Tuesday, January 03, 2006

Sideswipe

Going cheap: trees for sale at a Thames garden centre.


By Ana Samways

A reader from Tauranga writes: "My friend Luigi is about to open a wonderful new Italian restaurant on The Strand. Just before Christmas, he started up his new walk-in cold room that had been installed by a refrigeration firm from Auckland. Luigi was hoping to open between Boxing Day and New Year's Day, but was distressed to find that instead of the room cooling, it was actually getting hotter. He was doubly panicked when he looked everywhere and couldn't find the instruction booklet. Finally he decided to take the housing off the compressor unit to see if he could fix something himself. To his great relief (mixed with a similar amount of laughter) he found the operations manual, folded up neatly and jammed into the compressor fan. The manual was keeping the compressor from doing any cooling at all."

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When Tom Cruise jumped on Oprah's couch, a new slang term was born. And now, "jump the couch" has been named the Slang of the Year by the editors of the Historical Dictionary of American Slang. The dictionary defines "jump the couch" as exhibiting strange or frenetic behaviour. Runners-up for Slang of the Year include "floodweiser", which is the canned water Anheuser-Busch donated to hurricane victims, and "spokesweasel", a PR spokesperson.

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There must be an easier way. A 37-year- old British performance artist is crawling 90km on his hands and knees with a sign that reads "Could you Love Me?" on his back in an attempt to find love and "to raise awareness of people left lonely and isolated during the festive period".

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When another student accused Carter Barron of drinking at school, administrators at Peachtree Ridge High School in Suwanee, Georgia, made him take a breath test. School policy says Barron had a right to refuse, but he says he wasn't made aware of that. Nor were his parents informed about the test, which showed no trace of alcohol. But when Barron's bag was searched for booze, officials found a cigarette lighter, and he was given a week of in-school suspension for that. The student who accused him of drinking wasn't punished. (Source: Reason.com)

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Did someone move the dateline into the Tasman Sea? In an NBC clip on One News on Sunday night a US reporter's wrap of the world's New Year celebrations kicked off with "the first city to see in the New Year" - no, not Gisborne or Auckland. Sydney. Perhaps we'll send NBC a map of the world next Christmas.

Editorial: G8 takes big gamble on Putin

One of the holiday activities on the Auckland waterfront has been for people to stand - while kept at a respectful distance by the security arrangements - and gaze at the private yacht Le Grand Bleu. This little number, for which the term yacht is something of a misnomer, is 108m long, carries a 22m sailing boat, has a permanent crew of 35 and cost an estimated $145 million.

It is owned, although apparently not much used, by Roman Abramovich. He is from Russia, a country in which the average male life expectancy has declined to 59 years, an outcome attributed to poor diet, a health care crisis and alcoholism. Russian rural communities are being depopulated; the most recent census shows no fewer than 13,000 villages deserted and a further 35,000 with fewer than 10 inhabitants.

The extraordinary gulf between the oil billionaire and the statistically average citizen is just one of the indications that Russia has structural problems of such a fundamental nature that it is difficult to imagine the long and unremittingly bleak chronicle of Russian history is going to change for the better.

And yet this is the country that has just been made president of the G8, the heavyweight in the world's international groupings. The decision to give Russia this role is a calculated political gesture by the other members. In terms of existing economic strength Russia is one of the lower-ranking G8 nations.

But the deliberate inclusion of Russia at the head of the top table is intended both to acknowledge that Russia has endured agonies of economic reform since the end of Soviet communism and to encourage Moscow to stick to liberal democratic principles.

So Russia's standing, and implicitly the regime of President Vladimir Putin, has been endorsed. Not for the first time, the richer nations are putting their bets on a proposition that is less than sound. Last week, one of Putin's advisers resigned for what he called the Government's back-tracking on freedoms. Andrei Illarionov said Government-controlled corporations had ignored the interests of the people.

"These quasi-state corporations are in fact driven by private interests while taking advantage of their state status and privileges," he said.

