December 1, 2010

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Spengler uses the leaked cables to expand on Obama’s delusional utopian vision of the world, and the concern that some faltering nations will go the tragic route that Russia has gone.

…The initial reports suggest that the US State Department has massive evidence that Obama’s approach – “engaging” Iran and coddling Pakistan – has failed catastrophically. The crisis in diplomatic relations heralded by the press headlines is not so much a diplomatic problem – America’s friends and allies in Western and Central Asia have been shouting themselves hoarse for two years – but a crisis of American credibility.

Not one Muslim government official so much as mentioned the issues that have occupied the bulk of Washington’s attention during the past year, for example, Israeli settlements. The Saudis, to be sure, would prefer the elimination of all Israeli settlements; for that matter, they would prefer the eventual elimination of the state of Israel. In one conversation with a senior White House official, Saudi King Abdullah stated categorically that Iran, not Palestine, was his main concern…

…How do we explain the gaping chasm between Obama’s public stance and the facts reported by the diplomatic corps? The cables do not betray American secrets so much as American obliviousness. The simplest and most probable explanation is that the president is a man obsessed by his own vision of a multipolar world, in which America will shrink its standing to that of one power among many, and thus remove the provocation on which Obama blames the misbehavior of the Iranians, Pakistanis, the pro-terrorist wing of the Saudi royal family, and other enemies of the United States. …


Mort Zuckerman has a sobering opinion of the economy.

…The prognosis for America is especially discouraging. We have relied too heavily on surplus savings from abroad on top of running massive current account deficits. Until recent times, we ran deficits of this order only when we were engaged in a titanic war; otherwise we sought to achieve budget balances over a complete business cycle. But now we are running annual deficits of $1.4 trillion, about 10 percent of the total economy. We have compounded the deficits we accumulated over the last decade, so they now reach 61 percent of GDP. Only once before has the ratio of federal debt to GDP come in above 60 percent. That was after World War II. And our federal debt ratio today doesn’t even take into account Social Security and Medicare. Total liabilities and unfunded promises for Medicare and Social Security were about $62 trillion at the end of the last fiscal year, tripling from the year 2000, according to the calculations of former Comptroller General David Walker. Sixty-two trillion dollars is $200,000 per person and $500,000-plus for the average household. As Walker put it, the problem with these trust funds is “you can’t trust them [and] they’re not funded.” Therefore, he asserts, we ought to count them as a liability, which would bring the debt-to-GDP ratio to 91 percent.

…We clearly need to reduce our dependency on foreign lenders. Quite simply, we are mortgaging the future of our young people at record rates while we fail to improve education, healthcare, and a decaying infrastructure. How is it that we manage this while spending double per person what the average industrialized nation spends on such programs? Who could be surprised that so many Americans now fear that their children and grandchildren will not have as good a life as they had? Whose American dream?

…Fiscal responsibility and discipline are going to be critical issues in the formulation of public policy. The debates in this election season, sidetracked on emotional but marginal issues, have been depressing. We cannot continue to mortgage our future by reducing investments in our future, whether it be for education, infrastructure, or basic research. We still possess the most appealing popular culture and public values, as well as the most innovative and competent business culture. American exceptionalism endures. But we must confront our dysfunctional and profligate government. …


In Daily Markets, Michael Snyder gives us an overview of how economic numbers have gotten worse over the last four years.

…If you watch the economic statistics from week to week and month to month, it will seem like sometimes they are getting worse and sometimes they are getting better.  However, once you take a longer-term view of things, exactly what is happening to us starts to come clearly into focus.  The truth is that the United States is in the midst of a long-term economic collapse, and many economic statistics just keep getting worse every single year.

The following are 11 statistics that reveal just how far the U.S. economy has fallen over the past four years….

#1 In November 2006, the “official” U.S. unemployment rate was 4.5 percent.  Today, the “official” U.S. unemployment rate has been at 9.5 percent or greater for more than a year.

#2 At Thanksgiving back in 2006, 26 million Americans were on food stamps.  Today, there are over 42 million Americans on food stamps and that number is climbing rapidly.

