Saturday, October 30, 2010

Throwing in the towel?

One of the issues with President Obama's politics is how time and again he leaves the 'political dog fight' early and over compromises for the liberal cause; the liberal cause which actually defines a right policy for this country in today's recessionary times.

So even before Tuesday's elections results are out, President Obama is giving up on his tax policy and, as expected, giving up on his insistence to let expire tax cuts for rich (above $250K annual income). President Obama argued rightly earlier that he would rather have those $700B tax cuts for rich over a decade applied to other avenues to kick the start economy; like payroll tax cut or reduction in corporate tax etc. But if this Bloomberg news is to be believed, President Obama has given up on this and is ready to extent tax cuts for rich for few more years. He knows very well that to extent these tax cuts for rich for few more years means to extend them permanently. When the need to 'tighten our belts is most' and 'need of contribution from rich to Fed Government' is highest in this Great Recession and American President fails to do what is right for us; it means when times are good and when economy recovers in next few years the opportunity will be passed again. That is how Alan Greenspan justified Bush Tax Cuts in the first place - Clinton era surplus means Fed was collecting more money permanently and hence justified tax cuts. Bottom line, once temporarily extended tax cuts for rich; these tax cuts will be extended forever for rich. It seems President Obama simply wanted to 'trick' his liberal base. Beyond political misuse of his base, it also means President Obama is systematically reducing his vote banks to fight for progressive agenda. This is important in days to come because he will no longer have any leverage in Congress to pass any legislative victories. President Obama will primarily have to undertake 'political dog fight' if only America to have any chance in stopping the on-slaughter of Tea Party in dismantling collective entitlements. Throwing in towel instead of being a fighter, it is hardly going to inspire Democrats. No wonder more and more Democrats are entertaining an idea of having someone else to defend progressive achievements of many decades. President Obama simply does not seem to have his heart and willingness to fight for these achievements. Just a sad end for a promising leadership.

Stewart Rally - Political Innovation?

Well, that may be hyperbola. But having a duel and big large overhead screen to make a point in bit of 'multi-media' manner; that was kind of cool. I hope more and more American Political Rallies become an experience in 'multi-media' environment. If that is the case, Stewart's rally will be a starting point.

But in the end, I share James Fallows sentiments when it comes to the political crux of the matter. Stewart got it right, question is whether Americans are ready to listen. On Tuesday night and thereafter it will be clear.

Monday, October 25, 2010

Brutal Take Down

"He had already been first at everything. He wanted to be something other than the first -- to be historical, game-changing, to have grand influence like FDR or LBJ. But he missed out on the day job," which was jobs and economic growth.

-- Charlie Cook in Washington Post while talking about President Obama.

Being an Obama Supporter and supporter of his Health Care law, I may not like to read what Cook is saying; but probably he is talking Truth here regardless of how vehemently President Obama denies that.

Incomplete Analysis

Ross Douthat makes a case in NYT why TARP 'unpopularity' is justified even if it was a right policy. He subscribes to 'enlightened understanding' of American Public in saying

"The bailout became law because the legislative branch was stampeded with the threats of certain doom. It vested unprecedented economic authority in a single unelected official, the secretary of the Treasury. And it used public funds to insulate well-connected private actors from the consequences of their recklessness. Its creation short-circuited republican self-government, and its execution created moral hazard on an epic scale. It may have been an economic necessity, but it felt like a travesty nonetheless."

This is 'too rich' reading of American Public. Because otherwise how do you explain the lukewarm reaction of American Public to Dodd-Frank Regulation which is supposed to address this problem? How do you explain support of American Public to a discredited political party which simply opposed any remedial measures to stop TARP like situation? And finally how do you explain the way Americans are ignoring political donations by TARP saved Wall Street Bankers to GOP to kill the Consumer Protection Agency created by Dodd-Frank Law?

