V

Euro

The euro has fast gained ground against the dollar in international official foreign exchange reserves in recent months, according to official statistics highlighting the nine-year-old currency’s growing global importance.

Reflecting its increasing strength on foreign exchange markets, the euro’s share of known foreign exchange holdings rose to 26.4 per cent in the third quarter of this year, the International Monetary Fund reported late on Friday. That was up from 25.5 per cent in the previous three months and from 24.4 per cent in the third quarter of 2006.

The dollar’s share of known official foreign reserves, calculated in dollar terms, fell to 63.8 per cent in the third quarter, down from 66.5 per cent in the same three months of 2006.

The euro’s rise will strengthen European policymakers’ conviction that the newer currency is maturing into a significant rival to the dollar.

However, the European Commission stressed that inertia and the incumbency advantages enjoyed by the dollar meant any change in the relative status of the currencies would take place only slowly.

The international role of the euro would depend on portfolio diversification by central banks and the pace at which eurozone financial markets developed, the Commission said in its December eurozone economic update. Eventual UK membership of the eurozone “would boost the importance of the euro area as a global financial hub”.

The period covered by the latest IMF figures included the eruption of the US subprime mortgage crisis and the financial market turmoil. Since then the euro has risen sharply against the dollar, in part driven by speculation that the world’s central banks might cut links to the weakening dollar and switch to its younger rival.

In the past year, the value of euro notes in circulation exceeded the value of dollar bills. The euro has also overtaken the dollar as the main denomination of international debt issues.

The euro’s role in official foreign exchange reserves is most pronounced in countries geographically close to the eurozone and in countries with institutional links to the EU.

But the Commission report cited empirical studies highlighting the increasing “gravitational pull” of the euro on foreign exchange markets, which was becoming “more important for certain emerging market currencies, notably in South America”.

Doble Vida

Plastic People

Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

"Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."

The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart.

At the same time, defaults -- when lenders essentially give up hope of ever being repaid and write off the debt -- rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.

Serious delinquencies also are up sharply: Some of the nation's biggest lenders -- including Advanta, GE Money Bank and HSBC -- reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors -- similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.

Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for the nation's banks, which continue to flood Americans' mailboxes with billions of letters monthly offering easy sign-ups for new plastic.

Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.

But what is coming into sharper focus from the detailed monthly SEC filings from the trusts is a snapshot of the worrisome state of Americans' ability to juggle growing and expensive credit card debt.

The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.

Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.

Many economists expect delinquencies and defaults to rise further after the holiday shopping season.

Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc., cited mounting mortgage problems that began after this summer's subprime financial shock as one of the culprits, as well as a weakening job market in the Midwest, South and parts of the West, where real-estate markets have been particularly hard hit.

"Credit card quality will continue to erode throughout next year," Zandi said.

Economists also cite America's long-standing attitude that debt -- even high-interest credit card debt -- is not a big deal.

"The desires of consumers to want, want, want, spend, spend, spend -- it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."

Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 -- where debts can be wiped out entirely -- except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.

Personal finance coaches say the problem is most grave for individuals who are months delinquent or already in default -- like Kenneth McGuinness, a postal clerk from Flushing, N.Y.

His credit card struggles began nine years ago, when he charged his son's college tuition and books. He thought he was being clever: His credit card's 6 percent "teaser" interest rate was lower than the 8.6 percent interest on a college loan.

McGuinness, 61, soon began using Citibank and Chase cards for food, dental work and copays on doctor visits and minor surgeries. Interest rates surged to 30 percent. Now he's $37,000 in debt and plans to file for bankruptcy in February.

"I tried to pay what I could and go after the high-interest accounts first," McGuinness said. "But it just kept getting higher and higher, and with late charges and surcharges I was going backward."

In the wake of the jump in defaults on subprime mortgage loans made to borrowers with poor credit histories, banks have been less willing to allow consumers to consolidate credit card debt into home equity loans or refinanced mortgages. That is leaving some with no option but to miss payments, economists said.

Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said.

"It's been getting tougher to finance any kind of structured finance -- mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry.

Capital One Financial Corp. reported that delinquencies and defaults are highest in regions where troubled mortgages are concentrated, including California and Florida.

Among the trusts examined, Bank of America Corp. had the highest delinquency volume, with overdue accounts valued at $5 billion. Bank of America defaults in October were almost 200 percent higher than in October 2006.

A spokesman for Charlotte, N.C.-based Bank of America declined to comment.

Other trusts -- including those linked to Capital One, American Express Co., Discover Financial Services Co. and those containing "branded" cards from Wal-Mart Stores Inc., Home Depot Inc., Lowe's Companies Inc., Target Corp. and Circuit City Stores Inc. -- also reported striking increases in year-over-year delinquency and default rates for October. Most banks and other financial institutions holding credit card debt on their own books also reported double-digit increases in delinquencies.

The one exception in October was JPMorgan Chase & Co.'s credit card trust, which reported declines in both delinquencies and defaults. A Chase spokesperson attributed this to its focus on prime borrowers and aggressive account management.

By contrast, Capital One executives told analysts last month that the company projected 2008 write-offs of credit card debt to be at least $4.9 billion. This projection, analysts were told, took into account growing delinquencies and potential effects if the housing market continued its downward slide.

Capital One spokeswoman Julie Rakes said the increase in delinquencies could be due to an accounting change last summer, which shortened the grace period between when statements were issued and the due date.

Capital One also reported that the number of accounts 90 days or more in arrears had increased between October and November. More than 1.2 million of Capital One's 30 million accounts were either delinquent or in default.

Many personal financial coaches expect this trend to accelerate in 2008 -- particularly among people who took out untraditional loans whose interest rate has risen, requiring owners to pay mortgages several hundred dollars more than just a year ago.

"You're looking at more and more distress -- consumers desperately trying to preserve their credit lines, but there's nowhere else to go," said Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. "It's like a game of dominoes."

Still Life

Angelique

Born in the West African state of Benin, Angelique Kidjo is one of the few African female singers to have won a wide Western audience, having been based in Paris (and now New York) since the early 1990s. Kidjo’s has a proven ability to blend up-tempo African music with rock: she regularly performs Jimi Hendrix’s “Voodoo Chile” in concert and recorded John Lennon’s “Happy Christmas (War Is Over)” for the Instant Karma Amnesty International album to raise funds and awareness for Darfur. This talent comes to fruitition on Djin Djin (apparently the sound of African bells welcoming the new day), where she mixes upbeat Afro flavours with a strong Western rock feel.

To help Kidjo achieve this, there’s producer Tony Visconti – yes, the man who oversaw the most famous recordings of David Bowie and Marc Bolan! Visconti appears at first an odd choice but listening to Djin Djin it proves to be inspired: the West African element is strong, never subsumed by pop/rock, but at the same time this is an African album many who have never before enjoyed African music might appreciate. To help win those new listeners, Kidjo is joined by many famous pop musicians – Peter Gabriel, Joss Stone, Carlos Santana, Ziggy Marley, Alicia Keys, Branford Marsalis – as well as Senegal’s Youssou N’Dour and Mali’s Amadou & Mariam.

Kidjo’s take on The Rolling Stones’ “Gimme Shelter” brings in a funky hi-life feel to an ominous song that surely now reflects on Darfur while “Pearls” finds Kidjo duetting with Josh Groban in an overly lush ballad about refugees. But Kidjo’s at her best when working without famous friends and Vixconti’s clean, unfussy production makes numbers such as “Papa” and “Ae Ae” sparkle.

Crime Syndicate

Jeb Bush

A government money market debacle unfolding in Florida is raising questions about former governor and presidential brother Jeb Bush's involvement in the mess.

Florida froze withdrawals from a state investment fund earlier this month when local governments withdrew billions of dollars out of concern for the fund's financial stability.

In the past few days, municipalities have withdrawn roughly $9 billion, nearly a third of the $28 billion fund (which is similar to a money market fund) controlled by the Florida's State Board of Administration (SBA). The run on the fund was triggered by worries that a percentage of the portfolio contained debt that had defaulted.

A majority of this paper was sold to SBA by Lehman Brothers (nyse: LEH - news - people ). Bush, as the state's top elected official, served on a three-member board that oversaw the SBA until he retired as governor in January. In August, Bush was hired as a consultant to the bank. Lehman spokesperson Kerrie Cohen, speaking on behalf of Bush, said they had no comment and would not say when the bank had sold Florida the paper. SBA did not return calls.

While SBA wouldn't confirm, Bloomberg reported the amount of debt in default is around $900 million.

Edward Siedle, a former Securities and Exchange Commission attorney who investigates money management wrongdoing and has worked on behalf of several Florida public pension funds, thinks this is just the tip of the iceberg. He expects problems with defaulting debt to crop up in public funds across the country, especially in states with disclosure laws weaker than Florida's.

The state is now trying to pull together a committee of investors over the weekend to find a solution. Until they do, the several small local governments in Florida that had invested in the SBA could have a crisis on their hands if they are barred from withdrawing funds for their operations.

Florida's Orange County was among the earlier investors to withdraw its $370 million when they heard reports of the fund's risky investments. "We had been feeling some discomfort with things in the market, and when we couldn't get good answers from the SBA, we felt we had other options and needed to take care of ourselves," says Chief Comptroller Martha Haynie. "The state's going to have to do a lot of work to get us back. My responsibility is to Orange County and not the state pension fund."

Oopsie

Glimpse Of 2008

Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California.

The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.

The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression.

As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.

While no current residents claim to be victims of foreclosure, all agree that tent city is a symptom of the wider economic downturn. And it's just a matter of time before foreclosed families end up at tent city, local housing experts say.

"They don't hit the streets immediately," said activist Jane Mercer. Most families can find transitional housing in a motel or with friends before turning to charity or the streets. "They only hit tent city when they really bottom out."

