Wednesday, January 26, 2011

US: How Obama Can Make Cuba Freer, Faster – by Roger F. Noriega

Our president has the unique capability to rally international public opinion, and there is no better time for him to challenge the world to join us in insisting on deep, broad, and irreversible reforms in Cuba.

People in a big city like Washington, D.C., know about something called “mugger money.” That’s the $20 bill you slip into your front pocket while you stash the bulk of your cash elsewhere. To avoid irritating a mugger by claiming you have no money, you offer up the $20 and hope he goes away. The Obama administration’s decision last Friday to let Americans send more cash to Cuba is like slipping mugger money to a few million Cubans. But in Cuba, the mugger never goes away.

Some might regard the Obama administration’s plans to allow U.S. universities and churches to expand study tours as rather unremarkable. And that’s the other problem. At a time when this great country should adopt bold and innovative initiatives to help the Cuban people liberate and govern themselves, the administration reinstated travel loopholes that were abused until they were discredited and discarded years ago.

Those of us responsible for monitoring travel to Cuba before the rules were tightened recall an incident where a church-sponsored travel license was misused to sponsor a golf outing to the island. The sponsor of a yacht trip counseled his cohorts to carry a few wheelchairs or pharmaceuticals on their boats to justify their visit to the Havana Yacht Club. One flyer for a university trip lured students with the promise of a pub crawl to sample local rums. The administration’s decision to issue blanket licenses to universities and churches make such isolated abuses more likely, not less. Indeed, bona fide humanitarian, educational, or religious travel was legal even before the changes announced last week. So it is simply dishonest to say that Cubans will benefit by making travel to the island more vulnerable to abuse by people who don’t give a damn about freedom in Cuba.

Until Friday, friends of the Cuban people have been impressed (or, at least, relieved) that President Obama had not been taken in by half-measures adopted by Cuban President Raul Castro’s interim government. It is true that the dictatorship has been forced to trim its employment rolls and has freed a few dozen political prisoners (and forced them into exile). It has, however, yet to reduce or renounce the Stalinist tactics that it uses every day to torment 11 million Cubans.

No one would dare say that President Obama does not want the very best for the Cuban people. But arranging for them to get cash from their families so the Cuban regime can vacuum it out of their pockets at exorbitant state-run dollar stores is nowhere near the best we can do. Standing by silently as the regime curries international favor for freeing innocent dissidents who never should have been jailed in the first place is not the best we can do. Holding business-as-usual talks with a Cuban dictatorship that has held hostage American aid worker Alan Gross for his humanitarian service to the island’s Jewish community is hardly the best we can do. And cutting back on creative pro-democracy aid programs for fear of irritating the dictatorship, and substituting them with micro-credit projects that will do little more than help laid-off regime apparatchiks is perhaps the worst we can do.

“Incremental” measures-using the term adopted by a senior administration official who briefed reporters on Friday’s announcement-are no match for the dictatorship. Are “incremental” measures really designed to bring change, or are they supposed to ensure that change comes slow enough for us to react? Are programs designed to ensure a “soft landing” even compatible with fundamental change? And what’s so good about “stability” if it means that co-conspirators of the brutal men who have been running Cuba for the past five decades are anointed by the world’s incrementalists to run Cuba a bit longer?

This is the time for bold leadership-when the regime’s cronies are hatching plots to preserve their impunity and privileges and when everyone else on the island is wondering whether the world gives a damn whether they live as slaves or free people. Our president has the unique capability to rally international public opinion, and there is no better time for him to challenge the world to join us in insisting on deep, broad, and irreversible reforms in Cuba, not a “soft landing” for the dictatorship. He can advance that objective here at home by vowing to veto any unilateral concession-including lucrative tourist travel-until a transitional, democratic regime is in power in Cuba.

Then he can work with others who care about Cuba’s freedom to build a bipartisan consensus behind truly meaningful measures that will really help make Cubans freer, faster.

Roger F. Noriega was ambassador to the Organization of American States from 2001-2003 and assistant secretary of State from 2003 to 2005. He is a visiting fellow at the American Enterprise Institute and managing director of Vision Americas LLC.

U.S.-Mexican border is terrorists’ moving sidewalk –

U.S.-Mexican border is terrorists’ moving sidewalk – by Deroy Murdock

Daniel Joseph Maldonado AKA Abu Mohammed

NEW YORK — While Americans march against Arizona’s new restrictions on unlawful immigration, hundreds of illegal aliens from countries awash in Muslim terrorists tiptoe across the U.S.-Mexican frontier.

According to the federal Enforcement Integrated Database, 125 individuals were apprehended along the border from fiscal year 2009 through April 20, 2010. These deportable aliens included two Syrians, seven Sudanese, and 17 Iranians, all nationals from the three Islamic countries that the U.S. government officially classifies as state sponsors of terrorism.

Federal authorities also track “special interest countries” from which terrorism could be directed against America. Over the aforementioned period, 99 of those nations’ citizens also were nabbed on the border. They were: two Afghans, five Algerians, 13 Iraqis, 10 Lebanese, 22 Nigerians, 28 Pakistanis, two Saudis, 14 Somalis, and three Yemenis. During FY 2007 and FY 2008, federal officials caught 319 people from these same countries traversing America’s southwest border.

Some such characters were confined in Arizona, which recently adopted a controversial law that lets cops ask the citizenship status of those they suspect of other possible violations. WSB-TV recently publicized an April 15, 2010, “population breakdown” of immigrants detained at a facility in Florence, Ariz. Of the 395 males behind bars, 198 were Mexican, 18 hailed from Afghanistan, Iraq, Iran, Lebanon, Nigeria, Pakistan, Somalia, Sudan and Yemen.

Perhaps these gentlemen simply want to pursue the American dream. Worrisome signs suggest, however, that some may have arrived via blistering, cactus-adorned deserts so they could blow Americans to smithereens.

Texas Border Patrol agents discovered, along with Iranian currency and Islamic prayer rugs, an Arabic clothing patch that reads “martyr” and “way to immortality.” Another shows a jet flying into a skyscraper.

“Members of Hezbollah, the Lebanon-based terrorist organization, have already entered the United States across our southwest border,” declares “A Line in the Sand,” a 2006 report by the House Homeland Security Investigations Subcommittee, then-chaired by Rep. Michael McCaul (R-Texas).

Even more disturbing are the uninvited terrorists and terror suspects that were arrested after entering America through our permeable underbelly:

– Mahmoud Youssef Kourani pleaded guilty in March 2005 to providing material support to terrorists. First, Kourani secured a visa by bribing a Mexican diplomat in Beirut. He and another Middle Easterner then hired a Mexican guide to escort them into America. Finally, Kourani settled in Dearborn, Michigan’s Lebanese-immigrant community, and raised cash for Hezbollah.

– Miguel Alfonso Salinas was caught in New Mexico near the international border in 2006. As The Washington Examiner reported, one week of FBI interrogation exposed Salinas as an Egyptian named Ayman Sulmane Kamal. Evidently, he remains in federal custody.

– Then-National Intelligence Director Mike McConnell said that in FY 2006 and FY 2007, at least 30 potentially dangerous Iraqis were found trying to penetrate America via Mexico. As McConnell told the El Paso Times: “There are numerous situations where people are alive today because we caught them.”

– The Department of Homeland Security issued an April 14 intelligence alert regarding a possible border-crossing attempt by a Somali named Mohamed Ali. He is a suspected member of Al-Shabaab, a Somali-based al-Qaida ally tied to the deadly attack on American GIs in 1993′s notorious “Blackhawk Down” incident in Mogadishu.

– Captured in Brownsville, Texas, Ahmed Muhammed Dhakane pleaded not guilty on May 14 to federal charges that he “ran a large-scale smuggling enterprise” designed to sneak East Africans through Mexico into Texas, including “several AIAI-affiliated Somalis into the United States.” Al-Ittihad Al-Islami is yet another Muslim-extremist organization.

– Daniel Joseph Maldonado also has Somali ties. He was picked up in Somalia in 2007 during terrorist training. He was returned to Houston for prosecution. As Rice University’s Joan Neuhas Schaan told KHOU-TV: “They had plans for him to come back to the United States and recruit female suicide bombers.”

All this involves only the bad guys who the authorities nailed. Those who have stayed undetected after crossing the border to murder Americans remain, by definition, invisible.

* Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.

US: Harry Reid: “I don’t know how anyone of Hispanic heritage could be a Republican.”

