Monday, January 31, 2011

Egypt is Another Soros "Color" Revolution

Egypt is Another Soros "Color" Revolution

January 29, 2011

220px-ElBaradei_Powell_030110.jpgGlobalist go'fer Mohamed El Baradei (left) with Colin Powell

by Henry Makow Ph.D.

The turmoil in Egypt is another contrived, Illuminati backed "color" revolution designed to install puppets more subservient to their London-based masters. Over the last decade, we have seen such "revolutions" in Serbia, Georgia, Ukraine, Kyrgyzstan, Mongolia and recent failed attempts in Burma, Iran and Thailand.

"Human rights" and "democracy" is always the pretext for these Illuminati gambits, dating back to the French and Russian Revolutions. They take advantage of genuine grievances to hoodwink the public.

This time there was no color scheme to tip us off but the unanimous support by the Illuminati-controlled mass media was a signal. You wouldn't hear about it otherwise. (For example, did you know that real nationalists took over the government of Hungary?)

The confirmation is the man they are touting to replace Hosni Mubarak.

Globalist widget, Mohammed El Baradei is a trustee of the "International Crisis Group" an "independent" non-profit group run by bankers to incite revolutions and profit from them. His fellow trustee is none other than the ubiquitous Rothschild front man, George Soros.

El Baradei, who recently resigned as Director of the Intl. Atomic Energy Agency, is being groomed by the Illuminati to replace Mubarak. (He and his agency won the 2005 Nobel Prize.) In April, he gave a speech at Harvard saying he was "looking for a job" and wanted to be "an agent of change and advocate for democracy" in Egypt. This is code for local boss in the NWO banker tyranny. (Barack Obama has taught us about "change.")

In February, El Baradei was part of a new non-party political movement called the "National Association for Change" which included a leader of the banned Masonic Muslim Brotherhood. The Muslim brotherhood is a proxy for Britain's MI-6 masquerading as Muslim fundamentalists. In November they wereroundly defeated in elections, so this "revolution" seems to be their answer. Mubarak wisely jailed their leaders.

On Thursday El Baradei returned to Egypt to lead the demonstrations. Friday he and his supporters were subjected to water canons and batons. Today he announced: "We are seeking a change of regime. President Mubarak should step down. We should head towards a democratic state through a new government and free democratic elections...The whole world should realize that the Egyptians are not going home until their demands are realized...We are talking about taking down the Pharaonic dictatorship."

Egypt has accused the US of helping to engineer this revolt by training "activists," citing this document.

Is it going too far to say that removing Mubarak would be a victory for Israel in its expansion from the Nile to the Euphrates? Their surrogates are already in Baghdad.

This article is not intended to garner sympathy for the Mubarak regime but merely to point out that this turmoil is about the Illuminati tightening their grip on Egypt. Imagine a Mafia gang that has been raking off a share of profits for decades. One day it decides to increase its take by eliminating the middle man. At the same time, it can create turmoil which always provides new opportunities.

One thing is for sure: Our "leaders" care little about human rights and democracy.


The Egypt Crisis in a Global Context: A Special Report


The Egypt Crisis in a Global Context: A Special Report
January 30, 2011 | 2253 GMT
The Egypt Crisis in a Global Context: A Special Report
Protesters wave the Egyptian flag in downtown Cairo on Jan. 30

By George Friedman
Related Special Topic Page

* The Egypt Unrest: Full Coverage

It is not at all clear what will happen in the Egyptian revolution. It is not a surprise that this is happening. Hosni Mubarak has been president for more than a quarter of a century, ever since the assassination of Anwar Sadat. He is old and has been ill. No one expected him to live much longer, and his apparent plan, which was that he would be replaced by his son Gamal, was not going to happen even though it was a possibility a year ago. There was no one, save his closest business associates, who wanted to see Mubarak’s succession plans happen. As his father weakened, Gamal’s succession became even less likely. Mubarak’s failure to design a credible succession plan guaranteed instability on his death. Since everyone knew that there would be instability on his death, there were obviously those who saw little advantage to acting before he died. Who these people were and what they wanted is the issue.

Let’s begin by considering the regime. In 1952, Col. Gamal Abdel Nasser staged a military coup that displaced the Egyptian monarchy, civilian officers in the military, and British influence in Egypt. Nasser created a government based on military power as the major stabilizing and progressive force in Egypt. His revolution was secular and socialist. In short, it was a statist regime dominated by the military. On Nasser’s death, Anwar Sadat replaced him. On Sadat’s assassination, Hosni Mubarak replaced him. Both of these men came from the military as Nasser did. However their foreign policy might have differed from Nasser’s, the regime remained intact.

Mubarak’s Opponents

The demands for Mubarak’s resignation come from many quarters, including from members of the regime — particularly the military — who regard Mubarak’s unwillingness to permit them to dictate the succession as endangering the regime. For some of them, the demonstrations represent both a threat and opportunity. Obviously, the demonstrations might get out of hand and destroy the regime. On the other hand, the demonstrations might be enough to force Mubarak to resign, allow a replacement — for example, Omar Suleiman, the head of intelligence who Mubarak recently appointed vice president — and thereby save the regime. This is not to say that they fomented the demonstrations, but some must have seen the demonstrations as an opportunity.

This is particularly the case in the sense that the demonstrators are deeply divided among themselves and thus far do not appear to have been able to generate the type of mass movement that toppled the Shah of Iran’s regime in 1979. More important, the demonstrators are clearly united in opposing Mubarak as an individual, and to a large extent united in opposing the regime. Beyond that, there is a deep divide in the opposition.

Western media has read the uprising as a demand for Western-style liberal democracy. Many certainly are demanding that. What is not clear is that this is moving Egypt’s peasants, workers and merchant class to rise en masse. Their interests have far more to do with the state of the Egyptian economy than with the principles of liberal democracy. As in Iran in 2009, the democratic revolution, if focused on democrats, cannot triumph unless it generates broader support.

The other element in this uprising is the Muslim Brotherhood. The consensus of most observers is that the Muslim Brotherhood at this point is no longer a radical movement and is too weak to influence the revolution. This may be possible, but it is not obvious. The Muslim Brotherhood has many strands, many of which have been quiet under Mubarak’s repression. It is not clear who will emerge if Mubarak falls. It is certainly not clear that they are weaker than the democratic demonstrators. It is a mistake to confuse the Muslim Brotherhood’s caution with weakness. Another way to look at them is that they have bided their time and toned down their real views, waiting for the kind of moment provided by Mubarak’s succession. I would suspect that the Muslim Brotherhood has more potential influence among the Egyptian masses than the Western-oriented demonstrators or Mohamed ElBaradei, the former head of the International Atomic Energy Agency, who is emerging as their leader.

There is, of course, the usual discussion of what U.S. President Barack Obama’s view is, or what the Europeans think, or what the Iranians are up to. All of them undoubtedly have thoughts and even plans. In my view, trying to shape the political dynamics of a country like Egypt from Iran or the United States is futile, and believing that what is happening in Egypt is the result of their conspiracies is nonsense. A lot of people care what is happening there, and a lot of people are saying all sorts of things and even spending money on spies and Twitter. Egypt’s regime can be influenced in this way, but a revolution really doesn’t depend on what the European Union or Tehran says.

There are four outcomes possible. First, the regime might survive. Mubarak might stabilize the situation, or more likely, another senior military official would replace him after a decent interval. Another possibility under the scenario of the regime’s survival is that there may be a coup of the colonels, as we discussed yesterday. A second possibility is that the demonstrators might force elections in which ElBaradei or someone like him could be elected and Egypt might overthrow the statist model built by Nasser and proceed on the path of democracy. The third possibility is that the demonstrators force elections, which the Muslim Brotherhood could win and move forward with an Islamist-oriented agenda. The fourth possibility is that Egypt will sink into political chaos. The most likely path to this would be elections that result in political gridlock in which a viable candidate cannot be elected. If I were forced to choose, I would bet on the regime stabilizing itself and Mubarak leaving because of the relative weakness and division of the demonstrators. But that’s a guess and not a forecast.

Geopolitical Significance

Whatever happens matters a great deal to Egyptians. But only some of these outcomes are significant to the world. Among radical Islamists, the prospect of a radicalized Egypt represents a new lease on life. For Iran, such an outcome would be less pleasing. Iran is now the emerging center of radical Islamism; it would not welcome competition from Egypt, though it may be content with an Islamist Egypt that acts as an Iranian ally (something that would not be easy to ensure).

For the United States, an Islamist Egypt would be a strategic catastrophe. Egypt is the center of gravity in the Arab world. This would not only change the dynamic of the Arab world, it would reverse U.S. strategy since the end of the 1973 Arab-Israeli war. Sadat’s decision to reverse his alliance with the Soviets and form an alliance with the United States undermined the Soviet position in the Mediterranean and in the Arab world and strengthened the United States immeasurably. The support of Egyptian intelligence after 9/11 was critical in blocking and undermining al Qaeda. Were Egypt to stop that cooperation or become hostile, the U.S. strategy would be severely undermined.

The great loser would be Israel. Israel’s national security has rested on its treaty with Egypt, signed by Menachem Begin with much criticism by the Israeli right. The demilitarization of the Sinai Peninsula not only protected Israel’s southern front, it meant that the survival of Israel was no longer at stake. Israel fought three wars (1948, 1967 and 1973) where its very existence was at issue. The threat was always from Egypt, and without Egypt in the mix, no coalition of powers could threaten Israel (excluding the now-distant possibility of Iranian nuclear weapons). In all of the wars Israel fought after its treaty with Egypt (the 1982 and 2006 wars in Lebanon) Israeli interests, but not survival, were at stake.

If Egypt were to abrogate the Camp David Accords and over time reconstruct its military into an effective force, the existential threat to Israel that existed before the treaty was signed would re-emerge. This would not happen quickly, but Israel would have to deal with two realities. The first is that the Israeli military is not nearly large enough or strong enough to occupy and control Egypt. The second is that the development of Egypt’s military would impose substantial costs on Israel and limit its room for maneuver.

There is thus a scenario that would potentially strengthen the radical Islamists while putting the United States, Israel, and potentially even Iran at a disadvantage, all for different reasons. That scenario emerges only if two things happen. First, the Muslim Brotherhood must become a dominant political force in Egypt. Second, they must turn out to be more radical than most observers currently believe they are — or they must, with power, evolve into something more radical.

