Wednesday 18 December 2013

The Dangerous Waters of Immigration

One of the founding principles of the European Union was the free movement of people within the Union.  This was strengthened even more with the creation of the Schengen zone which essentially stopped border controls between signatories of the Schengen Agreement.
One of the goals in this was to allow workers in a country with a less robust economy to move to another country where their chances for employment would be greater.
This was always going to be somewhat contentious as unemployed workers would possibly take jobs at less favourable terms than many local workers, especially in those countries where the social welfare net was relatively attractive in comparison to the lower paid more onerous jobs often sought out by immigrants.
That being said that this would be the case is more a reflection of the mismatch between unemployment benefits and compensation at the lower end of the range as well as the "entitlement" mind-set of some sections of the unemployed.
For that reason I am a strong proponent of minimum wages which, despite their cost at source to employers actually can help move people off welfare lists into employment.
This was behind the German Social Democrat (SPD) party's demands in the coalition negotiations which were recently approved by the SPD membership.
What was not intended by the free movement of people within the European Union was that people from high unemployment countries with poor social welfare systems would move to countries with strong social welfare systems thus providing them with health coverage, housing and unemployment benefits.
It does not matter if the numbers involved in this sort of "welfare" tourism are low or not.  What they do is put the whole structure of the EU at risk.
I am not promoting an anti-immigration policy.  I am suggesting that there have to be controls and regulations governing the movement of people even if they make it more difficult. That does not mean that intra-EU immigration should stop.  It does mean that there should be stronger controls as to who is eligible for health, housing and unemployment benefits.
It cannot be the case that host countries suddenly are responsible for "internal" immigrants.  No system can withstand this economically, and perhaps more importantly, it opens the door to right-wing nationalist groups long on rhetoric and short on substance, whose populist slogans find resonance in the population at large.
But clever, and more importantly, ethical politicians should not use such controls merely as a means of garnering support predicated on populist propaganda. 
They should not only be rigorous regarding EU immigrants; they should also be relentless in pursuing their own "domestic" tourists who have become ingrained in a benefits culture with no intention of assuming responsibility for their own well-being, and happy to blame someone else for their predicament.
I am a strong believer in the benefits of the EU but recognise it can only be as strong as its' member states.  It all starts with the social contract between the state and the electorate at large.

Thursday 12 December 2013

Champerty and Betting and Who's to Blame

It is interesting upon reflection how connected at the hip, or perhaps the head, Mrs Thatcher and Mr Reagan actually were and how the some of the changes they brought in had far-reaching repercussions which they may or may not have appreciated. 

Mr Reagan was responsible for removing the Fairness Doctrine in media which had been created in the 1930's and supported by the media moguls of the time who, strange but true, felt a responsibility to report the news in an even and fair-handed manner using the editorial pages for their personal diatribes.

The result of Mr Reagan's intervention:Fox News, polarisation of society and in the end a somewhat stymied political system.

Mrs Thatcher had a few tricks up her sleeve as well.  The first was to remove the Common Law prohibiton on Champerty, and its' cousin Barraty  which essentially allowed for the promotion of or the incitement to bring legal proceedings.  Mrs Thatcher felt that this was restraint of trade thereby opening the door to allowing uninvolved third parties (i.e. lawyers) to take a case on simply to gain in the winnings if the successfully prosecuted or defended the case. 

Now one might find that less onerous than I do, but it basically opened the door to litigation "chasing" which I believe was instrumental in creating  a culture which takes no responsibility and is always looking to blame someone else.

Moving on, another serious intrusion into the fabric of society perpetrated by Mrs Thatcher was to remove laws banning the "incitement" to bet.

When I first came to Britain in 1987 there were many professional football (soccer) teams sponsored by contraceptive manufactures.  Now despite the fact that there was never any indication as to the wares a sponsor's name brazened across the shirts of a football team was actually advertising, the product was considered to be morally unacceptable and potentially damaging to the nation's youth. 

So, on the shirttails of Mrs Thatcher's decision to promote betting there suddenly appeared a host of football teams sponsored by betting companies.  To add insult to injury, after one has already paid for the pleasure of watching football on a private television station, views are then subjected to a barrage of advertisements before and during the games from the same betting companies suggesting that you should be betting on everything and anything to do with the game "live".

And what is the result?

A game-fixing scandal has burst onto the scene reaching up to just below the Premier League and England has the highest incidence of (unwanted) teenage pregnancies in Europe and in the developed world are second only to the USA.

Funny that.

I think the saying goes along the lines of  "your reap what you sow....."

Tuesday 3 December 2013

Grassroots Democracy-Pro and Con

After the German elections there was no majority winner despite the fact that the CDU/CSU (Christian Democratic Union and Christian Social Union (centre-right parties) garnered approximately 42% of the vote.  Their more normal coalition partner, the FDP (Free Democratic Party-also centre-right) failed to make it past the 5% hurdle which is there to ensure that there are not a myriad of splinter parties that allow the tail to wag the proverbial dog.

Instead, the CDU/CSU was faced with either joining up with the Left-highly unlikely- who had 8.6% or with the Greens-my choice-who had 8.4%.  In the event they decided to create what is called a Grand Coalition consisting of the two main blocs- the CDU/CSU and the SPD (Social Democrats- centre-left) who won 26%.

They grappled with one another for weeks to hammer out an agreement on what basis the government would go forward given that the campaign platforms of the two groups had a bit of blue water between them.

Last weekend they managed to come to agreement including contentious issues like the introduction of a national minimum wage and no new taxes.

So far so good.

With a voter turnout of over 70% one could call the election a successful grassroots affair.

In most instances where a coalition government has to be formed the leadership of the two parties sit down together and work out an agreement..Then, as part of executing their electoral mandate they go  tell their constituents what they have agreed.

Not this time.

The SPD, after negotiating with the CDU/CSU is now going to put the agreement to a vote of the party membership.  Over 44 million Germans voted, some 11 million of whom voted for the SPD.  Now, the 475,000 party members will vote on the coalition agreement. 

So the fate of the coalition is in the hands of 1% of the population.

Seems like a good example of shirking responsibility on the part of the SPD leadership and potentially allowing a splinter group within the party to block a national agreement.

The result will be revealed December 14th so stay tuned.

Tuesday 26 November 2013

What to Believe...

Yesterday I wrote about the Iran-P-5+1 agreement and that I think/hope that it is a monumental event.  I say that because the alternative is military action which is always fraught with more risk than anyone thinks up to the point they start shooting.

It therefore made me extremely uncomfortable that the Iranian Foreign Ministry is now saying that the text published by the US is not the correct text.

It is not surprising.  Everyone around the table has different goals.   This doesn't mean they are all diametrically opposed to one another but it does mean that their respective willingness to compromise is predicated on different desires that might or might not be compatible.

The US is focused on ensuring that Iran is unable to produce a nuclear weapon. 

The Iranians are focused on ensuring that there is no regime change whether internally or externally driven.

One bargaining chip is sanctions- the other is nuclear development. 

I had hoped that the pressure on the Iranian leadership created by economic sanctions had reached the point that the general population was less concerned about Iran's place in the sun and was much more focused on their daily needs to the point that the government had no choice but to negotiate to remove the sanctions.

