Bill Gross on economic matters. A dour forecast. Then John Mauldin interviews a former, now retired, Pimco executive.(See 1 and 1a below.)
---
I am writing this before Christie makes his announcement but rumors are he will not run.
Emotionally he was always my first choice if for no other reason than I wanted to see him crush Obama in a debate.
That said, intellectually speaking, his premature selection would have been doing what we did when we opted for Obama.
Christie is big beef and big beef needs aging. He needs more experience in the public arena. Having said many times he would not run should he run he would lose credibility and he would be seen as another politician "moving his lips."
The nation has paid enough for immaturity and lack of credibility.
A Romney-Cain ticket will serve us fine. The nation simply needs a permanent respite from Obama and the sooner it comes the better we all will be. (See 2 below.)
Meanwhile, the market may not take comfort from the fact that Christie has chosen not to run but that will pass and allow the focus to return to the current field that are running. I believe Romney and Cain will pick up steam.
---
More from Victor Hanson regarding 10 items we have learned from/about Obama. (See 3 below.)
Ironically a friend and fellow memo reader sent me this caption and said it could be an interesting introduction.
I wrote him back saying : "Little did he know I was just beginning to formulate my thinking about where we go from here . So here goes: "I believe, it goes without saying, Obama cannot run on his achievements because even the legislation he got passed sticks in most voter's craw. Thus, Obama will go nastier. However, his divide and conquer message will simply dig a deeper hole for him but that's his problem.
Whomever is nominated should stay above the nastiness without becoming a pin cushion. Respond with humor and subtle invective. Get under Obama's thin skin. Throw back at Obama his own record, statements and failures which are numerous. As we know, Obama loves to talk, to be public. Consequently, he has left a trail of rope with which opponents can hang him - use it. Both Romney and Cain are pretty good at that.
I believe Obama will disintegrate before our very eyes because he is incapable of taking the searing heat of his own failed record. Meanwhile ,off stage will be the stupidity of the F and F and lies which Holder must wrestle with, Solyndra which will prove another albatross. Neither is the public mood likely to lift because Obama has been adding to the public's despair with his divisive strategy.
I suspect by the time the election rolls 'round Krauthammer could well be right and Obama could go down to an overwhelming defeat - a complete and deserved rejection. That was Christie's message today - failed leadership and soon more revelation's of just how corrupt his administration has been all along.
As I and others have pointed out, Obama just ain't that brilliant but then neither is Morgan Freeman. He is simply what Cain said - a slave to knee jerk Democrat Dogma. If Freeman truly believes the crap he is mouthing he ought to go sit with the unwashed youth outside the NYSE! See: PJTV.Com: "Tea Party Activist Gets Help from Morgan Freeman's Neighbors
Morgan Freeman charged the Tea Party with racism. Now, Tea Party activist and small business owner Ali Akbar has invited Morgan Freeman to attend an actual Tea Party. Apparently, some of Mr. Freeman's neighbors are even joining the effort to invite the famous actor to a Tea Party. Hear more as Roger L. Simon reports on the efforts to combat Mr. Freeman's very serious charge."
Then here are three sites worth checking out if you are willing to go the trouble.
In the first you will hear President Obama and his supporters claim the Banking Crisis and resulting poor economy was “Bush’s fault”. This special report ( see link below) shown on TV in 2008 explains how Bush and the Republicans warned of the impending crisis as early as 2001 as leading Democratic legislators advocated supporting Fannie & Freddie, calling the GOP alarmists.
Funny how facts get in the way of rewriting history.
Fox News Special Report on The Banking CrisisBy Jim Vicevich reports the facts in Barney's own words: http://www.youtube.com/watch?v=VgctSIL8Lhs
Then we have Sarandon's new found friends. This is the trash we are graduating from our colleges. http://weaselzippers.us/2011/10/04/video-leftist-occupy-wall-street-protester-berates-jewish-man-you%E2%80%99re-a-bum-jew/
Finally we have something for Morgan Freeman to swallow. It is a video of union goons, prepared by The National Right to Work Committee, showing the union violence loophole in federal law.
The Committee's mailing address is 8001 Braddock Road, Springfield, Virginia 22160. The Committee can be contacted toll-free at 1-800-325-7892.
---
Assad continues to press Israel's button by threatening Tel Aviv. (See 4 below.)
---
Dick
------------------------------------------------------------------------------------------------------------------
1) Pimco’s Gross: Recession Risks More Likely Than Sluggish Growth
By Forrest Jones
Recession may become more likely than an extended period of sluggish growth and high unemployment rates, says Bill Gross, founder of Pimco, the world's largest bond fund.
Since 2009, Gross has said the U.S. and other developed economies were entering a period of what he calls a "new normal," a period marked by lackluster economic performance but still one of growth.
Now it's worse, but not too late to change.
"Sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack," Gross writes in a monthly investment outlook posted on Pimco's website.
"If global policymakers could focus on structural as opposed to cyclical financial solutions, new normal growth as opposed to recession might be possible."
Structural solutions would include adapting labor markets to a more globalized economy and to new technologies while preparing developed economies to handle increased savings as opposed to increased consumption as populations age.
But for now, policymakers must prepare for possible economic contraction, since despite interest-rate cuts and other expansionary measures, demand remains weak, and positive productivity rates don't reflect the whole picture in the labor market.
Recovery hinges upon stronger demand.
"Near zero percent interest rates have allowed profit margins to widen even in the face of anemic end demand," Gross writes.
"As well, 'productivity' has remained high, but only because of layoffs and the production of goods and services with fewer people. While that is a benefit to capital, it obviously comes at a great cost to labor."
The economy has yet to officially slide back into recession, but the debt-ceiling impasse and European debt woes have hurt confidence in consumers, the very motor of U.S. growth.
Some say the recession is imminent.
"What is a bad economy is about to get much worse," says Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, according to MarketWatch.
"We are seeing the weakness spread widely," Achuthan says, adding "there’s a contagion…that’s not going to be snuffed out. The nature of a recession is not a statistic. It's a vicious feedback loop. Sales fall, production falls, income falls and that depresses sales. We're in that, and it's going to run its course."
The problem, other experts say, is that U.S. households will need time to pay off the debts they ran up during the credit and housing boom in the early 2000s.
As they pay down those debts and spend less, the economy will remain stuck in the doldrums for years and markets will soar and tank.
That makes stock picking a tough task, according to analysts at Deutsche Bank.
In other words, forget the buy-and-hold advice that has served as the golden rule for the last several decades.
"The next decade will likely be one where buy and hold will generally be a fairly poor option in developed markets," Deutsche Bank analysts write in a letter to clients, MarketWatch reports.
"There will be large cyclical rallies punctuated by recessions and funding crises."
In the meantime, expect markets to remain volatile, swinging up one day and plunging the next.
Amid such bipolar trading, look for dividend-paying stocks, experts say.
