Friday, March 28, 2008

U.S. Economy: Spending Slows, Confidence Weakens

U.S. Economy: Spending Slows, Confidence Weakens

By Bob Willis

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Spending by American consumers, who have sustained the economy amid housing's worst downturn in a generation, rose in February at the slowest pace in more than a year.

The 0.1 percent increase in purchases followed a 0.4 percent gain in January, the Commerce Department said today in Washington, matching economists' projections. The report also showed the Federal Reserve's most closely watched measure of inflation cooled. Meanwhile, the Reuters/University of Michigan index of consumer sentiment fell to a 16-year low.

Falling home prices, job losses and higher gasoline prices are driving down consumer spending, which accounts for more than two thirds of the economy. Just as the figures were released in Washington, J.C. Penney Co., the third-largest U.S. department- store chain, cut its sales and earnings forecasts.

``The momentum is still down and I expect we will see negative spending numbers in the second quarter,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``It's almost a done deal that inflation pressures will soon fade. Recessions invariably lead to lower inflation.''

The consumer sentiment index decreased to 69.5 in March, from 70.8 in February and down from a preliminary reading of 70.5. The figure was less than analysts anticipated.

Treasury notes strengthened, with the benchmark 10-year note yielding 3.44 percent at 4:25 p.m. in New York, down from 3.53 percent late yesterday. The Standard & Poor's 500 Retailing Index closed 2.7 percent lower at 379.58.

`Much Too Slow'

``Regardless of what you call it, it's a period of growth that's much too slow relative to what we'd like to see,'' Boston Fed President Eric Rosengren said today after a speech in Seoul.

Incomes rose 0.5 after a 0.3 percent increase the prior month, today's report showed. The median forecast was for a gain of 0.3 percent. An increase in government Medicare prescription- drug payments boosted the figure. Wages and salaries rose just 0.3 percent after a 0.5 percent gain in January.

The report's measure of overall prices rose 0.1 percent and was up a less-than-forecast 3.4 percent in the year ended in February.

The core price measure, which excludes food and fuel and is the Fed's preferred gauge, rose 0.1 percent last month and was up 2 percent from February 2007, Commerce said. The year-over-year increase matched the downwardly revised gain in January.

Price Increases Contained

The deceleration put it at the bottom of the Fed's 2 percent to 2.2 percent forecast for this year.

``It allows the Fed to cut rates, should they choose to, going forward,'' Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview.

The savings rate improved to 0.3 percent from a minus a 0.1 percent the prior month. A negative rate indicates consumers drew down savings to maintain spending.

Adjusted for the increase in prices, spending was unchanged in February after increasing 0.1 percent.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, increased 0.2 percent. Purchases of non-durable goods decreased 0.1 percent and spending on services, which account for almost 60 percent of all outlays, was unchanged.

The biggest job losses in five years and record fuel costs are eroding confidence and spending. The economy lost 85,000 jobs in the first two months of the year, the biggest back-to-back drop since 2003.

Slowest Since 1991

Consumer spending will grow at a 0.5 percent pace in the first quarter, the slowest rate since the 1991 recession, according to a Bloomberg survey of economists taken the first week of March.

More and more economists are forecasting a recession as job, retail sales and manufacturing data have deteriorated this year. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said this month that a contraction had already begun.

Seeking to ease credit, restore confidence in financial markets and cushion the slowdown, the Fed last week lowered the benchmark overnight lending rate between banks by three-quarters of a percentage point to 2.25 percent.

Consumer Concerns

``Consumers are growing increasingly concerned about the economic outlook and their future finances,'' Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said in an interview with Bloomberg Television. ``They're concerned about the labor market, they are being hit by falling home prices, and financial markets have been quite turbulent.''

Wages also aren't keeping up with inflation. Adjusted for prices, hourly earnings for the 12 months through February fell 0.8 percent, according to figures from the Labor Department.

General Motors Corp. and Ford Motor Co. are among companies experiencing the slump in consumer demand first hand. Cars and light trucks sold at an average 15.25 million annual pace in the first two months of the year, the weakest two-month pace since 1998.

``It feels like there is a recession,'' Troy Clarke, GM's North American chief, told reporters in Atlanta on March 11.

U.S. Stocks Decline, Led by Banks, Retailers, in Worst Quarter Since 2002

U.S. Stocks Drop, Led by Banks, Retailers; Citigroup Tumbles

By Elizabeth Stanton

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U.S. stocks fell, extending the worst quarterly slump since 2002, as J.C. Penney Co. forecast weaker sales and concern grew that further writedowns may jeopardize banks' access to capital.

J.C. Penney, the third-largest U.S. department-store chain, slipped to a two-month low after saying slower consumer spending will hurt first-quarter earnings. Citigroup Inc. tumbled on a prediction by Oppenheimer & Co.'s Meredith Whitney that the biggest U.S. bank lacked sufficient cash to maintain its $1.28 annual dividend. The market erased earlier gains sparked by speculation new phones will boost results at Apple Inc.

The Standard & Poor's 500 Index, which swung between gains and losses at least 10 times, ended down 10.54 points, or 0.8 percent, at 1,315.22 and lost 1.1 percent in the week. The Dow Jones Industrial Average declined 86.06, or 0.7 percent, to 12,216.4. The Nasdaq Composite Index decreased 19.65, or 0.9 percent, to 2,261.18. Five stocks fell for every two that rose on the New York Stock Exchange.

``We are still in a pretty negative sentiment environment,'' Edgar Peters, chief investment officer at Boston- based PanAgora Asset Management, which oversees $25 billion, said in an interview on Bloomberg Radio. ``There is just so much uncertainty out there. It's difficult to be bullish or buy unless you have really strong nerves.''

The S&P 500 has lost more than 10 percent this year, its biggest quarterly drop since an 18 percent tumble in the third quarter of 2002 after telephone company WorldCom Inc. filed the largest-ever U.S. bankruptcy. The benchmark for U.S. equities, which fell 3.8 percent in the last three months of 2007, hasn't suffered back-to-back quarterly declines since 2002.

European shares dropped today on concern an economic slowdown will erode earnings, while Asian stocks completed their biggest weekly gain of the year.

Consumer Concern

J.C. Penney tumbled $3.04, or 7.5 percent, to $37.48. Same- store sales will decline in the quarter, J.C. Penney said. Profit will be about 50 cents a share, less than the 75 cents to 80 cents it previously predicted, the company said.

``J.C. Penney, being a pretty fair proxy for consumer spending, suggests the consumer's pulling back,'' said Steven Neimeth, who manages about $750 million at AIG SunAmerica Asset Management Corp. in Jersey City, New Jersey. ``That has implications for technology and financials as consumer credit may be getting squeezed.''

