohibit preferences for domestic firms in bidding on reconstruction work.

Military Sovereignty: Currently, the U.S. operates out of approximately 106 locations across the country. In May 2005, plans for concentrating U.S. troops into four massive bases positioned geographically in the North, South, East and West were reported and the most recent spending bill in Congress for the Iraq War contained $236 million for building permanent facilities.

III. Costs to the World

A. Human Costs

While Americans make up the vast majority of military and contractor personnel in Iraq, other U.S.-allied “coalition” troops from the U.K., Italy, Poland and other countries have suffered 194 war casualties in Iraq. The focus on Iraq has diverted international resources and attention away from humanitarian crises such as in Sudan.

B. Disabling International Law

The unilateral U.S. decision to go to war in Iraq violated the United Nations Charter, setting a dangerous precedent for other countries to seize any opportunity to respond militarily to claimed threats, whether real or contrived, that must be “preempted.”

The U.S. military has also violated the Geneva Convention, making it more likely that in the future, other nations will ignore these protections in their treatment of civilian populations and detainees.

C. Undermining the United Nations

The efforts of the Bush administration to gain UN acceptance of an Iraqi government that was not elected but rather installed by occupying forces undermines the entire notion of national sovereignty as the basis for the UN Charter.

D. Enforcing Coalitions

Faced with opposition in the UN Security Council, the U.S. government attempted to create the illusion of multilateral support for the war by pressuring other governments to join a so-called “Coalition of the Willing.” This not only circumvented UN authority, but also undermined democracy in many coalition countries, where public opposition to the war was as high as 90 percent. As of the middle of July 2005, only 26 countries of the original 45 members of the “Coalition of the Willing” had even token forces in Iraq, in addition to the United States.

E. Costs to the Global Economy

The $204.4 billion spent by the U.S. government on the war could have cut world hunger in half and covered HIV/AIDS medicine, childhood immunization and clean water and sanitation needs of the developing world for almost three years.

F. Undermining Global Security and Disarmament

The U.S.-led war and occupation have galvanized international terrorist organizations, placing people not only in Iraq but around the world at greater risk of attack.

Global Increase in Military Spending: In 2002 world military spending was $795 billion. With the skyrocketing costs of the war in Iraq, worldwide military spending soared to an estimated $956 billion in 2003 and in 2004, the figure spiked again to $1.035 trillion.

G. Global Environmental Costs

U.S.-fired depleted uranium weapons have contributed to pollution of Iraq’s land and water, with inevitable spillover effects in other countries. The heavily polluted Tigris River, for example, flows through Iraq, Iran and Kuwait.

H. Human Rights

The Justice Department memo assuring the White House that torture was legal stands in stark violation of the International Convention Against Torture (of which the United States is a signatory). This, combined with the widely publicized mistreatment of Iraqi prisoners by U.S. military and intelligence officials, gave new license for torture and mistreatment by governments around the world.

Full report with citations (.pdf document)

WHICH American communities pay the highest price for the war in Iraq? A look at the demographics of soldiers killed reveals that Iraq is not the war of any one race or region. Rather, it is rural America's war.

Altogether, a nearly equal percentage of Americans aged 18 to 54 live in counties with a million or more inhabitants as live in counties of 100,000 or fewer. And yet, of the soldiers who have died in Iraq, 342 came from densely populated counties while 536 came from smaller ones.

... Counties disconnected from urban areas tend to have higher death rates, regardless of population size. Small rural counties have a death rate nearly twice that of counties that have the same population but happen to be part of metropolitan areas.

...This is above all an economics story. Military studies consistently find that a poor economy is a boon to recruiting. The higher rate of deaths from rural counties likely reflects sparse opportunities for young people in those places.

'Uzi Rubin, a former Defense Ministry official, said Tuesday that the Arab states surrounding Israel have about 1,000 missiles of every type, and can launch a total payload of 500 tons at any target in Israel. This is the equivalent of an attack by around 120 fighter planes

... Syria has the largest deployment of projectiles in the region, comprising of 400-500 missiles of different types, including S-S-21s with a range of 120 Km., Skud-Bs with a range of 300 km., Skud-Cs with a range of 500 km. and Skud-Ds with a range of 700 km. According to Rubin, Syria keeps its production of the missiles low profile.

... Iran has around 100-200 Shihab-3 missiles, some of which have explosive warheads.

... Egyptians have around 200 Skud-B missiles with a range of 300 Km and Skud-C missiles with a range of 500 km.

... Hezbollah, Rubin reported, has more than 12,000 missiles and the organization is able to attack deep inside Israeli territory. The missiles are from Iran and are based on the Katyusha model, with a diameter of 122 mm, a range of 12 km. '

Who was killed?

• 24,865 civilians were reported killed in the first two years.
• Women and children accounted for almost 20% of all civilian deaths.
• Baghdad alone recorded almost half of all deaths.

When did they die?

• 30% of civilian deaths occurred during the invasion phase before 1 May 2003.
• Post-invasion, the number of civilians killed was almost twice as high in year two (11,351) as in year one (6,215).

Who did the killing?

• US-led forces killed 37% of civilian victims.
• Anti-occupation forces/insurgents killed 9% of civilian victims.
• Post-invasion criminal violence accounted for 36% of all deaths.
• Killings by anti-occupation forces, crime and unknown agents have shown a steady rise over the entire period.

What was the most lethal weaponry?

• Over half (53%) of all civilian deaths involved explosive devices.
• Air strikes caused most (64%) of the explosives deaths.
• Children were disproportionately affected by all explosive devices but most severely by air strikes and unexploded ordnance (including cluster bomblets).

How many were injured?

• At least 42,500 civilians were reported wounded.
• The invasion phase caused 41% of all reported injuries.
• Explosive weaponry caused a higher ratio of injuries to deaths than small arms.
• The highest wounded-to-death ratio incidents occurred during the invasion phase.

Who provided the information?