"Stay defensive, be in low beta stocks, and achieve returns through dividends," says Mark Tepper, a financial advisor with Strategic Wealth Partners in Seven Hills, Ohio, according to CNBC.
Low-beta stocks are those that are less volatile but offer less reward on the upside.
"High dividend stocks may be seen as more stable, but they will not grow as quickly in a recovery," says Ben Sullivan of Palisades Hudson Financial Group in Scarsdale, N.Y., CNBC adds.
"[If you] try to defend against one thing right now, you position yourself for future failure.
1a)Greatest Moral Hazard, Says Paul McCulley, Is Austerity Here And Now
Is Paul McCulley feeling liberated by his retirement from Pimco? A mere glance at the accompanying likeness, drawn from a snapshot I took of him at "Kamp Kotok" (Cumberland Advisors' annual Maine economic conference and fishing party) in early August says it all. Not that Paul has ever been one to hide his light — or his views — under a bushel basket. But his new life style clearly agrees with him. What just as clearly does NOT agree with the economic realm's leading disciple of Hyman Minskyare the incessant calls for fiscal austerity filling the airwaves. It's precisely the wrong response to the liquidity trap in which the economy is ensnared. Or, as Paul might, but didn't say, "Moral hazard be damned, the anorexic economy needs to be fed." Keep reading for what Paul DID tell me during an afternoon chat that was even better than the fishing.
How are you adjusting to all of your newfound leisure time in "retirement" — when you're not fishing, that is?
Well, I've actually been doing quite a lot of fishing — but my retirement was no spur of the moment thing, either. It's not like I was unprepared to make adjustments.
I knew you had been planning it for quite a while; had set up your foundation —
There was a lot of strategic planning involved — I say that in a positive way, not in a wonkish one — about what my life would be after PIMCO — not that I wasn't ecstatic there. But I spent a good chunk of my life anticipating that my next stage would be in Washington, as a Fed
governor. I came close, but that didn't happen. Anyway, I'm pursuing a very satisfying life now. I'm still very engaged intellectually. I've been a supporter, via my foundation, of the Global Interdependence Center for a number of years. I am good friends with David Kotok, the Chairman and CIO of Cumberland Advisors, and Bill Dunkelberg, the Chief Economist of The National Federation of Independent Business, who head the GIC. We sat down last year and developed a new wing, if you will, of the GIC called the Global Society of Fellows. I am the first fellow, my foundation has funded the endowment, and we're excited about doing new things there.
I want to hear all about that. But first, let's talk about what's happening in this crazy economy. You started saying we're in a liquidity trap some time ago. Where are we in that process?
I like how you ask the question as, "where are we in this liquidity trap" because that allows me to fine tune the diagnosis. Most of the marketplace, and the policy makers even more so, are still debating the diagnosis: Are we, or are we not, in a liquidity trap? To me, it's absolutely critical that this diagnosis is made correctly. Because if you conclude that you're in a liquidity trap — and I do unambiguously embrace that conclusion — it has profound implications for the right set of policies. It also has profound implications for how markets will discount the policies. What this means is that policy is not a matter of a large menu, encompassing, "Well, we might know we're in a liquidity trap and we also might not be in one, therefore we'll do –
A little of this and a little of that—
Right. There are clear-cut things that you do if you're in a liquidity trap. A liquidity trap is simply defined as when the private sector is in a deleveraging mode, or a de-risking mode, or an increasing savings mode — all of which you can also call deleveraging phenomena — because of enduring negative animal spirits caused by legacy issues associated with bubbles. In that scenario, the animal spirits of the private sector are not going to be revived by a reduction in interest rates because there is no demand. It's not the price of credit driving the deleveraging. It's "I took on too much debt during the bubble. I have negative equity in my home. I don't care what the price of credit is, I already have too much outstanding. I am paying down credit!" That can be entirely rational for an individual household. It can be rational for an individual firm. It can be rational for an individual country. However, in the aggregate, it begets the paradox of thrift. What is rational at the microlevel is irrational for the community, or at the macro level, and I'm amazed that this is not assumed as a given description of what we've got going on right now. The paradox of thrift and the liquidity trap are fellow travelers that are functionally intertwined.
Could it be that people are confused because of all the attention paid to the liquidity the Fed has pumped into the system via quantitative easing — even though most of that only flowed into the most speculative and unproductive pockets in Wall Street?
That could very well be the case. But that diversion of attention is unfortunate because it clouds people's vision of the larger picture, which is pretty straightforward. It's really textbook sort of stuff. My friend, [Nobel Laureate, Princeton Economics professor and New York Times columnist] Paul Krugman, has been writing a great deal about it recently. If the private sector is delevering and derisking and you're caught in the paradox of thrift, the public sector is supposed to go in the exact opposite direction. The exact opposite direction.
You mean that cutting federal spending in a liquidity trap, like we're in, is absolutely counterproductive?
Yes, it's ludicrous and I don't use that word too often. There's a large range of opinions about most issues, and rightfully so. But if you are in a liquidity trap and you are advocating frontloaded austerity—
The Tea Party is really talking about killing the economy —
Again, it's absolutely ludicrous. And if we need an example, we can just look across the pond and see what's going on in Euroland. Putting somebody who is suffering from anorexia on a diet doesn't make a lot of sense to me. But essentially that's what the austerity folks are preaching and that's what we've been grappling with here in the United States.
Of course, the proponents of austerity are worried that this country's debt load is already too much for future generations to handle.
"We have to go on a diet for our long-term well-being. The only question is how severe of a diet?" — That is the question being asked. As opposed to what we should be discussing, which is, "Gosh, we're talking about someone who is underweight here! Why do we need to be on a diet? Maybe we should have morefood!" Incredibly, to suggest such a thing is to be considered a heretic these days. Paul actually gets more wound up about it than I do. I enjoy reading him now with the luxury of doing it whenever I get around to it during the day. I just smile. Though on any given day, I have to admit to a bit of envy, from the standpoint of thinking Paul's piece was really good, but that if I were still in the arena, I could have upped his ante. But his is a really good ante, in just calling out the silliness. That's what worries me the most about the domestic economic scene — and the global economic scene, too — this presumption that seems to be in currency that government is the problem. Therefore, if we can simply reduce the government, the problem will go away. That is not the case at all, when the problem is actually the combination of a liquidity trap and the paradox of thrift. If you take the government out of the picture, you exacerbate the pre-existing conditions. Yet that seems to be where the body politic conceptually has gone.
Are you implying that the Tea Party has been sold a bill of goods?
Yes, they have. I mean, the historical parallel that a lot of us point to would be 1931, when Andrew Mellon said, essentially, liquidate, liquidate, liquidate and assets will be transferred to moral hands, and we'll live a more moral life.
Until we starve to death.
Right — but we will live a moral life.
