Thursday, January 20, 2011
Spend More, Tax Even More Thus, Create a Surplus!
Stratfor's Annual Forecast 2011. (See 1 below.)
This does not even begin to reach government spending on mostly nonsense but it is a beginning if only a modest one.
I served on the Woodrow Wilson Foundation Board, for instance, and it occupies fabulous subsidized quarters in the billion dollar Reagan Building thanks to you the tax payer. The Foundation is a non-partisan think tank that produces reports that few read.
Some of these cuts would have to be replaced by spending from other sources.
I currently serve on our State's Museum Board and we benefit greatly from grants from the National Endowments For The Arts, so some of the cuts are, culturally speaking, perhaps counter productive but at least they have been identified and there are plenty of billions more that should and can be red lined.
All you need is a powerful political will and pair of thick glasses to find waste because it is there buried in the government's 'boon doggle' rooms and cavernous hall ways and file rooms.
This report has not addressed Pentagon waste, various commission costs listed in the PLUM BOOK, needless and duplicate department spending by various government agencies etc.
Almost every time a Senator retires the government sets up something in their name that relates to their pet concern and on which millions are spent annually, ie. Pell Grants named after Senator Claiborne Pell etc.
In my opinion and by law, federal government income should represent only 16% of GDP.
Let states decide and pay for their own funding needs. Local control far better than sending money to DC and then having it re-allocated. (See 2 below.)
Democrats have a better idea. They say spend more, tax more than you spend and, ipso facto, you create a surplus. (See 2a below.)
Lebanon's Hariri has guts and they could eventually be spilled by his own assassination. (See 3 below.)
Listen up you fortunate cookies. Be happy that I deigned to meet with you because I own you! (See 4 below.)
1) Stratfor 2011 Forecast:
The year 2011 is one of preparation and postponement, as Washington, Beijing and Moscow — among several others — are already looking to elections and leadership changes in 2012. The uncertainty of next year affects the actions of this year.
One of the biggest questions in 2011 concerns Iraq. The United States is officially obligated to complete its withdrawal of combat troops from Iraq by the end of this year, a move that could reshape the balance of regional power. If the United States withdraws, it leaves Iran the single most powerful conventional force in the region, and leaves Iraq open to Iranian domination. The ripple effect alters the sense of security for the Saudis and other Arab regimes, forcing them to accommodate a more powerful Iran. This effectively ends the balance of power in the Gulf region, something that Washington can little accept.
If Washington does not carry out a meaningful withdrawal, then Iran retains the option of stirring up militias and unrest in Iraq, increasing conflict and the attendant U.S. casualties, all while the U.S. presidential election season begins ramping up. From the political perspective, this is not acceptable. From the geopolitical perspective, allowing Iran (or any other single power) to dominate the region is unacceptable. We think the latter will take precedence over the former, and the United States will seek to retain a strong presence in Iraq rather than withdraw from the region. However, the United States is not likely to carry out any major military action against Iran.
That leaves one path if the United States wants to get out of Iraq at some future point: an accommodation (even if quiet) with Iran to ensure both U.S. and Iranian interests. While it is not likely to be very public, we expect a significant increase in U.S.-Iranian discussions this year toward this end.
While Washington looks to extricate itself from Iraq without leaving power in the region unbalanced, farther east China is struggling with its own economic imbalances. STRATFOR has long been perceived as bearish on the Chinese economy. We are less bearish than realistic, and the reality is that the longer an economic miracle continues to be miraculous, the more likely it is to end its amazing run. We cannot help but notice the similarities between China and its East Asian economic predecessors: Japan, South Korea and the Southeast Asian “Tigers.” The Chinese have shown great resilience, but the global economic crisis revealed the weaknesses of China’s export-based model. While government investment now makes up the lion’s share of the Chinese economy, Beijing is walking a very difficult path between rampant inflation and rapid economic slowing.
As China’s leaders search for a solution and try to avoid the social consequences of a slip in either direction, they are also focused on the next major generational leadership transition, slated to begin in 2012. This discourages any radical or daring economic policies, and stability will remain the watchword as the politicians jockey for position. But given the status of the Chinese economy, and the continued effects internationally of the global slowdown, daring policies and ideas are perhaps what China needs. While Beijing is likely to procrastinate in making any radical economic policy changes, and thus avoid the likely short-term chaos that could entail, the longer the leaders delay fundamental action, the worse things may be when the system starts to unravel.
Meanwhile, Russia will continue to attempt to roll back U.S. influence in Eurasia and solidify its own. Russia has largely completed its retrenchment to the borders of the former Soviet Union, with the notable exception of the Baltic states and to a lesser extent the Caucasus, and Moscow is now secure enough to shift from its more assertive stance to one that appears more conciliatory. This new strategy will play to all its relationships around the world, but will be effective in moving Russia’s influence farther beyond its former Soviet sphere and into Europe — where the United States has been dominant since the end of the Cold War. Russia’s focus this year is to mold understandings with states like the Baltics, while entrenching its strong relationship with Germany. Moscow knows that its time to act freely is ticking down as Russia watches the United States wrap up some of its commitments in the Middle East, but Moscow will also be looking internally, as the political elite position themselves ahead of the 2012 elections.
Middle East/South Asia
The most important question in the Persian Gulf is the degree to which the United States will draw down its forces in the region. The answer to this question determines the region’s geopolitical reality.
Other than the United States, the greatest military power in the Persian Gulf region is Iran. Whether or not Iran acquires nuclear weapons, it is the major conventional power. Should the United States remove all effective military force in Iraq and limit its forces in Kuwait, two things would happen. First, Iraq would fall under Iranian domination. Second, the states on the Arabian Peninsula would have to accommodate the new balance of power, making concessions to Iranian interests.
Should the United States not remove its forces from the region, Iran would have the option of launching guerrilla operations against U.S. forces, using its surrogates in Iraq. That would escalate casualties in Iraq at a time when the U.S. presidential campaign would be getting under way.