Retailers in the S&P 500 fell 2.7 percent, the third- biggest drop among 24 industry groups. Target Corp. lost $1.29 to $49.69. Kohl's Corp. dropped $2.19 to $42.33. Macy's Inc. decreased $1.39 to $21.97.

Financials Slump

Financial shares in the S&P 500 slumped for a fourth day and are set to post their third-straight quarterly decline for the first time in the history of the current classification system, which dates back to 1989.

Citigroup slumped 96 cents, or 4.4 percent, to $20.83. Whitney said ``earnings headwinds'' may force a second reduction in the stock's payout. Whitney correctly predicted Citigroup would reduce its dividend two months before the New York-based bank announced its first-ever dividend cut in January.

Citigroup spokeswoman Shannon Bell declined to comment on Whitney's report.

Bank of America Corp., the second-biggest U.S. bank, and Wachovia Corp., the fourth-biggest, also may cut their dividends, Whitney said. Bank of America slipped 57 cents to $38.07. Wachovia declined $1.08 to $25.99.

Morgan Stanley

Morgan Stanley fell 95 cents to $44.74. The second-largest U.S. securities firm is in talks with lenders to obtain a reduced credit backstop for its commercial paper after cutting the outstanding short-term debt to $16 billion at the end of March from an average of $25.3 billion last year, a spokesman said.

Morgan Stanley is seeking $7.5 billion to replace $11 billion of credit that expires on April 16, Reuters reported earlier today, citing unidentified sources close to the situation. Lenders are only willing to extend about $4.9 billion, Reuters said.

Fannie Mae and Freddie Mac fell after their regulator said the government-chartered mortgage companies may raise as much as $20 billion in capital as part of an agreement that allows them to buy more debt securities. Fannie Mae lost $1.95 to $26.02. Freddie Mac dropped $1.63 to $25.45.

`Reality Is Setting In'

``Reality is setting in among investors that banks are going to be forced to find other ways to rebuild their balance sheets,'' said Walter ``Bucky'' Hellwig, who oversees about $30 billion at Morgan Asset Management in Birmingham, Alabama.

Shares also slumped after the Commerce Department said spending by U.S. consumers rose at the slowest pace in more than a year in February, a sign the economy may be in recession. The 0.1 percent advance in spending followed a 0.4 percent gain in January.

The Reuters/University of Michigan index of consumer sentiment decreased to 69.5 from 70.8 in February. The measure is the lowest reading since February 1992 and compares with a preliminary report of 70.5 released March 14.

Apple added $2.76 to $143.01, its fifth advance in six days. The company may start selling iPhones with faster Internet connections in the second quarter, increasing earnings, Bank of America Corp. analyst Scott Craig wrote in a note to investors.

Bear Drops

Bear Stearns Cos. fell 45 cents, or 4 percent, to $10.78. Chairman James ``Jimmy'' Cayne sold 5.6 million shares, or his entire stake in the securities firm for $10.84 each on March 25, according to a regulatory filing. The move signaled a higher bid for the company from JPMorgan Chase & Co. is unlikely, analysts said.

Apollo Group Inc. tumbled $15.13, or 27 percent, to $41.21, the most since its 1994 initial public offering. The owner of the for-profit University of Phoenix said that, excluding some items, it earned 41 cents a share in the fiscal second quarter, less than the 52-cent average estimate of analysts in a Bloomberg survey.

Red Hat Inc. rose 96 cents, or 5.5 percent, to $18.49. The world's biggest seller of Linux software said fourth-quarter profit rose 7.4 percent, more than analysts estimated, after customers renewed subscription contracts.

Tenet Healthcare Corp. climbed 21 cents, or 4 percent, to $5.51, for the biggest gain in the S&P 500. The second-largest publicly held U.S. hospital chain will probably beat some analysts' forecasts for first-quarter results because of ``solid pricing, seasonably strong volume growth and good cost control,'' Deutsche Bank AG analysts including Darren Lehrich wrote in a note, after meeting with the company's management.

Alcoa, Heinz Gain

Alcoa Inc. added 73 cents, or 2.1 percent, to $36.11, for the biggest gain in the Dow average. Lehman Brothers Holdings Inc. raised its recommendation for the world's third-largest aluminum producer to ``overweight'' from ``equal-weight.'' The ``downside risk'' to aluminum prices is less than for other commodities, analyst Peter D. Ward wrote in a note today.

H.J. Heinz Co. added 79 cents, or 1.7 percent, to $46.89, the highest since Jan. 10. The world's biggest ketchup maker was upgraded to ``outperform'' from ``market-perform'' at Sanford C. Bernstein & Co. The brokerage increased its price target on the stock by 6 percent to $56.

The Russell 2000 Index, a benchmark for companies with a median value 95 percent less than the S&P 500's, fell 1.3 percent to 683.18. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.8 percent to 13,255.14. Based on its decline, the value of stocks decreased by $135.9 billion.

Investment Firms Tap Fed for Billions

Investment Firms Tap Fed for Billions

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WASHINGTON (AP) - Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday.

Those firms averaged $32.9 billion in daily borrowing over the past week from the new lending facility, compared with $13.4 billion the previous week. The program, which began last Monday, is part of the Fed's effort to aid the financial system.

On Wednesday alone, lending reached $37 billion.

The Fed, for the first time, agreed on March 16 to let big investment houses temporarily get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.

Last week, Goldman Sachs, Lehman Brothers and Morgan Stanley (MS) said they had begun to test the new lending mechanism. The Fed does not release the identity of the borrowers using the facility.

The Fed created a way for investment firms to have regular access to a source of short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.

Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

WASHINGTON (AP) - Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans.

The central bank says those firms averaged $32.9 billion in daily borrowing over the past week from the Fed's new lending facility. The report Thursday does not identify the borrowers.

The lending program is part of the Fed's major effort to help the financial system.

) - Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday.

Those firms averaged $32.9 billion in daily borrowing over the past week from the new lending facility, compared with $13.4 billion the previous week. The program, which began last Monday, is part of the Fed's effort to aid the financial system.

On Wednesday alone, lending reached $37 billion.

The Fed, for the first time, agreed on March 16 to let big investment houses temporarily get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.

Last week, Goldman Sachs, Lehman Brothers and Morgan Stanley (MS) said they had begun to test the new lending mechanism. The Fed does not release the identity of the borrowers using the facility.

The Fed created a way for investment firms to have regular access to a source of short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.

Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

WASHINGTON (AP) - Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans.

The central bank says those firms averaged $32.9 billion in daily borrowing over the past week from the Fed's new lending facility. The report Thursday does not identify the borrowers.

The lending program is part of the Fed's major effort to help the financial system.

