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Thursday, June 20, 2002


It makes a lot of sense, in fact it was sitting there staring us in the face all the time, but it took this recent NYT piece to wake me up to the fact that it could actually become a reality.

Military cooperation between India and the United States has remarkably quickened since Sept. 11, with a burst of navy, air force and army joint exercises, the revival of American military sales to India and a blur of high-level visits by generals and admirals.....

From the start of President Bush's term, some influential officials in his administration saw India as a potential counterweight to that other Asian behemoth, China, whose growing power was seen as a potential strategic threat.But since Sept. 11, the priority has been terrorism. The United States is hoping its deeper military and political ties with India will give it some measure of leverage to prevent a war between India and Pakistan that could lead to a nuclear holocaust and would play havoc with the hunt for Al Qaeda in Pakistan.......

The military relationship has certainly accelerated in recent months. "We've moved from crawling to walking and we're preparing to run," said an American military official.
American warships have been docking in the Indian cities of Bombay, Cochin and Madras. The first major sale of military equipment to India — $140 million of artillery-finding radar made by Raytheon — has been approved by Congress. Aircraft engines, submarine combat systems and helicopter parts are in the pipeline.
In the largest-ever joint ground and air operations, American and Indian paratroopers jumped last month from the same aircraft over the city of Agra. Later this year, for the first time, Indian troops will venture to the United States for exercises in Alaska.....

Mr. Bush took office determined to bring the United States and India closer together, an undertaking that began under President Bill Clinton. The Bush administration's approach to India was conceived as part of a broader geopolitical strategy in Asia.Some senior officials saw a close American military relationship with India, a developing, democratic nation of a billion people with a million-member army, as a factor that would give pause to a rising, autocratic China, if not now, then a decade or two down the road when India has become richer and more powerful, American officials say......

In public remarks, American officials have been careful not to depict the warming relations with India as having anything to do with China for fear of alarming China or offending India.But the senior American defense official said in the interview on Thursday, "Given our strategy in Asia, the more sober view of China, and Russia no longer being a competitor, there were objective strategic reasons the India-U.S. relationship would improve."
LINK Discuss Geopolitical Changes in the Works?

Obviously this is going to really shake things up. And where does it leave poor old Europe, and Nato? It also makes you ask yourself what were the real motivating factors behind India's recent belicosity with Pakistan.

A More Reasoned Voice

Remember this from my June 14th post: Down and Down We Go:

The latest turn in sentiment about the US economy has encouraged speculators to bet that the Fed's policymaking Open Market Committee (FOMC) will make no significant changes at its June 25-26 meeting.

This has to be a joke doesn't it? But even so it's in poor taste.

Well LOUIS UCHITELLE from the NYT wades in today with a far more considered piece:

In his public statements, Alan Greenspan is upbeat. The recovery is happening, he says. Let's hope so. When an upturn seems in danger of fizzling, as this one does, the Fed normally keeps it on track by cutting interest rates.

This time, however, Mr. Greenspan is a spectator just as the rest of us are, unable for now to exercise his power.
A turning point may even be at hand, justifying a rate cut to prevent a slowing economy from deteriorating into another recession — the famous double dip that a few weeks ago appeared so unlikely. But this is one of those awkward moments in the annals of the Federal Reserve when acting to offset the next anticipated twist in the economy is not feasible. The Fed is boxed in. Raising rates, or lowering them right now, would be harmful.

The Fed has tied its own hands. Mr. Greenspan and his fellow policy makers have signed onto the proposition that the economy is expanding. That was the message in their statement after their last meeting, in early May. And nothing they have said in public since then has substantially amended that view. Some have also said that over the long run, interest rates cannot stay as low as they are.

Some economists contend that another rate cut, even if justified, would not be of much help. After all, the 30-year fixed-rate mortgage is already down to 6.71 percent; how much lower can it go? If the bottom has been reached, then the Fed is really in a fix. Others, however, say that with inflation edging down, the inflation-adjusted "real" cost of borrowing is gradually rising, just when it should not be.

This is exactly the point. Real interest rates may be rising. But the Fed has been far too upbeat, trying to talk the economy up. That is the job of politicians, or marketing people. A move down would be badly read, and could just as easily send confidence and markets down further. I'm afraid Mr Greenspan has been hoisted on his own petard, as my British father used to say. And remember there, just below us is that little zero bound. Let's say it one more time, the big US and global risk today is deflation, not inflation.

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