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Monthly Archives: November 2012

Update: The Wall Street Journal picked up the story a week late.

Iran might be “on the verge of producing weapon-quality plutonium,” Germany’s daily Die Welt reported on Nov. 26. Hans Rühle, a former top official in the German defense ministry, and foreign editor Clemens Wergin cite clues pointing to an Iranian crash program to build a plutonium bomb in the just-released International Atomic Energy Agency report on Iran’s nuclear activity. Rühle headed German defense policy planning during the 1980s; Wergin is one of the most capable young journalists writing in any language. Their report should be read in dead earnest.

The IAEA reported that Iran removed fuel rods from the Bushehr light water reactor—supposedly a peaceful application of nuclear energy—on October 22. There might be a technical explanation for the premature extraction of fuel rods from a light water reactor, Rühle and Wergin observe. But “it may also mean the starting point for production of weapons-grade plutonium. That would mean a dramatic expansion and acceleration of Iran’s nuclear armaments program (my translation).”

Although light water reactors are not designed to produce weapons-grade plutonium, the design can produce large amounts of weapons-grade plutonium in a short period of time. In a matter of months, the authors report, the low-enriched uranium fuel in the Bushehr reactor could yield enough plutonium for dozens of atomic bombs:

 In a light water reactor, which is operated with low enriched uranium (four percent), the fuel remains in the reactor up to 60 months when the reactor is run at maximum power generation,. But it takes only a few months to produce plutonium 239, that is, weapons-grade plutonium. … In the 1970s a British company had shut down a light water reactor prematurely. The result was around 450 kilograms of plutonium, or material for about 70 bombs.

It would take only three or four months to convert the plutonium from the Bushehr reactor’s spent fuel rods into weapons-grade plutonium, the authors report. Depending on how long the fuel rods were used before Iran removed them on Oct. 22, they would yield between 150 kg and 300 kg of plutonium, or enough fissile material for 25 to 50 bombs.

Western negotiators previously ignored the Bushehr reactor, on the grounds that it constituted peaceful use of energy. Oliver Thränert, head of the Center for Security Studies at ETH Zurich, told Die Welt, “If Iran does not give a convincing explanation for the early removal of fuel rods, a correction in this policy should be urgently considered.”

Last February, I cited Rühle’s analysis of the logistics of a possible Israel strike on Iran, in which the German expert argued that Israel had the capacity to set the program back by years.

Asia’s response to Obama’s “Asian Pivot” was an invitation to pivot 360 degrees and go home. In today’s Asia Times Online, I report on what all of us really should worry about. Some excerpts:

It is symptomatic of America’s national condition that the worst humiliation ever suffered by America as a nation, and by an American president personally, passed almost uncommented last week. I refer to the Nov. 20 announcement at the Asian summit meeting in Phnom Penh that fifteen Asian nations comprising half the world’s population would form a Regional Comprehensive Economic Partnership excluding the United States. President Barack Obama attended the summit to sell an American-based Trans-Pacific Partnership excluding China. He didn’t. The American led-partnership became a party to which no-one came.

Instead, the Association of Southeast Asian Nations, plus China, India, Japan, South Korea, Australia and New Zealand, will form a club and leave out the United States. As 3 billion Asians become prosperous, interest fades in the prospective contribution of 300 million Americans—especially when those Americans decline to take risks on new technologies. America’s great economic strength, namely its capacity to innovate, exists mainly in memory four years after the 2008 economic crisis.

A minor issue in the election campaign, the Trans-Pacific Partnership initiative was the object of enormous hype on the policy circuit. Salon.com enthused Oct. 23, “This agreement is a core part of the “Asia pivot” that has occupied the activities of think tanks and policymakers in Washington but remained hidden by the tinsel and confetti of the election. But more than any other policy, the trends the TPP represents could restructure American foreign relations, and potentially the economy itself.”

As it happened, this grand, game-changing vision mattered only to the sad, strange people who concoct policy in the bowels of the Obama administration. America’s relative importance is fading.

To put these matters in context: the exports of Asian countries have risen more than 20% from their peak before the 2008 economic crisis, while Europe’s exports have fallen by more than 20%. American exports have risen marginally (by about 4%) from their pre-2008 peak.

China’s exports to Asia, meanwhile, jumped 50% since their pre-crisis peak, while exports to the United States have risen by about 15%. At $90 billion, Chinese exports to Asia are three times the country’s exports to the United States.

