Monday, March 7, 2011

THE Most Important Chart of the CENTURY

The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009. What follows is the most important chart of your lifetime. It relegates almost all modern economists and economic theory to the dustbin of history. Any economic theory, formula, or relationship that does not consider this non-linear relationship of DEBT and phase transition is destined to fail.

It explains the "jobless" recoveries of the past and how each recent economic cycle produces higher money figures, yet lower employment. It explains why we are seeing debt driven events that circle the globe. It explains the psychological uneasiness that underpins this point in history, the elephant in the room that nobody sees or can describe.

This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

The data for the diminishing productivity of debt chart comes from the U.S. Treasury’s latest Z1 data, the complete report is posted below:


On page two of that report is the following table showing the Growth of Non Financial Debt:

I included Financial debt onto the end of the table, that data comes from page 14 of the Z1 report.

This table makes clear what is happening. Business, household, and financial debt is trying to cleanse itself, to bring the level of debt back within the ability of incomes to support it. Our governments, armed with people who cannot explain the common sense behind debt saturation, are attempting to compensate by producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – since debt backs our money – would both decrease and that would cause the economy to slow. But by adding money, and debt, they have created a sovereign issue where our nation’s income cannot possibly service our nation’s debt. In just the month of February, for example, our nation took in $107 billion, but spent $328 billion, a $221 billion shortfall. That one month shortfall exceeds all the combined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Would you lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of “consumers.” What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

Thus money creation at the saturation point stops adding to productive efforts and becomes a roll-over affair with only the financial services industry profiting via interest and fees. In other words, money goes out and circles right back around to the banks instead of rippling through a healthy non saturated economy. If you cannot follow that most simple logic, then going to Harvard will not help you.

Below is a chart of the Gross Federal Debt, it is now $12.6 Trillion dollars and headed straight up, a classic parabolic rise:

Below is a chart of the Gross Federal Debt expressed in year-over-year change in billions of dollars. The same phase transition of debt saturation is clear as a bell.

Below is a chart of Federal Net Outlays, parabolic and again headed straight up:

Clearly this is not sustainable and that means that change to our monetary system is rapidly approaching. No, it will not be left to your children or your grandchildren. It is an immediate problem and fortunately there is an immediate solution. That solution is called “Freedom’s Vision.” It can be found at

That chart of diminishing returns is the window to understanding why humankind is trapped in a central banker debt backed money box. No money for NASA manned space flight – NASA’s total budget a puny $18 billion in comparison to the $1.9 Trillion that went to service the bankers last year. One half the schools closing in Kansas City, states whose debts and budget deficits seem insurmountable all pale in comparison to how much money went to service the use of our own money system.

It doesn’t have to be like that, in fact it’s a ridiculous notion that the people of the United States, or any country, should pay private individuals for the use of their money system. Ridiculous!

It’s difficult to see this from inside the box, so let’s look at what happened to Iceland to illustrate. The central banks of the world created financial engineered products and brought them to the banks of Iceland. These products created a boom in the amount of credit. Prices of everything rose, and the people of Iceland then had no choice but to go along for the bubble ride. Then with incomes no longer able to service the bubble debt, the bubble collapsed.

To “save the day,” the IMF and central bankers around the world rushed in to “rescue” the people, banks, and government of Iceland. They did this by offering loans... documents that create money simply by signing a contract of debt servitude. That contract demanded ownership of Iceland’s infrastructure such as their geothermal electrical generating plants. It also demanded the future productivity of the people of Iceland in that they should work and pay high taxes for decades to pay back this “debt.” Debt that they did not create or agree to service in the first place!

There were some wise people who saw through this central banker game and started a movement. They DEMANDED that the President of Iceland put the debt servitude to a vote and the people wisely said, “Central Bankers Pound Sand!”

Thus they now control their own destiny, their future productive efforts still belong to them.

It’s easy to see from the outside looking in, but it’s not so easy to see that it's EXACTLY the same thing occurring in the United States and no one is rising up to stop it. No one, that is, except the movement of people at

To all the naysayers who think the people do not have the power to make the change, I say take a look at history and how humankind has overcome its obstacles to progress with each new step. Mankind is now teetering between the brink and the dawn of a new renaissance. A new renaissance is coming because mankind is about to free itself from the chains of needless debt that are holding humanity back.

Interventionism Leads to Resentment

Interventionism Leads to Resentment and Anti-Americanism

Written by Powell Gammill

by Ron Paul

Last week, Secretary of State Hillary Clinton testified before the House Foreign Affairs Committee, and I had the opportunity to raise some of my concerns regarding US government policy and the cost of our interventionism around the world. Many observers claim that the recent overthrow of governments in Northern Africa and the Middle East will result in more liberty for individuals across those regions. I sincerely hope this proves to be true, but history is replete with revolutions that began as a cry for freedom against oppressive governments but ended badly. There are no guarantees that Egyptians, Tunisians or others will be better off after these heralded "regime changes." We do know, however, that there conflicts in Africa and the Middle East can be made worse if the US government attempts to intervene and support certain candidates or factions.

Such intervention would not further US interest or win new friends, but in fact, would undermine the legitimacy of any government that may emerge after the end of the old regime, just as we would resent and reject any political force that came to power here with the sponsorship of a foreign government. Egyptians, Tunisians, Libyans and others are not likely to take kindly to what they view as one US puppet being replaced by another US puppet. It is ironic, but the US government's endless promotion of democracy overseas actually distorts and undermines democracy in targeted nations. The involvement of a foreign power often undermines true self-determination. Radicals who understand this may use rising resentment and anti-Americanism as leverage to gain power, thus defeating the stated purpose of US government in the first place.

I have never understood how the US government justifies subsidizing a newspaper or political party abroad in the name a promoting independence and pluralism. It makes no sense. Unfortunately, it seems to me that the administration has learned nothing from recent events in the Mediterranean region. Secretary Clinton emphasized several times at the Committee hearing that "nothing is off the table" with regards to a US response to internal civil unrest in Libya. Since when is it our obligation to use political pressure or even military force to solve every problem overseas? Washington is currently buzzing with talk of no-fly zones and even a land invasion of Libya to aid rebel groups seeking to overthrow the Gaddafi regime. Some military leaders, including Defense Secretary Robert Gates, have rightly warned the more enthusiastic interventionists that such military operations can be enormously costly both financially and in lives.

The costs of trying to run the world are unsustainable, and we simply don't have the money. Morally, it is inexcusable for the US to pick sides in such conflicts overseas, no matter how odious either side may be; financially, it is no longer possible. The 2012 budget request from the administration for "international affairs," which is a code word for "foreign aid," is two and a half times larger than was it was just nine years ago. As our economy shrinks at home, our obligations increase abroad. As our infrastructure crumbles at home, we continue to spend billions of dollars expending infrastructure in places like Afghanistan and Iraq.

If the interventionists have their way, no doubt we will soon pay to reconstruct the infrastructure we destroy in Libyan military operation. It does not take a genius to see that we are going broke, but Washington remains in denial and intent on business as usual. I fear that if we continue this way, we may soon be out of business altogether.

Blackmail in OH

Blackmail in OH: Don’t Call Union Firemen If House On Fire

UnVarnished Show
2 Votes

What else do you call "Don't call us if your home is on fire because you disagree with us"?

I want everyone to understand – I believe teachers, police and firefighters should be paid and paid well. One teaches our future, the other two protect our safety.

I keep hearing about how much trouble the kids are today, and frankly that’s grist for another mill – one about parents, schools, school boards and political correctness. Teachers should be able to teach and thugs are thugs – whether school kids or union people threatening public officials who are responding to issues and problems that are real and must be dealt with.

First – collective bargaining. I had someone tell me that it wasn’t about collective bargaining and that wasn’t all they had lost.

No – but that was the main thrust of it – the ability to bargain every year or whenever they want no matter the cost to the state, the students or the people they are protecting.

When you look at the benefits and the cost to the state multiplied by 200-300 thousand people – there has to be a reckoning at some point. The pensions are overpromised and set up to fail like a ponzi scheme. The pay is good on average and not unreasonable – but there can’t honestly be increases when there is nothing left to pay them with in the first place.