All Indicators Pointing Down

All Indicators Pointing Down

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This week’s economic news didn’t leave a lot of reason to start the weekend smiling. Whether it be the revised fourth-quarter U.S. Gross Domestic Product (GDP) figures, a falling consumer confidence report, plummeting home prices, drastic Federal Reserve intervention in the financial markets, or a volatile stock market, the American economy seems to be living out an old saying: things get worse before they get better. Examining this past week in the context of the new GDP numbers is helpful in understanding exactly where the economy stands today -- and how much it needs to improve. The revised fourth-quarter numbers were as expected, confirming what many economists have been predicting -- that growth in the last three months 2007 was virtually unchanged from the previous quarter, sitting near zero at 0.6 percent. The numbers are even more disappointing when looking at the past 12 months; growth slowed to 2.2 percent over the entire year, the slowest pace since 2002. If one were to argue six months ago that the American economy was not faltering, it may be possible to scrape together the numbers to prove the point. But yesterday’s announcement shows that American economic future may have storm clouds ahead. This is just the opening salvo to slower economic growth.

RIPPLES THROUGH THE ECONOMY: A further breakdown of yesterday’s report reveals the magnitude of the crisis. Real personal spending rose just 1.9 percent from a three percent average over the last year, showing that consumer confidencehas reached rock-bottom lows. CNN reported, "The [consumer confidence] indicator, which is based on a survey of 5,000 U.S. households, fell 11.9 points from February to a five-year low of 64.5. Analysts had predicted a reading of 73.0, and the rapid decline in confidence could affect consumer spending significantly in the coming months." The Conference Board, which publishes this index, didn’t mince words, either. "The decline in the Present Situation Index implies that the pace of growth in recent months has weakened even further. Looking ahead, consumers’ outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon." Another component of GDP worth highlighting is the drop in residential investment, which sank 25 poercent, the largest quarterly dive since the fourth-quarter of 1981. On Tuesday, new reports revealed that U.S. home prices had taken their steepest drop since the indicator was first used in 1987. Falling 11.4 percent in January alone, the decline reported in the Standard & Poor’s/Case-Shiller index shows that for the past 19 months, prices have been consistently faltering. The numbers for Gross Domestic Purchases -- the total value of goods and services bought by Americans -- fell by 0.4 percent from last quarter’s figure, the first time since 2001 there has been a decrease in the total worth of American consumption.

THE DOMESTIC CONSENSUS: Mainstreet America is increasingly feeling the economic squeeze. In Ohio, "a record 1.1 million Ohioans Caseloads have almost doubled since 2001, when an estimated 628,000 people were in the program," according to the Ohio Department of Job and Family Services. In West Virginia, "about one in every six West Virginians gets food stamps, the highest level of participation in at least 30 years." In Oklahoma, "after 18 months of steady declines, the number of Oklahomans receiving food stamps increased in February compared with the same month a year earlier. Food stamps were distributed to 417,624 Oklahomans in February 2008, compared with 416,622 in February 2007." "More than one out of every three Oklahoma children received food stamps at least one month during the past year," said Howard Hendrick, director of the state Department of Human Services. "The February increase is a bad sign, since food stamps are considered a leading economic indicator," Hendrick said. are getting food stamps, the state’s welfare agency said. "That’s about 10 percent of the state’s population.

HOW LONG WILL IT LAST?: Looking through the lens of fourth-quarter GDP numbers only confirms what America already knows: the U.S. economy is shaking. Tighter credit, declines in housing, and plunging consumer and business confidence have greatly increased the risks for slower growth, while skyrocketing oil prices have been felt heavily by the sagging U.S. labor market. Treasury Secretary Henry Paulson, in a speech he delivered Wednesday, pointed towards another leading economic indicator: new home construction. "Data releases every month creates headlines about declining housing sales, starts and prices," he said. "Yet declines are exactly what we should expect during a correction? The question many are asking is how deep the correction will be and how long it will last."

Silverstein Sues To Win $12.3 Billion For 9/11

Developer Sues to Win $12.3 Billion in 9/11 Attack

Larry A. Silverstein, who has won nearly $4.6 billion in insurance payments to cover his losses and help him rebuild at the World Trade Center site, is seeking $12.3 billion in damages from airlines and airport security companies for the 9/11 attack.

Mr. Silverstein, the developer of ground zero, sought the damages, whose amount was not previously known, in a claim filed in 2004, that says the airlines and airport security companies failed to prevent terrorists from hijacking the planes used to destroy the buildings.

His case was consolidated last week with similar, earlier lawsuits brought by families of some victims of the attack and by other property owners. But in seeking $12.3 billion, he is by far the biggest claimant in the litigation.

The size of Mr. Silverstein’s claim was revealed last week at a status conference on the litigation in United States District Court in Manhattan.

The claims by the parties involved total about $23 billion, and Mr. Silverstein’s claim for such a large chunk could jeopardize claims from other businesses and property owners, according to defense lawyers. A lawyer for the victims’ families, Donald Migliori, said he was confident that their claims would not be affected because they would take priority over the property claims.

A lawyer for the airlines, Desmond Barry, said that if Mr. Silverstein won his claim, he could push the total claims beyond the amount of insurance that the airlines and security companies have available. "There ain’t that much insurance," Mr. Barry said.

The federal government has capped the liability at the amount of available insurance, to avoid bankrupting the airlines. The exact amount of insurance available is still being explored in the court proceedings.

Richard A. Williamson, a lawyer for Mr. Silverstein, said at the court conference on March 18 that Mr. Silverstein was seeking damages to compensate him for continuing losses at the site. Mr. Silverstein, through his company, World Trade Center Properties, has a 99-year lease, worth $3.2 billion, on four buildings at the site, including the fallen twin towers. He signed the lease in July 2001, just six weeks before the attack.

Since the attack, Mr. Silverstein has been paying rent to the Port Authority of New York and New Jersey on towers that no longer exist, his lawyer told the judge, Alvin K. Hellerstein. Mr. Williamson said that his client had also lost rental income from about 400 tenants.

Dara McQuillan, a spokesman for Mr. Silverstein, said that the $12.3 billion represented $8.4 billion for the replacement value of the destroyed buildings and $3.9 billion in other costs, including $100 million a year in rent to the Port Authority and $300 million a year in lost rental income, as well as the cost of marketing and leasing the new buildings.

Mr. Barry, speaking for the airlines, contended that Mr. Silverstein had been more than compensated by the nearly $4.6 billion insurance settlement, reached after almost six years of litigation. He argued that Mr. Silverstein was entitled to the market value of the property, which he said had been established by the $3.2 billion lease.

Judge Hellerstein expressed skepticism about Mr. Silverstein’s claim, and asked why he had not stemmed his losses by just "walking away."

Turning to Mr. Williamson, Judge Hellerstein asked: "What’s the nature of your recovery?"

To which Mr. Williamson replied, "For damages suffered by the events of 9/11, not value. Damages."

