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Interview with James Baker, Bernard-Henri Levy, Fawaz Gerges, Christopher Hitchens

Aired August 30, 2009 - 0800   ET


FAREED ZAKARIA, CNN HOST OF "FAREED ZAKARIA GPS": This is GPS: THE GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world.

Today a terrific program for you and I want to show once more an important and prescient interview I did back in April with Former Secretary of State James Baker. I said prescient because in the course of our conversation, Baker voiced some concerns about the future that turned out to correct.

When I asked him how President Obama was doing for instance. He warned the President not to take on too many big issues at once. He suggested that for Obama to tackle health care so early in his presidency might be politically risky.

And on international issues -- the U.S. relationship with Russia, the pullout from Iraq, a number of others, he has fascinating insights that seem particularly relevant in light of recent events.

I won't give it all away but as you are listening to this shrewd politically observer remember that he also knows as much about economic crises and politics as he does about international diplomacy. He's been Chief of Staff of the White House, Secretary of State, Secretary of the Treasury and run two presidential campaigns to boot.

Also on GPS today, a new interview with China scholar Minxin Pei on what China is really thinking about all that American debt it owns and how it is helping the U.S. with North Korea.

Finally, an encore of the fascinating discussion on radical Islam: the difference between fundamentalist and Jihadist. Who poses the real threat?

It's a great show I think, so let's get started.


ZAKARIA: And now, James Baker joins me from the Baker Institute for Public Policy at Rice University in Houston. Welcome Secretary Baker.

JAMES BAKER, FORMER SECRETARY OF STATE: Thank you Fareed, it's a pleasure to be with you.

ZAKARIA: President Obama faces a unique set of challenges, a unique set of problems, what is your basic sense? How is he doing? There has been some criticism and controversy; a feeling that he's facing a greater hostility and challenges than perhaps people had expected, given his charisma.

BAKER: I think that dealing with the economic crisis facing the nation is the number one priority. That ought to be his number priority, his number two priority and his number three priority.

Health care is something that is going to take a long time if you can bring that up later on. Climate change is something that's going to be very controversial and take awhile to do. I mean, there's a lot of things coming -- and a lot of proposals coming out and I just -- I just think that focusing a bit more on the economic problem now.

He would probably argue, look, I'm doing everything I can on the economic problem and I'm sure they are focusing on that. But they are still nevertheless coming out with a lot of other proposals.

And I think, we saw -- that was in connection with the Carter presidency in the early days of it. They didn't seem to prioritize quite to the degree and extent that they should have.

Every president you know gets a 100 days honeymoon, this one may -- he came in with such a -- approval and one such a big victory. He may get a little more than that but he's not going to get a lot more than that.

So you need to take on the biggest challenges in those first 100 to 120 to 150 days.

ZAKARIA: But you have in the G-20, now, the Germans and the French saying they want to press for international financial regulation. You have Britain and the United States trying to focus more on the stimulus issue. The Chinese have been talking about...


ZAKARIA: ...a reserve currency other than the dollar.

He's getting a lot of push back. How should he handle that in places like the G-20?

BAKER: Well, I think he's handling it very well. He's saying forget this talk about another reserve currency, that's really impractical, it isn't going to happen. It's not going to happen in your lifetime and it's not going to happen in mine and we can talk about awhile later on.

With respect to stimulus -- those countries -- they say -- they are taking the position -- look, we stimulated all we need to and we're not going to do any more. But there is going to be a meeting of the minds I think on some additional regulations. It's not a global regulator, we're not going to -- the United States of America should never agree to have a -- an international regulator that tells it what to do and what not to do with its economy.

But there are some things I think that are going -- it looks now like they're going to come out of this meeting some sort of regulation of tax havens; that's a healthy thing. That would be a healthy thing globally. Some regulations perhaps of hedge funds and things like that.

And so I think we'll probably see that and I think the Obama administration will be going along with that.

ZAKARIA: What about the core financial issue, which is what to do about these banks? You wrote an op-ed in the "Financial Times," in which you basically remembered the experience of Japan's lost decade when you were in high government office.

And you pointed out that the key problem was they didn't deal with the bad banks fast enough and decisively enough. They kept these sort of zombie banks alive, well enough not to die but not well enough to actually give loans.

Now it does seem like there may be some similarity here and that we are not dealing quickly enough, fast enough and should we, as many people have said, effectively take over some of these bad banks and write those bad assets off their books.

