Saturday, August 16, 2008

Wag the Dog: How to Conceal Massive Economic Collapse

Wag the Dog: How to Conceal Massive Economic Collapse

By Ellen Brown

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"I’m in show business, why come to me?"

"War is show business, that’s why we’re here."
– "Wag the Dog" (1997 film)

Last week, Fannie Mae and Freddie Mac had just announced record losses, and so had most reporting corporations. Unemployment was mounting, the foreclosure crisis was deepening, state budgets were in shambles, and massive bailouts were everywhere. Investors had every reason to expect the dollar and the stock market to plummet, and gold and oil to shoot up. Strangely, the Dow Jones Industrial Average gained 300 points, the dollar strengthened, and gold and oil were crushed. What happened?

It hardly took psychic powers to see that the Plunge Protection Team had come to the rescue. Formally known as the President’s Working Group on Financial Markets, the PPT was once concealed and its very existence denied as if it were a matter of strict national security. But the PPT has now come out of the closet. What was once a legally questionable "manipulator" of markets has become a sanctioned stabilizer and protector of markets. The new tone was set in January 2008, when global markets took their worst tumble since September 11, 2001. Senator Hillary Clinton said in a statement reported by the State News Service:

"I think it’s imperative that the following step be taken. The President should have already and should do so very quickly, convene the President’s Working Group on Financial Markets. That’s something that he can ask the Secretary of the Treasury to do. . . . This has to be coordinated across markets with the regulators here and obviously with regulators and central banks around the world."1

The mystery over what was going on with the dollar the first week in August was solved by James Turk, founder of GoldMoney, who wrote on August 7:

"[T]he banking problems in the United States continue to mount, while the federal government’s deficit continues to soar out of control. . . . So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar, and here’s the proof.

"When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.

"On July 16, 2008 . . . , the Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. In its report released today, this amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. . . . So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others."2

Just as central banks manipulate currencies in concert, so gold can be manipulated by massive selling of central bank reserves. Oil and any other market can be manipulated as well. But markets can be manipulated by only so much and for only so long without fixing the underlying problem. There is more bad news coming down the pike, news of such magnitude that no amount of ordinary manipulation is liable to conceal it.

For one thing, roughly $400 billion in ARMs (adjustable rate mortgages) have or will reset between March and October of this year. Assuming 3 to 6 months for strapped debtors to actually hit the wall with their payments, a huge wave of defaults is about to strike, continuing through March 2009 – just in time for the next huge wave of resets, in option ARMs.3 Option ARMs are loans with the option to pay even less than just the interest on the loan monthly, increasing the loan balance until the loan reaches a certain amount (typically 110% to 125% of the original loan balance), when it resets. The $800 billion credit line recently opened to Fannie Mae and Freddie Mac may be not only tapped but tapped out, at taxpayer expense. The underlying problem is little discussed but impossible to repair – a one quadrillion dollar derivatives scheme that is now imploding. Banks everywhere are facing massive writeoffs, putting the whole banking system on the brink of collapse. Only public bailouts will save it, but they could bankrupt the nation.

What to do? War and threats of war have been used historically to distract the population and deflect public scrutiny from economic calamity. As the scheme was summed up in the trailer to the 1997 movie "Wag the Dog" --

"There’s a crisis in the White House, and to save the election, they’d have to fake a war."

Perhaps that explains the sudden breakout of war in the Eurasian country of Georgia on August 8, just 3 months before the November elections. August 8 was the day the Olympic Games began in Beijing, a distraction that may have been timed to keep China from intervening on Russia’s behalf. The mainstream media version of events is that Russia, the bully on the block, invaded its tiny neighbor Georgia; but not all commentators agree. Mikhail Gorbachev, writing in The Washington Post on August 12, observed:

"What happened on the night of Aug. 7 is beyond comprehension. The Georgian military attacked the South Ossetian capital of Tskhinvali with multiple rocket launchers designed to devastate large areas. Russia had to respond. To accuse it of aggression against "small, defenseless Georgia" is not just hypocritical but shows a lack of humanity. . . . The Georgian leadership could do this only with the perceived support and encouragement of a much more powerful force."4

Bruce Gagnon, coordinator of the Global Network against Weapons and Nuclear Power, commented in OpEdNews on August 11:

"The U.S. has long been involved in supporting ‘freedom movements’ throughout this region that have been attempting to replace Russian influence with U.S. corporate control. The CIA, National Endowment for Democracy . . . , and Freedom House (includes Zbigniew Brzezinski, former CIA director James Woolsey, and Obama foreign policy adviser Anthony Lake) have been key funders and supporters of placing politicians in power throughout Central Asia that would play ball with ‘our side’. . . . None of this is about the good guys versus the bad guys. It is power bloc politics . . . . Big money is at stake . . . . [B]oth parties (Republican and Democrat) share a bi-partisan history and agenda of advancing corporate interests in this part of the world. Obama’s advisers, just like McCain’s (one of his top advisers was recently a lobbyist for the current government in Georgia) are thick in this stew."5

Brzezinski, who is now Obama’s adviser, was Jimmy Carter’s foreign policy adviser in the 1970s. He also served in the 1970s as director of the Trilateral Commission, which he co-founded with David Rockefeller Sr., considered by some to be the "master spider" of the Wall Street banking network.6 Brzezinski later boasted of drawing Russia into war with Afghanistan in 1979, "giving to the Soviet Union its Vietnam War."7 Is the Georgia affair an attempted repeat of that coup? Mike Whitney, a popular Internet commentator, observed on August 11:

"Washington’s bloody fingerprints are all over the invasion of South Ossetia. Georgia President Mikhail Saakashvili would never dream of launching a massive military attack unless he got explicit orders from his bosses at 1600 Pennsylvania Ave. After all, Saakashvili owes his entire political career to American power-brokers and US intelligence agencies. If he disobeyed them, he’d be gone in a fortnight. Besides an operation like this takes months of planning and logistical support; especially if it’s perfectly timed to coincide with the beginning of the Olympic games. (another petty neocon touch) That means Pentagon planners must have been working hand in hand with Georgian generals for months in advance. Nothing was left to chance."8

Part of that careful planning may have been the unprecedented propping up of the dollar and bombing of gold and oil the week before the curtain opened on the scene. Gold and oil had to be pushed down hard to give them room to rise before anyone shouted "hyperinflation!" As we watch the curtain rise on war in Eurasia, it is well to remember that things are not always as they seem. Markets are manipulated and wars are staged by Grand Chessmen behind the scenes.


[1] Remarks from Hillary Clinton on the Global Economic Crisis,” CNN (January 22, 2008) (video preserved on

[2] James Turk, “Mystery Solved,” (August 7, 2008).

[3] Bill Murphy, “Wipeout Nightmare,” (August 11, 2008); Ruth Simon, “FirstFed Grapples With Payment-Option Mortgages,” Wall Street Journal (August 6, 2008); Ruth Simon, “Mortgages Made in 2007 Go Bad at Rapid Clip,” ibid. (August 7, 2008).

[4] Mikhail Gorbachev, “A Path to Peace in the Caucasus,” Washington Post (August 12, 2008).

[5] Bruce Gagnon, “What Do We Know About Georgia-Russia Conflict?”, OpEdNews (August 11, 2008).

[6] Hans Schicht, “Financial Spider Webbing,” (February 27, 2004).

