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The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.

Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.

The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.

He added: “Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points.” Economists are predicting a wide range of ratios but Mr Congdon said it was “not unreasonable” to assume debt doubling to 140pc. At that level, Mr Laubach’s calculations would see long-term rates rise by 3.5 percentage points.

Hundreds of rioters have been arrested, the official Xinhua news agency reported, after rock-throwing Uighur people took to the streets of the regional capital on Sunday, some burning and smashing vehicles and confronting ranks of anti-riot police.

The unrest underscores the volatile ethnic tensions that have accompanied China’s growing economic and political stake in its western frontiers.

Along with Tibet, Xinjiang is one of the most politically sensitive regions in China, and in both cases the government has sought to maintain its grip by controlling religious and cultural life while also vowing economic growth and prosperity.

But analysts said the fresh trouble in the remote resource-rich region was unlikely to have a major impact on China’s economy.

“In terms of China’s domestic economy, it is in a remote place and it does not have a big impact on things generally unless there is some evidence, of which there is none, that the government is in some meaningful way losing control,” said Arthur Kroeber, Managing Director of Dragonomics, a research and advisory firm in Beijing.

Beijing’s image as a global power, though, may take a hit as it cracks down on the rioters, say analysts.

“Unfortunately … this will bring a negative impact on China’s image as a responsible power. Coercion alone will not solve the problem. If you use coercion alone it will worsen the problem,” said Zheng Yongnian, director of the East Asian Institute at the National University of Singapore.

Signaling a security crackdown in the strategic region near Pakistan and central Asia, a senior Chinese government official said the unrest was the work of extremist forces abroad.

“This was a crime of violence that was pre-meditated and organized,” Xinhua quoted the unnamed official as saying.

He blamed the violence on the World Uyghur Congress led by Rebiya Kadeer, a Uighur businesswoman now in exile in the United States after years in jail, and accused of separatist activities. She did not answer calls for comment.

But exiled Uighur groups adamantly rejected the Chinese government claim of a plot. They said the riot was an outpouring of pent-up anger over government policies and Han Chinese dominance of economic opportunities.

China’s markets largely brushed off the riots, with the benchmark Shanghai Composite index ending up 1.2 percent at a 13-month closing high, bucking a generally weaker trend in the rest of Asia.

Huibert Boumeester, a Dutch national, apparently killed himself, the paper said.

Boumeester, who was also the one-time CEO of ABN AMRO Asset Management, went missing on June 22. London’s Metropolitan Police said at the time that two of his guns were missing as well. [ID:nLO557743]

In a statement on Monday, Britain’s Thames Valley Police would say only that the unidentified body of a man was found Sunday morning in Winkfield, about 48 kilometres (30 miles) west of London. He apparently died of gunshot wounds.

It has ordered 300,000 doses of the vaccine but it is unlikely to be available until December.

The targeted campaign aimed at supporting frontline services in health, emergency and other critical services.

Prime Minister John Key says that is enough to give 150,000 people the required two doses.

Key says it is important people at the frontline can feel safe.

He says he wants to be in a position of having the vaccine and not needing it, rather than the other way around.

Global demand for the vaccine is high and Key says it was important to get in quick and get enough for the priority group of New Zealanders.

The news comes as fears over swine flu rise, following news three New Zealanders have died from the illness.

Health Minister Tony Ryall says the vaccine have to be licensed by Medsafe in New Zealand before it’s used.

The statement by the Association of Researchers and Teachers of Qom is an act of defiance against the Supreme Leader, Ayatollah Ali Khamenei, who has made clear he will tolerate no further challenges to Mr Ahmadinejad’s “victory” over Mir Hossein Mousavi.

“It’s a clerical mutiny,” said one Iranian analyst. “This is the first time ever you have all these big clerics openly challenging the leader’s decision.” Another, in Tehran, said: “We are seeing the birth of a new political front.”

Professor Ali Ansari, head of Iranian Studies at St Andrews University, said: “It’s highly significant. It shows this is nowhere near resolved.”

The association’s statement also shows how deeply the political establishment is divided, and the extent to which the Supreme Leader now derives his power from military might, not moral authority. It makes it much harder for the regime to arrest Mr Mousavi and other opposition leaders.

On page 7 of the document, it is proudly proclaimed that the 7h Special Forces Group has conducted missions in every Latin American country.

On page 10 a map is given, revealing Special Forces deployments to 19 Latin American countries during 2009 alone, including two bases or missions in Honduras.