Fully realising that every politician has to play to both a foreign and a domestic audience I expected that there would be statements that play better in Peoria than they do in Tehran, and vice versa. 

But disagreeing on the text smells of prevarication, the twin sister of stalling.

We have been there before.  The case could be made that the US was guilty of it in our handling of the Syrian crisis.  And that is why despite my sincere hope that this was just playing to the domestic audience, that the US has made it crystal clear that sanctions would be reinstated without delay if there were even a whiff of noncompliance and that the military solution might not be on the table, but it is certainly in the drawer.

Monday 25 November 2013

When The Unthinkable Happens

As a child of the post-war generation there were a number of certainties which were just accepted as the way things were.

One of these was the Cold War. 

My town did not become a public entity until 1959.  Until that time it was under the auspices of the US Government and even had military guards at the edge of town.

Every day at five o'clock the air raid sirens would go off and on TV/Radio a civil defence broadcast was made directing the viewer to do this or that in the event of an attack-by the Russians.

Another part of that certainty was the division of Germany into two parts: a democratic West Germany providing the largest number of standing troops in NATO, and a communist East Germany whose troops made up about a quarter to the Warsaw Pact.

That was the way it was and I knew no one who thought there would be a reunification in their lifetime.

And then in 1989, 44 years after a war that left deep scars across almost every geographical/political boundary, it happened.

Over the weekend a similarly monumental event happened.  An accord was signed between Iran and the P-5+1 which, 34 years after the Iranian Hostage Crisis, essentially gave Iran 6 months to demonstrate that they can and will abide by the terms of the agreement and then possibly an even broader set of terms could be agreed.

One of the important side issues in this is that the Americans designed it such that Obama doesn't have to take it to the Congress but rather can sign it as a Presidential Decree.

This is important as there are any number of Americans who are up in arms over this agreement-for a myriad of reasons-some good, some bad.

But what I wanted to highlight is how even circumstances seeming set in stone can change. 

This is a good thing.  We are not stuck in every situation for eternity.

Maybe we can actually address some things like the environment....



Thursday 21 November 2013

"The end of democracy… will occur when government falls into the hands of lending institutions and moneyed corporations.” Thomas Jefferson

Going back to the days of  the founding fathers of the United States there was a schism identified-correctly or not-between the quasi-agrarians under Thomas Jefferson and the banker/industrialists under Andrew Hamilton.

The gist of the division can be best described in the quotation in today's title.  Just for the record there are differences of opinion as to whether Jefferson every said or wrote that exact quote or if it is just an amalgamation of comments crafted together into a rather neat statement.

This is not just an American argument however.  It is part of a discussion which has been with us through the ages.  Without wishing to enter into a religious discussion it was present when Jesus chased the money-changers out of the temple, and when Martin Luther rebelled against the selling of indulgences.

It is an ideological argument however with zealots on either side generally not listening to one another and illogically in my opinion  apparently unable to step back and look at the relationship between the two.

For despite the epithets one hurls at money and the people who trade in it, money makes the (modern) world go round.  Harping on about the communal lifestyles of the Native Americans or the barter societies of pre-history might be an interesting anthropological study but really have little to do with our modern-day reality.

I had a taste of this argument over the weekend when I was at a dinner and I was sat next to an 80 year old former general manager of a major chemicals company who managed to launch into a diatribe against bankers before we had had are first glass of champagne. 

I must admit I find nothing more distasteful than successful industrialists who drone on about the "real" economy as opposed to the paper pushers of finance, and yet react as if you had insulted their mother when you suggest the need for regulation in all industries- regardless of sector.

So when I read the quote ascribed to Mr Jefferson as sort of an "if only we had listened to him" plea I get a little annoyed.

I agree wholeheartedly that the finance industry exercises an outrageous control over our publicly elected officials.  But I don't blame the finance industry.  Special interest groups, be they from the left or the right are essentially able to "buy" politicians through the campaign finance laws which were recently relaxed even more!

I think Mr Jefferson as well as Mr Hamilton would not be pleased by the power currently wielded by private financial muscle, much of which is from the financial industry.  But I think they would be even more disturbed by the way the government has allowed itself to be bought.

It would be very simple to put strict controls on campaign finance, and even more importantly on campaign expenditure. 

But that would require regulation....

Monday 18 November 2013

The Beauty of Diplomacy

I just got an update from a news service I read stating: "Iran has the right to enrich uranium but does not insist that other states recognise its right, Iran's chief nuclear negotiator said Nov. 17, Reuters reported".

If they weren't Iranian I would say they had been studying the Talmud to come up with such a convoluted yet brilliant solution.

They are saying they could enrich uranium if they wanted to, but they are not going to require that their right be recognised.  They maintain their "honor".  Their national integrity has not been impinged upon and yet the rest of the world also is able to maintain its' "honor".

Now of course rest of the world includes Israel that might view things slightly differently, as well as an American population still seething over the injustices of the Iran Hostage affair.

But inch by inch the face of the Middle East is being redrawn.

One can only hope it is a prettier version than the one we have now.

Thursday 14 November 2013

Sensationalism Wins!

I was a little confounded by the way the conservative media has kept up a constant attack on the Affordable Care Act which they of course call Obamacare to make sure their message is to injure Obama rather than discuss anything rationally.

Is the American public that easily moved that if you bang on long enough about a topic with enough (mis)information then it becomes the only thing people think/talk about?

Unfortunately I believe that is the case.  Although I don't think the US is alone in this.  In other times in other countries the mantra was "The bigger the lie the more they (the masses) will believe it".

And given the power of Madison Avenue in modern American history a la "The Selling of the President" the real question is why it would take me so long to figure it out.

Granted the repeal of the Fairness Doctrine under the Reagan Administration made it even easier to sway the population, but the truth is people tend to only hear what they want to hear, so you may just as well narrow down their choices to improve your chance of getting them to believe what you want them to.

It seems to me that the Affordable Care Act delivered on most of its promises.

People can keep their kids on their family policies until the kids are 26.
People can't be denied insurance because of a pre-existing condition.
People can't have their insurance policies cancelled because they get sick.
People who can't afford health insurance will get tax credits to help them pay for it.
People will be able to compare policies between insurance companies at multiple levels of coverage and pay group rates.
Insurance companies will be required to put 80% of revenues toward health care. Any difference between the amount put toward health care and 80% will be returned to the customers.

Promises not kept:
Some people won't be able to keep their old policies as promised. However, most of the people in question will be able to get better insurance for less money.

So why focus on the promise they didn't keep?

Yes you are right.  It's the same tactic that focused on "Swift Boats", on "Death Panels" and the like.  Pick a theme.  Find a flaw.  Ride it to death and bingo-you drown out any rational discussion.

Wednesday 13 November 2013

Income Inequality

I recently read an article essentially defending income inequality insofar that it ran through a number of explanations as to why it was not holding the economy back.

First to put some statistics out there to see what we are talking about.

Real incomes of the top 1% in the US have almost tripled since the mid-1980's.  The share of income going to the top 1% has doubled from 1980 to today to approximately 23%.

The article blamed globalisation as one of the reasons the lower earners earned even less.  It went on to discuss that the off-shoring of high-paying semiskilled jobs was being replaced "with new jobs requiring relatively few skills such as those in education, health care and leisure"-my italics. 