[7] “Soviet War in Afghanistan,” Wikipedia

[8] Mike Whitney, “Bush’s War in Georgia,” Global Research (August 11, 2008).

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine.

Can Sen. Bernie Sanders Fix Our Economic Crisis?

Can Sen. Bernie Sanders Fix Our Economic Crisis?

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Don't miss Meet the Bloggers today at 1pm ET/10am PT when our guest Sen. Bernie Sanders (I-VT) will discuss ways of getting our country out of this recession.

Sen. Sanders will be joined by our panel of bloggers, including Isaiah Poole (Campaign for America's Future) and Amanda Logan (Center for American Progress), as we debate how to fix the economy and end the current class war.

Below are some articles that Sen. Sanders and our bloggers will be analyzing. Read up and ask our guests informed questions on the economy using the live blog feature on the Meet the Bloggers website.

Bank seizures of US homes reach record high

Bank seizures of US homes reach record high

By Andre Damon

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Banks repossessed almost three times as many American homes last month as in July of 2007, while foreclosures jumped 55 percent over the same period, according to a report issued Thursday by RealtyTrac, a California-based seller of foreclosure data.

More than 272,000 properties, or one for every 464 US households, were in “some stage of foreclosure” last month, according to the report. The number of foreclosures in July jumped 8 percent to 272,171 from June, slightly lower than the record 273,001 foreclosures in May.

Even these staggering figures represent an “artificial depression” in foreclosures, Rick Sharga, a RealtyTrac vice president, told Bloomberg News, due to the fact that a number of states—including New York and California—implemented foreclosure moratoriums last month. Most of the affected properties will go into foreclosure in later months, Sharga said.

Bank repossessions grew significantly as a percentage of all foreclosure activity, “posting a 184 percent year-over-year increase, compared to a 53 percent year-over-year increase in default notices and an 11 percent year-over-year increase in auction notices,” according to James J. Saccacio, CEO of RealtyTrac.

When foreclosed properties fail to sell at county auctions, they are repossessed by banks pending their sale. Bank repossessions constituted only 16 percent of foreclosure activity a year ago, but they now make up some 28 percent, according to the report. While banks owned 224,000 foreclosed properties in 2006 and 445,000 in 2007, they owned 775,244 through July of this year.

The sheer mass of foreclosed homes is depressing real estate markets and steeply driving down prices, leading to more foreclosures. Foreclosed properties now represent approximately 17 percent of the inventory of existing homes for sale, according to the RealtyTrac report.

US Treasury Secretary Henry Paulson said two months ago that 1.5 million foreclosures started in 2007, and that as many as 2.5 million could begin in 2008. But, by all indications, even these figures constitute only a fraction of the homes yet to be foreclosed.

Some 6.5 million US properties are set to fall into foreclosure by the end of 2012, according to a report circulated last April by Credit Suisse. Some 12.7 percent of mortgage borrowers, or 8.4 percent of all US homeowners, stand to lose their properties in the next five years, according to the report.

Credit Suisse expects that housing prices will fall by ten percent in 2008 and five percent in 2009, precipitating what it refers to as “a wave of foreclosures.” It further predicts that some 63 percent of subprime borrowers will have negative equity by 2009, compared to only about 30 percent last year.

Nearly one third of Americans who bought homes since 2003 have negative equity—that is, they owe more on their homes than their current value—according to, a property valuation company. Zillow also found that 45 percent of those who bought at the peak of the housing market in 2006 are under water.

Home values have fallen 15.8 percent in the year to May, according to the S&P Case-Schiller index, which tracks home values in 20 major cities. Moreover, nearly one quarter of home sales in the past year were at a loss to the sellers. Such circumstances raise the incentives to foreclose, driving property values lower and precipitating a downward economic spiral.

Zillow also found staggering negative equity rates in cities most affected by the housing downturn. Four cities in California—Stockton, Modesto, Merced, and Vallejo-Fairfield—had more than 90 percent of homeowners underwater. Five more cities had negative equity percentages of more than 80 percent. Half of the sales in Stockton and Modesto were foreclosed properties, compared to 15 percent nationwide.

Figures released this week by the National Association of Realtors are similarly bleak. The association found that existing home sales fell to their lowest levels since 1998, falling six percent in the past year alone. The report also notes that the median price among single-family homes fell by almost eight percent in the past year, from $223,500 to $206,500.

California cities were among the worst hit. Home values in Sacramento, the state’s capital, fell by 36 percent in the past year, while those in Riverside/San Bernadino fell by 32.7 percent and in Los Angeles fell 30 percent.

These cities, consequently, had among the highest foreclosure rates, with more than one in every 90 homes in some stage of foreclosure during the month. All in all, one in every 182 California homeowners received a foreclosure notice in July.

Cape Coral-Fort Meyers, Florida had the highest metro foreclosure rate in the country, with one in every 64 households receiving a foreclosure filing in last month.

In addition to fueling a massive social crisis, the vicious cycle of falling home values and foreclosures will drag down economic growth and fuel unemployment, as the US ruling class seeks to purge the excesses out of its financial system by writing down billions of dollars in bad debt.

While throwing open the Federal Reserve Board and the US Treasury to Wall Street speculators, the government has done next to nothing to assist the millions of people having their lives uprooted. The housing bill recently passed by Congress assists at most 400,000 homeowners, representing only six percent of the 6.5 million people estimated to fall into foreclosure by 2012.

Merril Lynch switches billions in debt to Britain to avoid paying corporation tax for 50 years

U.S. banking giant switches billions in debt to Britain to avoid paying corporation tax for 50 years

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Investment bank Merrill Lynch may not have to pay UK tax for decades.

The Wall Street giant, which employs 5,500 in the City of London, could be eligible for a tax holiday of more than 50 years after making billions of pounds of losses on 'exotic investments.'

The possibility of such a business escaping tax will astonish households struggling with their personal finances.

The collapse of profits among all the banks have led to a dramatic fall in their tax burden --which means a big hole in the Treasury's books.

Merrill Lynch racked up losses of £15.5billion because of the sub-prime meltdown in America.

The losses were booked in its UK subsidiary Merrill Lynch International, because this is the unit through which it conducted its business in exotic financial instruments --repackaged debt.

Merrill can use the losses to offset its tax liability - by as much as £4.3billion - in future years. Accountants say the bank is fully complying with tax law.

Robert Willens, a tax expert, said the move is not common. 'Merrill will have to be able to say that the UK subsidiary was the owner of those securities.

'It does not matter where the derivatives unit is based or where the trades were executed.

'The only thing that matters is who was the owner of the securities,' he told the Financial Times.

The paper calculates that if Merrill starts making profits again at the rate it did in 2006 - a record year - it still won't have to pay any corporation tax for the next 60 years.

Merrill declined to comment. If the move is followed by rivals it could have a huge impact on government coffers.

This week New York mayor Mike Bloomberg said that many Wall Street firms will pay no tax this year due to their losses.

So far this year financial companies across the world have reported writeoffs totalling £250 billion. Economists say this figure could double before the credit crunch comes to an end.

Merrill has offices across London including a financial centre at Paternoster Square by St Paul's Cathedral. which houses two of the largest trading floors in Europe.

Accountants said that the tax structure allows Merrill to offset losses from one part of the business.