The ability to strike is another big sticking point and one of the biggest issues in their hearts. But herein lies a perfect example of thuggishness and brutal lowbrowheadedness being shown. But we’ll come to that in a moment.

I would say – pay them well and abolish unions as a whole. Make the pay raises based on economic growth of the community and that the cuts during bad times can’t exceed the state cuts overall. Pay goes up during good times and neutral or drops a little during bad times. Reasonable pay and economic ties ins would be fair to the people giving up the unions, and fair to the community considering that there are two things that you need to take into account about unions:

1. Unions can’t be replaced if they go on strike in many cases on state levels. They can hold a town hostage to their kids not going to school and the parents having to miss work or costing more money for sitters to garbage not being picked up or even worse threats – we’ll get to those.

2. Not only can the taxpayers not get competitive bids due to the monopoly of state unions for, lets say, privitization of services – they don’t get a seat at the table. The politicians, before these brave leaders, weren’t even willing to tackle the manpower, money and votes that the unions represent – they would willingly court those votes and dollars by giving raises even when they were irresponsible – like now. The unions would go out and court tax hikes, fees, licensing increases or whatever, and the whole cycle would start over. New revenue would come in, raises would follow, more new taxes as the labor costs hit, and so on.

Now – the fact is we are broke. Most states are in negative numbers. A large part of the cost of doing government isn’t raw materials for building something. It isn’t shipping finished product. It isn’t assembly plants having to be modernized. It isn’t for something that returns value – it is mostly labor.

In some areas, the labor costs are over 60-80% of municipal budgets, and frankly, that is a huge burden to bear for millions who are barely holding on to their homes right now. This is a time to be reasonable and bring logic back into the mix.

Governor Walker is looking to slash the state education budget by 9% – just a hair over the entire budget being cut 7.8% statewide with almost every single budget getting hit – including some getting hit 100%.

This is a necessary thing – we don’t have the ability to pay more and more and more to keep raising benefits and pay for a few over the backs of the majority of the workers the unions claim to be fighting for.

We are seeing that all but a few states are in the red, and the nation can’t and has already said that D.C. won’t bail them out. With that and even though pension shortfalls might be 1.5 TRILLION underestimated nationwide – the unions are hardlining this argument.

No cop shopping instead of no stop shopping.

Here is the part that really burns me and most conservatives, and I believe independents up. Here is where your vote, your voice, your wallet, your struggles, your burdens don’t matter. Here is where some people who lead and are the voices of the unions well and away cross the line.

The Ohio politician who cast the deciding vote in the Ohio Senate has already come face to face with union supporters who accosted him and other Senators in a restaurant

- and on top of that, according to reports from the Daily Caller:

Newly-elected Ohio Republican State Sen. Frank LaRose has received several distasteful threats from his state’s union members, including a high-ranking official in the police officers’ union.

LaRose, a 31-year-old Iraq war veteran, was the tiebreaking vote in Ohio’s Senate, which just sent a bill similar to Wisconsin’s budget bill to the State’s House of Representatives. That caused Michael Piotrowski, the general counsel for the Ohio Fraternal Order of Police (FOP), to siege LaRose’s Facebook page.

“Funny thing about cops,” Piotrowski posted on LaRose’s Facebook wall, “they hold a grudge.” In another comment responding to someone’s criticism of his comment, Piotrowski wrote: “Nick, with all due respect, I don’t care about your views. You don’t know what you are talking about.” {real respectful, eh? PUBLIC servants – right?}


The folks who discovered Piotrowski’s comments and identity were College Republicans from the University of Akron. Joe Manno, the chair of the student group, told The Daily Caller that Ohio’s bill had some provisions that are “even more anti-union than Wisconsin, so the unions around here have been going kind of crazy, similar to what’s going on in Wisconsin. But, it’s starting to get a little moreviolent and a little more hostile environment here in Ohio.”


“The three of us went on Frank’s [LaRose’s] wall defending him, and he [Piotrowski] was actually directly addressing and threatening the three of us as well,” Manno said in a phone interview. “We didn’t know who we were dealing with at first. We Googled his name and got to his LinkedIn page. He’s been General Counsel since 1999 for the state FOP.”

“Comments like Mr. Piotrowski’s are alarming to say the least,” said Rob Lockwood, a spokesman for the College Republican National Committee. “If his words are true, it’s scary to think that there would be a double standard in law enforcement practices that would be detrimental towards anyone based purely on their political preferences. We thank Senator LaRose for his leadership on helping reform government, and we are proud of the Ohio College Republicans for helping bring this public display of corruption to light.”

That’s not the only nasty commenter Manno had to defend LaR

ose from. Another commenter, Peter Marinos, wrote: “Judas got 30 pieces of silver. What did YOU get Frank? Then Judas hung himself. You hung yourself politically. Plan an exit strategy.”{attack the character – then threats}

To LaRose’s defense came Tim Monaco, who wrote: “Frank, got my vote for life, and as I’m in his district, unlike you, that matters.” But, Monaco’s comment didn’t stop them either.

In a response to him, another union-supporter, likely a firefighter given his comment, Robert Hoch, said: “Tim you must be a coward just Laposer. We live in his district and lots of blue collar workers won’t be voting for him. Oh and one more thing Tim, next time ur house is on fire call a tea bagger. They have all the answers.”

Could this happen? Standing and just watching?

And that, my friends, is all the reason I need to stand behind getting rid of public safety unions. That last comment – a direct threat and one I have talked about on my show is what I have been very afraid of. The whole “Oh yeah? Can you fight fires/burglars without us?”

This ferocious threatening attitude of fear, hate and anger because the bill takes away the unions’ ability to strike.

Thanks for making the case for us folks – keep up the good work union members.

Going to let my house burn are we? Fine. I’ll save what I can and file insurance.
Burglar? I’ll shoot the bastard.

Who will be judged appropriate for this threat and censure?

Anyone with a Kasich or LaRose bumper sticker I assume?

Fine – personally – I would put a sign in your yard – I support Kasich and (Congressperson’s name) and I won’t be calling the police – break in and be killed.

Support your Governor and Congresspeople for just this reason. If these people are going to sink to the threatening level to MAKE you not voice YOUR opinion – train new fire and police and put these lawbreakers on the street.

Last time I checked – threats were indeed illegal.

The situation is – if they don’t care about the law and your right to speak or vote as you see fit – to the level that they are sinking to – you don’t need them. You don’t want them. You shouldn’t respect them because their mouthpieces are running around attacking anyone who dares disagree with them.

Bluntly put – if you union members don’t agree with this tactic – get rid of the people who are doing it. There are bound to be people who know who’s behind the comments and threats. Put them on leave until they cool their jets.

Who do you think you work for – just curious?

Expose them.

Your pay will go back up, you will still have jobs, you will have benefits and the governor and legislature will work with you over time. The reasonable people in the union rank and file need to step up and show the rest of the country that unions aren’t all bad and that the bad seeds who can’t be logical and responsible enough to realize that their neighbors are dying on the vine are the distinct minority.

I understand it’s hard to take a cut in pay, or have to pay more for benefits but really – this?

Workers of the world unite – I got the phrase, but I don’t see some workers helping others in need right now. Solidarity with whom? Your tax attorney?

The people spoke on election day and frankly – democracy (or a Representative Republic in reality) spoke and now your leaders and vocal members don’t want to live with the results.

Let me ask you this – how would you like it if a pee wee team that was always winning in a sport suddenly got beaten, and then the team assembled in front of the stands with your kids in their clutches and told you that if they didn’t get more time to play or get more points they would beat your kids that defeated them until you gave in. How mad would you be?

When do you make a stand folks? When do you get mad enough to realize that YOUR rights to disagree, vote, speak out and make a stand are being taken away from YOU.

With fear and blackmail.

This is homegrown terrorism – pure and simple – why should you feel afraid of the people you hired to protect you?

Don’t let it happen.

You can see the threat screen cap at the Daily Caller at the link below. I didn’t take it out of context at all.

Al Jazeera Real News Unlike U.S. News

Shrillary Clinton: Al Jazeera Real News Unlike U.S. News

UnVarnished Show
2 Votes

Al Jazeera better than some ::cough cough:: Fox ::cough cough:: American news


Okay, how on earth is Al Jazeera “real news” as opposed to what we have here in America? And why are all the Libtards saying that we need to tune in?

