Will Obama Lose The Middle East?

This from a dear friend and fellow memo reader in response to my previous memo: "We are both alarmists, Dick. I am filled with a sense of hopelessness that the Repubs have the guts to do what is needed.

McConnell lives in some small hut built a century ago, and has no sense of the world today. He is Harry Reid in a better suit.

And he looks and talks like a sick bloodhound.

The question is whether the young guys in the House will be willing to risk the crap dumped on them if they actually argue strongly for what MUST be done, and now.

There remains the selfish question for each of us; how can we protect ourselves and our families?
---
As I have been reporting this for about a year - the Saudis now have acknowledged meeting with Israelis regarding Iran and it seems they are prone to continue.

The problem is, the U.S., under Obama, is going to surely leave our so called Arab allies no place to go so they will eventually turn to the Iranians in the role of supplicants. Beats being left to twist in the wind?

Obama is likely to lose the Middle East for us because of his feckless and confused foreign policy. Wake up America! (See 1 below.)
---
The party is over according to professor Nouriel Roubini. (See 2 below.)
---
David Skarica continues to hawk gold. If we have the kind of inflation I fear, then owning metal stocks is a rational speculative course of action.

As long as our Treasury and Fed print money and Obama and Congress spend it inflation is a sure bet. The question is does it creep up on us or bust loose and when? I leave that for you to decide. (See 3 and 3a below.)
---
Robin of Berkley believes extreme Progressives think their behavior is normal as apple pie because their world view is amoral and asocial. Therefore, the merit of hurling insults at a complete stranger is a no-brainer.

Robin concludes: "Many leftists are positively clueless about how to conduct themselves in a civilized manner."

I believe Robin is correct because many progressives, as I have already noted, are humorless - Harry Reid and Pelosi as are some I play tennis with, for example - and cannot defend their irrational arguments so when hard pressed they resort to personal attacks - their attacks on Sarah Palin for example. (See 4 below.)
---
Wikileaks is all the fault of GW?

What is revealed is the Obama administration has now made us the laughing stock of the world as we demean those we must deal with and whose support we must seek.

Sec. Clinton is up to her old tricks and should be fired for being a lousy administrator as well as a poor Sec. of State.

Ten Wikileaks questions for Obama.

But in the final analysis it is GW who is to blame because is is is.(See 5 and 5a below.)
---
Time and again low rates have proven to produce more revenue. Mellon recognized that almost 100 years ago. (See 6 below.)
---
Be careful what you wish for QE2 speaking. (See 7 below.)
---
I know I say this repeatedly and then go on to publish something but over the next two weeks I will be away so not likely to do any memo writing.


To my Jewish friends the happiest of Hannukah's!
---
Dick
--------------------------------------------------------------------------------
1) Riyadh signals: Secret Saudi-Israeli meetings on Iran must go on

Riyadh has signaled its intention for the secret Saudi-Israeli meetings on Iran taking place for more than a year to continue after the changing of the guard at the Mossad, intelligence sources reveal. This was one of the first messages Tamir Pardo found on his desk as head of Israel's external spy agency when he took over from Meir Dagan this week. The Saudis were clearly not put off by any possible awkwardness from the WikiLeaks disclosure that they had been pressing the US to attack Iran's nuclear sites before it developed a weapon.

The meetings between Saudi General Intelligence Director Prince Muqrin bin Abdaziz and Meir Dagan, most of which were held in the Jordanian capital Amman, dealt extensively with clandestine cooperation between the two agencies and plans for attacking Iran. Arab and Western sources reported they reached agreement in the course of the year for Israeli fighter-bombers to transit Saudi air space on their way to bombing Iran's nuclear facilities. The Saudis were even willing to build a new landing strip in the desert with refueling facilities for the use of the warplanes en route to their mission.

Western intelligence experts on Saudi Arabia found special significance in the publication by the Saudi Arab News site of Monday, Nov. 29 of a long report on Meir Dagan and his retirement after eight years as head of Israel's external espionage agency. The Saudi official media never, ever report on Israeli military or intelligence affairs. Even Maj. Gen. Yoav Galant's appointment as Chief of Staff, for instance, was not mentioned.

Still more out of character was the tone of the Arab News report. The outgoing Mossad chief is described as "a hawkish ex-general" and "widely seen as responsible for a wave of covert actions including the sabotage of Iranian nuclear projects."

Western sources found a connection between this comment and the attack 24 hours earlier in the heart of Tehran on two senior Iranian nuclear scientists, killing Prof. Majid Shahriari on the spot and leaving Prof. Feredoun Abbassi-Davani critically injured.

The Saudi publication goes on to say: "Choosing Pardo means the government wants to keep things in the family for the Mossad and let it know things will go on as before", a "source" is quoted as saying. Pardo's job is termed "at the heart of Israel's secret war against Iran."