• Mortuary officials and medics were the most frequently cited witnesses.
• Three press agencies provided over one third of the reports used.
• Iraqi journalists are increasingly central to the reporting work.

Speaking today at the launch of the report in London, Professor John Sloboda, FBA, one of the report's authors said: "The ever-mounting Iraqi death toll is the forgotten cost of the decision to go to war in Iraq. On average, 34 ordinary Iraqis have met violent deaths every day since the invasion of March 2003. Our data show that no sector of Iraqi society has escaped. We sincerely hope that this research will help to inform decision-makers around the world about the real needs of the Iraqi people as they struggle to rebuild their country. It remains a matter of the gravest concern that, nearly two and half years on, neither the US nor the UK governments have begun to systematically measure the impact of their actions in terms of human lives destroyed."

'The Asian Development Bank forecasts that from 2015 to 2030, China's labor force will drop to 813 million from 842 million, as India's rises.

... (Chinese automotive workers)... working as quickly as workers in American factories - but earning roughly $1.50 an hour in wages and benefits, compared with $55 an hour for General Motors and Ford factories in the United States.

... The official average unemployment rate in China's cities is 4.2 percent. But that excludes China's vast army of rural adults with little or no work to do, an army estimated as high as 150 million people. Millions move to the cities each year, an immense migration that slowed increases in Chinese industrial wages until the last year or two, when the Chinese economy has grown so rapidly that employers have begun bidding up workers' wages anyway. '

'Poor regions in France receive more money from the EU's structural assistance funds than poor regions in Poland. [Financial Times, 14th June 2005]

Casanova spent the last 13 years of his life working as a librarian. [Sunday Times Magazine, 23rd April 2005]

By 15, only half of American children live with both biological parents, compared with roughly two thirds of Swedish, German and French children, and 90 per cent of children in Spain and Italy. [American Prospect, June 2005]

There are more people called Chang in China than the total population of Germany. [Stephen Green, chairman HSBC]

Three quarters of those who have given more than £50,000 to Labour since 2001 have received an honour, and every single donor who has given over £1m has been rewarded with a peerage or knighthood. [Daily Mail, 7th June 2005]

Queen Victoria spoke Urdu and Hindi. [The Guardian, 9th November 2004]

There are more African scientists and engineers working in the US than in the whole of Africa. [Commission for Africa report]

One in every 3,400 Americans is an Elvis impersonator. [Financial Times, 7th June 2005]

In the UK in 1966, there were 86,700 births to women under 20; in 2003, this number had fallen to 44,200. [Spiked, 26th May 2005]

31 per cent of practising doctors in Britain were trained abroad, compared to 5 per cent in France and Germany. [The Lancet, 27th May 2005]

Not a single enterprise founded in France in the past 40 years has managed to break into the ranks of the 25 biggest French companies. By comparison, 19 of today's 25 largest US companies didn't exist four decades ago. [Washington Post, 5th June 2005] '

'Why is so much capital flowing uphill, from the poor countries to the rich ones, instead of from the rich to the poor?

... The foreign currency reserves of emerging markets rose by $1,556bn in 1997-2004, of which $519bn came last year and another $523bn is forecast for this year.

... Those countries ran an aggregate current account surplus of $336bn last year. ... in 1996 ... emerging market economies ran an aggregate deficit of $93bn. Last year's current account surplus was equivalent to 3.5 per cent of their aggregate gross domestic product, at market prices. Strikingly, that is close to Japan's ratio.

...In addition, those countries received $186bn in net foreign direct investment last year and a total net private inflow of $196bn. The sum of the current account surplus and net private capital inflows was equal to 5.4 per cent of their aggregate GDP.

...Asian emerging economies ran a current account surplus of $193bn last year, which accounted for more than half the total. The Middle East represented another third of the current account surplus of emerging market countries and the Commonwealth of Independent States (principally Russia) close to a further fifth. The one region of the developing world to run a large current account deficit - of $51bn - was central and eastern Europe. It was also the only one of these regions to have shifted further into deficit since 1996, by $33bn.

... Asian emerging market economies received an aggregate net inflow of private capital $130bn in 2004, which was two-thirds of the total flow to emerging market economies.

... the $430bn swing in the emerging market economies' aggregate current account deficit was the principal counterpart to the $549bn increase in the US deficit between 1996 and 2004.

... two big forces have driven the swing from deficit into surplus: the rise in the price of oil, which has pushed the Middle East and the CIS into large surpluses; and the financial crises of 1996-99, which drove the emerging market economies of Asia and the western hemisphere out of their deficits.

... the most important emerging market region for the global capital flows is Asia.

....In 2004, gross savings rates (at market prices) were a mere 14 per cent in the US, 15 per cent in the UK, 21 per cent in the eurozone and 28 per cent in Japan. They were also 19 per cent in central and eastern Europe, 21 per cent in both Africa and the western hemisphere, 30 per cent in the CIS, 32 per cent in the newly industrialised Asian economies, 35 per cent in the Middle East, 38 per cent in developing Asia as a whole and a staggering 44 per cent in China (all measured at market prices).

...(China's) ratio of trade (exports plus imports) to GDP is 70 per cent. This is much the same as for South Korea. A country with a population of 1.3bn cannot grow at 10 per cent a year and remain as dependent on trade as one with just 50m without provoking a backlash from its trading partners.

... China ... to have a net inflow of $70bn in FDI this year, plus a current account surplus of $77bn. This makes an overall surplus in its long-term basic balance of payments this year of about 8 per cent of GDP - which is enormous by any standards.

... A world in which emerging market economies not only run vast current account surpluses but also recycle the capital that investors want to place in their economies is unprecedented, undesirable and unsustainable.

... China ... has foreign currency reserves that are already almost as big as annual imports.

... China ... will have to play a role commensurate with its growing impact. As the world's third largest trading power and most dynamic economy, it has achieved greatness. It must now accept the responsibility that goes with its new status. '

'...in the first quarter of this year, the U.S. trade deficit with China is running 50 percent larger than the deficit with Japan. Indeed, the U.S. trade deficit with China is larger than the deficit with all of Europe. It is larger than with Canada and Mexico combined, two countries in which U.S. corporations manufacture cars, appliances, and a variety of big-ticket items for American markets.