Steve, 50, who declined to give his last name, moved to tent city four months ago. He gets social security payments, but cannot work and said rents are too high.

"House prices are going down, but the rentals are sky-high," said Steve. "If it wasn't for here, I wouldn't have a place to go."

'SQUATTING IN VACANT HOUSES'

Nationally, foreclosures are at an all-time high. Filings are up nearly 100 percent from a year ago, according to the data firm RealtyTrac. Officials say that as many as half a million people could lose their homes as adjustable mortgage rates rise over the next two years.

California ranks second in the nation for foreclosure filings -- one per 88 households last quarter. Within California, San Bernardino county in the Inland Empire is worse -- one filing for every 43 households, according to RealtyTrac.

Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now risks losing it after falling four months behind on mortgage payments.

"It's not just us. It's all over," said Hernandez, who lives in a neighborhood where most families are struggling to meet payments and many have lost their homes.

She has noticed an increase in crime since the foreclosures started. Her house was robbed, her kids' bikes were stolen and she worries about what type of message empty houses send.

The pattern is cropping up in communities across the country, like Cleveland, Ohio, where Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention Program, said there are entire blocks of homes in Cleveland where 60 or 70 percent of houses are boarded up.

"I don't think there are enough police to go after criminals holed up in those houses, squatting or doing drug deals or whatever," Wiseman said.

"And it's not just a problem of a neighborhood filled with people squatting in the vacant houses, it's the people left behind, who have to worry about people taking siding off your home or breaking into your house while you're sleeping."

Health risks are also on the rise. All those empty swimming pools in California's Inland Empire have become breeding grounds for mosquitoes, which can transmit the sometimes deadly West Nile virus, Riverside County officials say.

'TRICKLE-DOWN EFFECT'

But it is not just homeowners who are hit by the foreclosure wave. People who rent now find themselves in a tighter, more expensive market as demand rises from families who lost homes, said Jean Beil, senior vice president for programs and services at Catholic Charities USA.

"Folks who would have been in a house before are now in an apartment and folks that would have been in an apartment, now can't afford it," said Beil. "It has a trickle-down effect."

For cities, foreclosures can trigger a range of short-term costs, like added policing, inspection and code enforcement. These expenses can be significant, said Lt. Scott Patterson with the San Bernardino Police Department, but the larger concern is that vacant properties lower home values and in the long-run, decrease tax revenues.

And it all comes at a time when municipalities are ill-equipped to respond. High foreclosure rates and declining home values are sapping property tax revenues, a key source of local funding to tackle such problems.

Earlier this month, U.S. President George W. Bush rolled out a plan to slow foreclosures by freezing the interest rates on some loans. But for many in these parts, the intervention is too little and too late.

Ken Sawa, CEO of Catholic Charities in San Bernardino and Riverside counties, said his organization is overwhelmed and ill-equipped to handle the volume of people seeking help.

"We feel helpless," said Sawa. "Obviously, it's a local problem because it's in our backyard, but the solution is not local."

Red

1929 - A Walk In The Park

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

Lenders are hoarding the cash, shunning peers as if all were sub-prime lepers. Spreads on three-month Euribor and Libor - the interbank rates used to price contracts and Club Med mortgages - are stuck at 80 basis points even after the latest blitz. The monetary screw has tightened by default.

York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster.

"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," he says.

"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park," he adds.

The Bank of England knows the risk. Markets director Paul Tucker says the crisis has moved beyond the collapse of mortgage securities, and is now eating into the bedrock of banking capital. "We must try to avoid the vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other," he says.

New York's Federal Reserve chief Tim Geithner echoed the words, warning of an "adverse self-reinforcing dynamic", banker-speak for a downward spiral. The Fed has broken decades of practice by inviting all US depositary banks to its lending window, bringing dodgy mortgage securities as collateral.

Quietly, insiders are perusing an obscure paper by Fed staffers David Small and Jim Clouse. It explores what can be done under the Federal Reserve Act when all else fails.

Section 13 (3) allows the Fed to take emergency action when banks become "unwilling or very reluctant to provide credit". A vote by five governors can - in "exigent circumstances" - authorise the bank to lend money to anybody, and take upon itself the credit risk. This clause has not been evoked since the Slump.

Yet still the central banks shrink from seriously grasping the rate-cut nettle. Understandably so. They are caught between the Scylla of the debt crunch and the Charybdis of inflation. It is not yet certain which is the more powerful force.

America's headline CPI screamed to 4.3 per cent in November. This may be a rogue figure, the tail effects of an oil, commodity, and food price spike. If so, the Fed missed its chance months ago to prepare the markets for such a case. It is now stymied.

This has eerie echoes of Japan in late-1990, when inflation rose to 4 per cent on a mini price-surge across Asia. As the Bank of Japan fretted about an inflation scare, the country's financial system tipped into the abyss.

In theory, Japan had ample ammo to fight a bust. Interest rates were 6 per cent in February 1990. In reality, the country was engulfed by the tsunami of debt deflation quicker than the bank dared to cut rates. In the end, rates fell to zero. Still it was not enough.

When a credit system implodes, it can feed on itself with lightning speed. Current rates in America (4.25 per cent), Britain (5.5 per cent), and the eurozone (4 per cent) have scope to fall a long way, but this may prove less of a panacea than often assumed. The risk is a Japanese denouement across the Anglo-Saxon world and half Europe.

Bernard Connolly, global strategist at Banque AIG, said the Fed and allies had scripted a Greek tragedy by under-pricing credit long ago and seem paralysed as post-bubble chickens now come home to roost. "The central banks are trying to dissociate financial problems from the real economy. They are pushing the world nearer and nearer to the edge of depression. We hope they will eventually be dragged kicking and screaming to do enough, but time is running out," he said.

Glance at the more or less healthy stock markets in New York, London, and Frankfurt, and you might never know that this debate is raging. Hopes that Middle Eastern and Asian wealth funds will plug every hole lifts spirits.

Glance at the debt markets and you hear a different tale. Not a single junk bond has been issued in Europe since August. Every attempt failed.

Europe's corporate bond issuance fell 66pc in the third quarter to $396bn (BIS data). Emerging market bonds plummeted 75pc.

"The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history," says Thomas Jordan, a Swiss central bank governor.

"The sub-prime mortgage crisis hit a vital nerve of the international financial system," he says.

The market for asset-backed commercial paper - where Europe's lenders from IKB to the German Doctors and Dentists borrowed through Irish-based "conduits" to play US housing debt - has shrunk for 18 weeks in a row. It has shed $404bn or 36pc. As lenders refuse to roll over credit, banks must take these wrecks back on their books. There lies the rub.

Professor Spencer says capital ratios have fallen far below the 8 per cent minimum under Basel rules. "If they can't raise capital, they will have to shrink balance sheets," he said.

Tim Congdon, a banking historian at the London School of Economics, said the rot had seeped through the foundations of British lending.

Average equity capital has fallen to 3.2 per cent (nearer 2.5 per cent sans "goodwill"), compared with 5 per cent seven years ago. "How on earth did the Financial Services Authority let this happen?" he asks.

Worse, changes pushed through by Gordon Brown in 1998 have caused the de facto cash and liquid assets ratio to collapse from post-war levels above 30 per cent to near zero. "Brown hadn't got a clue what he was doing," he says.

The risk for Britain - as property buckles - is a twin banking and fiscal squeeze. The UK budget deficit is already 3 per cent of GDP at the peak of the economic cycle, shockingly out of line with its peers. America looks frugal by comparison.

Maastricht rules may force the Government to raise taxes or slash spending into a recession. This way lies crucifixion. The UK current account deficit was 5.7 per cent of GDP in the second quarter, the highest in half a century. Gordon Brown has disarmed us on every front.

In Europe, the ECB has its own distinct headache. Inflation is 3.1 per cent, the highest since monetary union. This is already enough to set off a political storm in Germany. A Dresdner poll found that 71 per cent of German women want the Deutschmark restored.

With Brünhilde fuming about Brot prices, the ECB has to watch its step. Frankfurt cannot easily cut rates to cushion the blow as housing bubbles pop across southern Europe. It must resort to tricks instead. Hence the half trillion gush last week at rates of 70bp below Euribor, a camouflaged move to help Spain.

The ECB's little secret is that it must never allow a Northern Rock failure in the eurozone because this would expose the reality that there is no EU treasury and no EU lender of last resort behind the system. Would German taxpayers foot the bill for a Spanish bail-out in the way that Kentish men and maids must foot the bill for Newcastle's Rock? Nobody knows. This is where eurozone solidarity stretches to snapping point. It is why the ECB has showered the system with liquidity from day one of this crisis.

Citigroup, Merrill Lynch, UBS, HSBC and others have stepped forward to reveal their losses. At some point, enough of the dirty linen will be on the line to let markets discern the shape of the debacle. We are not there yet.

Goldman Sachs caused shock last month when it predicted that total crunch losses would reach $500bn, leading to a $2 trillion contraction in lending as bank multiples kick into reverse. This already seems humdrum.

"Our counterparties are telling us that losses may reach $700bn," says Rob McAdie, head of credit at Barclays Capital. Where will it end? The big banks face a further $200bn of defaults in commercial property. On it goes.

The International Monetary Fund still predicts blistering global growth of 5 per cent next year. If so, markets should roar back to life in January, as though the crunch were but a nightmare. There again, the credit soufflé may be hard to raise a second time.

I Know

Trying Really Hard To Like India

It's OK to hate a place.

Travel writers can be so afraid to make judgments. You end up with these gauzy tributes to the "magic" of some far-off spot. But honestly, not every spot is magical for everyone. Sometimes you get somewhere, look around, and think, "Hey, this place is a squalid rat hole. I'd really rather be in the Netherlands." And that's OK.

