I keep getting the Foreign Affairs newsletter. Usually, I ignore them because they tend to represent the viewpoint of those in power. However, they sometimes disagree, as they did with the Bush/Cheney Iraq policy. Now they seem to be in a critical phase again.
There is some good stuff here, from some substantial people. You won't get this from watching the TV news.
There are two articles about the dollar, if you are interested in that, one about the economic crisis, which you should glance at, and one about Afghanistan, if you are interested in that.
Even as efforts to recover from the current crisis go forward, the United States should launch new policies to avoid large external deficits, balance the budget, and adapt to a global currency system less centered on the dollar. Although it will take a number of years to fully implement these measures, they should be initiated promptly both to bolster confidence in the recovery and to build the foundation for a sustainable U.S. economy over the long haul. This is not just an economic imperative but a foreign policy and national security one as well.
A first step is to recognize the dangers of standing pat. For example, the United States' trade and current account deficits have declined sharply over the last three years, but absent new policy action, they are likely to start climbing again, rising to record levels and far beyond. Or take the dollar. Its role as the dominant international currency has made it much easier for the United States to finance, and thus run up, large trade and current account deficits with the rest of the world over the past 30 years. These huge inflows of foreign capital, however, turned out to be an important cause of the current economic crisis, because they contributed to the low interest rates, excessive liquidity, and loose monetary policies that -- in combination with lax financial supervision -- brought on the overleveraging and underpricing of risk that produced the meltdown.
Legions of pundits have argued that the dollar's status as an international currency has been damaged by the great credit crisis of 2007-9 -- and not a few have argued that the injury may prove fatal. The crisis certainly has not made the United States more attractive as a supplier of high-quality financial assets. It would be no surprise if the dysfunctionality of U.S. financial markets diminished the appetite of central banks for U.S. debt securities. A process of financial deglobalization has already begun, and it will mean less foreign financing for the United States' budget and balance-of-payments deficits. Meanwhile, the U.S. government will emit vast quantities of public debt for the foreseeable future. Together, these trends in supply and demand are a recipe for a significantly weaker dollar. And as central banks suffer capital losses on their outstanding dollar reserves, they will start considering alternatives.
This is especially likely because these trends are superimposed on an ongoing shift toward a more multipolar world. The growing importance of emerging markets has sharply reduced the United States' economic dominance, weakening the logic for why the dollar should constitute the largest part of central-bank reserves and be used to settle trade and financial transactions.
The Art of Afghan Alliance BuildingThe financial and economic crash of 2008, the worst in over 75 years, is a major geopolitical setback for the United States and Europe. Over the medium term, Washington and European governments will have neither the resources nor the economic credibility to play the role in global affairs that they otherwise would have played. These weaknesses will eventually be repaired, but in the interim, they will accelerate trends that are shifting the world's center of gravity away from the United States.
A brutal recession is unfolding in the United States, Europe, and probably Japan -- a recession likely to be more harmful than the slump of 1981-82. The current financial crisis has deeply frightened consumers and businesses, and in response they have sharply retrenched. In addition, the usual recovery tools used by governments -- monetary and fiscal stimuli -- will be relatively ineffective under the circumstances.
Abdul Rashid Dostum, a notoriously vicious Uzbek warlord -- once aligned with the communists, later with the anticommunist mujahideen, then with the terrorist Gulbuddin Hekmatyar, and finally with the United States -- now calles himself a "man of peace." That was just months after Dostum had crammed hundreds of young Pashtun men who had fought for the Taliban, many of them wounded, into unventilated train cars in searing heat. Dozens of them died before arriving at their final destination: a grossly overcrowded prison in his stronghold in the northern province of Sheberghan. By then, Dostum had become Washington's new best friend.
Over five years ago, I argued in a Foreign Affairs essay ("Afghanistan Unbound," May/June 2004) that the windows of opportunity were closing for Afghanistan and that making allies of Afghans -- not military action -- would win what was then a losing war. I wrote then that the alliances the United States and its coalition partners had made with Afghan warlords, whose internecine fighting had killed 50,000 of their own people when they were last in power, were returning Afghanistan to its lawless and insecure pre-Taliban days. Choosing to ignore the warlords' past crimes, I argued, would embolden them, instead of making them the good partners the West so naively believed they could be. Washington would not meet its goal of greater homeland security, and for Afghans, peace and prosperity would remain elusive.
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