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Wednesday, August 31, 2011

What is 'Afro-Soul' Music ?

Blogger DJ's damned if he knows, but Budos Band plays it, and ever since he first heard Origin of Man on the PA at a Portsmouth, NH greasy-spoon, he's been hooked, and offers the following BB cuts for your delectation.

Origin of Man
Hidden Hand
Ride or Die
Nature's Wrath
Smoke Gets In
Deep in the Sand
Crimson Skies
Rite of the Ancients
Golden Dunes
Chicago Falcon

For info on the band, check out Wikipedia, and for info on their concert schedule and discography, check out the Budos Band website.  

Libya's Lessons, and Sundry Info on Gadhafi and the War


According to George Friedman in STRATFOR, it's too early to declare victory in Libya, but not too early to draw lessons from what has already happened. The following excerpt from Friedman's article,  Libya: A Premature Victory Celebration, is republished with permission of STRATFOR

First, it is important to remember that Libya in itself may not be important to the world, but it matters to Libyans a great deal. Second, do not assume that tyrants lack support. Gadhafi didn’t govern Libya for 42 years without support. Third, do not assume that the amount of force you are prepared to provide is the amount of force needed. Fourth, eliminating the option of a negotiated end to the war by the means of international courts may be morally satisfying, but it causes wars to go on and casualties to mount. It is important to decide what is more important — to alleviate the suffering of people or to punish the guilty. Sometimes it is one or the other. Fifth, and most important, do not kid the world about wars being over. After George W. Bush flew onto an aircraft carrier that was emblazoned with a “mission accomplished” banner, the Iraq war became even more violent, and the damage to him was massive. Information operations may be useful in persuading opposing troops to surrender, but political credibility bleeds away when the war is declared over and the fighting goes on.

Gadhafi will likely fall in the end. NATO is more powerful than he is, and enough force will be brought to bear to bring him down. The question, of course, is whether there was another way to accomplish that with less cost and more yield. Leaving aside the war-for-oil theory, if the goal was to protect Benghazi and bring down Gadhafi, greater force or a negotiated exit with guarantees against trials in The Hague would likely have worked faster with less loss of life than the application of soft military power.

As the world contemplates the situation in Syria, this should be borne in mind.


For a handy guide to Gadhafi's immediate family--who are they, and where are they now--check out Reuters.  And for a map tracking recent developments, check out the Washington Post. 

Tuesday, August 30, 2011

Culture Vulture Returns from an art tour of the 'Dirigo' State

Captain Upton's House, by Edward Hopper
...specifically at Brunswick and Kennebunkport.

Brunswick is far more congenial--and YUP-ified--since callow undergraduate C.V. sampled the lethal hot dogs at Mike's Place, the paste-board pizza at Bill's Class A Restaurant, and the so-thinly-sliced-as to-be-translucent roast beef in the Dining room of the Eagle Hotel.

After a liesurely lunch at Scarlet Begonias, one of the town's many excellent modern eateries, C.V. and the Mrs. headed up sunny Main Street to the Bowdoin College Museum of Art, to view Edward Hopper's Maine, among other shows.

The Hopper exhibit, which runs to October 16, is comprised of 90 paintings, watercolors, drawings, and prints which Hopper produced in Maine between 1914 and 1929.

A companion show, Hopper's Contemporaries: Artists in New England, features works by John Marin, Rockwell Kent, Andrew Wyeth, and George Bellows, and runs until September 11.

Talk about an embarassment of riches !

And as if the above were not enough, the C.V. and the Mrs. also took in Masterpieces of European Painting from the Wadsworth Atheneum, 10 paintings by arists such as Giovanni Domenico Tiepolo, Giuseppe Ribera, and Aelbert Cuyp, all on long-term loan from the Wadsworth and recently installed at the Museum.


At Bowdoin's Peary MacMillan Arctic Museum and Arctic Studies Center, we found an insipiring selection of Canadian Inuit Art, from the Robert and Judith Toll Collection. The Inuit prints and sculpture  co-habit with the permanent Peary-MacMillan Arctic exhibits in Hubbard Hall, just steps away from the Museum. 

* * *

On a dark, windy, rain-filled day--a precursor of Hurricane Irene--we hied to Kennebunkport's shops and galleries, among the latter, the cozy Landmark and the more extensive Mast Cove Galleries.

At the Landmark, we found a wide variety of excellent landscapes, like this Charles Movalli painting of Port Clyde.

At the Mast Cove, we found several canvases by Michael Zigmond, one of the C.V.'s all-time favorites, whose work the C.V. had previously admired at the Chase Gallery in Boston. The painting shown at right, Nasturtium Bouquet, was well beyond C.V.'s price range (sigh), and had sold well before his arrival anyway (sigh).

Wednesday, August 17, 2011

Tonight's Blogger DJ Song is a blast from the past...

You may recognize the album cover from the end of the film Pirate Radio.