For example, the last time I went to India I just haaaaaaated it. Delhi was a reddish haze of 105-degree dust. And while, of course, the Taj Mahal was great … the streets outside it were a miasma of defecating children. I could not wait to go home. (Disclosure: I was there on a previous assignment for Slate. And actually, I loved Ladakh, which is in northern India—up in the Himalayas. But I don't really count Ladakh, because it's more like Tibet than like India. Anyway …)

Now—mostly because my girlfriend wants to come back—I'm back. I'm giving this dreadful place a second chance. And this time I vow I will try really hard to like India.

I'm convinced it's a reachable goal. My plan involves: sticking to South India, far away from Delhi, staying exclusively at beach resorts and luxury hotels, and stocking up on prescription-strength sedatives. But there are other important steps as well, which I will be outlining over the course of this article.

Step 1: Making Peace With Poverty and With Parasitic Worms

After flying into Bangalore and acclimating for a couple of days, we visit a town called Mysore (rhymes with "eyesore"). There's a famous temple here and an opulent palace—big tourist attractions both. But to me, the most interesting thing to see (in any place I visit) is the daily life of the people who live and work there.

For instance, from our hotel window in Mysore, we look down on a pile of garbage. Every night, this pile becomes dispersed as it is picked at and chewed on by rats, then crows, then stray dogs, then cows, and then homeless people. Every morning a woman dressed in a brightly colored sari sweeps this masticated garbage-porridge back into a pile. It is the worst job I can imagine. (Previously, the worst job I could imagine was navigator for a rally-car driver, because I get nauseous when I read in cars. But this woman's job is much worse than that. And really, with this added perspective, rally-car navigator doesn't seem so bad anymore.)

When we leave the hotel and walk down the (urine-soaked) street, we get assaulted by auto-rickshaw drivers, by hawkers, by tour guides … and by tiny children pointing to their own mouths. This last one is rough—at least the first few dozen times. Sometimes these kids are part of a scam. They're forced to beg by adults who run panhandling teams. (We've read stories about teams that cut out kids' tongues, to make them seem more pitiable.) But sometimes these kids are just honestly looking for food. Because they're starving. They might eat out of that big garbage pile tonight. Once the dogs are done.

On the train ride back to Bangalore, monsoon rains slap at the window. I gaze out on wet, destitute slums. Wherever one can build a shanty, someone has. Wherever one could be pissing, someone is. The poverty's on a mind-blowing, overwhelming scale, and you feel so helpless. The money in your pocket right now, handed to any one person out there beyond the window, would be life-changing. But you can't save a billion people and turn the fortunes of this massive country. (You're not Gandhi, you know.) And after all, back in Bangalore we hung out with highly paid IT guys who worked for Infosys. There's a lot of wealth in India, too.

The thing is, if you go to India as a tourist, you'll have to make some sort of peace with all this. Because it's one thing to see poverty on television, or to get direct mail that asks for your charity. It's different when there are tiny, starving children grabbing your wrists and asking for money wherever you go.

For my part, I've resolved to send a check to some worthy Indian charity when I get home. (Suggestions are invited.) It's the best solution I can come up with. Because I'm not going to get through this trip until I've reached an understanding with myself … and until I take some Pepto-Bismol, because my stomach is just killing me. Which brings me to the other thing you'll have to be prepared for.

You will get "Delhi belly" soon after touching down in India. And you won't enjoy your trip until it's gone. My illness takes hold on the train ride back to Bangalore, as my intestines suddenly spasm into a clenched fist full of acid. The restroom—should this come into play—is a hole in the floor of the train. (A sign on the door requests that we not use the hole while the train's in a station—for obvious reasons.)

For the next day or two, I find myself playing a game I call "Could I Vomit in This?" The idea is to pick a nearby object and then decide if, in the event of an emergency, it could be puked into. For example, potted plant: Certainly. Water bottle: Sure. Magazine: Iffy, but worth a try.

The good news is that it won't take long before your stomach adjusts to these new microbial nasties, and you're back to feeling fine. Unless, of course, like my friend who was here a few years ago, you've got a parasitic worm and you lose 40 pounds and need medical attention.

Step 2: Escaping Backpackers, Traveling in Style, and Once Again Coming to Terms With Rampant Poverty

I have a problem with backpackers. The problem is that wherever they are, I don't want to be.

Partly, it's that I don't go somewhere like India so I can hang out with a bunch of 19-year-old German dudes (though I'm sure they're lovely people). Also, it's that I look at all these backpackers … and I see myself. And frankly, I don't like what I see.

For one, I'm not properly bathed. And for another, I've got this massive, geeky pack on my back, which dwarfs my torso and bends me near double under its weight. (Because of this, I have, I'll admit somewhat irrationally, refused to use a backpack on this trip. Instead I've brought a wheeled carry-on suitcase, which has worked quite nicely. Just try to call me a backpacker now! No backpack here, Heinrich!)

But above all, I hate the ambience that forms around a backpacker enclave. The ticky-tacky souvenir shops. The sketchy tour guides. The rabbit warren hostels. And the way the locals start to eye me like I'm nothing but an ambulatory wallet.

There are two ways to escape the backpackers. The first is to get off the beaten path, wander around, and discover a private Eden not yet ruined by backpacking hordes. This takes more time than my vacation will allow. So I've opted for the second (much quicker) method: money.

Yes, the simplest way to find solitude is to buy it. Thus we've arrived here at the Casino Group Marari Beach Resort.

This idyllic spot is on the west coast of India in the state of Kerala (the setting for The God of Small Things). The resort's lovely bungalows are tucked between groves of palm trees. The beach is wide, empty, silent. Each evening the sun melts down into the Arabian Sea. By day we lounge around a heated pool eating big plates of samosas. Nearby, in the recreation area, an older Italian woman is playing badminton in a bikini.

Wait, you say, why bother to go to India for this? If a beach resort's all you want, there are plenty back home, right? I assure you this is different for several reasons, such as ...

The food: Each night, we enjoy delicious Indian specialties, prepared by actual Indian chefs, in India. (Pause to lick tandoori chicken from fingers.) You just can't get that at home.

The cost: We're paying about $70 a night for our bungalow. Pretty much anywhere in the States—for a luxury resort with a private beach—you'd pay at least quadruple that. Consider the fact that Sir Paul McCartney once stayed here. When I can afford a hotel Paul McCartney stays at, you can be certain it's a bargain.

The sheer solitude: You'll rarely find a beach this nice that's also this utterly empty. There's nothing here (as my pictures attest). Several hundred yards away are a few wooden fishing boats, which haul up their catch on the beach each afternoon. Also—and I swear this is somehow charming (remember, it's hundreds of yards away)—you'll see a few village folk squatting amid the tides. This is because they don't have indoor plumbing.

The world beyond the hotel gates: Walk outside your beach resort in Florida … and you're still in Florida. Walk outside your beach resort in India and … oh, man, you are unmistakably in India. Lots of heartbreaking rural poverty. Lots of sad-yet-edifying tableaux (which is no doubt what you came here for, correct?). It's sort of the best of both worlds for the tourist who fancies himself culturally aware: Live right next to the picturesque misery—but not in it.

Before you condemn me to hell, please see again Step 1: Making Peace With Poverty. Again, unless you're Gandhi—and you're not—you can't come here without diving head first into a salty sea of unpleasant contradictions.

For yet another lesson on this theme, take our last night at Marari Beach. We somehow end up drinking in the bar with a thirtysomething American woman—let's call her "Debbie"—who is six stiff drinks ahead of us. Between sips of some tropical concoction, she delivers a slurry monologue explaining that she has come to India on business. Her business: designing doormats. No joke.

One of Kerala's big industries is coir—a textile made from coconut husks. On a bike ride we took around the village (yes, "the world beyond the hotel gates"), we could see into huts that had looms and people weaving coir into simple mats. These mats get trimmed and finished (by some big export factory) to Debbie's design specs. Then they get shipped to North America and end up in some middlebrow home-furnishings catalog where you can buy them for $26.99.

Debbie is drinking heavily because her job here is wicked depressing. She buys in bulk from the big exporter, who pays a shady middleman, who (barely) pays the villagers here. The villagers can make about three mats per week—all of excellent quality—and for this they get paid a few cents per mat. The middleman of course takes all the profit.

Debbie, goodhearted human that she is, is on the verge of drunken tears as she describes all this. She knows the whole thing is grossly unfair. And that she perpetuates it. But if she wants to keep her job with the American firm she works for, and still make deals with Indian exporters, there's not a damn thing she can do about it.

And unless you have carefully avoided buying any products made by Third World labor—and chances are you have not—you're really no better than Debbie. Let's drink to that. Believe me, Debbie already has.

Step 3: Getting Spiritual and Getting Medicated

You often hear tourists call India a "spiritual" place. It seems as though half the Westerners here either a) come with the intent to live on an ashram; or b) somehow end up at one anyway.

I appreciate the drive to find deeper meaning. I honestly do. And I'm a huge fan of pantheism. Why limit yourself to one god, when instead you could pick and choose from a sampler of gods? It spices things up. The Brahma-Creator/Vishnu-Preserver/Shiva-Destroyer thing is a badass metaphor, too, even if I don't fully understand it.

But the truth is, I'm not quite wired to surrender my will to a higher power. And, getting back to my main point, I certainly don't see why India should corner the market on spirituality. Why do we get all mystical and fuzzy-headed the moment we hit the subcontinent?

Look at The Razor's Edge—the W. Somerset Maugham classic I've been reading over here. Protagonist Larry Darrell begins as a run-of-the-mill Midwesterner. Then he goes to India. By the time he gets back, he's received illumination and communed with the Absolute. Also, he has telekinetic powers.

