The following is a guest contribution. Reuters is not responsible for the content and the views expressed are the authors' alone. Sarah Sayeed is Program Associate and Matthew Weiner is Program Director at the Interfaith Center of New York.

By Sarah Sayeed and Matthew Weiner

A Canadian judge recently ruled that a Toronto Muslim woman must take off her face veil while giving testimony in a sexual assault trial. This tension between public space and private religion comes up repeatedly in western urban centers where Muslim women increasingly occupy the pubic square.  This time it happened in Toronto, but the issue arises regularly in western countries in the schools, workplaces and courtrooms that Muslims increasingly share with the majority population. At stake is whether a Muslim woman's choice to dress in accordance with her religious beliefs infringes upon "our way of life."

(Photo: Sultaana Freeman testifies in court for right to wear a niqab on her Florida driver's license, 27 May 2003/pool)

While all can agree that identity, tolerance and religious freedom are important, advocates for the face veil emphasize the upholding of freedom while opponents focus on the face veil, or niqab, as a challenge to collective identity.  Such tension between public expression of religion and collective identity is not new.  It has even gone on for centuries in Muslim countries, where religious minorities feel the tension between acceptance and their need to adapt, in varying degrees, to a Muslim majority worldview.  There is also a debate within Muslim communities about whether wearing the niqab is a religious requirement.

What seems problematic in the current debate, whether in Toronto or Milan, is the implication that Europeans and North Americans are willing to tolerate differences, but only up to a limit.   Some differences seem too threatening for them to consider seriously.  They seem to think some differences should be made invisible.  Thus, and perhaps inadvertently, the opponents of the niqab - who see themselves as the defenders of collective identity - call into question another value and practice that is central to Western democracy: open dialogue in the public sphere.

Ever since the Enlightenment, Westerners have agreed that tolerance and open discussion in a public space helps prevent violence and fosters community. It is a proud tradition. The great moral effect of creating a public space was that people from different traditions, with different views and different styles of conversing, could join in a shared process.  Tolerance - putting up with something you do not agree with - is understood here as an uncomfortable but necessary virtue.

(Photo: Female Saudi pharmacist in Jeddah, 4 June 2007/Susan Baaghil)

In deliberative democracy, each side or point of view must be given a chance to express itself and be subject to deliberation.  No side of the debate should be suppressed or dismissed without due consideration. However the niqab, when allowed into the public square, is a message that by itself questions the very boundaries of what is public versus private.  It is a mode of dress that suggests a different social order, a different public square.

Should people who cover their faces (and their mouths) speak and deliberate in the public square with those who do not?  There seem to be several good reasons for saying yes.

While it may be genuinely strange for us to encounter people with their heads and faces covered, it need not violate the principles of public space or democratic discourse.  Orthodox Jews are not supposed to shake hands or interact too closely with the opposite sex. This is accepted.  Advocates of public space need to recognize that if the public is genuinely democratic, every minority voice needs an opportunity to participate on their terms.  While this necessarily changes how discourse takes place, it is possible that the change will strengthen rather than threaten the collective.

Secondly, if women wearing a niqab are not permitted to engage in the public square in Western societies, the ripple effects may even impede the democratization of Muslim societies and keep Muslim women out of public life.  People who hold their religious values dear may choose -- or worse, be forced -- to remain out of the public square if they are not permitted to enter on their own terms.

(Photo: University graduate in Sanaa, Yemen, 30 July 2008/Khaled Abdullah)

If a community cannot express itself publicly in a way true to their own identity, what will this lead to?  Who will it exclude? What effect will such exclusion have, not only on the community at large, but on minorities' ability to integrate in a way that maintains their identity?  And what will the impact of slow democratization in Muslim nations have for women's rights and the larger global fabric?

There does not seem to be an easy answer, either to these questions or to the debate at hand. But deciding what makes the public square public and how people participate in public deliberation goes beyond the simple debate of religious freedom and national identity.  What is important for now is that someone spearhead a healthy discussion that seeks to think through these nuances, as opposed to the current polarized debate that simply compounds a growing divide between communities. Sadly, some who call for a dialogue with Muslims start with the proviso that Muslim women follow their standards for what is properly public.  This is not a partnership-based beginning.  Rather it will be the communities who move in the direction of real conversation, with openness to change, that will deserve to be called defenders of the pubic sphere.