Hardly enlightened Public here. One suspects Ross Douthat is simply justifying anger of Tea Party supporters without any accountability or logic. Tragedy is today in America more people are 'mad and angry' than those who want to think through what is sold in this political campaign.

Sunday, October 24, 2010

Yulianna Avdeeva

Looks like Russia is re-asserting it's traditional prowess in Western Classic Music. No luck to predominantly Asian field this time. Yulianna Avdeeva, that is the new name on the international piano circuit. I suppose she will make more money on Asia side than Western Countries in days to come.

Friday, October 22, 2010

Grand Experiment

Searching for parallel universe or multidimensional world at Large Hadron Collider is not the only kind of grand experiment which is going on the Europe soil. First with Angela Merkel of Germany and now with David Cameron Government of UK, large European Economies are embarking upon 'austerity programs in times of recession'. Keynesian Economists are bewildered by this sharp turn of events.

When smaller economies undertake austerity amid recession, extrapolation of that policy does not work for American Economy. However, when we are talking about OECD economies like Japan, Germany and UK; these policy adventures are perfectly relevant to USA due to size of these economies in multi-trillions and structural similarity among all these OECD economies. No longer one would ignore these programs howsoever those may be unpalatable to one's taste because of the ultra-hot chilly sauce of Tea Party.

To start with, Merkel derided Obama & Dem Company and started the medicine of 'austerity & budget cuts' while rest of the world was trying the tonic of 'stimulus'. The magic did not show any potency in Germany. Paul Krugman convincingly argued that the 'medicine' is not better than the tonic. German Economy did not clock any higher growth rates. But more important, as the European Crisis was unfolding and questions about viability & sustainability of Euro were staple diet of everyday news; weaker Euro basically helped Germany to crank out stellar export and everybody felt good about that. As the European Crisis is subsiding and Dollar is coming under renewed pressure, German Export machine is experiencing hiccups due to stronger Euro. Basically, by anchoring Euro to the stronger German Economy; Germany bought the 'free pass' of increased export for a while. As that free pass expires, Germany would come to earth and 'post-Keynesian policy' fairy tale would end.

That is not so easy in case of Japan which has been on the Keynesian tonic of deficit funded stimulus for decades with no results to show except for few years of Koizumi Jun'ichirĊ when again 'queen austerity ruled'. Paul Krugman attempts to argue that USA should envy Japan, meaning America is unlikely to fare any better than Japan in presence of GOP driven 'cut deficit' program. That is not an easy argument to accept unless anyone wants to fully discount the differences between Japan and America starting with demographic to much freer market in America. For sure Tea Party and majority of America do not accept equalization of America with Japan. At the bottom, American Exceptionalism of Sarah Palin kind resonates with Americans and hence there are political grounds to believe that America will avoid the fate of Japan. The very political dynamism of Tea Party demonstrates this point amply.

So now the question is whether the David Cameron gamble of austerity will succeed in UK or not and that is the grand experiment which the world will be watching breathlessly. As Quantitative Easing has reached limits in UK and USA, Keynesian argument improvises to 'coupling of fiscal response with QE'. There is a merit in that as it is obvious that QE in itself will not pull USA out of this recession as the amount of debt to be purchased by Fed sky rockets to 10 Trillion Dollar and more.

But one just wonders, is effectiveness of Keynesian response anything to do with the quality of spending one undertakes? For example, if Dems were to stipulate Fed assistance to States only on the condition of reining in public employee costs of States; will it not induce the badly needed efficiency in the system? And that is where hopes of Cameron program lies - from no ideological resistance to increase taxes to increase funding for NIH to bringing efficiency in public affairs. So for all we know, in the end Cameron Program may succeed too. Jury is out and that will be one heck of a contribution from UK people to the world - to bring real world falsification to Keynesian policy measures.

Saturday, October 16, 2010

Revenge on High Finance?

Looks like finally there is something in American System which can bring down the High Finance of Wall Street. Dodd-Frank Law only goes up to a certain point and there are legitimate concerns about that law.