If the advocates for democracy win, and if they elect someone like ElBaradei, it is unlikely that this scenario would take place. The pro-Western democratic faction is primarily concerned with domestic issues, are themselves secular and would not want to return to the wartime state prior to Camp David, because that would simply strengthen the military. If they win power, the geopolitical arrangements would remain unchanged.

Similarly, the geopolitical arrangements would remain in place if the military regime retained power — save for one scenario. If it was decided that the regime’s unpopularity could be mitigated by assuming a more anti-Western and anti-Israeli policy — in other words, if the regime decided to play the Islamist card, the situation could evolve as a Muslim Brotherhood government would. Indeed, as hard as it is to imagine, there could be an alliance with the Muslim Brotherhood designed to stabilize the regime. Stranger things have happened.

When we look at the political dynamic of Egypt, and try to imagine its connection to the international system, we can see that there are several scenarios under which certain political outcomes would have profound effects on the way the world works. That should not be surprising. When Egypt was a pro-Soviet Nasserite state, the world was a very different place than it had been before Nasser. When Sadat changed his foreign policy the world changed with it. If the Sadat foreign policy changes, the world changes again. Egypt is one of those countries whose internal politics matter to more than its own citizens.

Most of the outcomes I envision leave Egypt pretty much where it is. But not all. The situation is, as they say, in doubt, and the outcome is not trivial.

Read more: The Egypt Crisis in a Global Context: A Special Report | STRATFOR

The Egyptian Unrest: A Special Report


The Egyptian Unrest: A Special Report
January 29, 2011 | 2207 GMT
The Egyptian Unrest: A Special Report
Riot police and protesters clash at the Qasr al-Nil Bridge near Tahrir Square in Cairo on Jan. 28
Related Special Topic Page

* The Egypt Unrest: Full Coverage

Egyptian President Hosni Mubarak remains the lifeblood of the demonstrators, who still number in the tens of thousands in downtown Cairo and in other major cities, albeit on a lesser scale. After being overwhelmed in the Jan. 28 Day of Rage protests, Egypt’s internal security forces — with the anti-riot paramilitaries of the Central Security Forces (CSF) at the forefront — were glaringly absent from the streets Jan. 29. They were replaced with rows of tanks and armored personnel carriers carrying regular army soldiers. Unlike their CSF counterparts, the demonstrators demanding Mubarak’s exit from the political scene largely welcomed the soldiers. Despite Mubarak’s refusal to step down Jan. 28, the public’s positive perception of the military, seen as the only real gateway to a post-Mubarak Egypt, remained. It is unclear how long this perception will hold, especially as Egyptians are growing frustrated with the rising level of insecurity in the country and the army’s limits in patrolling the streets.

There is more to these demonstrations than meets the eye. The media will focus on the concept of reformers staging a revolution in the name of democracy and human rights. These may well have brought numerous demonstrators into the streets, but revolutions, including this one, are made up of many more actors than the liberal voices on Facebook and Twitter.

After three decades of Mubarak rule, a window of opportunity has opened for various political forces — from the moderate to the extreme — that preferred to keep the spotlight on the liberal face of the demonstrations while they maneuver from behind. As the Iranian Revolution of 1979 taught, the ideology and composition of protesters can wind up having very little to do with the political forces that end up in power. Egypt’s Muslim Brotherhood (MB) understands well the concerns the United States, Israel and others share over a political vacuum in Cairo being filled by Islamists. The MB so far is proceeding cautiously, taking care to help sustain the demonstrations by relying on the MB’s well-established social services to provide food and aid to the protesters. It simultaneously is calling for elections that would politically enable the MB. With Egypt in a state of crisis and the armed forces stepping in to manage that crisis, however, elections are nowhere near assured. What is now in question is what groups like the Muslim Brotherhood and others are considering should they fear that their historic opportunity could be slipping.

One thing that has become clear in the past several hours is a trend that STRATFOR has been following for some time in Egypt, namely, the military’s growing clout in the political affairs of the state. Former air force chief and outgoing civil aviation minister Ahmed Shafiq, who worked under Mubarak’s command in the air force — the most privileged military branch in Egypt — has been appointed prime minister and tasked with forming the new government. Outgoing intelligence chief Omar Suleiman, who has long stood by Mubarak, is now vice president, a spot that had been vacant for the past 30 years. Meanwhile, Defense Minister Field Marshal Mohammed Hussein Tantawi, who oversees the Republican Guard, and Chief of Staff of the armed forces Lt. Gen. Sami Annan, who returned to Cairo Jan. 29 after a week of intense discussions with senior U.S. officials, are likely managing the political process behind the scenes. More political shuffles are expected, and the military appears willing for now to give Mubarak the time to arrange his political exit. Until Mubarak finally does leave, the unrest in the streets is unlikely to subside, raising the question of just how much more delay from Mubarak the armed forces will tolerate.

The important thing to remember is that the Egyptian military, since the founding of the modern republic in 1952, has been the guarantor of regime stability. Over the past several decades, the military has allowed former military commanders to form civilian institutions to take the lead in matters of political governance but never has relinquished its rights to the state.

Now that the political structure of the state is crumbling, the army must directly shoulder the responsibility of security and contain the unrest on the streets. This will not be easy, especially given the historical animosity between the military and the police in Egypt. For now, the demonstrators view the military as an ally, and therefore, whether consciously or not, are facilitating a de facto military takeover of the state. But one misfire in the demonstrations, and a bloodbath in the streets could quickly foil the military’s plans and give way to a scenario that groups like the MB quickly could exploit. Here again, we question the military’s tolerance for Mubarak as long as he is the source fueling the demonstrations.

Considerable strain is building on the only force within the country that stands between order and chaos as radical forces rise. The standing theory is that the military, as the guarantor of the state, will manage the current crisis. But the military is not a monolithic entity. It cannot shake its history, and thus cannot dismiss the threat of a colonel’s coup in this shaky transition.

The current regime is a continuation of the political order, which was established when midranking officers and commanders under the leadership of Gamal Abdel Nasser, a mere colonel in the armed forces, overthrew the British-backed monarchy in 1952. Islamist sympathizers in the junior ranks of the military assassinated his successor, Anwar Sadat, in 1981, an event that led to Mubarak’s presidency.

The history of the modern Egyptian republic haunts Egypt’s generals today. Though long suppressed, an Islamist strand exists amongst the junior ranks of Egypt’s modern military. The Egyptian military is, after all, a subset of the wider society, where there is a significant cross-section that is religiously conservative and/or Islamist. These elements are not politically active, otherwise those at the top would have purged them.

But there remains a deep-seated fear among the military elite that the historic opening could well include a cabal of colonels looking to address a long-subdued grievance against the state, particularly its foreign policy vis-à-vis the United States and Israel. The midranking officers have the benefit of having the most direct interaction — and thus the strongest links — with their military subordinates, unlike the generals who command and observe from a politically dangerous distance. With enough support behind them, midranking officers could see their superiors as one and the same as Mubarak and his regime, and could use the current state of turmoil to steer Egypt’s future.

Signs of such a coup scenario have not yet surfaced. The army is still a disciplined institution with chain of command, and many likely fear the utter chaos that would ensue should the military establishment rupture. Still, those trying to manage the crisis from the top cannot forget that they are presiding over a country with a strong precedent of junior officers leading successful coups. That precedent becomes all the more worrying when the regime itself is in a state of collapse following three decades of iron-fisted rule.

The United States, Israel and others will thus be doing what they can behind the scenes to shape the new order in Cairo, but they face limitations in trying to preserve a regional stability that has existed since 1978. The fate of Egypt lies in the ability of the military not only to manage the streets and the politicians, but also itself.

Read more: The Egyptian Unrest: A Special Report | STRATFOR

Red Alert: Hamas and the Muslim Brotherhood


Red Alert: Hamas and the Muslim Brotherhood
January 29, 2011 | 1655 GMT
Red Alert: Hamas and the Muslim Brotherhood

The following is a report from a STRATFOR source in Hamas. Hamas, which formed in Gaza as an outgrowth of the Egyptian Muslim Brotherhood (MB), has an interest in exaggerating its role and coordination with the MB in this crisis. The following information has not been confirmed. Nonetheless, there is a great deal of concern building in Israel and the United States in particular over the role of the MB in the demonstrations and whether a political opening will be made for the Islamist organization in Egypt.
Related Special Topic Page

* The Egypt Unrest: Full Coverage

The Egyptian police are no longer patrolling the Rafah border crossing into Gaza. Hamas armed men are entering into Egypt and are closely collaborating with the MB. The MB has fully engaged itself in the demonstrations, and they are unsatisfied with the dismissal of the Cabinet. They are insisting on a new Cabinet that does not include members of the ruling National Democratic Party.

Security forces in plainclothes are engaged in destroying public property in order to give the impression that many protesters represent a public menace. The MB is meanwhile forming people’s committees to protect public property and also to coordinate demonstrators’ activities, including supplying them with food, beverages and first aid.

Read more: Red Alert: Hamas and the Muslim Brotherhood | STRATFOR

Sunday, January 30, 2011

Egypt protests: America's secret backing for rebel leaders behind uprising

Egypt protests: America's secret backing for rebel leaders behind uprising
The American government secretly backed leading figures behind the Egyptian uprising who have been planning “regime change” for the past three years, The Daily Telegraph has learned.

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Protesters and army on the streets of Cairo Photo: AP
Egypt's military has deployed troops and tanks to enforce curfew in the country's cities, as protests demanding the overthrow of President Hosni Mubarak reached a crescendo.

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Protesters continue rioting on the streets of Cairo Photo: REUTERS
Egypt's military has deployed troops and tanks on the streets of cities torn by a day of rioting and chaos that has challenged the legitimacy of the thirty year old regime of Hosni Mubarak, the country's president.

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The Egyptian army moved on the streets of Cairo tonight to try and quell the protesters Photo: AP

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An Egyptian protester walks past burning vehicles inside the premises of the ruling National Democratic Party (NDP) headquarters Photo: EPA
Egypt's military has deployed troops and tanks to enforce curfew in the country's cities, as protests demanding the overthrow of President Hosni Mubarak reached a crescendo.

