Change In The Air? Not In The Windy City!

Peter Zeihan does not believe oil prices will rise any time soon even though OPEC might cut production. Why? A word called recession. He also deems consumption cut backs have a permanency that he cannot ignore. (See 1 below.)

While our brainless Senators have been focusing on hedge funds and trying to determine whether they were a threat to national security a crook named Madoff skimmed about $50 billion from the pockets of very astute investors one of whom is a sitting Senator. Madoff took some twenty years to accomplish this fraud.

So much for government oversight. Guess we need to ship more money to the SEC along with some appointments for their staff with a competent DC eye doctor. Perthaps Obama will appoint a Fraud Czar! (See 2 below.)

Change is in the air but not in "The Windy City. The stench of Illinois' corrupt Governor continues to foul the air because the Democrats now fear an open election might result in a Republican winning the president elect's seat so they are back pedalling and are now more interested in impeaching one of their own and figuring out how they can get a Democrat sent to the Senate.

Illinois Democrats decided to wait til after the Holidays in hope they will get some divine guidance placed in their political stockings from Santa.(See 3 below.)

Phillip Jenkins is a Conservative who seems to have concerns Obama will become another Carter. (See 4 below.)

My early prediction that Caroline Kennedy would be the next Senator from New York may soon become a reality.

While many of our newspapers are financially dying, newspapers in Iraq are burgeoning. Their reporters are also enjoying a new found freedom even to the point of throwing their shoes at GW. The reporter who did so has GW to thank that he can do so because he would have been beheaded on the spot by Sadaam.

More importantly, lest anyone forget, GW was visiting Iraq in recognition of the fact that he will be handing his successor a war that is mostly won because GW defied his successor's advice and stayed the course while everyone cursed him. History will deservedly treat GW far better than the rude Iraq reporter who threw shoes at him,the Bush haters who applauded and the New York Times that devoted four pages to a despicable act against our nation's leader.

Let's hear it for Chicago? Now Obama has appointed the head of Chicago's Schools to head the nation's Education Department. Obama should shut it down and save the taxpayers a lot of money. That would really be change! (See 5 below.)

Dick


1) Falling Fortunes, Rising Hopes and the Price of Oil
By Peter Zeihan

Oil prices have now dipped — albeit only briefly — below US$40 a barrel, a precipitous plunge from their highs of more than US$147 a barrel in July. Just as high oil prices reworked the international economic order, low oil prices are now doing the same. Such a sudden onset of low prices impacts the international system just as severely as recent record highs.

But before we dive into the short-term (that is, up to 12 months) impact of the new price environment, we must state our position in the oil price debate. We have long been perplexed about the onward and upward movement of the oil markets from 2005 to 2008. Certainly, global demand was strong, but a variety of factors such as production figures and growing inventories of crude oil seemed to argue against ever-increasing prices. Some of our friends pointed to the complex world of derivatives and futures trading, which they said had created artificial demand. That may well have been true, but the bottom line is that, based on the fundamentals, the oil numbers did not make a great deal of sense.

Things have clarified a great deal of late. We are now facing an environment in which the United States, Europe and Japan are in recession, while China is, at the very least, expecting to see its growth slow greatly. Demand for crude the world over is sliding sharply even as the Organization of the Petroleum Exporting Countries (OPEC) member states so far seem unable (or, in the case of Saudi Arabia, perhaps unwilling) to make the necessary deep cuts in output that might halt the price slide. The bottom line is that, while the breathtaking speed at which prices have collapsed has caught us somewhat by surprise, the direction and the depth of the plunge has not.

Prices are likely to remain low for some time. Most of the world’s storage facilities — such as the U.S. Strategic Petroleum Reserve — are full to the brim, so large cuts are needed simply to prevent massive oversupply. Yet any OPEC production cuts — the cartel meets Dec. 17 and deep cuts are expected — will take months to have a demonstrable impact, especially in a recessionary environment. And there is the simple issue of scale. The global oil market is a beast: Total demand at present is about 86 million barrels per day. This is not a market that can turn on a dime. A firm fact that flies in the face of conventional wisdom is that oil actually falls far faster than it rises when the fundamentals are out of whack. This has happened on multiple occasions, and not that long ago.

Falls occurred both in the aftermath of the 1990-1991 Persian Gulf War and as a result of the 1997-1998 Asian financial crises that were similar in percentage terms to the present drop. Until the balance between supply and demand is restruck — something not likely until a global economic recovery is well under way — there is no reason to expect a significant price recovery. The journey, of course, is not necessarily a one-way trip. Quirks in everything from weather to shipping to Nigerian riots and Russian military movements can set prices gyrating, but the fundamentals are clearly bearish. It will most likely take several months for the core features of the new reality to change much at all.

Low oil prices create both winners and losers on the international scene. First, the winners’ list.

