Russia and Georgia
The Americans arrive
What next for Georgia, as American military cargo-planes land in Tbilisi?
AMERICA'S George Bush delivered a stark warning to Russia this week that led Russia to begin to pull back its forces in Georgia. Mr Bush sent his secretary of state, Condoleezza Rice, to Georgia and told his defence secretary, Robert Gates, to organise a humanitarian-aid operation. The first American military aircraft landed at Tbilisi airport on Thursday August 14th.
This conflict is about more than the two separatist regions of Abkhazia and South Ossetia, or displacing Mikheil Saakashvili, Georgia’s hot-headed president. It is about Russia, resurgent and nationalistic, pushing its way back into the Caucasus and chasing others out, and reversing the losses Russia feels it has suffered since the end of the cold war.
The fact that Georgia is backed by the West made it a particularly appealing target. In fighting Georgia, Russia fought a proxy war with the West—especially with America (which had upgraded the Georgian army). All this was a payback for the humiliation that Russia suffered in the 1990s, and its answer to NATO’s bombing of Belgrade in 1999 and to America’s invasion of Iraq.
With the smoke of battle still in the air, it is impossible to say who actually started it. But, given the scale and promptness of Russia’s response, the script must have been written in Moscow. The rattling of sabres has been heard in both capitals for months, if not years. Russia imposed sanctions on Georgia and rounded up Georgians in Moscow. In revenge for the recognition of Kosovo’s independence earlier this year, Mr Putin established legal ties with the governments of South Ossetia and Abkhazia.
In the late spring, Russia and Georgia came close to a clash over Abkhazia but diplomats pulled the two sides apart. A war in Georgia became a favourite subject in Moscow’s rumour mill. In early July Russia staged a massive military exercise on the border with South Ossetia. At the same time Russian jets flew over the region “to establish the situation” and “cool down Georgia’s hot-heads”, according to the Russians.
South Ossetia is a tiny patchwork of villages—Georgian and South Ossetian—which was easy to drag into a war. It is headed by a thuggish former Soviet official, Eduard Kokoity, and run by the Russian security services. It lives off smuggling and Russian money. In early August Georgian and South Ossetian separatists exchanged fire and explosive attacks. South Ossetia blew up a truck carrying Georgian policemen and attacked Georgian villages; Georgia fired back at the capital of South Ossetia, Tskhinvali.
What happened next is less clear. Russia claims that Mr Saakashvili treacherously broke a unilateral ceasefire he had just announced, ordering a massive offensive on Tskhinvali, ethnically cleansing South Ossetian villages and killing as many as 2,000 people. What triggered the Georgian action, says Mr Saakashvili, was the movement of Russian troops through the Roki tunnel that connects South Ossetia to Russia.
Georgia started to shell and invade Tskhinvali. Then the Russian army moved in. The picture Russia presented to the world seemed clear: Georgia was a reckless and dangerous aggressor and Russia had an obligation, as a peacekeeper in the region, to protect the victims. Russia’s response was predictable. One thing which almost all observers agree on is that Mr Saakashvili made a catastrophic mistake by walking into the Russian trap.
Russia was prepared for the war not only militarily, but also ideologically. Its campaign was crude but effective. While its forces were dropping bombs on Georgia, the Kremlin bombarded its own population with an astonishing propaganda campaign. One Russian deputy reflected the mood: “Today, it is quite obvious who the parties in the conflict are. They are the US, UK, Israel who participated in training the Georgian army, Ukraine who supplied it with weapons. We are facing a situation where there is a NATO aggression against us.”
In blue jeans and a sports jacket, Mr Putin, cast as the hero of the war, flew to the Russian side of the Caucasus mountain range to hear hair-raising stories from refugees that ranged from burning young girls alive to stabbing babies and running tanks over old women and children. These stories were whipped up into anti-Georgian and anti-Western hysteria. What Russia was doing, it seemed, was no different from what the West had done in its “humanitarian” interventions.