Putin's Government is significantly and increasingly authoritarian. State control of television has been reimposed by stealth with the closure of the last independent national network and coverage on the Kremlin- controlled stations being heavily biased. The election monitors' report on the 2003 elections said the Opposition had been refused fair coverage, and the situation has become worse.

Theoretically the apparatus of an electoral democracy is in place but in practice the tendency to centralised power is growing. Non-government organisations are put under heavy pressure if they raise awkward issues and a law just passed requires NGOs to be registered under threat of closure if they are a threat to national interests.

The legal system is clearly politicised with the selective prosecution on tax grounds of certain oligarchs such as Mikhail Khodorkovsky, who ended up in prison while his Yukos oil empire was effectively taken back into Kremlin hands.

And here, maybe, is the real reason President Putin is so politically acceptable. He now has in his hands a monopoly of some 90 per cent of his country's oil and gas production and the world is facing a critical shortage of energy resources.

Moreover, by fulfilling his threat to cut gas supplies to the Ukraine - with immediate knock-on effects in Eastern Europe in the middle of winter - he has shown how ruthless he can be, whether for political or commercial gain.

As the examples of other oil-rich nations' leaders demonstrate, it may not matter that his country is, as Illarionov said, not free or that the standard of living for most has declined while others have wealth beyond imagination.

Perhaps in selecting Russia for the presidency the G8 nations are merely showing the priorities that the rest of us might have expected of them.

Gwynne Dyer: US containment of China sets dangerous scene

If there's anyone left to write the history of how World War III happened, they might well focus on June 28, 2005, as the date when the slide into global disaster became irreversible.

That was the day India's Defence Minister, Pranab Mukherjee, and US Defence Secretary Donald Rumsfeld signed a 10-year agreement on military co-operation, joint weapons production, and missile defence - not quite a formal US-Indian military alliance, but close enough that China finally realised it was the target of a deliberate American strategy to encircle and "contain" it.

Since then the rhetoric out of Beijing has been unprecedentedly harsh. In mid-July last year, for example, Major-General Zhu Chenghu warned in an official briefing that the Government may drop its policy of "no first use"of nuclear weapons in the event of a military conflict with the United States over Taiwan.

"We have no capability to fight a conventional war against the United States," he said. "We can't win this kind of war." And so China would deliberately escalate to nuclear weapons: "We Chinese will prepare ourselves for the destruction of all the cities east of Xian. Of course the Americans will have to be prepared that hundreds of their cities will be destroyed by the Chinese."

In reality, China has no ability to destroy "hundreds of cities" in the United States - it might manage one or two, with luck - whereas the US could easily destroy every Chinese city east of Xian, and all the ones west of it, too.

But no Chinese general has talked like this since Mao's time, and it isn't happening now because the crazies have taken over in Beijing. It's happening because the decision-makers in Beijing think that the crazies have taken over in Washington, and are trying to draw most of Asia into an anti-Chinese alliance. There is a good deal of evidence to suggest they are right.

"It's not yet an official kind of alliance like Nato, it's not mature yet," explained Dr Francis Kan, a strategic expert at the National Chengchi University in Taiwan. "But we will see more informal co-operation like weapons harmonisation and assigning tasks [to various members]." And later on, Beijing fears, there will be the same ring of US allies and bases surrounding China that encircled the Soviet Union at the height of the Cold War.

It's been coming for some time now - witness America's determined attempts to re-militarise its long-standing Japanese ally. And Washington is busily reviving old alliances and forging new ones in Southeast Asia. Thai, Malaysian, Singaporean, Indonesian and Filipino forces regularly exercise with American troops, and a US-led exercise in Thailand last year even involved Mongolian troops.

Now, with the deal between Washington and New Delhi, the keystone has dropped into place: the other emerging Asian giant has allied itself with the United States and against China.