John Gu, a tax expert at KPMG International, said: 'It obviously makes commercial sense, though it would be subject to certain legal and tax law restrictions. No company wants the mismatch by losing money on one unit while paying tax on another profitable operation.'

Merrill was founded in 1914 and has become one of the world's biggest banks.

ECB slammed as Europe crumbles

ECB slammed as Europe crumbles

By Ambrose Evans-Pritchard

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The economies of Germany, France and Italy all contracted in the first quarter and may now be in full recession, shattering assumptions that Europe would prove able to shrug off the effects of the credit crunch.

The picture is darkening so fast in Spain that Prime Minister Jose Luis Zapatero cancelled holidays and called his cabinet back to Madrid yesterday for the first emergency session of its kind since the Franco dictatorship. The crisis meeting agreed to a €20bn (£16bn) blitz on public works, tax cuts, and a mortgage rescue to halt the downward spiral.

Growth has turned negative in Ireland, Denmark, Latvia, and Estonia, while grinding to a halt in Sweden and The Netherlands. Iceland contracted by a staggering 3.7pc. The grim data from Eurostat follows a recession warning in Britain, and shock news that the Japanese economy had shrunk 0.6pc in the second quarter.

Almost the entire bloc of rich Organisation for Economic Co-operation and Development (OECD) countries - still two thirds of the world economy - are now in the grip of a major downturn. The oil shock over the early summer appears to have had a dramatic effect on the heavy industries of Japan and Germany.

The eurozone as a whole shrank by 0.2pc, the first contraction since the launch of the single currency a decade ago. Germany led the slide with a fall of 0.5pc. France and Italy fell 0.3pc. The delayed effects of the strong euro, tight credit, and slowing exports have now kicked in with a vengeance.

"This is an alarm warning for the economy," said the Confederation of German Industry (BDI).

The European Central Bank and its president Jean-Claude Trichet appear to have misjudged the severity of the downturn, and may have made a serious error by raising interest rates a quarter point to 4.25pc last month.

By then it was already clear that property markets were slumping across much of the region. “What is shocking is the speed of the collapse in Germany,” said Albert Edwards, global strategist at Société Générale. “I think there has been a lot of hubris at the ECB. They took a derisory attitude towards the US, saying the Federal Reserve was too aggressive in cutting rates. Now they are reaping the bitter reward of their policy,” he said.

The ultra-hawkish Bundesbank’s Axel Weber gave no hint yesterday that the ECB is softening, suggesting that the bank sees a deliberate crunch as the only means to pre-empt a 1970s-style wage-price spiral. “The confidence expressed by some observers that weaker economic growth will lead to a damping of inflation pressures is in my opinion premature,” he said.

This is a highly controversial point. Although fuel and food prices have pushed headline inflation to a post-EMU high of 4.1pc, core inflation has fallen from 1.9pc to 1.8pc over the last year. Real wages have suffered a brutal squeeze. Julian Callow, Europe economist at Barclays Capital, said the ECB erred by pre-announcing a rate rise in June.

“They boxed themselves in, and it became hard to retreat. It is clear from the August Bulletin that they have now really woken up to the downturn,” he said. “Recessions in Europe are very nasty events: they tend to be a lot deeper and more protracted than in the US, which is better able to cope with the ups and downs of the business cycle,” he said.

Mr Callow said the EU’s budget deficit limit of 3pc of GDP makes it impossible for many countries to cushion the hard-landing with a spending boost. France and Italy are already near the ceiling. Indeed, Italy is having to tighten policy into the downturn.

Bernard Connolly, global strategist at Banque AIG, said the eurozone faces possible disintegration unless there is a fiscal bail-out from Germany that matches – in sheer scale – Berlin’s Versailles reparations payments after the First World War. “The bursting of the EMU credit bubble seems imminent, and will reveal current account imbalances among euro area countries as extremely dangerous. The medium-term feasibility of the euro area in its current form must be open to very considerable doubt,” he said.

Spain needs a devaluation of 30pc and Greece needs 40pc to restore balance to their economies after suffering a major loss of unit labour competitiveness. The current account deficit is 10pc of GDP in Spain, and 14pc in Greece.

Mr Connolly said the combination of collapsing demand in southern Europe and a slide in the external value of the euro now means that the EMU bloc may now start to export the effects of its troubles to the rest of the world, making it harder to bring the credit crisis to an end.

Eurostat said Spain managed to eke out growth of 0.1pc in the second quarter but this is a lagging indicator. The switch from boom to bust is now turning violent. There are mounting fears that the country could tip into a severe crisis over the next year.

“A momentous economic slowdown is now under way. We believe the deterioration in Spain is just in the beginning stages,” said a report by Morgan Stanley. It said there was a serious risk of a blow-up comparable to the ERM crisis in the early 1990s. This time there is no easy exit. Spain cannot devalue within EMU, or resort to emergency monetary stimulus.

The Bank of Spain revealed yesterday that Spanish lenders have now borrowed €49.4bn from the ECB, confirming reports that smaller banks with heavy exposure to the property market are now relying on EU taxpayer funding to survive. It is unclear whether long-term support of this kind is strictly legal under EU rules.

Some banks appear to be issuing fresh bonds for the sole purpose of obtaining money from the lending window in Frankfurt. Spain’s finance minister Pedro Solbes says it was clearly “unsustainable” for the country to build 800,000 homes last year in the final crescendo of the boom, but said there was nothing the government could do to stop it.

“The economic situation is worse than we all predicted. We thought it would happen slowly but instead it has hit fast,” he said. Construction reached 18pc of GDP in 2007, much of it funded from foreign capital sources that have now dried up. The sector is in freefall. Unemployment has jumped by 457,000 over the last year. Industrial output plunged 9pc in June.

EU meeting on Georgia reveals tensions between European powers and US

EU meeting on Georgia reveals tensions between European powers and US

By Stefan Steinberg

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Despite intense pressure from a number of Eastern European states, supported by Western European powers such as Great Britain and Sweden, the declaration issued by European Union (EU) foreign ministers meeting in emergency session in Brussels on Wednesday to discuss the conflict between Georgia and Russia refrained from any criticism of Russia.

Rejecting an open conflict with Russia, the EU meeting decided against dispatching troops to the region. Instead, the majority of ministers followed German proposals to increase the number of Organisation for Security and Cooperation in Europe (OSCE) monitors in Georgia from 100 to 300 and step up humanitarian aid.

The stance adopted toward Russia and the limited measures agreed by the majority of ministers in Brussels stand in stark contrast to the sabre-rattling by the US government, which has accused Russia of being the aggressor in the five days of fierce fighting between Georgian and Russian forces. The Bush administration is sending its own military forces into the region, in the name of humanitarian aid.

The tone struck by the German foreign minister, Frank Walter Steinmeier of the Social Democratic Party (SPD), and his French counterpart, Bernard Kouchner, in statements made in the run-up to the meeting differed significantly with the anti-Russian propaganda that has emanated from the White House and been echoed by America’s closest partners in Europe.

Prior to the Brussels meeting, Steinmeier made quite clear he opposed any one-sided condemnation of Russia. “I don’t think we should lose ourselves in long discussions about responsibility and blame for the escalation of recent days,” he said. Instead of finger-pointing, he continued, the EU should “look to the future and take a role in further stabilization.”

Steinmeier’s position was supported inside the EU meeting by the French, Italian and Finnish foreign ministers. Finnish Foreign Minister Alexander Stubb, whose country holds the presidency of the OSCE, summed up the position taken by a majority of ministers, declaring, “The blame game and the tough talk will start at a later stage.”