Far and away the biggest winner from drastically lower prices is the world’s largest consumer and importer of oil: the United States. The last two years of high prices have spawned a sustained American consumer effort to get by with less oil via a mix of conservation and a shift to better-mileage vehicles. Whether this purchase pattern in automobiles lasts is not at issue. The point is that it has already happened: Many Americans have already shifted to more fuel-efficient vehicles. Just as the 1990s obsession with sport utility vehicles artificially boosted American gasoline demand so long as those automobiles were on the road, so the new fleet of hybrids and smart cars will push demand in the opposite direction for a sustained period.

Overall U.S. oil consumption has plummeted by nearly 9 percent from its peak in August 2007 to November 2008, according to the U.S. Department of Energy. Combining this with the drop in prices since July translates into U.S. energy savings of approximately US$1.95 billion at a price of US$50 a barrel and US$2.1 billion at a price of US$40 a barrel. And that is daily cost savings. In recessionary times, that cash will go a long way to building confidence and stanching the recession.

Next on the list are the major European importers of crude: Germany, Italy and Spain. As a rule, European economies are less energy-intensive than the United States, but by dint of fuel mix and lack of domestic production these three major states are forced to rely on substantial amounts of imported oil. We exclude the other major European economies from this list as they are either major oil producers themselves (the United Kingdom and the Netherlands) or their economies are extremely oil efficient (France, Belgium and Sweden). Don’t get us wrong — the EU states are all quite pleased that oil prices have dialed back. Nevertheless, in terms of relative gain, Germany, Italy and Spain are the real winners. And with Europe facing a recession much deeper and likely longer than that in the United States, the Europeans need every advantage they can get.

India, far removed from Europe culturally and geographically, sports a somewhat similar economic structure in that it boasts (or suffers from, based on your perspective) an industrializing base that is highly dependent on oil imports. Broadly, the Indians are in the same basket as Spain in that they are voracious energy consumers who have seen their demand skyrocket in recent years. Between the Nov. 26 Mumbai attack, upcoming federal elections and the energy price pain from earlier in the year, the government is desperate to pass on the cost savings to the population to shore up its support.

Then there are the East Asian states of South Korea, China and Japan (listed in descending order of how much each one benefits from the price drop). All import massive amounts of crude oil, but we put them at the end of the list of winners because of their financial systems. In East Asia — and particularly in China and Japan — money is not allocated on the basis of rate of return or profitability as it is in the West. Instead, the concern is maximizing employment. It does not matter much in East Asia if one’s business plan is sound; the government will provide cheap loans so long one employs hordes of people. One side effect of this strategy is that firms can get loans for anything, including raw materials they otherwise could not afford — such as oil at US$147 a barrel.

Therefore, high oil prices just do not affect East Asia as badly as they affect the West. Just as the East Asian financial system mutes the impact of high prices, the converse is true as well. In the West, energy consumers are not shielded from high prices, so lower prices immediately translate into more purchasing power, and thus more economic activity. Not so in East Asia, where the same financial shielding that blunts the impact of high prices lessens the benefits of low prices.

The order in which we listed the three Asian giants relates to how much progress they have made in reforming their financial practices. South Korea’s financial system is much closer to the Western model than the Asian model: South Korea hurts more as prices rise, and so will be more relieved as prices fall. China is in the middle in terms of financial practices, but it is also attempting to unwind its system of energy price-fixing as oil costs drop; due to subsidies being reduced, Chinese consumers actually may not be seeing much of a change in retail prices. Finally, Japan will benefit the least because its system is already highly efficient compared to the other two, so the price impact was less in the first place. One barrel of oil consumed in Japan generates approximately US$2,610 of Japanese gross domestic product (GDP), while the comparative figures for Korea and China are US$1,270 and US$1,130 respectively.

In short, the heavily industrialized Asians still benefit, but the impact isn’t as much as one might think at first glance. In fact, the biggest benefit to these states from cheaper energy is indirect — lower prices spur consumption in the West, and then the West purchases more Asian products.

And now, the losers.

Venezuela and Iran top this list by far. Both are led by politicians who have lavished vast amounts of oil income on their populations to secure their respective political positions. But that public approval has come at its own price in terms of economic dislocation (why diversify the economy if strong oil prices bring in loads of cash?), low employment (the energy sector may be capital-intensive, but it certainly is not labor-intensive), and high inflation (high government spending has led to massive consumption and spurred rampant import of foreign goods to satiate that demand).

Of the two states, Venezuela is certainly in the worse position. By some estimates, Venezuela requires oil prices in the vicinity of US$120 a barrel to maintain the social spending to which its population has become accustomed. Iran’s number may be only somewhat lower, but President Mahmoud Ahmadinejad is in the process of at least beginning to bow to economic reality. On Dec. 5, he announced massive cuts in subsidy outlays with the intent of reforging the budget based on a price of only US$30 a barrel.

It is an open question whether the Iranian government — and especially the increasingly unpopular Ahmadinejad — can survive such cuts (if they are indeed made), but at least there is a public realization of the depth of the crisis at the top level of government. In Venezuela, by contrast, the mitigation process has barely begun, and for political reasons it cannot truly be implemented until after a referendum in early 2009 on term limits that could allow Chavez to run for president indefinitely.