... The U.S. is dependent on China for manufactured goods, including advanced technology products. In the first quarter of 2005, U.S. imports from China are 5.7 times higher than U.S. exports to China. Last year, U.S. exports to China were $34.7 billion. Imports were $196.7 billion for a U.S. trade deficit with China of $162 billion.

... In 1985, U.S. trade with China was in balance at $3.8 billion. Ten years later, U.S. imports from China were four times U.S. exports to China.

... the key to China’s rapid development, is that corporations in First World countries—American businesses chief among them—use China as an offshore location where they produce for their home markets. More than half of U.S. imports from China, and as much as 70 percent from some of China’s coastal regions, represent offshore production by American firms for U.S. markets.

...Japanese government holds dollar reserves of approximately $1 trillion. China’s accumulation of dollars is approximately $600 billion. South Korea holds about $200 billion.

... Last year the U.S. trade deficit with the rest of the world was $617 billion. In the first quarter of this year, our trade deficit is $174 billion—$35 billion higher than in the first quarter of last year. If this figure holds for the remaining three quarters and does not increase, the U.S. trade deficit in 2005 will be $700 billion. '

'The real money committed to the promotion of democracy in the Middle East is trifling. The president may have doubled the National Endowment for Democracy's budget, but it is still only $80 million a year. '

'...2001 yılında 4 milyar dolar civarında olan petrol faturamız, 2004 yılında 6 milyar dolara çıktı. ... 2005 yılında 10 milyar dolara varan petrol ithalatı tahmini ... . 2004 yılında 40 dolar civarında olan ortalama fiyatın bu yıl 50 doların üstünde kalması hatta 60 dolara doğru yürümesinin ülkemize yılda 5 milyar doları aşan ek bir petrol faturası da getirebilir. Ülkemizde buna rağmen bu yılın enflasyonun yüzde 8 olan resmi hedef rakamının altında kalacağını da düşünmekteyiz.

... Petrol fiyatları şu andaki 60 dolar seviyesinde bile, reel analiz yapıldığında, yani enflasyon ayıklandığında İran devriminin gerçekleştiği 1979 yılındaki İkinci Petrol Şoku dönemindeki fiyatın reel olarak kabaca yarısı düzeyinde. Yani petrol pahalılaştı ama geçmişe oranla henüz çok pahalı değil. Ayrıca 30 yılda dünya petrol fiyatlarında istatistiki araştırmalara dayanarak bir trend bulmak da mümkün değil.

...fiyatlar reel olarak 1979 zirvesinin yarısında da olsa uzun dönem reel petrol fiyatı ortalamasının da iki misline çıkmış bulunuyor. ... arz ve talep dengesini bazen esas faktör Asya'nın veya daha spesifik bir bakışla Çin'in hızla artan talebi. 2002 ile 2004 arasında Çin toplam petrol talebindeki artışın yüzde 35 kadarını üretmiş. ABD ise yüzde 20 kadarını. 2004 yılında dünya talebi günde 2.46 milyon varil, yani yüzde 3.4 oranında bir artış sergilemiş bulunuyor. 2004-2005 döneminde ise IEA adlı Dünya Enerji Kurumu tahminlerine göre petrol talebinde günde 1.77 milyon varil artış bekleniyor. Bu bir evvelki yıla göre azalarak artma demek ama gene de yüzde 2.2 artış anlamına geliyor ve bu boyutta bir artış geçmiş 20 yılda sadece dört defa gerçekleşmiş. '

'The United States consumes a quarter of the world’s oil, compared to 8% for China. Even with high Chinese growth expected in coming years, the world will not run out of oil anytime soon. Over a trillion barrels of proven reserves exist, and more is likely to be found. But two-thirds of those proven reserves are in the Persian Gulf, and are thus vulnerable to disruption.

In the past, rising prices had a strong effect on US oil consumption. Since the price spikes of the 1970’s, US oil consumption per dollar of GDP has fallen by half, which also reflects the general economic shift away from industrial manufacturing to less energy-intensive production. After all, it requires a lot less energy to create a software program than it does to produce a ton of steel.

In the early 1980’s, energy costs accounted for 14% of America’s economy. Today, they account for 7%. Adjusted for inflation, oil prices would have to reach $80 per barrel (or $3.12 per gallon of gasoline) to reach the real level recorded in March 1981.

According to the US government, if there are no supply disruptions, and the American economy grows at an annual rate of 3%, the price of a barrel of oil will decline to $25 (in 2003 dollars) in 2010 and then rise to $30 in 2025. The energy intensiveness of the economy will continue to decline at an average annual rate of 1.6%, as efficiency gains and structural shifts offset part of the overall growth in demand. Nonetheless, dependency on oil will grow at an annual rate of 1.5%, from 20 million barrels per day in 2003 to 27.9 million in 2025.

The American political system has difficulty in agreeing on a coherent energy policy.

But over the next decade, the politics of energy in the US may gradually change Some observers detect a new “Geo-Green” coalition of conservative foreign-policy hawks, who worry about America’s dependence on Persian Gulf oil, and liberal environmentalists.

In the hawks’ view, the real energy problem is not the absence of petroleum reserves, but the fact that they are concentrated in a vulnerable area. The answer is to curb America’s thirst for oil rather than increasing imports.

Greens argue that even if energy supplies are abundant, the ability of the environment to support current rates of consumption is limited. The middle of the range of scenarios considered by the Intergovernmental Panel on Climate Change projects that atmospheric CO2 concentrations will reach nearly three times their pre-industrial level in 2100.....

... While President Bush argues that technological advances in hydrogen fuels and fuel cells will curb oil imports in the long run, such measures require major changes in transportation infrastructure that will require decades to complete....

... between 1978 and 1987, government regulations produced an improvement of 40% in the fuel efficiency of new American-made cars.