Far from being all bad news for Africa, the global financial crisis is a chance to break a dependence on development aid that has kept it in poverty, argues Zambian economist Dambisa Moyo, who has just published a new book “Dead Aid”.

Moyo’s book, her first, comes out at a time when Western campaigners, financial institutions and some African governments have been warning of the danger posed to Africa by the crisis and calling for more money from developed countries as a result. The former World Bank and Goldman Sachs economist spoke to Reuters in London.

“I’m not saying its going to be easy, I’m just saying that there is a real opportunity for policymakers to focus on coming up with more innovative ways of financing economic development. In a way the crisis actually provides the African governments with the situation where they cannot rely on aid budgets coming through from the West.”

Moyo believes more than $1 trillion in development aid over the past 50 years has only entrenched Africa’s poverty, distorted economies and fuelled bureaucracy and corruption. She sees alternatives such as encouraging trade - particularly with emerging markets - encouraging foreign direct investment, microfinancing for enterprise and seeking funds from capital markets.

Moyo is not discouraged by the fact that all those options appear more difficult in the current environment.

“It just means the onus is on African governments to come up with a more compelling story as to why African governments are overseeing real asset investment not derivative products we don’t really understand.”

“If you focus on traditional markets like Europe and the United States, you come to the conclusion that markets are really damaged and it’s very hard to raise money in those markets, but if you start to look towards China for example which has $4 trillion of reserves, all of a sudden you could see there might be another opportunity to do a bond issue in the Chinese market for example.”

“The model that’s coming up, that I’m proposing, is essentially one where Africa and Africans become equal partners with the rest of the world, not one where there is kind of a donor and a recipient, where Africans are kind of viewed as secondary citizens,” she said.

“There is no other system, whether a political system or a business system, that has stayed as the status quo for 60 years when we all know it’s not doing what it’s supposed to do, it’s not generating growth and it’s not alleviating poverty.”

Moyo is not worried about the impact of aid being taken away:

“It actually tends to pool at the top so it’s not like the average African is going to suffer. They don’t see the aid anyway. Essentially it‘s going to really affect the bureaucratic processes at the top and would really impact on corruption.”

“You could take me to country X in Africa and say ‘look at this girl here and she’s going to school because of aid’. Yes, that’s true but on a macro aggregate perspective these economies are not growing. They’re not growing fast enough to ensure that when that girl is done with her schooling she can find a job.”

Moyo is unimpressed by Western campaigners such as rock stars Bob Geldof and Bono calling for lots more aid for Africa.

“I fundamentally object to the notion that Africa needs more aid and I do think it’s time to have many more Africans speak out, especially the policymakers, because many of the policymakers actually don’t support aid  and yet they stay in the background and they allow this money to come into the economy.”

“You very rarely see Africans on the global stage saying ‘actually we would like to have much more aid please’.”

“I do think a gap has opened up to allow other people to formulate a view on coming to the global debate and offering opinions as to what they think Africans want. But maybe we should start a website called ‘Ask the African’ because I think you might be quite surprised to find that people say ‘we want jobs’, I wouldn’t mind a flat screen television, I wouldn’t mind having my kids go on holiday sometimes ...’”

Picture: Helen Jones photography

— Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Arms control is back and will thaw icy relations between the United States and Russia this year, but how far the new detente goes depends on the truculent mood in Moscow.

The potential exists for a grand bargain encompassing cooperation on the global financial crisis, Iran, Afghanistan, nuclear disarmament, missile defense, conventional armed forces and NATO enlargement.

But there are plenty of landmines on the road. Differences over the future of Georgia and Ukraine, two former Soviet republics on Russia’s borders, are the most obvious obstacles.

After eight years of disdain for arms treaties under George W. Bush, U.S. President Barack Obama is set to propose a radical negotiated reduction in nuclear missiles and warheads.

Expect an initiative before Obama’s first visit to Europe in April for a pact to replace the U.S.-Soviet Start-1 strategic arms reduction treaty, which expires at the end of this year.

Vice President Joe Biden may give a foretaste of U.S. ideas at the Munich Security Conference next weekend.

“The prospects for forward movement are reasonably good because we now have an administration in Washington which actually believes in arms control,” says Strobe Talbott, president of the Brookings Institution think-tank.

