The Op-Ed That The NY Times Would Not Print

By Sen. John McCain

In January 2007, when General David Petraeus took command in Iraq, he called the situation “hard” but not “hopeless.” Today, 18 months later, violence has fallen by up to 80 percent to the lowest levels in four years, and Sunni and Shiite terrorists are reeling from a string of defeats. The situation now is full of hope, but considerable hard work remains to consolidate our fragile gains.

Progress has been due primarily to an increase in the number of troops and a change in their strategy. I was an early advocate of the surge at a time when it had few supporters in Washington. Senator Barack Obama was an equally vocal opponent. “I am not persuaded that 20,000 additional troops in Iraq is going to solve the sectarian violence there,” he said on January 10, 2007. “In fact, I think it will do the reverse.”

Now Senator Obama has been forced to acknowledge that “our troops have performed brilliantly in lowering the level of violence.” But he still denies that any political progress has resulted.

Perhaps he is unaware that the U.S. Embassy in Baghdad has recently certified that, as one news article put it, “Iraq has met all but three of 18 original benchmarks set by Congress last year to measure security, political and economic progress.” Even more heartening has been progress that’s not measured by the benchmarks. More than 90,000 Iraqis, many of them Sunnis who once fought against the government, have signed up as Sons of Iraq to fight against the terrorists. Nor do they measure Prime Minister Nouri al Maliki’s new-found willingness to crack down on Shiite extremists in Basra and Sadr City — actions that have done much to dispel suspicions of sectarianism.

The success of the surge has not changed Senator Obama’s determination to pull out all of our combat troops. All that has changed is his rationale. In a New York Times op-ed and a speech this week, he offered his “plan for Iraq” in advance of his first “fact finding” trip to that country in more than three years. It consisted of the same old proposal to pull all of our troops out within 16 months. In 2007 he wanted to withdraw because he thought the war was lost. If we had taken his advice, it would have been. Now he wants to withdraw because he thinks Iraqis no longer need our assistance.

To make this point, he mangles the evidence. He makes it sound as if Prime Minister Maliki has endorsed the Obama timetable, when all he has said is that he would like a plan for the eventual withdrawal of U.S. troops at some unspecified point in the future.

Senator Obama is also misleading on the Iraqi military’s readiness. The Iraqi Army will be equipped and trained by the middle of next year, but this does not, as Senator Obama suggests, mean that they will then be ready to secure their country without a good deal of help. The Iraqi Air Force, for one, still lags behind, and no modern army can operate without air cover. The Iraqis are also still learning how to conduct planning, logistics, command and control, communications, and other complicated functions needed to support frontline troops.

No one favors a permanent U.S. presence, as Senator Obama charges. A partial withdrawal has already occurred with the departure of five “surge” brigades, and more withdrawals can take place as the security situation improves. As we draw down in Iraq, we can beef up our presence on other battlefields, such as Afghanistan, without fear of leaving a failed state behind. I have said that I expect to welcome home most of our troops from Iraq by the end of my first term in office, in 2013.

But I have also said that any draw-downs must be based on a realistic assessment of conditions on the ground, not on an artificial timetable crafted for domestic political reasons. This is the crux of my disagreement with Senator Obama.

Senator Obama has said that he would consult our commanders on the ground and Iraqi leaders, but he did no such thing before releasing his “plan for Iraq.” Perhaps that’s because he doesn’t want to hear what they have to say. During the course of eight visits to Iraq, I have heard many times from our troops what Major General Jeffrey Hammond, commander of coalition forces in Baghdad, recently said: that leaving based on a timetable would be “very dangerous.”

The danger is that extremists supported by Al Qaeda and Iran could stage a comeback, as they have in the past when we’ve had too few troops in Iraq. Senator Obama seems to have learned nothing from recent history. I find it ironic that he is emulating the worst mistake of the Bush administration by waving the “Mission Accomplished” banner prematurely.

I am also dismayed that he never talks about winning the war — only of ending it. But if we don’t win the war, our enemies will. A triumph for the terrorists would be a disaster for us. That is something I will not allow to happen as president. Instead I will continue implementing a proven counterinsurgency strategy not only in Iraq but also in Afghanistan with the goal of creating stable, secure, self-sustaining democratic allies.

Dominoes

The global economy is at the point of maximum danger
By Ambrose Evans- Pritchard

Last Updated: 6:53am BST 21/07/2008

It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.