Saudi experts stress these comments would never have appeared in an official publication unless they were inspired from the highest levels of the royal house. They amount to a strong message that Riyadh wants to keep its intelligence dialogue with the new Israeli Mossad chief going on as before. Sources do not rule out Meir Dagan attending the introductory encounter between his successor and Prince Muqrin.
Intelligence sources add: The WikiLeaks disclosure, which also showed the Obama administration rejecting the Gulf Arab rulers' demand for military action against Iran, may even have spurred the Saudis to insist on carrying on with their backdoor meetings with Israel so as to underline their abiding conviction that Iran's nuclear program must be wiped out.
------------------------------------------------------------------------------------
2)Roubini: Europe's Debt Crisis to Infect Portugal, Spain


Europe’s debt woes are at risk of spreading to Portugal and Spain, and rising budget deficits in the euro area are a concern, said Nouriel Roubini, the New York University professor who predicted the global financial crisis.

“There’s now financial contagion in Portugal, Spain and to a smaller degree even in countries like Italy, Belgium and others in the euro zone,” Roubini said in a speech to a conference in Taipei today.

Concern that Europe’s debt crisis will worsen has shifted to Portugal and Spain since Nov. 28, when the region’s governments gave Ireland an 85 billion-euro ($111 billion) rescue package. The average yield for 10-year debt from Greece, Ireland, Portugal, Spain and Italy reached a euro-era record as speculation intensified that other nations will require support.

The shock from the Ireland rescue was more limited than from the bailout of Greece, Roubini said today. The European Union decided in May to set up a 750 billion-euro fund to help rescue Greece.

Europe’s currency rose 0.7 percent to $1.3075 at 8:43 a.m. in London, from $1.2983 yesterday, on speculation European Central Bank policy makers will signal willingness to act to prevent the spread of the debt crisis when they meet tomorrow.

The risk of a “double-dip” recession in the U.S. has declined compared with four to five months ago, Roubini said, helped by the U.S. Federal Reserve’s plan to buy $600 billion of assets to spur economic growth.

‘Party Over’

“The world can’t rely any more on the U.S. to keep spending more than its means, more than its income,” Roubini said. “That party, unfortunately, is over.”

Roubini in 2006 predicted the U.S. economy was “headed toward a serious slowdown” because of the slump in the housing market, high oil prices and the delayed impact of interest-rate increases.

Emerging markets need to develop domestic demand and let their currencies rise to help rebalance the global economy, a process that may take many years, Roubini said today.

“There’s quite a significant difference between what’s going on in most of the advanced economies and what’s going on in most of the emerging market economies,” he said.

Most advanced economies, including the U.S., Japan and much of Europe, are going to have “U-shaped,” or more “anemic” recoveries, the professor said, while most emerging nations will have a “V-shaped” recovery.

Capital Flows

Officials from emerging nations have complained that near- zero borrowing costs and monetary easing in advanced nations is propelling capital to their higher-yielding markets, threatening asset bubbles.

Nations have adopted disparate steps to manage the risk, with South Korea embracing a tax on foreigners’ investments in its bonds and Indonesia favoring a lock-up period for overseas purchases of bills

Emerging nations face a challenge in trying to manage long- term capital flows as a “wall of liquidity” flows to their economies, Roubini said. They are restraining their currencies as China’s won’t let the yuan appreciate more, he said.

China can’t be the only “locomotive” of global growth and “you still need robust growth in other advanced economies,” Roubini said. A real-estate bubble has started in China and some Asian property markets also show signs of the same development, he said
-------------------------------------------------------------------------------------
3)David Skarica: US Inflation Could Spark Global Unrest
By Forrest Jones and John Daly

Investors should put their money in gold or companies that do well amid higher gold prices, says David Skarica, editor of the Gold Stock Adviser newsletter and author of "The Great Super Cycle." Debt and equity markets also are full of hurdles, and mounting global criticism of U.S. fiscal and monetary policies might eventually lead to higher borrowing costs and soaring inflation, ultimately sparking unrest around the world, he warns.

Gold stocks normally trade between 40 percent and 60 percent of the price of gold, meaning that if gold is worth $1,000 an ounce, a stock index tied to the precious metal is ripe with buying opportunities when at or less than 40 percent or is too expensive when breaking 60 percent of the per-ounce price.

"Right now the ratio is only about 38 percent, and that's despite this huge run we've had in gold and gold stocks, telling us that gold equities are still cheap compared to the metal," Skarica tells Newsmax.TV.

"Gold stocks are extremely cheap," especially considering that gold is trading near $1,390 an ounce and should soon rise to around $1,700.

Broader stock-market indexes should peak in nine months after finishing recent rallies.

Equities won't plunge, Skarica says, but they won't shine either.

