Crime Wars: Gangs, Drugs, and U.S. National Security

March 4, 2011
CNAS Report: U.S. and Mexico Should Embrace Regional Cooperation to Combat Drug Cartels

CNAS Report: U.S. and Mexico Should Embrace Regional Cooperation to Combat Drug Cartels

Press Release

Washington, D.C., March 4, 2011 – As Presidents Obama and Calderón continue to discuss the United States and Mexico’s efforts to combat growing drug-related violence, the leaders should look to embrace regional cooperation to combat the cartels, according to a recent report authored by Center for a New American Security (CNAS) Senior Fellow Bob Killebrew
 
In Crime Wars: Gangs, Drugs, and U.S. National Security, Killebrew surveys organized crime throughout the Western Hemisphere and analyzes the challenges it poses to individual countries and regional security. He argues that Mexico will remain a key state in the struggle against violent organized crime in the region, and that the United States should continue to support Mexico’s efforts while examining its own role in the ongoing conflict. In addition, the report notes, the United States and Mexico should:  

  • Increase U.S.-Mexico law enforcement and intelligence cooperation.
  • Increase bilateral training and assistance.
  • Embrace regional cooperation to attack cartels.
  • Attack the cartels’ financial networks and money-laundering capabilities.
“Whether Calderón and his successors can or will sustain a long-term, bloody fight to root out corruption in the Mexican state and reassert the rule of law is a matter of grave concern for the United States,” said Killebrew. Read full story.
 
Press Contact:
Shannon O’Reilly
Director of External Relations
Email: soreilly@cnas.org
Ph: (202) 457-9408

Guest Editorial: The Currency War

February 21, 2011

What’s Behind the Currency War?

By Professor Dr. Antony P. Mueller

In September 2010, a short time before the international financial summit of the Group of Twenty (G20) took place in South Korea, Brazilian finance minister Guido Mantega declared that the world is experiencing a “currency war” where “devaluing currencies artificially is a global strategy.”

Dr. Antony P. Mueller is a professor of economics at the graduate business school of the University of Caxias-do-Sul (UCS) in Brazil. He is an adjunct scholar of the Ludwig von Mises Institute and president and founder of The Continental Economics Institute.

Dr. Antony P. Mueller is a professor of economics at the graduate business school of the University of Caxias-do-Sul (UCS) in Brazil. He is an adjunct scholar of the Ludwig von Mises Institute and president and founder of The Continental Economics Institute.

By announcing the outbreak of a “currency war,” Mantega wanted to draw attention to the problems caused by the ongoing exchange-rate manipulations that governments put in place in order to gain economic advantages. In this sense, “currency war” denotes the conflict among nations that arises from the deliberate manipulation of the exchange rate in order to gain international competitiveness by way of currency devaluation.

Competitive Devaluation

Calling competitive devaluation a “war” may seem like a gross exaggeration. Yet in terms of its potential of destruction, the current global financial conflict may well rank at a level similar to that of a real war.

In a wider historical perspective, the current currency war is the latest conflict in a series of acute crises of the modern international monetary system. In a world of national monetary regimes based on fiat money without physical anchors, domestic monetary instability automatically transforms into exchange-rate instability. As before, the current crisis of the international economic order is mainly the result of monetary fragilities coming from the unsound national monetary systems and reckless domestic monetary and fiscal policies.

The immediate cause of the currency war entering an acute stage is the policy of massive quantitative easing practiced by the US central bank. Whatever the original intention of this policy may have been, the consequences of the Fed’s measures include monetary expansion, low interest rates, and a weaker US dollar. With dollar interest rates approaching the “zero bound,” the United States is joining Japan in the effort to stimulate a sluggish economy with massive monetary impulses.

Until recently, the currency war was contained as a kind of financial cold war. The conflict entered its hot phase as a result of the expansive monetary policies that were put in place in the wake of the financial-market crisis that began in 2007. In defiance of the fact that the financial crisis itself was the result of the extremely expansive monetary policies in the years before, many central banks have now accelerated monetary expansion in the vain attempt to cure the disease with the same measures that had caused it in the first place.