I am not a specialist in leisure so can't really speak to that part of the sentence but I am apalled to see education and health care being classified as jobs requiring relatively few skills.

They next blamed declining marginal tax rates as a cause for an increase in income inequality. 

You think?!?

The next cause was the rapid expansion of the financial sector.  They did suggest that there is less evidence that rapid growth in executive compensation has played a significant role.  Those same executives that make up the 1%. 

Hmmm.

But the killer was that it went on to explain that theoretically rising income inequality should slow economic growth if the top 1% have a higher propensity to save then those in lower income brackets.  Yet the savings rate has fallen since the 1980's.

Now my experience is you can't save what you don't have. That might explain a declining savings rate, especially when coupled with a (still)high unemployment rate.

If I had been watching Fox News I wouldn't have been surprised- unfortunately I wasn't. 




Friday 8 November 2013

Financial Repression?


I recently read an economics article focusing on the current level of interest rates and how government/central bank policies will effect them in the future. 

The article  was titled "Market Implications of Financial Repression".  It began with an explanation of financial repression:  "official policies that lower artificially a government's cost of borrowing".

I didn't have any real disagreements with the article.  Essentially it highlighted the fact that the Federal Reserve's holdings of government bonds ballooned between 1942 and 1951, under pressure from the Treasury. 

Given the title of the article I am quite sure that the author has a strong "free-market" bias.  I also am sure that he therefore objects to whatever forces impact markets resulting in an outcome that doesn't adhere to his view of what the invisible hand of the market should be dictating.

Now I am reading a lot into the mind-set of this author given the title.

But he is suggesting that government intervention- by the Treasury and/or the Central Bank is "Repression"?  I could understand if he chose to use "guidance" or even "intervention", but "repression"?

I am scared to think what he thinks of regulation let alone taxes.

Anyway, despite his strange choice of adjective I do think that his analysis was interesting. 

The United States had been in the Great Depression and was still suffering from the after-effects of it when it entered World War II.  Given the need to raise funds to finance the war effort it is not strange that the government would endeavour to keep the cost of those funds under control.  It is only rational to me that if there were a mechanism to do so such as having the Federal Reserve purchase a significant portion of the issuance, capping long-term rates at around 2.5%, that they pursue it.

If I fast forward to the Great Recession and the introduction of a government policy intended to both stimulate the economy as well as keep long term rates under control- the "twist" factor in the Quantitative Easing (QE) policy-it seems that the current government is following in the footsteps of its forbears.

The good news is that as the Fed in the 50's started to decrease it's purchases in a well-managed fashion.  It took 8 years for yields to rise from 2.5% to 4%.  Tapering is no different then a managed retreat from QE, something the Fed has successfully done previously.

And the result?  A decreasing debt/GDP ratio, an economy on a stable road to recovery, and yields rising in a rational an orderly fashion.

Doesn't sound like repression to me.




Thursday 7 November 2013

It's Called Discussion

As I hope is obvious to readers of this blog I try to throw my data-gathering net as wide as possible to hear what differing views there might be on the same subject. I follow this approach in my private life as well. 

The other night for example I was at a dinner party with an eclectic group representing just about every segment of society from a  Kiwi wearing the actual and figurative accoutrement of an old-school upper class Brit to a conservative German Count to a couple of high profile architects, an interior designer, a relatively left wing academic, a stylist and an Oxford don sitting in a chair for engineering and medicine.

As one could imagine this group had a varied view of the world and no one was shy about voicing their opinion as fact.  With this or other groups with whom I socialize we tend to address political and social questions of the day as opposed to talk about golf and tennis or other forms of dinner party chit chat.

Unsurprisingly, the conversation sometimes got heated, especially as the evening wore on.  And yet it was never personal.   In many instances it was clear that there was no unity of opinion despite some long monologues, dialogues and free-for alls.

This group was somewhat of a microcosm for (European) society and so on occasion some nationalist  prejudices would make their way to the surface- only to be resolutely batted back into the depths.

What was happening was that there was a wide-ranging discussion in which people were required to think as well as speak and perhaps more importantly, listen.

No we did not solve the problems of the world.  But we did challenge one another's preconceived notions as to the interpretation of events.  Everyone was made to defend/attack various positions without cares or concerns of no-go zones or trumped up ideas of political correctness.

I could only hope the same of the august bodies pontificating in the various governmental chambers of our hallowed lawmakers, regardless of their country of origin.

Wednesday 6 November 2013

Further Thoughts on Stroebele

In case anyone thinks I am a right-wing radical following my comments on Mr Stroebele yesterday I would like to state clearly for the record that I am a strong supporter of the idea of a Social Market economy within the framework of a democratic government.  Furthermore I am a strong believer in the need for government ordained regulations which despite sometimes creating red tape and the like are a far sight better than the useless concept of "self-regulation".
 
I make this statement as I realise that my negative opinion of Mr Stroebele could be construed to be an anti everything that he is for. This is not the case.  It is much more that I believe he is actually an amateur in a world of cold-hearted professionals which is why I felt that he was being  "used" in his Snowden adventure.
 
Today, admittedly in "Die Welt" which is anything but a liberal minded media organisation there was a discussion with an undisclosed member of the German Intelligence service.
 
In the article they alleged that the entire trip, down to the room in which Stroebele met with Snowden was organised by the Russian Security Organisation FSB.  They went on to explain that in their opinion this trip was an excellent opportunity for the Russians to keep the debate over the NSA on the front pages and in so doing try and drive a larger stake between the US and Germany.
 
To be fair the article goes too far and suggests that Stroebele intentionally allowed himself to be so manipulated. 

I personally doubt that Mr Stroebele was that strategic in his thinking.  It reeked much more of an ego which saw an opportunity to force its' way to the fore, regardless of any collateral damage it might create.
 
Lastly, just for the record, the idea that Snowden is completely controlled by the FSB and that they were orchestrating the meeting with Stroebele has also now been reported in the magazine "Focus" which is a much more liberal minded media organisation.

 
 

Tuesday 5 November 2013

The Geopolitics of Spying

I am no fan of Hans-Christian Stroebele.  His approach to environmentalism is to assume that the democratic capitalist system is the root of all evil.  There is much that is evil in that system, but to only see the "dark" side of is is perhaps acceptable for a university professor but not what I expect from a member of Parliament.

But then again Mr Stroebele does come from a generation which is still stuck somewhat in the 60's and a priori is convinced that everything the US does is bad.

No.  I am not going to go all out and support the activities of the NSA.  That would be equally ideologically narrow-minded as to assume that everything they do is wrong.

I do wish however that people like Mr Stroebele had a weaker voice within he Green movement as I believe that for environmentalism to work a balance has to be struck that combines  economic prerogatives with environmental needs- and I don't believe he will ever be able to accept that premise.

Despite my view of Mr Stroeble I was still somewhat taken aback that he actually went to Moscow to meet with Edward Snowden.  Like it or not Snowden is wanted by the US and is essentially accused of treason.  For Stroeble, a member of Parliament to provide Snowden a platform is an international act pitting the US against Germany.  As if that weren't enough Stroeble came back waving a letter suggesting that the US drop its' case against Snowden so he could come to Germany and give (his) evidence in the NSA case. 