Following the meeting, Steinmeier stressed once again that “stability in the Caucasus” could be achieved only in cooperation with Russia.

Steinmeier’s stance received the official backing of the German chancellor, Angela Merkel, who heads the Christian Democratic Union (CDU). On Thursday, her spokesman, Thomas Steg, said in regard to Germany’s reaction to the role played by Russia in the conflict that it was important not to “over-react.” He added that the chancellor looked forward “with optimism” to her planned talks with Russian Prime Minister Vladimir Putin this Friday in the Black Sea resort of Sochi.

The consensus at the EU meeting for a conciliatory policy towards Russia followed days of fierce campaigning by a number of Washington’s firmest allies in Europe, who sought to condemn the role of Russia in the dispute. Some Eastern European countries even called for sanctions to be imposed on Russia. The anti-Russia propaganda offensive began at the start of the week as the agreement to end hostilities was announced.

The agreement which led to a cease-fire was brokered by French President Nicholas Sarkozy and his foreign minister, Kouchner. Shaking hands with Sarkozy on Tuesday, Russian President Dimitry Medvedev announced his satisfaction with the agreement, which called for a return to the status quo that existed between Russia and Georgia prior to the Georgian intervention into South Ossetia on August 7.

Following the meeting, Russian Foreign Minster Sergei Lavrov indicated that, while respecting the deal, the Russian government would not negotiate with the Georgian state as long as President Mikheil Saakashvili remained in charge.

The agreement struck in Moscow was immediately criticised by the Georgian president, who objected to point six, which stated that the future status of the provinces of South Ossetia and Abkhazia would be subject to international deliberations. Saakashvili made clear that he continued to claim the provinces as part of Georgian territory and rejected any international interference.

In order to underline their solidarity with the Georgian president, the presidents of EU member-states Poland, Latvia, Lithuania and Estonia travelled to Tbilisi on Tuesday, joining President Viktor Yushchenko of Ukraine, who was already in the country. Since the break-up of the Soviet Union in 1991, all of these countries have established close relations with Washington. The concerted action to prop up Saakashvili was a clear signal of solidarity with the Bush administration.

At a rally in Tbilisi on Tuesday, Polish President Lech Kaczynski joined the Georgian president to appeal for concerted opposition to Russia, declaring, “We are here to take up the fight.” Kaczynski told the crowd, “For the first time in quite a while, our neighbours in the East have once again shown the face which we have known for hundreds of years. These neighbours feel that the nations around them should be subservient to them. We say no!”

One day later, the same countries appealed to NATO to extend membership to Georgia. A declaration read by Lithuanian President Valdas Adamkus on Wednesday declared that that the “only option to prevent similar acts of aggression and occupation of Georgia in the future is to extend (to Georgia) the NATO Membership Action Plan.”

The portrayal of Russia as the aggressor was supported by British Foreign Secretary David Miliband, who declared at the Brussels EU meeting that the European Union should reassess its relations with Russia following the latter’s “aggressive” actions in Georgia.

Echoing the Cold War rhetoric being employed by the US, Miliband continued: “The aggressive Russian force beyond South Ossetian borders has been something that really shocked many people... The sight of Russian tanks in Gori, Russian tanks in Senaki, the Russian blockade of the Georgian port of Poti is a chilling reminder of times that I think we had hoped had gone by.”

Just prior to the Brussels meeting, the general secretary of NATO, Jaap de Hoop Scheffer of the Netherlands, intervened to implicitly back the pro-Georgian lobby of European states. On Tuesday, de Hoop Scheffer called upon Russia to respect the sovereignty of Georgia and stressed that “one day” NATO would accept Georgia into its ranks.

However, the majority of Western European powers, with Great Britain the most prominent exception, rejected the confrontational course adopted by the US administration and determined the outcome of EU foreign ministers’ meeting. The outbreak of hostilities between Georgia and Russia has once again brought to the surface the profound tensions between Europe and the US which first became visible on the occasion of the Iraq war.

The determination of a number of key European countries to maintain good working relations with Russia, even at the risk of jeopardising their relations with the US, is based on fundamental economic and geo-political interests.

In economic terms, Europe is heavily dependent on supplies of gas and oil from Russia. Russia is also an increasingly important market for European, and particularly German, trade. German exports to Russia rose more than 50 percent in the first half of 2008, to a total of $29 billion. According to Christian Dreger, an economist at the German Institute for Economic Research in Berlin, “Russia is a very strong country in terms of economic development. It helps compensate for weaker growth in other regions.”

For companies such as the European car makers Daimler, Renault and Fiat, Russia has become an increasingly important market, under conditions where the economic slowdown in Europe is affecting sales within the EU zone itself.

More generally, the increasingly aggressive activities of the US in the Caucasus and Balkans are seen as a threat to European interests in the region.

For a long time following the break-up of the Soviet Union, major Western European countries stood by as the US sought to compensate for its declining economic influence by massively increasing its military presence within the satellite states of the former Soviet Union. Following the disastrous US-led wars in Iraq and Afghanistan, Western European political circles have increasingly identified America as the main source of instability and division on the continent.

The efforts by the US to establish missile defence systems in Poland and the Czech Republic have enraged Russia and threaten to transform Europe into a potential nuclear battlefield between Washington and Moscow. Already in 2006, the right-wing Konrad Adenauer Foundation in Germany warned that the US was intent on extending its sphere of influence in the Baltic and Caucasus regions “by bringing additional pro-American oriented countries into the alliance (NATO).”

The insistence of Washington on the rapid inclusion of Georgia into the structures of NATO led to political conflict earlier this year. At the April NATO summit in Bucharest, US President Bush met with concerted European opposition, led by Germany, to his plans for the speedy inclusion of Georgia and Ukraine into NATO’s ranks. Only a last minute compromise, putting off a decision on NATO membership for the two countries, allowed the American president to save face.

Following the recent decision by the United States and EU countries to recognise the independence of Kosovo, the German foreign minister warned that Russian patience was being stretched to the limit. Steinmeier told the German press that following the “difficult decision to recognise Kosovo, it is clear that with our foreign policy we have reached Russia’s tolerance level.”

Memories in Europe are still fresh regarding the comments by former US Defence Secretary Donald Rumsfeld in 2003. Rumsfeld condemned Germany and France for failing to support the war against Iraq. France and Germany, he said, represented “old Europe,” and added that NATO’s expansion in recent years meant that “the centre of gravity is shifting to the east.”

While unwilling to publicly confront the US, leading European politicians are making it increasingly clear that they are opposed to any return to the Cold War polarity that was characterised by US political and military dominance of Western Europe.

The visible economic and political decline of the US was identified by the French business daily Les Echos as an opportunity for Europe to increase its influence.

In an editorial published on Wednesday, the newspaper noted, “President Sarkozy’s shuttle diplomacy between Moscow and Tbilisi is highly risky.” It went on, however, to outline the possibilities for European nations to exploit US vulnerabilities: “President Bush’s weakness at the sad conclusion of his mandate puts the European Union in the front row when it comes to replacing weapons with diplomacy in Georgia... The EU 27 hold all the aces when it comes to getting the Kremlin’s ear. Especially in the economic sense... But the question remains as to whether the Europeans will play their aces, which assumes they will speak with one voice. And there is nothing less certain than that.”

