Adjunct Prof. Easton Confronts Ex-Professor Bernanke, Asks a Key (Dodged) Question. Conclusion? Mass Inflation. Soon.Gary North
Jan. 29, 2009
From time to time, Terry Easton teaches economics at San Jose State University. I spoke to his clasees in the spring of 2008.
Recently, he attended a meeting at the London School of Economics as a representative of Human Events, the conservative newspaper. He is not a Keynesian.
He asked a key question after Dr. Bernanke's speech.
I'm Terry Easton with Human Events newspaper in Washington D.C. The concern that we have is that right now we're dealing with this problem looking at the forest at the tree level, in fact probably down on the ground looking at the blades of grass growing, and you seem to be dealing with it as all people are in all similar institutions worldwide, as a classic Keynesian approach to solving the problem.
And of course here in the London School of Economics, there is some knowledge of another alternative approach to the problem, known of course as the Austrian school. von Mises, Hayek, Rothbard, et cetera, have suggested an alternative to this 90-year edifice that we've built, which now is coming back to roost, and I wonder if it's possible, realizing that your position is the head of the Fed, can you talk a little bit about the underlying system that has now existed for 90 years? Are we going the right way? Can we fix it? Should we look at these alternatives to the problem? I would be interested in your philosophical comments.
Then came Bernanke's dodge. He began, as Keynesians always do, with a defense of the free market. Then they follow with "But...."
Bernanke: Well, the question is related to the former one. It has to do with the value and the benefits of markets. I think economists are often accused of being market fundamentalists, I think in fact economists have done a better job than anybody of figuring out what markets can do well, and what they don't do so well, when there are problems with information or other things.
And economists have also pointed out that government interventions are not benign, perfectly executed interventions, but are also executed by individuals with interests, and so on -- this is the public policy, er, ah, school. And so, the balance between markets and the government is a delicate one.
In particular, those of us who are economists, and I think that accounts for almost everybody in the room, are always amazed by the lack of understanding in the general public about the power of markets, and in particular the Austrian school emphasized the ability of markets to aggregate information and incentives to provide outcomes which a top-down government approach can't provide. So, as an economist I have a lot of faith in markets. I don't think, for example, I completely disagree with the view that what's happened in the last year and a half is a 'crisis of capitalism', per se. I mean, after all, capitalism has done an awful lot for growth and living standards for a long time. But rather it's a crisis that arises in a particular set of situations and conditions that we've faced in the last couple of years.
We saw no headlines: "Bernanke admits that we may be in a crisis of capitalism." But that's what he said, sort of. He used a double negative: "I don't think" and "disagree." Or was this a grammatical error?
Then he went on with the Keynesian party line: the tendency of free markets -- markets rigged by central banks -- to be unstable.
In particular, as I've indicated before, because of the tendency of financial systems to the boom and bust -- which is a very long-standing problem, one that was recognized by virtually every economist who's studied these issues -- and because of the effects of that on the economy, there has been a long-standing tendency to try to find a regulatory balance that reduces the costs of those booms and busts without costing us the benefits of the market forces and the innovation and the information aggregation and so on.
It is the Austrian School's position that there is no such boom-bust tendence apart from (1) central banks, and (2) fractional reserve commercial banking. Bernanke has to know this. But he doesn't let on that he does.
It's a very difficult balance. I think, what we've learned, in this case, is not necessarily that we need to have a lot more regulation, but that we need to think through what went wrong with -- what I described: when I say the financial sector what I mean is the private sector plus the regulatory overlay; that whole complex didn't perform well in this case, and we need to think hard about how to fix it.
What went wrong was Federal Reserve policy under Greenspan.
Now, as I try to say in my speech, we have short-term and long-term considerations. I think it's very important for us to try to put out the fire. I think it's good advice in general, that if there's a fire burning, you try to put it out first, and then you think about the fire code.
Who is "us"? Who is "you"?
So you don't try to do it all at once necessarily. We need to figure out how to solve this problem, how to stop the costs that are being borne all over the world, but going foward we have to look at the fire code: we have to think about what is the right balance of regulation, markets, that will give us a powerful, innovative financial system, but one that would be safer to use in some sense.
The man on whose watch the world's banking system has begun to collapse thinks we should "look at the fire code." Hey, Ben, you were the fire marshall when the blaze broke out. It is now burning down the world.
Here is Easton's assessment of the confrontation. http://www.humanevents.com:80/article.php?id=30296
Here are excerpts.
The result of all this newly-created money is that the Fed's own balance sheet -- which took 90 years to reach the first $800 billion -- is now well on the way to $3 trillion, and that's all money created out of thin air.
Consequently over the next 6 months, look for the Fed to bail out ever more failing financial institutions -- starting with another multi-billion-dollar kick to the near-bankrupt Bank of America. This second round of funny money will be followed by a third and perhaps more, until we'll all be swimming in a sea of dollar bills. . . .
OK. So here's the problem. Keynesian solutions just don't work. Throwing money from helicopters (or more likely C-17's today) might just pull us out of the Great Depression II, but as we stretch the rubber band, eventually the block of deadweight banking system credit will finally spring to life and violently overshoot way before future Fed and Treasury Secretaries can reel in the excess money.
The result? Massive inflation from 2010 onwards. 25-30% would not be surprising through the teens.
He and I agree as to what is coming. Bernanke may, too, but he will not say it in public.
Saturday, January 31, 2009
Where are Consumer Prices Heading?
Where Are U.S. Consumer Goods Prices Headed?
by Michael S. Rozeffby Michael S. Rozeff
Up a great deal. More than at any time since World War II. How much is a great deal? Probably far more than you expect. Read on.
