Friday, May 28, 2010

Obama: Pure As Driven Snow But Now Drifitng!

Thoughts from an astute investor, John Mauldin, on his way to Itaay. (See 1 below.)
Interesting film about Israeli technology. (See 2 below.)
I spoke with another experienced and bright cosultant investor this morning about two basic subjects;

a) His thoughts on how Obama was doing and

b)His thoughts on Israel and its relationship with our country.

He answered the second first and said the military relationship with Israel and the U.S. had never been better. Israel was now on par with getting what it needed by way of information, intelligence and equipment to fend off any possible missile attack from Iran.

He thought the fundamentalist problem was a hundred year on and not only from just Islam but world wide. Therefore, he felt the best Israel could hope for was to remain strong, accept a cold peace type relationship with Jordan and Egypt and hope, over time, they could achieve peace between themselves and the Palestinians as well as Syria.

He also felt s Lebanon made economic progress and Hezballah became more politically part of the nation's leadership it would have a more difficult time engaging in fanciful wars because they would lose their political clout.

In terms of Obama and his accomplishments he thought the financial part of the equation had been masterfully handled but when it cames to other social matters, overall intelligence integration and the effectiveness of government bureaucracy he was not hopeful and concluded Obama had virtually failed to move the ball.

His main concern is with our failure in education and said it is tragic that Brazil is graduating more engineers than our own country.

I respect his views a great deal and do not differ on what is happening with respect to Israel, am not fully aboard regrading his thinking with respect to the financial arena but acknowledge the fact that Europe spent almost as much simply bailing out Greece.

In terms of Obama's various bashing of Netanyahu, Wall Streeters, fat cat bankers etc. my friend saw that as political populism and simply sop to play to the masses.

Time will tell how this all plays out but we both agreed European prospects were dismal. (See 3 below.)

Egyptian troops continue to take strong measures against illegal weapon smuggling. (See 4 below.)
Obama said he was going to ride heard on an 'openess' administration. Every time the lid is taken off the White House more stench rises.

So far we have witnessed more business as usual leadership style and Obama's comment about taking responsibility will prove empty words.

When it comes to an administration that was going to raise the bar on integrity it just knocked that bar to the ground with President Bill's involvement in being Rahm's spear carrier. Obama purposely selected Rahm because he was a proven crafty manipulator so Obama cannot claim he is surprised about the Sestak matter. Obama is not only up to his armpits in oil and now is possibly involved in an improper, and even maybe an illegal, job offer.

This event will probably be passed over based on the explanation 'it is done all the time.' That attitude, however, simply validates that when we experience 'anything goes government' we should not be surprised or complain when the nation's belief in government plunges.

Obama claimed he would be as pure as driven snow. Now that snow seems to be drifting.

I believe it fair to say had this happened on GW's watch the press and media would have been all over this event. (See 5, 5a and 5b below.)

1)Six Impossible Things
By John Mauldin

Alice laughed. "There's no use trying," she said" One can't believe impossible things."

"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."

- From Through the Looking Glass by Lewis Carroll

Economists and policy makers seem to want to believe impossible things in regards to the current debt crisis percolating throughout the world. And believing in them, they are adopting policies that will result in, well, tragedy. Today we address what passes for wisdom among the political crowd and see where we are headed, especially in Europe.

I am reminded of the great line from the movie, The Princess Bride. Vizzini is the short bad guy who is trying to get away from Westley and every thing he attempts does not work. Westley just keeps on coming. At each failed attempt, Vizzini mutters, "Inconceivable." Finally, Vizzini has just cut the rope and The Dread Pirate Roberts (Westley) is still climbing up the cliff.


Inigo Montoya: You keep using that word. I do not think it means what you think it means.

European leaders keep telling us that the break-up of the eurozone is inconceivable. I do not think they know what that word really means. Let's see if I can explain the problem so that even a politician can understand.

Six Impossible Things
I have written several letters over the years about the basic economic equation

Which is to say, that Gross Domestic Product in a country is equal to total Consumption (personal and business) plus Investments plus Government Spending plus next exports. This equation is known as an identity equation. It is true for all countries and times.

Now, gentle reader, I am going to spare you a few pages of algebra and cut to the chase. Let's divide a country's economy into three sections, private, government and exports. If you play with the variables a little bit you find that you get the following equation.

Domestic Private Sector Financial Balance + Governmental Fiscal Balance – the Current Account Balance (or Trade Deficit/Surplus) = 0

This equation was introduced to you a few months ago in an Outside the Box written by Rob Parenteau. We are going to review this briefly, as it is VERY important. Paragraphs in quotes will be from that letter. As Rob noted, "...keep in mind this is an accounting identity, not a theory. If it is wrong, then five centuries of double entry book keeping must also be wrong."

By Domestic Private Sector Financial Balance we mean the net balance of business and consumers. Are they borrowing money or paying down debt? Government Fiscal Balance is the same: is the government borrowing or paying down debt? And the Current Account Balance is the trade deficit or surplus.

The implications are simple. The three items have to add up to zero. That means you cannot have both surpluses in the private and government sectors and run a trade deficit. You have to have a trade surplus.

Let's make this simple. Let's say that the private sector runs a $100 surplus (they pay down debt) as does the government. Now, we subtract the trade balance. To make the equation come to zero it means that there must be a $200 trade surplus.

$100 (private debt reduction) + $100 (government debt reduction) - $200 (trade surplus) = 0.

But what if the country wanted to run a $100 trade deficit? Then that means that either private or public debt would have to increase by $100. The numbers have to add up to zero. One way for that to happen would be:

$50 (private debt reduction) + (-$150) (government deficit) - (-$100) (trade deficit) = 0. Remember that we are adding a negative number and subtracting a negative number.

Bottom line. You can run a trade deficit, reduce government debt and reduce private debt but not all three at the same time. Choose two. Choose carefully. And before we get into the implications, let's look at yet another equation, although this is somewhat simpler.

Delta Force
There are two and only two, ways that you can grow your economy. You can either increase your population or increase your productivity. That's it.

The Greek letter "Delta" is the symbol for change. So if you want to change your GDP you write that as:

Δ GDP = Δ Population + Δ Productivity

If you are a country facing a population decline (like Japan) that means to keep your GDP growing you have to increase your productivity even more. That is why I have written so much about demographics over the years. Population growth (or the lack thereof) is very important. Russia is facing a very serious problem over the next 20 years that will require either a significant increase in productivity or large immigration to stave off a collapsing economy. Russia's population has declined by almost 7 million in the last 19 years to 142 million. UN estimates are that it may shrink by about a third in the next 40 years. But that's another story for another letter.

One last economic insight. You cannot grow your debt faster than nominal GDP forever. At some point, the market begins to think you will not be able to pay your debts back. This is no different than the fact that a family cannot grow its debt faster than its income ability to pay the debt back. At some point, you run out of the ability to borrow more money as lenders "just say no."

As a family's or country's debts grow, the carrying cost or interest expenses rise. At some point, the interest expense consumes an ever larger portion of the budget. Increasing the debt increases the interest expense eventually to the breaking point. There are limits.

Reduce your Deficits!
Now, let's look at the implication of all this. Let's start with Great Britain. They are running very large deficits on the order of 11% of GDP. Clearly, that is unsustainable and the new government knows it. They are looking to cut £6 billion in their first effort, which sounds like a lot, but is less than 4% of the £156 billion deficit. There is a lot more cutting that needs to be done.

But spending cuts and tax hikes have consequences. The UK retail industry is warning that a feared hike in value-added tax to 20% from the Conservative-Liberal Democrat government would cost 163,000 jobs and cut consumer spending by £3.6bn over four years. And that tax hike is just for openers.

The classic hope for any country in such a dire strait is to be able to grow your way out of the problem. Martin Wolfe wrote in the Financial Times a few weeks ago that Britain needed to let the pound drift lower so that British exports would be more competitive. A cheap pound will drive up tourism. Their trade deficit can become a trade surplus.

Here is their dilemma. In order to reduce the government's fiscal deficit, either private business must increase their deficits or the trade balance has to shift, or some combination. Lucky for them, they can in fact allow the pound to drift lower by monetizing some of their debt. Lucky, in they can at least find a path out or their morass. Of course, that means that pound denominated assets drop by another third against the dollar. It means that the buying power of British citizens for foreign goods is crushed. British citizens on pensions in foreign countries could see their locally denominated incomes drop by half from their peak (well, not against the euro which is also in free fall).

What's the alternative? Keep running those massive deficits until ever increasing borrowing costs blow a hole in your economy reducing your currency valuation anyway. And remember, if you reduce government spending, in the short run that is a drag on the economy, so you are guaranteeing slower growth in the short run. As I have been pointing out for a long time, countries around the world are down to no good choices.

Britain's is a much slower economy (maybe another recession), much lower buying power for the pound, lower real incomes for its workers, yet they have a path that they can get back on track in a few years. Because they have control of their currency and their debt which is mostly in their own currency, they can devalue their way to a solution.

Pity the Greeks
Some of my fondest memories were made in Greece. I like the country and the people. But they have made some bad choices and now must deal with the consequences.

We all know that Greek government deficits are somewhere around 14%. But their trade deficit is running north of 10%. (By comparison, the US trade deficit is now about 4%.)

Going back to the equation, if Greece wants to reduce its fiscal deficit by 11% over the next three years, then either private debt must increase or the trade deficit must drop sharply. That's the accounting rules.

But here's the problem. Greece cannot devalue its currency. It is (for now) stuck with the euro. So, how can they make their products more competitive? How do they grow their way out of their problems? How do they become more productive relative to the rest of Europe and the world?

Barring some new productivity boost in olive oil and produce production, there is no easy way. Since the beginning of the euro, Germany has become some 30% more productive than Greece. Very roughly, that means it cost 30% more to produce the same amount of goods. That is why Greece imports $64 billion and exports $21 billion.

