Why Not Have Eduscare as Well?

This from a freind, fellow memo reader and State Representative. I responded that he is right to call my hand for broad brushing and making too many accusative generalities. (See 1 below.)

I happened to catch a snippet of news Sunday morning pertaining to 'disruptive town halls meetings' which seem to occupy a lot of TV time. I wintessed an interview with a Democrat Rep. from California who has chosen to engage in telephone interviews instead of public meetings. She claimed it was more Democratic because doing so would reach 40,000 people in her district and they could ask questions and get answers without disruption. Yes, this allows for a controlled more civil atmosphere, dissapates heat and serves as a way to still voices of discontent.

Democrats have resorted to blaming Republicans of purposely disrupting these meetings, planting people with prepared questions etc. Seems to this observer the Democrats are catching enough 'hell' from their own constituents but shifting blame is always a resourceful, if deceptive, approach.

Perhaps as a modicum of truth about the extreme provisions of Obamascare wash over the land it has begun engeandering real, justified and legitimate fear and protesters are simply expressing these concerns. (In a previous posted article by Peggy Noonan she said about as much.)


Democrat knee jerk reaction might connote two things:

a) Fear their proposals went beyond acceptable boundaries, and

b) Far Left Liberalism suggests the Party is out of touch with the mainstream thinking.

So what to do? Where are Bull Connor's dogs when Liberals need them?

A Ga. Legislature gets testyu when a local Doctor asks a legitimate question. Boy are the Liberals touchy. Best evidence they are hiding something. So much for oopen government that Obama ppromised during his campaign. (See 2 below.)

And what would it look like if we reformed education in the vein of Obamascare? (See 3 below.)

John Kennedy nearly went to war over Russia arming Cuba. Is Israel about to do the same regarding Iran's increasing re-arming of Hezballah? (See 4 and 4a below.)

Dick Morris suggests Obama may believe distancing the U.S. from Israel is playing well in Arabville but it might boomerang when it comes to some of his loyal voters, (See 5 below.)

This writer has another take on reported earnings. (See 6 below.)

Fleckenstein super bearish when it comes to hyperinflation prospects. (See 6a below.)

Dick

1)Is it actually possible an American majority ushered in Obama,liberals and ousted us?

I feel much like you do, Dick. I don't agree with your broadbrush bashing of every politico. I know you're wrong.

Yes, America has finally gotten 'pissed' off - and I'm glad. I've been 'pissed' at state and federal government for over 16 years. Now, I don't feel so alone.


2) Georgia Democrat yells at local doctor over health care
By Amanda Carpenter



Tensions are running so high at town hall meetings that Rep. David Scott, a Georgia Democrat, yelled at a local doctor concerned about health care after mistaking him for an "astroturf" political operative looking for a fight.

Mr. Scott became visibly agitated when one of his constituents, a practicing doctor, asked a few questions about health care reform during a town hall meeting. The meeting was held to discuss a road project, but was opened up for questions near the end. That's when Dr. David Hill stood up to speak.

Dr. Hill asked Mr. Scott why he was going to vote for a health care plan similar to that implemented in Massachusetts "that is shown not to work" and if he supported a government-provided health care insurance option.

The congressman replied by accusing the doctor of "hijacking" his event.
"I'm listening to my constituents, OK?" Scott said, "These are people who live in the 13th Congressional district, who vote in this district. That’s who I’ve got to respond to … So what you’ve got to understand, those of you who are here, who have taken and came and hijacked this event we dealing with here, this is not a health care event."

"You chose to come and to do it on your own," he yelled. "Not a single one of you had the decency to call my office and set up for a meeting." He went on, in a threatening voice, "You want a meeting with me on health care, I'll give it to you!"

The outburst is yet another example of how confrontational town hall meetings have become over recent weeks, as constituents are becoming more forthright in asking their elected representatives challenging questions. These actions and other forms of protest have been encouraged by limited government advocacy groups opposed to the stimulus package, the Democrats favored health care reforms and other big spending government proposals.