Talbott, the leading U.S. government official on relations with Russia in the 1990s, expects Obama to postpone deployment of a planned missile shield in Poland and the Czech Republic, which has infuriated Russia.

But he is skeptical of a broader rapprochement because of what he calls Moscow’s “sour geopolitical mood”.

DISARMAMENT

Russian President Dmitry Medvedev and Prime Minister Vladimir Putin have fiercely opposed the missile shield, as well as U.S.-led efforts to bring Georgia and Ukraine into NATO. They see both moves as attempts to encircle and marginalize Russia.

Obama cannot abandon either policy without alienating key constituencies at home and in eastern Europe, but he has good grounds to put both on hold while he explores the prospects for cooperation with Moscow and for direct talks with Iran on its nuclear program.

Russia would be expected in return to allow a tightening of U.N. sanctions on Iran and to suspend deliveries of S300 air defense missiles to the Islamic Republic, which could make any U.S. or Israeli air strike more difficult.

This is important in a year when the major powers will be focused on trying to persuade Iran to halt uranium enrichment, which the West is convinced is aimed at developing a bomb.

One of Tehran’s arguments is that the nuclear powers have failed to fulfill their pledge in the 1968 Non-Proliferation Treaty to work towards general nuclear disarmament.

Almost 20 years after the Cold War ended, the United States and Russia still have arsenals of more than 10,000 warheads each that are costly to maintain and make no military sense since modern wars mostly involve precision air power, highly mobile strike forces and paramilitary police.

They can afford to scrap at least 90 percent of their stockpiles while maintaining a credible nuclear deterrent.

They should seek to abolish short-range missiles which are the most destabilizing because they leave the shortest warning time and require split-second “use-them-or-lose-them” decisions by military commanders.

A bold nuclear disarmament initiative would have bipartisan support in the United States, where a quartet of elder statesmen including former Republican Secretaries of State Henry Kissinger and George Shultz has advocated such a step.

Their goal is to try to halt the spread of nuclear weapons to states such as Iran and to terrorist organizations by having major atomic powers set the example while tightening global controls on technology and fissile materials.

INSUFFICIENT?

Whether such an initiative will launch a new era of U.S.-Russian detente is uncertain.
Oksana Antonenko, senior fellow on Russia and the former Soviet countries at the International Institute for Strategic Studies, says arms control alone cannot be the engine of a better relationship because suspicion on both sides is so deep.

“It is hard to see who in the Obama team will advocate a strategic rapprochement with Russia. Russia isn’t on their radar screen at all,” she said.

Moscow is more concerned about stabilizing its economy and ensuring its place in the new world order arising from the financial crisis, in which the big emerging economies will have more sway at the expense of the Group of Eight including Russia.

Oil prices have fallen from $147 to $40 a barrel since last July, the Russian stock market has lost 75 percent of its value and the Kremlin faces street protests over its economic policy.

This could make Russia’s leaders more inclined to seek accommodation with the West, to reassure investors including Russian businessmen, or it could prompt them to play the nationalist card.
Putin’s speech in Davos raised hopes of the former but his tone and behavior at home, including plans for a big increase in military spending, point towards the latter.

Obama cannot make that choice for Russia, but he can give its leaders reasons to choose the former over the latter.

For previous columns by Paul Taylor, click here.

President-elect Barack Obama has been getting a lot of advice these days on how to deal with Muslims and Islam. He invited it by saying during his campaign that he either wanted to convene a conference with leaders of Muslim countries or deliver a major speech in a Muslim country "to reboot America’s image around the world and also in the Muslim world in particular”. But where? when? why? how? Early this month, I chimed in with a pitch for a speech in Turkey or Indonesia.  Some quite interesting comments have come in since then.

(Photo: Obama image in Jakarta, 25 Oct 2008/Dadang Tri)

Two French academics, Islam expert Olivier Roy and political scientist Justin Vaisse argued in a New York Times op-ed piece on Sunday that Obama's premise of trying to reconcile the West and Islam is flawed:

Such an initiative would reinforce the all-too-accepted but false notion that “Islam” and “the West” are distinct entities with utterly different values. Those who want to promote dialogue and peace between “civilizations” or “cultures” concede at least one crucial point to those who, like Osama bin Laden, promote a clash of civilizations: that separate civilizations do exist. They seek to reverse the polarity, replacing hostility with sympathy, but they are still following Osama bin Laden’s narrative.