What needs to happen for Greece to become more competitive? Labor costs must fall by a lot. And not by just 10 or 15%. But if labor costs drop (deflation) then that means that taxes also drop. The government takes in less and GDP drops. The perverse situation is that the debt to GDP ratio gets worse even as they enact their austerity measures.

In short, Greek life styles are on the line. They are going to fall. They have no choice. They are going to willingly have to put themselves into a severe recession or more realistically a depression.

Just as British incomes relative to their competitors will fall, Greek labor costs must fall as well. But the problem for Greeks is that the costs they bear are still in euros.

It becomes a most vicious spiral. The more cuts they make, the less income there is to tax, which means less government revenue which means more cuts which mean, etc.

And the solution is to borrow more money they cannot at the end of the day hope to pay. All that is happening is that the day of reckoning is delayed in the hope for some miracle.

What are their choices? They can simply default on the debt. Stop making any payments. That means they cannot borrow any money, but it would go along way toward balancing the government budget. Government employees would need to take large pay cuts and there would be other large cuts in services. It would be a depression, but you work your way out of it. You are still in the euro and need to figure out how to become more competitive.

Or, you could take the austerity, downsize your labor costs and borrow more money which means even larger debt service in a few years. Private citizens can go into more debt. (Remember, we have to have our balance!) This is also a depression.

Finally, you could leave the euro and devalue like Britain is going to do. Very ugly scenario, as contracts are in euros. The legal bills would go forever.

There are no good choices for the Greeks. No easy way. And then you wonder why people worry about contagion to Portugal and Spain?

I see that hand asking a question. Since the euro is falling won't that make Greece more competitive? The answer is yes and no. Yes, relative to the dollar and a lot of emerging market currencies. No to the rest of Europe, which are their main trade partners. A falling euro just makes economic export power Germany and the other northern countries even more competitive.

Europe as a whole has a small trade surplus. But the bulk of it comes from a few countries. For Greece to reduce their trade deficit is a very large life style change.

Germany is basically saying you should be like us. And everyone wants to be. Just not everyone can.

Every country cannot run a trade surplus. Someone has to buy. But the prescription that politicians want is for fiscal austerity and trade surpluses, at least for European countries. But if the PIIGS reduce their trade deficits, that will not be good for Germany.

Yet politicians want to believe that somehow we all can run surpluses, at least in their country. We can balance the budgets. We can reduce our debts. We all want to believe in that mythical Lake Woebegone, where all the kids are above average. Sadly, it just isn't possible for everyone to have a happy ending.

And this brings us to a last quick point, which some day will be its own letter. Every country wants it currency to be valued "fairly" which means lower than its competitors. With both Europe and Britain on their way to parity with the US dollar, what will be the reaction of Asia and especially China?

As Ollie said to Stan (Laurel and Hardy), "Here's another nice mess you've gotten me into!" A nice mess indeed.

Should the US Bail Out European Banks?
The obvious answer to the above question, at least on this side of the Atlantic, is no. But that is the plan being foisted on US tax-payers by the International Monetary Fund. The IMF wants to create a $250 billion dollar bailout fund for Greece, Portugal, et al that the US will contribute roughly 20% to. This fund will loan money and that IMG debt will be subordinate (junior!) to regular Greek debt, so when Greece does default, and they will, the IMF is the last in line to get paid.

Where will the money go? It will buy mostly Greek rollover debt from European banks getting out of their Greek debt. It is a back door bailout for German and French banks. The US Senate voted 94-0 that the US should not fund any such debt if the Treasury cannot certify the probability of getting repayment. If the Obama administration allows this funding to go through, the hue and cry will be large. It is bad enough that we have to pay for Freddie and Fannie (already $400 billion and counting!). Not meaning to be churlish, but the French and Germans can bail out their own banks.

Italy at Last! I-Pads, Paris, Milan
Next week I leave for Italy with the kids, three of their spouses and two grandkids. 13 in all. This is not quite the Normandy invasion, but it does leave you with an appreciation for logistics personnel. Planes, Trains and Automobiles. Rome for five days, Venice for four more and then Tuscany. I will get to see Pompeii, which has been on my bucket list like forever. And a hot air balloon ride in Tuscany. I am sure lots of pasta, Chianta, pizza (my kids will force me) and so many great experiences. I am really getting jazzed.

I will write at least one letter from Italy, and have a guest or two help me out. After a quick trip to Paris to speak at the Global Interdependence Council I will go back to Tuscany for some "work" with my European partners and then up to Milan for a speech. The Paris speech is closed but the one in Milan is open. Drop me a note and I will get you on the invite list.

There is so much to get done before I leave, not the least of which is getting my new I-Pad up to speed. Yes, I relented. My intention was to wait for the next version to come out next year. But watching Tiffani use hersand another friend just work magic with hers, and I have to have one. It is going to change my book reading habits, as well as keep me even more online. Is that good? We will see. And yes, when the next one comes out, I will get it. But at least I can tell myself that one of my kids really needs this one. :-)

Have a great week.

You ready for some local Chianti analyst,

John Mauldin
3)Obama, the Thin-Skinned President
By Peter Wehner

In their book "The Battle for America 2008," Haynes Johnson and Dan Balz wrote this:
[Chief political aide David] Axelrod also warned that Obama's confessions of youthful drug use, described in his memoir, Dreams From My Father, would be used against him. "This is more than an unpleasant inconvenience," he wrote. "It goes to your willingness and ability to put up with something you have never experienced on a sustained basis: criticism. At the risk of triggering the very reaction that concerns me, I don't know if you are Muhammad Ali or Floyd Patterson when it comes to taking a punch. You care far too much what is written and said about you. You don't relish combat when it becomes personal and nasty. When the largely irrelevant Alan Keyes attacked you, you flinched," he said of Obama's 2004 U.S. Senate opponent.

I thought of this memo after reading the comment by Sen. Pat Roberts after he and other Senate Republicans had a contentious 80-minute meeting with the president on Tuesday. "He needs to take a Valium before he comes in and talks to Republicans," Roberts said. "He's pretty thin-skinned."

Sen. Roberts is being too generous. Obama is among the most thin-skinned presidents we have had, and we see evidence of it in every possible venue imaginable, from one-on-one interviews to press conferences, from extemporaneous remarks to set speeches.
The president is constantly complaining about what others are saying about him. He is upset at Fox News, and conservative talk radio, and Republicans, and people carrying unflattering posters of him. He gets upset when his avalanche of faulty facts are challenged, like on health care. He gets upset when he is called on his hypocrisy, on everything from breaking his promise not to hire lobbyists in the White House to broadcasting health care meetings on C-SPAN to not curtailing earmarks to failing in his promises of transparency and bipartisanship.

In Obama's eyes, he is always the aggrieved, always the violated, always the victim of some injustice. He is America's virtuous and valorous hero, a man of unusually pure motives and uncommon wisdom, under assault by the forces of darkness.
It is all so darn unfair.

Not surprisingly, Obama's thin skin leads to self pity. As Daniel Halper of The Weekly Standard pointed out, in a fundraising event for Sen. Barbara Boxer, Obama said,

Let's face it: this has been the toughest year and a half since any year and a half since the 1930s.

Really, now? Worse than the period surrounding December 7, 1941 and September 11, 2001? Worse than what Gerald Ford faced after the resignation of Richard Nixon and Watergate, which constituted the worse constitutional scandal in our history and tore the country apart? Worse than what Ronald Reagan faced after Jimmy Carter (when interest rates were 22 percent, inflation was more than 13 percent, and Reagan faced something entirely new under the sun, "stagflation")? Worse than 1968, when Bobby Kennedy and Martin Luther King, Jr. were assassinated and there was rioting in our streets? Worse than what LBJ faced during Vietnam -- a war which eventually claimed more than 58,000 lives? Worse than what John Kennedy faced in the Bay of Pigs and in the Cuban Missile Crisis, when we and the Soviet Union edged up to the brink of nuclear war? Worse than what Franklin Roosevelt faced on the eve of the Normandy invasion? Worse than what Bush faced in Iraq in 2006, when that nation was on the edge of civil war, or when the financial system collapsed in the last months of his presidency? Worse than what Truman faced in defeating imperial Japan, in reconstructing post-war Europe, and in responding to North Korea's invasion of South Korea?

In his autobiography "Present at the Creation," Dean Acheson wrote about the immensity of the task the Truman administration faced after war ended in 1945, which "only slowly revealed itself. As it did so, it began to appear as just a bit less formidable than that described in the first chapter of Genesis. That was to create a world out of chaos; ours, to create half a world, a free half, out of the same material without blowing the whole to pieces in the process."
For Obama to complain that the problems he faces are so much worse than any other president in the last 80 years is stunningly self-indulgent, to say nothing of ahistorical.

With Obama there is also the compulsive need to admonish others, to point fingers, to say that the problems he faces are not of his doing. Oh, sure; on occasions there are the grudging concessions, like in Thursday's press conference devoted to the oil spill in the Gulf of Mexico, where Obama says, "In case you're wondering who's responsible, I take responsibility" to ensure that "everything is done to shut this down." But those words are always pro forma, done reluctantly and for tactical political reasons, a rhetorical trick that is meant to get him off the hook. As recently as last week, Obama, in the Rose Garden, was implicitly blaming the previous occupant of the White House for the explosion of the offshore rig Deepwater Horizon [Obama remarks linked here].

The president's instincts are by now obvious to all: deflect blame, point fingers, and lash out at others, most especially his predecessor. We know from press reports (see here and here) that the strategy for the Democrats in 2010, two years after Obama was elected president, is to – you guessed it – blame George W. Bush.
What explains all this is hard to know. But it's clear he has adopted an image of himself as something rare and remarkable, a historic figure of almost super-human abilities. "I am absolutely certain that generations from now," Obama said during the summer of his presidential run, "we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on earth."
"We are the ones we have been waiting for," Obama and his aides said constantly during the campaign.