The White House has labeled these efforts "astroturf", shorthand for fake grassroots. To combat these efforts, groups supporting these plans — such as Service Employees International Employees Union — have been appearing at these town halls as well, effectively creating local "showdowns" between opposing political powers.

Mr. Scott's public tirade against the doctor was filmed by WXIA-TV News, a local NBC affiliate that confirmed the doctor lived in the congressman's district in a follow-up interview.

The doctor told the reporters he wasn't working for any outside causes and had called Mr. Scott's office repeatedly, asking to speak with the congressman.
"I did not go to a meeting to create any problems, I went to the meeting to literally ask a question that I thought was very, very important for my patients," he said.

(NOTE: The WXIA video report of the event that includes the congressman's remarks and the post-interview with the doctor is available on their website here under the video titled "Congressman Scott's Town Hall." HotAir.com, a conservative-leaning blog, also has it embedded into their item about the town hall here. It is more easily accessed on HotAir.com)


3) What if we had comprehensive education reform?
By Carol Peracchio

It's very difficult these days for healthcare providers to avoid the belief that Obama and the Democrats have them in the crosshairs. Listening to Nancy Pelosi excoriate insurance companies as villains and Barack Obama tell us that doctors perform unnecessary surgery only reinforces this sense of persecution.

Over the years the left wing has engaged in such outrageous demagoguery concerning the American healthcare system that hearing health insurance executives and doctors described as evil and greedy doesn't even rate a shrug from the public. There may be problems with the financing of healthcare. But the thousand page monstrosity known as "Comprehensive Health Care Reform" is not the solution

In order to make my point, I propose an illustration. What if it weren't health care that President Obama wanted to reform? What if he had decided it was the American education system that needed overhauling? What would this legislation do?

It's a fascinating exercise to go through the list of highlights in the House bill provided by Family Security Matters and substitute "education" for "health care."


Start with page 16, the famous "Protecting the Choice to Keep Current Coverage." Instead of (health insurance) "coverage," imagine the section is titled "Protecting the Choice to Send Your Child to a Private School." Of course your children can attend a private school. As long as a couple of teeny requirements are met:


a.You must already have a child enrolled in the school before the date this law takes effect.

b. The school cannot raise its tuition or change its curriculum.

c. After 5 years, the school's curriculum must meet all the requirements of the Education Benefits Advisory Committee (see page 30, explained next). All three of these requirements are waived for the children of the Executive and Legislative branch and for Sidwell Friends School.




Next, go to page 30, which details the establishment of a Health Benefits Advisory Committee. In comprehensive education reform, this section would establish an Education Benefits Advisory Committee, which will be chaired by the Secretary of Education and will consist of, at the most, 26 members. (It's reassuring to know that among the 26 will be one practicing teacher or other education professional.) The Committee shall recommend education standards, taking in to account innovation in education and consider how such standards could reduce education disparities. Therefore, there will no longer be a need for an entity formerly known as the Local School Board. The Committee, working out of Washington DC, will set the standards for school curriculum, textbooks, teaching methods, etc. nationwide. If you like your local school's curriculum, you can keep it -- for a year. That's when the initial federal education standards are to be submitted to the Secretary.

Turn to page 167. This section institutes a "tax on individuals without acceptable health care coverage." Substituting education and parents for health and individuals produces a "tax on parents without acceptable education coverage": "In the case of any individual who does not meet the requirements of subsection (d) at any time during the taxable year, there is hereby imposed a tax equal to 2.5 percent." Get ready to pay dearly, homeschoolers! Luckily, this surtax won't be permanent. In a year, when the new federal education standards are adopted, (see page 30) you will no longer be allowed to teach your own kids at home.

