Save the Economy - Drown 'em in Debt!

When my friend, Marshall Goldman, spoke here he emphasized Europe's dependency upon Russian gas and the positive impact the price of energy was having on Russia's economy and benefits to Putin. In view of the sharp decline in the price of oil I asked Marshall to up date his thinking for me and he responded that the gas umbilical cord remains intact though Europe is seeking ways to diminish its influence. He agreed that the decline in oil was having a depressing impact on the Ruble,Russia's economy, was testing Putin and could produce a period of internal unrest. Certainly Goldman's thesis that Russia's dependence on energy was a long term deterrent to a broader based Russian economy remain valid. That said, Marshall thought his recent book about 'The Russian Energy State' still had relevance though he admitted his wife jokingly told him he would have to return to the typewriter.

What Obama might learn as he tries to move in a different direction. (See 1 below.)

Pushing on a string Japanese style. (See 2 below.)

Rice's N Korea approach is not a model for Hillary to follow but Hillary may have forgotten they also stiffed husband, Bill.(See 3 below.)

This from a neighbor friend: "Thought you would be interested in these figures.Still do not think Washington gets it."

I responded: 'Washington does get it because they simply want to cater to their consituents. Politicians are not interested in running an effective government just creating a lottery that pays off their friends.'(See 4 below.)

A RETIREE'S THOUGHT...


My wife said, "Whatcha doin today?"

I said, "Nothing."

She said, "You did that yesterday."

I said, "I wasn't finished."

Yes, our enemies are hurting but so are we for other reasons. (See 5 below.)

Those who believe government oversight works and protects should be having second thoughts. Government oversight, all too frequently, actually works in reverse because it allows everyone to rely on someone else, ie government bureaucrats. Defenders of the SEC argue it is not a pro-active organization. The SEC, they assert,acts after the fact.

I am currently reading David Einhorn's: "Fooling Some of The People All of The Time." Einhorn's offered his research and accusations to the SEC but it took the SEC years to investigate what Einhorn laid in their lap. When the SEC did get involved they initially distrusted Einhorn and assumed he had an ulterior motive - crash a stock by incessant shorting and walk away with a huge profit.

Anne Applebaum, seems to have over reacted, in an article about Madoff's fraud, writing it will cripple Capitalism. The only thing that will cripple Capitalism is Congress and their overreaction to the seamy side of the basest of human nature. Even Congress can't change human behaviour and if they could then charity begins at home. (See 6 below.)

Today the Fed opened the flood gates. Like the Col. who said of the Okinawans: "I will teach them democracy if I have to kill everyone of them," Bernanke is going to right our economy even if drowns us in debt.


Dick



1) The Return of Realpolitik in Arabia: Bush's 'diplomacy of freedom' gives way to Obama's caution and reticence. The Middle East may test our fatigue.
By FOUAD AJAMI

President Bush assumed office promising a "humble foreign policy." But it was his luck, or fate, to have much of his presidency consumed by adventures in the Greater Middle East. It is clear from the passion of his valedictory tour that he has caught the bug of that region, that it has worked its way on him as he himself worked his will, and the power available to him, on its settled and ruinous ways.

Ismael RoldanPresident-elect Barack Obama has signaled that the foreign world will not be his primary concern, that the repair of the American economy will trump all other pursuits and temptations. On the lands and the peoples of the Middle East, Mr. Obama has been largely silent, if not detached. He was in the Illinois Senate when a huge storm blew over the Islamic world. He was lucky, as his secretary of state designate endlessly reminded us, to have given a solitary speech on Iraq when the challenge came calling.

There is a detached tone to Mr. Obama's utterances on the Islamic world, a kind of knowingness. In part, it is no doubt an intended contrast to the heat and fervor of George W. Bush. If Mr. Bush believed he could remake that old and broken and wily region, Mr. Obama signals a fatigue with it, an acceptance of its order of power. If Mr. Bush believed that he could insert himself into the internal affairs of distant Islamic lands, Mr. Obama and his foreign-policy advisers portend a return to realpolitik and to a resigned acceptance of the ways of foreign autocracies. We have erred, the Obama worldview preaches, and overreached. We have overread the verdict of 9/11, and it is time to make our peace with regimes we have offended in the Bush years. It is the Scowcroftian way -- other lands, other ways.
Then, too, the Obama reticence about those burning grounds of the Islamic world is, in part, a matter of biography. The Islamic faith was the faith of his father. A candidate with the middle name of Hussein could not afford soaring rhetoric about the ability of freedom to survive on Islamic soil.