This would be amusing if it weren't so obvious that Mr Stroeble's ego has gotten ahead of him and allowed him to be manipulated into a geopolitical maelstrom that he will never appreciate.

I was therefore very pleased to see that both the CDU/CSU and the SPD both came out with statements highlighting the importance of the relationship with the US.  That was not to say that there were not some hard discussions to be had between the two nations, but they are not going to be orchestrated by an accused traitor on the run.

The plot did get a little thicker today as the British equivalent of the NSA, MI6 has now been accused of carrying out eavesdropping in Germany extremely similar to the activities of their American colleagues. 

It is the nature of intelligence agencies to snoop on everyone, everywhere.  They are data miners of the highest degree.  Everyone in the space knows this.  Even during wartime the sharing of information between agencies is anything but perfect so it should not be surprising that during peacetime the data gathers cast their nets as far and as wide as possible to see what they can find.

I think there will be some hand slapping and some agreements worked out as to what is and isn't acceptable between friends.....

And then they will all start doing it again- but this time a little more subtly.



The reason for my dislike is that he has managed to create a position which I think damages the constructive element of having a Green Party by combining it with an anti-democratic and indeed anti-capitalist agenda.

He also seems unable to appreciate the adage that politics is the art of the possible as opposed to thinking it is the realm of ivory tower thinking.

For that idealism can be the only reason that I conceive of to have motivated him to go and visit Edward Snowden in Moscow and come back brandishing a letter

Friday 1 November 2013

Scary Stuff Part II


Despite the negative tone of yesterday's post, especially as regards the need to care for an ageing population and the need to feed ever larger numbers of people I didn't want to give the impression that I am a pessimist for the future of mankind and can only see a dystopian future.

Debt ratios and income inequality are financial constructs and can be dealt with either through the ballot box, rational government, or revolution.

An ageing population will require increased levels of care, regardless of the cost.  Feeding a growing population will require increased productivity, and dare I say it-managed population growth.

If there is one thing our history has shown so far is that we are not only able to be our own worst enemy with relation to one another and our planet, we are also incredibly resourceful.  I will admit that although the swings of the pendulum seem to take us closer and closer to self annihilation, we also always catch ourselves at the brink and come back to the middle.

Its called mean reversal.

It's a natural state. 

That doesn't mean that there won't be casualties along the way, that it will always be bright and sunny.  But it does mean that after trying everything else we will eventually hit upon the right path, until the next major fork in the road.

Thursday 31 October 2013

Scary Stuff: Part I

Given that it is Halloween one of the blogs I read decided to come up with a few "scary" graphs to show where we are and where we might be going.

It was scary, to a point.

The charts in question were G7 Debt to GDP Ratios; Health Care Costs and Aging Populations; Income Inequality; and Global Food Consumption.

Taking them briefly one at a time I have the following comments.

It is no surprise that the Debt to GDP ratio of the G7 has risen steadily since the financial crisis such that they have risen from 80% to 120% in the last 6 years (according to the IMF).  This ratio is in and of itself neither surprising nor overtly disturbing-unless we have another financial crisis.

If we do have another debacle, assuming it will hit the G7 nations hard, then they will have much less flexibility to finance their way out of the problem then they did the last time around.  This is why there is such a fine balance between austerity programs designed to decrease deficits and unemployment which could trigger declines in real estate values and social unrest which just might require either less austerity or none at all.

The second chart, Health Care Costs and Aging populations showed that health care costs are creeping up as the population ages combined with lower birthrates in the industrialised world resulting in lower social payments being made to the system. 

This can't be good- and it isn't.  But declining birth rates in these countries reflect in many instances a realisation that children have a financial responsibility associated with them and therefore many people choose to have less children than they might have liked.  Of course there are many people who ignore the cost of children either out of ignorance or a misguided belief that to have children is either a right or even a requirement to have children.

Which takes me to the last chart, Global Food Consumption. 

Thomas Malthus predicted that there would come a time when population growth outweighed the increase in farming productivity such that at some point there would not be enough food.  This was 200 years ago.  To date we keep coming up with new means of increasing agricultural productivity, but there is a tipping point out there lurking around the (next?) corner.

Which takes us back to the third chart, Income Inequality.  This is perhaps the scariest chart.  It showed the wealth distribution to the bottom 50% of the top 15 industrialised nations and that held by the top 10%.  The chart essentially says that the bottom 50% are in trouble-and they are in the industrialised world.  Except for the USA, where despite its' claims of political and economic democracy it looks more like a third world state, these are relatively wealthy states with social policies one would have thought would have presented this inequality.

Without wanting to be alarmist, or Marxist, one cannot deny the fact that as food prices go higher, health costs go higher, and debt ratios to GDP preclude a sustainable increase in social spending that the threat of social unrest will increase.  This could have far-reaching effects on democratic institutions and ideals, and could conceivably result in an increased probability of revolution.

If social cohesion does come apart at the seams- the future could look very scary.

Wednesday 30 October 2013

More Spying

It was brought to my attention that perhaps the unnamed NSA source mentioned in the Bild am Sonntag article was none other than Edward Snowden.  Now Edward started leaking information June 5th so I have to assume that his source of on-going information was cut pretty quickly around that time so I am not sure how relevant he would be as to at-the-minute revelations about Obama and Merkel.

If it were Snowden they were speaking with then it throws a very different light on his self-proclaimed  intentions where he said that he was just trying to help the U.S. national security by prompting a badly needed public debate about the scope of the intelligence effort.

If that is truly the case then either he is very stupid or someone else has taken over the responsibility of the time and nature of the continuing leakage of information. 

In May of this year Snowden arrived in Hong Kong with 4 computers which allowed him to access the highly sensitive information he then leaked/handed over to journalists from the Guardian newspaper.

He then travelled on to Russia where after a convoluted process was granted asylum.

His initial interview with the Guardian opened up the existence of numerous programs run by the NSA which allowed them to eavesdrop apparently on anyone anywhere through some form of collaboration with the big internet/phone networks.

Without question the ensuing articles touched off a debate in the US and in Europe.  It didn't create the same debate in China or Russia although one has to assume that the same sort of surveillance was taking place there as well so either the NSA was not able to breach their defences or the Russians and Chinese were very quick to clamp down on any distribution of the eavesdropping taking place in their countries.

But if Snowden really just wanted to spark a debate about the intelligence effort why has he gone on to leak information which is potentially seriously damaging to the geopolitical relationship between the US and Europe in general and with Germany specifically?

I fully understand that Snowden was full of righteous indignation at what he considered to be the invasion of privacy on a massive scale by the NSA.

I would however think that either he is totally naïve and has no understanding of the damage he is doing to the US-rightfully or wrongfully- potentially opening doors to the Russians or the Chinese to exploit.

Does he think that there is any internal debate about anything in either of those countries let alone the activities of the Federal Security Service (FSB) in Russia or the Ministry of State Security (MSS) in China.

Two wrongs don't make a right. 

But geopolitics is not kindergarten.

Monday 28 October 2013

What's your Angle?

As an avid reader of articles and commentaries in every form of media one of the first checks I make to try and establish the likelihood that the information is bonifide- or not- is to check the source. 

One of the blogs I read claims to try and give a balanced account in their reporting although its' founder does admit that "we have a frustration all conservatives have", which is "the bias in media against conservatives, religious conservatives, [and] Christian conservatives" and so I have to take an extra large pinch of salt when I read their articles.