Here's some bad news on the compensation front. On page 253 in the healthcare bill, we discover that "IN GENERAL.-The Secretary shall establish a process to validate relative value units under the fee schedule under subsection (b)". So physician pay rates shall be determined in Washington, DC by the Secretary of HHS. In education reform, teacher's salaries shall be set by the Secretary of Education. Cost of living higher in New York City than in Des Moines? Remember, this is Nationalized Education. Regional thinking is so 18th century. If we trust Washington to set CEO pay, then we can certainly trust them to set teachers' pay.

It is also time to establish outcomes-based education compensation. We find this gem on page 335 of the America's Affordable Health Choices Act of 2009. In comprehensive education legislation, America's Affordable Education Choices Act of 2009, outcomes-based compensation would be applied to teachers. Let me offer the following scenario as an illustration. If a teacher has 20 students, and 18 pass the Education Benefits Advisory Committee's standardized test, the teacher shall not be compensated for those 2 failing students; in other words, the teacher will receive a 10% pay cut. The teacher might reasonably counter that those two students did not study for the test. That's unfortunate, but test results don't lie.

Compare this example to Obama's plan to withhold payment from a physician when his patient's diabetes is not effectively controlled. Let's hypothesize that the physician spent thirty minutes teaching the patient about diet, exercise and his disease process, and that his office nurse sent the patient home with written instructions, samples of his oral hypoglycemic medication, a free glucose monitor and a month's worth of test strips, a schedule of classes with a diabetic educator and a follow-up appointment. Anyone with an ounce of common sense knows it's not then the physician's fault if that diabetic's blood sugar in uncontrolled because he cannot walk past Dunkin Donuts. It's also not the teacher's fault if a student makes bad choices. Then there is the patient or student who follows the teacher's or physician's instructions scrupulously, yet due to a learning disability or the severity of the disease, still has a bad outcome. It's why medicine is referred to as an art. Patients and students are not machines. To compensate a teacher or physician strictly "by the numbers" shows a stunning disconnect with how the world works.

Finally, on page 425, we find the requirement for "Advance Care Planning Consultations." In education reform legislation, every five years there will be mandated an education planning consultation between the parent(s) and a government-approved educator. This consultation shall include "key questions and considerations, important steps, and suggested people to talk to." The government wants parents to be aware of which education options are most appropriate and cost-effective for the child and the community as a whole. Look, parents, it's just a little discussion. After all, we know that if the federal government didn't require it, none of you would bother to think about your child's education.

Only a few examples, but they illustrate the absurdity of this bill. Comprehensive education reform is unnecessary, unwanted, and frankly, just stupid. So is comprehensive health care reform.


I have substituted "education" for "health care" in this article. I would suggest our representatives try substituting other crucial functions like "buying groceries" or "travel" for "health care" when they read and study the health care legislation ... if they read and study the legislation.

Carol Peracchio is a registered nurse.

4) Tension on Israel-Lebanese border rises as Iran sends Hizballah upgraded missiles



Israel, Lebanon and Iran have been trading charges of responsibility for the rising military tensions on the Lebanese-Israeli border in the past week. Military sources disclose Lebanese Shiite Hizballah is preparing for the intake of self-propelled anti-air SAM-8 missiles and an upgraded version of the Iranian ground-ground Fateh-110 missile, whose warhead carries half a ton of explosives with a 200-kilometer range.

Iran appears concerned that President Barack Obama, whom Tehran sources see as frustrated by his failure to cut the Assad regime in Damascus away from its bonds with Tehran, may give Israel a green light to punish Hizballah. The Iranians have responded by pumping up allegations of Israeli threats and building up Hizballah's arsenal with deliveries of advanced air-to-air, ground-to-ground, and shore-to-sea missiles for crippling Israel's military and battering its civilian population in the event of a flare-up.

In Jerusalem, Israel's deputy foreign minister Danny Ayalon said Sunday, Aug. 9, that Lebanon would suffer serious consequences from any Hizballah attempt to assassinate Israelis abroad.

Defense minister Ehud Barak also threatened to use "all necessary force" in the event of a fresh conflict on Israel's northern border.

A Hizballah spokesman countered: "If Barak's threats are serious - and I don't think they are - he should be aware that if he commits an error or stupid act against Lebanon… he will find that July and August 2006 were a bit of fun."