The Incredible String Band - The Hedgehog Song

More on the GOP Presidential Race : The 'Invisible Primary', Ryan's Run, and Buffett's Slam

1. What is the invisible primary and who's winning on the GOP side ?

Jay Cost tells us in THE WEEKLY STANDARD :

While a few “insurgent,” anti-establishment candidates captured the nomination early on (George McGovern and Jimmy Carter), since 1980, every presidential nominee of both parties has been perfectly satisfactory to the party establishment. Indeed, with the exception (possibly) of Barack Obama in 2008, it is very conceivable that all the same candidates would have been chosen if the old convention selection procedures were still in place.
According to political scientists Marty Cohen, David Karol, Hans Noel, and John Zaller, this is not an accident. What we have seen in the last 40 years is the rise of an invisible primary, in which the party establishment settles upon a favored candidate:

    The invisible primary is essentially a long-running national conversation among members of each party coalition about who can best unite the party and win the next presidential election. The conversation occurs in newspapers, on Sunday morning television talk shows, among activist friends over beer, in chatter at party events, and, most recently, in the blogosphere.
How can we tell who is the winner of the invisible primary? Money, for one. The candidate who raises the most money is also the one who likely has the strongest support among the well-heeled party elite. Another strong indication is endorsements from public officials, which are an outward sign of how strongly a candidate is performing in this behind the scenes conversation.

Every cycle, we see a few candidates run without regard to the invisible primary. Lacking money, endorsements, or local organizations, they soldier on anyway, hoping against hope that something will break their way. In that category this year, we can place Herman Cain, Newt Gingrich, and Rick Santorum – and potentially Jon Huntsman. Ron Paul similarly lacks support from the traditional sectors that participate in the invisible primary, and instead relies on his group of hard-core believers for funds and boots on the ground. Ultimately his lack of establishment bona fides will – when push comes to shove – keep him in the second tier.

That leaves Michele Bachmann, Rick Perry, and Mitt Romney. Perry and Romney are both clearly on track at this point to dominate the invisible primary, which means that the Republican electorate will likely get to choose between these two next winter.
2. Ryan's preparing to run ?

Stephen Hayes tells us that 'GOP Bigs Push Paul Ryan to Run : Mitch Daniels, Jeb Bush, John Boehner, Jim Jordan, and Bill Bennett encourage Ryan to run for president.'

As Wisconsin congressman Paul Ryan comes to a final decision about running for president, several top national conservatives are encouraging him to join the race. Ryan, who has been seriously but quietly considering a presidential bid for several months, is expected to decide on a run in the next two weeks.

Indiana governor Mitch Daniels hopes he runs. “If there were a Paul Ryan fan club, I'd be a national officer,” Daniels said in a phone interview Wednesday morning.

“I don't think it's a secret that he was strongly encouraging me to try. I've been strongly encouraging him to run as well. He has all the qualities our party needs to be emphasizing in these elections. He can explain—and is willing to explain—in plain English why today's policies are a disaster for the middle class, and he has the smarts to go toe-to-toe with the people who are saying misleading things about the proposals that he’s put out there.”

That’s a view that is likely to matter. Ryan has said that his decision to reconsider a presidential bid came only after Daniels called him to say that he had decided against a run. The two men share a belief that reducing our national debt—and reforming the entitlements that are growing it—must be at the center of the presidential debate in 2012. Ryan told a Milwaukee radio station on Friday that he is unsatisfied with the current Republican field and disappointed the current crop of candidates has not gotten specific with their proposals.
3. Buffett Slams Today's GOP Prez Hopefuls.

Congressman Ryan isn't isn't the only one dissatisfied with the "current crop".  Add Warren Buffet to that growing list (though with all due respect to some commentators, the Oracle of Omaha did not literally call the GOP candidates "pathetic" on Charlie Rose last Monday).

The Culture Vulture Returns to the Peabody Essex Museum in Salem, MA

...and takes in two current exhibits.

Painting the American Vision features 45 landscapes by artists of the so-called Hudson River School. The highlight of the exhibit, which runs to November 6, is Thomas Cole's  Course of Empire Series.  But fans of  Albert Bierstadt and Frederic Edwin Church, not to mention Martin Joseph Heade, will not be disappointed, since these artists are also represented.

For a change of pace,  there's Man Ray | Lee Miller, Partners in Surrealism.  Running to December 4, this exhibit recounts Ray's and Miller's "brief but intense association and reveals the nature of their creative partnership ", via vintage photographs, paintings, sculpture and drawings. 

Thursday, August 11, 2011

On the Left and Right, There's Agreement : Growth is the Solution to the U.S. Economic Crisis

...although they may disagree on how to achieve that growth.  Robert Reich calls on the President to propose a payroll tax holiday and a sweeping federal jobs plan. In a NY Times Op Ed piece, reproduced in its entirety below, Former Fed Reserve Governor Warsh and Former Florida Governor Jeb Bush propose a 'grand strategy' for growth.

* * *

A New Strategy for Economic Growth

Growth is not just about economics. Growth unleashes human potential.

As the economy continues to struggle, we are reminded of a course offered at Yale University titled "Grand Strategy." Drawing on a weighty curriculum of history and philosophy, the course seeks to train future policy makers to tackle the complex challenges of statecraft in a comprehensive, systematic way. Clearly, U.S. economic policy is sorely lacking an effective grand strategy, and we are likely to endure high unemployment, weak economic performance and trying financial markets until such a strategy is articulated and pursued.