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Rioters parade an Egyptian flag on the streets of Cairo Photo: REUTERS
By Tim Ross, Matthew Moore and Steven Swinford 9:23PM GMT 28 Jan 2011


The American Embassy in Cairo helped a young dissident attend a US-sponsored summit for activists in New York, while working to keep his identity secret from Egyptian state police.

On his return to Cairo in December 2008, the activist told US diplomats that an alliance of opposition groups had drawn up a plan to overthrow President Hosni Mubarak and install a democratic government in 2011.

He has already been arrested by Egyptian security in connection with the demonstrations and his identity is being protected by The Daily Telegraph.

The crisis in Egypt follows the toppling of Tunisian president Zine al-Abedine Ben Ali, who fled the country after widespread protests forced him from office.

The disclosures, contained in previously secret US diplomatic dispatches released by the WikiLeaks website, show American officials pressed the Egyptian government to release other dissidents who had been detained by the police.

Saturday, January 29, 2011

Silver IS The New Gold

Silver IS The New Gold
Ryan Jordan
Cheap, Industrial Silver is an illusion

From the beginning of the financial crisis in 2008, contrarian investors began murmuring about getting into gold and short term Treasuries. It was almost a mantra: gold and Treasuries… gold and Treasuries. Something missing? There certainly was from the perspective of the silver bugs. But the conventional wisdom, among goldbugs at least, was that silver was a mere "industrial metal" that would easily drop in a weak economy. And those who referred to silver as an "industrial metal" seemed to be backed up by the COMEX exchange in 2008, where the price of silver was basically cut in half, from twenty dollars to below ten. This takedown may have seemed justified at the time because the super rich were not loading up on bulky thousand ounce bars of silver, but smaller, more portable, easily stored amounts of gold. Silver was left out, ignored, shunned, and that seemed to be just the way the market worked.

I remember thinking in the fall of 2008 that part of this push into gold and Treasuries really was motivated by memories of what people did between 1929 and 1932. You see, the last time we had a Depression "gold and Treasuries" was the common sense move to protect assets. Silver in 1930? Silver was practically a base metal, it was in the coinage you used to buy a hot dog. Remember that at the depths of the Depression the mine supply of silver was nearly 5 TIMES the domestic US demand for both industry and coinage!! Things were so bad for silver that western Senators demanded that the U.S. prop up the silver price after having dropped to under 50 cents an ounce! Needless to say, few Americans in the last Depression thought of silver as the go-to monetary metal to protect wealth against a shattered banking system.

Fast forward 45 years and the view of silver as an abundant, cheap industrial metal would be further reinforced in the aftermath of Silver Thursday in 1980. This is because the price spike in the mid to late 1970s was not coming from industrial demand- that peaked about six years earlier, in 1974. Rather the price surge was coming from the Hunt Brothers' Corner on the COMEX: in other words, investment demand. All that was needed was for the COMEX to change the rules on the Hunts- a kind of capital control against the longs- and the price collapsed. As the price collapsed over 60% in the 1980s (with the help of government dishoarding), and as mine supply increased, once again the perception continued that silver was some sort of easily extractable, base metal. Gold was the money of the bankers- "he who has the gold makes the rules" was the tried and true saying. Silver? A distant second as far as those trying to insure their assets were concerned.

Suffice to say, most people in the investment world have been conditioned to believe that a silver shortage is impossible, in addition to being fixated on gold as the only insurance you need for your portfolio. This is the power of recent history, of the language that is used to describe silver (its industrial), and a view that is still encouraged by some gold dealers. While I haven't done a poll, I would bet many in the gold industry assume that a genuine silver shortage for industrial purposes is highly unlikely. This perception is largely reinforced by the major world market maker in the white metal, the COMEX division of the New York Mercantile Exchange.

COMEX and Thin Ice on the Hudson

In my mind, the COMEX is simply a warehouse and storage center for silver. A large warehouse, yes, but a warehouse that is, frankly, living off of its former glory: once the exchange legitimately had access to hundreds of millions silver ounces that could be sold, but now it likely has less than 50 million ounces for sale (this data is almost a year old), or about 1.5 billion dollars. And given the lack of government stockpiles, and how little new mine supply goes into bullion, this 50 million ounces is in many ways irreplaceable. (I will address jewelry and silverware stockpiles below). To further show how small this 50 million silver ounces number is, the COMEX has less silver for sale than is stored by a well-known gold and silver closed-end fund, the Central Fund of Canada (the COMEX also has much less silver than the SLV ETF, but I realize many question what this ETF actually has under its direct control.) So why does the COMEX have such sway in the silver market? Because the COMEX enables big players to buy on paper, with big leverage- I guess what they call "liquidity" in the world of finance. On any given day the COMEX trades millions and millions of these paper "ounces" of silver. The vast majority of these contracts are not settled in physical silver- it is impossible to do so! But the volume of money passing through and over this silver warehouse is what makes the COMEX the alpha dog, the leader of the pack in terms of setting the world price in silver.

But in this era of uncertainty regarding our financial system, the paper leveraged nature of the COMEX leads many to question its viability as the world market maker in silver. Because at the end of the day, the paper game played on the COMEX demonstrates how floating exchange rates allow for the irresponsible mispricing of important strategic and industrial assets like silver (but the list could be included to other commodities.) Worse, there is a motive for banks in league with the Federal Reserve to use as many of their Federal Reserve Notes to play the short side of the paper game, even though these banks know full well they could not deliver on what they are selling short. But banks likely play this game to maintain the image that the fiat dollar is doing just fine: large price moves higher in gold and silver are a warning light regarding the end of the fiat dollar. However, the lower the silver price is kept by large banks and their naked short positions, the more silver is consumed in spite of a tightening physical market. The silver paper market, in other words, is completely and totally disconnected from the realities of supply and demand on the ground.

The casino-like quality of this paper market is related to the fallacy that you can just print more and more money and not have incredible shortages erupt in goods that cannot be printed. We are already seeing shortages for real things in places like Tunisia- we all have to wonder how long before these kinds of shortages come to the western world. But the FED is convinced that it can solve the employment problem with cheap money, and will continue to pretend the looming inflation problem does not exist. And the FED is not only showing disregard for poor people whose budgets are easily consumed by food increases. The callous attitude of the Federal Reserve System also extends toward the holders of capital- epitomized with the zero percent interest rate policy. This attitude is an expression of the fallacy that the holders of capital will always be relied upon to invest capital into risk taking ventures such as mines or other productive enterprises. This is a very dangerous, stupid assumption. What if those holders of capital feel abused by the banking elite and government authorities and refuse to take the risks necessary to provide the resources needed for the American economic model of growth at all costs? And what if those holders of capital decide to put their money into something unprintable- like silver? So, in my mind, the COMEX is one more, very important symbol of an unsustainable economic and monetary model. The implications of the COMEX running out of silver, or trying to institute capital controls when it fears a run on silver, could not be more bullish for the holders of the white metal.

For now, though, the COMEX price is generally honored by dealers. Yes, there are premiums for small amounts of silver, but there are not yet significant premiums for larger bars of silver. There are hundreds of thousands of major bullion dealers who aren't big enough to rock the boat of COMEX pricing- at least not yet. But what happens if the silver inventory at the COMEX keeps dropping- irreplaceable inventory as far as I'm concerned- and all the leveraged paper players try to convert their paper into silver. If there are eighty more paper contracts settled in paper for every one settled in bullion, you get the idea what will happen when the other 79 try to rush into a silver market where the silver does not exist. In other words, the COMEX is susceptible to a bank run.

This is an important point: the silver market does not need any new "investors" for the price to go higher- it simply requires people holding paper silver (which is plentiful) to try to convert it into physical (which is scarce.)

Although the physical scramble could occur by the populace who do not deal with the COMEX, at this point it is much more likely to be initiated at an institution such as the COMEX. When capital controls are put into place at the exchange to end the delivery of silver bullion to investors, there will be hundreds of billions of dollars trying to land on a pile of silver outside the exchange in the single billions of dollars. At some point, some of the estimated 20 billion ounces of jewelry and silverware may come into the market, but likely only at much higher prices. Think about it- how much does women's silver jewelry cost when compared to its scrap value? In other words, silver prices will have to launch significantly higher before this jewelry comes out of hiding. And then, I predict, the Silver Users Association will make sure that it gets first dibs on what is being scrapped, leaving investors in the cold. Quite possibly, silver in coin and bullion will never be as plentiful as gold coin and bullion, even though some people still claim that there is some large overhang of silver which could make the amount of silver bullion equal to that of gold.

The Trend Is Your Friend

As a final point of fact, the above ground stockpile of silver- around 22 to 25 billion ounces and mostly jewelry and silverware at this point- has not changed much over the last half century. (Mind you, at the moment less than 1 billion are silver coins or bullion.) However, the above ground stockpile of gold has grown substantially from under 1 billion to nearly 7 billion ounces over the same time frame. Beside the fact that the above ground ratio of all silver to gold is less than 4 to 1 (and not 45: 1 as currently expressed in the price), the trend in physical gold and silver is clearly toward parity, or at least something close to it. And yet here we are with silver having recently "corrected" in price to a mere $27.50 an ounce, while gold is $1350. Silver- which could one day get awfully close to the price of gold- remains very much a screaming buy.


University of San Diego Lecturer
University of San Diego, KIPJ 262, 5998 Alcala Park, San Diego, 92110
Primary Tel 619.260.4756
Industry Education/Academia --END

Moon-walker claims alien contact cover-up

Moon-walker claims alien contact cover-up

July 24, 2008 12:01am
Article from: The Daily Telegraph

FORMER NASA astronaut and moon-walker Dr Edgar Mitchell - a veteran of the Apollo 14 mission - has stunningly claimed aliens exist and he says extra-terrestrials have visited Earth on several occasions - but the alien contact has been repeatedly covered up by governments for six decades.

Dr Mitchell, 77, said during a radio interview that sources at the space agency who had had contact with aliens described the beings as 'little people who look strange to us'.

He said supposedly real-life ET's were similar to the traditional image of a small frame, large eyes and head.

Chillingly, he claimed our technology is 'not nearly as sophisticated' as theirs and 'had they been hostile', he warned 'we would be gone by now'.