After months and dire (and entirely wrong) predictions that China’s economy faced a hard landing, it is evident that China will have no hard landing, nor indeed any landing at all. Domestic consumption as well as exports to Asia both are running nearly 20 percent ahead of last year’s levels, compensating for weakness in certain export markets and the construction sector.  Exports to the moribund American economy are stagnant.


Where does America have a competitive advantage? Apart from commercial aircraft, power generating equipment, and agriculture, America has few areas of real industrial pre-eminence. Cheap natural gas helps low-value-added industries like fertilizer, but America is lagging in the industrial space. Four years ago, when Francesco Sisci and I proposed a Sino-American monetary agreement as an anchor for trade integration, the US still dominated the nuclear power plant industry. With the sale of the Westinghouse nuclear power business to Toshiba, and Toshiba’s joint ventures with China to build power plants locally, that advantage has evaporated.

The problem is that Americans have stopped investing in the sort of high-tech, high-value-added industries that produce the manufactures that Asia requires. Manufacturers’ capital goods orders are 38% below the 1999 peak after taking inflation into account. And venture capital allocations for high-tech manufacturing have dried up.

Ten thousand demonstrators filled Tahrir Square to denounce Egyptian President Mohammed Morsi’s de facto coup — in fact, the second stage of a coup, after the dismissal of Egypt’s senior military leadership in the second week of August. This time Morsi effectively suspended the judiciary by a “constitutional decree” asserting that Egyptian courts could not challenge any ruling of the president. It didn’t take long for Egypt’s supposed Islamist democracy to turn into one-party rule by the Muslim Brotherhood. Morsi is on roughly the same timetable towards tyranny that Hitler followed in 1933. Think of it as the National Socialist German Workers’ Party (NSDAP in German) with a crescent instead of a swastika.

That is not to smear the Muslim Brotherhood with the label of Nazism. On the contrary: Dr. Andrew Bostom in his superb new book Sharia vs. Freedom quotes the 20th century’s greatest theologian, Karl Barth, writing in 1939:

Participation in this life, according to it the only worthy and blessed life, is what National Socialism, as a political experiment, promises to those who will of their own accord share in the experiment. And now it becomes understandable why, at the point where it meets with resistance, it can only crush and kill — with the might and right which belongs to Divinity! Islam of old as we know proceeded in this way. It is impossible to understand National Socialism unless we see it in fact as a new Islam, its myth as a new Allah, and Hitler as this new Allah’s prophet.

I have been planning to write a proper review of Bostom’s terrific book, but feel obliged to recommend it urgently as an antidote. It’s indispensable for anyone who wants to make sense of the past week’s headlines. The preponderance of enlightened opinion, it should be recalled, was that Hitler was a reasonable man and that the legitimate aspirations of the German people had to be respected (that was the view at the New York Times, and among the German-Jewish establishment). We have been told all along that the Muslim Brotherhood is a reasonable organization and — just this week — that Egypt’s Muslim Brotherhood president Mohammed Morsi is playing a positive role.

We are going to hear this so often that it is hard not to be distracted by the sheer volume of intellectual chicanery and wishful thinking that masquerades as Middle East analysis. That is why Andy Bostom’s book is so important. His encyclopedic documentation of the character of Islam and especially modern Islam should be in the hands of every conservative, and every responsible public official. Send one as a holiday present to your member of Congress (and make sure it gets read).

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Caroline Glick, a senior editor at the Jerusalem Post and now the director of a new Israel defense project at the David Horowitz Freedom Center, blasts the mainstream conservative media for silencing critics of the so-called peace process:

Leading voices like former Jerusalem Post editor and Wall Street Journal editorial board member Bret Stephens, Commentary editors Norman Podhoretz and Neil Kozodoy, commentator Charles Krauthammer and Weekly Standard editor Bill Kristol not only lined up to support the dangerous planned withdrawal. They barred all voices of opposition from the pages of their publications.

To greater and lesser degrees, their shunning of voices that warned against the Gaza withdrawal continues to this day.

So, too, with the exception of the Zionist Organization of America, every major American Jewish organization supported the withdrawal.

Like the editors of Commentary, the Weekly Standard and the Wall Street Journal, they barred voices of opposition from speaking to their groups.

All commentators who warned of the strategic calamity that would befall Israel in the aftermath of a withdrawal from Gaza were marginalized and demonized as extremists.