In a surprise-free world ... America’s thirst for oil will grow by 1.5% annually over the next two decades. But political disruption in the Persian Gulf or a new terrorist attack in the US would drive up oil prices rapidly, and the political climate in America might also change quickly.

... Energy independence may be impossible for a country that consumes a quarter of the world’s oil but has only 3% of its reserves....

'Turkey should continue to outperform other OECD countries in the foreseeable future. The Turkish economy is now in its fourth year of uninterrupted growth, with an average real GDP growth rate of 7.5% per annum. Indeed, the trend growth rate surged from 3.9% in the 1990s to 5.8% in the post-crisis period and to an impressive 7.8% last year. And we project 7.2% growth for Turkey in 2005 and 6.8% next year, compared with average OECD growth rates of 2.6% and 2.8%, respectively. Obviously, this is an unusual performance for a country that had long failed to keep the economy close to its potential on a sustainable basis. In fact, the growth rate of real per capita GDP decelerated from 2.3% per annum in the 1970s to 1.7% in the 1980s and then to 1.3% in the 1990s leading to the 2001 crisis. However, with prudent fiscal and monetary policies and structural reforms, real per capita income increased by 18.9% on a cumulative basis in the last three years, and should remain on an above-trend growth trajectory in the coming years.

... inflation volatility declined from an average of 6.5% in the 1990s to 1.4% in 2004 and 1.2% in the first five months of this year .... The volatility of real per capita GDP growth eased from an average of 5.0% in the 1990s and 6.7% in the 2000-2003 period to 1.6% last year. In our view, this dramatic fall in macroeconomic volatility is now acting like an innovation, increasing the country’s non-inflationary potential and actual growth rates beyond historical standards

... despite an astounding 75% increase in business investment spending in the last two years, we are yet to see the full impact of macroeconomic normalisation. ... a robust growth trend for capital expenditures in the coming years, growing by 16.5% in 2005 and 14.8% next year.

The correction of chronic inflation and fiscal imbalances is eliminating fragilities. Consumer prices excluding seasonal factors posted an annualised increase of 5.2% in May, down from 10.8% at the start of this year. We are likely to see year-on-year readings in the 8-9% range until the latter part of the year, but the year-end inflation rate will come out, on our estimates, at 6.2% in 2005 and 3.4% next year. Meanwhile, the latest fiscal data show a primary budget surplus in the first five months reaching 60.9% of the year-end target and a consolidated deficit that is merely 13.0% of this year’s target. It is true that Turkey’s domestic debt stock is still disturbingly short-dated, but that is a legacy problem. Recent developments, on the other hand, are very encouraging. For example, the average maturity of domestic borrowing improved from 9 months in 2002 to 14.7 months in 2004 and t o 25.5 months in 2005; and the Treasury has reduced its domestic borrowing cost from an average of 62.7% in 2002 to 18.2% so far this year. '

'only 21 percent of Europeans hold religion to be "very important," as opposed to some 60 percent in comparable surveys in the United States.'

...(on weekends) no fewer than 120 million people fill churches, temples, synagogues and mosques across America.

'In a poll conducted in 2003, the Russian Centre for Public Opinion found that 53 per cent of Russians still regard Stalin as a "great" leader.

.... Since 1989, the Russian mortality rate has risen from below 11 per 1,000 to more than 15 per 1,000 - nearly double the American rate. For adult males, the mortality rate is three times higher. Average male life expectancy at birth is below 60, roughly the same as in Bangladesh. A 20-year-old Russian man has a less than 50/50 chance of reaching the age of 65.

... Exacerbating the demographic effects of increased mortality has been a steep decline in the fertility rate, from 2.19 births per woman in the mid-1980s to a nadir of 1.17 in 1999. Because of these trends, the United Nations projects that Russia's population will decline from 146 million in 2000 to 101 million in 2050. By that time the population of Egypt will be larger.

... Russia is... Asia's number one source of oil, gas and other vital commodities. '

... Forty-two percent of the people responding to the poll said they approved of the way Mr. Bush was handling his job, a marked decline from his 51 percent rating after of the November election ... Sixteen months before the midterm elections, Congress fared even worse in the survey, with the approval of just 33 percent of the respondents, and 19 percent saying Congress shared their priorities.

... Two-thirds said they were uneasy about Mr. Bush's ability to make sound decisions on Social Security. Only 25 percent said they approved of the way Mr. Bush was handling Social Security, down slightly from what the poll found in March. ... 45 percent said the more they heard about the Bush plan, the less they liked it.

... Still, Mr. Bush continued to have majority support for his handling of the war on terrorism - 52 percent

... Mr. Bush's approval rating is below the historical pattern for June in the first year of a second term: President Clinton's stood at 60 percent and President Reagan's at 59 percent. But that could reflect, in part, the much greater partisan polarization in modern politics, underscored by the 71 percentage point gap between Mr. Bush's approval rating from Democrats and Republicans in the recent poll.

...Looking back, 51 percent said they thought the United States should have stayed out of Iraq, while 45 percent said military action was the right thing to do.

... only 37 percent said they approved of Mr. Bush's handling of the situation in Iraq, down from 45 percent in February. A strong majority of Americans now say the effort by the United States to bring stability and order to Iraq is going badly - 60 percent, up from 47 percent in February.

... only 33 percent said they thought the country was on the right track, while 61 percent said it had gone off in the wrong direction.

... There was little change in the way Americans rate the current condition of the American economy - 54 percent say it is very or fairly good. But the number of Americans who say the economy is getting worse is growing, to 36 percent from 30 percent in February.

... In February, 54 percent of Republicans said they approved of the way Congress was doing its job; in the most recent poll, that had dropped to 40 percent.

... The Associated Press-Ipsos Poll found Mr. Bush with a 43 percent approval rating; Gallup with 47 percent, and the Washington Post/ABC News Poll at 48 percent. '

'... stock market crashes can recover within a relatively short time with the help of effective government monetary measures,as demonstrated by the crashes of 1987 (23% drop, recovered in nine months), 1998 (36% drop, recovered in three months) and 2002 (37% drop, recovered in two months).

