Archive for the ‘International Affairs’ Category.

Abandoning Principle to Protect Their Guy

Scott Lemieux, via Kevin Drum, argues that people are getting way too worked up about the targeted killing memo.  Everything's fine"

Much of the coverage of the memo, including Isikoff's story, focuses on the justifications offered by the Obama administration for killing American citizens, including Anwar al-Awlaki and Samir Khan (two alleged Al Qaeda operatives killed by a 2011 airstrike in Yemen.) In some respects, this focus is misplaced. If military action is truly justified, then it can be exercised against American citizens (an American fighting for the Nazis on the battlefield would not have been entitled to due process.) Conversely, if military action is not justified, extrajudicial killings of non-Americans should hardly be less disturbing than the extrajudicial killing of an American citizen. The crucial question is whether the safeguards that determine when military action is justified are adequate

As I wrote in his comments section to this:

There is an immense chasm of difference between killing an American on the battlefield dressed in a Luftwaffe uniform in the Battle of the Bulge and authorizing assassination of American civilians without any sort of due process (Please don't tell me that presidential conferences and an excel spreadsheet constitute due process).  The donning of an enemy uniform is a sort of admission of guilt, to which there is no parallel here.  A better comparison would be:  Would it have been right for FDR to have, say, Charles Lindberg killed for supporting the nazis and nazi-style eugenics?  How about having a Congressman killed who refused to fund the war on terror - after all, there are plenty of people who would argue that person is abetting terrorism and appeasing Al Qaeda by not voting for the funds.

Before the election, when asked to post possible reasons to vote for Romney, the best one I could think of was that at least under a President Romney, the natural opponents on the Left of targeted killing and drone strikes and warrant-less wiretapping and prosecuting whistle-blowers under treason laws would find their voice, rather than remaining on the sidelines in fear of hurting "their guy" in the White House.

By the way, I know this puts me out of the mainstream, but Presidential targeted killing and drone strikes on civilian targets bothers me whether or not Americans are targeted.  I don't accept the implicit notion that "foreigners" have fewer due process rights than Americans vis a vis our government.  I believe the flaw goes all the way back to the AUMF that was directed against a multinational civilian organization rather against a country and its uniformed military.  I don't believe this is even a valid definition of war, but even if it were, there is no way the traditional rules of war can apply to such a conflict.  But here we are, still trying to apply the old rules of war, and it is amazing to me to see denizens of the Left leading us down this slippery slope.

Update:  As usual, Glenn Greenwald seems to have the definitive editorial on the targeted killing memo.  It is outstanding, top to bottom.  Read it, particularly if you are on the fence about this.

You've Come A Long Way Baby (Drone Strike Edition)

Obama Secretary of State John Kerry, in his famous Winter Solider remarks to Congress about the Vietnam War:

... it seems the Government of this country is more concerned with the legality of where men sleep than it is with the legality of where they drop bombs.

Obama Spokeman Jay Carney, today:

these [drone] strikes are legal, they are ethical, and they are wise

Remember, Jay Carney is talking about the President's claimed right to bomb US citizens, as well as anyone else he thinks (but can't necessarily prove in a court) might kind of sort of have something to do with a terrorist group.  And civilian casualties, so much a part of Kerry's concerns back in the 1970's?  They are just asking for it.

Anyway, I have not had a chance to digest the Administration's white paper on targeted killing (I can't even believe I am writing that phrase -- our Constitution specifically banned bills of attainder but now the executive claims the ability to kill at whim).  Jacob Sullum has some thoughts at the link.  I will write more if and when I have a chance to read it, but I am sure I will find it horrifying.

 

Random Death From the Sky

I fear this same thing:

"What scares me about drone strikes is how they are perceived around the world," [retired General Stanley McChrystal] said in an interview. "The resentment created by American use of unmanned strikes ... is much greater than the average American appreciates. They are hated on a visceral level, even by people who've never seen one or seen the effects of one."

Oddly, Obama Democrats used to feel the same way, at least until their guy was pushing the button (in fact, pushing the button far more frequently than Bush did).  We are overusing this tool.

