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My oldest daughter and her husband's new project:
Dear Friends:
For many years now, when Debra and I have traveled, we have kicked around the idea of teaming up creatively. Sometimes I would take a picture of something that Debra would try to express in words. It was always a "one day" kind of thought. Well,one day has finally arrived.
For the last few months, Debra has been posting on her website a quote she has written inspired by one of my photos. We have had a lot of fun choosing the photos and then refining the accompanying message. Of course, Debra is doing most, but not all, of the writing.
We are calling our venture "His Lens/My Pen" and have printed 5X7 inch greeting cards of each image. Inside is blank so that you can use them for whatever occasion you think best.
The cards are $3.50 each which includes mailing them to you. If you decide to purchase, just send a check to me at my home at 1150 Westwood Drive, Birmingham MI 48009.
You can see what we have created by going to hislensmypen.com.. Look for a new entry the last Monday of every month.
If I have not done so already, wishing you a Healthy, Happy and Prosperous New Year and a year of contentment.
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Alan Simpson on Obama. (See 2 below.)
Let's hear it for government waste and this just touches the surface. (See 2a below.)
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George Friedman reposts the following analysis which originally ran in August 2005, in light of the recent death of Ariel Sharon.
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Dick
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1)Forecast 2014: The Killer D’s
By John Mauldin
Some Thoughts from Dubai
It seems I'm in a constant dialogue about the markets and the economy everywhere I go. Comes with the territory. Everyone wants to have some idea of what the future holds and how they can shape their own personal version of the future within the Big Picture. This weekly letter is a large part of that dialogue, and it's one that I get to share directly with you. Last week we started a conversation looking at what I think is the most positive and dynamic aspect of our collective future: The Human Transformation Revolution. By that term I mean the age of accelerating change in all manner of technologies and services that is unfolding before us. It is truly exhilarating to contemplate. Combine that revolution with the growing demand for a middle-class lifestyle in the emerging world, and you get a powerful engine for growth. In a simpler world we could just focus on those positives and ignore the fumbling of governments and central banks. Alas, the world is too co mplex for that.
We'll continue our three-part 2014 forecast series this week by looking at the significant economic macrotrends that have to be understood, as always, as the context for any short-term forecast. These are the forces that are going to inexorably shift and shape our portfolios and businesses. Each of the nine macrotrends I'll mention deserves its own book (and I've written books about two of them and numerous letters on most of them), but we'll pause to gaze briefly at each as we scan the horizon.
The Killer D's
The first five of our nine macro-forces can be called the Killer D's: Demographics, Deficit, Debt, Deleveraging, and Deflation. And while I will talk about them separately, I am really talking threads that are part of a tapestry. At times it will be difficult to say where one thread ends and the others begin.
One of the most basic human drives is the desire to live longer. And there is a school of economics that points out that increased human lifespans is one of the most basic and positive outcomes of economic growth. I occasionally get into an intense conversation in which someone decries the costs of the older generation refusing to shuffle off this mortal coil. Typically, this discussion ensues after I have commented that we are all going to live much longer lives than we once expected due to the biotechnological revolution. Their protests sometimes make me smile and suggest that if they are really worried about the situation, they can volunteer to die early. So far I haven't had any takers.
Most people would agree that growth of the economy is good. It is the driver of our financial returns. But older people spend less money and produce far less than younger, more active generations do. Until recently this dynamic has not been a problem, because there were far more young people in the world than there were old. But the balance has been shifting for the last few decades, especially in Japan and Europe.
An aging population is almost by definition deflationary. We can see the results in Japan. An aging, conservative population spends less. An interesting story in the European Wall Street Journal this week discusses the significant amount of cash that aging Japanese horde. In Japan there is almost three times as much cash in circulation, per person, as there is in the US. Though Japan is a country where you can buy a soft drink by swiping your cell phone over a vending machine data pad, the amount of cash in circulation is rising every year, and there are actually proposals to tax cash so as to force it back into circulation.
A skeptic might note that 38% of Japanese transactions are in cash and as such might be difficult to tax. But I'm sure that Japanese businesses report all of their cash income and pay their full share of taxes, unlike their American and European counterparts.
Sidebar: It is sometimes difficult for those of us in the West to understand Japanese culture. This was made glaringly obvious to me recently when I watched the movie47 Ronin. In the West we may think of Sparta or the Alamo when we think of legends involving heroic sacrifice. The Japanese think of the 47 Ronin. FromWikipedia:
The revenge of the Forty-seven Ronin (ååä¸å£« Shi-jÅ«-shichi-shi, forty-seven samurai) took place in Japan at the start of the 18th century. One noted Japanese scholar described the tale, the most famous example of the samurai code of honor, bushidÅ, as the country's "national legend."
The story tells of a group of samurai who were left leaderless (becoming ronin) after their daimyo (feudal lord) Asano Naganori was compelled to commit seppuku (ritual suicide) for assaulting a court official named Kira Yoshinaka, whose title was KÅzuke no suke. The ronin avenged their master's honor by killing Kira, after waiting and planning for almost two years. In turn, the roninwere themselves obliged to commit seppuku for committing the crime of murder. With much embellishment, this true story was popularized in Japanese culture as emblematic of the loyalty, sacrifice, persistence, and honor that people should preserve in their daily lives. The popularity of the tale grew during the Meiji era of Japanese history, in which Japan underwent rapid modernization, and t he legend became subsumed within discourses of national heritage and identity.