Fewer people own stock these days than in the 1990s due to higher unemployment rates and higher debt levels, which makes any government efforts to spark a stock-market rally less likely to incentivize the public to spend and really get the economy moving again, Skarica says.

The bond market, meanwhile, doesn't look stellar either.

While there are sound companies issuing healthy debt, as a whole, the bond market wrapped up a 27-year bull market in December 2008.

Furthermore, government debt is less attractive these days due to all the money printed in an effort to revive the economy.

"There's just too much debt issuance coming from the U.S. government, there're too many problems with unfunded liabilities, so I think interest rates will be headed higher, which means bond prices are headed lower."

Officials across the globe, including in China and Germany, have expressed disappointment with U.S. fiscal and monetary policies.

Printing money cheapens the dollar and also sends investors racing to stock markets abroad, pumping up foreign currencies in the process, which many say gives the U.S. unfair trade advantages.

With such a cheap greenback and with such high debt levels in the United States, foreigners who buy U.S. bonds are going to demand higher interest rates when investing here down the road.

Higher interest rates would force the government to spend more servicing its debt and less on fiscal spending, such as military expenditures.

"People are getting fed up with the U.S. abusing its power as the world's reserve currency," Skarica says.

"I think what that's ultimately going to lead to is higher rates, and these other countries are going say 'Hey, you didn't want to do austerity? Well now we're going to make you do austerity.'"

Aside from demanding higher interest rates in the United States, investor nations could slap tariffs on U.S. goods.

A mix of higher borrowing costs and higher inflation could spell trouble for the world as a whole.

"That creates unrest not only in the U.S. but maybe in even more places worldwide because higher commodity prices, especially for people lower on the food chain, economically speaking, whose food expenses are a large part of their expenditures," he said. "That can create unrest in those countries, which could lead to wars somewhere down the line."

Meanwhile, calls for increasing gold's role in foreign-exchange markets have grabbed headlines recently.

Involving the precious metal more isn't such a bad idea, Skarica says.

"I think it might be a little more difficult today because there is more cross-border trading and more foreign-currency transactions etc., but I think you need some kind of linkage of your currency to gold," he said.

"The gold standard keeps central bankers and politicians in line."

World Bank President Robert Zoellick has said the world should find a way to use gold as a benchmark for global exchange rates, although he stopped short of calling for an outright return to the gold standard of the early 20th century.

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Zoellick said in a commentary piece in the Financial Times recently.

"Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

Many market watchers are taking a wait-and-see approach to gold's role in global foreign-exchange markets — and Zoellick's effects on gold markets.

"Right now, we just have to sit back and say, 'That's nice,' and see if anyone else finds that to be true as well," says Colin Cieszynski, an analyst with CMC Markets in Toronto, according to the Wall Street Journal.

3a)Be Afraid. Very Afraid.
Alan Simpson and Erskine Bowles try to scare America into doing something about the deficit.
By Annie Lowrey

Wonkish, crotchety, and mostly bald, the co-chairs of President Obama's National Commission on Fiscal Responsibility and Reform want you to care about the deficit the way cable television wants you to care about pedophiles. The threat might be remote, but when it comes, it comes closer than you think—and it is horrible. At a press conference this afternoon, Alan Simpson and Erskine Bowles described debt as a "cancer." They called it "dangerous." Bowles warned that if Congress really gets into a fight about the debt ceiling in the next few months, all financial hell will break loose.

Since the co-chairs released their proposal for getting America back in the black, Simpson says, it's been "the same old crap." People have responded with "emotion, fear, guilt, and racism." And the "far left" and "far right" are rounding up their "minions" to attack the plan as cruel or infeasible or insufficient or whatever. But Bowles and Simpson—they don't care. They just want to talk numbers and to scare the living bejesus out of you about debt.

What will happen if the debt gets the better of us? Well, debt is not exactly like cancer. Death is not involved. But the economic prognosis is not good: The bond market may freak out, and you end up with austerity budgeting—rough, uneven cuts, rather than Bowles and Simpson's surgically precise plan.

"America: You have a serious problem!" Simpson said. "I do the numbers and Al does the color," Bowles said, taking over, stressing the need to have an "adult conversation" about what happens going forward.

But Simpson and Bowles, like all true obsessives, worry so much because they can do so little. They can start a conversation, of course. But Americans don't have to listen to them, and they appear not to be. Polls routinely show that Americans worry less about the deficit than they do about job creation and a plethora of other issues. Congress doesn't have to heed Simpson and Bowles, either. Even if the bipartisan commission agrees on and issues a deficit-reduction plan, neither chamber is required to bring it up for a vote, let alone implement it.

Moreover, and more importantly, most economists acknowledge that while the deficit and debt are real issues, the country's massive jobs crisis and broader economic malaise remain priority No.1. And those are problems that would be ameliorated by making the deficit bigger, not smaller, in the near term.

