Barrel Strength

With Congress in school and Presidency in an on-the-job-training program US is in great hands indeed.

Update: Reason magazine notes that Waters has been a member of the House Committee on Financial Services since 1990!  Twenty years and she is still clueless.

The former Federal Reserve Chairman Alan Greenspan, holder of the prestigious title of Master of Bubble Administration (MBA), who was widely lauded as an Oracle in the 1990s and was honoured with a fawning cover story in the perpetually naive Time magazine, has finally met his legacy.  Hillary Rodham Clinton highlighted the US deficit as a security issue and shared the following comments regarding Greenspan.

Secretary of State Hillary Clinton on Thursday said “outrageous” advice from former Federal Reserve Chairman Alan Greenspan helped create record U.S. budget deficits that put national security at risk…

“I served on the budget committee in the Senate, and I remember as vividly as if it were yesterday when we had a hearing in which Alan Greenspan came and justified increasing spending and cutting taxes, saying that we didn’t really need to pay down the debt — outrageous in my view,” she said…

Clinton’s swipe at Greenspan symbolized the way the former central bank chief’s reputation has fallen since he left the job in 2006.

First named to the office by President Ronald Reagan in 1987, Greenspan served throughout the presidency of Clinton’s husband, former President Bill Clinton. He was regarded as economic oracle whose cryptic pronouncements were searched for inner meaning and regularly moved financial markets.

Now, he has become a handy whipping boy blamed for helping inflate a housing bubble that eventually burst, setting off a grave financial crisis and plunging the economy into the worst recession in decades.

Very conveniently Hillary, she of the ever shifting last name, did not include the Internet bubble in the list of Greenspan’s “accomplishments”, but then she wouldn’t want to further tarnish the legacy of her husband on whose watch this bubble was inflated and eventually deflated with tech stocks peaking in March 2000.  This was seven months before Bush Jr. was elected and by the time he was sworn in the tech stocks, as measured by NASDAQ index, had already fallen by more than 50%.

The financial difficulties are forcing the hand of the Greek government and one of the steps being taken is to reduce the number of cash transactions.  The amazing thing about this effort is the low threshold.

From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash. Transactions will have to be done through debit or credit cards

Bill Gross of PIMCO is well known for talking up things that would most benefit his bond funds but this chart is too interesting to pass up.

The most interesting data point in this graph is Japan.  A country with declining demographics and a significant outstanding debt.  With no way to get out of mountain of debt it is safe to say that Japan as nation is in deep peril.  The problems of Greece are well known, along with their inability to do anything about it, which brings us to Canada.

If that graph had been done in the ’90s, Canada would have been a proud member of the “Rings of Fire” club.  What changed?  Starting in the early 90s the size of the Canadian government diminished and that was made possible by majority government under Liberals, which did not have to engage in negotiations with the opposition parties to implement their agenda.  This is instructive because of the problems US will face, when trying to tackle their debt.    California gives us insight into how problem will unfold at the federal level in US.  Specifically the inability to reach an agreement on budget, which Canada was able to avoid due to its parliamentary structure.  Can anybody in US say Second Republic?

Bill Gross goes on to paint a grim picture of UK, which your correspondent cannot disagree with.

The free-spending Democrats, and the corresponding decline of the US Dollar, are forcing a rethink amongst the central bank.  FT reported today that Russian central bank has started purchasing Canadian Dollar to diversify their bank reserve holding.

Russia’s central bank announced on Wednesday that it had started buying Canadian dollars and securities in a bid to diversify its foreign exchange reserves.

Analysts said the move could be a sign of increased diversification of emerging market central bank assets away from the dollar and into investments denominated in other commodity-linked currencies, such as the Australian dollar.

The Russian purchase seems to be little late in the game, given that the Canadian Dollar has rallied from under 80-cents to almost par, but the purchase seems to be part of a longer term strategy of diversifying into currencies that will benefit from inflation.  The massive increase in the US money supply makes this a likely scenario.

More money for the rich, through invisble taxation.

Christopher Booker is a fierce opponent of the whole scheme.

