As we have often said in these columns, we do not expect the $ to decline down a gentle slope, but to move along a plateau, before dropping down a cliff to the next level at which it will plateau before the next fall. Steadily we will see the pressures from excess U.S. $' bring not only a value decline but also a heavy loss of confidence in the $ from outside the U.S. of A.

It appears that we are very close and have possibly begun the first cliff edge fall to the next low. The fall may be steeper and greater than most have imagined

Scotland Yard detectives are now trying to discover if Litvinenko had any secret links with Islamic extremist terror groups, the London Sunday Express is reporting.
Their biggest fear, the paper reports, is that Litvinenko, who died of polonium-210 poisoning in a London hospital, may have been helping al-Qaida or other extremist groups get hold of radioactive material to be used in a devastating "dirty" atom bomb.

Britain's secret intelligence service MI6 had earlier learned that al-Qaida was prepared to pay $3 million a gram for polonium 210, G2 Bulletin reported last week.
Litvinenko's friend Mario Scaramella now says the late spy helped smuggle radioactive material from Russia to Switzerland in 2000. Litvinenko was also known to have sympathies with Chechen rebels, seeking to break away from Moscow and create an independent Muslim state.

Litvinenko's conversion to Islam was announced by his next-door neighbour, moderate Muslim and Chechen dissident Akhmed Zakayev, who revealed: "He was read to from the Koran the day before he died and told his wife that he wanted to be buried in accordance with Muslim tradition."
The hunt began a week ago in Peshawar. The ancient Pakistan city hosts a joint MI6/CIA surveillance operation supported by America's National Security Agency satellite surveillance.

Using the latest cyber-technology, the intelligence officers in Peshawar picked up a short-burst transmission from somewhere in Peshawar's Old Town. It was in response to a call that appeared to have come from beyond the towering Khyber Pass, possibly from Afghanistan.

The call was automatically recorded on one of the computers in the offices the MI6/CIA team share.
Just as automatically, it was dispatched down the line through cyberspace to GCHQ, the British Government Headquarters in the Cotswold town of Cheltenham. Simultaneously it reached America's NSA at Fort Meade, Md.

The words from Peshawar were part of the trillions of words in 500 languages that the GCHQ/NSA super computers are programmed to listen to, shift, reject or retain so they can be analyzed by the thousands of experts both GCHQ and NSA employ.
By late last week, MI6 knew of al-Qaida's offer to purchase Polonium 210.

The China trip means that the ticking time bomb at the bottom of the dollar dam needs to be defused before it blows up, and the value of the dollar is swept away. Both the Republican Administration and the Democratic Congress want China, and the rest of Asia, to end their policies of manipulating their currencies down, by building up massive foreign exchange holdings.

The new Congress is tuned into the fact that China has tariffs of 25 percent on imports such as autos, and is very tired of seeing American labor slaughtered. (In 2007 GM, Ford and Chrysler as well as auto parts suppliers such as Delphi are buying 100,000 workers out of their jobs or just letting them go.)
To make trade fair again, Congress is willing to take the action of imposing tariffs if China and Asia do not revalue.

In turn, China may threaten to dump their dollars, unless the Fed keeps interest rates high. If China starts selling dollars, the dam will break.

Not only does the U.S. owe a net $3 trillion to foreigners, we now pay more in interest overseas than we collect from abroad. Foreigners hold $13 trillion in dollar assets that are at immediate and painful risk to any dollar weakness. Indeed, that volume of liquid assets is just about equal to the total GDP.

A 30 percent drop in the dollar, could cost foreign investors an easy $3 trillion in lost purchasing power, not to mention the loss to U.S. citizens who own over $46 trillion in dollar net worth assets. Our leaders must find a way to lower the U.S. Trade Deficit, or risk the dollar losing its unique position as the World's Reserve Currency.

Remember, if you own dollar assets, a falling dollar can cause havoc to most American and foreign investors. Only those who invest in foreign financial assets or real assets (such as commodities or gold and silver) are likely to be safe and not swept away when the dollar dam breaks.

