U.S. TRADE DEFICIT WORSENING

RIGHT UP UNTIL THE COMMODITY bubble burst this summer, there was the ridiculous theory going around that the world was now "decoupled" and that European and emerging markets would somehow avoid being affected by the US slowdown. These decoupling theories disappeared as oil dropped like a rock, only to be replaced by an equally ridiculous idea: that the world's economic pain would be spread evenly. This is wrong. Although the entire world is going into a recession as a result of the credit crisis, some economies are better prepared than others to weather the storm.

Durable and capital goods
The US's manufacturing sector is concentrated in industries most vulnerable to an economic downturn, durable and capital goods. Durable goods are products that last for more than three years like SUVs, motor/sail boats, et cetera. These items are the first areas where consumers cut back spending, which is why the big three are in so much trouble. Capital goods are equipment and machinery used in creating other goods, and the biggest demand for these products has come from emerging markets with their growing manufacturing sectors. With emerging market manufacturing now in contraction, demand for these capital goods is set to disappear, which leaves the US in a disastrous situation:

We make mining equipment at a time when commodity prices are crashing and mines are shutting down.

We make construction equipment (caterpillars, pickup trucks, etc…) at a time when global construction is grinding to a halt.

We make civilian aircrafts at a time when global trade and travel is quickly contracting.

Cheap consumer goods
At the other end of the spectrum from durable and capital goods are the cheap consumer goods found in retailers like Wal-mart. Demand for these lower-end consumer products tends to hold through the severest of recessions, because they are absolutely essential to our modern standard of living. While some current shoppers at Wal-Mart might be forced to cut spending on these essential items, new spending from shoppers who are downgrading from higher end stores will pick up a lot of this shortfall. For example, as more American's lose their jobs, there will be a lot of consumers downgrading from designer clothes to Wal-Mart's cheaper clothing. The resiliency of Wal-Mart is bad news for the US, as virtually all the retailer's cheap goods are imports from Asia.

The trade deficit
A quick look at where the US's trade deficit is concentrated reveals just how grim the outlook is. We are running huge deficits in consumer goods and industrial supplies (oil), which we desperately need, and the only category with a sizable surplus is capital goods (civilian aircrafts, mining equipment, etc), for which global demand is crashing. This explains why the US trade deficit grew in October.

Implications for the dollar
While imports to the US are falling, US exports are falling even faster. Exporting nations still have to finance our massive trade deficit, but are now getting less benefits from it. If this trend continues and the US economy keeps shrinking, Asian nations will begin abandoning their dollar pegs and start focusing on stimulating domestic demand instead. The dollar will quickly lose all its value when this happens.

by Eric deCarbonnel

ORDINARY MEN, OR IDIOTS IN PAJAMAS

FOLLOWING ARE SEVERAL EXCERPTS from an interview with an Hamas MP which aired on Al-Aqsa TV on April 23, 2008. If these men weren't running a country, perhaps they would be fabulous comedians, but otherwise, this is simply the work of an idiot in pajamas. If idiot is too harsh a word, bigot will work just as well. And if the word bigot offends thee, let;s just call him an Israeliophobe. Yeah, that's the ticket!

Salem Salamah: "There are companies established by the colonialists and occupiers—large companies with branches all over the world, like Pepsi, Pepsi Cola. This is a well-known company. Pepsi is an acronym. P-E-P-S-I - Pay Every Pence to Save Israel. Pay every pence—pence is one hundredth of a dollar—to save Israel. Pay every pence to save Israel. Shouldn't the Muslims have a fund, a company, or a large project to save the Al-Aqsa Mosque?"

Then there's this to chew on. Boycotts work both ways. If only the US would just say NO to the Saudi oil shieks, we might once again begin to exert some real leverage against these adversaries. History is a description of conflict, no doubt, so read on for some tough but real history thanks to the folks at Snopes...

Claim: Coca-Cola was once considered anti-Semitic for refusing to do business in Israel.

Status: True.

Origins: The last thirty-odd years have seen allegations of anti-Semitism hurled at both Coca-Cola and Pepsi, and for both companies the charges stemmed from their one-time reluctance to do business with Israel.

