The Crackdown to Come

By WILLY LAM
FROM THE WALL STREET JOURNAL ASIA
August 22, 2008

Not only have the Olympics failed to act as a catalyst for political liberalization in China, but the regime's pre-Olympics security buildup looks set to enable the government to crack down as hard as ever on dissent after the Games are over. In line with the time-honored Chinese tradition of "taking revenge after the autumn harvest," police and military authorities are planning major reprisals against a host of troublemakers.

Punitive action has begun even before the athletes and the estimated 400,000 foreign tourists leave town. Remember the "protest zones" that Beijing authorities set up in three local parks as testimony of the regime's "new openness"? According to international human rights watchdogs, several activists who have applied to hold protests have been harassed and detained. They include two Beijing petitioners, Wu Dianyuan and Wang Xiuying, who were last week sentenced to a one-year term of "re-education through labor." Mr. Wu and Ms. Wang's crime: repeatedly petitioning the authorities for having been wrongfully evicted from their Beijing homes seven years ago.

Indeed, a good number of the strategies and institutions put into place to ensure a fail-safe Olympics are here to stay.

David G. Klein

Since disturbances hit Tibet and four neighboring provinces in March, the leadership under President Hu Jintao has boosted the powers of the People's Liberation Army, the People's Armed Police, the regular police and the judicial apparatus in combating destabilizing forces. As a key element of the revival of Chairman Mao Zedong's "people's warfare," Beijing and a number of other cities have revived the vigilante and spying functions of neighborhood committees. Municipal administrations along the coast -- and in the autonomous regions of Tibet and Xinjiang -- have recently earmarked additional budget to maintain the "spying" functions of neighborhood committees and similar vigilante outfits after the Olympics.

Moreover, the Politburo's Central Political and Legal Commission, China's highest law-enforcement agency, has urged the courts and prosecutors to do more in fulfilling the party's priority task of thwarting anti-Beijing conspiracies and upholding sociopolitical stability.

That the courts will comply in this is evident from a just-released article by the President of the Supreme People's Court, Wang Shengjun. Writing in this week's edition of the official Seeking Truth journal, Mr. Wang said: "We must pay more attention to maintaining state security and social stability. . . We must boost our consciousness of [safeguarding] the power of the regime . . . and fully develop our functions as a department for [proletarian] dictatorship."

Recent vows made by senior judicial cadres about doing the bidding of the Chinese Communist Party (CCP) are indicative of the Hu leadership's long-term game plan of using the judicial apparatus against the party's foes. In numerous political campaigns waged by the CCP in recent decades, prosecutors and judges have played a pivotal role in "expediting" the incrimination of "counterrevolutionaries."

The CCP leadership also is beefing up its campaign against "splittist elements," particularly in Xinjiang. In three separate attacks in western Xinjiang between August 4 and 12, ruffians described by Chinese authorities as "terrorists" killed 20 PAP officers and police.

In a televised conference earlier this week, a high-ranking member of the Xinjiang CCP Committee, Zhu Hailun, indicated that the authorities would step up their "military struggle" against the "three evil forces" of separatism, terrorism and religious extremism. "We must use iron-fisted methods to hit out at the disruptive activities [of separatists]," said Mr. Zhu, who is responsible for law and order in the restive region. "We shall take the initiative in attacking [the evil forces], hit them wherever they show up, and launch pre-emptive strikes against them."

Mr. Zhu's stern rhetoric has left no doubt that Beijing has ruled out any compromise with underground Uighur groups, many of which are merely seeking autonomous rights guaranteed by the Chinese Constitution, not outright independence. Instead, President Hu had in early summer ordered more People's Liberation Army and People's Armed Police reinforcements into Xinjiang and Tibet. These deployments have been confirmed by a Liberation Army Daily story earlier this month, which said that crack units from the Air Force of the Nanjing Military Region, which is responsible for the Taiwan Strait, had taken part in recent war games in Xinjiang.

Apart from hitting out at dissidents, petitioners and secessionist elements, the CCP leadership is buttressing its capacities to handle "mass incidents," a code word for riots and disturbances staged by peasants and workers who bear grudges against the authorities. The party journal Fortnightly Chat pointed out last week that "a rash of mass incidents have suddenly erupted, and they have rung the bell of alarm for [the viability of] grassroots administrations."

Many of these incidents have to do with peasants whose land has been grabbed by corrupt officials, or workers and migrant laborers who have been deprived of their pensions and other rightful benefits. Confrontation between the masses and police is tipped to rise owing to recent difficulties in the economy. Some 67,000 medium-sized enterprises folded in the first half of the year. And the livelihood of workers and farmers has been rendered more difficult by inflation that is hovering between 6% and 7%.

Growing instability on various fronts has predisposed the Hu leadership toward strengthening the police-state apparatus that has been put together in the name of ensuring a trouble-free Olympics. Moreover, cadres in the law-and-order establishment, who include senior officials in the Central Political and Legal Commission as well as military, police and judicial departments, have gained immense clout, not to mention much more funding, since early this year.

These units have used their extra budgets to hire tens of thousands of new staff, in addition to acquiring hardware that includes state-of-the-art antiriot gear and hundreds of thousands of surveillance cameras and related equipment. It is in the vested interests of this fast-expanding law-and-order establishment to play up the imperative of eradicating "enemies of the party," whether real or imagined.

All of which together bodes ill for the prospects of a post-Olympics thaw for China's aggrieved residents and political dissidents.