Instead, Mr. Obama, the first “post-racial” president, can do better. He can use his power to transform perceptions to the long-term advantage of the United States and become a “post-civilizational” president. The page he should try to turn is not that of a supposed war between America and Islam, but the misconception of a monolithic Islam being the source of the main problems on the planet: terrorism, wars, nuclear proliferation, insurgencies and the like.

Also on Sunday, the Istanbul newspaper Sunday's Zaman ran a piece by sociologist Dogu Ergil who spelled out what he thought "moderate Muslims" expected of Obama.

(Photo: Blue Mosque in Istanbul, 9 Dec 2008/Tan Shung Sin)

Moderate or non-ideological Muslims expect Mr. Obama to support democratic trends in their countries, but not to push them from above using ruling elites that will never adopt a democratic agenda but rather will simply play for time, making only cosmetic changes. This will, in turn, further reinforce the power of autocratic regimes that are threatened by genuine democracy.

Muslim moderates look at religion as a cultural affair, wanting to render it autonomous of politics so that it will be protected from political power and in the same way, preventing it from seeking political power. So they want the Obama administration to press their governments to enact reforms that will pave the way to democratic politics and legal changes that will allow for more individual freedoms. They do not want a hypocritical stance from an America which advocates democracy but supports the most authoritarian regimes in the Arab world for the sake of oil deals and other strategic ends. The Bush administration set a very bad example of paying lip service to democracy, which, in fact, worked as a vehicle to blackmail Arab regimes and served America's strategic interests.

Michael Fullilove at the Brookings Institution made a pitch for an Obama speech in Indonesia in the New York Times while several Moroccan blogs have been running a campaign (including a petition with a long list of reasons) to have him speak there. Saad Eddin Ibrahim, an exiled Egyptian sociologist and human rights who is a visiting professor at Harvard and Indiana universities, made the case for Indonesia or Turkey in the Washington Post.

Maleeha Lodhi, a former Pakistani ambassador in the United States and Britain, has a long list of suggestions for a reformed U.S. policy towards the Muslim world in the Harvard International Review.  The list is fairly extensive, although it would have been even more informative if it had included suggestions for what should change in the Muslim world.

(Photo: Badshahi Mosque in Lahore, Pakistan, 21 Dec 2007/Mohsin Raza)

How Obama manages issues in the Muslim world will determine the success or failure of his foreign policy...

In the Muslim world ... perceptions have been shaped by decades of uneven handed policies and by US double standards that placed the security of Israel and the need for cheap oil above considerations of international law and justice for the Palestinians. In essence, Muslims regard US policies as responsible for the trust gap between the United States and the Islamic world. In the West, opinions concerning the cause for the gap with the Muslim world are more mixed. The most common view attributes this rift in relations not only to US policies but also to factors internal to the Muslim world-- to the weakness and contradictions in those societies and particularly to the democratic deficit, which allows radicals to build support for their cause. This, in fact, inspires the idea that the United States should lead efforts to restructure the Muslim world. Irrespective of the reality, both perspectives urge the need to review and recast US foreign policy.

My vote for the most interesting argument goes to Roy and Vaisse, who ask the basic question of what role religion actually plays in the big issues facing Obama.

The truth is, Islam explains very little. There are as many bloody conflicts outside of regions where Islam has a role as inside them. There are more Muslims living under democracies than autocracies. There is no less or no more economic development in Muslim countries than in their equivalent non-Muslim neighbors. And, more important, there exist as many varieties of Muslims as there are adherents of other religions. This is why Mr. Obama should not give credence to the existence of an Islam that could supposedly be represented by its “leaders”.

(Photo: Olivier Roy, 4 Dec 2007/Charles Platiau)

Who are these leaders that President Obama would convene anyway? If he picks heads of state, he will effectively concede Osama bin Laden’s point that Islam is a political reality. If he picks clerics, he will put himself in the awkward position of implicitly representing Christianity — or maybe secularism. In any case, he would meet only self-appointed representatives, most of them probably coming from the Arab world, where a minority of Muslims live.