Mr. Williamson said that the lease required Mr. Silverstein to rebuild and to continue paying rent.

"And so I’m putting to you if you walked away from the lease, you would lose the value of the lease," Judge Hellerstein said. "Would you have a further obligation to pay money?"

Mr. Williamson replied, "You have to examine that question. "But to me that’s not the test of what are our damages."

Judge Hellerstein pressed Mr. Williamson to put a dollar figure on the damages. "I don’t think it’s necessary to know the precise amount," the judge said. "I think some order of magnitude would be appropriate."

When Mr. Williamson balked, Mr. Barry jumped in.

"I think their claim is $12.3 billion," he said.

"Plus prejudgement interest," Mr. Williamson confirmed.

To which the judge tartly replied, "We shouldn’t forget that."

Judge Hellerstein ordered Mr. Silverstein to provide more documentation of his claim, or risk losing it.

Mr. McQuillan, the spokesman for Mr. Silverstein, said on Wednesday the developer felt both an obligation under his lease and a moral obligation to rebuild, rather than walk away. He said that the insurance companies who paid him would be repaid if he prevails.

Plaintiffs also revealed that after a spate of settlements, there are seven wrongful death cases and two injury cases remaining, out of more than 90 filed.

Those who sued represent just a small fraction of the casualties on Sept. 11. Most of the victims of the attack and their families chose to take the compensation offered through a federal fund, forgoing their right to sue.

Mr. Migliori, the lawyer for victims’ survivors, said he believed that the claimants with property-damage claims — including Mr. Silverstein and some insurance companies trying to recoup their payments — would allow the death and injury cases to get priority in payment of damages.

The judge declined to set any trial date in the case, saying that it would be "fictitious," but set a fact-finding deadline at the end of this year. Any trials in the case appear to be more than a year away.

Occupations Are Not Won. They Are Ended

Occupations Are Not Won. They Are Ended

By John Perry

Five years, four thousand dead troops, more than one million dead Iraqis.

And not only are we still waiting to hear what the "noble cause" is, but we have yet to hear a definition of victory, or how we'll know when we've achieved it.

What's happening in Iraq is NOT a war. It's an illegal occupation following the illegal invasion of a country that posed no threat to the United States.

Occupations are not won. They are ended. Which is why the Bush administration is calling it a war.

Please check out the links and pass it on. THIS INSANITY MUST END.

2006 Johns Hopkins Iraq mortality study, conducted in conjunction with Al Mustansiriya University in Baghadad

Just Foreign Policy site - Numbers updated, approximate running total of Iraqi deaths

ORB Study -- Updated January 2008

Iraq Veterans Against the War -- Winter Soldier page

The Real News -- Check out their Winter Soldier Coverage and get on their mailing list

When a Great Power Goes Mad

When a Great Power Goes Mad

With the fifth anniversary of the Iraq War and the grim milestone of 4,000 U.S. dead, the nation has been awash with news retrospectives on the war and speeches by politicians, mostly offering sanitized versions of what's transpired.

With a few exceptions, these media/political reflections have had the feel of self-rationalizations, more than self-criticisms. They’ve conveyed a sense that the U.S. system is doing just fine, thank you, although a few mistakes were made.

So, you have President George W. Bush, the chief author of this catastrophic war, declaring that “normalcy is returning back to Iraq” even as fighting rages across much of the country and rockets rain down on the highly fortified Green Zone in Baghdad.

Bush’s comment invited comparisons to the acronym coined by U.S. Army soldiers during World War II: SNAFU for “situation normal, all fucked up.”

In the news media, there were specials, including a much-touted PBS Frontline two-parter on “Bush’s War” which followed the mainstream line of mostly accepting the Bush administration’s good intentions while blaming the disaster on policy execution – a lack of planning, bureaucratic rivalries, rash decisions and wishful thinking.

The chief interviews for the program were with former Bush administration officials and with journalists – such as Michael Gordon and John Burns of the New York Times whose influential reporting helped set the stage for the war – and with Bob Woodward, whose Bush at War was a generally flattering account of Bush’s decision-making.

Remaining outside the frame of mainstream U.S. debate was any serious examination of the war’s fundamental illegality.

During the post-World War II trials at Nuremberg, the United States led the world in decrying aggressive war as “the supreme international crime differing only from other war crimes in that it contains within itself the accumulated evil of the whole.”

Yet, Frontline and other mainstream U.S. news outlets shy away from this central fact of the Iraq War: by invading Iraq without the approval of the U.N. Security Council and under false pretenses, the Bush administration released upon the Iraqi people “the accumulated evil of the whole” – and committed the “supreme” war crime.

An obvious reason why the mainstream U.S. press can’t handle this truth is that to do so would mean that President Bush, Vice President Dick Cheney, a host of other U.S. officials and even some prominent journalists could be regarded as war criminals.

To accept that reality would, in turn, create a moral imperative to take action. And that would require a great disruption in the existing U.S. power structure, which hasn’t changed much since Bush won authorization from Congress in October 2002 to use force and then invaded Iraq in March 2003.

Not only are Bush and Cheney still in office – and two of the three remaining presidential candidates, John McCain and Hillary Clinton, voted for the war – but the roster of top Washington journalists remains remarkably intact from five years ago.

Iraq War hawk Fred Hiatt still runs the Washington Post’s editorial pages where you can still read the likes of Charles Krauthammer, David Ignatius, Richard Cohen and a bunch of other columnists who pushed for the war.

The same is true for the New York Times’s op-ed page, where writers like Thomas Friedman have prospered despite their erroneous war judgments and where one of the few changes has been to recruit prominent neoconservative William Kristol, who has used his column to chide Americans who won’t hail Bush’s courageous war leadership.

Deeper Trends

In evaluating this corrupt political/media elite, a historian might want to go back even further and wonder how someone as eminently unqualified and unfit as George W. Bush became president of the most powerful nation on earth.

How did a technologically sophisticated country like the United States with a relatively free press get led down this dangerous path? Why did so many American voters in 2000 believe made-up stories about Al Gore’s supposed delusions, like the apocryphal quote, “I invented the Internet”?

Indeed, how did a seemingly endless supply of myths and half-truths take root in the American psyche?

Going back even a bit further, how were Americans sold on the happy tales of Ronald Reagan’s presidency as the blood of U.S.-supported dirty wars in Central America and elsewhere was washed from the nation’s memory bank?

Why in a media environment with 24-hour cable news programming has intelligent dissent against U.S. foreign policy been so marginalized and excluded? Why are editors and producers so afraid of allowing some of these voices to be heard? How has such a destructive “group think” been allowed to take hold?

One of the obvious answers is fear – at least fear that one’s career would be irreparably damaged by wandering too far outside the safety of the herd.