Successfully doing business in the Middle East often depended upon not doing business in Israel. The Arab League was quick to boycott, and multinational concerns were forced to choose between the smaller market of Israel and the much larger market of the combined Arab states. For firms caught in the middle, it was a "no win" situation. Coca-Cola's turn in the harsh spotlight of public opinion came in 1966.

April 1 1966: At a press conference in Tel Aviv, businessman Moshe Bornstein accused Coca-Cola of refusing to do business in Israel out of fear of reprisals and loss of profits in the Arab soft drink market. A week later in New York, the Anti-Defamation League of the B'nai B'rith released a statement backing up the charges, triggering headlines across the U.S.A. Coca-Cola was in hot water, and the American public was demanding answers. It was also rejecting the answers it was getting.

In 1949 Coca-Cola had attempted to open a bottling plant in Israel, but its efforts had been blocked by the Israeli government. As long as no one questioned the company too closely, the failure of this one stab at the Israeli market appeared to provide a satisfactory answer for Coca-Cola's conspicuous absence from the Israeli market. In the meanwhile, Coca-Cola was content to continue quietly serving the much larger Arab market, a market it was likely to lose if it began operating in Israel.

In 1961 an incident in Cairo involving civil servant Mohammad Abu Shadi momentarily shattered the quiet. Shadi had come into possession of a Coca-Cola bottle manufactured in Ethiopia, mistaken the Amharic lettering on its label for Hebrew, and publicly accused Coca-Cola of doing business with Israel.

The manager of Coca-Cola's Egyptian bottling operations wasted no time (and little thought) in assuring the press that Coca-Cola would never allow the Israelis a franchise. With their hands forced by their bottler's impolitic statement, company officials quickly invented the explanation that Israel was too small to support a franchise and gave their reasons for staying away as purely economic, not political. For the time being, this seemed to keep a lid on the brewing storm.

It wasn't until 1966 that people began to wonder openly why it was that nearby Cyprus had no difficulty supporting its Coca-Cola franchise despite their having only one-tenth the population of Israel. The comfortable aura of quiet was shattered by Bornstein's charges and the subsequent uproar they raised in the US.

When these issues came to light in 1966, they proved highly embarrassing to Coca-Cola. The administrators of Mount Sinai Hospital in Manhattan announced they would stop serving Coke, and the owners of Nathan's Famous Hot Dog Emporium on Coney Island followed suit. Faced with the prospect of a Jewish boycott in America, the company attempted to right the tipped canoe by announcing it would open a bottling plant in Tel Aviv. (Such is the price of business: Israel with the fury of America behind it became a much more attractive market than it ever had been all on its own.) The Arab League struck back by placing Coca-Cola on its boycott list. The boycott began in August 1968 and lasted until May 1991 (or until 1979 in Egypt, where they made their own rules).

Pepsi's entry into Israel in 1992 did not go smoothly—the evolution theme of its "Choice of a New Generation" ad campaign (in which man was portrayed as evolving from a monkey into a Pepsi drinker) angered the strictly observant haredi community. Though Pepsi pulled the campaign from Israel, it found itself in more hot water over a 1993 Michael Jackson tour. Jackson's unthinking flashbulb-popping arrival on a Sabbath was viewed by many observant Jews as a desecration. For a time Pepsi lost its kashrut (kosher) certificate because it was deemed to be promoting a culture that would corrupt the nation's youth through rock music concerts and advertisements featuring scantily-clad women.

Prior to 1992, Pepsi had backed the other horse, choosing to service the lucrative Coke-less Arab markets in the boycott days. For its decision to stay out of Israel (and thus itself avoid being placed on the Arab League's blacklist), Pepsi faced continued criticism in the United States. In certain circles it was considered politically incorrect to be seen drinking Pepsi.

The Anti-Defamation League of the B'nai B'rith investigated claims that Pepsi was participating in the boycott of Israel. U.S. law prohibited American companies from taking part in this boycott, but the law was vague, and outright violations were hard to pin down. Nothing ever came of the investigations, and Pepsi was never placed on the American government's list of violators.