Easy Money and International Financial Flows

What has emerged in the global financial arena over the past couple of years is the interplay among easy money, low interest rates, international trade imbalances, financial flows, and exchange-rate manipulations. The failure of attempts to cure overindebtedness with more debt, and to stimulate weak economies by giving them interest rates as low as possible, provokes a repetitive pattern of bubble and crash where each phase ends in a higher level of government debt.

A global search for higher yields has been going on not unlike what happened in the late 1960s and 1970s, when the United States inflated and the countries that had linked their exchange rates to the US dollar suffered from imported inflation. Nowadays, the formal dollar-based fixed-exchange-rate system no longer exists. It has been replaced by a system that sometimes is called “Bretton Woods II”: a series of countries, particularly in Asia this time, have pegged their exchange rates (albeit without a formal agreement) to the US dollar.

If a country wants to slow down the appreciation of its exchange rate that comes as a consequence of the financial inflows from abroad, it must intervene in the foreign-exchange markets and monetize at least a part of the foreign exchange. This way, the monetary authorities will automatically increase the domestic money stock. Additionally, under this system relatively poor countries feel forced not only to buy the debt issued by the relatively wealthy countries like the United States but also to buy these bonds at their current extremely low yields.

Under current conditions, the monetary expansion gets globalized and invades even those countries that wish to practice restrictive monetary policy. Relatively high levels of the interest rate improve the restrictive currency’s attractiveness. Thus, more and more monetary expansion happens on a global scale, which in turn provides the fuel for the next great wave of international financial flows.

The weaker countries, which compete with each other on the basis of low prices, are getting pushed to the side; it was just a matter of time until more and more governments would begin to intervene in the foreign-exchange markets by buying up foreign currencies in order to try to prevent their exchange rates from appreciating too much, too fast.

Yet using the exchange rate as a tool in order to gain economic advantage or avert damage for the domestic economy is inherently at variance with a sound global monetary order, because one country’s devaluation automatically implies the revaluation of another country’s currency and thus the advantage that one tries to obtain will be achieved by putting a burden on other countries.

Escalation

By recycling the monetary equivalent of the trade surplus into the financial markets around the globe, monetary authorities in surplus countries form a symbiosis with trade-deficit countries in fabricating a worldwide monetary expansion of extreme proportions.

The paradoxical, or rather perverse, features of the current state of affairs were highlighted a short time ago when in January 2011 the monetary authorities of Turkey decided to lower the policy interest rates so as to make the inflow of foreign funds less attractive, despite a booming Turkish economy that shows plenty characteristics of a bubble.

Exchange-rate policies produce the usual spiral of interventionism: the de facto consequences tend to diverge from the original intentions, prompting further rounds of doomed interventions. This interventionist escalation is not only limited to an incessant repetition of the same failed policies, but the errors committed in one policy area also affect other parts of the economy. Thus, it is only a matter of time until errors of monetary policy lead to fiscal fiascos, and exchange-rate interventions lead to trade conflicts.

At first sight, exchange-rate intervention may appear tolerable as the legitimate pursuit of national self-interest. But exchange-rate policies are intrinsically matters that tend to stir transnational controversies. When a country’s exchange rate policy collides with the interests of the trading partners, the tit-for-tat of mutual retaliation automatically tends to lead to an escalation of the conflict. Once the process of competitive devaluation has started, a devaluation by one country invites other countries to devaluate their exchange rates as well. As a consequence, the international monetary order will eventually disintegrate, and sooner or later the conflict will go beyond currency issues and affect a wide spectrum of economic and political relations.

Therefore, because of the unsound monetary system, a peaceful international political system also is constantly at risk. Monetary conflicts provoke political confrontations. Besides the immediate costs of exchange-rate conflicts that come from the damage to international trade and investment, and thereby to the international division of labor, harm will also be done to confidence and trust in the international political arena.

The dispute about exchange rates is the consequence of contradictory tensions that are innate to the modern monetary system. In this respect the currency war is an expression of the defects that characterize an unsound and destructive financial system. The outbreak of the currency war is a symptom of a deeply flawed international monetary order.

Brazil

When Brazil’s finance minister repeated his warnings in January 2011 and said that “the currency war is turning into a trade war,” Mantega sent a signal to the world that the escalation of the trade war had started. Because of the massive inflow of money from abroad, the Brazilian currency had sharply appreciated and the Brazilian economy was losing competitiveness.