Next is Nigeria. In terms of seeing an increase in human misery, Nigeria should probably be at the top of the losers’ list. But the harsh reality is that Nigerians are used to corrupt government, inadequate infrastructure, spotty power supply and all-around poor conditions. Some of the perks of high energy prices undoubtedly will disappear, but none of those perks succeeded in changing Nigeria in the first place.

The real impact on Nigeria will be that the government will have drastically less money available to grease the political wheels that allow it to keep competing regional and personal interests in check. Those funds have been particularly crucial for funneling cash to the country’s oil-rich Niger Delta region, giving local bosses reason not to hire and/or arm militant groups like the Movement for the Emancipation of the Niger Delta to attack oil and natural gas sites. With Abuja having less cash, the oil regions will see a surge in extortion, kidnapping and oil bunkering (i.e., theft). We already have seen attacks ramp up against the country’s natural gas industry: Within the last few days, attacks against supply points have forced operators to take the Bonny Island liquefied natural gas export facility offline. And since Nigeria’s militants never really differentiate between the country’s various forms of energy export, oil disruptions are probably just around the corner.

Russia is also in the crosshairs, but not nearly to the same degree as Venezuela, Iran and Nigeria. Russia has four things going for it that the others lack. First, it exports massive amounts of natural gas and metals, giving it additional income streams. (Venezuela and Iran actually import natural gas and have no real alternative to oil income.) Second, Russia never spent its money on its population. Thus, Russians have not become used to massive government support, so there will be no sharp cuts in public spending that will be missed by the populace. Third, Russia has saved nearly every nickel it made in the past eight years, giving it cash reserves worth some US$750 billion. The financial crisis is hitting Russia hard, so at least US$200 billion of that buffer already has been spent, but Russia still remains in a far better position than most oil exporters. Fourth and last, the Russians can rely on Deputy Prime Minister and Finance Minister Alexei Kudrin to (somewhat forcefully) keep the books firmly in balance. At his insistence, the government is in the process of refabricating its three-year budget on the basis of oil prices of below US$35 a barrel, down from the original estimate of US$95.

At the end of the losers’ list we have two states that most people would not think of: Mexico and Canada. Both have other sources of economic activity. Canada is a modern service-based economy with a heavy presence of many commodity industries, while Mexico has become a major manufacturing hub. But both are major oil exporters, and have been leading suppliers to the American economy for decades. So both are exposed, but their concerns are more about unforeseen complications rather than the “simple” quantitative impact of lower prices.

Mexico has purchased derivatives contracts that, in essence, insure the price of all its oil exports for 2009. So should prices remain low, Mexico’s actual income will be unchanged. We only include Mexico on the list of losers, therefore, because it’s quite rare in geopolitics that such planning actually works out as planned. Hurricanes and strikes happen. (Mexico also faces the problem of insufficient funds, expertise and technology to counter rapidly declining output, something that will leave it with a lack of oil to sell in the first place — but that is an issue more for 2012 than 2009.)

As for Canada, most of the oil it produces comes from Alberta province, the seat of power of the ruling Conservative Party. Right now, the Canadian government is wobbling like a slowing top. Seeing the Conservatives’ power base take a massive economic hit due to oil prices is not the sort of complication the government needs right now. In the longer term, Alberta recently increased taxes on oil sands projects. Oil sands extraction is among the more capital-intensive and technologically challenging sorts of oil production currently possible. Combine the tax changes with the nature of the subindustry and the recent price drops and there is likely to be precious little investment interest in oil during — at a minimum — 2009.

Most readers will take note of the countries we have chosen not to include on the list of vulnerable states. These include the bulk of the OPEC states — specifically Angola, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates, Qatar and Libya. All of these states count oil as their only meaningful export (except the United Arab Emirates and Qatar, which also export natural gas), so why do we feel such countries are not in the danger zone?

For its part, Angola only became a major producer recently. Nearly all of Angolan oil output is from offshore projects controlled by foreigners — shutting in such production is a very tricky affair for a country that is utterly reliant on foreign technology to operate its only meaningful industry. But the primary reason Angola is not feeling the heat is that most of its income has not been spent but instead has been stashed away due to a lack of the necessary physical and personnel infrastructure needed to leverage the income.

Iraq is in a somewhat similar position as far as finances are concerned. While Iraq has been producing crude for decades, its current government is only a few years old, and its institutions simply cannot allocate the monies involved. Despite massive outlays by both Iraq and Angola, their respective governments simply lack the capacity to spend, and so have stored up cash accounts worth US$26 billion and US$54 billion respectively.

The rest of the Arab oil producers warrant a much simpler explanation: They’ve been fiscally conservative. While all have shared the wealth with their somewhat restive populations, none of them has repeated the mistakes of the 1970s, when they overspent on gaudy buildings and overcommitted themselves to expensive social programs. All have been saving vast amounts of cash, with the Saudis alone probably having more than US$1 trillion socked away. Tiny Kuwait officially has a wealth fund worth more than US$250 billion.