Sergey Aleynikov, 39, was arrested by the FBI on Friday and charged with “theft of trade secrets.” He met the terms of his $750,000 bail and was released Monday, said FBI spokesman James Margolin.

Aleynikov is accused of misusing computer codes that belong to his former employer, a New York-based financial institution that authorities did not identify in court papers but sources say is Goldman Sachs.

A transcript of Aleynikov’s appearance before U.S. Magistrate Kevin Nathaniel Fox in Manhattan on Saturday also shows that Aleynikov worked for Goldman.

His lawyer, Sabrina Shroff, said at that proceeding that Aleynikov told authorities after his arrest that he did not intend to sell the information or use it “contrary to my employment agreement with Goldman Sachs.”

Goldman has not seen its business or clients harmed by the purported computer breach, a source familiar with the situation said on Monday. The firm declined to comment.

The case could shed light on the workings of intricate trading systems developed by Goldman. It also raises questions about the security of lucrative Wall Street proprietary trading operations.

However, the New York Stock Exchange said on Monday there was no connection between the alleged security breach and an error that dropped Goldman from a trading report the NYSE issued last week.

Aleynikov, a Russian immigrant living in New Jersey, was arrested on Friday night as he got off a flight at Newark Liberty International Airport, according to an FBI affidavit filed in the case.

Aleynikov had been held at the Metropolitan Detention Center in Brooklyn.

Terms of his bail required a $750,000 personal recognizance bond to be secured by three financially responsible people.

His bail also included $75,000 in cash, and Aleynikov was ordered to surrender his travel documents and not to access the computer data at issue in the case.

A preliminary hearing was scheduled for August 3.

A “For Sale” sign stood on the lawn of Aleynikov’s home on Monday night in Little Falls, New Jersey. The vacated two-story Colonial-style home, whose open mailbox had letters peeking out, was listed as “priced to sell” in an online advertisement by an area real estate agency.

Authorities contend Aleynikov stole codes used for sophisticated automated stock and commodities trading. They say Aleynikov, who earned $400,000 a year at Goldman, improperly copied proprietary computer code and then uploaded it to a computer server in Germany.

After he was arrested, he told authorities he had only intended to collect “open source” files on which he had worked but “later realized that he had obtained more files than he intended,” the FBI agent said in the court papers.

The FBI said Aleynikov worked at the financial institution from May 2007 until June 5, when he left to work for a new company focused on high-volume automated trading.

While most in the US were celebrating the 4th of July, a Russian immigrant living in New Jersey was being held on federal charges of stealing top-secret computer trading codes from a major New York-based financial institution—that sources say is none other than Goldman Sachs.

The allegations, if true, are big news because the codes the accused man, Sergey Aleynikov, tried to steal is the secret code to unlocking Goldman’s automated stocks and commodities trading businesses. Federal authorities allege the computer codes and related-trading files that Aleynikov uploaded to a German-based website help this major “financial institution” generate millions of dollars in profits each year.

The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades.

The criminal case has the potential to shed a light on the inner workings of an important profit center for Goldman and other Wall Street firms. The federal charges also raise serious questions about the safeguards Wall Street firms deploy to protect their proprietary trading systems.

The criminal case began to unfold on the evening of July 3 when Aleynikov was arrested by FBI agents at Newark Liberty Airport, after returning from Chicago. Aleynikov had just started a job with another firm in Chicago, after leaving the big firm in NY in early June. It appears the financial institution allegedly victimized by Aleynikov had alerted federal authorities that its former employee might be up to no good.

On July 4, Aleynikov was processed on a “theft of trade secrets” charge in a criminal complaint that was filed in federal court in Manhattan. As of this afternoon, he was still being held in federal custody pending posting of bail.

A Goldman spokesman declined to comment on the incident. A spokeswoman for the US Attorney in the Southern District of New York didn’t comment. Authorities reportedly took all the computers from Aleynikov’s home in New Jersey.

Sabrina Shroff, Aleynikov’s lawyer, says the facts will bear out that her client is innocent. She’s hoping he will be released from custody soon.

His wife, Elina, says her husband is innocent. Speaking in a phone interview from the couple’s New Jersey home, she says her husband worked hard for Goldman Sachs and has been a good citizen–noting he’s lived in the US for 19 years. She seems mystified that federal authorities would arrest him on the eve of a holiday.

The Federal Bureau of Investigations, in charging Aleynikov, says he began working for the major financial institution in May 2007 as a computer programmer and left in early June. That would appear to match the description of a man named Serge Aleynikov, as it is listed on the social networking website LinkedIn.