Meanwhile, the Iranians are rushing to their Lebanese proxy the anti-air SA-18 (which performs similarly to the US Stinger) and the self-propelled Sam-8, a few batteries of which Israeli believes have already been delivered.

Seven months ago, Israel warned Syria that if these missiles are allowed to cross its border into Lebanon, they would be judged to be a violation of the regional balance of strength and legitimate targets for attack before both before they leave Syria and at their Lebanese sites.

The Fateh-110, an upgraded Zelzal 2 - which in the 2006 war Hizballah used to strike the northern Israeli towns of Hadera, Afula and the Jezreel Valley - can reach northern Tel Aviv. The weapon also has greater accuracy due to a Chinese guidance system sold to Iran.

4a) Netanyahu: Israel will hold Lebanon responsible for any Hezbollah attack
By Amos Harel, Avi Issacharoff, Zohar Blumenkrantz and Irit Rosenblum



Prime Minister Benjamin Netanyahu on Monday denied reports that tensions were increasing between Israel and Lebanon, but stressed the government in Beirut would be seen as responsible for any attacks on Israeli targets, including attacks perpetrated by Hezbollah.

Hezbollah's official entry into the Lebanese government takes away any line between the state and the militant group with that regard, Netanyahu said. "The government of Lebanon cannot just say 'that's Hezbollah,' and hide behind them," said the prime minister. "The government of Lebanon is in power and responsible."

Netanyahu's comments came a day after the exchange of rhetoric between Hezbollah and Israel escalated further Sunday, as a senior official for the organization, Hashem Safi a-Din, predicted that the "war of 2006 will seem like a joke" next to Hezbollah's reaction if Israel should attack.
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Deputy foreign minister Daniel Ayalon said in response that, "if one hair on the head of an Israeli representative or tourist is harmed, we will see Hezbollah as responsible and it will bear the most dire consequences."

Israel's northern border has seen a rise in tensions since mid-July, when an explosion occurred in a Hezbollah munitions dump in the south of Lebanon. Commenting on Israel Radio on the arrest of a group in Cairo suspected of plotting to assassinate Israel's ambassador to Egypt, Ayalon said that "we know it's not just Egypt ... we know that Hezbollah has tried and is trying to collect intelligence and to carry out some actions ... it has had its failures but it keeps trying. So it's important to put things on the table and send this warning to Lebanon, which is eventually responsible for Hezbollah, that it will also be responsible for any harm it may suffer if Israelis are targeted."


A-Din said that while Hezbollah was not interested in war, the organization was on alert and prepared for any eventuality, including conflict. He was commenting on Ehud Barak's statements last Wednesday, in which the defense minister said that Israel was "not ready to accept a situation in which a neighboring country has in its government and parliament a milita that has its own policy and 40,000 rockets aimed at Israel."

Ayalon hinted that the Israel defense establishment believes Hezbollah intends to carry out soon its revenge attack for the death of Imad Mughniyeh, a top commander in the organization, who was killed when his car was blown up in Damascus in early 2008. Hezbollah believes Israel to be responsible for the assassination, a claim that Israel denies. Defense sources said they believe the organization would be especially motivated to carry out an attack to compensate for the embarrassment caused by munitions dump explosion.

According to Defense Ministry warnings, tourists and Israeli representatives abroad are thought to be likely targets. A bomb attack on Israel's embassy in Baku was foiled by Azerbaijani security forces in 2008.

Other comments by Israeli officials, including a senior commander in the Israel Defense Forces' Northern Command, who told The Times of London last week that the northern border "could explode at any minute," appear to indicate that Israel was preparing for a scenario in which a Hezbollah attack against an Israeli target abroad provokes a forceful Israeli reaction and, possibly, a new war.

Defense sources said, however, they believed the Hezbollah would try and calibrate an attack that, while effective, will not be able to serve as a casus belli. They noted the organization has not yet recovered from damages suffered in the war in 2006.