Policy makers should cease the barrage of ad hoc, short-term policy initiatives. Is increased federal spending across government agencies a grand strategy? How about checks in the mail to spur spending? Cash for clunkers to move auto inventories? Fast trains and faster Internet? Mortgage modification programs and fleeting tax credits to re-stoke home ownership?

Inducing consumers to do today what they would otherwise do tomorrow is hardly a grand strategy. Hundreds of billions in "stimulus" spending has stimulated little but more debt. Forty-eight months have passed since the onset of the financial crisis, 26 months since the recession technically ended. Yet job creation remains remarkably weak, and markets deeply uneasy.

We can't go on like this.

The debt-limit debate caused policy makers to recognize what citizens already knew: We must put our fiscal house in order. Cutting spending is essential. But we will never cut our way to prosperity.

So, what should be the economic grand strategy? In a word: growth.

Stability has replaced growth as the foremost objective of economic policy. But growth over the next 10 years is more consequential to our well-being than any new regulations promulgated by the Financial Stability Oversight Council or cost-cutting considered by the new congressional super committee. Absent strong growth, any projected improvements in the country's fiscal position won't materialize.

The grand strategy is sector-neutral. It doesn't have favored industries or political parties. It does not seek to curry favor with special interests. The grand strategy fights statism everywhere.

The grand strategy goes out of its way to ensure that big companies are not advantaged at the expense of smaller, entrepreneurial competitors. If banks are "too big to fail," they are too big. They must be allowed to succeed or fail on their own merit, without any hint of government support. The failed behemoths at the core of housing finance, Fannie Mae and Freddie Mac, should be wound down. Robust, dynamic competition is a far better way to allocate credit.

The grand strategy need not—and should not—be grandiose. It should avoid overpromising. Fiscal and monetary policies can help mitigate the effects of shocks to the economy, but they run grave risks if their goal is to target asset prices. When investors' perceptions of Treasury securities change rapidly, they tend to be far less sure about the price of riskier assets, like stocks. The resulting volatility in financial markets harms growth.

A pro-growth strategy is decidedly long term in orientation. It aims for higher standards of living five, 10 and 20 years out, long past the next election cycle. It replaces the false promise made to the next generation of entitlement-program recipients with a solvent, dependable model that encourages work and savings. Reforming Social Security before costs multiply and uncertainties spread is both fairer and more growth-oriented. And enacting consumer-driven health-care policies represents the best way to control costs and improve patient care.

An effective growth strategy confronts tough challenges before they become intractable. The strategy is a threat to those who take refuge in our burdensome tax code, and it is a great source of encouragement to those who seek higher rates of return on physical and human capital. Hence, fundamental tax reform—dramatically lowering tax rates for individuals and companies while eliminating loopholes, deductions and credits—is critical to economic growth.

Achieving strong growth requires the free flow of capital, goods and ideas. We have world-class products and services to sell to the growing middle class in emerging markets. We must find our voice to resist the rising tide of economic protectionism and recognize the job-creating benefits of our pending free trade agreements with South Korea, Colombia and Panama.

The growth strategy also demands an abiding respect for the rule of law, and stable, cost-effective rules of the road from regulators. A constantly changing regulatory regime kills investment and limits economic growth. The strategy also demands investing in our own natural resources, such as shale gas and the commensurate infrastructure to re-industrialize our country, creating jobs here in the U.S. rather than shipping hundreds of billions of dollars abroad.

Finally it means ensuring that the opportunities presented by a growing economy are matched by the skills of the next generation. We need to transform our education system through higher standards, merit-based teacher compensation and school choice. No grand strategy will prevail unless far more of our high-school graduates are college or career ready.

Stronger economic growth is not just about economics. Growth unleashes human potential. It turns personal aspirations into positive achievements. And it lays the predicate for a better, stronger, more prosperous and opportunity-filled America. Our weak economic recovery has dashed the hopes and dimmed the prospects of too many of our citizens. And it has put America's place in the world at risk.

We should resist the temptation to wrangle with the green eyeshade folks who question our prospects. Instead, we must take actions that demonstrate our resolve and resiliency. We must restore our faith in growth economics and reform our policies accordingly. This will bring strength to our markets and reaffirm our place in the world. 

Wednesday, August 10, 2011

Three--no Four--Perspectives on the Continuing Global Economic Crisis

The title of Tim Iacono's SEEKING ALPHA post ays it all : "Fed Promises Low Rates 'At Least Through Mid-2013': Good for Big Banks, Bad for Savers".

As Iacono sees it :
By promising to keep rates low “at least through mid-2013? in the policy statement released earlier yesterday, the central bank assured the nation’s big banks of continuing to make big profits for the next two years on the interest rate spreads.

Of course, this will continue to punish the nation’s savers who, for the foreseeable future, will be looking at rates of one percent or less for certificates of deposit.

Good luck, risk averse seniors…

* * *

What does this presage, socially and politically ? With calls for 'entitlement reform' -- code for drastic reductions in Medicare and Social Security -- growing more strident even as seniors see the Fed cutting into their meager income and simultaneously promoting food and fuel inflation, I foresee deepening generational and class chasms developing. That being the case, we should expect the 2012 Presidential Election to be marked by nearly unparalled political savagery, and the post-election period by social and political polarization on a level exceeding that of the 1970's, and possibly as severe as the 1850's.