Nevertheless, the deficit is having its moment, what with the new more fiscally conservative Congress in place and the Obama administration turning away from stimulus and toward belt-tightening. "I think we won, and we won big," Bowles said. "The era of deficit denial in Washington is over."

To that end, Bowles and Simpson held a press conference today to announce that they had finalized a version of their deficit-slashing proposal and had gotten it scored, creating an official tally of how much money it will save, and how fast. Their 18 blue-ribbon, bipartisan team members will receive the document tonight.* Then, on Friday, two days after the commission's deadline, set by executive order, its members will vote. After that, it is up to Congress and its handshake promises to take it from there.

As often happens in Washington, the serious presser about the serious issue of serious debt had all of the gravity of a local 4H meeting. Bowles (Democrat, former White House chief of staff, president of the University of North Carolina system) and Simpson (Republican, former Wyoming senator) routinely come off like Statler and Waldorf—grandpa-humored, sometimes offensive.

This time, they plopped themselves down before two American flags in a double-wide, fluorescent-lit hallway jammed with reporters. "I chewed on one of those once, and they recorded it in Time magazine," Simpson quixotically grumbled, gesturing toward a tape recorder, a microphone, or a stack of papers, depending on where you were standing.

Then came the discussion of the pain—pain Bowles and Simpson acknowledge gravely and constantly. In their deficit-reduction plan, all budgets would be eventually balanced, all ledgers in the black. Earmarks would no longer exist, nor would tax expenditures. More Americans would pay federal income taxes, if at lower rates.

Then cuts, lots of cuts, cuts making up more than half of the chairs' proposal. Seniors would work longer and get less from Social Security in many cases, for instance. Dozens of federal programs would face the axe. The National Zoo would start charging admission.

As much as Bowles and Simpson like talking about the deficit, they like talking about cutting spending even more. At the press conference, one reporter queried the two about the arcane issue of federalizing municipal debt.

Bowles responded with an answer about earmarks.

"$1.1 trillion every year!" Simpson said.

If they had their way, they would ban them as part of their plan to wrench America back into black. And they want you to know it.
-------------------------------------------------------------------------------------
4)The Care and Feeding of Progressives
By Robin of Berkeley

I've had to ask readers of my blog to register in order to post comments. There are three reasons why:
1.Trolls
2.Trolls
3.Trolls

(By the way, I often tell clients that there are three rules for dealing with the character disordered: "Boundaries, Boundaries, and Boundaries." Not surprisingly, the same can be said about extreme progressives.)


When I started my little blog, it didn't occur to me that trolls would come out in droves. Why would leftists expend their energies on me? And why would they subject themselves to scrutiny by a licensed psychotherapist?


But apparently, numerous trolls have been drawn to me, like venomous bees to honey. These trolls use the same weaponry of other extreme progressives: shame and degradation. They try to use ridicule as sort of stun gun, immobilizing the other. (Another interesting tidbit: People with character disorders do the very same thing. Coincidence?)


As a psychotherapist, I can see right through them to who they are and how they operate. Nonetheless, I still remain curious about these creepy crawlers, whom I have dubbed "My Friends, the Enemy." (This is my generally futile attempt to be magnanimous like the Dalai Lama, who uses the phrase to describe the Chinese.)


I wonder to myself: Where do these trolls come from? Where do they live and breed?


Do they write in dank basement rooms while their bedraggled girlfriends (or moms) pick up their dirty shorts? Do they intermix trolling with downloading internet porn? (I'm not being snarky here; I'd bet good money that violent smut gives them endless inspiration.)


Are these cyber-stalkers getting paid from a Soros organization? If so, why can't they find more respectable employment? (Hmm...I suppose the answer to that question is rather obvious.)


The creepy thing is that in the minds of trolls, and other extreme Progressives, their behavior is as normal as apple pie. This is because their worldview is amoral and asocial. Therefore, the merit of hurling insults at a complete stranger is a no-brainer.


Many leftists are positively clueless about how to conduct themselves in a civilized manner. Believe me, I have tried over and over to engage some -- any -- in a respectful discussion.


Although I rarely give up on people, I have had to conclude that many extreme progressives are not simply choosing to be vicious. They do not know how to restrain themselves.


For instance, a progressive e-mailed me with the following, "Man, you're really messed up." I replied, scolding her, explaining that her remark was inappropriate.


She responded this way, sounding genuinely confused and shocked: "I was trying to be sympathetic! I really didn't mean to hurt your feelings." And in this case, I actually believed her!


The most hardcore of the leftists seem almost feral, wild, and undomesticated. Many lack even the most rudimentary of social skills; some people may very well be diagnosable on the autism spectrum.