Mellon was quite the Austrian—
Absolutely, that was in 1931. Then in 1937, when it looked like the economy might have been having "a decent" economic recovery, we decided to slap it in the face with monetary and fiscal policy tightening.
And it only took World War II to lift us out of that extension of the Depression.
Yes. What I mean is that the war in effect forced the application of the government's balance sheet to a deficiency of aggregate demand — and it worked. Some might call that Keynesianism, and I would. But you could describe it more simply by saying that the government's balance sheet — including the central bank's balance sheet (because the Fed was subordinate to the fiscal authority during WWII) — was used to stimulate aggregate demand. And it absolutely worked, although I don't think anyone would applaud going to war to accomplish that. However, it is interesting that after World War II the biggest concern in economic policy circles was that we would fall back into a depression because we were taking away all of the government demand, for the war machine. But what we found out was that this didn't necessarily have to be the case. Partly, the postwar recovery came about because of the infrastructure and the technologies, etc., that had been developed during the war. But another important ingredient after the war was the GI Bill.
The GI Bill and the Marshall Plan basically saved the West.
And they both used the government's balance sheet, I'll point out. My dad went to college on the GI Bill. He was one of the youngest WWII veterans — he's 85 now but he went into the service in '44.
Same as mine.
So he went to college on the GI Bill, bought his first house on the GI Bill — and he didn't consider either one of those to be welfare.
No doubt, he thought he earned it.
Yes, and the payoff to society of the Marshall Plan and the GI Bill were absolutely monstrous. The private sector simply can't internalize the rate of return on that sort of thing. So this presumption that somehow government investment is bad and private sector investment is good—
Hold on, you're using the term "investment" and that's not politically correct. You're supposed to call it, "spending, waste and fraud."
Okay, so my dad's education and the house that I grew up in were, what were those words? "Waste and fraud"?
Yes, according to the conservative meme, it was "wanton government spending" allowing your family to live above your means. The argument that a family has to live within a budget and therefore so does the government, is so specious—
Absolutely. The irony of all this is that I now hear my dad ranting and raving about "big government" at 85 years old— and it was big government that paid for his education and put him into his first home. The real notion that people have is that government is bad — unless it's helping me!
That's clearly endemic and epidemic. My dad did the same, until he passed away.
There obviously are a lot of inconsistencies that we have to deal with in a democratic society. But what really puzzles me is how the concept of public investment is being perceived as an oxymoron. That's just wrong. The notion that if we just would quit subsidizing idleness, that the unemployed would go to work, is another thing that is just ludicrous. I don't know a lot of people who want to be subsidized in idleness. Nor do I know a lot of who want to subsidize it. But there are just no jobs out there. There aren't jobs because we had a bubble in housing. We went from 2 million housing starts to half a million housing starts. The notion that you could monetize equity in your home with a second mortgage is an oxymoron. Nonetheless, we had a housing sector bubble and everything that goes with it. Actually, if housing starts were our only problem, that wouldn't be a big deal. But the house became the magic genie that made up for the fact that we've had stagnant real wages in our country for a long time — and then the genie died.
The housing ATM is definitely busted!
It ain't there anymore. And now, if you happen to have a factory job making boat trailers, you've got a problem. Because the guy who had been buying a boat trailer was able to buy it — and the boat that went on it — only because he took a second on his "appreciating" home. He could have never afforded a boat otherwise. Now most likely the guy at the trailer factory has lost his job because people can't buy boats in that fashion. That's reality. And we're not going to restimulate the housing market so that people can take out seconds to buy boats.
Not when the problem is too much debt.
That's true. It wouldn't make a lot of sense. We need to deleverage the private sector and we can do that without a depression if we are not afraid of levering the government sector. And from my perspective, there's no reason to be afraid because we have a huge output gap and the risk that public investment will overheat our economy is a risk that I'm more than happy to underwrite. Overheating of our economy and too few workers for available jobs would be very high-quality problems. So I'm not worried about overheating from an inflation perspective at all.
What? Despite all the money that's been created? All the debt we're piling on future generations?
Monetary claptrap! Money is as money does, as the famous economist Forrest Gump once sort of said. And it ain't doing nothing. So I don't worry about inflation and I don't worry about interest rates. In fact, the lower the interest rates go, the more I worry — because the easiest way to have super-low interest rates is to have a depression. Interest rates are low, but they're low in many respects for unhealthy reasons. There's absolutely no private-sector demand for credit and so there is no crowding out. I mean, that's the old textbook notion —you aren't supposed to want to add government debt because that supposedly would crowd private sector investment out of the market. But, excuse me, exactly what are we crowding out right now? Where is the evidence that the marketplace for credit is tight and that government borrowing is displacing private sector borrowing? There's zero evidence for it. Yet this "crowding out" dogma keeps being invoked when people claim that we can't have government deficits because they're going to crowd out private sector investment. God, I wish it were so, because that would mean that private sector investment was doing fine, just fine. And that we were going to overheat the labor market. As I said, that would be a very high-quality problem.
What about the argument that our foreign creditors are going to stop lending to us?
That's the notion that if we run deficits, the rest of the world will refuse to fund us. But we have a shortage of global aggregate demand and nobody wants their currency to go up. Therefore, the idea that we are going to suffer a buyer's strike for dollar-dominated debt is preposterous.
China's sure making noises about wanting a new international reserve currency.
Right, with their mercantilist economic model! If you're building a mercantilist economic model, by definition, you are piggy backing on somebody else's demand. Why would you even contemplate having freedom in your currency until you have sufficient homegrown demand to eat the fruits of your own production? You wouldn't. Therefore, I don't worry about that one, either. Essentially, the path that we're on right now is one of intellectual paralysis, born of inertia of dogma. Risk assets, including the equity market, have kind of figured it out. I don't want to get into details necessarily about day-by-day market moves because I don't do that anymore. But during that event at the end of July — that whole debt ceiling theater of the absurd — I was hearing that if we could just reduce uncertainty over the debt ceiling, we would have spontaneous combustion of animal spirits and all would be well with our economy. Excuse me! I didn't see any spontaneous combustion of animal spirits, when the deal was struck.
What I heard were Wall Street's "capitalists" whining for more QE the next day.
You saw the same thing that I did. It was what I dubbed a few years ago, a "reverse Ricardian notion." Ricardo doesn't work in reverse. Bill Gross [PIMCO founder and co-CIO] recently wrote about this in one of his monthlies: Just how many families sit around and say, "We have to cut back on our spending today because the out-years' government budget deficits are going up and our future taxes are going up?" That would be the reverse Ricardian notion in action. Likewise, if Ricardian equivalence operated on the household level, we'd hear people saying, "Well, they're cutting out-year government spending. That means our future tax liability is going to be lower, so we can spend more money today. Let's go out to Ponderosa for dinner." I just don't see that conversation happening, either. I would say average Americans don't know who Ricardo was.