The core prediction STRATFOR needs to make for the region, therefore, is whether the United States will withdraw its forces. We do not believe a withdrawal is likely in 2011. While a new Iranian-sponsored insurgency is a possibility, a dramatic shift in the balance of power due to withdrawal would be a certainty. Pressure on the United States from Saudi Arabia and its allies in Iraq not to withdraw will be heavy, so the United States will keep enough forces in Iraq to block Iran. STRATFOR expects this will lead to greater instability in Iraq, but the United States will be prepared to pay that price.
The chance of surgical strikes targeting Iranian nuclear facilities is very low, inasmuch as the Iranian response would be to attempt to block the Strait of Hormuz. While it is possible for the U.S. Navy to keep the strait clear, it cannot control the market reaction to military activity there. The consequences of failure for the global economy would be enormous and too great a risk without a much broader war designed to destroy Iran’s conventional forces (naval, air and land) from the air. This could be done, but it would take many months and also run huge risks.
Given that the United States will not completely withdraw and will not launch a major military strike unless pressed by unforeseen circumstances, it is likely that the United States will reach out to Iran — either the government or significant factions within it — in order to reach some sort of accommodation guaranteeing U.S. interests in the Persian Gulf and Iranian interests in Iraq. These talks will likely be a continuation of secret talks held in the past, and if an accommodation is reached, it might be informal in order to minimize political repercussions in both countries.
In Turkey, 2011 is an election year, with parliamentary elections scheduled for June. The ruling Justice and Development Party (AKP) is unlikely to lose the election overall, but the vote will highlight the core secular-religious divide within Turkey. As it seeks to consolidate itself at home, the AKP in 2011 will work toward a more coherent foreign policy, trying to learn from past efforts that had unexpected results.
Egypt begins the year with the successors of ailing 82-year-old Egyptian President Hosni Mubarak at odds over the pending transfer of power. The various factions — both in his National Democratic Party and the army — do not agree on who can best ensure regime stability and policy continuity once Mubarak is no longer in a position to lead. Another complication is that the presidential election is scheduled for September, and it is not clear whether Mubarak will run for a sixth five-year term. While the various elements that make up the state will be busy trying to reach a consensus on how best to navigate the succession issue, several political and militant forces active in Egypt will be trying to take advantage of the historic opportunity the transition presents. While the opponents of the regime — both those who seek change via constitutional means and those who prefer extra-constitutional methods — are not yet organized enough, the rifts within the government also create vulnerabilities for Egypt, where regime change will have profound implications for the region and beyond.
In Israel, concerns remain about Hezbollah, the most serious threat Israel faces. But Hezbollah is focused on matters in Lebanon, and Syria has its own interests at stake, so another major Israel-Hezbollah war in 2011 is unlikely. In Gaza, on Israel’s southern flank, things are not quite as stable. Hamas has an interest in maintaining a short-term truce with Israel, but pressure from competing Islamist movements and Israel’s ongoing efforts to prevent Hamas from strengthening will likely lead to clashes within the year, though not to the extent seen in 2008-2009.
In Afghanistan, the U.S.-led International Security Assistance Force (ISAF) saw some successes on the battlefield in 2010, and more can be expected in the year ahead. However, the ISAF has neither the troop strength nor the staying power to truly defeat the Taliban through military force alone. The success or failure of the counterinsurgency-focused strategy therefore rests not only on the military degradation of the Taliban, but also on the ability to compel the Taliban to negotiate some degree of political accommodation. Some movement toward a negotiated settlement this year is possible, and Pakistan will try to steer Washington toward talks (in the hopes that Islamabad will be able to influence the eventual outcome of those talks), but a comprehensive settlement in 2011 seems unlikely at this point.
The Global Economy
The United States will experience moderate to strong growth in 2011. Unlike in other major economies, consumer activity comprises the bulk of the U.S. system — some $10 trillion of the $14 trillion total. That $10 trillion is approximately half of the global consumer market. (The combined BRIC states — Brazil, Russia, India and China — account for less than one-third of that amount). As the U.S. consumer goes, so goes the world.
When measuring what the U.S. consumer is going to do, STRATFOR consults three sets of data: first-time unemployment claims (our preferred method for evaluating current employment trends), retail sales (the actual consumer’s track record), and inventory builds (an indicator of whether or not wholesalers and retailers will be placing new orders, which in turn would require more hires). As 2011 begins, the first two figures look favorable to economic growth, while the last indicates employment may be slow to recover.
STRATFOR pays close attention to two other measures on the economy: The S&P 500 Index indicates investors’ risk appetite, and total bank credit as made available by the U.S. Federal Reserve indicates how functional the financial system is. Because the 2008-2009 recession was financial in origin, STRATFOR pays particular attention to what investors and banks are doing and thinking. Both measures are strongly positive as 2011 begins.
But while the United States may be gearing up for a strong performance, the same is not true elsewhere in the world.
Europe faces a structural problem. The euro was designed for and by the Germans, who want a strong currency and high interest rates to keep inflation in check and to attract the capital required to maximize their high value-added system of first-rate education and infrastructure. The Southern Europeans, in contrast, have economies that do not add nearly as much value. They must remain price competitive to generate growth, and the only reliable means they have of doing that is to sport a weak currency. Put simply, people will pay more for a German car, but they will only pay so much for a Spanish apple.
Yet these economies (and others) are enmeshed into the eurozone. The financial crisis is depressing the euro, which would normally help the southern European states, but Germany’s presence in the eurozone is acting as a sort of life preserver, limiting how far the common currency can sink. The result is a midground currency, prevented from falling to levels that would actually stimulate the south while holding at weaker levels that make the already competitive Germans hypercompetitive. The result will be growth bifurcation, with the Germans experiencing their fastest growth in a generation, and Southern Europe — the region that needs growth the most to emerge from the debt maelstrom — mired in recession.