THE US COURTSHIP of India did not really begin until George W. Bush became President in January 2001. As soon as he took office, he redefined China from "strategic partner" to "strategic competitor" - and when Indian External Affairs Minister Jaswant Singh was visiting Washington in April 2001, the US President summoned him to the White House for an unscheduled meeting. Singh came out declaring "the start of a new era" in Indo-US relations. When Bush went public the following month with a speech advocating "a new strategic framework" based on global missile defence, the reaction of other major powers ranged from cool to openly hostile, but in less than 24 hours India's Prime Minister, Atal Bihari Vajpayee, greeted it with enthusiasm. What was now on offer was a close defence relationship with the world's only superpower, and Vajpayee's right-wing, ultra-nationalist Bharatiya Janata Party (BJP) was all in favour of that.

By July General Henry Shelton, chairman of the US Joint Chiefs of Staff, had arrived in New Delhi to resurrect the long-moribund Defence Policy Group that used to co-ordinate military relations between the two countries. After the September 11 attacks, the revived agency had agreed to "expeditious review" of Indian requests to buy previously sanctioned items of high-tech military equipment like radars and maritime reconnaissance aircraft.

US Undersecretary of Defence for Policy Douglas Feith, number three in Donald Rumsfeld's Pentagon, travelled to New Delhi in person in May 2002 for the next meeting of the DPG. The declared goal of the meeting was to build "stability and security in Asia and beyond", but as P. R. Chari of the New Delhi-based Institute of Peace and Conflict Studies acidly remarked: "What they really mean is how to deal with China."

In October, the White House formally moved India into the same category as close allies like Japan and South Korea, thus removing the need for Congressional authorisation for sales of military equipment costing less than $14 million.

"China represents the most significant threat to both countries'

[India and the US] security in the future as an economic and military competitor," argued a classified US Defence Department document revealed by Jane's Foreign Report in 2003, and Lloyd Richardson of the Hudson Institute told the Financial Times that only India had "the economic and military strength to counter the adverse effects of China's rise as a regional and world power. India is the most overlooked of our potential allies in a strategy to contain China."

A US alliance seemed equally desirable to the truculent nationalists and Hindu supremacists of the BJP, who reflexively disliked and mistrusted China (which had thrashed India in a brief border war in 1962). But then, in May 2004, the BJP Government in New Delhi lost the election to the resurgent Congress Party led by Sonia Gandhi and former Finance Minister Manmohan Singh.

Many observers assumed the whole stealthy process of sliding India into the new US alliance system would now come to a sudden halt.

After all, the Congress Party was the author and guardian of India's hallowed policy of non-alignment. But in September 2004, soon after Prime Minister Manmohan Singh took office, he met privately with President Bush during the UN General Assembly meeting in New York, and subsequent events strongly suggest that this was when they reached agreement in principle to forge a de facto military alliance.

What can have motivated Singh and his colleagues to do such a thing at a time when relations with China, while not particularly warm, were as good as they have been at any time in the past half-century? One motive was certainly Indian concern about the long-standing American alliance with India's local rival, Pakistan, revived and strengthened after 9/11. Closer Indian ties with Washington were a way to erode and undermine that US-Pakistan link.

Indians often feel slighted by the greater attention and respect paid to the other Asian giant, China, so US support for the country's aspirations to be taken seriously as a first-rank great power had great appeal. Even more appealing was the promise of state-of-the-art American military technology. It seems certain that by late 2004 the list already included the Patriot PAC-II anti-missile defence system, F-16 fighters, P3C Orion maritime surveillance plane, C-130 stretched medium-lift transport aircraft, Perry-class frigates, and Sea Hawk helicopters.

IT WAS a tempting package for Indian military and civilian leaders who dream of seeing their country in the first rank of the world's nations, but there was one enormous drawback.

A close Indian-US alliance, combined with an ambitious upgrade programme for the Indian armed forces, was bound to alarm China.