I would bet you're right. And reducing prospective government deficits years in the future is not going to get them back in Walmart (WMT), buying the large economy sizes, either.
I don't think the average American spends a whole lot of time navel-gazing about the budget deficit in 2028. I just don't.
No, but they get worried when they see noxious and nasty gridlock in DC, supposedly over deficits.
Sure, to the extent that they had already-existing negative animal spirits, because they've got negative equity in their homes, the sorry spectacle in Washington probably exacerbated that. It certainly did not relieve their existing negative animal spirits. It turned, "Honey, we can't afford a vacation this year," into, "We can't afford a vacation for the rest of our lifetime!" We can exacerbate a bad situation with the notion that cutting future government debt is going to magically turn around the thinking of someone who has negative equity in his home. That is beyond comprehension to me.
I actually spend a lot of time thinking about these things these days with the benefit of not having fiduciary responsibility for a large, large pile of somebody else's money. As a money manager, I was paid to have informed opinions about how the dealers should be dealing the cards. But I had to manage the money based upon the cards that I was playing with. I had to play the cards adroitly, even if I thought it was a silly game that the dealer was dealing. Whereas now, since the only cards that I'm working with are my own personal cards, I can actually feel — and do feel — liberated to say that the dealer is calling a lousygame!
Because —
I don't think it's a game that is productive. What's more, he's selling the game with hokum — and risk assets, including the equity market, are going to break the code. I can say that now without someone accusing me of talking my book, quite frankly, and that is liberating. It is wonderful to have the fiduciary responsibility for significant amounts of other people's money, but it is a very sobering experience of responsibility. It really, really is. Those who are good at it take that as a sacred responsibility and act accordingly. That's why our business is such a tough business from the standpoint of your physical health, mental health, etc. So not having that immediate fiduciary responsibility is liberating.
A great weight off your shoulders, I would imagine.
Definitely. I spent a great deal of time on macro issues during my money management career because that was the fountain from which money-making ideas flowed. But one of the things I want to take advantage of in my retirement is that I can spend a little more time analyzing the fountain as opposed to figuring out what size bottles to put the water in.
So tell me, is there a way to address the housing problem within this liquidity trap?
I think there is. It's been pretty clear cut for a long time that we need to reset the mortgages that are massively under water. This is sometimes known as "principal forgiveness" and the words are usually uttered with a pejorative lisp.
But wouldn't that be terribly unfair to everyone who has faithfully made their mortgage payments?
Yes, exactly. I can't argue with the proposition that it would be unfair. But the only way that I can respond is that life is not necessarily always fair.
Indeed, sometimes foolishness is rewarded.
It is — and as long as we hold to the existing pretense that a large chunk of our housing stock is worth the debt on it, we're going to be stuck in this liquidity trap. So the reason we're going to be stuck here is this issue of moral hazard. There's a reluctance to do anything because, you know, restriking mortgage terms would be letting people off the hook. There's a moral overtone that we can't deal with, so therefore we will just live with it. Actually, in that camp, you also have those who are genuine liquidationists. But society is not going to stand for the wholesale liquidation of 25 million families in America, so they're not going to follow the Mellon prescription. In other words, if you're not going to recast the mortgages to get rid of the negative equity, and you're not going to force people out of their homes and liquidate them, then the market gets stuck in suspended animation. And that's where we are. I'd like to think that for mortgages held by Fannie and Freddie, this should be pretty easy to deal with because we, the taxpayers, are already taking the credit risk on all of those mortgages. So to recast those, conceptually, is simply to recast the credit risk that we've already assumed. I mean, if I'm the taxpayer and we've lent you $100,000 to buy a house that's now worth $75,000, I'm nonetheless on the hook for the $100,000. Since your house is worth $75,000, this is an existing loss, whether I crystallize it or not. Conceptually, this should not be that big of a deal — but it is a huge deal.
Because the banks, which the taxpayers have already bailed out, have been allowed to extend and pretend —
Exactly. And I understand how the bank bailout — necessary as it was — left a sour taste. But putting families out on the curb doesn't make sense, so we're not going to take the Mellon route out of this liquidity trap; we're not going to have liquidation and more liquidation. But we're also not using the recasting of mortgages route, either. I'm clearly against the Mellon route, but if you're also not going to go the recasting route, then you've gotten yourself into a cul-de-sac, going around and around and around. Capitalism doesn't function in a culde-sac. It just doesn't. Folks don't have positive animal spirits when going around and around in a cul-de-sac. And especially when they're going around and around in a cul-de-sac and their political leaders are telling them they are in a roundabout. That makes me feel like I'm being lied to. "Sir, this is not a roundabout. I don't come out on the other side. This is a cul-de-sac. I go round and round and round." If our leaders could just see the significant difference between a roundabout and a cul-de-sac, we'd be making major intellectual progress in Washington — one of these days.
First, you'll have to find an intellect or two on those environs.
Touché. So I'm pessimistic.
Why am I not shocked? But how pessimistic?
Well, I don't think we're going to have an Armageddon outcome. I don't necessarily think we're even going to have another recession. We're just going to be stuck in a high-unemployment, low-ambition, discouraged economy for a long period of time — and that doesn't work well for capitalism, certainly, because that doesn't imply positive animal spirits. And it doesn't work well for the welfare, broadly defined, of our country, either. Our children are the first generation to face the reality that they will not be able to achieve as much as their parents did, as a generation. Certainly, I know that my grandparents' generation wanted more for their children — and their children could realistically expect that they'd do better. And our parents felt the same way. There was a sense that the future was limitless — and that's not the case anymore, I don't think. Or, to the extent that it still exists, that sense is very bifurcated in this society. The income distribution, the division between the "haves" and the "have nots" in our economy is as great as at any time in my 54 years.
Greater, I'd venture, and I have a few years on you.
Okay, greater. And I'm not a socialist by any stretch of the imagination. Therefore, I don't think that the notion of equal incomes is a valid idea at all. But I do believe that our country was founded and has prospered on the notion of equal opportunity.
Hear, hear!
And to say we have equal opportunity right now is to be speaking with forked tongue. That discourages me as a citizen. Let me be plain: My own circumstances are fine; my son's circumstances are fine. So I'm not talking in the particular. I'm talking as a citizen and it makes me discouraged going forward about the vibrancy of our economy and our society and I think the valuation of assets, including the damn stock market, is going to reflect that. The P/E level of the stock market is tied to a lot of things. But fundamentally it's tied to — and it's interesting that I used the word fundamentally there, because many people would think I am making a statement about behavioral economics here. But I do think that behavioral economics has a lot of fundamental truth to it. And I do think the stock market's multiple is tied to the notion of whether or not we have optimism about the future. If we do have optimism about the future, it can be a self-fulfilling optimism — if we believe we can, we can. That's what I'm not seeing out there on the horizon anymore. Let's go back to the equity market, where this is working in reverse. Defeatism is also self-feeding — and fiscal austerity in a liquidity trap, my favorite hobbyhorse these days, is defeatism on broad display, naked. It's really unfortunate. I'd be ecstatic to be able — a year from now — to look back and say that I underestimated the ability of our political system to transform itself. I would be ecstatic to reach that conclusion.