Mr. Lam is a Hong Kong-based China scholar and author of "Chinese Politics in the Hu Jintao Era" (M.E. Sharpe, 2006).

Russia to keep posts in Georgia

A Russian convoy on the move from Gori

A senior Russian general says Moscow intends to maintain a military presence of more than 2,000 troops in Georgia.

Gen Anatoly Nogovitsyn said Russian forces would be stationed around the breakaway regions of Abkhazia and South Ossetia, the focus of recent conflict.

BBC correspondents on the ground say they have seen what appears to be a significant troop movement from Georgian positions to South Ossetia.

Georgia has said it will not accept any "annexation" of its land by Russia.

Russia's land forces commander earlier said that all Russian combat troops would be moved back from Georgia proper to South Ossetia by the weekend and that most of the soldiers sent to the region as reinforcements would return to Russia within 10 days.

The BBC's Gabriel Gatehouse says he has witnessed hundreds of Russian armoured vehicles, including tanks and armoured personnel carriers, withdrawing from the town of Igoeti, about 35km (21 miles) from the Georgian capital, Tbilisi.

See a map of the region

Our correspondent says buses of Georgian police are arriving to take control after Russian troops removed their road block and pulled out.

There are also reports of a pull-back from the Georgian flashpoint town of Gori to South Ossetia.

'Snail's pace'

At a briefing in Moscow, the deputy chief of the Russian military general staff, Gen Nogovitsyn, said the withdrawal of all combat troops was going according to plan.

"The troop pull-back has been started at a rate to make sure that the Russian troops be within the zone of responsibility of the Russian peacekeeping contingent by the end of 22 August," he said.

FROM THE TODAY PROGRAMME

"We are not going to correct this plan or increase the speed of withdrawal."

Gen Nogovitsyn said Russian troops were setting up checkpoints on the borders of South Ossetia and Abkhazia with Georgia.

The so-called zone of responsibility also includes Georgia's main airbase at Senaki, and cuts across Georgia's main east-west highway, which stretches from Tbilisi to the Black Sea.

Russian officials say the zone was established in principle in an agreement between Russia and Georgia which pre-dates this month's conflict, but was never put into force.

Georgian State Minister for Reintegration Temur Iakobashvili told Reuters that such a zone was "a violation of any agreement".

PEACE PLAN No more use of force Stop all military actions for good Free access to humanitarian aid Georgian troops return to their places of permanent deployment Russian troops to return to pre-conflict positions International talks about security in South Ossetia and Abkhazia Crisis day-by-day Who started the crisis? Nato's Russia dilemma

Russia's four-day war with Georgia began after Tbilisi tried to retake the Moscow-backed breakaway province of South Ossetia on 7 August, following days of clashes with separatists.

The fighting ended with an EU-brokered ceasefire deal, and a promise by Moscow to pull back its forces by 22 August.

But the commander of US forces in Europe, Gen John Craddock, said Russia was taking too long to pull back, saying "if they are moving, it is at a snail's pace".

The first of the Russian Black Sea Fleet warships, which have been deployed off the west coast of Georgia's province of Abkhazia, has returned to its base at Sevastopol in Ukraine.

Ukraine's President Viktor Yushchenko criticised Russia's use of ships from the base leased to Moscow, saying there was a danger of his country being passively drawn into an international conflict against its will. Protesters reportedly greeted the ship's return on Friday.

The United Nations High Commissioner for Refugees, Antonio Guterres, has arrived in the capital of South Ossetia, Tskhinvali, to assess the humanitarian situation there.

Thousands of civilians are reported to be in urgent need of relief supplies.

The UN estimates that nearly 160,000 people have been displaced across the whole of Georgia since the conflict began.

The Georgian government is seeking $1-2bn (£0.5-1bn) in aid to repair and develop infrastructure following the conflict with Russia, the head of the US government aid agency, USAid, said. The World Bank has also announced that it is sending a team of experts to the country to assess its reconstruction needs.

'War with Nato'

Diplomatic efforts at the UN have reached deadlock over rival resolutions on the crisis from France and Russia.

Thousands of civilians are reported to be in urgent need of relief supplies

Russia has reiterated its opposition to a rival French text, which reaffirms Georgia's territorial integrity.

Georgia's President Mikhail Saakashvili told the BBC he would never accept what he called Russia's "annexation of its territory".

He warned that Russia's involvement in South Ossetia, Abkhazia and Georgia were intended to send a strong message to the West.

"If Nato fails now to come up with a united response, nobody's safe, even if they are in Nato already," he said.

"It's all about reconsidering the role of Nato, the role of international law and borders in this part of the world. This is no longer about Georgia anymore.

"Russia decided to win war with Nato without firing a single shot at it."

A Nato spokeswoman says Russia's defence ministry has decided to halt all military co-operation with the bloc to protest at what Moscow calls the alliance's biased, pro-Georgian view of the conflict.

The move by Moscow followed a Nato statement that there would be no "business as usual" with Moscow unless its troops pulled out of Georgia.

Europe's Hangover

By THOMAS MAYER
FROM THE WALL STREET JOURNAL EUROPE

The 0.2% drop in the euro zone's second-quarter GDP was not according to script. Only two months ago, European Central Bank President Jean-Claude Trichet had expected the economy to continue to grow "at a moderate rate." Now, with the latest business and consumer confidence indicators suggesting also a weak third quarter, the signs point to a recession.

Many Europeans are exasperated. How is it possible that the euro-area economy is feeling the pinch while the U.S. economy, where the financial crisis originated, seems to be getting away relatively lightly?