BAKER: Well, you only do that, you would only do that for the minimum amount of time required in order to sell them back to the private sector and get them back into the private sector. But what I said was we ought to classify these banks as healthy, hopeless and needy.

The healthy, you don't have to do anything with. The hopeless you really should close. And the needy, you need to infuse some government money in there and require that the management and the stockholders and some of the bondholders take a haircut, a loss or you get rid of the management. You wipe-out the stockholders and you give the bondholders a haircut. And then you clean up the banks' balance sheet and then you immediately -- as quickly as you can you see them back to the private sector.

It's not a nationalization or you can argue that it's a temporary nationalization.

Now Secretary Geithner has called for stress tests, for stress testing these banks. And that's a good thing to do provided those are really rigorous stress tests. The worst thing in the world would be to have a phony stress test and say, well, they look ok and let them continue on as zombie banks.

We should not repeat Japan's mistake. We really cajoled the Japanese back in those days to let their banks, clean out their banks and move forward. They didn't do it and they suffered 10 lost years.

ZAKARIA: The bottom line, how do you think Secretary Geithner is doing on the job that you once held?

BAKER: Well, I think he's had some rough patches and a lot of that is due to a lack of transparency. I think it would be really healthy if there was more transparency in everything that's done.

I have a little bit of concern quite frankly about this public/private partnership that he's called for. At first that looked like a great idea where the government guarantees some private investors to take some of these toxic assets off the banks' balance sheets. But we don't have any assurance that the banks and the new investors will come to a meeting of the minds as to what to pay for those.

The investors may have a lower estimate -- may think they're worth less than the banks, because the banks are going to have to take a loss when they sell them.

So I think there's a lot to -- that remains to be seen there and the most healthy thing would be to see a lot more transparency.

Now having said that, I think a lot of what has been done by the Fed and the Treasury was absolutely the right thing to do. When we had a big crash in the market, a big downturn when I was Treasury Secretary back in 1987, we threw liquidity at the problem.

And you have to throw liquidity at these problems. That's one thing you have to do. And the second thing you have to do is coordinate your policies with the other major currency countries. And we're trying to do that and I think those things are the right thing to do.

ZAKARIA: What grade would you give them?

BAKER: Oh, I'm not in the business of grading people. Tim Geithner got his - his first government job was when I was Treasury Secretary. He started in the Treasury I think in 1988 just before I left the Treasury.

ZAKARIA: But way down the totem pole, you didn't know him.

BAKER: And he did it -- and he did -- no, I didn't know him, but he did a good job I think at the New York Fed. And I think he will do a good job at the Treasury given time. But he got off to a little bit of a rough start by virtue of some of the things I just mentioned and then the tax problem that he had when he was facing confirmation.

But we ought to all support him and I do and hope he does a great job because nothing is more important than getting our economy back on track.


ZAKARIA: And we will back with former Secretary of State James Baker.


BAKER: You don't make -- you don't make peace with your friends Fareed, as you well know. You make peace with your enemies.




ZAKARIA: And we are back with the former Secretary of State, former Secretary of Treasury, former Chief of Staff and a man who ran two presidential campaigns, James Baker.

One of the things that President Obama has done is to talk about a new relationship with Russia and actually moved fairly aggressively on this front of trying to find some areas of cooperation.

You were Secretary of State when you were actually able to get the Soviet Union to agree to sign off on the first invasion of -- the first Gulf War.

BAKER: Right.

ZAKARIA: Are we returning to and can we and should we return to a new and more cooperative relationship with Russia?

BAKER: Well we certainly should and I hope we are. And I was encouraged to see President Obama say it was time to set to push the reset button with Russia.

We've got a lot at stake. We need a good relationship with Russia. Russia needs a good relationship with us. And the most tragic thing in the world would be after 40 years of this cold war that we went through and finally came out of in a peaceful way and in close, really close cooperation or maybe even partnership with Russia, it would be a tragedy if we slid back into that, into that kind of a cold war existence. We don't need that. They don't need that.

We have a lot of global issues that we need Russia's cooperation on not least of which is climate change and this economic matter that we've just been talking about and we're now facing. But there are a lot of others.

ZAKARIA: What about Iran? President Obama has made some overtures to the Iranians, tried to talk and see if there are ways that it's possible to engage with them...

BAKER: Right.