Do you think Obama should launch a special initiative aimed at the Muslim world, or, as Roy and Vaisse argue, assert that "American values are universal and do not suffer any kind of double standard, and that they could be shared by atheists, Christians, Muslims and others"?

Salim Adil is an author for Global Voices Online, a website that aggregates, curates, and translates news and views from the global blogosphere. The opinions expressed are his own and those of the bloggers he quotes.

Will this become one of those moments in history? In years to come will you recount to your grand children where you were when an Iraqi journalist, Montather Al-Zeidi, threw his shoes at the president of the United States? For me I was at home just getting my kids ready to sleep when my father called me insisting that I simply had to switch on the television immediately.

Iraqi bloggers reacted in much the same way with a number who wrote their first new post in months just to make their comment. Abbas Hawazin went as far to predict that shoe throwing will now be part of mainstream culture and has gone to look for a good-sized shoe to carry in his pocket, “in case I need to make any public expression of anger should the case arise.”

Last of Iraqis broke his once-a-week frequency to share his opinion on the incident. “In the Iraqi traditions or may I say Arabic traditions in general; it’s the maximum insult a man can do…it’s the maximum humiliation no word can accomplish”, he writes. And he gives his view of the Iraqi Street:

“Today I went to work as usual and all the people I saw were very very happy, it was like a national celebration…A female patient came to me for a filling and as we were waiting for the Anesthesia to take effect she said “do you know doc. That yesterday was an Eid to me; I haven’t celebrated Eid for the past 3 years because the Americans “accidentally” killed my husband and son and Bush is the reason why they are here so yesterday some of my revenge has been taken” …all the staff said the same thing “A statue should be built for Muntathar” in fact many of them have used the photo of Muntathar as a background for their mobiles but the really beautiful thing that made me even happier was that no one referred to his sect or anything…they were all proud of him…”

One person who does not think so is Nibras Kazimi who stood alone among Iraqi bloggers to defend George Bush:

“Personally, I got angry. Very angry. I will make a public promise: should I ever run into a certain reporter called Muntather al-Zaidi, presently of Al-Baghdadia TV, I will seriously consider beating the crap out of him… See, I will forever remain indebted to President George W. Bush. He is my hero. He liberated Iraq, and that’s how I will always see it. Had there been no President Bush, then Saddam would still be Saddam.”

Baghdad Treasure is torn between professional pride and being an Iraqi:

“As a journalist myself, I found what the reporter did was extremely wrong. Journalists have their voices and pens (and now the internet) to express whatever they want to protest against. However, I was kind of relieved. As an Iraqi citizen, I believe Bush deserved this ending that the entire world will remember and cherish. I mean what wrong the man had done was huge. His failure to prepare for an invasion aftermath caused Iraqis and Americans hundreds of thousands of souls, not to mention the destruction of an entire country, the millions who have migrated and the creation of terrorism in Iraq.”

For a longer version of this article, visit Global Voices

In the immediate aftermath of the Mumbai attacks, India's response has been to look to the United States to lean on Pakistan, which it blames for spawning Islamist militancy across the region, rather than launching any military retaliation of its own. So after U.S. Secretary of State Condoleeza Rice's trip to India and Pakistan last week, have the Americans done enough for now?

According to Pakistan's Dawn newspaper, Rice told Pakistan there was "irrefutable evidence" that elements within the country were involved in the Mumbai attacks. And it quotes unnamed sources as saying that behind-the-scenes she “pushed the Pakistani leaders to take care of the perpetrators, otherwise the U.S. will act”.

India's Business Standard said the Indian government was pleased with the U.S. warning. "This is exactly what India wanted," the newspaper said.

The Times of India, however, fretted the U.S. action against Pakistan appeared to be "turning tepid", in public at least. It attributed the U.S. approach to the perceived need to avoid backing the civilian government led by President Asif Ali Zardari into a corner. (India has specifically not accused the Pakistan government of involvement in the Mumbai attacks, pointing instead to militant groups supported by Pakistan's powerful spy agency, the Inter-Services Intelligence, or ISI.) It also said the United States was wary of destabilising a partner on which it depends crucially as a transit route for supplies to Afghanistan, while also being hobbled by the change of administration in Washington.