Is it REALLY because she thinks that the bad image America has overseas is due to Baywatch and WWE? Do you think she may have some examples and motives she isn’t mentioning by name?

Well, on the second part of that thought, she *is* a tad hypocritical, as in April of 2008, she, John McCain, and Pres. Barack Obama were on WWE Monday Night Raw advertising and promoting themselves. How can Hillary then turn around and say that wrestling is a bad image for America and it’s citizens? It makes the mind wonder!

“In fact viewership of Al Jazeera is going up in the United states because it’s real news. You may not agree with it, but you feel like you’re getting real news around the clock instead of a million commercials and, you know, arguments between talking heads and the kind of stuff we do on our news, which is not real informative.” – Hillary Clinton.

First of all, Hill, you have appeared on many of these newscasts with the “argumentative talking heads” that you so despise. Second, you make it seem that a station outside of America is so much better than our own. Do you propose a way to remedy this ill?

For those who didn’t know:

Al Jazeera is a radio/television station in Doha, Qatar, which is located in the Middle East, that broadcasts few of our shows (some which aren’t being made anymore) and some of our news. How it’s real news when they don’t have an insider’s look is beyond me. The Al Jazeera channel was started in ’96 by an emiri decree with a load of the equivalent of $137 million dollars (sheesh) from the Emir Of Qatar, Sheikh Hamad bin Khalifa.

State sponsored news broadcast service in middle east

The channel’s tremendous popularity has also, for better or worse, made it a shaper of public opinion. Its coverage often determines what becomes a story and what does not, as well as how Arab viewers think about issues. Whether in Saudi Arabia, Egypt, Jordan, or Syria, the stories highlighted and the criticisms aired by guests on Al Jazeera’s news programs have often significantly affected the course of events in the region.

In Palestine, the station’s influence is particularly strong. Recent polling indicates that in the West Bank and Gaza, Al Jazeera is the primary news source for an astounding 53.4 percent of Palestinian viewers. The second and third most watched channels, Palestine TV and Al Arabiya, poll a distant 12.8 percent and 10 percent, respectively.

The result of Al Jazeera’s market dominance is that it has itself become a mover and shaker in Palestinian politics, helping to craft public perceptions and influence the debate. This has obvious implications for the peace process: how Al Jazeera covers the deliberations and the outcome of any negotiated agreement with Israel will fundamentally shape how it is viewed—and, more importantly, whether it is accepted—by the Palestinian public.

One reason, of course, for its dominance is its availability on satellite in the region that has, up until recently, been dominated by mainly state run television stations, giving the people of the region a new choice. Still, this has not kept the Al Jazeera network solvent, having to receive yearly loans from the state government. They have managed a low 40% income from advertising.


The television station is only available in English in three cities across the United States, Toledo, Ohio; Burlington, Vermont, and Washington, DC, which many experts and analysts consider to effectively be a blackout. Oh, and it’s only available by satelite. Convenient, no?

Now, the silliest statement that Hillary has made yet:

“Our private media, particularly cultural programming often works at counter purposes to what we truly are as Americans. I remember having an Afghan general tell me that the only thing he thought about Americans is that all the men wrestled and the women walked around in bikinis because the only TV he ever saw was Baywatch and World Wide Wrestling.” – Sec. Hillary Clinton ( )

What makes this statement so utterly moronic is that it’s obvious that they have had no idea what it’s like in America, and they choose only to judge us on the most (in my opinion) mind-numbing “entertainment” our country has to offer, aside from strip-clubs and cow tipping.

Another question to be asked of Hilly – why is it you and the folks on the left didn’t appreciate the “unpatriotic” monikers put on you by people of the right as defining you as UnAmerican, yet you can say the same thing – “counter purposes to what we truly are as Americans”? Why, Hillary, that’s more blatant hypocrisy and smacks of speech control, now doesn’t it?

Al Jazeera has only a one-sided opinion on what goes on in America, while we have views from all sides. If they choose to make an incorrect assumption on us, let them. We have our news, which, contrary to leftist opinion, is very informative and correct on a lot of issues, depending on what channel you are watching.

The only way to learn more about what’s going on is to delve in and actually research it, people! If you disagree, fine – find out about it and prove it to your satisfaction one way or another. Don’t let a biased radio/television set your views about your own country!

Have a blessed day!

For How Long Will You Believe?

For How Long Will You Believe?

That which cannot work - and which isn't working.

The entire premise of the alleged "recovery" is that "growth" will return as a consequence of debt increases. That velocity will increase.

How are they doing?

Or, if you prefer, MZM velocity....

For how long will you believe? QE, QE2, more printing, more goading, more borrowing by the government.

For how long will you believe, as the ship fills with water, that it will not sink?

We entered the 2007 downturn because people could no longer pay their debts.

That's why it happened folks. You know, I know it, we all know it. That's not speculation, it's fact.

The entire premise of a so-called "recovery" is that we can, somehow, restart credit creation - that is, people taking more and more debt once again.


All of these programs - nearly four years worth of them now - haven't done it.

The facts are what they are.

Was the stock market too pessimistic at SPX 666, were the banks really not about to fail, if we cannot actually afford to take on more debt?


All those numbers and facts were not only appropriate, they were optimistic.

We should have forced all the big banks into receivership in 2007.

We still must.

Bernanke and the government have failed to restart the credit-creation cycle - there is no more absorption available in the broad economy.

We must stop this idiocy while there is still an economy and a government to save.

Gaddafi New Air Strike in Libya 'Revolution in Saudi Arabia Egypt Algeri...

Saudi Arabia's Worst Nightmare 11.03.11

Day of rage in Saudi Arabia-Comment-03-03-2011(Part1)

Revolution in Libya-The Link-03-06-2011-(Part4)

Has Anybody Seen Jimmy Carter Lately?

Has Anybody Seen Jimmy Carter Lately?
At this point, would America settle for a new 1980s?

Tim Cavanaugh

Veiled within the news that Ronald Reagan handily topped a recent Gallup poll of Americans’ favorite presidents is a pretty clear mandate: We want somebody to make the 1970s end.

This is not the swinging '70s of fond memory (a period during which the nation actually experienced a surge in nostalgia for the 1950s) but the brutalizing fiscal '70s of stagflation, soaring gas prices, President Jimmy Carter’s national “malaise,” and then-California Gov. Jerry Brown’s “era of limits.”

Where have you gone, Arthur Burns and/or George Schultz? With a Carteresque president, a scolding yet permissive Federal Reserve chairman who inspires even less confidence than Nixon-appointed Fed chief Arthur Burns, and Jerry Brown himself back in charge of the Golden State, the United States is experiencing a grim and pleasureless sensation of '70s nostalgia.

This retro-shock is showing up in political and media rhetoric. President Obama got the ball rolling in May 2009 by announcing “We’re out of money now.” Jerry Brown’s most memorable quote since returning to the office of governor has been a shocker about the state budget: “It is much worse than I thought. I’m shocked.” Succumbing to the spreading panic, Washington Post columnist Steven Pearlstein recently let loose a closing-all-the-exits lamentation:

Now, even three years after reality came crashing down, we have only just begun to figure out how to bring about the reduction in living standards that will be necessary to create a sustainable balance. Will the pain come in the form of prolonged high unemployment? Or wage and salary cuts? Or reduction in the value of homes and financial assets? Or loss of ownership of American companies? Or price inflation? Or higher taxes? Or reductions in government services and benefits?

In practical terms, there is no case to be made against hairshirt drones like these. (Nor is 2011 the first year the United States has been possessed by demons of the 1970s.) Governments in most of the 50 states are facing severe budget deficits. Obama proposes [pdf] adding $1.645 trillion this year, $1.102 trillion next year, and $768 billion in 2013 to a national debt that is already more than $14 trillion, and the full cost-cutting power of a Republican majority in the House of Representatives succeeded in knocking only $61 billion out of that spending.