While the meeting of EU foreign ministers in Brussels demonstrated that EU countries are unable “to speak with one voice,” it revealed that there is a growing consensus amongst Western European countries on the necessity to develop their own tools of foreign policy and the military capacities required to directly compete with, or even challenge, the US.

The Pentagon’s alarming project: Avian Flu Biowar Vaccine

The Pentagon’s alarming project: Avian Flu Biowar Vaccine

By F. William Engdahl

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There is alarming evidence accumulated by serious scientific sources that the US Government is about to or already has ‘weaponized’ Avian Flu. If the reports are accurate, this could unleash a new pandemic on the planet that could be more devastating than the 1918 Spanish Flu epidemic which killed an estimated 30 million people worldwide before it eventually died out. Pentagon and NIH experiments with remains in frozen state of the 1918 virus are the height of scientific folly. Is the United States about to unleash a new racially selective pandemic through the process of mandatory vaccination with an alleged vaccine "against" Avian Flu?

There is reason to believe that sections of the international pharmaceutical industry cartel are acting in concert with the US Government to develop a genetically modified H5N1 virus substance that could unleash a man-made pandemic, perhaps more deadly than the 1918 ‘Spanish Influenza’ pandemic claiming up to 30 million lives.1

Rima E. Laibow, MD, head of the Natural Solutions Foundation, a citizen watchdog group monitoring the pharmaceutical industry states, "Our best intelligence estimate is that pandemic Avian Flu has already been created through genetic engineering in the United States, fusing the deadly genome of the 1918 Pandemic, misnamed the ‘Spanish Flu’, with the DNA of the innocuous H5N1 virus in a growth medium of human kidney cells, according to the National Institutes of Health and the vaccine’s manufacturer. Some virologists believe that this would insure that the man-made mutant virus recognizes human cells and knows how to invade them." 2

If true, as Laibow points out, "A basic virological fact that the public has not been told is that it is impossible to make a vaccine against a virus that does not yet exist. Public relations efforts to the contrary, IF a vaccine is being made against the Avian Flu virus in its pandemic form, that means that the pandemic virus must already exist, period, end of discussion."3

The genome of the 1918 pandemic, the so-called "Spanish Flu", was recently intentionally resurrected by the United States government from a frozen corpse that died of the flu in 1918 in Alaska. Because of that resurrection, both the Avian Flu, and its "vaccine" are now a significant threat to public health.

The Spanish Flu, which was not Spanish at all, was created in the US through an early bioweapons program and injected into healthy young men (i.e., ’soldiers’) as the first mandatory vaccination in the military during World War I. The "Spanish Flu", which originated in Kansas on US Military bases, was one of the deadliest pandemics in modern history. It was also one of the most successful biological weapons ever created, until now.Aspartame and Tyson Foods doubts

To date, there have only been around 385 human cases of Avian Flu identified worldwide (assuming those identifications are trustworthy, of course), with 243 deaths. To put the absurdity of this effort into perspective, Laibow points out, Sudden Cardiac Death (SCD), which researchers believe is heavily associated with aspartame consumption, is a leading cause of death which, according to the CDC, for example, killed 460,000 Americans in 1999 and the numbers keep rising (

But, aspartame is not under criticism. Interesting as a footnote on Aspartame, G.D. Searle, the Chicago drugs company that held the patent on Aspartame was in danger of losing its license from the US Government Food & Drug Administration in the 1980’s until Donald Rumsfeld, out of Government, was named President of Searle. Rumsfeld used his contacts in Washington to get the FDA to approve Aspartame despite known tests showing serious health effects on rats.

As I document in detail in my book, Seeds of Destruction: The Hidden Agenda of Genetic Manipulation, the same Don Rumsfeld went on to become chairman and principal stockholder of a California pharmaceutical company, Gilead Sciences Inc., which developed and patented Tamiflu in 1996, first as a drug for AIDS, later as a vaccine for H5N1 Avian Flu. In 1997 Donald H. Rumsfeld was named Chairman of the Board of Gilead Sciences, where he remained until early 2001 when he became Defense Secretary. As Secretary he refused to sell his stock at the time he came under conflict of interest allegations when he ordered $1 billion worth of Tamiflu be bought to injected into the US military personnel as a "precaution." It was later proven that Tamiflu was in no antidote for H5N1 and its side effects were sometimes very severe.

Laibow adds, "Given the shockingly obvious lack of any threat from an un-weaponized H5N1 virus, how can we explain the Bush Administration spending billions of dollars preparing each of the 50 States, for what it calls the ‘inevitable Bird Flu pandemic,’ which they say could kill half or more of all Americans and similar numbers of people around the globe?"4

Ominously, on June 3, Associated Press reported, "Tyson Foods Inc. has begun killing and burying the carcasses of 15,000 hens from a flock that tested positive for exposure to a strain of the bird flu in northwest Arkansas, state officials said Tuesday."

Tyson Foods is the largest industrialized producer of chickens in the world and has been repeatedly under attack for its unsanitary conditions of breeding and slaughtering. In January 2005, a US Government Accountability Office (GAO) report to the US Senate, "Safety in the Meat and Poultry Industry," concluded that US meat and poultry processing plants had "one of the highest rates of injury and illness of any industry." They cited exposure to "dangerous chemicals, blood, faecal matter, exacerbated by poor ventilation and often extreme temperatures. Workers typically faced hazardous conditions, loud noise, must work in narrow confines with sharp tools and dangerous machinery."

The industrialization of chicken-raising and slaughtering in the USA has progressed to the point that by 2003 when the first cases of H5N1 Avian Flu virus were reported from Asia, five giant multinational agribusiness companies dominated the production and processing of chicken meat in the United States. The five companies were Tyson Foods, the largest in the world; Gold Kist Inc; Pilgrim’s Pride; ConAgra Poultry; and Perdue Farms.5 Most outbreaks of Avian Flu in Asia have been traced back to such mass chicken industrial factory centers.6

In May this year, The Canadian Press reported from Toronto, "An experiment mating H5N1 avian flu viruses and a strain of human flu in a laboratory produced a surprising number of hybrid viruses that were biologically fit, a new study reveals. And while none of the offspring viruses was as virulent as the original H5N1, about one in five were lethal to mice at low doses, showing they retained at least a portion of the power of their dangerous parent." 7

The Toronto article went on, "The work suggests that under the right circumstances - and no one is clear what all of those are - the two types of flu viruses could swap genes in a way that might allow the H5N1 virus to acquire the capacity to trigger a pandemic. That process is called reassortment. ‘This study is just showing exactly that: There is a risk this virus can successfully reassort with a human virus,’ said Richard Webby, director of the World Health Organization's collaborating centre for influenza research at St. Jude Hospital in Memphis, Tennessee." 8

Pentagon Bioweapon research

Prof. Mathew Meselson, a professor of molecular biology at Harvard, and well-respected scientist in the area of chemical and biological warfare, confirms that the United States government has extensively researched and developed biological weapons in the past. Meselson described an American facility, north of Terre Haute, Indiana, built in 1944 that would have produced 500,000 four pound anthrax bombs monthly once in full operation.

Meselson was part of a team that proved the accidental release of anthrax at a Soviet facility in 1979, disproved charges of biological warfare in Laos and Cambodia in the late 1970s, and was a driving force behind popularizing the Chemical Weapons Convention in 1994.

