Trilateral dialogues come in many forms. Those that mix allies with competitors can have the deleterious consequences of diminishing like-mindedness for the sake of inclusivity. More successful trialogues combine like-minded countries that can bring capabilities to bear in ways that cut across national and regional divides, creating an effect that is greater than the sum of its parts.

One of the unfortunate consequences of the rhetoric surrounding the U.S. "pivot" to Asia was the perception that Washington, even as it intensified its commitment to trans-Pacific leadership, was pivoting away from Europe, home to its historic allies. U.S. Assistant Secretary of State for East Asia Kurt Campbell is working hard to correct that interpretation and transcend regional divides -- by leading a U.S. push to coordinate with Europe on Asia in unprecedented ways.

As he told the Trilateral Forum Tokyo organized by the German Marshall Fund of the United States and the Tokyo Foundation today, there are enormous opportunities for the Atlantic allies to work together in a structured, systematic way in rising Asia. These include:

Burma, where a historic political opening can be constructively encouraged (and where backsliding on liberalization can be deterred) through close coordination between the United States and the European Union, including via a graduated loosening of the sanctions that helped spur Burma's military government to opt for managed political change -- and where the allies can bring to bear lessons learned in Europe (for instance, in the Balkans) to support Burma's fragile process of ethnic reconciliation.

China, where U.S. and European concerns over issues like human rights, protection of intellectual property, and rule of law are convergent, and where the West wields much more leverage than commonly understood as a result of being China's dominant trade and investment partners.

Asian institution-building, where no one can teach Asian nations with only a superficial history of multilateral cooperation more about how to build durable and robust regional institutions in the fields of security, trade and investment, and transnational governance.

Security issues, where Europeans have not been pivotal players since the days of gunboat imperialism a century ago, but where a more global Europe must step up its game as competition among Asia's rising and established powers creates dangerous security dilemmas that threaten international security and prosperity.

This is more than just talk: American and European officials now meet regularly on an Asia-specific agenda; the United States and the EU have agreed to roll out a new mechanism for transatlantic cooperation on Asia at the next ASEAN Regional Forum summit this summer. This is an initiative that should be welcomed by Asian officials who overwhelmingly believe Europe punches below its weight in Asia, despite the resilience of European power and ideas in the world, deep economic ties, and the increasingly global impact of developments across the Indo-Pacific region.

The reality is that for too many European nations -- and for too many European Union officials -- China trade policy has been a substitute for an all-of-Asia strategy that encompasses the full spectrum of Western interests and leverages Western ties to powers of great significance, including Japan, South Korea, India, and Indonesia. For their part, American officials until recently have given little creative thought to connecting the two alliance systems that the United States has built and nurtured for 60 years, spanning the Atlantic and Pacific oceans, into a more global arrangement that transcends bureaucratic stovepipes constructed for another era.

Asia's rise is a global phenomenon, not simply a regional one: to take just one example, consider how China's rise affects global energy markets, global governance, and developments in Africa, the Middle East, and Latin America. At the same time, military modernization and intensifying competition within Asia -- between Japan and China, North and South Korea, and India and China, for instance -- implicates Western powers with deep ties to Tokyo, Seoul, New Delhi, and Beijing.

Power shifts within Asia promise to displace existing balances in ways that will require the United States, to sustain its leadership, to secure every advantage it can in a more fluid environment by working with its friends, many of whom are in Europe. From the Asian perspective, every key power has a compelling stake in Europe's ability to emerge from its sovereign debt crisis and restore economic growth. Despite wishful thinking about decoupling between the West and the rest, the global economy cannot grow sustainably as long as Europe, a primary market for and source of Asian trade and investment, is in the grip of recession.

Given the overlapping interests of Asian and Western democracies, it only makes sense to coordinate much more systematically, rather than relying on a set of outdated regional toolkits unadapted to a more globalized century. Similarly, to the extent that China is both a top economic partner and top security concern for so many countries, it only makes sense for them to use their combined influence to manage relations with Beijing from a position of strength -- rather than succumb to a more national approach that will disadvantage every country that cannot alone match China's clout.

For these reasons, the U.S. State Department's effort to bridge that Atlantic and Pacific communities, if matched by seriousness in European and Asian capitals, promises to pay dividends for Western interests in a more non-Western world.

It is bad enough to read that the military has launched a coup in Mali and ousted the democratically elected President Amadou Toumani Touré. Even those of us who believe that Francis Fukuyama made a sound and defensible point about the "end of history" know that there will continue to be setbacks for a long time in much of the developing world. Just because there is now no credible social, economic, or political argument in defense of tyranny does not mean that there won't still be attempts to make that argument by self-serving or even well-meaning putchists.

But it is most disheartening to learn how and why the coup came about just weeks before a scheduled election that was to peacefully replace Touré, only the second democratically elected president of a democratic Mali. Worse still to learn of the reaction to this coup by Malians who should know better.

Mali was somewhat of a success story in the African Sahel region. Only five years ago it hosted the Community of Democracies gathering attended by U.S. Deputy Secretary of State John Negroponte. As we planned for this event (I was then the deputy assistant administrator for democracy and government programs at USAID), there was considerable internal discussion of how well things might go and what the optics would be like for the world's democracy promoters (states as well as NGOs) to gather in Bamako for this important meeting. All were aware that there was of course still much poverty and lack of development in Mali along with unresolved tribal and sectional strife. But the elected government of Touré had been for several years working with the IMF and World Bank and other international donors to cut spending and regulation and improve governance. So it was deemed worthwhile to hold the meeting there. It was a success and the Malian government was a gracious host.