The bio information for Aleynikov on LinkedIn says he joined Goldman in May 2007 and was vice president for equity strategy. The bio says he was responsible for “development of a distributed real-time co-located high-frequency trading platform.” In his own words, he goes on to describe the platform as “a very low latency (microseconds) event-driven market data processing, strategy and order submission engine.”

The case against Aleynikov may explain why the New York Stock Exchange moved quickly in the past week to alter its methodology for reporting program stock trading. Goldman often was at the top of the chart–far ahead of its competitors.

On the week ending June 19, Goldman, for instance, was ranked first on the NYSE program trading list. But on the week of June 22, Goldman mysteriously didn’t appear on the list of the top 15 firms at all. It simply vanished without any explanation. Then the NYSE announced it would change some of the data for calculating the trading report. The Zerohedge blog was all over this controversy a week ago.

And now Tyler Durden of ZeroHedge has come in with his own excellent analysis of this strange, strange criminal case. I highly recommend reading it.

It’s possible Goldman asked the NYSE to alter some of its reporting methodology after the firm discovered that someone may have infiltrated the proprietary computer codes it uses.

Here’s the way the criminal complaint describes the Goldman trading platform:

The Financial Institution has devoted substantial resources to developing and maintaining a computer platform that allows the Financial Institution to engage in sophisticated high-speed, and high-volume trades on various stock and commodities markets. Among other things, the platform is capable of quickly obtaining and processing information regarding rapid developments in these markets.

Meanwhile, federal authorities appear to believe Aleynikov, who has lived in the US for more than a dozen years but frequently travels back-and-forth to his native Russia, may have had help. The German website that Aleynikov allegedly uploaded the stolen information to is registered to a person in London. That, of course, gives rise to speculation about this all being a case of international espionage.

This case is quickly unfolding and there’s plenty more information to unearth about Aleynikov. For instance, it appears that he and his wife are competitive ballroom dancers–there are some videos of them on youtube.com. The job he took in Chicago, according to the criminal complaint, paid nearly three times more than his $400,000 salary at Goldman.

Which Chicago firm hired Aleynikov? Inquiring minds want to know. But you can rule out the giant hedge fund conglomerate Citadel. It’s not them.

Also there’s more to learn about anyone who might have been helping him and the fallout this may have for Goldman. When he was arrested, Aleynikov told the FBI he “only intended to collect ‘open source’ files on which he had worked, but later realized that he had obtained more files than he intended.” But authorities say after he uploaded the files he encrypted them and “erased” the program he used to encrypt them.

It’s not clear why the authorities and apparently Goldman waited so long to move on Aleynikov, even though they knew he had uploaded the information weeks ago.

One question investors need to ask is whether this incident will have any impact on Goldman’s second-quarter earnings. The alleged wrongoing by Aleynikov took place at the beginning of the month–although it’s not clear if it had any material impact on automated trading.

Then, usually late one afternoon, a drug trafficker will roll up in his Toyota Land Cruiser with black-tinted windows and send a footman to pay the farmers in cash. The farmers never see the boss, but they suspect that he’s a local powerbroker who has ties to the U.S.-backed Afghan government.

Everyone wants a piece of the action, said farmer Abdul Satar, a thin man with rough hands who tends about half an acre of poppy just south of Kandahar. “There is no one to complain to,” he said, sitting in the shade of an orange tree. “Most of the government officials are involved.”

Afghanistan produces more than 90 percent of the world’s opium, which was worth some $3.4 billion to Afghan exporters last year. For a cut of that, Afghan officials open their highways to opium and heroin trafficking, allow public land to be used for growing opium poppies and protect drug dealers.

The drug trade funnels hundreds of millions of dollars each year to drug barons and the resurgent Taliban, the militant Islamist group that’s killed an estimated 450 American troops in Afghanistan since 2001 and seeks to overthrow the fledgling democracy here.

What’s more, Afghan officials’ involvement in the drug trade suggests that American tax dollars are supporting the corrupt officials who protect the Taliban’s efforts to raise money from the drug trade, money the militants use to buy weapons that kill U.S. soldiers.

…

The narcotics trade in Afghanistan would be impossible without government officials and the Taliban on the payroll, said the man in the brown turban. “The link between them is a natural one.”

The man should know. He’s a drug dealer in Kandahar who provides money to purchase opium culled from poppy on local farms and arranges for it to be shipped to markets near the city.