Consequently, the financial crisis that started sweeping Europe in 2010 is far from over, and STRATFOR forecasts that more states will join Greece and Ireland in the bailout line in 2011. In one bit of good news for the Europeans, STRATFOR projects that the systems the Europeans built in 2010 to handle the financial crisis will prove sufficient to manage Portugal, Belgium, Spain and Austria, the four states facing the highest likelihood of bailouts, respectively.
In Asia the picture is more familiar. Japan has largely removed itself from the scene. Japan’s population has aged to such a degree that consumption is expected to shrink every year from now on, while its national budget is now majority funded by deficit spending. Luckily for the rest of the world, Japan’s debt is held almost entirely at home, and its economy is the least exposed to the international system of any advanced nation. Japan will rot, but it will rot in seclusion.
In China, nearly every government throughout its history has at some point been brought down by social unrest of some kind. Recently, Beijing was concerned that rolling back stimulus policies enacted in late 2008 would put economic growth at risk, and with it employment. STRATFOR has learned that, given these circumstances, Beijing has decided to keep that stimulus intact. This will solve the employment problem, but it comes at the certain price of higher inflation. China’s challenge in 2011 will be to maintain sufficient services and subsidies to keep social forces in check at a time when the country’s economic model will exacerbate inflationary problems.
Former Soviet Union
Russia’s consolidation of influence in the former Soviet Union is nearly complete, and in 2011, Moscow will feel secure enough in its position to shift from a policy of confrontation with the West to one characterized, at least in part, by a more cooperative engagement. Russia will play a double game, ensuring it can reap benefits from having warm relations with countries — such as investment and economic ties — while keeping pressure on those same countries for political reasons.
The most complex relationship will be with the United States, as many outstanding issues remain between the two powers. However, Russia knows that the United States is still bogged down in the Middle East and South Asia, so there is no need for a unilaterally aggressive push on Washington.
The most productive relationship will be with Germany. Moscow and Berlin will strengthen their ties politically, economically and financially in the new year. But, as throughout history, their inherent mistrust for one another will motivate them to prepare to pressure each other if needed in the years beyond 2011.
Moscow’s strategy shift will also affect how Russia interacts with its former Soviet states. In 2010, Russia consolidated its control over Belarus, Ukraine, Kazakhstan and Kyrgyzstan, while strengthening its influence over Armenia and Tajikistan. Russia knows that it broadly dominates the countries and can now move more freely in and out of them — and allow the states more leeway, though within Russia’s constraints.
There are still three regions in which Russia has not solidified its influence and thus will be more assertive: Moldova, the independently minded Caucasus states of Georgia and Azerbaijan, and the Baltics. Of these, Russia is furthest along with Moldova, and changing relations with Georgia can largely be left for another day. Russia’s strategy toward the Baltics is changing, and Moscow is attempting to work its way into each of the Baltic states on multiple levels — politically, economically, financially and socially. Russia knows that it will not be able to pull these countries away from their alliances in NATO or the European Union, but it wants to have some influence over their foreign policy. Russia will be more successful in this new strategy in the Baltic state of Latvia and to a lesser degree in Estonia, while Lithuania will be more challenging.
Domestically, Russia is preparing for parliamentary elections at the end of 2011 and the highly anticipated presidential election in 2012. Traditionally, in the lead-up to an election, the Kremlin leader — currently Russian Prime Minister Vladimir Putin — shakes things up by replacing key powerful figures in the country. This time, Putin has asserted that his power over the Kremlin is strong enough that he will not need such a reshuffling, but many in the country’s elite will still scramble to secure their positions or attempt to gain better ones. Should President Dmitri Medvedev’s supporters move to break from Putin’s grip, it could trigger another clampdown on the country politically and socially, similar to the one seen in the mid-2000s. But whether Putin decides to run again as president or remain prime minister, his control over Russia remains secure.
In four of the Central Asian states, a series of unrelated trends will intensify in 2011, creating potential instability that could make the region vulnerable to one or more crises. In Kazakhstan and Uzbekistan, succession crises are looming, and the political elite are struggling to hold or gain power. In both Kyrgyzstan and Tajikistan, ethnic, religious and regional tensions are turning violent. This has been exacerbated by the return of militants who have been fighting in Afghanistan for the past eight years. Both countries have called on Russia to stabilize their security situations. Moscow will use these requests to increase its presence in the region militarily, but will hold back from getting directly involved in the fighting.
In these four countries, Russia’s handling of the situation is the important factor. In 2011, Moscow will ensure that all its pieces are in place — whether political influence or a military presence — in order to keep control (and dominance) over the region.
The most important question for the Asia Pacific region is whether China’s economy will slow down abruptly in 2011. Though growth may slow, STRATFOR does not anticipate it to collapse beneath the government’s target level. This will require a tightrope walk between excessive inflation on one side and drastic slowing on the other. China’s leaders want a smooth transition to the next generation of leaders in 2012, and do not want the economy to collapse on their watch. They will err on the side of higher inflation, which could exacerbate social troubles, but Beijing is betting this will remain manageable.
China’s exports recovered in 2010 from the lows of 2009, but export growth is expected to slow in 2011. Wages, energy and utilities costs are rising; the government is letting the currency slowly appreciate; workers are demanding better conditions and more compensation while the demographic advantage and the amount of new migrant labor entering markets is slowing. All of these processes will continue in 2011 to the detriment of export sector stability. Already some manufacturers of cheap goods are operating at a loss. Reports of loss-making enterprises are not yet widespread, but they indicate the real strains from rising costs that will worsen in 2011. However, as long as the American recovery continues and there are no other big external shocks, the export sector will not collapse.