ZAKARIA: ...find some areas of common interest. Do you agree with that?

BAKER: Yes I do. I do and that was one of the recommendations in the Iraq Study Group report. We said in that report that we ought to be talking to Iran at least with respect to the situation in Iraq. And we said we ought to be talking to Syria across the board on all issues with certain caveats with respect to what Syria would have to do.

But, yes, we need to talk to people. You don't make peace with your friends, Fareed, as you well know. You make peace with your enemies. And if you know what you're doing and you do it adeptly and right, you're not going to get in trouble by talking to people. It's not some sort of a benefit you're bestowing on them.

Now having said that, we had a policy when I was Secretary of State for four years that well, being willing to talk to Iran at the level of foreign ministers but they could never muster the domestic political support necessary to talk to us because their whole revolution had been built upon vilifying the great Satan, the great Satan, the United States of America and they couldn't get the domestic political support necessary to talk to us.

It'll be interesting to see if they can do that now.

ZAKARIA: But of course by your strategy the onus was on the Iranians and people didn't blame the United States for the free...

BAKER: That's correct. Well, that's correct and they can't do that any longer because the United States under the Obama administration is saying, "Hey, we're willing, we're ready to talk to you."

That's why I think it's a healthy move. Nothing may come of it. It may not, but it isn't going to hurt us. It may not help us, but it isn't going to hurt us.

ZAKARIA: Obama says we should draw down troops in Iraq roughly speaking on a two-year cycle. That sounds a lot like the plan you were suggesting. Do you think there is -- there are any dangers here? Do you basically support it?

BAKER: Well, another thing the Iraq Study Group said, Fareed, as you know was that we were going to have a large number of U.S. forces in Iraq for a long, long period of time and President Obama has acknowledged that as well.

But at some point we must begin to responsibly draw down and that's what he's said he's going to do. He's also followed a lot of the other recommendations that were in that Iraq Study Group report. So I think that he's approaching it in the right way.

What's going to be really interesting to see is to see the degree to which we can draw down without creating a situation on the ground that gives rise to a resumption of violence and civil strife in Iraq. I'm hopeful that we can do that. But I think that remains to be seen.

ZAKARIA: A lot of the things you've been saying, Mr. Secretary, sound like you welcome the changes President Obama has made. These were changes of course from the Bush administration, from the administration of George W. Bush. This is the guy who I think it's fair to say you helped centrally get into the White House with the election of 2000.

Do you feel as though the administration of George Bush was a failure in diplomatic terms?

BAKER: No, I certainly do not. And I think a lot depends, of course, upon how Iraq will finally turn out. If Iraq turns out to be a functioning state, as opposed to a failed state, in the heart of the Middle East that has embraced democracy, not necessarily a Jeffersonian democracy in the way we think of it, but a functioning and a solid, stable state in the heart of the Middle East, I think that George W. Bush will be seen to have been a very, very successful president.

If, on the other hand... ZAKARIA: Even despite the price, despite the cost?

BAKER: I think so, yes.

But you know, that's a different question. The question of whether Iraq -- we're talking now about whether Iraq is a success. And what I'm saying is, I think the jury's still out on that.

And if Iraq turns out to be a functioning state, a democracy in the heart of the Middle East, at peace with its neighbors and not brutalizing its own people, then I think it will have been a success.

The other question is, were we justified in going in, in the first instance. And in my view, the answer to that is clearly yes.

Why do I say that? I say that because even though it was wrong, there was intelligence from our highest intelligence agencies that Saddam had acquired weapons of mass destruction. He had thumbed his nose at 12 additional U.N. Security Council Resolutions, in addition to the ones we put on him at the end of the first Gulf War.

So I think going in, in the first instance, was clearly justified. I think whether or not it will be seen to be a success depends upon events still to happen in the future.

ZAKARIA: But look on Russia, on Iran, I think on China, if I've seen some of your comments. On all kinds of issues, you seem to be welcoming the Obama administration's shift from the Bush administration.

BAKER: I think I told you at the beginning of this program I welcome the realism and the pragmatism that I see in the foreign policy of this administration. Now, that's not to say there wasn't some realism and pragmatism in the foreign policy of the Bush administration, because there was.

And there are a lot -- there are many things about the Bush administration that I greatly admire, including most of the things on the domestic side that -- with respect to which I have grave differences with the Obama administration.