But as this Wall Street Journal report indicates, finally glacial speed of American Legal System, anarchic laws in various States, no nationally streamlined legal system for property laws and over production of legal document so as their high number drowns out even the property rights of Financier (!); all these things are throwing a spanner in a system which the same Wall Street Journal has been tom-toeing for decades - the rule of Law and protection of property rights in USA. Is it not WSJ and American Capitalism, so lionized by Republicans and Tea Party, always claiming that 'property rights' as the heart of Capitalism? Now, take those property rights and shove in unpleasant places of High Finance. There is no way in the world WSJ can maintain that 'ignore chain of property ownership' and let bankers win. One wonders, if this is the situation in supposedly one of the better legal systems of the world, how would such Securitization based High Finance fly in lesser legal systems like China, India and other places? Whichever way one cuts it, this is one more brutal blow to High Finance and bloated high compensation of Bank Executives.

Meanwhile, it is hard to resist these money quotes from this WSJ report:

"The legal drama partly represents the clash between a financial sector that developed electronic processing to speed up procedures versus the U.S. property-law system, which relies on physical paperwork filed by individuals."

"Under a far gloomier scenario, the problems created by using robo-signers may be irrelevant if, instead of being lost, mortgage documents weren't ever properly transferred during each step of the securitization process, says Adam Levitin, a professor of law at Georgetown University. If that happens, "the whole system comes to a halt," he says. Investors could argue in court that they never owned the mortgages backing their money-losing securities."

To be sure, this is not going to be pleasant for American Economy and general public at large as Megan McArdle rightly thinks. One possible solution could be some kind of legislation by Congress to help the system to streamline 'property ownership chain' in absence of right documents, preponderance of wrong documents and overall the total mess. But it is hard to imagine how any such Congressional initiative can evolve. It is true that any such initiative will not cost Tax Payers anything and in the end helpful to Capitalists; so the support of Tea Party and Republicans will be given for any such legislation. We might even see one more time these same TARP saved bankers with hats in their hands visiting Congress for some kind of legal help.

But exactly that is the kind of action by Government will fully demonstrate the stupidity of Tea Party in claiming that Obama's Government is the Problem and there is no situation where Government cannot be a solution. Unfortunately that vindication would come quite late as the damage will be done by then since Tea Party would have stomped Congress by November. And then it will also deprive Bankers to blame Socialistic Government of Obama generating 'market uncertainty' when their own pals are running the Congress.

Update - If you want to read a very readable take on what is happening and what are the dangers shaping up ahead, you should read letters by John Mauldin on this topic.

Tuesday, October 12, 2010

Missing the right Government

"We have an immobile government that is desperately overcommitted in all the wrong ways."

-- David Brooks, NYT

David did not mention 'over commitment' of Federal Government in adventures like Iraq War and Pentagon over spending. But I assume he would not be unwilling to bring all that on the chopping block too.

Other than that omission, Brooks is right on money what ails Democrats and how Tea Party interprets that failure in a wrong way to take USA further into the ditch.

Sunday, October 10, 2010

Political Reality in America

Nat Silver explains why there is a lot of uncertainty when it comes to projecting GOP margin in November 2010 House election. But as he rightly points, it is almost given that GOP indeed will be the majority party in House. Chances of Pelosi remaining House Speaker are diminishing by every passing day. There is no so called Democrat resurgence evident, at least so far. As time is running out for President Obama and Democrats to persuade independents, the only thing left for them is to turn on the 'base' as much as possible. At best that is what President and Democrats can do, meaning make all out efforts to reduce the looming devastating electoral losses.