Join the very large club.
I'm not so sure how large it really is. That is another way of saying that I will be delighted to be proven wrong. You hear that all the time from people on Wall Street who are managing money or making explicit forecasts. They'll say, "This is my forecast and this is how I'm structuring my portfolio, but I would like to be wrong." Nonsense! Money managers have fiduciary responsibility and if you think that you're going to be wrong, then restructure your portfolio right now. Otherwise, you don't have credibility with me. Not if you've got billions of dollars riding on this viewpoint and you say "but I hope I'm going to be wrong"! In contrast, I have credibility in my forecast of enduring grinding pessimism on the part of the American people — because I don't have billions of somebody else's money on the line — and I really want that forecast to be wrong. I don't have a bet, that's my genuine wish as a citizen. But as an analytical person who has spent more than a little bit of time in this arena, I don't have an analytical basis for hoping that. I really don't. This whole sorry notion that we can achieve prosperity via austerity and its accompanying zero appreciation for the paradox of thrift, or the liquidity trap, drives me about as bonkers as it does Paul Krugman. And the fact that we both have beards now is not the reason!
It's not a hippie-dippy notion, as, say, Rush Limbaugh, might proclaim?
No, it has nothing to do with facial hair, and everything to do with appreciation for basic macroeconomic principles that we learned many, many years ago and that still endure. In my case, it has a lot to do with the fact that I've been the mantle carrier for [economic therorist] Hyman Minsky for so long — and Minsky essentially was a disciple of John Maynard Keynes. Krugman, of course, is Keynsian. So we don't start with the notion that government is inherently bad — and when we're in a liquidity trap, we pray that governments choose wisely. Austerity is a very good antidote to an overheated inflationary economy. But applying austerity to an economy trapped in a liquidity trap is probably not just an ineffectual idea but actually a toxic idea.
And this is the antithesis of an overheated, inflationary economy, that's for sure.
The big thing is here is that fiscal austerity can always give you a boost to the economy, if you can offset it with easy monetary policy.
But if you can't —
Then you're up the creek and you're a paddle short. When you look at episodes historically in which austerity has been a path to success, you find that universally, they have involved at least one of two things. One, you can have austerity with monetary policy ease that leads to a positive wealth effect and greater private sector demand in interest-rate-sensitive sectors, particularly housing. And/or — and I stress that because you can have both — you can have austerity that begets a weaker currency and so you can steal somebody else's demand. Only then does fiscal austerity work. But if you don't have the conditions in place to have those two countervailing offsets, then you're doing austerity for the sake of austerity — and you're starving an anorexic.
You're saying fiscal austerity won't work. And the Fed is pushing on a string. But what's the likelihood of Bernanke coming forward and volunteering to get behind some big fiscal effort? The pols love skewering the Fed.
That's true. Ben's in an incredibly difficult situation. I mean, I've been looking at his full range of academic and analytical work, and he is truly one smart dude. You can infer very logically that he can do the diagnosis. The issue is that the political climate is such that he can't do what he would do in the textbook. In fact, if you laid out our current set of conditions in an exam, he would know all the right answers. But he would have to deliver a "B" blue book, because an "A" blue book wouldn't be politically acceptable. It must be incredibly discouraging and frustrating for him to know that "the only way I can continue to be matriculated in this university called Washington, D.C. is to turn in ‘B' blue books." Because Ben Bernanke has never turned in a "B" blue book in his entire lifetime! But he's being asked by the political system to do exactly that right now. One of the things that I think a lot about — and I think others do, too, because you often hear it said — is that Washington only comes to its senses when it has no other choice. Wasn't it Winston Churchill's famous contention that America ultimately can be trusted to make the right decisions — but only after exhausting all other possibilities? Nonetheless, intellectually, I have difficulty with the notion that you need to do something stupid in order to reach enlightenment. It just bothers me, intellectually. There must be a path to enlightenment besides the bitter experience of stupidity —
Perhaps you expect too much of fellow humans—
I hope not. I'd hate to have to see enlightenment as a fruit stupidity. But let's say that doctrine is correct, for the moment, anyway. If that is the truth, then let's see 3,000 points taken off of the Dow, in order to enlighten the stupid. Then Washington would respond. Nothing concentrates minds in Washington like 3,000 points in Dow — on the south side. Now, whether that really matters or doesn't matter is an open question. But it does tend to concentrate minds. We saw that in the first vote on the TARP bill — remember that one? Congress voted it down and then three days later, they passed it. The American public said, "Hell no, don't pass that bailout," but it didn't even take dropping 3,000 Dow points, for them to turnaround and say, "Okay, Harry, vote for it. I can't take this pain in my 401k anymore." So actually maybe I do understand the doctrine that enlightenment comes through stupidity — and maybe we need a little bit of that in this country right now, unfortunately.
Well, if one thing's not in short supply —
Yes, but let's not go there. We should close this interview on a note of optimism. Ask me a question I can give you an optimistic answer to.
That's tough—
You can ask me about fishing, about my plans for the next three months.
Okay, so tell me what you're focusing on for the Global Interdependence Center —
We are focused on creating content for the GIC.
Isn't that kind of circular?
Not really. The GIC has been around since 1976. Larry Klein [Nobel Laureate, founder of Wharton Econometric Forecasting Associates and emeritus professor of economics at the University of Pennsylvania] was one of the first people involved with it, along with one of the major banks in Pennsylvania. The organization, long most active in the Philadelphia area, has been a convener of conferences on global issues, especially free trade and international cooperation, for a long, long time. But we wanted to branch out from being a convener of conferences featuring international authorities to having conferences from time to time that spotlight original economic research produced by the fellows that I am going to ask to join the GIC's Society of Fellows. It doesn't mean that the existing mission of the GIC will not continue. We are going to expand it, by adding new conferences that are content driven, focusing on the original work of the Society of Fellows. The architecture we're working with now is that the fellows will partner with a rising-star academic in the economic or financial field or even some other academic field. What we are driving at is having gray bearded practitioners as fellows partnered up with rising-star young academics to write original papers on relevant topical issues that connect to global interdependence. In other words, the fellows will be not people who have the title as an honorific, they are expected to actually work.
Actually do something? That's novel.
Right. But we're planning on that framework producing a major paper from our fellows and their rising-star partners every two to three years.
That's pretty ambitious.
Yes, which is why I don't really have too much leisure time. We will have an annual event. Our first will be in Paris in March of next year.
Not bad. I like your thinking on where to hold GIC conferences, by the way. Even if my expense account has only stretched to ones in Philly.