We’d like to know what’s going to happen in the future to a host of variables, such as stock prices, commodity prices, the price of gold, short and long-term interest rates, consumer goods prices, real estate prices, gross domestic product, employment, etc. This article focuses on the prices of consumer goods.
Instead of examining theories, this article uses an FAQ format to answer the question: where are consumer goods prices headed? This provides a degree of simplicity and clarity. Calculations do not always add because of variations in dating, seasonal adjustments or not, rounding, etc. The specific references are all to U.S. data.
1. What is the monetary base?
The monetary base is the sum of notes and coins in circulation and in bank vaults and reserves held by banks on deposit with the central bank. In the U.S., the central bank is the Federal Reserve (or Fed) and the notes primarily are Federal Reserve notes.
2. What is the current size of the U.S. monetary base?
Approximately $1,774 billion, as of 1/14/09. This consisted of about $951 billion of bank reserves and $823 billion of currency in circulation.
3. What are bank reserves?
Bank reserves consist of currency banks hold (vault cash) and reserves they hold on deposit at the Fed. Their reserves at the Fed are like a checking account they hold at the Fed.
4. At what level are current bank reserves, and what is the usual level?
Bank reserves as of 12/1/08 were $821 billion. Bank reserves were $40–$44 billion from late 2005 until August of 2008.
5. What are excess reserves?
Excess reserves are bank reserves (or deposits) held at the Fed in excess of reserves required by the Fed’s regulations.
As of 12/1/08, total bank reserves were $821 billion; required reserves were $54 billion; and excess reserves were $767 billion.
6. What is the usual level of excess reserves?
Prior to September of 2008, excess bank reserves were about $2 billion.
7. What is the importance of excess bank reserves and, by extension, the monetary base?
Excess reserves and the monetary base provide banks with the capacity to make loans to customers. In the fractional-reserve banking systems that nations have today, the loans are a multiple of these reserves.
8. What is a money multiplier?
A money multiplier is a ratio with a measure of money in the numerator and the monetary base in the denominator.
The M1 money multiplier is the ratio of the M1 money measure divided by the monetary base. The M2 money multiplier is the ratio of the M2 money measure divided by the monetary base.
9. How large is the M1 money multiplier and what is its recent behavior?
The M1 money supply is currently less than the monetary base. M1, which is primarily currency plus demand deposits, is $1,602 billion. The multiplier is about 0.9 as of 1/14/09.
The M1 multiplier has been about 1.6 in recent years. The drop to 0.9 has occurred starting in late September of 2008. It is due to the greater rise in the monetary base than M1. M1 has risen from $1,392 billion in early September to $1,602 billion at present, or at an annualized rate of about 36 percent a year. The monetary base has risen from $870 billion to $1,774 billion. The annualized rate is about 249 percent.
10. How high would M1 rise if the M1 multiplier were to return to its level of 1.6?
M1 will rise to about $2,563 billion if the multiplier of 1.6 is restored. That is an increase of about 84 percent over its early September level of $1,392 billion.
11. What are borrowed and non-borrowed reserves?
Member banks can borrow from the Fed via the "discount window" or by other "facilities." This borrowing is analogous to going to a teller’s window in a bank and borrowing from the bank. When the banks borrow and do not withdraw the amounts they borrow, it goes into their checking accounts (reserves) at the Fed. That borrowed portion of their reserves is borrowed reserves. The rest is non-borrowed reserves.
12. What are the levels of borrowed and non-borrowed reserves?
As of 12/1/08, borrowed reserves were $654 billion. About $407 billion of this were reserves obtained through the Term Auction Facility (TAF), and the rest were mostly from discount window borrowing (about $210 billion). Non-borrowed reserves were $167 billion.
13. What are the usual levels of borrowed and non-borrowed reserves?
Total bank reserves were $40–$44 billion from late 2005 until August of 2008. This approximated required reserves, and excess reserves were small. Non-borrowed reserves also approximated total and required reserves during this period. Borrowed reserves were small or nil.
14. In what forms have banks borrowed from the Fed?
Borrowing from the discount window has traditionally been negligible (often under $100 million.) Starting in March of 2008, this borrowing shot up to $19 billion. By October of 2008, discount window borrowing reached a peak level of $404 billion.
The Fed offered a new way to borrow using a different form of collateral in December of 2007. This is the TAF. The TAF borrowing maxed out at $150 billion in June of 2008. The Fed expanded the program in October, at which point TAF borrowing rose sharply. It replaced some of the discount window borrowing.
15. Why did bank borrowing from the Fed increase so sharply?
(i) Bank borrowing increased because banks wanted financing (cash inflows). Banks faced a sharp rise in loan losses and nonperforming loans that reduced their cash inflows. They faced declining demand for the commercial paper that they use as a means of finance. Inter-bank lending slowed. The banks needed to pay out cash to meet their obligations, but their cash flows were falling. Some banks obtained long-term sources of cash by issuing long-term debt and equity, but this source of cash is much more expensive that borrowing from the Fed.
(ii) The Fed provided hundreds of billions of dollars of loans at low cost to the banks.
(iii) The Fed took questionable bank loans as collateral. The banks were able to dress up their balance sheets. They were able to inventory cash for future use at low cost.
16. Why have banks kept much of the bank reserves and not loaned them out?
Loan demand declines during and for 2 to3 years after recessions. This occurs as households and businesses retrench and business activity slows. Banks may also be reluctant to make loans aggressively because they want to rebuild their balance sheets. After several years, loan demand picks up and then continues to rise.