But I happen to be a -- one who believes that principles and values are rightly central to America's foreign policy, but they cannot be the only thing. The promotion of democracy and free markets is very rightly central to our foreign policy, but that can't be the only thing.

We've got to deal with the world as it really is, Fareed. And sometimes -- that means that sometimes America's going to have to deal with regimes that are less than free market democracies, and sometimes we're going to have to be willing to talk to our enemies and things like that.

I mean, that's just the way I believe you have to practice foreign policy to get results. And after all, the bottom line is getting results. ZAKARIA: So no bias, remorse over your role in the 2000 elections in Florida?

BAKER: Absolutely not. We're far better off to have had George W. Bush as President than the alternative.



ZAKARIA: So let's start talking about radical Islam.

Joining me are Bernard-Henri Levy, who wrote, among several great works, "Who Killed Daniel Pearl?"

Asra Nomani is the author of "Standing Alone: An American woman's struggle for the soul of Islam."

Fawaz Gerges' most recent book is "Journey of the Jihadist: Inside Muslim Militancy."

And Christopher Hitchens wrote "God is not Great: How Religion Poisons Everything," among many, many other books.

ZAKARIA: Bernard, the problem of radical Islam presents itself very dramatically in the last two weeks in Pakistan. The Pakistani government has signed this deal in Swat with the Taliban.

Is this a capitulation to the forces of Islamism or is it a kind of recognition of reality and perhaps the hope for some political stability?

BERNARD-HENRI LEVY, AUTHOR, "LEFT IN THE DARK": The real distinction to make, the real one, is between religion and politics. As for myself, I am -- I have nothing against religious faith, nothing against Muslims, even fundamentalists, as long as this faith remains between himself and himself, even the fundamentalists.

I can agree, I can speak with a fundamentalist reader of the Koran. But when it comes to say that Koran should be the rule to create a society when it comes to, say, that the treatment of women, of foreigners and the rule of a country depends on the Koran, then it is a political question and then we have to defend the civilian society against Talibans or al Qaeda. It is the same.

FAREED: I want to...

LEVY: is a political movement which must be qualified as fascist and the question is know if democracy have to oppose fascism or not. If we think that we don't have to oppose fascism it's their point of view...


LEVY: It's not mine. GERGES: Let me -- the question -- the first question is, what are the differences between the Taliban on the one hand, and the global Jihadists on the other? And that's the first.

And the second question, what do we want? What do we do, we as the Western world? That is, what's our goal?

LEVY: Promote, defend democracy.

GERGES: The first question is, Fareed, al Qaeda is waging a global Jihad -- all-out war -- against the United States and its allies, be it -- I mean, Western powers -- close Western powers, and Middle Eastern states...

The Taliban, regardless, will come back to what -- the Taliban is not interested in waging a global Jihad along the same lines as the global Jihadists, al Qaeda, point one.

The Taliban have been on record saying their goal, regardless -- I agree, I fully agree, the Taliban is a bloody, regressive -- I'm not going to go into in the fascist state...

LEVY: All right. A system of fascist...

GERGES: ... historical analogies, reactionary, -- I mean, whatever. But the Taliban is not interested in waging global Jihad.

This particular struggle Fareed in Afghanistan and Pakistan must be won, must be won by Pakistani -- by Pakistani and Afghani progressively with our help. What could we do instead of waging war? Because our war Fareed as you suggested earlier has played directly into hands of the Talibans.

FAREED: Let me ask you a question here. There isn't a single member of the Taliban who has been found involved in any global terrorism?

GERGES: Never.

FAREED: All right, so why we are at war with them and not why should we oppose them? Why are we at war with them?

CHRISTOPHER HITCHENS, VANITY FAIR: I just wanted to say to Fawaz that I have a different memory than his or from -- my memory differs from his I should say. About the relationship symbiotic I would call it between the Taliban and al Qaeda.

It could be that this vote on the shura council did take place but when the Taliban were offered by President Bush, we will leave you alone if you give up your horrible guest and his henchmen, they refused.

GERGES: And Mullah Omar, Mullah Omar...


ZAKARIA: But the point is there is no Afghan... HITCHENS: A man who we missed the chance to kill.


HITCHENS: And he's now going around blinding and burning the women...

GERGES: We're not disagreeing that.

ZAKARIA: All true. But there isn't a single Afghan who has been involved in a terrorist attack against the United States, Britain, France, you know, anything outside of the Afghan...