"India knows what it is doing," assured Prem Shankar Jha, former editor of the Hindustan Times, citing confidential sources close to Prime Minister Singh. "It is not going to make China an enemy."

And that is no doubt exactly what India's leaders believe: that they can get what they want from those clumsy Americans without letting Washington manoeuvre them into a confrontation with China. They are smarter, more sophisticated, and they can manage China's reaction.

The arrogance of Washington's neo-conservatives has found its natural partner in the over-confidence of New Delhi's politicians and strategists, and the whole world may have reason to regret it.

On March 25 last year, in a briefing now famous in India, a State Department spokesman declared President Bush and the new Secretary of State, Condoleezza Rice, had "developed the outline for a decisively broader strategic relationship" with India. When Rice travelled to New Delhi a few days later, she told the Prime Minister that Washington wanted to "help India become a major world power in the 21st century". The deal was about to be consummated - and suddenly China woke up.

There seems little doubt that Beijing had been asleep at the switch, broadly aware that the US was trying to lure India into an alliance but ignorant of how far matters had advanced. So Chinese Premier Wen Jiabao's scheduled swing through south Asia abruptly took on a new goal: to dissuade New Delhi from signing up with Washington.

He reached New Delhi on April 10, less than two weeks after Condoleezza Rice, and he came bearing a number of gifts: an offer of a free trade area between the two countries, an official Chinese map that for the first time showed the tiny Himalayan state of Sikkim as Indian territory, and (according to one usually reliable Indian source) a proposed swap of disputed territories along the western and eastern sections of the border between India and Tibet, the scenes of the clash in 1962, that would have ended the border quarrel in one fell swoop.

It was too little, too late. India pocketed the map, agreed to open discussions on a free trade area, and refused the swap.

Two months later, on June 28, Indian Defence Minister Pranab Mukherjee flew to Washington to sign a 10-year agreement on military co-operation and joint weapons production. "The United States and India have entered a new era," said the joint statement by Mukherjee and US Defence Secretary Donald Rumsfeld.

The US strategy would be less frightening if it were only the handiwork of a band of neo-conservatives. Unfortunately, they are not alone.

From the beginning of the 1990s, when the collapse of the Soviet Union unexpectedly thrust the United States into the role of the world's sole superpower, the bipartisan response in Washington has been a determination to perpetuate that exalted status indefinitely. As the projected figures for Chinese economic growth turned into concrete fact in the later 1990s, it was inevitable that US policy-makers would identify China as the main potential challenger to its power. And it was close to inevitable, given the influence of the American military-industrial complex and the degree to which US domestic debate and foreign policy have been militarised, that their response would be predominantly military. To the man who has only a hammer, everything looks like a nail.

Never mind that China is becoming America's largest trading partner. Never mind that Indian sources assess the Chinese defence budget at around US$30 billion ($44 billion) a year, less than one-tenth the size of America's. Never mind that the Chinese regime is no longer a serious ideological rival to the United States, and that it has no substantial territorial ambitions (except for eventual reunification with Taiwan) beyond its present borders. China is the rising power, and therefore the next enemy, and the appropriate American response is the one that worked last time: surround it with alliances and military bases, and "contain" it.

The closest historical analogy for the Indo-US treaty of 2005 is the Anglo-Russian treaty of 1907 that completed the formation of the Triple Entente (Britain, France and Russia) and was designed to "contain" the rising great power of that day, Germany.

That is not to say that this new entente - the US, Japan and India, plus various minor players - will also lead to a world war, but it could easily panic the Chinese regime and lead to the militarisation of much of Asia.

The main bulwark between us and the deeply undesirable outcome of war is the profound vulnerability of the current Chinese Communist regime, whose credibility with its increasingly sophisticated citizens depends on delivering continuously rising prosperity - so the one thing that it must avoid at all costs is a military confrontation with China's major overseas customers that would bring growth crashing to a halt. Even if China is doomed to face a direct military confrontation with the United States at some time in the future, any later time would be better than now, so the regime plays a long game and refuses to panic. Long may that policy continue, but US alliance-building in Asia is putting it under increasing pressure.