As Ms. Glick observes, the estimable Bret Stephens acknowledged on Tuesday that he was wrong to back the Gaza pullout. So did some other apologists for Ariel Sharon’s great blunder. That’s cold comfort, she explains, because the mainstream conservative media remains wrapped in illusions and implacably hostile to voices that challenge its illusions — notably the great illusion that “Muslim democracy” will solve the region’s problems. In fairness to Stephens, I should point out that his re-thinking is deep; he gave a tough and somber address to the Restoration Weekend last week, warning that Israel no longer can adjust its policies to the squeamishness of so-called world opinion.

There’s no negotiating with Hamas, Ms. Glick argues:

The other choice is to destroy Hamas. To accomplish this Israel will need to invade Gaza and remain in place. It will have to kill or imprison thousands of terrorists, send thousands more packing for Sinai, and then spend years patrolling the streets of Gaza and arresting terrorists just as it does today in Judea and Samaria.

Whereas the first option is impossible, the latter option is not currently viable. It isn’t viable because not enough people making the argument have the opportunity to publish their thoughts in leading publications. Most of those who might have the courage to voice this view fear that if they do, they will be denied an audience, or discredited as warmongers or extremists.

So they remain silent or impotently say that Israel shouldn’t agree to a cease-fire without mentioning what Israel’s other option is.

The millions of Israelis who opposed the withdrawal from Gaza do not seek personal vindication for being right. They didn’t warn against the withdrawal to advance their careers or make their lives easier. Indeed, their careers were uniformly harmed.

They did it because they were patriots. They felt it was their duty to warn their countrymen of the danger, hoping to avert the disaster we now face. They should be listened to now. And their voices should be empowered by those who shunned them, because only by listening to them will we develop the arguments and the legitimacy to do what needs to be done and stop fighting to lose, again and again and again.

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UPDATE: The protection racket seems to have worked with the ceasefire. Mohammed Morsi has emerged as the hero of the hour–for persuading his Muslim Brotherhood comrades to stop firing rockets at Israel. Morsi is now a legitimate player, Hamas achieves de facto recognition (and can claim victory for assaulting Israel with impunity), and Israel’s security is impaired. This is the first poisoned fruit of Obama’s re-election.

A couple of nights ago I ran into Dan Senor, a prominent Romney campaign foreign policy advisor, at CNBC’s studio, before my interview on the U.S. economy. Host Larry Kudlow asked Senor, now a director of the Foreign Policy Initiative, how Israel could negotiate with a Muslim Brotherhood government in Egypt, given that Hamas is a branch of the Muslim Brotherhood. Senor replied,

The Egyptian economy is in devastating shape. The last thing the Egyptian government wants – even a Muslim Brotherhood led government – is a war on its border. The West has considerable leverage on Egypt.

Senor got it backwards, I believe: Egyptian President Mohamed Morsi encouraged Hamas to attack Israel as part of a protection racket, directed at Saudi Arabia as well as the West. In return for putting out a fire he helped to start, Morsi wants the West and the Gulf States to bail out his crumbling economy. Saudi Arabia and other Gulf States (with the exception of Qatar’s radical ruler) consider the Muslim Brotherhood a subversive organization and a mortal threat to their regimes and sent Morsi away empty-handed after his mid-August visit to Riyadh. Morsi is hoping that Gaza will shake money loose. “Nice little country you’ve got here. It would be a shame if something were to happen to it.”

This week, Egyptian officials began “making the rounds” of prospective donors — including the hitherto reluctant Saudis — to secure the financing Egypt needs to plug the billion-and-a-half dollar monthly hole in its balance of payments, the news site Almasryalyoum reported today.

It isn’t the whole story, but it’s a big part of the story: Morsi’s intention from the outset was to elicit the sort of reply that Dan Senor gave Kudlow. The Obama administration tried to push through a $450 million Egyptian aid package (plus $550 million of debt forgiveness) in October, but thought better of it in the advent of the presidential election. If Morsi emerges as the apparent peacemaker, watch for the Weekly Standard and the Foreign Policy Initiative to cautiously endorse financial aid to Egypt. After cheering on the overthrow of Mubarak and the so-called Arab Spring, a lot of reputations hang in the balance.

Morsi isn’t the only client for whom Hamas is launching rockets, to be sure. There are several other motives for Hamas to provoke Israel at the moment.