Well, the euro-area economy has been anything but an innocent bystander to the merry party going on across the Atlantic during recent years. Rather, it has actively joined in and is now suffering from a major hangover. But unlike the U.S. Federal Reserve, the ECB has been withholding the aspirin.

It all started with the heavyweights of the emerging markets, notably China, India and Brazil, opening up to international trade. Combined with their pursuit of competitive exchange rates and their emphasis on sound government finances, this liberalization paved the way for rapid export growth.

The economic dividends of this development strategy quickly piled up: Previously unproductive Chinese peasants became efficient assembly-line workers; a new class of Indian "knowledge workers" was created; and Brazil used its vast natural resources more productively.

The emerging heavyweights' growth strategies, though, caused some headaches in the industrialized world. Here, cheap imported products and services were crowding out more costly domestic substitutes, depressing prices and wages, and causing job losses. Policy makers, with the Fed in the vanguard, fought back by stimulating demand through lower interest rates.

Easy money seemed a low-risk strategy in a world threatened by deflation. However, cutting the risk-free rate to record low levels had its side effects. Asset prices surged and, more importantly, speculation was encouraged. As predicted by post-Keynesian theories of financial instability, financial markets and business cycles fluctuated between expansion and contraction.

The first big cycle affected the equity markets, culminating in the dot-com bubble of 1999-2000 that was followed by a rerating of equities and deleveraging of the corporate sector. The second big cycle is now running its course in the housing markets and, thanks to the especially high degree of leverage associated with this asset class, in the credit markets. Moreover, a third, smaller cycle is playing itself out in the commodities markets.

The industrialized world's economic growth -- largely driven by monetary policy -- had its counterpart in explosive export-led growth in the emerging market economies. Despite huge swings in a few equity markets, the global financial instability didn't affect emerging market economies as much as industrialized countries, where the financial sector plays a bigger role in the economy

Rather, the expansion has run into supply bottlenecks -- created mainly by the low supply elasticity of primary commodities, where rising prices don't lead to more production -- and rising consumer goods inflation. Instead of exporting deflation, emerging-market economies have now become a source of inflation (mainly by boosting commodity prices), which is hitting industrial countries like a boomerang.

With the turn of the U.S. housing market, the associated subprime crisis, the full-blown global financial crisis, and the break-out of previously suppressed inflation, the credit-driven expansion has come to an end. Like a wave crashing ashore, it is creating significant economic turbulences.

The credit-driven expansion at the global level has had its mirror images within the euro area. Some countries, such as Spain, France and Ireland, also grew on the back of a credit-financed and housing market-driven consumption expansion, following the U.S. example. Others, most importantly Germany, supplied the goods demanded by consumers and investors in other euro-area countries and the rest of the world, playing a role akin to that of the emerging-market countries with large current-account surpluses. When the credit cycle turned down, the music also stopped for the euro area economy. But the reaction of policy makers was significantly different.

The Federal Reserve, under the leadership of Chairman Ben Bernanke, tolerated a rise of inflation on the back of higher commodity prices -- which it expected to be reversed once the commodity cycle turns down -- and focused on the eventually deflationary effects of the housing slump and credit market downturn. Aggressive interest-rate cuts and the government's fiscal-stimulus program seem to have helped the U.S. economy avoid an outright recession. These policy measures may not, however, spare the economy a longer period of protracted weakness.

Against this, the European Central Bank, probably underestimating the severity of the global economic downturn and relying on the euro area's seemingly robust economic fundamentals, stepped on the brakes in response to the rise in headline inflation and inflation expectations. According to Deutsche Bank estimates, monetary conditions tightened by an amount equivalent to an interest rate increase of 1.5 percentage points between mid-2007 and mid-2008. About half of that tightening came from the trade-weighted appreciation of the euro, while the other half came from the increase of the ECB's policy rates and the widening of the money-market spreads over the latter.

Weighed down by the global housing-market downturn, the financial crisis, the commodity price shock and the tightening of monetary policy, the euro-area economy appears now to be succumbing to recession.

Assuming a timely correction of monetary policy and some help from fiscal policy in the countries suffering most from the housing slump, the recession may not be very deep. But past experience with housing-market downturns and financial crises suggests that the period of economic weakness could be rather protracted, and the eventual economic recovery fairly sluggish. As these events unfold, fears of inflation will be waning.

Down the road, the inhabitants of the euro zone may be wondering why their hangover after a party always seems so much greater than across the Atlantic even though the U.S. has had more from the punch. The secret of the U.S. resilience may well be its greater economic flexibility and more proactive use of macroeconomic policy.

Mr. Mayer is co-head of global economics at Deutsche Bank.

'Are You Going to the American Side?'

By MICHAEL J. TOTTEN

Tbilisi, Georgia

Russia's invasion has unleashed a refugee crisis all over this country and especially in its capital city. Every school here is jammed with civilians who fled aerial bombardment and shootings by the Russian military -- or massacres, looting and arson by irregular paramilitary units swarming across the border.

Russia has seized and effectively annexed two breakaway Georgian provinces, South Ossetia and Abkhazia. It has also invaded the region of Gori, which unlike them had been under Georgia's control. Gori is in the center of the country, just an hour's drive from Tbilisi; 90% of its citizens have fled, and the tiny remainder live amid a violent mayhem overseen by Russian occupation forces that, despite Moscow's claims to the contrary, are not yet withdrawing.