Dr Mitchell, along with Apollo 14 commander Alan Shepard, holds the record for the longest ever moon walk, at nine hours and 17 minutes following their 1971 mission.

"I happen to have been privileged enough to be in on the fact that we've been visited on this planet and the UFO phenomena is real", Dr Mitchell said.

"It's been well covered up by all our governments for the last 60 years or so, but slowly it's leaked out and some of us have been privileged to have been briefed on some of it.

"I've been in military and intelligence circles, who know that beneath the surface of what has been public knowledge, yes - we have been visited. Reading the papers recently, it's been happening quite a bit".

Dr Mitchell, who has a Bachelor of Science degree in aeronautical engineering and a Doctor of Science degree in Aeronautics and Astronautics claimed Roswell was real and similar alien visits continue to be investigated.

He told the astonished Kerrang! radio host Nick Margerrison: "This is really starting to open up. I think we're headed for real disclosure and some serious organisations are moving in that direction".

Mr Margerrison said: "I thought I'd stumbled on some sort of astronaut humour but he was absolutely serious that aliens are definitely out there and there's no debating it".

Officials from NASA, however, were quick to play the comments down.

In a statement, a spokesman said: "NASA does not track UFOs. NASA is not involved in any sort of cover up about alien life on this planet or anywhere in the universe.

'Dr Mitchell is a great American, but we do not share his opinions on this issue'.

Chinese bank ICBC signs deal to enter US market

Chinese bank ICBC signs deal to enter US market
Sat Jan 22, 12:30 am ET

BEIJING (AFP) – Chinese bank ICBC, the world's largest by market value, has signed an deal that will allow it to enter the US retail banking market, the Wall Street Journal reported.

ICBC, the Industrial and Commercial Bank of China, has agreed to buy a majority stake in the US subsidiary of Bank of East Asia in a deal that would make it the first Chinese state-controlled bank to acquire retail bank branches in the United States, the paper said in its Saturday edition.

The deal, which still requires the approval of US regulators, was signed Friday in Chicago on the last day of a visit by Chinese President Hu Jintao to the United States.

The price was not revealed but anonymous sources quoted by the Journal said it was around $100 million.

The agreement comes as Beijing and Washington seek to increase trade and investment, signing $45 billion in trade deals during Hu's visit.

ICBC has been the most aggressive of China's "big four" banks in expanding overseas, as the country's lenders restart plans that were put on hold by the global financial crisis and seize new opportunities left in its wake.

Hong Kong-based Bank of East Asia has 13 branches in the United States, in New York and California. ICBC in January last year bought a 70-percent stake in the bank's Canadian subsidiary.

The new deal would allow ICBC's US customers to buy and sell the yuan. Trading in the currency is already available to clients of the Bank of China, currently the only mainland Chinese bank which has a US retail licence, the newspaper said.

China is seeking to promote the use of the yuan as an international currency for trade and investment.

The yuan's exchange rate, determined daily by the Chinese central bank, is currently held in a narrow band against the dollar.

ICBC this week opened branches in Paris and Brussels and in January inaugurated a total of five branches in Europe, expanding its presence on the continent.

ICBC's profit rose nearly 27 percent in the third quarter to 42.6 billion yuan ($6.38 billion), according to a statement filed with the Shanghai Stock Exchange in late October.

The Moscow Attack and Airport Security


The Moscow Attack and Airport Security
January 27, 2011 | 0954 GMT

The Moscow Attack and Airport Security

Related Link

* Jihadism in 2011: A Persistent Grassroots Threat


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* Above the Tearline: The Challenges of Investigating Terrorist Attacks

By Scott Stewart

The Jan. 24 bombing at Moscow’s Domodedovo International Airport killed 35 people and injured more than 160. The attack occurred at approximately 4:40 p.m. as passengers from several arriving international flights were leaving the airport after clearing immigration and customs. The attacker (or attackers; reports are still conflicting over whether the attack was conducted by a man or a man and a woman together) entered the international arrivals hall of the airport, a part of the facility that is outside the secure area and that is commonly packed with crowds of relatives and taxi and limo drivers waiting to meet travelers.

Once the attacker was in the midst of the waiting crowd and exiting passengers, the improvised explosive device that he (or she) carried was detonated. It is not clear at this point whether the device was command-detonated by the attacker as a traditional suicide bomb or if the device was remotely detonated by another person. The attack was most likely staged by Islamist militants from Russia’s Northern Caucasus region who have conducted a long series of attacks in Russia, including the Aug. 24, 2004, suicide bombings that destroyed two Russian airliners.

The Domodedovo attack serves as a striking illustration of several trends we have been following for years now, including the difficulty of preventing attacks against soft targets, the resourcefulness of militants in identifying such targets and the fixation militants have on aviation-related targets.

Soft Targets

By definition, soft targets are those targets that are vulnerable to attack due to the absence of adequate security. Adequate security may be absent for a number of reasons, including disregard for the threat and lack of competent forces to conduct security, but most often soft targets are “soft” because of the sheer number of potential targets that exist and the impossibility of protecting them all. Even totalitarian police states have not demonstrated the capability to protect everything, so it is quite understandable that more liberal democratic countries do not possess the ability to provide airtight security for every potential target.

Moreover, some measures required to provide airtight security for soft targets are often seen as intrusive by citizens of countries where personal freedom is valued and the financial cost associated with providing such security measures is often seen as excessive. There is an old security truism that states: “If you try to protect everything all the time you will protect nothing.” Because of this reality, policymakers must use intelligence gained from militant groups, along with techniques such as risk assessment and risk management, to help them decide how best to allocate their limited security resources. While this will help protect the targets the government deems most sensitive or valuable, it will also ensure that some things remain unprotected or under-protected. Those things become soft targets.

While most militants would prefer to attack traditional high-profile targets such as embassies and government buildings, those sites have become far more difficult to attack in the post-9/11 world. At the same time, the relentless pursuit of terrorist operatives by the United States and its allies has resulted in the degradation of the capabilities and reach of groups such as al Qaeda. Today the threat posed to the West stems primarily from grassroots militants and jihadist franchises rather than the al Qaeda core. While this has broadened the threat, it has also made it shallower, since grassroots operatives are far less capable of spectacular and strategic attacks than the professional terrorist cadre of the al Qaeda core.

The combination of increased security at hard targets and the reduced capabilities of militant operatives has resulted in militant planners shifting their targeting toward softer targets, which are easier to attack. As a result of this shift, targets such as hotels have replaced embassies and other hardened sites in militant target selection.

Generally, militants prefer to attack soft targets where there are large groups of people, that are symbolic and recognizable around the world and that will generate maximum media attention when attacked. Some past examples include the World Trade Center in New York, the Taj Mahal Hotel in Mumbai and the London Underground. The militants’ hope is that if the target meets these criteria, terror magnifiers like the media will help the attackers produce a psychological impact that goes far beyond the immediate attack site — a process we refer to as “creating vicarious victims.” The best-case scenario for the attackers is that this psychological impact will also produce an adverse economic impact against the targeted government.

Unlike hard targets, which frequently require attackers to use large teams of operatives with elaborate attack plans or very large explosive devices in order to breach defenses, soft targets offer militant planners an advantage in that they can frequently be attacked by a single operative or small team using a simple attack plan. The failed May 1, 2010, attack against New York’s Times Square and the July 7, 2005, London Underground attacks are prime examples of this, as was the Jan. 24 attack at Domodedovo airport. Such attacks are relatively cheap and easy to conduct and can produce a considerable propaganda return for very little investment.

Shifting Fire

In Russia, militants from the Northern Caucasus have long attacked soft targets, including buses, trains, the Moscow Metro, hotels, a hospital, a theater, a rock concert, shopping centers, apartment buildings, a school and now the soft side of Domodedovo airport.

In the case of Domodedovo, the past two attacks involving the facility are a clear illustration of the process by which militants shift to softer targets in response to security improvements. In August 2004, Chechen militants were able to exploit lax security on the domestic side of Domodedovo in order to smuggle two suicide devices aboard two targeted aircraft, which they used to blow up the planes. In response to that attack, security at the airport was increased. The Jan. 24 Domodedovo attack seems to have confirmed the effectiveness of these security improvements — the militants apparently believed they could no longer smuggle their suicide device aboard an aircraft. However, they adjusted their targeting and decided to conduct an attack against a vulnerable soft spot — the arrivals hall — located in the midst of the hardened airport target.

From a tactical standpoint, the attack at Domodedovo was a logical response to increased security designed to keep explosives off aircraft. This attack also demonstrates, significantly, that the militants behind it maintained the intent to hit aviation-related targets, a fixation we have discussed for some time now. One reason for this fixation is the impact that aviation-related attacks have on terror magnifiers. This was seen in the international response to the Domodedovo attacks, which was much larger than the response to twin suicide bombings of the Moscow Metro in March 2010. Even though the Metro bombings produced more fatalities, they did not resonate with the international media as the airport attack did. This media response to the most recent Domodedovo attack was presumably enhanced by the fact that it killed several foreigners.

This difference in international reaction is significant, and will certainly be noted by militants planning future terrorist attacks. In all likelihood, it will also serve to solidify their fixation on aviation-related targets and on soft targets such as arrival halls that are located in the midst of harder aviation targets. It must be noted, however, that this concept is not altogether new: Militants have long targeted the soft area outside airports’ security hardlines. Ticket desks were attacked by the Abu Nidal Organization in Rome and Vienna in December 1985, and more recently the El Al ticket desk at Los Angeles International Airport was attacked by a gunman in July 2002 and an unsuccessful car bomb attack against the main entrance of the international airport in Glasgow, Scotland, was conducted by a grassroots jihadist in June 2007.

In the wake of the Domodedovo attack, security has been increased in the arrival halls of Russian airports — a step that has been instituted elsewhere in order to make the traveling public feel secure. However, such measures are costly and will tie up security personnel who will then be unavailable to protect other sites. Because of this, these measures will likely be short-lived, and airports will return to “normal” in a matter of months. Furthermore, even when security is increased in areas such as arrival halls, the very nature of airports dictates that there will always be areas outside the rings of security where people will congregate — either to meet travelers or as they wait to clear security screening. While the threat can be pushed away from the airport building, in other words, it cannot be completely alleviated. Because of this, there will always be soft areas that are impossible to protect using traditional security measures. However, facilities that employ non-traditional security measures like protective intelligence and countersurveillance will be able to protect this type of soft area far more effectively than facilities relying solely on physical security measures.