Commodity inflation is soaring while the value of most Americans’ primary asset—real estate—continues to plummet. When Rep. Jeb Hensarling (R-Texas) asked yesterday about the spike in prices for gold, oil, wheat, and other commodities , Fed chief Ben Bernanke—whose expansion of the money supply over the past three years amounts to a highly confident gamble on the Fed’s ability to control the devaluation of the dollar—dismissed the idea that this inflation was related to Fed policy, noting that “commodity prices have risen just about as much in other currencies as they have in terms of the dollars. So while I take those commodity price increases very seriously I don't think they're primarily a dollar phenomenon.” While accurate within a narrow scope, this reply doesn’t provide much comfort to Americans who are subject to the dollar economy. When the central bank is rapidly creating more dollars and the cost of your daily existence is rapidly increasing, do you feel better knowing that other Bernankes in other countries are doing the same thing?

The Congressional Budget Office’s (CBO) most recent Budget and Economic Outlook [pdf] contained more news suited to the Crash of ’79 era. The trust funds for Social Security’s disability insurance (DI) and Medicare’s hospitalization insurance (HI) ran 2010 negative cash flows of $21 billion and $30 billion, respectively, and neither have any prospects of returning to balance. Says the report: “In CBO’s projection, the negative cash flows for the two funds continue throughout the baseline period; their balances are exhausted in 2017 (DI) and 2021 (HI).”

Meanwhile, unemployment remains in the high single digits, economic activity is increasing at too slow a rate to replace the dollar values lost since the start of the 2007 recession, and the real estate market remains stuck in the lieux d'aisance (actually, the real estate market has cleared the loo and is now passing through lengths of cheap PVC pipe toward the municipal sewers).

The fad for calling the great credit unwind the "Worst Since the Great Depression" seems to have run its course by 2009. (And what is the point of ranging recessions on a “good-bad-worst” continuum, given how radically your definition of good may differ from mine when our financial interests are concerned?) But there’s a strong case for calling the Bernanke economy the most stagflationary malaise since the ’70s.

So why shouldn’t people talking to pollsters fondly recall the president they perceive as having ended stagflation the first time around? History has not yet settled on how much credit Reagan deserves for restoring the U.S. economy to vigor. There is a decent presidential-continuity case to be made from the evidence that Jimmy Carter (currently holding twelfth place in the hearts of his countrymen, according to Gallup) began the deregulatory and anti-monopolist processes for which the Gipper gets most of the thanks. But belated interest in the 1980s at least suggests Americans are interested in innovation rather than repetition as a way out of the current jam. The first time around, stagflation was defeated by a combination of tight monetary policy, deregulation, market competition, and supply-side tax policy. What will it take to get America moving this time?

Tim Cavanaugh is a senior editor at Reason magazine.

The New Middle East

The New Middle East
By Caroline Glick

A new Middle East is upon us and its primary beneficiary couldn't be happier. In a speech Monday in the Iranian city of Kermanshah, Iranian Revolutionary Guards' Politburo Chief Gen. Yadollah Javani crowed, "Iran's pivotal role in the New Middle East is undeniable.

Today the Islamic Revolution of the Iranian nation enjoys such a power, honor and respect in the world that all nations and governments wish to have such a ruling system."

Iran's leaders have eagerly thrown their newfound weight around. For instance, Iran is challenging Saudi Arabia's ability to guarantee the stability of global oil markets.

For generations, the stability of global oil supplies has been guaranteed by Saudi Arabia's reserve capacity that could be relied on to make up for any shocks to those supplies due to political unrest or other factors. When Libya's teetering dictator Muammar Gaddafi decided to shut down Libya's oil exports last month, the oil markets reacted with a sharp increase in prices. The very next day the Saudis announced they would make up the shortfall from Libya's withdrawal from the export market.

In the old Middle East, the Saudi statement would never have been questioned. Oil suppliers and purchasers alike accepted the arrangement whereby Saudi Arabian reserves - defended by the US military - served as the guarantor of the oil economy. But in the New Middle East, Iran feels comfortable questioning the Saudi role.

On Thursday, Iran's Oil Minister Massoud Mirkazemi urged Saudi Arabia to refrain from increasing production. Mirkazemi argued that since the OPEC oil cartel has not discussed increasing supplies, Saudi Arabia had no right to increase its oil output.

True, Iran's veiled threat did not stop Saudi Arabia from increasing its oil production by 500,000 barrels per day. But the fact that Iran feels comfortable telling the Saudis what they can and cannot do with their oil demonstrates the mullocracy's new sense of empowerment.

And it makes sense. With each passing day, the Iranian regime is actively destabilizing Saudi Arabia's neighbors and increasing its influence over Saudi Arabia's Shi'ite minority in the kingdom's Eastern Province where most of its oil is located.

Perhaps moved by the political unrest in Bahrain and Yemen, Saudi regime opponents including Saudi Arabia's Shi'ite minority have stepped up their acts of political opposition. The Saudi royal family has sought to buy off its opponents by showering its subjects with billions of dollars in new subsidies and payoffs. But still the tide of dissent rises.

Saudi regime opponents have scheduled political protests for March 11 and March 20. In an attempt to blunt the force of the demonstrations, Saudi security forces arrested Tawfiq al- Amir, a prominent Shi'ite cleric from the Eastern Province. On February 25, Amir delivered a sermon calling for the transformation of the kingdom into a constitutional monarchy.

Iran has used his arrest to pressure the Saudi regime. In an interview with Iran's Fars news agency this week, Iranian parliamentarian and regime heavyweight Mohammed Dehqan warned the Saudis not to try to quell the growing unrest. As he put it, the Saudi leaders "should know that the Saudi people have become vigilant and do not allow the rulers of the country to commit any possible crime against them."

Dehqan continued, "Considering that the developments in Bahrain and Yemen affect the situation in Saudi Arabia, the [regime] feels grave danger and interferes in the internal affairs of these states."

Dehqan's statement is indicative of the mullah's confidence in the direction the region is taking.

In testimony before the Senate Appropriations Committee on Tuesday, US Secretary of State Hillary Clinton acknowledged that Iran is deeply involved in all the anti-regime protests and movements from Egypt to Yemen to Bahrain and beyond.

"Either directly or through proxies, they are constantly trying to influence events. They have a very active diplomatic foreign policy outreach," Clinton said.

Iranian officials, Hezbollah and Hamas terrorists and other Iranian agents have played pivotal roles in the anti-regime movements in Yemen and Bahrain. Their operations are the product of Iran's long-running policy of developing close ties to opposition figures in these countries as well as in Egypt, Kuwait, Oman and Morocco.

These long-developed ties are reaping great rewards for Iran today. Not only do these connections give the Iranians the ability to influence the policies of post-revolutionary allied regimes.

They give the mullahs and their allies the ability to intimidate the likes of the Saudi and Bahraini royals and force them to appease Iran's allies.

This means that Iran's mullahs win no matter how the revolts pan out. If weakened regimes maintain power by appeasing Iran's allies in the opposition - as they are trying to do in Jordan, Kuwait, Morocco, Algeria, Bahrain, Oman and Yemen - then Iranian influence over the weakened regimes will grow substantially. And if Iran's allies topple the regimes, then Iran's influence will increase even more steeply.

Moreover, Iran's preference for proxy wars and asymmetric battles is served well by the current instability. Iran's proxies - from Hezbollah to al- Qaida to Hamas - operate best in weak states.

From Hezbollah's operations in South Lebanon in the 1980s and 1990s, to the Iranian-sponsored Iraqi insurgents in recent years and beyond, Iran has exploited weak central authorities to undermine pro-Western governments, weaken Israel and diminish US regional influence.

In the midst of Egypt's revolutionary violence, Iran quickly deployed its Hamas proxies to Sinai.

Since Mubarak's fall, Iran has worked intensively to expand its proxy forces' capacity to operate freely in Sinai.

Recognition of Iran's expanded power is fast altering the international community's perception of the regional balance of forces. Russia's announcement last Saturday that it will sell Syria the Yakhont supersonic anti-ship cruise missile was a testament to Iran's rising regional power and the US's loss of power.

Russia signed a deal to provide the missiles to Syria in 2007. But Moscow abstained from supplying them until now - just after Iran sailed its naval ships unmolested to Syria through the Suez Canal and signed a naval treaty with Syria effectively fusing the Iranian and Syrian navies.

So, too, Russia's announcement that it sides with Iran's ally Turkey in its support for reducing UN Security Council sanctions against Iran indicates that the US no longer has the regional posture necessary to contain Iran on the international stage.