US: Harry Reid: “I don’t know how anyone of Hispanic heritage could be a Republican.” – by John McCormack

While campaigning in Nevada Tuesday, Senate Majority Leader Harry Reid told an audience of mostly Hispanic voters: “I don’t know how anyone of Hispanic heritage could be a Republican, okay. Do I need to say more?.”

Reid’s racially-charged comments come as the Nevada Democrat is trying to boost Hispanic turnout in his bid for reelection this November. Polls show, however, that Reid’s positions on immigration are very unpopular with Nevada voters in general. Reid supports the Obama administration’s lawsuit against Arizona over its immigration law, but 63 percent of Nevada voters oppose the lawsuit, according to a Rasmussen poll.

Reid voted against a measure to complete a 700-mile fence along the Mexican border in May, but 68 percent of voters nationally support building a border fence, according to Rasmussen.

Source: Weekly Standard

Watch the video here:

Food Price Inflation; House Price Deflation

New World Order: Food Price Inflation; House Price Deflation


01/25/11 Tampa, Florida – You can tell by my bleary, bloodshot eyes, my rumpled appearance, my musky aromas and my overtly hostile attitude that I have been holed up in the Mogambo Armageddon Bunker (MAB), scared out of my mind about the inflation in prices that is surely going to consume us, thanks to the unholy Federal Reserve creating so incredibly much, so stupendously much, so astoundingly much, So Freaking Much Money (SFMM).

Naturally, as a lunatic-fringe Austrian Business Cycle Theory kind of guy, and one who has also seen the terrifying 4,500-year historical record of fiat currencies, and being an ordinary guy who is also paranoid and scared enough as it is without the added terror of this inflation thing, I am furiously buying gold, silver and guns, the latter item to protect the two former items, which will be so valuable in the collapse that I can buy anything I want, any time I want, anywhere I want, which you have to agree is a really nice way to get through a hyperinflationary collapse!

Of course, it won’t be inflation in the prices of all things, but more inflation in things that foreigners want, too (food, energy, pornography), but deflation in things that foreigners do not want (your house, your car, your job).

Since there is no word for that, we turn to George Ure at, who calls it LifeFlation, and defines it as when, “Things you need – like food – go through the roof. Things you don’t need, like a fourth car, an airplane, a motor home, and so on, collapse.”

And so with a smug look of self-satisfaction on my face to finally have someone on my side instead of the usual “me against everyone,” I now point to the roaring inflation in the cost of food around the world (which people need), as evidenced when Ed Steer’s Gold & Silver Daily gleaned that “Food inflation is alive and well in India,” which he learned from the Times of India headline “Inflation up to 18.32% on veggie prices”, which seems bad enough without continuing on that “Among the individual items, onions became dearer by 82.47 per cent on annual basis, while eggs, meat and fish became costlier by 20.83 per cent, fruits by 19.99 per cent and milk by 19.59 per cent.”

This is a dismal list that, thankfully, did not mention any price rises for yummy pizza, or delicious tacos, or any price rises for those crispy little Spring rolls that taste so good with that gooey red sauce, so that is at least something to be thankful for, I guess!

Anyway, contrast this harrowing inflation in the prices of food with actual deflation in assets, as reports that home prices went down for the 53rd month in a row, which is (if my math is correct) more than four years, which is the worst slump since the 25% fall in housing prices during the Great Depression!

And yet the Federal Reserve, which created all the money necessary to finance this insane bubble in housing that has been deflating for 53 months in a row and has caused almost 3 million foreclosure actions in 2010 with 1 million actual foreclosures, is still there, operating business-as-usual! A total, catastrophic failure, and yet the Federal Reserve remains totally untouched!

“Outrage and a call to action” is one thing, but it was just too cold and snowy to consider rising up in open rebellion, marching upon the Federal Reserve as an angry mob, with photogenic flaming torches and pitchforks being brandished in a menacing manner, intent upon casting out an evil and re-installing the gold standard to the USA

So, since I was snowed in, I had a lot of time on my hands to think about, you know, things.

One of them was the realization that this is the year I turn 64, which reminded me of the Beatles tune that had the line “Will you still need me, will you still feed me, when I’m 64?”

For a moment, everything seeming so warm and cozy, and the thought crossed my mind to do some of that touchy-feely “bonding” crap that families “do” these days, based on, as far as I can tell, some whacko academic theorists and self-promoting hucksters I never heard of, based loosely on statistics that actually prove my point: Mean-spirited, hateful children are obviously spawn of the devil who deliberately make their fathers so crazy that the continual familial dysfunction finally results in barely-controlled rage and a secret thirst for revenge. QED, damn it! QED!

I mean, it’s always something with kids! Always wanting me to go bankrupt by giving them money, instead of my using all of our money to buy as much gold, silver and oil as we can, as protection against the inevitable roaring inflation in prices that is guaranteed by the Federal Reserve creating so much excess money so that the federal government can borrow it and spend it to sustain an idiotic, bankrupted, suicidally-dysfunctional, cancerous, government-centric economy financed by the triple evils of a massively over-produced fiat currency, insane levels of fractional-reserve banking, and a federal government continually deficit-spending.

And if it is not “the money thing” with these kids, then it is them whining for me to drive them somewhere so that they can visit their stupid friends, or take them to some stupid after-school function, or to the mall, or go to some expensive emergency room complaining of some ailment that probably would have gone away in a few days or weeks by itself anyway, or maybe they would have just gotten used to it after a few months.

I say to them, in my defense, “I mean, consider that our incomes as not going up, but prices are, so something has to give!”

In practical experience, this means that it is no wonder that so few people buy gold and silver, although they know they should, and would if they could, but if they did, they would find it so easy that they would, too, spontaneously shout, “Whee! This investing stuff is easy!”

Purchasing Power of US Assets Declines

Purchasing Power of US Assets Declines With the Dollar


01/25/11 Baltimore, Maryland – Many a tear has to fall
But it’s all, in the game

“It’s All In the Game” – Music by Charles Dawes

As far as we know, only one American vice president ever made a contribution to public life worth remembering. That was Charles Dawes, vice president under Calvin Coolidge.

Mr. Dawes was a Chicago banker who was also a songwriter. He wrote the tune for what became a popular song – “It’s All In the Game.”

Oh… And he also won the Nobel Prize for coming up with a plan – the Dawes Plan – for ending the reparations arguments following WWI. As with so many Nobel Prizes, the committee probably acted too hastily. The Dawes Plan never worked.

Dawes operated in a different world. The US dollar was still as good as gold. And any money that wasn’t backed by gold was suspect. Said Dawes after composing his song:

“I know that I will be the target of my punster friends. They will say that if all the notes in my bank are as bad as my musical ones, they are not worth the paper they were written on.”

Banks issued money back then – bank notes. Sometimes the banks were good for the money. Sometimes they weren’t. But at least customers knew where they stood. If a bank failed, they’d lose money.

Now it’s not so simple. Banks no longer issue their own notes. Now, we all use dollars. But what are the dollars worth? Are they going to be the cause of tears and suffering?

Yesterday, stocks rose 108 points on the Dow. Gold up $3.

“House prices expected to decline for a fifth successive year,” says The Financial Times.

Foreclosures are rising and will continue to rise until March of 2012, according to the projections in the FT, wiping out possibly trillions more in household wealth. Sales are at a 13-year low.

Houses are Americans’ most important asset. And the average house is down about 25% since 2006. But that’s in terms of dollars. In terms of gold, the loss is over 60%.

Hey, it’s a Great Correction. After such a big run-up in housing prices in the bubble years, what would you expect? Housing prices are bound to run down.

So much the better. Americans are having a hard time making ends meet; they’ll need cheaper housing. Their incomes are falling in real terms. Measured by the official core CPI, incomes are about flat for the last 10 years. Measured by raw cost of living numbers, household incomes are going down by about 3% to 5% per year.

But look what has happened in terms of real money. The average US household has lost about 70% of its purchasing power.


You’re probably thinking: “Who cares what happens in terms of gold? Gold is in a bull market…it’s fickle…it could go up…it could go down. So what?”

But some of the world’s most important commodities – including oil and food – are priced in real terms. Oil has soared in terms of dollars. But in terms of gold it has barely moved. Food prices go up and down. People may pay a lot more for their wheat and corn in dollars. But if you have gold, almost nothing is more expensive.

The point is, gold is real money. It is not a fiction. It is worth as much today as it was when Charles Dawes was humming tunes. And gold is telling us that the average US family is getting poorer.