China’s primary hope for maintaining targeted growth rates is investment. Since 2008, Beijing has relied on government spending packages and, most important, gargantuan helpings of bank loans to drive growth. The central government will continue these stimulus policies in 2011. Meanwhile, Beijing will allow banks to continue high levels of lending, and the banks appear just capable of surging credit for another year. Deposits are still growing and outnumber loans, several major banks raised capital in 2010, and Beijing has toughened regulatory requirements to increase capital adequacy, reserves and bad loan provisions. Nevertheless the credit boom cannot last much longer, and the sector is sitting on a volcano of new non-performing loans worth at least $900 billion. Without credible reform in lending practices, continued high levels of lending in China will increase systemic financial risks as companies take out new loans to roll over bad debt and invest in inefficient or speculative projects, while adding to inflation and compounding the sector’s future burdens. Though a banking crisis may be averted in 2011, it cannot be averted for long.
With Beijing willing to use government investment and bank lending to avoid a deep slowdown, inflation will rise and cause economic and socio-political problems in 2011, generating outbursts of social discontent along the lines of previous inflationary periods, such as 2007-2008, or even, conceivably, 1989. Inflation is hitting all the essential commodities, and STRATFOR sources perceive unusually high levels of social frustration from Beijing to Hong Kong. The government will use social policies, price controls and subsidies to alleviate the problem, but will not be able to prevent major incidents of unrest. Security forces are capable of dealing with protests and riots, but such incidents will reveal the depth of the problems the country faces.
Internationally, China will continue playing a more assertive role. Beijing will accelerate its foreign resource acquisition and outward investment strategy. It will continue pursuing large infrastructure projects in border areas and in peripheral countries despite resulting tensions with India and Southeast Asian states. It will increase maritime patrols in its neighboring seas and maintain a hard-line position on territorial and sovereignty disputes, increasing the risk of clashes with Japan, Vietnam, South Korea and others. China’s military modernization will continue to focus on areas like anti-access and area denial and cyber capabilities, and the lack of transparency will continue to feed foreign suspicions. China’s trade disputes with other nations — especially the United States — will worsen, though Beijing will make token policy changes and increase imports to reduce political friction. The United States will make bigger threats of imposing concrete trade measures against China as the year progresses, taking at least symbolic action, perhaps toward the end of the year as the 2012 election campaign starts to warm up.
North Korea’s behavior in 2010 appeared off the charts — Pyongyang was accused of sinking a South Korean navy ship and killed South Korean civilians during the shelling of a South Korean-controlled island south of the Northern Limit Line, a maritime border the North refuses to formally recognize. In the past two decades, North Korea has demonstrated a clear pattern of escalating tensions with the South, with its neighbors and with the United States as a precursor to negotiations for economic benefits. These tensions centered on nuclear and missile developments, but not on outright aggression against the South — until 2010. Pyongyang appears to have made several very calculated decisions: First, that nuclear tests and missile launches no longer created the sense of uncertainty and crisis necessary to force the United States and South Korea into negotiations and concessions; second, that it had China’s cover; and third, that Seoul and Washington would not respond militarily to a more direct form of North Korean provocation. All indications suggest that Pyongyang bet correctly, and it is looking like 2011 will see a return to the more managed relations with North Korea seen a decade ago, barring a major domestic disagreement among the North Korean elite over Kim Jong Il’s succession plans.
The United States will continue its slow re-engagement with the region, providing an opportunity for China’s neighbors to hedge against it. Washington will support greater coordination among Japan, South Korea and Australia (as well as India) on regional security and economic development in Southeast Asia, increasing competition with China. The United States will build or rebuild ties with partners like Indonesia and Vietnam and become more active in multilateral groups, including the East Asia Summit and the Trans-Pacific Partnership. Members of the Association of Southeast Asian Nations will try to balance both China and the United States.
Europe continues to deal with the economic and political ramifications of its economic problems. At the center is Germany, the most significant European power in 2011. Berlin will continue to press the rest of Europe to accept its point of view on fiscal matters, using the ongoing economic crisis as an opportunity to tighten the eurozone’s existing economic rules and to introduce new ones. Germany is pursuing three key initiatives: the development of a permanent bailout and sovereign debt restructuring mechanism (largely freeing Germany from having to bail out other eurozone members in the future); the acceptance of tougher monitoring, implementation and enforcement of eurozone fiscal rules; and continued adherence to German-designed austerity measures among eurozone members.
Berlin’s assertiveness will continue to breed resentment within other eurozone states. Those states will feel the pinch of austerity measures, but the segments of the population being affected the most across the board are the youth, foreigners and the construction sector. These are segments that, despite growing violence on the streets of Europe, have been and will continue to be ignored. Barring an unprecedented outbreak of violence, the lack of acceptable political — and economic — alternatives to the European Union and the shadow of economic crisis will keep Europe’s capitals from any fundamental break with Germany in 2011.
If anyone breaks the line on austerity, it will be the Irish and the Greeks. In Ireland, elections in the first quarter could bring anti-bailout or anti-austerity forces into power. Ireland has said “no” to Europe twice before on EU treaties, and it could be a wrench in Berlin’s plans again. In Greece, Athens is dealing with historically high unemployment (unlike the Spanish and Irish, who have seen much worse as recently as 15 years ago) and another year of recession. Prime Minister George Papandreou is holding on to an ever-smaller majority in the parliament as his party’s lawmakers jump ship. However, Greece and Ireland are both already under EU bailout mechanisms. Other states may see changes in government (Spain, Portugal and Italy being prime candidates), but leadership change will not mean policy change. Germany would only be truly challenged if one of the large states — France, Spain or Italy — broke with it on austerity and new rules, and there is no indication that such a development will happen in 2011.
Ultimately, Germany will find resistance in Europe. This will first manifest in the loss of legitimacy for European political elites, both center-left and center-right. The year 2011 will bring greater electoral success to nontraditional and nationalist parties in both local and national elections, as well as an increase in protests and street violence among the most disaffected segment of society, the youth. Elites in power will seek to counter this trend by drawing attention away from economic issues and to issues such as crime, security from terrorism and anti-immigrant rhetoric and policy.