“This is the new global industry based on buying and selling the right to emit CO2, estimated soon to be worth trillions of dollars a year, which through schemes such as the UN’s Clean Development Mechanism and the EU’s Emissions Trading System is making a small minority of people, including Al Gore, extremely rich.

“The only really concrete achievement of Copenhagen was to win agreement to the perpetuating of those Kyoto rules that have created this vast industry, which has two main beneficiaries. On one hand are that small number of people in China and India who have learnt how to work this system to their huge advantage. On the other are all those Western entrepreneurs who have piled into what has become the fastest‑growing commodity market in the world.

“The part played at Copenhagen by all the tree-huggers, abetted by the BBC and their media allies, was to keep hysteria over warming at fever pitch while the politicians haggled over the real prize, to keep the Kyoto system in place.”

I was stirring the risotto tonight, telephone on the shoulder, crowing about what a great week it was for conservatives. Oban was my interlocutor at the other end of the call. The hack of the Climate Reseach Unit at East Anglia University continues to be the gift that keeps on giving. Global warming exposed as fraud! Berlin Wall falls! Communism over! Hurrah!

Yes, I have been exultant. I have probably made myself more than usually obnoxious to wets, bedwetters, warmists, leftists: the vast throng of the wrong.

Oban pointed out, in his usual mild but incisive way, that the other crew of ideologues who had been proven decisively wrong, and who had cost the world economy a few trillion, not by treaty but by unintelligible debt instruments, were the pure marketeers, the libertarians, the ones who thought that the market would always assess risk correctly, and that therefore no financial crash was possible in an environment of pure information. Yes, Alan Greenspan, Chairman of the US Federal Reserve Bank, chief architect of the laisser-faire in markets for the last 15 years. The one who constantly preached to the US Senate that there was no need for the US Commodities Trading Organization to regulate debt instruments which were at the base of the current financial crisis.

All true. But you know the difference? Alan Greenspan came to the US Senate and admitted he was wrong. He said he was completely wrong about the capacity of markets to assess risk. In short, his postulate, the equivalent of e=mc², was wrong.

“”I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” said Greenspan.”

In the New York Times coverage of that story, he said:

But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”

“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,” he said.

Despite his chagrin over the mortgage mess, the former Fed chairman proposed only one specific regulation: that companies selling mortgage-backed securities be required to hold a significant number themselves.

I am waiting, but not holding my breath, for Phil Jones, Keith Briffa, Kevin Trenberth, Michael Mann et alia, to admit to their errors, let alone crimes.

I am. When Obama lies straight out about his stance on single payer insurance – knowing that it is a lie and that he will be caught out in the lie – and goes ahead and lies anyway, something bad is happening.  I think he is confident – maybe not serenely confident but confident enough – that the mainstream media will protect him and he will get his way. That frightens me. The truth is that there is no health care crisis in the US. Most people are insured for most problems.  Most Americans have more to lose than to gain from collectivizing medicine – and they know it. I think Steyn has this weasel Obama pegged – all he needs to do is jam through something – anything – and an irreversible trend will be started.

Alex Pang presents an incisive critique of futurist bluffers, and you will find his “tips” manifested throughout our chattering classes, whether it’s crypto-nationalizing the economy or serving up climate change you must believe in:

No expertise, no problem! It’ll actually make your work more accurate if you claim to be an expert– if you’re certain that you’re an expert– but you actually aren’t.

Sounds counterintuitive, right? (This is how you know I’m a successful futurist. I said what you didn’t expect. Now I’ll quote some Science to make my point.) In fact, advanced degrees and deep knowledge don’t make you a better forecaster. Statistically, experts are hardly better at predicting the future than chimps throwing darts at a board.

A very interesting analysis of the public finances of the United States compared to those of Canada. Upsets all stereotypes. Courtesy of the Brussels Journal.
The author reviews the data and concludes:

“The current Canadian government is a ‘conservative’ one, but its hold on power is tenuous because it is also a ‘minority’ government (in Parliament). It has little to do with the positive trends outlined above, since it came only to power fairly recently. That means that the credit for these positive trends goes largely to the center-left governments that have governed Canada for much of the past two decades and who have implemented major fiscal and some structural economic reforms that have made these numbers possible. And there are also indications that the Canadian banking system is in much better shape then the American one. Meanwhile, in the USA, many Republicans have been profligate with the public purse in recent years, and much of the political left marches today in the opposite direction from the one taken by recent Canadian center-left governments. And Obama-mania on the part of the mainstream media is not going to make matters better…before the next election cycle.”