Even if Dems manage to hold on House and as expected retain Senate; the rise in Conservatives and Tea Party members in Congress will practically limit any kind of Keynesian policy(1) by American Government in years to come. Imagine Sharon Angle defeats Sen. Harry Reid which is by the way more probable outcome at present. There is no chance in the world that in such Congress there is a back door entry for failed Cap and Trade bill or President Obama will be able to hold his line on expiration of tax cuts above $250K. Lame duck or regular Congress, the sheer political force of the mandate will be so powerful that no Democrat or President would dare to stand in the way of what Tea Party wants at that time. That is what will happen then. This means Bush Tax Cuts will be retained in its entirety and no more any kind of Keynesian policy measures (i.e. deficit funded infrastructure spending, or extension of unemployment or funds for education; all of that will go to the wind).

If President is smart, he will try to utilize the Tax Commission Report to stop Bush Tax Cuts for Rich (above $250K line). For example, he can argue that instead of extending tax cuts for rich; why not give those very tax cuts to companies generating jobs here or payroll tax holidays for few years. Only such kind of 'triangulation' will be a viable option after November 2010. Apart from that nothing much will get moved.

Meanwhile, we will see if new Tea Party members and GOP would like to bring down the Federal government. May be GOP will not do that. However, the goal of raising 'stridency bar' up to that level is very much intact. All this means, Congressional brawl in 'cutting funding left and right' is guaranteed. Even if Dems were meekly to accept all sorts of cuts, for newly minted Tea Party Congressional members and GOP it will be not an 'authentic victory' unless vilification of President Obama and Dems is ratcheted fully.

Waiting for 'over play' by Tea Party and GOP is one way for President and Dems to turn the tide for 2012 elections. However, the real point which he and Dems need to argue is - every measure to invest in America in recessionary time is blocked by these extremists and as a result America's recovery is blocked. That is what is going to happen in any case - the way American Economy is shaping up, it is very unlikely that growth rate will be any higher than 1 or 2 % for next year or two. In essence, unless Americans realize that how stupid GOP policies are (not touching entitlements, tax cuts for rich and no deficit funded investment in America's future) and how everything else GOP argues is simply a 'smoke screen' to hide this stupidity; Americans are unlikely to recovery fully from this mess. After GOP being in House Majority for 2 years, as long as President Obama continues to demonstrate his differences with these failed policies from time to time; GOP as the ruling party will get exposed. Only when failure of America's Economy starts to stick again to GOP, realization will start sinking among Americans that 'riding on anger' is no solution to our problems.

This means continued sub-par recovery, political fratricide and continued decline of American power for at least next two years. There is no optimism possible today.(2) (3)

-----------------------------------------------------------------------


(1) I accept that Paul Krugman's Keynesian Policy prescription is right in this case. Those who argue about how austerity is working in few European Economies or how it worked in Canada; miss the point that those lessons are hardly applicable in the case of the largest economy in the world. I also do not believe any kind of further 'quantitative easing II' by Fed would address the core issue of lack of demand in the end. Krugman is right to argue that monetary policies obviously do not work when the interest rate is effectively already at zero.

(2) The only wild card scenario here is competitive currency devaluation works i.e. falling Dollar helps USA to increase export and helps to get out of recession. I doubt that will happen because effectively we are in the 'currency war' no matter how much prescient IMF warning about currency war is. In other words it is unlikely rest of the world would stand still allowing depreciation of Dollar. Either protracted Trade War or surprise rise in interest rates which American Treasury will have to pay to sell America's Debt; are likely scenarios in that event. Rest of the world can pass by all the doldrum / failure scenarios of USA Economy only if there is some juice in claims of 'decoupling' of global economy from USA. Again, while USA remains the largest economy of the world and mischievously starts laying foundations of Trade War; I doubt one can put much faith in these decoupling theories. (It is to be noted that Paul Krugman backs American action to force China appreciate Yuan and indeed there some sense in that.)

(3) One potentially optimistic scenario can be rise of Third Party Political force when Americans realize failures of GOP and Dems alike. It is perfectly possible to visualize Schwarzenegger-Bloomberg Ticket romping a presidential election. But looking at America's history as well as tremendous incentives for Dems to embarrass these nascent Third Party Political forces after failure of Obama Brand, it is a long shot.