The bottom line for travelers and security managers is that plots to attack aviation-related targets will continue and the array of aviation-related soft targets such as ticket desks and arrival halls will remain vulnerable to attack. A persistent, low-level threat to these targets does not mean the sky is falling, but it should prompt travelers to take some simple steps that can help minimize the time spent on the soft side of the airport. And, as always, travelers should practice an appropriate level of situational awareness so they can see trouble developing and take measures to avoid it.

Read more: The Moscow Attack and Airport Security | STRATFOR

Tuesday, January 25, 2011

Obama's State of the Union and U.S. Foreign Policy


Obama's State of the Union and U.S. Foreign Policy
January 25, 2011 | 0953 GMT

The Turkish Role in Negotiations with Iran

By George Friedman

U.S. President Barack Obama will deliver the State of the Union address tonight. The administration has let the media know that the focus of the speech will be on jobs and the economy. Given the strong showing of the Republicans in the last election, and the fact that they have defined domestic issues as the main battleground, Obama’s decision makes political sense. He will likely mention foreign issues and is undoubtedly devoting significant time to them, but the decision not to focus on foreign affairs in his State of the Union address gives the impression that the global situation is under control. Indeed, the Republican focus on domestic matters projects the same sense. Both sides create the danger that the public will be unprepared for some of the international crises that are already quite heated. We have discussed these issues in detail, but it is useful to step back and look at the state of the world for a moment.

The United States remains the most powerful nation in the world, both in the size of its economy and the size of its military. Nevertheless, it continues to have a singular focus on the region from Iraq to Pakistan. Obama argued during his campaign that President George W. Bush had committed the United States to the wrong war in Iraq and had neglected the important war in Afghanistan. After being elected, Obama continued the withdrawal of U.S. forces from Iraq that began under the Bush administration while increasing troop levels in Afghanistan. He has also committed himself to concluding the withdrawal of U.S. forces from Iraq by the end of this year. Now, it may be that the withdrawal will not be completed on that schedule, but the United States already has insufficient forces in Iraq to shape events very much, and a further drawdown will further degrade this ability. In war, force is not symbolic.

This poses a series of serious problems for the United States. First, the strategic goal of the United States in Afghanistan is to build an Afghan military and security force that can take over from the United States in the coming years, allowing the United States to withdraw from the country. In other words, as in Vietnam, the United States wants to create a pro-American regime with a loyal army to protect American interests in Afghanistan without the presence of U.S. forces. I mention Vietnam because, in essence, this is Richard Nixon’s Vietnamization program applied to Afghanistan. The task is to win the hearts and minds of the people, isolate the guerrillas and use the pro-American segments of the population to buttress the government of Afghan President Hamid Karzai and provide recruits for the military and security forces.

The essential problem with this strategy is that it wants to control the outcome of the war while simultaneously withdrawing from it. For that to happen, the United States must persuade the Afghan people (who are hardly a single, united entity) that committing to the United States is a rational choice when the U.S. goal is to leave. The Afghans must first find the Americans more attractive than the Taliban. Second, they must be prepared to shoulder the substantial risks and burdens the Americans want to abandon. And third, the Afghans must be prepared to engage the Taliban and defeat them or endure the consequences of their own defeat.

Given that there is minimal evidence that the United States is winning hearts and minds in meaningful numbers, the rest of the analysis becomes relatively unimportant. But the point is that NATO has nearly 150,000 troops fighting in Afghanistan, the U.S. president has pledged to begin withdrawals this year, beginning in July, and all the Taliban have to do is not lose in order to win. There does not have to be a defining, critical moment for the United States to face defeat. Rather, the defeat lurks in the extended inability to force the Taliban to halt operations and in the limits on the amount of force available to the United States to throw into the war. The United States can fight as long as it chooses. It has that much power. What it seems to lack is the power to force the enemy to capitulate.

In the meantime, the wrong war, Iraq, shows signs of crisis or, more precisely, crisis in the context of Iran. The United States is committed to withdrawing its forces from Iraq by the end of 2011. This has two immediate consequences. First, it increases Iranian influence in Iraq simply by creating a vacuum the Iraqis themselves cannot fill. Second, it escalates Iranian regional power. The withdrawal of U.S. forces from Iraq without a strong Iraqi government and military will create a crisis of confidence on the Arabian Peninsula. The Saudis, in particular, unable to match Iranian power and doubtful of American will to resist Iran, will be increasingly pressured, out of necessity, to find a political accommodation with Iran. The Iranians do not have to invade anyone to change the regional balance of power decisively.

In the extreme, but not unimaginable, case that Iran turns Iraq into a satellite, Iranian power would be brought to the borders of Kuwait, Saudi Arabia, Jordan and Syria and would extend Iran’s border with Turkey. Certainly, the United States could deal with Iran, but having completed its withdrawal from Iraq, it is difficult to imagine the United States rushing forces back in. Given the U.S. commitment to Afghanistan, it is difficult to see what ground forces would be available.

The withdrawal from Iraq creates a major crisis in 2011. If it is completed, Iran’s power will be enhanced. If it is aborted, the United States will have roughly 50,000 troops, most in training and support modes and few deployed in a combat mode, and the decision of whether to resume combat will be in the hands of the Iranians and their Iraqi surrogates. Since 170,000 troops were insufficient to pacify Iraq in the first place, sending in more troops makes little sense. As in Afghanistan, the U.S. has limited ground forces in reserve. It can build a force that blocks Iran militarily, but it will also be a force vulnerable to insurgent tactics — a force deployed without a terminal date, possibly absorbing casualties from Iranian-backed forces.

If the United States is prepared to complete the withdrawal of troops from Iraq in 2011, it must deal with Iran prior to the withdrawal. The two choices are a massive air campaign to attempt to cripple Iran or a negotiated understanding with Iran. The former involves profound intelligence uncertainties and might fail, while the latter might not be attractive to the Iranians. They are quite content seeing the United States leave. The reason the Iranians are so intransigent is not that they are crazy. It is that they think they hold all the cards and that time is on their side. The nuclear issue is hardly what concerns them.

The difference between Afghanistan and Iraq is that a wrenching crisis can be averted in Afghanistan simply by continuing to do what the United States is already doing. By continuing to do what it is doing in Iraq, the United States inevitably heads into a crisis as the troop level is drawn down.

Obama’s strategy appears to be to continue to carry out operations in Afghanistan, continue to withdraw from Iraq and attempt to deal with Iran through sanctions. This is an attractive strategy if it works. But the argument I am making is that the Afghan strategy can avoid collapse but not with a high probability of success. I am also extremely dubious that sanctions will force a change of course in Iran. For one thing, their effectiveness depends on the actual cooperation of Russia and China (as well as the Europeans). Sufficient exceptions have been given by the Obama administration to American companies doing business with Iran that others will feel free to act in their own self-interest.

But more than that, sanctions can unify a country. The expectations that some had about the Green Revolution of 2009 have been smashed, or at least should have been. We doubt that there is massive unhappiness with the regime waiting to explode, and we see no signs that the regime can’t cope with existing threats. The sanctions even provide Iran with cover for economic austerity while labeling resistance unpatriotic. As I have argued before, sanctions are an alternative to a solution, making it appear that something is being done when in fact nothing is happening.

There are numerous other issues Obama could address, ranging from Israel to Mexico to Russia. But, in a way, there is no point. Until the United States frees up forces and bandwidth and reduces the dangers in the war zones, it will lack the resources — intellectual and material — to deal with these other countries. It is impossible to be the single global power and focus only on one region, yet it is also impossible to focus on the world while most of the fires are burning in a single region. This, more than any other reason, is why Obama must conclude these conflicts, or at least create a situation where these conflicts exist in the broader context of American interests. There are multiple solutions, all with significant risks. Standing pat is the riskiest.
Domestic Issues

There is a parallel between Obama’s foreign policy problems and his domestic policy problems. Domestically, Obama is trapped by the financial crisis and the resulting economic problems, particularly unemployment. He cannot deal with other issues until he deals with that one. There are a host of foreign policy issues, including the broader question of the general approach Obama wants to take toward the world. The United States is involved in two wars with an incipient crisis in Iran. Nothing else can be addressed until those wars are dealt with.

The decision to focus on domestic issues makes political sense. It also makes sense in a broader way. Obama does not yet have a coherent strategy stretching from Iraq to Afghanistan. Certainly, he inherited the wars, but they are now his. The Afghan war has no clear endpoint, while the Iraq war does have a clear endpoint — but it is one that is enormously dangerous.

It is unlikely that he will be able to avoid some major foreign policy decisions in the coming year. It is also unlikely that he has a clear path. There are no clear paths, and he is going to have to hack his way to solutions. But the current situation does not easily extend past this year, particularly in Iraq and Iran, and they both require decisions. Presidents prefer not making decisions, and Obama has followed that tradition. Presidents understand that most problems in foreign affairs take care of themselves. But some of the most important ones don’t. The Iraq-Iran issue is, I think, one of those, and given the reduction of U.S. troops in 2011, this is the year decisions will have to be made.

Read more: Obama's State of the Union and U.S. Foreign Policy | STRATFOR

Saturday, January 22, 2011

Chinese Espionage and French Trade Secrets


Chinese Espionage and French Trade Secrets
January 20, 2011 | 0953 GMT

Chinese Espionage and French Trade Secrets

By Sean Noonan

Paris prosecutor Jean-Claude Marin on Jan. 14 began an inquiry into allegations of commercial espionage carried out against French carmaker Renault. The allegations first became public when Renault suspended three of its employees on Jan. 3 after an internal investigation that began in August 2010. Within days, citing an anonymous French government source, Reuters reported that French intelligence services were looking into the possibility that China played a role in the Renault espionage case. While the French government refused to officially confirm this accusation, speculation has run wild that Chinese state-sponsored spies were stealing electric-vehicle technology from Renault.