17. What has been the past behavior of the consumer goods prices (as measured by the CPI) after recessions?
There have been 12 recessions since 1945. The CPI usually stabilizes, rises more slowly, or occasionally declines during these recessions. Most typically, it rises more slowly during the recession but still rises. In the recovery period, prices tend to rise much more. For example, from 1975 to 1980, the CPI advanced by 55 percent.
18. What determines the rate of increase of the CPI?
An important factor is prior rates of growth in money supply over periods of 5 to 10 years. The CPI rose by 33 percent between 1945 and 1950, reflecting high money growth during World War II. Money growth was subdued in the 1950s and so was CPI growth. Money growth accelerated in the 1960s and 1970s, and so did CPI growth.
19. What is the prognosis for future rates of increase in the CPI?
The current M1 growth is the steepest in 25 years. Past accelerations in M1 growth were accompanied or preceded by rates of growth in the monetary base of almost 12 percent a year. The M1 growth rates were at least as high as the growth rates in the monetary base.
The current rate of growth of the base is 249 percent a year. The M1 money growth rate can rise from its current 20 percent year-over-year rate to a substantially higher rate. This typically leads to higher CPI growth.
The prognosis is for much higher rates of CPI growth than at any time in post-World War II U.S. history.
These price increases are not going to be immediate. There are lags. There is no smooth or mechanical relation between today’s money growth and today’s consumer prices. These things take time. General price level increases depend on both the growth in money supply in past years and on whether that growth is sustained over many years. The Obama administration and the Fed have both told us that they intend to sustain their stimulus for years to come. Add that to the fact that the existing rate of growth of the monetary base already is at a rate that is typical of a banana or coconut republic. Similar results are highly likely.
January 29, 2009
Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York
by Michael S. Rozeffby Michael S. Rozeff
Up a great deal. More than at any time since World War II. How much is a great deal? Probably far more than you expect. Read on.
We’d like to know what’s going to happen in the future to a host of variables, such as stock prices, commodity prices, the price of gold, short and long-term interest rates, consumer goods prices, real estate prices, gross domestic product, employment, etc. This article focuses on the prices of consumer goods.
Instead of examining theories, this article uses an FAQ format to answer the question: where are consumer goods prices headed? This provides a degree of simplicity and clarity. Calculations do not always add because of variations in dating, seasonal adjustments or not, rounding, etc. The specific references are all to U.S. data.
1. What is the monetary base?
The monetary base is the sum of notes and coins in circulation and in bank vaults and reserves held by banks on deposit with the central bank. In the U.S., the central bank is the Federal Reserve (or Fed) and the notes primarily are Federal Reserve notes.
2. What is the current size of the U.S. monetary base?
Approximately $1,774 billion, as of 1/14/09. This consisted of about $951 billion of bank reserves and $823 billion of currency in circulation.
3. What are bank reserves?
Bank reserves consist of currency banks hold (vault cash) and reserves they hold on deposit at the Fed. Their reserves at the Fed are like a checking account they hold at the Fed.
4. At what level are current bank reserves, and what is the usual level?
Bank reserves as of 12/1/08 were $821 billion. Bank reserves were $40–$44 billion from late 2005 until August of 2008.
5. What are excess reserves?
Excess reserves are bank reserves (or deposits) held at the Fed in excess of reserves required by the Fed’s regulations.
As of 12/1/08, total bank reserves were $821 billion; required reserves were $54 billion; and excess reserves were $767 billion.
6. What is the usual level of excess reserves?
Prior to September of 2008, excess bank reserves were about $2 billion.
7. What is the importance of excess bank reserves and, by extension, the monetary base?
Excess reserves and the monetary base provide banks with the capacity to make loans to customers. In the fractional-reserve banking systems that nations have today, the loans are a multiple of these reserves.
8. What is a money multiplier?
A money multiplier is a ratio with a measure of money in the numerator and the monetary base in the denominator.
The M1 money multiplier is the ratio of the M1 money measure divided by the monetary base. The M2 money multiplier is the ratio of the M2 money measure divided by the monetary base.
9. How large is the M1 money multiplier and what is its recent behavior?
The M1 money supply is currently less than the monetary base. M1, which is primarily currency plus demand deposits, is $1,602 billion. The multiplier is about 0.9 as of 1/14/09.
The M1 multiplier has been about 1.6 in recent years. The drop to 0.9 has occurred starting in late September of 2008. It is due to the greater rise in the monetary base than M1. M1 has risen from $1,392 billion in early September to $1,602 billion at present, or at an annualized rate of about 36 percent a year. The monetary base has risen from $870 billion to $1,774 billion. The annualized rate is about 249 percent.
10. How high would M1 rise if the M1 multiplier were to return to its level of 1.6?
M1 will rise to about $2,563 billion if the multiplier of 1.6 is restored. That is an increase of about 84 percent over its early September level of $1,392 billion.
11. What are borrowed and non-borrowed reserves?
Member banks can borrow from the Fed via the "discount window" or by other "facilities." This borrowing is analogous to going to a teller’s window in a bank and borrowing from the bank. When the banks borrow and do not withdraw the amounts they borrow, it goes into their checking accounts (reserves) at the Fed. That borrowed portion of their reserves is borrowed reserves. The rest is non-borrowed reserves.
12. What are the levels of borrowed and non-borrowed reserves?
As of 12/1/08, borrowed reserves were $654 billion. About $407 billion of this were reserves obtained through the Term Auction Facility (TAF), and the rest were mostly from discount window borrowing (about $210 billion). Non-borrowed reserves were $167 billion.