* * *

So, as equities collapse and rise, only to collapse again, should investors flock to Commodities ? Maybe not. Why ?

According to James A. Kostohryz, China's economy will soon experience a slowdown, bringing about a collapse in commodity prices. The basics of his argument are as follows :

Exports comprise roughly 30% of China’s GDP – an extremely high share by any measure.

China’s export economy has driven massive investment in infrastructure. From an infrastructure point of view, it does not matter what percentage of the goods being processed are foreign or domestic. It still requires the same amount of port facilities, highways, roads, warehouses, railroads, trucks, and etc. The construction of this infrastructure does not enter into the GDP accounts as exports. However, the economic activity surrounding this build-out of outward looking infrastructure has been a key driver of Chinese GDP.

Similarly, foreign trade has indirectly been the primary impulse driving urbanization, which in turn, has been the main driver of putatively “domestic” GDP growth. Peasants from the countryside have flowed massively into the cities in search of factory jobs – or for jobs in formal or informal industries that supply and service factories and their workers.

In the last two years since the financial crisis of 2008, the slowdown in the growth of exports has meant that in order to maintain overall GDP growth rates at around 10%, the Chinese government has had to promote the stimulation of economic activity that previously was driven by the export sector.

From 2008, through 2010, in order to head off an economic collapse, China substituted debt-led domestic demand growth in lieu of the economic activity that had previously been driven directly and indirectly by foreign trade. This drastic transitional policy has created unsustainable imbalances in the medium term.

As the global economy slows, and China’s export sector once again comes under pressure to contract as it did in 2008, Chinese policy makers will find it much more difficult to compensate for the loss in foreign trade-related output.

In 2011, and 2012, it will be much more difficult for the Chinese government to compensate for external shocks to its foreign trade sector (including the massive amounts of domestic economic activity that is essentially subsidiary to the foreign trade sector). The massive increases of private indebtedness, and the concomitant imbalances created in the domestic economy, have severely limited the marginal effectiveness of potential Chinese counter cyclical monetary and fiscal policy.

A slowdown of economic growth in Europe and the US will to some degree be countered by counter cyclical policies instituted by the Chinese government. However, this time around, it is unlikely that the Chinese government will be able to prevent a substantial slowdown of the domestic Chinese economy.

Chinese officials may be able to prevent outright contraction; but not a substantial slowdown. As participants in global financial markets contemplate this prospect, commodities will get hit very severely. Under such a scenario, it would be very surprising if oil did not fall below $70 and copper did not fall below $3.00. Indeed, the entire commodity complex will probably get smashed. This includes the precious metals. [Emphasis mine]
* * *

What's the next EuroLand domino to fall ? Apparently France, according to MARKETWATCH's Matthew Lynn. Why should we in the U.S. be worried ? Read on...

Add it all up, and if the U.S. is getting downgraded there is no reason for the ratings agencies not to turn their fire on France next. That matters hugely for the financial system. While countries such as Greece and Portugal are largely irrelevant to the global system, France is very important. The country has a lot of paper out there — the government has total outstanding debts of $1.7 trillion, making it the fourth largest debtor in the world after the U.S., Japan and Italy. And that debt is far more widely held — 38% of French debt is held internationally, which is a lot more than Italy (24%), the U.S. (21%) or Japan (2%) [emphasis mine], according to calculations made by the research house TheCityUK.
The cost of insuring against a French default is starting to rise. The markets have started to notice the country’s dire position. It can’t be that long before the rating agencies catch up. If France does get downgraded, then it is going to be a very serious blow to the markets. Just about every bank and every bond portfolio in the world is going to take a hit [emphasis mine].
* * *

So what are we to do, other than huddle in our living rooms, numb ourselves into oblivion with reality shows on cable and drown our sorrows with Lite beer and Cheezits ?

Wait a second. Better scratch 'cable'. Too expensive for lots of folks, these days. In fact, according to BLOOMBERG's Alex Sherman, "Pay-TV Providers Face ‘Toxic Mix’ as Subscribers Cancel in Record Numbers" :

The six largest publicly traded U.S. cable and satellite-TV providers combined to lose about 580,000 customers in the second quarter, the biggest such decline in history, according to company and Bloomberg data.

The economy is forcing the industry to face the reality of cord-cutting -- pay-TV customers canceling their subscriptions in favor of online options such as Netflix Inc. (NFLX) and Hulu LLC. While cable executives dismiss the idea that subscribers are switching to “over the top” Internet competitors, the reason isn’t as important as the decision to stop paying for TV, said Craig Moffett, an analyst at Sanford C. Bernstein in New York.

The catalysts, according to cable and satellite executives, include increased competition from telephone companies AT&T Inc. (T) and Verizon Communications Inc. (VZ), which added a combined 386,000 video customers, and a sluggish economy that forced lower-income customers to cancel service.

As new home sales slumped in May and again in June, installations suffered, and there weren’t enough new subscribers to make up the difference, Cablevision Systems Corp. (CVC) Chief Operating Officer Tom Rutledge said yesterday on a conference call.