The first is Turkey, which is counting on the Muslim Brotherhood to stabilize the Syrian mess. Although Kurds comprise a minority of just 2 million in Syria, the possibility that the country’s disintegration will push them towards political autonomy might act as a catalyst for Kurdish aspirations elsewhere. The Kurdish demographic time bomb is a central concern of Turkish policy, as I wrote in an Oct. 25 study for the Jewish Institute for National Security Affairs. Turkey’s volatile Prime Minister Tayyip Erdoğan is inciting Hamas with Syria in view.

The second is Iran, which has supported Hamas as a cat’s paw against Israel throughout. Iran is sending a stark message to Israel as well as the United States: If Israel attacks Iran’s nuclear weapons program, it will unleash its full terrorist capabilities against Israel and the West.

The third is Hamas’ own position. With the Palestine Authority seeking recognition once again from the United Nations, Hamas wants to assert its leadership of the Palestinian cause against PA President Mohammed Abbas. Pro-Hamas demonstrations in the West Bank suggest that he is having a modicum of success. Internal politics inside Hamas may have added to the motivation for the terrorist organization to strike now.

It does not seem likely, though, that the Hamas offensive will succeed in any of its objectives.

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Speaking on background this week, a senior Israeli official said that the threat of conventional war against Israel had fallen sharply due to instability in the Arab world.

The official predicted that the 22 members of the Arab League would split into 28 to 30 countries during the next five years as the so-called Arab Spring turns out to be an “Islamist winter.” Those who expected a democratic resurgence after the Arab revolts of 2011, he argued, “have no understanding of history and no understanding of the social circumstances of Arab countries. It isn’t like Eastern Europe after the fall of Communism. Eastern Europe had the experience of democracy between the wars, and it also had a great culture. Above all, it didn’t have a political religion dedicated to conquest.”

What the official characterized as “the implosion of the Arab world” would make it much harder for Arab countries to mount a conventional threat against the Jewish state, he said. “Between the alternative of having our enemies divided or united, we prefer to have them divided,” he added. “The states put together after World War I by Mr. Sykes and Mr. Picot won’t hold together. We are finding out that Arab countries aren’t really countries in the first place. Libya turns out to be not a country, but a collection of 140 tribes. And we hardly need talk about what is happening in Syria.”

He added, “The clout of the Arab League is falling, and Arab oil is becoming less important.” After the 1967 war, he observed, the Arabs consoled themselves for their defeat by asserting that time was on their side. “Now, no-one can say that time is on the side of the Arabs. They are in danger of disintegration. Time is on nobody’s side. Time is on the side of whoever prepares best for the future.”

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My evaluation of the state of U.S. intelligence after the Petraeus scandal appears this morning at Asia Times Online.

No one rises through the ranks of intelligence services by reporting pertinent facts that politicians don’t want to hear, Edward Luttwak observes. Bad policy produces bad intelligence. If you believe that Hitler is an ally, at least of convenience, as Stalin did in 1941, you will reject as fraudulent hard evidence of an imminent German invasion of Russia. If you believe that the Soviet Union is a prosperous, peace-loving land, as the foreign policy establishment did when Reagan took office, you will ignore evidence of Russian vulnerability and fear-aggression, as did Robert Gates, then head of the CIA’s Soviet section. CIA Director William Casey brought in an alternative team headed by Fortune magazine editor Herbert Meyer to produce an alternative, correct analysis.

If you believe that elected Islamists are democrats before they are Islamists, you will blunder as badly as Stalin or the U.S. foreign policy establishment of 1980. Whatever details emerge about the Benghazi disaster last September, the incident reveals an intelligence failure embedded in a policy failure. The Islamist parties that rode the Arab revolts to power are hostile to the United States by construction, and incapable by their nature of stabilizing the economies and political systems of the non-oil-exporting Arab countries.

Gen. David Petraeus probably would have made a good CIA director. In 2010, I poked some holes in his reputational bubble:

Petraeus’ surge of 2007-2008 drastically reduced the level of violence in Iraq by absorbing most of the available Sunni fighters into an American-financed militia, the “Sons of Iraq,” or Sunni Awakening. With American money, weapons and training, the remnants of Saddam Hussein’s regime have turned into a fighting force far more effective than the defunct dictator’s state police.

As I wrote in today’s Asia Times essay:

It was a doubly clever stroke, winning with cash what could not be won with bullets. Aligning with the remnants of the Saddam Hussein regime was the right approach (first advocated in 2004 by Marc Ericson on this web site – see Why Saddam’s arrest did matter, Asia Times Online, January 24, 2004). Of course, it set the stage for an escalating civil war in the future. That is a defect in the policy only if its author expects something other than another iteration of violence.