In order to reduce the impact on is domestic economy, Brazil had been intervening in the foreign-exchange markets, diminishing the degree of currency appreciation. In doing so, the monetary authorities had to buy foreign currencies, mainly US dollars, in exchange for its domestic money.

By pursuing such a policy over the past couple of years, Brazil has increased its foreign-exchange reserves from around 50 billion to 300 billion US dollars. Yet even despite these foreign-exchange interventions, the Brazilian currency appreciated drastically against the US dollar and other currencies.

By various estimates, Brazilian foreign trade suffers from an exchange-rate overvaluation of around 40 percent. As a consequence, Brazil’s current account balance, which was still at surplus in 2007, has plunged into a deficit of 47.5 billion US dollars in 2010. At the same time when an artificial boom is taking place as the result of massive monetary expansion, the Brazilian economy suffers from creeping deindustrialization.

Part of the explosion of Brazil’s current-account deficit can be explained by weak demand from its trading partners, which have plunged into a prolonged recession. Yet beyond this circumstance, there has been another causal chain at work: the inflow of funds from abroad that boosts the exchange rate provides the grounds for an exorbitant increase of the country’s monetary base.

The combination of ample liquidity at home, weak demand from some trading partners abroad, and a strong exchange-rate appreciation provides the basis for an extreme import expansion that vastly exceeds exports. Unlike a country such as Germany, for example, whose industry is pretty resilient against currency appreciation, Brazil resembles in this respect the countries of the Southern periphery of the eurozone in its incapacity to cope effectively with an overvalued currency.

When, in January 2011, a new government took power in Brazil, the newly-elected president, Dilma Rousseff, declared in her inauguration speech that she will protect Brazil “from unfair competition and from the indiscriminate flow of speculative capital.” Guido Mantega, the former and new Brazilian finance minister, did not hesitate to join in when he asserted that the government has an “infinite” number of interventionist tools at its disposal with which to protect national interests. Mantega said that the government is ready to use taxation and trade measures in order to stop the deterioration of Brazil’s trade balance.

China

The countries that form the favored group that gets targeted by international financial flows in search of higher yields compete among themselves in order to prevent their currencies from appreciating too much, and as a group these countries compete against China in their efforts to maintain a competitive exchange rate.

China’s position forms part of a long causal chain, which includes low interest rates and monetary expansion in the United States, that fuels higher import demand. Given that China drastically devalued its exchange rate as early as in the 1980s, this country was at the forefront of gaining advantage of America’s import surge; China grabbed the golden opportunity to turn itself into the major exporter to the United States.

In order to maintain its currency at its undervalued level, the Chinese monetary authorities must buy up the excess of foreign exchange that accumulates from its trade surplus, preferably by buying US treasury notes and bonds. In this way, China became America’s main creditor. Over the past decade, China increased its foreign exchange position from a meager $165 billion in 2000 to an amount that was approaching $3 trillion at the end of 2010.

From the 1980s up to the early 1990s, China devalued its currency from less than 2 Yuan to the US dollar to an exchange rate of 9 Yuan against the US dollar. And despite its huge trade surpluses, China has only slightly revalued the Yuan ever since, establishing the current exchange rate at 6.56 Yuan per US dollar.

Over the past decade, China has become the major financier of the US budget deficit. Together with other monies flowing in from abroad, the US government was relieved from the need to cut spending. The inflow of foreign capital also allowed the US government to pay lower interest rates for its debt than it would have if only domestic supply of savings were available. Foreign imports put pressure on the price level, and the US central bank could continue monetary expansion without an immediate effect on the price-inflation rate.

If China wants to hold its competitive position through an undervalued currency, the Chinese monetary authorities must continue their policy of intervention in the foreign-exchange markets. As a consequence of buying dollars from its exporters, the domestic money supply in China continues to rise, throwing additional fuel on a domestic boom that is already in full swing.

Even more so than their Brazilian counterparts, China’s political-decision makers have failed to exert moderation or restraint when it comes to interventionist measures. As long as China’s leadership presumes that it gains from exchange-rate manipulation, its currency interventions will go on.