Iran's increased regional power and its concomitant expanded leverage in international oil markets will make it impossible for the US to win UN Security Council support for more stringent sanctions against Tehran. Obviously, UN Security Council-sanctioned military action against Iran's nuclear installations is out of the question.

Unfortunately, the Obama administration has failed completely to understand what is happening.

Clinton told the House of Representatives and the Senate that Iran's increased power means that the US should continue to arm and fund Iran's allies and support the so-called democratic forces that are allied with Iran.

So it was that Clinton told the Senate that the Obama administration thinks it is essential to continue to supply the Hezbollah-controlled Lebanese military with US arms. Clinton claimed that she couldn't say what Hezbollah control over the Lebanese government meant regarding the future of US ties to Lebanon.

So, too, while Palestinian Authority leaders burn President Barack Obama in effigy and seek to form a unity government with Iran's Hamas proxy, Clinton gave an impassioned defense of US funding for the PA to the House Foreign Relations Committee this week.

Clinton's behavior bespeaks a stunning failure to understand the basic realities she and the State Department she leads are supposed to shape. Her lack of comprehension is matched only by her colleague Defense Secretary Robert Gates' lack of shame and nerve. In a press conference this week, Gates claimed that Iran is weakened by the populist waves in the Arab world because Iran's leaders are violently oppressing their political opponents.

In light of the Obama administration's refusal to use US military force for even the most minor missions - like evacuating US citizens from Libya - without UN approval, it is apparent that the US will not use armed force against Iran for as long as Obama is in power.

And given the administration's refusal to expend any effort to protect US interests and allies in the region lest the US be accused of acting like a superpower, it is clear that US allies like the Saudis will not be able to depend on America to defend the regime. This is the case despite the fact that its overthrow would threaten the US's core regional interests.

Against this backdrop, it is clear that the only way to curb Iran's influence in the region and so strike a major blow against its rising Shi'ite-Sunni jihadist alliance is to actively support the prodemocracy regime opponents in Iran's Green Movement. The only chance of preventing Iran from plunging the region into war and bloodshed is if the regime is overthrown.

So long as the Iranian regime remains in power, it will be that much harder for the Egyptians to build an open democracy or for the Saudis to open the kingdom to liberal voices and influences. The same is true of almost every country in the region. Iran is the primary regional engine of war, terror, nuclear proliferation and instability. As long as the regime survives, it will be difficult for liberal forces in the region to gain strength and influence.

On February 24, the mullahs reportedly arrested opposition leaders Mir Hossain Mousavi and Mehdi Karroubi along with their wives. It took the Obama administration several days to even acknowledge the arrests, let alone denounce them.

In the face of massive regime violence, Iran's anti-regime protesters are out in force in cities throughout the country demanding their freedom and a new regime. And yet, aside from paying lip service to their bravery, neither the US nor any other government has come forward to help them. No one has supplied Iran's embattled revolutionaries with proxy servers after the regime brought down their Internet communications networks. No one has given them arms.

No one has demanded that Iran be thrown out of all UN bodies pending the regime's release of the Mousavis and Karroubis and the thousands of political prisoners being tortured in the mullah's jails. No one has stepped up to fund around-the-clock anti-regime broadcasts into Iran to help regime opponents organize and coordinate their operations. Certainly no one has discussed instituting a no-fly zone over Iran to protect the protesters.

With steeply rising oil prices and the real prospect of al-Qaida taking over Yemen, Iranian proxies taking over Bahrain, and the Muslim Brotherhood controlling Egypt, some Americans are recognizing that not all revolutions are Washingtonian.

But there is a high likelihood that an Iranian revolution would be. At a minimum, a democratic Iran would be far less dangerous to the region and the world than the current regime.

The Iranians are right. We are moving into a new Middle East. And if the mullahs aren't overthrown, the New Middle East will be a very dark and dangerous place.

Who's to Blame for Union Woes?

Who's to Blame for Union Woes?
By Michael Barone

The labor union movement is in deep trouble. Only 6 percent of private-sector employees are union members.

Voters are beginning to realize, thanks to governors like Chris Christie of New Jersey and Scott Walker of Wisconsin, that public-sector unions have negotiated unsustainable levels of pensions and benefits -- and that public-sector unions are a mechanism for involuntary transfers of money from taxpayers to the Democratic Party.

Who's to blame for the unions' plight? I blame Frederick W. Taylor. Most readers will ask, who? And those who know the name might wonder why I pin the blame on someone who died in 1915.

But Taylor, the supposed pioneer of scientific management, was an influential man in his day and long after. He conducted time and motion studies aimed at getting workers to perform most efficiently single tasks on long assembly lines.

Workers, he said, should be regarded as dumb animals, incapable of initiative, inefficient when they are not compelled to perform the same simple task in the same single way over and over.

Taylor, as Robert Kanigel makes clear in his excellent biography, "The One Best Way," was something of a charlatan. He faked a lot of his time and motion studies. Nevertheless, he had huge influence on the managers of assembly-line industries like autos and steel.

Their workforces consisted of off-the-farm and immigrant hordes with little education and often little English. They thought the best way to profits was to use Taylorite methods to squeeze maximum production out of their low-skill workers.

The industrial unions -- the United Auto Workers, United Steelworkers -- that succeeded with government help to organize industries in the 1930s understandably saw their main task as combating Taylorism.

They would prevent management from ordering dreaded speedups, based on Taylorite analysis, by insisting that every change in work rules must be negotiated between shop stewards and foremen.

They would prevent management from rewarding speedy workers by insisting that promotions be based on seniority and preventing any hint of merit pay.

All that made a certain sense -- in the 1930s and in decades afterward, when auto and steel managers, full of contempt for their workers, clung to Taylorism. Unions in turn clung to an adversarial model that assumed that workers' interests were diametrically opposed to management's.

Today, many liberals look back with nostalgia to the days when a young man fresh from high school and military service could get a unionized job on the assembly line and be guaranteed a lifetime job.

Well, I grew up in Detroit, and I know that these workers hated those jobs. Taylorism, even modified by union representation, was a miserable way to make a living.

That's why the UAW in 1970 got the Big Three automakers to agree to "30 and out" -- retirement after 30 years on the line with a generous pension. And that's why the UAW had to bargain for retiree medical benefits, because workers retiring at 50 were 15 years short of Medicare.

"The Company and the Union," William Serrin's fine book on the 1970 UAW strike, makes interesting reading now. Serrin argues that the UAW should have asked for more, because the companies would never go bankrupt. On that, he was clearly wrong.

But also he wondered why the union and company couldn't work together to make assembly-line work more creative and fulfilling. That struck me as nonsense at the time. But in retrospect, it's what the Japanese and other foreign auto companies were able to do.

In contrast, the UAW stuck to contesting the Taylorism Big Three managers clung to. And the then-new public employee unions -- like the National Education Association, led by Michigan teachers -- took the UAW as their model.

They would never allow management to speed up their work. Promotions and firing would be governed by seniority. They would never, ever allow merit pay.

This adversarial unionism assumed that management would always be Taylorite. But that has been increasingly untrue in the private sector and was never really true in the public sector.

As a result, non-union private-sector companies have thrived, while unionized companies have gone under. And public-sector unions, with their bought-and-paid-for politicians, have produced public-sector workforces that are unresponsive, unaccountable and impossibly expensive.

Countering Taylorism is an obsolete and unsustainable strategy. Union leaders need to realize that Frederick W. Taylor is dead.

Who’s Stalling Whom on Trade?

Who’s Stalling Whom on Trade?

Calls for broader trade progress have been bipartisan, yet the Obama administration continues to delay free trade agreements.

The New York Times reported this week on the standoff in U.S. trade policy. The story came perilously close to criticizing the Obama administration’s dilatory trade tactics, but caught itself in time and blamed the standoff on Republicans.

Describing the impasse, Sewell Chan writes: "Although the White House renegotiated a pivotal free-trade agreement with South Korea in December, scoring rare bipartisan praise, House Republican leaders have refused to allow the deal to move forward. They want the administration to make progress first on similar accords with Colombia and Panama that face stiff opposition from labor unions and liberal Democrats."