Pepsi always denied it was the fear of losing their Arab markets that kept them out of Israel. Like Coca-Cola in 1961, Pepsi fell back upon the claim of Israel's being too small to support a franchise. At least this time the excuse was a bit more believable—Coca-Cola's already holding down the lion's share of the Israeli soft drink market gave this claim a bit more plausibility. Even so, Pepsi was doing business in many other small markets and much more often than not competing head-to-head against Coca-Cola. If these conditions were keeping them out of Israel, then why weren't they equally keeping them out of these other markets?

Many people in the United States believed Pepsi was going along with the boycott, whether it was proveable in the eyes of U.S. law or not. Those lucrative Arab markets did not come without a price, and Pepsi paid it in loss of goodwill in the US. A significant number of American cola drinkers grew up suspecting Pepsi of being anti-Israel and refrained from buying their product. By contrast, Coca-Cola appeared heroic.

This appearance failed to take into account Coca-Cola's fast stepping to shake off similar charges in the 1960s. Pepsi's mud-spattered skirts were but Coca-Cola's hand-me-downs—same skirt, just a bit older.

Today you can get either Coke or Pepsi in anywhere in the Middle East, and the days of the boycott have faded into memory. Even so, there are still those who observe the stricture of "Coke is for Jews; Pepsi is for Arabs." Old wounds are not necessarily healed wounds.

IS IT TIME AGAIN FOR NATIONAL RATIONING?

Well, I was not yet born, but I know my American history better than a good portion of those living in the nation today. And history speaks of the time when one just could not stroll into the market to buy certain items whenever one wished. There was a "no excuses" policy called food and gasoline rationing in place. Pearl Harbor changed the pace and purpose of every American. Almost overnight the economy shifted to war production. Consumer goods now took a back seat to military production as nationwide rationing began almost immediately.

The word on the street was, "There's a war on, you know."

Everyone understood, and most dealt with the new restrictions with patriotic fervor and civic pride.

The news today is grim. Food shortages worldwide, an obese population nationally. Spiraling gasoline prices. The falling dollar. An unstable stock market. Global warming. A public bored with consumer habits, itching for a defining spirit of purpose, a purpose greater than oneself, one favoring the nation (or as some might put it, the world) rather than the individual. Could it be that the Bush administration made his critical error in winning American hearts and minds in suggesting that "business as usual" was the tact to take while he conducted his war on terror.

There's no answer to that question, but rationing could again be on America's plate. China, Russia, Iran, Al-Qeada. All in the news, and seemingly wanted our national head on a platter. Our enemies are great and persistent. Perhaps we should all reacquire a sense of political humility. Perhaps, despite the initial pain and rebrokering of a system already teetering on the brink of collapse, our financial leadership should be seriously considering how a well-regulated regimen of product rationing would help steer this country back to the mindset that will prepare us for what is certainly in store.

Such a tactic would certainly put a heavy spray of starch into the britches of both the control-freaked Leftists and the grab-grubby Rightists. That would be fun to watch. Now what was I just writing about F.A Hayek?

TALES OF PURCHASING POWER

From the Washington Times article—The Camel in the Tent—by Rachel Ehrenfeld and Alyssa A. Lappen

Objections to Borse Dubai's proposed acquisition of 20 percent of Nasdaq last week prompted Massachusetts Rep. Barney Frank to quip, "In the ports deal, the concern was smuggling something or someone dangerous... What are we talking about here—smuggling someone onto a stock exchange?"

It is not "who" Dubai will smuggle into the stock exchange we should worry about. It's the arrival of the world's first Islamic stock exchange exerting unprecedented Islamic influence in the heart of the U.S. and Western economies that should raise our alarm. Dubai's handsomely paid Washington lobbyists see nothing wrong with that. Rather, they claim the deal benefits U.S. financial markets, giving "Nasdaq access to rich Mideast pockets." Unfortunately, the deal also increases the appeal and influence of Islamic financing in the West.