... from 1980 to 2002, the total income earned by the top 0.1% of earners in the United States more than doubled, while the share earned by everyone else in the top 10% rose far less and the share of the bottom 90% declined.

... Exports of manufactures by low-wage developing countries have increased rapidly over the past three decades due in part to falling tariffs and declining transport costs that enable outsourcing based on wage arbitrage. It grew from 25% in 1965 to nearly 75% over three decades, while agriculture's share of developing-country exports has fallen from 50% to less than 10%. Many developing countries have gained relatively little from increased manufactures trade, with most of the profit going to foreign capital.

... even with a 30% drop of the dollar against the euro, the US trade deficit continued to climb. The strategic purpose of driving up the euro is to reduce it to the status of the yen, as a subordinated currency to dollar hegemony.

... The IMF, which has been ferocious in imposing draconian fiscal and monetary "conditionalities" on all debtor nations everywhere in the decade after the Cold War, is nowhere to be seen on the scene in the world's most fragrantly irresponsible debtor nation. This is because the US can print dollars at will and with immunity. The dollar is a fiat currency not backed by gold, not backed by US productivity, not backed by US export prowess, but backed by US military power. The US military budget request for Fiscal Year 2005 is $420.7 billion. For Fiscal Year 2004, it was $399.1 billion; for 2003, $396.1 billion; for 2002, $343.2 billion; and for 2001, $310 billion. In the first term of George W Bush's presidency, the US spent $1.5 trillion on its military. That is more than the entire gross domestic product of China in 2004. The US trade deficit is about 6% of its GDP, while it military budget is about 4%. In other words, the trading partners of the US are paying for one and a half times the cost of a military that can some day be used against any one of them for any number of reasons, including trade disputes. The anti-dollar crowd has nothing to celebrate about the recurring US trade deficit.

... The annual growth of the volume of goods shipped to the United States has remained around 15% for most of the 1990s, more than five times the average annual GDP growth. The US enjoyed a booming economy when the dollar was gaining ground, and this occurred at a time when interest rates in the US were higher than those in its creditor nations. This led to the odd effect that raising interest rates actually prolonged the boom in the US rather than threatened it, because it caused massive inflows of liquidity into the US financial system, lowered import-price inflation, increased apparent productivity and prompted further spending by American consumers enriched by the wealth effect despite a slowing of wage increases. Returns on dollar assets stayed high in foreign-currency terms.

... The Fed Funds Rate (FFR)target has been lifted eight times in steps of 25 basis points from 1% in mid-2004 to 3% on May 3, 2005. If the same pattern of "measured pace" continues, the FFR target would be at 4.25% by the end of 2005. Despite Fed rhetoric, the lifting of dollar interest rates has more to do with preventing foreign central banks from selling dollar-denominated assets, such as US Treasuries, than with fighting inflation.

...The debt bubble in the US is clearly having problems, as evident in the bond market. With just 14 deals worth $2.9 billion, May 2005 was the slowest month for high-yield bond issuance since October 2002. The late-April downgrades of the debt of General Motors and Ford Motor to junk status roiled the bond markets. The number of high-yield, or junk-bond, deals fell 55% in the March-to-May 2005 period compared with the same three months in 2004. They were also down 45% from the December-through-February period. In dollar value, junk-bond deals totaled $17.6 billion in the March-to-May 2005 period, compared with $39.5 billion during the same three months in 2004 and $36 billion from December 2004 through February 2005. There were 407 deals of investment-grade bond underwriting during the March-to-May 2005 period, compared with 522 in the same period 2004 - a decline of 22%. In dollar volume, some $153.9 billion of high-grade bonds were underwritten from March to May 2005, compared with $165.5 billion in the same period in 2004 - a 7% decline.

... While published (U.S.) government figures of the productivity index show a rise of nearly 70% since 1974, the actual rise is between zero and 10% in many sectors if the effect of imports is removed from the equation.

... In their 1991 populist campaign for the White House, Bill Clinton and Al Gore repeatedly pointed out the obscenity of the top 1% of Americans owning 40% of the country's wealth. They also said that if you eliminated home ownership and only counted businesses, factories and offices, then the top 1% owned 90% of all commercial wealth. And the top 10%, they said, owned 99%. ... '

... Turkey’s annual motor vehicle production (including tractors) increased by fully 350% in the last 10 years — and almost 7,000% in the past four decades — to 862,035 units in 2004, turning the country into the 17th largest producer in the world.

... the annual growth rate of automotive exports accelerated from 6.7% in the 1980s to 30.8% in the 1990s and to 42.6% in the last five years. Accordingly, Turkey now exports over US$10 billion worth of motor vehicles and parts to 170 countries, and there is no sign of a slowdown in the near future. The sector raised its international sales by 53.7% in 2004 and 43.9% in the first five months of this year, generating 20% of the country’s total export earnings.

... With economic stability lowering interest rates, a pent-up demand-driven explosion of 330.9% in the last two years increased new motor vehicle sales to the peak of 753,732, making Turkey the 6th largest market in Europe. Even so, the vehicle penetration rate of 72 cars per 1,000 is significantly below the average of 225 cars in Europe.

... Total factor productivity of the Turkish automotive sector now exceeds the US level. ... Openness, measured by the ratio of exports and imports to GDP, improved from 33.7% in 1993 to 50.7% last year. Likewise, the exports-to-production ratio in the automotive sector jumped from 12.6% in 1995 to 72.7% in the last four years. This is not just due to a low-cost production approach, since labour costs account for no more than 8% of total costs in this capital-intensive sector. In our view, the key is the network effect and productivity improvements bringing high-quality production capabilities and profitability in a growing market. Labour productivity in the automotive industry increased by 207.2% in the last 15 years, leading to a 41.4% drop in unit labour costs. Coupled with technology-intensive investments and know-how transfers from foreign partners, these underlying changes have raised the sector’s total factor productivity growth to 10% above the US level. As a result, the average net profit margin recovered from the post-crisis low of -2.0% to 6.5% in the last two years. This is excitingly close to the most profitable global carmakers — namely, Nissan with 6.8% and Toyota with 6.7% — and significantly higher than 0.3% for DaimlerChrysler, 1.9% for General Motors, 2.4% for Ford, and 2.8% PSA Peugeot Citroën.