According to Investor's Business Daily: "a growing chorus of officials and executives are howling that the U.S. is losing ground to more nimble markets like London and Hong Kong." Indeed "After decades out front, a report says the U.S. hobbled itself with overly strict regulation while the spread of globalization and technology helped the rest of the field play a stellar game of catch-up."

In the post 9/11 world, the markets move faster, and there are clearly more places to put money to work with a fairly good rate of return, at least in the short term. Aside from Europe, there is China, as well as other so called emerging economies like India, Brazil, Chile, and Mexico.

The dollar remains the centerpiece of the global financial system. But it is clearly facing some very serious competition. If the dollar continues to fall, though, there will be some repercussions. The White House is hoping that a weak currency will spur demand for less expensive U.S. goods.

The problem with that argument is that it's a 20th century view, and may not be applicable to an increasingly global economy, where the Euro, the Yen, and other currencies are starting to have more influence.

Perhaps one of the most negative legacies of the Bush II era might well be the fact that the U.S. dollar might have suffered irreparable damage, and that its exclusivity as the world's reserve currency may have been permanently, or at least semi-permanently damaged.

The Institute for Supply Management index on US manufacturing activity fell unexpectedly to 49.5 in November from 51.2 in the previous month. Economists had forecast a slight rise to 51.5.

This was the first time since April 2003 the figure has dropped below the 50 level, which marks expansion from contraction. Within the overall index, new orders, which gauges future growth within the sector, tumbled to 48.7 from 52.1 in October. Employment also showed contraction, with the index falling to 49.2 from 50.8.

Omer Esiner, an analyst at Ruesch International, said: "I think this number will definitely continue to fan fears of a hard landing for the US economy."

From this edge of the Anatolian peninsula, a natural bridge between continents, let us implore peace and reconciliation, above all for those dwelling in the land called 'holy' and considered as such by Christians, Jews and Muslims alike," the [Pontiff] said. "It is the land of Abraham, Isaac and Jacob, destined to be the home of a people that would become a blessing for all the nations.

"Peace for all of humanity! May Isaiah's prophecy soon be fulfilled: 'They shall beat their swords into plowshares, and their spears into pruning hooks; nation shall not lift up sword against nation, neither shall they learn war any more.'"

Benedict XVI continued: "We all need this universal peace; and the Church is called to be not only the prophetic herald, but even more, the 'sign and instrument' of this peace. Against the backdrop of universal peace, the yearning for full communion and concord between all Christians becomes even more profound and intense."

Christians must shed the idea that they need to promulgate a worldwide Christianity, he said. "If I hold to a model of Jesus what I've committed to in my baptism is loving my enemy," Lee said. "I'm committed to not killing you, but to serving and honoring you.

It's an exclusive commitment to the way of Christ, not to the exclusive authority of Christ."

The earlier pope declared, in the lines Benedict quoted, that the two faiths owed each other special kindness "because we believe in one God, albeit in a different manner, and because we praise him and worship him every day as the creator and ruler of the world."

The pope reiterated his criticism of violence in the name of faith, while avoiding singling out Islam. In a separate speech to the diplomatic corps, he called on all religious leaders to "utterly refuse to sanction recourse to violence as a legitimate expression of religion" and referred to the "disturbing" violence in the Middle East. And he called religious freedom a necessity, a pointed remark in Turkey, where the Christian minority and observant Muslims each chafe in different ways against state limits on religion.

Turkish officials, too, made conciliatory if not extravagantly warm gestures. In a last-minute change of plans, Turkish Prime Minister Recep Tayyip Erdogan, who had said he was too busy to meet the pope, met him briefly at the Ankara airport before leaving for a NATO summit in Latvia and expressed "happiness" at his visit.

The yen was up against the dollar after official Japanese data showed an unexpected rise in Japan's industrial production.

It pushed the dollar down to 115.75 yen, from 116.15 yen overnight in the US.

Meanwhile, sterling was up to $1.9494 after earlier hitting $1.9545, its highest level against the dollar since December 2004.

While the Fed is expected to lower interest rates in the New Year, the European Central Bank (ECB) is predicted to boost rates for the eurozone.

Analysts said this was another factor driving the dollar down against the euro.

"The euro is becoming extremely attractive as a vehicle, a transaction, an investment and a reserve currency," said ECB council member Christian Noyer.