So while none of the Arab oil states are particularly thrilled with the direction — and in particular the speed — oil prices have gone, none of these governments faces a mortal danger at this time. What they are now missing is the ability to make a substantial impact on the world around them. At oil’s height the Gulf Arab oil producers were taking in US$2 billion a day in revenues — far more cash than they could ever hope to metabolize themselves. Bribes are powerful tools of foreign policy, and their income allowed them — particularly Saudi Arabia — to wield outsized influence in Iraq, Syria, Lebanon, and even in Beijing, London and Washington. So while none of these states faces a meltdown from falling prices, there are certainly some hangovers in store for them. It is just that they are more political than economic in nature, at least for now.

2) Madoff and the Global Economy
By Michael Mandel

The world was told the U.S. was a low-risk, high-return investment. But like the Wall Street trader's victims, we are learning the truth
For years, Bernie Madoff, all-around nice guy, pulled billions of dollars of foreign and domestic money into his investment fund. His lure? He promised the implausible combination of good returns and low risk—and people believed him.

Painfully, the allegations of fraud surrounding the Madoff affair are also exposing the fundamental fallacy of the global economy. Like Madoff's trusting investors, the rest of the world was willing to assume that the U.S. economy as a whole was a low-risk, good-return investment. This belief drove the entire structure of global trade and finance for the past 10 years. And when the subprime crisis showed this assumption of low risk to be false, the financial crisis resulted.

Consider this: Since the Asian financial crisis of 1997-98, the rest of the world has been willing to lend money to finance the U.S.'s huge and growing trade deficit. Not just small amounts of cash either: over the past decade, the U.S. borrowed a cumulative total of $5 trillion from foreigners at relatively low interest rates.

Why were foreigners so generous?

Without this flow of easy money into the U.S., globalization in its current form would not have been possible. The U.S. was the consumer of last resort, absorbing cars from Germany and Japan, electronics from Taiwan and Korea, and clothes and furniture from China. The earth was flat, and why not? Pluck a laptop from Taiwan and pay for it with a home equity loan, which—if you trace back the connections—was at least partly funded with foreign money, too.

The big unanswered question, for years, was why this money flow persisted. Why the heck were foreign investors willing to lend the U.S. such large amounts of money on such good terms? Economists and journalists spun out hypothesis after hypothesis (we'll see more below), but there was no agreement on why.

Now we see what happened. Wall Street firms—big operators like Lehman and relatively small fish like Madoff—told foreign investors they could put their money into the U.S.—the world's safest economy—and still make decent returns. Madoff, of course, appears to have lied. He allegedly ran an investment scam that has resulted in billions of dollars of losses reported around the world, including $4 billion in Switzerland and $3 billion in Spain.

Exporting 'low risk' Derivatives

But it wasn't simply Madoff. The Wall Street boom of recent years was built, as far as I can figure out, on selling the low-risk story to foreign investors. In fact, most of the financial innovations of recent years were about making investments in the U.S. 'safer' for foreign investors. The enormous growth of foreign exchange derivatives enabled those abroad to protect their U.S. investments from exchange-rate fluctuations. The sudden increase in credit default swaps could be used to protect foreign bond investors from problems with individual countries. And collateralized debt obligations, which could be divided into high-risk and low-risk pieces, increased the supply of low-risk investments to be sold outside the U.S.

This low-risk, good-return story attracted investors from around the world. One example: Lehman sold $2 billion in 'mini-bonds' to Hong Kong investors, including many retirees.

However, the low-risk, good-return story simply wasn't true, for two key reasons: First, the U.S. economy was supposed to be on the cutting edge of innovation. Innovation through technological change, by nature, is a very risky activity. Sometimes it pays off and sometimes it doesn't. If the investment in innovation pays off, the economy booms, as it did during the second half of the 1990s.

U.S. Regulation Failed

But innovation has fallen short in recent years. Biotech and nanotech still have not come to fruition, and alternative energy is moving slowly. As a result, the U.S. economy has fallen short of expectations. The income isn't there, and the debt just piles up.

The second reason why the low-risk, good-return story wasn't true: the breakdown of regulation. And that's where we come back to the alleged Madoff scam. His was no complicated global securitization, based on black-box rocket science. Instead, it appears to be a good old-fashioned Ponzi scheme, enabled by a lack of government supervision.

What comes next? The fallacy is punctured. Globalization will be seen as what it is—a game with risks that can't be wished away. And U.S. prosperity will depend on the success or failure of its ability to innovate—not its ability to tell an implausible story to foreign investors.

3) The Chicago Rules:Obama’s Illinois past is not gone. It’s not even past.
By John Heilemann



The turd tossed by Illinois governor Rod Blagojevich into Barack Obama’s punch bowl had been floating there for 48 hours when the president-elect stepped to the podium at his press conference last Thursday morning. Obama’s initial response to the astonishing—and comical, and nauseating, and DSM-worthy-crazy—corruption case had seemed wan, perfunctory. His call for Blago’s resignation had been issued through a spokesman. But Obama’s handling of the matter at the press conference was more sure-footed. Beyond the substance of what he said, his tone and bearing were pretty much pitch-perfect: saddened, disgusted, denunciatory, not the least defensive. And his oblique reference to being called a “motherfucker” by Blagojevich (“I won’t quote back some of the things that were said about me … this is a family program, I know”) earned him extra points for humor.



