Saturday, July 9, 2011

Just One More Drink Government! Balancing Gain vs Pain!

Response from friend and fellow memo reader regarding Obama/Clinton decision re Muslim Brotherhood. (See 1 below.)
Focused Chinese Central Planning is carrying the day but could also sweep away individual freedoms. (See 2 below.)

Another view regarding China's progress. (See 2a below.)

The central issue for America is can we compete as we are presently constructed? You decide.
Liberals, Democrats, Progressives, call the dreamy spenders what you will, always complain whatever funding is allocated to meet their demands there is always a need for more. However, they never are able to define a final amount. Their needs are always a work in progress.

Then should their project flop, fail to meet some mythical targeted goal, which invariably happens, their rational is usually it did so because of lack of funding.

Their plight reminds me of the husband who gave his wife an unlimited budget and she still exceeded it.

Government spending under Obama has risen to 25% of GDP and yet he needs more funding because he cannot curb his insatiable appetite. Just one more drink government!
Sent to me by a dear friend and fellow memo reader. (See 3 below.)

My view is that one reaction begets another. The ultimate question is should government allocate resources or let the markets do so? Empirically speaking, markets are more efficient but there will always be pain for some. Economic perfection is a myth. The key goal is balance obtaining the most gainoffset against the least consequences of pain.
For those who believe government programs offer the best solutions I would like them to explain the recent ATF decision to supply guns to Mexican criminals in order to identify and track their narcotic operations.

Atty. General Holder , whose agency has jurisdiction over ATF, tstified he was not aware of this program until a U.S. Federal Agent was killed by one of these weapons.

Where is accountability? Bureaucrats are far too busy covering their asses and lying when their plans go haywire and Holder leads the pack.
Roubini sees a perfect storm gathering because of fiscal drag. (See edited 4 below.)
Tough love solutions? No longer practical because we are too PC and bleed from the heart. Consequently, we have spawned a nation of far too many incapable of doing for themselves and totally dependent on society's handouts. How demeaning but oh so compassionate. (see 5 below.)
Steve Emerson told me that he feels this is going to be proven to be one of the most catastrophic foreign policy decisions made in the last 50 years. This decision will not only empower and embolden the Muslim Brotherhood, which is the parent of Al Qaeda, Hamas and the Islamic Jihad, but it will totally undermine all policies designed to counter the MB ideology that is the root of Islamic violence and terrorism.
2) China vs. America: Which Is the Developing Country?
From new roads to wise leadership, sound financials and five-year plans, Beijing has the winning approach.

Recently I flew from Los Angeles to China to attend a corporate board-of-directors meeting in Shanghai, as well as customer and government visits there and in Beijing. After the trip was over, in thinking about the United States and China, it was not clear to me which is the developed, and which is the developing, country.

Infrastructure: Let's face it, Los Angeles is decaying. Its airport is cramped and dirty, too small for the volume it tries to handle and in a state of disrepair. In contrast, the airports in Beijing and Shanghai are brand new, clean and incredibly spacious, with friendly, courteous staff galore. They are extremely well-designed to handle the large volume of air traffic needed to carry out global business these days.

In traveling the highways around Los Angeles to get to the airport, you are struck by the state of disrepair there, too. Of course, everyone knows California is bankrupt and that is probably the reason why. In contrast, the infrastructure in the major Chinese cities such as Shanghai and Beijing is absolute state-of-the-art and relatively new.

The congestion in the two cities is similar. In China, consumers are buying 18 million cars per year compared to 11 million in the U.S. China is working hard building roads to keep up with the gigantic demand for the automobile.

The just-completed Beijing to Shanghai high-speed rail link, which takes less than five hours for the 800-mile trip, is the crown jewel of China's current 5,000 miles of rail, set to grow to 10,000 miles in 2020. Compare that to decaying Amtrak.

Government Leadership: Here the differences are staggering. In every meeting we attended, with four different customers of our company as well as representatives from four different arms of the Chinese government, our hosts began their presentation with a brief discussion of China's new five-year-plan. This is the 12th five-year plan and it was announced in March 2011. Each of these groups reminded us that the new five-year plan is primarily focused on three things: 1) improving innovation in the country; 2) making significant improvements in the environmental footprint of China; and 3) continuing to create jobs to employ large numbers of people moving from rural to urban areas. Can you imagine the U.S. Congress and president emerging with a unified five-year plan that they actually achieve (like China typically does)?