The point of my sidebar (aside from talking about cool guys with swords) is that, while Japan may be tottering, the strong social fabric of the country, woven from qualities like loyalty, sacrifice, and diligence, should keep us from being too quick to write Japan off.
"Old Europe" is not far behind Japan when it comes to demographic challenges, and the United States sees its population growing only because of immigration. Russia's population figures do not bode well for a country that wants to view itself as a superpower. Even Iran is no longer producing children at replacement rates. At 1.2 children per woman, Korea's birth rates are even lower than Japan's. Indeed, they are the lowest in the World Bank database.
A basic equation says that growth of GDP is equal to the rate of productivity growth times the rate of population growth. When you break it down, it is really the working-age population that matters. If one part of the equation, the size of the working-age population, is flat or falling, productivity must rise even faster to offset it. Frankly, developed nations are simply not seeing the rise in productivity that is needed.
As a practical matter, when you are evaluating a business as a potential investment, you need to understand whether its success is tied to the growth rate of the economy and the population it serves.
In our book Endgame Jonathan Tepper and I went to great lengths to describe the coming crisis in sovereign debt, especially in Europe – which shortly began to play itself out. In the most simple terms, there can come a point when a sovereign government runs up against its ability to borrow money at reasonable rates. That point is different for every country. When a country reaches the Bang! moment, the market simply starts demanding higher rates, which sooner or later become unsustainable. Right up until the fateful moment, everyone says there is no problem and that the government in question will be able to control the situation.
If you or I have a debt issue, the solution is very simple: balance our family budget. But it is manifestly more difficult, politically and otherwise, for a major developed country to balance its budget than it is for your average household to do so. There are no easy answers. Cutting spending is a short-term drag on the economy and is unpopular with those who lose their government funding. Raising taxes is both a short-term and a long-term drag on the economy.
The best way to get out of debt is to simply hold spending nominally flat and eventually grow your way out of the deficit, as the United States did in the 1990s. Who knew that 15 years later we would be nostalgic for Clinton and Gingrich? But governments almost never take that course, and eventually there is a crisis. As we will see in a moment, Japan elected to deal with its deficit and debt issues by monetizing the debt. Meanwhile, in Europe, the ECB had to step in to save Italy and Spain; Greece, Ireland, and Portugal were forced into serious austerities; and Cyprus was just plain kicked over the side of the boat.
There is currently a lull in the level of concern about government debt, but given that most developed countries have not yet gotten their houses in order, this is a temporary condition. Debt will rear its ugly head again in the not-too-distant future. This year? Next year? 2016? Always we pray the prayer of St. Augustine: "Lord, make me chaste, but not today."
Deleveraging and Deflation – They Are Just No Fun
At some point, when you have accumulated too much debt, you just have to deal with it. My associate Worth Wray forwarded the following chart to me today. There is no better explanation as to why the current recovery is the weakest in recent history. Deleveraging is a b*tch. It is absolutely no fun. Looking at this chart, I find it rather remarkable and somewhat encouraging that the US has done as well as it has the past few years.
As I've outlined at length in other letters and in Code Red, central banks can print far more money than any of us can imagine during periods of deleveraging and deflation. For the record, I said the same thing back in 2010 when certain hysterical types were predicting hyperinflation and the end of the dollar due to the quantitative easing of the Federal Reserve. I remain actively opposed to the current level of quantitative easing, not because I'm worried about hyperinflation but for other reasons I have discussed in past letters. As long as the velocity of money keeps falling, central banks will be able to print more money than we would have thought possible in the '70s or '80s. And seemingly they can get away with it – in the short term. Of course, payback is a b*tch. When the velocity of money begins to rise again for whatever unknown reason, central banks had better have their ducks in a row!
Deflationary conditions make debt worse. If you borrow money at a fixed rate, a little inflation – or even a lot of inflation – helps a great deal. To think that even conservative Republican leaders don't get that is naïve. Certainly it is understood in Japan, which is why the success of Abenomics is dependent upon producing inflation. More on that below.
For governments, there is more than one way to deleverage. You can default on your payments, like Greece. We're going to see a lot more of that in the next five years – count on it. Or you can get your central bank to monetize the debt, as Japan is doing. Or get the central bank to convert your debt into 40-year bonds, as Ireland did. (Brilliant move, by the way, for tiny Ireland – you have to stand back and applaud the audacity. I wonder how much good Irish whiskey it took to get the ECB to agree to that deal?)
Inflation is falling almost everywhere today, even as central banks are as accommodative as they have ever been. Deflation is the default condition in a deleveraging world. It can even create an economic singularity.
Singularity was originally just a mathematical term for a point at which an equation has no solution. Then, in astrophysics, it was proven that a large-enough collapsing star would become a black hole so dense that its own gravity would cause a singularity in the fabric of space-time, a point where many standard physics equations suddenly have no solution.
Beyond the "event horizon" of the black hole, the physics models no longer work. In terms of general relativity, an event horizon is a boundary in space-time beyond which events cannot affect an outside observer. In a black hole it is "the point of no return," i.e., the point at which the gravitational force becomes so large that nothing can escape.