“The economic impact on our customers in lower-income neighborhoods is more pronounced,” Rutledge said. “We see less gross adds in low-income areas, and that’s the result of economics and vacancies.”

Of the six largest publicly traded U.S. cable and satellite providers, only DirecTV added customers in the second quarter. Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC), Charter Communications Inc. (CHTR) and Cablevision lost a total of 471,000 video customers in the quarter. Dish Network Corp. (DISH) lost 135,000 after adding 58,000 in the previous period.

Tuesday, August 9, 2011

CITY JOURNAL the nation’s premier urban-policy magazine, “the Bible of the new urbanism ' ???

Well, that's according to CJ's 'About Us' Page.

Still, without question, CJ prints highly informative, well-written, and topical articles, such as

George Friedman On the Current Global Crisis in Political Economy

Friedman's compelling STRATFOR article is reproduced in its entirety, below

* * *

Classical political economists like Adam Smith or David Ricardo never used the term “economy” by itself. They always used the term “political economy.” For classical economists, it was impossible to understand politics without economics or economics without politics. The two fields are certainly different but they are also intimately linked. The use of the term “economy” by itself did not begin until the late 19th century. Smith understood that while an efficient market would emerge from individual choices, those choices were framed by the political system in which they were made, just as the political system was shaped by economic realities. For classical economists, the political and economic systems were intertwined, each dependent on the other for its existence.

The current economic crisis is best understood as a crisis of political economy. Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life. On a global scale, or at least for most of the world’s major economies, there is a crisis of political economy. Let’s consider how it evolved.

Origin of the Crisis

As we all know, the origin of the current financial crisis was the subprime mortgage meltdown in the United States. To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing. It assumed that the price of homes would always rise and, at the very least, if the price fluctuated the value of the paper could still be determined. Neither proved to be true. The price of housing declined and, worse, the value of the paper assets became indeterminate. This placed the entire American financial system in a state of gridlock and the crisis spilled over into Europe, where many financial institutions had purchased the paper as well.

From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much. From the standpoint of political economy it raised a different question: the legitimacy of the financial elite. Think of a national system as a series of subsystems — political, economic, military and so on. Then think of the economic system as being divisible into subsystems — various corporate verticals with their own elites, with one of the verticals being the financial system. Obviously, this oversimplifies the situation, but I’m doing that to make a point. One of the systems, the financial system, failed, and this failure was due to decisions made by the financial elite. This created a massive political problem centered not so much on confidence in any particular financial instrument but on the competence and honesty of the financial elite itself. A sense emerged that the financial elite was either stupid or dishonest or both. The idea was that the financial elite had violated all principles of fiduciary, social and moral responsibility in seeking its own personal gain at the expense of society as a whole.

Fair or not, this perception created a massive political crisis. This was the true systemic crisis, compared to which the crisis of the financial institutions was trivial. The question was whether the political system was capable not merely of fixing the crisis but also of holding the perpetrators responsible. Alternatively, if the financial crisis did not involve criminality, how could the political system not have created laws to render such actions criminal? Was the political elite in collusion with the financial elite?

There was a crisis of confidence in the financial system and a crisis of confidence in the political system. The U.S. government’s actions in September 2008 were designed first to deal with the failures of the financial system. Many expected this would be followed by dealing with the failures of the financial elite, but this is perceived not to have happened. Indeed, the perception is that having spent large sums of money to stabilize the financial system, the political elite allowed the financial elite to manage the system to its benefit.

This generated the second crisis — the crisis of the political elite. The Tea Party movement emerged in part as critics of the political elite, focusing on the measures taken to stabilize the system and arguing that it had created a new financial crisis, this time in excessive sovereign debt. The Tea Party’s perception was extreme, but the idea was that the political elite had solved the financial problem both by generating massive debt and by accumulating excessive state power. Its argument was that the political elite used the financial crisis to dramatically increase the power of the state (health care reform was the poster child for this) while mismanaging the financial system through excessive sovereign debt.

The Crisis in Europe

The sovereign debt question also created both a financial crisis and then a political crisis in Europe. While the American financial crisis certainly affected Europe, the European political crisis was deepened by the resulting recession. There had long been a minority in Europe who felt that the European Union had been constructed either to support the financial elite at the expense of the broader population or to strengthen Northern Europe, particularly France and Germany, at the expense of the periphery — or both. What had been a minority view was strengthened by the recession.

The European crisis paralleled the American crisis in that financial institutions were bailed out. But the deeper crisis was that Europe did not act as a single unit to deal with all European banks but instead worked on a national basis, with each nation focused on its own banks and the European Central Bank seeming to favor Northern Europe in general and Germany in particular. This became the theme particularly when the recession generated disproportionate crises in peripheral countries like Greece.

There are two narratives to the story. One is the German version, which has become the common explanation. It holds that Greece wound up in a sovereign debt crisis because of the irresponsibility of the Greek government in maintaining social welfare programs in excess of what it could fund, and now the Greeks were expecting others, particularly the Germans, to bail them out.