The Chinese are well-known perpetrators of industrial espionage and have been caught before in France, but the details that have emerged so far about the Renault operation differ from the usual Chinese method of operation. And much has been learned about this MO just in the last two years across the Atlantic, where the United States has been increasingly aggressive in investigating and prosecuting cases of Chinese espionage. If Chinese intelligence services were indeed responsible for espionage at Renault it would be one of only a few known cases involving non-Chinese nationals and would have involved the largest amount of money since the case of the legendary Larry Wu-Tai Chin, China’s most successful spy.

STRATFOR has previously detailed the Chinese intelligence services and the workings of espionage with Chinese characteristics. A look back at Chinese espionage activities uncovered in the United States in 2010, since our latest report was compiled, can provide more context and detail about current Chinese intelligence operations.

Chinese Espionage in the U.S.

We chose to focus on operations in the United States for two reasons. First, the United States is a major target for Chinese industrial espionage. This is because it is a leader in technology development, particularly in military hardware desired by China’s expanding military, and a potential adversary at the forefront of Chinese defense thinking. Second, while it is not the only country developing major new technologies in which China would be interested, the United States has been the most aggressive in prosecuting espionage cases against Chinese agents, thereby producing available data for us to work with. Since 2008, at least seven cases have been prosecuted each year in the United States against individuals spying for China. Five were prosecuted in 2007. Going back to about 2000, from one to three cases were prosecuted annually, and before that, less than one was prosecuted per year.

Most of the cases involved charges of violating export restrictions or stealing trade secrets rather than the capital crime of stealing state secrets. As the premier agency leading such investigations, the FBI has clearly made a policy decision to refocus on counterintelligence after an overwhelming focus on counterterrorism following 9/11, and its capability to conduct such investigations has grown. In 2010, 11 Chinese espionage cases were prosecuted in the United States, the highest number yet, and they featured a wide range of espionage targets.

Ten of the 11 cases involved technology acquisition, and five were overt attempts to purchase and illegally export encryption devices, mobile-phone components, high-end analog-to-digital converters, microchips designed for aerospace applications and radiation-hardened semiconductors. These technologies can be used in a wide range of Chinese industries. While the mobile-phone technology would be limited to Chinese state-owned enterprises (SOEs) such as China Mobile, the aerospace-related microchips could be used in anything from rockets to fighter jets. Xian Hongwei and someone known as “Li Li” were arrested in September 2010 for allegedly attempting to purchase those aerospace-related microchips from BAE Systems, which is one of the companies involved in the development of the F-35 Joint Strike Fighter. Similar espionage may have played a role in China’s development of the new J-20 fifth-generation fighter, but that is only speculation.

Chinese Espionage and French Trade Secrets
(click here to enlarge image)

Five other cases in 2010 involved stealing trade secrets. These included organic light- emitting diode processes from Dupont, hybrid vehicle technology from GM, insecticide formulas from the Dow Chemical Company, paint formulas from Valspar and various vehicle design specifications from Ford. These types of Chinese cases, while often encouraged by state officials, are more similar to industrial espionage conducted by corporations. Since many of the major car companies in China are state-run, these technologies benefit both industry and the state.

But that does not mean these efforts are directed from Beijing. History shows that such espionage activities are not well coordinated. Various Chinese company executives (who are also Communist Party officials) have different requirements for their industrial espionage. In cases where two SOEs are competing to sell similar products, they may both try to recruit agents to steal the same technology. There are also a growing number of private Chinese companies getting involved in espionage. One notable example was when Du Shanshan and Qin Yu passed on technology from GM to Chery Automobile, a private, rather than state-run, manufacturer. In the five trade-secret cases in 2010, most of the suspects were caught because of poor tradecraft. They stored data on their hard drives, sent e-mails on company computers and had obvious communications with companies in China. This is not the kind of tradecraft we would expect from trained intelligence officers. Most of these cases probably involved ad hoc agents, some of whom were likely recruited while working in the United States and offered jobs back in China when they were found to have access to important technology.

These cases show how Chinese state-run companies can have an interest in espionage in order to improve their own products, both for the success of their companies and in the national interest of China. The U.S. Department of Justice has not provided specific details on how the stolen defense-related technologies were intended to be used in China, so it is hard to tell whether they would have enhanced China’s military capability.

First-generation Chinese carried out 10 of the 11 publicized cases in the United States last year. Some were living or working temporarily in the United States, others had become naturalized American citizens (with the exception of Xian and Li, who were caught in Hungary). The Chinese intelligence services rely on ethnic Chinese agents because the services do not generally trust outsiders. When recruiting, they also use threats against family members or the individuals themselves. Second- and third-generation Chinese who have assimilated in a new culture are rarely willing to spy, and the Chinese government has much less leverage over this segment of the ethnic-Chinese population living overseas.

In the 11 cases in 2010, it is not clear what payments, if any, the agents might have received. In some cases, such as those involving the trade secrets from Valspar and Ford, the information likely helped the agents land better jobs and/or receive promotions back in China. Cash does not typically rule the effectiveness of newly recruited Chinese spies, as it might with Western recruits. Instead, new Chinese agents are usually motivated by intelligence-service coercion or ideological affinity for China.

The outlier in 2010 was Glenn Duffie Shriver, an American student with no Chinese heritage who applied to work at both the U.S. State Department and the CIA. His was the first publicized case of the Chinese trying to develop an agent in place in the United States since Larry Chin. Shriver studied in China in 2002 and 2003. The recruitment process began when he returned to China in 2004 to seek employment and improve his language capabilities. After responding to an ad for someone with an English-language background to write a political paper, Shriver was paid $120 for producing an article on U.S.-Chinese relations regarding Taiwan and North Korea.

The woman who hired him then introduced him to two Chinese intelligence officers named Wu and Tang. They paid Shriver a total of $70,000 in three payments while he tried to land a job with the U.S. government. Shriver failed the exams to become a foreign service officer and began pursuing a career with the CIA. He was accused of lying on his CIA application by not mentioning at least one trip to China and at least 20 meetings with Chinese intelligence officers. It is not clear how he was exposed, but customs records and passport stamps would have easily revealed any trips to China that he did not report in his CIA application. On Oct. 22, 2010, Shriver pleaded guilty to conspiring to provide national defense information to intelligence officers of the People’s Republic of China and was sentenced to 48 months in prison in accordance with his plea agreement.

A few Americans have been accused of being Chinese agents before, such as former Defense Department official James Fondren, who was caught and convicted in 2009. These cases are rare, though they may increase as Beijing tries to reach higher levels of infiltration. It is also possible that the FBI has been reaching only for low-hanging fruit and that Chinese espionage involving Americans at higher levels is going undetected. If this were the case, it would not be consistent with the general Chinese espionage MO.

China takes a mosaic approach to intelligence, which is a wholly different paradigm than that of the West. Instead of recruiting a few high-level sources, the Chinese recruit as many low-level operatives as possible who are charged with vacuuming up all available open-source information and compiling and analyzing the innumerable bits of intelligence to assemble a complete picture. This method fits well with Chinese demographics, which are characterized by countless thousands of capable and industrious people working overseas as well as thousands more analyzing various pieces of the mosaic back home.

Another case in 2010 was an alleged China-based cyber-attack against Google, in which servers were hacked and customer account information was accessed. Last year, more than 30 other major companies reported similar infiltration attempts occurring in 2009, though we do not know how widespread the effort really is. China’s cyber-espionage capabilities are well known and no doubt will continue to provide more valuable information for China’s intelligence services.

The Renault Case

Few details have been released about the Renault case, which will likely remain confidential until French prosecutors finish their investigation. But enough information has trickled in to give us some idea of the kind of operation that would have targeted Renault’s electric-vehicle program. Three Renault managers were accused: Matthieu Tenenbaum, who was deputy director of Renault’s electric-vehicle program; Michel Balthazard, who was a member of the Renault management board; and Bertrand Rochette, a subordinate of Balthazard who was responsible for pilot projects. Various media reports — mostly from Le Figaro — claim that the State Grid Corporation of China opened bank accounts for two of the three managers (it is unknown which two). Money was allegedly wired through Malta, and Renault’s investigators found deposits of 500,000 euros (about $665,000) and 130,000 euros (about $175,000) respectively in Swiss and Liechtenstein bank accounts.

Assuming this is true, it is still unclear what the money was for. Given that the three executives had positions close to the electric-vehicle program, it seems that some related technology was the target. Patrick Pelata, Renault’s chief operating officer, said that “not the smallest nugget of technical or strategic information on the innovation plan has filtered out of the enterprise.” In other words, Renault uncovered the operation before any technology was leaked — or it is intentionally trying to downplay the damage done in order to reassure investors and protect stock prices. But Pelata also called the operation “a system organized to collect economic, technological and strategic information to serve interests abroad.”

Renault is convinced a foreign entity was involved in a sophisticated intelligence operation against the company. The question is, what foreign entity? On Jan. 13, Renault filed an official complaint with French authorities, saying it was the victim of organized industrial espionage, among other things, committed by “persons unknown.” French Industry Minister Eric Besson clarified Jan. 14 that there was no information to suggest Chinese involvement in the case, though he previously said France was facing “economic war,” presuming that the culprits came from outside France. The source for the original rumors of Chinese involvement is unclear, but the French clearly backed away from the accusation, especially after Chinese Foreign Ministry spokesman Hong Lei called the accusation “baseless and irresponsible” on Jan. 11 (of course, even if the Chinese were the culprits they would certainly not admit it).

The Chinese have definitely targeted energy-efficient motor vehicle technology in the past, in addition to the Ford and GM cases, and Renault itself is no stranger to industrial espionage activities. In 2007, Li Li Whuang was charged with breach of trust and fraudulent access to a computer system while working as a trainee at Valeo, a French automotive components manufacturer, in 2005. The 24-year-old was studying in Paris when she was offered the trainee position at Valeo. Investigators found files on her computer related to a project with BMW and another with Renault.

The new Renault case, however, is very different from most Chinese espionage cases. First, it involved recruiting three French nationals with no ethnic ties to China, rather than first-generation Chinese. Second, the alleged payments to two of three Renault employees were much larger than Chinese agents usually receive, even those who are not ethnic Chinese. The one notable exception is the case of Larry Chin, who is believed to have received more than $1 million in the 30 years he spied for China as a translator for U.S. intelligence services. Renault executives would also be paid as much or more in salaries than what was found in these bank accounts, though we don’t know if more money was transferred in and out of the accounts. This may not be unprecedented, however; STRATFOR sources have reported being offered many millions of dollars to work for the Chinese government.