The country where elites are in most trouble is in fact Germany. Berlin has not yet made the case to its own population for Germany’s central role in Europe, and why Germany needs to bail out its neighbors when it has its own economic troubles. In large part this is because if Berlin were to make this case domestically, laying out the advantages Germany gains from the eurozone, it would further breed resentment abroad. With seven state elections in 2011 — four in a short period in February and March — the first evidence of nontraditional political forces’ coming to the forefront could be in Germany. This could accelerate if Berlin is also called upon to rescue one of the other troubled economies within this intense electoral period in the first quarter.
Central Europe will have its own issues to deal with in 2011. With the United States preoccupied in the Middle East, Russia making a push into the Baltic states and consolidating its periphery, and Berlin and Moscow further entrenching their relationship, Central Europe will continue to see its current security arrangements — via NATO and Europe — as insufficient. STRATFOR expects the Central European states to look to alternatives in terms of security, whether with the Nordic countries, specifically Sweden, or the United Kingdom, or with each other via forums such as the Visegrad Group. But with Washington distracted and unprepared to re-engage in the region, the Central Europeans might not have a choice in making their own arrangements with Russia, which could mean concessions and a more accommodating attitude, at least for the next 12 months.
Economic decay, runaway corruption and political uncertainty will define Venezuela in the year ahead. Venezuelan President Hugo Chavez will resort to more creative and forceful means to expand his executive authority and muzzle dissent, but managing threats to his hold on power will become more difficult and more complex, especially considering Venezuela’s growing struggle to maintain steady oil production and the country’s prolonged electricity crisis.
The Venezuelan government will thus become increasingly reliant on its allies — namely China, Cuba and, to a lesser extent, Iran and Russia — to stave off a collapse. However, Chavez is facing the developing challenge of a potential clash of interests among those allies. China, Cuba and Russia, for example, will attempt to place limits on Venezuela’s relationship with Iran in the interest of managing their own affairs with the United States. Though doubts will rise over the sustainability of the Venezuelan government and economy, the Chavez government likely will not be toppled as long as oil prices allow Caracas to maintain a high rate of public spending.
Cuba, meanwhile, intends to lay off or reshuffle more than half a million state workers (10 percent of the island’s work force) by March 2011 while attempting to build up a fledgling private sector to absorb the labor. There are signs that Fidel and Raul Castro have reached a political consensus over the reforms and are serious about easing the heavy burden on the state out of sheer economic desperation. However, this will be a year of immense struggle for Cuba, especially as many of the new privately owned or cooperative businesses are expected to fail due to their lack of resources and experience and because of a shortage of foreign capital.
Cuba will continue to send positive, albeit measured, political signals in an attempt to make investment in the island more politically palatable to foreigners, but no drastic political reforms are expected. Cuba is headed for a major political change, but STRATFOR does not see that happening in 2011. Such a change will take time to develop and will entail a great deal of pain inflicted on the Cuban economy. We suspect that those eyeing a change in the Cuban leadership would rather the Castros take the fall for the economic hardships to be endured during this slow process. Meanwhile, relations between Cuba and Venezuela are likely to become more strained. With Cuba exerting significant influence over Venezuela’s security apparatus and Havana needing capital that Venezuela may not be able to provide in Cuba’s time of need, the potential for quiet tension between the two remains.
The year 2011 will be one mostly of continuity for an emergent Brazil as the country devotes much of its attention to internal development. Specifically, Brazil’s focus will be absorbed by problematic currency gains, developing its pre-salt oil fields and internal security. The real gained 108 percent during President Luiz Inacio Lula da Silva’s time in office, hitting domestic industry. The country is also facing investment needs of around $220 billion over the next five years for the offshore pre-salt oil fields, on which the country’s geopolitical ambitions have been hinged. Crackdowns on select favelas in Rio de Janeiro are likely to continue this year, but constraints on resources and time (with the 2014 World Cup approaching) will hamper this initiative.
In the foreign policy sphere, Brazil will keep a measured distance from the United States as a means of asserting its own authority in the region while gradually building up primarily economic influence in the South American states, particularly Paraguay. Brazil is still in the very early stages of achieving regional prominence and will feel more comfortable making mostly superficial moves on issues far removed from the South American continent than appearing to intrude in its neighbors’ affairs.
In Mexico, the next year will be critical for the ruling National Action Party (PAN) and its prospects for the 2012 elections. Logic dictates that for the PAN to have a reasonable chance at staving off an Institutional Revolutionary Party (PRI) comeback, the level of cartel violence must come down to politically acceptable levels. Though serious attempts will be made, STRATFOR does not see Mexican President Felipe Calderon and the PAN making meaningful progress toward this end. If there is a measurable reduction in overall cartel violence, it will be the result of inter-cartel rivalries playing out between the two current dominant cartels — the Sinaloa Federation and Los Zetas — and their regional rivals, mostly independently from the Mexican government’s operations.
Mexican authorities will devote considerable resources to the Tamaulipas and Nuevo Leon regions, and these operations are more likely to escalate tensions between the Gulf cartel and Los Zetas than to reduce violence in these areas. Political stagnation will meanwhile become more severe as Mexico’s election draws closer, with parties forming alliances and the PRI taking more interest in making the PAN look as ineffectual as possible on most issues.
Sub-Saharan Africa’s year begins with important votes in Sudan and Nigeria.
A referendum on Southern Sudanese independence takes place in January. However, if the referendum passes, the south cannot declare independence until July. Thus, Southern Sudan will be in a period of legal limbo for the first half of the year. These months will be defined by extremely contentious negotiations between north and south, centered primarily on oil revenue sharing. Khartoum will grudgingly accept the results of the referendum, and both sides will criticize each other for improprieties during the voter registration period and polling.
The south knows it must placate Khartoum in the short term, and it will be forced to make concessions on its share of oil revenues during the negotiations. Juba will also seek to discuss other options for oil exports in the future during the year, with Uganda and Kenya playing a significant role in those talks. However, any new pipeline is at least a decade away. This will reinforce Khartoum and Juba’s mutual dependency in 2011.