That being said I guess I had expected more of them than their recent article on NSA spying on foreign nationals in general and Frau Merkel specifically. 

The cause of my dismay is that they chose to use quotes from "Bild am Sonntag" to legitimise their claims that Obama not only knew that the NSA was bugging foreign national's phones, but that he had specifically asked them to bug Frau Merkel.

Now using Bild am Sonntag as your source of information is one step above using the National Enquirer.  A small step I might add.  It is the lowest common denominator of the intellectual capacity of the "mob"-apart from their sports pages which are actually quite entertaining.

So why did they choose to quote Bild Zeitung using an article predicated on a report from unnamed sources inside the NSA?

"Unnamed" sources from the NSA would be breaking their confidentiality clauses and given the nature of their employer quite likely could be construed to be committing treason-but that is sort of beside the point.  Itis extremely likely that anyone within the NSA willing to offer information harmful to Obama is doing so exactly to harm Obama-casting extreme doubt on the veracity of their claims. 

The idea that a member of the NSA would be so against Obamba that they would damage not only Obama but the relationship of the US with one of our most important allies sounds very similar to the mindset that was willing to close the US government and even risk default just to attack Obama. 

What is even more curious is that in indicting Obama they also had to indict G"W" Bush.  Throwing Obama and Bush into the same pot is a bit strange- unless you are just outright anti-US so I wonder just what this "unnamed" source was trying to achieve.

Of course that presumes that there was as unnamed source.

Which takes me back to my original question: why did this conservative blog choose to quote Bild am Sonntag in the first place and what were they trying to achieve.







Thursday 24 October 2013

Who is Spying on Whom....

Today the American Ambassador to Germany was called in for a meeting by the German Foreign Minister Westerwelle to discuss the charge that the American National Security Agency (NSA) has bugged Frau Merkel's mobile telephone.  Just to make it more exciting the Bundesanwaltschaft or the Federal Prosecutor's Office has also been brought in to the investigation which ups the stakes considerably.

Now there are a number of points to be made here.

As the first allegations of wiretapping of foreign nationals by the NSA hit Germany Frau Merkel was noticably quiet.  There were grumblings that of course it didn't surprise her.  Wasn't the Bundesnachrichtendienst (BND)-the German Intelligence Service-doing the same thing?  And, even if they weren't, than surely spying by the NSA could not possibly impact her-she was not a mere mortal, she is the Chancellor.

But now, all of a sudden, she too has perhaps been dragged down to earth and suddenly she too is annoyed.

But back up for a second.  The NSA is responsible for the security of the United States.  Unsurprisingly in a capitalist country in addition to the political and military security of the USA they are also responsible for the economic security of the country.

Suddenly wiretapping the German Chancellor's mobile who is not only Germany's leader but to a large degree also the defacto leader of Europe is less surprising.  Without a question Frau Merkel puts Germany's interests first followed very closely by Europe's interests-they are in many instances one and the same-and often not necessarily in the interest of the USA.  Just think of the various stimulus packages, banking controls or Germany's lack of support for some American military ventures which are not easily construed to be in America's interest.

Add to that the fact that she is much more willing to engage with countries like Russia and even China- countries that the USA is much more suspicious of than she is-and wouldn't it be nice to know what she is saying.

No, I am not surprised that her mobile phone most probably has been tapped by the NSA.

I would be surprised however if the German Counterespionage Agency had not provided her with a secure phone, and I would be surprised if she didn't use that phone for all non-personal business.

I am however actually somewhat disappointed that despite her humbleness as one of the most powerful policitians in Europe if not the world, she has suddenly just now realized that she too is a mere mortal and that (of course) the NSA would try and tape her phone.







Wednesday 23 October 2013

Ideology is Easy. Principles are Difficult

There are those who maintain that the current paralysis in American politics is a direct result of the intentional inefficiencies incorporated into the Constitution to ensure that the government did not become an all-powerful institution which could easily fall prey to tyranny.

Why else would there be so many checks and balances throughout the structure be it the three centres of power at a federal level or the byzantine relationship between the individual states and the federal government.

These men were trying to emulate the Roman ideal of the Senate. They were honorable men. They were moral men. And they were virtuous men. 

So far so good. 

The first thing was to declare independence.  Then, after winning a war, was to write a Constitution.  From the start it took a lot of discussion, negotiation and in the end compromise.  It was also recognized that there could/would be amendments to it which would serve to clarify certain points but would not change its basic premises.

Despite all the intellectual capacity involved in the creation of the Declaration of Independence and the writing of the Constitution it must be remembered that this was a move from monarchial to democratic rule. The Declaration is a very measured document giving rights and responsibilities to the People. It opens the door to change, and in the same breadth cautions those thinking of change that it should "not be changed for light and transient causes" and essentially should only be invoked in the face of despotism.

They were not ideologues.  They certainly were not fanatics.  Indeed they were pragmatists. 

So how would they have addressed our current debt/default debacle?

Their approach to debt was that it was not a good thing under normal circumstances, but there were of course instances when it was necessary.  Their understanding of default was something that happened because one could not repay their debts.  Self-inflicted default as a result of ideological fanaticism would have been outside their realm of thinking.

They certainly would not have allowed a fanatical group- the Tea Party-to try and hold the government hostage.  They would not be happy with the debt burden we have, and so they would have worked hard to try and work out a reasonable way to find relief.

They would have had their own interests to mind, but would have put the interests of the United States above all else.

Those were the days.




Tuesday 22 October 2013

The 200th Anniversary of the Battle of the Nations


200 years ago The Battle of the Nations took place in and around Leipzig signalling the beginning of the end for Napoleon. Although often seen as the catalyst for the idea of a united Germany, in the end it heralded the restoration in France and was actually viewed as a war against the ideas of the French Revolution by Europe’s monarchs and members of the ruling classes such as Count Metternich.

Indeed, the victorious "German" Generals Stein and Gneisenau thought they were fighting for their freedom and liberty from occupation and oppression from a foreign power, not to put the old guard back in power.

They were wrong.

Almost immediately after the battle the political reforms which had been introduced in the years from 1807 to 1812 were either delayed or outright blocked.

This was followed by a rapid expansion of the political police and a highly organised secret police apparatus which drove many people into what later under the Nazis became known as "internal emigration.

This created a peaceful un-politicised time with a brief interlude in 1830 and 1848, setting the stage for a German Nationalism personified by Kaiser Wilhelm I yet managed by the Realpolitik of Bismarck.

Unfortunately for Germany, and eventually the world, Kaiser Wilhelm II wasn't impressed by Bismarck's approach, pensioning him off and taking matters much more into his own hands.

There are those who would maintain that Napoleon's defeat at The Battle of the Nations and the collapse of the ideals of the French Revolution outside of France gave rise to a "Prussian" Germany. They would also draw a straight line from Leipzig through Paris by way of Koeniggraetz up to the World Wars I and II.

That is understandable, but I would deem it to be too subjective.

I would rather look at the weaknesses of Wilhelm I and the lack of checks and balances inherent to a Monarchy.

Regardless it is interesting to see that representatives from all the various participants in The Battle of the Nations have gathered in Leipzig for the 200th Anniversary.