Yet one of the concrete takeaways from the Q&A was that the Obamans won’t be moving past Blagogate in anything like a heartbeat. Though Obama reiterated his claim that he never talked to the governor about the filling of his former Senate seat, he was careful not to say that no one on his team had done the same. He pledged to “gather all the facts about any staff contacts that may have taken place” between transition officials and Blago or his people and present them in the days ahead.



Assuming Obama follows through, this is a commendable first step toward the new transparency he’s promised. And certainly it would mark a departure from the way that George W. Bush and Bill Clinton handled similar situations. But it guarantees at least one more round of stories about the incoming administration’s connection to the Blagobroglio—and, depending on the nature of the contacts and who engaged in them, maybe more than that. Lawyers. Depositions. Testimony. The endless braying and conspiracy-theorizing of the right-wing freak show. For Obama, one question is whether all this will be damaging or merely distracting. And another is whether Blago’s will be the last grasping, clawlike hand to reach up from the Illinois swamp and try to seize Obama by the ankles.



For all the coverage of Obama’s rise, his political gestation in that swamp remains one of the least understood aspects of his history. Ryan Lizza’s long piece in The New Yorker this past summer on the subject was superb, but much of its force lay in the fact that the ground he covered was so untilled. Beyond that, there was abundant (though largely unenlightening) coverage of Obama’s relationship to Tony Rezko—and not much else that managed to break through the clutter. I’d wager that, before last week, no more than a handful of national reporters could have told you if Obama and Blagojevich were friends, foes, or something in between.



When Obama was asked at his press conference, “What’s wrong with politics in Illinois?” by a gobsmacked Chicago reporter, he outlined two competing traditions in the Land of Lincoln: “There’s a view of politics that says you go into this for sacrifice and public service, and then there’s a view of politics that says this is a business, and you’re wheeling and dealing, and ‘What’s in it for me?’ ” he said.



Obama’s delineation is too neat, too binary; countless pols, especially in the milieus of Chicago and Springfield, straddle the line, embracing both views to one degree or another, albeit implicitly. More to the point, even among those in Illinois who cast themselves as members of the Democratic Party’s reform wing, the salient question is their orientation toward those flapping on the other side of the bird: Do they accommodate (or cozy up to) the machine or crusade against it?



Nobody doubts that Obama was with the reformers in Illinois, both in terms of the legislation he helped pass in the State Senate (including on campaign finance and ethics) and in his philosophical orientation. But Obama was hardly some sort of anti-Establishment firebrand. He is close to the Daleys—Mayor Richard and brother Bill—and Emil Jones, a longtime leader in the State Senate. He assisted Blagojevich in getting elected in 2002, and though they have been estranged for some years, he supported Blago for reelection and refused to condemn him (or Mayor Daley) when they became ensnared in corruption contretemps, a fact that left some reform-minded supporters “feeling alienated and angry,” according to Lizza. And, of course, there was his alliance and friendship with Rezko.



In all of this, Obama calls to mind Bill Clinton. Aside from the wack-job caucus, few regarded Clinton’s lengthy tenure in the Arkansas statehouse as egregiously corrupt. But neither would any history of great reformist governors feature him prominently, if at all. Some of his close friends from Little Rock would wind up in prison: Susan McDougal, Webb Hubbell. And Clinton’s various entanglements in the Razorback State’s quasi-feudal political and business cultures came back to haunt him during his time in office, most glaringly in the case of Whitewater.

That Whitewater was a trumped-up tin-pot scandal in which WJC was never proved to have done anything illegal is beside the point—or, more accurately, is precisely the point. The investigations Whitewater spawned were more intrusive than a thousand colonoscopies. They consumed countless news cycles, drained away political capital, inflicted horrendous legal bills on dozens of innocent bystanders, and energized the Republicans and their allies on the fringes of society and in the mainstream media. And for what? For nada.



Could Blagogate do something similar to Obama? Already one “prominent Chicago Democrat” is telling Politico that the mess poses the risk of “Whitewater-type exposure” to the president-elect. “What will splatter on to Obama is he is to some degree a product of this culture, and he has never entirely stood against it,” said this person.



It’s obviously pertinent here that no one is accusing Obama himself of any sort of wrongdoing—quite the contrary. (Equally so that Patrick Fitzgerald is no Ken Starr.) And if it turns out that Team Obama’s hands are clean, the political danger for the incoming administration will be significantly reduced. But even then, it’s safe to assume that any transitionite who spoke to Blago or his chief of staff, no matter how innocently or appropriately, will have to lawyer up in preparation for the forthcoming trial. The GOP is already seizing the opportunity to hammer Obama; they are likely to cling to the slimmest reed in an effort to keep the story alive.