The ECB last raised interest rates in October to the current 3.25% level.

They have risen five times since December last year, as the eurozone economies have expanded.

With Iraqi Prime Minister Nouri al-Maliki relegated to the sidelines, brazen Sunni-Shiite attacks continue unchecked despite a 24-hour curfew over Baghdad. Al-Sadr's Mahdi Army militia now controls wide swaths of the capital, his politicians are the backbone of the Cabinet, and his followers deeply entrenched in the Iraqi security forces. Sectarian violence has spun so rapidly out of control since the Sadr City blasts, however, that it's not clear whether even al-Sadr has the authority?or the will?to stop the cycle of bloodshed.

"This is live and, God willing, everyone will hear me: We are not interested in sidewalks, water services or anything else. We want safety," an unidentified Sadr City resident said as the televised crowd cheered. "We want the officials. They say there is no sectarian war. No, it is sectarian war, and that's the truth."

Militia leaders told supporters to prepare for a fresh wave of incursions into Sunni neighborhoods that would begin as soon as the curfew ends Monday, according to Sadr City residents. Several members of the Mahdi Army boasted they were distributing police uniforms throughout Shiite neighborhoods to allow greater freedom of movement. The government announced it would partially lift the curfew Sunday to allow for pedestrian traffic.

Abdullah said the Iraq conflict was the core problem for the United States in the Middle East, but "for the majority of us living in this part of the world, it has always been the Israeli-Palestinian, the Israeli-Arab problem."
"I fear that if we do not use the next couple of months to really ... push the process forward," there will be no momentum "to create a two-state solution ... Israel and Palestine living side by side in peace and harmony," the king said.
If the Israeli-Palestinian peace process isn't pushed forward now, he asked, "do we resign this whole region to another decade or two of violence which none of us can afford?"
As for Iraq, Abdullah said he was not privy to the discussion points, but Bush and Maliki need to take some strong action because "obviously ... things are beginning to spiral out-of-control."

'We are just at the start of what we think will be a downtrend for the dollar - a tipping-point has probably been reached,' said Tim Fox, currency strategist at Dresdner Kleinwort Wasserstein, who expects sterling to hit $2 within the next three months.

The euro has been the main beneficiary. The European Central Bank is expected to continue raising interest rates into next year amid strong growth in the eurozone economies, while the Fed has left rates unchanged at 5.25 per cent since June.
'Steadily, the US dollar will decline through 2007, but probably at a faster pace in the second half of the year, as people realise the Fed is going to have to cut rates,' said Paul Mackel, currency strategist at HSBC.

Senators on Capitol Hill would like to see China allow its currency, the renminbi, to appreciate further against the dollar, making Chinese imports more expensive; but the chances are low.

"There is a historic opportunity for a Palestinian state within 1967 borders ... otherwise, there are chances of a wider confrontation."

Meshaal had been meeting Egyptian officials on the formation of a Palestinian unity government by Hamas and its rival, Fatah.

Chinese funds and expertise helped complete a nuclear power station in Pakistan's eastern province of Punjab in 1999. In April this year, the two countries said they would work together to build another such plant nearby.

There had been widespread speculation that the two countries might agree a nuclear deal similar to the one between the US and India. The BBC's Barbara Plett in Islamabad says Pakistan wants China to help it build more nuclear power reactors to meet growing energy demands, especially since the US has refused to provide Islamabad the kind of civil nuclear assistance it has promised India.

Pakistan and China have also agreed to co-produce an airborne early warning system. They already share other ventures in the defence field including the joint development of a fighter aircraft.

China has also ploughed millions of dollars into a project to build a massive shipping terminal in south-west Pakistan to gain access to the Arabian Sea. Our correspondent says Mr Hu's visit to Pakistan may have been intended to reassure his hosts over China's warming ties with Pakistan's regional rival, India.

Historically, China and Pakistan formed a bloc against India - but economic considerations are now more important than Cold War-era rivalries. Mr Hu's four-day visit to Pakistan was preceded by a landmark trip to the Indian capital Delhi, and financial centre Mumbai (Bombay) during which the two sides pledged to double trade to $40bn a year by 2010.