President Obama's more unattractive personal qualities probably won't wear well with the electorate. Americans tend to tire of those who are look back rather than ahead and are always blaming others for the problems they face.

Barack Obama -- a man who was as unprepared to be president as any man in our lifetime -- has over the last 16 months shown that he is overmatched by events. His poll numbers continue to drop, his health care proposal is becoming less rather than more popular, the oil spill in the Gulf is badly eroding his image for leadership and competence, and his party has been battered in election after election since November. We have now reached the point where Democrats are running against Obama and his agenda in order to survive (witness Mark Critz in Pennsylvania).
We can hope that Obama, an intelligent man, learns from the errors of his ways. But the great danger in all of this is that in the face of his troubles Obama and his aides become increasingly defensive, display a greater sense of entitlement and even a touch of paranoia. When arrogant men lose control of events it can easily lead to feelings of isolation, to striking out at critics, to bullying opponents, and to straying across lines that should not be crossed.

And so the president needs to surround himself with people who can tamp down on the uglier impulses within his administration, who are willing to tell Obama that the lore created by him, Axelrod, Plouffe, and Gibbs during the campaign has given way to reality, that cockiness is not the same as wisdom, and that spin is no substitute for substantive achievements. And Obama needs someone who has standing in his life to tell him that the presidency is a revered institution that should not be treated as if it were a ward in Chicago.

The ingredients are in place for some serious problems down the road. Those who care for the president need to recognize the warning signs now, sooner rather later, before it becomes too late, for him and for the nation.
4)Egyptian forces in fierce battles with Sinai Bedouin jihadist smugglers

For four days, Egyptian special forces have been fighting Bedouin tribesmen in rugged central Sinai in an effort to shut down the arms-cum-fighter smuggling highway they run for al Qaeda and the Palestinian Hamas, debkafile's counter-terror sources report. The al Qaeda-led tribesmen are battling Egyptian APCs, artillery and helicopters with heavy machine guns and RPGs, in exchanges so fierce that the Egyptians retired to El Arish Saturday, May 29, to recuperate, restock on ammo and collected reinforcements for the next round.
5)Analysis: Politics as usual for Obama
By Liz Sidoti

So much for changing how Washington works.

Crimping his carefully crafted outsider image and undercutting a centerpiece of his 2008 campaign, President Barack Obama got caught playing the usual politics — dangling a job offer for a political favor in the hunt for power.

His lawyer admitted as much in a Friday report that detailed how Chief of Staff Rahm Emanuel dispatched former President Bill Clinton to try to persuade Pennsylvania Rep. Joe Sestak to abandon his primary challenge to Sen. Arlen Specter by offering an executive branch post.

"I can assure the public that nothing improper took place," Obama told reporters at the White House a day earlier.

True or not, Obama has a political problem.

Because what did take place was backroom bargaining, political maneuvering and stonewalling, all of which run counter to the higher — perhaps impossibly high — bar Obama has set for himself and his White House to do things differently.

The White House's reluctant acknowledgment of the chain of events shone a light on the unseemly, favor-trading side of politics — and at an inopportune time for Obama and Democrats as they seek to keep control of Congress.

This election year, angry voters have made clear they have little patience for politics generally and Washington politics specifically. And they are choosing candidates who promise to change the system — and ousting incumbents who fail to deliver.

But what may be even more troubling for the president is the question the episode raises: Has Obama become just like every other politician?

The answer could have implications for him ahead of midterm congressional elections this fall and his likely re-election race in two years.

Mindful of the potential fallout, the White House sought to play down the embarrassing situation even as it tried to blunt the media maelstrom by releasing its report on the Friday before a long Memorial Day weekend when few Americans pay attention to the news.

White House counsel Robert Bauer said what transpired was neither illegal nor unethical.

But he also said: "There have been numerous reported instances in the past when prior administrations — both Democratic and Republicans and motivated by the same goals — discussed alternative paths to service for qualified individuals also considering campaigns for public office."

Fair enough.

But Obama has held himself to a different standard.

And, by that measurement and in this case, he failed to deliver.

As a candidate, Obama cast himself as above partisan sniping and political maneuvering — even as he proved to be a shrewd politician able to broker deals. He promised voters turned off by politics and Washington — and yearning for change that this fresh-faced, political newcomer offered — that he would do things differently from his predecessors.

In Obama's new Washington, lobbyists would be banned from serving in his administration, the Democratic National Committee would be barred from accepting money from political action committees, White House visitor logs would be released and reams of information would be posted online.

As president, Obama has turned that vision into reality, albeit with some exceptions. He has trumpeted his goal of an open and transparent administration. He bristles at the notion that his White House is anything but. And in a frustrated tone, he routinely talks like an outsider doggedly working to change the ways of Washington.

But the Sestak incident undercuts all that — a point not lost on Obama's GOP critics.

It all began when Specter, a veteran GOP senator facing a difficult Republican primary, chose to become a Democrat last year at the White House's urging. Obama quickly endorsed him and pledged to campaign for him. And the White House tried to clear the Democratic field for him.

But Sestak entered the Democratic primary anyway.

At one point during his campaign, he said that a job was offered but he provided no details. And the White House deflected repeated questions about the claim, insisting officials did not behave inappropriately while also declining to elaborate.

Republicans pounced, mindful of Obama's repeated promises to run an open government that was above backroom deals.

But it wasn't until Sestak upset Specter in the Democratic primary May 18 that Republicans renewed their pressure on the administration to disclose what happened and two top Democrats — party chief Tim Kaine and Dick Durbin of Illinois, the party's second-ranking leader in the Senate — said the White House and Sestak needed to address the questions.

In the end, Bauer's report said this: Emanuel enlisted Clinton's help as a go-between with Sestak. Clinton agreed to raise the offer of a seat on a presidential advisory board or another executive board if Sestak remained in the House and dropped his bid, "which would avoid a divisive Senate primary."

Sestak said Clinton called him last summer and raised the possibility, but "I said no."

The White House hopes the report puts the matter to rest.

But Republicans, no strangers to election-year politics, will surely try to keep it alive.

5a)Obama: America's chief confessor
By Victor Davis Hanson

The first duty of national leaders is to worry about the self-interest of their own countries; utopian internationalism can come later. German Chancellor Angela Merkel, despite her soaring European Union rhetoric, is relearning that lesson.

German voters in a recent parliamentary election rebuked her for bailing out the spendthrift Greeks with hard-earned German money. Barack Obama should take note.

Last year, Obama won a Nobel peace prize not for what he did, but for what he represented — to the European judges a new post-national American president. His subsequent apology tours abroad have emphasized American sins without much discussion of the context of the times.

In Cairo last year, the president inaccurately claimed that Islam helped to foster Western achievements like the Renaissance and Enlightenment. In such moments, Obama sounds as if he thinks America has to be perfect to be good, while other nations merely need to be OK.

Obama's new outreach to Iran, Syria and Venezuela tells the world, fairly or not, that the United States — not these anti-American authoritarians — was responsible for tense relations in the past. Meanwhile, the old special relationship with democratic Britain, the once unquestioned support for democratic Israel, and missile defense for democratic Eastern Europe all seem passe.

Recently, Obama went too far when he invited Mexican President Felipe Calderon to the White House to address the Arizona immigration law. Side by side with Obama, Calderon summarily trashed the voters of Arizona for demanding enforcement of their nation's immigration laws: "It is a law that not only ignores a reality … but also introduces a terrible idea, using racial profiling as the basis for law enforcement.”

Wrong. In truth, the law prohibits racial profiling. The new Arizona statute allows law enforcement to request proof of citizenship of only those detained for other reasons — and only if there is sufficient reason to doubt their citizenship.

Obama right there should have corrected Calderon's unfair caricatures. The Mexican government treats illegal immigrants from Central America far less sympathetically. And not long ago, Mexico printed a comic book instructing its own citizens how to break American law — cynically assuming its own fleeing citizens were both illiterate and without worry about illegally entering Mexico's northern neighbor.

Side with states
Obama, however, in response to Calderon, mentioned the growing irrelevance of borders themselves. He cited his own worry about the propriety of an Arizona law that currently receives a 70 percent approval rating among Americans. Even if Obama in the past has remarked that he thinks America is not necessarily an exceptional nation, the president still should side with states that want to enforce federal laws rather than with foreign nations that seek to circumvent them.

The Obama-Calderon criticism of Arizona came after Assistant Secretary of State Michael Posner, in a meeting with Chinese envoys, on his own initiative raised the issue of Arizona's immigration law "early and often.” Posner wanted to offer his own example of America's morally equivalent problems with issues of human rights. He forgot, however, to actually read the Arizona law — and that he was discussing human rights with a regime that routinely denies its citizens rights of free speech and due process, and not all that long ago killed millions of its own citizens and swallowed Tibet.

Instead of seeing his nation or its states as the problem, our president would do better to focus on the woes of the European Union, North Korea's sinking of a South Korean ship, Iran's plans to get the bomb, continued terrorist attacks in the U.S., wars in Afghanistan and Iraq and Mexico's encouragement of its own citizens to violate American immigration law.

Right now there are quite enough foreign felonies in the world without dwelling on American misdemeanors.

5b)Rahm to Bill to Joe

At his Thursday press conference, President Obama said that "I can assure the public that nothing improper took place" in the curious case of Joe Sestak and the

Pennsylvania Senate primary—but he declined to say what, exactly, took place. After yesterday's pre-Memorial Day weekend news dump, now we know. Sort of. Maybe. In a way.