A Defense of Israel

I can't call myself a defender of Israel per se because they have done a number of illiberal things in their country that tick me off.  However, I can say that for all the problems they may have, their response to a neighboring country dropping rockets on its citizens is FAR more restrained than would be the response of, say, the US.  If Mexico were dropping rockets into El Paso, Mexico would be a smoking hole in the ground.   We still maintain a stricter economic embargo on Cuba, which has never done a thing to us, than Israel does on Gaza.

I pay attention to the Amherst College community since my son enrolled there.  I thought this was a pretty powerful article by an Amherst student who has taken a leave of absence to join the IDF.  Given my understanding of how Eastern liberal arts faculty think about Israel and Palestine, one should think of this as a voice in the wilderness.

Lernaean Hydra

I continue to be dumbfounded by the Obama Administration's escalating drone war in Pakistan and other nations.  On the one hand, we have a President who argued persuasively that our war on terror, by its ham-handedness, was actually creating more terrorists than it eliminated by giving people more reasons to hate America.  On the other hand, we have the exact same administration  escalating Bush's drone war by a factor of six.  The same children of the sixties that likely marched against the bombings in Cambodia are now bringing random, robotic death from the sky to countries we have not actually declared war on.  

Washington Postinvestigative report published last week raises questions about whether bureaucratic "mission creep" has cut the program loose from its original justification. "Obama has institutionalized the highly classified practice of targeted killing," the Post's Greg Miller writes, "transforming ad-hoc elements into a counterterrorism infrastructure capable of sustaining a seemingly permanent war." He reports "broad consensus" among Obama terror-warriors that "such operations are likely to be extended at least another decade."

I could be convinced to use drones to knock off a few top managers with irreplaceable impact on the war, sort of like taking out Patton or Rommel in WWII.  But now we are taking out corporals, or the terrorist equivalent.    And ever time we kill one (with a few innocents thrown in the mix, which Obama has relabeled as combatants by definition)  we are probably creating two new terrorists.

This targetted killing is an expansive and scary new power.  The Administration owes us a reckoning, a justification which demonstrates that these drone strikes are really having some sort of positive effect.  Right now, it is hard to see, with Libya, Mali, Egypt, Syria blowing up and Afghanistan no closer to peace than it was four years ago.  What are we getting in exchange for president taking on this dangerous new authority?

PS-  the report linked notes that the death toll from drone attacks is approaching 3,000.  What happened to the press, which was so diligent about reporting all these grim milestones under Bush.  It is just amazing how far the press and the Left have gone in the tank, against their stated ideals, for Obama.

Update:  Killing of 16-year-old American in drone strike blamed on his ... having a bad father.  It was his fault!

ADAMSON: You said it is important for the president to do what needs to be done in terms of members of al Qaeda and people who pose a threat. Do you think that the killing of Anwar al-Awlaki’s son who is an American citizen is justifiable?

GIBBS: I’m not going to get into Anwar al-Awlaki’s son. I know that Anwar al-Awlaki renounced his citizenship…

ADAMSON:…His son was still an American citizen…

GIBBS:…Did great harm to people in this country and was a regional al Qaeda commander hoping to inflict harm and destruction on people that share his religion and others in this country. And…

ADAMSON:…It’s an American citizen that is being targeted without due process, without trial. And, he’s underage. He’s a minor.

GIBBS: I would suggest that you should have a far more responsible father if they are truly concerned about the well being of their children. I don’t think becoming an al Qaeda jihadist terrorist is the best way to go about doing your business. [emphasis added]

And this practically qualifies as Nixonian:

ROBERT GIBBS, Obama advisor: This president has taken the fight to Al Qaeda.

LUKE RUDKOWSKI, We Are Change: Does that justify a kill list?

GIBBS: When there are people who are trying to harm us and have pledged to bring terror to our shores, we have taken that fight to them.

RUDKOWSKI: Without due process of law?

GIBBS: We have taken that fight to them.

Update 2:  here is an interesting quote

Counterterrorism experts said the reliance on targeted killing is self-perpetuating, yielding undeniable short-term results that may obscure long-term costs. 'The problem with the drone is it’s like your lawn mower,' said Bruce Riedel, a former CIA analyst and Obama counterterrorism adviser. 'You’ve got to mow the lawn all the time. The minute you stop mowing, the grass is going to grow back.'"