... Iran, with a capable industrial structure and human capital, will no doubt play a role as a production and development base in the future. ... Only through higher value-added can Turkish firms become an all-round force in the global automotive market. Unfortunately, the average R&D spending among Turkey’s car manufacturers is just 0.5% of sales, compared with a global average of 4.0% last year. '

... China’s meteoric economic rise is due to: (1) its low base; (2) its size; and (3) its development model. After 25 years of 9% annual GDP growth, China’s per capita income is somewhere between US$1,300–1,600. Both China’s population and GDP are hard to pin down. My best guess is that China’s GDP will reach US$2 trillion in 2005 vs. a likely government estimate of US$1.9 trillion. It is virtually impossible to guess how much the population is underestimated. The point is that China is still a low-income economy despite its tremendous growth. This is because China’s modernization was seriously disrupted by wars and revolutions before the country embarked on the current wave of modernization 25 years ago. Even though China’s per capita income (US$1,300–1,600) or trade (US$1,000–1,150) is quite low by international standards, the absolute level of its GDP or trade is already sizeable and makes China a major force in the global economy. The combination of the still-low base and large size mean that China’s role in the global economy should continue to rise rapidly. China could become the largest trading nation in 10–15 years, but still has a long way to go.

... Foreign capital may account for 20% of China’s GDP. No large economy in the world has so much foreign ownership.

... The biggest estimate on jobs is that the US has lost around 700,000 jobs to China over the past decade. This is quite small compared to the US’s current total employment of 142 million. The reason why China trade has had such a limited impact is because the US was open to Asian trade before China emerged as a major player, and imports from China replaced those from other Asian countries. This is why East Asia’s market share in the US imports peaked in 1994 at 40.1% vs. 33.8% in 2004. Chinese products decrease the US import bill overall and have a limited impact on US domestic industries. '

... the fast-growing economies of Asia were responsible for a large portion of the rise. China's fuel consumption rose by 15.1 per cent and India's by 7.2 per cent.

Global consumption of oil also rose by 3.4 per cent, or 2.5m barrels a day, the biggest increase since 1978. Some 900,000 b/d of that increase in demand came from China, but BP said the demand also rose strongly across virtually every region.

“Overall, the growth of global oil demand has outstripped oil production capacity growth, reducing the level of spare capacity” ...

The average oil price in 2004 was $38 a barrel, BP said, up from $29 a barrel in 2003 and the highest ever figure expressed in “money-of-the-day”. The oil price has averaged about $49 a barrel so far this year.

At the same time, Britain and Australia suffered large falls in oil production they pumped 10 per cent and 13.9 per cent less respectively.

Even so, BP said there was no shortage of available energy resources. At present production rates and without taking into account future discoveries, the world has enough oil to last 40 years and enough natural gas to last 60 years, according to BP.

Lord Browne, chief executive of BP, said last week he expected world oil prices to remain at more than $40 a barrel until new supplies came on stream in the next three to four years. '

... The much-larger fossil-fuel industry, which spent 80% of its $25 million in campaign contributions on Bush and the Republicans last year... '

...The US net national saving rate has averaged only about 1.5% of GDP since early 2002 -- far short of the 6% level prevailing in 1997. At the same time, America’s current account deficit is now in excess of 6.5% of GDP -- more than double the 3% shortfall evident in 1997.

... A two-pronged slowdown now seems likely to unfold in China -- with internal policies aimed at a bursting of the property bubble and external forces putting pressure on China’s export dynamic. Collectively, fixed investment and exports account for 80% of Chinese GDP, and these two sectors are currently surging ahead at a 30% y-o-y rate.

... Pan-Asian activity -- Japan, China, plus the other economies in the region -- collectively accounts for 35% of global GDP. '

... Since 1973 the average income of the top 1 percent of Americans has doubled, and the income of the top 0.1 percent has tripled. '

Last year the number of wealthy individuals worldwide rose by 600,000 compared with the year before, and collectively they own $30,800bn of assets.

The number of wealthy investors grew more quickly in Asia and North America last year than in Europe and Latin America.

In North America, a stronger-than-expected economic recovery plus tax reform in the US helped swell the numbers of wealthy individuals in the region by 9.7 per cent last year to 2.7m.

In Asia-Pacific the number of wealthy investors grew by 8.2 per cent to 2.3m last year, mainly because of high growth in gross domestic product of 9.5 per cent in China and 6.8 per cent in India.

Record oil prices also led to a 9.5 per cent jump in the numbers of wealthy individuals in the Middle East to 258,000.

In Europe, however, the number of rich individ-uals now totals 2.6m - up 4.1 per cent mainly because of slower economic growth in Germany, France and Italy.

The number of wealthy investors in the UK last year rose by 9 per cent to reach 417,500 and the total amount of assets belonging to rich UK investors grew by 13.5 per cent.

... wealthy investors ploughed more of their money into private equity last year and were investing less in hedge funds and real estate.

... "Hedge fund investing among high net worth individuals has slowed since 2003 as returns have declined from 17.2 per cent in 2003 to 7.5 per cent in 2004."

... equities continue to represent the highest proportion of assets owned by wealthy individuals.

Typically they would make up 35 per cent of a rich individual's investment portfolio.

However, the amount of money invested in private equity rose last year from 13 per cent to about 14 per cent of a typical portfolio.

The amounts invested in real estate fell from 17 per cent to 13 per cent. '

'• China's GDP growth has been in excess of 9 percent on average since 1990, after having averaged above 10 percent in the 1980s, according to the World Bank. India ... had growth rates a little more than fifty percent of China’s throughout the 1980s and 1990s.