On Monday, I visited one of the schools transformed into refugee housing in the center of Tbilisi and spoke to four women -- Lia, Nana, Diana and Maya -- who had fled with their children from a cluster of small villages just outside the city of Gori. "We left the cattle," Lia said. "We left the house. We left everything and came on foot because to stay there was impossible." Diana's account: "They are burning the houses. From most of the houses they are taking everything. They are stealing everything, even such things as toothbrushes and toilets. They are taking the toilets. Imagine."

Seven families were living cheek by jowl inside a single classroom, sleeping on makeshift beds made of desks pushed together.

"There was a bomb in the garden and all the apples on the trees fell down," Lia remembered. "The wall fell down. All the windows were destroyed. And now there is nothing left because of the fire."

"Did you actually see any Russians," I said, "or did you leave before they got there?"

"They came and asked us for wine, but first we had to drink it ourselves to show that it was not poisoned. Then they drank the wine themselves. And then they said to leave this place as soon as possible; otherwise they would kill us. The Russians were looking for anyone who had soldiers in their home. If anyone had a Georgian soldier at home they burned the houses immediately."

Lia's husband had remained behind and arrived in Tbilisi shortly before I did. "He was trying to keep the house and the fields," she explained. "Afterward, he wanted to leave, but he was circled by soldiers. It was impossible. He was in the orchards hiding from the Russians in case they lit the house. He was walking and met the Russian soldiers and he made up his mind that he couldn't stay any more. The Russian soldiers called him and asked where he was going, if he was going to the American side."

"The Russians said this to him?" I said.

"My husband said he was going to see his family," she said. "And the Russians said again, 'Are you going to the American side?'"

"So the Russians view you as the American side, even though there are no Americans here."

"Yes," she said. "Because our way is for democracy."

Sen. John McCain may have overstated things a bit when, shortly after the war started, he said, "We are all Georgians now." But apparently even rank-and-file Russian soldiers view the Georgians and Americans as allies. Likewise, these simple Georgian country women seem to understand who their friends and enemies are. "I am very thankful to the West," Maya said as her eyes welled up with tears. "They support us so much. We thought we were alone. I am so thankful for the support we have from the United States and from the West."

She tried hard to maintain her dignity and not cry in front of me, a foreign reporter in fresh clothes and carrying an expensive camera. "The West saved the capital. They were moving to Tbilisi. There was one night that was very dangerous. The Russian tanks were very close to the capital. I don't know what happened, but they moved the tanks back."

My translator, whose husband works for Georgia's ministry of foreign affairs, made a similar guess that the West helped save the capital. "The night they came close to Tbilisi," she said, "Bush and McCain made their strongest speeches yet. The Russians seemed to back down. Bush and McCain have been very good for us."

Likewise, the women seemed to understand what Russian imperialism has always been about -- and not just during the Soviet era. "Why do you think the Russians are doing this in your village?" I said. "They want our territories," Nana said.

It was George F. Kennan, America's ambassador to the Soviet Union, who said, "Russia can have at its borders only enemies or vassals." Now, Georgia has been all but dismembered. The opening phase of this crisis may soon come to a close, but it is shaping up to be merely the first chapter in a potentially long and dangerous era.

They're Paying Attention Now

Peggy Noonan

Why is it a real race now, with John McCain rising in the polls and Barack Obama falling? There are many answers, but here I think is an essential one: The American people have begun paying attention.

It's hard for our political class to remember that Mr. Obama has been famous in America only since the winter of '08. America met him barely six months ago! The political class first interviewed him, or read the interview, in 2003 or '04, when he was a rising star. They know him. Everyone else is still absorbing.

This is what they see:

An attractive, intelligent man, interesting, but—he's hard to categorize. Is he Gen. Obama? No, no military background. Brilliant Businessman Obama? No, he never worked in business. Famous Name Obama? No, it's a new name, an unusual one. Longtime Southern Governor Obama? No. He's a community organizer (what's that?), then a lawyer (boo), then a state legislator (so what, so's my cousin), then U.S. senator (less than four years!).

There is no pre-existing category for him.

Add to that the wear and tear of Jeremiah Wright, secret Muslim rumors, media darling and, this week, abortion.

It took a toll, which led to a readjustment. His uniqueness, once his great power, is now his great problem.

And over there is Mr. McCain, and—well, we know him. He's POW/senator/prickly, irritating John McCain.

* * *

The Rick Warren debate mattered. Why? It took place at exactly the moment America was starting to pay attention. This is what it looked like by the end of the night: Mr. McCain, normal. Mr. Obama, not normal. You've seen this discussed elsewhere. Mr. McCain was direct and clear, Mr. Obama both more careful and more scattered. But on abortion in particular, Mr. McCain seemed old-time conservative, which is something we all understand, whether we like such a stance or not, and Mr. Obama seemed either radical or dodgy. He is "in … favor of limits" on late-term abortions, though some would consider those limits "inadequate." (In the past week much legal parsing on emanations of penumbras as to the viability of Roe v. Wade followed.)

As I watched I thought: How about "Let the baby live"? Don't parse it. Just "Let the baby live."

As to the question when human life begins, the answer to which is above Mr. Obama's pay grade, oh, let's go on a little tear. You know why they call it birth control? Because it's meant to stop a birth from happening nine months later. We know when life begins. Everyone who ever bought a pack of condoms knows when life begins.

To put it another way, with conception something begins. What do you think it is? A car? A 1948 Buick?

If you want to argue whether legal abortion is morally defensible, have at it and go to it, but Mr. Obama's answers here seemed to me strange and disturbing.