In contrast, George W. Bush had been free and confident enough to take up the cause of reform and drastic change in the Islamic world. True, he did not know much about the ways of those lands, but neither did Woodrow Wilson. His doctrine of self-determination in the aftermath of the Great War, and the dissolution of the Ottoman empire, endures as the most consequential and revolutionary American message taken to the lands of old empires.

Wilson himself, it should be recalled, had been chastened by the radical sweep and impact of his own doctrine; he had preached the gospel of self-determination, he said, "without the knowledge that nationalities existed, which are coming to us day after day." Detailed "knowledge" can be overrated in the choices that history opens up. The post-Ottoman world was never the same after that American president who had known so little about it. A circle was closed between that Wilsonian policy and the massive American push into Arab and Islamic lands by George W. Bush.

One thing is sure to go with Mr. Bush when he departs to Crawford, Texas: his "diplomacy of freedom." That diplomacy -- which propelled the wars in Afghanistan and Iraq, which drove the Syrians out of Lebanon after they had all but destroyed the sovereignty of that country, and had challenged pro-American allies in Egypt and the Arabian Peninsula -- is gone for good.

It was an odd spectacle, the time behind us: a conservative American president preaching the gospel of liberty for lands beyond, his liberal detractors at home giving voice to a deep skepticism about liberty's chances in inhospitable settings. No one was more revealing of the liberal temper -- and of things to come -- than Vice President-elect Joe Biden (then the point man for foreign policy among the Democrats) speaking in December 2006 about the hazards of believing in liberty's appeal to Muslim lands. Of President Bush, he said: "He has this wholesome but naive view that Westerners' notions of liberty are easily transported to that area of the world." Mr. Biden knew better: He warned the president, he said, that Grand Ayatollah Ali Sistani's view of liberty differed from "our view of liberty . . . I think the president thinks there's a Thomas Jefferson or Madison behind every sand dune waiting to jump up. And there are none."

The course of history can shred the most detailed of briefing books. On the face of it, the new team tells us that there shall be no attachment to the gains we made in Iraq. This is not Mr. Obama's cause, or call. That country can fend for itself, it is implied. The new cause shall be a return to the struggle for Afghanistan. This is the liberal narrative: the bad, unilateral "war of choice" in Iraq, the good, multilateral "war of necessity" in Afghanistan. The doves on Iraq can thus be hawks on the Afghan-Pakistan frontier. The strategic gurus who preached that Iraq is a hopeless, artificial state put together by Gertrude Bell and Winston Churchill and T.E. Lawrence can try for victory and nation building in the unforgiving tribal lands of Afghanistan and Pakistan. If there is an artificial state in our world of nations, Afghanistan must be its closest approximation. If there is a false national boundary -- mocked by ethnicity and historical allegiance -- it is the Durand Line, drawn up by British power in the 1890s, between Afghanistan and Pakistan, through the lands of the Pashtuns. Afghanistan could yet thwart President Bush's successors, frustrate them in the way Iraq frustrated him.

Our country will be forgiving toward the new foreign-policy team, it is fair to assume. The hubris and self-confidence needed for expeditions into foreign lands have been devastated by the economic meltdown in our midst.

Of the good manners and pliability of foreign regimes, we can be less certain. Nature abhors a vacuum, and challengers are sure to step forth. To its surprise, the new administration could yet discover that our adversaries do not wish to see our withdrawal from their midst. The Iranians thrive on the American presence in the Persian Gulf and feed off it. They are the quintessential oppositional force. They are not good at generating policies of their own. Their work consists of subversive attacks on Pax Americana in the region. The call by President Bush's critics for a dialogue with Iran will be exposed for the pathetic fraud it has been all along. The American drama swirling around the rise of Mr. Obama is of no interest to the theocrats in Tehran. For them, it is business as usual in the Persian Gulf.
We have witnessed the gains and the heartbreak of American activism and ambition on foreign shores. Around the corner lurk the risks of caution and reticence, of enemies who could see through, and test, our fatigue. The world is under no obligation to accommodate us.