 

Part of The Hole Germans Are Being Asked to Fill In

Greek Olympic venues.  I am sure that baseball field gets a lot of use.  And that state-of-the-art man-made kayaking course and associated stadium sure seem to be contributing a lot to GDP.

The whole world patted Greece on the back for completing this boondoggle when in fact we were just enabling an alcoholic, congratulating Greece for, in effect, driving home safely after drinking a fifth of tequila.

 

Yeah, Let's Turn the Internet Over to These Guys

I am increasingly convinced that the UN is really some kind of performance art rather than a serious attempt at global governance.  Why else would they select Robert Mugabe as ambassador of tourism?  Via Radley Balko

Tax Increases are the Austerity

Veronique de Rugy is doing an awesome job debunking the myth that European countries have cut spending in any meaningful way, and that the "austerity" that Krugman et. al. keeping going on about mostly consists of raising taxes.  Perhaps because they so desperately want to raise taxes in the US, Krugman and company seem willfully blind in recognizing the tax increases in Europe and their negative consequences.

Today's Chart Award

This is my favorite chart I have seen in a while:

I don't know how one would even think to graph these two variables, but it is an interesting picture of the life cycle of development, where infrastructure improvements are initially an important part of the development equation, and then fall off, percentage wise, as wealth is enhanced with softer goods.

Anyone off the chart on the high side are going to be what I would call the triumphalists, who do what Thomas Friedman seems to want and pour a disproportionate share of money into high-visibility monuments (e.g. tall buildings, dams, bridges, high speed rail, etc).  I don't see Dubai on here but if they were they might be off the top of the chart.

Zero Hedge links this chart to make a point they have made for a while about a massive bubble bursting coming soon to China, a position with which I agree (though the timing is always a question in such things -- the state has the ability to delay the reckoning at the cost of a worse crash when it eventually comes).

Disclosure:  I am short Chinese real estate and stock funds.

I'm Happy About the French Election

Apparently, the fall of the Soviet Union is far enough in the rear view mirror that its time for another object lesson in the real effects of communism.   It's incredible to me that any country would want to actually emulate Greece, but France seems hell-bent to do so.  So all I can say is "way to go, France!  Better you guys than us."

Apparently Obama is already cozying up with Francois Hollande.   These two may be the socialist-corporatist answer to Reagan and Thatcher.  It is interesting that Europe seems to produce an analog to the American President in each generation (or vice versa).    Reagan-Thatcher, Clinton-Blair, now Obama-Hollande.

Myth-Making By the Left on Europe Continues

The Left continues to push the myth that government "austerity"  (defined as still running a massive deficit but running a slightly smaller massive deficit) is somehow pushing Europe into a depression.  Well, this myth-making worked with Hoover, who is generally thought to have worsened the Depression through austerity despite the reality that he substantially increased government spending.

It is almost impossible to spot this mythical austerity beast in action in these European countries.  Sure, they talk about austerity, and deficit reduction, and spending increases, but if such talk were reality we would have a balanced budget in this country.  If one looks at actual government spending in European nations, its impossible to find a substantial decline.  Perhaps they are talking about tax increases, which I would oppose and have been occurring, but I doubt the Left is complaining about tax increases.

Seriously, I would post the chart showing the spending declines but I can't because I keep following links and have yet to find one.  I keep seeing quotes about "commitment" to austerity, but no actual evidence of such.

Let's take Britain.  Paul Krugman specifically lashed out at "austerity" programs there are undermining the British and European economy.  So, from this source, here is actual and budgeted British government spending by year, in billions of pounds:

2007: 544.0

2008: 575.7

2009: 621.5

2010:  660.6

2011:  683.4

2012:  703.4

2013: 722.2

Seriously, I will believe the so-called austerity when someone shows it to me.  And this is not even to mention the irresponsibility of demanding more deficit spending without even acknowledging the fact that whole countries already have so much debt they are teetering on the edge of bankruptcy.

Here is the European problem -- they are pouring hundreds of billions of Euro into bailing out failed banks and governments.  They are effectively taking massive amounts of available resources out of productive hands and pouring it into failed institutions.   Had they (or we) let these institutions crash four years ago, Europe would be seeing a recovery today.  The hundreds of billions of Euros used to keep banks on life support could have instead been used to mitigate the short term effects of bigger financial crash.