The Greek narrative, which is less noted, was that the Germans rigged the European Union in their favor. Germany is the world’s third-largest exporter, after China and the United States (and closing rapidly on the No. 2 spot). By forming a free trade zone, the Germans created captive markets for their goods. During the prosperity of the first 20 years or so, this was hidden beneath general growth. But once a crisis hit, the inability of Greece to devalue its money — which, as the euro, was controlled by the European Central Bank — and the ability of Germany to continue exporting without any ability of Greece to control those exports exacerbated Greece’s recession, leading to a sovereign debt crisis. Moreover, the regulations generated by Brussels so enhanced the German position that Greece was helpless.

Which narrative is true is not the point. The point is that Europe is facing two political crises generated by economics. One crisis is similar to the American one, which is the belief that Europe’s political elite protected the financial elite. The other is a distinctly European one, a regional crisis in which parts of Europe have come to distrust each other rather vocally. This could become an existential crisis for the European Union.

The Crisis in China

The American and European crises struck hard at China, which, as the world’s largest export economy, is a hostage to external demand, particularly from the United States and Europe. When the United States and Europe went into recession, the Chinese government faced an unemployment crisis. If factories closed, workers would be unemployed, and unemployment in China could lead to massive social instability. The Chinese government had two responses. The first was to keep factories going by encouraging price reductions to the point where profit margins on exports evaporated. The second was to provide unprecedented amounts of credit to enterprises facing default on debts in order to keep them in business.

The strategy worked, of course, but only at the cost of substantial inflation. This led to a second crisis, where workers faced the contraction of already small incomes. The response was to increase incomes, which in turn increased the cost of goods exported once again, making China’s wage rates less competitive, for example, than Mexico’s.

China had previously encouraged entrepreneurs. This was easy when Europe and the United States were booming. Now, the rational move by entrepreneurs was to go offshore or lay off workers, or both. The Chinese government couldn’t afford this, so it began to intrude more and more into the economy. The political elite sought to stabilize the situation — and their own positions — by increasing controls on the financial and other corporate elites.

In different ways, that is what happened in all three places — the United States, Europe and China — at least as first steps. In the United States, the first impulse was to regulate the financial sector, stimulate the economy and increase control over sectors of the economy. In Europe, where there were already substantial controls over the economy, the political elite started to parse how those controls would work and who would benefit more. In China, where the political elite always retained implicit power over the economy, that power was increased. In all three cases, the first impulse was to use political controls.

In all three, this generated resistance. In the United States, the Tea Party was simply the most active and effective manifestation of that resistance. It went beyond them. In Europe, the resistance came from anti-Europeanists (and anti-immigration forces that blamed the European Union’s open border policies for uncontrolled immigration). It also came from political elites of countries like Ireland who were confronting the political elites of other countries. In China, the resistance has come from those being hurt by inflation, both consumers and business interests whose exports are less competitive and profitable.

Not every significant economy is caught in this crisis. Russia went through this crisis years ago and had already tilted toward the political elite’s control over the economy. Brazil and India have not experienced the extremes of China, but then they haven’t had the extreme growth rates of China. But when the United States, Europe and China go into a crisis of this sort, it can reasonably be said that the center of gravity of the world’s economy and most of its military power is in crisis. It is not a trivial moment.

Crisis does not mean collapse. The United States has substantial political legitimacy to draw on. Europe has less but its constituent nations are strong. China’s Communist Party is a formidable entity but it is no longer dealing with a financial crisis. It is dealing with a political crisis over the manner in which the political elite has managed the financial crisis. It is this political crisis that is most dangerous, because as the political elite weakens it loses the ability to manage and control other elites.

It is vital to understand that this is not an ideological challenge. Left-wingers opposing globalization and right-wingers opposing immigration are engaged in the same process — challenging the legitimacy of the elites. Nor is it simply a class issue. The challenge emanates from many areas. The challengers are not yet the majority, but they are not so far away from it as to be discounted. The real problem is that, while the challenge to the elites goes on, the profound differences in the challengers make an alternative political elite difficult to imagine.

The Crisis of Legitimacy

This, then, is the third crisis that can emerge: that the elites become delegitimized and all that there is to replace them is a deeply divided and hostile force, united in hostility to the elites but without any coherent ideology of its own. In the United States this would lead to paralysis. In Europe it would lead to a devolution to the nation-state. In China it would lead to regional fragmentation and conflict.

These are all extreme outcomes and there are many arrestors. But we cannot understand what is going on without understanding two things. The first is that the political economic crisis, if not global, is at least widespread, and uprisings elsewhere have their own roots but are linked in some ways to this crisis. The second is that the crisis is an economic problem that has triggered a political problem, which in turn is making the economic problem worse.

The followers of Adam Smith may believe in an autonomous economic sphere disengaged from politics, but Adam Smith was far more subtle. That’s why he called his greatest book the Wealth of Nations. It was about wealth, but it was also about nations. It was a work of political economy that teaches us a great deal about the moment we are in.

Saturday, August 6, 2011


Am I becoming a Democrat, or is it simply true that right-thinking people tend to draw the same conclusions from the same set of facts ? Case in point, I fully agree with Robert Reich's broadside, "Why S&P Has No Business Downgrading the U.S.", liberally quoted below.