Next year is the 100th Anniversary of the start of World War I. I wonder how that is going to be marked and if 100 years is enough to bury hatchets.

 







 

Thursday 17 October 2013

News Flash-There Otta Be A Law....

The US Congress was able to get its act together enough to reopen the government and to kick the proverbial can to the next "closure" date of January 15th and deficit rollover date of February 7th.

Where Do These People Come From?


In trying to make sense of the apparent willingness of the Republican Right to force the USA into default my reading brought me to a George F Will who in a Fox News Roundtable with the headline "Default is a Choice" was quoted as saying:

"The last time we faced cataclysm over this was when Standard & Poor's lowered our credit rating, people said disaster. No, the cost of borrowing actually went down 40%. I don't think the markets are as irrational as some of the people on Wall Street say. I repeat what I have said here before, default is a choice. A choice in the sense that we have 10 times more revenue coming in than is needed to service our debt.

We can continue to service our debt by not paying certain other vendors and certain other programs. We will only default if it is a choice and, furthermore, the 14th Amendment empowering the president not at all, but the Congress entirely, says it is a constitutional requirement to pay, under the full faith and credit of the United States, our bonded debt."

Confused?  So am I  I also don't know where he is getting his figures from so they must be taken with a grain of salt as his blatanly subjective interpretation of why interest rates declined after the S&P downgrade.

Standard & Poors were concerned about the size of the deficit; the inability of the US government to function; and the implementation of Quantative Easing (QE) which was viewed to be potentionallly inflationary at some point in the future as it would artificially depress interest rates and increase Money Supply.

As for actually having 10 times more revenue coming in than is needed to service our debt is specious at best. If you are very specific about what debt you wish to service than we could have 10, 20 or even 100 times more revenue than debt.

But really gets me is his use of the 14th Amendment to explain why default is a choice.

The key clauses of the 14th Amendment are:

1.      State and federal citizenship for all persons regardless of race both born and naturalized in the United States was reaffirmed.

2.      No state would be allowed to abridge the "privileges and immunities" of citizens.

3.      No person was allowed to be deprived of life, liberty, or property without "due process of law."

4.      No person could be denied "equal protection of the laws."

Somehow he has managed to suggest that the 14th Amendment makes the Executive Branch either subservient or irrelevant to the Legislative Branch and therefore Congress has the sole right to decide if we default or not.

No, the 14th Amendment has to do with ensuring that the Civil Rights Act passed in 1866 would remain valid and that "all persons born in the United States...excluding Indians not taxed...." were citizens and were to be given "full and equal benefit of all laws." (Quotes from the Civil Rights Act of 1866).

I think Mr Will is still stuck in the Civil War era, and I can't help but think somehow he wanted to bring President Obama's citizenship into question, let alone the role of the President.
But what I really want to know is why a respected, seemingly intelligent Pulitzer Prize winning journalist has descended to such rubbish.


Wednesday 16 October 2013

Maybe Time For A Third Party?


The USA has reached an impasse. Rather than deal with the real needs of the nation they continue to pussyfoot about to extend the debt ceiling rather than actually sitting down and agreeing a course forward which would allow for effective government.

The cause of this is in my opinion the fundamentalist ideologues in both parties, but primarily I believe in the Tea Party wing of the Republican Party, 70% of whom would rather stick to their guns and close the government despite 40% of that same group admitting to do so would cause severe economic harm to the USA.

So they hold the Republicans hostage in these negotiations.

In Europe given the multi-party systems no one party generally wins a majority and so has to spend many hours negotiating with their erstwhile opponents/soon to be co-rulers resulting in a government which has to take into account the major thrusts of both parties.

So in Germany there is a marathon negotiation going on between the centre-right party of Kanzlerin Merkel CDU/CSU and the centre-left party the SPD. The result could be a "Michael Bloomberg" government: the fiscal conservatism of the Republicans and the social conscience of the Democrats.

My personal favourite in Germany would be for the CDU/CSU to join up with the environmentalist "Gruenen" party thereby expanding the theme of fiscal conservatism with a social and an environmental focus.

But back to the US.

The history of the two party system is that the nation generally has 45% who vote for the Democrats and 45% who vote for the Republicans almost by rote and the remaining 10% at best is fought over with the final margin of victory being slim such that a "landslide" win captures 55% of the popular vote.

Two things. First, yes, the US elections are based on Electoral College votes, not popular votes and yes, Reagan got close to 60% of the popular vote. The former is the way it is the latter was an anomaly.

The point is that the two party system results in a large percentage of the nation not being represented by the elected president, and even more worryingly is that it is the 10% of the undecided that actually tip the scales one way or another.

Yes, the Congress does help balance this out, and according to the constitution the third arm is the judicial.

Be that as it may, a splintering of political parties such that the plethora of "single-subject" groups could be elected-or not-as part of their own party as opposed to wreaking havoc for the main-stream parties forcing their platforms into essentially a gerrymandered hodgepodge.

And I would like to see a 5% hurdle for parties to be accepted into a national government so they can't disrupt the business of government as they do today.

Monday 14 October 2013

If It's American Must It Be Bad?

This morning on Radio 4 there was a report on the introduction of American style monetary awards being offered to whistle blowers to help ferret out fraud and corruption in the UK.

Given that the US under the Reagan, Clinton (sad but true) and Bush Jr administrations was caught up in a blizzard of deregulation and that oxymoron of the true believers "self-regulation" that resulted in massive fraud and corruption culminating in the sub-prime led global financial collapse it is perhaps interesting to see what the American response was to try and ensure that the whole mess wouldn't be repeated.

Also given that the forces of extremist capitalism will always fight against regulation and government oversight it is understandable that there might be some concerns about the methods generated in the US to combat fraud and corruption.

Still, given that fraud and corruption are part of the fear and greed basis of capitalism, and that monetary awards to motivate people to do the right thing rather than the wrong thing just might work I was disappointed that the discussion focused more on the fact that it was an American idea rather than does it work or not.

It is one of the great failures of ideologues that they see the world in blacks and whites and in this case the interviewer and the "expert" were much more concerned with the "Americanisation" of Britain than with an analysis of the "cash for information" schemes being discussed.

After listening to the program all I could deduce is that I should think that everything out of America is bad, including financial rewards for whistle blowing, without any information to support that assertion.

I am severely disappointed with the BBC.

Wednesday 9 October 2013

America Still Closed....


Years ago while one nation after another was downgraded by the ratings agencies the one country that would never be downgraded, regardless of the circumstances-or at least that was the rhetoric at the time-was America.

Part of the explanation for this view was that the USA was by definition the "risk-free" rate, so how can you downgrade something which is the benchmark against which everything else was priced?  Another supporting factor was that if you were to have rated the USA "blind" it would have been  BBB, A- at best so it was obviously in a class of its own.

And then it got downgraded.

Now, because the current problems with America are self-inflicted by the opposing political ideologies the market is trying to convince itself that not even the most fanatical ideologue would force the issue of a national health care system to the point that they would cause the USA to default.

I'm not so sure. 

The most extreme ideologues are willing to die for their cause creating the suicide bombers first in Sri Lanka, and now across the jihadist world. And one shouldn't forget that the Sri Lankans were politically motivated.

So back to the USA. 