Wag the Dog

I will fight when my liberty is truly threatened.  But I have absolutely no trust in politicians to determine when this is the case.

Which is why my reaction to this is, Oh Crap!

I am sure it is a total coincidence that, after 35 years of butting heads with Iran, this is occurring during a sputtering economy and within months of a Presidential election.

PS-  I watched Wag the Dog the other night.  Every time Dustin Hoffman said "he f*cked a Firefly girl" all I could think of was Gina Torres, Morena Baccarin, Jewel Staite, and Summer Glau.  Well worth losing the Presidency for.

Another Reason to Love Fracking

Anything Vladimir Putin fears can't be all bad

Whilst it is exceedingly difficult to summon up much sympathy for either Russia’s state-owned natural gas monopoly Gazprom or Russian President-elect Vladimir Putin, the dynamic rise of natural gas produced by hydraulic fracturing, or ‘fracking,” has raised alarm bells in the highest reaches of the Kremlin.

Why?

Because Gazprom’s European customers, tired of being ripped off by Gazprom, are avidly exploring the possibilities of undertaking fracking to develop their own sources of the “blue gold,” and nowhere is interest higher than in the Russian Federation’s neighbors Ukraine, Poland, Romania, Bulgaria and China.

Too Easy to Make War

Since I am on the subject today of topics my thinking has changed on over the last 30 years, I will link this post from Kevin Drum arguing that we need to make war hard again.  I have not read Rachel Maddow's book and am unlikely to, if for no other reason than style issues, but I must say that I have come around to the point Drum derives from it

If you can get past that, though, there's a deadly serious argument here that deserves way more attention than it gets. The book is, basically, a series of potted histories that explain how we drifted away from our post-Vietnam promise to make sure we never again went to war without the full backing and buy-in of the American public. Maddow's premise is that, just as the founders intended, our aim was to make war hard. Presidents would need Congress on their side. The Abrams Doctrine ensured that reserves would have to be called up. Wars would no longer unfold almost accidentally, as Vietnam did.

And for a while that was the case. ...

Maddow's argument is that we need to start rolling back these changes of the past two decades. When we go to war, we should raise taxes to pay for it. We should get rid of the secret military. The reserves should go back to being reserves. We should cut way back on the contractors and let troops peel their own potatoes. And above all, Congress should start throwing its weight around again. It's fine to criticize presidents for accreting ever more power to themselves, but what do you expect when Congress just sits back and allows it happen? Our real problem is congressional cowardice: they don't want the responsibility of declaring war, but they also don't want the responsibility of stopping it. So they punt, and war becomes ever more a purely executive function.

I am mostly in agreement with this (though I am not sure why soldiers rather than contractors should peel potatoes).  War has become way too easy -- though I would argue that Drum needs to look in a mirror a bit here.  He has been a huge supporter of Obama using executive powers to end-around Congressional opposition on things like the budget.  It's hard for him to credibly turn around and say that this same executive end-around Congress is bad in war-making.   I will be consistent and say it's bad for both.

I have not read the book, so perhaps this is covered, but I would argue that there are external factors driving this change in addition to internal factors.

The current Presidential ability to fight small wars without much Congressional backing is not entirely unprecedented.  Teddy Roosevelt did much the same thing with his gunboat diplomacy.  There were two external conditions that allowed TR to get away with this that are similar to conditions that obtain today.  One, we had a decisive economic and technological advantage over the countries we were pushing around (e.g. Columbia).  And two, there was no superpower willing to challenge us when we meddled in small countries, particularly in Latin America where the major European powers were willing to let us do whatever we wanted.

I would argue that these conditions again obtain since the fall of the Soviet Union, and allow the US to lob around cruise missiles (the gunboat diplomacy of the 21st century) with relative impunity.