Since coming in office, the Bush-Cheney Administration has done much to weaken that Chemical Weapons Convention as well as ones on biological weapons. One of George W. Bush’s first acts as President in early 2001 was to oppose a proposed international Biological and Toxic Weapons Protocol, without explanation, leading to the death of the talks.

In a 2004 study, the British Medical Association warned that the world was perhaps only a few years away from "terrifying biological weapons capable of killing only people of specific ethnic groups," citing advances in genetic weapons technology. 9

The US Department of Homeland Security has ominously enough announced it is ordering production and stockpiling of a pandemic influenza vaccine: "The U.S. Government is taking steps to minimize the need to make vaccine allocation decisions by supporting efforts to increase domestic influenza vaccine production capacity. Significant funding is being

provided to develop new vaccine technologies that allow production of enough pandemic influenza vaccine for any person in the United States who wants to be vaccinated within six months of a pandemic declaration." 10The curious role of Sanofi Pasteur

The US Government has been financing the development of a vaccine against H5N1 on a "fast track" basis since 2004. Sanofi Pasteur in Swiftwater, Pennsylvania, a subsidiary of the giant French pharmaceutical firm, the third largest in the world, manufactured an inactivated vaccine made from an H5N1 virus isolated in Southeast Asia in 2004. Sanofi Pasteur, part of the French-based Sanofi Aventis Group, was awarded a contract by the US Government’s National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), NIAID to manufacture the H5N1 vaccine in May 2004.11

In April 2007 the FDA approved the Sanofi Pasteur vaccine for H5N1 even though one year before the FDA cited Sanofi Pasteur for producing contaminated Fluzone vaccines.12 The FDA approved H5N1 vaccine is itself apparently not really effective in event of a human-to-human outbreak of Avian Flu. On announcing its approval, the FDA stated, "two injections given 28 days apart may provide ‘limited’ protection if a pandemic occurs. About 45% of people who got the vaccine in a study developed an immune response to the virus."13

Until now H5N1 has not mutated into a form that can easily spread from person to person. Is that what the researchers at Sanofi Pasteur and various labs under contract to the US Government are engaged in? If so it would be classified Top Secret, clearly. The respected British magazine, New Scientist, commented, "If H5N1 does mutate, it is unclear if vaccines developed now would still work against a pandemic strain. Manufacturers could tailor a new vaccine to that strain, but current production methods take months."14

The magazine noted that research on the Sanofi vaccine was conducted by the National Institutes of Health as part of the US Government's efforts to prepare for a flu pandemic. The salient question is whether they prepare "for a flu pandemic" or whether they prepare a flu pandemic. Why is the US Government spending hundreds of millions of taxpayer dollars to stockpile this H5N1 vaccine which likely would not work against such a pandemic outbreak?

On July 2, 2008, the London Daily Telegraph newspaper reported, "Three Polish doctors and six nurses are facing criminal prosecution after a number of homeless people died following medical trials for a vaccine to the H5N1 bird-flu virus." 15

The report added that the medical staff, from the northern town of Grudziadz, were being investigated over medical trials on as many as 350 homeless and poor people last year, which prosecutors say involved an untried vaccine to the highly-contagious virus. Authorities claim that the alleged victims received €3 to be tested with what they thought was a conventional flu vaccine but, according to investigators, was actually an anti bird-flu drug. The director of a Grudziadz homeless centre, Mieczyslaw Waclawski, told a Polish newspaper that last year, 21 people from his centre died, a figure well above the average of about eight.

The Polish report did not specify if it was the vaccine being developed under contract to the US Government Department of Homeland Security by Sanofi-Pasteur. However, it is known that Sanofi-Pasteur has been producing large quantities of such a vaccine at a factory they have in China.

Dr. Laibow reports that the "Pandemic Avian Flu Vaccine" was scheduled to be delivered to the United States this month by the French vaccine maker, Sanofi Pasteur, from a facility they own in China, where it is being produced. The US Government issued its "Vaccine" allocation plan in July. Laibow fears that a most sinister scenario of a deliberate release of Avian Flu pathogens on the population that could activate martial law and forced vaccination with resulting deaths in the millions could be imminent. Spanish Flu virus revived by Pentagon

In 2003 US Army scientists created ‘Spanish Flu’ virus in the laboratory. According to a report at the time by the watchdog group, The Sunshine Project, which monitors biological and chemical weapons research of the United States Government issued a statement that "The 'Spanish Flu' influenza virus that killed 20-40 million people in 1918 is currently under reconstruction. Several genes of the extraordinarily lethal 1918 flu virus have been isolated and introduced into contemporary flu strains. These proved to be lethal for mice, while virus constructs with genes from a current flu virus types had hardly any effect. These experiments may easily be abused for military purposes, but provide little benefit from a medical or public health point of view."

They continued, "The 1918 Spanish Flu was highly infectious and – in comparison to contemporary flu viruses – killed a very high percentage of those infected, including many younger people. The Spanish Flu alone caused the medium life expectancy in the US in 1918 to drop by 10 years. Hence, flu viruses are perceived today as a serious biological warfare threat. Just two weeks ago, a 15 million dollar research grant was awarded in the US to develop protective measures especially against a bioterrorist attack with flu viruses."

The statement added, "Despite the very dangerous nature of the 1918 virus, efforts to reconstruct it started in the mid 1990s, when Dr Jeffrey Taubenberger from the US Armed Forces Institute of Pathology in Washington DC succeeded in recovering and sequencing fragments of the viral RNA from preserved tissues of 1918 victims. In the current issue of the scientific journal Emerging Infectious Diseases new genetic details of the 1918 flu virus will be published."

Most ominously, they report, "But after (partially) unravelling the genetic sequence of the virus, the scientists went a step further and began bringing the Spanish flu back to life. Unnoticed by the public, they succeeded in creating a live virus containing two 1918 genes that proved to be very lethal in animal experiments. This experiment is only one genetic step away from taking the 1918 demon entirely out of the bottle." 16

They conclude, "A resuscitation of the Spanish flu is neither necessary nor warranted from a public health point of view. Allegedly, the recent experiments sought to test the efficacy of existing antiviral drugs on the 1918 construct. But there is little need for antiviral drugs against the 1918 strain if the 1918 strain had not been recreated in the first place. ‘It simply does not make any scientific sense to create a new threat just to develop new countermeasures against it.’ says Jan van Aken, biologist with the Sunshine Project, ‘Genetic characterization of influenza strains has important biomedical applications. But it is not justifiable to recreate this particularly dangerous eradicated strain that could wreak havoc if released, deliberately or accidentally.’"17

Let us sincerely hope not, but as Prof. Stephen Block, Stanford University biophysicist with years of experience in classified Pentagon and US Government biological research remarked in another context, "We’re tempted to say that nobody in their right mind would ever use these things." Block added, "But not everybody is in their right mind…" 18Sanofi Pasteur delivers H5N1 vaccine

On April 28 of this year in an official Press Release from Sanofi Pasteur US headquarters in Swiftwater, Pennsylvania and Lyon, France, the company stated, "Sanofi Pasteur, the vaccines division of Sanofi-Aventis Group, announced today that the US Department of Health and Human Services (HHS) has accepted H5N1 bulk vaccine antigen to produce approximately 38.5 million doses of vaccine to protect against a new strain of avian influenza. Sanofi Pasteur has a multi-year contract with HHS as part of its pandemic program, and will receive a payment of $192.5 million booked in the second quarter of 2008 for acceptance of the bulk vaccine lot."19

Then, on June 16 of this year, Sanofi Pasteur issued the following release announcing that it will, "donate 60 million doses of H5N1 vaccine to the World Health Organization (WHO) over 3 years for the establishment of an H5N1 vaccine global stockpile."