Petraeus perpetrated a fraud by elevating this gambit into a counterinsurgency doctrine and accepting the accolades of grateful and relieved Republicans. Applied to Afghanistan, the doctrine failed miserably; the Taliban took the American money, like the Iraqi Sunnis, but – unlike the Iraqis – they continued to kill Americans.

Petraeus became a Republican hero by paying off the Sunni opposition, creating the illusion of stability in Iraq long enough for the outgoing George W Bush administration to claim a victory of sorts. The neo-conservatives clove to Petraeus even when he dutifully repeated in 2010 the Obama administration’s view that a deal with Iran over nuclear weapons depended on a peace agreement between Israel and the Palestinians.

A minority of conservative analysts — including Andrew McCarthy, Diana West, and this writer – excoriated Gen. Petraeus for repeating the Obama administration’s outrageous claim that a nuclear weapons deal with Iran depended on a settlement of the Palestinian issue with Israel. The opposite was true: take Iran out of the picture, and terrorists like Hezbollah and Hamas would lose their main backer, alleviating the Israel-Palestinian problem to some extent. The conservative mainstream, though, was so enamored of Petraeus that Max Boot, writing at the time at Commentary magazine, demanded the expulsion of the estimable Ms. West from the conservative movement “as has previously happened with Pat Buchanan, Joe Sobran, and other right-wing embarrassments” — in other words, the right-wing antisemites. The difference is that Diana West was defending Jews while Buchanan and Sobran were attacking Jews. Anathema was read over me from the Commentary blog as well.

Why was there so much vitriol over Petraeus? Why such embittered loyalty even when he echoed the administration’s outrageous “linkage” argument?

The answer was visible in the third presidential debate, when Mitt Romney went out of his way to agree with President Obama on major points of foreign policy. Like the ghost of Jacob Marley dragging chains forged of his past sins, the Republican Party still drags behind it the legacy of the Bush administration’s nation-building legacy in Iraq, with its thousands of dead, tens of thousands wounded, millions of disrupted lives, and trillion-dollar expense. The ingenious Gen. Petraeus found a way to allow the Bush administration and the proponents of nation-building to claim victory. Never mind that we left behind a pro-Iranian government and a country constantly threatening to disintegrate. Never mind that voters weren’t buying it; the taste of Iraq remains so bitter that Romney had to leave the foreign policy field uncontested. Petraeus saved Republican reputations, and that comes first.

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Apart from some fatuous self-congratulation from Asian-American liberals, there has been very little discussion of the 73-26 Asian-American margin of support for President Obama in last Tuesday’s election. That’s slightly smaller than the highest estimate of Latino support for Obama, at 75-23. Asian-Americans are a small minority now but their numbers are growing rapidly.

Most conservatives consider Asian-Americans poster-children for the American model of self-motivated success. The facts bear this out. The Pew Research Center reported last July:

Asian Americans are the highest-income, best-educated and fastest-growing racial group in the United States. They are more satisfied than the general public with their lives, finances and the direction of the country, and they place more value than other Americans do on marriage, parenthood, hard work and career success…

Asians recently passed Hispanics as the largest group of new immigrants to the United States. The educational credentials of these recent arrivals are striking. More than six-in-ten (61%) adults ages 25 to 64 who have come from Asia in recent years have at least a bachelor’s degree. This is double the share among recent non-Asian arrivals, and almost surely makes the recent Asian arrivals the most highly educated cohort of immigrants in U.S. history.

Compared with the educational attainment of the population in their country of origin, recent Asian immigrants also stand out as a select group. For example, about 27% of adults ages 25 to 64 in South Korea and 25% in Japan have a bachelor’s degree or more.2In contrast, nearly 70% of comparably aged recent immigrants from these two countries have at least a bachelor’s degree.

Asian-American kids occupy nearly three-quarters of the places at New York City’s exam-based high schools (including Bronx Science and Stuyvesant) although they comprise less than 12% of the student population.  The main threat to the upward striving of working-class immigrant kids who study hard to get into top schools is the NAACP. The New York Times reported Oct. 15:

 NAACP Legal Defense and Educational Fund and other groups filed a racial bias complaint with the United States Education Department. They charge that reliance on a single test for determining who gets into Bronx Science and seven other specialized high schools discriminates against young African-Americans and Latinos. Other factors, like student grades, need to be considered as well, they say.