It is clear that the closure is causing serious concern outside America as the world power cancels meetings and delays agreements due to their inability to pay.  This is annoying, but not irreparable.  What is a serious problem is that the reputation of the United States is being tarnished by the apparent bloodymindedness of political ideologues who don't appear to have either an understanding, or even more worryingly, a care about the impact their politicking is having. 

And that is just the closure of America. 

What happens if their intransigence pushes America into default?  We have until October 17th to solve this.  Then, at best, it seems that the Treasury can still play around with the numbers and stay solvent until November 1st.  But all that does is push up volatility and forces erstwhile allies and trading partners to reconsider the value of their American relationship while opening the door for America's geopolitical competitors to fill the gap.

And that is if they don't default. 

The ramifications of an American default are incredibly damaging across the board.  It would go way beyond any questions of reputation.  It would be a shock to the global financial system, the result of which would be truly frightening. 

The markets are hoping that somebody blinks.  They are expecting it to be the Tea Party.  Suicide bombers are ideological fundamentalist fanatics.  That sounds like the Tea Party...

Tuesday 8 October 2013

Tell Lies; Never Admit they are Lies; and be Singleminded...

The rise of Nationalist parties across Europe in the wake of the financial crisis and the ongoing high levels of unemployment follows a familiar pattern which in the not-so-distant past led to the rise of fascism and eventually war.

Whereas I don't believe we are on the eve of another continental European war, I do believe that we could quite quickly find ourselves in the midst of a nationalist nightmare.

In my youth there was a television commercial for a financial/insurance company whose motto was "Simple answers to complex questions".  It was very catchy.  And it was also patently untrue.  Complex questions, or problems, can't be solved with simple binary answers in most cases, because they can't capture the intricacies of the problem and more often then not solve one problem and create two new ones.

It is very easy to blame unemployment on globalism and immigration.  It is one step away from blaming it on domestic pariahs as well as long as one is looking for explanations which make for good soundbites and reverberate with those sections of the populations easily swayed by populist propaganda. 

And let's not be coy-propaganda is used to get results-it doesn't have to be based on truth-it just has to be effective. 

So it is half truths, quarter truths, with which these parties will make headway in future elections. 

What is truly disturbing is that the mainstream politicians have felt it necessary to pander to some of the nationalist propaganda thus opening the door to respectability.  What they have really done is demonstrated that their interests are not in making their countries, and by extension Europe a better place, but rather that their interests are actually in staying in power, regardless of the platform.

It is the failure of the mainstream parties to expose the fallacies of the nationalist rhetoric and to work with their electorates to forge a better future which has opened this door. 

It will take a massive effort to combat it, and I fear the train might have already left the station.

Monday 7 October 2013

The Daily Mail

There is a bit of a spat going on in the British press between David Milliband and The Daily Mail.

The root of the problem is an article in the Mail essentially maligning  David's father Ralph. 

Very briefly, Ralph fled Belgium in 1940 as a 17 year old as the German forces invaded.  He had two strikes against him as he was not only Jewish but also a Marxist. 

As a 17 year old in England, and more importantly as a Marxist who by definition was against nationalism- certainly National Socialism, but actually nationalism of any sort as he felt it was one of the most virulent causes of war. 

The stink in the whole affair is that as a 17 year old he kept a diary in which he wrote how disturbing he found it that the English were so nationalistic and that it almost  made him wish they would lose the war. He did go on to join the British merchant navy and fight the scourge of National Socialism.

Now it must be said that he remained a Marxist, studied and then taught at the London School of Economics and as such never mellowed in his views of nationalism and capitalism.

For these reasons, the Daily Mail thought it only correct that they "expose" him and visit the sins of the father onto the son, in this case "Red Ed Milliband" as they name him.

Despite the fact that even the Conservative Prime Minister David Cameron came out against the article the Daily Mail has not really backed down issuing an apology side by side with an abridged reprint of the original article attacking both the Millibands again as decidedly anti-British and wanting to essentially enslave the British population in a gulag style Stalinism.

Interestingly, one of the sources that the Daily Mail uses to indict David Milliband as a Marxist in his father's footsteps is Damian McBride, the disgraced former spin doctor for Gordon Brown.

The same Damian McBride that the Daily Mail described that although he was "destroyed by his own malign tactics” and by “spreading a series of mendacious allegations about prominent Tories”, he is clearly a man of integrity whose insights should be taken as fact. (my bold text).

Need I say more?

Wednesday 2 October 2013

The Closing of Italy?

For quite a while I have been rather hard on the average American and let the Europeans, in the main, off the hook.

The shennanigans in Italy however have made me take another look at just what is going on in Europe.

Silvio Berlusconi, the leader of the centre-right People of Freedom Party was tried and convicted in a corruption case and is now facing the prospect of being expelled from parliment.

And how does he react?

He has instructed the 5 members of his party who are in the current coalition government of Prime Minister Enrico Letta to resign, ostensibly in protest of an increase in value-added-tax (VAT) from 21 to 22%.  The real reason for the resignations is to put maximum pressure on the special Senate committee responsible for deciding if he should be barred or not.

Yes, the former Prime Minister of Italy, Silvio Berlusconi, who has been convicted of corruption, is willing to hold the Italian government, and by extension the fragile economic recovery of Italy, to ransom, so that despite being a convicted criminal he would be able to stay in parliment.

I don't get it.  How can a man who claims to represent his nation use it in such a deplorable fashion, and not be chased out of office by an irate electorate?

Well, I believe it is the chickens coming home to roost for Europe's social democrats.  They either sat back and let libertarian capitalism in through the back door or, in many instances, actively repudated their very foundations.

They supported privatisations, the dismantling of the public sector, of the social services and a degrading pandering to industry and financial institutions, all in a move to the centre.  For the parties which once represented the working classes and now find themselves catering to the same comfortable urban middle class that their erstwhile rivals the conservatives are pursuing.

Times have changed. The social contract upon which social democracy depends has fallen prey to the hedonism championed by relentless advertising and manipulation by the media.  In the minds of many constituents, even the least well off, consumerism has triumphed.  The desire to get rich, have fun, luxuriate in abundance, and be happy without feeling guilty is a force far too powerful for weakened social democratic ideals to counter.

And Berlusconi, who controls the media, the advertising, and with his bunga bungs parties personifies the hedonism of success, looks like he just might ride the wave of a nation apparently willing to forgive all sins if the result is success.

Smells like facism to me.

Tuesday 1 October 2013

The Closing of America

I am at a loss how any American, especially a politician, can dare to think let alone utter the thought that America demonstrates any form of global leadership.

This most recent fiasco to hit the American political system clearly exposes the hypocrisy that is the two-party democracy so loved and revered by the American population.  It is no more than a cruel manipulation of the general public by various interest groups who under the guise of democracy, which in the USA means capitalism, use a political system to further their own economic agendas void of any social conscience.

How else is one to explain the Republicans willingness to apply massive economic stress and pressure to over  two million public employees, 40% of whom will either be laid off or allowed to keep working without being paid, and all of whom will be left to wonder whether they will be paid back-pay or not.

The last shutdown in 1995 cost US$ 1.5 billion-to the US taxpayer- and lasted 3 weeks lowering GDP by 1.4%!  This shutdown is over a law which was voted upon and passed- "Obamacare".  Why do the Republicans think that it is worth forcing a closure of the US government by demanding a delay of the implementation of a democratically passed provision to provide health care to every American?