The northern and southern Sudanese governments will maintain a heightened military alert on the border, and small clashes are not unexpected. Minor provocations on either side could spark a larger conflict, and while neither side’s leadership wants this to happen, Sudan will be an especially tense place all year.
Nigeria will hold national elections during the first half of the year, with a new government inaugurated about a month after elections are held. Candidates for the presidency and other political offices will be determined around mid-January, when party primaries are to be held. Within the ruling People’s Democratic Party (PDP), it is a race between President Goodluck Jonathan, who hails from the oil-rich Niger Delta in the south, and the man northern politicians are calling the consensus northerner candidate, former Vice President Atiku Abubakar, for the party’s nomination. Both candidates are wooing PDP politicians throughout the country.
Extensive intra-party negotiations and backroom deals will occupy the Nigerian government during primary season, the election campaign and after the inauguration, all as a matter of managing power-sharing expectations that could lead to violence. But the cash disbursed and the patronage deployed as part of the campaign will keep most stakeholders subdued even if their preferred candidate does not win. This means the event will not turn into a national crisis, and the Niger Delta region is likely to remain relatively calm this year.
The African Union Mission in Somalia (AMISOM) will see a few thousand new peacekeepers added in 2011, continuing its slow buildup (the contingent is currently 8,000 strong). Somali Transitional Federal Government (TFG) troops will receive incremental training to increase their capabilities.
This year will see attention focused on securing Mogadishu as well as increased political recognition of Somaliland and Puntland, two semi-autonomous regions in northern Somalia. But AMISOM and the TFG will still not be equipped or mandated to launch a definitive offensive against al Shabaab. Al Shabaab will not be defeated or even fully ejected from Mogadishu, let alone attacked meaningfully in its core area of operations in southern Somalia.
The TFG’s mandate might not be renewed after it expires in August, if the government fails to achieve gains in socio-economic governance in Mogadishu amid an improved security environment. Even if there is no TFG in Mogadishu, though, there will still be a governmental presence of some sort to deliver technical and administrative services and to operate public infrastructure (such as the international airport and seaport).
South Africa will carry into 2011 a predominantly cooperative relationship with countries in the southern African region, notably Angola. Pretoria will use that cooperation to gain regional influence. Negotiations with Angola over energy and investment deals agreed to in principle during Angolan President Eduardo dos Santos’ visit to South Africa at the end of 2010 will continue during the first half of 2011, with both governments sorting through the details of — and inserting controls over — this cooperation. Relations between the two governments will be superficially friendly, but privately guarded and dealt with largely through the presidents’ personal envoys. Beyond the commercial and regional influence interests Pretoria holds in Angola, the South African government will push for infrastructure development initiatives with other southern and central African countries to emerge as the dominant power in the southern half of Africa.
2)FROM THE US NEWS WEEKLY:
House GOP Lists $2.5 Trillion in Spending Cuts
By Paul Bedard
Moving aggressively to make good on election promises to slash the federal budget, the House GOP today unveiled an eye-popping plan to eliminate $2.5 trillion in spending over the next 10 years. Gone would be Amtrak subsidies, fat checks to the Legal Services Corporation and National Endowment for the Arts, and some $900 million to run President Obama's healthcare reform program. [See a gallery of political caricatures.]
What's more, the "Spending Reduction Act of 2011" proposed by members of the conservative Republican Study Committee, chaired by Ohio Rep. Jim Jordan, would reduce current spending for non-defense, non-homeland security and non-veterans programs to 2008 levels, eliminate federal control of Fannie Mae and Freddie Mac, cut the federal workforce by 15 percent through attrition, and cut some $80 billion by blocking implementation of Obamacare. [See a slide show of the top Congressional travel destinations.]
Some of the proposed reductions will surely draw Democratic attack, such as cutting the Ready to Learn TV Program, repeal of the Davis-Bacon Act, the elimination of the Energy Star Program, and cutting subsidies to the Woodrow Wilson Center. [See editorial cartoons about the GOP.]
Here is the overview provided by the Republican Study Committee:
FY 2011 CR Amendment: Replace the spending levels in the FY 2011 continuing resolution (CR) with non-defense, non-homeland security, non-veterans spending at FY 2008 levels. The legislation will further prohibit any FY 2011 funding from being used to carry out any provision of the Democrat government takeover of health care, or to defend the health care law against any lawsuit challenging any provision of the act. $80 billion savings.
Discretionary Spending Limit, FY 2012-2021: Eliminate automatic increases for inflation from CBO baseline projections for future discretionary appropriations. Further, impose discretionary spending limits through 2021 at 2006 levels on the non-defense portion of the discretionary budget. $2.29 trillion savings over ten years.
Federal Workforce Reforms: Eliminate automatic pay increases for civilian federal workers for five years. Additionally, cut the civilian workforce by a total of 15 percent through attrition. Allow the hiring of only one new worker for every two workers who leave federal employment until the reduction target has been met. (Savings included in above discretionary savings figure).
"Stimulus" Repeal: Eliminate all remaining "stimulus" funding. $45 billion total savings.
Eliminate federal control of Fannie Mae and Freddie Mac. $30 billion total savings.
Repeal the Medicaid FMAP increase in the "State Bailout" (Senate amendments to S. 1586). $16.1 billion total savings.
More than 100 specific program eliminations and spending reductions listed below: $330 billion savings over ten years (included in above discretionary savings figure).
Here is the full list of cuts:
Additional Program Eliminations/Spending Reforms
Corporation for Public Broadcasting Subsidy. $445 million annual savings.
Save America's Treasures Program. $25 million annual savings.
International Fund for Ireland. $17 million annual savings.
Legal Services Corporation. $420 million annual savings.
National Endowment for the Arts. $167.5 million annual savings.
National Endowment for the Humanities. $167.5 million annual savings.
Hope VI Program. $250 million annual savings.
Amtrak Subsidies. $1.565 billion annual savings.