The owner of several shoe and electronics shops in Kandahar, he sat in a plastic chair in a small office tucked away on the second floor of a bare concrete building. As he described the inner workings of the opium trade, he spat tobacco from under the fold of his cheek into a silken floral print handkerchief.

“The drug smuggler tells a police commander to transport a certain amount of drugs, for example, from the city to Maiwand District” — on the northwest edge of Kandahar province — “and pays him 100,000 Pakistani rupees,” about $1,200, said the dealer, who asked that his name not be used for fear of running afoul of local warlords or officials. “And then from Maiwand, he pays the Taliban another 100,000 rupees to take it farther,” to heroin labs in the southern province of Helmand and on to Pakistan or Iran.

The dealer offered introductions to the Taliban or to the provincial governor, but there was one man he didn’t wish to discuss: Ahmed Wali Karzai.

According to several Afghan former officials in the region, however, the major drug traffickers in southern Afghanistan don’t worry much about getting caught because they’re working under the protection of Karzai and other powerful government officials.

For example, a former top Afghan intelligence official recounted an incident from about five years ago, when, he said, his men arrested a Taliban commander who was involved with drugs at a key narcotics-trafficking point between Helmand and the Pakistani border.

Late on the evening of the arrest, a local prosecutor dropped by and said that Ahmed Wali Karzai wanted the militant released, according to Dad Mohammed Khan, who was the national intelligence directorate chief of Helmand province for about three years before he became a member of the national parliament.

Khan said he released the Taliban commander, a man known as Haji Abdul Rahim, because he didn’t want to tangle with the president’s brother.

A week after his conversation with McClatchy, Khan — a large man with a bushy black beard who had a reputation for dealing with enemies ruthlessly — was killed by a roadside bomb that most attribute to the Taliban.

Khan, however, isn’t the only one to accuse Ahmed Wali Karzai of ties to drug trafficking.

In 2004, an Afghan Defense Ministry brigade reportedly had a similar run-in with Karzai. The brigade pulled over a truck in Kandahar and found heroin hidden under sacks of concrete, according to the corps commander who oversaw the unit, Brig. Gen. Khan Mohammed.

Shortly afterward, the brigade leader, a man named Habibullah Jan, got a phone call from Ahmed Wali Karzai demanding that he release the truck, Mohammed said. That call was followed by one from a member of President Karzai’s staff, Mohammed said.

Jan later became a parliament member and publicly accused Ahmed Wali Karzai of being a criminal. Jan was killed last year in a sophisticated ambush in Kandahar under circumstances that remain unclear. The Taliban haven’t taken responsibility for the attack.

The trade is nothing new in Russia, but after the U.S.-led invasion of Afghanistan in 2001, it exploded. Afghan opium production climbed from 3,400 metric tons in 2002 to a record 8,200 metric tons in 2007, partly because U.S. and NATO-led troops put a low priority on curbing it. Heroin flooded into Central Asia, and on to Russia.

“When I heard the Americans were going to enter Afghanistan I thought they were going to solve the problem, to stop the drugs,” said Yevgeny Roizman, who had connections with Russian organized crime before he became a member of parliament. He now runs an anti-drug organization in the city of Yekaterinburg, another big heroin-distribution hub north of Chelyabinsk.

“But in the period after they came, there was a big increase in the region . . . ,” Roizman added. “It makes me think the Americans have done nothing to stop the drug trafficking.”

Although it’s an unintended consequence of the U.S. action in Afghanistan, some Russian officials trace the growing problem to an American plot.

Viktor Ivanov, the head of Russia’s Federal Drug Control Service, the national drug enforcement agency, told parliament in May that it was reasonable to “call the flow of Afghan opiates the second edition of opium wars.” He was referring to the 19th-century war between Britain and China sparked by exports of opium from British India to China.

Ivanov isn’t alone.

“I can name you a lot of politicians in Russia who said that the Americans specially arranged the situation in Afghanistan so that we would receive a lot of drugs, and this is the real aim of their occupation,” said Andrei Klimov, the deputy head of the foreign affairs committee in Russia’s lower house of parliament. “I’m not sure this is true, but who knows.”

The U.S. government takes no direct responsibility for fueling Russia’s drug problem.

“I would say the entire international community is responsible. The U.N. Security Council looked favorably on the U.S. and NATO doing what they’re doing in Afghanistan,” a State Department official said, referring to the U.N. mandate backing the foreign presence in the country. “So when critics like Russia say the U.S. and NATO aren’t doing enough, well, it’s really the entire international community that needs to take action on this.”

