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Generational Dynamics Web Log for 6-Nov-2010
6-Nov-10 News -- International fury at U.S. quantitative easing

Web Log - November, 2010

6-Nov-10 News -- International fury at U.S. quantitative easing

Revival of the Islamic Movement of Uzbekistan (IMU)

International fury is growing at America's $600 billion quantitative easing plans

Countries around the world have been loudly criticizing the decision by the U.S. Federal Reserve to pump $600 billion new money into the banking system by purchasing Treasury bonds.

German Finance Minister Wolfgang Schäuble expressed sharp criticism, according to Der Spiegel. He complained that the policy will "create additional problems for the world," and said,

"I don't think they are going to solve their problems that way. They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous."

The reason for the complaints is that the additional money is going to affect international exchange rates, causing the American dollar to become weaker and foreign currencies to become stronger.

The announcement pushed the exchange rate to the euro above $1.42, where it had been at $1.30 a short while ago. At the higher figure, European exports are more expensive in America, and American exports are cheaper in Europe. So it will be easier to sell American products on the international markets, and more expensive European products will not be able to compete.

South Africa's finance minister Pravin Gordhan warned that "developing countries, including South Africa, would bear the brunt of the US decision to open its flood gates without due consideration of the consequences for other nations," according to the BBC. He added that the US policy "undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis."

This gets to the crux of the matter. The G20 leaders promised each other that they wouldn't start a currency war -- a race to the bottom where each country would try to make its currency as weak as possible to improve its sale of exported products.

Ben "helicopter" Bernanke in 2007 cartoon

Ben "helicopter" Bernanke in 2007 cartoon

Guido Mantega, the Brazilian finance minister who has warned of a currency war in the past, is quoted by Financial Times (Access) as saying, "Everybody wants the US economy to recover, but it does no good at all to just throw dollars from a helicopter."

Montega is alluding to a 2002 speech by Fed Chief Ben Bernanke where he said, "A money-financed tax cut is essentially equivalent to Milton Friedman's famous 'helicopter drop' of money."

An adviser to the Chinese central bank issued a veiled threat of retaliation: "As long as the world exercises no restraint in issuing global currencies such as the dollar – and this is not easy – then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament."

Despite the airheaded exuberance that stock market investors have been showing since the announcement of the QE program, it's going to have a rocky road ahead, as it faces widespread international opposition, and possible retaliation.

Revival of the Islamic Movement of Uzbekistan (IMU)

Second only to al-Qaeda itself, the most virulent Islamist terrorist group in the world is the Islamic Movement of Uzbekistan (IMU).

As I wrote last year in "Islamist Uzbeks lead terrorists in Pakistan and Afghanistan," the most dangerous enemy of all in Afghanistan and Pakistan is not the Taliban, but several hundreds fighters from the IMU.

The IMU was weakened last year when a U.S. Predator drone strike in Pakistan killed the leader of the IMU, and inflicted heavy losses among the terrorists, according to Jamestown.

In the ensuing year, the IMU has reconstituted itself, and is attempting to create a Caliphate by replacing the leaders of the post-Soviet Central Asian countries. The IMU even has an offshoot called the Islamic Jihad Union (IJU) that targets Europe.

The IMU is particularly targeting Tajikistan, according to Spiegel. Tajikistan is a nearly failed state, with extreme poverty, a breeding ground for Islamist terrorist sentiments.

Relations between Uzbekistan and Tajikistan are already strained anyway. Both were Soviet republics that became independent nations when the Soviet Union dissolved. In the Soviet days, Uzbekistan supplied gas, transport routes and electricity power lines to Tajikistan, but that relationship has caused conflict since then.

In order to gain some leverage, Tajikistan is going ahead with a huge dam project at Roghun that will allow it to produce its own electricity, and even become an electricity exporter, according to an analysis earlier this year by Central Asia-Caucasus Institute. However, that dam would severely limit the flow of water into Uzbekistan, and so Uzbekistan is appealing to Russia and the United Nations to review the Roghun project.

Uzbekistan has retaliated by blocking freight railway lines, and holding up the transit of rail freight passing through Uzbekistan and bound for Tajikistan. Tajikistan has appealed to a European organization, the Organization for Security and Cooperation in Europe (OSCE) to review the situation, according to RFE/RL.

Central Asia has been the battlefield for ethnic wars for centuries, including wars between the Uzbeks and the Tajiks. The Uzbeks are Turkic-speaking people while the Tajiks are Persians, and speak the same language as the people of Iran. Thus, there is some pressure in Iran to intervene on the side of the Tajiks, according to Iran's FARS news agency.

From the point of view of Generational Dynamics, there is no chance of a major war breaking out between Uzbekistan and Tajikistan, because both countries are in generational Recovery eras, having had crisis wars in the 1990s.

Additional links

Two major terrorist attacks struck near Peshawar in northwest Pakistan on Friday, as bombers blasted two mosques in areas that are known for anti-Taliban sentiment. 76 people, including children, were martyred, and 132 others were injured. The Nation (Pakistan)

The Hamas government in the Gaza Strip is warning people against buying cars important from Israel for fear that they may contain evesdropping equipment or even remote-activated bombs. Hosever, many Gazans suspect that the real reason for Hamas's warning is that it doesn't profit from the sale of vehicles imported from Israel. Jerusalem Post

During the last decade, Malaysia has quietly become the leading international player in Islamic finance. Malaysia has one of the most advanced financial systems among emerging market economies, the most advanced of all Muslim countries. Asia times

Friction is growing between India and China over China's Kashmir policy. China is increasingly siding with Pakistan in issues affecting India. Institute for Defense Policies and Analysis

(Comments: For reader comments, questions and discussion, see the 6-Nov-10 News -- International fury at U.S. quantitative easing thread of the Generational Dynamics forum. Comments may be posted anonymously.) (6-Nov-2010) Permanent Link
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Generational Dynamics Web Log for 6-Nov-2010 6-Nov-10 News -- International fury at U.S. quantitative easing

International fury is growing at America's $600 billion quantitative easing plans

Revival of the Islamic Movement of Uzbekistan (IMU)

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Generational Dynamics Web Log for 6-Nov-2010
6-Nov-10 News -- International fury at U.S. quantitative easing