2) Barack Obama-san Article

As January 20 nears, Barack Obama's ambitions for spending on the likes of roads, bridges and jobless benefits keep growing. The latest leak puts the "stimulus" at $1 trillion over a couple of years, and the political class is embracing it as a miracle cure.

Not to spoil the party, but this is not a new idea. Keynesian "pump-priming" in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.

In the Age of Obama, we seem fated to re-explain these eternal lessons. So for today we thought we'd recount the history of the last major country that tried to spend its way to "stimulus" -- Japan during its "lost decade" of the 1990s. In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa's Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a "lifestyle superpower." The country embarked on a great Keynesian experiment:
August 1992: 10.7 trillion yen ($85 billion). Japan passed its largest-ever stimulus package to that time, with 8.6 trillion yen earmarked for public works, 1.2 trillion to expand loan quotas for small- and medium-sized businesses and 900 billion for the Japan Development Bank. The package passed in December, but investment kept falling and unemployment rose. By the end of the year, Japan's debt-to-GDP ratio was 68.6%.

April 1993: 13.2 trillion yen. At exchange rates of the day, this was a whopping $117billion giveaway, again mostly for public works and small businesses. Tokyo erupted into domestic politicking over election practices, the economy went sideways, and the government fell. New Prime Minister Morihiro Hosokawa floated tax cuts, deregulation and decentralization to spur growth. But as the economy worsened -- inflation-adjusted GNP shrank 0.5% in the April to June quarter -- the political drumbeat for handouts increased.

September 1993: 6.2 trillion yen. Mr. Hosokawa announced a compromise "smaller" stimulus of $59 billion, along with minor deregulation. He dropped plans for an income-tax cut. The stimulus included 2.9 trillion yen in low-interest home financing, one trillion yen for "social infrastructure," and another trillion for business. The economy didn't respond. By the end of the year, Japan's debt-to-GDP reached 74.7%.

Is any of this beginning to sound familiar? There's more.
February 1994: 15.3 trillion yen. This stimulus included 5.8 trillion in income-tax cuts, 7.2 trillion in public investment, 1.5 trillion for small business and employment-support, 500 billion for land purchases and 230 billion for agricultural modernization. The income tax cut was temporary, effective only for 1994. The economy stagnated and Prime Minister Hosokawa resigned amid a corruption scandal. By the end of the year, debt-to-GDP was 80.2%.

September 1995: 14.2 trillion yen. The Socialist government of Tomiichi Murayama, with a wobbly coalition, rolled out a $137 billion whopper, with 4.6 trillion in public works, 3.2 trillion for government land purchases, 1.3 trillion in business loans, and more. Mr. Murayama resigned in early 1996, and in June Prime Minister Ryutaro Hashimoto agreed to raise consumption taxes to 5% from 3%, starting in April 1997, to reduce the fiscal deficit.

In 1994 and 1995, Japan spent 3.1% and 2.9% of its annual GDP, and (helped by central bank easing) the economy did respond with modest growth for about two years. Debt-to-GDP hit 87.6%.

April 1998: 16.7 trillion yen. When growth starting slowing again, the re-elected LDP turned to old medicine: 7.7 trillion yen for public works. The $128 billion grab-bag also included 2.3 trillion for the disposal of bad loans. The government announced four trillion yen in (again) temporary income-tax cuts, spread over two years. Mr. Hashimoto resigned in July after voters registered their discontent at the polls.

November 1998: 23.9 trillion yen. Desperate to get the economy moving, Prime Minister Keizo Obuchi rolled out the country's largest-ever stimulus, valued at $195 billion. The giveaway included 8.1 trillion yen in social public works, 5.9 trillion for business loans, one trillion for job-creation programs, 700 billion in cash handouts to 35 million households, and more. By the end of the year, debt-to-GDP hit 114.3%.