Also in recent weeks, Lebanese civilians continued staging protests near the border. Two weeks ago, several Lebanese civilians briefly infiltrated the Shebaa Farms.

Despite the warnings, some 330,000 Israelis departed the country for holidays abroad in the first week of August, while hundreds of thousands more are expected to leave during the holiday season of September-October. Most Israeli tourists will be traveling to Western Europe, North America and the Far East. The most popular destinations are Turkey, France, Germany and Italy.

Tourism industry sources also indicated a recovery of travel to Sinai. The first week of August saw 40,000 Israelis passing through the Taba crossing to the peninsula and onward to Egypt. Last year, 50,000 travelers passed through the crossing during the entire month.

Oren Amir, of the Sinai Peninsula Hotels company, said that his company had reservations for hotels close to the Israeli border, but no bookings for hotels south of the Taba Heights compound.

Ofer Heilig, of Nofar travel agents, also reported increased interest in proper hotels in Sinai, which appear to be replacing the traditional beach huts. "We've learned from experience, all of us - Egyptians and Israelis. There's an extremely high level of security in the hotels today. You can't even come close to any of them in private vehicles," he said. "Also, Israelis booked at hotels are taken by special shuttles to their destinations, accompanied by security guards."

5)Oy!bama may suffer real political damage among a core Democratic constituency if he continues his current policies
By Dick Morris & Eileen Mc Gann



Jewish Democrats strongly agree with the Israeli position and disagree with President Obama's on issues such as a Palestinian state, settlement construction and trading land for peace. Does the president realize he's at risk of a break with an important part of his base?


A phone survey (sponsored by the Traditional Values Coalition and conducted by Global Marketing Research Services on July 22-24) of 500 American Jews who self-identified as Democrats exposes broad disagreement with Obama's Middle East policies.


Asked to choose between the Obama view that "if Israel could settle its dispute with the Palestinian refugees and give them a nation of their own, that the Arabs would live in peace with Israel" and the Israeli government view that "the Arabs will never live in peace with Israel and that giving them a nation of their own will just make them stronger," Jewish Democrats sided with the Israeli view by 52 percent to 20percent.


On the contentious issue of construction in existing West Bank settlements, Democratic Jews also sided with Israel more than with Obama. The survey asked for agreement with Obama when he "says that it is very important that Israel not expand its settlements on the West Bank so as not to alienate the Palestinians," or with Israel that "it should be allowed to build new homes in existing settlements but not to start new ones" — and got 52-37 backing for the Israeli view.


Democratic Jews still strongly back Obama in general, with 92 percent reporting that they approve of the job he is doing as president. But 44 percent feel that "Obama is naive in thinking he can make peace with the Arabs," while only 37 percent disagree.


Nearly half of Jewish Democrats still reject the idea that Obama is biased against Israel: In all, 49 percent said he wasn't and 16 percent said he was — but a significantly large number, 35 percent, said they were undecided.


By 58-16, Jewish Democrats agree that "Obama is doing a good job of promoting peace in the Middle East." But they share Israeli Prime Minister Netanyahu's skepticism about trading land for peace, the cornerstone of the "road map" to a settlement laid out in the 1990s.


Only 27 percent feel that "President Obama is right that Israel should agree to let the Palestinians form their own country and return the West Bank to them. This would defuse the hatred in the Middle East, reduce terrorism and help America, the Palestinians, and Israel live in peace."


But 55 percent disagree, preferring the statement: "President Obama is naive in thinking that the Palestinians would make peace, whatever they say. They will just use the new land as a base to attack Israel like they did in Gaza."


On the issue of Iran, Jewish Democrats are confused. While they agree, by 67-8, that "if Iran gets nuclear weapons, it will use them to destroy Israel," only 14 percent said it was "very likely" that "Israel could be destroyed by an Iranian nuclear attack in the next 10 years." Another 37 percent called it "somewhat likely" and 40 percent said "unlikely."