HITCHENS: They simply provide the hinterland for al Qaeda. They meant that al Qaeda had a state at its disposal.

I think we have the right to say we will make the life of any government that shelters these people unliveable, unbearable. And it doesn't matter who made this unpopular. Because we raised that cost to the point where no rogue will fail or potentially a rogue or failed state can take it.


LEVY: There is not only attacks on America, there is also attacks on little girls, on women, on the democrats in Afghanistan itself...

HITCHENS: Yes, on India...


LEVY: ... Talibans commit every day attacks against civilians in their country.

Lashkar-e-Toiba, Lashkar et (ph) Jaish-e-Mohammed (ph)-- these groups which were responsible, for example, on the attack on Bombay -- are they al Qaeda or are they Taliban? They are both of them.

There is an indistinct frontier. There is a symbiosis between the two. You cannot separate...

FAREED ZAKARIA, CNN ANCHOR: But isn't this, Bernard, like saying, you know, all these communists and socialists were the same during the Cold War? Wasn't it important to actually make...


ZAKARIA: ... between Stalin and Tito, between Stalin and Mao?

LEVY: Fareed, when you have the cult of blood, when you have the cult of violence...

ZAKARIA: Stalin and Mao both had the cult of blood.

LEVY: ... when you hate the women, when you hate the Jews, and when you hate democratic values...


ZAKARIA: But Bernard, but one is trying to kill us and the other may not.


LEVY: The difference between the two is global. The word "global" makes the difference.

I mean that Talibans are themselves probably will not have committed the September 11 bloodbath. Sure. But...

ZAKARIA: Or any other...


LEVY: Or any other foreign attack. So, the difference is global.

But should we be concerned only when an anti-democratic movement becomes global?


ZAKARIA: But that's not -- my question to you is, should we go to war? Should we drop bombs on people who are doing despicable things to women in Afghanistan? Is that a cause to go to war with them?

GERGES: And then also, the question is, could it be, could it be just for a second, that a war in Afghanistan and Pakistan, producing the opposite results from the intended consequence?

We have to discuss this, point one. Point two...


ASRA NOMANI, AUTHOR, "STANDING ALONE IN MECCA": I mean, military strategy may not be the solution, but there is undoubtedly a conflict that we have to resolve.

I mean, this is something that the Obama administration must tackle differently than we had -- or solutions in the Bush administration.

It may just be a matter of time before the Afghanistan, Taliban extend their reach. I mean, the truth is that they have been enmeshed with each other. The Jihadi groups in Pakistan have been working closely with the Taliban groups. And al Qaeda has been immersed in that.

The Daniel Pearl case is a perfect example of how Jihadi groups in Pakistan perhaps intersected with some of these larger elements with global dreams.

And so I think it's...

GERGES: Yes, of course. NOMANI: ... completely, you know, short-sighted if we don't...


CHRISTOPHER HITCHENS, VANITY FAIR: It was a very essential question.

And of course this -- it was said in Iraq until very recently that the harder we fight in Iraq, the more we bring Jihadists into the country, the more it becomes their place and the more we create equal and opposite effect to the line we have today. Nonsense, nonsense.

But the biggest...


ZAKARIA: But biggest -- you as you said the most important thing we did in Iraq was starting talking to the Jihadist who had been killing us.

We made the distinction in Iraq...

GERGES: Absolutely the Sunni insurgency...

ZAKARIA: ...the Sunni Jihadist and the al Qaeda on the one hand saying, these guys are nasty they are bad, but they're -- and they were actually killing us but we said -- but they are not inherently in their nature -- a bad global Jihad.

GERGES: And that's how the world was telling the...

ZAKARIA: Isn't that very much...


HITCHENS: Well, look. I'm not...

ZAKARIA: Isn't that very much...

HITCHENS: ... splitting these groups or trying to turn them at all.

I'm saying that I don't want the distinction between them to be made too absolute. And I don't like the argument that the counterstroke is our fault. It was just bad generalship.

I mean, we worked out ways of inflicting not just a battlefield defeat on al Qaeda in Iraq, but a political defeat as well. They have been humiliated and discredited in front of, so to say, their own people.

ZAKARIA: But mainly because...

GERGES: Absolutely.

ZAKARIA: ... because we took the Sunni community, 90 percent -- as Petraeus' adviser, as Kilcullen says -- we talked to 90 percent of the Jihadists, and isolated 10 percent.