There was one difference, however. Russia was dealing with a crisis that it had deliberately created. Its biggest justification for military intervention was that it was formally protecting its own citizens. Soon after Mr Putin’s arrival in the Kremlin in 2000, Russia started to hand out passports to Abkhaz and South Ossetians, while also claiming the role of a neutral peacekeeper in the region. When the fighting broke out between Georgia and South Ossetia, Russia, which had killed tens of thousands of its own citizens in Chechnya, argued that it had to defend its nationals.
The biggest victims of this war are civilians in South Ossetia and Georgia. Militarily, Mr Putin has won. But all Russia has got from its victory so far is a ruined reputation, broken ties with Georgia, control over separatist enclaves (which it had anyway) and fear from other former Soviet republics.
A six-point peace plan negotiated by Nicolas Sarkozy, the French president, recognises Georgian sovereignty but not its integrity. In practice, this means that Russia will not allow Georgia back into Abkhazia and South Ossetia. According to the same plan, Russia should withdraw its troops to where they were before the war broke out.
The ceasefire is signed, but it still needs to be implemented. The early signs were not good with looting, killing and rapes in villages in both Georgia and South Ossetia. On Wednesday the Americans announced that they would send military aircraft and naval forces to deliver humanitarian aid to the Georgians. This seemed to make an impression on the Russians, who soon began to withdraw.
Other former Soviet republics, including Azerbaijan, Armenia, and Ukraine, have been dealt a lesson, about both Russia’s capacity to exert its influence and the weakness of Western commitments. America’s inability to stop or deter Russia from attacking its smaller neighbours has been devastatingly obvious in Georgia over the past week.
Yet the people who are likely in the end to pay the biggest price for the attack on Georgia are the Russians. This price will go well beyond any sanctions America or the European Union could impose. Like any foreign aggression, it will lead to further stifling of civil freedoms in Russia. The war in Georgia has demonstrated convincingly who is in charge in Russia. Just as the war in Chechnya helped Mr Putin’s rise to power in 1999, the war in Georgia may now keep him in power for years to come.
US warns Russia of lasting impact
 Russian troops have begun handing back the town of Gori to the Georgians |
US defence chief Robert Gates has said he sees no prospect of using US military force in Georgia, following its week-long conflict with Russia.
But he warned that US-Russia relations could be adversely affected for years as a result of Moscow's actions.
His words came as Russia's foreign minister said Georgia would not regain control of the breakaway region of South Ossetia at the heart of the row.
Meanwhile, Russia has begun handing back the town of Gori to the Georgians.
However, a Russian general in the area said Moscow's troops would remain nearby for several days to remove weaponry and help restore law and order in Gori, which lies some 15km (10 miles) from South Ossetia.
Despite concerns that Moscow may not be keen quickly to leave Georgian territory, Mr Gates said the Russians did seem to be pulling back.
"They appear to be withdrawing their forces back towards Abkhazia and to the zone of conflict... towards South Ossetia," he said.
Georgia attacked the rebel region of South Ossetia from Gori a week ago, prompting Russian retaliation.
Both sides agreed to a ceasefire on Tuesday, amid international concern, but it has seemed fragile so far.
Future status
Earlier on Thursday, Russian Foreign Minister Sergei Lavrov said the separatist regions of South Ossetia and Abkhazia would never want to be part of Georgia again, following the past week's conflict.
He dismissed the idea of Georgian territorial integrity as irrelevant and said Georgia should forget any idea of regaining possession of them.
In Moscow, Russia's President Dmitry Medvedev said Russia would respect any decision the two regions made about their future status.
Their words followed warnings from the US that Russia had to respect Georgia's territorial sovereignty and withdraw its forces.
Russia's continued deployment of troops in Gori has raised concerns that the Kremlin will not make a quick withdrawal from Georgian territory, despite agreeing to a European peace plan.
Elsewhere, eyewitnesses in the Georgian Black Sea port of Poti said that Russian troops had entered the town in armoured vehicles.
Moscow had earlier denied the reports but Russia's deputy chief of staff, Gen Anatoly Nogovitsyn, told a televised news conference it was legitimate for Russians to be in Poti as part of intelligence-gathering operations.