November 1999: 18 trillion yen. In a "last push," Mr. Obuchi's government spent 7.4 trillion yen to prop up businesses, 6.8 trillion yen for social infrastructure projects like telecommunications and environmental projects, and two trillion yen for housing loans, among other things. Debt-to-GDP reached 128.3%.
Japan's economy grow anemically over that decade, but as the nearby chart shows, its national debt exploded. Only in this decade, with a monetary reflation and Prime Minister Junichiro Koizumi's decision to privatize state assets and force banks to acknowledge their bad debts, did the economy recover. Yet recent governments have rolled back Mr. Koizumi's reforms and returned to their spending habits. But Japan does have better roads.

Now we're told that a similar spending program -- a new New Deal -- will revive the U.S. economy. How do you say "good luck" in Japanese?

3)Condi's Korean Failure: Putting diplomacy above disarmament.

Condoleezza Rice has spent her four years as Secretary of State trying to engage America's adversaries in much the same way that Hillary Clinton is promising to do. So it's worth noting the final collapse of Ms. Rice's North Korean diplomacy last week.

Pyongyang announced that it won't put in writing the verbal commitments on nuclear verification that it had previously made to U.S. negotiator Christopher Hill. Ms. Rice and Mr. Hill had used those verbal promises to persuade President Bush in October to remove North Korea from the U.S. list of terror-sponsoring countries. But having won that concession, the North is now refusing to submit to even de minimis verification of its supposed disarmament.

This is no great surprise, except perhaps to Mr. Hill and Ms. Rice. The North has never kept a commitment, verbal or written. Its negotiating habit is to make promises to win concessions, then renege on those promises and saber-rattle until the U.S. offers further concessions. Under the verification deal, U.S., Japan, South Korea, China and Russia had pledged one million tons of fuel oil to the energy-starved North. The State Department said Friday that those shipments would be halted, but half of the deliveries have already been made. The North will now hold out for an even better deal from the Obama Administration, knowing from experience that it will probably get it.

Meanwhile, the suffering of the North Korean people has continued, with new reports of food shortages and an even harsher crackdown on Koreans trying to flee to China. Ms. Rice recently said the only alternative to her Pyongyang policy was short-term "regime change," which is a classic false dilemma. Her failure -- and Mr. Bush's -- was putting the appearance of diplomatic progress above genuine disarmament.


4)Now here is some real smart Pelosi/Clinton Demanomics.....And this is an example of what middle America will pay for ! ! ! Unions ? ? ? ?
According to Forbes:

Labor cost per hour, wages and benefits for hourly workers.
Ford: $70.51 ($141,020 per year)

GM: $73.26 ($146,520 per year)

Chrysler: $75.86 ($151,720 per year)

Toyota, Honda, Nissan (in U.S. ): $48.00 ($96,000 per year)

According to AAUP and IES, the average annual compensation for a college professor in 2006 was $92,973 (average salary nationally of $73,207 + 27% benefits).

Bottom Line: The average UAW worker with a high school degree earns 57.6% more compensation than the average university professor with a Ph.D., and 52.6% more than the average worker at Toyota , Honda or Nissan.

Many industry analysts say the Detroit Three, must be on par with Toyota and Honda to survive. This year's contract, they say, must be "transformational" in reducing pension and health care costs.

What would "transformational" mean? One way to think about "transformational" would mean that UAW workers, most with a high school diploma, would have to accept compensation equal to that of the average university professor with a PhD.

Then there's the "Job Bank"

When a D3 ( Detroit 3 carmaker) lays an employee off, that employee continues to receive all benefits - medical, retirement, etc., etc., PLUS an hourly wage of $31/hour.

Here's a typical story....

Ken Pool is making good money. On weekdays, he shows up at 7 a.m. at Ford Motor Co.'s Michigan Truck Plant in Wayne , signs in, and then starts working -- on a crossword puzzle. Pool hates the monotony, but the pay is good: more than $31 an hour, plus benefits.

"We just go in and play crossword puzzles, watch videos that someone brings in or read the newspaper," he says. "Otherwise, I just sit."

Pool is one of more than 12,000 American autoworkers who, instead of installing windshields or bending sheet metal, spend their days counting the hours in a jobs bank set up by Detroit automakers as demanded by the United Auto Workers Union - UAW - as part of an extraordinary job security agreement.

Now the D3 wants Joe Taxpayer to pick up this tab in a $25 Billion bailout package - soon to be increased to $45 Billion if Nancy Pelosi and Hillary Clinton have their way.