Deflation and collapsing debt can create their own sort of black hole, an economic singularity. At that point, the economic models that we have grown comfortable with no longer work. As we approach a potential event horizon in a deflationary/deleveraging world, it can be a meaningless (and extremely frustrating) exercise to try to picture a future that is a simple extension of past economic reality. Any short-term forecast (less than one or two years) has to bear that fact in mind.
We need to understand that there has been a complete bureaucratic and academic capture of central banks. They are all run by neo-Keynesians. (Yes, I know there are some central bankers who disavow the prevailing paradigm, but they don't have the votes.) The default response of any present-day central banker faced with a crisis will be massive liquidity injections. We can argue with the tide, but we need to recognize that it is coming in.
When there is a recession and interest rates are at or close to the zero bound, there will be massive quantitative easing and other, even more creative injections of liquidity into the system. That is a reality we have learned to count on and to factor into our projections of future economic possibilities. But as to what set of econometric equations we should employ in coming up with accurate, dependable projections, no one, least of all central bankers, has a clue. We are in unknown territory, on an economic Star Trek, with Captain Bernanke about to turn the helm over to Captain Yellen, going where no reserve-currency-printing central bank has gone before. This is not Argentina or Zimbabwe we are talking about. The Federal Reserve is setting its course based on economic theories created by people whose models are demonstrably terrible.
Will we have an outright recession in the US this year? I currently think that is unlikely unless there is some kind of external shock. But short-term interest rates will stay artificially low due to financial repression by the Fed, and there will be an increased risk of further monetary creativity from a Yellen-led Fed going forward. Stay tuned.
We have been waiting for over a decade for a hard landing in China. When you go to Asia it is the number one topic you are questioned about. How long can the Chinese continue to forestall the sort of correction that has needed to take place in every other developed economy in the world?
China is undergoing its most serious policy changes of the last 30 years. The new leadership appears to be taking an aggressive stance toward correcting the problems of excess leverage and bank debt that are obvious to anyone who pays attention. The correction will not be easy, and it will be quite costly, but they may in fact have the ability to skate through without the major depression that typically accompanies a massive bank restructuring. What the unintended consequences are remains to be seen.
China must be watched. It is a major world power in the midst of restructuring. It is in the process of growing old before it grows rich, something no other country of its size and importance has ever done. At the same time that it is dealing with its banking issues, it is trying to shift to become a consumer economy rather than a cheap-labor economy. Like Singapore, it wants to move up the intellectual-capital chain. Singapore has made important transitions multiple times and is a model to be admired. But China is some 250 times larger than Singapore. And its government institutions, especially at the lower levels, are corrupt and inefficient. There is an apparent recognition by the current new leadership that this is a situation that must change, too.
I have written about Japan on numerous occasions. My classic line is that Japan is a bug in search of a windshield. We devoted chapters to Japan in Code Red. Upon reflection, I think that referring to Japan as a bug might give the wrong impression. We all know what happens to a bug upon impact. It might be more appropriate to think of Japan as a moose. Ask a Canadian what happens when you hit a moose late at night at high speed. While the collision is not good for the moose, the car and driver are not unaffected.
Japan has opted to monetize its debt. Given their situation, I would do the same. They have no good choices, only potentially disastrous ones. From their standpoint, monetization makes the most sense. The yen is going to drop inexorably in value over the coming decade, unless they decide to choose disaster B (massive deflation or default), which seems unlikely at the moment.
For all intents and purposes, Japan is firing the first missile in what will be a major currency war over the next five to seven years. We have seen such a situation only twice in the past century, and neither of those contests ended well for any of the participants.
For the record, and for the sake of full disclosure, shorting the government of Japan is my biggest single investment. That position is going to get much bigger in the next few months, as I am finally able to hedge my new mortgage. I fully intend to let Abe-san and Kuroda-san to pay for half of my new apartment.
I will have a very personal vested interest in paying attention to the political situation in Japan. I will keep you updated if I change my mind!
The world has never experienced a major nation like Japan monetizing a significant portion of its debt. Weimar Germany, by contrast, was a defeated nation, did not print a reserve currency, and was not accorded the status that Japan has today. Further, Japanese industry brings its A game to the international competitive markets. Biggest head-to-head competitor with Japan? It's not Korea but Germany. And neither country will be happy when the yen is 150 to the dollar. It will be interesting to see the reactions around the world when it is 200 to the dollar. Stay tuned.
And then there is Europe. Again, I have written extensively about the debacle (another D) that is Europe. It is going to cost multiple trillions of euros for them to deal with their situation. Essentially, they either have to break up or mutualize their debts. They have to decide whether there will be a fiscal union as well as a monetary union. While I think they will make the hard decision and elect to remain as a monetary union, that course is not a given. The pain that will come from the required austerity in France and other countries is not to be sneezed at. The various nations of Europe will have to give up a measure of independence in their budgetary process in order to get Germany to agree to the mutualization of debt and unleash the hounds of the ECB.
The greatest impediment to getting such an agreement may not be in Germany; it may be in France. If Marine Le Pen is the answer, then the French are asking the wrong question. Her policies may have some appeal for the French, but they are ultimately disastrous for the European Union. National Socialism is not an answer that has worked well in Europe.