The specificity of China's goals in each element of the five-year plan is impressive. For example, China plans to cut carbon emissions by 17% by 2016. In the same time frame, China's high-tech industries are to grow to 15% of the economy from 3% today.

Government Finances: This topic is, frankly, embarrassing. China manages its economy with incredible care and is sitting on trillions of dollars of reserves. In contrast, the U.S. government has managed its financials very poorly over the years and is flirting with a Greece-like catastrophe.

Human Rights/Free Speech: In this area, our American view is that China has a ton of work to do. Their view is that we are nuts for not blocking pornography and antigovernment points-of-view from our youth and citizens.

Technology and Innovation: To give you a feel for China's determination to become globally competitive in technology innovation, let me cite some statistics from two facilities we visited. Over the last 10 years, the Institute of Biophysics, an arm of the Chinese Academy of Science, has received very significant investment by the Chinese government. Today it consists of more than 3,000 talented scientists focused on doing world-class research in areas such as protein science, and brain and cognitive sciences.

We also visited the new Shanghai Advanced Research Institute, another arm of the Chinese Academy of Science. This gigantic science and technology park is under construction and today consists of four buildings, but it will grow to over 60 buildings on a large piece of land equivalent to about a third of a square mile. It is being staffed by Ph.D.-caliber researchers. Their goal statement is fairly straightforward: "To be a pioneer in the development of new technologies relevant to business."

All of the various institutes being run by the Chinese Academy of Science are going to be significantly increased in size, and staffing will be aided by a new recruiting program called "Ten Thousand Talents." This is an effort by the Chinese government to reach out to Chinese individuals who have been trained, and currently reside, outside China. They are focusing on those who are world-class in their technical abilities, primarily at the Ph.D. level, at work in various universities and science institutes abroad. In each year of this new five-year plan, the goal is to recruit 2,000 of these individuals to return to China.

Reasons and Cure: Given all of the above, I think you can see why I pose the fundamental question: Which is the developing country and which is the developed country? The next questions are: Why is this occurring and what should the U.S. do?

Let's face it—we are getting beaten because the U.S. government can't seem to make big improvements. Issues quickly get polarized, and then further polarized by the media, which needs extreme viewpoints to draw attention and increase audience size. The autocratic Chinese leadership gets things done fast (currently the autocrats seem to be highly effective).

What is the cure? Washington politicians and American voters need to snap to and realize they are getting beaten—and make big changes that put the U.S. back on track: Fix the budget and the burden of entitlements; implement an aggressive five-year debt-reduction plan, and start approving some winning plans. Wake up, America!

Mr. Herbold, a retired chief operating officer of Microsoft Corporation, is the managing director of The Herbold Group, LLC and author of "What's Holding You Back? Ten Bold Steps That Define Gutsy Leaders" (Wiley/Jossey-Bass, 2011).

2a)Is China's Triumphalism Misplaced?
The much-vaunted mix of authoritarianism and economic reform is under severe strain.

China's leaders appear more confident than ever that their authoritarian politics and interventionist economic policies are superior. This is not surprising since even in the worst months of the global financial crisis, Chinese growth held above 6%

Meanwhile the Western market economies slumped into deep recession and are still struggling to regain their footing.

Yet a recent spate of tough economic and political challenges, several directly resulting from its crisis-period policies, calls into question Beijing's self-congratulatory narrative. What's worse, China's essential economic transformation in the decade ahead will succeed only with further relaxation of state interference in human affairs, meaning the authoritarians' renewed self-satisfaction may come at substantial future cost.

Nothing to gloat about: Food inflation, a government-debt-fueled building glut, credit-starved small businesses and corporate scandals.
.As early as June 2008, before much of the crisis had unfolded, People's Bank of China Governor Zhou Xiaochuan pointedly told a group of American officials that Beijing was "no longer learning positive lessons from the U.S.," but rather could henceforth learn only from Western mistakes. Less subtly, an editorial three months later in the People's Daily declared the crisis to be no less than "a manifestation of the dead end of liberalism and the destruction of the myth of American institutions."