Meanwhile, the feds keep pretending that the problem is not enough paper money. People don’t have enough money to spend? No problem. We’ll print up some more Ben Franklins and more Andrew Jacksons.

The average lumpenconsumer might not be able to tell the difference. But gold knows. And gold tells.

Dreaming of a Balanced Budget

Dreaming of a Balanced Budget


01/26/11 Baltimore, Maryland – Well, the president gave a bum speech. Full of empty phrases. Hollow words. It was deep space for real ideas; there was nothing there…

And yet, he gave it so sincerely…you almost felt sorry for him. He would have made such a good college president or undertaker. Sad to see him waste his talents in politics.

We were disappointed, too, that he didn’t use any of our ideas. Don’t expect a balanced budget for this year…or any year of this president’s administration. Instead, he’ll add 75% to the nation’s official national debt – three times more than all the presidents who came before him put together.

Now, that’s an achievement. Something to be proud of. Something he can put on his tombstone.

Here Lies Barack H. Obama. America’s 44th president.
He bankrupted the US government.

And he could have achieved greatness. We had a dream about it. After the State of the Union address, we imagined a different speech:

“My fellow Americans, I know this is a go-along, get-along town. Everybody gets something. If you’re well connected you get a lot. If you’re not so well connected, you get less. Well, I’m not going along anymore. Instead, I’m going to change the rules…so that everyone has a fair chance of getting along.

“I propose to get rid of the phony dollar and re-introduce the real dollar. The dollar will be henceforth exchangeable at the rate of $1,500 per ounce. No questions asked. You give us $1,500 dollars; we’ll give you an ounce of gold.

“And the US government budget will be balanced. We’ll spend what we collect in taxes. Not a penny more.

“Of course, if you gentlemen and ladies want to raise taxes, I’ll let you explain why to the voters…”

Whoa. With those two reforms he could save America from bankruptcy…and put the whole world economy back on solid footing.

And if he wanted to make the US economy the world’s top performing economy he could go even further:

“I’m also introducing a flat 10% rate. I don’t care how you earned your money. I don’t care if you’re a citizen or an alien from outer space. If you live in the US, you send me a postcard. Tell us how much you earned last year, and send us 10% of it.”

Can you imagine? There would be a renaissance…a boom…a revival…like you’ve never seen.

Not that there wouldn’t be problems. Big problems, even. But at least there wouldn’t be any problem with the dollar…or the US public finances.

But it was only a dream, wasn’t it? And a waste of time. It’s never going to happen. We’ll explain why, below. Tonight, we’re going back to dreaming about women. It’s more fun.

Stocks were flat yesterday. Gold dropped $12.

Gold is dipping. How deep will the dip dip? We don’t know. But people who try to time the gold market almost never do well. They get out to avoid the dips. Then, gold shoots up again. The speculators are out of luck. They can’t bring themselves to buy back in at a higher price. So they miss the explosive final stage of the bull market.

What to do about it? Don’t speculate. Buy gold as a way to save money. Then, think of it as you would a collectible…or an heirloom. Don’t worry about the price. Just hold on. By 2015, you’ll probably be able to use a few ounces to buy a new house.

But remember this: there will also be a time when it makes sense to sell gold. When you can buy all the Dow stocks for a single ounce of gold…it’s time to get out of gold and back into stocks. Right now, the Dow is a little under 12,000. And an ounce of gold is only $1,335. Our guess is that the Dow will collapse to under 5,000…while the price of gold soars to over 4,000. Get ready!

When? Hey, you’re asking too much from a free e-letter. Just stay tuned.

GOP Response

GOP Response: Ryan Says U.S. is Headed for Economic Disaster

Shortly after Ryan finished the official GOP response to Obama, tea party favorite Michele Bachmann, (R-Minn.) issued a response of her own.

House Budget Committee Chairman Paul Ryan said Tuesday in the official Republican Party’s response to President Barack Obama’s State of the Union address that without dramatic action to bring the budget deficit under control, the United States is headed for economic disaster.

“Our nation is approaching a tipping point. We are at a moment, where if government’s growth is left unchecked and unchallenged, America’s best century will be considered our past century,” Ryan said in remarks made minutes after Obama finished his speech. “The days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.”

The Wisconsin Republican congressman, usually fiery in his remarks, was remarkably subdued Tuesday night.

“Our debt is the product of acts by many presidents and many Congresses over many years. No one person or party is responsible for it. There is no doubt the president came into office facing a severe fiscal and economic situation,” Ryan said. “Unfortunately, instead of restoring the fundamentals of economic growth, he engaged in a stimulus spending spree that not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt.”

Speaking from a budget panel hearing room that will be ground zero in the upcoming battle over cutting spending, Ryan echoed familiar GOP arguments. His words were repeated by numerous Republicans across the Capitol, who said Obama’s proposal for a five-year freeze on the operating budgets passed by Congress each year for domestic Cabinet agencies doesn’t go far enough.

Republicans are also skeptical of Obama’s plan for investments in education, infrastructure, and research and development. They said in many different ways that Obama was just trying to disguise a new stimulus by talking about investments in the nation’s future.

Shortly after Ryan finished the official GOP response to Obama, tea party favorite Michele Bachmann, (R-Minn.) issued a response of her own. While Bachman’s speech had technical difficulties, as she was looking at a camera that was not carrying her speech live on CNN, her words were much more critical of Obama than Ryan.

“After the $700 billion bailout, the trillion-dollar stimulus and the massive budget bill with over 9,000 earmarks, many of you implored Washington to please stop spending money we don’t have,” Bachmann said. “But, instead of cutting, we saw an unprecedented explosion of government spending and debt. It was unlike anything we have seen before.”

Both Ryan and Bachman denied there was any competition between them.

“Unfortunately, this last weekend, the media decided to create a fiction to make it look like we were in competition with one another. We aren’t at all,” Bachmann said.

The speech was aimed at issues dear to the hearts of Tea Party activists including government spending, the economy and the health care reform law signed by Obama. Armed with charts tracking the national debt and unemployment, Bachmann blasted Obama for adding $3.1 trillion to the national debt.

“In the end, unless we fully repeal ObamaCare, a nation that currently enjoys the world’s best healthcare may be forced to rely on government-run coverage that will have a devastating impact on our national debt for generations to come,” Bachmann said.

Obama Diverged from Prior Administrations with Capitulation

Obama Diverged from Prior Administrations with Capitulation on New START Treaty

Last month’s passage of the updated nuclear-arms reduction treaty with Russia, known as the New Strategic Arms Reduction Treaty, or New START, represents a key concession by the Obama administration towards Russia.

By Rachel Alexander.

Last month’s passage of the updated nuclear-arms reduction treaty with Russia, known as the New Strategic Arms Reduction Treaty, or New START, represents a key concession by the Obama administration towards Russia. Up until now, previous administrations had stood firm refusing to accede to Russia’s aggressive posturing. The treaty favors Russia, requiring it to give up missiles it cannot maintain in exchange for real cuts by the U.S. The Russian Duma is expected to pass it later this month.

The treaty expands upon the old START Treaty which expired a year ago, further limiting development of the U.S.’s missile defense system and restricting our ability to prevent a possible nuclear attack from countries like North Korea or Iran. President Obama denies this. In a letter to Senate Majority leader Harry Reid, Obama wrote, “The New START Treaty places no limitations on the development or deployment of our missile defense programs.”

It is disingenuous of Obama to make this claim, since the treaty clearly does limit the development of missiles. It further reduces the number of missiles the U.S. and Russia may acquire, to 1,550 warheads each, down from the prior START Treaty’s limit of 2,200 and 700 deployed. Together the U.S. and Russia own over 90% of the world’s nuclear weapons. Also troublesome is language in the preamble that would permit Russia to abandon the treaty if the U.S. develops its missile system beyond “current strategic capabilities.” The treaty resumes regular inspections of each country’s nuclear arsenal through a joint inspection system.

The treaty fails to address Russia’s ten to one advantage in tactical nuclear weapons. Senator Chris Bond, who retired last month, said this translates into allowing the U.S. to inspect only two to three percent of Russia’s missiles. Ambassador Henry Cooper, former director of the Strategic Defense Initiative and the chief U.S. strategic weapons negotiator with the Soviet Union during the Reagan administration, said that many of the tactical nuclear weapons have yields stronger than the bombs dropped on Hiroshima and Nagasaki, and that Vladimir Putin is using them to intimidate neighboring countries.