Beyond the three pending free trade agreements (FTAs), this dispute has blocked the renewal of a program to help workers who lose their jobs to new trade flows (Trade Adjustment Assistance) and a number of preference programs that lowered U.S. tariffs on certain developing countries.

This story can perplex anyone who has not followed the issue over its long history: Republicans favor free trade, so they are blocking the Korea FTA, and the White House is holding out on setting a firm deadline for the Colombia and Panama FTAs, while the secretaries of State and Treasury say these should be done by the end of the year. What’s going on?

As late as October 2010, the Koreans were still complaining that they had not received a formal U.S. proposal. The delay ended up embarrassing President Obama.

The story goes back four years to 2007, when Democrats claimed control of both the House and the Senate. The Bush administration had negotiated and signed four FTAs: Peru (April 2006), Colombia (November 2006), Panama (June 2007), and South Korea (June 2007). Congressional Democrats roundly criticized these agreements and demanded a new approach.

White House negotiators sat down with congressional leaders and reached an accord on May 10, 2007 (the date became memorialized as the agreement’s name). President Bush committed, among other concessions, to expand the coverage of labor and environmental issues in U.S. FTAs. In turn, the Bush team thought it had secured a promise that all four pending FTAs would come up for a vote.

The labor and environmental provisions of the agreements were revised, per White House promises, but only the Peru FTA came up for a vote (and was approved). It turned out to be one-and-done. When the Bush administration submitted the Colombia FTA, then-House Speaker Nancy Pelosi commanded a rewrite of the rules governing FTAs and blocked a vote.

Since then, U.S. trade policy has been dormant. President Obama, both in office and as a candidate, said that he approves of the idea of free trade agreements, but that these pending deals are flawed and need mending. Such criticism never delved into particulars. The audience was left to imagine what the flaws might be and to speculate about the magnitude of the required fixes.

This long period of nebulous discontent with the pending FTAs seemed to draw to a close last year. In June 2010, President Obama announced that he would conclude a revision of the South Korea FTA at a previously scheduled November summit in Seoul. Trade aficionados eagerly anticipated the unveiling. What would these revolutionary reworkings of trade agreements look like? What kind of momentous changes had the Obama trade team been secretly cooking up over the years?

The brevity of negotiation with Korea and the limited nature of the changes suggest that the administration’s delay on other agreements has been due more to political concerns and a lack of resolve than to substantive criticism.

Oddly, the June announcement was not followed promptly by a list of demands for revising the Korea FTA. As late as October 2010, the Koreans were still complaining that they had not received a formal U.S. proposal. The delay ended up embarrassing President Obama, as agreement was not reached in time and he was compelled to stand up in Seoul and declare that he and his counterpart had failed. Only on December 3 did the two sides finally settle, after what totaled less than two months of serious talks.

At last, though, it was possible to see what the fuss had been about. What had turned an agreement from objectionable to acceptable in the eyes of the administration? Jeff Schott, of the Peterson Institute, assessed the Korea FTA changes thus:

In economic terms, the overall impact of the new deal differs little from the old deal. Changes in the tariff schedules reduce the overall benefits of the trade pact but not by very much.

It is worth remembering that, in economic terms, the U.S. trade relationship with Korea is substantially bigger and more complex than those with Colombia or Panama. The brevity of actual negotiation with Korea and the limited nature of the changes suggest that the administration’s delay on the other agreements has been due more to political concerns and a lack of resolve than to substantive criticism.

The experience with the May 10 agreement and repeated empty promises of future progress have made Republicans wary of another one-and-done, in which Korea would pass but then the trade agenda would stall once more. Calls for broader trade progress have been bipartisan. This week, 67 of the 87 freshman Republicans in the House signed a letter calling on the president to move forward with all three pending FTAs by July 1, when Europe’s FTA with Korea comes into force. Senate Finance Committee Chairman Max Baucus (D-Montana) issued a statement: “The administration needs to quickly resolve all outstanding issues so Congress can approve all three free trade agreements as soon as possible this year and help create more jobs here at home.”

Perhaps as a result of pressure in the current standoff, Washington Trade Daily reports that U.S. Trade Representative Ron Kirk will now present specific demands and a timeline for Panama and Colombia at a March 9 Senate Finance hearing. If so, the list of particulars will arrive only four years, three months, and 15 days after the Colombia agreement was signed.

Who has been stalling whom?

Philip Levy is a resident scholar at the American Enterprise Institute.

UN Falsehoods Cost Lives

UN Falsehoods Cost Lives

Setting up experiments and then ignoring the results when they do not give you what you want amounts to scientific malfeasance. All in a day’s work at the UN Environment Program.

If the Environmental Protection Agency (EPA) claimed herbal tea, Pilates, and a better diet could effectively treat leukemia, one would be outraged (even more so if one’s child were very sick with the disease). You might also wonder why the EPA was interfering with public health. Fortunately, America’s children do not face such insanity; but children at risk of malaria do, courtesy of the United Nations Environment Program (UNEP).

UNEP and the Global Environment Facility (GEF), a UN partnership, claim that whitewashing houses, planting trees, and other unproven interventions are effective against malaria. They use these incorrect claims—made in press releases, interviews, and various publications—to justify a global elimination of the public health insecticide DDT by 2020, even though many malaria control programs rely on DDT’s proven life-saving properties.

Malaria is an insect-borne disease and, for most of the world, preventing it requires insecticides. Insecticides can be sprayed inside houses or coated on bed nets. When used in these ways, insecticides are safe for humans and the environment, and provide much-needed protection from deadly mosquitoes.

The United Nations Environment Program and the Global Environment Facility use incorrect claims to justify a global elimination of the public health insecticide DDT by 2020.

Drugs can treat the hundreds of thousands who contract malaria every year, and can also be used preventatively in some places. But DDT and other insecticides are essential in most parts of the malarial world.

Under the Stockholm Convention on Persistent Organic Pollutants, which regulates the use of DDT, UNEP and GEF orchestrated malaria control experiments in Mexico and seven Central American countries between 2003 and 2008. Their goal was to show that malaria control is possible without DDT, and indeed without any insecticides.

They compared their “environmentally sound” interventions against control areas without interventions and claimed an impressive reduction in malaria of over 60 percent. This claim is false.

An independent epidemiological assessment of the experiments, conducted by a specialist from the region for the UNEP/GEF project and presented at a UNEP/GEF meeting, found no difference in malaria rates between the demonstration areas and the controls. The UNEP/GEF project’s own final evaluation suggested that the experiments be redone. UNEP ignored these facts and proclaimed great success. When we challenged UNEP/GEF about their claims, our correspondence went unanswered.

While malaria declined by 60 percent in some areas of Mexico and Central America, this success has nothing to do with the environmental interventions, as UNEP claims. According to Pan American Health Organization data and regional malaria specialists, it was caused by the widespread distribution of malaria-preventing drugs.

As Latin American countries reduced their use of public health insecticides, malaria rates increased.

It is important to note that such methods are not possible for the hundreds of millions of Africans at risk of malaria because of drug resistance and vast cost. Thus, DDT and other insecticides are vital in Africa.

Indeed, as Latin American countries reduced their use of public health insecticides, malaria rates increased. Countries in Central America were forced to use drugs to control malaria after the North American Agreement on Environmental Cooperation effectively shut down DDT production and use for the whole region.

Setting up experiments and then ignoring the controls when the results do not give you what you want amounts to scientific malfeasance. Using false results to justify eliminating DDT by some arbitrary, politically determined date is reckless and deadly. DDT is already hard to obtain because of years of propaganda against it. The UNEP and GEF falsehoods make it harder still, endangering the lives of thousands of children.

One might wonder how UNEP and GEF can get away with such obvious misrepresentation. It’s simple, really: multiple vested interests are lined up against DDT use. These include numerous anti-insecticide environmental activist groups, companies selling alternative products such as other insecticides and bed nets, and UN agencies.

Our preposterous example above regarding leukemia would never happen, not because the EPA is not capable of overreaching, but because numerous interests would oppose it. Western parents, supported by oncology doctors, medical associations, and drug companies, would cry foul and the media would avidly report it. Unfortunately, DDT has no powerful defenders.