I'm not sure I believe in the Absolute. But I do think I would enjoy having telekinesis. Mostly so I could alter the outcome of sporting events. (Oh, wide right! Too bad!)

To this end, I've decided to get me some spirituality here. It seems there exists a sort of Hindu metaphysics known as Ayurveda, which aims to heal both body and spirit (and, most important, has been championed by Deepak Chopra). I figure this will do the trick. And since they happen to have an Ayurvedic spa at our beach resort, I also figure: Why not seek deeper meaning on a massage table?

I arrive at the Ayurveda center and ask for an appointment. Maybe 30 seconds later I'm buck naked in a small room with a smiling Indian man. His name is Sajan. He hands me a loincloth and helps me tie it. Then he guides me to the table, lays me down, pours a healthy dollop of oil on my chest, and begins to rub his hands all over my body.

Understand that I get slightly uncomfortable when I'm made to hug a person I've just met. I've got a thing about strangers touching me. And when it comes to strangers rubbing oil on my upper thighs, well, I get even more ill at ease. (Perhaps if the stranger were French actress Julie Delpy? But does she count as a stranger? I feel I know her so well from her films.)

Still, I've had professional massages before, and I've mostly enjoyed them (once I'm past the initial squeamishness). The key in the past has been the kneading of my knotted muscles—thus dispersing any stored-up tension. But as best I can tell, there is no kneading in Ayurveda. Just rubbing—and gallons of oil. While I hesitate to use the term "molestation" (and there was nothing sexual about it), I will say that Sajan's hands were not at all shy. I will also say that my loincloth seemed unnecessarily small and loosely fastened.

At one point—while my eyes were closed—a second pair of hands came out of nowhere and jumped in the mix. This alarmed me, insofar as it was sudden and unexpected. Like an ambush. Also, soon after this, the soothing tabla music that had been playing came to a stop, and left us in silence … save for the sound of four well-oiled palms, briskly sliding over my torso.

In the end, my spirit remained undaunted, but in no way was it illuminated or healed. This was the first massage I've had where I felt less relaxed walking out than I'd felt walking in.

Anyway, if I want to relax here, I've found a much better method: prescription-strength sedatives. I'd like to thank Lord Brahma for creating benzodiazepines. And also Lord Vishnu, for preserving a loosely regulated Indian pharmaceutical system. I can walk into the "Medicines" shop in pretty much any town over here, plunk down 50 rupees (a little more than a dollar), and walk out with a great big bottle of 2 mg. Ativan tablets.

This becomes especially key on the overnight train ride from Kerala to Goa. There are cockroaches perched on the wall above my head; across the aisle a man is coughing up phlegm (in a manner that suggests a highly communicable and highly fatal tropical disease); and I'm still trying to shake my traumatic memories of the massage. All of which is making it hard for me to sleep.

I suppose I could call on Lord Shiva to destroy all the roaches. Or the phlegm. But instead I just call on Lord Ativan, destroyer of consciousness. Cockroaches could scurry up onto my face, oil their many legs, and administer an Ayurvedic massage to my eyelids. I'd sleep right through it, given sufficient dosage.

Step 4: Acceding to Chaos

Our first day out in Mumbai (formerly Bombay), we were approached by a man who—I'm fairly certain of this—planned to kidnap us. He gave us this carefully polished spiel about needing to cast a few extras for a Bollywood movie and how we'd be perfect for this scene he was shooting, so if we would just hop into his car with him … Tempting, but no dice. (It sort of cooled our jets when, in the middle of the pitch, this other Indian guy ran over and shouted, "Be careful with this man! This is a dangerous man!")

I'll admit, this Bollywood scam was brilliant. It played on my vanity and my long-held desire to appear in a Bollywood movie (preferably in a dance scene). I salute you, my would-be abductor.

But other pitches were not as well-crafted. For instance, there was this guy who smiled weakly and asked us, with a halfhearted shrug, "Monkey dance?" Our eyes followed the leash in his hand, which led to the neck of a monkey. The most jaded, world-weary monkey I've ever seen. The Lou Reed of monkeys. He looked like he was about to sit down, pull out his works, and shoot a big syringe full of heroin into his paw. Needless to say, we declined the monkey dance—which I'm guessing would have been some sort of sad, simian death-jig.

The upshot of all this: Mumbai is not the place to go for a carefree, relaxing vacation. Just stepping out on the streets can be a difficult ordeal. The air smells like twice-baked urine, marinated in more urine. The sidewalks are a slalom of legless beggars and feral dogs. Hundreds of times each day you walk right past something so unfathomably sad, so incomprehensibly surreal, so horribly unfair ...

The only way to cope is to stop resisting. Embrace the chaos. If you see a woman rolling around in the gutter clutching at the massive, bulbous wart on the side of her face and moaning loudly ... well, that's part of the scenery. No one else here (certainly no native Mumbaian) will pay her any attention. So why should you? Just say to yourself: Wow, that's crazy stuff and marvelously edifying. Doo-dee-doo, keep on walking.

That's harsh and simplistic. The truth is, the chaos can be wonderful sometimes, too. There's a goofy sense of freedom that comes with it. A sense of unknowing.

Back home in the States, it can feel like we've got life figured out, regulated, under control, under wraps. But here in India, nothing seems even close to figured out. Nothing seems remotely under control. You're never quite sure what will happen next, and you're working without a net.

Terrifying? Yes. But also invigorating. On the train ride up from Goa, I perused a women's magazine (sort of an Indian Cosmo) that we'd bought at a newsstand. The cover story was about women who'd lived abroad—mostly in the United States and Britain—but moved back because they liked India better. All these former NRIs (Non-Resident Indians) had gotten homesick ... for the chaos! Yes, the West was clean and orderly. But that was sort of boring. They missed the hubbub, the craziness, the randomness of India.

I see what they're saying. But in honesty, I prefer to see it from several stories up, in the air-conditioned cocktail lounge of the Oberoi Hotel. Ahhhh. Soft music. Lovely view. No legless beggars.

From up here, sure, all that chaos is beautiful. It's amazing to ponder (while calmly sipping a stiff rum and Coke) how 1 billion people manage to coexist in a single, sprawling democracy. It truly is impressive that this country keeps chugging along—massive, bulbous face warts and all.

In fact, I've come not just to like, but to love India—in a way—from afar. It's the underdog. It's dirty, and hectic, and insane ... and I find myself rooting for it.

Step 5: Actually Liking Stuff

In the mid-1970s, famed author V.S. Naipaul (of Indian descent but raised in Trinidad) came to India to survey the land and record his impressions. The result is a hilariously grouchy book titled India: A Wounded Civilization. Really, he should have just titled it India: Allow Me To Bitch at You for 161 Pages.

I hear you, V.S.—this place has its problems. As you point out, many of them result from the ravages of colonialism … and some are just India's own damn fault. Still, I've found a lot to love about this place. For instance:

1) I love cricket. The passion for cricket is infectious. When I first got here, the sport was an utter mystery to me, but now I've hopped on the cricket bandwagon, big time. I've got the rules down, I've become a discerning spectator, and I've settled on a favorite player (spin bowler Harbhajan Singh, known as "The Turbanator"—because he wears a turban). I've even eaten twice at Tendulkar's, a Mumbai restaurant owned by legendary cricketer Sachin Tendulkar. Fun fact: Sachin Tendulkar's nicknames include "The Master Blaster" (honoring his prowess as a batsman), "The Maestro of Mumbai" (he's a native), and "The Little Champion" (he's wicked short). His restaurant here looks exactly like a reverse-engineered Michael Jordan's Steak House. Instead of a glass case with autographed Air Jordans, there is a glass case with an autographed cricket bat.

And in what could turn out to be a dangerous habit, I've begun going to Mumbai sports bars to watch all-day cricket matches. These last like seven hours. That is a frightening amount of beer and chicken wings.

2) I love the Indian head waggle. It's a fantastic bit of body language, and I'm trying to add it to my repertoire. The head waggle says, in a uniquely unenthusiastic way, "OK, that's fine." In terms of Western gestures, its meaning is somewhere between the nod (though less affirmative) and the shrug (though not quite as neutral).

To perform the head waggle, keep your shoulders perfectly still, hold your face completely expressionless, and tilt your head side-to-side, metronome style. Make it smooth—like you're a bobble-head doll. It's not easy. Believe me, I've been practicing.

3) I love how Indians are unflappable. Nothing—I mean nothing—seems to faze them in the least. If you live here, I suppose you've seen your fair share of crazy/horrid/miraculous/incomprehensible/mind-blowing stuff, and it's impractical to get too worked up over anything, good or bad.

(This is a trait I admire in the Dutch, as well. They don't blink when some college kid tripping on mushrooms decides to leap naked into an Amsterdam canal. Likewise, were there a dead, limbless child in the canal … an Indian person might not blink. Though he might offer a head waggle.)

4) I love how they dote on children here. (I'm not talking about dead, limbless children anymore, I'm being serious now.) At our beach resort in Goa, there were all these bourgeois Indian folks down from Mumbai on vacation. These parents spoiled their children rotten in a manner that was quite charming to see. In no other country have I seen kids so obviously cherished, indulged, and loved. It's fantastic. Perhaps my favorite thing on television (other than cricket matches) has been a quiz show called India's Smartest Child, because I can tell the entire country derives great joy from putting these terrifyingly erudite children on display.

5) I love that this is a billion-person democracy. That is insane. Somehow the Tibetan Buddhists of Ladakh, the IT workers of Bangalore, the downtrodden poor of Bihar, and the Bollywood stars of Mumbai all fit together under this single, ramshackle umbrella. It's astonishing and commendable that anyone would even attempt to pull this off.