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Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?

If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long term debt — or, more accurately, the ratio of debt to GDP — is none of S&P’s business.

S&P’s intrusion into American politics is also ironic because, as I pointed out recently, much of our current debt is directly or indirectly due to S&P’s failures (along with the failures of the two other major credit-rating agencies — Fitch and Moody’s) to do their jobs before the financial meltdown. Until the eve of the collapse S&P gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations.

Had S&P done its job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have become so large – and their bursts wouldn’t have brought down much of the economy. You and I and other taxpayers wouldn’t have had to bail out Wall Street; millions of Americans would now be working now instead of collecting unemployment insurance; the government wouldn’t have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.

In other words, had Standard & Poor’s done its job over the last decade, today’s budget deficit would be far smaller and the nation’s future debt wouldn’t look so menacing.

We’d all be better off had S&P done the job it was supposed to do, then. We’ve paid a hefty price for its nonfeasance.

A pity S&P is not even doing its job now. We’ll be paying another hefty price for its malfeasance today.

Friday, August 5, 2011

Blogger DJ's Tribute to the Weekend in general, and to Friday Night in particular

The Moody Blues, in the '60s
Cutting Crew - I Just Died in Your Arms Tonight
Steve Winwood - Don't You Know What the Night Can Do? 

Commodores - Nightshift
Earth Wind and Fire - Let's Groove Tonight
Bruce Springsteen - Dancing in the Dark
Lionel Ritchie - All Night Long
Roy Orbison - I Drove All Night  
Bob Seger- Night Moves
Bob Seger - Hollywood Nights
Brenda Russell - Piano in the Dark
Oscar Petersen covers Night Train
Diana Krall covers Night Train
Moody Blues - Nights in White Satin
Streets of Fire - Tonight is What it Means to Be Young   


...goes to Business Leaders and Experts who, according to Ruth Mantell of MARKETWATCH, just now recognize that multitasking is bad for productivity !

Why, over the last two decades, has American Management prodded and badgered workers into multitasking ? I don't think Mantell ever addresses this question in her article, excerpted below.  On the other hand, personal experience and observation lead me to believe that Management's main goal was to squeeze more work out of fewer people, for their greater glory, and, of course, profit.   

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There’s growing evidence that multitasking may be hurting productivity and actually making workers worse thinkers — and businesses need to re-examine goals in this area.

With the ubiquity of mobile devices and other communications technology, many workers are expected to multitask, with some employees taking pride in their perceived ability to switch between complex tasks. But all this multitasking is putting workers, as well as their employers, at risk, experts say.

“It’s unequivocally the case that workers who are doing multiple things at one time are doing them poorly,” said Clifford Nass, director of the Communication Between Humans and Interactive Media Lab at Stanford University.

In a 2009 study, Nass and other researchers found that heavy media multitaskers are “more susceptible to interference from irrelevant environmental stimuli,” and were worse at switching between tasks, likely because of their lesser ability to ignore irrelevant information.

From an employer’s point of view, one of the most worrying effects may be the trouble that chronic multitaskers have focusing.

“They are seduced by irrelevancy. They are constantly distracting themselves. They will look for distraction even when no such distraction exists,” Nass said. “We are creating a culture that encourages workers to be less effective, handle information poorly and have a tougher time in social relationships. What does the workforce look like where people can’t pay attention, where people can’t think deeply, and where people lack emotional skills? It’s a pretty scary world.”

Troubles can start when individuals try to work simultaneously on more than one complex task. Complex tasks require some reflection or mindfulness, said Earl Miller, a professor of neuroscience at the Massachusetts Institute of Technology.

“Anything that involves upgrading information requires consciousness, and that’s where the limited bandwidth comes in,” Miller said.

Culture Vulture Alert : Chihuly Exhibit at MFA Closes August 8 !!!

This is truly one of those rare, don't-miss exhibits.
The 'Persians' Room at the Exhibit. For a video, click on this link to the artist's website.

But be advised, this is also one of the most gruelling shows because of the large crowds in attendance, and more importantly because the Museum has actually encouraged attendees to snap pics (non-flash).  

Thursday, August 4, 2011

Danger to Turkish Democracy Passing Virtually Unnoticed in the West

For a glimpse at how the the Justice and Development Party, or AK Parti, has undermined freedom of the press and the independence of the military--for decades the primary safeguard of Turkish secular reform--and the current state of affairs in the country, check out these articles on the HURRIYET DAILY's website.

PM Erdogan with his new army Chief of Staff (AP)
For a contrasting, reliably pro-AK-Party viewpoint, check out articles by TODAY's ZAMAN writers :

More on Jon Huntsman's Rapidly Disintegrating Campaign for President

In fact, a whole lot more is provided by Jonathan Martin in his extensive POLITICO piece, "Jon Huntsman 2012 campaign: Inside the 'drama'", excerpts from which appear below.

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Tensions within presidential campaigns, especially those struggling to find traction, are common. But the ferocity with which Fischer and others attack Weaver and the extent they went to disclose sensitive internal problems is not merely the stuff of a power struggle. It’s illustrative of a campaign that has been thrown together on the run and is comprised of figures who hadn’t even met the candidate before he returned from China this spring, working alongside those who have known him for much of their adult life.