So which way is the pendulum swinging -- towards firm U.S. action that will allow Indian Prime Minister Manmohan Singh to say he was right to put his faith in American diplomacy, or a lukewarm response that will either force India to act alone or leave its Congress-led government looking on in helpless frustration as it heads into a general election due by next May?

U.S. pressure has succeeded in pulling India and Pakistan back from the brink in the past.  When fighting erupted between the two newly declared nuclear-armed powers in the Kargil war in 1999, U.S. President Bill Clinton persuaded then Pakistan Prime Minister Nawaz Sharif to pull Pakistani troops back. (Sharif paid a high price. Later in the year he was overthrown by then General Pervez Musharraf, a lesson unlikely to be lost on the current civilian government which is seen as wary of making too many concessions to India for fear of alienating the powerful Pakistan Army.)

Then after an attack on India's parliament in December 2001 triggered the mobilisation of close to a million men along the two countries' borders, the United States dived into another round of frantic diplomacy to persuade Pakistan to crack down on Kashmiri militant groups and the Indians to stand down.  Much of that diplomacy went on behind-the-scenes, though for an interesting Pakistani view of how close the two countries came to war in 2002, here is a link to an article written in January that year by the current Pakistan High Commissioner to Britain.

So what are the prospects in the current crisis?

Unlike in previous years, the Americans have become much more forthright about the extent to which they are willing to support Indian assertions that the roots of Islamist militancy lie in Pakistan.  When the Indians blamed the ISI for bombing its embassy in Kabul in July -- a charge Pakistan denied -- the Americans delivered by leaking reports of ISI involvement to U.S. newspapers, as I discussed in an earlier post.

After the Mumbai attacks, the New York Times has brushed off Pakistani denials of involvement with an op-ed boldly headlined The Pakistan Connection.

Bruce Riedel at the Brookings Institution has argued that "the most dangerous terrorist menace (to India) comes from groups with intimate connections to the global jihadist network centered around Osama bin Laden and al Qaeda and its allies in the Pakistani jihadist culture."  Exploring links between the ISI and militant groups he says it nurtured to fight India in Kashmir, he says that Zardari's ability to get control of the ISI "is still very much in doubt."

At the other side of the world, The Australian has challenged what it calls "The dangerous illusion of independent terrorists" -- the misconceived notion, it says, that perpetrators of attacks are non-state actors operating beyond the control of governments. "The radical increase in the lethality, range, political consequence and strategic influence of terrorists comes not from their being non-state actors at all. Instead it comes from their being sponsored by states," it says.  Then in language that could have come straight from the Indian government, it says: "Pakistan has for many years been a significant state sponsor of terrorism."

All that sounds like the kind of response the Indian prime minister was looking for when he said that "We expect the world community to recognise that the territory of the neighbouring country has been used for perpetrating this crime."

But how will it play inside Pakistan, where a weak civilian government is delicately balanced against a powerful army that has run the country for much of its life, and which in turn is battling militants on its border with Afghanistan? And what too will it mean for the ordinary people of Pakistan, caught in the middle?

– James Saft is a Reuters columnist. The opinions expressed are his own –

With the U.S., Japan and Britain — nearly 40 percent of the global economy — facing the threat of deflation, it’s going to be just too easy for one, two or all three of them to get the policy response horribly wrong.

The global economy is so connected, and our experience with similar situations so limited that the scope for error is huge.

Think of it as having three pilots flying a jet plane, one each operating a wing and the third managing the tail.

Oh yeah, and they all work for different airlines.

Though there will be much talk of international coordination in the next year, and though the central banks and governments of the world will likely be rowing in the same direction, their ability to gauge the effects of monetary policy and government spending on their own economies will be pretty limited, and even more so on the whole.

Failure when fighting a global recession, a global balance sheet adjustment, a global banking recapitalization, debt deflation and very possibly actual deflation can take many forms.

“It’s very hard to calibrate and it’s awfully easy to overshoot or undershoot, both of which would be disastrous,” said Lena Komileva, London-based strategist at Tullett Prebon.

Under clubbing the response to falling prices means you could slip into a self-reinforcing deflation, making your debts, be they consumer, housing or government, heavier and setting up a cycle where businesses and consumers defer consumption and investment.

Over-reacting risks fomenting a new bout of inflation and potentially causing a new bubble. (Who knows what that would be — dirt, water, baseball cards?)