Only 40 percent said they thought Obama is doing a good job in his efforts to "stop Iran from developing nuclear weapons." At the same time, by 15-62, they disagree that "Israel should bomb Iran to stop them from developing nuclear weapons."


Yet, only 38 percent felt that there "is a real chance that Iran can be stopped from developing a bomb without an Israeli attack."


Jewish Democrats heartily approve of Israel and most of its policies and emphatically reject any moral equivalence between the Jewish state and the Palestinian refugees:


92 percent have a favorable opinion of Israel; just 17 percent have a positive view of the Palestinian refugees.

By 81-6, they agree that "Israel is a democracy and has a free political system."

They agree that "it is very important that Jews have a country of their own, considering their history of persecution" by 86-7.

Emphatically, by 9-75, they reject the claim that "Israel has become a bully, pushing its Arab neighbors around."

By 14-55, they disagree with the accusation that "the Israeli Army and Mossad are guilty of human-rights abuses." Rather, they say by 59-14 that "the Israeli Army and Mossad go out of their way to avoid hurting civilians."

Asked if "Israel is always trying to grab more land and throw out the Palestinians who live there," Jewish Democrats disagree by 11-73. And they also disagree with the charge that "Israel is intolerant of its neighbors and does not do enough to get along with them in peace" by 13-70.

The pro-Israeli mindset of Jewish Democrats is most evident on the basic question of who's to blame for the Arab-Israeli conflict. By 60-20, they agree that "if the Arabs lay down their weapons, there would be no more war. It is just their desire to destroy Israel that creates the conflict." Likewise, they agree by 83-6 that "if Israel were to lay down its weapons, the Arabs would destroy it."


The fervency of their support for Israel suggests that Obama may suffer real political damage among a core Democratic constituency if he continues his current policies.


Dick Morris is author, most recently, of "Catastrophet."

6) Corporate Earnings Are No Sign of Recovery .
By ZACHARY KARABELL


Despite grim predictions, most major U.S. companies have reported positive earnings for the second quarter of 2009. Given how wrong past predictions have been, the fact that earnings have blown away expectations shouldn’t be so surprising. Still, the numbers are genuinely impressive: More than 73% of the companies that have reported so far have beaten earnings estimates—and stocks have rightly rallied.

Yes, profits are down sharply from a year ago, but this is in the context of an overall global economy that is shrinking. If a company made $30 million on $100 million in revenue a year ago, and made “only” $20 million this quarter, it’s accurate to have a headline that says its profits fell 33%. But making $20 million, or a 20% margin, in an economy that contracted is nonetheless startling, or should be.

The same Wall Street culture that failed to anticipate the tipping point in the financial system is just as prone to a herd mentality of negativity. Having overlooked the gaping fissures in the system last year, most analysts went to the other extreme in their analysis of what would happen this year. A similar process occurred in 2002 and 2003, as views whipsawed from unrealistic optimism to irrational pessimism.

This time, the slew of better earnings has also led to the conviction that the worst of the economic travails are behind us. As the stock market has soared, many have declared the recession either over or ending. These voices range from public officials at the Federal Reserve to notable pessimists such as New York University economist Nouriel Roubini. This rosy view assumes a connection between how listed companies are fairing and how the national economy will fair. That assumption is wrong.

The delinkage of the fate of corporate profits from that of the overall economy is not new. Beginning earlier in this decade, profits began to accelerate far in excess of either global or U.S. economic growth.

In 2004, for instance, earnings for the S&P 500 grew 22%; in 2005 and 2006 they grew just under 20%. Those same years global growth barely exceeded 3%. As we now know, some of those elevated earnings were due to the leverage-fueled profits of the financial-service industry. And there’s little doubt that mortgage-laced derivatives artificially elevated growth. But even discounting those factors, the growth of corporate profits would have substantially exceeded the expansion of national economies.