Many militants are devoid of an essential ingredient of being human: empathy. While they exude endless compassion for an endangered snail, they are contemptuous of living, feeling human beings. This is why they can cavalierly imagine snuffing out Granny, a late-term fetus, or, in fact, anyone who gets in their way.


With the progressives in charge, we now live in "interesting times," to quote the Chinese curse. There's a breakdown in the basic rule of law that keeps a society knitted together. Without the moral fiber to stitch us, it's survival of the fittest -- every man and woman for themselves.


It's no coincidence that God has also been shunned, because God is the thread that weaves together the rich tapestry of life. With Judeo-Christian values missing in action, the left engages in a manic free-fall-all. They afford themselves free rein to act out their basest of impulses.


The more extreme progressives have no impulse control whatsoever. They act more primitively than a wild beast as they beat up opponents and sexually degrade conservative women.


These progressives are engineering a New World Order, which is dark and devolved and completely unlivable. Their actions remind me of a famous quote by Gandhi about Western civilization.


When asked what he thought about Western civilization, Gandhi replied, "Western civilization? I think it would be a good idea." One could say the same thing about progressives' civilized behavior.


I hope the newly elected conservatives will have the courage and intestinal fortitude to create some order out of the chaos. If they can break up this manic (Democratic) party, there's hope for this country yet.


A frequent American Thinker contributor, Robin is a recovering liberal and a licensed psychotherapist in Berkeley.
-------------------------------------------------------------------------------------
5)Rethinking Foreign Policy
By Vasko Kohlmayer

A thought experiment for you: Imagine that CableGate happened when the name of the American President was George W. Bush and the name of the Secretary of State was Condoleezza Rice.


A frenzied hysteria would surely break out in the media and Congress. Incompetence, neglect, stupidity, betrayal, and worse would be charged.


Condoleezza Rice would be forced to resign within hours of the documents' appearance on WikiLeaks. Impeachment proceedings against Bush would start within days.


But what is good for the goose should also be good for the gander, should it not?


It just so happens that one of the greatest diplomatic gaffes in the history of global foreign affairs was committed on Mrs. Clinton's watch. Now the whole world can go to the internet and learn -- courtesy of Mrs. Clinton's State Department -- that the world's so-called leaders are for the most part liars, crooks, or worse. Thank you, Mrs. Clinton. You have done the people of the world a great favor. Now they can see what their political betters are made of.


Too bad that America became compromised in the process. Our foes and friends alike will not easily forgive us the fact that we have spilled the beans. Such rank incompetence is inexcusable.


As if this were not bad enough, our friends at the United Nations have also learned that Mrs. Clinton put them under surveillance. She was even checking their credit card accounts. What was the logic behind that? one wonders. Do they not have the right to freely spend the money they stole from their own populations? They will not take Mrs. Clinton's nosiness kindly.


When George Bush was in office, liberals constantly complained that his actions and conduct lowered America's standing in the world. But it turns out Bush was nothing when compared with the current gang.


They told us that Barrack Obama would restore respect for America on the world stage. Instead, America's reputation is today at the lowest point ever. Friend or foes -- this administration has embarrassed and offended them all.


This debacle should give an occasion to rethink our foreign policy.


A question to consider: Why do we have to take sides in every conflict and strife around the globe? The leaked cables clearly show that in many of those, there are no good guys. Sure, they come to us for money and aid, claiming that they are the righteous ones and that they stand for democracy and freedom. But more often than not, such talk is baloney, pure and simple. They want our help just so they can dispatch their opponents and then rule the roost. We should not be surprised that people oppressed by such allies of ours come to resent America. After all, we support and sponsor those who prey on them.


Do we really need to involve ourselves in the likes of the authoritarian King Abdullah or the corrupt Hamid Karzai? But if we are not friends with the Saudi King, some may reply, they will not sell us their oil. So what? We will drill our own. We have plenty of it, as the Deepwater Horizon spill amply showed.


We have many warnings from our founding fathers, who cautioned over and again against getting involved in other people's affairs. In his first inaugural address, Thomas Jefferson called for "peace, commerce, and honest friendship will all nations, entangling alliance with none."


In his farewell address, George Washington urged America to have "as little political connection as possible" with foreign nations.


Some two decades later, John Quincy Adams warned that "by enlisting under other banners than her own, were they even the banners of foreign independence, she [America] would involve herself beyond the power of extrication in all the wars of interest and intrigue, of individual avarice, envy and ambition, which assume the colors and usurp the standards of freedom."


Those who do not find this convincing may perhaps consider the fact that as the greatest debtor in world history, we are broke and simply do not have the money to conduct an aggressive foreign policy around the globe.


Which brings us to another point. It would not be a bad idea to cut the State Department by half or more. We do not need an army of bureaucrats cruising around the world while spending money and causing mischief.