6) I love the chaos (when I don't hate it). Mumbai is a city of 18 million people—all of whom appear to be on the same block of sidewalk as you. If you enjoy the stimulation overload of a Manhattan or a Tokyo but prefer much less wealth and infrastructure … this is your spot. (Our friend Rishi, who we've been traveling with, has a related but slightly different take: "It's like New York, if everyone in New York was Indian! How great is that!") And whatever else you may feel, Mumbai will force you to consider your tiny place within humanity and the universe. That's healthy.

There's more good stuff I'm forgetting, but enough love for now. Let's not go overboard. As they say in really lame travel writing: India is a land of contradictions. A lot of things to like and a lot of things (perhaps two to three times as many things) to hate.

It's the spinach of travel destinations—you may not always (or ever) enjoy it, but it's probably good for you. In the final reckoning, am I glad that I came here? Oh, absolutely. It's been humbling. It's been edifying. It's been, on several occasions, quite wondrous. It's even been fun, when it hasn't been miserable.

That said, am I ready to leave? Sweet mercy, yes.

Blue Resurrection

Genocide, Undocumented; Apartheid, Unacknowledged

The decimation of indigenous American Indian cultures, beginning five centuries ago, is still being whitewashed by textbooks and movies. There were many friendly and close relationships between early settlers and native peoples, but these were not the main current in their relations. U.S. history is defined by acts of genocide against native people, exacerbated by the fatal impact of new diseases spread by contact between new settlers and native Americans. Many aggressive attempts were made to reshape the Indian peoples according to European cultural models, whether under threat of death or, later, through exile to government boarding schools.

Government policies, well-documented elsewhere, guided the destruction and containment of native American cultures, culminating in the problematic status of Indian people today. Despite this historical backdrop, there has been only the most begrudging admission of any public responsibility for the damage done to native American cultures. Little public support has gone to efforts to preserve, retrieve and build upon native cultural traditions. Where affirmative steps are called for, none has been taken. Chief among the U.S. government's initiatives toward native peoples has been the reservation -- remarkably like the former South African "homelands." The current laissez-faire federal policy pretends that Native American cultures are now free to enjoy an even chance in American society, to compete for resources with dominant cultural forms and traditions. The official alternative to the reservation has been pressure to assimilate into the mainstream culture.

Through much of the time that Native American peoples have endured this cultural combat, the idea of "the Indian" has been a powerful symbol within American national culture. One usually sees Indian people portrayed as brutal and warmongering, worthy of punishment at the hands of white settlers and the U.S. government. Nevertheless, Indian influences on contemporary United States culture are extensive. In Hollywood films and western novels and "cowboy art," Indians have symbolized connectedness and sensitivity to nature (and the loss of the wilderness), highly developed skills, and individual courage. The "new age" philosophies which emerged from the 1960's depend heavily on traditional Indian knowledge; within their frameworks, Native Americans symbolize balance, inner wisdom, ordeal and transcendent experience, and natural dignity. Recently, Native American activists have done much to revitalize their cultural traditions. Assimilationism has lost some of the attraction it had in the past. But history cannot be undone.

Pride

Bankrupt

For the 11th straight year, the federal government failed its financial audit, GAO announced Monday, in a widely anticipated finding that Comptroller General David Walker used to underscore the government's troubled fiscal health.

"If the federal government was a private corporation and the same report came out this morning, our stock would be dropping and there would be talk about whether the company's management and directors needed a major shake-up" Walker said this afternoon in a speech at the National Press Club.

Just before his address, GAO issued a statement saying it could not express an opinion on the government's fiscal 2007 consolidated financial statements, mostly due to the Defense Department's financial management problems. In an announcement this morning, the agency also pointed to the government's failure to account for intergovernmental activity and balances between agencies and federal agencies' "ineffective process for preparing consolidated financial statements."

But Walker pointed to some positives. For the first time, his agency gave an unqualified opinion on the government's "Statement of Social Insurance," which deals with the most expensive programs, such as Social Security, Medicare, railroad retirement and black lung healthcare. Walker used his speech to reiterate the themes of his "Fiscal Wake-Up Tour," through which he has warned that rising healthcare costs and baby boomer retirements will cause an unmanageable increase in debt burdens.

The federal government's total liabilities and unfunded commitments for future payments related to Social Security and Medicare are now estimated at $53 trillion, in current dollar terms, up from $20 trillion in 2000, Walker said.

Medicare accounts for $34 trillion of the gap, according to GAO. Baby boomers, some of whom will start to draw early retirement benefits in a few weeks, "will bring a tsunami of spending" as they retire, Walker said.

With Bush administration officials looking on, Walker took particular aim at the White House's prescription drug benefit program and the way the administration sold the plan. Medicare is worth about $8 trillion of the gap created by Medicare, according to GAO.

"Incredibly, this number was not disclosed or discussed until after Congress had voted on the bill and the president had signed it into law," Walker noted. "In many ways, the 2003 Medicare prescription drug episode represents government truth and transparency at its worst," he added.

Walker also used the speech to criticize the spending habits of "too many Americans," the lack of serious policy debate in the media and "the widespread myopia, tunnel vision and self-centeredness in Washington."

But he noted the fiscal wake-up tour has generated positive media reaction. A commercial documentary based on Walker's message is set for general release next spring and was accepted for the 2008 Sundance Film Festival, Walker said.

"I am not planning to quit my day job for a Hollywood career," he joked.

Liv

Sioux

The Lakota Sioux Indians, whose ancestors include Sitting Bull, Red Cloud and Crazy Horse, have withdrawn from all treaties their forefathers signed with the U.S. government and have declared their independence. A delegation delivered the news to the State Department earlier this week.

Portions of Nebraska, South Dakota, North Dakota, Montana and Wyoming comprise Lakota country, and the tribe says that if the federal government doesn't begin diplomatic discussions promptly, liens will be filed on property in the five-state region. Here's the news release.

"We are no longer citizens of the United States of America and all those who live in the five-state area that encompasses our country are free to join us," said Russell Means, a longtime Indian rights activist. "This is according to the laws of the United States, specifically Article 6 of the Constitution," which states that treaties are the supreme law of the land.

"It is also within the laws on treaties passed at the Vienna Convention and put into effect by the U.S. and the rest of the international community in 1980. We are legally within our rights to be free and independent," he added during a press conference yesterday in Washington.

The new country would issue its own passports and driver licenses, and living there would be tax-free, provided residents renounce their U.S. citizenship, he said, according to a report from Agence France-Presse.

The Lakota say the United States has never honored the pacts, signed with the Great Sioux Nation in 1851 and 1868 at Fort Laramie, Wyo.

"We have 33 treaties with the United States that they have not lived by. They continue to take our land, our water, our children," said Phyllis Young, who helped organize the first international conference on indigenous rights in Geneva in 1977.

Means said the "annexation" of native American land had turned the Lakota into "facsimiles of white people."

In 1974, the Lakota drafted a declaration of continuing independence. Their cause got a boost in September, when the United Nations adopted a non-binding declaration on the rights of indigenous peoples. The Bush administration opposed the measure.

Freezing

Avoid Credit

For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.

Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills. The poll, commissioned by CreditCards.com and conducted by GfK Roper Public Affairs & Media, surveyed 1,004 randomly selected American adults by telephone Dec. 7-9, 2007 to gauge their attitudes about energy costs in 2008. A majority say they expect oil and gasoline prices to get worse in 2008.

Heating bills are rising at a time when utility companies across the country are broadening electronic payment options for customers, including allowing credit card payments for utility bills. Personal finance experts say paying for basic living expenses with credit cards makes sense only if you pay off the entire balance each month. They also warn that carrying a revolving balance encourages people to live beyond their means while racking up interest charges that can plunge families deeper into debt.

Conserving and cutting back

More than two-thirds of the poll respondents (71 percent) say they will attempt to reduce heating costs by lowering their thermostats this winter. Every American family will need to consider ways to make similar kinds of changes in their long-term energy consumption habits, says Perry Sioshansi, president of Menlo Energy Economics, a San Francisco energy consulting company.

"We all need to make those decisions when we buy appliances, when we're replacing appliances. When the light bulb goes out, buy the more efficient kind and put it in, get the more-energy-efficient insulation for the walls," he says. "These are permanent things that improve the utilization of energy."

He and other oil industry analysts and energy experts expect fuel costs to continue to rise in 2008 -- a situation that could contribute to an overall economic slowdown.

Winter outlook

According to the Energy Information Administration (EIA), the federal agency that collects and distributes data on energy use and expenditures, heating costs between October 2007 and March 2008 are expected to spike by nearly 10 percent for the average U.S. household. The winter fuel projections show the sharpest gains for heating oil users -- especially those living in the Northeast.

"That's where people are really going to get socked," says Neil Gamson, an EIA energy fuel price expert. "Almost all the heating oil in this country is consumed in the Northeast, in New England, the midAtlantic states of New York, New Jersey and Pennsylvania."

Residents of those areas could pay a total of $2,012 over the six winter months -- or an average of $353 a month -- to heat their homes through March 2008. That's a 34 percent increase over the previous winter's bills.

More than half the country uses natural gas for home heating. The highest heating bills will again go to the Northeast, where the average home can expect to pay a total of $1,202 over the winter months -- or about $200 a month. The Western states will have the lowest natural gas bills, according to the EIA. Homeowners there will pay about $557 through the winter.

Help paying the bills

Consumer credit counselors advise homeowners to consider all utility payment options before borrowing to pay the bills. This may include:

Federal, state and local government assistance programs that offer grants to low- and moderate-income families to defray heating bill costs.

Delayed or reduced payment plans offered by utility companies to help customers budget energy expenses, including averaging payments over the course of the entire year to avoid getting hit with a jaw-dropping winter bill.