Mr. Obama's upcoming convention speech will be good. All Obama speeches are good. Not as interesting as he is—he is more compelling as a person than his words tend to be in text. But the speech will be good, and just in case it isn't good, people will still come away with an impression that it must have been, because the media is going to say it was, because they expect it to be, and what they expect is what they will see.

Will Mr. Obama dig deep as to meaning? As to political predicates? During the primary campaigns Republicans were always saying, "This is what I'll do." Mr. Obama has a greater tendency to say, "This is how we'll feel." Republicans talk to their base with, "If we pass this bill, which the Democrats irresponsibly oppose, we'll solve this problem." Democrats are more inclined toward, "If we bring a new attitude of hopefulness and respect for the world, we'll make the seas higher and the fish more numerous." Will Mr. Obama be, in terms of programs and plans, specific? And will his specifics be grounded in something that appears to amount to a political philosophy?

I suspect everyone has the convention speeches wrong. Everyone expects Mr. Obama to rouse, but the speech I'd watch is Mr. McCain's.

He's the one with the real opportunity, because no one expects anything. He's never been especially good at making speeches. (The number of men who've made it to the top of the GOP who don't particularly like making speeches, both Bushes and Mr. McCain, is astonishing, and at odds with the presumed requirements of the media age. The first Bush saw speeches as show biz, part of the weary requirement of leadership, and the second's approach reflects a sense that words, though interesting, were not his friend.)

But Mr. McCain provided, in 2004, one of the most exciting and certainly the most charged moment of the Republican Convention, when he looked up at Michael Moore in the press stands and said, "Our choice wasn't between a benign status quo and the bloodshed of war, it was between war and a greater threat. Don't let anyone tell you otherwise. . . . And certainly not a disingenuous filmmaker who would have us believe that Saddam's Iraq was an oasis of peace." It blew the roof off. And the smile he gave Mr. Moore was one of pure, delighted malice. When Mr. McCain comes to play, he comes to play.

Look for a certain populist stance. He signaled it this week in Politico. He called lobbyists "birds of prey" in pursuit of "their share of the spoils." Great stuff. (Boy, will he have trouble staffing his White House.)

* * *

I still think a one-term pledge could win it for him, because it would allow America to punt. It would make the 2008 choice seem less fateful. People don't mind the chance to defer a choice when they're not at all sure about the product. It would give bitter Democrats a chance to regroup, and it would give those who like Obama but consider him a little half-baked to vote against him guiltlessly while he becomes fully baked. (Imagine the Q&A when Sen. Obama announces his second presidential run in 2011: "Well, Brian, I think, looking back, there is something to be said for the idea that I will be a better president now than frankly I would have been four years ago. Experience, if you allow it, is still the best of all teachers.") More, it would allow Mr. McCain to say he means to face the tough problems ahead with a uniquely bipartisan attitude and without having to care a fig for re-election. That itself would give him a new power, one that would make up for the lost juice of lame duckdom. It would also serve to separate him from the hyperpolitical operating styles of the Clinton-Bush years, from the constant campaign.

And Mr. McCain would still have what he always wanted, the presidency, perhaps a serious and respectable one that accrued special respect because it involved some sacrifice on his part.

A move that would help him win doubtful voters, win disaffected Democrats, allow some Republicans to not have to get drunk to vote for him, and that could possibly yield real results for his country. This seems to me such a potentially electrifying idea that he'd likely walk out of his convention as the future president.

Mr. McCain told Politico on Wednesday that he's not considering a one-term pledge.

Why would he not? Such modesty of intent is at odds with the political personality. The thing that makes them want to rule America is the thing that stops them from thinking of prudent limits. This mindset crosses all political categories.

Democrats Aim for a 60-Vote Senate

Kimberly Strassel

Here's an intriguing thought: The John McCain-Barack Obama fight isn't this season's biggest political story. That honor should be reserved for the intense Democratic push to win a filibuster-proof Senate majority.

Democrats know this is a huge prize, and they are throwing at least as much money and sweat into that effort as they are into electing Mr. Obama. What isn't clear is that voters are as aware of the stakes. An unstoppable Democratic Senate has the potential to alter the balance of power in Washington in ways not yet seen.

Martin Kozlowski

A quick recap of the numbers: Republicans must defend 23 seats, compared to 12 for the Democrats. Of those GOP slots, 10 are at potential risk: Virginia, New Mexico, New Hampshire, Minnesota, Oregon, Colorado, Alaska, Mississippi, Maine and North Carolina. The Democrats claim only one vulnerable senator this year, Louisiana's Mary Landrieu. Depending on how big a day the party has in November, it is at least conceivable Democrats could get the nine seats they need to hit the magic 60.

The nation has had prior almighty Senates, of course, and it hasn't been pretty. Free of the filibuster check, the world's greatest deliberative body tends to go on benders. It was a filibuster-proof Democratic majority (or near to it, in his first years) that allowed FDR to pass his New Deal. It was a filibuster-proof Democratic Senate that allowed Lyndon Johnson to pass his Great Society.

Note, however, that it could have been worse. These were days with more varied political parties. Rebellious Democrats teamed up with Republicans to tangle with Roosevelt. Johnson ran the risk that the GOP would ally with Southern Democrats. There was some check.

As Karl Rove pointed out to me recently, the real risk of a 2009 filibuster-proof Senate is that the dissidents are gone. According to Congressional Quarterly, in 1994 Senate Democrats voted with their party 84% of the time. By 1998, that number was 86%. CQ's most recent analysis, of votes during the George W. Bush presidency, showed Democratic senators remained united 91% of the time. Should he get his 60 seats, Senate Majority Leader Harry Reid will be arguably more influential than the president.