Chinese nationalism is not just a tool with which the regime manipulates the masses. It is a powerful emotion felt by hundreds of millions of people, and they are not all blind to what is happening around their borders. A more democratic Chinese Government might have to take a more robust line on the issue of the American military encirclement.

In a society with a free press and an elected Government, it would be much harder to prevent political parties and vocal interest groups from stirring up public anxiety about America's intentions. The sharpest irony in this sorry business is that the Bush Administration, which claims to be spreading democracy around the planet, has created a situation in which the safety of us all may depend on the survival of an undemocratic and unpopular Government in the world's most populous country.

* Gwynne Dyer's latest book, Future: Tense, will be published in New Zealand in February by Sphere.

Mike Moore: Prosperity relies on social responsibility

The first responsibility of a business is to make a profit. Some say it's the only responsibility. The Nobel Prize-winning economist Milton Friedman, who has been very vocal about shareholder rights, said in the Financial Times about the current fashion to promote corporate responsibility: "The stakeholder notion is a very dangerous notion. It is a socialist notion. It says that employees are major stakeholders. It is really a movement towards employee-run enterprises."

Yes. Without profit there are neither jobs nor revenue to tax. However, business must live in a wider world where social and environmental issues impact upon how it does business - business cannot prosper in societies that fail.

Corporate responsibility, shareholder and stakeholder rights are a growth industry, given the criminal excesses of Enron, WorldCom and others. I disagree with Friedman because labour is not just another product and the wider environment cannot be ignored. Standards, transparency and commercial honesty can raise all ships. This is the responsibility of business and government.

Robert Reich, in his book I'll be Short, said: "Each year of education or job training after high school, whenever it occurs in the course of a career, increases average incomes by 6 to 12 per cent."

Companies that introduced formal employee-training programmes experienced a 19 per cent rise in productivity compared with firms that did not train their workers.

The question then, is should Governments direct business to do what's good for it or should it be left to the market to let business get rewards for good practices?

With a mobile workforce it becomes more difficult for companies to capture the return they need on investment in training. The state has a role to provide training, education and skill upgrading in partnership with business, especially in times of economic restructuring. Without a state-business partnership the social or even political costs are too high. Friedman would disagree.

Business skills can play a role in making things happen in poor countries and the state of poor nations should be of direct concern to richer ones. Failed states can function as breeding grounds for disease when 2 million people cross national borders every day. As we saw from the Sars scare, health problems can travel quickly.

Gro Brundtland, when director-general of the World Health Organisation, commissioned a team of economists to find the cost of health failures in dollar terms. By scaling up investment in health we could save around $8 trillion by 2015, she claims.

Those states that are close to anarchy are dangerous to their own people and to the rest of the world. If they had honest politicians, competent bureaucrats, true property rights and open economic policies, they would not be in the trouble they now suffer.

I went to Africa seven times in 30 months, sat in hotels and heard gunfire, looked out the window and watched gangs of angry young males walking down the main road with weapons, menacing and dangerous.

In these troubled states, the future of delivering social services may best be done by private-public partnerships. What's the point of giving free medicine, millions of dollars, if it's ripped off by politicians, bureaucrats, or phoney capitalists?

A number of private-public partnerships are working in Africa. Microsoft provides free software for all of South Africa's 32,000 schools. And an inspiring programme has been launched by Peter Watson, past-president of OPIC (Overseas Private Investment Commission) and an ex-pat Kiwi. It's a project to provide treatment for HIV-positive homeowners in South Africa, enabling them to keep their homes by guaranteeing banks against the risk of defaulted mortgage payments. You must be HIV-positive to get the coverage, but you must take treatment. The drugs are made available from US foundations. Bypassing Governments and ministries and getting to the real need is where the business community can deliver.