13. What are the usual levels of borrowed and non-borrowed reserves?
Total bank reserves were $40–$44 billion from late 2005 until August of 2008. This approximated required reserves, and excess reserves were small. Non-borrowed reserves also approximated total and required reserves during this period. Borrowed reserves were small or nil.
14. In what forms have banks borrowed from the Fed?
Borrowing from the discount window has traditionally been negligible (often under $100 million.) Starting in March of 2008, this borrowing shot up to $19 billion. By October of 2008, discount window borrowing reached a peak level of $404 billion.
The Fed offered a new way to borrow using a different form of collateral in December of 2007. This is the TAF. The TAF borrowing maxed out at $150 billion in June of 2008. The Fed expanded the program in October, at which point TAF borrowing rose sharply. It replaced some of the discount window borrowing.
15. Why did bank borrowing from the Fed increase so sharply?
(i) Bank borrowing increased because banks wanted financing (cash inflows). Banks faced a sharp rise in loan losses and nonperforming loans that reduced their cash inflows. They faced declining demand for the commercial paper that they use as a means of finance. Inter-bank lending slowed. The banks needed to pay out cash to meet their obligations, but their cash flows were falling. Some banks obtained long-term sources of cash by issuing long-term debt and equity, but this source of cash is much more expensive that borrowing from the Fed.
(ii) The Fed provided hundreds of billions of dollars of loans at low cost to the banks.
(iii) The Fed took questionable bank loans as collateral. The banks were able to dress up their balance sheets. They were able to inventory cash for future use at low cost.
16. Why have banks kept much of the bank reserves and not loaned them out?
Loan demand declines during and for 2 to3 years after recessions. This occurs as households and businesses retrench and business activity slows. Banks may also be reluctant to make loans aggressively because they want to rebuild their balance sheets. After several years, loan demand picks up and then continues to rise.
17. What has been the past behavior of the consumer goods prices (as measured by the CPI) after recessions?
There have been 12 recessions since 1945. The CPI usually stabilizes, rises more slowly, or occasionally declines during these recessions. Most typically, it rises more slowly during the recession but still rises. In the recovery period, prices tend to rise much more. For example, from 1975 to 1980, the CPI advanced by 55 percent.
18. What determines the rate of increase of the CPI?
An important factor is prior rates of growth in money supply over periods of 5 to 10 years. The CPI rose by 33 percent between 1945 and 1950, reflecting high money growth during World War II. Money growth was subdued in the 1950s and so was CPI growth. Money growth accelerated in the 1960s and 1970s, and so did CPI growth.
19. What is the prognosis for future rates of increase in the CPI?
The current M1 growth is the steepest in 25 years. Past accelerations in M1 growth were accompanied or preceded by rates of growth in the monetary base of almost 12 percent a year. The M1 growth rates were at least as high as the growth rates in the monetary base.
The current rate of growth of the base is 249 percent a year. The M1 money growth rate can rise from its current 20 percent year-over-year rate to a substantially higher rate. This typically leads to higher CPI growth.
The prognosis is for much higher rates of CPI growth than at any time in post-World War II U.S. history.
These price increases are not going to be immediate. There are lags. There is no smooth or mechanical relation between today’s money growth and today’s consumer prices. These things take time. General price level increases depend on both the growth in money supply in past years and on whether that growth is sustained over many years. The Obama administration and the Fed have both told us that they intend to sustain their stimulus for years to come. Add that to the fact that the existing rate of growth of the monetary base already is at a rate that is typical of a banana or coconut republic. Similar results are highly likely.
January 29, 2009
Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York
Tuesday, January 6, 2009
How can they ever expect peace when they are killing people's children
http://www.guardian.co.uk/world/2009/jan/06/gaza-israel
The small dead bodies were laid next to one another on the tiled floor of the morgue corridor, the blood drained from their cheeks. One had a bandage still wrapped around his head, another lay with his mouth half-open in his oversized, bloodstained clothes.
For a week the Samouni family had taken shelter in their small, single-storey home in Zeitoun, south-east of Gaza City, and there they survived wave after wave of Israeli bombing and artillery strikes. Then came Israel's ground offensive, the next phase in what Israel argues is a necessary and justified battle against the Palestinian militants firing rockets out of Gaza.
The Israeli prime minister, Ehud Olmert, promised an "iron fist" for Hamas and said he would treat the civilian citizens of Gaza with "silk gloves," though the Palestinians of Gaza know perhaps better than most that there are few silk gloves in war.
The Samouni family woke on Sunday morning to find themselves surrounded by camouflaged Israeli troops and dozens of tanks, who had set up a position in the rubble of what was once the large Jewish settlement of Netzarim. As dawn broke, the soldiers seized control of the highest buildings in the district and ordered several of the neighbours into the Samouni family home and there a dozen of them waited, without food and without water.
"All day Sunday there was shooting and bombing. We didn't have anything to eat, we didn't have water to drink - our water tanks had been damaged in the fighting," said Wael Samouni, 32, who on a normal day would be manning his stall at the vegetable market. "We couldn't sleep."
He stepped out of the house briefly and saw a man shooting an M16 assault rifle. He mistook him for a Palestinian militant. Samouni shouted at him: "Please don't come here. They'll kill us. Go away." But as the gunman turned round, it became clear he was an Israeli soldier. The soldier shouted back in Arabic: "Bring me your ID." Samouni disappeared back into his house and decided not to venture out again.
They passed another night under the bombing and artillery strikes, grateful to have made it through to morning. Samouni remembered sitting in the crowded living room yesterday, surrounded by his neighbours, wondering how much longer they had to endure. It was 6.30am.
"We were sitting and suddenly there was bombing on our house and everyone started to run. There were three rockets. I have no idea where they came from," said Samouni. The rockets, believed now to be tank shells, hit the building and brought it crashing down. "I looked to my side, took hold of my boy Mohammad and I started to run. As I ran I looked back and saw on the floor my mother, two cousins and three of my children. All dead," he said. Samouni and the others ran from the house, some raised white cloths as flags and they made it to a patch of safe ground where they were taken to hospital by car.
Yesterday, as three of his children were laid out dead on the hospital floor, Samouni was in a bed upstairs in the Shifa hospital, recovering from wounds to his legs and shoulder and comforting his son Mohammad, five, who had suffered a broken arm in the shelling and had just woken after his operation. He was still unsure exactly how many of his 10 children had died.
"It's a massacre," Samouni said. "I'm 32 years old and I've never seen such things as this. I couldn't help myself or any of those around me. We just want to live in peace."
At his bedside was his brother Nael, 36, who lives in a house close by. His wife and daughter had been in Wael's house yesterday morning at the time of the shelling: both were killed.
"I wanted to go and join them the night before, but it was too dangerous to go out. If anyone moved he would be shot," Nael said. "Then when I heard the bombing this morning I saw people running. I saw an injured man fall to the ground. I ran to help, but there was an Israeli sniper in the house next door who shouted: 'Leave him alone.' We couldn't rescue anyone."
As he ran, Israeli troops fired over their heads and then ordered them to lift up their shirts to show they carried no weapons under their clothes. "We just made it out and here to the hospital," Nael said. Then, in a moment of anger, he pointed the blame. "Hamas is responsible for this. They are starving us, now they are killing us," he said. "They asked the Israelis to enter but where is the resistance? They are hiding. All the leaders of Hamas are underground. It's just the civilians confronting the Israeli army. I don't like Hamas and I don't want them ruling Gaza."
Hospital officials believe nine people were killed in the Samouni house, including at least four children. But they were not the only civilians to die at the hand of the Israeli offensive yesterday. Just north of Gaza City in the Shamali district, a missile struck a three-storey apartment block in the middle of the night - home to three brothers, their families and their father. It hit the roof and dropped down to the basement, destroying half the building and killing Amer Abu Asha, 47, along with his two wives, three sons and one daughter.
Yesterday his brother Samer Abu Asha, 50, sat outside on a plastic chair under a green awning. Neighbours came to shake his hand and offer their sympathy before slipping away quickly to avoid the next missile strike.
The family were not asleep at 1.30am yesterday when the Israeli missile struck - the noise of the bombing had been too much. In the moments after the attack there was such confusion no one knew who or how many had died.
"We started searching but it was hard with the dust, the darkness and the smoke," said Abu Asha. Neighbours told them bodies had been taken to the hospital, so they rushed to the Shifa in Gaza City, only to be told no one from their family had been admitted. "We went back home and searched everywhere," he said. Finally they found his brother Amer lying on a patch of ground outside the house, mortally wounded, his stomach ripped open. "We started to search for others under the rubble. We found arms, legs, half a head," he said. "We didn't find a complete body."
Abu Asha admitted that another brother in the family - but one who did not live in the building - was in the Hamas military wing but said he could not account for the bombing. They had received no warning. "It's unjust. They are targeting civilians, children, old women," he said. "Some European and Arab countries are supporting Israel in this terrorism. They want to crack down on Hamas, but Hamas is not in the houses. It's on the front line. Go there and kill them. Not us."
The small dead bodies were laid next to one another on the tiled floor of the morgue corridor, the blood drained from their cheeks. One had a bandage still wrapped around his head, another lay with his mouth half-open in his oversized, bloodstained clothes.
For a week the Samouni family had taken shelter in their small, single-storey home in Zeitoun, south-east of Gaza City, and there they survived wave after wave of Israeli bombing and artillery strikes. Then came Israel's ground offensive, the next phase in what Israel argues is a necessary and justified battle against the Palestinian militants firing rockets out of Gaza.
The Israeli prime minister, Ehud Olmert, promised an "iron fist" for Hamas and said he would treat the civilian citizens of Gaza with "silk gloves," though the Palestinians of Gaza know perhaps better than most that there are few silk gloves in war.
The Samouni family woke on Sunday morning to find themselves surrounded by camouflaged Israeli troops and dozens of tanks, who had set up a position in the rubble of what was once the large Jewish settlement of Netzarim. As dawn broke, the soldiers seized control of the highest buildings in the district and ordered several of the neighbours into the Samouni family home and there a dozen of them waited, without food and without water.
"All day Sunday there was shooting and bombing. We didn't have anything to eat, we didn't have water to drink - our water tanks had been damaged in the fighting," said Wael Samouni, 32, who on a normal day would be manning his stall at the vegetable market. "We couldn't sleep."
He stepped out of the house briefly and saw a man shooting an M16 assault rifle. He mistook him for a Palestinian militant. Samouni shouted at him: "Please don't come here. They'll kill us. Go away." But as the gunman turned round, it became clear he was an Israeli soldier. The soldier shouted back in Arabic: "Bring me your ID." Samouni disappeared back into his house and decided not to venture out again.
They passed another night under the bombing and artillery strikes, grateful to have made it through to morning. Samouni remembered sitting in the crowded living room yesterday, surrounded by his neighbours, wondering how much longer they had to endure. It was 6.30am.
"We were sitting and suddenly there was bombing on our house and everyone started to run. There were three rockets. I have no idea where they came from," said Samouni. The rockets, believed now to be tank shells, hit the building and brought it crashing down. "I looked to my side, took hold of my boy Mohammad and I started to run. As I ran I looked back and saw on the floor my mother, two cousins and three of my children. All dead," he said. Samouni and the others ran from the house, some raised white cloths as flags and they made it to a patch of safe ground where they were taken to hospital by car.
Yesterday, as three of his children were laid out dead on the hospital floor, Samouni was in a bed upstairs in the Shifa hospital, recovering from wounds to his legs and shoulder and comforting his son Mohammad, five, who had suffered a broken arm in the shelling and had just woken after his operation. He was still unsure exactly how many of his 10 children had died.
"It's a massacre," Samouni said. "I'm 32 years old and I've never seen such things as this. I couldn't help myself or any of those around me. We just want to live in peace."
At his bedside was his brother Nael, 36, who lives in a house close by. His wife and daughter had been in Wael's house yesterday morning at the time of the shelling: both were killed.
"I wanted to go and join them the night before, but it was too dangerous to go out. If anyone moved he would be shot," Nael said. "Then when I heard the bombing this morning I saw people running. I saw an injured man fall to the ground. I ran to help, but there was an Israeli sniper in the house next door who shouted: 'Leave him alone.' We couldn't rescue anyone."
As he ran, Israeli troops fired over their heads and then ordered them to lift up their shirts to show they carried no weapons under their clothes. "We just made it out and here to the hospital," Nael said. Then, in a moment of anger, he pointed the blame. "Hamas is responsible for this. They are starving us, now they are killing us," he said. "They asked the Israelis to enter but where is the resistance? They are hiding. All the leaders of Hamas are underground. It's just the civilians confronting the Israeli army. I don't like Hamas and I don't want them ruling Gaza."
Hospital officials believe nine people were killed in the Samouni house, including at least four children. But they were not the only civilians to die at the hand of the Israeli offensive yesterday. Just north of Gaza City in the Shamali district, a missile struck a three-storey apartment block in the middle of the night - home to three brothers, their families and their father. It hit the roof and dropped down to the basement, destroying half the building and killing Amer Abu Asha, 47, along with his two wives, three sons and one daughter.
Yesterday his brother Samer Abu Asha, 50, sat outside on a plastic chair under a green awning. Neighbours came to shake his hand and offer their sympathy before slipping away quickly to avoid the next missile strike.
The family were not asleep at 1.30am yesterday when the Israeli missile struck - the noise of the bombing had been too much. In the moments after the attack there was such confusion no one knew who or how many had died.
"We started searching but it was hard with the dust, the darkness and the smoke," said Abu Asha. Neighbours told them bodies had been taken to the hospital, so they rushed to the Shifa in Gaza City, only to be told no one from their family had been admitted. "We went back home and searched everywhere," he said. Finally they found his brother Amer lying on a patch of ground outside the house, mortally wounded, his stomach ripped open. "We started to search for others under the rubble. We found arms, legs, half a head," he said. "We didn't find a complete body."
Abu Asha admitted that another brother in the family - but one who did not live in the building - was in the Hamas military wing but said he could not account for the bombing. They had received no warning. "It's unjust. They are targeting civilians, children, old women," he said. "Some European and Arab countries are supporting Israel in this terrorism. They want to crack down on Hamas, but Hamas is not in the houses. It's on the front line. Go there and kill them. Not us."
Bush Plan Eliminated Obstacle to Gaza Assault
http://www.antiwar.com/porter/?articleid=14005
by Gareth Porter
Until mid-2007, there was a serious political obstacle to a massive conventional war by Israel against Hamas in Gaza: the fact that Hamas had won free and fair elections for the Palestinian parliament and was still the leading faction in a fully legitimate government.
But the George W. Bush administration helped Israel eliminate that obstacle by deliberately provoking Hamas to seize power in Gaza. That plan was aimed at getting Palestinian President Mahmoud Abbas to dissolve the democratically elected Hamas government – something Bush had tried unsuccessfully to do for many months.
Hamas won 56 percent of the seats in the Palestinian parliament in the January 2006 elections, and the following month, the Palestinian Legislative Council voted for a new government under Hamas Prime Minister Ismail Haniyeh. The Bush administration immediately began to use its control over the "Quartet" (the U.S., European Union, United Nations, and Russia) to try to reverse the results of the election.
The Quartet responded to the Hamas victory by demanding that Hamas renounce all armed resistance to Israel and even "disarm" before a political solution was reached. That was in effect a demand that Israel be allowed to use its military and economic controls over the West Bank and Gaza to impose its own unilateral solution on the Palestinians.
Meanwhile, the Bush administration and the Europeans cut off all financing for the Palestinian government, while Israel refused to hand over to the Palestinian authorities the VAT and customs duties it collected on behalf of the Palestinians under the Paris Protocol signed with the PLO as part of the Oslo Accords.
When Abbas continued to resist U.S. demands for an end to the elected government, both Secretary of State Condoleezza Rice and Israeli Foreign Minister Tzipi Livni told him at the United Nations in September 2006 that they would not accept a Palestinian government with Hamas participation.
Then Rice was dispatched to Ramallah in early October 2006 to tighten the screws on the Palestinian president. She demanded a commitment from Abbas to dissolve the Haniyeh government within two weeks, then accepted his promise to do so within four weeks, according to a later U.S. State Department memorandum published in Vanity Fair magazine.
There was one problem, however, with the U.S. demand: under Article 45 of the Palestinian Authority's "Basic Law," Abbas could fire the prime minister, but he could not appoint a new one who did not represent the majority party in the Palestinian Legislative Council.
Abbas failed to act on the dissolution promise, so the Bush administration gave him a memo demanding that Hamas be given a "clear choice, with a clear deadline" to accept or reject "a new government that meets the Quartet principles." The memo, published in part last January in Vanity Fair, said that if Hamas refused that demand, "you should make clear your intention to declare a state of emergency and form an emergency government explicitly committed to that platform."
It further demanded that Abbas "strengthen his team" by bringing in "credible figures of strong standing in the international community." That was a reference to the longtime director of Fatah's paramilitary forces, Muhammad Dahlan, who had long been regarded as the candidate of the Bush administration and its allies. In April 2003, Yasser Arafat had been under pressure from British Prime Minister Tony Blair and Egyptian President Hosni Mubarak to name Dahlan as head of Palestinian security.
In late 2006, Rice got Egypt, Saudi Arabia, and the United Arab Emirates to agree to provide covert military training and money to equip a major increase in Dahlan's militia.
But there was another element of the Bush administration plan. It encouraged Dahlan to carry out attacks against the Hamas security and political infrastructure in Gaza, which were well-known to be far stronger than that of Abbas' Fatah faction. In a later interview with Vanity Fair, Dahlan admitted that he had carried out "very clever warfare" against Hamas in Gaza for many months.
Other sources said that Dahlan's militia was carrying out torture and kidnappings of Hamas security personnel.
Alvaro de Soto, then UN special coordinator for the Middle East peace process, wrote in his confidential "End of Mission Report" that the U.S. "clearly pushed for a confrontation between Fatah and Hamas." He recalled that the "U.S. envoy" to a Feb. 2, 2007, meeting of the Quartet in Washington had twice declared "how much I like this violence," because "it means that other Palestinians are resisting Hamas."
That U.S. envoy was Secretary of State Condoleezza Rice.
The Bush administration seemed to want Hamas to know about its plan to help Fatah use force against the Hamas organization in Gaza. A Jan. 5, 2007, Reuters story datelined Jerusalem revealed an internal U.S. document showing that the United States had pledged $86 million to "strengthen and reform elements of the Palestinian security sector controlled by the PA presidency" and "dismantle the infrastructure of terrorism and establish law and order in the West Bank and Gaza."
When Abbas negotiated a new agreement with Hamas in Mecca in February 2007 on a Palestinian unity government, the Bush administration responded by drafting a secret "action plan for the Palestinian presidency" which threatened that the "international community" would "no longer deal exclusively with the presidency" if it did not go along with U.S. demands, and that "[m]any countries in the EU and the G8" would "start looking for more credible interlocutors on the Palestinian side who can deliver on key issues of security and governance."
The plan, dated March 2, 2007, called for Abbas to "start taking necessary action against groups undermining the cease-fire with the goal of ensuring all armed groups within Palestine security institutions in stages (between 2007 and 2008)." It promised to help Abbas to "impose necessary order on the Palestinian street" through "superiority" of Fatah forces over Hamas, after which there would be new elections in autumn 2007.
Again that U.S. plan was not kept secret but was leaked in April 2007 by the Jordanian newspaper Al-Majd. That could only have happened if Jordanian intelligence services, which cooperative very closely with the United States, made the decision to leak it to the press.
Then, on June 7, 2007, the Israeli daily newspaper Ha'aretz revealed that Israel had been asked to authorize the shipment of dozens of Egyptian armored cars, hundreds of rockets, and thousands of hand grenades for the Fatah security forces.
The leaked plans for a military buildup were an open invitation to Hamas to take preemptive action. The day after the Ha'aretz story, Hamas launched a campaign that eliminated the Fatah security presence in Gaza in five days.
The day after the complete defeat of Dahlan's forces in Gaza, Abbas dissolved the Haniyeh unity government and named his own prime minister, in violation of the Palestinian charter.
The rout of Dahlan's forces was a predictable consequence of the Bush administration's policy. As the commander of Fatah's al-Aqsa Martyrs' Brigades, Khalid Jaberi, told Vanity Fair's David Rose, "We can only conclude that having Hamas in control serves [the Bush administration's] overall strategy, because their policy was so crazy otherwise."
But the Bush administration had not only accomplished its goal of eliminating a Hamas-dominated government; it had also set up a new argument that could later be used to justify an all-out Israeli offensive in Gaza: that Hamas had mounted an "illegal coup" in Gaza. That was the term that Rice used on Jan. 2 in justifying the Israeli operations against Gaza.
(Inter Press Service)
by Gareth Porter
Until mid-2007, there was a serious political obstacle to a massive conventional war by Israel against Hamas in Gaza: the fact that Hamas had won free and fair elections for the Palestinian parliament and was still the leading faction in a fully legitimate government.
But the George W. Bush administration helped Israel eliminate that obstacle by deliberately provoking Hamas to seize power in Gaza. That plan was aimed at getting Palestinian President Mahmoud Abbas to dissolve the democratically elected Hamas government – something Bush had tried unsuccessfully to do for many months.
Hamas won 56 percent of the seats in the Palestinian parliament in the January 2006 elections, and the following month, the Palestinian Legislative Council voted for a new government under Hamas Prime Minister Ismail Haniyeh. The Bush administration immediately began to use its control over the "Quartet" (the U.S., European Union, United Nations, and Russia) to try to reverse the results of the election.
The Quartet responded to the Hamas victory by demanding that Hamas renounce all armed resistance to Israel and even "disarm" before a political solution was reached. That was in effect a demand that Israel be allowed to use its military and economic controls over the West Bank and Gaza to impose its own unilateral solution on the Palestinians.
Meanwhile, the Bush administration and the Europeans cut off all financing for the Palestinian government, while Israel refused to hand over to the Palestinian authorities the VAT and customs duties it collected on behalf of the Palestinians under the Paris Protocol signed with the PLO as part of the Oslo Accords.
When Abbas continued to resist U.S. demands for an end to the elected government, both Secretary of State Condoleezza Rice and Israeli Foreign Minister Tzipi Livni told him at the United Nations in September 2006 that they would not accept a Palestinian government with Hamas participation.
Then Rice was dispatched to Ramallah in early October 2006 to tighten the screws on the Palestinian president. She demanded a commitment from Abbas to dissolve the Haniyeh government within two weeks, then accepted his promise to do so within four weeks, according to a later U.S. State Department memorandum published in Vanity Fair magazine.
There was one problem, however, with the U.S. demand: under Article 45 of the Palestinian Authority's "Basic Law," Abbas could fire the prime minister, but he could not appoint a new one who did not represent the majority party in the Palestinian Legislative Council.
Abbas failed to act on the dissolution promise, so the Bush administration gave him a memo demanding that Hamas be given a "clear choice, with a clear deadline" to accept or reject "a new government that meets the Quartet principles." The memo, published in part last January in Vanity Fair, said that if Hamas refused that demand, "you should make clear your intention to declare a state of emergency and form an emergency government explicitly committed to that platform."
It further demanded that Abbas "strengthen his team" by bringing in "credible figures of strong standing in the international community." That was a reference to the longtime director of Fatah's paramilitary forces, Muhammad Dahlan, who had long been regarded as the candidate of the Bush administration and its allies. In April 2003, Yasser Arafat had been under pressure from British Prime Minister Tony Blair and Egyptian President Hosni Mubarak to name Dahlan as head of Palestinian security.
In late 2006, Rice got Egypt, Saudi Arabia, and the United Arab Emirates to agree to provide covert military training and money to equip a major increase in Dahlan's militia.
But there was another element of the Bush administration plan. It encouraged Dahlan to carry out attacks against the Hamas security and political infrastructure in Gaza, which were well-known to be far stronger than that of Abbas' Fatah faction. In a later interview with Vanity Fair, Dahlan admitted that he had carried out "very clever warfare" against Hamas in Gaza for many months.
Other sources said that Dahlan's militia was carrying out torture and kidnappings of Hamas security personnel.
Alvaro de Soto, then UN special coordinator for the Middle East peace process, wrote in his confidential "End of Mission Report" that the U.S. "clearly pushed for a confrontation between Fatah and Hamas." He recalled that the "U.S. envoy" to a Feb. 2, 2007, meeting of the Quartet in Washington had twice declared "how much I like this violence," because "it means that other Palestinians are resisting Hamas."
That U.S. envoy was Secretary of State Condoleezza Rice.
The Bush administration seemed to want Hamas to know about its plan to help Fatah use force against the Hamas organization in Gaza. A Jan. 5, 2007, Reuters story datelined Jerusalem revealed an internal U.S. document showing that the United States had pledged $86 million to "strengthen and reform elements of the Palestinian security sector controlled by the PA presidency" and "dismantle the infrastructure of terrorism and establish law and order in the West Bank and Gaza."
When Abbas negotiated a new agreement with Hamas in Mecca in February 2007 on a Palestinian unity government, the Bush administration responded by drafting a secret "action plan for the Palestinian presidency" which threatened that the "international community" would "no longer deal exclusively with the presidency" if it did not go along with U.S. demands, and that "[m]any countries in the EU and the G8" would "start looking for more credible interlocutors on the Palestinian side who can deliver on key issues of security and governance."
The plan, dated March 2, 2007, called for Abbas to "start taking necessary action against groups undermining the cease-fire with the goal of ensuring all armed groups within Palestine security institutions in stages (between 2007 and 2008)." It promised to help Abbas to "impose necessary order on the Palestinian street" through "superiority" of Fatah forces over Hamas, after which there would be new elections in autumn 2007.
Again that U.S. plan was not kept secret but was leaked in April 2007 by the Jordanian newspaper Al-Majd. That could only have happened if Jordanian intelligence services, which cooperative very closely with the United States, made the decision to leak it to the press.
Then, on June 7, 2007, the Israeli daily newspaper Ha'aretz revealed that Israel had been asked to authorize the shipment of dozens of Egyptian armored cars, hundreds of rockets, and thousands of hand grenades for the Fatah security forces.
The leaked plans for a military buildup were an open invitation to Hamas to take preemptive action. The day after the Ha'aretz story, Hamas launched a campaign that eliminated the Fatah security presence in Gaza in five days.
The day after the complete defeat of Dahlan's forces in Gaza, Abbas dissolved the Haniyeh unity government and named his own prime minister, in violation of the Palestinian charter.
The rout of Dahlan's forces was a predictable consequence of the Bush administration's policy. As the commander of Fatah's al-Aqsa Martyrs' Brigades, Khalid Jaberi, told Vanity Fair's David Rose, "We can only conclude that having Hamas in control serves [the Bush administration's] overall strategy, because their policy was so crazy otherwise."
But the Bush administration had not only accomplished its goal of eliminating a Hamas-dominated government; it had also set up a new argument that could later be used to justify an all-out Israeli offensive in Gaza: that Hamas had mounted an "illegal coup" in Gaza. That was the term that Rice used on Jan. 2 in justifying the Israeli operations against Gaza.
(Inter Press Service)
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