Frank Gaffney, president of the Center for Security Policy and a former acting assistant secretary of defense for security policy, is concerned that Obama is seeking to denuclearize the only country the U.S. can denuclearize – itself. The New Deterrent Working Group, a coalition of more than 30 former defense and foreign policy officials and strategic weapons experts, sent the Senate a letter on December 20th opposing the treaty. Yet the Senate ignored the warnings, passing the treaty 71-26, with 13 Republicans joining the Democrats.

It is naive to believe that by eliminating a substantial amount of our missiles and a few of Russia’s that we can bring about peace. Disarming ourselves leaves us more vulnerable to rogue nations and terrorists who refuse to play by “the rules.” The U.S. has been a force for good throughout history; to willfully abandon our ability to ward off powerful forces of evil is to accede to moral relativity and leave us without adequate protection. Venezuelan dictator Hugo Chavez has announced plans to deploy Iranian strategic missiles against the U.S.

Obama said this treaty was his top foreign policy priority. He may as well have said he no longer believes the U.S. holds a special place as the city on a shining hill; our higher ethical standards are not entitled to any more weight than judgments by other countries. But even Russia knows better. Tellingly, Russian President Dmitry Medvedev admitted that some Americans think all of the world’s evil is concentrated in Russia.

Rachel Alexander is the co-editor of the Intellectual Conservative.

Save the Filibuster!

Save the Filibuster!

In an age of intensely polarized politics, the filibuster assures that a genuine consensus exists for Congress to move forward.

Whoever said that people seeking to make trouble should not underestimate the possibilities of “reform” would smile in acknowledgement of the progressive “reform” community’s latest target—the Senate filibuster. The usual “coalition” (another dead giveaway term) of labor and Left-activist groups has organized around the banner “Fix The Senate Now” to advocate changing the Senate’s 60-vote filibuster threshold that currently allows the minority party to hold up legislation and key personnel appointments to the judiciary and executive branch.

Never mind the hypocrisy of folks who now lament the filibuster after having defended it from Republican threats to curtail its use against many of President George W. Bush’s judicial appointments a few years ago. Majorities are always frustrated when a determined minority uses—and occasionally abuses—the rules to thwart the majority. And it is unquestionably the case that using the once-rare filibuster has become frequent in recent years by both parties, changing the Senate into a chamber now requiring a de facto 60-vote supermajority for nearly everything. Why has this happened? Is changing the rules the right remedy for abuses? And does using the filibuster, even in its frequent form just now, thwart the rightful purposes of our constitutional design, or in fact fulfill them?

We should always beware of seemingly neutral ‘process reform’ sold as a means of making government more ‘effective.’

We should always beware of seemingly neutral “process reform” sold as a means of making government more “effective.” Process reforms of this type are always a masquerade of the one-way ratchet to make it easier for government to acquire more power and do more things without having to argue openly for the additional power. The coalition Left is enraged that its key agenda items such as card check, the DREAM Act, the public option in the healthcare bill, tax hikes for the rich, key Obama appointments, and many other items fell victim to Republican filibusters.

Advocates of filibuster reform, whose ranks include my distinguished American Enterprise Institute colleague Norm Ornstein, do not propose abolishing it completely and having the Senate operate as a pure majoritarian body like the House, with severely limited debate. The proposed changes appear to tinker at the margins, such as prohibiting second- and third-order filibusters after initial cloture votes to proceed to the floor with the main legislation; prohibiting filibusters of proceeding to conference committees; requiring senators to actually hold the floor, like the filibusters of the “Mr. Smith Goes to Washington” days of old; and so forth. It is telling, though, that many advocates of filibuster reform have borrowed a phrase from the 1990s: “Mend it—don’t end it.” This phrase was first linked with affirmative action quotas in the 1990s, and its real meaning was to prevent any real change to the increasingly unpopular regime of racial preferences. In this case, the slogan means exactly the opposite. If progressive reformers had their way, they would end the filibuster, and are constrained from doing so only by political reality. (I exempt Brother Ornstein from this charge; he merely dislikes the untidiness and disrepute that the perception of a dysfunctional Congress conveys to the public.) This fact is never clearer than when reformers complain that the Senate filibuster makes the chamber “undemocratic.”

To which I say: precisely. Long may it continue to be so undemocratic.

Majorities are always frustrated when a determined minority uses and occasionally abuses the rules to thwart the majority.

Several observations should be brought to bear on how to think about the filibuster. First, keep in mind that the original cloture rules to end filibusters were instituted about 100 years ago, precisely to end the ability of a single senator to tie up the Senate forever in debate. Prior to these rules, Senate debate was completely unlimited, and a group of senators could filibuster forever, if they wanted.

But the core point in defense of the filibuster as we know it today is that, while not mentioned in the Constitution, it is wholly consistent with the framers’ intent that the Senate not be a purely democratic body. Even a casual reader of the Federalist Papers and other founding-era thought will know that the central idea of our republic’s design is to operate not by simple majority rule but by a certain kind of majority—a deliberative majority. While the whole House is elected directly every two years to represent transient and shifting public opinion on a nearly real-time basis, the Senate, with its rolling turnover and (previously) indirect method of selection, is intended to move slowly, to be, as the overused metaphor from the founding had it, the “cooling saucer of democracy.” In the case of many liberal items the filibuster held up in the last Congress, the filibuster can be said to have worked exactly according to the framers’ design: to ensure that a genuine consensus exists for major changes, and to prevent a transient majority from imposing its will on the public without its consent.

I can hear Brother Ornstein ask, “So what, exactly, is “deliberative” about blocking appointments and slowing even noncontroversial items through procedural obstacles?” Just this: In an age of intensely polarized politics, rooted in deep and possibly irresolvable differences of principle over the nature and reach of government, the filibuster, even in its extreme and abused forms, assures that a genuine consensus exists for Congress to move forward both in general and on particular pieces of legislation. Reserving the power to invoke a filibuster in successive steps of the process is also necessary to balance one of Senate Majority Leader Harry Reid’s favorite parliamentary maneuvers, a process known as “filling the tree,” whereby bills brought to the Senate floor cannot be amended.

Never mind the hypocrisy of folks who now lament the filibuster after having defended it from Republican threats to curtail its use against many of President George W. Bush’s judicial appointments a few years ago.

But is the filibuster dangerous to the republic’s necessary business? Here we must make an empirical inquiry, though final judgment will depend on subjective views about what constitutes the “vital” functions of our government. To people inside the Beltway, everything is vital. Citizens may have a more balanced view, which is why public opinion is the ultimate check on the filibuster.

Are filibusters blocking any of the truly essential business of the nation? Both houses of Congress failed to pass an actual budget for this fiscal year, despite a legal requirement to do so and Senate rules that reduce the filibuster’s influence on the budget process. Complaints about the filibuster slowing vital matters ring hollow before this kind of congressional irresponsibility. Are any executive departments or court houses failing to function because of a filibustered appointee? No. (You could double the number of federal judges, and everyone would still complain about clogged dockets. And most senior political appointees to the executive branch are captured by the careerists anyway; I doubt the careerists even notice the absence of the deputy assistant undersecretary for interagency affairs.) Are filibusters stopping timely defense appropriations for our troops in the field? No. Senators don’t dare do something that reckless.

Process reforms of this type are always a masquerade of the one-way ratchet to make it easier for government to acquire more power.

This raises the most important aspect of the issue—the ultimate restraining hand of the voters. It is telling that Senate Democrats chose not to filibuster either of George W. Bush’s Supreme Court nominees—John Roberts and Sam Alito—even though Democrats objected to their jurisprudence as much if not more so than the numerous lower court nominees they blocked through the filibuster. Needless to say, these Supreme Court appointments were much more significant than lower court nominees. So why didn’t Democrats use the filibuster against Roberts and Alito? The answer is clear: public opinion would have turned savagely against Democrats if they locked up the nation’s highest tribunal for purely ideological reasons. In fact, Senate Minority Leader Tom Daschle’s obstructionist use of the filibuster probably played a role in his defeat for re-election in 2004.

In several of his landmark decisions delineating the reach of the national government, Chief Justice John Marshall argued that the abuse of a power is not an argument against its existence. Moreover, Marshall argued that the remedy for the abuse of power is not in endless tinkering with our basic rules, but in the hands of the people through the ballot box. The Progressive Era Republican Senator Albert Beveridge invoked Marshall’s teaching in several Senate speeches in his career: “The limit is in our common sense and in our responsibility to our constituents. If we do exercise our power unwisely the remedy is in the hands of the American people at the ballot-box . . . Mr. President, if the possible abuse of a power is an argument against its existence, where are we?”