Late last year, another editorial in that same paper scoffed at "Western" concepts such as multiparty democracy and separation of powers as "ill-suited to China" and praised the greater effectiveness of China's authoritarian socialism. Those comments echoed a March 2009 speech by the chairman of China's National People's Congress admonishing that China "can by no means copy the Western system."

Such triumphalism is starting to look decidedly hasty. A slew of problems is emerging, from pernicious inflation to massive new bad debts to broad dissatisfaction over property market conditions to a surge in corporate governance and corruption concerns. These suggest not only that Beijing's command/control response to economic crisis was less successful than first trumpeted, but that faster liberalization may offer the only path by which China might avoid the slide to economic "also ran."

Free markets are calling Beijing's bluff. The value of mainland stocks traded in Hong Kong (so-called H-shares) remains below their January 2010 level, left behind by an 18% recovery in the broader Asia ex-Japan regional index. The going has been even tougher for A-shares listed in Shanghai, down 11% over the same period. Last week, Singapore's sovereign asset manager Temasek, a group that understands China deeply, further roiled markets with the announcement that it is selling substantial shares in two Chinese state-owned megabanks.

Premier Wen Jiabao recently declared that policy makers have successfully gotten the inflation genie back in the bottle. But this has come at the cost of months of draconian credit curbs. Those curbs hit particularly hard for private-sector small and medium-sized enterprises, that chronically under-fuelled potential engine of entrepreneurial dynamism and job creation which always ends up last in line for capital from China's politically run state-owned banks.

The inflation scare itself—including the powder-keg social issue of high property prices—was the inevitable aftershock of Beijing's crisis-period stimulus. Lacking subtler tools, policy makers in 2009 indiscriminately flooded the economy with credit totaling more than 30% of GDP in a matter of months, with a similar surge in 2010. This makes both inflation and the resulting weaker social cohesion direct consequences of China's much-ballyhooed crisis-period policy "success."

Even China's official numbers seem to call into question the Party's newfound hauteur. Late last month, the National Accounting Office revealed the scale of local-government project loans, the primary conduit for that credit, at 8.5 trillion yuan ($1.3 trillion), more than 20% of GDP. It also noted that more than one-quarter of the projects into which those funds were poured were not yet making money. A more independent assessment by Moody's last week put the figure higher by some $540 billion. With minimal bureaucratic emphasis on due diligence, it should come as no surprise that a material portion of China's credit splurge wound up in questionable projects.

What of recent corporate governance eruptions? Investors need to be clear-eyed about what may go on behind the veil in a system that openly dismisses the "suitability" of checks and balances. Where access to capital and regulatory advantage are distributed at the discretion of political leaders, it is perfectly rational for business managers to spend more time cultivating external relationships than streamlining tight, transparent and efficient internal organizations.

It is academically precarious, in any case, to proclaim the universal applicability of China's authoritarian model based on only a few decades of high growth off a low statistical base that itself was the result of Maoism's failings. China has indeed achieved amazing things since its modern reform era began with Deng Xiaoping's ascension in 1978, not least including lifting the largest number of people from poverty in world history. But most of China's modern economic miracle came through reductions in direct state control and increases in economic and personal freedoms.

What's more, much of the vital work that still lies ahead, such as redressing massive income disparities and facilitating a shift toward higher-value activity, will only succeed with further loosening of the Communist Party's grip, such as over where people are allowed to live and work, over information flows and media content, and over access to precious capital for cutting-edge businesses.

In his famously dismissive 1793 rebuff to Britain's George Macartney, who journeyed to Beijing to entreat the Dragon Throne on behalf of King George III to open external trade relations, China's Qianlong emperor inadvertently may have marked the apogee of Qing Dynasty power. What happened over the next 150 years is now a matter of historical record: An inwardly focused China fell spectacularly behind an industrializing West through the 19th and early 20th centuries, while Asia's eager reformer and Westernizer, Meiji Japan, rose quickly to unprecedented economic strength and global stature.

Let's hope China's current leaders draw the right lessons from that tumultuous past as well as from the world's tumultuous present.