Then, in the second half of last year and the first months of this year, profits plunged along with U.S. and global economic activity. That gave succor to the belief that companies can only grow as much as the economies in which they function grow. For years, most analysts argued that if there was too wide a variance between the two, something had to give. Either profits had to descend or national economic growth had to accelerate. As profits shrank over the past nine months, those who argued that a reversion to the mean was inevitable seemed to be vindicated. But that belief is wrong. Companies are increasingly less constrained by any national economy, and their success is no harbinger of national economic growth or sustained economic health for the United States.

First, companies have been profiting because they can cut costs aggressively. It’s not as if demand in the U.S. or Europe has picked up. Take Starbucks, which reported a surprising surge in profits. Little of that was due to American consumers suddenly becoming comfortable with $5 grande mocha lattes. Instead, it was because Starbucks—faced with weak demand and sluggish sales—closed stores and laid off workers. That has been a trend across industries.

Second, many larger companies have been profiting because they can focus on where the growth is around the globe. Companies such as Intel, Caterpillar, Microsoft and IBM now derive a majority of their revenues from outside the U.S., with the dynamic economies of the Asian rim and above all China assuming an ever-larger role. Companies are thriving in spite of economic activity in the U.S., not because of it.

That suggests the connection between corporate profits and robust economic recovery in the U.S. is tenuous at best. In fact, the financial crisis hastened the trend toward efficiencies, toward leaner inventories, and towards integrating both technology and global supply chains that has been taking place over the past decade.

That has led to severe pressure on the American working class and eroding employment. As these companies profit from global expansion and greater efficiency, they have little or no reason to rehire fired workers, or to expand their work force in a U.S. that is barely growing. If you are a global company, you want to hire and expand where the most dynamic growth is. Unfortunately for Americans, that’s not the U.S.

So we are facing a conundrum: Companies can grow by leaps and bounds—by double-digits—and yet unemployment can skyrocket and remain high. There is nothing on the horizon that would lead one to expect a turnaround in the employment picture.

Job losses slowed slightly last month as the unemployment rate fell to 9.4% in July from 9.5% in June, but that’s a far cry from any sign of job creation. The weight of more than 20 million marginally employed or unemployed, combined with the increasing pace of economic activity outside the U.S., presents the prospect of permanent change in the American economic landscape: high unemployment, moderate to weak growth, and soaring corporate profits.


The ability of companies—large ones especially, but even more modest ventures that assemble and source globally—to become more efficient and go where the growth is has never been greater. This is undoubtedly good for stocks and positive for investors, but it is also a challenge for American society that we have not even begun to confront.

Mr. Karabell is president of River Twice Research. His new book, “Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends on It,” will be published by Simon & Schuster in October.

6a) A pessimist's prediction: Hyperinflation: Does the Fed's massive money printing mean inflation is about to soar? I'm not jumping on that bandwagon, but gold is still an attractive bet right now.
By Bill Fleckenstei


Last week's 26-year high in the price of sugar must have stuck in the craw of the deflationist camp, those who fear a bout of falling prices. And that's as good a segue as any to the inflation-vs.-deflation debate.

I've spilled plenty of ink on this important topic (for example, read "What's next: Inflation or deflation?"), and this week I'd like to turn to a friend of mine, Marc Faber, for his assessment.


How bad can inflation get?
Marc's most recent Gloom, Boom & Doom Report contains an excellent discussion of inflation vs. deflation, and he makes the connection between the policies we're pursuing -- massive stimulus to create inflation, due to the fear of deflation -- and the funding crisis that I have warned about that will arrive as the U.S. has trouble financing its increasing debt. (Read "Why creating jobs is so hard.")

I decided to quote liberally from Marc's report. But I encourage folks to read it in its entirety. (Here's the Gloom, Boom & Doom Web site; a subscription is required.)

For newer readers who continue to ask me to elaborate on this subject, hopefully Marc's commentary will bring them up to speed:

Deflation can be avoided through debt and money printing. This isn't to say that I support such policies, or that I find deflation to be "bad" and inflation to be "good." (Price stability is the most desirable condition.) But the point is that if a government is really determined to inflate its problems away, it can be done. Those people who believe in deflation have, however, some strong arguments. Their principal contention is that the economy is so weak (output gap) that the private sector's contraction cannot be offset by government spending and money printing.



