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Grants v. Loans for Iraq

For at least two distinct reasons, this is an interesting development:

Defying weeks of intense White House lobbying, a narrowly divided Senate voted last night to convert half of President Bush’s $20.3 billion Iraq rebuilding plan into a loan that would be forgiven if other donor nations write off the debt incurred by the ousted government of Saddam Hussein.

First of all, this vote shows the depth of Republican uneasiness about Bush’s Iraq policy. Staunch Republicans like Ben Campbell (CO), Lindsey Graham (SC), and Sam Brownback (KS) voted to make part of the $20 bn. a loan instead of a grant – despite some extremely vigorous lobbying on Capitol Hill by Bush and Cheney against doing so.

Second, it raises the economic question of whether it makes sense to give money to Iraq in the form of loans rather than grants. The answer’s not obvious, at least to me. Start with the assumption that we really do want to build a prosperous and stable Iraq, and that it will require a lot of investment in basic infrastructure to achieve that. There are still two valid arguments to be made.

First, one could argue (as the administration did) that loans are bad, because they will reduce the amount of money that Iraq will have to continue developing over the coming decade. There’s a substantial body of research that shows that forgiving loans to developing countries (which is what giving Iraq a grant instead of a loan is equivalent to) really helps those countries tremendously — which is presumably our goal here.

But one could also argue that loans are an economically healthy and normal way to make long-term investments, particularly investments that should clearly improve the ability of Iraq to repay the loans in the future. We would never worry about a company borrowing money to undertake investments that would put it on the path of long-term profit growth, for example.

One final note: there is one provision of the Senate bill that makes absolutely no sense to me, regardless of which argument you find more compelling. The bill switches some of the loans to outright grants in the case that the Bush administration manages to get other countries to forgive most of Iraq’s debt.

But this is exactly backwards. If other countries forgive Iraq’s debt, then Iraq would be in a better position to repay the US’s loans, so we shouldn’t fret about asking to be repaid. And conversely, if other countries don’t forgive Iraq’s debt, that’s precisely when we would think that Iraq needs the grants more than additional debt. Silly Congress.


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Low Point in a Long Distinguished Career

Unfortunately, I missed Wednesday’s 60 Minutes II piece featuring former Iraqi WMD expert Greg Thielmann (his last position was as the State Department’s director of the Office of Strategic Proliferation and Military Affairs). CBS now has a transcript or perhaps a report compiled from the segment, and it should be very damaging to the administration and to Gen. Powell. Definitely read the whole thing. While there’s not really any new information, the chronicling of the misrepresentations and, yes, lies, is thorough and the sources credible. Here are some highlights:

  • “The gravity of this moment is matched by the gravity of the threat that Iraq’s weapons of mass destruction pose to the world,” said Powell.

    At the time of Powell’s speech, Thielmann says that Iraq didn’t pose an imminent threat to anyone: “I think it didn’t even constitute an imminent threat to its neighbors at the time we went to war.”

  • Powell said: “Saddam Hussein is determined to get his hands on a nuclear bomb. He is so determined that he has made repeated covert attempts to acquire high-specification aluminum tubes from 11 different countries even after inspections resumed.”

    “This is one of the most disturbing parts of Secretary Powell’s speech for us,” says Thielmann … “Experts at the Oak Ridge National Laboratory, the scientists who enriched uranium for American bombs, advised that the tubes were all wrong for a bomb program…It turned out the tubes’ dimensions perfectly matched an Iraqi conventional rocket.”

    Houston Wood was a consultant who worked on the Oak Ridge analysis of the tubes. He watched Powell’s speech, too. “…I was angry at that,” says Wood, who is among the world’s authorities on uranium enrichment by centrifuge. He found the tubes couldn’t be what the CIA thought they were. They were too heavy, three times too thick and certain to leak.

  • [In the Feb 5th UN speech] Powell said you could see a truck for cleaning up chemical spills, a signature for a chemical bunker: “It’s a decontamination vehicle in case something goes wrong.”

    …Was there ever a time when American satellite intelligence provided [former U.N. inspector] Allinson with something that was truly useful? “No. No, not to me. Not on inspections that I participated in,” says Allinson, whose team was sent to find decontamination vehicles that turned out to be fire trucks.

  • Allinson watched Powell’s speech in Iraq with a dozen U.N. inspectors. There was great anticipation in the room.

    …”Various people would laugh at various times because the information he was presenting was just, you know, didn’t mean anything, had no meaning,” says Allinson.

  • “I guess I would say, frequently we got bad information [from defectors],” says Thielmann…”You had the Iraqi National Congress with a clear motive for presenting the worst possible picture of what was happening in Iraq to the American government. “
  • But there was a good deal more in Secretary Powell’s speech that bothered the analysts. Powell claimed Saddam still had a few dozen Scud missiles.

    “I wondered what he was talking about,” says Thielmann. “We did not have evidence that the Iraqis had those missiles, pure and simple.”

    Powell warned that empty chemical warheads found recently by the U.N. could be the tip of the iceberg. “They were shells left over from the Gulf War. Or prior to the Gulf War, from their past programs,” says Allinson.