The President and CEO of Sanofi Pasteur, Wayne Pisano, said in the release, "The H5N1 virus is currently circulating in some of the poorest regions of the world and an outbreak of pandemic influenza would most likely hit populations living in areas with limited access to vaccines. This donation of H5N1 vaccine aims to address the needs of those most vulnerable populations. In addition to supporting the efforts of governments," Pisano added, "it is essential that industry collaborates with international organizations such as WHO, the Bill and Melinda Gates Foundation and other global health players. This is the best way to build a stockpile of vaccines for developing nations, ready to be deployed on the ground in the event of a pandemic flu outbreak."20

The Bill and Melinda Gates Foundation, in addition to being a financial supporter of the so-called Doomsday Seed Vault in the Arctic, has dedicated its foundation billions to support population control especially inAfrica. Among other projects they, as well as the Rockefeller Foundation, are financing The Alliance for a Green Revolution in Africa, whose head is former UN Secretary General Kofi Annan. 21

As the world's leading influenza vaccine manufacturer, Sanofi Pasteur produces approximately half of the influenza vaccine distributed worldwide. In the US it produced more than 40 percent of the influenza vaccine distributed for the 2007-2008 influenza season. The fact that the US Government has revived the 1918 Spanish Flu virus to make "tests" indicates that anything is possible. There are in this world some people not in their "right mind." God forbid if it is so in this instance.

F. William Engdahl is author of Seeds of Destruction: the Hidden Agenda of Genetic Manipulation
He may be contacted through his website, (see details on William engdahl's book below)


1Alfred W. Crosby, America’s Forgotten Pandemic: The Influenza of 1918, Cambridge, Cambridge University Press, 1989, pp.207-8. The Spanish Influenza was unusual in that it struck infants as well as elderly. Crosby described its effects: "a disease that turned people the color of wet ashes and drowned them in the fluids of their own bodies and inspired names like the ‘purple death.’

2 Rima E. Laibow, M.D., Weaponized Avian Flu Intelligence Report, in

3 Ibid.

4 Ibid.

5 F. William Engdahl, Saat der Zerstörung: Die dunkle Seite der Gen-Manipulation, Kopp Verlag, Rottenburg am Neckar,2007, pp. 269-271.

6 GRAIN, Fowl Play: The Poultry Industry’s Central Role in the Bird Flu Crisis, , February 2006. In their report they note, "The transformation of poultry production in Asia in recent decades is staggering. In the Southeast Asian countries where most of the bird flu outbreaks are concentrated—Thailand, Indonesia, and Viet Nam—production jumped eightfold in just 30 years, from around 300,000 metric tonnes (mt) of chicken meat in 1971 to 2,440,000 mt in 2001. China’s production of chicken tripled during the 1990s to over 9 million metric tons per year." (Cited in Engdahl, Op. Cit., p. 288.).

7 As well, a report by a Canadian organization, Beyond Factory Farming, described the transmission likely pathways from the giant industrialized chicken centers: ‘In Thailand, China and Vietnam there is a highly developed industrial poultry industry which has expanded dramatically in the past decade. The large poultry companies raise millions of birds, hatch chicks to supply other intensive poultry operations, export live birds and eggs to countries such as Nigeria (where the first Highly Pathogenic Avian Influenza outbreak in Africa was recently reported) and produce and export feed which often includes "litter" (i.e., manure) in the ingredients.


‘Manure that may contain live virus is spread on surrounding farmland, or exported as fertilizer, and through run-off may end up in surface waters where wild birds feed and rest. Chicken manure is even found in fish farm feed formulations where it is introduced directly into the aquatic environment. Wild birds and poultry that

have fallen victim to HPAI in Asia, Turkey and Nigeria appear to have been directly exposed to HPAI virus originating in the factory farm system. In Asia, a flock of wild ducks died from HPAI—after having come into contact with the disease at a remote lake where a fish farm used feed pellets made from poultry litter from a factory farm. In Turkey a massive cull of backyard flocks—and the deaths of three children—took place after a nearby factory farm sold sick and dying birds to local peasants at cut rate prices. Nigeria has a large and poorly regulated factory poultry production sector which is supplied with chicks from factory farms in China.’ (Engdahl, Op. Cit., p. 289)

8 Study shows hybrids of bird flu and human flu viruses fit well, could occur, The Canadian Press, Toronto, undated. May 2008.


9 F. William Engdahl, Op. Cit., pp. 262-263.

10 United States Department of Homeland Security, Health & Human Services Department, Guidance on Allocating and Targeting Pandemic Influenza Vaccine, p. 2, accessed in

11 NIH News, NIAID Initiates Trial of Experimental Avian Flu Vaccine, Washington, D.C., March 23, 2005, accessed in

12 Quoted in, sanofi pasteur, The Largest Company In The World Devoted To Human Vaccines, April 18, 2007, accessed at

13 The New Scientist, US Approves First Bird Flu Vaccine for People, 17 April, 2007, accessed at

14 Ibid.

15 Matthew Day, Homeless people die after bird flu vaccine trial in Poland, Daily Telegraph, July 2, 2008, accessed in

16 The Sunshine Project, Lethal Virus from 1918 Genetically Reconstructed: US Army scientists create ‘Spanish Flu’ virus in laboratory - medical benefit questionable, 9 October 2003, accessed at

17 Ibid.

18 Cited in F. William Engdahl, Op. Cit., p. 277.

19 Press Release of Sanofi Pasteur, U.S. Government accepts $192 million of sanofi pasteur H5N1 bulk vaccine antigen for pandemic stockpile: Vaccine for new strain of virus broadens government readiness program, April 28, 2008, accessed at

20 Press Release of Sanofi Pasteur, Sanofi Pasteur to donate 60 million doses of H5N1 vaccine to WHO over 3 years for its influenza vaccine global stockpile, June 16, 2008, accessed at

21 William Engdahl, ‘Doomsday Seed Vault’ in the Arctic: Bill Gates, Rockefeller and the GMO giants know something we don’t, in Global Research, December 4, 2007, accessed in

Russia takes control of Turkmen (world?) gas

Russia takes control of Turkmen (world?) gas

By M K Bhadrakumar

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From the details coming out of Ashgabat in Turkmenistan and Moscow over the weekend, it is apparent that the great game over Caspian energy has taken a dramatic turn. In the geopolitics of energy security, nothing like this has happened before. The United States has suffered a huge defeat in the race for Caspian gas. The question now is how much longer Washington could afford to keep Iran out of the energy market.

Gazprom, Russia's energy leviathan, signed two major agreements in Ashgabat on Friday outlining a new scheme for purchase of Turkmen gas. The first one elaborates the price formation principles that will be guiding the Russian gas purchase from Turkmenistan during the next 20-year period. The second agreement is a unique one, making Gazprom the donor for local Turkmen energy projects. In essence, the two agreements ensure that Russia will keep control over Turkmen gas exports.