And while running with that herd, it’s understood that there’s much greater safety in veering right, given the well-funded conservative attack groups that have devoured the careers of many independent-minded journalists who refused to bend.

(I’ve tried to address this history in my books, including Lost History, Secrecy & Privilege and Neck Deep, as well as at

Well-Spoken Madness

While many Americans – both inside and outside Washington – recognize these real-world constraints on how politicians and journalists address issues, the larger consequences are less understood.

What these trends have done over the past three decades is not just shift the dominant U.S. political/media system to the right. Nor have they just constructed a “group think” that excludes reasonable points of view that challenge the conventional wisdom.

The cumulative effect of this willful conformity and this informal censorship has been to engender a form of collective madness at the decision-making levels of the U.S. government -- and within the upper echelons of the news media.

But it is a flexible form of insanity in which reality is alternatively banished – as it was in the early phases of the Iraq War, from WMD "mushroom clouds" through "Mission Accomplished" – and then is brought in for retooling when matters get too far out of control, when the jarring gap between the official line and the truth starts to destabilize the national political consensus.

In listening to the measured tones of the Frontline narration – not to mention the well-dressed ex-government officials and the well-spoken mainstream journalists – I was left with the feeling that a new synthetic “reality” was being lowered in to replace the older discredited version.

It was as if the bloody madness that President Bush inflicted on the people of Iraq – aided and abetted by many witting and unwitting American accomplices – was being drained of its crimson hue and stripped of its human horrors.

Forget the hundreds of thousands of Iraqi dead and maimed. Forget the innumerable lives destroyed and the millions displaced. Forget the bizarre forms of torture at Abu Ghraib and the widespread mistreatment of detainees at other Iraqi prisons.

After all, we were being told, the war’s architects were honorable and reasonable men and women who were trying to do the right thing, but sadly they were undermined by bureaucratic inertia, back-biting and, yes, incompetence. It was just one big SNAFU.

But, with a few changes here and there – a new general or two, a tweaked counter-insurgency strategy, some more U.S. soldiers and a bit more patience – everything will work out just fine.

No need for national guilt. No need for accountability. No reason to purge the editorial offices of leading newspapers and TV networks. No reason to talk about impeachment or war-crimes tribunals for committing the "supreme" crime against world peace. No need for any of that.

As President Bush said on March 27, “normalcy is returning back to Iraq,” if you don't take note of the mayhem all around. One might add that a similar form of “normalcy is returning back to Washington,” if you don't take note of all the lies and the self-deceptions.

Tapes' Destruction Hovers Over Detainee Cases

Tapes' Destruction Hovers Over Detainee Cases

By Mark Mazzetti and Scott Shane

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Washington - When officers from the Central Intelligence Agency destroyed hundreds of hours of videotapes documenting harsh interrogations in 2005, they may have believed they were freeing the government and themselves from potentially serious legal trouble.

But nearly four months after the disclosure that the tapes were destroyed, the list of legal entanglements for the C.I.A., the Defense Department and other agencies is only growing longer. In addition to criminal and Congressional investigations of the tapes' destruction, the government is fighting off challenges in several major terrorism cases and a raft of prisoners' legal claims that it may have destroyed evidence.

"They thought they were saving themselves from legal scrutiny, as well as possible danger from Al Qaeda if the tapes became public," said Frederick P. Hitz, a former C.I.A. officer and the agency's inspector general from 1990 to 1998, speaking of agency officials who favored eliminating the tapes. "Unknowingly, perhaps, they may have created even more problems for themselves."

In a suit brought by Hani Abdullah, a Yemeni prisoner at Guantánamo Bay, Cuba, a federal judge has raised the possibility that, by destroying the tapes, the C.I.A. violated a court order to preserve all evidence relevant to the prisoner. In at least 12 other lawsuits, lawyers for prisoners at Guantánamo and elsewhere have filed legal challenges citing the C.I.A. tapes' destruction, said David H. Remes, a Washington lawyer representing 16 prisoners.

"This is like any other cover-up," Mr. Remes said. "We've only scratched the surface."

Plans for the possible prosecution of another prisoner, Ali al-Marri, who has been held since 2003 in a naval brig in Charleston, S.C., could be in jeopardy after the Pentagon recently revealed that it had destroyed some tapes of Mr. Marri's interrogation. Other tapes showing rough treatment of Mr. Marri, which were discovered in a Pentagon review ordered after the C.I.A. revelations and have been preserved, could prove embarrassing if presented at his trial.

The destruction of tapes has also prompted challenges from lawyers for Zacharias Moussaoui, the convicted Qaeda operative who had unsuccessfully sought testimony at his trial from Abu Zubaydah, one of the two Qaeda suspects whose interrogation videotapes were destroyed in November 2005. At that time, a defense motion seeking records of Abu Zubaydah's interrogation was pending before a federal court in Virginia.

This motion in the Moussaoui case, among other legal challenges, has raised questions about a statement in December by the C.I.A. director, Gen. Michael V. Hayden, that he understood the tapes were destroyed only after it was determined that they were "not relevant to any internal, legislative, or judicial inquiries."

A C.I.A. spokesman, Paul Gimigliano, said General Hayden "certainly stands by his statement." He added: "The C.I.A. has been cooperating with the Department of Justice, the courts and the Congress. The reviews of this matter are not complete, and it is only fair to let them conclude before trying to draw conclusions from them or about them."

Officially, the C.I.A. has said that the tapes were destroyed primarily because of concerns that their public exposure could endanger the safety of C.I.A. officers. But in interviews in recent months with several officers involved in the decision, they said that a primary factor was the legal risks that officers shown on the tape might face.

Lawyers involved in the cases said it still appeared unlikely that a terrorist suspect could go free as a result of the destruction of the videotapes. But they said that judges might decide to exclude evidence in some of the cases, potentially undermining the government's position and jeopardizing future prosecutions.

All of the court challenges are playing out against the backdrop of the criminal investigation, led by a veteran prosecutor, John H. Durham, who is examining whether destruction of the tapes was an illegal obstruction of justice. A separate investigation by the House Intelligence Committee will soon begin interviewing officials from the White House and the C.I.A., possibly under subpoena, about their roles in the destruction of the tapes.

Congressional officials said that among the White House officials they intend to interview are David S. Addington, chief counsel for Vice President Dick Cheney, and former Attorney General Alberto R. Gonzales. The list of current and former C.I.A. officials includes the former C.I.A. directors George J. Tenet and Porter J. Goss as well as several C.I.A. lawyers who gave legal advice about the tapes.

Little is known about the progress of the criminal investigation led by Mr. Durham. But his team has interviewed members of the Sept. 11 commission, including Philip D. Zelikow, the panel's former executive director, as part of an inquiry into whether the C.I.A. broke the law by withholding the tapes from the commission.