Last summer, Mr. Sestak said he'd been offered a high-ranking federal job in return for ending his ultimately successful bid to depose Arlen Specter, an act of interfering in an election that would constitute a felony if it was direct enough. The account released yesterday by White House counsel Robert Bauer says that Rahm Emanuel enlisted Bill Clinton "to determine whether Congressman Sestak would be interested in service on a Presidential or other Senior Executive Branch Advisory Board." And the post "would have been uncompensated."

So a two-term President who is now ambassador to the world is running errands for the White House chief of staff, and the plumb job he has at his disposal is a seat on the President's Intelligence Advisory Board, or perhaps the President's Commission on White House Fellowships?

And the Congressman was supposed to give up his reasonable chance at a U.S. Senate seat for such a sinecure? As a simple matter of political respect, Mr. Clinton could at least have thrown in a consulting gig with Yucaipa.

Mr. Sestak put out a statement yesterday corroborating that chain of events, which is somewhat credulity-straining—not least because of the White House's eagerness to clear the primary field. "There have been numerous, reported instances in the past when prior Administrations—both Democratic and Republican, and motivated by the same goals—discussed alternative paths to service for qualified individuals also considering campaigns for public office," Mr. Bauer wrote. "Such discussions are fully consistent with the relevant law and ethical requirements."

You've got to love that "alternative paths to service" rap. Mr. Clinton must be howling.

It's possible that all we really have here is a case of the Obama White House playing Washington politics as usual, which the White House refused to admit for three months because this is what Mr. Obama promised he would not do if he became President. However, this is clearly what he hired Mr. Emanuel to do for him, and given his ethical record Mr. Clinton was the perfect political cutout. So much for the most transparent Administration in history.

Then again, George W. Bush merely exercised his right to fire a handful of U.S. Attorneys, and Democrats made that a federal case for years even though it has since gone nowhere legally. The Emanuel to Clinton to Sestak job offer still needs a scrub under oath by the Justice Department and the relevant Congressional committees.

Monday, May 24, 2010

Double Dip - Not Referring To Ice Cream!

I get an awful lot of e mails because I send an awful lot of e mails. I have over 730people on my e mail list. Below are some unsolicited responses to my most recent memo.

The last from a long time friend and sound investor.(See 1 below.)
This time silence is not golden. (See 2 below.)
Robin bears her breast and beats up on Michelle. (See 3 below.)
Critique of Obama's West Point Commencement speech as well as what he said regarding Daniel Pearl.

I caught snippets of the West Point talk as I awoke and dressed. It was the first time in 24 days I had heard Obama's voice. It was like someone had thrown cold water in my face because I knew I was back home after 24 blissful days away on European travels.

I did not hear Obama's speech about Daniel Pearl but my son called my attention to Steyn's review.

Then there is this matter of oil spewing out of the floor of the Gulf. The Administration blamed BP, then acknowledged the supervising department had some responsibility for failing their oversight duties and finally the blame game has deteriorated to the point where everyone is dumping more verbal oil on the troubled waters.

Obama certainly does not know what to do and wants to duck this 'tar baby.' BP has engaged in a variety of activities trying to plug the leak but the oil still gushes and today Chicago's Sen. Durbin added his two inane cents. A plug nickel would have been more appropriate.

Sarah P said the obvious and no doubt will be chastised for pointing out the press has gone weak kneed because it is their favorite son who is up to his arm pits in oil. However, these same defenders of the truth quickly attacked his predecessor for failing to respond to Katrina in a timely fashion.

Hypocrisy has become commonplace and voters anger is rising with the bubbling oil.

With proper equipment and responsible management offshore drilling can be effectively pursued but this spill serves the emotional cry of those who oppose everything related to such drilling. Sad set back for off shore exploration. Even sadder for those whose economic fortunes and livelihood may be virtually ruined and the beautiful wildlife drowning in oil muck.(See 4 and 4a below.)
Obama would like for Lebanon to play a constructive role in the Middle East but with Hezballah in control of the country that could prove wishful thinking. (See 5 below.
So goes the Palestinian and Israeli negotiations and with the EURO's plight, so goes possible aid. (See 6 below.)
I did not agree but I understand why a dreamy president might want to downplay America's role in the world. I even understand why that same dreamy president might believe our omnipotent presence left little room for other nations.

Obama's public criticism of our nation could even be interpreted as a good will gesture to foreign leaders that he would be a kinder and softer president with whom they would be dealing after 'prickly' GW.

Has it gained Obama or our nation any points? Has Obama's projection of weakness proven successful? Are we better off diplomatically? Has Obama's contrite display reduced the threat from Iran and/or N Korea?

Just in the last few days the president of Mexico came before Congress and lectured us while spitting in our face Chavez style and Turkey and Brazil decided to play shill for Irtan. Not what I would call evidence of their respect for our diplomatic efforts.

Krauthammer gives his view. (See 7 below.)

It has become vapidly fashionable for politicians to bend the truth their way, torture facts in their behalf and when exposed to offer a mea culpa and repeat that meaningless phrase: "I take full responsibility." What does taking responsibility for lying really mean? What are the actual consequences? If words have meaning then 'I take full responsibility' are empty ones at best.

Voters are the ones who will ultimately determine what responsibility politicians have as they recently did when they rejected Arlen Spector for his duplicity. (See 8 and 8a below.)
Does any of the above explain why the market is behaving as it is? You betcha it does. When the Oval Office is seen as dysfunctioning it has market implications. When it is becoming evident that debt has reached significant levels as a percent of various nation's GDP that has market implications. When rogue nations are permitted to go unleashed that has market implications. When government ineptness and political corruption become commonplace that too carries market implications. When a nation flirts with bankruptcy that is a wake up call that cannot be denied.

Finally, as I have often written and now am joined by Christopher Wood, don't rule up a Double Dip and we are not referring to ice cream. (See 9 below.)

1)Liberalism is a sort of a contamination like an oil spill which does not wash off easily (particularly when droplets penetrate the brain...)

"I have gone to several Tea Parties including the one in DC. There are millions who think as you do and worry about the fate of this country. I have talked to people who were never involved politically but are now awakened and see where BHO and his minions are taking us. They are ready to fight.

I was talking to my doctor {he likes to shoot} and he and others he knows feel that violent uprisings will be next. Not a good time for the country. It is amazing the electorate voted an avowed socialist into office and then are surprised when he has a socialist agenda. Stupidity will kill us all."


Well, boys and girls, today we are letting the fox guard the hen house. The wolves will be herding the sheep!Obama appoints two devout Muslims to Homeland Security posts. Doesn't this make you feel safer already?

Obama and Janet Napolitano appointed Arif Alikhan, a devout Muslim, as Assistant Secretary for Policy Development DHS Secretary Janet Napolitano swore-in Kareem Shora, a devout Muslim, who was born in Damascus, Syria, as ADC National Executive Director as a member of the Homeland Security Advisory Council

Has anyone ever heard a new government official being identified as a devout Catholic, a devout Jew or a devout Protestant...?
Just wondering.
...I think the bubble/debt overhang problems are going to be with us a long time, and that growth prospects are mediocre even on optimistic assumptions. Of course it doesn’t help that the present US government is resolutely anti-business and anti-investor, but I expect the real-world consequences of their incompetence and ideological blindness to result in some righting (pun intended) of the political balance.

I believe Western civilization is declining fast (the deeper meaning of Obama is that he embraces and promotes this decline), and that the future of humanity, like most of its past, is in the East. So, in a sense, ALL rallies are bear market rallies as long as the deep foundations of American and Western strength and vitality are eroding.
2) Is This Just a Nightmare, or Did It Really Happen?
By Jared E. Peterson

Over the past week we witnessed presidential and congressional disloyalty without precedent in American history, events that should be indelibly imprinted on the American electorate's collective memory. For the first time (at least to this writer's knowledge), a foreign head of state who is promoting an ongoing, aggressive, illegal, and often violent invasion of America came to our country, met with our president, and, from the White House itself, received our president's implicit but obvious public support for that invasion; and that same foreign leader spoke to Congress and received a standing ovation from its Democrat members' for his country's war on America's borders.

Is this just a nightmare, or did it really happen?

During Barrack Hussein Obama's May 19, 2010 joint press conference with Mexican President Felipe Calderón, our president -- constitutionally charged with the duty to defend America from all enemies, foreign and domestic -- earned the scarlet "D": By silence he aligned himself with the invaders of our country and their leader against the citizens of America's own state of Arizona who have been forced by his dereliction to defend themselves.

Nearly as amazing, on Thursday, May 20, 2010, that same foreign president, speaking from where Churchill stood during World War II, received a standing ovation from the Democrat members of Congress when he reviled the citizens of Arizona for daring to try to fashion a defense of their part of the American-Mexican border. And the Republicans did not walk out or offer any other visible, dramatic objection.

An aside: The feckless Republican non-response to the Mexican President's May 20 congressional rant is probably the least astounding of the week's events. Our stodgy Republican opposition, with a few exceptions (e.g., see Congressman Tom McClintock's superlative speech) is notable for its lack of leadership, courage, eloquence, timing, and political prescience. That a foreign head of state who insults the overwhelming majority of America's citizens from a congressional podium might require a dramatic response from them, and at the same time might present a perfect opportunity to make clear which party is aligned with the American people on illegal immigration, would not occur to most of the timid and unimaginative mediocrities in this bunch.

But to return to the point: Consider carefully the stain of disloyalty that President Obama indelibly affixed to himself during the week just past.

On Wednesday, May 19, 2010, Felipe Calderón, President of politically and economically failed Mexico, stood on the South Lawn of the White House as a guest of America. He proceeded to claim that Arizona's recently enacted immigration law "is forcing our people there to face discrimination," and thereby he publicly trashed the State of Arizona, its legislators and governor, and, if polls are accurate, about 70% of its residents (and probably nearly the same percentage of all Americans) who unambiguously want the border sealed and support Arizona's benign efforts to accomplish that goal. He said more, but that was enough.