Another problem is the alleged use of a Chinese state-owned company to funnel payments to the Renault executives. Using a company traceable not only to China but to the government itself is a huge error in tradecraft. This is not likely a mistake that the Chinese intelligence services would make. In Chin’s case, all payments were made in cash and were exchanged in careful meetings outside the United States, in places where there was no surveillance.

Thus, STRATFOR doubts that the Renault theft was perpetrated by the Chinese. The leak suggesting otherwise was likely an assumption based on China’s frequent involvement in industrial espionage. Still, it could be a sign of new methods in Chinese spycraft.

Higher-level Recruitment?

The Shriver and Renault cases could suggest that some Chinese intelligence operations are so sophisticated that counterintelligence officers are unaware of their activities. They could mean that the Chinese are recruiting higher-level sources and offering them large sums of money. Chin, who got his start working for the U.S. Army during the Korean War, remained undetected until 1985, when a defector exposed him. There may be others who are just as well hidden. However, according to STRATFOR sources, including current and former counterintelligence officers, the vast majority of Chinese espionage operations are perpetrated at low levels by untrained agents.

There is little indication that the Chinese have switched from the high-quantity, low-quality mosaic intelligence method, and cyber-espionage activities such as hacking Google demonstrate that the mosaic method is only growing. The Internet allows China to recruit from its large base of capable computer users to find valuable information in the national interest. It provides even more opportunities to vacuum up information for intelligence analysis. Indeed, cyber-espionage is being used as another form of “insurance,” a way to ensure that the information collected by the intelligence services from other sources is accurate.

If China is responsible for the Renault penetration, the case would represent a change in the Chinese espionage MO, one aiming at a higher level and willing to spend more money, even though most of the cases prosecuted in the United States pointed to a continuation of the mosaic paradigm. Nevertheless, counterintelligence officers are likely watching carefully for higher-level recruits, fearing that others like Chin and Shriver may have remained undetected for years. These cases may be an indication of new resources made available to Western counterintelligence agencies and not new efforts by the Chinese.

One thing is certain: Chinese espionage activities will continue apace in 2011, and it will be interesting to see what targets are picked.

Read more: Chinese Espionage and French Trade Secrets | STRATFOR

Experts Warn of Reaching U.S. Debt Limit

Experts Warn of Reaching U.S. Debt Limit
By Heide B. Malhotra
Epoch Times Staff

WASHINGTON—In the early morning of Jan. 12, the U.S. national debt reached $14.02 trillion, according to the U.S. National Debt Clock, increasing daily by an average of $4.17 billion over the past three years.

The debt ceiling was raised twice in 2008 (June 5 and Oct. 3) by a total of $1.5 trillion and in February and December 2009, by close to $1.1 trillion.

Less than a year ago, in February 2010, the U.S. Congress passed legislation to allow the debt limit to reach $14.29 trillion. The U.S. is dangerously close to reaching this limit, and estimates are that the final reckoning will come between the end of March and May of this year.

Treasury Secretary Timothy F. Geithner is feeling the heat of the ever-increasing national debt and penned a strongly worded letter to the U.S. Congress on Jan. 6.

“Failure to raise the limit would precipitate a default by the United States. ... Even a very short-term or limited default would have catastrophic economic consequences that would last for decades,” said Secretary Geithner in his letter to Congress.

The urgency of the matter and the secretary’s frustration is clearly shown by his statement, “Failure to increase the limit would be deeply irresponsible.”

Although Treasury has a few tools to hold off the inevitable default by the U.S. government for a limited time, these are only interim measures.

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Geithner suggests that Treasury could stall some programs, including reinvestment by the Civil Service Retirement and Disability Fund and reinvestment of other funds.

He provided a list of programs that could be affected if the limit isn’t raised, including retirement benefits, especially the Social Security funds, but also the federal workers retirement funds, federal civil servant salaries, and interest and principal payments on U.S. bonds.

The worst-case scenario would be that the United States would lose its international standing and its ability to borrow at low rates.

“Failure to increase the debt limit in a timely manner would threaten this position and compromise America’s creditworthiness in the eyes of the world,” said Geithner in his letter.

Digging Deeper Into Debt

“The majority of private privately-held businesses, capital suppliers, intermediaries, and service providers recognize the short and long-term harm to the economy if we dig deeper and deeper into debt,” said Dr. John Paglia, associate professor of finance at Pepperdine University.

A great majority of respondents to a Pepperdine University survey about the debt ceiling have a somewhat or definitely unfavorable view of further raising the U.S. debt ceiling. The overall view is that the federal government should reign in its free hand, including bailing out failing banks because of the “too big to fail” concept.

The debt ceiling is the most pressing issue for Congress, especially for the newly elected senators. Sen. Tom Coburn, R-Okla., gave a cautionary message concerning the debt issue in a January statement.

“The debt limit debate will be a key test. Some have cautioned new members against ‘playing chicken’ with the debt limit. Yet, by growing government to an unsustainable level both parties have been playing chicken with our future and our national survival,” Sen. Coburn said.

The call for a united and bipartisan front concerning the debt ceiling went out by Senate Minority Leader Mitch McConnell, R-Ky.

At a time “when the national debt threatens the American dream itself, when the solvency of social safety net is threatened, we must come together,” said McConnell in his recent welcoming speech to the 112th Congress.

Next: Raiding the social trust fund

Raiding the Social Security Trust Fund

There are no longer sources for the U.S. government to borrow from within. It has drained the Social Security Trust Fund, and a borrowing tactic that presents real money targets monthly surpluses from the Social Security Trust Fund, which is just a drop in the bucket.

“Projected OASDI [Old Age, Survivors and Disability Insurance, the official name for Social Security] tax income will be sufficient to finance about 75 percent of scheduled annual benefits in 2037 through 2084 after the combined OASI and DI Trust Funds are projected to be exhausted,” said Secretary Geithner and the Social Security and Medicare Boards of Trustees, in their recent Summary of the 2010 Annual Reports.

The American people are still paying more into the Social Security fund than is paid out. The surplus is then transferred into the Social Security Trust Fund, which has become in reality the U.S. federal government’s piggy bank.

Related Articles

* US Treasury Secretary Geithner: Chinese Economy Must ‘Change fundamentally’
* Head of U.S. Chamber ‘Cautiously Optimistic’ About Economic Recovery

The excess funds are “converted into special-issue Treasury bonds, which are really nothing more than IOUs. In addition, the Treasury pays interest on the trust fund’s balance by crediting the trust fund with additional IOUs,” according to an article by the Heritage Foundation, a conservative think tank.

For example, by the end of 2000, the trust fund held a staggering surplus of more than $1.36 trillion, according to the Heritage Foundation. Social Security taxes from 2003 amounted to $544 billion, with $138 billion transferred to the trust fund. This surplus was then replaced by the Treasury’s IOU.

Social Security Online provided graphs showing that the trust funds swelled from $47 billion at the end of 1986 to $2.6 trillion by the end of September 2010.

The dilemma is that these funds, which should be used to provide American retirees a decent retirement, are lost due to government accounting practices. There is no real money that could be drawn down. America’s Social Security Trust Funds have been used to pay for a slew of U.S. government programs.

Allen W. Smith, professor emeritus of economics at Eastern Illinois University, quoted a 2005 remark by David Walker, former Comptroller General of the GAO, in an article on the Dissident Voice website, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.”

Thursday, January 20, 2011

Flu vaccine fairy tale rapidly collapsing - here's why (and other news)

My colleague Mike runs this down quite well.

Notice some of the more asinine excuses for death that come out

of the United States… Geeze, these idiots in the District of Corruption must think

we’re ALL dumb and gullible.

Public Health and Medical Fraud

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Dear NaturalNews readers,

The flu vaccine industry's fairy tales are rapidly collapsing to the point where even medical authorities are now telling people to avoid buying flu vaccines.

Here's why the vaccine industry's attempt to push its quack-derived vaccine propaganda has actually backfired and caused more people than ever to become aware of the fact that seasonal flu vaccines simply don't work:

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The mysterious animals deaths continue across the planet. Here's an updated timeline of recent animal die-offs:

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China's Military Comes Into Its Own


China's Military Comes Into Its Own
January 18, 2011 | 0953 GMT

Egypt and the Destruction of Churches: Strategic Implications

By Rodger Baker

Chinese President Hu Jintao is visiting the United States, perhaps his last state visit as president before China begins its generational leadership transition in 2012. Hu’s visit is being shaped by the ongoing China-U.S. economic dialogue, by concerns surrounding stability on the Korean Peninsula and by rising attention to Chinese defense activity in recent months. For example, China carried out the first reported test flight of its fifth-generation combat fighter prototype, dubbed the J-20, during U.S. Defense Secretary Robert Gates’ visit to China the previous week.

The development and test flight of China’s J-20 is not insignificant, but it is also by no means a game changer in the U.S.-China defense balance. More intriguingly, the test highlights how China’s military increasingly is making its interests heard.

The J-20 Test Flight and China’s Strategic Concerns

The J-20 test flight shone a light on China’s strategic concerns and reflected some of the developing capability that addresses those concerns. The Chinese fear a potential U.S. blockade of their coast. While this may not seem a likely scenario, the Chinese look at their strategic vulnerability, at their rising power and at the U.S. history of thwarting regional powers, and they see themselves as clearly at risk.

China’s increased activity and rhetoric in and around the South and East China seas also clearly reflect this concern. For Beijing, it is critical to keep the U.S. Navy as far from Chinese waters as possible and delay its approach by maximizing the threat environment in the event of a conflict. Though the J-20 is still a work in progress, a more advanced combat fighter — particularly one with stealth capabilities — could serve a number of relevant roles toward this end.