Eliminate duplicative education programs. H.R. 2274 (in last Congress), authored by Rep. McKeon, eliminates 68 at a savings of $1.3 billion annually.
U.S. Trade Development Agency. $55 million annual savings.
Woodrow Wilson Center Subsidy. $20 million annual savings.
Cut in half funding for congressional printing and binding. $47 million annual savings.
John C. Stennis Center Subsidy. $430,000 annual savings.
Community Development Fund. $4.5 billion annual savings.
Heritage Area Grants and Statutory Aid. $24 million annual savings.
Cut Federal Travel Budget in Half. $7.5 billion annual savings.
Trim Federal Vehicle Budget by 20%. $600 million annual savings.
Essential Air Service. $150 million annual savings.
Technology Innovation Program. $70 million annual savings.
Manufacturing Extension Partnership (MEP) Program. $125 million annual savings.
Department of Energy Grants to States for Weatherization. $530 million annual savings.
Beach Replenishment. $95 million annual savings.
New Starts Transit. $2 billion annual savings.
Exchange Programs for Alaska, Natives Native Hawaiians, and Their Historical Trading Partners in Massachusetts. $9 million annual savings.
Intercity and High Speed Rail Grants. $2.5 billion annual savings.
Title X Family Planning. $318 million annual savings.
Appalachian Regional Commission. $76 million annual savings.
Economic Development Administration. $293 million annual savings.
Programs under the National and Community Services Act. $1.15 billion annual savings.
Applied Research at Department of Energy. $1.27 billion annual savings.
FreedomCAR and Fuel Partnership. $200 million annual savings.
Energy Star Program. $52 million annual savings.
Economic Assistance to Egypt. $250 million annually.
U.S. Agency for International Development. $1.39 billion annual savings.
General Assistance to District of Columbia. $210 million annual savings.
Subsidy for Washington Metropolitan Area Transit Authority. $150 million annual savings.
Presidential Campaign Fund. $775 million savings over ten years.
No funding for federal office space acquisition. $864 million annual savings.
End prohibitions on competitive sourcing of government services.
Repeal the Davis-Bacon Act. More than $1 billion annually.
IRS Direct Deposit: Require the IRS to deposit fees for some services it offers (such as processing payment plans for taxpayers) to the Treasury, instead of allowing it to remain as part of its budget. $1.8 billion savings over ten years.
Require collection of unpaid taxes by federal employees. $1 billion total savings.
Prohibit taxpayer funded union activities by federal employees. $1.2 billion savings over ten years.
Sell excess federal properties the government does not make use of. $15 billion total savings.
Eliminate death gratuity for Members of Congress.
Eliminate Mohair Subsidies. $1 million annual savings.
Eliminate taxpayer subsidies to the United Nations Intergovernmental Panel on Climate Change. $12.5 million annual savings.
Eliminate Market Access Program. $200 million annual savings.
USDA Sugar Program. $14 million annual savings.
Subsidy to Organisation for Economic Co-operation and Development (OECD). $93 million annual savings.
Eliminate the National Organic Certification Cost-Share Program. $56.2 million annual savings.
Eliminate fund for Obamacare administrative costs. $900 million savings.
Ready to Learn TV Program. $27 million savings.
HUD Ph.D. Program.
Deficit Reduction Check-Off Act.
TOTAL SAVINGS: $2.5 Trillion over Ten Years
2a)Everything starts with repeal
By Charles Krauthammer
Suppose someone - say, the president of United States - proposed the following: We are drowning in debt. More than $14 trillion right now. I've got a great idea for deficit reduction. It will yield a savings of $230 billion over the next 10 years: We increase spending by $540 billion while we increase taxes by $770 billion.
He'd be laughed out of town. And yet, this is precisely what the Democrats are claiming as a virtue of Obamacare. During the debate over Republican attempts to repeal it, one of the Democrats' major talking points has been that Obamacare reduces the deficit - and therefore repeal raises it - by $230 billion. Why, the Congressional Budget Office says exactly that.
Very true. And very convincing. Until you realize where that number comes from. Explains CBO Director Douglas Elmendorf in his "preliminary analysis of H.R. 2" (the Republican health-care repeal): "CBO anticipates that enacting H.R. 2 would probably yield, for the 2012-2021 period, a reduction in revenues in the neighborhood of $770 billion and a reduction in outlays in the vicinity of $540 billion."
As National Affairs editor Yuval Levin pointed out when mining this remarkable nugget, this is a hell of a way to do deficit reduction: a radical increase in spending, topped by an even more radical increase in taxes.
Of course, the very numbers that yield this $230 billion "deficit reduction" are phony to begin with. The CBO is required to accept every assumption, promise (of future spending cuts, for example) and chronological gimmick that Congress gives it. All the CBO then does is perform the calculation and spit out the result.
In fact, the whole Obamacare bill was gamed to produce a favorable CBO number. Most glaringly, the entitlement it creates - government-subsidized health insurance for 32 million Americans - doesn't kick in until 2014. That was deliberately designed so any projection for this decade would cover only six years of expenditures - while that same 10-year projection would capture 10 years of revenue. With 10 years of money inflow vs. six years of outflow, the result is a positive - i.e., deficit-reducing - number. Surprise.
If you think that's audacious, consider this: Obamacare does not create just one new entitlement (health insurance for everyone); it actually creates a second - long-term care insurance. With an aging population, and with long-term care becoming extraordinarily expensive, this promises to be the biggest budget buster in the history of the welfare state.
And yet, in the CBO calculation, this new entitlement to long-term care reduces the deficit over the next 10 years. By $70 billion, no less. How is this possible? By collecting premiums now, and paying out no benefits for the first 10 years. Presto: a (temporary) surplus. As former CBO director Douglas Holtz-Eakin and scholars Joseph Antos and James Capretta note, "Only in Washington could the creation of a reckless entitlement program be used as 'offset' to grease the way for another entitlement." I would note additionally that only in Washington could such a neat little swindle be titled the "CLASS Act" (for the Community Living Assistance Services and Supports Act).