Mr. Hitz, the former C.I.A. inspector general, said the government's legal woes could be traced to what he believed was an unwise decision to use harsh physical pressure during interrogations. Those techniques had Justice Department approval. But a public backlash set in, which was a factor in the C.I.A.'s decision to destroy the tapes in late 2005.

By then, the C.I.A.'s secret detention program was tied up in a complex web of legal claims and counterclaims.

Beyond that, Mr. Durham, the prosecutor, has found 17 court orders in 21 lawsuits that required preservation of evidence, and he has said in court papers that his team is investigating whether the tapes' destruction violated those orders.

One of the court orders, issued in July 2005 by Judge Richard W. Roberts of the Federal District Court in Washington, required the preservation of all evidence related to Hani Abdullah, the Yemeni prisoner at Guantánamo, who is accused of attending a Qaeda training camp in 2001 and other offenses. Judge Roberts said in a January order that Mr. Abdullah's lawyers had made a plausible case that Abu Zubaydah would have been asked about their client in interrogations.

Mr. Abdullah's lawyers, who are challenging his detention as an enemy combatant, assert that the tapes might have helped their case, either by showing Abu Zubaydah did not know their client or that anything incriminating he may have said resulted from harsh treatment.

The remaining tapes of Mr. Marri, the prisoner at the Charleston brig who is challenging his indefinite detention, could create legal headaches for Justice Department lawyers should they someday bring him to trial.

During any future trial, Mr. Marri's lawyers could show a jury interrogation tapes showing that he had been treated roughly. In addition, they could exploit the Pentagon's admission that it has destroyed some tapes of Mr. Marri's interrogation to make the case that the government withheld evidence from the defense.

Despite all the legal complications, those in the C.I.A. who got rid of the videotapes may have achieved one of their presumed goals: preventing a torture prosecution, said Deborah Colson, a senior associate at Human Rights First.

"It may be impossible to reconstruct any criminal conduct that was caught on the tapes," Ms. Colson said.

Ecuador: deepening crisis, floods trigger surge of inflation

Ecuador: deepening crisis, floods trigger surge of inflation

By Asher Brum
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In Ecuador, it is clear that inflation for the first quarter of this year is going to surpass the rate projected by the government for all of 2008, according to statistics from the country’s Central Bank. The principal causes of the inflationary surge are the financial crisis gripping Wall Street and climactic events, which have both served to expose the weaknesses of the Ecuadoran economy.

Ecuador’s National Institute of Statistics and Census (INEC) put the monthly inflation in January at 4.9 percent and in February at 5.10 percent. The government estimates for the two months had been 2.68 percent and 2.03 percent, respectively. In comparison with February 2007, which closed at 2.03 percent, the inflation rate has risen by more than 100 percent.

According to Maurício Ramírez, professor at the School of Economy and Business Sciences of the University of Espirito Santo, Ecuador is confronting a process of stagflation in which scarcities of basic food items are becoming evident. This has been caused, he said, by the government’s failure to deal with the effects of floods that had wiped out various crops. “It can easily be foreseen that this first quarter will surpass the government’s predictions for annual inflation, basically because of the high cost of food,” said Ramírez.

This inflationary effect, according to most estimates, could take months to stabilize. This is made clear by the soaring prices of basic foodstuffs, such as manioc, whose price has more than doubled, eggs, which went up 50 percent, and rice, which has risen by 14.2 percent. According to Ramírez, “There exists a direct inflationary effect as a result of the floods, principally upon basic foods. In April, it will be even worse, when inflation from education spending hits due to the school year resuming on the coast.” Ramírez insists that the government of President Rafael Correa should exercise better control over market prices. Such controls, he says, should be accompanied by inspections conducted by the police and other agencies, such as the municipalities and the Ministry of Health, to determine whether certain products that are stored for long periods, like rice and grains, are fit for sale and consumption.

Teresa Laso, director of the Institute of Economic Investigations of the University of Guayaquil, agrees with Ramírez, but is even less optimistic. “Ecuador is part of an inflationary wave that is sweeping all of Latin America,” she said. The impact of climactic events in Ecuador, Bolivia, Chile and Argentina and the fall of the dollar are the determining factors of this high inflation, she stressed.

Laso emphasized that importing agricultural products and selling them with subsidies (like wheat and rice) would not have any effect on lowering the inflation rate.

Ecuador’s floods were triggered by heavy and continuous rainfall that began in February and is expected to continue through May. Its results have been catastrophic, resulting in scores of deaths and hundreds of millions of dollars in property damage. More than 250,000 acres of farmland were flooded.

The torrential rains were caused by La Niña, a cooling of Pacific Ocean surface temperatures that can trigger dramatic and widespread changes in weather. Ecuador’s rains were the heaviest the country has seen in 25 years.

Natural disasters, like Ecuador’s floods, serve merely as an aggravating factor in this overall inflationary process, exposing the fragility of the capitalist market.

Ecuador’s plight is emblematic of the crisis confronting all of Latin America. In the face of the rapidly deepening crisis of the US economy, governments like that of Correa are unable to control the growing wave of inflation in their countries, which must inevitably give rise to sharpening social tensions and renewed class struggle.

Why the Clintons’ profiting off near-slavery is not a campaign issue

Why the Clintons’ profiting off near-slavery is not a campaign issue

By Bill Van Auken
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In the long run-up to the Pennsylvania primary, the Democratic campaign has descended ever deeper into a negative and personal mudslinging contest between the two remaining contenders, Hillary Clinton and Barack Obama.

Broadcast news cycles have become dominated by an unending stream of barbs and accusations from each side, the most prevalent of late dealing, on the one hand, with sermons delivered by the pastor of Obama’s church and, on the other, with Hillary Clinton’s flight of the imagination to Bosnia a dozen years ago.

It is curious that in this toxic political environment, the Obama campaign has steered clear of one revelation concerning the Clintons that surfaced earlier this month. The media has virtually ignored it as well.

Last month, agents of the Brazilian Labor Ministry’s slave-labor investigations unit raided facilities run by Brenco (Brazil Renewable Energy Co.), a biofuel company operating in the states of Goiás and Mato Grosso, where some 1,500 workers, most of them cane cutters, were kept in what the ministry described as “degrading” conditions akin to slavery.

Workers at five separate locations inspected by the ministry “complained they were suffering from hunger and cold, and all of the locations were overcrowded and with terrible sanitary conditions. They were apparently held against their will in the abysmal housing provided them, not allowed to leave after their workday was through.

Details of the raids first surfaced in Folha de São Paulo, Brazil’s largest newspaper, on March 8. Hundreds of workers freed in the raids managed to get their final wages and a bus ticket home, most of them returning to the impoverished northeastern states of Ceará, Maranhão and Piauí.