Fast forward to today, a few days after an ill-planned coup by what appear to be incompetent military leaders who have already broken their promises to begin restoring democratic order. Sanctions have been imposed and there are reports that the rebels in the north have taken advantage of the chaos and are furthering their rebellion and implementing sharia law, while as many as 200,000 people are fleeing.

So, democracy has been violently interrupted and al Qaeda, which has designs on Mali as it does in the rest of the Sahel, now has a widening gap in which to insert themselves and to work their wicked will.

But all these problems are compounded by the reaction of the Malians themselves. The coup has been welcomed by various civic groups, peasant leaders as well as other important sectors. Their interest in maintaining democratic processes is as weak, apparently, as the Touré government. The reason is because they have not seen sufficient improvements to their livelihood and an end to the northern rebellion. They have also grown fed-up with the way in which foreign interests have been able to, in their view, exploit the country and its land resources. Their motto is "peace first, elections later."

This is the enduring problem we see in several areas of the developing and democratizing world: Democracy and markets cannot make enough headway before the people become disillusioned to the point of being willing to welcome a coup if it will achieve the objectives they seek. There seems to be no permanent turning away from democracy and polls continue to show that people support democracy and want it for their country. We see this in parts of Latin America, Africa, and Asia. But some people in some states and regions are not willing to endure the progress that democracy can make only slowly. And there is a severe shortage of indigenous far-sighted leaders who should be encouraging the public to work tirelessly and patiently for democratic success instead of taking advantage of public disillusionment and rancor to promote themselves.

This is not a flaw in democracy, representative institutions, or law-based governance. The question is not whether freedom and liberty under law is the solution to lack of development and disorder. They are the only elements that can bring sustained order and progress.

The question is how long will it take and will the public endure the wait? That question is answered only by cultural factors, but Western and international forces can help with wise policy and firm commitments to the democratic path. Now is the time for the West and the U.N. and related organizations to stand shoulder-to-shoulder with African organizations and the leaders of other African countries who are condemning the coup, imposing sanctions, and insisting on a return to normal democratic order. It is also time to support, encourage, and even warn Mali's civil society leaders that they should not make a deal with the devil, as it were, by welcoming violations of democratic order in hopes that good can come of it. Good is very likely not to come of it, especially with a deepening and widening rebellion in the north that the incompetent military cannot control and that is being used to its advantage by terrorist groups like al Qaeda.

In the course of Congressional testimony this week supporting the Obama administration's $525 billion defense spending request for FY 2013, the Pentagon leadership was dire about the consequences of any further cuts to defense. In particular, Secretary Panetta and General Dempsey are seeking to prevent the law going into effect that would require an additional $500 billion to be cut across the coming decade.

The Pentagon leadership professes itself fine with this year's cuts. Panetta has said "the United States military will remain capable across the spectrum. We will continue to conduct a complex set of missions ranging from counterterrorism, ranging from countering weapons of mass destruction, to maintaining a safe, secure and effective nuclear deterrent. We will be fully prepared to protect our interests, defend our homeland and support civil authorities." General Dempsey fully endorsed the new guidance. Yet they both insisted no further cuts were possible without grave damage to our national security.

In seeking to persuade members of Congress to repudiate the 2011 Budget Control Act that established the topline spending levels, Panetta's tactic was to shame: "We have made no plans for sequester because it's a nutty formula, and it's goofy to begin with, and it's not something, frankly, that anybody who is responsible ought to put into effect." To be clear, he is declining to comply with the law.

Dempsey's tactic was to cry wolf: he said that if the sequestration cuts went into effect, "we would not any longer be a global power." This is nonsense. The Budget Control Act necessitates a 15 percent cut to DOD spending across ten years, in a budget that has doubled in the past decade. A budget that constitutes 42 percent of the entire world's defense spending, in a world in which all but two or three of the other big spenders are friends and allies likely to support our endeavors. A budget that after sequestration takes effect will hover at 2004 spending levels -- and the year 2004 was a profligate one in defense spending.

The United States has eleven aircraft carrier battle groups; no other country in the world sails more than one. We have three times as many modern battle tanks, four times the number of fourth-generation tactical aircraft (and are already fielding the fifth generation), more than three times as many naval cruisers and destroyers, 19 times as many tanker aircraft and 48 times as many unmanned aerial vehicles as any other country. The additional public investment since 2001 has also allowed the U.S. military to develop and use cutting-edge equipment such as drones, better body and vehicle armor and more precise bombs. We have an operational and technological edge that is literally pricing our allies out of participation, and that leaves our adversaries incapable of winning so long as we are willing to pursue our objectives.

Secretary Panetta is right that our national interest would be best served by the president submitting a budget that reforms entitlements to put our country on a sustainable spending path. The president has not done that. Secretary Panetta might perhaps take his concern about the devastating effects of sequestration to the president, who has committed to veto any relief for DOD from the Budget Control Act.

But that General Dempsey would project American power as so fragile -- at a time when our strength is being tested on several fronts -- is incredibly injudicious. If he cannot maintain America's ability to operate military forces throughout the world on an annual budget equivalent to our spending in 2004, he does not deserve to be the Chairman of the Joint Chiefs of Staff. Admiral Mullen was right: Our military has lost the ability to budget. We have a whole generation of military leaders with no experience operating cost-effectively. This, too, is a serious deficiency in our defense.