That a health-care reform law of such enormous size and consequence, revolutionizing one-sixth of the U.S. economy, could be sold on such flimflammery is astonishing, even by Washington standards. What should Republicans do?
Make the case. Explain the phony numbers, boring as the exercise may be. Better still, hold hearings and let the CBO director, whose integrity is beyond reproach, explain the numbers himself.
To be sure, the effect on the deficit is not the only criterion by which to judge Obamacare. But the tossing around of such clearly misleading bumper-sticker numbers calls into question the trustworthiness of other happy claims about Obamacare. Such as the repeated promise that everyone who likes his current health insurance will be able to keep it. Sure, but only if your employer continues to offer it. In fact, millions of workers will find themselves adrift because their employers will have every incentive to dump them onto the public rolls.
This does not absolve the Republicans from producing a health-care replacement. They will and should be judged by how well their alternative addresses the needs of the uninsured and the anxieties of the currently insured. But amending an insanely complicated, contradictory, incoherent and arbitrary 2,000-page bill that will generate tens of thousands of pages of regulations is a complete non-starter. Everything begins with repeal.
3)Hariri challenges Nasrallah, announces bid to lead new government
As Lebanon's military took up positions the nation swerved closer to a factional conflagration Thursday night, Jan. 20, after Saad Hariri, whose coalition Hizballah toppled eight days ago, announced he would form a new government in defiance of the opposition. Hassan Nasrallah's supporters warned he was leading Lebanon to disaster.
Sources note by standing his ground against Hizballah, Hariri may be able to abort Nasrallah's plan for an alternative Lebanese government that would disqualify the UN tribunal and its indictment of senior Hizballah officials for complicity in the six-year old assassination of former Lebanese prime minister Rafiq Hariri.
Nasrallah swore never to surrender his loyalists to the Netherlands-based court. Therefore, by thwarting him, Hariri has raised the Lebanese crisis to a new and dangerous pitch. Nasrallah must now decide whether to rise to the challenge and go through with the steps for seizing control of the capital which his troops practiced this week, or give up and accept defeat.
Thursday afternoon, Lebanese forces showed themselves willing for the first time to stand up to Hizballah's superior strength and ward off its takeover of the capital. Extra security was laid on for Hariri, guards were reinforced at government institutions and traffic hubs secured. Police units were seen unloading concrete blocks at the main city intersections after which military units moved in to man them.
A Lebanese military official commented these measures were prompted by "concerns over movements on the ground by some parties."
No one doubted he was referring to Hizballah and its repeated exercises this week to practice the rapid seizure of Beirut.
Hariri and Nasrallah camps now face each other for a straight duel after the latest mediation effort was abandoned. Thursday morning, the Turkish and Qatari foreign ministers departed Beirut announcing they were "halting their mediation" in the Lebanese crisis.
4)As Lawmakers Meet China’s Hu, Some Can Only Listen
By HELENE COOPER
There was not much give and take as President Hu Jintao of China met with House members this morning, according to those who were in attendance. Representative Kevin Brady, a Republican of Texas, called it “mostly speechifying.”
After a day of being toasted at the White House, Mr. Hu traveled to the chillier end of Pennsylvania Avenue on Thursday to meet with lawmakers waiting to take him to task over testy issues such as human rights to trade policy.
But the format of the meetings — lawmakers afterwards described a meeting with House leaders as stilted and formal – didn’t allow for quite as much barbed criticism as some of the congressional members apparently had hoped.
“We weren’t given a chance,” Rep. Sander Levin, Democrat of Michigan, said afterward.
He and other lawmakers said that Mr. Hu delivered prepared remarks lasting about 20 minutes. The only Representatives who spoke were John Boehner, the House speaker, and Nancy Pelosi, the minority leader. Mr. Boehner brought up issues involving trade and North Korea, and Ms. Pelosi brought up human rights issues, including the treatment of Liu Xiaobao, the Nobel Prize winner.
“I had a really detailed question prepared about the WTO government procurement agreement,” Rep. Charles Boustany, Republican of Louisiana, said afterwards, referring to the lengthy process involving China’s accession to the World Trade Organization government procurement agreement.
Among the other House members who attended were:
Eric Cantor (Republican Leader)
Kevin McCarthy (Republican Whip)
Ileana Ros-Lehtinen (Chairman, Committee on Foreign Affairs)
Steny Hoyer (Democratic Whip)
Jim Clyburn (Democratic Assistant Leader)
Howard Berman (Ranking Democrat, Committee on Foreign Affairs)
Mr. Hu also met with Senate leaders, including Majority Leader Harry Reid of Nevada, who on Wednesday called Mr. Hu a “dictator” during an interview. The senators discussed concerns about China’s currency, which American officials worry remains undervalued, according to one congressional aide who was in the meeting.
It was never clear how sternly lawmakers might speak to Mr. Hu in private, but in public some of them have been a bit caustic, while others have been direct without stinging.
Mr. Boehner, in a statement after the House meeting, said: “China is now our second largest trading partner and will undoubtedly be a critical economic partner in the future. That’s why I believe it is important that we continue to resolve our differences in ways that benefit both of our countries and our people.
“In our meeting we addressed some of those challenges, including the need for stronger intellectual property protections in China and curtailing the aggressive behavior of North Korea.
“And finally, we raised our strong, ongoing concerns with reports of human rights violations in China, including the denial of religious freedom, and the use of coercive abortion as a consequence of the ‘one child’ policy. When it comes to guaranteeing the freedom and dignity of all her citizens, including and especially the unborn, Chinese leaders have a responsibility to do better, and the United States has a responsibility to hold them to account.”
On his way into today’s meeting with Senators, John McCain said, referring to the state dinner at the White House last night: “There’s a certain amount of irony that a Nobel Peace Prize winner should be hosting a dinner and last year’s Nobel Prize winner is under house arrest.”