Standing next to this boor, the President of the United States (sic) responded to the tirade against America with silence. Or as the rest of the world will interpret Obama's muteness, "I agree with everything you just said." Can anyone imagine similar complicit disloyalty from Lincoln, Roosevelt (T. or F.D.), Truman, Kennedy, or Reagan?

Rather than defend the reasonable actions of his countrymen, our president joined in the foreigner's indictment of them. Later, on television, while the offensive Mexican president was still in the country, Obama added his own condemnation of those vile Americans he risibly claims to lead and protect: Of the Arizona statute, he said, "The Justice Department is looking at the legislation to make sure it's consistent with 'our core values' and 'existing legal precedent.'" Again, code-speak for "I agree with El Presedente. The people of Arizona, their legislators and governor, and all those who support them are despicable bigots."

When America is being invaded by a foreign power, one expects the President of the United States to be on America's side. That's how it's worked in the past, anyway. If that's too steep a demand, could we ask that our president not publicly endorse the enemy's characterization of modest defensive efforts as "discriminatory"? If even that decent silence is too much, could our president at least not provide the invaders' leader with a White House venue to denounce our people and our laws?

Note to those Americans who have not yet noticed: Barrack Hussein Obama does not like or sympathize with this country.

His instinctual affinities are with others, particularly if they come from the southern hemisphere or call themselves Muslims, and especially if they vote Democrat when they get here. For a long time, some have known this about America's first anti-American president. Many have not yet perceived it. Had most Republican members of Congress not been asleep, confused, or afraid, the events of last week could have cast a brilliant light on this awful truth.

But exposing the charlatan when he allows the truth to spill out, as he did last week, requires a courageous, clear-thinking, and articulate opposition. Other than Representative McClintock and a few more, who among key GOP officeholders possesses these traits?

An effective, courageous, and astute opposition lacking, the only course for loyal Americans is never to let last week's outrages be forgotten.

Any Republican candidate who fails to remind the November electorate that Barrack Hussein Obama, and the congressional Democrats en masse, endorsed and applauded America's invaders and condemned its defenders, does not have the requisite qualities of intellect and courage to be helpful in the struggle to reclaim our country.

Jared E. Peterson graduated from the University of California at Berkeley in Political Philosophy, and from the Harvard Law School. He has been a practicing lawyer for more than thirty-five years.
3)Commencement Address Hell
By Robin of Berkeley

This is the season of college commencement speeches. The only thing I recall about mine was commencement speaker, Sen. Robert Byrd, who seemed ancient even back then, and who put us all to sleep.

Michelle Obama recently gave a speech to graduates at George Washington University. The underlying message? Do as I say, not as I do.

Also: Life sucks, and then you die. There's war and famine and an overcooked planet. Become global citizens and fix the mess! Clean the feet of lepers in Calcutta, eradicate malaria in the Sudan, and live like a monk with no personal needs.

Of course, Michelle's own personal journey has been a tad different. After she graduated from racist-infested Princeton University, Michelle made big bucks as a corporate lawyer. Working as a vice president of the University of Chicago Medical Center, she saved the hospital a bundle through patient-dumping -- sending those unable to pay to other hospitals.

Michelle, who as First Lady requires 22 personal assistants, apparently helped Barack make millions by helping convince unrepentant domestic terrorist and Hyde Park neighbor Bill Ayers to ghostwrite his long-overdue autobiography.

Not wanting to live in one of those dreary third-world shacks, Barack and Michelle entered into a shady land deal with corrupt businessman Tony Rezko, who helped the couple buy million-dollar-plus digs that were a financial stretch.

Now, if I were ever invited to give a commencement speech, my theme would be similar to Michelle's. Except instead of "Do as I say, not as I do," I'd preach, "Don't do as I say, and don't do as I do." Because after all, why should some grizzled old commencement speaker force his or her opinions on the young?

My speech would go something like this:

Dear Graduate,

Stop listening to other people. This society has been telling you how to think and what to believe for far too long.

Remember when your 9th-grade teacher said that the U.S. was the root of all evil? She was lying. It took me forty-something years to realize this. Take the time to do what I never did: Read, analyze, and figure things out on your own.

I think you'd all do better without people like Obama and Bill Ayers and that 9th-grade teacher yakking at you all the time. Many of you are doing amazingly well in spite of the Left's mind games.

For instance, there's the lovely Carrie Prejean, a former Miss California-USA, who had the guts to articulate her support for traditional marriage. And then there's the equally lovely Miss Oklahoma, Elizabeth Morgan Woolard, who stood up to the liberal media by supporting states' rights in Arizona.

And I want you to meet my latest, greatest young person: 18-year-old, Celeste Finkenbine.

Celeste's teacher humiliated her in front of the class by smearing her with that vile slang word used for tea-partiers. The teacher also based the final exam on an analysis of Michael Moore's movie Sicko without administrative approval. Celeste walked herself right over to the principal's office to register a complaint.

I'm sure that there are innumerable Celestes out there. You observe the law and expect your leaders to do the same. Remarkably, you maintain personal integrity amidst the constant pressure to shut up, hook up, and tune out.

You offer us all hope -- real hope, not the manufactured kind. Your incandescent spirit helps to illuminate these dark times. Perhaps you had the strong hands of parents and grandparents to guide you. Maybe a connection with God has inoculated you from the propaganda.

Fortunately, you have many adult counterparts, like those strong conservative women, Sarah Palin, Michele Bachmann, Michelle Malkin, and Jan Brewer, Governor of Arizona. But this country doesn't need just bold women. We need you young males too -- desperately, actually. But don't be like the females; be real men instead.

Because this nation doesn't need any more feminized males. Our country is suffering from a paucity of strong men.

My final words are directed toward the adults who are yapping at you all day long. This is for the teachers and politicians and media talking heads who tell you whom to vote for, what to believe, and what you should do with your one precious life.

To them I say: Unless you are the parents, grandparents, or favorite aunt, back off. Leave these kids alone. Stop the indoctrination. Rather than controlling them, start making this country a safe place for them to spread their wings.

Allow these youths to have their dreams, even if among them lies the one you discredit: the American dream. Stop turning their dreams into Kafkaesque nightmares.

Heed the wise words of the poet Kahlil Gibran. Though he wrote them almost a hundred years ago, he could have been preaching to you, Michelle and Barack, and to you, Safe Schools Czar Kevin Jennings, and to most of the teachers in the land:

Your children are not your children.
They are the sons and daughters of Life's
longing for itself. . .
You may give them your love but not
your thoughts,
For they have their own thoughts.
You may house their bodies but not
their souls,
For their souls dwell in the house of tomorrow,
which you cannot visit, not even
in your dreams.

A frequent AT contributor, Robin is a recovering liberal and a psychotherapist in Berkeley.
4)Obama Speaks His Mind at West Point
By Jonathan F. Keiler

President Obama used a teleprompter for his West Point commencement address, which means that he took the occasion seriously. What he said, however dull and clichéd, represents not just the sometimes-flighty emanations from his remarkable brain, but also United States policy at large.

Obama's West Point speech was bland, but it is doubtful that the president was simply being lazy. Rather, given the solemn setting of a graduating class of Second Lieutenants setting off for war, presumably Obama was in his most serious mode.

The speech, marked by Obama's frequent slouching into the passive voice, may reflect the fact that the president had little intellectual or emotional sympathy for the ranks of cadets in front of him. Still, his words, however prosaic, matter.

Right off, by way of a lame joke about cadets on restriction, Obama claims "absolute power" as commander-in-chief to "absolve" them, managing in a single phrase to mangle the Constitution (nobody in this country has absolute power over anything) while also going into full messianic mode (who but God can truly absolve?).

For an address to a group of young warrior leaders, Obama focuses mainly on ideas of harmony and cooperation. Accordingly Obama tells them that "understanding of the cultures and traditions of the place where you serve" is just as important as "performance on the battlefield." Nor does Obama call for victory. Rather, in Afghanistan, "with our Afghan and international partners[,] we will succeed." It sounds like he is calling on the cadets to establish a new international foundation, or to fund his presidential library.

He praises the cadets' "international experience" at foreign academies and the "new friendships" forged with visiting cadets. That's all well and good, but in a nearly four-thousand word speech, Obama only once uses the word enemy, and that in the context of the "common enemies" of the American and Afghan peoples. Instead in discussing attacks on the homeland, Obama refers to "violent extremists" from a "distant place." Where? The stars?

Obama spends plenty of time and energy extolling the "diversity of race and ethnicity" within the Corps, from the fact that the top two graduates are women to "all the great religions" represented by the cadets. Fine again, but this is the only part of the speech that is really direct and at all sings -- it is the only point where Obama appears invested. And of course, along the same lines, Obama could not omit a comment rejecting "al Qaeda's gross distortion of Islam[.]"

Of course, there was plenty of pie-in-the-sky new ageism, as in the pursuit of "clean energy" and "research that unlocks wonders" to solve all our problems. Perhaps this rings true with some cadets or their parents. A shame Obama can't just wave his wand and make it happen -- though he often acts like he just might.

More importantly, the speech embodies Obama's core discounting of American exceptionalism in favor of policies that "build new partnerships and shape stronger international standards and institutions." This is predictable from Obama, but asserting it at West Point reinforces the depth of the president's internationalist disposition.