Mr. Kurtz is Asia strategist for Macquarie Securities in Hong Kong.
-------------------------------------------------------------------------------------------------------------------------3)By Vedran Vuk

I've always had a problem with the term "middle class." Sure, as a technical
definition of income level, it's useful. However, more often than not the
term is used as political weapon to corral the masses into a convenient

My main issue here is the notion that there even exists a group of aligned,
middle-class interests. The idea behind the middle class is very much a
remnant of Marxism. Supposedly, due a similar income range, we should have
the same interests. The world and politics just aren't that simple.

Since I'm a member of the middle class myself, I'll use my experience as an
example. When government bailed out the auto industry, the action was
celebrated as "saving the middle class." If one is an auto worker, that
claim makes complete sense - but as a writer, I am not better off. In fact,
bailing out failed auto companies only adds to the tax burden of other
middle class workers. On net, this is a loss for the middle class as a whole
and a benefit to a select group within it.

This is true for many arguments in regard to manufacturing. For example,
consider the arguments for tariffs and making it more difficult to outsource
workers overseas. These actions would increase manufacturing in the United
States, but at the same time prices of goods and services produced would
rise. And who would pay the higher costs? Other people in the middle class!

Or think about the Federal Reserve in the same way. The Fed can weaken the
dollar to increase manufacturing and exports. The Fed is helping the middle
class, right? If one looks only at the manufacturing sector, then that's
true, but the rest of the middle class will be negatively affected by a
weaker dollar.

Let's look at it from another angle now. Aren't government employees also
members of the middle class? Of course they are. So, if the government
reduces spending to relieve middle-class taxpayers, it's simultaneously
harming others in the middle class. But when the government decides to
expand its agencies, the guy at the GM plant is not better off; this means
more taxes and no additional employment prospects for him. The same can be
said for government contractors and the stimulus-related jobs. These folks
are also middle class; it's not just the executives who are getting the
government's funds.

We can take this further. What about the bank bailouts? When Citigroup laid
off over 50,000 workers, they didn't cut 50,000 millionaires. These were
regular folks filing mortgage papers and doing all sorts of middle-class
finance jobs. I must admit that I indirectly benefited from the bailouts.
The job market for the finance sector is better than it otherwise might have
been due to TARP. If the sector was in weaker shape, Casey Research could
have likely offered me a lower salary for my services. And while the rest of
the middle class got the shaft, I was indirectly paid more. Nonetheless,
I'm also a member of the middle class.

The idea that a government employee, an auto-factory worker, and a
white-collar office worker have the same political interests based on income
level just doesn't make sense to me. In many cases, their interests could be
no further apart. Hence, slogans such as "saving the middle class" are
almost vacuous phrases. The middle class means so many different things to
different people. Practically every government program helps some part of
it. Of course, this always comes at the price of others in the middle class.

But politicians and pundits like to rally us with another vision - an image
of the middle class as a sacrificial lamb for the rich and the poor. But if
you really want to see the people destroying middle class, look no further
than other members of the middle class - along with the rich and the poor.
Frederic Bastiat put it best with his famous quote about the government:

"The State is the great fiction through which everyone endeavors to live at
the expense of everyone else."

The key part to take away from the quote are the words "everyone" - not just
the rich, not just the poor. When it comes to competing for government
favors, it's a free-for-all. We aren't embroiled in Marxist class warfare.
It's not an angelic middle class versus the world. Rather, it's everyone
against everyone else.

The only way to stop this cycle is to limit the powers of the state.
Otherwise, the poor, the middle class, and the rich will continue to use
government force to take from others - in turn making everyone worse off.
4)Roubini: 'Perfect Storm' to Hit Global Economy in 2013
By Forrest Jones

A "perfect storm" of events will collide in 2013 and throw the world back to economic crisis, according to New York University economist Nouriel Roubini.

Roubini, accurately predicted the timing and severity of the recent recession, says investors made overly optimistic U.S. growth expectations for the second half of the year and could get burned.

The economy will grow sluggishly, and those who haven't priced that assumption into their investment models are going to pay.