In fact, the massive money printing and the rest of the stimulus are why gross domestic product has held up as well as it has. More from Marc:

The deflationist argues that, because we have a weak economy, we shall have deflation; an argument with which I would tend to agree in the very short term.

The editor and publisher of the Gloom, Boom & Doom Report says there's a good chance for hyperinflation in the US.

I believe that in fact we have passed the point of maximum downside pressure. But more from Marc:

A true deflationist will also argue that because of deflation, economic conditions will worsen and, therefore, long-term U.S. government bond yields will decline. . . . But what happens to fiscal deficits and monetary policies under a scenario of a further decline in economic activity and a further collapse in asset prices? The answer is very simple. Deficits will increase further and more money will be printed. And the longer weakness in the economy prevails under the deflationary scenario, the more fiscal deficits will pile up and the more easy monetary policies will be pursued.


What the Federal Reserve does
So, whereas near-term deflation is a distinct possibility, in the longer term inflation is more likely because of several factors. When the economy recovers (and the recovery is likely to be fragile), the Fed will be very reluctant to increase short-term rates. Another reason for the Fed's reluctance in this respect will be the size of the government debt, given that higher interest rates would increase the interest burden. Therefore, I can't imagine any scenario under which the Fed wouldn't keep interest rates at an artificially low level, as it also did post-2001. That such a monetary policy, combined with the growing fiscal deficits discussed above, is more likely to lead to inflation rather than deflation should be clear.

Faber on the funding crisis
And here, in Marc's words, is what the funding crisis could look like:

For the reasons I explained above, inflation will pick up. With or without Fed tightening, interest rates will shoot up because of a loss of confidence by foreign U.S. dollar debt holders and the dollar tanks. Government debt payments and health care expenditure will soar. Instead of contracting, fiscal deficits will increase and force the Fed to continue monetizing the debt at a time when it should be tightening. . . .


How bad can inflation get?
A vicious cycle of higher and higher inflation rates and a weaker and weaker dollar will follow amid economic weakness, because personal incomes will be squeezed by inflation. Eventually, hyperinflation will follow. So, in the debate about inflation and deflation, both camps could be right but at different times.

Marc is far more certain than I am that hyperinflation lies ahead. For me, it's way too early to have to make that determination, and it's not at all clear to me that that is our ultimate destination.

However, I am more certain than he is that the maximum deflationary pressures have passed. The policies of the Fed and other central banks are why I continue to advocate that folks own the currency with no central bank to screw it up: gold.

GE, who knew?
Lastly, in the slap-on-the-wrist department, General Electric (GE, news, msgs) announced Aug. 4 that it had agreed to pay a $50 million fine to settle an accounting fraud complaint brought by the Securities and Exchange Commission. That followed news of the day before that Bank of America (BAC, news, msgs) had agreed to pay $33 million to settle a similar charge, regarding false statements that it made on the Merrill Lynch deal.

Were these attempts to just sweep problems under the rug? Many of us have thought that GE has been monkeying with its numbers for a long time in an attempt to win at the game of beat the number.

The modest fines imposed by the SEC make it look as though GE and Bank of America had done nothing more than tell little white lies -- which hardly instills confidence that the agency is serious about its role as enforcer of financial integrity.


Regretfully, this is what I've come to expect from the government. (If I were surprised, I'd be outraged.) What those in command do is rescue the "establishment" rather than punish them for wrongdoing. How else can you interpret giving GE the functional equivalent of a parking ticket in light of the fact that, according to Bloomberg:


If this is what the paper tiger SEC decided to charge GE with, who knows what creativity really took place? I'm sure financial scoundrels everywhere are laughing all the way to the bank.

At the time of publication, Bill Fleckenstein owned gold bullion and gold futures.