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by Hera,


One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.” In fact, the US economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the US Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession. Although the vicious circle of debt deflation is not widely recognized, precisely what von Mises described is happening before our eyes.

A variety of positive economic data has been reported in recent months. Retail sales rose 0.4% in April 2010 as consumer spending rose and the US gross domestic product (GDP) grew at a rate of 3%.  In May 2010, home sales rose to a five-month high and consumer confidence rose 17% (from 57.7 to 63.3). Industrial production rose 0.8% and durable goods orders rose 2.9%, more than had been forecast. However, the modest gains reported represent the continuing adaptation of economic activity at dramatically lower levels compared to the pre-recession period and most of the reported gains have been substantially manufactured by massive government deficit spending.

Despite the widely reported green shoots, in May, the unemployment rate rose to 9.9% while paychecks in the private sector shrank to historic lows as a percentage of personal income, and personal bankruptcies rose. Roughly 14% of US mortgages are delinquent or in foreclosure, credit card defaults are rising and consumer spending hit 7 month lows. To make matters worse, the reported increase in consumer credit, in fact, points to a further deterioration because consumers appear to be borrowing to service existing debt. Outside of the federal government, which is borrowing at record levels and expanding as a percentage of GDP, and outside of the bailed out financial sector, debt deflation has continued unabated since 2008.
Money Supply vs. Debt Service
A contraction of the broad money supply is taking place because the influx of money into the US economy, i.e., lending to consumers and non financial businesses, has fallen below the rate at which money is flowing out of general circulation as a function of debt service (interest and principle payments on existing debt), thus a net drain of money from the broad US economy is taking place. As a result, additional borrowing, as consumer spending falls, appears to be servicing existing debt in a pattern that is clearly unsustainable and that signals a further rise in debt defaults in coming months.

 This story by Alexander Vorontsov, Head of Korea Department of the Institute for Orienta lStudies of the Russian Academy of Science, Strategic Culture Foundation expert and Oleg Revenko, Political analyst , Strategic Culture Foundation expert, was published in International Affairs magazine.
The report on the sinking of S. Korea's Cheonan corvette with the claim that the tragedy had been caused by a torpedo fired by a N. Korean submarine caused further escalation on the Korean Peninsula. On May 24, S. Korean President Lee Myung-bak made accusations against N. Korea, demanded apologies, and declared that S. Korea would suspend contacts and economic relations with Pyongyang, debar N. Korean ships from entering S. Korea's territorial waters, and resume the propaganda broadcasting via loudspeakers at the border between the Koreas. It is generally a decided matter that the Cheonan incident dossier will be submitted to the UN Security Council.
Predictably, Pyongyang paid in kind. Rejecting any connection to the sinking of the Cheonan corvette, N. Korea charged Seoul with forging evidence and announced a new policy aimed at phasing out of the relations with South Korea and annulling their legal basis built over the past years. Pyongyang also threatened to suppress the loudspeakers at the border by “point fire” and stressed that any steps infringing upon N. Korea's sovereignty would meet with “full-scale war” and “unlimited use of force”.
The current escalation on the Korean Peninsula is unprecedented. The post-war history of the relations between the two Koreas abounds with painful incidents, but problems were invariably localized and never triggered broader escalations. At the moment the S. Korean administration backed by the US and Japan is clearly seeking to politicize the tragic and still obscure incident.
There is an impression that Lee Myung-bak's team, which was eager from the outset to dump the positive legacy in the inter-Korean  relations, now feels that the time has come. For the first time since the Cold War, we are witnessing a total diplomatic disconnect between N. Korea and S. Korea, and a rebound will likely take years to achieve.
Now the question is what the future holds and what objectives the key players are trying to accomplish. S. Korea's motivation is to invite new UN Security Council's sanctions or at least to exact from the UN condemnations of N. Korea and calls for minimizing the relations with it. The idea seems to be to make the already troubled country face new problems and thus to weaken or even dislodge its current regime.
The current upheaval overshadows the main theme in the Korean Peninsula politics, namely, the prospects for the six-party talks dealing with N. Korea's nuclear program. At this point the question arises naturally what force could have been behind the Cheonan incident and in whose interests it was inflated to become a global problem. S. Korea hardly acted without its patron's blessing.
Notably, the incident took place when China's plan for reanimating the six-party talks started to materialize. The plan encompassing a N. Korea-US summit, an unofficial six-party meeting, and the revitalization of the Beijing dialog seemed to be a point of the international consensus. By the end of March the N. Korean team was ready to fly to the US, and now N. Korea's angriest critics in Washington say Pyongyang's diabolic plan was to torpedo not only the corvette in the Yellow Sea but the whole negotiating process. The theory does not withstand criticism: Pyongyang effortlessly dodged the six-party talks for 18 months and did not have to take the risks and face the consequences.
Alternative explanations that look more logical can be found easily. Preoccupied with Iran and Afghanistan, the US can't focus on the six-party talks. Accordingly, there could be an intention to freeze the negotiating situation under some pretext and, for the time being, rely on sanctions against N. Korea.
There may be a more fundamental agenda behind the current political intrigue: the US priority is to contain China's ambitions on the Korean Peninsula and in the entire region. Washington hopes to  confront China with a difficult choice between N. Korea and the international community. Either option disadvantages China, luring it into a conflict with Seoul and Tokyo or affecting its relations with N. Korea.
President Medvedev said in a phone conversation with Lee Myung-bak that at the moment task number one is to identify the real cause of the Cheonan sinking, and that internationally approved measures should be based on reliable information. Russia sent its own group of experts to South Korea to examine the available evidence and to get familiarized with the investigation results.
The tensions on the Korean Peninsula stem not so much from Pyongyang's “unpredictability and aggressiveness” as from the risky and short-sighted politics of Seoul combined with Washington's tendency to freeze the configuration sustaining tensions in the region at the level helping the US contain both Russia and China.
JERUSALEM — As Israel ordered a slight easing of its blockade of the Gaza Strip Wednesday, McClatchy obtained an Israeli government document that describes the blockade not as a security measure but as "economic warfare" against the Islamist group Hamas, which rules the Palestinian territory.
Israel imposed severe restrictions on Gaza in June 2007, after Hamas won elections and took control of the coastal enclave after winning elections there the previous year, and the government has long said that the aim of the blockade is to stem the flow of weapons to militants in Gaza.
Last week, after Israeli commandos killed nine volunteers on a Turkish-organized Gaza aid flotilla, Israel again said its aim was to stop the flow of terrorist arms into Gaza.
However, in response to a lawsuit by Gisha, an Israeli human rights group, the Israeli government explained the blockade as an exercise of the right of economic warfare.
"A country has the right to decide that it chooses not to engage in economic relations or to give economic assistance to the other party to the conflict, or that it wishes to operate using 'economic warfare,'" the government said.
McClatchy obtained the government's written statement from Gisha, the Legal Center for Freedom of Movement, which sued the government for information about the blockade. The Israeli high court upheld the suit, and the government delivered its statement earlier this year.
Sari Bashi, the director of Gisha, said the documents prove that Israel isn't imposing its blockade for its stated reasons, but rather as collective punishment for the Palestinian population of Gaza. Gisha focuses on Palestinian rights.
(A State Department spokesman, who wasn't authorized to speak for the record, said he hadn't seen the documents in question.)
The Israeli government took an additional step Wednesday and said the economic warfare is intended to achieve a political goal. A government spokesman, who couldn't be named as a matter of policy, told McClatchy that authorities will continue to ease the blockade but "could not lift the embargo altogether as long as Hamas remains in control" of Gaza.

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