Palestinian PM-designate Abu Mazin appears to have succeeded in facing down Arafat over his choice of Cabinet. It still has to be approved by the Palestinian Parliament. Once that happens, Bush is committed to publishing his ‘roadmap’ for peace, which Sharon has already effectively dismissed, proposing a wide range of amendments.

This is the big test for Bush’s Middle East policy. If he pushes ahead and demands that Sharon accept the roadmap without significant change, begins dismantling settlements and so on, there is a fair chance that the resulting shift in public sentiment throughout the Arab world will lead to a successful outcome in Iraq. If not, the hostility to the US that is already evident in Iraq will only intensify – there are a number of possible ways the situation could develop from there, none of them appealing.

But as I argued at the time, if Bush was planning to do something serious about the Israel-Palestine problem, it would have been far more sensible to do it first, then deal with Saddam.

According to this NYT report, an Iraqi scientist has reported to the US that
(a) The Iraqis successfully concealed weapons from the UN but destroyed them just before the war
(b) The Iraqis transferred weapons to Syria
(c) The entire operation was linked to Al Qaeda
(d) He had taken the trouble to bury some samples (not chemical weapons, but precursors)
(e) Jacques Chirac regularly visited the site

OK, I made (e) up. But, in the absence of any actual weapons, items (a) to (d) are so close to today’s wishlist for testimony from a defecting scientist, it’s hard not to see this as someone trying too hard to please. As the NYT report, which has apparently been closely vetted by the US military, notes,

But he has given the Americans information about other unconventional weapons activities, they said, as well as information about Iraqi weapons cooperation with Syria, and with terrorist groups, including Al Qaeda. It was not clear how the scientist knew of such a connection. (Emphasis added)

On a related topic, I haven’t had much good to say about Donald Rumsfeld, but his prompt repudiation of a report that the Pentagon expects to establish permanent bases in Iraq was a piece of good sense. I had meant to post on this report under the heading “I really hope this isn’t true”, and for once my hopes appear to have been realised. As Rumsfeld said, it’s not as though the US is short of bases as it is.

US debt will come back to bite. Australian Financial Review 13 March 2003 An extract:

Banana republic populism actually has it easier in the US than in the Third World because the vast majority of US debt is denominated in US dollars. Rather than resorting to repudiation, the US government can simply print all the dollars it needs and use some of the proceeds to compensate the domestic holders of US public debt (a dwindling proportion as foreigners now hold between $2 and $3 trillion of US debt) …

The world has often seen rulers whose military power is not matched by their financial means. The lesson of history is that those who lend money to such rulers usually regret it.

Update 21/4 Niall Ferguson in the NYT develops the historical parallels in a great deal more detai.

Being AAA is not the top , Australian Financial Review ,27 February 2003. As I observed a few days ago, the mention of AAA credit ratings seems to induce a complete loss of reasoning capacity in Australian politicians. An extract:

the political weight attached to credit ratings is based on an exaggerated respect for the financial institutions that issue them. In the 1980s and 1990s, it was easy to believe that the financial wisdom of firms like Standard & Poors and Moodys vastly exceeded that of spendthrift governments in need of fiscal discipline.

The weaknesses of the ratings agencies have been sharply exposed by the financial crises of the last few years, most of which involved some form of crony capitalism. The Asian crisis caught the ratings agencies almost completely by surprise. Even more striking were the failures on their home turf. Firms like Enron and WorldCom, supposedly scrutinised by sophisticated financial analysts, went broke with scarcely any warning from the credit watchdogs.

Unfortunately, the use of dubious fiscal expedients like off-balance sheet partnerships is not confined to Enron. Most of the reduction in Commonwealth debt has arisen from asset sales. The sale of Telstra, which drastically reduced the net worth of the pubic sector, was the biggest contributor. While less significant in quantitative terms, other fiscal expedients have been even more troublesome. They include sale-and-leaseback arrangements very similar to those that formed the basis of the accounting manipulations employed by Enron.

More generally, the adoption of practices such as reliance on commercial confidentiality, a natural accompaniment of faith in the superiority of financial markets over governments, has led to a reduction in the amount of information about the operations of government that is made available to the public. The decline in the usefulness of the Commonwealth Budget papers is particularly noteworthy.

AAA ratings are all very well, but they are no substitute for accurate, comprehensive and comprehensible public accounts. These have been sorely lacking in Australia in recent years

As I’ve observed in the past, the stockmarket bubble in the United States represented a comprehensive practical refutation of the efficient markets hypothesis. The consequences of this refutation will take a long while to work their way through our thinking, but they will certainly include a diminution of respect for AAA ratings.