The speech also reeks of the president's insulated moral blindness and hypocrisy. Obama implicitly rejects America's special place among nations, but he is not above wrapping himself in the mantle of historic American moral leadership, at least as he would like it to be. Thus, we have succeeded not by "stepping out of the current of cooperation, but by steering those in the direction of liberty and justice." This is arguably true of our nation's history, but not of Obama's presidency. When has Obama steered a course in the direction of international liberty? Rather, he has coddled the cruelest and most autocratic regimes and turned a deaf ear to those within them fighting for liberty and justice, all the while pressuring, insulting, and betraying our democratic allies.

But perhaps most disturbing of all is Obama's deceptively fine-sounding reference to "universal rights" at the end of the speech. After noting the "inalienable rights" asserted by our founding fathers and embodied in our foundational documents, Obama goes on to assert that these same rights are indeed "claimed by people of every race and religion in every region of the world."

Certainly there are individuals from Pyongyang to Beijing to Tehran who claim these rights, but that is not the point, and the statement is typical of Obama's obfuscation of reality. Obama flatly ignores these individuals while seeking to do business with governments that flatly reject the American creed. These governments control hundreds of millions of people for whom universal rights are meaningless formulation, whether because they cannot obtain them, are unaware of the concept, or are just not interested.

And why not interested? Because, heaven forbid, their political philosophy or religion (or both) just do not accommodate Western concepts of universal rights to life, liberty, and the pursuit of happiness. These nations represent our rivals at best, our enemies at worst. One of them, as Obama effectively sits idle, is near to acquiring nuclear weapons with which to attack our democratic allies, and ultimately us, while others are already so armed. But you would never know that from Obama's West Point speech. Nor would the graduating cadets and their parents know from his words that someday we might well have to fight them. And that is why the speech, teleprompter and all, is important.

4a)Obama owed it to Daniel Pearl to speak the truth; Couldn't he have at least done that?
By Mark Steyn

Barack Obama's remarkable powers of oratory are well known: In support of Chicago's Olympic bid, he flew into Copenhagen to give a heartwarming speech about himself, and they gave the games to Rio. He flew into Boston to support Martha Coakley's bid for the U.S. Senate, and Massachusetts voters gave Ted Kennedy's seat to a Republican. In the first year of his presidency, he gave a gazillion speeches on health care "reform" and drove support for his proposals to basement level, leaving Nancy Pelosi and Harry Reid to ram it down the throats of the American people through sheer parliamentary muscle.

Like a lot of guys who've been told they're brilliant one time too often, President Obama gets a little lazy, and doesn't always choose his words with care. And so it was that he came to say a few words about Daniel Pearl, upon signing the "Daniel Pearl Press Freedom Act." Pearl was decapitated on video by jihadist Muslims in Karachi on Feb. 1, 2002. That's how I'd put it. This is what the president of the United States said:

"Obviously, the loss of Daniel Pearl was one of those moments that captured the world's imagination because it reminded us of how valuable a free press is."
Now Obama's off the prompter, when his silver-tongued rhetoric invariably turns to sludge. But he's talking about a dead man here, a guy murdered in public for all the world to see. Furthermore, the deceased's family is standing all around him. And, even for a busy president, it's the work of moments to come up with a sentence that would be respectful, moving and true. Indeed, for Obama, it's the work of seconds, because he has a taxpayer-funded staff sitting around all day with nothing to do but provide him with that sentence.

Instead, he delivered the one above, which in its clumsiness and insipidness is most revealing. First of all, note the passivity: "The loss of Daniel Pearl." He wasn't "lost." He was kidnapped and beheaded. He was murdered on a snuff video. He was specifically targeted, seized as a trophy, a high-value scalp. And the circumstances of his "loss" merit some vigor in the prose. Yet Obama can muster none.

Even if Americans don't get the message, the rest of the world does. This week's pictures of the leaders of Brazil and Turkey clasping hands with Mahmoud Ahmadinejad are also monuments to American passivity.

But what did the "loss" of Daniel Pearl mean? Well, says the president, it was "one of those moments that captured the world's imagination." Really? Evidently it never captured Obama's imagination because, if it had, he could never have uttered anything so fatuous. He seems literally unable to imagine Pearl's fate, and so, cruising on autopilot, he reaches for the all-purpose bromides of therapeutic sedation: "one of those moments" — you know, like Princess Di's wedding, Janet Jackson's wardrobe malfunction, whatever — "that captured the world's imagination."

Notice how reflexively Obama lapses into sentimental one-worldism: Despite our many zip codes, we are one people, with a single imagination. In fact, the murder of Daniel Pearl teaches just the opposite — that we are many worlds, and worlds within worlds. Some of them don't even need an "imagination." Across the planet, the video of an American getting his head sawed off did brisk business in the bazaars and madrassahs and Internet downloads. Excited young men e-mailed it to friends, from cell phone to cell phone, from Karachi to Jakarta to Khartoum to London to Toronto to Falls Church, Virginia. In the old days, you needed an "imagination" to conjure the juicy bits of a distant victory over the Great Satan. But in an age of high-tech barbarism the sight of Pearl's severed head is a mere click away.

And the rest of "the world"? Most gave a shrug of indifference. And far too many found the reality of Pearl's death too uncomfortable, and chose to take refuge in the same kind of delusional pap as Obama. The president is only the latest Western liberal to try to hammer Daniel Pearl's box into a round hole. Before him, it was Michael Winterbottom in his film "A Mighty Heart": As Pearl's longtime colleague Asra Nomani wrote, "Danny himself had been cut from his own story." Or as Paramount's promotional department put it, "Nominate the most inspiring ordinary hero. Win a trip to the Bahamas!" Where you're highly unlikely to be kidnapped and beheaded! (Although, in the event that you are, please check the liability-waiver box at the foot of the entry form.)

The latest appropriation that his "loss" "reminded us of how valuable a free press is." It was nothing to do with "freedom of the press." By the standards of the Muslim world, Pakistan has a free-ish and very lively press. The problem is that some 80 percent of its people wish to live under the most extreme form of Sharia, and many of its youth are exported around the world in advance of that aim. The man convicted of Pearl's murder was Omar Sheikh, a British subject, a London School of Economics student, and, like many jihadists from Osama to the Pantybomber, a monument to the peculiar burdens of a non-deprived childhood in the Muslim world. The man who actually did the deed was Khalid Sheikh Mohammed, who confessed in March 2007: "I decapitated with my blessed right hand the head of the American Jew Daniel Pearl, in the city of Karachi." But Obama's not the kind to take "guilty" for an answer, so he's arranging a hugely expensive trial for KSM amid the bright lights of Broadway.

Listen to his killer's words: "The American Jew Daniel Pearl." We hit the jackpot! And then we cut his head off. Before the body was found, The Independent's Robert Fisk offered a familiar argument to Pearl's kidnappers: Killing him would be "a major blunder… the best way of ensuring that the suffering" — of Kashmiris, Afghans, Palestinians — "goes unrecorded." Other journalists peddled a similar line: if you release Danny, he'll be able to tell your story, get your message out, "bridge the misconceptions." But the story did get out; the severed headis the message; the only misconception is that that's a misconception.

Daniel Pearl was the prototype for a new kind of terror. In his wake came other victims from Kenneth Bigley, whose last words were that "Tony Blair has not done enough for me," to Fabrizzio Quattrocchi, who yanked off his hood, yelled "I will show you how an Italian dies!" and ruined the movie for his jihadist videographers. By that time, both men understood what it meant to be in a windowless room with a camera and a man holding a scimitar. But Daniel Pearl was the first, and in his calm, coherent final words understood why he was there:

"My name is Daniel Pearl. I am a Jewish American from Encino, California, USA …"

He didn't have a prompter. But he spoke the truth. That's all President Obama owed him — to do the same.

I mentioned last week the attorney general's peculiar insistence that "radical Islam" was nothing to do with the Times Square bomber, the Pantybomber, the Fort Hood killer. Just a lot of moments "capturing the world's imagination." For now, the jihadists seem to have ceased cutting our heads off. Listening to Obama and Eric Holder, perhaps they've figured out there's nothing much up there anyway.
5)In Washington talks, U.S. voices hope that Lebanon will play a role in building peace in an 'increasingly volatile and dangerous' Middle East.
By Natasha Mozgovaya and News Agencies

U.S. President Barak Obama used talks with Lebanese Prime Minister Said Hariri in Washington on Monday night to warn of the growing danger of arms smuggling to Hezbollah militants.

"The President stressed [...] the threat posed by the transfer of weapons into Lebanon in violation of UNSCR 1701," the White House said in a statement following the meeting.

United Nations Security Council resolution 1701 was passed after a month-long war between Israel and Hezbollah in the summer of 2006 and calls for the disarmament of the Shi'a Muslim group – but despite the presence of a UN peacekeeping force in southern Lebanon, it has yet to be enforced.

Hariri's first official visit to the United States took place against a backdrop of tensions in the Middle East, U.S. efforts to restart Israeli-Palestinian peace talks and growing momentum toward new international sanctions on Iran, Hezbollah's major backer.

Lebanon and Syria have said they fear a possible attack by Israel after President Shimon Peres accused Syria in April of supplying Hezbollah with long-range Scud missiles capable of hitting major Israeli cities. Damascus has denied the charge and accused Israel of fomenting war.

Some U.S. officials have expressed doubt that any Scuds were actually handed over in full to Hezbollah, although they believe Syria might have transferred weapons parts.

"We obviously have grave concerns about the transfer of any missile capability to Hezbollah through Lebanon from Syria," a senior Obama administration official said on Friday, saying the issue would likely be raised in Monday's talks.

Hariri has also denied Israel's accusations, while his government has said it backs the right of the guerrilla group to keep its weapons to deter Israeli attacks. Israel has not signaled any imminent plans to strike.

Earlier Hariri met U.S. Middle East peace envoy George Mitchell, who made clear that the Obama administration hoped Lebanon would play a major role in an eventual regional peace deal with Israel.