Banques de France has graciously invited us. Christian Noyer, its governor, will personally be hosting this event. The first two papers, the inaugural papers kicking off the Society of Fellows output, if you will, will be presented at that time. I'm writing one of them.
I should hope so, as the first fellow.
And the soon-to-be-announced fellow No. 2 is writing the other. We don't anticipate getting beyond maybe 8 to 12 fellows over time because as I said, we expect it to be a job. "Job" is probably not the right word, but I'll use it anyway because being a fellow actually involves work.
You keep insisting it's not just an honorific.
That's because it's not a matter of having your name on the masthead of a piece of bond paper. Not that there's anything wrong with that, particularly. But we actually anticipate it over time becoming an active collaborative effort between people who really want to contribute at the fellow level and to collaborate with up-and-coming members of the academic community, such that being asked to participate will be a very attractive proposition for young academics. In addition to the prestige, there will be a very nice stipend involved for the academic.
That should be an effective hook.
Right, for young academics on the path toward tenure, a stipend matters.
And so does publishing—
They've got to publish. And what they'll be doing with the Society will be the kind of research that will get them noticed. We are effectively creating a new place for them to publish on topical issues along with prominent economic practitioners. I've found so many academics write to impress—
Other academics—
Exactly. So they take wonk and make it wonk squared. We're not going to be either wonk or wonk squared. Well, we may be wonk because I can't deny having some of that in my personality. Certainly, I bring some of that to the game, because I strongly believe if you don't have an analytical framework for analyzing a problem, maybe you should stop until you have one. It's a nasty habit of mine, one that's only been reinforced by my experiences over the last 30 years. I cannot tolerate — I don't have a lot of patience for those who have opinions and can't explain to you the framework from which they drew those conclusions. Whether I agree with you or don't agree with you, I can appreciate your analytical framework. But if you give me conclusions with no intellectual architecture, then I am less-than-satisfied — unless you're inspired by God.
Spoken like a preacher's son.
Well, that is a framework. But we're not walking in those shoes in economics. "It came to me while I was shaving this morning," is not something that constitutes an intellectual framework. "It came from a higher power," is a framework, I concede. But "it came to me while I was shaving this morning," doesn't quite do it for me. Anyway, we want to create an opportunity for young academics to get to have their day in the sun. It's going to be a oneyear assignment working with a fellow to produce the paper. We will have two – probably eventually three papers a year — but the inaugural year will be two. That's where the work for the fellows will come in, co-authoring papers with the academics at that rate. That's why I'm thinking in terms of appointing maybe nine fellows on a three-year rotation. So you can see it will be a significant commitment for our fellows to work with, mentor and learn from the young academic stars we choose to involve. And I stress learning from the academics!
It sounds like it should be a brilliant opportunity for young academics to actually work with real world practitioners in economics and finance.
It should be a two-way street. We want it over time to be recognized in academia and more generally as a great honor to be selected to work with GIC, quite frankly as a fellow, but even more importantly as an academic coauthor. That will only be a one-year assignment for the academics, but it will be a significant one. The payoff will be that they get to publish in a global forum with an established name in the business. That should be pretty attractive in itself, but when you add the notion of an all-expense-paid-trip to Paris and getting to hobnob with household names— Anyway, we want to institutionalize the selection process for both the fellows and the academics. For the fellows, it's easier. We want to be quite rigorous in designing how we pick the academic co-authors, so that we draw from a wide array of universities and colleges. Coauthors could be grad students working on their dissertations or young assistant professors looking for a fast track toward tenure. Obviously, we don't have a fully baked idea of their qualifications yet; we want to cast a wide net. Bill Dunkelberg and his wife, Sharon, are working on creating our co-author selection process now, because they both come from the academic arena. My idea is that we want to find the most promising young academics that nobody knows yet to be our co-authors. In effect, we want to create a prestigious competition over time. It's going to be fun. That said, in the first year, with me doing one paper and our soon-to-be-announced Fellow No. 2 doing the other, we will not be able to cast an enormously wide net for co-authors because we haven't institutionalized this process yet.
--------------------------------------------------------------------------------------------------------------------------
2)The President of Contempt To Barack Obama, America is lovable in proportion to the love it gives him in return.By BRET STEPHENSLike this columnist.
Nixon was tricky. Ford was clumsy. Carter was dour. Reagan was sunny. Bush 41 was prudent. Clinton felt your pain. Bush 43 was stubborn. And Barack Obama is . . .
Early in America's acquaintance with the man who would become the 44th president, the word that typically sprang from media lips to describe him was "cool."
Cool as a matter of fashion sense—"Who does he think he is, George Clooney?" burbled the blogger Wonkette in April 2008. Cool as a matter of political temperament—"Maybe after eight years of George W. Bush stubbornness, on the heels of eight years of Clinton emotiveness, we need to send out for ice," approved USA Today's Ruben Navarrette that October. Cool as a matter of upbringing—Indonesia, apparently, is "where Barack learned to be cool," according to a family friend quoted in a biography of his mother.
The Obama cool made for a reassuring contrast with his campaign's warm-and-fuzzy appeals to hope, change and being the ones we've been waiting for. But as the American writer Minna Antrim observed long ago, "between flattery and admiration there often flows a river of contempt." When it comes to Mr. Obama, boy does it ever.
We caught flashes of the contempt during the campaign. There were those small-town Midwesterners who, as he put it at a San Francisco fund-raiser, "cling to guns or religion or antipathy to people who are not like them." There were those racist Republicans who, as he put it at a Jacksonville fund-raiser, would campaign against him by asking, "Did I mention he's black?" There was the "you're likable enough, Hillary," line during a New Hampshire debate. But these were unscripted digressions and could be written off as such.
Only after Mr. Obama came to office did it start to become clear that contempt would be both a style and method of his governance. Take the "mess we have inherited" line, which became the administration's ring tone for its first two years.
"I have never seen anything like the mess we have inherited," said the late Richard Holbrooke—a man with memories of what Nixon inherited in Vietnam from Johnson—about Afghanistan in February 2009. "We are cleaning up something that is—quite simply—a mess," said the president the following month about Guantanamo. "Let's face it, we inherited a mess," said Valerie Jarrett about the economy in March 2010.
For presidential candidates to rail against incumbents from an opposing party is normal; for a president to rail for years against a predecessor of any party is crass—and something to which neither Reagan nor Lincoln, each of them inheritors of much bigger messes, stooped.
Then again, the contempt Mr. Obama felt for the Bush administration was merely of a piece with the broader ambit of his disdain. Examples? Here's a quick list:
The gratuitous return of the Churchill bust to Britain. The slam of the Boston police officer who arrested Henry Louis Gates. The high-profile rebuke of the members of the Supreme Court at his 2010 State of the Union speech. The diplomatic snubs, petty as well as serious, of Gordon Brown, Benjamin Netanyahu and Nicolas Sarkozy. The verbal assaults on Wall Street "fat cats" who "caused the problem" of "10% unemployment." The never-ending baiting of millionaires and billionaires and jet owners and everyone else who, as Black Entertainment Television's Robert Johnson memorably put it on Sunday, "tried rich and tried poor and like rich better."