Lately there has been a great degree of schadenfreude in relation to the fact that the rich donated substantial amount of money to the Obama campaign and are now on the receiving end of class warfare.  TigerHawk captures the spirit well when he states the following:

When it comes to politics, the “rich” will sell you the votes to hang them by. Exhibit A: “Barack Obama’s rich supporters fear his tax plans show he’s a class warrior.” What was their first clue? It is not as though he is doing anything differently than he had promised (other than using the economic crisis as a reason to accelerate federal spending to escape velocity).

I have no problem with rich people who supported Barack Obama, but those who express surprise at his class warfare political chatter and passion for the regulation of business simply were not paying attention.

Your correspondent has some difficulty with this reasoning and posted earlier on this point.  That post noted the following.

One of the key factors that has transformed this class of “professionals” is the increasing government regulation, which has led to increase in requirements for lawyers, accountants and other assorted hanger-ons. They do not add value to any process, but serve as leeches and parasites, who take a tiny bite out of production. Lawyers in US are a solid Democratic constituency as they know where the money comes from. An increasing number of professionals are catching on to this, as government spreads its tentacles. This is merely an extension, in a roundabout way, of the majority taxing the rich minority or majority relying on government for their welfare.

The question is what percentage of the rich really rely on government, directly or indirectly, for their welfare?  We might have an answer to that question via this WSJ post which notes:

Hedge-fund managers are showing rare public outrage against the Obama administration, saying that it has wrongly rebuked investors necessary to salving the financial crisis…. They have been disappointed by the Obama administration, left detached from a leader to whose party they gave 70% of their overall campaign donations during the 2008 election.

Is it possible that 70% of the fund managers, the supremely rational thinkers that they are, were really looking after their own interests when rooting for Obama?  It is a surprise that liberals of the world are yelling for more and more?  They know where their bread comes from.

I was pondering this issue, my complacency in the face of the Obama onslaught. There are many reasons to be seriously perturbed.

Here are the reasons why we should all be upset.

The economy is ratshit. The capitalist system is in disgrace. A lot of banking is revealed as a Ponzi scheme. More toxic debt will emerge from eastern Europe, in frightfully high ratios to total GDP. Americans have put in the Democrats for a term or two, free of filibustering by the Republicans. The terms of the bailouts of GM and Chrysler may affect the rights of bond holders and thus the ability to raise capital in the future, provided there is capital to be raised when the  inflation engendered by Obama will be wrecking the economy further .

So why am I complacent? Why do I have this feeling that my time is best spent not fretting about the interventionsist tide?

My theories are:

1) I have a job now and have become a sell-out since I have a few years’ worth of job security.

2) I have lived long enough to know that the onslaught will work itself out. That every offensive is met eventually with a counter-offensive.

3) Even if the United States is pulling permanently to the Left, even if Obama is a psycho- narcissist, there is nothing I can do about it.

I prefer theory 2.

Friends to the right of me are working themselves into a frenzy about Obama. Friends to the left of me are beginning to think the US will finally see universal medical care, while noting the  continuity of Obama and Bush in foreign policy.

Folks! The Republicans are in the penalty box, and will be there for a major game misconduct. They have messed with excessive de-regulation, they have served the rich altogether too well; their telecommunications policy is anti-Internet. In foreign policy I think Bush was right to invade Iraq and I think the casualty level was trivial for a nation of 330 million, though others  are still enraged by that war. In any case, the Republicans are out; they are leaderless and they have no ideas except lower taxes and more de-regulation. It is not going to sell.

Thus the Dems will advance into the middle of the electorate, assisting all their client groups, stifling innovation in education, favouring organized labour, messing at the edges with capitalism, working for Google against the carriers, until their scandals, crimes, attitudes and misdemeanors will bring them down. In four years or eight?