The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a "chance of a global recession". Plainly, the IMF cannot or will not offer any useful insights.

Its "mean-reversion" model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True "mean-reversion" would imply debt deflation on such a scale that would, if abrupt, threaten democracy.

The risk is that these same central banks will commit a fresh error, this time overreacting to the oil spike. The European Central Bank has raised rates, warning of a 1970s wage-price spiral. Fixated on the rear-view mirror, it is not looking through the windscreen.

The eurozone is falling into recession before the US itself. Its level of credit stress is worse, if measured by Euribor or the iTraxx bond indexes. Core inflation has fallen over the last year from 1.9pc to 1.8pc. The US may soon tip into a second leg of this crisis as the fiscal package runs out and Americans lose jobs in earnest. US bank credit has contracted for three months. Real US wages fell at almost 10pc (annualised) over May and June. This is a ferocious squeeze for an economy already in the grip of the property and debt crunch.

No doubt the rescue of Fannie Mae and Freddie Mac - $5.3 trillion pillars of America's mortgage market - stinks of moral hazard. The Treasury is to buy shares: the Fed has opened its window yet wider. Risks have been socialised. Any rewards will go to capitalists.

Alas, no Scandinavian discipline for Wall Street. When Norway's banks fell below critical capital levels in the early 1990s, the Storting authorised seizure. Shareholders were stiffed.

But Nordic purism in the vast universe of US credit would court fate. The Californian lender IndyMac was indeed seized after depositors panicked on the streets of Encino. The police had to restore order. This was America's Northern Rock moment.

IndyMac will deplete a tenth of the $53bn reserve of the Federal Deposit Insurance Corporation. The FDIC has some 90 "troubled" lenders on watch. IndyMac was not one of them.

The awful reality is that Washington has its back to the wall. Fed chief Ben Bernanke thought the US could always get out of trouble by monetary stimulus "à l'outrance", and letting the dollar slide. He has learned that the world is a more complicated place.

Oil has queered the pitch. So has America's fatal reliance on foreign debt. The Fannie/Freddie rescue, incidentally, has just lifted the US national debt from German 'AAA' levels to Italian 'AA-' levels.

China, Russia, petro-powers and other foreign states own $985bn of US agency debt, besides holdings of US Treasuries. Purchases of Fannie/Freddie debt covered a third of the US current account deficit of $700bn over the last year. Alex Patelis from Merrill Lynch says America faces the risk of a "financing crisis" within months. Foreigners have a veto over US policy.

Japan did not have this problem during its Lost Decade. As the world's supplier of credit, it could let the yen slide. It also had a savings rate of 15pc. Albert Edwards from Société Générale says this has fallen to 3pc today. It has cushioned the slump. Americans are under water before they start.

My view is that a dollar crash will be averted as it becomes clearer that contagion has spread worldwide. But we are now at the point of maximum danger. Britain, Japan, and the Antipodes are stalling. Denmark is in recession. Germany contracted in the second quarter. May industrial output fell 6pc in Holland and 5.5pc in Sweden.

The coalitions in Belgium and Austria have just collapsed. Germany's left-right team is fraying. One German banker told me that the doctrines of "left Nazism" (Otto Strasser's group, purged by Hitler) had captured the rising Die Linke party. The Social Democrats are picking up its themes to protect their flank.

This is the healthy part of Europe. Further south, we are not far away from civic protest. BNP Paribas has just issued a hurricane alert for Spain.

Finance minister Pedro Solbes said Spain is facing the "most complex" economic crisis in its history. Actually, it is very simple. The country was lulled into a trap by giveaway interest rates of 2pc under EMU, leading to a current account deficit of 10pc of GDP.

A manic property bubble was funded by foreigners buying covered bonds and securities. This market has dried up. Monetary policy is now being tightened into the crunch by the ECB, hence the bankruptcy last week of Martinsa-Fadesa (€5.1bn). With Franco-era labour markets (70pc of wages are inflation-linked), the adjustment will occur through closure of the job marts.

China, India, East Europe and emerging Asia have all stolen growth from the future by condoning credit excess. To varying degrees, they are now being forced to pay back their own "inter-temporal overdrafts".

If we are lucky, America will start to stabilise before Asia goes down. Should our leaders mismanage affairs, almost every part of the global system will go down together. Then we are in trouble.

That's The Ticket, Johnny.