Within the next 24 hours, observers say, we are likely to see an agreement reached among Greek political parties that will clear the way for a second bailout from Europe and the IMF. Observers have been saying this for two months now, but never mind. It is certainly possible that the members of the Greek ruling coalition will meet the demands of "the troika" of lenders -- the European Commission, the European Central Bank, and the International Monetary Fund. And even plausible suggestions of a crisis resolution have tended to bring a feeling of euphoria to markets -- a good Greek word.

There are optimists and pessimists about Euro zone prospects. I'm in the latter camp, but it's interesting to see where the analyses diverge. You would probably get broad agreement that the essence of the euro zone problem is that a number of countries on Europe's periphery have racked up unsustainable levels of debt. There is also a general consensus that if those peripheral countries followed the traditional prescription of devaluing their currency (by leaving the euro zone), this would be a large economic shock for Europe and, thus, for the rest of the world (note, though, the different views among Northern European leaders on whether Greece alone might be expendable).

The divergence in opinion really comes in the analysis of potential solutions. Here are three ways one might look at fixes:

1. Could Europe as a whole handle the debt issue?
This is the question the optimists ask. The answer, they find, is yes, Europe could. While individual countries within the euro zone have debt problems, the zone as a whole is roughly in balance. If everyone agrees that the money is there and that failure to find a solution could be very costly, then it's just a matter of a little obligatory posturing before the money is reshuffled and the matter solved. Another way of putting this would be that economic hurdles are difficult to overcome, but political hurdles are trivial.

2. Could current national leaders in the Euro Zone handle the debt issue? Posing the question this way takes political constraints a little more seriously. While there are certainly now phone numbers and interlocutors for an apocryphal Kissingerian call to Europe, the major players are still national. Chancellor Merkel ultimately answers to a German electorate, President Sarkozy to a French citzenship, and Prime Minister Papademos to a Greek. Those German voters are distinctly unenthused about bailouts and a central bank that is willing to print money to solve problems. Those Greek voters are distinctly unenthused about austerity programs in the face of 19 percent unemployment. With these political constraints, the problem looks significantly harder. The question becomes whether these leaders can overcome the reluctance of their respective electorates and 'do what must be done.' Those who analyze at this level are hanging on every report out of Athens and Berlin.

3. Can countries commit that all future governments will follow the paths agreed today?
This is the pessimists' playground. What happens when leaders fail to persuade their electorates that their unpopular measures were really necessary? They're usually ousted in the next election. There are certainly some policies that, once undertaken, are very difficult to revoke. But the central issues in Europe now revolve around annual national budgets, for which commitments are eminently reversible. One can try to lock in good behavior at a constitutional level -- as much of Europe just did with its brand new fiscal pact, and as it did at the zone's inception with the Stability and Growth Pact. These have proven exceedingly difficult to enforce in practice.

A story on Greek politics in the New York Times nicely captured the essence of this last problem.

"After years of turning its back on its social welfare platform, the Socialist Party, known as Pasok and Greece's dominant political force since 1974, has virtually disintegrated, falling to fifth place with 8 percent support, according to a poll that the firm Public Issue released on Tuesday.

...The most probable winner of future Greek elections would be New Democracy, which held power from 2004 until 2009, when Greece's debt soared from slightly more than 100 percent of its gross domestic product to at least 127 percent.

Its leader, Antonis Samaras, has been criticized repeatedly by European leaders as irresponsible, but with every new tax increase in Greece, some voters are warming to his constant critique of austerity in the absence of growth measures. The party is leading in opinion polls, with Public Issue putting its support at 31 percent of the vote."

The story also noted that "the hard left and extreme right are rising."

Thus, Greek acquiescence today guarantees nothing after the next vote. The magnitude of this problem is not lost on the major European players. In fact, the quest for a solution can be seen as the unifying theme behind Northern European proposals to address the crisis: the fiscal austerity pact, fiscal union, Brussels oversight of national budgets, even political union. Each of these would insulate future tax and spending decisions from the whims of Greek voters.

Barring a momentous development along such constitutional lines, Greek voters still have a say. So if, in the near future, there is an announcement of an accord among current political leaders, the question will be which Greek word is most pertinent: euphoria, or democracy.

The Nov. 23 deadline for a "Supercommittee" budget agreement is fast approaching, and no such agreement is as yet in sight. The Pentagon appears to be panicking over the prospect of sequestration, and with it a reduction of some $600 billion in defense-related spending over the next decade. Secretary of Defense Leon Panetta's warnings have become ever more dire. He has said that sequestration will "invite aggression from U.S. adversaries", that it will result in a "hollow force" of "ships without sailors" and "brigades without bullets."

The Secretary should know better. Not because sequestration, if implemented, would not be a disaster for DoD, but because the absence of an agreement, which would trigger a sequester, does not mean that sequestration will ever come to pass. It is important to note that the sequester would only come into force for the Fiscal Year 2013 budget; in other words, nearly a year must still pass before any cuts are mandated. And the Congress thus has nearly a year to legislate the sequester into the dustbin of history. 

It has happened exactly that way before, as Mr. Panetta knows only too well. He was a veteran of the House Budget Committee in 1988 when the Congress reached a budget deficit agreement that wiped out a $20 billion sequestration that was supposed to have been "automatically" triggered by the 1985 Balanced Budget Emergency Deficit Control Act, popularly known as Gramm-Rudman-Hollings. And he was chairman of the House Budget Committee in 1990, when he played a major role in the enactment of Congressional legislation that again circumvented the 1985 Act by lowering sequestration levels from the "automatic" $16 billion that the Act would have mandated to just over $4.5 billion in budget reductions. Again in 1991, with Mr. Panetta still serving as House Budget Committee chairman, a smaller sequester of some $190 million was rescinded in subsequent legislation that year when the purported savings were found to be the result of a miscalculation.

It is arguable that the long term health of America's defense posture would be better served if the Supercommittee fails to produce an agreement than if it does. It will be much harder for the Congress to rescind a budget deal to which all sides agreed, than to rescind a sequester that was the product of an absence of agreement. Even under the best of circumstances, it is unlikely that Defense could avoid cuts of $200-300 billion in a deal that totals $1.2 trillion; and those cuts will be difficult, if not impossible to restore. On the other hand, the Congress can be expected to rescind sequestration precisely because of the warnings that the Pentagon's top leaders have issued. And once the Congress returns to square one, the prospects for protecting the Defense budget will radically improve.

Many of the news reports on Argentinean President Cristina Kirchner's landslide reelection victory this past weekend contained a healthy dose of skepticism on the sustainability of her populist economic model. The skepticism is well-founded. We've all seen this movie before, and know exactly how it ends.

Heavy state intervention in the economy, massive subsidies, and the redistribution of income -- the hallmarks of economic populism -- have a way of playing themselves out, proving time and time again that lasting prosperity can never be built on acquiring unlimited debt or just printing more money.

As UCLA economist Sebastian Edwards, a Chilean, writes in his brilliant takedown of Latin American populism, Left Behind: Latin America and the False Promise of Populism, all populist experiments begin with great euphoria and surges in economic growth, but invariably lead to rapid inflation, higher unemployment, and lower wages -- and soon thereafter, stagnation and crisis.

There is no question that right now times are good in Argentina. Since the country hit rock bottom in 2002, when it defaulted on $100 billion in debt, the largest sovereign debt default in history, the country has undergone a seemingly remarkable turnaround under the stewardship of the late Nestor Kirchner and now his widow, Cristina. The economy is expected to grow by 8 percent this year and unemployment is at a 20-year low.

But the problem is that Argentina's economic success has been built not on strong fundamentals, but on a tenuous foundation of heavy government spending, high commodity prices, and strong demand from China and Brazil for soy and other agricultural products. And what goes up in economics can always come down.

Other troubling signs are double-digit inflation, which private economists put at 25 to 30 percent; capital flight ($9.8 billion was pulled out of the economy in the first half of this year, compared with $11.4 billion in all of 2010); and plummeting foreign investment (down 30 percent in the first half of 2011).

The other elephant in the living room is the fact that Argentina has been shut out of credit markets since it left bondholders holding the bag in billions of dollars of unpaid debt from its 2002 default. Not only has there been no reconciliation, but the Kirchner government has gone out of its way to reject lawsuits and other claims from creditors. As a result, the Obama administration and multilateral lenders have refused further loans until Argentina begins to repay what it owes investors and settle with holders of defaulted debt, as well as adhere to its obligations with institutions such as the International Monetary Fund.

Yet despite warnings by economists that the government's profligate spending, coupled with a global economic slump, could spell disaster, the Kirchner administration soldiers on. Indeed, why wouldn't it see her overwhelming reelection victory as anything but a mandate to continue its unorthodox ways? "After a lifetime of pushing those ideas," she said after her victory, "We now see that they were not a mistake and that we are on the right path."

On the other side, former President Eduardo Duhalde, who unsuccessfully challenged Kirchner, said, "We're happily dancing on the Titanic."

Given the prevailing capital flight and declining investment in Argentina, the smart money is obviously on Duhalde. Fortunately, those players are in a position to avoid the risk; what's unfortunate are the millions of poor and middle-class Argentineans who will once again pay the price for Argentina's populist folly when the inevitable day of reckoning returns.

I wish I could agree with Kori that we can afford to cut the defense budget in years ahead. However, she premises her argument on this:

The world is much more conducive to American interests than it was when Defense spending as a proportion of GDP was much higher: we are militarily dominant, the threats to us are fewer and less apocalyptic, our allies are more capable to handle their own problems, our enemies less so, and our values on the ascendancy.

If that were true, then I would agree with Kori's case to cut defense spending. However, with respect, I don't think it is true at all.

The threats to us are more numerous, not less. There are two major families of threats to U.S. national security today. First, at one end of the state spectrum, are the nuclear-armed authoritarian powers: Russia, China, soon Iran, North Korea as a junior partner, and Pakistan if it falls to jihadists. The latter three are (or will be) new to the nuclear club since the Cold War, and China is vastly more powerful today than it was in 1989. Second, at the other end, is the aggregate global consequences of state failure and anarchy across much of the world -- such as the rise of terrorist groups, organized crime, drug cartels, human traffickers, nuclear smugglers, pandemic disease, and piracy -- that will collectively erode global stability and raise the cost of U.S. leadership. State failure, with its effects magnified by globalization, is also a vastly greater threat that during the Cold War. These two families are the threats we face in the 21st Century. By contrast, we faced fewer threats and a simpler world at almost every point in our history before 1989.

The threats are equally apocalyptic. Nuclear war with the Soviet Union was the gravest danger we ever faced, and we came perilously close to it in 1962. Nuclear war with Iran or North Korea would be almost equally dangerous, especially after they have acquired longer-range ballistic missiles capable of hitting U.S. allies and even the U.S. homeland. (Yes, the Soviet Union had thousands of warheads, but you only need a few nukes to cause more damage to us than all the wars we have fought in history, combined, and only a few dozen to effectively wipe out the United States. And if I were a new nuclear power, I wouldn't announce my capability until I already had a few dozen to make sure I could withstand an attack on my arsenal. Which means that North Korea and Iran (when it announces) will almost certainly be existential threats). The difference is that war with them or their proxies may be more likely to actually happen. The latter two countries may be less deterrable, less predictable, and more prone to transfer nuclear technology to proxies and non-state groups, given their history of erratic behavior, sponsoring terrorism, and proliferation. All told, the chances of a nuclear detonation in New York City are higher, not lower, today than twenty years ago. Unfortunately, we do not have a team of patriotic mutant superheroes to avert disaster this time.

Our allies are less capable, not more. Militarily, the Allies have underinvested in defense for decades-nothing new there. But the situation is actually getting worse, not better. The European allies spent 1.7 percent of GDP on defense in 2010 compared to 3.7 percent in 1985, according to NATO figures, a huge decline. As a result, the allies' performance in Libya and Afghanistan has not covered them with glory. And the alliance -- including us -- is still using mostly the same weapons systems and platforms that were developed in the late Cold War, just with a layer of IT, often glitchy and unreliable, grafted on in recent years (I agree with Tom's new post in this respect). Politically, the alliance has suffered tremendous strain from the double hammer-blows of disagreement over Iraq followed by unequal burden-sharing and nearly losing the war in Afghanistan. I am less confident in the alliance now than during the Cold War.

Our enemies and competitors are more capable, not less. Again, several states have acquired nuclear weapons since 1989. China has engaged in a massive conventional military buildup. Russia, after initially suffering a crippling loss of manpower, resources, and morale, has undertaken a long process of professionalizing and modernizing its military. Non-state actors have harnessed the tools of globalization and exploited the weakness of failed states to give them a global operating scope and comfortable safe haven.

Our values are not ascendant. The global financial crisis has (unfairly, I think) cast disrepute on the west in the eyes of many developing nations. China's rise has made state-managed and autocratic development attractive to many an aspiring power. Illiberal political Islam, with its hostility to women's rights and religious freedom, is at least competing aggressively with democracy and human rights across the Islamic world. Hindutva, largely content to compete peacefully through the Indian democratic system so far, may not always be so. Marxism of a sort is still alive, fashionable, and even resurgent in a few quarters like Venezuela and Bolivia. Democracy has indeed spread farther since 1989 than ever before in human history, but that is different from "ascendancy." Democratic gains since 1989, for example in Africa and Latin America, are new and might easily be reversed, especially given the competition.

What worries me is that I am increasingly convinced that we do not have the capabilities to meet the various threats we face today. We don't need to be omnipotent, but we do need to be able to protect ourselves. Can we stave off state failure in Pakistan? Can we prevent Iran from obtaining nuclear weapons, or contain it afterwards? Could we prevent Russia from doing to Ukraine what it did to Georgia in 2008? Can we defeat the drug cartels wreaking havoc in Mexico and Columbia? Is al-Qaida really nearing "strategic defeat," as Panetta claims? Are we prepared to handle a collapse in North Korea -- possibly having to fight a sudden war with a desperate regime, contribute to a multilateral occupation and reconstruction afterwards, and handle the delicate diplomacy with the Chinese?

Until we can, this is no time to cut defense.

Congressman Gary Miller held hearings earlier today on the impact of the World Bank and other Multilateral Development Banks on U.S. National Security.

I was asked to submit testimony. If you sort through the details, the stakes could not be higher for the United States and our continued leadership in the world.

The context for the hearing is that the Obama Administration is asking for five $400 million installments for what is called the "General Capital Increase" for the World Bank and several of the regional multi-lateral development banks including the African Development Bank, the Inter-American Development Bank, and the European Bank for Reconstruction and Development. This money is not the typical hat passing exercise that the Hill sees every few years for the lowest income countries (the so-called "IDA replenishments"), the General Capital Increase is about the United States maintaining its de facto control over these institutions and ensuring that they remain instruments of an American Style Globalization.

Asking for additional money for the World Bank and other multilaterals at this time has got to be one of the hardest things I can think of. There are many reasons that Republicans criticize the multilateral banks including the World Bank. Having worked at the World Bank Group for four years, I am keenly aware of the many shortcomings of these institutions but I also understand how useful these institutions are to the United States and our economic and national security interests.

During the 2008-2009 Financial Crisis, we, along with the other owners of the Banks told them to "send everything that can fly." These institutions provided critical financing including trade financing to keep the global trade system open and they supported our friends and allies at a time of great challenge for the global system. As a result, the financial crisis in many parts of the world was less dramatic and they covered for us while we were tending to our problems here at home. The problem is that these banks lend against shareholder capital and all of the existing capital is now "spoken for" because of this massive lending as part of our response to the crisis. If we want these exporters of a U.S. version of globalization to continue we are going to have to put more money into these institutions.

For those of us who live in DC, it is common to think of the World Bank as an exotic institution. If you peel back the accents and the hauteur, you find an American DNA: all the experts studied in the States, they all work in English, they export policy ideas that were made in America, they use U.S. or British law for much of their work and they export American invented standards. U.S. policymakers worry about developing countries taking money from Venezuela, Russia, Iran, or China. The World Bank and the regional development banks (plus the IMF) are our set of alternatives to these funders and models of development. Oftentimes developing countries would prefer to take World Bank money and the expertise that comes with it because these institutions for all their problems have some of the best experts in the world.

Read on

Venezuelan President Hugo Chavez says he feels "great" after another dose of chemotherapy for his as-yet-unspecified cancer. If only the Venezuelan economy was in as good shape as Chavez says he is in. In fact, what Chavez ought to explain is why his vaunted "21st Century Socialism" bears an uncanny resemblance to the garden-variety 20th century kind: replete with widespread inefficiencies, declining production, and rampant shortages.

A new study out, Gestión en rojo (Management in the Red, a play on the ubiquitous color of Chavez's Bolivarian Revolution), explains why, in part, the Venezuela economy remains in critical condition: Chavez's excessive confiscation and nationalization of private sector companies.

Convinced that profiteers, speculators, and assorted other chislers have been rooking the Venezuelan people by charging "unjust prices" for their goods and services, Chavez has ordered up the seizure of some 1,000 companies since 2002. In fact, this week, while lying in a military hospital where he is being treated, Chavez demanded that the takeover of land from Irish company Smurfit Kappa be expedited. "We have to take the last square meter of land from Smurfit," he announced on TV. "Let's move more quickly, that's an order."

It's telling how Chavez announces each nationalization with great fanfare, but then never seems to report back to anyone on what becomes of that enterprise a few years down the road.

In Gestion en rojo, three Venezuelan economists did just that, tracking the performances of 16 nationalized companies over a two-year period. The results are hardly surprising: most of the enterprises are running at only a fraction of their capacity and depend on direct government subsidies to maintain operations, if they are operating at all.

According to the lead author, Richard Obuchi, "Government ownership of companies is often accompanied by deficit problems and lack of incentives to be effective and efficient.

Add to that price controls that force companies to sell products for less than their production costs and directives that companies devote resources to overtly political initiatives and you have egregious economic dysfunction.

Chavez's problem is that he is fast running out of cash to sustain this dysfunction and all of his grandiose spending projects that fuel his popularity. Oil production -- his golden goose -- is declining, forcing him to borrow at a record pace. (According to Bloomberg, because of Chávez's anti-market policies, Venezuela already has the highest borrowing costs among major emerging-market economies.)

What all this portends for Venezuela's presidential election in 2012 remains to be seen, but it doesn't bode well for Chavez, who, despite his potentially debilitating illness, insists he will run for reelection. It may be that his working and lower class base won't care much that their country ranks 129 out of 129 economies in the 2011 International Property Rights Index or that it ranks 172 out of 183 countries in the World Bank's 2011 Doing Business Report (behind Iraq and Afghanistan).

But they will care about the shortages of basic goods, the electrical blackouts, the region's highest inflation that is cutting the value of their incomes and savings, and the mortgaging of their children's future that is the result. A reinvigorated Venezuelan opposition promises to focus on those bread-and-butter issues and Chavez will no doubt try every trick in the book to avoid discussing that record. The Obama administration needs to keep a close eye on Venezuela over the next several months, as Chavez -- if he remains healthy -- will have no qualms about tilting the playing field in an election that is looking increasingly unfavorable.

As global stock markets tumbled over the last few trading days, pundits fell all over each other to assign blame. Not only can the finger-pointing be diverting -- and perhaps politically advantageous -- but it is natural to search for reason and understanding in such a harrowing time. The problem is a surfeit of suspects. Here are a few:

Was it the S&P downgrade?
On Friday, after markets closed, the United States lost its AAA rating, at least in the eyes of one beholder (and not the first). It was a clumsy process, marred by math errors, that seemed to reinforce a lingering low opinion of the ratings agencies left over from their gullible endorsement of subprime mortgage bundles.

At the heart of S&P's critique was a pessimism about the U.S. political process. There are two facets to this: the dalliance with default in the debt ceiling debate, and concerns about the longer-term fiscal situation in the country.

There are a few problems with fingering the S&P as the reason for the market swoon. First, U.S. markets fell for a couple days preceding the downgrade. Second, the existence of U.S. political dysfunction was hardly news. Third, and most telling, the wrong markets fell on Monday. If the driving concern is that the U.S. government will be unable to pay its debts, one would expect the price of those debts to fall. Instead, it was stocks that fell while U.S. bond markets rose sharply. The 10-year bond yield, which had been 3.2 percent in the start of July, fell to 2.34 percent yesterday (bond yields move in the opposite direction from bond prices). Such a drop can signal a number of ominous things, but not generally doubts about the lender's creditworthiness.

Was it President Obama's Monday afternoon speech?
The talk, which notably failed to calm markets and drew scathing reviews, did not offer any new or promising vision. Yet despite the fact that the Dow dropped a couple hundred points after the President spoke, this explanation seems as implausible as the popular argument that it was all Republicans' fault. To spell that latter argument out: House Republicans supported fiscal responsibility (passed a budget) and opposed tax hikes. They used their constitutional power over the budget and borrowing to win a deal that would begin to impose some spending restraint and that precluded any similar default standoff for the rest of the President's term. Markets, the reasoning must go, hated all that. The standoff went on for weeks, but somehow markets only reacted once Standard & Poor's explained it all to them, days after it was resolved.

On to the next suspect.

Was it the bad news about the American economy?
The last couple of weeks have featured some weak readings on the U.S. economy, including surprisingly poor GDP numbers on July 29. The jobs number last Friday was strong enough to stave off utter despair, but too feeble to portend a reviving economy. What's more, lest anyone forget the lingering effects of last decade's housing boom and bust, Monday featured a stark reminder. AIG filed suit against Bank of America alleging mortgage securities fraud. BofA's stock dropped 20 percent for the day.

The eminent Ken Rogoff provides a thoughtful, if disturbing, overview of the economic scene in today's Financial Times. He argues that large debt overhangs are not very amenable to quick fixes, like fiscal stimulus, and suggests:

"It is better to think of the global economy as going through a ‘Second Great Contraction' (the Great Depression being the first) involving credit and housing, and not just output and unemployment."

Was it the festering crisis in Europe?
In the Washington Post, Robert Samuelson makes a case that the real troubles lie across the Atlantic. He opens:

Europe may no longer be able to save itself. Too many countries have too much debt. Its economic growth -- which helps countries service their debts - is too feeble. And nervous financial markets seem increasingly prone to dump the bonds of vulnerable countries. This is the real risk to the global and U.S. economic recoveries, far overshadowing Standard & Poor's downgrade of U.S. Treasury debt and Monday's sharp stock market decline."

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The domestic incredulity over U.S. debt ceiling battles has gone global. Chinese officials have expressed concern over the prospects for their substantial bond holdings:

"We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors," Hong Lei, a foreign ministry spokesman, said at a news conference late last week.

A less measured statement of concern came from the voluble Vincent Cable, Britain's business secretary. He offered his analysis yesterday:

The irony of the situation at the moment, with markets opening tomorrow morning, is that the biggest threat to the world financial system comes from a few right-wing nutters in the American congress rather than the euro zone," he told BBC television.

It is more than passing strange to have a British government that has made credible austerity its central focus turn around and denounce the lunacy of seeking credible austerity. Perhaps something was lost in translation.

The U.S. debt ceiling must certainly be raised. In all likelihood, it will be lifted sometime before the critical hour. But at home and abroad, there is disbelief that such an easy problem cannot be dispensed with more quickly. The festering nature of the impasse is taken as a sure sign of something deeply amiss in our political sphere. Herewith, some central misperceptions about the debt ceiling debate:

1. Just raise the ceiling, already! Problem solved.

The presumption is that there is an easy fix that is being blocked solely by partisan maneuvering for political advantage. What would such an easy fix look like? Two major candidates:

• A simple, long-term hike in the debt ceiling, unencumbered by controversial tax or spending provisions. This is the solution beloved by those who favor the credit card analogy: The time to address spending problems is when you whip out your credit card to buy something, not when the bill arrives in the mail. The implication is that one should just pay the bill now and deal later with the profligacy issue.
• The problem with this approach is that debt-rating agencies have rejected it. They have expressed concern about the trajectory of U.S. borrowing and have threatened a ratings downgrade if a debt ceiling hike is not coupled with credible plans for sustainable borrowing.

• A short-term hike to buy time. If a simple, "clean" debt-ceiling increase will not satisfy markets (as represented by S&P and Moody's), then some very difficult discussions about taxes, spending, and the size of government are looming. Why not buy time for those discussions with a debt ceiling increase that would allow for another six months of talks?
• There is ample precedent for short-term extensions. The problem with this approach is that the president has rejected it. A short-term extension would mandate a difficult political discussion right in the midst of an election. A democracy purist might suggest that elections are the ideal forum to decide difficult political questions, but this administration has consistently favored budget fixes that carry just past the polling date. The president's deficit commission, which was meant to reassure everyone that the national borrowing problem was under control, followed the plan and reported in December 2010, one month past the latest congressional elections.
• If these two simple options are off the table, the problem no longer looks like an easy one. That's not to say it's intractable, but it should be no surprise that the negotiations are difficult.

2. Republicans won't take yes for an answer.

Vincent Cable may be suffering from having read David Brooks, who wrote earlier in the month that Republicans were

… being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increases. A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.

How could any party in its right mind (intended) fail to accept such a deal?

Read on

In recent weeks, civil unrest in much of the Middle East has reminded many Americans of the very uncertain world in which we live. Repressive regimes that appear stable one day can just as quickly be overthrown the next, altering the strategic landscape and impacting U.S. interests.

This is an important lesson for the members of the 112th Congress as they debate ways to reduce the United States' spiraling deficit. As the search for savings has begun, some members have gone after areas of the federal budget that have nothing to do with our fiscal woes to pay down the debt.

In recent months, Secretary of Defense Robert Gates faced pressure from the White House to find more savings in the defense budget despite being the one cabinet secretary who has already carried out multiple rounds of cost cutting. Republicans in Congress weren't much kinder. The House approved an FY11 continuing resolution late last week providing $15.9 billion less for the core defense budget than President Obama requested. The House's FY11 continuing resolution would also cut the FY11 international affairs budget by nearly 20 percent from FY10 levels. The debate shifts to the Senate when Congress returns from recess next week.

This pressure to cut international affairs and defense is coming not just from Congress, but also from several blue-ribbon commissions that recently produced deficit reduction recommendations.

As Secretary Gates observed after deficit commission co-chairs Erskine Bowles and Alan Simpson proposed $100 billion of cuts to the defense budget, these recommendations represent "math not strategy." Several task forces have combined a dire assessment of the impact of the financial crisis with questionable proposals about bringing troops home from overseas, closing embassies and consulates, and canceling weapons programs. The long-term implications of these proposals represent nothing less than a rethinking of the U.S. role in the world even though the commissions were ill-equipped to analyze the implications of their proposed cuts.

Defense and international affairs have ended up on the chopping block despite the fact that the 2010 midterms were not a referendum on U.S. foreign policy. In fact, even in the midst of two wars and continuing terrorist threats to the homeland, congressional campaigns were marked by very little discussion of national security. In a late October 2010 poll done by the Pew Research Center, only 12 percent of respondents said that the war in Afghanistan was the first or second issue most important to their vote, and only 9 percent cited terrorism.

As recent events in Egypt and elsewhere in the Middle East have shown, the United States will continue to face strategic challenges in the coming decades that will require significant diplomatic and military expenditures. For most Americans, the need to adequately fund the military, the country's most-respected institution, is clear. For conservatives looking to downsize government, the case for a robust international affairs budget may be less apparent.

In the post-9/11 era, funding via the U.S. State Department and affiliated agencies increasingly goes toward civilian missions in war zones. These programs are essential to our long-term success in front-line states such as Afghanistan, Iraq, and Pakistan. These targeted funds go toward U.S. efforts to support democracy and human rights abroad and help train and equip allied militaries around the world. Such security assistance is pivotal amid the increased threats of rogue states and terrorist organizations and allows an already overstretched U.S. military to focus on more immediate threats.

U.S. aid programs provide the United States with tools to counter emerging threats from weak and failing states. Often thought of solely as evidence of American goodwill and values, these programs are in fact key components in the battle against extremism, battling the conditions that often fuel anti-U.S. sentiment.

As President George W. Bush recently wrote in his memoirs, "After the attacks [of 9/11], it became clear to me that this was more than a mission of conscience. Our national security was tied directly to human suffering. Societies mired in poverty and disease foster hopelessness. And hopelessness leaves people ripe for recruitment by terrorists and extremists."

It is also important to remember that America only spends roughly 1.4 percent of the federal budget on international affairs. In polls, Americans routinely overestimate the amount spent on such programs, perhaps contributing to the temptation of lawmakers to look to such programs first when drawing up constrained budgets.

Like any part of the government, there are certainly wasteful programs and inefficiencies that should be targeted and eliminated, but the deficit is not going to be paid off by savings generated from gutting the international affairs budget.

Although the amount spent on defense is significantly larger, it too is not the source of our current fiscal predicament. Oddly, given the now frequent proposals in Washington to cut international affairs and defense, it is not apparent that the American public supports this agenda.

It was, in fact, outrage over the Obama administration's runaway domestic and entitlement spending that drove many voters to the polls last November. It is thus these areas of the federal budget that lawmakers should focus their attention on first. Targeting our military and diplomatic capabilities will only serve to put the country at greater risk.

The 112th Congress faces some tough choices about how to improve America's fiscal situation without sacrificing our standing in the world. Unfortunately, thus far, many have skirted over the strategic debate and jumped directly to the budget cutting. The United States' current economic woes are concerning, but abdicating the global responsibilities of the United States is not the solution.

Last October, Ambassador Roger Noriega, former Assistant Secretary of State for the Western Hemisphere during the George W. Bush Administration, exposed Hugo Chávez's efforts to aid and abet Iran's illegal nuclear weapons program, including its efforts to obtain strategic minerals such as uranium and to evade international sanctions.

Documentary evidence now suggests that Hugo Chavez's junior partner in Ecuador, Rafael Correa, is apparently forging his own dangerous alliance with the Mahmoud Ahmadinejad regime, raising troubling questions about whether Iran continues to expand its global efforts to obtain uranium and other strategic minerals that are critical to Teheran's rogue nuclear program.

According to sensitive official documents provided to me by  knowledgeable sources in Ecuador and other countries and published here for the first time, Iran and Ecuador have concluded a $30 million deal to conduct joint mining projects in Ecuador that appears to lay the groundwork for future extractive activities. The deal, which was apparently finalized in December 2009, "expresses the interest of the President of the Republic [of Ecuador] and the Ministry of Mines and Petroleum to boost closer and mutually beneficial relations with the Islamic Republic of Iran on a variety of fronts, among them mining and geology."

The deal calls for the establishment of a jointly run Chemical-Geotechnical-Metallurgical Research Center in Ecuador [Laboratorio Químico-Geotécnico-Metalurgico] and "to jointly implement a comprehensive study and topographic and cartographic analysis of [Ecuadorean territory]."

What is most concerning about developing Ecuadorean-Iranian ties in the mining sector is that, like Venezuela, Ecuador is known to possess deposits of uranium. In August 2009, Russia and Ecuador signed a nuclear agreement that included joint geological research and development of uranium fields, as well as building nuclear power plants and research reactors. In March 2009, the International Atomic Energy Agency also unveiled plans to help Ecuador explore for uranium and study the possibility of developing nuclear energy for peaceful purposes.

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The State of the Union address offers any president the temptation to revel in the pageantry and splendor of the office. He can sound resonant themes and expound on U.S. values. He can embellish these motifs with the recognition of carefully-placed guests in the balcony.

President Obama is at his best when delivering high-altitude orations about national aspirations. This can be terrifically effective in a campaign or in a moment of national mourning. It can also be a necessary prelude to effective action, a way of rallying the public to support difficult choices.

The problem is that on the key issues of trade and the deficit President Obama's prelude to action has now lasted more than half his term. On each, he has earnestly stressed the national need for action. Yet on trade, he has only moved the country to where it was in mid-2007. On the deficit, he has moved the country backwards.

In his weekly radio address on Saturday, the president said, "Here's the truth about today's economy: If we're serious about fighting for American jobs and American businesses, one of the most important things we can do is open up more markets to American goods around the world."

This has the standard mercantilist twist of the president's trade advocacy, but it's a worthy theme. How does it translate into action?

Read on