And yet, in light of the fact that I don't think they will ultimately be successful in delaying the implementation, I am confused by there bloodymindedness.  Is the Teaparty tail of the Republican party really strong enough to push them into a fight they won't win?  Is the Republican party now thinking with its tail?  Apparently yes.

So why is the party willing to not only risk serious voter backlash at the next elections but to also risk damaging the US economic recovery which in turn will make it that much more difficult for the rest of the world to recover economically all because of a policy which in every other democracy is seen as a social and moral right?

Aha.  The idea that a state has moral andnsocial responsibilities doesn't fit into the ideology of the Republican right- even while they all feed at that great social creation of Medicare and Medicaid. 

Now that's great global leadership.

Monday 30 September 2013

The Arcane World of Risk Weightings

Recently there has been a lot of discussion about the need to decrease the onerous capital requirements on securitisations as proscribed by Basel 2.5.  Of course it must be said that the voices clamouring for the loosening of the restrictions are the banks and their lobbyists.  That banks and their minions would be working behind the scenes, and in front of them, to try and push through changes which would decrease capital requirements is not in and of itself worrisome.  Lower requirements mean increased leverage means, theoretically, increased profits.

Until something goes wrong.

But that is a topic for another day. 

What I am interested in is why the Swedish central banker, Stefan Ingves, who is head of the Basel Committee on Banking Supervision, is speaking up on the topic in such august forums as the Financial Times, and even more importantly why is he suggesting softening the rules. 

A bank is required to hold a capital reserve of 8% against its "standard risk-weighted" assets. This means, essentially that a bank by definition is

The Basel committee  of which Mr Ingves is head has requested that the world's largest banks actually hold 9.5% capital versus their risk assets which gets the leverage down to 10%. 

This is because Basel is already a bit disturbed by the fact that banks, as is their wont, are constantly redesigning their risk models to achieve the lowest possible capital requirement for their assets, regardless of their riskiness.  Thus, depending on the bank, its national regulators, and the aggressiveness of its management the same portfolio of assets can have quite different capital requirements.

There is even a movement, championed in the editorial pages of the FT on July 10, 2013 suggesting that the somewhat blunt instrument of leverage ratios be instituted regardless of the risk weighting of the assets.  The number being bandied about is 3% which equates to a leverage bordering on 35 times. 

Given that banks, through their use of clever models, and pressure on their regulators have been able to carve out a niche where at the extreme they can avoid all capital requirements a minimum of 3% looks promising from a regulatory and bank solvency point of view relatively speaking.

The editorial goes on to suggest that leverage ratios are not perfect because they encourage lenders to focus on the riskiest assets available thus achieving the highest returns for a set amount of capital.  Hmmm.  Isn't that what banks always do?  It's certainly what they are doing, and, more importantly, what they are being allowed to do, perhaps even encouraged to do, by the Basel Committee in that they are allowed to use their "approved" models.

So, back to my original question, given that the Basel committee is responsible for the security/solvency of the global banking system, why is Mr Ingves opening the door even wider for increased leverage rather than being the bulwark of the system I would hope the Head of the Basel Committee on Banking Supervision.

I don't know.




.



Friday 27 September 2013

Quantative Easing to Infinity and Beyond?

Last week, to the total dismay of many in the market the Federal Reserve "surprised" the market by not initiating a reduction in their great stimulus program know as Quantitative Easing (QE). Among the reasons for the market to presume that a "taper" would begin was that in their Federal Open Market Committee (FOMC) minutes from previous meetings they mentioned that they had discussed the idea of a taper.

The market's reaction to this suggestion that they might start to taper QE was to drive mortgage rates from approximately 3.5% to 4.5%-still low-but a large jump relatively speaking, and to make the 30 year treasury trade off quite sharply.

Now to taper or not to taper was a 50/50 bet from the outset. The economic news in the US is constructive, but certainly not creating any stresses in the system. Unemployment is down, but I would draw your attention to the fact that many people seemed to have stopped seeking employment and so fall out of the pool, plus temporary as opposed to permanent employment growth seems to be the flavour of the recovery.

Add to this an almost pathological fear of deflation by the current Bernanke Fed, which will most likely be continued by a Yellen Fed, and I believe the market seriously got ahead of itself and fell into that most dangerous of traps-believing your own hopes to be facts.

So is the long end of the treasury curve artificially low?  A resounding Yes!
Is there the potential that if the Fed were to continue to purchase the long end in their QE quest that they would be creating serious inflationary pressures?  Again a resounding Yes!

But did I believe that the economic recovery has shown any real inherent strength strong enough to warrant essentially putting a break on economic potential? A resounding No!

Do I believe the inflationary pressures are such in the US that the Fed has no choice but to start to taper QE?  You guessed it.  Another resounding No!

At some time the Fed will start to taper.  There is no way that they can continue ad infinitum in their QE washing machine.  But before they start they must coordinate with the Treasury.  In order to help stimulate the economy which is run by two ends of the yield curve- Fed Funds and 30 year Treasury yields, the Fed instituted a "twist" which essentially extended the maturity of the Fed's portfolio thus driving down yields at the long end while Fed Funds have been held excessively low in the front end.

In this case the artificially low yields in the long end must be kept somewhat low, again through artificial means.  The Fed has to get the Treasury to agree to stop issuing long dated debt.  The Fed will stop it's purchases in the long end, moving down the yields curve thus keeping the front end low and allowing/forcing all the index driven investors to purchase long dated securities from the Fed's balance sheet.

Once this reverse "twist" has taken place, the Fed can start to taper it's purchases of the front end of the curve and thereby ease the transition into higher yields without panicking the market or crushing the recovery.

I know, the question is why did all those prop traders really think the Fed would taper?  Why did they make blatantly 50/50 bets?  Believing your own rhetoric is truly dangerous!

Sunday 10 February 2013

Manufacturing Consent FT Style

The headlines of yesterday's Weekend FT screamed out at the British public in a ploy to support the Conservatives from the narrow minded political Luddites of the United Kingdom Independence Party (UKIP) with a jingoistic "Cameron wins rare victory in Europe". 
On page two there is a picture of Cameron and Merkel, she looking up to him- again demonstrating British "superiority".  The devil, as always, is in the detail. 
The caption to the picture whispers that Merkel got the budget deal she wanted by giving her backing to David Cameron.  In the article it goes on to say how important Ms. Merkel was as "the broker in the talks (who) won almost precisely the budget she wanted".
The British public and Mr Cameron won a boost to their ego's which in this case I appreciate the need for.  I also appreciate the need to play down Ms. Merkel's role in this on the front page but it is unfortunate that it is necessary.
Merkel might be a bit obsessed with power but damn if she doesn't tend to use it in a pragmatic and constructive way balancing domestic and international-dare I say intranational in the EU- context.
Yesterday domestically she had to "accept" the resignation of the Minister for Education who's doctorate was questioned for its' originality which is a whole other story.  What was interesting was to see how Merkel was visibly upset by having to lose a competent cabinet minister, and yet was not going to let it fester as so many political leaders do.
No, realpolitik is alive and well in Germany- and Mr Cameron happened to fit in nicely.
One can only hope he continues to do so.