The "Big 3" want this money - not to build better autos. No. They want it to pay the tab for Medical and Retirement benefits for RETIRED auto workers. Not ONE PENNY would be used to make them more competitive, or to improve the quality of their cars.

We ALL have problems paying for our Medical Insurance - but the Democrat leaders in Congress now want us to pay the Medical Insurance premiums of folks who have RETIRED from Ford, GM and Chrysler.

Not a good deal for us.

How about Chapter 11 - and getting rid of these ridiculous union contracts?

5) THE IMPENDING COLLAPSE OF OUR ENEMIES
By DICK MORRIS & EILEEN MCGANN

The Depression -- let’s call it what it is -- leaves us, well, depressed. But there is very good news from around the world. Our enemies are collapsing under the strain of dropping oil and gas prices. What we had all hoped conservation20and off-shore drilling would achieve, the global economic collapse is accomplishing: the defeat of OPEC, Iran, Chavez, Putin and the weakening of the financial underpinnings of Islamist terrorism. In each of these nations, the hold of the dictator is weakening as, one after the other, they face the consequences of dropping oil prices.

In Iran, the sanctions imposed by the United Nations, the aggressive efforts of the U.S. government, and the actions of states like California, Florida, and Missouri to ban pension investments in companies that do business with Iran are having a big effect. Unable to expand its oil production for a lack of foreign investment, Iran faces the need to slash its budget drastically as energy revenues, the source of 85% of its income, crash. Iranian President Ahmadinejad is announcing harsh austerity measures. Having based his budget on $50-$60 oil, he now must recast it for at a $40 per barrel level. He boasts of cash reserves of $23 billion, but that sum won’t last long unless he makes major cuts. (Do the math: a shortfall of $25/barrel per day x 4 million barrels a day x 365 days = $36.5 billion, more than he’s got on hand).


The question for Ahmadinejad and for the Ayatollah who stands behind him is: Can their regime survive economic collapse? Unable to buy social peace by handouts and subsidies, will the top blow off an country that hates the regime, is predominantly very young, and is only 40% Farci?

Chavez, in Venezuela is not in any better shape. Because of corruption and incompetence, Venezuelan oil production has dropped from over 3 million barrels per day when Chavez took over to about 1.7 million today. As long as oil prices were quadrupling, it didn’t matter, but when they crashed, a harsh wind of reality blew in the door. Chavez was losing popularity before the oil price dropped. He lost a constitutional referendum to give himself lifetime tenure and he just lost his municipal elections in the largest cities and states in the nation. After knocking out most of the major opposition candidates on phony charges of corruption, he managed to hang on to the governorships of the small, rural provinces, but he lost the cities – even the poor areas of the cities vote d against him.

Now, beset already by food shortages and galloping inflation, Venezuela has to make do with less subsidization and drastic cuts. Feeling cold times ahead, Chavez is desperately press ing ahead with a new attempt to abolish term limits in a vote set for the end of February, but, if he falls short – which we think he will – he could be out in a matter of months.

Chavez’ client-states -- Ecuador, Nicaragua, and Bolivia –- have to face life without subsidies. Evo Morales, the head of Bolivia who got elected pledging to allow cocoa cultivation again, already faces a virtual civil war as the energy-rich half of his country wants autonomy and, possibly, independence. Argentina, whose corrupt regime has held onto power by massive borrowing from Chavez, must now seek sustenance from the global markets, only recently burned by its default on its foreign debt. Fat chance.

Putin’s Russia, which so recently threw its weight around by invading Georgia, faces perhaps the biggest hit of all to its economy. Producing 10 million barrels per day, Russia will be hit the hardest by the collapse of prices. (Again, do the math: Assume Russia budgeted at $60 oil prices and the price drops to $40. $20/barrel x 10 million barrels per day x 365 = a $73 billion annual shortfall). With a GDP of only about $1.4 trillion, Russia faces the loss of about 5% of its economy. And Russian oil production has dropped by one million barrels per day for each of the past two years. With prices at rock=2 0bottom and nationalization an ever-present threat, who is going to invest in increasing Russian production?