Now we come to the last few days, in which Mr. Obama first admonished the Congressional Black Caucus to "stop complainin', stop grumblin', stop cryin'," and later told a Florida TV station that America was losing its competitive edge because it "had gotten a little soft." The first comment earned a rebuke from none other than Rep. Maxine Waters, while the second elicited instant comparisons to Jimmy Carter's "malaise" speech. They tell us something about the president's political IQ. They tell us more about his world view.
What is it that Mr. Obama doesn't like about the United States—a country that sent him hurtling like an American Idol contestant from the obscurity of an Illinois Senate seat to the presidency in a mere four years?
I suspect it's the same thing that so many run-of-the-mill liberals dislike: Americans typically believe that happiness is an individual pursuit; we bridle at other people setting limits on what's "enough"; we enjoy wealth and want to keep as much of it as we can; we don't like trading in our own freedom for someone else's idea of virtue, much less a fabricated concept of the collective good.
When a good history of anti-Americanism is someday written, it will note that it's mainly a story of disenchantment—of the obdurate and sometimes vulgar reality of the country falling short of the lover's ideal. Listening to Mr. Obama, especially now as the country turns against him, one senses in him a similar disenchantment: America is lovable exactly in proportion to the love it gives him in return.
Hence his increasingly ill-concealed expressions of contempt. Hence the increasingly widespread counter-contempt.
-------------------------------------------------------------------------------------------------------------------------
3)Ten Lessons from Obama
By Victor Davis Hanson
In less than three years Barack Obama has reversed all expectations.
The election of Barack Obama brought all sorts of contradictions. A man with about the least prior executive experience in presidential history was suddenly acclaimed a “god” and the smartest man ever to assume the office.
Most important, a number of critical changes were heralded that would help address the supposed disasters of the Bush administration: a new “reset” foreign policy, a Keynesian economic miracle, a commitment to “millions of green jobs,” and a promise to end politics as usual, specifically the hardball divisive rancor of the past. Obamism, in short, was not a mere change in administration, but a religion.
In less than three years, however, the Obama administration has established a far different legacy from the one it promised, and the lessons of 2009–2011 will be with us for a long time:
1. The type and nature of a presidential candidate’s prior experience will be examined as never before. Obama’s two years in the U.S. Senate are now universally seen as insufficient preparation. The result will be more emphasis on executive experience and far longer tenure. Fairly or not, the Obama legacy hangs over the possible presidential aspirations of everyone from a Chris Christie or Marco Rubio to a Sarah Palin or Herman Cain.
2. For the time being, the media have lost any credibility as nonpartisan and disinterested investigators of presidential candidates. That many journalists now admit they were “saps” or accept that Obama was unqualified only confirms prior culpability. After 2008, can anyone possibly take the media seriously if they complain that a candidate will not release his undergraduate transcripts, or that he once bragged that he attended every service (“each week”) of a racist pastor, or that he once liked “blow”? After Obama, an entire array of old gotchas are off the table.
3. Ivy League certification and prestigious awards will mean far less. The architects of the massive but ineffective borrowing — Geithner, Goolsbee, Orszag, Romer, Summers — were either esteemed academics or high-ranking bureaucrats. We are no longer impressed that Barack Obama and Eric Holder have Ivy League law degrees, or that President Obama and Steven Chu hold Nobel Prizes — not after Solyndra, Fast and Furious, and the present stagnation. Americans assume that Herman Cain learned far more of value turning around Godfather’s Pizza than Barack Obama learned as editor of Harvard Law Review. Texas A&M is about as relevant to Rick Perry’s creating millions of jobs as Harvard is to Barack Obama’s destroying millions.
4. Again, fairly or not, “green” no longer denotes a noble effort to conserve resources and achieve energy independence. A Van Jones, a Solyndra, yet another promise to emulate Spain’s windmills and solar plants, one more call to borrow hundreds of billions for high-speed rail, and more Al Gore profit-driven escapades and fiery outbursts finally add up. Note that the president simply cannot any longer repeat the mantra, “Millions of new green jobs.” You see, there are too many video clips of such boasts associated with failed ventures. The age of Obama has turned “green” into a refuge for scoundrels. The next era will be marked by unprecedented national wealth from vast new gas and oil exploration, not from thousands of acres of subsidized solar panels and windmills. How ironic that Barack Obama will eventually do more for the gas and oil industry than any other president in recent memory.
5. We are reminded that populism and the high life don’t mix. Barack Obama’s efforts to play Huey Long were sidetracked by First Family detours to Martha’s Vineyard, Costa del Sol, and Vail. One cannot both beg from and demonize Wall Street, and still play community organizer. Obama cemented the notion that liberal Democrats are the party of really big money and of very little money — and of few in between. The next populist will have to cut back on golf, stay at Camp David, and avoid the playgrounds of the rich and famous.
6. Keynesian economics are about over for a generation. The antidote to the Bush $4 trillion debt was not another $4 trillion in less than half the time. With near-zero interest rates, record numbers of Americans on food stamps and unemployment, an annual federal budget $2 trillion higher than just ten years ago, and nearly $16 trillion in aggregate debt — and all this along with a moribund economy — few will any longer believe that printing more money and growing government work. More of what has not worked won’t magically start to work.
7. Barack Obama has essentially ended the smears against the Bush-Cheney anti-terrorism protocols. Having himself smeared the prior administration relentlessly, he became de facto its greatest defender. One cannot insist past practices were immoral or illegal and then embrace or expand them all. “War criminal” will recede into the insanity of yesteryear, given that no logician could figure out how waterboarding three self-confessed mass murderers was a crime, while vaporizing two thousand suspected terrorists — including American citizens — by Hellfire missiles is not. Apparently Guantanamo is no longer a gulag, rendition no longer a crime, preventive detention no longer a shredding of the Constitution.
8. Politics simply don’t change. Obama first embraced and then rejected filibusters —the only constant was his relative political position. “Gridlock” was good in 2005, bad in 2011. The suggestion that we should cancel congressional elections for a few years comes from a Democratic governor, not a cigar-chewing, epauletted ex-general. Exasperated liberals call for circumventing the “messy” democratic process, the bothersome Electoral College, the unfairness of senatorial elections — apparently not out of long-expressed philosophical worries, but out of angst that the wonderful system that elected Obama and gave him huge congressional majorities suddenly became unworkable, say, around November 2010.
9. Fight the Smears, JournoList, andAttackWatch.com are not the work of a uniter. “Punish our enemies” and “get in their faces” don’t go well with Greek columns and rainbowed backgrounds. Again, whether rightly or wrongly, the next time a political candidate promises to change the political landscape in Washington, we will have more, not less, suspicion of his motives — and expect website hit lists to follow.