GERGES: Two integral points...

HITCHENS: And killed (ph) (INAUDIBLE), right, precisely.

GERGES: Can I add two integral points?

The war in Iraq, Christopher, has been turned around as a result of we making distinctions between the Sunni-based insurgency and the global Jihadists. This is -- we have not won the war against al Qaeda in Iraq. The Sunni community has chased al Qaeda out of Iraq.

ZAKARIA: You know, the big question on the table is, can we live with radical Islam? Not, can we approve of it. Not, can we celebrate it. But can we accept that it exists in some parts of the world?

In Nigeria there will be places which have Sharia, maybe there are towns in Pakistan, maybe there are places in Afghanistan. Can we accept that and wait for a political, cultural, educational struggle that will overwhelm it -- the forces of modernity to overwhelm it -- or do we have to kind of fight these forces?

GERGES: I mean, I think one of the major premises is that it is counter-productive and empirically false to equate the global Jihadists of al Qaeda and its affiliates with various Islamically- based groups, point one.

And point two, we're also suggesting it's counter-productive for our own interests. We, we're talking about the United States of America.

I fully agree with you, it's a local struggle that must be won locally. And the question is, what could we do as an international community...

NOMANI: I think it's a global struggle (ph).

GERGES: ... to help -- look. Instead of basically bombing areas -- even the -- I mean, how many of us know that Pakistan authorities basically denounce America's attacks, yet at the same -- American flights are...


LEVY: Is Darfur genocide a local problem?

GERGES: Yes, absolutely. No, not at all.

NOMANI: It's a global (INAUDIBLE).


NOMANI: I don't agree that it's a local problem.

GERGES: Darfur is not a local problem.


LEVY: What do you mean by local or global? GERGES: No, no, no. I'm saying...

LEVY: I don't know. You know...

GERGES: But is -- the question...

LEVY: In the '30s, when the Spanish fascists took power, was it local or was it global? It was both. When you are in front of these sorts of forces, denying the liberties, hating the democracy, the distinction between local and global...

GERGES: Absolutely.

LEVY: ... does not (INAUDIBLE) order (ph).

GERGES: I fully agree. And I'm suggesting we, the international community, I'm sorry, we have a major stake in how this struggle evolves.

I see al Qaeda on the defensive. I see many of these moderate clerics, so-called, who are denouncing it and denouncing suicide bombing.

But then I look at Somalia, where an Islamist group takes over a town every few months, Nigeria, where 10 states have adopted Sharia law, parts of Pakistan and Afghanistan.

So, I'm confused. Is it on the retreat? Or does it have remarkable resilience?

LEVY: It's a battle. It's a war.

You know, the terrible formula, clash of civilization, invented by Huntington -- the only real clash of civilization today, the only serious one, is inside Islam between the moderates and the fascists.

This is a clash...

NOMANI: And I would argue...

LEVY: ... between the moderate civilization and the fascist civilization inside the Muslim world...


LEVY: Who is winning? Who is winning? Who is under retreat? I don't know. I hope that the moderates are on the progress (ph), and I hope that the fascists are retreating. I am not sure.

GERGES: We're not disagreeing then, that there is -- the conflict is really within...


LEVY: But we have a responsibility to help as much...

GERGES: Not by waging -- I mean, wars and by...


LEVY: I don't say that war is never the best solution. Sometimes it is the only one which remains.

GERGES: Turmoil basically helps the extremists versus the moderates.

LEVY: It depends...


GERGES: War basically...


ZAKARIA: Asra, what have you been reading?

NOMANI: Our formula for war has made us give up Swat Valley, though. I mean, this -- Swat Valley does not represent one of your examples of progress.

GERGES: No, it does not, it does not.

NOMANI: So it really...


GERGES: ... question asked about other theaters, as well. We're talking...

NOMANI: Right. But it belies this idea that extremist al Qaeda ideology is losing in our Muslim world. And this is the truth.

I mean, we're not talking theory here. This is on-the-ground in a region that has never been in the grips of this extremist ideology.

ZAKARIA: And that concludes this discussion. We will have to talk about it again. There will be other occasions. Thank you all.

We'll be right back.


FREDRICKA WHITFIELD, CNN CORRESPONDENT: Hello, everyone. I'm Fredricka Whitfield with the CNN Center at Atlanta and here are the headlines.