Sure, 60 votes isn't enough to override a presidential veto. But a filibuster-proof majority would put Mr. Reid in almost complete control of the agenda. That holds equally true whether we have a President McCain or a President Obama.

A lot of voters are drawn to Mr. Obama's promises of bipartisanship. But with a filibuster-proof Senate, what Mr. Obama promised will be of secondary concern. Even if the presidential hopeful is sincere about working across the aisle (and that's a big if), Ted Kennedy, Pat Leahy, Barbara Boxer and Russ Feingold will prefer to do things their way. They'll be looking for opportunities to let their former rookie Senate colleague know who is in charge.

Mr. Reid won't necessarily need 60 votes to hold Washington's whip hand. With a contingent of blue-state Republicans (think Maine's Olympia Snowe), Mr. Reid could peel off votes and have an "effective" filibuster with just 57 or 58 seats. That may not be enough to accomplish every last item on his wish list, but close.

That wish list? Take a look at what House Democrats (who aren't burdened with a filibuster) unilaterally passed last year: The biggest tax increase in history; card check, which eliminates secret ballots in union organizing elections; an "energy" bill that lacks drilling; vastly expanded government health insurance; new powers to restrict pharmaceutical prices. Add to this a global warming program, new trade restrictions (certainly no new trade deals) and fewer private options in Medicare.

This explains why Congressional Democrats currently aren't moving spending bills, or energy bills, or anything. They are waiting for next year, when they hope to no longer have to deal with pesky Republicans. This also explains the Senate's paltry judicial confirmations this Congress. They want more vacancies. With a filibuster-proof majority, Democrats could reshape the judiciary under a President Obama, or refuse to confirm any Antonin Scalia-type appointments made by a President McCain.

Party leaders feel the Senate GOP can remain an effective opposition if it holds Democrats to 55 seats. If Republicans can continue to ride the energy debate, that just might be possible. As it is, they are feeling more confident about even tough fights in states like Colorado, Oregon or Minnesota.

Then again, it's a long way to November. Anything can happen. And if Congressional Democrats have their way, that "anything" will be undiluted power in Washington.

The American presidential race

The hard road ahead

Barack Obama still has a lot to do

ON AUGUST 28th, barring some dark manoeuvre by seething Clintonistas, Barack Obama will accept the Democratic nomination for the presidency. Forty-five years to the day after Martin Luther King spoke of his dream, America will take a giant leap towards the realisation of that great call for justice. Hundreds of millions will watch, and be moved; Mr Obama seems to many, by reason of his race, his calm intelligence, his youthful good looks and his powerful oratorical skills, to be well suited to draw a line beneath the bitter Bush years and to repair America’s torn relationship with the outside world. One prominent pundit was much derided earlier this year for describing the tingle he got from listening to the candidate—but everyone knew exactly what he meant.

This moment comes as much through perspiration as through inspiration. Mr Obama’s achievement in defeating the Clinton machine was monumental. Hillary Clinton started out as the overwhelming favourite, with the Democratic Party establishment, not to mention its big-ticket donors, squarely behind her and poll leads that sometimes topped 20 percentage points. But Mr Obama ran a brilliant campaign, using the internet to harness the energy and the donations of an army of volunteers, and deploying them with tactical skill in almost every state. He managed the firestorm touched off by his intemperate pastor, Jeremiah Wright, with dignity and, eventually, ruthlessness.

When it comes to the issues, it is hardly surprising that The Economist is less impressed. Mr Obama’s tilt towards protectionism during the primary campaign was both wrong and dangerous. So was his insistence on denying funds to the “surge” that has worked so well (if belatedly) in Iraq, and his determination to withdraw troops from the conflict according to a rigid timetable. We are nervous about his incentive-destroying willingness to raise taxes sharply on the well-off, and of the cost implications of many of his policies. But we recognise that his positions have evolved as the campaign has moved from the primary stage, where politicians have to outdo each other in their appeal to their party faithful, to the general election. Were he to become president, they would move further to the centre again. And policies are by no means the whole story of an American election: character and leadership matter greatly, too. Mr Obama is an impressive nominee with the potential to be a fine president.

Democratic doubts

But the road to the White House is still a hard one. Even though the Republican brand is as contaminated as a Soviet-era reactor, and 80% of Americans think the country is on the wrong track, Mr Obama is barely ahead of his septuagenarian Republican rival. He is less popular than his party as a whole: in “generic” polling, people prefer Democrats to Republicans by around 12 points, but Mr Obama is ahead of John McCain by an average of only around 45% to 43%. One poll this week had Mr McCain five points ahead. The presidential debates, which will start next month, usually sway a lot of voters. Mr Obama is generally held to have lost his only encounter so far with Mr McCain, in back-to-back interviews with Rick Warren, an evangelical pastor, on August 16th. In the battleground states which will determine the result, Mr McCain has steadily been gaining ground; if the polls are borne out, the result, as in 2000 and 2004, will be nerve-janglingly close.

Many Americans, including a dangerously large number of Democrats, still have their doubts about Mr Obama. Some see him as too young and inexperienced for a dangerous world; others find him unattractively self-regarding and aloof; still others question his patriotism. Many resent his apparent flip-flopping on important issues, like gun-control and whether or not to talk to Iran and Syria, as well as less important ones, like whether to wear a flag pin. His cynical breaking of a promise to be bound by federal campaign-finance limits was shabby by any standards. Perhaps the most damning criticism of him is that he has never exhibited political courage by daring to take on any of his party’s powerful interests, as his rival, John McCain, has done over many issues, including global warming, campaign-finance reform, immigration and torture.