10. The antidote to Bush’s “bring ’em on” bravado was not asking the Arab League to approve no-fly zones over Libya while bombing targets “from behind.” The world of 2008 is pretty much the world of 2011 — with the caveat that an often unliked U.S. is still as unliked but now less respected and feared. Ask the Iranians, Syrians, Russians, and Chinese — or for that matter the Japanese, Israelis, South Koreans, Taiwanese, and Eastern Europeans.
A sadder but wiser electorate in 2012 simply won’t believe that any candidate — Democrat or Republican — can cool the planet or stop the seas from rising. Barack Obama taught us that — and a lot more besides.
NRO contributor Victor Davis Hanson is a senior fellow at the Hoover Institution and the author most recently of the just-released The End of Sparta, a novel about ancient freedom.
------------------------------------------------------------------------------------------------------------------------
4)Turkey to hold military exercise on Syrian border. Assad threatens to destroy Tel Aviv if attacked
War tensions between Turkey, NATO and Syria shot up again Tuesday, Oct. 4, with the announcement from Ankara that Turkey embarks Wednesday on a 10-day "mobilization" exercise in the southern province of Hatay along the Syrian border, through which arms are being funneled to Syrian protesters. Turkish Prime Minister Tayyip Erdogan is expected on the same day to visit the 7,000 Syrians who have taken refuge in Hatay from President Bashar Assad's troops.
For three months Syrian President Bashar Assad has staved off a military attack by Turkey or NATO for halting the exceptional brutality of his crackdown on protest by explicitly holding Greater Tel Aviv's 1.2 million inhabitants under threat of missile retaliation.
Military sources note the Turkish exercise was announced the day after US Defense Secretary Leon Panetta held talks with Israeli leaders, during which he emphasized the importance of restoring ties with Turkey for deterring Syrian, Iranian and Hizballah menaces.
And a week ago, on Sept. 27, NATO's European commander Gen. James Staviris visited Ankara. Both visits were apparently part of the build-up for the Turkish exercise, which will involve the 39th mechanized infantry brigade and 730 reserve soldiers. Its target: the mobilization of reserves and their rapid transfer to the Syrian border.
The drill may well revive speculation in Damascus that Turkey is preparing to go ahead with a plan to carve out a buffer enclave inside Syria to protect civilians and provide rebels with shelter and logistical and medical assistance. The Assad regime would no doubt regard this act as a direct attack on sovereign Syrian territory by a NATO member.
The announcement from Ankara added that Turkey would soon announce a roadmap for further sanctions to be imposed against Syria in addition to those already underway.
According to Western intelligence sources, Syria, Iran and Hizballah have charted a coordinated military operation for flattening metropolitan Tel Aviv, Israel's financial, industrial and cultural center, with thousands of missiles launched simultaneously by all three - plus the Palestinian Hamas and Jihad Islami firing from the Gaza Strip.
Israeli officials have never publicly admitted that this threat is on record, but Western intelligence sources have reported Israel reacted with a warning of its own: If a single Syrian missile explodes in Tel Aviv, Damascus will be first to pay the price, and if the missile offensive persists, one Syrian town after another will be destroyed.
The Israeli message to Assad cited the warnings Defense Minister Ehud Barak and other government members addressed in the past year to Hizballah, that if Tel Aviv comes under attack from its missiles, not only Beirut but all of Lebanon would go up in flames. Assad was given to understand that Syria would go the same way as Lebanon if it engaged in missile belligerence against Israel.
Bashar Assad's threat to Israel was very much on Leon Panetta's mind when he told reporters on the plane carrying him to Israel Monday for his first visit as defense secretary: "Real security can only be achieved by both a strong diplomatic effort as well as a strong effort to project your military strength," he said.
Western military sources say that he was not only referring to Syria, Egypt and the Palestinians by this and other statements, but pointing at the widening rift between Israel and Turkey.
The US official believes this rift plays into the hands of the Syrian ruler and grants him the freedom to issue dire threats against Israel to hold Turkey and NATO back from using military force against his vicious regime. For Panetta, this is a prime example of Israel failing to project its military strength for diplomatic gains that would be beneficial to the West in the uprisings sweeping the Arab world. The loss of Turkish-Israeli military cooperation, albeit not initiated by Israel, ties the hands of the US and NATO against striking Syria. Those sources report that Panetta does not absolve Ankara of responsibility for this situation.
Syria first threatened Israel with retaliation on Aug. 9 when Turkish Foreign Minister Ahmet Davutoglu spent six hours with Bashar Assad in an effort on behalf of his own government and NATO to persuade him to stop the carnage his troops were perpetrating against his people.
Davutoglu warned Assad that if he did not desist from his actions he would share the fate of Muammar Qaddafi at the hands of NATO and Turkish forces.
The Syrian ruler's response was harsh: From the moment a shot is fired against Syria, "it will take only six hours for Syria to devastate Tel Aviv and ignite the entire Middle East," he said.
Assad was spelling out the warning issued on May 10 by a close crony, international business tycoon Rami Makhlouf, who said then: "If there is no stability here, there’s no way there will be stability in Israel. No way, and nobody can guarantee what will happen after, God forbid, anything happens to this regime.”
The barrage of Syrian threats was reinforced from Tehran Monday, Sept, 26 by Ayatollah Jafar Shoujouni, a close associate of the all-powerful Supreme Leader Ayatollah Ali Khamenei.
Shoujouni recalled that when he visited Hizballah leader Hassan Nasrallah in Beirut last May, he assured him: "If Israelis come near Tehran, we will destroy Tel Aviv."
The Iranian cleric and the Syrian businessman spoke in the same vein in the same month. This was no coincidence. Their threat has since been repeated with greater emphasis to provide the Assad regime with insurance for its survival against foreign military intervention while continuing its pitiless onslaught on dissent.
Syria and Turkey are increasingly at odds, military sources report. This week, Damascus accused the Turks of smuggling automatic and anti-tank weapons to the protesters, claiming to have uncovered a consignment in the protest center of Homs.
Ankara has initiated the process of freezing Assad family members' bank accounts and assets whose worth is estimated at half a billion dollars.
Turkey is also weighing unilateral sanctions after the UN Security Council last week imposed an arms embargo on Syria although Russia succeeded in blocking a tough council resolution. Moscow was punishing the West for its military intervention in Libya and flatly opposed to giving NATO another such opportunity in Syria.
Damascus repeatedly warned Turkey in the past week of reprisals if its inspectors dare open freights on transit to Syria by ship, plane or land vehicle to search for embargoed arms.
At a time of dangerously spiralling tensions, there is no knowing when the Assad regime will determine that the first Turkish shot was fired and how it will retaliate.
-------------------------------------------------------------------------------------------------------------------------
No comments:
Post a Comment