• China’s imports and exports have grown eight times as fast as world trade in the 1980-2003 period according to the IMF. In 1978, China’s turnover trade accounted for .8% of world trade; by last year it accounted for 6.4%. Cumulative foreign direct investment in China has gone from negligible in 1982 to $500 billion (2003), taking off in the early 1990s. There is a downside here for China, inasmuch as a large share of PRC exports (55% in 2003) comes from foreign-invested enterprises. This means that many of China’s wholly owned domestic firms still are far from competitive internationally, though a few firms have emerged such as Huawei telecom and Haier appliances.

• China also is becoming a growing supplier of capital, particularly in Southeast Asia, as well as in the United States, Latin America, and elsewhere. The PRC’s foreign exchange reserves (minus gold) were about $659.1 billion in March 2005 and the PRC held $174.6 billion in U.S. Treasury securities, second only to Japan ($715.2 billion) in October 2004.

• In 1993, of China’s total exports, 17.7 percent were machinery and electrical products; by 2003, 51.9 percent were in this category. The U.S. Census Bureau reports that in 2002 for the first time the U.S. trade balance in advanced technology products went negative, though we must acknowledge what constitutes “advanced” products is a broad category that includes items of comparatively modest technology.

• Since 2002, Japan, South Korea, and Taiwan have seen China become their number one export destination, replacing the United States, though this hides the fact that America remains a primary destination for intermediate goods sent to China, assembled there, and then exported.

• Intellectually, growing numbers of foreign students throughout Asia are studying in China. And, China’s own students are achieving more internationally. In April of this year, “[T]he University of Illinois tied for 17th in the world finals of the Association for Computing Machinery International Collegiate Programming Contest.” Shanghai Jiaotong University took first place.

• The OECD reports that Chinese R & D expenditures are growing rapidly now, from a low base, ... growing number of foreign R & D facilities locating in China.

... in 2002 China only consumed about 5.5% of its still modest GNP on health expenditures while the United States consumed 13.3%; by 2004, this figure had risen to 15.4% and the rate projected for 2014 is a whopping 18.7%. ... if the United States is to remain competitive it must control health expenditures. Germany, France, and the UK each have longer life expectancy rates than the United States, and they have about half the per capita health costs of America ... “Before the first energy shock [1973], Americans spent $1.56 on health care for every dollar they spent on energy …Now, even with oil prices up, every dollar spent on energy is matched by $3.81 on health care.” '

Once again, America was by far the greatest spender on arms. In 2004, it spent $455bn, an increase from 2003 of 12 per cent, fuelled largely by the investment in President George Bush's "war on terror". America's foreign aid spending is around 4.1 per cent of its arms bill. Britain, the second largest arms spender, spent $47bn - a tenth of the US total.

... seven of the G8 nations are among the world's top 10 arms dealers - responsible for the export of more than $24bn worth of weapons, half of which last year went to developing countries.

... in 2003 just five members of the G8 - the US, Britain, France, Germany and Russia - were responsible for 89 per cent of arms sales to developing countries.

... spending by the US accounted for nearly half the total spent on weapons and was more than the combined sum of the 32 next biggest spenders. It estimated spending by the US will rise to $502bn by 2010. The two largest single recipients of arms last year were China and India. In 2003, India completed a $1.8bn deal to buy Hawk jets from the British defence company BAE systems. Regionally, south-east Asia saw the biggest rise in spending, largely due to a 19 per cent increase in India's defence budget. '

Proportion who said US military is bogged down in Iraq: 66 percent

Proportion who say Iraq war was not worth fighting: almost 60 percent

Proportion who say Iraq is becoming a new Vietnam: more than 40 percent

Proportion who say Iraq war has not made US safer: 52 percent.

Proportion who say that Bush is handling his job poorly: 52 percent

... this phenomenon not unique to the continental United States; most oil fields peak and decline in the same way. Prudhoe Bay peaked in 1989. The North Sea peaked in 1999. China's massive Daqing field probably peaked a year or two ago. They're all still producing oil, but they produce less and less every year.

... legendary curmudgeon-cum-oil magnate T. Boone Pickens ... that world oil production has already peaked. “Global oil [production] is 84 million barrels [per day],” ... “I don't believe you can get it any more than 84 million barrels. I don't care what Abdullah, Putin, or anybody else says about oil reserves or production. I think they are on decline in the biggest oil fields in the world today, and I know what it's like once you turn the corner and start declining. It's a treadmill that you just can't keep up with.”

... not shared by everyone. Hard data is surprisingly rare in the oil industry, and production forecasts range all over the map, but if forced at gunpoint to provide a firm answer, most mainstream analysts would probably hazard a guess that oil production will peak in 10 or 15 years at around 100 million bpd. The problem is that when such forecasts are broken down, they start to look decidedly shaky. Where are we going to come up with 16 million bpd of new production?

... Of Saudi Arabia's 10 million bpd of oil, about 90 percent comes from a mere seven giant fields, all of them old. Ghawar, a uniquely gigantic field which all by itself accounts for more than half of Saudi Arabia's output, has been in production since 1951. A massive water injection program was begun in the early '60s, and today more than 7 million barrels of seawater are required daily to keep Ghawar going.

... Twenty years ago, OPEC had spare production capacity of about 15 million bpd. A decade ago that had dropped to 5.5 million bpd. By 1990, spare capacity has dropped almost to zero. What this means is that arguments over the exact timing of peak oil are increasingly academic. No matter who's right, what we can say with some certainty is that even if oil production continues to grow, it will grow slowly, which means that supply will barely keep up with rising demand. '

... By 2020, China might produce 3.65 million barrels per day but will likely require more than twice that to meet its needs. While Chinese scholars suggest that oil imports will account for 60 percent of Chinese energy needs, the International Energy Agency believes that the figure could be higher.

... While the Middle East accounted for less than 40 percent of China's oil imports before 1994, since 1996, the proportion has risen to over half.