Charitable programs sponsored by many utilities that solicit donations from paying customers to help consumers who are struggling to pay their bills.

Beware of easy credit options, warns Tom Feltner, policy and communications director at the Woodstock Institute, a Chicago-based economic development research group that specializes in consumer lending.

He notes the CreditCards.com poll data showing that nearly 20 percent of people making under $20,000 a year and 27 percent of those earning $20,000 to $30,000 annually believe they will have to borrow money to make the utility payments during the 2008 winter.

"This is exactly the type of situation where consumers have to be wary of their credit options," he says. "Don't rush into the easiest form of consumer credit. For many consumers, that's often payday loans."

Avoid expensive borrowing options

Convenience checks and cash advances offered by credit card companies carry higher interest rates. "Payday loans," offered by retail lending franchises across the country, are a source of quick cash for people who borrow against their next paychecks. Woodstock researchers have found payday loans can end up costing as much as 300 percent in interest and fees. "When it gets cold we always try to make it clear that payday loans are really one of the most-expensive forms of credit," Feltner says.

He adds: "Borrow from friends and family, dip into savings, look into credit unions for affordable loan products, negotiate a payment plan with your utility provider."

Purity

Food

The risks of food riots and malnutrition will surge in the next two years as the global supply of grain comes under more pressure than at any time in 50 years, according to one of the world's leading agricultural researchers.

Recent pasta protests in Italy, tortilla rallies in Mexico and onion demonstrations in India are just the start of the social instability to come unless there is a fundamental shift to boost production of staple foods, Joachim von Braun, the head of the International Food Policy Research Institute, warned.

The growing appetite of China and other fast-developing nations has combined with the expansion of biofuel programmes in the United States and Europe to transform the global food situation.

After decades of expanding crop yields and falling food prices, the past year has seen a sharp rise in the cost of wheat, rice, corn, soya and dairy products.

"Demand is running away. The world has been consuming more than it produces for five years now. Stocks of grain - of rice, wheat and maize - are down at levels not seen since the early 80s," said von Braun, whose organisation is the world's largest alliance of agricultural researchers, economists, and policy experts.

So far, crises have been averted because states have eaten into national stocks, but this could be set to change because China, in particular, has run down its supplies.

"Over the next 12 to 24 months we are in a fairly risky situation. Large consuming nations, particularly China, will feel pressed to enter international markets to bid up prices to unusual levels," von Braun warned ahead of a speech today to the Consultative Group on International Agricultural Research's AGM in Beijing.

Thanks to its manufacturing prowess China has huge foreign exchange reserves and could buy the global food crop several times over. But its consumers are already feeling the cost of food inflation. According to the local media three shoppers died last month in a stampede at a supermarket in Chongqing that was offering cheap rapeseed oil. The threat of instability has prompted prime minister Wen Jiabao to make the fight against food price rises one of his government's priorities. So far it seems a losing battle.

Economic growth - estimated at 11.5% in the first nine months of the year - has made Chinese consumers wealthier, while urbanisation and globalisation has changed their diet. In October the government announced pork prices were up more than 50%, vegetables 30% and cooking oil 34% compared with the year before.

The knock-on is felt across the world. In Britain and other rich nations it means a few more pence for breakfast cereal in the short term and a slightly higher cost for toys, clothes and other China-made goods. But for the world's poorest communities the rises will have a potentially devastating effect.

Bangladesh has had to ask for half a million tonnes of food aid - a severe blow to the pride of a country that had been trying to wean itself off international assistance. Bangladeshi officials say the price of cooking oil - of which it imports 1.2m tonnes a year - has almost tripled in the past two years because it is now valued as an alternative to diesel oil. More worryingly, their main staple of rice is hard to buy at any price because India, Vietnam and Ukraine have cut exports.

Added to this are the pressures caused by global warming, which have been blamed for the droughts that damaged crops in Australia this year.

The social tensions caused by rising food prices are already evident, says von Braun. "The first sign was the tortilla riot in Mexico city, where 70,000 took to the streets. I think that was only the beginning - there will be more," said von Braun. "For a year or two countries can stabilise with stocks. But the risk comes in the next 12 to 24 months. The countries that cannot afford to buy will be the losers, while those with huge foreign exchange reserves will bid up the world market."

Von Braun called on Europe to reconsider its biofuel policies, to provide more aid to poor nations, to keep markets open and to boost production.

The forces pushing up food prices:

1 Rising consumption: The appetite of fast-growing nations, such as China, is rising as economic booms cause a surge in demand for meat and dairy products

2 Competition from biofuels: The cars of the rich are now rivalling the bellies of the poor for corn, cane and edible oils

3 Climate change: Global warming is putting pressure on water needed to irrigate crops

Me ow

Boycott China

The emergence of China as a dominant economic power is an epochal event, as significant as the United States' ascendancy after World War II. It is in many ways an astonishment, starting with the ideological about-face that enabled it, the throwing over of Maoist values for plainly capitalist ones starting in the late 1970s. So thorough is the change that the 19-foot-tall portrait of a stolid, potato-faced Mao Zedong that still looms over traffic-choked, commerce-suffused Tiananmen Square looks paradoxical, even startling, in seeming need of an update in which Mao winks—or sobs—in blinking neon. Meanwhile, inside Beijing's Forbidden City, the heart of old China, buildings with such intoxicating names as Hall of Preserved Harmony and Palace of Heavenly Purity bear signs reading, "Made Possible by the American Express Company."

The grander astonishment is the most massive and rapid redistribution of the earth's resources in human history. In a mere two and a half decades, China has awakened from Maoist stagnancy to become the world's manufacturer. Among the planet's 193 nations, it is now first in production of coal, steel, cement, and 10 kinds of metal; it produces half the world's cameras and nearly a third of its TVs, and by 2015 may produce the most cars. It boasts factories that can accommodate 200,000 workers, and towns that make 60 percent of the world's buttons, half the world's silk neckties, and half the world's fireworks, respectively.

China has also become a ravenous consumer. Its appetite for raw materials drives up international commodity prices and shipping rates while its middle class, projected to jump from fewer than 100 million people now to 700 million by 2020, is learning the gratifications of consumerism. China is by a wide margin the leading importer of a cornucopia of commodities, including iron ore, steel, copper, tin, zinc, aluminum, and nickel. It is the world's biggest consumer of coal, refrigerators, grain, cell phones, fertilizer, and television sets. It not only leads the world in coal consumption, with 2.5 billion tons in 2006, but uses more than the next three highest-ranked nations—the United States, Russia, and India—combined. China uses half the world's steel and concrete and will probably construct half the world's new buildings over the next decade. So omnivorous is the Chinese appetite for imports that when the country ran short of scrap metal in early 2004, manhole covers disappeared from cities all over the world—Chicago lost 150 in a month. And the Chinese are not just vast consumers, but conspicuous ones, as evidenced by the presence in Beijing of dealers representing every luxury-car manufacturer in the world. Sales of Porsches, Ferraris, and Maseratis have flourished, even though their owners have no opportunity to test their finely tuned cars' performance on the city's clotted roads.

The catch is that China has become not just the world's manufacturer but also its despoiler, on a scale as monumental as its economic expansion. Chinese ecosystems were already dreadfully compromised before the Communist Party took power in 1949, but Mao managed to accelerate their destruction. With one stroke he launched the "backyard furnace" campaign, in which some 90 million peasants became grassroots steel smelters; to fuel the furnaces, villagers cut down a 10th of China's trees in a few months. The steel ultimately proved unusable. With another stroke, Mao perpetrated the "Kill the Four Pests" campaign, inducing the mass slaughter of millions of sparrows and a subsequent explosion in the locust population. The destruction of forests led to erosion and the spread of deserts, and the locust resurgence prompted a collapse of the nation's grain crop. The result was history's greatest famine, in which 30 to 50 million Chinese died.

Yet the Mao era's ecological devastation pales next to that of China's current industrialization. A fourth of the country is now desert. More than three-fourths of its forests have disappeared. Acid rain falls on a third of China's landmass, tainting soil, water, and food. Excessive use of groundwater has caused land to sink in at least 96 Chinese cities, producing an estimated $12.9 billion in economic losses in Shanghai alone. Each year, uncontrollable underground fires, sometimes triggered by lightning and mining accidents, consume 200 million tons of coal, contributing massively to global warming. A miasma of lead, mercury, sulfur dioxide, and other elements of coal-burning and car exhaust hovers over most Chinese cities; of the world's 20 most polluted cities, 16 are Chinese.

The government estimates that 400,000 people die prematurely from respiratory illnesses each year, and health care costs for premature death and disability related to air pollution is estimated at up to 4 percent of the country's gross domestic product. Four-fifths of the length of China's rivers are too polluted for fish. Half the population—600 or 700 million people—drinks water contaminated with animal and human waste. Into Asia's longest river, the Yangtze, the nation annually dumps a billion tons of untreated sewage; some scientists fear the river will die within a few years. Drained by cities and factories all over northern China, the Yellow River, whose cataclysmic floods earned it a reputation as the world's most dangerous natural feature, now flows to its mouth feebly, if at all. China generates a third of the world's garbage, most of which goes untreated. Meanwhile, roughly 70 percent of the world's discarded computers and electronic equipment ends up in China, where it is scavenged for usable parts and then abandoned, polluting soil and groundwater with toxic metals.

Though government-run and heavily censored, the English-language China Daily has reported that pollution problems caused 50,000 disputes and protests throughout China in 2005. (See "The People's Revolution".) If unchecked, the devastation will not just put an abrupt end to China's economic growth, but, in concert with other environmentally heedless nations (in particular, the United States, India, and Brazil), will cause mortal havoc in societies and ecosystems throughout the world.