Global Financial Fragilities

Since the abandonment of the gold standard, the global financial system has been in disarray. All the international monetary arrangements that have been established since then have ended in crisis and finally collapsed. For almost a hundred years now, one interventionist scheme has been established and then soon fallen to pieces.

When the monetary and fiscal decision makers in the United States and Europe discarded all restraints against intervention in the wake of the financial market crisis, socialist and interventionist governments around the globe felt vindicated. They had long been convinced that only through state control could financial stability be obtained. Due to the policies adopted by Western countries in their futile attempt to overcome the financial-market crisis, the leaders of the so-called emerging economies have become even more unscrupulous interventionists.

Political leaders around the globe have shed the little that was left of support for free markets and set the controls for a way back on the road to serfdom. It is mainly due to ignorance that the modern monetary system gets labelled as a laissez-faire or free market system. In fact not only the basic “commodity” of this scheme, i.e., fiat money, but also its price and quantity are largely determined by political institutions such as central banks.

It is more than absurd when, in the face of crises and conflicts, more government intervention gets called upon: it was state intervention in the first place that laid the groundwork for the trouble to appear.

So-called “speculative” international capital flows already happened decades ago. What has changed since then is the amount of hot money and the speed with which it floats around the world. It would be wrong to describe these financial movements as an expression of free markets. The fact, for instance, that in 2010 daily transactions on the international currency market have reached a volume of four trillion US dollars is the result of unhampered fiat-money expansion and massive state intervention in the foreign-exchange markets.

The increase in the global money supply that has been going on for many years finds its complement in a global asset boom. The inflation of money drives up the price of precious metals, natural resources, and food. Once more, the world experiences a period of fake prosperity not much different from the real-estate bubble, and many other episodes, that led to previous financial crises.

Conclusion

The political endeavours to gain competitive advantages through exchange-rate devaluation sows mistrust among nations; and the ensuing regime uncertainties frustrate the business community. Over time the conflict over exchange rates tends to destroy the global division of labor.

Once again, the international monetary system is on the brink of a breakdown. As in the past, the main reason behind the current conflict is extreme monetary expansion. Unsound monetary systems produce turmoil not just at home but also in the international arena. Excessive monetary expansion, which is the cause of domestic malinvestment, is also the root of economic distortions at a global level.

Without a fundamental change of the monetary system itself, without a return to sound money, the international monetary system will remain in a state of permanent fragility — ever oscillating between the abyss of deflationary depression and the fake escape of hyperinflation. This is the fate of the world when nations implement fiat monetary systems and put them under political authority.

© 2011, Dr. Antony P. Mueller.


Clinton Global Initiative highlights, a night in Brooklyn, and more

October 1, 2010

Last week, heads of state, business leaders, and nonprofit executives gathered in New York City for the sixth annual meeting of the Clinton Global Initiative (CGI).

I started CGI after going to thousands of meetings over my career where people talked about issues but did little to solve them. We ask all CGI members to make a commitment to take action, and this year’s attendees made nearly 300 new commitments valued at $6 billion. You can view highlights of the meeting here, and then take our quiz to see how these commitments, along with your support, are improving lives around the world.

Earlier this month, we hosted our most recent Millennium Network Event – this time in Brooklyn, New York – to engage the next generation of philanthropists. This wonderful evening included performances from Chaka Khan and Talib Kweli.

Sign up today to become a part of this growing network.

Thank you for your support.

Bill Clinton


President Bill Clinton in Haiti

February 23, 2010

Earlier this month, President Bill Clinton made his second trip to Haiti since the catastrophic earthquake in January 2010.

Thanks to the tremendous outpouring of support from thousands of individuals and donations from generous businesses, President Bill Clinton delivered relief supplies including water, food, medical supplies, tents, solar flash lights, portable radios and generators on behalf of the Clinton Foundation.

We were able to capture some brief video footage of President Bill Clinton’s visit as he unloaded supplies and met with Haitian and UN officials to help begin the process of recovery and reconstruction.


Geneva Summit for Human Rights, March 8-9, 2010

February 3, 2010

Human rights NGOs from around the globe have joined hands to organize the 2nd Geneva Summit for Human Rights, Tolerance and Democracy.