The irony here is that recourse to the ballot box is the same remedy Brother Ornstein and other opponents of term limits have (rightly in my view) advocated for that source of our democratic discontent. Why isn’t the remedy he and others suggest for entrenched incumbency just as good for the filibuster?

Steven F. Hayward is the F.K. Weyerhaeuser Fellow at the American Enterprise Institute.

A State Insult

A State Insult with Chinese Characteristics

A state banquet was scene to a triumph of sorts for a newly assertive, and more nakedly anti-American, strain in Chinese foreign policy.

How to evaluate the results of last week’s China-U.S. summit in Washington? Improbably, the key for the entire event may lie in what is usually the least memorable portion of these carefully choreographed occasions: the cultural program at the concluding state banquet.

During the dinner’s musical interlude and following a duet with American jazz musician Herbie Hancock, Chinese pianist Lang Lang treated the assembled dignitaries to a solo of what he described as “a Chinese song: ‘My Motherland.’” (You can watch this on YouTube.)

The Chinese delegation was clearly delighted: Chinese President and Communist Party chief Hu Jintao, stone-faced for many of his other photo ops in Washington, beamed with pleasure upon hearing the melody and embraced Lang Lang at the song’s conclusion (see it on YouTube too). President Obama, for his part, amiably praised Lang Lang for his performance and described the event as "an extraordinary evening."

‘My Motherland’ is still famous in China; indeed, it is well-known to practically every Chinese adult to this very day.

But what, exactly, is this “gorgeous” and “beautiful” (Hu’s words) tune that so entranced China’s visiting leadership?

“My Motherland” is not a “Chinese song” in any ordinary meaning of the term. Instead, it is a Mao-era propaganda classic: the theme from "Triangle Hill" (Shangganling), a film in which heroic Chinese forces fight, kill, and eventually beat Americans in pitched battle during the Korean War.

“My Motherland” epitomizes the “Resist America, Aid [North] Korea” campaign that Beijing embraced during and after the Korean War. It celebrates Sino-American enmity. The gist of the tune can be seen in its lyrics (see the Wikipedia translation):

When friends are here, there is fine wine
But if the wolves come
What greets it is the hunting gun.

(Two guesses who “the wolves” are.)

“My Motherland” is still famous in China; indeed, it is well-known to practically every Chinese adult to this very day. Unfortunately, this political anthem and its significance were evidently unknown to the many members of the administration’s China team—the secretary and deputy secretary of State, the assistant secretary of State for East Asia and the Pacific, and the National Security Council’s top two Asia experts—who were on hand at the state dinner and heard this serenade. Clueless about the nature of the insult, they did not know to warn the president that he would embarrass himself and his country by not only sitting through the song, but by congratulating Lang Lang for it afterward.

Unfortunately, this political anthem and its significance were evidently completely unknown to the many members of the Obama administration’s China team.

Although Americans are often tone-deaf to cadences of symbolism in international relations, the Chinese are not. And for Chinese audiences, the symbolism of performing “My Motherland” to a host of uncomprehending barbarians in the White House itself hardly required explanation. This was a triumph of sorts for a newly assertive, and more nakedly anti-American, strain in Chinese foreign policy. The episode has reportedly already gone viral over the Chinese Internet, where the buzz on this crude and deliberate snub is overwhelmingly and enthusiastically positive. Hu can thus return home confident his visit to America will widely be regarded as a success domestically— for reasons his American counterparts do not yet seem to comprehend.

The “My Motherland” incident, for its part, may only be a foretaste of what lies ahead in U.S.-China relations. Note, for example, this week’s New York Times front-page story “China Grooming Deft Politician as Next Leader,” announcing Xi Jinping, the Chinese vice president and politburo member, as heir presumptive to Hu Jintao. Xi is lauded as “a brilliant politician” who “came to hate ideological struggles” and is known for “his conciliatory leadership style.” This is the same urbane pragmatist who delivered a speech in Beijing last October commemorating China’s role in the Korean War, a war Xi described as “imposed by the imperialist aggressors,” while Chinese and North Korean troops were waging “a war of justice to defend peace.” Xi even trotted out the long-discredited Communist lie that Americans used germ warfare in the Korean conflict.

This Orwellian rendition of the origins and conduct of the Korean War augurs ill for U.S.-China relations on many counts (not the least of these being the prospect of cooperation on denuclearization in North Korea—in Xi’s telling, the supposed victim of a U.S. surprise attack in 1950). Xi's diatribe reveals a lingering and deep-seated animosity toward the United States, and suggests that China’s rising generation of rulers will be less shy about advertising (and perhaps acting upon) such sentiments than their predecessors.

If American policy makers are to avoid unpleasant surprises in their dealings with China in the years ahead, they must pay far more attention to official Chinese pronouncements, commentary, and doctrine. All too often, American security specialists—and even China watchers—are inclined to disregard official Chinese speechifying as so much boring palaver. The problem is that in a controlled society, official words matter. Sometimes, even songs do.

Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at the American Enterprise Institute.

New single-family home sales increased 17.5% in December

Data Watch
New single-family home sales increased 17.5% in December
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist

New single-family home sales increased 17.5% in December, coming in at a 329,000 annual rate, blowing away the consensus expected pace of 300,000.
Sales were up in the West, Midwest, and South, but down in the Northeast.

At the current sales pace, the months’ supply of new homes (how long it would take to sell the homes in inventory) fell to 6.9 in December from 8.4 in November. The drop in the months’ supply was mainly due to the faster selling pace. The number of homes for sale fell 5,000 to 190,000, down 66.8% versus the peak in 2006 and the lowest level of new homes in inventory since 1968.

The median price of new homes sold was $241,500 in December, up 8.5% from a year ago. The average price of new homes sold was $291,400, up 4.7% versus last year.

Implications: New home sales jumped 17.5% in December, the biggest percentage gain since 1992, coming in well above consensus expectations. The increase was mostly due to stronger sales in the West. Outside the West, sales were up only slightly. It is important to note that new home inventories are still declining and are already at levels not seen since the late 1960s. As inventories keep falling, homebuilders will eventually need to start building more homes. Given a growing population, the pace of new home sales should roughly triple over the next several years to about 950,000. On the price front, the median price of new homes sold rose to $241,500 in December, coming in at the highest level since April 2008. This was probably influenced by the large increase of sales in the West where homes are usually priced higher. Median new home prices are up 8.5% versus a year ago. In other recent housing news, the Case-Shiller index, a measure of home prices in the 20 largest metro areas, dipped 0.5% in November (seasonally-adjusted) versus a consensus expected decline of 0.8%. Prices are down 1.6% in the past year, but still up 1.2% versus the cycle low in May 2009. The FHFA index, a price measure for homes financed by conforming mortgages, was unchanged in November but down 4.3% in the past year. In the factory sector, the Richmond Fed index, a measure of manufacturing in the mid-Atlantic, came in at +18 in January versus +25 in December. Although lower, the Richmond index still signals strong growth in manufacturing activity.

Urges rejuvenating of innovative spirit with new ‘Sputnik moment’

Obama: Restrain budget, but invest in infrastructure

Urges rejuvenating of innovative spirit with new ‘Sputnik moment’

As Vice President Joseph R. Biden Jr. and House Speaker John A. Boehner look on, President Obama called Tuesday night for rejuvenating America's innovative spirit. (Associated Press)

Picking a fight with his own party, President Obama on Tuesday called for ending earmark spending and proposed a five-year partial budget freeze in his first State of the Union address before a Congress packed with newly ascendant Republicans eager to cut even more deeply.

In a broad 62-minute speech in which he called for rejuvenating America’s innovative spirit — what he called “our generation’s Sputnik moment” — Mr. Obama said the economy is beginning to bounce back, and said now is the time to push forward with a job-growing agenda.

But even as he promised to rein in spending, Mr. Obama vowed to invest in roads and infrastructure, to revamp education and to simplify the corporate and personal income-tax codes, calling the moves a down payment on longer-term fiscal moves to restore the country’s finances.

Now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable,” Mr. Obama said. “Every day, families sacrifice to live within their means. They deserve a government that does the same.”

Still, the speech struck many of the same themes the president has pitched over the last year: His spending freeze is simply an extension of an earlier three-year pledge, and his call for an infrastructure bank is a reworking of a widely panned idea he proposed four months ago. And it comes at a time when Republicans, who now control the House, are in a position to scuttle those parts of his agenda they oppose, and to push for him to go further on spending cuts.