"I told Prime Minister Hariri that I hope to renew our dialogue in Lebanon in the not-too-distant future," Mitchell said after the meeting. "I look forward to working closely with him and having the benefit of his counsel in our quest for comprehensive Middle East peace."

He said: "Over the past four decades Lebanon has struggled to survive as a beacon of pluralism and tolerance in a neighborhood that has grown increasingly volatile and dangerous."

Mitchell reassured Hariri that peace between Israel and the Palestinians would not force Lebanon to absorb Palestinian refugees, who form a large contingent of the country's population.

"We have made it clear - and I repeated to the Prime Minister today - that comprehensive peace cannot and must not include the forced naturalization of Palestinian refugees in Lebanon," Mitchell said.

Apparently trying to keep the spotlight off Middle East tensions, the White House limited press coverage of the meeting to letting news photographers into the Oval Office at the end of the session. There were no plans for the leaders to appear together for public statements.

Lebanon's changing role

Despite the recent war of words that has heightened tensions in the region, UN Special Coordinator for Lebanon, Michael Williams, noted on Friday "that recent tension is now diminishing."

Williams, who held talks with Hariri in Beirut, was quoted by the prime minister's office as saying he was pleased "that all sides have scaled back the rhetoric."

Obama and Hariri also discussed U.S.-led international efforts to isolate Iran over its disputed nuclear program, officials said. Lebanon holds the rotating presidency of the UN Security Council through May 31.

Diplomats said Beirut had quietly asked the permanent members of the Security Council -Britain, France, Russia, China and the United States - not to push for a vote on a new Iran sanctions resolution while it held the presidency.

Lebanon is expected to abstain in any vote because Iranian-backed Hezbollah is in its government, diplomats said.

Jon Alterman, a Middle East expert at the Center for Strategic and International Studies in Washington, said Lebanon no longer enjoyed the status it had under the Bush administration, when it was the "fulcrum" of efforts to spread democracy in the Middle East.

The Obama administration's Middle East policy is more focused on the nuclear stand-off with Iran, war in Afghanistan, and reviving the Middle East peace process, he said.

Nevertheless, the United States has expanded military assistance to Lebanon to strengthen its armed forces as a counterweight to Hezbollah, allocating 500 million euros to training and equipping Lebanese security forces since 2005.
6)Report: EU may cut aid to PA if talks fail

The EU could reconsider the amount of aid it provides to
the Palestinian Authority if no progress is made in peace talks, EU
diplomats reportedly said Monday, as officials meet to discuss the next
seven-year budget.

The aid, approximately 300 million euros, is meant to prepare the PA for a
peace treaty with Israel that would provide them with a sovereign state, but
"if that isn't coming then I can see a number of questions," said Christian
Berger, the EU's representative in Jerusalem, according to the Reuters news

Since the signing of the Oslo Accords in 1994, financial assistance to the
PA and Palestinian people constitutes the EU's highest per capita foreign
aid program. Its seven-year budget, which will end in 2013, partly funds UN
support projects.

Additionally, funds are transferred via the EU's PEGASE program which has
contributed to PA salaries and pensions, as well as providing financial
assistance to Palestinian families below the poverty line and encouraging
the growth of small businesses in the West Bank.

A delegation from the European Parliament is visiting Israel and the
Palestinian territories this week and would certainly be asking "if at the
end of the day we don't have a state, then what are we doing with the
money," Berger added, Reuters wrote.

EU Ambassador to Israel Andrew Standley said discussions on the next
seven-year budget would start soon and focus on how best to spend the money.

Israeli and Palestinian officials recently re-entered indirect talks
mediated by US Middle East envoy George Mitchell, with the Obama
administration calling on the meetings to swiftly move on to direct
negotiations, which were broken off in December 2008 when Israel launched
Operation Cast Lead.

"If there's a breakthrough then I guess there's a likelihood that our
support will be increased," Berger told reporters at a briefing of EU
delegation heads.

Berger added that Prime Minister Salam Fayyad's plans for the creation of
institutions in preparation for a state, which receive EU support and
funding, were on track and the PA was "performing better than some states
are states already."

In January, Fayyad rebuffed rumors that the EU would slice its funding to
the PA if no new developments are achieved in the peace process. "I have no
idea about this issue at all," Fayyad said at the time.
7)The fruits of weakness

Last week’s uranium deal maneuver between Iran, Brazil and Turkey demonstrates how traditional US allies have decided that there’s no profit in lining up with a president given to apologies and appeasement.

It is perfectly obvious that Iran’s latest uranium maneuver, brokered by Brazil and Turkey, is a ruse. Iran retains more than enough enriched uranium to make a bomb. And it continues enriching at an accelerated pace and to a greater purity (20 percent). Which is why the French Foreign Ministry immediately declared that the trumpeted temporary shipping of some Iranian uranium to Turkey will do nothing to halt Iran’s nuclear program.

It will, however, make meaningful sanctions more difficult. America’s proposed Security Council resolution is already laughably weak – no blacklisting of Iran’s central bank, no sanctions against Iran’s oil and gas industry, no nonconsensual inspections on the high seas. Yet Turkey and Brazil – both current members of the Security Council – are so opposed to sanctions that they will not even discuss the resolution. And China will now have a new excuse to weaken it further.

But the deeper meaning of the uranium-export stunt is the brazenness with which Brazil and Turkey gave cover to the mullahs’ nuclear ambitions and deliberately undermined US efforts to curb Iran’s program.

The real news is that already notorious photo: the president of Brazil, our largest ally in Latin America, and the prime minister of Turkey, for more than half a century the Muslim anchor of NATO, raising hands together with Mahmoud Ahmadinejad, the most virulently anti-American leader in the world.

THAT PICTURE – a defiant, triumphant take-that-Uncle-Sam – is a crushing verdict on President Barack Obama’s foreign policy. It demonstrates how rising powers, traditional American allies, having watched this administration in action, have decided that there’s no cost in lining up with America’s enemies and no profit in lining up with a US president given to apologies and appeasement.

They’ve watched Obama’s humiliating attempts to appease Iran, as every rejected overture is met with abjectly renewed US negotiating offers. American acquiescence reached such a point that the president was late, hesitant and flaccid in expressing even rhetorical support for democracy demonstrators who were being brutally suppressed and whose call for regime change offered the potential for the most significant US strategic advance in the region in 30 years.

They’ve watched America acquiesce to Russia’s re-exerting sway over Eastern Europe, over Ukraine (pressured by Russia last month into extending for 25 years its lease of the Black Sea naval base at Sevastopol) and over Georgia (Russia’s de facto annexation of Abkhazia and South Ossetia is no longer an issue under the Obama “reset” policy).

They’ve watched our appeasement of Syria, Iran’s agent in the Arab Levant – sending our ambassador back to Syria even as it tightens its grip on Lebanon, supplies Hizbullah with Scuds and intensifies its role as the pivot of the Iran-Hizbullah-Hamas alliance. The price for this ostentatious flouting of the US and its interests? Ever more eager US “engagement.”

They’ve observed the administration’s gratuitous slap at Britain over the Falklands, its contemptuous treatment of Israel, its undercutting of the Czech Republic and Poland and its indifference to Lebanon and Georgia. And in Latin America, they see not just US passivity as Venezuela’s Hugo Chavez organizes his anti-American “Bolivarian” coalition while deepening military and commercial ties with Iran and Russia. They saw active US support in Honduras for a pro-Chavez would-be dictator seeking unconstitutional powers in defiance of the democratic institutions of that country.

This is not just an America in decline. This is an America in retreat – accepting, ratifying and declaring its decline, and inviting rising powers to fill the vacuum.

Nor is this retreat by inadvertence. This is retreat by design and, indeed, on principle. It’s the perfect fulfillment of Obama’s adopted Third World narrative of American misdeeds, disrespect and domination from which he has come to redeem us and the world. Hence his foundational declaration at the UN General Assembly last September that “no one nation can or should try to dominate another nation” (guess who’s been the dominant nation for the last two decades?) and his dismissal of any “world order that elevates one nation or group of people over another.” (NATO? The West?)

Given Obama’s policies and principles, Turkey and Brazil are acting rationally. Why not give cover to Ahmadinejad and his nuclear ambitions? As the US retreats in the face of Iran, China, Russia and Venezuela, why not hedge your bets? There’s nothing to fear from Obama, and everything to gain by ingratiating yourself with America’s rising adversaries. After all, they actually believe in helping one’s friends and punishing one’s enemies. – The Washington Post
8)Real Marines Don't Lie
By Kathleen Parker

WASHINGTON -- I have a thing for Marines, always have. It began a long time ago when I watched my older brother amble away in the night toward his barracks at Camp Pendleton near San Diego.

I cried myself dry that evening, thinking that I might not see him again, knowing that the next morning he was off to Vietnam. Khe Sanh, his ultimate destination, might as well have been another planet. As it turns out, it was Hell.

Jack came home eventually, a different boy than the one who left. Still just a teenager, he was leaner and meaner. His eyes gave nothing away. When our father and I visited Jack in the Naval Hospital in Philadelphia, where he was being treated for "battle fatigue" and other afflictions, we stuck to safe subjects: college, cars and girls, his primary interests at that point.

To this day, I've yet to hear any stories of war from him, nor, for that matter, from any of the men in my family, all of them veterans of various conflicts. A few scattered pictures of tough boys sporting knives and guns occasionally find their way to the top of a shoe box, but there are no videos or journals, no displays of purple hearts.

Like most veterans, with a few notable exceptions, my brother has expressed no desire to revisit that time and place, nor any need to boast of his exploits. When you've witnessed the horrors of war, you apparently don't need to tell anyone.