What was also revealed in the investigation was that former US president—and husband of the Democratic presidential candidate—Bill Clinton was an investor in the firm.

According to a financial disclosure form filed by Hillary Clinton last year, the couple’s stake in Brenco was valued at up to $50,000.

A Clinton spokesman described the investment as “small” and claimed that the ex-president had been assured that the Brazilian company was “committed to the highest ethical standard with regard to the treatment of its workforce and the environment.”

While $50,000 may be small for the Clintons—Hillary Clinton reported income as high as $12 million on her Senate disclosure form last May—it is more than an average American household earns in a year. And it would take the cane cutters whose labor is the base of Brenco’s profits 22 years to earn that much money—a physical impossibility given the exceedingly short life expectancy of those doing this back-breaking work.

Clinton’s feigned shock over the appalling working and living conditions of the Brenco workers is hardly credible. The grinding oppression of the some 200,000 cane cutters who are exploited by Brazil’s growing and highly profitable ethanol industry is hardly unknown. As a WSWS correspondent from São Paulo noted in an article last June on a cane cutter dying from overwork, these workers confront “a world of wage slavery in which the precarious conditions of labor have reduced the working life of the average cane cutter to below that of the slaves of the nineteenth century.”

As for Clinton’s faith that the industry was maintaining the “highest standards” in relation to the environment, this is merely laughable. The ethanol boom’s promotion of a sugarcane monoculture, the burning of fields and the dumping of waste threaten to unleash an ecological catastrophe.

The reality is that the Clintons’ investment in a slave-labor ethanol firm in Brazil is merely a manifestation of the way in which the couple have enriched themselves on the basis of political connections established while they were in the White House.

The investment was made through Yucaipa Co., a Los Angeles-based private equity firm, run by billionaire Democratic Party fundraiser and Clinton confidante Ron Burkle. Bill Clinton was hired by the firm as an “advisor” and is expected to get a payout of some $20 million when he leaves it, probably in the coming months.

This immense wealth flowing to the Clintons on the basis of their political connections is what made it possible for Hillary Clinton to plunk down $5 million of her own money to bail out a near-bankrupt campaign earlier this year.

Bill Clinton’s spokesman, Matt McKenna, told the Associated Press that the former president is “taking steps to ensure that there is an appropriate transition for his business relationships should Senator Clinton become the Democratic nominee.” According to some reports, one of these “steps” has included investing his money in Yucaipa’s Cayman Island-based firms, a tactic used to avoid paying taxes.

The Brenco investment was no accident, but clearly something offered to the well connected with the expectation of super-profits. The company was founded by Henri Philippe Reichstul, the former chief executive of Brazil’s powerful state-owned oil firm, Petrobras. According to Folha, others who have invested in Brenco include close Clinton ally James Wolfensohn, the former World Bank president, Hollywood producer and Democratic fundraiser Steven Bing, America Online founder Stephen Case and Sun Microsystems co-founder Vinod Khosla.

Given the bitter and often personal attacks that have characterized both sides during the contest for the Democratic presidential nomination, one might expect the revelation that the Clintons were profiting off an insider deal that put their money into a slave-labor operation in Brazil would provide valuable ammunition for the Obama campaign. Yet the Illinois Senator’s camp has said nothing about the matter.

Similarly, the revelation got the scantest coverage in the press. A Google News search for “Clinton” and “Brenco” turns up just four entries, none of them from a US daily newspaper or broadcast network.

Why is the subject virtually taboo? Quite simply because the behavior of the Clintons is not an aberration, but rather the norm for bourgeois politics in America.

While the Obamas trail far behind the Clintons in terms of personal wealth, their gross income increased fivefold since his taking office in the US Senate, averaging $1.3 million a year in 2005 and 2006.

Moreover, both of the candidates’ campaigns are richly funded by Wall Street. Senator Clinton has received some $6.29 million in political contributions from the securities and investment industries, while Senator Obama trails only slightly, with $6.03 million. Both have raked in more than double the amount that has gone to the Republican Party’s presumptive nominee, John McCain, and more than four times as much as Al Gore received over the entire 2000 campaign.

Wall Street’s immense profits over the past period have been accrued in no small measure by investments in what is known in the financial industry as “emerging markets,” where brutal exploitation like that imposed upon the Brazilian cane cutters produces handsome returns for the multimillionaires and billionaires who dominate the markets.

Neither Obama nor Clinton has any interest in casting a spotlight on these ugly truths, given that both candidates posture as economic populists to win votes, while remaining firmly committed to defending the profit interests of a ruling financial elite into which they themselves are being integrated.

Iraqi government offensive in Basra threatens to trigger Shiite uprising

Iraqi government offensive in Basra threatens to trigger Shiite uprising

By Peter Symonds
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Fighting between Iraqi security forces, backed by the US military, and militia loyal to Shiite leader Moqtada al-Sadr continued unabated yesterday following a government offensive launched in the southern port city of Basra on Tuesday. Up to 200 people have been killed, many of them civilians, in clashes over the past three days in Basra, as well as the southern towns of Kut, Diwaniya, Hilla and Amara, and the sprawling slums of Sadr City in eastern Baghdad.

A great deal is at stake for Iraqi Prime Minister Nouri al-Maliki, who has moved to Basra to take personal charge of the operation. He has been under pressure to act against the Sadrists, not only from Washington, but from the two Shiite factions on which he rests—his own Da’wa party and the Islamic Supreme Council of Iraq (ISCI). The latter in particular has been engaged in a protracted power struggle with the Sadrists across southern Iraq in preparation for provincial elections due in October.

ISCI regards the Sadrist movement as a barrier to its ambition to establish an autonomous Shiite region in southern Iraq similar to the Kurdish region in the north. The Sadrist movement, with its large base of support in Baghdad, supports a strong central government and is opposed to ISCI’s plans. Basra, which is Iraq’s second largest city, a major port and adjacent to the country’s southern oil fields, is at the centre of this rivalry.

In a statement on national TV yesterday, Maliki rejected calls by Sadrist leaders for him to leave Basra and start negotiations. “We entered this battle with determination and we will continue to the end. No retreat. No talks. No negotiations,” he declared. Maliki issued a 72-hour ultimatum on Wednesday for militiamen in Basra to surrender their weapons or face the consequences. However, the Sadrist militias have ignored the deadline, which was due to expire today, and entrenched themselves in large areas of the city.

In a speech at the Wright-Patterson Air Force Base yesterday, US President George Bush hailed Maliki’s “bold decision to go after illegal groups in Basra”. He declared that the operation demonstrated the progress made by Iraqi security forces, who had planned and led the operation. The offensive, Bush claimed, was one more sign that the “surge” of US troops “was bringing America closer to a key strategic victory in the war against these extremists and radicals”.