Fire crews are battling wild fires in Central and southern California. The largest and most dangerous is burning in the mountains above Los Angeles forcing evacuations. It's already scorched more than 20,000 acres; 10,000 homes are threatened.

Police in Brunswick, Georgia are looking for at least one person in connection with the brutal killings of seven people inside a mobile home. Investigators have arrested the family member who called 911. He's charged with drug possession and lying to investigators.

Allegations of fraud in Afghanistan's election have doubled in the last two days. Officials say there are now nearly 2,500 complaints. The reports of a voter intimidation and ballots stuffing could be serious enough to alter the results. The latest tallies indicating incumbent President Hamid Karzai with a sizable lead.

President Obama is wrapping up his weeklong family vacation on Martha's Vineyard. He is scheduled to fly back to Washington in just a few hours.

And those are the headlines. More of "FAREED ZAKARIA'S GPS" in a moment.


ZAKARIA: Let's take two problems the world faces today: the global economic crisis and the standoff over North Korea. In both you'll notice that China now has a central role and perhaps the central role. And few in the west know more about China and the inner working of its government than Minxin Pei.

Minxin is a scholar at the Carnegie Endowment for International Peace and he joins me now.

Minxin, first of all, how is China doing through this recession? The government projects that it's probably going to be able to grow the economy around eight percent. Does that finally means that Chinese consumers are spending more or is this largely that the Chinese government is spending more?

MINXIN PEI, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE: The Chinese government is doing pretty well because the economic growth is still happening, most other economies are in recession. The Chinese economy is in a slow growth phase around say seven to eight percent.

But the growth is driven by government spending mostly investment and that worries the Chinese government because it is not sustainable.

ZAKARIA: Because they can't keep spending at this level?

PEI: No, they can't. The Chinese consumers have not joined the party yet but after that's a very complicated stories. And more worryingly the Chinese private sector investors are not opening their pocketbooks. So it's government and government alone that's pumping up the economy.

ZAKARIA: So explain if it is a complicated story, simplify it for us. Because one of the things we often here is that look, the American consumer has suspend a little bit less and save a little bit more. But in return the Chinese consumer has to start spending more because we need that demand in the system. We need -- somebody has to buy all these toys and these goods and these flat screen TVs and Americans are buying too many. But the Chinese are buying too few.

Why is it that the Chinese consumer isn't stepping up and consuming more? Is this a cultural thing?

PEI: Well, some Chinese government officials will say it's Confusion (INAUDIBLE) to save. But in reality Chinese consumers or Chinese workers are not earning enough income. If you look at the share of the GDP they are going into households as a percentage of income. Then it's been falling.

ZAKARIA: And where is it going? Where is the money going?

PEI: The money is going into government coffers as taxes. Government taxes have gone about 50 percent over the last 15 years. And then corporate profits mostly monopolistic stay-on companies have been very profitable due to government restrictions on entry and pricing.

And the other problem China has is that -- it has a very flimsy social safety net. So if you are an average Chinese consumer you are mostly worried about your health care, your pensions, your education, all of which have to be paid out of pockets. So if you don't have a robust social safety net, then your consumers are now going to be willing to spend.

ZAKARIA: Now, one of the things Americans worry a lot about is the Chinese own all of this U.S. debt to China's $2 trillion foreign exchange reserve, about 65 percent of that is supposed to be in dollar-denominated debt.

Are they going to one day say to us we don't like your debt anymore and we want -- we are going to stop buying it or we're going to sell it all of which would have catastrophic implications for America.

PEI: Well, first of all if they feel that way, they are not going to say it publicly. But right now I think it has become a huge domestic political problem. There has been a lot of Internet discussion in China on whether it was a good idea to buy so much U.S. debt to begin with.

So the Chinese government officials are increasingly on the defensive about this policy. And if you look at their recent statements they appear to be suggesting that they are going to review this policy because the purchase of U.S. debt is really unsustainable, even for China.

But at the moment, they have no other choice. If they stop purchasing, the market will react. If they try to offload even some of the debt, because it's true, (INAUDIBLE) about 60 percent, 70 percent in dollar assets. If they offload say $100 billion that would move the market and China would end up losing a huge amount of money.

ZAKARIA: So if they sell it, it will cause a collapse in price, and who gets hurt? They because they they're the principal holders of all these.