#3 According to the U.S. Census Bureau, median household income in the United States fell from $51,726 in 2008 to $50,221 in 2009.  Median household income declined the year before that too.  Meanwhile, prices have continued to rise throughout that period. (Note that this statistic is even worse for the private sector when you consider that the Census number includes all the salary increases that government workers have continued to receive.)

#4 At the end of the third quarter in 2006, 47 banks were on the FDIC “problem list”.  At the end of the third quarter in 2010, 860 banks were on the FDIC “problem list”. …


Robert Samuelson gives a good snapshot of what led to Ireland’s economic troubles, and hints at the trouble that still looms.

What you need to know about Ireland’s economic crisis is that it’s not about Ireland: a country of slightly more than 4 million people and an economy of roughly $200 billion. It’s about Europe. For decades, Europe has pursued two great political projects. One is the democratic welfare state, designed to ensure that various “safety nets” improve economic justice. The other is European unity, symbolized by the creation in 1999 of a single currency—the euro—now used by 16 countries. The fact that both contributed to Ireland’s troubles suggests that Europe could be on the brink of a broader crisis.

Ireland’s problems are not isolated, and if they portend a wider meltdown, this would mark a dangerous new phase in the global economic turmoil that began in 2007. Europe represents about a fifth of the world economy, roughly equal to the U.S. share. If the continent relapsed into recession, economic nationalism would intensify as the already weak recovery faltered and countries competed for scarce sales. For example: Europe buys about 25 percent of America’s exports. These would suffer.

…Europe’s challenge is no longer just economic; it’s also political and social. The rescue of Ireland, as with Greece before, represents a gamble that Europe can win the patience of bondholders and voters: the first, not to dump bonds (of Ireland and other countries) in panic, which would raise interest rates and might precipitate a self-fulfilling financial collapse; and the second, to tolerate austerity (higher unemployment, lower social benefits, heavier taxes) without resorting to paralyzing street protests or ineffectual parliamentary coalitions. Whether the gamble will succeed is unclear, as are the chaotic consequences if it doesn’t.


In the Atlantic Blogs, Megan McArdle blogs about more trouble in the EU, and where this might lead.

As Spain starts looking rocky, Tyler Cowen writes:

In a nutshell, we’re watching the most pitched, highest-stakes, most determined battle between politics and finance which has been staged. I am expecting finance to win.

…Europe cannot let its banks fail, but it also can’t divert public pensions to line the pockets of bankers.  Yet it may well have to do one or the other.  I am also expecting finance to win.  Forget whether Germany has the political will to bail out the PIIGS: does either the EU, or the ECB, actually have the means to bail out all five?  If Spain topples, that is what it will come to.

This is starting to throw off more echoes of the Great Depression, where you have a sequence of crises, each touched off by the ones that came before, like dominos falling into some diabolic design. Europe and America thought they’d seen the worst of things by the end of 1930, only to be knocked back down even harder by the contagion of the Creditanstalt crisis.  In the US, the crisis ultimately triggered a string of bank failures worse than those sparked by the initial stock market crash, and the worst two years of the Great Depression were 1932-3. …


Michael Barone highlights the idea of letting states go into bankruptcy. Go to Pickings November 23, 2010 for Skeel’s article.

…University of Pennsylvania law professor David Skeel, writing in the Weekly Standard, suggests that Congress pass a law allowing states to go bankrupt.

Skeel, a bankruptcy expert, notes that a Depression-era statute allows local governments to go into bankruptcy. Some have done so: Orange County, Calif., in 1994; Vallejo, Calif., in 2008. Others — perhaps a dozen small municipalities in Michigan — are headed that way.

A state bankruptcy law would not let creditors thrust a state into bankruptcy — that would violate state sovereignty. But it would allow a state government going into bankruptcy to force a “cramdown,” imposing a haircut on bondholders, and to rewrite its union contracts.

The threat of bankruptcy would put a powerful weapon in the hands of governors and legislatures: They can tell their unions that they have to accept cuts now or face a much more dire fate in bankruptcy court. …

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