Vice President Joseph R. Biden Jr. chats with House Speaker John A. Boehner of Ohio on Capitol Hill on Tuesday before the start of President Obama's State of the Union address. (Associated Press)Vice President Joseph R. Biden Jr. chats with House Speaker John A. Boehner of Ohio on Capitol Hill on Tuesday before the start of President Obama’s State of the Union address. (Associated Press)

A ‘freeze’ is simply inadequate,” said House Speaker John A. Boehner, Ohio Republican, who led his party to giant victories in last year’s elections with promises of deep cuts and limited government.

Just hours before Mr. Obama took the podium in the packed House chamber, lawmakers there passed a resolution promising to cut spending to pre-Obama levels. The nonbinding measure passed 256-165, with 17 Democrats joining 239 Republicans — signaling at least some bipartisan support for the deep cuts Republicans are proposing.

Just over two weeks after a gunman killed six and injured more than a dozen, including Democratic Rep. Gabrielle Giffords of Arizona, at an event the congresswoman was holding in Tucson, Mr. Obama appealed for a new tone in the capital’s political debates, echoing the call he made at a memorial service the week after the shooting.

There’s a reason the tragedy in Tucson gave us pause. Amid all the noise and passions and rancor of our public debate, Tucson reminded us that no matter who we are or where we come from, each of us is a part of something greater — something more consequential than party or political preference,” he said.

For their part, members of the House and Senate symbolized their support for more civility by forgoing the traditional partisan seating arrangements and pairing up with colleagues across the aisle. The entire Arizona delegation sat together but left an empty seat in honor of Mrs. Giffords, who was still recovering from her wounds.

Story Continues →

Dow Jones trades above 12,000 points

Dow Jones trades above 12,000 points

In this Jan. 25, 2011 photo, trader Luigi Muccitelli, left, and specialist Donald Civitanova work on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)In this Jan. 25, 2011 photo, trader Luigi Muccitelli, left, and specialist Donald Civitanova work on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)

NEWYORK (AP) — The Dow Jones industrial average is surpassing 12,000 as investors shrug off weak earnings results and focus on President Barack Obama‘s call to overhaul corporate taxes.

The average climbed to 12,006 early Wednesday. The last time it closed above 12,000 was June 19, 2008.

Obama said he wanted to close corporate tax loopholes and use the additional revenue to lower corporate tax rates for the first time in 25 years.

That offset weak earnings results from Boeing Co., Xerox Corp. and Eastman Kodak Co

Davos Man needs his image polishing

News analysis


Davos diary

Davos Man needs his image polishing

by M.B. | DAVOS

FEW used-car salesmen are invited to join the business leaders, politicians, do-gooders and celebrities on the annual pilgrimage to the Swiss mountain village of Davos that is the World Economic Forum. More’s the pity—for their presence would probably increase the amount of trust that the public has in Davos Man and Woman.

At the start of the WEF in recent years, the great and the good have been forced to consider what the world thinks of them by Edelman, a PR firm, which publishes its annual Trust Barometer. This year’s report might fool attendees into momentary optimism with its headline conclusion that “Trust Stabilises Globally”’, but only until they realise that stabilising low levels of trust is not exactly a triumph. Besides, on closer inspection of the data—garnered by polling members of the “informed public” (college-educated, in the top quarter by earnings for their age and country, etc) in 23 countries—it turns out that, rather than stabilising, in many respects trust is continuing to decline.

Overall, trust in business to do the “right thing” has risen globally to 56%, up from 54% last year, ahead of trust in government, at 52% compared with 47% last year, and the media, trusted by less than half of those polled— though at 49%, better than last year’s 45%. The world’s most trusted institutions, again, are non-governmental organisations (NGOs), with their trust levels up to 61% from 57% in 2010.

This aggregate picture masks some bad news, especially for the world’s superpower, where the trust Americans have in their government has fallen to a lowly 40%, from 46% last year. Americans’ trust in business has also dropped sharply, from 54% in 2010 to 46%. Trust in business also fell in Britain, from 49% to 44%, though the British feel more trusting towards their government (albeit a hardly ecstatic 43%, up from 38%), perhaps because it is too recently elected to have totally disillusioned them.

A majority of the governments of big countries featured by Edelman have seen rising trust, including Italy, whose rise from 36% to 45% can surely only be explained by the growing confidence of Italians that their prime minister, Silvio Berlusconi, is too busy partying to have time to mess up their country.

Trust in government is up in Japan, too, from 42% to 51%, but this pales beside the remarkably high and increased levels of trust reported in government in Brazil, 85% this year, up from 39% in 2010, and China, 88%, up from 74%. (Indeed, the level of trust reported in the Chinese government is so high that it makes one wonder if the sort of influential people surveyed by Edelman are reluctant to trust opinion pollsters with their real opinion of their political rulers.)

There is a striking difference in the level of trust in developing economies compared with older industrialised countries. As well as high levels of trust in government, trust in business has soared from 62% to 81% in Brazil, and from 67% to 70% in India, and though slipping slightly is at 61% in China – well above the levels in the developed economies, though both Germany and France have seen a 12 percentage-point rise in trust in business this year, rising to 52% and 48%, respectively. On the other hand, people around the world seem to trust companies headquartered in rich countries far more than they do companies headquartered in the developing world.

In Boss we Trust
Three of Edelman’s findings should provoke particularly fierce debate. First, curiously, while trust in business improved only modestly in aggregate, and fell in some leading economies, the credibility of chief executives seems to have risen sharply everywhere. Public confidence that a CEO will tell the truth has jumped from 31% in 2010 to 50% this year.

Secondly, public trust in tech companies is everywhere stronger than in banks and carmakers. In America and Britain, trust in banks has slumped in the past year, though faith in the carmakers has improved markedly. The Chinese and Indians already had a high trust in their banks and car firms, perhaps because of the absence of costly bail-outs, and their trust rose further last year.

Third, another as-yet unresolved question is whether business is currently distrusted in some places because it is perceived as failing to act in the interests of society. Edelman asked its sample if they agreed with the view traditionally associated with Milton Friedman, the late Nobel Laureate in economics that “the social responsibility of a business is to increase its profits.” The United Arab Emirates proved to be the most Friedmanite, with 84% agreeing, just ahead of Japan, rather unexpectedly given its reputation as a stakeholder-oriented corporate world, with 72%. Sweden, which is also seen abroad as an anti-Friedmanite bastion also scored high, at 60% (see chart).

America, supposedly the land of profit maximisation über alles, scored only 56%, and Britain 43%. Less surprisingly, Friedman’s views drew little support in stakeholder-friendly Germany, Italy and Spain, at 35%, 33% and 30%, respectively—ie, less support for profit maximisation than in China, whose nonetheless relatively low score suggests that its public embrace of red-blooded capitalism still has some way to go.

On the other hand, Edelman found, there are very high levels of support for the view that firms should be willing to sacrifice some profits to meet their commitments to their various stakeholders. The percentages are startling—91% in Germany, 89% in Britain, Ireland and China. America is only slightly further behind. Even in those countries with the lowest support for this particular view—Brazil, Japan and the United Arab Emirates—there was still a majority who agreed with it. It will be fascinating to see what the business leaders amongst those gathered in Davos will make of this conundrum.

Obama, Republicans Vie to Win Public's Trust

Obama, Republicans Vie to Win Public's Trust Over Plans for Spending Cuts

Jan. 26 (Bloomberg) -- President Barack Obama speaks about U.S. competitiveness and the deficit. Obama, speaking in his annual State of the Union address last night, urged Congress to invest in education, high-speed rail and Internet access while warning that the nation risks being buried under a mountain of debt. (Excerpts. Source: Bloomberg)

Jan. 25 (Bloomberg) -- Former Senate Democratic Leader Tom Daschle, former Republican Senator John Sununu, Kevin Hassett, director of economic policy studies at the American Enterprise Institute and a Bloomberg News columnist and Christina Romer, former head of U.S. President Barack Obama’s Council of Economic Advisers, talk about Obama's State of the Union Address. Obama, saying “the future is ours to win,” urged Congress to invest in education, high-speed rail and Internet access while warning that the nation risks being buried under a mountain of debt. Bloomberg's Al Hunt and Peter Cook also speak. (Excerpt. Source: Bloomberg)

It comes down to trust.