At the press conference, Obama said that all he could do was “shake my head” after reading the Blago transcripts. One can only imagine his incredulity at the circus now unfolding around the case and what it might mean for him. Every politician arises in a context, which shapes him and affects his future in ways he can only barely comprehend. There are no shining cities (or states) on a hill in local American politics. Some are nastier, sleazier, and uglier than others, but none are what you’d properly call pretty. Winning the presidency promises, among other things, an escape from all of that. But few presidents in recent memory have been able to avoid a Michael Corleone moment: “Just when I thought I was out, they pull me back in.” This is the first such moment for Obama. For his sake, and, Heaven help us, for ours too, let’s hope it’s his last.

4) The Spirit of ’76: Welcome back, Carter
By Philip Jenkins

Historical analogies have been much in vogue since this election. Are we living at the end of 1932, preparing to face the glories and disasters of a revived New Deal? Or are we in a mirror-image 1980, the beginning of an era of liberal dominance, with a massive party realignment that might not even reach full fruition for another decade or so? These questions matter, not just because such debates give employment to academic historians. Deciding which year offers the closest parallel to the present forces conservatives to think how they will adjust to the new order. Just how radically have public attitudes shifted?


Actually, the year that offers the closest historical parallels to the present might be neither 1932 nor 1980 but 1976, and that analogy helps us understand the directions in which the country will be moving. Both in government and opposition, people might want to hold off on planning for the next New Deal, still less for a coming generation of liberal hegemony. In three or four years, the main political fact in this country could well be a ruinous crisis of Democratic liberalism.



Why 1976? That was the year Jimmy Carter defeated Gerald Ford for the presidency by a slim but convincing margin: Ford won 48 percent of the popular vote, a little more than John McCain’s 46 percent. Democrats did significantly better in the House in 1976 than they did last month. They held a two-to-one majority of seats, and they retained a supermajority of 61 in the Senate. Broadly, however, the 1976 results look similar to 2008.



The mood of the country in 1976 also parallels our present situation, with a pervasive sense of disgust at politics as usual and widespread fears of national decline. As if the end of the Vietnam War and the Watergate fiasco were not catastrophic enough, foreign-policy disasters in Africa and Asia suggested that the U.S. was losing its hegemony. The oil crisis pointed to a vast transfer of wealth and power to the Middle East, while many pundits predicted environmental catastrophe. The sharp economic downturn resulted in heavy unemployment and rising inflation. A concatenation of scandals tarnished once-trusted institutions: corporations, the military, intelligence agencies, police, and, of course, the politicians.



So disaffected was bicentennial America that it sought leaders unconnected to the establishment. In Jimmy Carter, voters found a candidate whose main qualifications were his lack of experience and connections within the Beltway or corporate worlds. Like Barack Obama, Carter claimed to rise above failed partisanship, while his New South background allowed him to symbolize racial healing. Carter, like Obama, sold himself mainly on the virtues of his character. He presented himself as a man of simple honesty, faith, and decency, and his lack of a track record allowed voters to see in him what they wanted, however far-fetched those hopes might be. If they hadn’t believed it, they wouldn’t have seen it with their own eyes. Above all, Carter promised change, a message that carried weight as long as its details remained nonspecific. The problem with messiahs from nowhere is that when they do exercise power, people discover to their horror what their leader’s actual views and talents are. The disillusion can be dreadful.



The rhetoric and psychology of the Democratic Party in 1976 also foreshadows the present day. And as they did in 1976, Democrats now show every sign of repeating the blunders that led to a generation-long discrediting of liberalism. As the phrase goes, they have learned nothing in the intervening years, and they have forgotten nothing. And they will soon face a barrage of issues that they have neither the will nor competence to understand. Liberal triumph in 1976 led inexorably to evisceration in 1980. The same trajectory is likely to recur in the Obama years.



The key mistake Democrats made in 1976 was failing to realize what brought them to power. Democrats won because of public dissatisfaction with the previous regime, which had overseen the economic crisis, and also because of a wider fear that America would have to live with diminished expectations. But although they won on largely economic grounds, Democrats acted as if they had a sweeping mandate for cultural transformation—for social libertarianism, affirmative action and egalitarianism, dovish internationalism, and idealistic notions of human rights. These ideas dominated a radical Congress and were enthusiastically adopted by the cohort of Carter appointments to the judiciary. They all ignored a basic principle: just because people are unhappy where they are does not mean they are willing to go anywhere you try to lead them.



In 1976, liberals were wrong on multiple counts, and all the signs point to them repeating the same mistakes. Even if Obama plays Mr. Moderate, the congressional party contains more than enough take-no-prisoners far leftists to torpedo any chance of bipartisanship or restraint. Specifically, liberals believe that the public will support radical change in three highly sensitive areas, and in each area they will overreach to the point of self-destruction. In domestic affairs, they believe the culture wars are over and that revolutionary social changes like gay marriage can now advance unchecked. They think that popular concern over environmental problems will translate into a blank check for limitless government spending and the decisive transfer of U.S. sovereignty to international agencies. And liberals are now sure that all that foolishness with international dangers and crises is firmly behind us so that we no longer need the military or intelligence capabilities developed to respond to them. As the coming three or four years will show, they are dreadfully wrong on all counts.