The problem for Huntsman, of course, is that all this high-decibel public squabbling undercuts his main rationale for winning the GOP nomination — that the former Utah governor offers the level-headed competence and executive experience needed to unseat President Barack Obama. Not only that, but voters might wonder how he’d bring civility to the public discourse — another Huntsman promise — if he can’t do the same inside the four walls of his campaign headquarters.

Publicly, at least, Huntsman’s campaign problems were most vividly illustrated when he formally launched his campaign on June 21 across the Hudson from the Statue of Liberty.

When the elder Huntsman [the candidate's father] arrived at Liberty Park, he immediately noticed that his son’s name was misspelled as “John” on the credentials, recalled Fischer.

“Huntsman Senior and his wife saw it within five seconds, too, and they came over. It was like, ‘Who did this? They need to be fired. This is embarrassing.’”

Then, when the Huntsman caravan arrived to a Saudi airplane at the Newark airport, the father again knew something was amiss.

At age 74, he took matters into his own hands.

“So Huntsman told the bus driver, ‘Open the door.’ He goes out and he’s talking to the cops out there and he’s taking control of it. He’s pointing in the other direction to that. So finally, we all get back on the buses and we head over to the right airplane.”

Third Round of Fed Quantitative Easing Not in the Cards

argues Eric Parnell in his SEEKING ALPHA post, "3 Reasons Why Markets May Not See QE3 Anytime Soon".

Parnell's 3 reasons ? Glad you asked.

1. QE hasn't worked all that well in the past, especially QE2. That's put the Fed on the defensive, for driving up "asset and commodity price inflation at the expense of retiree savers living on fixed incomes and low to middle income families".

2. Under a "political microscope" because of (1) above, Fed Chairman Bernanke won't risk taking any measure that risks the Fed's continued independence. Parnell asserts that "the economy and financial markets will need to be hemorrhaging to the point where the public and those on Capitol Hill are begging him to take action".

3. Bernanke may well withhold QE3, realizing that each successive dose of QE has brought diminished returns.

So what does this all imply for markets as it relates to QE3? It may not be coming at all. And if QE3 does come, it may not come anytime soon. Instead, we may need to see a more definitive contraction in economic activity and a severe decline in stocks before the Fed is inclined to act. And even if the Fed does act with QE3, it’s efficacy may not be what stock investors have become accustomed to and are hoping for the next time around. As a result, stock investors pinning their hopes on QE3 may be setting themselves up for disappointment along the way.

The next read on the Fed and their intentions will come on August 9 with the next FOMC meeting. After that, it’s the annual Fed conference in Jackson Hole, Wyoming on August 26. Of course, it was in Jackson Hole last year that the Fed rolled out QE2, so all eyes will be transfixed on Bernanke this year. Given the increasingly struggling economy, these two events will tell us a lot more about whether the Fed plans on bringing QE3 sooner, later or at all.

* * *

Cullen Roche casts another vote against QE3 in his post, "QE3: Another Monetary Non-Event?". Roche provides a clear, perceptive analysis of QE's pernicious effects, excerpted below.
What we got from QE2 was essentially one huge margin squeeze on the economy as investors protected themselves from inflation via their market hedges (helping contribute to cost push inflation via commodity prices), but saw little to no real-world impact (no offsetting substantive increase in hourly earnings). The result was an increase in inflation and inflation expectations, but no positive follow-through in the real economy to offset the negative effect of the cost push inflation.

In terms of its real effects, QE2 could have actually been more of a drag on the economy than a form of stimulus. We know for a fact that the Federal Reserve turned over $73B in profits to the US Treasury in 2010 alone. That is largely interest income that is being taken away from the private sector as a result of their massive balance sheet expansion. Remember, this is interest income that the banks could have been earning. Instead, they are receiving 0.25% paper in exchange for their much higher yielding securities. QE does not add net financial assets to the private sector so the net financial drag appears to have been quite substantial.

In sum, it appears as though the positives (wealth effect, portfolio rebalancing and lower US dollar) were more than offset by the many negative trends that persisted. I am a bit surprised by the fact that some Fed officials are weighing another go at QE. The data appears undeniably weak arguing in favor of further “experimental policy”. We have had our experiment and it did not work. What is the point of trying it again? And have we considered the possibility that it could actually makes things worse? As a risk manager, this looks like an awfully bad bet to me. Granted, Dr. Bernanke isn’t in the business of portfolio management, but he is in the business of creating price stability and full employment. I don’t see how this program helps him achieve these goals.

Repatriating US Corp Earnings from Abroad A Silver Bullet ?

No, says Joe Weisenthal in a BUSINESS INSIDER article entitled, 'The Very Last "Stimulus" Card For Obama To Play'. Joe explains...

...the truth is that we actually tried this before under the last stimulating President (Bush) with the Homeland Investment Act of 2004. And it flopped.

A group of economists who studied the effects of the HIA concluded that "Repatriations did not lead to an increase in domestic investment, employment or R&D -- even for the firms that lobbied for the tax holiday stating these intentions and for firms that appeared to be financially constrained. Instead, a $1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders."