Daily Archive: 01/13/2012

Jan 13 2012

Did I mention collapse of the Euro?

The hard cold fact is unless they print it, there is not enough money in the world to cover Banksters gambling losses.  They have bet on Black, hedged with Red, the wheel has stopped and the ball is now resting in that Green cup marked 00.

Debt talks falter, Greeks warn of disaster

By Dina Kyriakidou, Reuters

Fri Jan 13, 2012 2:13pm EST

“The main problem was the (European Union and International Monetary Fund’s) insistence on a coupon lower than 4 percent on the new bonds,” the banking source said.

That could mean an accounting loss of more than 70 percent for banks on their books, far more than the actual 50 percent cut in the original value of the old bonds laid down in the original deal.

Under the terms of the October plan, bondholders would take a 50 percent hit on the notional value of the old bonds. But the actual losses on their books depend on coupon and maturity of the new bonds, and could be far higher.

“When you’re dealing with a sovereign, you don’t have a huge amount of tricks up your sleeve, because if they choose not to pay you there’s not an awful lot you can do,” said Gary Jenkins, director of Swordfish Research.



Without using so called collective action clauses, the participation rate in any debt swap deal could be smaller than needed because many hedge funds would profit more if Greece defaulted because they would get paid in full from insurance.

“A lot of the (old) bonds have traded and are in the hands of the hedge funds. Do you think the governments are going to (pay out) to hedge funds? No way. So people like us, unless we are forced, we don’t have an incentive to accept,” said a source at a hedge fund, which owns Greek bonds.

Mark to Market can not be avoided forever and Mr. Market is going to have to realize a lot of this paper has a value of exactly zero.  Banks will collapse and if there is any justice there will be crowds on the ledges.

Nations will not suddenly wink out of existence, but Sarkozy and Merkel may find new amounts of time to contemplate their failure.

France to Lose AAA Rating From S&P: Finance Minister

By Mark Deen, Bloomberg News

Jan 13, 2012 2:10 PM ET

Standard & Poor’s is stripping France of its AAA credit rating for the first time, Finance Minister Francois Baroin said, reflecting the risk to the country from the spread of the euro-area debt crisis.

Coming 100 days before France’s presidential elections, the ratings cut to AA+ is a blow for President Nicolas Sarkozy. Other countries in Europe were also notified by the ratings company, Baroin said, without being more specific.



The downgrade comes amid signs that France is slipping into a recession, complicating Sarkozy’s bid for re-election in voting in April and May.



Sarkozy trails his main rival, Socialist Party candidate Francois Hollande, by about 14 points in voting intention for the second round of the election, according to a BVA poll for Le Parisien newspaper published Jan. 9.

Stop coddling Europe’s banks

Morris Goldstein, Vox

11 January 2012

After initial denials, Europe’s leaders have started to acknowledge that IMF Chief Christine Lagarde was right. Through their statements and decisions, policymakers are showing their agreement with her assessment in August 2011 at the Federal Reserve’s Jackson Hole symposium that there was an urgent need for recapitalisation of Europe’s banks (Lagarde 2011).



(R)ather than converting that ratio into a target for increases in bank capital alone, the European Banking Authority (EBA) has increased the risk of a pro-cyclical response in a region where economic growth is fragile and weakening further.

This is because many banks may choose to reach the higher capital ratio as much by decreasing the denominator (shedding bank assets) as by increasing the numerator (raising bank equity). As an impressive body of research has shown, increasing bank equity need not be expensive or adverse for the real economy because the higher equity cushion makes bank equity safer and because the marketplace puts a positive value on such increased safety (Admati et al 2010); in contrast, reaching a higher capital ratio by restricting loan growth to the real economy and by engaging in fire sales of bank assets has an unambiguous contractionary effect.



Any EU bank that was below the capital target should have been directed to stop paying dividends until it reached the new capital target and until it was not in danger of falling back below it over the next year. Clearly, some large and under-capitalised EU banks are operating under no such constraints.



Neither the IMF nor the ECB seem to be rushing forward to give up their de jure or de facto preferred creditor status. All of this just increases the odds that future bank losses on sovereign debt will ultimately be assumed by the public sector and by taxpayers in the highly indebted countries – much to the detriment both of public-debt sustainability and of sustained public support for adjustment programmes. Once again, coddling the banks will impose higher costs on the rest of society.



To sum up, throughout this European debt and banking crisis, Eurozone leaders have expressed their determination to “do whatever it takes” to restore stability and save the euro. But if one examines the stance the official sector has taken toward banks, it looks much more like Eurozone leadership “takes (sheepishly) whatever its large banks do” – even when those actions are much more in the banks’ narrow interest than in the wider public one. It is high time for a change.

Wolf Richter: Greece – Disagreement Everywhere, Rift in the Troika

Wolf Richter, Naked Capitalism

Friday, January 13, 2012

(N)ow the Troika itself is in disarray. It surfaced today at an IMF press briefing in Washington: the IMF no longer supports austerity as a guiding principle.



The three Troika inspectors-Poul Thomsen from the IMF, Mathias Morse from the EU, and Klaus Mazouch from the ECB-are supposed to head to Greece next week to inspect its books; the budget deficit is once again higher than the revised limit that Greece had vowed to abide by. And they’re supposed to negotiate additional “structural reforms.” But there probably won’t be three inspectors, according to senior IMF sources. Missing: Poul Thomsen. The IMF has had enough.

Already, according to more leaks, IMF Managing Director Christine Lagarde had warned German Chancellor Angela Merkel and French President Nicolas Sarkozy that the fiscal and economic situation in Greece had deteriorated. Hence, the “voluntary” haircut on Greek bonds held by private sector investors should be increased to more than 50% to maintain the goal of bringing Greece’s debt load down to 120% of GDP. And the second €130 billion bailout package, agreed upon on October 26, should be enlarged by “tens of billions of euros.”

The German reaction was immediate. “There has to be a line somewhere,” said Michael Fuchs, deputy leader of Merkel’s party, the CDU. “This cannot be a bottomless barrel.” Even if Merkel were amenable to committing more taxpayer money to bail out Greece, she’d face a wall of opposition in her own party. And he wasn’t brimming with optimism: “I don’t think that Greece, in its current condition, can be saved,” he said.



It may be too difficult to keep Greece in the Eurozone, but allowing it to exit would be even more difficult, at least in the short term. And not only for Greece. It would be a shock to the Eurozone economy, which is already fragile. Even Germany, economic superstar with unemployment at a 20-year low and exports at an all-time high, has smacked into a wall. Read…. Germany’s Export Debacle.

Europe’s Road to Nowhere (Part 1)

Author: Satyajit Das, EconoMonitor

January 12th, 2012

Financially futile, economically erroneous, politically puzzling and socially irresponsible, the December 2011 European summit was a failure. Only the attending leaders and their acolytes believe otherwise. German Chancellor Angela Merkel’s post-summit homilies about the “long run”, “running a marathon” and “more Europe” rang hollow.

The proposed plan is fundamentally flawed. It made no attempt to tackle the real issues – the level of debt, how to reduce it, how to meet funding requirements or how to restore growth. Most importantly there were no new funds committed to the exercise.



The plan may result in a further slowdown in growth in Europe, worsening public finances and increasing pressure on credit ratings. This is precisely the experience of Greece, Ireland, Portugal and Britain as they have tried to reduce budget deficits through austerity programs. This would make the existing debt burden even harder to sustain. The rigidity of the rules also limits government policy flexibility, risking making economic downturns worse.

Fiscal controls may not prevent future problems. Until 2008, Ireland, Spain and Italy boasted a better fiscal position and lower debt than Germany and France. The weak economic fundamentals of these countries were exposed by the global financial crisis, leading to a rapid deterioration in public finances.



Unlike US banks in 2008/2009, European banks are reluctant to cut significant dividend payouts. Spanish bank Santander plans to pay shareholders Euro 2 billion in cash and more in stock (over 15% of its stated capital requirements). They argue the need to preserve their brand, compensate investors for poor share price performance and a return to profitability. Curiously, the EBA or the Bank of Spain has not intervened to force a suspension of dividends to husband capital.



Credit Agricole, the third largest French bank, is planning to reduce assets by around Euro 15-18 billion by the end of 2011 and by Euro 60 billion by end 2013. This will improve the bank’s capital position and also reduce its funding needs by Euro 50 billion. If all banks undertake similar actions, selling foreign assets and shutting (mainly overseas) operations, then the effect on the broader economy will be significant. The tighter credit conditions and lower economic activity may increase normal credit losses setting off a negative feedback loop.

Asset sales by European banks to improve capital are acceptable to the EU as long as they “do not lead to a reduced flow of lending to the EU’s real economy”. Withdrawal from foreign markets is already having a noticeable impact in Eastern Europe and Asia. A slowdown in these economies will indirectly affect Europe, reducing demand for European exports.

Europe’s Road to Nowhere (Part 2)

Author: Satyajit Das, EconoMonitor

January 13th, 2012

Sarko-nomics perpetuates the circular flow of funds with governments supporting banks that are in turn supposed to bail out the government. It does not address the unsustainable high cost of funds for countries like Italy. If its cost of debt stays around current market rates, then Italy’s interest costs will rise by about Euro 30 billion over the next two years, from 4.2% of GDP currently to 5.1% next year and 5.6% in 2013.



Debt reduction through restructuring remains off the agenda. The adverse market reaction to the announcement of the 50% Greek writedown forced the EU to assure investors that it was a one-off and did not constitute a precedent. Despite this, investors remain sceptical, limiting purchases of European sovereign debt.



Even Ireland, the much lauded poster child of bailout austerity, has experienced problems. The country’s third quarter GDP fell 1.9% and its Gross National Product fell 2.2% (the later is a better measure of economic performance due to the country’s large export/ transhipment activity). Ireland must reduce its budget deficit from 32% of GDP in 2010 to 3% by 2015. Despite spending cuts and tax increases, Ireland is spending Euro 57 billion euros including Euro 10 billion to support its five nationalised banks, against Euro 34 billion in tax revenue.

Spain, which has voluntarily taken the austerity cure, is missing economic targets. Spain’s budget deficit is above forecast (at 8% of GDP, it is a full 2% above the target agreed with the EU) and the need for support of the Spanish banking system may strain public finances further. Unemployment increased to over 21% (nearly 5 million people). Spain’s economic outlook is poor and deteriorating.



In the third quarter of 2011, Italy’s economy contracted by 0.2%. The government forecast is for a further contraction of 0.4% in 2012. The government forecasts may be too optimistic. Confindustria, the Italian business federation forecasts the economy will contract by 1.6% in 2012.



German export orders are slowing, reflecting the fact that the EU remains its largest export market, larger than demand from emerging countries. Germany exports to Italy and Spain total around 9-10 per cent in 2010), higher than to either the US (6-7%) or China (4-5%).



Greece faces elections in April 2011. The polls indicate a fractious outcome, with the major parties unlikely to gain majorities with significant representation of minor parties. An unstable government combined with a broad coalition against austerity may result in attempts to renegotiate the bailout package. Failure could result in a disorderly default and Greece leaving the Euro.

The French presidential elections, scheduled for May 2012, also create uncertain. The principal opponents to incumbent Nicolas Sarkozy either oppose the Euro and the bailout (the National Front led by Marine Le Pen) or want to renegotiate the plan with the introduction of jointly guaranteed Euro-Zone bonds (the Socialists led by Francios Holland).

The European debt crisis is also creating political problems in Germany, Netherlands and Finland, especially among governing coalitions. The risk of unexpected political instability is not insignificant.

In the weaker countries, austerity means high unemployment, reductions in social services, higher taxes and reduced living standards. Social benefits increasingly below subsistence are widening income inequality and creating a “new poor”. Protest movements are gaining ground, with growing social unrest.



A downgrade of Germany’s cherished AAA rating or any steps to undermine the sanctity of a hard currency (by printing money or other monetary techniques) will force increasing focus on the costs to Germans of the bailouts. Germany’s commitment to date is Euro 211 billion in guarantees, Euro 45 billion in advances to the IMF and Euro 500 billion owed to the Bundesbank by other national central banks – around 25% of GDP.



The debt is concentrated in countries where growth, productivity and cost competitiveness is low, which is what caused the problems in the first place. The relevant wealth is in the hands of a few countries like Germany that appear unwilling to bail out spendthrift and irresponsible neighbours. A substantial portion of the savings is also invested in European government debt directly or in vulnerable banks, which have invested in the same securities.

The total debt of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) plus Belgium is more than Euro 4 trillion. A writedown of around Euro 1 trillion in this debt is required to bring the debt levels down to sustainable levels (say 90% of GDP). In the absence of structural reforms and a return to growth, the writedowns required are significantly larger. This compares to the GDP of Germany and France respectively of Euro 3 trillion and Euro 2.2 trillion.

Jan 13 2012

Punting the Pundits

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Paul Krugman: America Isn’t a Corporation

“And greed – you mark my words – will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.”

That’s how the fictional Gordon Gekko finished his famous “Greed is good” speech in the 1987 film “Wall Street.” In the movie, Gekko got his comeuppance. But in real life, Gekkoism triumphed, and policy based on the notion that greed is good is a major reason why income has grown so much more rapidly for the richest 1 percent than for the middle class.

Today, however, let’s focus on the rest of that sentence, which compares America to a corporation. This, too, is an idea that has been widely accepted. And it’s the main plank of Mitt Romney’s case that he should be president: In effect, he is asserting that what we need to fix our ailing economy is someone who has been successful in business.

Amy Goodman: Guantanamo at 10: The Prisoner and the Prosecutor

Ten years ago, Omar Deghayes and Morris Davis would have struck anyone as an odd pair. While they have never met, they now share a profound connection, cemented through their time at the notorious U.S. military prison at Guantanamo Bay, Cuba. Deghayes was a prisoner there. Air Force Col. Morris Davis was chief prosecutor of the military commissions there from 2005 to 2007.

Deghayes was arrested in Pakistan and handed over to the U.S. military. He told me: “There was a payment made for every person who was handed to the Americans. … We were chained, head covered, then sent to Bagram [Afghanistan]-we were tortured in Bagram-and then from Bagram to Guantanamo.”

At Guantanamo, Deghayes, one of close to 800 men who have been sent there since January 2002, received the standard treatment: “People were subjected to beatings, daily fear … without being convicted of any crime.”

Joe Conason: Bitter Primary Reveals the Real Romney

For Mitt Romney, Tuesday night’s triumph in the New Hampshire primary offered a tempting opportunity to gloat. Such unattractive conduct is no longer surprising from the Republican front-runner, who is enduring the gradual disclosure of his personality.

The hot Romney video of the moment displays him telling the Nashua, N.H., Chamber of Commerce: “I like being able to fire people who provide services to me,” and went viral not because of its specific context, which wasn’t particularly damning, but because the public perceives the remark as a distillation of elite heartlessness. Every decent person who has had to fire someone knows that doing so-under almost any circumstances-is unpleasant, difficult and frequently wrenching. To boast that you “like to fire people” after observing years of economic pain among the jobless suggests a deep defect that, to most Americans, may disqualify Romney from the presidency.

Of course, that quote could have been a peculiar gaffe or a meaningless slip, but it wasn’t. There is no shortage of evidence, emanating mostly from his own mouth, that privilege, arrogance and entitlement are major features of Romney’s character.

Bill Moyers and Michael Winship: Is This Land Made for You and Me – or for the Super-Rich?

The traveling medicine show known as the race for the Republican presidential nomination has moved on from Iowa and New Hampshire, and all eyes are now on South Carolina.  Well, not exactly all.  At the moment, our eyes are fixed on some big news from the great state of Oklahoma, home of the legendary American folk singer Woody Guthrie, whose 100th birthday will be celebrated later this year.

Woody saw the ravages of the Dust Bowl and the Depression firsthand; his own family came unraveled in the worst hard times.  And he wrote tough yet lyrical stories about the men and women who struggled to survive, enduring the indignity of living life at the bone, with nothing to eat and no place to sleep.  He traveled from town to town, hitchhiking and stealing rides in railroad boxcars, singing his songs for spare change or a ham sandwich.  What professional success he had during his own lifetime, singing in concerts and on the radio, was often undone by politics and the restless urge to keep moving on. “So long, it’s been good to know you,” he sang, and off he would go.

John Nichols: Walker, Texas (Money) Ranger: Can Lone-Star Cash Save Anti-Labor Governor?

Wisconsin Governor Scott Walker is scared, so scared that he is calling in a posse of Texas billionaires to try and save his political skin.

Facing the threat of a recall election, Walker poured money into a television advertising campaign to convince Wisconsinites that his attacks on collective bargaining rights, his budget cuts for education and local services, and his pay-to-play approach to politics are good things.

Wisconsinites weren’t buying what Walker was selling. On Tuesday, the recall campaign mounted by United Wisconsin will submit not just the 540,000 signatures needed to recall Governor Walker but hundreds of thousands more.

This fight is going to happen. Walker knows he faces an accountability moment that threatens to end his long political career.

But he is not giving up easily. The governor is arming himself with all the money he can get his hands on. Big money. Texas money.

Mark Weisbrot: The Economic Idiocy of Economists

The American Economic Association’s Annual Meeting is Red-letter Day for ‘the Dismal Science’. And Dismal it Proved

The American Economic Association’s annual meetings are a scary sight, with thousands of economists all gathered in the same place – a veritable weapon of mass destruction. Chicago was the lucky city for 2012 this past weekend, and I had just finished participating in an interesting panel on “the economics of regime change”, when I stumbled over to see what the big budget experts had to say about “the political economy of the US debt and deficits”.

The session was introduced by UC Berkeley economist Alan Auerbach, who put up a graph of the United States’ rising debt-to-GDP ratio, and warned of dire consequences if Congress didn’t do something about it. Yawn.

But the panelists got off to a good start, with Alan Blinder of Princeton, former vice-chairman of the US Federal Reserve, describing the public discussion of the US national debt as generally ranging from “ludicrous to horrific”. True, that. He asked and answered four questions.

Isabeau Doucet: Haiti’s Hard Road to Recovery

Two years after the earthquake life is improving, but the nation still faces a cholera epidemic and a huge rebuilding challenge

In Haiti, you’ll see a young man sitting on a crumbled wall blasting a song out of a bashed-up radio and singing along – apparently without irony – lyrics that just repeat “I love my life”. You’ll see a woman trying to peddle half-rotten papayas from a basket on her head, dancing to kompa on a pile of sewage-soaked rubble and trash. You’ll see a barefoot six-year-old boy flying a homemade kite wearing a T-shirt that says “Save Darfur”. You can be sure that if your motorcycle, car or SUV breaks down in the potholes of Port-au-Prince, any one of these folks will bend over backwards to help, rather than pose any threat to your safety.

What’s remarkable about Haiti is that despite the devastating earthquake, tent camps, cholera, political instability and chronically corrupt and neglected judicial institutions, it couldn’t be further from the orgy of violence people around the world associate with it. The United Nation’s latest homicide statistics show that Haiti is one of the least dangerous places in the Caribbean region with a murder rate on a par with the US.

Jan 13 2012

On this Day In History January 13

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

January 13 is the 13th day of the year in the Gregorian calendar. There are 352 days remaining until the end of the year (353 in leap years).

It is still celebrated as New Year’s Eve (at least in the 20th & 21st centuries) by countries still using the thirteen day slower Julian calendar (Old New Year).

On this day in 1898, French writer Emile Zola’s inflammatory newspaper editorial, entitled “J’accuse,” is printed. The letter exposed a military cover-up regarding Captain Alfred Dreyfus. Dreyfus, a French army captain, had been accused of espionage in 1894 and sentenced in a secret military court-martial to imprisonment in a South American penal colony. Two years later, evidence of Dreyfus’ innocence surfaced, but the army suppressed the information. Zola’s letter excoriated the military for concealing its mistaken conviction.

Dreyfus Affair

Captain Alfred Dreyfus was a Jewish artillery officer in the French army. When the French intelligence found information about someone giving the German embassy military secrets, anti-semitism seems to have caused senior officers to suspect Dreyfus, though there was no direct evidence of any wrongdoing. Dreyfus was court-martialled, convicted of treason and sent to Devil’s Island in French Guiana.

LL Col. Georges Picquart, though, came across evidence that implicated another officer, Ferdinand Walsin Esterhazy, and informed his superiors. Rather than move to clear Dreyfus, the decision was made to protect Esterhazy and ensure the original verdict was not overturned. Major Hubert-Joseph Henry forged documents that made it seem that Dreyfus was guilty and then had Picquart assigned duty in Africa. Before leaving, Picquart told some of Dreyfus’s supporters what he knew. Soon Senator August Scheurer-Kestner took up the case and announced in the Senate that Dreyfus was innocent and accused Esterhazy. The right-wing government refused new evidence to be allowed and Esterhazy was tried and acquitted. Picquart was then sentenced to 60 days in prison.

Émile Zola risked his career and even his life on 13 January 1898, when his “J’accuse“, was published on the front page of the Paris daily, L’Aurore. The newspaper was run by Ernest Vaughan and Georges Clemenceau, who decided that the controversial story would be in the form of an open letter to the President, Felix Faure. Émile Zola’s “J’Accuse” accused the highest levels of the French Army of obstruction of justice and antisemitism by having wrongfully convicted Alfred Dreyfus to life imprisonment on Devil’s Island. Zola declared that Dreyfus’ conviction came after a false accusation of espionage and was a miscarriage of justice. The case, known as the Dreyfus affair, divided France deeply between the reactionary army and church, and the more liberal commercial society. The ramifications continued for many years; on the 100th anniversary of Zola’s article, France’s Roman Catholic daily paper, La Croix, apologized for its antisemitic editorials during the Dreyfus Affair. As Zola was a leading French thinker, his letter formed a major turning-point in the affair.

Zola was brought to trial for criminal libel on 7 February 1898, and was convicted on 23 February, sentenced, and removed from the Legion of Honor. Rather than go to jail, Zola fled to England. Without even having had the time to pack a few clothes, he arrived at Victoria Station on 19 July. After his brief and unhappy residence in London, from October 1898 to June 1899, he was allowed to return in time to see the government fall.

The government offered Dreyfus a pardon (rather than exoneration), which he could accept and go free and so effectively admit that he was guilty, or face a re-trial in which he was sure to be convicted again. Although he was clearly not guilty, he chose to accept the pardon. Émile Zola said, “The truth is on the march, and nothing shall stop it.” In 1906, Dreyfus was completely exonerated by the Supreme Court.

The 1898 article by Émile Zola is widely marked in France as the most prominent manifestation of the new power of the intellectuals (writers, artists, academicians) in shaping public opinion, the media and the state.

Jan 13 2012

Another Inconvenient Truth: Iran’s Nuclear Weapons Program

The current case that Iran is developing enriched uranium for a bomb is hardly conclusive and the evidence is sketchy at best. There used to be but it was abandoned under international pressure in 2003. Former member of the IAEA’s Iraq Action Team in 2003 and nuclear engineer, Robert Kelley writes in Bloomberg News that the charges against Iran are no “slam dunk”:

(T)he issue is not whether there is evidence of such a program, but whether there is evidence that it was restarted after being shut down in 2003.

The Nov. 8, 2011, report of the IAEA, under the leadership of Director General Yukiya Amano, is long on the former and very short on the latter. In the 24-page document, intended for a restricted distribution but widely available on the Internet, all but three of the items that were offered as proof of a possible nuclear-arms program are either undated or refer to events before 2004. The agency spends about 96 percent of a 14- page annex reprising what was already known: that at one time there were military dimensions to Iran’s nuclear program.

What about the three indications that the arms project may have been reactivated?

Two of the three are attributed only to two member states, so the sourcing is impossible to evaluate. In addition, their validity is called into question by the agency’s handling of the third piece of evidence.

That evidence, according to the IAEA, tells us Iran embarked on a four-year program, starting around 2006, to validate the design of a device to produce a burst of neutrons that could initiate a fission chain reaction. Though I cannot say for sure what source the agency is relying on, I can say for certain that this project was earlier at the center of what appeared to be a misinformation campaign.

In 2009, the IAEA received a two-page document, purporting to come from Iran, describing this same alleged work. Mohamed ElBaradei, who was then the agency’s director general, rejected the information because there was no chain of custody for the paper, no clear source, document markings, date of issue or anything else that could establish its authenticity. What’s more, the document contained style errors, suggesting the author was not a native Farsi speaker. It appeared to have been typed using an Arabic, rather than a Farsi, word-processing program. When ElBaradei put the document in the trash heap, the U.K.’s Times newspaper published it.

Appearing on “Face the Nation with Bob Scheiffer”, Secretary of Defense Robert Panetta let it slip that Iran is not trying to build nuclear weapons but is pursuing a “nuclear capability”:

“I think the pressure of the sanctions, the diplomatic pressures from everywhere, Europe, the United States, elsewhere, it’s working to put pressure on them,” Panetta explained on Sunday. “To make them understand that they cannot continue to do what they’re doing. Are they trying to develop a nuclear weapon? No. But we know that they’re trying to develop a nuclear capability, and that’s what concerns us. And our red line to Iran is, do not develop a nuclear weapon. That’s a red line for us.”

Republicans have been beating the drums of war in recent weeks as tensions in the Iranian gulf have soared. Iran has threatened to shut down the Strait of Hormuz, a key oil transport hub crucial to global industry, if U.S. warships return to monitor their activities. [..]

The International Atomic Energy Agency said late last year that Iran had carried out tests that suggested they may be taking the first steps toward building a nuclear weapon, but former agency insiders disputed the claim as being misleading.

Reality check. This is not, nor has it ever been, just about nuclear weapons. It’s also about oil and securing the strategic passage from the major oil fields that surround the Persian Gulf. Now closing the Strait of Hormuz is a “red line” that would provoke an American response, according to United States government officials.