In the 1970s, liberal hubris manifested itself especially in domestic politics. Democrats focused obsessively on race and class, to the exclusion of culture, morals, and religion. Reading the situation in those terms allowed liberals an easy framework for explaining opposition to their policies, which must be based on overt or disguised forms of racism (and that was before they had a President Obama). If every social problem boiled down to matters of economic and racial justice, then there could be no legitimate grounds for concerns that presented themselves as cultural or religious.



That severely blinkered view goes a very long way to explaining the collapse of liberalism in 1979-80. America in the 1970s was undergoing traumatic social and moral changes, which caused widespread unhappiness and fear. Many social conservatives were alarmed that governments were using children as tools in social experimentation, an issue made most explicit in school busing. Popular opposition focused on the defense of community and local autonomy but above all on child safety. Once again, though, liberals had no valid answer to these fears, as any questioning of public education must of necessity be a disguised form of vulgar prejudice. Their response was predictable: Damn the racists, full speed ahead.



Across the board, the critical pressure points in the social politics of the 1970s involved children and young people. For the ’60s generation, progress demanded removing restraints on the actions of consenting adults, whether this involved sexual experimentation, gay rights, drug use, or participation in weird and wonderful fringe religions. Who was to say that individuals should not be allowed to go to hell in their chosen way? That principle worked splendidly, unless and until people began to reflect on the effects on children. Yes, an adult could consent to engage in bizarre or self-destructive behavior, but that libertarian approach did not and could not extend to the young. Time and again, Americans have shown themselves liberal on social issues that are framed in terms of “live and let live.” They draw the line when the behavior in question appears to threaten youth. Hence the most successful conservative campaigns on domestic issues of the late 1970s focused strictly on child protection, and those movements coalesced into a general concern about defending and restoring American culture.



From 1977—the pivotal year of the social-conservative revival—liberals suffered reversal after reversal, on issues of drug abuse, pornography, and gay rights. In every case, child protection gave the key to victory. Carter administration plans to decriminalize drugs foundered on the opposition of a burgeoning parents’ movement. Popular fears of threats to children defeated referenda on gay rights. Near universal nausea about the availability of child porn provoked the first serious questioning of ever expanding sexual frankness. Fears about threats against children merged easily with concerns about threats by children. The astonishing rise of violent youth crime, which reached its Himalayan peak between 1979 and 1981, was read as a symptom of a feral generation that had not been subject to appropriate family restraints or care. By the end of the 1970s, these various child-related themes drove a triumphant social conservative coalition, which included those newly galvanized religious voters mobilized in the Moral Majority.



America today has changed enormously since 1978, but many of those older issues survive in latent form and should resurface shortly. Questions of youth protection will transform the gay-marriage debate, which for most media observers has been framed in terms of social justice and equality. Presumably by judicial fiat, the practice will extend to many more states in the coming years and quite conceivably to all 50 states. This in itself will not be a popular move: recall the recent California referendum, which was decided by the blacks and Latinos who turned out to support Obama but who favored traditional family models.



How will attitudes to gay marriage evolve when people contemplate the proper age of consent in such unions? Assuming the age is to be the same as in heterosexual marriages, then adolescents of 18 will marry freely, and in many states parental consent will grant that right to boys of 16 or so. Are Americans ready to see blushing teenage male brides? And if boys of that age can marry, demands to reduce the age of sexual consent for all youngsters will certainly follow.



The more strenuously liberals press for gay equality in matters involving youth, in marriage and adoption, the more they will generate a child-protection reaction, even among people who consider themselves socially liberal, and the more likely this reaction is to take religious forms. Following the recent California referendum, Mormons bore the brunt of liberal fury, and Catholics and other religious groups will face legal challenges for refusing to participate in gay adoptions and marriages. Other areas like abortion, contraception, and transgender surgery promise to generate many confrontations between religious believers and the current sexual revolution, and religious sensibilities can expect no sympathy from government, courts, or media. The resulting battles should re-energize a religious constituency that is currently disoriented and disillusioned. Anyone for Moral Majority II: The Sequel?



As in the 1970s, the problem of out-of-control youth could very soon be back on the political agenda. Although youth crime hasn’t been on the national radar since the crack boom of the early 1990s, demographic trends confidently predict a rising storm that should break within two years or so. The crime surge of the 1970s was in large part the consequence of the baby boom reaching its most crime-prone years, as the huge cohort of those born around 1960 hit their late teens. Something very similar is about to happen again. The number of babies born in the U.S. in 1990 was only slightly smaller than the 1960 generation, and by 2010 we could be entering an alarming era of violent crime, manifested in soaring rates for homicide and robbery. Factor in the economic crisis, and American cities could look as frightening and dangerous as they did at the time of New York City’s 1977 blackout, with its rioting and looting.



Making the situation still worse, the massive expansion of union membership for which many Democrats clamor will add mightily to the plethora of urban problems. Imagine cities devastated by youth crime and gang wars, while emergency workers, hospitals, buses, and garbage services are regularly on strike. If you think Americans were alienated from government in 2008, come back in two years. Liberals will try to interpret the coming crisis in terms of race and class, a problem to be solved by unlimited social spending. Conservatives had better be ready to respond with ideas of individual and family responsibility and the defense of social order.