The following cool note on the Germany and its relations with France and the rest of the Eurozone comes from Quartz.com:
Germany is justifiably proud of its many world-class products, and bristles when others criticize its export-driven economic model—as US Treasury secretary Jack Lew did yesterday. Critics like Lew contend that the country needs to focus its attention on boosting domestic spending rather than fine-tuning its export machine, in order to benefit its trading partners, particularly less well-off members of the euro zone.
On the very day of Lew's rebuke, new data on German foreign trade provided grist for his critique: November exports rose for the fourth consecutive month and imports unexpectedly plunged. But dig into the details and the picture is much more complicated. In the first 11 months of 2013, Germany's trade surplus with the rest of the euro zone was only €1 billion ($1.4 billion); its surplus with non-EU counties was more than €140 billion over the same period.
If German exporters can generate profits by selling goods far from Europe, they may have less incentive to compete with local European suppliers on their home turf. They also gain the financial firepower to spend more at home in Germany, including on imports produced by its hard-up euro zone neighbors.
Diving into country-by-country trade details complicates the picture even more. It also becomes clear why you hear little criticism of German exports in Amsterdam, while Paris seems positively obsessed. Germany ran a trade deficit of more than €15 billion with the Netherlands in the first 10 months of 2013 (the latest data available), while Germany's trade surplus with France was worth more than €30 billion.
The key goods that Germany trades with other euro zone members are varied, as the chart below shows. It is easy to say that Germany should export less and invest more, but on the ground the policies dealing with exports of aircraft to France will have little impact on vaccines sold to the Netherlands, just as efforts to promote more imports of olive oil from Italy are quite distinct from the trade in cars made in Spain. These and countless other examples make sweeping calls for Germany to "rebalance" its economy more difficult to achieve in practice than on paper.
There are no easy solutions for Europe. France has to balance its budget or lose access to the markets, just as Italy and Spain did. This will be the moment of truth for the European Union. I think it probably happens in 2015 or possibly in late 2014. (Although, for the record, I'm almost always early with my predictions. At least I usually get the direction right, and in this case I think the direction is clearly that France is going to have to make difficult decisions in the next few quarters. This is not a country that has made difficult decisions easily in the past, nor is it in a mood to do so today.
If you want to see an intriguing and rather blunt article that is provoking furious reaction in France, then I invite you to read the fascinating piece by Janine di Giovanni in Newsweek,entitled the "The Fall of France." This was followed almost immediately by an article in the same magazine entitled "Fall of France II: How a Cockerel Nation Became an Ostrich," which elicited even further outrage in the French press. Given that Ms. Giovanni lives in Paris, I wonder whether she will be the recipient of many invitations to lunch in the coming months. Give her a call if you are in Paris; she may need friends.
These articles will give you background to understand how fully difficult it is going to be to turn the French ship around. The majority of the French simply do not want to change the direction in which they are sailing, although they might prefer another captain with another banner. The bond markets have subsidized their wishes a for very long time. I think we are fast approaching the Endgame for Europe.
This has been a very brief inventory of the headwinds for economic growth in the next few years. It counterbalances the rather joyous view of the future that I outlined last week. I get the incongruity. How could one be so excited about the future on the one hand and so dismal on the other? That is the main thought conundrum of my life. That and trying to figure out my kids. I've completely given up trying to understand women.
We will turn to the third part of the 2014 forecast next week.
I finish this letter in my hotel room at the Park Hyatt in Dubai. I visited Abu Dhabi yesterday and drove home in the evening to the towering vision of Dubai. Everyone has always told me you have to see it to understand it, but I really didn't grasp what they meant until I got here. When you try to comprehend the enormity of what they have built in the last 20 – and really in the last 10 – years, it is overwhelming.
I get Singapore. Singapore is just as impressive, but it is at the center of one of the most important shipping lanes in the world. I can understand the economics and grasp what Lee Kuan Yew did to wrest his nation from the throes of poverty and turn it into the dynamo that it is today. He is one of the most intriguing personalities of the 20th century.
But I am simply staggered by Dubai and Abu Dhabi. This is the ultimate Field of Dreams, built by men who must have a vision that is beyond extraordinary. It is not just about oil, as Dubai has nowhere near the wealth of Abu Dhabi. Oil wealth alone is not enough to ensure the enterprise and generate the vision that I see manifested here. The oil wealth of this region is legendary; and yet across the Straits lies a country with far more oil wealth and cultural heritage, and yet it languishes.
The city landscape of Dubai reminds me of the science fiction book covers that we saw 15 to 20 years ago. Today, as I walk out of my hotel room and look across the bay, the towering spires and surreal architecture of science fiction have come to life. There is development everywhere. While some of the office buildings are obviously "see-through," the local home market seems to be booming, particularly since the Arab Spring.
I had to make a trip to the local shopping mall. The shops and restaurants were all familiar to someone from the West, yet the cultural diversity was amazing. I must have heard every major language spoken. I've been to 60 countries, and nowhere have I seen the amalgamation of people that I've encountered here – not in London or even New York. Cosmopolitan, clean, and seemingly prosperous, this is a city to be admired. I will admit to not getting the economics of building on such a massive scale in the middle of the desert, but then I'm a country boy from Texas.
As if to punctuate my trip, as I was writing this note I began to hear very loud booms outside my ground-floor room. After a second, I recognized the sounds of fireworks. (Hey, I'm in the Middle East, so you know what I thought of first).