Just When You Thought China Might Be Joining the Modern World

from the HuffPo via Q&O

In one of history's more absurd acts of totalitarianism, China has banned Buddhist monks in Tibet from reincarnating without government permission. According to a statement issued by the State Administration for Religious Affairs, the law, which goes into effect next month and strictly stipulates the procedures by which one is to reincarnate, is "an important move to institutionalize management of reincarnation." But beyond the irony lies China's true motive: to cut off the influence of the Dalai Lama, Tibet's exiled spiritual and political leader, and to quell the region's Buddhist religious establishment more than 50 years after China invaded the small Himalayan country. By barring any Buddhist monk living outside China from seeking reincarnation, the law effectively gives Chinese authorities the power to choose the next Dalai Lama, whose soul, by tradition, is reborn as a new human to continue the work of relieving suffering.

Update:  Maybe he will be reincarnated in Avignon:

At 72, the Dalai Lama, who  has lived in India since 1959, is beginning to plan his succession, saying that he refuses to be reborn in Tibet so long as it’s under Chinese control. Assuming he’s able to master the feat of controlling his rebirth, as Dalai Lamas supposedly have for the last 600 years, the situation is shaping up in which there could be two Dalai Lamas: one picked by the Chinese government, the other by Buddhist monks.

Flash: European Finances Still Screwed Up

As I predicted, the various highly touted European debt and currency interventions last month did squat.  This is no surprise.  The basic plan currently is to have the ECB give essentially 0% loans to banks with the implied provision that they use the money to buy sovereign debt.  Eventually there are provisions for austerity, but I wrote that I don't think it's possible these will be effective.   It's a bit unclear where this magic money of the ECB is coming from - either they are printing money (which they refuse to own up to because the Germans fear money printing even more than Soviet tanks in the Fulda Gap) or there is some kind of leverage circle-jerk game going where the ECB is effectively leveraging deposits and a few scraps of funding to the moon.

At this point, short of some fiscal austerity which simply is not going to happen, I can't see how the answer is anything but printing and devaluation.  Either the ECB prints, spreading the cost of inflation to all counties on the Euro, or Greece/Spain/Italy exit the Euro and then print for themselves.

The exercise last month, as well as the months before that, are essentially mass hypnosis spectacles, engineered to try to get the markets to forget the underlying fundamentals.  And the amazing part is it sort of works, from two days to two weeks.  It reminds me of nothing so much as the final chapters of Atlas Shrugged where officials do crazy stuff to put off the reckoning even one more day.

Disclosure:  I have never, ever been successful at market timing investments or playing individual stocks, so I generally don't.  But the last few months I have had fun shorting European banks and financial assets on the happy-hypnosis news days and covering once everyone wakes up.  About the only time in my life I have made actual trading profits.

Thought problem:  I wish I understood the incentives facing European banks.  It seems like right now to be almost a reverse cartel, where the cartel holds tightly because there is a large punishment for cheating.  Specifically, any large bank that jumps off the merry-go-round described above likely starts the whole thing collapsing and does in its own balance sheet (along with everyone else's).  The problem is that every day they hang on, the stakes get higher and their balance sheets get stuffed with more of this crap.  Ironically, everyone would have been better getting off a year ago and taking the reckoning then, and certainly everyone would be better taking the hit now rather than later, but no one is willing to jump off.  One added element that makes the game interesting is that the first bank to jump off likely earns the ire of the central bankers, perhaps making that bank the one bank that is not bailed out when everything crashes.  It's a little like the bidding game where the highest bidder wins but the two highest bidders have to pay.  Anyone want to equate this with a defined economics game please do so in the comments.

Its All About the Consumer (wink wink)

Countless regulations and laws in the US that are ostensibly consumer protection turn out to be simple power plays by government officials and well-connected corporations.

We see this yet again in Argentina, where a government takeover of the newsprint business was ostensibly justified based on "unfair" business practices by the previous owners.  Of course, the only thing the Argentine government, which recently started prosecuting private economists for disagreeing with government inflation numbers, finds "unfair" is the fact that newsprint is being sold to papers who publish unflattering articles about the government.  More here.

The same Argentine legislation defines a new crime right out of Atlas Shrugged that they call economic terrorism, which in practice will likely be interpreted as 1) businesses that do anything that the current rules do not like or 2) businesses that get just too valuable for government officials to resist grabbing them for themselves.

Greek Government Essentially in State of Default

Nice tax refund you have coming .... we think we'll keep it

The [Greek] government has decided to stop tax returns and other obligation payments to enterprises, salary workers and pensioners as it sees the budget deficit soaring to over 10 percent of gross domestic product for 2011.

For all the supposed austerity, the budget situation is worse in Greece.  Germany and other countries will soon have to accept they have poured tens of billions of euros down a rathole, and that they will have to do what they should have done over a year ago - let Greece move out of the Euro.

Government workers and pensioners simply will not accept any cuts without rioting in the street.  And the banks will all go under with a default on government debt.  And no one will pay any more taxes.  And Germany is not going to keep funding a 10% of GDP deficit.  The only way out seems to be to print money (to pay the debt) and devalue the currency (to effectively reduce fixed pensions and salaries).  And the only way to do all that is outside of the Euro.  From an economic standpoint, the inflation approach is probably not the best, but it is the politically easiest to implement.

Also From the "This Time We Really, Really Mean It" Files

Apparently European leaders are close to an agreement that countries cannot run budget deficits higher than 3% of GDP.  If you are left to wonder, "hey, didn't they already have that rule before" the answer is yes.  Everyone had to promise a really, really stern oath not to run higher deficits before joining in the Euro group.

Of course, these promises meant nothing as there was no penalty for breaking the promise, and so the EU is proposing a new enforcement mechanism

Governments whose debts exceeded three percent of their GDP would be cited by the European Court of Justice, after which a super-majority of 85 percent of European governments would have to agree to impose some sort of sanction against the offending country.

I am not clear if the 85% is of the whole EU  (which would require a vote of 23 of the 27 members) or of just the Euro zone (which would require 15 of the 17 countries that use the Euro as currency).  Either way, I disagree with Drum and can't see how there is any hope at all here.  I am left with a number of questions

  • What is the likelihood that European countries will adopt this Constitutional provision and precedent for reduced sovereignty?  Don't treaty changes have to be unanimous?
  • Even if ratified, does anyone imagine the penalties will be high?  Imagine Greece today if such penalties exist.  How much are they going to worry about fines when they are already bankrupt?  And what will be the optics of the EU adding new costs to countries that are in financial crisis?  If a country in the future is doing things to endanger the euro from too much debt, the last thing the EU is going to be able to do is add to that country's burdens -- in fact, it is doing the opposite now, sending huge checks to all these countries
  • How are they every going to get the votes when this comes up?  Again, think about today.  Would Italy, Belgium, Spain, Ireland, etc. vote to sanction Greece, when they know they are next?

I just can't see this going anywhere.  And I would be surprised if the folks involved do either.  My guess is that they hope this will settle the bond markets so they can kick the can down the road.  Sure, we will have to deal with this all over again the first, inevitable time a country breaches the 3%, but that is later and right now they will accept a few years, even a few months, of survival.

Final Indicator, if You Needed One, of a Looming China Crash

Here is what I remember from the late 1980's - just about every technocratic pundit of the leftish bent, and a number on the right, all hailed Japan as the government economic planning model the US should follow.  One fawning essay after another lauded Japan's MITI and its top-down approach to economic investment.

Practically within hours of when these editorials peaked, the Japanese economy began to crumble.  We know now that MITI and other Japanese officials were creating gross distortions and misallocations in the economy, and inflating an economic bubble with gobs of cheap credit.  These distortions have still not been entirely cleared from the Japanese economy 20 years later, and the country experienced what was called "the lost decade" which may become the lost two decades.

For over a year, it has appeared to me (and many other observers more knowledgeable than I) that China was headed for a crash for many of the same reasons as Japan.  I am now sure this is true, as today Andy Stern (formerly of the SEIU) writes an essay lauding the Chinese top-down state-planned economic model.

The current debates about China's currency, the trade imbalance, our debt and China's excessive use of pirated American intellectual property are evidence that the Global Revolution—coupled with Deng Xiaoping's government-led, growth-oriented reforms—has created the planet's second-largest economy. It's on a clear trajectory to knock America off its perch by 2025....

There is no doubt that China will pass the US in total economic size -- it has three times more people than we do.  But their success is clearly due to the small dollops of free enterprise that are allowed in a statist society, and advances are made in spite of, not because of, the meddling state.

Exactly how much economic progress had China made before its leaders brought in the very free market ideas Stern says are dead?  None, of course.  To read China as a triumph of statism and as the death nell of capitalism, when in fact it is one of the greatest examples in history of the power of capitalist ideas and how fast they can turn around a starving and poverty-stricken country, is just willful blindness.

I will include just one other excerpt

While we debate, Team China rolls on. Our delegation witnessed China's people-oriented development in Chongqing, a city of 32 million in Western China, which is led by an aggressive and popular Communist Party leader—Bo Xilai. A skyline of cranes are building roughly 1.5 million square feet of usable floor space daily—including, our delegation was told, 700,000 units of public housing annually.

Meanwhile, the Chinese government can boast that it has established in Western China an economic zone for cloud computing and automotive and aerospace production resulting in 12.5% annual growth and 49% growth in annual tax revenue, with wages rising more than 10% a year.

My first thought on reading this was that Houston used to look exactly like this, with cranes all over the place building things, until we had an Administration that actively opposed expansion of domestic oil production.  My second thought is that this reads so much like the enthusiast essays written by leftists when they used to visit the Soviet Union and came back telling us Russia was so much superior to the US -- just look at the Moscow subway!

The emergence of hundreds of millions of people in China and India from poverty is exciting as hell, and at some level I don't blame Stern for his excitement.  But I fear that what he is seeing is the US housing bubble on steroids, a gross misallocation of capital and resources driven by a few technocrats who think they can manage a billion person economy from their office in Beijing.

Disclosure:  I seldom do anything but invest in generic bond funds and US stock funds, but right now I am out of US equities and I have a number of shorts on Chinese manufacturing and real estate.

Winter is Coming

It appears the Arab Spring, unsurprisingly, is coming to an end, as Islamic hard liners take a large share of the Parliamentary seats.

The idealist in me is offended when the US supports dictators with mixed respect for individual rights.  The realist in me knows that often, when such people are removed, worse governments take their place.

How the Left Analyzes Greece

I find the Left's opinions on Greece to be fascinating.  After all, Greece is essentially the logical end result of all of their love for deficit spending, so what kind of cognitive dissonance is necessary to write about Greece on the Left?  This kind:

OK, but they're spending too much money. Surely they know they have to cut back?

Sure, but the deals on offer are pretty unattractive. Europe wants to forgive half of Greece's debt and put them on a brutal austerity plan. The problem is that this is unrealistic. Greece would be broke even if all its debt were forgiven, and if their economy tanks they'll be even broker.

But that's the prospect they're being offered: a little bit of debt forgiveness and a lot of austerity.

Well, them's the breaks.

But it puts Greece into a death spiral. They can't pay their debts, so they cut back, which hurts their economy, which makes them even broker, so they cut back some more, rinse and repeat. There's virtually no hope that they'll recover anytime in the near future. It's just endless pain. What they need is total debt forgiveness and lots of aid going forward.

I certainly agree that Greece is now in a death spiral, but this analysis is just amazing.  The only way for other countries to avoid sharing Greece's fate is to, very simply, spend within their means.  If they do, problem avoided.  If they don't, and get hooked on deficit spending, then Greece is their future, the only question is when.

So what does Drum do?  He calls the spending withing their means strategy "unrealistic" and "brutal austerity."    So he occupies a long post lamenting what a totally SNAFU'd situation Greece is in, but takes off the table the only possible approach for other counties to avoid the same fate.   And in fact advocates a strategy that will push a few others over the cliff sooner, or even cause a few to jump on their own (after all, if the punishment for spending your way into financial disaster is to get, as Drum recommends, all your debt forgiven and years of aid payments, why the hell would anyone want to be fiscally responsible?)

And it is amazing to me that he calls forgiving half their debt, the equivalent in the US of our creditors erasing about $7 trillion, as "a little bit of debt forgiveness" while cutting government spending a few percent of GDP is "a lot of austerity."

His solution, of course, is not for Greece to face up to its problems but to transfer the costs of its irresponsibility to others and then remain nearly perpetually on the dole.

His mistake is to assume Greece faces endless pain.  It does not.  History has shown that countries that are willing to rip off the bandage quickly rather than over a few decades can recover remarkably quickly if sensible policies are put in place.  Heck, the Weimar Republic, which had inflation so bad people got paid 3 times a day so their family could buy something before the money became worthless a few hours later, got its house in order in a matter of months.

Thoughts on the Greek Bailout / Debt Writedown

I am not at all a financial or Wall Street guy, but I had a few thoughts

  • I am amazed at the equity rally over this.   Writing down one country's debt, without fixing its underlying financial problem or dealing with all the other countries who have problems, seems a small win.  Particularly when this one country stretched European resources to the breaking point, and there are a lot of other lined up just behind Greece.
  • Its interesting to see how much everyone bent over backwards not to trigger payouts from credit default swaps (CDS).  If this is the wave of the future, I would be shorting sovereign debt at the same time I was writing CDS contracts on sovereign debt.    Maybe this is exactly why I am not a trader, but it strikes me that if you had an arsonist around burning down houses, while at the same time the government worked hard to let fire insurance companies avoid paying off on the fire damage, wouldn't you be shorting houses and long on fire insurance companies?
  • How smart does the UK feel right now for staying out of the common currency?  The anti-EU folks in the UK should be calling for that referendum on EU participation right now.   It would likely fail by a landslide.
  • The question that keeps nagging at me -- is it really worth as much as a trillion euros to keep Greece in the Euro?  Why?
Update:  Oh, and I left out the obvious take:  moral hazard
When sharing our kneejerk reaction to yesterday's latest European resolution, we pointed out the obvious: "Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece." Sure enough, 6 hours later Bloomberg is out with the appropriately titled: "Irish Spy Reward Opportunity in Greece’s Debt Hole." Bloomberg notes that Ireland has not even waited for the ink to be dry before sending out feelers on just what the possible "rewards" may be: "Greece’s failure to cut spending and boost revenue by enough to meet targets set by the European Union and International Monetary Fund prompted bondholders to accept a 50 percent loss on its debt. While Ireland won’t seek debt discounts, the government might pursue other relief given to Greece, including cheaper interest payments on aid and longer to repay it, according to a person familiar with the matter who declined to be identified as no final decision has been taken."

Sorry, I Forgot What Century We Lived In

From the Jerusalem Post via Radley Balko

When the severed head of a wolf wrapped in women's lingerie turned up near the city of Tabouk in northern Saudi Arabia this week, authorities knew they had another case of witchcraft on their hands, a capital offence in the ultra-conservative desert kingdom.

Agents of the country’s Anti-Witchcraft Unit were quickly dispatched and set about trying to break the spell that used the beast’s head.

Saudi Arabia takes witchcraft so seriously that it has banned the Harry Potter series by British writer J.K. Rowling, rife with tales of sorcery and magic. It set up the Anti-Witchcraft Unit in May 2009 and placed it under the Committee for the Promotion of Virtue and the Prevention of Vice (CPV), Saudi Arabia's religious police.

"In accordance with our Islamic tradition we believe that magic really exists," Abdullah Jaber, a political cartoonist at the Saudi daily Al-Jazirah, told The Media Line. "The fact that an official body, subordinate to the Saudi Ministry of Interior, has a unit to combat sorcery proves that the government recognizes this, like Muslims worldwide."

Actually, we have something similar here, we just call it "climate change" instead of witchcraft.

Greece: Where Default is, err, the Default State

One might think a line like about Greek finances was printed just this week

What followed could only be described as a comic progression of populist pandering [and] the spread to the national economy of a series of parasitic labor unions and cabals

But in fact it is describing Greek conditions circa 1944.

A while back I observed that the difference between Greek and US finances is that the US needs to return to a spending level circa 2007, while Greece has no similar default state of relative fiscal sanity it can return to.  This article in Finem Respice reinforces this premise by discussing the absolute insanity of Greek fiscal management before and after and even during WWII, which was characterized by all the exact same problems that have driven the current crisis.  Good background reading.

Greece, then as now, was dominated by an expensive public sector funded insufficiently by a tax system that did not work.  As may happen soon, Greece was not able to borrow, so all they could do was print money and inflation soared.  Only one man was able to stop the inflation, and I won't spoil the ending by the humorous way he did so.