[RED DEMOCRATICA] CFR.org Daily Brief, August 11, 2010

 

August 11, 2010 View this newsletter as a web page on CFR's website. EXECUTIVE SUMMARY - U.S. Fed to Buy Debt to Boost Recovery - Bomb Kills Eight Iraqi Soldiers - Call for More Pakistan Flood Aid - Venezuela, Colombia Restore Ties Top of the Agenda: Worried About Recovery, Fed to Buy U.S. Debt The U.S. Federal Reserve, expressing concern over economic recovery (NYT), said Tuesday it plans to reinvest the proceeds of maturing mortgages in long-term U.S. Treasury debt. Fed officials downgraded their economic outlook, saying the "pace of recovery in output and employment has slowed in recent months" and in the near term was likely to be "more modest" than anticipated. The Fed repeated its commitment to keep its target for the federal funds rate (WSJ), at which banks lend to each other overnight, at "exceptionally low levels" for an "extended period." The decision is a turnabout from only a few months ago, when officials were discussing when and how to raise interest rates and gradually shrink the $2.3 trillion balance sheet amassed through the Fed's response to the 2008 financial crisis. The Fed's move drew mixed reactions from the markets (FT). In the United States, stocks reversed and pared their losses, closing at their highest point of the day. But in early trading on Wednesday, Asian markets fell to a two-week low. European shares were also lower, with the steepest declines in the UK and Germany. Meanwhile, on Tuesday, President Barack Obama signed an emergency $26 billion jobs bill (AP) that Democrats say will save three hundred thousand teachers, police, and others from election-year layoffs. Analysis Read economists' reaction to Fed's latest policy here (WSJ). In the New York Times blog Economix, Catherine Rampell says the Fed has made history by adding a new benchmark to control its monetary policy: the size of its balance sheet. Background Read the full text of Fed statement from Tuesday's meeting here. Phil Izzo of the Wall Street Journal compares the Fed's latest statement with that in June to see what has changed. MIDDLE EAST: Bomb Kills Iraqi Soldiers Eight Iraqi soldiers were killed (al-Jazeera) when a house they were preparing to raid blew up in Iraq's northern Diyala province. Tensions have been steadily rising since March parliamentary elections, which failed to produce a clear winner. The United States plans to move all U.S. forces out of Iraq by the end of 2011. The New York Times argues that the reality in Iraq may defy that deadline, because many U.S. and Iraqi officials see the American presence as in each nation's interest. Lebanon: A military court in Lebanon has charged a former general and Christian party politician with spying for Israel (BBC). Fayez Karam was arrested last week and has been charged with giving Israel intelligence on militant group Hezbollah and his own Free Patriotic Movement. SOUTH ASIA: Call for More Pakistan Flood Aid The UN and aid agencies are calling for more aid (Euronews), warning that unless there is additional international help, many more people will die as floods now inundate southern areas. Pakistan issued fresh flood warnings (Dawn) on Wednesday, putting parts of Punjab and Sindh provinces on alert. A new CFR Analysis Brief looks at the economic and political costs of floods in Pakistan. Sri Lanka: Sri Lanka has officially begun its investigation (al-Jazeera) into the country's decades-long civil war. As this Backgrounder points out, human rights groups allege that both government forces and the defeated Tamil Tiger rebels may have committed war crimes before the war ended last year. Meanwhile, U.S. legislators have called for an independent international inquiry into possible war crimes, arguing that the panels set up by the Colombo-based government "lacked the needed credibility." PACIFIC RIM: China's Economy Slows Key drivers of China's economic growth--investment and factory output--continued to cool (Reuters) in July, as the government steadily steered credit growth back to normal after a record lending spree in 2009 to counter the global financial crisis. The statistics, released by the government, were generally in line with market expectations. Meanwhile, China's trade surplus surged last month to its highest level in eighteen months, as growth in imports slowed and exports rose. North Korea: Football's governing body, FIFA, launched an investigation (BBC) into allegations that North Korea punished the coach and some players after its team lost all its World Cup matches. Radio Free Asia alleged last month that the squad was publicly humiliated and coach Kim Jong-Hun sentenced to hard labor. AFRICA: South African Workers in Wage Strike More than a million public sector workers, seeking wage increases, staged a crippling one-day strike (CNN) in South Africa, bringing public service to a virtual standstill in parts of the country. The workers want wage hikes of up to 8.6 percent, about double the rate of inflation, and improvements to their housing allowance, currently about $70 a person. Morocco: The government says it will close over 1,200 mosques (BBC) deemed unsafe to avoid a repeat of the collapse of a minaret in February that killed forty-one people. The accident prompted widespread public criticism over the apparent lack of maintenance of religious sites. The ministry of religious affairs said $325 million has been set aside for the improvements, including the demolition and rebuilding of 513 mosques. AMERICAS: Venezuela, Colombia Restore Ties Venezuelan President Hugo Chavez and his new Colombian counterpart, Juan Manuel Santos, have agreed to restore diplomatic relations (AP). Chavez cut ties last month after Colombia accused Venezuela of harboring left-wing rebels. On Tuesday, they agreed to form five bi-national commissions to address issues like commerce and security. Guatemala: Guatemalan Authorities ordered the arrest (LAHT) of eighteen former senior officials and policemen over the killing of seven prisoners in 2006. The wanted men include opposition leader Alejandro Giammattei, who was head of the prison service at the time. The orders follow an investigation by the UN-backed International Commission Against Impunity in Guatemala. EUROPE: Russian Fires Raise Radiation Fears Environmental activists are warning that the wildfires still burning in Russia could move into areas (AP) affected by the 1986 Chernobyl nuclear disaster and spread harmful radiation. Emergency officials say that about 165,000 people and nearly forty firefighting aircraft are battling more than six hundred blazes nationwide. UK: The Bank of England lowered its growth estimates (BBC) and warned that the economy faces a "choppy recovery" over the next two years. The bank said inflation would stay higher for longer than previously forecast, and now expects the economy to grow by less than 3 percent in 2011, down from its previous forecast of closer to 3.5 percent.

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