Whether or not UNEP, GEF, and their allies get their way depends in large part on the senior leadership of the World Health Organization, which can and should stop this scientific abuse from their UN colleagues.

After a Chinese producer of DDT shut down in the run-up to the 2008 Beijing Olympics, DDT is now only produced by a state-owned company in India that is not particularly adept at influencing public health policy. There is little prospect that a new DDT producer will start production when the UN has publicly vowed to shut down DDT use in less than 10 years. African mothers and their vulnerable children have no voice. While a few bold ministers of health from Namibia, Guyana, and elsewhere have spoken out defending their right to use DDT, their appeals are drowned out and dominated by Northern interests, who have given environmental activists within UNEP and GEF considerable power and millions of dollars.

One might think insecticide companies would defend DDT, recognizing that important principles of sound science and evidence-based public health policies are at stake. Yet in their myopic way, industry lobby group CropLife International is lining up behind UNEP and pushing for an early elimination of DDT, claiming of course that their own products are suitable alternatives.

Whether UNEP, GEF, and their allies get their way depends in large part on the senior leadership of the World Health Organization, which can and should stop this scientific abuse from their UN colleagues. It also depends on whether the governments that pay the UN’s bills will stand for this nonsense. They should insist that any malaria control funds allocated to UNEP and GEF be immediately transferred to agencies whose primary goal is eliminating malaria rather than eliminating the tools required to get there.

Roger Bate is the Legatum Fellow at the American Enterprise Institute and Richard Tren is the director of Africa Fighting Malaria. See for details of their recent research.

The Boehner Uncertainty Principle

The Boehner Uncertainty Principle

Physics has the Heisenberg uncertainty principle; economics now has the Boehner uncertainty principle.

In a speech in Cleveland in August, Speaker of the House John Boehner said, “Right now, America’s employers are afraid to invest in an economy … hamstrung by uncertainty. The prospect of higher taxes, stricter rules, and more regulations has employers sitting on their hands.” Stated more formally, the Speaker’s argument, which I have dubbed the Boehner uncertainty principle, holds that government efforts to increase regulation lead small business to delay investment and hiring until the new regulation’s impact is well understood.

It’s certainly a provocative argument, but is it true?

Real options theory supports Boehner’s position. This theory explains investment decision making. It holds that under uncertainty about the future, people will often delay investment decisions to allow the future path of events to be revealed.

New laws have created numerous regulations that demand bureaucratic interpretation before small business owners can figure out how these laws will affect them.

Small business owners appear to be using real options reasoning to deal with uncertainty about regulation. Consider, for example, the response of business owners to the 2000-page Patient Protection and Affordable Health Care Act (PPAHCA) and the similarly sized Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). These new laws have created numerous regulations that demand bureaucratic interpretation before small business owners can figure out how these laws will affect them—100 in the case of PPAHCA and 520 in the case of Dodd-Frank, according to the U.S. Chamber of Commerce.

Right now, small business owners are unsure of the amount of time they will have to spend on paperwork to adhere to the PPAHCA or how their healthcare costs will change under the new law. And the financial reform legislation’s impact on small business access to capital is still unclear months after the law’s passage.

Unable to predict the scope or impact of new regulations, small business owners are following real options reasoning. They are simply delaying investment and hiring as they wait to see how bureaucrats will interpret the new financial reform and healthcare laws.

Unable to predict the scope or impact of new regulations, small business owners are simply delaying investment and hiring as they wait to see how the bureaucrats will interpret new laws.

Qualitative data collected by the Federal Reserve Bank of Atlanta supports the Boehner uncertainty principle. In a speech in November, Atlanta Federal Reserve President Dennis Lockhart said, “Our contacts cite a litany of uncertainties as reason for a wait-and-see posture toward expansion-related spending and hiring. These include … the effect of various regulatory proposals.”

Lockhart used the recent healthcare legislation as an example of how uncertainty about new laws is holding back investment and hiring. He said, “Prominent among these [comments] is the lack of clarity about the cost implications of the recent healthcare legislation. We've frequently heard strong comments to the effect of ‘my company won't hire a single additional worker until we know what health insurance costs are going to be.’”

Quantitative data on this question is more difficult to find. But data from the National Federation of Independent Business (NFIB) also suggests the Boehner uncertainty principle. For the past few years of NFIB’s monthly member survey, the share of respondents who said that government regulation and red tape was the single most important problem faced by small business has been negatively correlated with the percentage that had made a capital expenditure in the previous six months. While we do not know why this correlation exists, one possible reason is that as regulation becomes more of an issue, small business owners are increasingly putting off investment decisions.

In short, both theory and evidence support the Boehner uncertainty principle: increased government regulation creates uncertainty about the future, which deters small business owners from investing and hiring.

Getting small businesses to invest and hire again requires reducing the currently high level of government regulation-induced uncertainty. As Lockhart says, “A first priority is that government authorities bring clarity to matters central to business planning.”

Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.

A Trafficker’s Paradise

A Trafficker’s Paradise

In the United States, the most sought after drug market on Earth, are there are no outstanding drug kingpins with names that make for legends?

*By Francisco Martín Moreno

Do you know the name of a single American drug kingpin of our times?

I am of course not referring to the infamous "gangsters" of the prohibition era in the United States, such as Capone, Dillinger and Frank Nitti (among so many underworld characters) who found in the United States the fertile ground necessary to develop and reach international “prestige”.

We knew García Abrego, Caro Quintero, “El Güero Palma”, the “Lord of the Heavens”, the Arellano brothers, etc. among other leaders of our meager underworld.

But I insist: In the US, the most coveted drug market on Earth, are there are no outstanding drug Kingpins (whose names must now form a proud part of the criminal legend of their country), when they deal in a drug business worth over 500 billion dollars?

Is there no last name that stands out for its efficiency and popularity or is it simply that there are no drug traffickers to shame the longstanding American criminal tradition?

I know! In the US, drugs are dealt “by themselves”.

The drugs are dropped off at the border by Mexican or Latin American “mules” and reach (as if by magic) the hands of consumers “by themselves”.

Of all the marijuana that is consumed in that country for example, 35% is produced in Texas, Arizona and California without the authorities ever finding a plantation, any drugs incinerated in public, or anyone being placed in federal prison and their assets sold at auction to the highest bidder.

I guess the marijuana was planted by itself, harvested by itself, distributed by itself and the resulting proceeds laundered by themselves...

Is this not truly amazing?

We never hear of a harsh blow being dealt to drug trafficking in the United States as is commonly done in Mexico, in a consistently recurring form.

We never see photographs of American drug Kingpins arrested and covered in blue FBI jackets, hands and feet in shackles, wearing bulletproof vests and helmets, with a huge police escort to prevent an attacks on their life that could prevent them from informing of the identity and activities of their associates...

In Mexico, the capture of "famous" drug Kingpins occupy the front page of newspapers, besides receiving ample Radio and Television coverage.

We publicly display the incineration of narcotic drugs as soon as they are found. Photos of heroic soldiers fallen while fighting thugs are published. We have pictures of former State prosecutors massacred at their doorsteps while engaged in private law practice after retiring from fighting crime.

The multiple and ostentatious properties seized from the Kingpins are a matter of public knowledge.

The efforts of Mexican soldiers to win this battle against the production and sale of drugs are evident.

Only that battle will hardly be won if in the US the unhampered sale of 500 billion dollars’ worth of narcotics in the streets continues with no one seeing or doing anything. Since our "Puritan" neighbors never catch a Kingpin, no arrests are announced, no soldiers or drug agents or judges or prosecutors die, no assets are seized and no names of corrupt government officials are published.

Nothing, no one knows anything...

Why doesn't anyone know? Very simple: because an incredible number of members of the State and Federal Executive, Legislative and Judicial branches of government are on drug Kingpin’s payrolls.

If nothing is done, and nothing is known it’s because from the Secretary of State on down, Governors, Legislators, Senators and especially Judges, journalists, police officers of all kinds, FBI and DEA agents up to and including the famous and not the least feared Border Patrol, everyone could be deeply involved with drug traffickers and making juicy profits just as they did during prohibition.

There is nothing new under the Sun.

Even less now, when a group of thugs has more power than the State itself.
Never in the history of mankind has a gang of criminals had so much money as to enable it to buy authorities, journalists and whole countries if it so decided.