And remember too, when deflation was last an issue on this scale globally during the 1930s, the global economy was nowhere as near as integrated.

As for now, the signs are clear: deflation is a growing threat in much of the world’s economy, though still to be sure not the central forecast.

U.S. producer prices dropped by 2.8 percent in October, the largest decline on record. Core intermediate goods and core crude goods prices, which show inflation at earlier stages in the production cycle, fell by a big 1.7 and a staggering 17 percent, respectively.

Consumer prices, which are usually sticky on the way down, fell at a record rate in October, down one percent and even falling by 0.1 percent in the month when plunging food and energy prices are excluded. That will kill corporate profits and shows a business community racing with consumers to see who can capitulate fastest.

HERE, THERE AND EVERYWHERE

Inflation is falling rapidly in Britain too, with overall consumer price inflation down 0.2 percent in October, the first monthly fall since the annual January sales and the first in October since 2001, just after 9/11.

Japan meanwhile has slipped back into recession, domestic demand is weakening, wages are falling and deflation may develop some time next year, a scenario Barclays Capital rates as a 40 percent chance.

Even China, where inflation has tumbled to 4.0 percent in October from a 12-year peak of 8.7 percent in February, has moved its focus to averting deflation.

Be in no doubt, central banks have the tools to fight deflation; while interest rates can only be cut so much, officials can step up the quantitative easing now happening, they can commit to hold rates at zero for an extended period of time, they can drive down their own currency by purchasing foreign bonds or finally, simply print money and drop it from the famous helicopters.

The issue is not the tools, but the speed of the printing presses or size of the bond purchases needed to get the right result, especially when it is interacting with what will be huge tax cuts and deficit spending.

A mix of monetary and fiscal policy will work, but it’s got to be the right mix and it has to be reasonably well coordinated internationally.

None of this is without risk. Remember the last deflation scare in the U.S. in the early part of this decade, which in retrospect caused the monetary bubble which was nursemaid to the housing bubble.

Print money or borrow excessively and you could lose the confidence of the currency market and experience a run, which certainly will help to fight deflation but is no-one’s idea of good policy.

In theory the amount the state will need to borrow will be in part offset by the amount individuals save, or more to the point pay down in debt and decline to invest privately. That theory will be put to the test by the number of governments who are going to be selling a very large number of bonds, which will after all have to be paid back.

Next year is looking as if it will be as unconventional as it is scary.

– At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund –

Want to debate? Send you Great Debate submissions to Debate@thomsonreuters.com.

Will Israel and India -- the first the United States' closest ally and the second fast becoming one of the closest -- emerge as the trickiest adversaries in any attempt by the United States to seek a regional solution to Afghanistan?

The Washington Post reported earlier this week that the incoming administration of President-elect Barack Obama plans to explore a more regional strategy to the war in Afghanistan — including possible talks with Iran.

The idea has been fashionable among foreign policy analysts for a while, as I have discussed in previous posts here and here. The aim would be to capitalise on Shi'ite Iran's traditional hostility to the hardline brand of Sunni Islam espoused by the Taliban and al Qaeda to seek its help in neighbouring Afghanistan. At the same time India would be encouraged to make peace with Pakistan over Kashmir to end a cause of tension that has underpinned the rise of Islamist militancy in Pakistan and left both countries vying for influence in Afghanistan.

But Israel has already cautioned Obama against talking to Iran, which it said would be a seen as a sign of weakness in efforts to persuade Tehran to curb its nuclear programme. And Obama's suggestion that the United States should try to help resolve the Kashmir dispute has raised hackles in India, which resents any outside interference in what it sees as a bilateral dispute. That could make the two countries important allies in combating -- or at least reshaping -- any attempt to remould U.S. strategy. 

India and Israel have already built close defence ties, as underlined by this Times of India article.  And according to this Asia Times article by former Indian diplomat M K Bhadrakumar, India's growing relationship with Israel, combined with U.S. pressure, is pushing Delhi to break off what was once a strategic partnership with Tehran. "At the root of it lies unprecedented US-Israeli interference in India's Iran policy," he writes.

Are we going to see more signs of Israel and India working together -- if necessary to resist rather than support U.S. policy? And in an increasingly multi-polar world, will Obama discover that he needs to watch the United States' friends as closely as its enemies to drive through his plans for change?