All of these thoughts surfaced as I pondered Richard Blumenthal, the Connecticut attorney general recently infamous for exaggerating his role as a Marine reservist during the Vietnam era. At various times, he has accurately said that he wore the uniform during that period; other times, he has said that he wore the uniform in Vietnam. In fact, he received several draft deferments while a student at Harvard and Cambridge, and enlisted in the Marines only when those deferments were running out.

And, he did falsely and knowingly imply that he was a combat veteran. The question is why? And what should voters make of it when they go to the polls?

Blumenthal, a Democrat, is running to fill retiring Sen. Chris Dodd's seat. His fiercest opponent has been Republican Linda McMahon, who says her campaign assisted with a New York Times investigation into Blumenthal's false claims. As an unintended consequence, McMahon's involvement may have provided momentum to her principal Republican rival, former Rep. Rob Simmons, who did serve in Vietnam and received two bronze stars.

On a certain level, it is gratifying that those who served in America's most unpopular war -- and who were vilified back home -- now can enjoy some measure of pride in their service. But the humility common among heroes is in scant evidence these days, and selective memory has rarely been so repugnant.

Blumenthal isn't the first to exaggerate his service, of course. "Stolen Valor" is the title of a book that chronicles phony heroes falsely claiming to have served in Vietnam.

There is, indeed, something unique about the Vietnam era that haunts a generation. All are familiar with the deep divisions that brought students to riot, leaving four dead at Kent State, and others to trek to Canada. The draft was the Maginot Line of America's heart, and too many of the unlucky never came home.

Who knows what motivated Blumenthal to stretch his truth? Perhaps it was survivor's guilt.

"There is nothing that binds Marines together like combat and, if you missed it, I can understand that he (Blumenthal) may have actually convinced himself he was there," my brother wrote in an e-mail. "But those who served in combat consider Marines who did not the same brothers, regardless. We are a team and those in the rear are just as important as those on the line."

The deception, as always, is something else. Blumenthal had every right under the law to seek deferments. He had every right to be proud of his service during the Vietnam era. But he did not have the right to build personal equity on the borrowed suffering of others.

Had he gone to Vietnam, as he apparently thinks he should have, he would have learned that, and this: Real heroes never brag, and real Marines don't lie.

8a)Feeding America's twilight
By Colin McNickle

Something is in dangerous intellectual disrepair in America. And if we don't fix it, America will be lost.

Here are just a few of the scores of examples:

• House Speaker Nancy Pelosi called ObamaCare "an entrepreneurial bill" that should encourage Americans to be "creative," and be, say, "a musician." Quit your job, she urged; "focus on your talent" and don't worry about not having health care.

Perhaps that's because other hardworking, tax-paying schmucks are paying for this freeloader's socialist care?

• The Obama administration, in its formal response to the several states' class action lawsuit over ObamaCare, has invoked the Commerce and General Welfare clauses as its constitutional warrant to force people to buy health insurance (and, on this slippery slope, whatever else the government damn well commands).

But James Madison, father of the Constitution, clearly stated (in Federalist 41 in 1788) that the General Welfare Clause is applicable only to the 21 items listed in Article I, Section 8. There's nothing about the federal government forcing you to buy health insurance.

And the Commerce Clause, reminded University of Texas law professor Calvin H. Johnson (in the William & Mary Bill of Rights Journal in 2004), applied strictly to "specific mercantilist proposals related to deep-water shipping and foreign trade." Interstate commerce hardly was a significant issue in the original debates, the professor reminds.

• Then there's Michael Posner, the Obama administration's assistant secretary of State for democracy, human rights and labor. During talks in China to address human rights concerns, he cited Arizona's crackdown on illegal aliens as an example of "racial discrimination." It is "a troubling trend," he said.

Let's see ... defending the Arizona border (not to mention the rule of law) from invading illegals is the moral equivalent of China murdering millions of its own people in defense of a Communist thugocracy.

Never has the imbecility of a true moron ever been on more stark display. Well, not exactly ...

• Mexican President Felipe Calderon, during last week's state visit to Washington, publicly chastised as "discriminatory" Arizona's crackdown.

Not only did President Barack Bumfuzzled fail to immediately cite Mexican law that makes illegals felons and eligible for jail time in one of Calderon's dungeons, Mr. No Gonads failed to also click his fingers and command the Secret Service to grab el presidente by the collar and escort him to the White House gates.

Then Barack the Bower hosted Calderon at a state dinner.

• Writing in, Gabriel Winant complains of conservatives' "weird fetishism for the Constitution." 'Nuff said.

It was in 1787, as Benjamin Franklin waited to affix his John Hancock to the newly minted Constitution of the United States, that he remarked on the carving of a half sun on the back of George Washington's chair.

"I have often looked at that picture behind the president without being able to tell whether it was a rising or setting sun. Now at length I have the happiness to know that it indeed is a rising, not setting sun."

Shall the few examples of the kind of behavior and thinking that today is legion predominate and prevail, the American aurora will be but a quaint notion, replaced by a sad and tragic dusk.
9)Don't Rule Out a Double Dip Recession
In addition to Europe's woes, we have slower growth in China and a decline in bank lending and the velocity of money in the U.S

World financial markets reacted bearishly to Germany's surprise announcement last week banning "naked" short-selling of euro-zone government debt, derivatives and some financial stocks. Short selling is considered naked when it involves the sale of an asset that isn't owned by the seller and isn't borrowed to cover the position while it's held. The news disturbed investors because of the unilateral nature of Germany's action. It's also seen as a potential prelude to other antimarket actions from Germany, or for that matter the U.S. and other Western nations, where the political backlash against free markets continues.

Also causing anxiety is the ominous rise in recent weeks in the three-month London interbank offered rate (Libor), the rate the most creditworthy banks charge each other for loans. This could result in yet another European credit crisis with banks becoming increasingly unwilling to lend to each other because of the interconnected holdings of "junk" European government debt. Bank for International Settlements (BIS) data shows that European bank exposure to sovereign debt in Portugal, Italy, Ireland, Greece and Spain totalled $2.8 trillion at the end of last year, accounting for 89% of international banks' total exposure to those countries.

Moving beyond Europe, a further negative for investors to contend with has been China's current tightening cycle; most particularly a machine-gun burst of antispeculation measures in the past two months aimed at its booming residential property market. China's leadership, worried by growing social concerns about unaffordable apartment prices, will want to see official confirmation that both residential property transactions and residential property prices are falling, as indeed is now the case. Transaction volumes are down more than 50% from the levels reached in the first half of April. Prices will soon follow.

An easing in policy toward housing by Beijing is unlikely until the end of the third quarter, though an earlier U-turn on policy is plausible in the event of a complete blowup in Europe. For this would reactivate Beijing's concerns about its business abroad. When the green light is turned on again, whenever that may be, all the empirical evidence suggests that this will translate into renewed demand for residential properties—as was also the case at the beginning of 2009, which was the last time the policy was reversed.

China's woes have served to aggravate the concerns of investors who are already negatively focused on Europe, where the Greek crisis has revealed the critical fault line of the euro-zone—namely the difficulty of having monetary union without political union.

Meanwhile, the fundamental trend in the West remains profoundly deflationary. Last week the U.S. government reported that the country's core consumer price index (CPI) inflation rate slid in April to its lowest level in 44 years.

Markets: Renewed Global Anxiety
Global markets are seeing selling pressure again as concerns about Europe's debt crisis reassert themselves. Spain's nationalization of a regional bank has contributed to the anxiety, Dow Jones Newswires's Paul Vigna and Michael Reid report.
.It is also the case that, if the U.S. headline CPI remains flat from May onwards, the year-on-year headline CPI inflation rate will then fall to 1.4% in June and zero by January from 2.2% in April. This trend will reawaken deflationary concerns prompting Federal Reserve Chairman Ben Bernanke to keep interest rates at zero.

Or consider Ireland, which has suffered an astonishing 16 consecutive months of price deflation. The Irish CPI fell by 2.1% year-on-year in April. This deflation action is beginning to make Japan's experience of the past 20 years look like a picnic because Ireland, unlike Japan in the 1990s, remains in fiscal contraction mode. Thus, the Irish government aims to reduce its deficit to 10% of GDP in 2011 and then to 2.9% in 2014 from 14.3% last year

Others in the euro-zone will surely follow. Spain has potentially a huge deflationary cycle to endure given its level of consumer leverage and the degree of anticipated fiscal tightening. Spain's household debt-to-GDP ratio was 83% at the end of 2009, and Spain has to refinance €165 billion of maturing government debt by the end of 2011.

For the moment Spain has only just sunk into outright price deflation. Spanish core CPI, which excludes unprocessed food and energy products, fell by 0.1% year on year in April. This is the first core CPI deflation in Spain since the data series began in August 1986. But the pattern looks set to endure, and this is in a country that already has 20% unemployment.

Meanwhile, in America bank lending continues to decline as does the velocity of money in circulation. If this persists, markets will face worryingly low GDP growth in the U.S. going into 2011. It's this prospect that's begun to be discounted in the recent stock-market correction, which has already seen the S&P 500 give up all its gains for the year. This will sooner or later pave the way for another round of fiscal easing in Washington when both the Obama administration and Congress give up on their current hopes of a normal U.S. recovery.

That political mood swing will again raise the protectionist risk in Washington, with the lightning rod being the Chinese exchange rate. Beijing has been signaling that it will resume incremental appreciation of the renminbi by the middle of this year. But with the renminbi having appreciated by 24% against the euro since late November, China's leaders may be having second thoughts. A trade row between China and the U.S. on top of the growing concerns about a "double dip" in the West is the last thing markets will want to contend with. But they may have to.

Mr. Wood, equity strategist for CLSA Ltd. in Hong Kong, is the author of "The Bubble Economy: Japan's Extraordinary Speculative Boom of the '80s and the Dramatic Bust of the '90s" (Solstice Publishing, 2005).