A second State Department official pointed to the lack of Russian effort to provide assistance in Afghanistan.

“The Russians have had opportunities to come to the table on this and to provide alternative options,” the official said. “If this really was a priority for them, we could work something out.”

Both officials were authorized to speak to a reporter only if they weren’t identified.

In Russia, it’s much easier to blame a U.S. conspiracy than to bring up the subject of corrupt officials, the Russian mafia and their involvement in the drug trade.

Russia’s Federal Drug Control Service wouldn’t respond to McClatchy’s questions over the course of a month, nor would the Interior Ministry or the national intelligence service. The Russian government routinely suppresses basic information about drug-related trials, even the names of defendants.

Igor Khokhlov, a senior researcher at the Academy of Sciences, a government-funded research institute, has researched the drug trade and concluded that high-level authorities aren’t involved.

“They have safer and better ways to benefit from their high offices,” he said in an e-mail interview.

However, it’s almost impossible to do business in Russia, legal and otherwise, without a “krysha” — a Russian word that means “roof” — a patron to protect a businessman from corrupt government officials, criminals and other realities of modern Russia. It seems unlikely that kryshas could operate in Russia’s estimated annual $15 billion drug-trafficking industry without high-level government contacts.

Dressed in a gray suit with an American flag pin in his lapel, then-Commerce Secretary Carlos Gutierrez said the modest two-lane span that U.S. taxpayers paid for would be “a critical transit route for trade and commerce” between Afghanistan and Tajikistan.

Today, the bridge across the muddy waters of the Panj River is carrying much more than vegetables and timber: It’s paved the way for drug traffickers to transport larger loads of Afghan heroin and opium to Central Asia and beyond to Russia and Western Europe.

Standing near his truck in a dusty patch on the Afghan side of the river, Yar Mohammed said it was easy to drive drugs past the Afghan and Tajik border guards.

“It’s an issue of money,” Mohammed said, to the nods and grins of the small group of truckers gathered around him near the bridge at Nizhny Panj. “If you give them money, you can do whatever you want.”

The roots of the global drug trade are often a murky tangle of poverty, addiction, violence and corruption. However, it’s clear why the dirt-poor former Soviet Central Asian republic of Tajikistan is on the verge of becoming a narco-state.

After the U.S.-led invasion of Afghanistan in 2001, the United States and other Western powers looked the other way as opium and heroin production surged to record levels, making Afghanistan by far the world’s biggest producer.

Much of the ballooning supply of drugs shipped across Afghanistan’s northern border, up to one-fifth of the country’s output, has traveled to and through Tajikistan. The opium and heroin funded rampant corruption in Tajikistan and turned the country, still hobbled by five years of civil war in the 1990s, into what at times seems like one big drug-trafficking organization.

Every day last year — extrapolating from United Nations estimates — an average of more than 4 metric tons of opium, which can be made into some 1,320 pounds of heroin, moved on the northern route. Put another way, the equivalent of nearly 6 million doses of pure heroin — at 100 milligrams each — is carried across the northern Afghan border each day.

After it’s cut with other substances and sold on the street corners and in the apartment stairwells of Russia and Western Europe, the main retail markets for Central Asian heroin, that could produce at least 12 million doses.

Nevertheless, it’s clear even to a casual visitor at the bridge that neither the Afghan or the Tajik border guards have much interest in curbing, or even inspecting, the exports that pass in front of them.

In fact, as the Afghan drug supply has grown, Tajik seizures have fallen. In 2004, Afghanistan produced 4,200 metric tons of opium, and some 5 metric tons of heroin or its equivalent in opium were seized in Tajikistan, according to U.N. figures. Last year, with Afghan cultivation rising to 7,700 metric tons of opium, Tajik authorities seized less than 2 metric tons of heroin.

Although the United States wields enormous influence in both countries, their drug problems have taken a back seat to the war against the Taliban. Until the past year, Afghanistan’s growing drug production was at best a midlevel priority for Washington, and the U.S. hasn’t pressed Tajik President Emomali Rahmon to rein in his country’s drug trafficking, Western officials said. Nor, they said, has any other Western government with troops in Afghanistan.

All along the Afghan-Tajik border, smugglers for years have thrown sacks of heroin over the Panj River, waded across when the water is low, set up flotillas of car tires and used small ferries or footbridges.

The U.S.-financed bridge has made drug trafficking even easier, truck driver Mohammed said with a toothy smile: “You load the truck with drugs.”