  • Powell, however, made several points that turned out to be right. Among them, he was right when he said Iraqi labs were removing computer hard drives; he was right that Iraq had drawings for a new long-range missile; and he was right about Saddam’s murder of thousands of Iraqi citizens.
  • We went from Vice President Cheney saying “There is no doubt that Saddam Hussein now has weapons of mass destruction. There is no doubt he is amassing them to use against our friends, against our allies, and against us,” to fire trucks, missing hard drives, and drawings. The murder of thousands is a tragedy, and perhaps even cause for war (see Kosovo), but that’s not the war this administration sold to the public.


    UPDATE: This post is revised because (1) it was too long, and (2) upon reflection, it seemed like I might be stretching fair use too far. So there’s a lot of good stuff in the full story that’s not in this post.

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    Food For Clark Fans

    Mark Kleiman’s got a bunch in this post with highlights from Gen. Clark’s recently released military records. Here’s a taste:

    Everyone knows that the army has carried grade inflation to a point only dreamed of in the university, and that Hollywood has its press agents study efficiency ratings to learn hyperbole. But the language used about Clark by the commanders he worked for is completely off the charts. Comparisons to Marshall and MacArthur aren’t made lightly by any soldier who wants to keep the respect of his peers.

    On the downside, as Kleiman points out, the Clark campaign didn’t get much coverage of this.


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    Widespread Fantasy Update II

    On Monday, I took issue with Michael Kinsley’s silly statement that liberals widely believe that Colin Powell will resign and turn on the administration (Kinsley wants you to see that liberals who place faith in any general(s) are misguided). I also asked for just one person who believed this to stand up and explain why. While a few said they held such a hope before Colin Powell’s February 5th appearance before the UN, there have been no takers. Not one.

    So if this really isn’t a “widespread fantasy” among liberals, did Kinsley just make it up? No, apparently Kinsley is a regular reader of BusyBusyBusy (for a quick laugh and to see why, click here).


    P.S. Thanks to Elton of BusyBusyBusy for the tip (and note that he explains, “But it was a joke, really!”, though it seems Kinsley missed that).

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    The Three-Way Currency Contest

    The Economist’s Buttonwood column (subscription required) poses an interesting dilemma: the managers of each of the three largest currencies in the world – the dollar, yen, and euro – would like their currency to depreciate. Yet it is impossible for all three to simultaneously depreciate against the others.

    I’ve previously written a bit about why the US government wants the dollar to depreciate, particularly against Asian currencies, in order to stimulate exports, reduce imports, and thus hopefully help the US manufacturing sector.

    However, Buttonwood points out that the Japan also wants its currency to fall:

    Japan’s recovery started in the fourth quarter of 2001 and growth is picking up. But officials there are increasingly worried that a rising yen will choke it off. The yen is close to a three-year high against the greenback. Its rise accelerated after the recent G7 summit in Dubai, when America’s weak-dollar policy became most obvious. Yet Japan needs the yen to fall because it needs inflation to help wipe out the massive debts the country incurred both during the bubble and in trying to get the economy going again after it had popped.

    But that’s not all. What about Europe? They are also facing the real possibilities of recession and deflation, so…

    At some point, perhaps even the European Central Bank will wake up to the fact that the rising euro will keep the European economy close to recession. All of which is to suggest that none of the world’s major currencies is especially alluring; for one reason or another governments in all three might want them to fall. Of course, they cannot all fall against each other.

    The column goes on to hypothesize that maybe what will happen is that all three currencies will depreciate against a fourth major international asset: gold.

    It’s an interesting possibility, but I disagree about its likelihood. To get this effect, you’d need to think that investors, losing confidence in all three currencies simultaneously, will all flock to gold instead, pushing up the price of gold and thus the value of the three currencies down.

    Far more likely, I think, is that investors will favor one or two of the three major currencies over the other(s). There will therefore be one or two winners in this currency tug-of-war, and one or two losers. The winner will get a depreciating currency, the losers an appreciation.

    The net effect on each country’s economy, however, will depend on more than just the value of each country’s currency. It will also depend on whether investors simultaneously drive down asset prices in the country that they shift away from. If investors decide to move out of the dollar, for example, they could also decide to move out of the US bond market, driving up US interest rates. Whether or not that happens will depend on the confidence they have in the financial management of the US government.

    Uh oh.


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    Secretary Snow Answers My Question #2

    CBS Marketwatch was kind enough to try to get an answer to question #2 from the seven in my “California Questions” post that followed Arnie’s coup in CA. They went right to the top (almost), and asked Treasury Secretary John Snow.

    NEW YORK (CBS.MW) — If Governor-elect Arnold Schwarzenegger is hoping for help cleaning up California’s fiscal mess when he meets with President Bush, he may be disappointed.

    “I’m sure we’ll listen to him, but you know California’s problems are basically California’s own problems,” Treasury Secretary John Snow said in an interview with CBS MarketWatch. “I think California is going to have to solve its own problems rather than turn to the Treasury of the United States.”