Yes, he still can

From the moment of his coronation in Denver, Mr Obama will have 68 days to allay these doubts. There is not much he can do about his thin résumé or his lack of foreign-policy and security expertise, though he can mitigate the latter somewhat with an astute choice of running mate. And it is a bit late now for principled stands in the Senate. Mr Obama could certainly tone down the triumphalism: opting to make his acceptance speech not in the convention hall but in a 75,000-seater sports stadium seems like another mistake, akin to his hubristic rock-star’s tour of Europe. He needs to be a lot clearer and firmer about how he will deal with America’s foes and rivals: his first instinct when Russia invaded Georgia was to waffle. Acknowledging that the Iraq surge, which he tried to block, has worked would also be a sign of tough-mindedness.

Most of all, he needs to spend those 68 days showing that he understands, and can connect with, ordinary Americans. The economy ought to be the Democrats’ trump card, just as security tends to be the Republicans’. But some of the most surprising recent polls show that Mr Obama is rated lower by voters on how he would handle the economy than is Mr McCain, who has admitted that he doesn’t know much about the subject. That may be because Mr Obama often sounds curiously disconnected from the troubles of anyone except America’s very poorest. Mrs Clinton was much better at empathising with middle America, and Mr Obama needs to show he has learnt from her.

That could also help heal the wounds of the Democratic Party, which, after the bitter contest and Mr Obama’s narrow victory, are still raw. If the Democrats remain divided they will lose the presidency. Were that to happen, after Iraq, Katrina and an economic crisis, they might well want to consider an alternative line of work.

Russia to Complete Troop Pullback in Georgia Today (Update1)

Aug. 22 (Bloomberg) -- Russian officials said a troop pullback to the separatist Georgian region of South Ossetia will be completed today, leaving a group of peacekeepers in Georgia proper, and allowed access to the central city of Gori.

Before withdrawing, Russia placed a line of eight peacekeeper posts along the edge of a security buffer zone about seven kilometers (4.4 miles) inside Georgian territory from the South Ossetian administrative border. About 10,000 Russian soldiers were sent into Georgia, state-run news service RIA Novosti reported. The posts will be manned by 272 soldiers, Anatoly Nogovitsyn, deputy chief of Russia's General Staff, told reporters in Moscow.

Kakha Lomaia, head of Georgia's Security Council, said ``Russian troops have removed checkpoints outside Gori'' and are pulling out of the city, a major crossroads between east and west Georgia that is located 40 kilometers outside the Russian buffer zone. He said the Russians haven't begun to withdraw from the Black Sea port of Poti.

Russia's pullback into South Ossetia may not satisfy Western leaders, including President George W. Bush, who have called for the full withdrawal of all troops that entered Georgia on Aug. 8. A Russian official said yesterday that bringing those forces home will take 10 days. Russia's first major foreign military operation since the collapses of the Soviet Union in 1991 has opened a rift with the West, and NATO in particular, which has frozen contacts with Russia.

Buffer Zone

``Russia's decision to keep troops in a buffer zone outside of South Ossetia is arrogance aimed at the Georgians,'' Jan Techau, a European and security affairs expert at the German Council on Foreign Relations in Berlin, said in an interview. ``The Western states don't want any violation of Georgian sovereignty.''

In addition to the eight posts in the buffer zone, Russian troops have placed a second line of posts on South Ossetia's border with the rest of Georgia, which will be manned by 180 men, for a total of 452 peacekeepers, less than the 588 deployed before fighting began.

``The buffer zones are legitimate and were created within the framework of existing agreements,'' Nogovitsyn said.

Russian peacekeepers have served in South Ossetia under a 1992 agreement with Georgia. Russia also has 2,142 peacekeepers in Abkhazia, another Georgian separatist region, under a Commonwealth of Independent States mandate, Nogovitsyn said.

EU-Brokered Cease-Fire

The Russians have repeatedly said they are observing a cease-fire brokered by President Nicolas Sarkozy of France, the current holder of the European Union's rotating presidency. The agreement, which ended five days of fighting between Georgia and Russia, calls for the withdrawal of Georgian and Russian troops, renunciation of the use of force, an end to all military operations and a commitment to making humanitarian aid freely available in the conflict zone.

Finnish Foreign Minister Alexander Stubb, chairman of the Organization for Security and Cooperation in Europe, said in Tbilisi today that the cease-fire is ``very fragile.''

The OSCE will send 20 military observers and seven armored personnel carriers into the conflict zone by this weekend, Stubb said. He called for calm and said ``there's absolutely no room now for skirmishes.''

`Ice Age'

Techau said the North Atlantic Treaty Organization and the European Union would be the key Western actors in the Georgian crisis in the coming months. The United Nations is likely to play a secondary role, he added.

``There's currently a little ice age between NATO and Russia,'' Techau said.

Georgian President Mikheil Saakashvili said today that more than Georgia's chances of joining NATO is at stake. ``It's about the future of NATO,'' he said on the British Broadcasting Corp.'s ``Today'' radio show. ``Basically if NATO fails to come up with a united response, nobody is safe, even if they are in NATO.''

NATO Secretary General Jaap de Hoop Scheffer said on Aug. 19 that ``business as usual with Russia'' is impossible ``under present circumstances and ruled out NATO-Russia meetings ``as long as Russian forces are basically occupying a large part of Georgia.'' Russian Foreign Minister Sergei Lavrov yesterday said Russia won't ``slam the door'' on relations with NATO.