Perhaps we are becoming globally what Victorian England became. It was no use being rich and having a mansion if the cook or cleaner brought influenza or disease into your home. So municipal socialism was invented; clean water, public sewerage and education systems were necessary to preserve the rich. An interconnected world now demands global action.

General Electric invests heavily in sustainable energy projects and efficiency is just another word for conservation. GE expects its clean technology projects will earn it $30 billion by 2010. BP now proudly says "BP stands for Beyond Petroleum" to position itself in the green market.

Virtuous business practices are not only actions of profitable self-interest, they may be the best short-term way of helping the victims, preserving the environment and producing the better world we old social democrats still dream of. Not the way I thought we'd do it in my youth.

* Mike Moore is a former Prime Minister of NZ and director-general of the World Trade Organisation.

Robert Howell: Good values for our money

When the Sudoku has got too diabolical, the monster crossword has been tamed, relatives and friends have told you about their year's activities, and you are searching for something to revive the banter across the barbecue, then you might like to discuss how the Government should invest its money.

There is presently $24 billion for pensions and earthquake and accident compensation reserves, which will grow over the next 15 or so years to something like $120 to $150 billion.

The criterion that is used is to avoid prejudice to New Zealand's reputation as a responsible member of the world community. While this sounds impressive, it has not stopped investment in tobacco companies, and companies with unacceptable or questionable human rights, or social and environmental practices: companies for example, that operate in Myanmar, or are at the forefront in contributing to the problems of global climate change. This means that the "prejudice to our international reputation" criterion is useless in providing direction.

It also raises a problem for the consistency of government policy when our health agencies are trying to reduce use of the addictive weed (the legal one at least), and our climate change office to ponder how best to tax animal belching, Japanese car hand-me-downs, and other environment nasties, and predict the effect of ever rising tides (global warming adds a new dimension to the Maori foreshore debate).

To invest in a socially and environmentally responsible way does not mean that financial returns have to be compromised. There are indications that investments in some areas, such as renewable energy, are more profitable. In addition to directing investment in a positive way, it also means adopting ways of screening out unacceptable companies, and engaging in ways of changing the behaviour of others.

Engagement is best done collectively to be effective and efficient. For example, there are 155 institutional agencies overseas with $21 trillion under investment which have grouped together under the Carbon Disclosure Project and have been asking the largest 500 companies under the FT index what their policies are regarding climate change.

They have decided that the risks of climate change are too great for long-term sustainable returns on their investments and that they need to exercise their ownership responsibilities. Our government funds have not joined them because the international reputation criterion is too weak to justify such action.

The task then is to find another criterion. In Sweden they have said that the international norms that their country has signed up to at the United Nations and other international assemblies are to be taken into account. They have used these to confront a major Japanese finance agency about their discrimination against women employees, Walmart about its use of child labour in China, and a petroleum company about its abuse of international labour laws.

In France the Fonds de Reserve state pension fund aims to maximise investment returns over the long term and under the best possible conditions of security. Its investment policy must also be consistent with certain shared values that promote economically, socially and environmentally sustainable development.

Another option is to act as a responsible world citizen. The international reputation criterion is negative, and excludes New Zealand playing its part as an international citizen in a positive way.

There may be other options that you come across. The trick is to develop a simple set of words that avoids our parliament having a hands-on approach, but gives clear direction for the funds to invest in a way that fair-minded New Zealanders would want to happen. Let the discussion continue.

* Dr Robert Howell is chairman of the Council for Socially Responsible Investment

William Pesek Jnr: Bush loses sight of Japan while focusing on China

If you think the Bush Administration does a poor job sizing up politics overseas, check out its flawed intelligence on the global economy.

Judging by the Administration's comments, 2006 is the year of China. It's a year in which the US will step up calls for a stronger yuan, fairer trade and improved human rights in Asia's No 2 economy. In other words, remind officials in Beijing who's the boss.