The new pricing principle lays out that starting from next year, Russia has agreed to pay to Turkmenistan a base gas purchasing price that is a mix of the average wholesale price in Europe and Ukraine. In effect, as compared to the current price of US$140 per thousand cubic meters of Turkmen gas, from 2009 onward Russia will be paying $225-295 under the new formula. This works out to an additional annual payment of something like $9.4 billion to $12.4 billion. But the transition to market principles of pricing will take place within the framework of a long-term contract running up to the year 2028.

The second agreement stipulates that Gazprom will finance and build gas transportation facilities and develop gas fields in Turkmenistan. Experts have estimated that Gazprom will finance Turkmen projects costing $4-6 billion. Gazprom chief Alexei Miller said, "We have reached agreement regarding Gazprom financing and building the new main gas pipelines from the east of the country, developing gas fields and boosting the capacity of the Turkmen sector of the Caspian gas pipeline to 30 billion cubic meters." Interestingly, Gazprom will provide financing in the form of 0% credits for these local projects. The net gain for Turkmenistan is estimated to be in the region of $240-480 million.

From all appearance, Gazprom, which was headed by Russian President Dmitry Medvedev for eight years from 2000 to May 2008, has taken an audacious initiative. It could only have happened thanks to a strategic decision taken at the highest level in the Kremlin. In fact, Medvedev had traveled to Ashgabat on July 4-5 en route to the Group of Eight summit meeting in Hokkaido, Japan.

Curiously, the agreements reached in Ashgabat on Friday are unlikely to enable Gazprom to make revenue from reselling Turkmen gas. Quite possibly, Gazprom may now have to concede similar terms to Kazakhstan and Uzbekistan, the two other major gas producing countries in Central Asia. In other words, plain money-making was not the motivation for Gazprom. The Kremlin has a grand strategy.

Coincidence or not, Russian Deputy Prime Minister Igor Sechin traveled to Beijing at the weekend to launch with his Chinese counterpart, Vice Premier Wang Oishan, an energy initiative - a so-called "energy negotiation mechanism". The first round of negotiations within this framework took place on Saturday in Beijing. There has been an inexplicable media blackout of the event, but Beijing finally decided to break the news. The government-owned China Daily admitted on Monday, "Both China and Russia kept silent on the details of the consensus they reached on energy cooperation in the first round of their negotiation in Beijing on the weekend."

Without getting into details, China Daily merely took note of the talks as "a good beginning" and commented, "It seems that a shift of Russia's energy export policy is under way. Russia might turn its eyes from the Western countries to the Asia-Pacific region ... The cooperation in the energy sector is an issue of great significance for Sino-Russian relations ... the political and geographic closeness of the two countries would put their energy cooperation under a safe umbrella and make it a win-win deal. China-Russia ties are at their best times ... The two sides settled their lingering border disputes, held joint military exercises, and enjoyed rapidly increasing bilateral trade."

It is unclear whether Gazprom's agreements in Ashgabat and Sechin's talks in Beijing were inter-related. Conceivably, they overlapped in so far as China had signed a long-term agreement with Turkmenistan whereby the latter would supply 30 billion cubic meters of gas to China annually for the 30-year period starting from 2009. The construction work on the gas pipeline leading from Turkmenistan to China's Xinjiang Autonomous region has already begun. China had agreed on the price for Turkmen gas at $195 per thousand cubic meters. Now, the agreement in Ashgabat on Friday puts Gazprom in the driving seat for handling all of Turkmenistan's gas exports, including to China.

Russia and China have a heavy agenda to discuss in energy cooperation far beyond the price of Turkmen gas supplies. But suffice it to say that Gazprom's new stature as the sole buyer of Turkmen gas strengthens Russia's hands in setting the price in the world gas (and oil) market. And that has implications for China. Moscow would be keen to ensure that Russian and Chinese interests are harmonized in Central Asia.

Besides, Russia is taking a renewed interest in the idea of a "gas cartel". Medvedev referred to the idea during the visit of Venezuelan President Hugo Chavez to Moscow last week. The Russian newspaper Nezavisimaya Gazeta reported on Friday that "Moscow finds the idea of coordination of gas production and pricing policy with other gas exporters to be too tempting to abandon". The daily quoted Miller as saying, "This forum of gas exporters will set up the global gas balance. It will give answers to the questions concerning when, where and how much gas should be produced."

Until fairly recently Moscow was sensitive about the European Union's opposition to the idea of a gas cartel. (Washington has openly warned that it would legislate against countries that lined up behind a gas cartel). But high gas prices have weakened the European Union's negotiating position.

The agreements with Turkmenistan further consolidate Russia's control of Central Asia's gas exports. Gazprom recently offered to buy all of Azerbaijan's gas at European prices. (Medvedev visited Baku on July 3-4.) Baku will study with keen interest the agreements signed in Ashgabat on Friday. The overall implications of these Russian moves are very serious for the US and EU campaign to get the Nabucco gas pipeline project going.

Nabucco, which would run from Turkey to Austria via Bulgaria, Rumania and Hungary, was hoping to tap Turkmen gas by linking Turkmenistan and Azerbaijan via a pipeline across the Caspian Sea that would be connected to the pipeline networks through the Caucasus to Turkey already existing, such as the Baku-Tbilisi-Ceyhan pipeline.

But with access denied to Turkmen gas, Nabucco's viability becomes doubtful. And, without Nabucco, the entire US strategy of reducing Europe's dependence on Russian energy supplies makes no sense. Therefore, Washington is faced with Hobson's choice. Friday's agreements in Ashgabat mean that Nabucco's realization will now critically depend on gas supplies from the Middle East - Iran, in particular. Turkey is pursuing the idea of Iran supplying gas to Europe and has offered to mediate in the US-Iran standoff.

The geopolitics of energy makes strange bedfellows. Russia will be watching with anxiety the Turkish-Iranian-US tango. An understanding with Iran on gas pricing, production and market-sharing is vital for the success of Russia's overall gas export strategy. But Tehran visualizes the Nabucco as its passport for integration with Europe. Again, Russia's control of Turkmen gas cannot be to Tehran's liking. Tehran had keenly pursed with Ashgabat the idea of evacuation of Turkmen gas to the world market via Iranian territory.

There must be deep frustration in Washington. In sum, Russia has greatly strengthened its standing as the principal gas supplier to Europe. It not only controls Central Asia's gas exports but has ensured that gas from the region passes across Russia and not through the alternative trans-Caspian pipelines mooted by the US and EU. Also, a defining moment has come. The era of cheap gas is ending. Other gas exporters will cite the precedent of the price for Turkmen gas. European companies cannot match Gazprom's muscle. Azerbaijan becomes a test case. Equally, Russia places itself in a commanding position to influence the price of gas in the world market. A gas cartel is surely in the making. The geopolitical implications are simply profound for the US.

Moreover, Russian oil and gas companies are now spreading their wings into Latin America, which has been the US's traditional backyard. During Chavez's visit to Moscow on July 22, three Russian energy companies - Gazprom, LUKoil and TNK-BP - signed agreements with the Venezuelan state-owned petroleum company PDVSA. They will replace the American oil giants ExxonMobil and ConocoPhillips in Venezuela.

At the signing ceremony, Medvedev said, "We have not only approved these agreements but have also decided to supervise their implementation." Chavez responded, "I look forward to seeing all of you in Venezuela."