The future status of South Ossetia and Abkhazia is becoming a bone of contention between Russia and the West.

Legal Status

Bush has insisted that the two pro-Russian regions must remain a part of Georgia. Russian President Dmitry Medvedev said on Aug. 14 that Russia will support the regions' decisions about their legal status, but stopped short of formally recognizing them.

Both houses of Russia's parliament will discuss whether to recognize the two regions in special sessions on Aug. 25. Vadim Gustov, chairman of the CIS committee in the Federation Council, said the upper house will back their independence bids, RIA reported. The lower house, the State Duma, may also vote in favor of statehood. Gustov said that under the Russian constitution, the final decision lies with Medvedev, RIA reported.

Abkhazia and South Ossetia have cited Kosovo's Feb. 17 declaration of independence from Serbia as a precedent for their aspirations. Russia, an ally of Serbia, opposed Kosovo independence as illegal, while the U.S. and many European countries supported it.

Central Bankers at Retreat May See Few Options to Fix Economy

Aug. 22 (Bloomberg) -- The world's top central bankers gather at their annual U.S. mountainside symposium today with a sense there's not much more they can do to repair credit markets and rescue the global economy.

Reports in the last week showing a surge in inflation reinforce expectations that Federal Reserve Chairman Ben S. Bernanke will have to keep U.S. interest rates on hold. Similar conditions in Europe are paralyzing his counterparts at the Bank of England and the European Central Bank.

``All the central banks can provide now is time for the banking system to heal,'' Myron Scholes, chairman of Rye Brook, New York-based Platinum Grove Asset Management LP and a Nobel laureate in economics, said in an interview. ``What more they have to offer is now very limited.''

Bernanke may discuss his strategy when he opens the conference in Jackson Hole, Wyoming, with a speech on financial stability at 10 a.m. New York time. His audience comprises a who's who of central banking, including ECB President Jean- Claude Trichet, Bank of Japan Deputy Governor Kiyohiko Nishimura and central bank officials from about 40 other countries.

The event, ending tomorrow, has been hosted by the Kansas City Fed in Grand Teton National Park since 1982.

In the U.S., borrowing premiums for banks and corporations are at their highest in months, prolonging the drag on growth. That's after Fed policy makers cut the main interest rate this year at the fastest pace in two decades, introduced three emergency-lending programs and helped Bear Stearns Cos. avert bankruptcy.

`Hope and Pray'

``There isn't a lot they can do'' now, said former Fed Governor Lyle Gramley, senior economic adviser at Stanford Group Co. in Washington. ``The Fed really has to hope and pray that credit markets begin to heal by themselves.''

Europe's biggest central banks have refused to jeopardize their price stability mandates by lowering rates and have warned about the danger of bailing out investors.

Trichet's ECB raised its benchmark rate in July by a quarter point to 4.25 percent and the Bank of England is refusing to ease credit even with the U.K. near a recession.

``Many central banks around the world have been in a position where they have been focused on inflation, and they didn't have the same intensity of the slowdown that we saw in the U.S.,'' said former Fed governor Laurence Meyer, vice chairman at Macroeconomic Advisers LLC in Washington, in an interview at Jackson Hole.

`Considerable Stress'

The Fed, while leaving the benchmark interest rate unchanged for its last two meetings, says financial markets ``remain under considerable stress.'' One gauge watched by the Fed, the premium for banks to borrow for three months over a measure of the future overnight lending rate, averaged 0.77 percentage point last week, the highest since April.

The Fed's rate cuts also have failed to pass through to the housing market. The average rate on a 30-year fixed mortgage was 6.47 percent last week, about where it was a year ago.

``Higher mortgage rates and sharply tightening credit standards in mortgages have gummed up a key channel through which monetary easing is supposed to stimulate aggregate demand,'' said Mickey Levy, New York-based chief economist at Bank of America Corp., who is attending the symposium.

Pushed the Limits

Apart from lowering rates, Bernanke has pushed the limits of the Fed's powers to ease the crisis in credit markets. In December, he started auctioning 28-day loans to commercial banks. He followed that in March with a $200 billion program to auction Treasuries to investment banks in exchange for mortgage-backed securities and other debt. Bernanke also offered cash loans to other bond dealers that trade with the Fed.

With all these programs in place, Fed officials may be reluctant to do more without assurance that it will ease the credit crisis and not do more harm.

``They have done a lot, and at some point they simply have to give the markets the time needed to heal,'' said former Fed researcher Brian Sack, senior economist at Macroeconomic Advisers.

At the same time, investors are looking to the Treasury Department, not the Fed, to bail out mortgage-finance companies Fannie Mae and Freddie Mac using newly granted authority.

European policy makers, meantime, have refused to be as activist as their U.S. counterparts, arguing that they can't be seen to bail out investors who made risky bets. Trichet says the ECB's ``collateral framework has served us pretty well.''

While the Bank of England in April followed the Fed in agreeing to swap damaged mortgage-backed securities for government bonds, Governor Mervyn King has resisted calls from lenders for it to buy securities outright.

Some, such as former Bank of England policy maker Willem Buiter, who will address the meeting tomorrow, argue that the Fed's actions to date store up trouble for the future.

``There will have to be a lot of soul searching about whether central banks, in their rush to forestall a financial disaster, have created moral hazard and perverse incentives on an unprecedented scale,'' Buiter said.