The process is already under way. During the Mao era, the People's Liberation Army ritualistically fired shells at the Taiwan-controlled island of Quemoy; now, the mainland spews garbage that floats across the mile-and-a-quarter-wide channel and washes up on Quemoy's beaches at the rate of 800 metric tons a year. Acid rain caused by China's sulfur-dioxide emissions severely damages forests and watersheds in Korea and Japan and impairs air quality in the United States. Every major river system flowing out of China is threatened with one sort of cataclysm or another, including pollution (Amur), damming (Mekong, Salween), diverting (Brahmaputra), and melting of the glacial source (Mekong, Salween, Brahmaputra). The surge in untreated waste and agricultural runoff pouring into the Yellow and China Seas has caused frequent fish die-offs and red-tide outbreaks, and overfishing is endangering many ocean species. The growing Chinese taste for furs and exotic foods and pets is devastating neighboring countries' populations of gazelles, marmots, foxes, wolves, snow leopards, ibexes, turtles, snakes, egrets, and parrots, while its appetite for shark fin soup is causing drastic declines in shark populations throughout the oceans; according to a study published in Science in March 2007, the absence of the oceans' top predators is causing a resurgence of skates and rays, which are in turn destroying scallop fisheries along America's Eastern Seaboard. China's new predilection for sushi is even pricing Japan out of the market for bluefin tuna. Enthusiasm for traditional Chinese medicine, including its alleged aphrodisiacs, is causing huge declines in populations of hundreds of animals hunted for their organs—including tigers, pangolins, musk deer, sea horses, and sea dragons. Seeking oil, timber, gold, copper, cobalt, uranium, and other natural resources, China is building massive roads, bridges, and dams throughout Africa, often disregarding international environmental and social standards. Finally, China overtook the United States as the world's leading emitter of CO2 in 2006, according to the Netherlands Environmental Assessment Agency.

All this is common knowledge among the scholars and activists who follow Chinese environmental trends. The news, however, has not yet shaken China out of its money-induced euphoria. One indication is that China's 10 percent growth rate takes no account of the environmental devastation the boom has caused. In June 2006, an official at China's State Council said environmental damage (everything from crop loss to health care costs) was costing 10 percent of its gross domestic product—in other words, all of the economy's celebrated growth. Vaclav Smil, a highly respected China scholar at the University of Manitoba, pegs the environmental-damage rate at between 5 and 15 percent, with 7 percent a "solid, defensible figure." Smil says that shorn of hype, China's growth rate is also likely 7 percent, "so basically every year environmental damage wipes out the gdp growth."

PULP NONFICTION

No sector better illustrates the vast reach and explosive impacts of China's manufacturing dominance than logging. At one end are the consumers in the United States, Europe, Japan, and China itself, who are mostly oblivious to the social and environmental destruction left by the Chinese-made furniture, plywood, moldings, and flooring they buy.

At the other end are the wood suppliers, almost all poor countries with weak or corrupt law enforcement and a flourishing trade in illegal lumber. Among China's leading wood importers, Thailand and the Philippines have already been stripped of their natural forests; Indonesia and Burma are projected to lose theirs within a decade. Papua New Guinea's will succumb within 16 years, and the vast forests of the Russian Far East will survive no more than two decades. Even so, Forest Trends, a Washington-based nonprofit, estimates that China's wood imports will probably double over the next decade. Chinese manufacturers are already developing replacement sources in Africa, and South America's forests are under threat for a different reason: China's growing consumption of pork and chicken is fed by soybeans grown on newly cleared Amazonian land; by one estimate, 30 percent of the jungle could eventually be transformed into soybean fields.

In the middle is China, the world's workshop, now both the planet's leading wood importer and exporter, supplying more than 30 percent of the international furniture trade. Hundreds of sawmills line China's northeastern border to process softwood logs harvested in Russia, while a port north of Shanghai called Zhangjiagang, described by the British watchdog group Environmental Investigation Agency as "a sleepy backwater" in 2000, grew to become "probably the largest trading centre for tropical logs in the world" by 2005—by then, at least half a billion dollars in wood passed through it annually, according to Chinese customs figures. From the port, many of the logs are transported two hours by road to the town of Nanxun, another former hinterland that the eia calls "the wood flooring centre of the world," with more than 500 flooring factories.

Until 1998, China fed its wood mills trees from its own forests. That year, the middle reaches of the Yangtze River swelled with the region's biggest flood in more than 50 years, killing 3,000 people, destroying 5 million homes, and engulfing 52 million acres of land. As winter approached months later, 14 million were still homeless. The land, it turned out, had no defense against erosion left. Lakes and wetlands that once would have absorbed some of the rain had been drained to create farmland, and the forests that once held topsoil in place had been harvested. Torrential rainwater carried the topsoil to the river and then down it, until its bed swelled with new sediment and the floodwater rose above its banks. As a result, China declared a logging ban on what little remained of its old-growth forests. Most environmentalists applauded the ban until they grasped its corollary: Chinese companies began harvesting other countries' trees on an even grander scale.

Most of the world's remaining natural forests are formally protected by law and regulation, but enforcement is generally corrupt and ineffectual. Thus, the planet's deforestation problem is largely one of illicit logging, and China is the world's leading importer of illegally logged wood. Chinese wood purchases have also helped finance armed conflicts conducted by such international pariahs as Cambodia's Khmer Rouge, Burma's military government, and the now-deposed regime of Liberia's Charles Taylor. "China is the number one buyer of timber from many of the countries most affected by the scourge of illegal logging," the eia reported in 2005. The largest supplier of timber to China is Russia, where an estimated half of all logging is illegal. In Siberia, pine forests are largely protected unless damaged by fire, so loggers intent on exporting wood to China routinely set the woods ablaze.

In Indonesia, the rate of illegal logging has sometimes reached as high as 80 percent. From there, logging syndicates plied what the eia calls "perhaps the largest and most destructive single trade route of stolen timber in the world," from the forests of Indonesia's Papua Province (which comprises most of the eastern half of New Guinea), often through Malaysia, where export documents are forged, to wood factories on China's southern and central coast. It's indicative of the injustice perpetrated by illegal logging that when prized tropical hardwood trees called merbau were cut down in Papua in 2004, locals were paid $11 per cubic meter; when the logs reached China, their value increased to $240 per cubic meter; by the time they arrived in the United States or Europe as flooring, they brought $2,288 per cubic meter. Most of the profit falls to high-living timber barons running smuggling syndicates out of Jakarta, Singapore, and Hong Kong. They receive support from Indonesian military and police officials who often invest in smuggling operations themselves or, if not, are bribed to facilitate them.

In addition to its many other devastating effects—species extinction, the spread of disease and poverty—deforestation dramatically speeds up climate change. Not only do cut trees no longer absorb carbon, but they release (either slowly, or, in the case of Siberian fires, rapidly) the carbon they'd sequestered. Thus, deforestation accounts for 18 percent of the world's greenhouse gas emissions—a rate higher than the global transportation sector's, pegged at 14 percent. The staggering rate of deforestation in poor, nonindustrial Indonesia places the country third among the world's emitters, after the United States and China.

While Indonesia and the other supplier countries endure the effects of deforestation, the countries that benefit from it behave as if the problem is not of their making. Thus China has signed both multilateral and bilateral commitments to halt imports of illegal wood but failed to enforce them. And George W. Bush's "President's Initiative Against Illegal Logging," announced to much fanfare in July 2003, doesn't even propose to ban American imports of illegally cut wood, but rather focuses on helping supplier countries combat illegal harvesting.

An end to American and European purchases of products made from illegally cut wood—still retailed by such companies as Ikea, Home Depot, and Armstrong (see "Timber Line")—would certainly reduce the destruction of tropical forests, as half the tropical wood that enters China is reexported as finished products. Even so, about 90 percent of all Chinese-manufactured wood products are consumed within China. This is alarming, for per-capita consumption of wood products is still far below that in developed countries, and is likely to grow as the middle class expands. China's per-capita consumption of paper, for example, is now only an eighth of the United States'; if it reaches the American rate, pulp suppliers will have to double the world's current annual timber harvest. As Greenpeace argues in a 2006 report titled "Sharing the Blame," "The world's forests cannot support either the level of consumption of developed countries, or the aspiration of developing countries to attain a similar level."

TRADE WINDS

Half a century ago, the world was much less dusty. Dust, after all, is nothing more than fine particles of soil, in contrast to larger particles known as sand. Many deserts are basins filled with dust and sand held in place by a protective crust of mosses, lichens, and soil bacteria. But modern civilization has exposed the fragility of these crusts as the human population has pushed impoverished migrants and profiteers onto marginal land. As the deserts deteriorate, they expand: Overgrazing of cattle, sheep, and goats causes grasslands to collapse, baring the underlying dust and sand to the mercy of wind. Sand is too heavy to travel more than a few miles, but dust can fly farther than many birds. If a storm system sucks it upward into the troposphere a few miles above the earth, it reaches a conveyor belt of powerful currents that can carry it across oceans and continents.

China now rivals North Africa as the world's leading producer of border-crossing dust. It has always been generously endowed with deserts—including the Gobi, Asia's largest (which China shares with Mongolia), and the forbidding Taklimakan, the world's largest sand dune desert—which cover more than a fourth of Chinese territory. Until recently, when programs to combat desertification began to make some progress, it lost a Rhode Island-sized parcel of land to desert each year.

Dust storms that now debilitate Beijing appear in records from as long ago as the 1200s, but they occurred less than once a year on average then; today they come at least 20 times a year. At their worst, the storms drape Beijing in a yellowish cloak that blots out the sun, shuts down air and road traffic, clogs machinery, and makes seeing across the street nearly impossible. Each year, they blow a million tons of dust through Beijing and several tens of millions of tons as far as the western Pacific Ocean, 7,000 miles away. Dust particles are so small—at most a seventh of the diameter of a human hair—that human lungs are defenseless against them. Frequent inhalation can cause coughing, painful breathing, bronchitis, asthma, permanently decreased lung function, and premature death.

Dust storms also set off ripples of harm. "When dust blows, what you are seeing are nutrients leaving a system—the ability of the soil to support agricultural crops is leaving," says Jayne Belnap, a research ecologist at the U.S. Geological Survey. "So you're setting up a dynamic that causes people to starve or to add more fertilizer to their soil. If they add more fertilizer, then the water becomes eutrophic, and it flows into the ocean and screws that up. It's just this huge hunk of 'uh-oh' on a massive scale. And every time we have an 'uh-oh' in a country, it doesn't matter where, it comes back and hits us."

That became clear in April 2001, when a satellite photograph showed a vast, perfectly coiled cyclonic spiral of white clouds intertwined with brown dust plumes centered over Inner Mongolia. Joseph Prospero, a leading atmospheric researcher at the University of Miami, called it "the most remarkable dust-storm image that I have ever seen." Visibility soon dropped close to zero in Beijing and driving was nearly impossible. Satellites tracked the dust as it moved across eastern China, the Yellow Sea, Korea, the Russian coast from Vladivostok to the Kamchatka Peninsula, the Sea of Japan, and Japan itself. In less than a week, it crossed the Pacific Ocean, and produced thick haze as far east as Denver. High concentrations of dust were found as far away as Maine and Georgia and eventually in the Canary Islands off northwest Africa. Dan Jaffe, an atmospheric scientist at the University of Washington-Bothell, calculated that only a 20th of the storm's dust reached the United States, but that amount, 50,000 metric tons, was two and a half times as much as all U.S. sources typically produce in a day.

For all that, dust storms are merely the most dramatic example of an array of pollutants that Asian winds deliver to other countries. In 2003, Siberian forest fires covered 73,000 square miles, an area larger than North Dakota, and sent up a smoke plume that drove ozone levels above epa limits in Seattle, 5,000 miles away. The fires are assumed to be the work of arsonists intent on supplying Chinese sawmills with logs. A year later, clouds from Asia carried enough industrial pollutants across the Pacific to produce a sudden spike in measurements of mercury, ozone, and carbon monoxide at a monitoring station at Mt. Bachelor, Oregon. Analysis of the pollutants revealed a chemical signature with what Jaffe calls "a very robust China fingerprint."

Not all Chinese pollution that crosses the Pacific is borne in huge storms. Using high-elevation monitors set up at three California sites, Steven Cliff, an atmospheric scientist at the University of California-Davis, has detected what he calls a "persistent Asian plume"—pollutant-laden air that crosses the Pacific on a nearly continuous basis. To be sure, it's a fraction of what is emitted within California's borders, and most of it continues wafting across North America, falling to earth bit by bit. Nevertheless, at Cliff's mountain sites, particulate matter from Asia accounts for 4 to 6 micrograms per cubic meter of air—already approaching half of California's annual average pollution limit of 12 micrograms. "The problem is going to be that the ability to emit any sort of pollution from any industry here in California will be reduced because of federal regulations," Cliff said. "There could be a day when essentially the entire regulatory limit is met" by Asian pollution.

The largest source of that pollution is the billion tons of coal China burns per year, more than virtually all the world's developed nations combined. The International Energy Agency reported in November 2006 that global coal consumption had increased as much in the previous 3 years as in the 23 before that, and that China was responsible for 90 percent of the increase. It operates more than 2,000 coal-fired power plants and puts a new one into operation every four to seven days. Few possess scrubbers that could limit emissions, and those that do tend not to use them, since scrubbers drive up the plants' energy and maintenance costs. China's central government has issued some fairly strict regulations to limit plant emissions, but they are rarely enforced because of corruption and the reluctance of local officials to confront job-generating power companies. Those companies called upon to meet the regulations usually opt for paying an annual $500,000 fee instead. The plants provide 80 percent of China's energy, at the price of emissions devastating to both China and the rest of the world.

Start with sulfur dioxide, "China's number one pollution problem," according to Barbara Finamore, director of the Natural Resources Defense Council's China program. Sulfur dioxide causes respiratory illness, aggravates asthma and heart disease, and turns soil, lakes, streams, and oceans acidic. It is the key ingredient in the premature deaths of more than 400,000 Chinese each year from air pollution and has led to the outbreak among Chinese in their 30s of chronic lung diseases usually associated with old people. By 2005, China's sulfur-dioxide emissions were nearly double those of the United States—and they are estimated to have grown by 14 percent since. As a result, acid rain now plagues a third of China, much of Japan and Korea, and even the Pacific Ocean.

Coal has also made China the world's leading producer of human-caused mercury emissions, accounting for 30 percent of the global total and rising. A 2004 peer-reviewed study found that up to 36 percent of man-made mercury emissions settling on America originated in Asia. Mercury impairs neurological development in fetuses, infants, and children, and is highly toxic.

Another coal-derived pollutant, nitrogen oxide, combines with sunlight to produce ozone, whose inhalation induces coughing, wheezing, chest pain, and airway inflammation. Thanks to coal and cars, China's nitrogen-oxide emissions have climbed 48 percent in five years. Add the nitrogen oxide from the Siberian arson fires, and the result is a toxic brew powerful enough to raise ozone levels along the U.S. West Coast more or less continuously.

Even so, the most insidious product of China's coal consumption is carbon dioxide, which, along with CO2 generated by the rest of the world, is destroying China's ecosystems: Already-arid northern China is drying out, the wet south is seeing more and more deluges and floods, and the Himalayan glaciers that feed China's major rivers are melting; according to a June 2007 Greenpeace report, 80 percent could disappear by 2035. Such a development would jeopardize hundreds of millions of people who depend on the rivers for subsistence and livelihood.

Nevertheless, China has steadily maintained that the developed countries bear primary responsibility for global warming and must be the first to counter it. The argument has some merit: After all, the United States alone is responsible for a quarter of the man-made greenhouse gases pumped into the earth's atmosphere over time, while China's cumulative contribution is still less than a third as much. And even today, China's per-capita carbon dioxide emissions are less than a fifth of America's. Yet China's refusal to curb emissions could single-handedly wipe out reductions made elsewhere, crippling the international effort.

THE SINCEREST FORM OF FLATTERY

Nothing mentioned so far—not even China's supplanting the United States as the world's biggest greenhouse gas polluter—should make Americans feel smug, for what the Chinese are chiefly guilty of is emulating the American economic model. From the 1980s on, Chinese policymakers went on foreign-study missions to figure out how developed countries fostered economic growth. As Doug Ogden, former director of the Energy Foundation's China Sustainable Energy Program, puts it, "It's not surprising that the lessons the Chinese drew from their international experiences are often based on sprawl development and private automobile ownership and highly energy-consumptive practices," since the economies they studied all possess those features.

One of the Chinese officials' most fateful choices was to promote the automobile industry as a pillar of China's economy. The decision must have seemed obvious. After all, cars are the foundations of the American, Japanese, and South Korean economies, generating jobs and economic activity. To bolster a domestic industry, Chinese officials imposed quotas and high tariffs on imported vehicles and encouraged consumers to buy cars. The quotas succeeded all too well. China's car industry is already the world's third largest, but many of its cities are paralyzed by traffic, the inhabitants are choking on the fumes, and China's foreign policy increasingly revolves around courting outcast nations such as Sudan to obtain oil at premium prices. From an international perspective, the potential impact on climate change is worst of all. Motor vehicles now account for no more than 3 or 4 percent of China's greenhouse gas emissions, but the industry is still nascent. According to one projection, the number of cars on Chinese roads will grow from 33 million to 130 million over the next 12 years.

The only thing likely to slow this explosive growth is the increasing scarcity of the resources needed to make and fuel cars. As numerous commentators have pointed out, if China's income per capita, now less than a 10th of the United States', ever reached the American level, several Earths would be required to provide resources. "Through all of our engagement with China, the U.S. government has aggressively promoted China's adoption of an American-style, high-consumption, high-waste economic model," says Jim Harkness, president of the Institute for Agriculture and Trade Policy and former executive director of the World Wildlife Fund in China. "Combine that with the global trading rules [that downplay environmental and labor standards], the tremendous constraints China faces in terms of its need to generate employment, and the fact that they've got all that coal and no oil—and how surprised can we be that we've ended up with an environmental nightmare?"

Given the tenfold difference between U.S. and Chinese incomes per capita and the presence of some 800 million impoverished Chinese, even the idea of asking the two nations to sacrifice equally for the global environment is presumptuous, and the Chinese know it. Consider Pan Yue, the outspoken deputy minister of China's environmental protection agency. Three years ago, Pan declared that the Chinese economic miracle will end soon "because the environment can no longer keep pace." Yet asked for his view of studies showing that mercury from Chinese power plants is settling in American lakes and rivers, Pan focused his criticism on the United States. "As for China's impact on surrounding countries, I'm first to admit the problem," he said. "But let's talk about this in the context of international fairness. Whose development model are we emulating? Who has been shifting all of its pollution-heavy factories to China? And who bears an even greater international responsibility than China—but has yet to shoulder it—on matters like greenhouse gas emissions?"

The world has passed up the opportunity it had at the beginning of China's economic transformation to guide it toward sustainability, and the loss is already incalculable. All that is left is the one option that would have served everyone best all along, which is to model environmental sanity. Stop buying products made in China. Stop building coal-fired power plants. Instead of subsidizing oil companies, invest government funds in research on sustainable-energy technologies. Build effective mass-transit systems in every city. Cut greenhouse gas emissions. Show China the benefits of responsible behavior.