The WikiLeaks disclosures show that it is not money well-spent.

5a) 10 WikiLeaks Questions For Obama


Why hasn't more been done to stop this terrorist and his vile WikiLeaks operation? AP View Enlarged Image
Leadership: As vile as the WikiLeaks theft and dissemination of American secrets is, the ultimate responsibility for defending the U.S. lies with the Obama administration. Its weak response raises question after question.

As Americans contemplate the dump by WikiLeaks chief Julian Assange of 250,000 confidential U.S. diplomatic cables onto the Internet — and the blow it has delivered to our foreign policy — the administration's reaction was disheartening.

"President Obama supports responsible, accountable and open government at home and around the world, but this reckless and dangerous action runs counter to that goal," said the White House. "We condemn in the strongest terms the unauthorized disclosure of classified documents and sensitive national security information."

That was about as forceful as it got, even as a Waterloo-like diplomatic disaster unfolded on the world's only superpower.

The appropriate response is to destroy WikiLeaks as an enemy of liberty and exact a high price from its collaborators. But all we get is Jimmy Carter redux — a lack of urgency and a need to be seen as obeying international law. In our opinion, at least 10 questions demand a response:

1. Attorney General Eric Holder says he's weighing charges against Assange and WikiLeaks under the Espionage Act. What has taken him so long? Assange has been working loudly against America for 18 months, releasing stolen documents on Iraq and Afghanistan for more than a year, amid reports of repercussions against U.S. allies. Shouldn't Holder have done something long ago?

2. Chased out of Europe, Assange moved his server to Amazon.com. Explain again why a U.S. company is facilitating this sleazy trafficker in stolen secret data without a court order to shut it down? Last week, the White House shut Web sites trafficking fake Prada handbags. Why does it do nothing here?

3. A private hacker called the "Jester" claims he's successfully enacted a denial of service attack against WikiLeaks. But with all its resources, why hasn't the United States government blown WikiLeaks and all its mirror sites off the air instead? America's ally Colombia has destroyed FARC terrorist Web sites, taking info-terror as seriously as it takes jungle warfare. A Colombian embassy spokesperson told IBD the country has an unofficial military unit just for the purpose. And we don't?

4. The New York Times, the U.K.'s Guardian, Spain's El Pais and Germany's Der Spiegel are working hand-in-hand with Assange, publishing his stolen documents, effectively serving as a backup to disseminate the documents even if WikiLeaks gets shut down. Why aren't these beneficiaries of freedom of the press who turn on its chief defender being prosecuted? News organizations such as CNN recognized this criminality for what it was and, unlike the Times, wouldn't touch the story.

5. Sweden has an open book of unrelated rape charges against Assange, who is Australian. And to its credit, it has denied him asylum. But why was he sheltered there for so long? And why hasn't the Obama administration been able to get him extradited?

6. After Hillary Clinton showered Rafael Correa, Ecuador's anti-American president, with praise and kisses this year, that country has offered Assange asylum. Where is the U.S. muscle, along with a hard threat to pull Ecuador's trade privileges and Federal Reserve support for its dollarization regime?

7. Assange's initial collaborator was a troubled 22-year-old Army intelligence analyst, Private Bradley Manning. Who put him in his position and did political correctness about his gay orientation keep him there, much as it did with the crazed Islamofascist who shot up Fort Hood? Why was he permitted to see secret data?

8. Why are there 3 million other people with security clearances who can not only see diplomatic cables but also download them?

9. Where is the cooperation from other countries to bring Assange to justice? We thought President Obama would repair relations with so-called allies. Any slacking here ought to bring sanctions.

10. Where, for that matter, is president himself? Amid a 9/11-grade attack on U.S. diplomacy, the WikiLeaks debacle calls for strong statements signaling that America will take actions to punish this determined enemy. But beyond bland boilerplate, and at a time that calls for resolve and action, Obama has said and done nothing.
----------------------------------------------------------------------------------
6)Can Republicans Talk?: Part II
By Thomas Sowell

Guess who said the following: "It is incredible that a system of taxation which permits a man with an income of $1,000,000 a year to pay not one cent to his Government should remain unaltered."

Franklin D. Roosevelt? Ted Kennedy? Nancy Pelosi?


Not even close. It was Andrew Mellon, Secretary of the Treasury under conservative Republican President Calvin Coolidge.

What was Mellon's point? That high tax rates do not necessarily result in high tax revenues to the government. "It is time to face the facts," he said. Merely having high tax rates on large incomes will not bring in more tax revenues to the treasury, because of "the flight of capital away from taxable investments."

This was all said in 1924, in Mellon's book, "Taxation: The People's Business." Yet here we are, more than 80 years later, still not facing those facts.

It is not just a question of what Andrew Mellon said. It is a question of hard facts, easily checked in official documents available to all-- and ignored all these years.