And what of OPEC and the economic base of the Islamist terrorists? Countries like the United Arab Emirates, Qatar, and Kuwait will be OK because they have small populations among whom to divide their oil earnings. Saudi Arabia will make it because of its massive production and relatively small population. But every other OPEC nation has a large population where the ruler, usually a dictator, buys social peace with oil money. The pressure to stay in power will be so intense that these leaders will force production as high as they can to offset the shortfall. The result is that there will be constant deflationary pressure on oil prices, a vicious cycle that will impoverish all the right people.

6) Breach of Trust:Bernard Madoff's massive fraud will cripple American capitalism.
By Anne Applebaum


Scene 1: We are buying an apartment in Warsaw, Poland, sometime in the early 1990s. At every stage of the transaction, both my husband and I have to show up in person, stand in line, and present identity cards. We appear at the notary's office more than once. We appear at the tax office more than once. Finally, we are asked to hand over a briefcase full of dollars. The seller will not accept a bank transfer and does not want to be paid in his country's currency, either.

Scene 2: We are buying a car in Washington, D.C., sometime in the early 2000s. We test-drive a few and tell the dealer which car we want. We hand him a personal check, which he accepts without asking for an identity card. My husband asks if he isn't worried the check will bounce. The dealer laughs, and we drive out of the dealership in a brand-new car.

Two different times, two different places, but above all, two different kinds of capitalism: If Francis Fukuyama, the author of Trust: The Social Virtues and the Creation of Prosperity, were writing this article, he would describe the Warsaw of the first scene as a "low trust" culture and the Washington of the second as a "high trust" culture. One could also call them a "place where financial transactions are irritating and time-consuming" and "a place where financial transactions are easy," respectively. Such labels do not last forever, though. In the nearly two decades that have passed since the early 1990s, bank transfers, telephone transactions, and the use of the local currency have all become the norm in Warsaw. The question now is whether American capitalism will also change over the next two decades—and for the worse.

Reading the accounts of the collapse of Bernard L. Madoff Investment Securities, it is impossible not to conclude that it will. The scale of this fraud stretches far beyond anything a car dealer or even the purchaser of an apartment might commit, of course: Among the victims of Madoff's extraordinary pyramid scheme are major banks (BNP Parisbas, Nomura Securities), famous people (Mort Zuckerman), and Madoff's friends from the Palm Beach Country Club. In the wake of Madoff's arrest, charities are going to close, and previously rich people will become poor. Worst of all, everyone who invests anywhere will think just that much harder, take that much longer, demand that much more documentation. And they will do so not only because of Madoff, but because of the subprime lenders, Wall Street investment banks, and Enron fraudsters who have worked so hard to erode our faith in the reliability of our system.

The deeper irony here is that all these schemes were only possible in the first place precisely because we have, until now, lived in a culture with such extraordinarily high levels of trust, a culture in which a customer's bona fides are accepted without question and wealthy people are thought to have earned their money. In our culture, someone like Madoff was trusted precisely because he was rich; because he was a member of the Palm Beach Country Club; because his company worked out of expensive Manhattan offices, most of which were occupied by people doing real jobs. It occurred to no one that a small group of select insiders was also operating a massive fraud scheme on the 17th floor.

In other cultures—maybe most other cultures—very rich people are suspect by definition. Recently, I met a wealthy Russian and automatically assumed he was the beneficiary of some shady scheme: How else would someone from that part of the world get rich? In fact, he turned out to be the CEO of a Western-owned company in Kiev, Ukraine, and totally above board. But I know why I made the mistake: I still remember—and Russians still remember—the fraudulent "privatization" deals and complex money-laundering operations that created so many Russian billionaires over the last two decades. I also remember the extraordinary saga of the MMM company, which in the 1990s defrauded some 2 million Russians of $1.5 billion, using what will now surely be known as the second-largest pyramid scheme of all time. Back then, we thought such blatant fraud could only take place in the lawlessness of the post-Soviet world.

We were wrong. Madoff's pyramid scheme, far broader than anything MMM dreamed up, was made possible by our own tradition of lawfulness. And now he will help bring that tradition down. Here's a prediction: In the coming years, American capitalism will become slower, more cautious, less productive, and less entrepreneurial. We're still a long way from Eastern Europe of the 1990s or from the Latin America or Russia of the present. But maybe not as far as we think.