"I think markets are expecting arobust recovery in the second half of the year. I think the recovery is going to disappoint on the downside," Roubini tells CNBC.

"The second half is going to be slightly better than the first half only because the first half was awful."

Furthermore, corporations will no longer be able to pass the rising costs of inputs onto recession-weary consumers, which could hurt corporate earnings, arguably the only true winner in today's lukewarm recovery.

Roubini says a "perfect storm" of events will collide in 2013 and throw the world into an economic crisis.

The U.S. and Europe haven't dealt with debt problems, which will come to a blow in two years, while red-hot China will cool as well, possibly making a hard landing that will send shockwaves across the globe.

Every economy in the world is seeking to push their problems into the future, according to Roubini .

"We are kicking the can down the road and all of this is going to come to a head in 2013."

Focusing on the U.S. economy, politicians are going about tackling widening deficits in the wrong manner by focusing too much on cutting spending.

"I'm in favor of fiscal austerity but you cannot front load it. You have to commit to a medium-term plan. You have to cut spending and raise taxes," Roubini says.

Spending cuts at the state and federal levels are going to drag on the economy as will the absence of stimulus measures and expansive monetary policies.

'The optimists say we are going to have 3.4 percent to 4 percent growth in the second half of the year. We have not had this growth rate in the recovery. I can see growth being slightly above 2 percent, or at an average of 2.4 percent, but that means growth is still below potential,' Roubini says.

"Unemployment remains high, housing is double dipping and you have the fiscal drag at the state and local governments and at the federal level, the stimulus is going away and QE2 is going away."

He was referring to QE2, the abbreviation for quantitative easing, a $600 billion Federal Reserve bond buyback program designed to fuel economic growth by injecting money into banks that met with skepticism from many market watchers.

Some, however, say market optimism is justified.

Rising energy and fuel prices, which cut into economic activity during the first half of the year, have stabilized.

Plus the fallout from the Japanese earthquake in the U.S. economy is starting to settle, says Mark Zandi, chief economist at Moody's Analytics, according to Yahoo’s Ticker.

"We've seen the bulk of the slowdown…. I think we're going to reaccelerate," Zandi.

"The consensus is overly pessimistic."

Still, job growth will remain lukewarm, Zandi says, predicting payrolls gaining only about 100,000 workers in the next month or two.

They rose by 54,000 in May, when unemployment rose to 9.1 percent from April's 9.0 percent.
5)This was in the Waco Tribune Herald, Waco , TX Nov 18, 2010

Put me in charge . . .

Put me in charge of food stamps. I'd get rid of Lone Star cards; no cash for Ding Dongs or Ho Ho's, just money for 50-pound bags of rice and beans, blocks of cheese and all the powdered milk you can haul away. If you want steak and frozen pizza, then get a job.

Put me in charge of Medicaid. The first thing I'd do is to get women Norplant birth control implants or tubal ligations. Then, we'll test recipients for drugs, alcohol, and nicotine and document all tattoos and piercings. If you want to reproduce or use drugs, alcohol, smoke or get tats and piercings, then get a job.

Put me in charge of government housing. Ever live in a military barracks? You will maintain our property in a clean and good state of repair. Your "home" will be subject to inspections anytime and possessions will be inventoried. If you want a plasma TV or Xbox 360, then get a job and your own place.

In addition, you will either present a check stub from a job each week or you will report to a "government" job. It may be cleaning the roadways of trash, painting and repairing public housing, whatever we find for you. We will sell your 22 inch rims and low profile tires and your blasting stereo and speakers and put that money toward the "common good.."

Before you write that I've violated someone's rights, realize that all of the above is voluntary. If you want our money, accept our rules.. Before you say that this would be "demeaning" and ruin their "self esteem," consider that it wasn't that long ago that taking someone else's money for doing absolutely nothing was demeaning and lowered self esteem.

If we are expected to pay for other people's mistakes we should at least attempt to make them learn from their bad choices. The current system rewards them for continuing to make bad choices.

AND While you are on Gov't subsistence, you no longer can VOTE! Yes that is correct. For you to vote would be a conflict of interest. You will voluntarily remove yourself from voting while you are receiving a Gov't welfare check. If you want to vote, then get a job.

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