    Probably not surprising. But of course, today Arnie will have the chance to go over Snow’s head and talk directly to the boss about getting help for CA, so who knows…


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    CPI Shows Continued Disinflation

    The BLS released its monthly report on consumer prices this morning. The core rate (excluding food and energy prices) rose .1% in September, bringing the annual rate of core consumer price inflation down to 1.25% over the past year. So the trend of declining inflation, called “disinflation,” continues, as I suggested in last week’s post about the PPI. For your amusement and edification, I’ll include a graph.

    Given that it is generally accepted among economists who do this sort of thing that the CPI overstates actual inflation by a bit (maybe by .5% per year, maybe by as much as 1% per year), the US is basically in a period of flat prices right now. Any further disinflation, however, will bring up the dreaded ‘d’ word: deflation. And as I suggested last week, deflation could cause some serious problems. Stay tuned.


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    Widespread Fantasy Update

    The title of this post is much more exciting than the content. Yesterday, I initiated my search for just one liberal reader of Angry Bear who believes that Colin Powell will resign as Secretary of State and turn against the administration. Michael Kinsley, you may recall, says that belief is “widespread” among the foolish liberals who like generals (be they Powell or Clark).

    Since issuing that challenge, I’ve had 600 unique visitors, predominately liberal. Now some may be repeat visitors from different computers and some may not be liberal, so let’s conservatively suppose that only 100 liberals have visited. Kinsley’s “widespread” is now somewhere below 1% of liberals–and dropping.


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    Sneaky Lou Dobbs

    Making a regularly scheduled visit to Eschaton, I see his latest “Torture Lou Dobbs.” Always happy to strike a blow against pseudo-science, I quickly followed the link to Dobbs’ latest poll. Here are the questions:


    Whose view of the situation in Iraq do you believe most?

    • Bush administration’s
    • Congressional Democrats’
    • Media’s
    • United Nations’

    It’s a clear attempt to fracture the oppostion vote (e.g. 65% against Bush would be split at about 22% for each of the three non-Bush choices, so Bush’s 35% would be the “winner”–“by more than a 50% margin” would be technically true but disingenuous). For example, the announced result would be “our latest internet poll shows that more people believe Bush’s view of the Iraq situation than believe Congressional Democrats’/United Nations’/Media’s.” Cleverly, Dobbs would likely only compare Bush to one of the alternatives at a time, but never compare the votes for Bush to the non-Bush votes, nor say anything like, “65% rejected Bush’s view”.

    Given the choices, I was indecisive for a bit. Briefly, remembering that the point is to frustrate Dobbs rather than express my view, I was stuck trying to figure out which in Dobbs’ book would be the greater evil. Then I remembered that of the three, only the United Nations controls black helicopters and blue helmets, and voted.

    As it turns out, Atrios’ readers are legion, as well as too clever to fall for Dobbs ploy: the current tally is UN 49%, Democrats 27%, Media 16%, and Bush 8%. The fracturing did work somewhat, but not well enough for Bush to come out ahead. Look for the choices in a future Dobbs poll to be Congressional Democrats, the Media, Howard Dean, The United Nations, Wesley Clark, Nader, Gray Davis, Noam Chomsky, Al-Jazeera, the BBC, NPR, PBS, the New York Times, the Washington Post, CalPundit, and George Bush.


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    George Soros

    The three most famous super-rich liberals are George Soros, Warren Buffet (notwithstanding his advising the Shwarzenegger campaign), and Bill Gates Sr. (Gates Sr. is not personally rich, but as head of The Bill and Melinda Gates Foundation he still makes the list). The upcoming issue of Fortune has a medium-length piece on Soros and his new book (paid subscription required). In a nutshell, the point of the article is that Soros is (1) really wealthy, (2) really smart, (3) really angry at the Bush administration, and (4) planning to spend and raise money to do something about it:

    “I lived through both German and Soviet occupation,” Soros told me as we walked through a park on Budapest’s Margaret Island. “When I hear President Bush say that those who are not with us are against us, I hear alarm bells.” He calls Bush’s speeches “Orwellian” and compares the Bush vision of international democracy—”You can have freedom as long as you do what we tell you to do”—to Soviet rhetoric about “people’s democracies.”

    Soros has just committed $10 million of his own money to an effort to drum up support for Democrats in key states, immediately becoming one of the biggest individual donors to next year’s electoral race. In September he staged a fundraiser for former Vermont governor Howard Dean. And after years of writing moderate, carefully argued—and not very influential—tracts about the international economy, he is now almost ready to publish a very different kind of work, a book to be called The Bubble of American Supremacy. It’s a no-holds-barred attack on what he sees as the hubris of American policy. “I’ve come to the conclusion,” Soros told FORTUNE, “that one can do a lot more about the issues I care about by changing the government than by pushing the issues.” In short, he has become the world’s angriest billionaire.

    How do Republicans respond when one-who-should-be-with-them sides with the opposition?

    “The Democratic party has been unable to broaden their message,” says Republican National Committee spokeswoman Christine Iverson, … “George Soros has purchased the Democratic Party for $10 million”

    Spread nationwide, in smaller chunks to various candidates and state parties, $10 million buys an entire party? I wonder what these 23 people are buying with their $200,000 or more in funds that will be contributed to a single person?


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