In fact, as a number of US analysts have nervously noted, the assault in Basra has the potential to destroy what has been one of the key factors in the comparative lull in fighting in recent months—a ceasefire announced by Sadr last August, and renewed for another six months in February.

Time magazine, for instance, commented: “Could Prime Minister Nouri al-Maliki’s attempts to reestablish control over Basra backfire? There is a growing possibility that it could become a wider intra-Shiite war, drawing in the forces loyal to radical cleric Moqtada al-Sadr, whose ceasefire has been key to the success of the US ‘surge’. If so, the consequences for American military strategy in Iraq in an all-important political year will be grave.”

As for claims that the Basra operation is Iraqi-led, Bush’s speech makes clear that the impetus came from Washington, rather than Baghdad. There is no doubt that the entire offensive was planned, well in advance, in the closest collaboration with US generals. US advisors and “transition teams” are embedded with Iraqi soldiers in Basra. The US military is providing air support and intelligence to troops on the ground.

US military spokesman Major General Kevin Bergner refused to comment on what would happen if the Iraqi government failed to complete the Basra operation, saying only that it was “a very hypothetical question at this time”. However, the Pentagon and the White House undoubtedly have contingency plans and are watching the situation very closely. The Christian Science Monitor noted that the US-funded television station Al Hurra reported that a contingent of US marines was in Basra, involved mainly in sniper operations.

Despite American military support and superior firepower, the Iraqi offensive in Basra, which involves nearly 30,000 soldiers and police, appears to have stalled. According to a New York Times article, as much as half the city was under militia control yesterday. “Witnesses said that from the worn, closely packed brick buildings of one Madhi stronghold, the Hayaniya neighbourhood, Mahdi fighters fired mortars, rocket-propelled grenades, automatic weapons and sniper rifles at seemingly helpless Iraqi army units pinned on a main road outside, their armoured vehicles unable to enter the narrow streets,” it stated.

The newspaper noted that hospitals in parts of the city were reported full. Most casualties were civilians caught in the crossfire, according to hospital officials. Violence was continuing to spread, including to areas south of the city. One of the two major pipelines from the southern oil fields was blown up yesterday, cutting capacity by one third and sending international oil prices spiking to more than $US106 a barrel.

The Christian Science Monitor reported: “Al Sharquiya TV, a private Iraqi station often critical of the Iraqi government, showed what it said were exclusive images of masked militiamen—some of them in military fatigues—parading Humvees they had seized from Iraqi government forces in Basra... Yahya al-Taiee, a Basra-based lawyer and member of the Sadr movement, said many Iraqi soldiers have surrendered themselves and their vehicles to the Mahdi Army.”

Clashes spread

Fierce fighting has also occurred on other southern Iraqi towns. The Associated Press cited local officials as saying that 40 people had been killed and 75 wounded in clashes in Kut. On Wednesday, a US air strike on an alleged Mahdi Army base in Hilla resulted in a large number of casualties. A police source told Reuters that 29 people had been killed and 39 wounded during an attack that lasted an hour and destroyed six houses.

Tensions are high in Baghdad’s largely working class Shiite suburb of Sadr City after sporadic clashes between Madhi Army fighters and Iraqi and US forces. Militiamen have erected barricades and patrol the streets. Iraqi and US troops have thrown up a cordon around the suburb. A New York Times photographer, who managed to get into Sadr City, reported “more layers of checkpoints, each one run by about two dozen heavily-armed Madhi Army fighters clad in tracksuits and T-shirts. Tyres burned in the city centre, gunfire echoed against shuttered stores, and teams of fighters in pickup trucks moved about brandishing machine guns, sniper rifles and rocket propelled grenade launchers.”

The heavily-fortified Green Zone, which houses the US embassy and the Iraqi government, has come under repeated rocket and mortar attack in recent days. Two American officials have been killed over the past week and a number of US and Iraqis wounded.

Yesterday gunmen in Baghdad seized Tahseen al-Sheikhli, a member of the Maliki government and the chief spokesman for the Baghdad security plan. The Iraqi military has now imposed a three-day curfew on the capital, banning any unauthorised vehicles or pedestrians from the streets from 11 p.m. on Thursday to 5 a.m. on Sunday

As fighting continued, Iraqi and US spokesmen continued to claim that the Sadrist movement was not the real target of the assaults. Maliki’s adviser Sadiq al-Rikabi told the media: “The battle in Basra is not really a political battle. It’s purely security—against the criminals and all the murderers.” In a similar vein, Major General Bergner denied that the actions were against the Mahdi Army. It is the government of Iraq taking responsibility and acting to deal with criminals on the streets,” he said.

Few people are fooled by this fiction, least of all Madhi Army militiamen. A commander in Sadr City, Abu Mortada, told the New York Times: “The US, the Iraqi government and SCIRI [now known as ISCI] are against us. They are trying to finish us. They want power for the Iraqi government and SCIRI.” Sadrist parliamentarians in Baghdad issued an appeal yesterday for an end to the assault in Basra, stating: “We call on our brothers in the Iraqi army and the brave national police not to be tools of death in the hands of the new dictatorship.”

The attempt to maintain the lie that the fighting is directed against “criminals” or rogue elements of the Mahdi Army is aimed at encouraging Moqtada al-Sadr not to tear up the ceasefire. For months, the cleric has been walking an increasingly precarious political tightrope between his tacit acceptance of the US-led occupation—as signified by the truce—and mounting anger among his supporters. US and Iraqi forces have exploited the ceasefire to round up Madhi Army militiamen and attack their bases. After effectively turning a blind eye for months, Sadr finally protested in recent weeks and demanded the release of Mahdi Army detainees.

In response to the offensive against the Madhi Army in Basra, Sadr has called for a campaign of civil disobedience, but has kept the ceasefire in place. He is, however, sitting on top of a political volcano. In the working class Shiite suburbs of Baghdad, Basra and other southern towns, there is deep-seated hostility to the Maliki government’s close relations with the Bush administration and collaboration with the US military occupation, which has brought nothing but death, destruction and plummetting living standards.

Anger welled over in protests by Sadr’s supporters in Baghdad yesterday. A Guardian report put the numbers involved at tens of thousands in separate rallies in Sadr City and the Baghdad suburb of Kadhimiyah, where protestors carried a coffin with a picture of Maliki and chanted “Maliki, keep your hands off. People do not want you.” Placards and signs also demanded the execution of ISCI head Abdul Aziz al-Hakim. Both men were denounced as US stooges.

While Sadr is appealing for negotiations to defuse the situation, the Maliki government backed by Washington appears determined to continue the offensive in Basra and other areas against the Mahdi Army. Far from consolidating the US occupation, these operations have the potential to trigger a Shiite uprising that would rapidly engulf the Maliki government.