PEI: They have to get stuck with the debt. Over the long run, inflation, dollar devaluation, will also hurt China's holdings.

ZAKARIA: Let's talk about North Korea. So the conventional view about the situation, which is, I think, basically accurate, is the United States is very worried about North Korean nuclear weapons. The Chinese government is very worried about a North Korea implosion, because the way they see it, if North Korea implodes they have millions of refugees on their borders and potentially a unified Korea because eventually that will mean the south will take over the north which will mean a big Korea with American troops and potentially even with nuclear weapons.

So they don't push the North Koreans as hard as we want them to because that's their fear. Is this changing?

PEI: It's not changing fundamentally, but it is changing in a tactical way. The Chinese, they want to teach the North Koreans a lesson because they want to drive home the lesson that you guys have to behave. We are propping up your regime, and if you don't take our interests at heart, we're going to make sure you get hurt but not hurt enough that the regime collapses. So the Chinese are trying to modulating the outside pressure at the moment.

ZAKARIA: So this last test the North Koreans did, that did annoy the Chinese?

PEI: Absolutely. That's why the Security Council sanctions this time actually has some teeth. Last time it had absolutely no teeth.

ZAKARIA: Does this suggest the Chinese are finally becoming more -- having a broader conception of their interests? One of the things people have often said is that China looks very narrowly at the world. It looks at its own interests. It's not trying to produce regional stability. It's not trying to worry about broader. They just want a free ride on, you know, the global system and get rich within the system. They're not trying to help prop it up and keep it stable.

Are they -- is there a shift taking place in China's world view?

PEI: Well, it's a shift driven not by an intellectual self-awakening but really by interests. China was or has been a free rider, because it had very little stake.

And now China all of the sudden sees itself as a very important stakeholder. It has a self-interest in preserving the regional order and the global order, but, of course, it does not want to be out front leading an effort.

So when you look at China's growing policy behavior, you're struck by China's practice of what I would call punching below its weight. It does not want to exercise international leadership, but events do not allow China to stay behind the scenes, and the North Korean crisis is one of those events.

ZAKARIA: Minxin Pei, pleasure to have you on.

PEI: Thank you.

ZAKARIA: And we will be back.


ZAKARIA: Now for my "What in the World" segment.

Here's what got my attention this week: a somewhat shocking report from British Petroleum. Have you switched all your bulbs to compact fluorescents? Are you thinking of buying a new hybrid car? Are you careful to recycle every last scrap of paper off your desk?

Good for you, you're doing your part but I'm sorry to tell you, you may be wasting your time.

Listen to this: for the sixth year in a row, coal consumption has grown. King coal is the fuel that is driving global warming. It is the earth's biggest polluter. Many scientists tell us that it is the fastest growing, dirtiest fuel in the world. And the country driving most of the growth -- China.

That's what a fascinating new report from the energy giant BP says. Last year, China burned more than double the amount of coal that the world's second biggest user did, the United States. And while U.S. usage went down a little last year and Spain cut its usage by more than a quarter, China actually burned 7 percent more coal in 2008 than it did in 2007. That uptick in China was responsible for an extra 366 million tons of emissions into the atmosphere.

The root of the problem is that China's addictive coal habit is precisely what is driving its extraordinary growth. Coal is what fires many of the plants that make the sneakers and the steel and the silicon chips which China then sells to the rest of the world at a profit. And there's no sign they're slowing down.

An MIT study says that China builds new coal-fired powered plants at the rate of two each week. And "Science Magazine" found that if China keeps on this path, by 2030 they will be emitting as much carbon dioxide into the atmosphere as the entire world does today.

We will be right back.


ZAKARIA: This week I not be asking you my traditional question of the week, because we here at GPS are taking a little time off. But to exercise your brains, please take our weekly world affairs quiz, "The Fareed Challenge." Go to

But I do want to recommend a book by my guest this week, former Secretary of State James Baker. It's called "Work Hard, Study, and Keep Out of Politics." The title comes from the advice James Baker received from his grandfather, a prominent Houston attorney. And the book chronicles the years he spent ignoring that advice, serving three different presidents.

It's a pretty candid memoir in which he acknowledges his own love of power while relating priceless anecdotes about the men he served. It's fun summer reading for political junkies.

Also we'll be updating our Web site while we're on vacation so please check it out.

Thanks for being part of our program today. I will see you next week.