To take place on March 8-9, 2010 – in parallel and to enhance the main annual session of the UN Human Rights Council – this unique assembly of renowned human rights defenders, dissidents and experts will feature victim testimonies, shine a spotlight on urgent human rights issues and situations, and call on governments to guarantee freedom of the internet for democracy and human rights activists.

INTERNET FREEDOM The Google-China Case, Censorship and Hacking: Entrepreneurs & Dissidents Debate

DEFENDING ETHNIC MINORITIES Rebiya Kadeer, Nobel Peace Prize nominee, Uighur human rights hero

ATROCITIES IN SUDAN Jan Pronk, former UN Secretary-General Special Representative in Sudan

EQUALITY FOR WOMEN Massouda Jalal, former Afghan Minister of Women Affairs, first female presidential candidate

THE FUTURE OF DISSENT Yang Jianli, 1989 Tiananmen Square Hero, founder of Foundation for China in the 21st Century

•THE BURMESE JUNTA vs. AUNG SAN SUU KYI  Bo Kyi, Burmese dissident and 2008 winner of Human Rights Watch Award

COMBATING CONTEMPORARY SLAVERY Simon Deng, former Sudanese Slave

OPPRESSION IN TIBET  Phuntsok Nyidron, Buddhist nun, longest-serving Tibetan political prisoner, jailed for recording songs of freedom, winner of 1995 Reebok Human Rights Award

NON-VIOLENT PROTEST Matteo Mecacci, Italian MP, OSCE Rapporteur on human rights and democracy, activist

REPRESSION IN LATIN AMERICA  Tamara Suju, Venezuelan human rights lawyer

PRISONER FROM BIRTH Donghyuk Shin, survivor of North Korean prison camp

•“DEFAMATION OF RELIGION” vs. FREE SPEECH Owais Aslam Ali, Secretary General of Pakistan Press Foundation


Bill Clinton’s Report from Haiti

January 19, 2010

Dear Friend,

Yesterday I traveled to Haiti to deliver emergency supplies, see the conditions on the ground first-hand, and meet with government officials.

I wish you could have seen what I saw. Haitians were performing surgeries at night, without lights, with no anesthesia, using vodka to sterilize equipment. It’s astonishing what they’ve been able to accomplish in such devastating conditions.

We delivered the first of the supplies made possible by your support – generators, gas cans, solar flashlights, bottles of water, food, and medicines. You can be assured that your donations are being put to good use. We’ve already distributed more than $3 million to 12 organizations on the ground.

Only with your continued generosity will we be able to sustain these efforts and save more lives. Please make a donation of any size today:

www.clintonfoundation.org/haitiearthquake

Even after this earthquake, I believe Haiti has the best chance in my lifetime to escape its history – a history that Hillary and I have been able to share in a small way.

It’s going to take a lot of help and a long time, but they can build a better future if we do our part.

Thank you for your compassion and commitment to the people of Haiti,

Bill Clinton
UN Special Envoy for Haiti


A message from Bill Clinton, United Nations Special Envoy for Haiti

January 12, 2010

Today, our thoughts and prayers are with the people of Haiti who are recovering from a devastating earthquake. Buildings have collapsed, thousands of people are missing, and many are presumed homeless.

My UN office and the rest of the UN system are monitoring the situation. While we don’t yet know the full impact of this 7.0-magnitude earthquake, we do know that the survivors need immediate help.

There’s a way you can help Haiti recover and rebuild right now.

Click here to make a donation and find information on other organizations providing emergency relief efforts.

Approximately 2 million people live in the capital of Haiti and the surrounding areas where the disaster struck.

What we do in these first 48 hours determines how many lives we can save. Together, we can help communities get back on their feet.

I have long been committed to helping Haiti “build back better” from the 2008 hurricanes and prepare for future disasters. Haiti, the poorest country in the Western Hemisphere, now needs our assistance more than ever.

Help provide immediate relief and long-term support to earthquake survivors by making a donation today:

www.clintonfoundation.org/haitirelief

Thank you for joining me in praying for the people of Haiti and bringing hope to the survivors. Working together, we can help them build back stronger and better.

Bill Clinton
UN Special Envoy for Haiti

P.S.: For missing family, please call the U.S. State Department hotline at 1-888-407-4747. To submit or request situation or survivor information, visit www.haiti.ushahidi.com.


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