...Iran and Saudi exports together now represent almost two-thirds of China's Middle East oil imports.

... Whereas in 1994, Iran accounted for just one percent of China's total imports, less than a decade later, Beijing purchased $2 billion (US) of oil from Tehran, representing more than 15 percent of its total 2002 oil imports. Today, the figure is probably larger still.

... the Chinese government will buy 10 million tons of Iranian oil each year for the next twenty-five years. In return, China Petroleum and Chemical Corporation (Sinopec), the nation's second largest oil producer, may develop the Yadavaran oil field in Iran's western Kurdistan province, giving China a 50 percent interest in the field's estimated 17 billion barrel reserve. Yadavaran could be China's biggest oil investment in the Middle East. Nevertheless, China-Iran trade should be kept in perspective. While the China trade may be significant for Iran, the opposite is not true. Bilateral Sino-Iranian trade accounts for only 0.6 percent of the Chinese total '

The new super-modern ports on the Baltic Sea, the upgrading of the Baltic Pipeline System to 60 million tons this year, and the nascent construction of pipelines in Russia's European north and the Far East will guarantee Russia a long geopolitical transit life in Eurasia.

The rerouting of Azerbaijani oil from Novorossiisk to the new pipe was hardly noticed, because it accounted for a mere 1 percent of Russia's oil exports. Baku says openly that it would like Russian oil companies to become its clients; it needs them to ensure the BTC's estimated capacity of 50 million tons a year.

Besides, the capacity of the Russian pipe monopolist, Transneft, has been larger than the oil output for a second year running .... The production of oil is lagging behind the construction and modernization of pipelines and ports, though this year Transneft plans to increase export deliveries by 16 percent to 255 million tons.

There will be a surplus of pipe capacities in the future, and so Russia does not plan to change export routes.

Russia plans to complete the construction of an alternative route to the BTC, from Burgas in Bulgaria to Alexandroupolis in Greece, bypassing the Turkish straits. It will be more profitable than the BTC: its length is slightly more than 186.4 miles (1,098 miles in the case of the BTC), its throughput capacity is between 35 million tons and 50 million tons (50 million for BTC) and it will cost about $700 million (some $4 billion for BTC). With the completion of this pipe, tankers with Russian oil will no longer have to spend weeks in the Turkish straits. '

...“Each of the ten largest corporations in the world has a yearly turnover larger than the GNPs of 150 of 185 United Nations (UN) members, including such countries as Portugal, Israel, and Malaysia. More subjectively, at least 50 NGOs have more legitimacy than 50 UN member nations.” '

... Iraq’s peak production ... (July 1990) ... 3.5 mbd.... During 1999-2001, production averaged 2.5 mbd.

... During 2004, output varied between 1.9 and 2.4 mbd; exports were as high as 1.6 mbd

... Iraqi reserves, were they more intensively developed, could easily support much greater production. Amounts three times greater than Iraq’s highest output — rivaling Saudi Arabia’s production — could potentially be achieved with the application of up-todate geophysics and substantial investment.

... the cost of bringing oil production on line in Iraq is among the world’s lowest, about $3-$5 billion per mbd of output. ... Iraq offers one of the world’s best long-term petroleum prospects, with substantial output potentially flowing from relatively few, high-yield wells.

... In contrast to a mature oil-producing province such as the United States, where 521,000 wells produce about 5.8 mbd,3 Iraqi output comes from only 1,600 wells potentially able to produce almost 3 mbd. The comparison (U.S. wells average about 10 barrels per day, while Iraqi wells can average several thousand) points up the prolific nature of Iraq’s hydrocarbon-bearing geology ...

Recent Production in Iraq ... Some oil — about 200,000 to 300,000 barrels per day — is being re-injected into wells because of local refining and transport constraints in the northern fields around Kirkuk.

... The 600-mile Kirkuk-Ceyhan pipeline is actually two pipes — a 40-inch diameter pipe with a nominal capacity of 1.1 mbd (although DOE reports that 900,000 barrels per day was its practical maximum), and a parallel 46-inch pipe, with a nominal capacity of 500,000 barrels per day. It does not appear that the second line was ever used on a commercial basis. But, taken together, the theoretical capability of transporting 1.6 mbd of Iraqi crude to west-of-Suez oil markets exists.

... DOE notes that the pipeline was operating during late 2004 at a 300,000 to 500,000 barrels per day rate, “with significant repairs still required.” ... (Platt's) Iraq has had to rely on its southern terminals for exports because crude flows from the northern Kirkuk fields have remained off line for three months.

... If the export pipeline to the Mediterranean were to be repaired and kept operational — and the oil fields around Kirkuk to produce as they have in the past ... monthly revenues of up to $1.2 billion could result.>If the export pipeline to the Mediterranean were to be repaired and kept operational — and the oil fields around Kirkuk to produce as they have in the past ... monthly revenues of up to $1.2 billion could result.

...Northern Oil in the World Oil Market: A Concluding Note. World crude oil prices ... at one point they reached nearly $60 per barrel. ... little spare capacity. The addition of an incremental 800,000 barrels per day into this overheated market could have a substantial price impact, even though it would represent only about a 1% increase in total world output. This increment, were it to become available under current circumstances, might result in a noticeable decline in crude prices. '

... India's buying power is 1.35%(GDP based), world trade 0.62% and tourism 0.38% of world total. '

"...Türkiye'nin ve ABD'nin GSMH'lerine ve toplam dış ticaret hacimlerine bakarak bu rakamların gerçekten çok düşük rakamlar olduğu ve potansiyel olarak çok daha büyük rakamlara ulaşmanın gerektiğine de gönülden inanıyorum."

... (Babacan) ABD'de yaşayan Türk vatandaşlarının sayısının 300 bine yaklaştığının tahmin edildiğini, hatta şu anda Türkiye'nin, Avrupa'da ABD'ye en çok öğrenci gönderen ülke durumuna yükselmiş durumda olduğunu söyledi. '

... '