Meanwhile, Reuters reported that more than 100 Russian vehicles, some of them armoured, had gathered outside the major western Georgian town of Zugdidi.
Aug. 14 (Bloomberg) -- More Americans than anticipated filed initial claims for jobless benefits last week, signaling further weakness in the labor market.
The number of first-time applications decreased by 10,000 to 450,000 in the week ended Aug. 9, from a revised 460,000 the prior week that was higher than previously estimated. The total number of people receiving benefits climbed to an almost five- year high.
Rising unemployment and smaller wage gains are among the reasons economists project consumer spending will keep slowing following a drop in retail sales last month. Fewer purchases raise the risk that the economy will stall later this year.
``The job market is still weakening,'' said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, North Carolina. ``We're going to see continuing claims numbers continue to rise and that's certainly disconcerting.''
Economists forecast claims would fall to 435,000 from a previously reported 455,000 for the prior week, according to the median of 41 projections in a Bloomberg News survey. Estimates ranged from 400,000 to 465,000.
A separate report today showed consumer prices climbed 0.8 percent in July, more than forecast, reflecting increases in the cost of food, energy, clothing and airline fares. Excluding food and fuel, so-called core prices rose 0.3 percent for a second month, also more than anticipated.
Market Reaction
After the reports, Treasuries were little changed, with the 10-year note's yield at 3.92 percent at 9:02 a.m. in New York, according to BGCantor Market Data. Futures on the Standard & Poor's 500 Stock Index dropped 0.5 percent to 1,277.90.
Claims in the last few weeks have been pushed up by several factors, according to a Labor spokesman. Publicity over the extension of benefits as well as an increase in firings have contributed to the jump, he said.
The government hasn't been able to quantify the impact on claims from the new legislation, according to the spokesman.
The four-week moving average of first-time claims, a less volatile measure, increased to 440,500, the highest since April 2002, today's report showed.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 2.6 percent from 2.5 percent. Thirty-five states and territories reported an increase in claims, while 18 had a decrease. These data are reported with a one-week lag.
Job Prospects
So far this year, weekly claims have averaged 372,300, compared with 321,000 for all of 2007.
The government program extending benefits is also boosting the level of continuing claims, which jumped in the week ended Aug. 2 to 3.417 million, the most since November 2003.
Rising prices and dimming job and wage prospects may hurt consumer spending the rest of this year. Sales at U.S. retailers dropped 0.1 percent in July, the Commerce Department said yesterday. Excluding automobiles, purchases increased a less- than-forecast 0.4 percent.
Ford Motor Co., the second-largest U.S. automaker, is laying off 300 workers at a Michigan engine factory to address dwindling demand for vehicles equipped with V-8 engines. The furloughs will extend indefinitely, spokeswoman Angie Kozleski said in an e-mail Aug. 11.
Some companies are seeking different solutions to make up for their rising costs and slower sales. Chrysler LLC plans to run a dozen U.S. plants four days a week instead of five, spokesman Ed Saenz said in an interview on Aug. 11. The shift is being discussed in the company's talks with the United Auto Workers union and the company doesn't expect the changes ``to be temporary,'' he said.
The automaker also plans to close its St. Louis-area minivan factory by the end of October and scale back to one shift of production at a nearby Dodge Ram plant by Sept. 2. These moves will cut about 2,400 jobs.
Aug. 14 (Bloomberg) -- Liu Zige won China's first swimming title of the Beijing Games, one of five gold medals today by the host that lifted its tally to 22 as Japan's Kosuke Kitajima became the only man to sweep back-to-back breaststroke titles.
Liu, who was competing in her first international meet, won the women's 200-meter butterfly in a world record 2 minutes, 4.18 seconds. Her victory helped the host move to within 10 titles of its total of gold medals in Athens in 2004.
``I never expected to be this fast, and it's a surprise that I can score gold,'' Liu, 19, told reporters. ``I had never thought I could score gold.''
Du Li won the women's 50-meter rifle, Yang Wei took the men's all-around gymnastics title, Zhang Juanjuan captured China's first archery gold and Yang Xiuli secured the women's 78-kilogram judo. The home nation also leads in total medals 35 to 34 over the U.S., which stayed on 10 golds.
In one of the biggest upsets of the Games, top-seeded Roger Federer was ousted from the tennis tournament by James Blake.
One more title will be decided today in equestrian. Some outdoor events, including canoe and kayak slalom finals, were postponed because of torrential rain and lightning in the Chinese capital.
Du Rebounds
Indoors at the Beijing Shooting Range Hall, Du clinched the victory five days after nerves got to her in the air pistol event and the world champion slumped to fifth in the opening medal event of the Games. She made amends with an Olympic record score today.
``It was so hard since I lost my first event but I held on,'' Du told reporters.
Chiara Cainero won the women's skeet and Andrea Minguzzi secured the Greco-Roman wrestling 84-kilogram to lift Italy to six gold medals -- tied for third with South Korea and Germany.
Zhang denied the South Koreans a seventh title by upsetting defending champion Park Sung Hyun to in the women's individual archery, while Yang Xiuli was awarded her judo gold medal by a split decision from the judges.
Yang Wei, who had considered quitting his sport after failing to get a medal in Athens, made it three out of three gymnastics golds for the host.
``My coach took me on a vacation and told me that the 2008 Games would be the greatest chance in 100 years and I should have a try at it,'' said Yang, who waved his medal to the crowd of 18,000 on a victory lap of the National Indoor Stadium. ``He kept pushing me and then he kicked me to the highest position on the podium.''
Mongolia, Cuba
Mongolia and Cuba got their first titles in Beijing as Naidan Tuvshinbayar took the men's 100kg judo category and Mijain Lopez captured the men's Greco-Roman wrestling superheavyweight division. Russia's Aslanbek Khushtov won the 96kg Greco-Roman category, while Ukraine beat China in the women's team fencing final.
Kitajima, who won the 100-meter breaststroke three days ago, defended his 200 title in an Olympic-record 2 minutes, 7.64 seconds. He holds the world mark at 2:07.51.
``I was not thinking about winning two gold medals at consecutive Olympics,'' Kitajima told reporters. ``What I wanted to do is show my best performance here in Beijing.''
The perfect record of the U.S. in the women's 800-meter freestyle relay ended when Australia took the gold medal in a world-record 7:44.31. The Americans finished third behind China after sweeping the titles since the event's introduction in 1996. The U.S. also held the previous record of 7:50.09.
``For us to break the record by so far is amazing,'' said Stephanie Rice after collecting her third gold in Beijing -- second only to Michael Phelps's five.
18 Records
Rice helped set the 18th swimming world record so far in Beijing, 10 more than in Athens and four more than in Sydney.
In the men's 100-meter freestyle, Alain Bernard of France edged Eamon Sullivan of Australia by the length of his right hand in 47.21 seconds.
Bernard's time was the third-fastest in history and would have been a world record before the Beijing Games began. He and Sullivan have taken turns this week chopping .45 seconds off Bernard's old mark of 47.50.
``Today was not about the silver medal or the world record,'' Bernard said. ``It was about touching the wall.''
Today was the only day of the nine-day competition in which Phelps didn't go for a medal. Phelps, who broke the record for career gold medals yesterday by raising his total to 11, has five championships in Beijing and three more events to swim -- the 100 butterfly, the 200 individual medley and the 400 medley relay. If he sweeps them, he will break Mark Spitz's record of seven golds in one Games, set in 1972.
Phelps won his semifinal in the individual-medley this morning in 1:57.70 and came second in his evening butterfly heat.
``In the first 50 I think I was about a body length behind,'' Phelps told reporters. ``I dug in and caught up.''
Aug. 14 (Bloomberg) -- U.S. consumer prices rose at the fastest pace in 17 years in July, limiting the ability of the Federal Reserve to lower interest rates as economic growth slows.
The cost of living climbed 5.6 percent in the year ended in July, the Labor Department said today in Washington. It was up 0.8 percent from the previous month, twice as much as anticipated. So-called core prices, which exclude food and energy, also advanced more than projected.
The surge last month reflected energy prices that have since declined, signaling July may represent the peak in inflation. Still, increases went beyond food and fuel, including gains in clothing, airline fares and education, likely intensifying discussions among Fed policy makers about how quickly to shift toward raising rates.
``What we are seeing is a lot of commodity-price spillover'' into other items, said Richard DeKaser, chief economist at National City Corp. in Cleveland, who correctly forecast the increase in core prices. ``Numbers like this increase the hand of hawks'' at the Fed who argue that rates need to rise to quell inflation, he said.
Commodity costs have retreated since mid-July. Crude oil futures dropped as low as $112 a barrel this week after topping $147 last month. Regular gasoline, which reached a record $4.11 a gallon on July 17, has fallen about 8 percent, according to AAA.
``We're probably looking in the rearview mirror with respect to the worst part of inflation,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``Energy prices have declined sharply in the last month.''
Treasuries, Stocks
Treasuries rose, with benchmark 10-year note yields falling to 3.92 percent at 10:45 a.m. in New York, from 3.94 percent late yesterday. The Standard & Poor's 500 Stock Index advanced 0.5 percent to 1,292.06.
Separate reports today reinforced evidence of a weakening job market and continued slump in housing.
The Labor Department reported that 450,000 Americans, more than anticipated, filed first-time claims for jobless benefits last week. Claims averaged 321,400 last year.
The median price for a single-family home in the U.S. dropped 7.6 percent in the second quarter as bank sales of foreclosed homes caused values to tumble in three-quarters of U.S. cities, the National Association of Realtors said.
Sales of single-family houses and condominiums fell 16 percent to 4.913 million at an annualized pace, a 10-year low, the realtors group also said.
Economists' Estimates
Consumer prices were forecast to rise 0.4 percent, according to the median estimate of 78 economists in a Bloomberg News survey. Projections ranged from gains of 0.1 percent to 0.7 percent.
Costs excluding food and energy increased 0.3 percent for a second month, exceeding the 0.2 percent median forecast of economists surveyed.
The core rate increased 2.5 percent from July 2007, the most since January, after a 2.4 percent year-over-year increase the prior month.
Energy expenses jumped 4 percent, after a 6.6 percent gain in the prior month, today's report said. Gasoline prices increased 4.1 percent.
Procter & Gamble Co. was among businesses that responded to the surge in oil earlier this year. The world's largest consumer- products company charged more for Cascade dishwashing detergent, Iams pet food and Gillette razors to offset some of the jump in packaging costs. McDonald's Corp., the world's largest restaurant company, raised prices as ingredient expenses surged.
McDonald's Costs
``Beef and cheese are up, but we've been able to mitigate that cost,'' Chief Executive Officer James Skinner said in an interview in Beijing last week.
The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
Today's report ``raises the general trajectory'' of interest rates, reducing the chance of cuts and bringing forward the likelihood of increases, William Poole, the former St. Louis Fed president, said in an interview with Bloomberg Television. Poole is a Bloomberg contributor.
Food prices, which account for about a fifth of the CPI, gained 0.9 percent after a 0.8 percent increase in June.
The increases went beyond food and fuel. Clothing expenses jumped 1.2 percent, the most since 1998. The cost of an airline ticket rose 1.3 percent and education expenses climbed 0.5 percent for a second month.
Rent Costs
Rents, which make up almost 40 percent of the core CPI, cooled. A category designed to track rental prices rose 0.1 percent, compared with a 0.3 percent gain in June.
The rate-setting Federal Open Market Committee last week kept its benchmark rate at 2 percent for a second straight meeting. In their statement, policy makers said they expect ``inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.''
Dallas Fed President Richard Fisher dissented in favor of raising rates, and others have indicated concern about leaving borrowing costs unchanged for a prolonged period. Minneapolis Fed chief Gary Stern and Charles Plosser of the Philadelphia Fed said last month the central bank may need to raise rates even before the housing market stabilizes.
Thomas Hoenig of Kansas City said July 16 the current level of rates ``almost certainly raises the risk of higher inflation.''
Wages Drop
Today's figures also showed wages decreased 0.8 percent after adjusting for inflation following a 0.9 percent drop in June. They were down 3.1 percent over the last 12 months, the biggest year-over-year decline since 1990. The drop in buying power is one reason economists forecast consumer spending will slow.
Higher gasoline bills and tighter credit reduced automobile purchases in July, causing retail sales to drop for the first time in five months, government figures showed yesterday.
A jump in the cost of imported goods may also give American companies leeway to charge more, economists said. Prices of products made overseas soared 22 percent in the year ended in July, the most since at least 1982, the Labor Department reported yesterday.
Aug. 14 (Bloomberg) -- U.S. stocks rose for the first time in three days after a trade group loosened restrictions on Fannie Mae and Freddie Mac to help revive the mortgage industry.
Fannie Mae and Freddie Mac, the largest sources of financing for U.S. home loans, each jumped more than 6 percent after the Securities Industry and Financial Markets Association said larger loans financed by the two companies will be allowed in the main market for mortgage bonds. PMI Group Inc., the second-largest U.S. mortgage insurer, rallied 61 percent on plans to raise cash by selling businesses. General Motors Corp. climbed the most in two weeks after saying it may accelerate a cost-cutting program.
The Standard & Poor's 500 Index added 8.04 points, or 0.6 percent, to 1,293.87 at 12:10 p.m. in New York. The Dow Jones Industrial Average increased 109.84, or 1 percent, to 11,642.8. The Nasdaq Composite Index added 22.62 to 2,451.24. Two stocks rose for each that dropped on the New York Stock Exchange.
``Financials, while extraordinarily beaten down and with extraordinarily negative sentiment, I think two years from now will have been a brilliant move,'' Fritz Meyer, the Denver-based senior market strategist at Invesco Aim, which manages about $162 billion, told Bloomberg Television.
The S&P 500 Financials Index rallied 2.3 percent, recovering about a quarter of its two-day drop of 8 percent. The group is up 22 percent from its 2008 low on July 15. The gain in banks overpowered earlier declines in benchmark indexes spurred by higher-than-forecast growth in consumer prices.
Fannie Mae added 49 cents, or 6.4 percent, to $8.13. Freddie Mac increased 39 cents, or 7 percent, to $5.94. Revised guidelines for the so-called To Be Announced market will accept securities composed of as much as 10 percent of the loans, according to a statement from the trade group.
PMI Rallies
PMI surged $1.70 to $4.49 after agreeing to sell its Australian and Asian businesses to QBE Insurance Group Ltd. for about $896 million. MGIC Investment Corp., PMI's larger rival, jumped 12 percent to $7.99.
An index of homebuilders in S&P indexes jumped 4.8 percent.
Banks and builders also climbed after former Federal Reserve Chairman Alan Greenspan told the Wall Street Journal that the housing market may recover next year.
``Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009,'' he said, according to the newspaper.
GM had the steepest gain in the Dow, climbing 6.6 percent to $10.93. The largest U.S. automaker, seeking to speed up its restructuring plan, said it may be able to reap more of the $10 billion in projected savings this year instead of in 2009.
Inflation Concern
Stocks opened lower after the government said so-called core prices, which exclude food and energy, increased 0.3 percent last month, more than projected. First-time applications for jobless claims were 450,000 in the week ended Aug. 9 and the total number of people receiving benefits climbed to an almost five-year high.
The inflation report may intensify the debate between those Federal Reserve policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel make it less likely that central bankers will be able to keep interest rates unchanged for long.
Companies including Procter & Gamble Co. and McDonald's Corp. have boosted prices to cope with record high commodity prices. The Fed predicted inflation will ease through next year, according to the statement released at its interest rate meeting last week. There's an 84 percent chance policy makers will keep the benchmark lending rate at 2 percent after convening in September, futures contracts show.
Oil prices have decreased 20 percent since reaching a high on July 3, helping restrain inflation as economic growth decelerates.
Earnings have slumped 23 percent on average for the 438 companies in the S&P 500 that have released second-quarter results, according to data compiled by Bloomberg.
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