The Perfect Storm to Drown the Economy: Speculation on how an economic crisis might unfold. ""There's a pattern that is familiar from so many other countries that have gotten into debt problems," said Jeffrey A. Frankel, an economist at Harvard's Kennedy School of Government. "A simultaneous rise in interest rates, fall in securities prices and depreciation of the currency."
Of course, economists, always armed with bandoliers of caveats, are quick to warn that the economy is relatively healthy. .. That said, how might a perfect storm be created? It would likely gather overseas. .. If the Bank of China, which has been accumulating dollars at the rate of $200 billion a year, decides to cut back on new purchases, either to diversify or to let its currency appreciate, the United States would quickly have to offer sharply higher interest rates to retain existing investors and entice new ones. Nouriel Roubini, an economics professor at New York University's Stern School of Business, estimates that if China cut its rate of accumulation by half, long-term interest rates in the United States could rise by 200 basis points over a few months and the value of the dollar would fall.
Such a rising tide - the yield on the 10-year bond shooting from 4.25 to 6.25, the average 30-year mortgage rising from 6 percent to 8 percent - would mean instantly higher borrowing costs for the government, businesses and consumers. It would drench Wall Street, soaking the stocks of giant interest-rate-sensitive blue chips like Citigroup and making life difficult for speculative, debt-ridden companies. .. "The result would not be a full-blown financial crisis most likely, but it would still be a major recession," said Barry Eichengreen, a professor of economics and political science at the University of California at Berkeley.
What's more, a recovery would be comparatively slow in coming. When the global economy came to a screeching, synchronous halt in 2001, the United States led much of the world back to growth because the federal government went on a stimulus binge for several years: Congress significantly increased government spending while cutting taxes, and the Federal Reserve slashed interest rates to historic lows, and held them there. But in the perfect economic storm, none of these three powerful levers would be readily available. Today's deep budget deficits make both significant tax cuts and spending increases unlikely. And rising interest rates would make it difficult, if not impossible, for the Federal Reserve to reduce the cost of borrowing. ..
[But,] adds Jeffrey Frankel, "some of us have been warning of this hard-landing scenario for more than 20 years."" 11:04:18 PM
Captured Al-Qaeda kingpin is case of 'mistaken identity' - Sunday Times:
"THE capture of a supposed Al-Qaeda kingpin by Pakistani agents last week was hailed by President George W Bush as “a critical victory in the war on terror”. According to European intelligence experts, however, Abu Faraj al-Libbi was not the terrorists’ third in command, as claimed, but a middle-ranker derided by one source as “among the flotsam and jetsam” of the organisation. .. the backslapping in Washington and Islamabad has astonished European terrorism experts, who point out that the Libyan was neither on the FBI’s most wanted list, nor on that of the State Department “rewards for justice” programme. Another Libyan is on the FBI list — Anas al-Liby, who is wanted over the 1998 East African embassy bombings — and some believe the Americans may have initially confused the two. When The Sunday Times contacted a senior FBI counter-terrorism official for information about the importance of the detained man, he sent material on al-Liby, the wrong man.
“Al-Libbi is just a ‘middle-level’ leader,” said Jean-Charles Brisard, a French intelligence investigator and leading expert on terrorism finance. “Pakistan and US authorities have completely overestimated his role and importance. He was never more than a regional facilitator between Al-Qaeda and local Pakistani Islamic groups.” .. Although British intelligence has evidence of telephone calls between al-Libbi and operatives in the UK, he is not believed to be Al-Qaeda’s commander of operations in Europe, as reported.
The only operations in which he is known to have been involved are two attempts to assassinate Pervez Musharraf, Pakistan’s president, in 2003. Last year he was named Pakistan’s most wanted man with a $350,000 (£185,000) price on his head. .. A former close associate of Bin Laden now living in London laughed: “What I remember of him is he used to make the coffee and do the photocopying.” ..
Some believe al-Libbi’s significance has been cynically hyped by two countries that want to distract attention from their lack of progress in capturing Bin Laden, who has now been on the run for almost four years. Even a senior FBI official admitted that al-Libbi’s “influence and position have been overstated”. 10:51:01 PM