President Barack Obama used his State of the Union address to try to persuade the public to trust that he has heeded a call for smaller government that heralded his party’s 2010 election “shellacking,” calling for a five-year federal spending freeze and steps to rein in the deficit.

Republicans argued that they were the ones to be trusted to follow through on the Tea Party-infused message of budget- cutting that voters sent in November.

In dueling addresses to a national television audience yesterday, each side was striving to win over the public with a more convincing case for tackling the nation’s fiscal problems responsibly.

“Every day, families sacrifice to live within their means,” Obama said. “They deserve a government that does the same.” He answered Republicans’ call for steeper reductions of $100 billion by the end of the year, which the House endorsed in a symbolic vote yesterday, hours before the president spoke.

“I’m willing to eliminate whatever we can honestly afford to do without. But let’s make sure that we’re not doing it on the backs of our most vulnerable citizens,” Obama said.

House Speaker John Boehner, a Ohio Republican, dismissed the president’s proposed freeze as “inadequate” and said Obama hadn’t heard voters at all.

“Unfortunately, even as he talked about the need for fiscal discipline, President Obama called for more ‘stimulus’ spending without making a commitment to the cuts and reforms the American people are demanding,” Boehner said in a statement following the speech.

‘Timidity and Denial’

Senator Jeff Sessions of Alabama, the top Republican on the Budget Committee, said Obama’s spending ideas amounted to “timidity and denial.”

“Meaningfully reducing the size of our government and our deficit may not be easy, but it is the only responsible course,” he said in a statement.

In a response organized by the Tea Party Express, Republican Representative Michele Bachmann of Minnesota suggested that Obama has proven he is not to be trusted on the issue.

“For two years, President Obama made promises just like the ones we heard him make this evening,” she said. “Yet still we have high unemployment, devalued housing prices and the cost of gasoline is skyrocketing.”

Reconnect With Voters

For Obama, the State of the Union provided a chance to reconnect with voters -- particularly independents who abandoned Democrats in 2010 after backing him two years before -- while demonstrating that he has a plan for creating jobs and addressing the deficit.

“It boils down to Obama making a shift away from being a legislative president and towards being a thematic president,” said former Clinton administration White House aide Matt Bennett of Third Way, a Democratic-led policy group in Washington. “When your party loses the majority in a big way like his did, you’re going to have to do a little bit of nodding to the other side. He’s reaching toward the center.”

Still, some traditional Democratic allies were unhappy that Obama didn’t rule out cuts to entitlement programs, such as Social Security.

Obama acknowledged that cutting annual domestic spending would be insufficient to tackle the nation’s deficit problems.

“We have to stop pretending that cutting this kind of spending alone will be enough. It won’t,” he said. The president praised the work -- though not all the recommendations -- of a bipartisan deficit-cutting commission that endorsed Social Security benefit reductions.

‘Against the Will’

Nancy Altman, co-chairwoman of the Strengthen Social Security Campaign, said Obama “left open the door for significant cuts to Social Security’s already modest benefits, a change that goes against the will of most Americans.”

Republicans are trying to balance a demand from Tea Party forces to strongly counter Obama with an effort to avoid being seen as shrill.

Democrats are working to portray Republicans as anti- spending zealots willing to cut popular programs. Obama “has carved out a very sensible compromise,” said Democratic Representative Rob Andrews of New Jersey.

Republicans’ plan would mean “2,000 fewer FBI agents, 25,000 fewer cancer research grants” at the National Institutes of Health, cuts to college Pell grants and other “counterproductive” measures, Andrews said after the speech.

‘Difficult Task’

If Republicans are mainly “fighting over who wants to cut more,” they will have “a difficult task” in persuading the public to trust them over over Obama, said John C. Fortier of the American Enterprise Institute. On the other hand, he added, “They’re not going to be held responsible as much as the president is.”

Just after Obama finished speaking, House Budget Committee Chairman Paul Ryan of Wisconsin said Republicans aren’t claiming to be perfect.

“Americans are skeptical of both political parties, and that skepticism is justified -- especially when it comes to spending,” Ryan said in his party’s official nationally televised rebuttal. “So hold all of us accountable.”

Florida Representative Allen West, a freshman Republican aligned with the Tea Party movement, said Obama “has to gain back the trust and confidence, and the Republicans have to as well.”

Obama’s lift is heavier in light of his record over the past two years, said Republican pollster Whit Ayres.

“The president doesn’t have a lot of credibility on cutting spending,” Ayres said. “At this point he’s in a position where most Americans are looking at him and saying, ‘I’ll believe it when I see it.’”

China Is No White Knight in Euro's Debt Crisis

China Is No White Knight in Euro's Debt Crisis: Iana Dreyer

China is worried about Europe’s economic future. But how far is it prepared to go to ensure the euro survives the sovereign-debt crisis?

Not far enough.

China’s pledges to purchase Greek and Spanish bonds as well as statements of financial support for Portugal show trade and investment are at stake. After all, Europe is China’s premier export destination.

“We do have confidence in European financial markets and the euro,” People’s Bank of China Deputy Governor Yi Gang said at a briefing in London this month. “We will be here for a very long period of time. China has been a long-term, stable investor in Europe.”

But while signaling a well-appreciated support for the euro, these purchases are mainly symbolic gestures. They won’t be massive, nor will they increase in any meaningful way.

By buying bonds and striking investment deals in cash- strapped European companies, China is trying to make friends and build bridges. It is keen to be recognized by the European Union as a market economy. This recognition would force Europe to limit the number of antidumping cases launched by the EU against imports from China.

Building alliances with Mediterranean governments that are traditionally wary of China’s trade can help it achieve this goal. China’s display of “soft,” business-centered diplomacy may also help the Asian nation in sensitive discussions with Europe’s leaders over the EU arms embargo imposed against China after the Tiananmen Square crackdown in 1989.

Chinese Dilemma

Bond purchases are a double-edged sword, though. Many argue that China wants to preserve the euro to diversify its holdings of U.S. dollars. But China is faced with a dilemma: The Treasury bonds that it owns help prop up the dollar, against which the yuan is pegged at a rate some say is undervalued in order to boost exports. Diminishing its dollar holdings would lead to a further strengthening of the yuan and depreciation of the U.S. currency, which the Federal Reserve is forcing upon the world through quantitative easing.

The precarious fate of the euro worsens Europe’s already grim prospects for this year. The European Commission forecasts 1.5 percent growth for 2011, compared with 1.7 percent in 2010. Most of this will be driven by Germany, while the slump in other euro countries will persist.

Ripple Effects

China may not have been affected by the financial crisis that originated in the U.S. and then spread to Europe, dragging down banks and the finances of the governments that rescued them -- China’s trade dipped only temporarily at the height of the crisis. But it might well have to accept a longer-term slowdown of exports to Europe. As European governments introduce austerity measures, domestic demand is likely to flounder again, with ripple effects on imports.

Recent International Monetary Fund research reveals that after a major banking and financial crisis imports by affected countries take about 10 years to return to normal. In 2009, European imports from China fell to 214 billion euros ($292 billion) from 247 billion euros in 2008. That reversed an 18 percent average annual increase in imports from 2005 to 2008.

In 2010, EU imports from China grew again -- by 31 percent in the January-October period. But this revival might be short- lived. Recent analysis by the World Bank says the crisis has pushed advanced countries to a lower growth trajectory. This will surely hurt export-oriented countries, such as China.

IPad Exports

China’s production model is intertwined with its trade relationship with Europe. Although China now exports more sophisticated products than a few years ago, such as iPads, it doesn’t control the technology itself. It only takes charge of the final product assembly for re-export. This happens in large- scale plants that employ millions of workers the Chinese government needs to keep happy and employed.

Even after all the recent attention in the media about China raising salaries and becoming technologically more competitive, the country still needs investment in large-scale labor-intensive manufacturing to put its masses to work. Two- fifths of its labor force is still rural and needs to be shifted to better jobs elsewhere, namely in factories.

Such massive investment is possible only with the help of foreign companies operating in China. South Korean, Japanese, Taiwanese -- not so much European -- companies may be the top investors in China. But these Asian investments are plants that assemble for re-export to the West. If domestic demand in Europe slows, then foreign investment in China will also suffer.

These harsh realities are the backdrop to China’s charm offensive deployed during its recent roadshow in European capitals. It is responding to the frustration of European investors over practices such as forced technology transfers in joint ventures, and to a rising protectionist sentiment.

At the moment, China simply can’t dump its dollars. So Europe’s leaders shouldn’t expect much more than symbolic Chinese support for the common currency.