The Chinese are still in the early stages of development, however. They are experimenting with stealth shaping, characteristics and materials, meaning the degree to which the J-20 can achieve low observability against modern radar remains an open question. Significant changes to the design based on handling characteristics and radar signature can be expected. And true “stealth” is the product of more than just shaping. Special coatings and radar-absorbing materials only top a lengthy list of areas in which Chinese engineers must gain practical experience, even allowing for considerable insight gained through espionage or foreign assistance. China still is thought to be struggling with indigenously designed and manufactured high-end jet engines, not to mention the integration of advanced sensors, avionics and the complex systems that characterize fifth-generation aircraft. It is too early to infer much from the single flight-tested prototype, something the United States learned during the Cold War when initial U.S. estimates of the Soviet MiG-25 attributed far more sophistication and capability to the design than proved to be the case after a Soviet pilot defected with his aircraft years later.

The Chinese role for the J-20 is based on a different set of realities than those the Soviets and Americans faced during the Cold War, meaning the J-20 prototype should not be judged solely by the American standards for fifth-generation aircraft. More than having the most advanced aircraft in the sky, the Chinese value the ability to maintain high sortie rates from many bases along the country’s coast to overwhelm with numbers the superior U.S. combat aircraft, which would be expected to be operated from aircraft carriers or from more distant land bases.

The J-20 Test’s Timing

Perhaps more interesting than the test was its timing, with its associated political implications. For weeks before the test flight, Chinese message boards and blogs were filled with photographs of the new prototype on the tarmac, conducting taxi tests in preparation for its first test flight. Foreign military and defense observers closely monitor such sites, and their “leaked” images renewed attention to China’s fifth-generation development program, about which there has been plenty of speculation but little hard detail. Chinese defense and security officials also closely monitor such boards, but the officials chose not to shut them down — clearly indicating Beijing’s intent to draw attention to the test.

Gates asked Hu about the test when the two met in Beijing. According to some media reports citing American officials present at the meeting, Hu appeared surprised by the question and somewhat perplexed by the details of the test — the implication being that Hu was unaware of the test and that the Chinese military may have acted out of turn. Gates told reporters that Hu had assured him the timing was coincidental. After being asked for his own thoughts regarding the relationship between the military and the political leadership in China after his meetings with Chinese civilian and defense leaders, Gates noted that he had become concerned about that relationship over time. He added that ensuring civilian and military dialogue between the two countries was important.

Although Gates did not say the Chinese military tested the J-20 without political clearance from Hu, the idea was certainly suggested by the media coverage and Gates’ response. On the surface, this seems rather hard to believe. Hu, as president of China and general secretary of the Central Committee of the Communist Party of China, also serves as chairman of China’s parallel Central Military Commissions (one is under the government, the other under the Party, though both have exactly the same makeup).

That the head of China’s military would not know about a major new hardware test coming a week before his trip to meet with the president of the United States and coinciding with a visit of the U.S. defense secretary seems a reach. Furthermore, given the amount of attention just beneath the surface in China to the imminent test, and the subsequent attention in the foreign media, it would be startling that the Chinese president was so poorly briefed prior to meeting the U.S. defense secretary. If indeed the test surprised Hu, then there is serious trouble in China’s leadership structure. But perhaps the issue isn’t one of knowledge but one of capability: Could Hu have stopped the test given the timing, and if so, would he have wanted to stop it?

The Rising Influence of China’s Military

Rumors and signs of the rising influence of the military establishment in China have emerged over the past few years. Since the 1980s, China has focused on and invested in a major reorientation of its military from a massive land army focused on territorial defense to one that emphasizes naval and air capabilities to protect China’s interests in the East and South China seas and beyond into the western Pacific. This has included expanding China’s reach and a focus on anti-access and area-denial capabilities, with accelerated development in this arena in recent years.

Some systems, like the DF-21D anti-ship ballistic missile, are uniquely tailored to countering the U.S. Navy. Others, like an expanding and more aggressive Ocean and Fisheries Administration, is directed more at China’s neighbors in the South and East China seas, and at asserting China’s claims to these waters.

This change in focus is driven by three factors. First, China sees its land borders as being fairly well locked down, with its buffer territories largely under control, but the maritime border is a vulnerability — a particular concern for a trade-based economy. Second, as China’s economy has rapidly expanded, so has Beijing’s dependence on far-flung sources of natural resources and emerging markets. This drives the government and military to look at protection of sea-lanes, often far from China’s shores. Third, the military leadership is using these concerns to increase its own role in internal decision-making. The more dependent China is on places far from its borders, the more the military can make the case that it is the only entity with both the intelligence and the understanding to provide the necessary strategic advice and perspective to China’s civilian leadership.

There is also the issue of a modernizing military looking out for itself, battling for its share of China’s budget and economic pie. A key part of former Chinese President Jiang Zemin’s fundamental military reforms was stripping the military of much of its business empire. At the time, the state — while funding the military — assumed that military-run industry would supplement the defense budget. In short, the military ran industries, and the profits were used to support local and regional defense needs. That kept the official state military budget down and encouraged enterprising commanders to contribute to China’s economic growth.

But over time, it also led to corruption and a military where regional and local military commanders were at risk of becoming more intent on their business empires than on the country’s national defense. Money that largely had gone to support the living of the troops was sidelined and funneled to the military officials. And the faster the Chinese economy grew, the more profit there was for the taking. Regional military leaders and local governments teamed up to operate, promote and protect their own business interests regardless of the state’s broader national economic or social priorities. China’s central leadership saw troubling parallels to older Chinese history, when regional warlords emerged.

In response, Jiang ordered the military largely out of business. Military leaders grudgingly complied for the most part, though there were plenty of cases of military-run industries being stripped of all their machinery, equipment and supplies, which were then sold on the black market and then unloaded at bargain prices to the cronies of military officials. Other companies were simply stripped and foisted on the government to deal with, debts and all. Jiang placated the military by increasing its budget, increasing the living standard of the average soldier and launching a ramped-up program to rapidly increase the education of its soldiers and technical sophistication of China’s military. This appeased the military officials and bought their loyalty — returning the military to financial dependence on the government and Communist Party.

But the success of military reform, which also involved seeking greater sophistication in doctrine, training, communications and technology, has also given the military greater influence. Over time, the military has come to expect more technologically, and China has begun experimenting with technology-sharing between military and civilian industry to spur development. The drive for dual-use technology, from the evolving aerospace industry to nanotechnology, creates new opportunities for military officials to promote new weapons-system development while at the same time profiting from the development. As China’s global economic power has grown, the military has demanded more funding and greater capabilities to protect national interests and its own prerogatives.

But China’s military officials are also growing more vocal in their opinions beyond the issue of military procurement. Over the past year, Chinese military officers have made their opinions known, quite openly in Chinese and sometimes even foreign media. They have addressed not only military issues but also Chinese foreign policy and international relations. This step outside the norm has left the Chinese diplomatic community uncomfortable (or at least left it expressing its unease with the rising influence of the military to their foreign counterparts). This may be an elaborate disinformation campaign or a slightly higher level of the griping typical of bureaucrats, or it may in fact reflect a military that sees its own role and significance rising and is stepping forward to try to grab the influence and power it feels it deserves.

One example of the ostensible struggle between the military and the civilian bureaucrats over Chinese foreign policy played out over the past year. Through nearly the first three-quarters of the year, when the United States carried out defense exercises in the Asia-Pacific region — whether annual or in response to regional events like the sinking of the ChonAn in South Korea — the Chinese would respond by holding their own series of exercises, sometimes on a larger scale. It was a game of one-upmanship. But the foreign ministry and bureaucracy purportedly argued against this policy as counterproductive, and by the fourth quarter, China had shifted away from military exercises as a response. Instead, it once again pushed a friendlier and more diplomatic line even as U.S. exercises continued. By the November 2010 crisis over North Korea’s shelling of Yeonpyeong Island, China had returned to its standard call for moderation and dialogue.

If this narrative is accepted, the military response to being sidelined again was to leak plans to launch an aircraft carrier in 2011, to reinvigorate international attention to Chinese anti-ship ballistic missiles, and to test the new Chinese fifth-generation aircraft while Gates was in Beijing and just before Hu headed to Washington. A Chinese military motivated by nationalism — and perhaps an even stronger interest in preserving its power and influence within China — would find it better to be in contention with the United States than in calm. This is because U.S. pressure, whether real or rhetorical, drives China’s defense development.

But the case could as easily be made that the Chinese political leadership has an equal interest in ensuring a mixed relationship with Washington, that the government benefits from seemingly endless U.S. criticism of Chinese defense development. This is because such criticism increases Chinese nationalism, distracting the people from the economic troubles Beijing is trying to manage. And this is the heart of the issue: Just how well-coordinated are the military and civilian leadership of China, and how stable is their relationship?

An End to the Chinese Miracle

The Chinese miracle is nearing its natural conclusion, as Beijing begins to face a reality like that seen by Japan, South Korea and the other Asian Tigers that all followed the same growth pattern. How that crisis plays out is fundamentally different depending upon the country: Japan has accepted the shared long-term pain of two decades of malaise; South Korea saw short, sharp, wrenching reforms; Indonesia saw its government collapse. The reliability of the military, the capability of the civilian leadership and the level of acceptance of the population all combine to shape the outcome.

A divide between the military and civilian leadership would mean that China, already facing the social consequences of its economic policies, is facing another significant issue at the same time: the balance of civilian-military relations. However, a carefully coordinated drive to give the appearance of a split may help China convince the United States to ease economic pressure to avoid exacerbating this “split” while also appealing to nationalistic unity at home.

But even small signs of a split now are critical because of the stresses on the system that China will experience when its economic miracle expires in the not-so-distant future. Mao and Deng were both soldiers. Their successors were not. Neither Jiang Zemin nor Hu Jintao has military experience, and incoming President Xi Jinping similarly lacks such training. The rumors from China suggest that the military plans to take advantage of Xi’s lack of experience and use its influence to shape his policies. The leadership transition may provide a chance for the military to gain more influence in an institutional way, allowing it to drive a hard bargain and buy a bigger share of the pie in the fifth generation set-up.

For most of modern China’s history, the military has been an internal force without much appetite for more worldly affairs. That is now changing, appropriately, due to China’s growing global prominence and reliance on the global economy. But that means that a new balance must be found, and China’s senior leadership must both accommodate and balance the military’s perspective and what the military advocates for.

As Chinese leaders deal with a generational transition, expanding international involvement and an increasingly difficult economic balance, the military is coming into its own and making its interests heard more clearly. How this balance plays out will be tremendously significant.

Read more: China's Military Comes Into Its Own | STRATFOR