In the meantime, don’t forget to breathe.

In an earlier post your correspondent noted that a “lynch mob has been unleashed in US and institutional advisers have taken note”.  Those who chose to ignore this fact are now bearing the consequences.  Powerline blog in a post aptly titled “Banana Republic, Part II” states:

In connection with the Chrysler bankruptcy, Obama, ignoring laws that assign priority to secured creditors, has tried to bully lenders into abandoning their legal rights in favor of the United Auto Workers Union. To my knowledge, there is no precedent for this sort of arrogant lawlessness in American history.

It goes on to report a statement from a lawyer: “One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under the threat that the full force of the White House Press Corps would destroy its reputation if it continued to fight.”

Welcome to a Mob style shakedown.  But did anybody really expect anything else from a Chicago politician?

George Friedman is head of Stratfor, a strategic forecasting firm whose analysis may have passed by your desk from time to time.

Friedman has written a most entertaining romp through the next hundred years. Whether right or wrong he helps open one’s mind to the larger picture. Friedman’s intellectual base is in demography, geography and technology: geopolitics. Religion figures little in his view of the next century, whereas I think it is already the prime driving force of the next confrontation, in the form of Islam.

Major predictions:

• The rise of the United States is only beginning. As the only power to bestride the sea lanes between Europe and Asia, with command of both shores, and of inner (near earth)  space,  it is going to continue to rise in importance through the next century.
• China will implode.
• Europe is decadent.
• The Islamic challenge never will amount to much, though Turkey will become a major power by the middle of the century.

Major observations:

• Population growth is crashing everywhere, to be followed by population loss in almost all major countries, with the United states least affected.
• Global warming is irrelevant.
• The computer will continue to reshape economic activity.

My take-away was from his early chapter, on the distinction between barbarism, civilization, and decadence.

• barbarism is the belief that the mores and virtues of your tribe or village are what all of humanity should embrace, and you are ready to take fire and sword to your neighbours or foreigners to make them agree.
• Civilization is the acceptance that the world is full of barbarians and that one needs to fight  selectively, if barbarically, to save civilized codes of conduct.
• Decadence is the belief that there is no real distinction between civilization and barbarism, and if there is, it is hardly worth fighting for.

On the computer, he says that it causes us to de-emphasize all aspects of reality and of our engagement with it that cannot be quantified – the contemplative, the playful, the religious. The corporation is the creature of the quantitification of the computer, and no one can compete with the United States who does not embrace the methods of the computer. To the extent that the computer does not allow for any values other than its own, it is barbaric in the sense of the term used above, and the corporation is a barbarian: exclusively focused on the goals, rules and mores of its own tribe.

I recommend it for a fast read.

Wall St.

During the campaign, Obama was never shy about his promise to undo the Bush tax policies. But it was easy to ignore his occasional lapses into populist rhetoric and focus on his intense intelligence and Ivy League education. Now, in the wake of the crisis, Wall Street’s politics are shifting rightward. “All the rich people I know took George Bush for granted,” says an analyst at a midtown hedge fund. “I’m a Democrat, but I agree with Rush Limbaugh on a lot of this stuff,” rails the wife of a former AIG executive.

Main St.

As a senator, Barack Obama led the charge last year to pass a bill allowing black farmers to seek new discrimination claims against the Agriculture Department. Now he is president, and his administration so far is acting like it wants the potentially budget-busting lawsuits to go away.

The change isn’t sitting well with black farmers who thought they’d get a friendlier reception from Obama after years of resistance from President George W. Bush.

“You can’t blame it on the Bush administration anymore,” said John Boyd, head of the National Black Farmers Association, which has organized the lawsuits. “I can’t figure out for the life of me why the president wouldn’t want to implement a bill that he fought for as a U.S. senator.”

As your correspondent noted in July 2008 during the election campaign, this was a case of mass hysteria akin to the Diana funeral in UK and all logic was suspended.  One can empathize with the black farmers, as they voted along racial lines, along with the rest of the black people, but what can one say about the supposedly supremely rational Masters of the Universe on Wall St.  Perhaps it could be worse because they could have been fooled by other means.