Davos Moguls Adjust to Fast, Slow, Reverse

Davos Moguls Adjust to Fast, Slow, Reverse: Mohamed El-Erian

Davos Moguls Adjust to Fast, Slow, Reverse

Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co. (PIMCO). Photographer: Gillianne Tedder/Bloomberg

Jan. 25 (Bloomberg) -- Klaus Schwab, founder of the World Economic Forum, talks about the agenda for this year's meeting at the Swiss ski resort of Davos. He speaks with Blommberg's Ryan Chilcote in Davos. (Source: Bloomberg)

Whether it’s at Davos or other international forums, policy makers would benefit from a more balanced analysis of the risks and opportunities facing today’s global economy. This is the key to promoting growth and employment, increasing the chances of successful trade negotiations, lessening the risk of currency wars and ensuring better cooperation on regulatory changes.

After two extraordinary years during which too many unthinkable and improbable events turned into possibilities and realities, policy makers can (and should) now take a longer-term perspective in their discussions. To do so, they must condense the complexity of the post-crisis global economy to a small set of testable and actionable theories.

Much can be boiled down to a two-part proposition that captures most, though not all, of the dynamics in play. Specifically, policy makers must navigate a multispeed world, and they must do so when too many short-term policy priorities conflict with longer-term realities. The trick is to recognize the two components and their interactions.

Evidence of the multispeed world is all around us, including in the notable and widening divergence among countries in growth, inflation and sovereign-credit trends.

Witness the average growth-rate differential of 6 percentage points a year in favor of emerging economies. Because of this, the output gap has closed in systemically important high-growth nations while it remains at an unusually wide 2 percent of gross domestic product for the U.S., Europe and Japan.

Economic Challenges

Inflation trends have also diverged. The average rate in emerging economies is now 4 percentage points higher than in industrialized countries. And as commodity prices soar in the context of abundant global liquidity, both the average rate of inflation and its divergence will increase, posing economic, political and social challenges. No wonder some countries, such as Brazil and China, are tapping the brakes by raising interest rates and reserve requirements.

Meanwhile, divergent trends in government debt and deficits have resulted in unusual volatility in market measures of sovereign risk. After widening during the financial crisis, the spread on emerging credits is back to its tight end-2007 level. In contrast, the spread for industrialized-nation governments has more than doubled, with some European countries remaining at alarming levels.

Breakout Phase

These dynamics are being driven primarily by secular forces. Simply put, several emerging economies are in an economic breakout phase while their counterparts in the industrialized world are still adjusting to the end of the great age of leverage, credit and debt.

These structural changes are further complicated because too many countries are facing short-term policy priorities that conflict with longer-term realities. This makes it harder for the global economy to accommodate and reconcile global differences.

Witness the extensive debate in the U.S. between the stimulus to counter stubbornly high unemployment and the need to restore balance-sheet equilibrium over the next few years.

In Europe, leaders have been fixated on liquidity solutions for the debt problem in the periphery nations, doing too little to address solvency concerns that will strangle future growth and employment.

Hesitant Embrace

The systemically important emerging economies are only hesitantly embracing the transition from huge reliance on exports to unleashing domestic demand.

And, at the international level, the required re-alignments in global governance continue to be frustrated by stubborn adherence to historical roles that bear little relevance to the realities of today’s world.

In effect, too many policy responses have yet to embrace the difficult structural reforms needed. While understandable, this increases the likelihood of frictions and tensions.

International forums such as Davos can help policy makers overcome these problems. There is much to be gained by focusing on the realities of our multispeed world and policy inconsistencies. In this way, Davos can assist in shaping perspectives, mindsets and reactions. Failing that, too many policy makers will remain hostage to active inertia while others will be paralyzed into inaction.

Obama, Congress Play Grownup for One Night

Obama, Congress Play Grownup for One Night: Margaret Carlson


Margaret Carlson

The U.S. Congress is not yet the Walton family, but at least if someone had yelled out “You lie!” during the president’s State of the Union last night, it would have shocked the body politic.

While it might not last and it may not help Barack Obama in the end, the ethic on Capitol Hill was restrained and respectful.

Enough members crossed the aisle to sit with their political opposites that it created a visual utterly unlike prior State of the Union gatherings, at which the parties usually divide like the Red Sea.

Oklahoma Senator Tom Coburn, the Republican doctor who loathes health-care reform, sat with one of its champions: New York Democrat Chuck Schumer. The very attractive senators Kirsten Gillibrand (Democrat) and John Thune (Republican) might have been king and queen of the prom. Two screaming enemies from New York’s House delegation, Republican Peter King and Democrat Anthony Weiner, sat together.

Even Republican Representative Joe Wilson, the shouter of “You lie!” during Obama’s health-care address to Congress in 2009, sat with two Democrats.

Obama wasted no time acknowledging the awful event that inspired the show of bipartisanship, opening his speech by pointing out the empty seat that should have been filled by Representative Gabrielle Giffords, the target of the Jan. 8 shooting rampage in Tucson, Arizona, that killed six and wounded 13.

No Laundry

It was an elevated speech, closer to his memorial address in Tucson, a tone-setter rather than a Clintonesque laundry list of tiny programs.

He noted our perilous economic situation, with the stock market and corporate profits roaring back, but not the jobs. Robots are doing what those with a high-school education once did. We’re not going back to the days of Ozzie and Harriet, with jobs-for-life at the factory or at a downtown business. Get used to it.

State of the Union speeches aren’t meant to be downers, though. Amid the manure there’s a pony; in the threat from China, there’s Obama’s “Sputnik moment.” New spending -- sorry, I mean “investments,” of course -- will help us find the next Internet, beat China, out-innovate and out-educate the rest of the world and rebuild our crumbling infrastructure.

Obama will fund biomedical research, information technology, renewable energy -- and oh yes, freeze domestic spending. Did I mention the State of the Union is not for sweating the details?

Free Ideas

At least he offered some ideas that don’t cost money: reorganize government, kill bad regulations, simplify the tax code, celebrate the science geek as much as the football star, and turn off the TV. (Wait -- not right now, I’m speaking on just about every channel.)

You might think peace was at hand from Obama’s description of wars in Iraq (coming to an end), Afghanistan (troops begin heading home in July), Pakistan (we’ll defeat al-Qaeda). We all stand with the newly free people of South Sudan and Tunisia.

The president offered a few glimmers of humor. He heard a rumor about some in Congress not liking his health-care plan. Investing in high-speed rail could mean avoiding airport pat- downs. And a good example of government waste is overlapping oversight of salmon based on whether they’re in salt or fresh water: “I hear it gets even more complicated once they’re smoked.”

He got tough only twice, demanding no more government subsidies for oil companies and no further extension of the tax cuts for the wealthiest 2 percent of Americans that he, himself, agreed to continue for two years in a deal last month with congressional Republicans.

Counting Ovations

The State of the Union is a call to action, and a show. We wait to see who will be in the first lady’s viewing box (the hero of Tucson, Daniel Hernandez); who will get a tip of the hat John Boehner, for sweeping up his father’s bar); how many ovations the president gets (not nearly as many as when the parties sit separately); and who will give the response (Representative Paul Ryan, budget guru).

Ryan escaped the jinx that frequently befalls the rising stars who’ve given the rebuttal. Louisiana Governor Bobby Jindal infamously appeared before a curving staircase reminiscent of Tara while coming across less as Clark Gable than as the wide- eyed, corn-fed Kenneth the Page from “30 Rock.”

Doing himself no harm, Ryan stuck with generalities rather than bring up his vaunted fiscal roadmap, which would end Social Security and Medicare as we know it.

Second Response

The Tea Party decided to supplement Ryan’s official Republican response with an unofficial one of its own, and Representative Michele Bachmann didn’t escape that Jindal curse.

Rather than look into the camera, she seemed to gaze into the middle distance while regurgitating the debunked claim that 16,500 Internal Revenue Service agents will be policing Obamacare. Like that other Tea Partier, Christine O’Donnell, she may have to make an ad explaining herself. I’d suggest, “I’m not a dolt.”

Too bad Antonin Scalia wasn’t among the U.S. Supreme Court justices who attended Obama’s speech. He’s called the annual event an “indignity” and a “juvenile spectacle.”

Actually, the spectacle last night was decidedly grownup, a gathering of serious people listening, if only for an hour, to one man’s proposed solutions. It took an empty seat to make Democrats and Republicans rise to the occasion.

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