Saturday, October 09, 2010

War on Cancer

Christopher Hitchens explains where the real 'war on cancer' lies. Reading this article, you sigh, you humble. How on earth we are ever going to fight such non-sense which is there in this country? What hope do we have when folks are hell bend to take America backwards?

Indeed as Christopher says, the punishment here is 'living' - to those who adopt such wrong headed policies as well as to those of us who fail to 'fight' this non-sense sufficiently.

Friday, October 08, 2010

China Knocked Off

The decision of Norwegian Nobel Committee to award 2010 Nobel Peace Award to Chinese peaceful dissident Liu Xiaobo is of enormous significance and completes a week of negative news for China as far as its foreign relations go. First and foremost, it recognizes the heroic struggles of one Liu Xiaobo for greater political freedom in China where Communist Party is brutally exerting its grip for decades. No matter how much China tries to suppress this news, in today's Internet age not only news about some sexual jokes spread all over the world; but State attempts to suppress unpleasant news do fail in the end. That will continue to nourish the struggle for greater political freedom in China.

Of course, ruling Chinese Communist Party will not budge from its suppressive policies. But with usual belligerent and ultra-strident response from Chinese Communist Party; contradictions in Chinese System are well exposed and that is the whole point. It is hilarious to watch how the mighty China - the only Super Power which matters in the early 21st Century - gets hysterical in reacting to a 'paper act' by one small committee in one small Scandinavian country. In a sense a trap of Western Powers, and to a large extent by the entire rest of the world, is succeeding beyond measures in 'embarrassing China' while pointing out how the Emperor does not have his fancy silk robe and is indeed naked.

I said the week of bad news for China, because it is not just the realm of political freedom where Chinese rulers are tripping; but they are getting badly exposed in their failure to be a stabilizing force in the global economy. When House passing the resolution against weaker Yuan is followed by a strident criticism by the normally reticent USA Treasury Secretary followed by an open IMF exhortations along with refusal of USA and EU to play ball in IMF restructuring; rest of the world has effectively painted Chinese System as the a narrow minded economical miracle which is perfectly ready to risk global economic stability for it's short term goals. Chinese blockade on export of rare minerals to Japan raised eyebrows all across the world and in the end that forced China to be on the defense on this issue - one more proof of how China wants to benefit by global trade but does not want to play by the same rules.

In the world where we do not have options like another Cold War or an actual war; rest of the world does not have much means apart from these 'soft measures' like embarrassing China in trying to change it's behavior. No one is guaranteeing success of these efforts. But at least 'powers be' outside of China are not sitting on their hands while Chinese Communists suppress their own people and attempt to bulldozer their own way through global economy.

All in all a tough week for Chinese Rulers.

Wednesday, October 06, 2010

Classy Blogpost

This is why 'blogging' is invented...

No matter what, Bob Woodward, always seems to 'carry waters' for Conservatives.

Sunday, October 03, 2010

Entangled America

America is in a desperate situation. On one hand we have a compelling case how 'immigration' can help America in recovering from recession as well as addressing it's long term debt problem. Note only that, we have Fox News Channel owner Murdoch saying in Congress that America should streamline both illegal immigrants and process of green cards for highly educated ones. On the other hand on the same Fox Channel we have Glen Beck racking money by feeding anti-immigration and racist non-sense in minds of gullible Americans. GOP with it's lust for power by any means is trying to ride the tiger of Tea Party which is inflaming all these anti-immigration sentiments.

America today is a clear evidence of a system where petty money making opportunities of powerful few by spreading conspiracy theories, bigotry and demagoguery cannot be stopped by a broken, dysfunctional political system which has given up husbanding our longer term interests. It may not be enough for President to describe Fox Channel as destructive.

With this broken two party system indeed America may not be far away from 'third political party' scenario as many are speculating. We need something to break this impasse and stop the self-destructive loop into which America has entered.