Asians “also stand out for their strong emphasis on family,” the Pew study reported. “More than half (54%) say that having a successful marriage is one of the most important things in life; just 34% of all American adults agree. Two-thirds of Asian-American adults (67%) say that being a good parent is one of the most important things in life; just 50% of all adults agree.”

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If You Believe in Staples, Clap Your Hands

November 7th, 2012 - 6:50 am

When Staples founder Tom Stemberg took a star spot at the Republican convention last August, the weakness in Mitt Romney’s message should have been obvious. The retailer’s price already had fallen by a third since March; a month later, Staples announced a 15% cut in its floor space and 3,200 layoffs.

Chart forStaples, Inc. (SPLS)

I don’t mean to diminish Bain Capital’s biggest success story, but Staples belongs to the wave of entrepreneurial success that ended in the 1990s. The last two waves of American entrepreneurs, in dotcoms and real estate, were carried out in body bags. What once was a disruptive business idea — office superstores selling at low prices — is now past its best-used-by-date, as Amazon offers cheaper prices for the same merchandise online.

Romney’s message centered on one great idea: the revival of entrepreneurship. The presidential election shows that Americans don’t believe in entrepreneurship any more. There’s a reason for that. No-one has seen much entrepreneurship of late.

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Egypt Food Crisis Update

November 6th, 2012 - 5:58 am

“Government on alert as wheat crisis looms” was the headline in today’s Egyptian Gazette. Ahmed Kamel writes:

As wheat prices shoot up worldwide, Egypt, the world’s top grain importer, is squeezed between price hikes and growing demand. There are 2.9 million tonnes of grain reserves, enough to cover 117 days, Abu Zeid Mohamed Abu Zeid, Minister of Supply and Home Trade, was quoted by local media as saying when commenting on the possibility that Ukraine could ban grain exports.

Last June, the government claimed to have 4.7 million tonnes of wheat, or six months’ supply. It appears that Egypt has been running on reserves and failing to replenish stockpiles, mainly because the country remains desperately short of foreign exchange. A chronic shortage of diesel fuel and electricity, as well as shortages of vaccines for children, has plagued the Egyptian economy for the past year. The butane cylinders with which most Egyptians cook are in short supply, and the black market price has risen to ten times the subsidized official price. Egypt is billions of dollars in arrears to suppliers of diesel, butane, foodstuffs and other essential imports.

The fuel shortage has worsened the food shortage, because farmers can’t obtain enough diesel to run irrigation pumps and agricultural equipment, al-Arabiya reported last October 8. The extent of the damage to this year’s harvest is hard to estimate but seems substantial, according to the newspaper.

The latest central bank data for foreign exchange reserves suggest that Egypt is running on fumes. The country’s trade deficit has risen to about $3 billion a month, and its foreign exchange earnings from tourism, the Suez canal and workers’ remittances amount to $1 to $1.5 billion a month, leaving a monthly hole of $1 to $1.5 billion. Cash reserves were at $7.7 billion in October, the central bank reported this week, essentially unchanged from $7.63 billion in September, after $1 billion in new loans from Qatar and Turkey, Reuters reported:

Egypt in October received $500 million from Qatar and another $500 million from Turkey, state-run al-Gomhuria newspaper said on Monday quoting an unnamed central bank official.

It was the second such payment from Qatar, which has promised to deposit a total $2 billion with Egypt’s central bank by the end of the year.

Egypt drew $600 million from reserves during the month to pay for petroleum imports and $100 million to repay foreign loans, the newspaper quoted the official as saying.

The $1 billion of loans in October evidently failed to cover Egypt’s import needs; although liquid reserves remained stable (at barely two months’ coverage of the trade deficit) the country continued to burn through stockpiles of wheat, and failed to import enough diesel and butane to run the economy. Turkey is running a current account deficit of between 8% and 10% of GDP and still owes money to the IMF, while Qatar’s total foreign exchange reserves of $20 billion are barely sufficient to fund Egypt for a year. Saudi Arabia refuses to lend money to the Muslim Brotherhood regime in Cairo because the Muslim Brotherhood wants to overthrow the Arab monarchies of the Sunni world. The Obama administration proposed $1 billion in emergency US aid (a lot less in terms of actual folding money) but it seems unlikely that the Republican-controlled House of Representatives will approve even this pittance.

The Morsi government almost certainly will resort to rationing (in what I characterized last August as a “North Korea on the Nile“) but the political consequences of such an unpopular action may be ugly.