I walked out of my room to the sidewalk beside the yacht docks and witnessed what was perhaps the most impressive display of fireworks I've ever seen in my life – and I make a point of going to watch fireworks. I truly enjoy them. I guess it's the little kid in me. In the distance you could see multiple fireworks displays going off everywhere you turned. I was lucky in that from my vantage point the main fireworks were almost overhead. Until the culmination of the show, that is, when they began coming even closer. I am hard-pressed to describe the experience; but for you science fiction fans, it was almost as though the gaping maw of one of the great worms in Frank Herbert's Dune was descending ever closer with each burst of flame. I stood in awe, waiting to be engulfed, until it all magically ended.
What could have possibly provoked such artistic excess? What great event did all this signify? I walked down the way to the restaurant and asked some of the staff about it. "Oh," they replied, "This is a celebration of National Shopping Week."
And with that I will close, as I need to get some sleep so that I can explore little bit more of Dubai before I head to Riyadh tomorrow. I will let you know next week what I see and learn there. In the meantime, have a great week.
Your still not all that jaded analyst,
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2)Alan Simpson of Simpson-Bowles fame lays out his experience in dealing with the President.
As you have heard me say before that volunteering at the Bush Center library is a "great gig". I could write about my great experiences daily; but today was one of the highlights, so far…
Today's experience was worth a lot. Alan Simpson was the co-author of the Simpson - Bowles Commission appointed by the current president to come up with a plan and path forward to help the nation get back on a sound fiscal footing. It was to include spending limits and controls that would address existing entitlements, a change in tax codes and the abolishment of selected existing tax breaks for special interest groups. Accordingly, It called for a sound fiscal plan that would get us into reasonable balance in 10 years.
As everyone knows, Alan Simpson (R) (82) is a retired senator from Wyoming and is known for his "frank" opinions and statements and in some ways seen as eccentric in some of his views. Erskine Bowles (D) (69), who was Chief of Staff in former administrations, is a respected Democrat and was an equal partner in putting this study and report together with supposedly high respect and influence in the Democratic Party.
The intent was for the current President to use their report as a road map to fiscal responsibility. This report was issued in 2010 and as quickly dismissed by the president as a non-starter prior to the election of 2012 based on its perceived political impact on his re-election.
When I saw Simpson today in the museum, I approached him to welcome him to the museum as a team leader since that is my job for the general public. Normally, VIP's or "celebs" have Foundation escorts during these visits, but in typical Simpson fashion, he wanted to be just another visitor.
I spent the next 15 minutes (just the two of us) listening to him expound on his view of our future. His first answer was that with this president we will never make progress. He then related a story that when Bowles and Simpson requested time with the president to urge him to seriously consider their report, he was stunned by the response (as was Bowles).
The president told them that he would take no action on any of the Commission's recommendations and explained his rationale in the following way - prior to his re-election and probably after his re-election he would do nothing. Simply put it was a pure political decision. He stated that to accept reductions in the growth of entitlements would alienate his base and he would only look at the tax increase side of the recommendations after the election. He further added that to accept the recommendations would give the Republicans a victory as seen by the voters and he was not ever going to do that now or ever. He was adamant that he wanted more spending and more taxes and that he would pursue that course throughout his administration until his last day in office.
Stunned by that answer, Bowles asked him if he would do what's right for the country and exert some leadership to save the nation's fiscal future. Obama's response was that he would let the next president worry about the spending and debt, but he was going to spend and tax and re-distribute wealth throughout his term.
Both men were furious and after spending 1.5 hours with the president, they left in utter disbelief. Bowles, thinking that he could have some credibility with the D's in the House and Senate tried to gather some influence with that group and was quickly advised that the Obama agenda would go forward at all costs.
In one desperate attempt to get some traction, Bowles thought that if he went to see the president without Simpson being there, he could have a more meaningful result. That effort resulted in the same answer as they got the first time and that meeting was closer to the election and was dismissed as untimely and unnecessary by Obama. The end result is what we are now seeing each and every day. Bowles and Simpson believe that this president is not interested in anything except his political agenda.
About this time Simpson's wife joined us and we talked for few more minutes as she reminded him that they had a plane to catch and they had to move along.
In summary, I should not have asked my questions given my role of a neutral docent, but as an American I wanted to know his thoughts. I was stunned that he would be that candid with a perfect stranger, but knowing Simpson it has been typical of his behavior over his career.
These are the reasons that volunteering at the Bush Center make life in America bearable for me at this time. I thought you might want to see this insight from an experienced Washington insider. He was candid and as he left he said, "Don't expect anything good for America until this guy is gone".
Did we elect these idiots to spend our money like this?
2)Alan Simpson of Simpson-Bowles fame lays out his experience in dealing with the President.
As you have heard me say before that volunteering at the Bush Center library is a "great gig". I could write about my great experiences daily; but today was one of the highlights, so far…
Southern Methodist University has a lecture series called the Tate Lecture Series which has a significant speaker every month from September to May. Last month was Charles Krauthammer and last night was Erskine Bowles and Alan Simpson. Tickets to those events are like "hens teeth" and they are passed down from father to son or family to family and has a waiting list of 7 years for season tickets for the general public. One of the benefits of these visits is that these folks normally visit the library (after normal hours) while in town.
Today's experience was worth a lot. Alan Simpson was the co-author of the Simpson - Bowles Commission appointed by the current president to come up with a plan and path forward to help the nation get back on a sound fiscal footing. It was to include spending limits and controls that would address existing entitlements, a change in tax codes and the abolishment of selected existing tax breaks for special interest groups. Accordingly, It called for a sound fiscal plan that would get us into reasonable balance in 10 years.
As everyone knows, Alan Simpson (R) (82) is a retired senator from Wyoming and is known for his "frank" opinions and statements and in some ways seen as eccentric in some of his views. Erskine Bowles (D) (69), who was Chief of Staff in former administrations, is a respected Democrat and was an equal partner in putting this study and report together with supposedly high respect and influence in the Democratic Party.
The intent was for the current President to use their report as a road map to fiscal responsibility. This report was issued in 2010 and as quickly dismissed by the president as a non-starter prior to the election of 2012 based on its perceived political impact on his re-election.
When I saw Simpson today in the museum, I approached him to welcome him to the museum as a team leader since that is my job for the general public. Normally, VIP's or "celebs" have Foundation escorts during these visits, but in typical Simpson fashion, he wanted to be just another visitor.
All volunteers wear the same uniform and have a prominent name tag for the public to see. Little did I know that when I approached him to welcome him, he would receive me as a long lost friend and it was Howard this and Howard that in typical politician fashion. After two or three minutes of asking about the library (which he loved) and how often we work and what days do we work and other small talk, I asked him for his assessment of our current national fiscal and spending problems and his view on the future efforts needed to turn the nation around.
I spent the next 15 minutes (just the two of us) listening to him expound on his view of our future. His first answer was that with this president we will never make progress. He then related a story that when Bowles and Simpson requested time with the president to urge him to seriously consider their report, he was stunned by the response (as was Bowles).
The president told them that he would take no action on any of the Commission's recommendations and explained his rationale in the following way - prior to his re-election and probably after his re-election he would do nothing. Simply put it was a pure political decision. He stated that to accept reductions in the growth of entitlements would alienate his base and he would only look at the tax increase side of the recommendations after the election. He further added that to accept the recommendations would give the Republicans a victory as seen by the voters and he was not ever going to do that now or ever. He was adamant that he wanted more spending and more taxes and that he would pursue that course throughout his administration until his last day in office.
Stunned by that answer, Bowles asked him if he would do what's right for the country and exert some leadership to save the nation's fiscal future. Obama's response was that he would let the next president worry about the spending and debt, but he was going to spend and tax and re-distribute wealth throughout his term.
Both men were furious and after spending 1.5 hours with the president, they left in utter disbelief. Bowles, thinking that he could have some credibility with the D's in the House and Senate tried to gather some influence with that group and was quickly advised that the Obama agenda would go forward at all costs.
In one desperate attempt to get some traction, Bowles thought that if he went to see the president without Simpson being there, he could have a more meaningful result. That effort resulted in the same answer as they got the first time and that meeting was closer to the election and was dismissed as untimely and unnecessary by Obama. The end result is what we are now seeing each and every day. Bowles and Simpson believe that this president is not interested in anything except his political agenda.
About this time Simpson's wife joined us and we talked for few more minutes as she reminded him that they had a plane to catch and they had to move along.
In summary, I should not have asked my questions given my role of a neutral docent, but as an American I wanted to know his thoughts. I was stunned that he would be that candid with a perfect stranger, but knowing Simpson it has been typical of his behavior over his career.
These are the reasons that volunteering at the Bush Center make life in America bearable for me at this time. I thought you might want to see this insight from an experienced Washington insider. He was candid and as he left he said, "Don't expect anything good for America until this guy is gone".
2a) U.S. Government Waste
Our tax dollars..... The U.S. Government spent:
- $27 Million on Moroccan pottery classes to improve the "economic" competitiveness of Morocco
- $325 Million to test how rattlesnakes would react to robot squirrels
- $350,000 to see if golfers could improve their game by using their imagination
- $516,000 to create a video game that reenacts going to prom
- $10,000 on talking urinal cakes to prevent drunk driving
- $300,000 to promote Idaho caviar in Boston and Chicago
- $639,884 to develop beef jerky that resemble Fruit Roll-Ups
- $1,000,000 to study the best foods to eat on a voyage to Mars
- $49,477 on Smokey the Bear balloons
- $11,700 on a Star Wars Day event at a Massachusetts public library
Did we elect these idiots to spend our money like this?
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3)The Gaza Withdrawal and Israel's Permanent Dilemma
By George Friedman
Editor's Note: The following analysis originally ran in August 2005. We repost it today in light of the recent death of Ariel Sharon.
Israel has begun its withdrawal from Gaza. As with all other territorial withdrawals by Israel, such as that from Sinai or from Lebanon, the decision is controversial within Israel. It represents the second withdrawal from land occupied in the 1967 war, and the second from land that houses significant numbers of anti-Israeli fighters. Since these fighters will not be placated by the Israeli withdrawal -- given that there is no obvious agreement of land for an enforceable peace -- the decision by the Israelis to withdraw from Gaza would appear odd.
In order to understand what is driving Israeli policy, it is necessary to consider Israeli geopolitical reality in some detail.
Israel's founders, taken together, had four motives for founding the state.
- To protect the Jews from a hostile world by creating a Jewish homeland.
- To create a socialist (not communist) Jewish state.
- To resurrect the Jewish nation in order to re-assert Jewish identity in history.
- To create a nation based on Jewish religiosity and law rather than Jewish nationality alone.
The idea of safety, socialism, identity and religiosity overlapped to some extent and were mutually exclusive in other ways. But each of these tendencies became a fault line in Israeli life. Did Israel exist simply so that Jews would be safe -- was Israel simply another nation among many? Was Israel to be a socialist nation, as the Labor Party once envisioned? Was it to be a vehicle for resurrecting Jewish identity, as the Revisionists wanted? Was it to be a land governed by the Rabbinate? It could not be all of these things. Thus, these were ultimately contradictory visions tied together by a single certainty: None of these visions were possible without a Jewish state. All arguments in Israel devolve to these principles, but all share a common reality -- the need for the physical protection of Israel.
In order for there to be a Jewish state, it must be governed by Jews. If it is also to be a democratic state, as was envisioned by all but a few of the fourth strand of logic (religiosity), then it must be a state that is demographically Jewish.
This poses the first geopolitical dilemma for Israel: Whatever the historical, moral or religious arguments, the fact was that at the beginning of the 20th century, the land identified as the Jewish homeland -- Palestine -- was inhabited overwhelmingly by Arabs. A Jewish and democratic state could be achieved only by a demographic transformation. Either more Jews would have to come to Palestine, or Arabs would have to leave, or a combination of the two would have to occur. The Holocaust caused Jews who otherwise would have stayed in Europe to come to Palestine. The subsequent creation of the state of Israel caused Arabs to leave, and Jews living in Arab countries to come to Israel.
However, this demographic shift was incomplete, leaving Israel with two strategic problems. First, a large number of Arabs, albeit a minority, continued to live in Israel. Second, the Arab states surrounding Israel -- which perceived the state as an alien entity thrust into their midst -- viewed themselves as being in a state of war with Israel. Ultimately, Israel's problem was that dealing with the external threat inevitably compounded the internal threat.
Israel's Strategic Disadvantage
Israel was at a tremendous strategic disadvantage. First, it was vastly outnumbered in the simplest sense: There were many more Arabs who regarded themselves as being in a state of war with Israel than there were Jews in Israel. Second, Israel had extremely long borders that were difficult to protect. Third, the Israelis lacked strategic depth. If all of their neighbors -- Egypt, Jordan, Syria and Lebanon -- were joined by the forces of more distant Arab and Islamic states, Israel would find it difficult to resist. And if all of these forces attacked simultaneously in a coordinated strike, Israel would find it impossible to resist.
Even if the Arabs did not carry out a brilliant stroke, cutting Israel in half on a Jerusalem-Tel Aviv line (a distance of perhaps 20 miles), Israel would still lose an extended war with the Arabs. If the Arabs could force a war of attrition on Israel, in which they could impose an attrition rate of perhaps 1 percent per day of forces on the forward edge of the battle area, Israel would not be able to hold for more than a few months at best. In the 20th century, an attrition rate of that level, in a battle space the size of Israel, would be modest. Israel's effective forces rarely numbered more than 250,000 men -- the other 250,000 were older reserves with inferior equipment. Extended attritional warfare was not an option for Israel.
Thus, in order for Israel to survive, three conditions were necessary:
- The Arabs must never unite into a single, effective force.
- Israel must choose the time, place and sequence of any war.
- Israel must never face both a war and an internal uprising of Arabs simultaneously.
Israel's strategy was to use diplomacy to prevent the three main adversaries -- Egypt, Jordan and Syria -- from simultaneously choosing to launch a war. From its founding, Israel always maintained a policy of splitting the front-line states. This was not particularly difficult, given the deep animosities among the Arabs. For example, Israel always maintained a special relationship with Jordan, which had unsatisfactory relations with its own neighbors. Early on, Israel worked to serve as the guarantor of the Jordanian regime's survival. Later, after the Camp David Accords split Egypt off from the Arab coalition, Israel had neutralized two out of three of its potential adversaries. The dynamics of Arab geopolitics and the skill of Israeli diplomacy achieved an outcome that is rarely appreciated. From its founding, Israel managed to prevent simultaneous warfare with its neighbors except at a time and place of its own choosing. It had to maintain a military force capable of taking the initiative in order to have a diplomatic strategy.
But throughout most of its history, Israel had a fundamental challenge in achieving this pre-eminence.
Israel's Geopolitical Problem
The state's military pre-eminence had to be measured against the possibility of diplomatic failure. Israel had to assume that all front-line states would become hostile to it, and that it would have to launch a pre-emptive strike against them all. If this were the case, Israel had this dilemma: Its national industrial base was insufficient to provide it with the technological wherewithal to maintain its military superiority. It was not simply a question of money -- all the money in the world could not change the demographics -- but also that Israel lacked the manpower to produce all of the weapons it needed to have and also to field an army. Therefore, Israel could survive only if it had a patron that possessed such an industrial base. Israel had to make itself useful to another country.
Israel's first patron was the Soviet Union, through its European satellites. Its second patron was France, which saw Israel as an ally during a time when Paris was trying to hold onto its interests in an increasingly hostile Arab world. Its third patron -- but not until 1967 -- was the United States, which saw Israel as a counterweight to pro-Soviet Egypt and Syria, as well as a useful base of operations in the eastern Mediterranean.
In 1967, Israel -- fearing a coordinated strike by the Arabs and also seeking to rationalize its defensive lines and create strategic depth -- launched an air and land attack against its neighbors. Rather than risk a coordinated attack, Israel launched a sequential attack -- first against Egypt, then Jordan, then Syria.
The success of the 1967 war gave rise to Israel's current geopolitical crisis. Following the war, Israel had to balance three interests:
- It now occupied the West Bank and Gaza Strip, which contained large, hostile populations of Arabs. A full, peripheral war combined with an uprising in these regions would cut Israeli lines of supply and communication and risk Israel's defeat.
- Israel was now dependent on the United States for its industrial base. But American interests and Israeli interests were not identical. The United States had interests in the Arab world, and had no interest in Israel crushing Palestinian opposition or expelling Palestinians from Israel. Retaining the industrial base and ruthlessly dealing with the Palestinians became incompatible needs.
- Israel had to continue manipulating the balance of power among Arab states in order to prevent a full peripheral war. That, in turn, meant that it was further constrained in dealing with the Palestinian question by force.
Israeli geopolitics created the worst condition of all: Given the second and third considerations, Israel could not crush the Palestinians, but given its need for strategic depth and coherent borders, it could not abandon the occupied territories. It therefore had to continually constrain the Palestinians without any possibility of final victory. It had to be ruthless, which would enflame the Palestinians, but it could never be ruthless enough to effectively suppress them.
The Impermanence of Diplomacy
Israel has managed to maintain the diplomatic game it began in 1948 -- the Arabs remain deeply split. It has managed to retain its relationship with the United States, even with the end of the Cold War. Given the decline of the conventional threat, Israel's dependency on the United States has actually dwindled. For the moment, the situation is contained.
However -- and this is the key problem for Israel -- the diplomatic solution is inherently impermanent. It requires constant manipulation, and the possibility of failure is built in. For example, an Islamist rising in Egypt could rapidly generate shifts that Israel could not contain. Moreover, political changes in the United States could end American patronage, without the certainty of another patron emerging. These things are not likely to occur, but they are not inconceivable. Given enough time, anything is possible.
Israel's advantage is diplomatic and cultural. Its ability to split the Arabs, a diplomatic force, is coupled with its technological superiority, a cultural force. But both of these can change. The Arabs might unite, and they might accelerate their technological and military sophistication. Israel's superiority can change, but its inferiority is fixed: Geography and demographics put it in an unchangeably vulnerable position relative to the Arabs.
The potential threats to Israel are:
- A united and effective anti-Israeli coalition among the Arabs.
- The loss of its technological superiority and, therefore, the loss of military initiative.
- The need to fight a full peripheral war while dealing with an intifada within its borders.
- The loss of the United States as patron and the failure to find an alternative.
- A sudden, unexpected nuclear strike on its populated heartland.
Therefore, it follows that Israel has three options.
The first is to hope for the best. This has been Israel's position since 1967. The second is to move from conventional deterrence to nuclear deterrence. Israel already possesses this capability, but the value of nuclear weapons is in their deterrent capability, not in their employment. You can't deal with an intifada or with close-in conventional war with nuclear weapons -- not given the short distances involved in Israel. The third option is to reduce the possibility of disaster as far as possible by increasing the tensions in the Arab world, reducing the incentive for cultural change among the Arabs, eliminating the threat of intifada in time of war, and reducing the probability that the United States will find it in its interests to break with Israel.
Hence, the withdrawal from Gaza. As a base for terrorism, Gaza poses a security threat to Israel. But the true threat from Gaza, and even more the West Bank, lies in the fact that they create a dynamic that decreases Israel's diplomatic effectiveness, risks creating Arab unity, increases the impetus for military modernization and places stress on Israel's relationship with the United States. The terrorist threat is painful. The alternative risks long-term catastrophe.
Some of the original reasons for Israel's founding, such as the desire for a socialist state, are now irrelevant to Israeli politics. And revisionism, like socialism, is a movement of the past. Modern Israel is divided into three camps:
- Those who believe that the survival of Israel depends on disengaging from a process that enrages without crushing the Palestinians, even if it opens the door to terrorism.
- Those who regard the threat of terrorism as real and immediate, and regard the longer-term strategic threats as theoretical and abstract.
- Those who have a religious commitment to holding all territories.
The second and third factions are in alliance but, at the moment, it is the first faction that appears to be the majority. It is not surprising that Prime Minister Ariel Sharon is leading this faction. As a military man, Sharon has a clear understanding of Israel's vulnerabilities. It is clearly his judgment that the long-term threat to Israel comes from the collapse of its strategic position, rather than from terrorism. He has clearly decided to accept the reality of terrorist attacks, within limits, in order to pursue a broader strategic initiative.
Israel has managed to balance the occupation of a hostile population with splitting Arab nation states since 1967. Sharon's judgment is that, given the current dynamics of the Muslim world, pursuing the same strategy for another generation would be both too costly and too risky. The position of his critics is that the immediate risks of disengagement increase the immediate danger to Israel without solving the long-term problem. If Sharon is right, then there is room for maneuver. But if his critics, including Benjamin Netanyahu, are right, Israel is locked down to an insoluble problem.
That is the real debate.
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