The focus may seem understandable considering the future. China's economy may well surpass that of the US in a few decades. Yet the Bush Administration's focus on China ignores the US's real competitor in 2006: Japan.

No, a replay of the 1980s isn't brewing. That Toyota Motor Corp may overtake General Motors Corp as early as this year is indeed a psychological blow to the world's biggest economy. That doesn't mean New York's Rockefeller Centre and California's Pebble Beach will fall into Japanese hands again.

Nor will bubble-crazed Japanese necessarily buy your favourite Renoir or Picasso, as they did in the 1980s. Best-selling authors such as Tom Clancy and Michael Crichton can forget getting much mileage out of paranoia that Japan threatens the West's way of life. Yet the consumer-led recovery investors waited 15 years for is afoot.

Don't expect Japan to grow 5 per cent a year or anything near it. Tokyo forecasts 1.9 per cent in the year starting in April, from an annualised 1 per cent in the third quarter.

Nor have Japan's long-term problems vanished. They include reducing the world's biggest public debt, funding huge public pension liabilities and increasing the birth rate amid an ageing population. Without progress in these and other areas, Japan's revival might fizzle a few years from now.

For now, though, things are looking up. Japan got this far after its banks disposed of bad loans and corporations restructured. The missing ingredient was getting Japan's aggressive savers to stop stashing money under tatami mats and to spend.

"For the first time since the 1980s, domestic demand seems likely to sustain growth," said Charles Dumas, London-based head of international research at Lombard Street Research.

If the implications of a revived Japan are being chewed over in Washington, it's hardly obvious. Sure, US Treasury Secretary John Snow and his team make the obligatory Japan-is-looking-good remarks when asked by reporters. That makes it hard to understand why the Bush team has maintained a relentless focus on China's rise in Asia.

Here are four reasons why Japan's recovery should be a far bigger blip on the US radar screen in 2006.

1. More competition for global capital.

At a time when stock markets are playing unprecedented roles in economies, attracting foreign capital has never been more important.

Few investors will miss how Japan's Nikkei 225 Stock Averages closed out 2005 with its biggest annual gain - 40 per cent - since 1986. Nor will it escape them that the Dow Jones Industrial Average ended 2005 little changed. The upshot is that US financial assets now have to work even harder for attention thanks to Japan.

2. Demand for US Treasuries.

Japanese hold roughly US$690 billion ($1 trillion), making them the biggest investors in US public debt by far. The question is whether the recovery encourages normally conservative Japanese investors - that includes the central bank - to take greater risks abroad.

Any large-scale dollar selling may raise US yields, posing problems for the US economy. At a time when the US is carrying a record budget deficit, higher borrowing costs are among the last thing Bush's economic team needs in 2006.

3. Japanese inflation.

It's a classic be-careful-what-you-wish-for situation: Japan wants inflation, but what happens when it gets it?

Last week's report that consumer prices rose for the first time in two years stoked speculation that Japan's seven-year-plus bout with deflation was over. The 0.1 per cent gain in core prices in November doesn't mean deflation has been beaten. Even so, it unnerved bond traders bracing for the day the Bank of Japan abandons its policy of keeping short-term rates at zero.

Volatile global debt markets may make it harder for US companies to tap capital markets. They may also affect global growth prospects and undermine stock markets such as the Dow.

4. Geopolitical tensions in Asia.

Japan's return to economic health is emboldening politicians who have no intention of deferring to China. Many watched uneasily in recent years as China became the Asian growth engine Japan was once. Now, officials in Tokyo are anxious to flex their muscles, a phenomenon that may revive old animosities in Asia. China is still fuming over Japan's military exploits during World War II.

The past is an enduring historical impediment to cooperation among Japan, China and South Korea. While there's plenty of blame to go around, a more assertive Japan may stir things up. That's hardly in the best interest of the US or global trade.

The US has been waiting for the day when Japan would again carry its weight in the global economy. Oddly, now that it's poised to do so, leaders in Washington don't seem to notice or care.