What is "Islamic" finance? Islamic, or Shariah-based finance, is the 1920s invention of Muslim Brotherhood founder Hassan al-Banna. He ordered the Muslim Brothers to create an independent Islamic financial system to supercede the Western economy, facilitating the spread of Islam worldwide. He set the theories and practices and his contemporaries and successors developed Shariah-based terminology for "Islamic economics," finance and banking. Attempts by Muslim Brotherhood members in the early 1930s to establish Islamic banking in India failed. Egyptian President Gamal Abdel-Nasser shut down the second attempt in 1964, after only one year, later arresting and expelling the Muslim Brothers for attempts to kill him. Saudi Arabia welcomed them and adopted their ideas.

In 1969, soon after a mentally deranged Australian Christian fundamentalist, Michael Dennis Rohan, tried to set fire to the Al Aqsa Mosque in Jerusalem, the Saudis convened the Conference for the Islamic Organizations (OIC) to unify the "struggle for Islam," and have been its major sponsor ever since. The 56 OIC members include Iran, Sudan and Syria.

Based in Jeddah, "pending the liberation of Jerusalem," the OIC mandates and coordinates actions to "support the Palestinian people, assist them in recovering their rights and liberating their occupied territories." The OIC's first international undertaking was the 1975 establishment of the Islamic Development Bank "in accordance with the principles of the Shariah," marking the beginning of the fast-growing, petrodollar-based Islamic financing market. From 1975 to 2005, the bank approved more than $46 billion in funding to Muslim countries. Since 2000, it has transferred hundreds of millions of dollars raised especially to support the Palestinian intifada and suicide bombers' families -- and has channeled United Nations funds to Hamas. Yet the bank received U.N. observer status in 2007.

Overseeing Shariah finance are the 1991-Bahrain-registered and -based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which laid the groundwork for the global Islamic financial network and the "de facto Islamic Central Bank"—the Islamic Financial Services Board (IFSB), established in 2002 in Kuala Lumpur "to absorb the 11 September shock and reinforce the stability of Islamic finance." Chairing the meeting, then-Malaysian Prime Minister Mohamed Mahathir stated: "A universal Islamic banking system is a jihad worth pursuing to abolish this slavery [to the West]."

According to Saleh Kamel, president of the Saudi Dallah Al-Baraka Group and the Islamic Chamber of Commerce and Industry (ICCI), more than 400 Islamic financial institutions currently operate in 75 countries. They now hold more than $800 billion in assets—growing at a rate of 15 percent annually. All investments with Islamic financial institutions are subject to the minimum zakat (Islamic charitable wealth tax). On April 30, the OIC, the organization that initiated global Muslim riots after the Danish cartoon publications, established the clerical International Commission for Zakat, replacing more than 20,000 organizations that previously collected the money. Islamic clerics' "expert committee" in Malaysia now supervises and distributes those funds. The new committee will shortly distribute to Muslim charities roughly $2 billion collected during Ramadan.

But not all charities are equal. In 1999, Muslim Brotherhood spiritual leader Yousef al-Qaradawi decreed: "Declaring holy war [and] fighting for such purposes is the way of Allah for which zakat must be spent." If past zakat distribution is any indication, all Muslim jihadist-terror organizations (including Palestinian Hamas, the al-Aqsa Martyrs' Brigades, and the many al Qaeda offspring) will benefit.

Shortly after September 11, Osama bin Laden called upon Muslims "to concentrate on hitting the U.S. economy through all possible means. Look for the key pillars of the U.S. economy. Strike the key pillars of the enemy again and again and they will fall as one."

Most Arab and Muslim states publicly denounced bin Laden. But the impending Nasdaq acquisition, the purchases of over 52 percent of the London Stock Exchange and 47.6 percent of OMX (Nordic exchange) and the vigorous expansion of Shariah financing apparently follow the Muslim Brotherhood-bin Laden script.

President Bush on Sept. 25 at the United Nations called on all nations to open their markets. Surely, he did not mean opening the markets to domination by Shariah.
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Rachel Ehrenfeld is director of the American Center of Democracy and a board member at the Committee for the Present Danger. She is also a member of the American Congress for Truth Board of Advisors. Alyssa A. Lappen is a senior fellow at the American Center of Democracy.