Internal Revenue Service data show that there were 206 people who reported annual incomes of one million dollars or more in 1916. But, as the tax rate on high incomes skyrocketed under the Woodrow Wilson administration, that number plummeted to just 21people reporting a million dollars a year in income five years later.

What happened to all those millionaires? Did they flee the country? Were they stricken with fatal diseases? Did they meet with foul play?

Not to worry. Right after Congress enacted the cuts in tax rates that Mellon had been urging, there were suddenly 207 people reporting taxable incomes of a million dollars or more in 1925. As Casey Stengel used to say, "You could look it up." It is on page 21 of an Internal Revenue publication titled "Statistics of Income from Returns of Net Income for 1925."

Where had all the income of those millionaires been hiding? In tax-exempt securities like state and local bonds, among other places. Mellon had urged Congress to end tax exemptions for such securities, even before he got them to cut tax rates. But he succeeded only with the latter, and only after a political struggle with those who made the same kinds of arguments that are still being made today by those who cry out against "tax cuts for the rich."

Still, one out of two is not bad, when it comes to getting Congress to do something that makes sense economically, rather than something that looks good politically.

The government, which collected less than $50 million in taxes on capital gains in 1924, suddenly collected well over $100 million in capital gains taxes in 1925. At lower tax rates, it no longer made sense to keep so much invested in tax-exempt securities, when more money could be made by investing in the economy.

As for "the rich"-- who really were rich in those days, when $100,000 was worth more than a million dollars is worth today-- those in the highest income brackets paid 30 percent of all taxes in 1920 and 65 percent of all taxes by 1929, after "tax cuts for the rich."

How can that be? Because high tax rates on paper, that many people avoid, often does not bring in as much tax revenue as lower tax rates that more people actually pay, after it is safe to come out of tax shelters and earn higher rates of taxable income.

The investors do this because it makes them better off, on net balance, even after they pay more money in taxes on incomes that have gone up. More important, the economy benefits when there is more investment in things that create more jobs and rising output.

None of this was unique to the 1920s. The same scenario played out again in later years, during the Kennedy, Reagan and Bush 43 administrations.

But economic success is not the same as political success. As former House Majority Leader Dick Armey put it, "Demagoguery beats data."

As long as the voters keep buying the "tax cuts for the rich" demagoguery, politicians will keep selling it. And it will keep selling as long as it goes unanswered. The question is whether today's Republicans understand that as well as Andrew Mellon did back in the 1920s.
-------------------------------------------------------------------------------------
7)QE2: Beware the Perils of Its Success
By Vitaliy Katsenelson

The Fed's plan is like a prescription that comes with a list of side effects that are often worse than the disease it was supposed to cure. Unintended consequnces could include stagflation and higher interest rates.


There is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. … The bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
-- Frederic Bastiat (1801-1850)


Over the next eight months the Federal Reserve will conduct QE2 -- quantitative easing, the sequel. It will buy $600 billion worth of US long-term bonds in the open market, close to 7% of all Treasury securities in public hands, or about the amount of debt that the federal government will issue over that time period.

The Fed has already taken short-term rates down to zero, pushing income-seeking investors and savers to higher-yielding (lower-rated) and higher-duration (riskier) bonds. Now, with the magic of QE2, the Fed wants to drive long-term rates down to unseen levels and push all Treasury investors (short or long) toward higher-risk assets -- junk bonds, real estate, stocks, and commodities.

The Fed also hopes (that is all it can do at this point) that low interest rates will nudge businesses to invest and to hire. That’s unlikely. The value of any asset is the present value of its future cash flow. As my favorite philosopher Yogi Berra (allegedly) said, “In theory there is no difference between theory and practice. In practice there is.”

In theory lower interest rates decrease the rate that businesses use to discount future cash flows -- making future cash flows more valuable today -- and the Fed is betting on that. In practice, however, the fickle source of lowered interest rates is not lost on businesses. Rising debt on government and Fed balance sheets and an overheated money printing press don’t generate confidence about future cash flows. High government debt eventually leads to higher taxation, higher interest rates, and lower growth. So the Fed’s action may have an impact opposite to what they intend.

At some point quantitative easing will be followed by quantitative un-easing, as the Fed will have to sell all those bonds back, unless they are held until long-term maturity. Either way, it will bring higher interest rates.

QE2 is like a drug prescription that comes with a list of side effects that are often worse than the disease it was supposed to cure. It's difficult to know all the side effects and unintended consequences of QE2, but it may result in a substantial decline in the dollar, stagflation, lower economic growth, and much higher interest rates. Inflation will show up not where the Fed wants it -- in house prices -- but in higher prices for commodities like food, gasoline, clothing, and electricity, which could kill consumption. Yes, paradoxically QE2 may actually result in higher interest rates -- investors expecting higher inflation will demand higher rates.