In other ways, too, liberals utterly misread public sentiment and will build their policy upon those delusions. Americans have shown themselves open to green rhetoric and feel that policies to protect the environment are generally a good thing. Few conservatives would criticize any move in the direction of energy independence, which would be a wonderful first step toward extracting the nation from Middle Eastern quagmires. But of course, that is not what we are going to get. We will instead be facing a determined and fanatical campaign to eliminate the vastly exaggerated menace of global warming, which will mean a wholesale assault on America’s energy supplies. This will translate into striking at coal- and oil-based energy while refusing to make progress toward reliance on nuclear resources, all the while seeking to curb carbon usage through onerous taxes and surcharges. Remember those Americans infuriated by strikes and intimidated by crime? They are also going to be freezing, living with rationed energy and brownouts. A grossly underpowered economy will find it all but impossible to reconstruct and revive when the coming depression ends.



As if all this isn’t bad enough, expect global-warming rhetoric to be used as a wedge to undermine national sovereignty. Under Obama, we face the virtual certainty of American accession to new treaties that go far beyond Kyoto in demanding radical cutbacks in carbon usage. The U.S. will presumably stand out as the only power attempting to enforce these standards, which would institutionalize the nation’s relative decline in the face of Chinese and Indian growth. The moral and political issue of sovereignty will thus be linked to the practical daily realities of the energy crisis at home.



And then there is national security. Democrats observe, quite rightly, that Americans are uncomfortable with images of Guantanamo and waterboarding, and they are profoundly unhappy with open-ended military commitments in Iraq and Afghanistan. But here, too, liberals will overreach when they interpret these moral qualms as a basis for winding up American military and intelligence capabilities.



However dreadful the Carter administration may have been, however widespread the domestic discontent, what actually finished off the Democrats and opened the door for Ronald Reagan was the Iran hostage crisis. And that was a direct and predictable consequence of overreach by the administration and Congress. Since 1976, congressional liberals had led a series of campaigns against the intelligence services, exposing supposed abuses and atrocities, and in the process discrediting the whole work of intelligence. By 1977, massive purges had removed many of the CIA’s best agents, while congressional restrictions made it all but impossible for the agency to pursue its work. In the Middle East and elsewhere, America was flying blind.



Underlying these bizarre actions was a theory of human rights that assumed the whole world could and should operate according to Western theories of democratic liberalism. Unfortunately, it didn’t. In Iran, the shah was an unsavory dictator with a heavy-handed secret police, but he exercised his powers to pursue a pro-American policy. Under the Carter regime, the U.S. ended its support of the shah, while ceasing to pay off the truly dangerous radical Islamists who would eventually replace him. American efforts at self-immolation succeeded in 1979, with the Islamic Revolution and the hostage crisis that destroyed the Carter administration.



Surely congressional liberals are not stupid enough to do anything like that again? Don’t believe it. By the end of 2009, expect a purge of U.S. intelligence agencies, as well as suffocating new constraints on intelligence-gathering capacities. These moves will probably be accompanied by a series of congressional hearings, which will provide maximum opportunities for showboating by politicos, while embarrassing the CIA. A blinded and disarmed Obama administration will then blunder anew into confrontations that will once again plumb the depths of national humiliation—if not in Iran, then in Taiwan, Ukraine, Venezuela, or Pakistan. If we’re very unlucky, airliners will again be crashing into our skyscrapers and cargo ships will be exploding in our ports. And as in the late 1970s, there will be plenty of discharged and disaffected former intelligence agents wandering the corridors of power, serving as endless sources of leaks and disinformation against the Obama regime. Expect the worst age of political scandal since, well, the 1970s.



All analogies limp, and no one is suggesting a straight replay of the Carter years, still less that some kind of new Reagan era is its inevitable sequel. But if liberals seem so determined to repeat the mistakes of that era, then we have at least a plausible sketch of the coming Obama administration—of its rise and ruin.

5) Perhaps the U.S. should "pull out of Chicago" ?


Body count: In the last six months 292 killed (murdered) in Chicago ; 221 killed in Iraq .

Senators. Barack Obama & Dick Durbin, Rep. Jesse Jackson Jr., Illinois Gov. Rod Blogojevich, Illinois House leader Mike Madigan, Illinois Atty. Gen. Lisa Madigan (daughter of Mike), Chicago Mayor Richard M. Daley (son of Mayor Richard J. Daley)
.....our leadership in Illinois .....all Democrats.


Thank you for the combat zone in Chicago .

Of course, they're all blaming each other.

GEE, maybe it's Predsident Bush's' fault ???? Can't blame Republicans; there aren’t any there!

State pension fund $44 Billion in debt, worst in country.

Cook County ( Chicago ) sales tax 9.0% highest in country. (Look 'em up if you want).

Chicago school system rated one of the worst in the country.

This is the political culture that Obama comes from in Illinois . And he's gonna 'fix' Washington politics for us! …