All this thanks to the US, who provides the dollars to make this possible.

What do drug Kingpins prefer in exchange for heroin, Mexican pesos or American dollars? It’s quite clear, isn't it? What sovereignty does a State have when a drug Kingpin can’t be judged in his country of origin because doing so could bring about the destabilization of the country with disastrous consequences for millions and millions of people?

Are we not facing a newfound power phenomenon in the hands of a single individual?
Where are North American drug Kingpins? Why not I start the prosecution of major drug traffickers in the United States?
I know: Because neither consumers nor authorities nor the Kingpins nor the press want you to know who they are.

This is good business for everyone. Everyone is involved.

Better, much better to blame Mexico for all its problem...

Building excitement

Building excitement

Can China avoid a bubble?

Don’t look down

THE property market illustrates the growing divergence between rich-world and emerging economies. In most developed countries (with a few exceptions, such as Australia and Canada) governments are trying to breathe life into property. In developing ones they are trying to cool things down. In the West the question is when prices will stop falling. In the East it is whether they will stop rising.

For many institutional investors, emerging markets, however buoyant, are not worth taking big bets on. Thanks to the bust, the rich world offers high-quality properties in liquid markets at lowish prices. The developing countries are a riskier development prospect, with new homes, offices and malls being built at speed to cope with fast-rising demand.

That demand is undoubtedly enormous. Brazil is thought to be short of some 8m homes; the whole of India has fewer hotel rooms than Las Vegas; in Saudi Arabia a long-awaited mortgage law is expected to kickstart a residential boom. Yet the pitfalls are also cavernous. Legal issues are one source of uncertainty. Investors complain that China’s system is capricious, for instance. “China will be one of the biggest property markets in the world in five years’ time,” says one big fund manager. “But if you put millions into a building in China and sell it, it is not clear that you will be able to take your money out.” Retail lenders express similar misgivings about the process for repossessing homes in developing markets.

The biggest worry of all is the rush of new supply. The pace of development is often frantic, nowhere more so than in China. According to Barclays Capital, more than 40% of the skyscrapers due for completion in the next six years will be in China, increasing the number of tall buildings in Chinese cities by more than half. Landscapes are changing in a matter of days. One of the more hypnotic items on YouTube is a time-lapse video of a 15-storey prefabricated hotel in Changsha being put up in just six days. “The range of outcomes in London and New York is pretty limited,” says one investor. “In Shenzhen you can be building a block of apartments with four others going up alongside.”

One way to manage the risk of oversupply is to take capital out of emerging markets as quickly as possible. ING’s real-estate asset-management arm (soon to be part of CBRE) works with local firms to build flats and homes for sale in markets such as China, enabling it to realise profits in two or three years. Another is to go for the less crowded parts of the market. Mr White of CBRE thinks that the logistics sector is one of the more promising avenues for foreign investors, in part because the market is dominated by a handful of global firms based in America. Shopping centres are another area where foreigners still have an edge over locals.

But many investors who have raised funds for deployment in emerging markets will have trouble finding a home for their money. One reason is that these markets are thin: there is very little buying and selling of existing properties. Another is competition from locals. Mainland Chinese developers are wildly optimistic because they have seen values rise, says David Ellis of Mayer Brown JSM, a law firm. “They are using a different spreadsheet.”

All this helps explain why many people are nervous about the state of the Chinese property market in general, and the residential part of it in particular. High-profile hedge-fund managers such as Jim Chanos give warning (self-servingly) of a property crash even worse than Dubai’s. In January three of the ten biggest short positions in Hong Kong-listed mainland companies were held in property firms. Nationally, incomes in China have largely kept pace with rising prices (see chart 7), but an IMF report in December said that in some big cities prices “appear to be increasingly disconnected from fundamentals”.

Rationing the air supply

The Chinese government has unveiled a series of measures since April 2010 to mute house-price inflation. They include raising the minimum downpayment for first-time buyers to 30% of a home’s value, up from 20% before, and a stop on mortgages for people buying a third or subsequent home. These measures have had some success. The year-on-year price rise has slowed down: in December it was 6.4%, not that much higher than the overall inflation rate.

Even so, the market continues to look extremely buoyant on many measures. Total property loans outstanding last year rose by 27.5%, which at least was slower than in 2009. Policymakers lean towards further tightening. A property tax was announced in Shanghai and Chongqing at the start of this year, causing a rush to seal deals before it takes effect. Transactions in Shanghai in the first half of January reportedly jumped by more than a third year-on-year, according to local estate agents. Wen Jiabao, China’s prime minister, has said he wants to see the residential market return to a “reasonable level” before his term of office ends in 2013.

As well as dampening down demand, the Chinese have been trying to increase supply. That may seem counterintuitive in a country with a home-ownership rate of about 80%. But that startlingly high rate was the result of a huge, one-off transfer of government housing to private ownership in the late 1990s. Much of it is dilapidated and most people want to move out and up. “There is pent-up demand that has been building for 50 years,” says Michael Klibaner of JLL in Shanghai.

The problem for the average buyer is that prices have been driven higher not just by other would-be homeowners but by a complex chain of speculative activities that reaches right back to another arm of China’s government, the local authorities. Land sales are a big source of revenue for local governments, and by drafting development plans for the land the government can hike its value several times over.

Until recently, local governments would sell this land to developers for very little upfront. A firm could buy land worth 5 billion yuan with just 500m yuan ($75.9m) in working capital, says Jinsong Du of Credit Suisse. Even better, the developer could then offer that land as collateral for a loan of, say, 2.5 billion yuan from a bank. And instead of ploughing those borrowed billions into developing the site, they could use it to buy more land. Developers were not too worried about generating cash flow, because in a pinch they assumed they could always sell the land at a profit or flog as-yet-unbuilt flats to eager buyers on the back of blueprints alone.

The viability of this model depends on ever-growing demand, which often comes from speculative investors looking for a chance of quick capital gains. Some are wealthy private individuals; many are enterprises that have been diverting money from capital investment, hoping for juicier returns from property.

All of this is a big headache for the central government, which is aiming to keep property affordable for the masses. A huge social-housing programme will eventually bring lots of cheaper housing on stream. In the meantime the government is trying to draw the air out of the speculative part of the market (by restricting mortgages taken out for investment purposes, and by banning many state-owned enterprises from buying land) and to put developers under pressure to build and release properties quickly. Banks now have to put money into an escrow account instead of lending directly to developers. The cash is paid out when construction reaches certain milestones. Downpayments from developers to local governments have shot up, too, and now total 60-70% of the land’s value. That stretches developers’ balance-sheets, encouraging them to drop prices.

Carpeted landing

The slowdown in property-price rises suggests that these policies are having some effect. But the upward pressure is still immense. To get round the new rules, some mainland developers are reportedly borrowing money offshore and dressing it up as equity when it comes onshore. The restrictions are not always properly implemented, particularly in smaller cities. A 2009 law allowed mainland insurers to invest another wall of money in property for the first time. Individual savers keep an enormous amount of cash in low-yielding bank deposits and have relatively few investment options, which increases the appeal of property—as does rising inflation.

Nonetheless, in two critical respects, comparisons between China and places such as Dubai are misplaced. One is underlying growth in demand. Some places in China may well be getting ahead of themselves: for example, it is not clear whether so many industrial cities really need a brand new central business district. If prices were to turn, the amount of vacant property being held as investment would make a wave of forced selling more likely. But China, with urbanisation and income growth on a massive scale, is clearly different from Dubai’s model of “build it and they will come.”

There are better parallels in the Middle East. Emile Habib of GulfRelated, a property-development joint venture in the region, says Dubai is saturated and the best prospects are places with lots of internal demand like Saudi Arabia.

The second difference is the amount of leverage in the system. The IMF reckons that loans to developers and mortgages accounted for under 20% of total outstanding loans in late 2009, compared with 52% in Hong Kong and 57% in America. Again, nobody should draw too much comfort from this. In a cash-driven market, liquidity can flow out of the sector quickly; mortgage debt is rising fast from a low base; and a property bust could spill over into other fields to which banks have lots of exposure. But as Western policymakers would now wearily agree, less debt means less systemic risk for the banks if and when the property cycle turns.

No comments:

Post a Comment