Despite the Fed’s efforts, the dollar may not decline against the euro. In this race to the bottom, the US may lose to the PIIGS rampaging through Europe.

The Fed’s artificial manipulation of short-term and long-term interest rates creates a long-term problem for the economy. Since interest rates are set by the 12 people in the Fed’s boardroom, the free market is not allowed to discover what interest rates should be. The Chinese communist government has been under attack by politicians, the media, and even yours truly for manipulating its currency. We know its currency is undervalued relative to the dollar and euro, but the Chinese government doesn’t let the free market know by how much. Government intervention (be it Chinese or US) in the free market creates excesses that are not allowed to self-correct and thus leads to bubbles.

QE2’s possible success worries me more than its failure, because it will come with all the side effects I just mentioned, plus the eventual popping of newly created stock market and real estate bubbles. The Fed wants to create asset bubbles, praying for the wealth effect -- stock and real estate appreciation that will make people feel wealthier (at least on paper, for a while) so they will spend their phantom gains. However, the Fed is like a Judas goat leading gullible (yield-deprived) savers to the slaughterhouse. The paper wealth that is created will vanish as bubbles burst (they always do), wealth will be destroyed, and consumers will find themselves further in debt.

Japan was QEing from 2001 to 2006 and created a bubble in Japanese bonds that partially burst, but its economy did not lift out of stagnation. Unlike our Fed, though, Japan stopped hiding its true intentions of propping up the equity market -- on November 4 of this year the Bank of Japan announced it will be buying Japanese stock ETFs and REITs.

The Fed’s action over the last two decades reminds of what Scarlett in Gone With the Wind used to say: “I can't think about that right now. If I do, I'll go crazy. I'll think about that tomorrow.” The gains of today will be repaid dearly with massive overdraft fees “tomorrow.”

What should investors do?

If the Fed “succeeds” and creates a short-term bubble in stocks and other asset classes, investors’ true time horizons and investment discipline (i.e., adherence to the investment process) will be put to the test. Unfortunately, investors don’t have the tools to play in this Wall Street version of “looking for a bigger fool to buy your overvalued assets” game.

As was the case with the dotcom bubble, in the giddy phase of bubble expansion ignorance is wonderful bliss and knowledge and adherence to the investment process are a curse -- as disciplined investors will always sell too soon and won't partake in the bigger fool game. However, when the bubble bursts the money will flow to its rightful owners. The Fed doesn’t want to you to be in cash, it wants you to reach for yield and speculate -- but don’t.

In the absence of good investment opportunities, the worst thing you can do is take advice from the Fed.

P.S. QE1 vs. QE2 -- They're very different!

Modern societies have fractional reserve banking systems where for every dollar deposited in the bank, roughly 95 cents are lent out. This system functions fine as long as a bank’s losses are manageable and depositors believe in the continuity of the banking system -- in other words, they expect their deposits to be there tomorrow. However, even in the absence of any losses, if the presumption of banking system continuity is broken and depositors fear for their funds and withdraw their money, then even the best, most conservatively run bank that has zero loan losses, will go bust. This is a run on the bank. Because of financial leverage, banking is one of the few industries where (false) perception may lead to reality.

The Federal Reserve System was established in 1913, following the 1907 Bankers’ Panic, a recession and collapse of several banks that led to runs on the country’s banks. Then-all-powerful JPMorgan (JPM) directed a coalition of banks that backed the banking system and stopped the nationwide run. This planted the seeds for the creation of the Fed. The Fed’s job was to be the lender of last resort, to avoid future bank runs. However, creating an institution that does its work only a few times a century was impractical, so the Fed was given additional responsibilities to regulate banks and to maintain stable price levels and full employment.

In the midst of the 2008 financial crisis, to prevent the freezing up of the US financial system and possible bank runs, the Fed put in place QE1 -- it purchased more than a trillion dollars of mortgage and agency debt. Like JPMorgan in 1907, the Fed was the lender of last resort. But QE2 is drastically different from QE1, because the banking system is far from choking, and the Fed wants lower unemployment and the economy to grow at a higher rate.

P.P.S. The Vicodin Nation

Unfortunately, the Fed’s arsenal is missing the very important, must-have “do nothing” tool to fix the current problem. This tool would let the economy self-heal, even if unemployment stayed at 10% while housing prices declined to their true level. However, the tool is unlikely to be used, as it will inflict pain, something for which Americans have little tolerance. After all, the most prescribed drug in the US is the painkiller Vicodin. Regrettably, this is why QE2 is unlikely to be the last QE; as its effect wears off (assuming it succeeds at all), then QE3, QE4, and so on will follow. The US, like Japan, will be locked into unsustainably low interest rates.
----------------------------------------------------------------------------------