World Economic Map - A Quiz

Thanks to Greg Mankiw's useful blog I am reproducing a chart he himself got it from someone else. We all need a little help from each other.

Quiz. Around the time Jesus was walking around in Palestine changing stones into bread and stuff, which was the largest economy in the world? Second largest?

Hint. Look up Angus Maddison's majestrial opus on World Economy, a Millennial Perspective.

Everybody Hates Goldman Sachs

...And that includes officially the New York Times. Its editorial on that company is here.

While I do agree with the editorial's outrage at Goldman's cynical PR to redress its tattered image, I do strong believe there are other equally guilty culprits: Hank Paulson when he was Treasury Secretary who did not set the right carrot and stick framework to help out his former friends and colleagues at Goldman as well as other "too big to fail" Wall Street firms. His policy was all carrot.

Then there is Team Obama who should have plugged all the loopholes Paulson had bequeathed them. Instead, Geithner and Summers continued to look the other way while the Feds handed out a king's ransom to further help out Wall Street wholesale.

So, NY Times should have asked for a full accounting of what Paulson did or did not do, the resignation of Geithner and Summers as well as all the once-off tax on 2009/2008 bonuses to be credited back to the taxpayers.

Indulge my gloating - 7 Days in May

In today's NY Times (Nov 22, 2009) here columnist Maureen Dowd wrote:

..."McChrystal and Gen. David Petraeus should have been giving their best advice to Obama — and airing their view against scaling down in Afghanistan — in confidence. Instead, McChrystal pushed his opinion in a speech in London, and Petraeus has discussed his feelings in private sessions with reporters. This creates a “Seven Days in May” syndrome, where the two generals are, in effect, lobbying against the president and undercutting him as he’s trying to make a painfully complex, life-and-death decision"...

On October 2, 2009 I referred to that movie "7 Days in May" on my blog here. I thought the general should have been fired for openly pressuring his commander-in-chief showing great disrespect. I am glad Ms Dowd is edging closer to that position.

Ms Dowd, welcome to the "Fire Gen. McChrystal" Fan Club. Better later than never.

Xmas came early to Wall Street

..."Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility — and put the broader economy at risk.

...So here’s the real tragedy of the botched bailout: Government officials, perhaps influenced by spending too much time with bankers, forgot that if you want to govern effectively you have retain the trust of the people. And by treating the financial industry — which got us into this mess in the first place — with kid gloves, they have squandered that trust".... Paul Krugman

To be fair, the great giveaway started with Hank Paulson, who not only spent "too much with bankers" was one himself at Goldman Sachs. Second, while Geithner was not himself a Wall Street banker, his education, his social background, his world outlook were all shaped by the same "core values" and world outlook of the elite bankers. Effectively the Wall Street titans were shaping the rescue package. And that, of course, would not have a clause to hurt their own self interest, let alone their job security.

Ultimately, let's put the blame where it belongs. It is Obama who listened to and signed off on whatever Summers and Geithner proposed.

The official government report is here.

Money has been spent. I said earlier this year that Wall Street Had Won big, like 7-0 in soccer terms. In American football terms, it would like 70-0.

No wonder Mr Lloyd Blankfein is smiling telling the world he is doing "God's work". If he were representing God, and he had in fact won big, what makes the US Government and through them you and me? We are just shits?

Is the Bond Market wrong?

Quiz.

Paul Krugman posted this chart in his NY Times blog to support his conclusion that the paranoia in DC about inflation fears are totally unjustified. The over-riding issue to him is insufficient stimulus a la Keynes. The chart shows net deb/GDP in the US is nowhere close to alarming since there are those countries with higher or equal relative levels of debt.

1) Provide no more than 2 reasons why Krugman could be right.
Hint: investigate into the Fed's balance sheets

2) Provide no more than 2 reasons why Krugman could be wrong.
Hint: Look up Dr. Doom's writings and his comment on Bloomberg TV that US "will become Zimbabwe", to be sure for dramatic effect to make a point!! By implication, Marc Faber and those who are long gold, short the dollar, believe the bond market is wrong while Krugman clearly believes it is right.

Tim Geithner

A recent report in NY Magazine on Tim Geithner at a recent US Congressional hearing


..."Unfortunately, the regulatory regime that failed so terribly leading up to the financial crisis is precisely the regulatory regime we have today," Treasury Secretary Tim Geithner said in prepared remarks at a Joint Economic Committee hearing today.

That struck some as a little rich, considering the recent revelations about Geithner's own behavior during the crisis, and during the question-and-answer period, a messy exchange occurred after Representative Kevin Brady of Texas asked the Treasury secretary to resign, saying the public had lost confidence in his ability to do the job.
Geithner declined.

“It is a great privilege for me to serve this president,” he said. "I agree with almost nothing you said." He then proceeded to point the finger at the Republicans, whose policies, he implied, caused the crisis in the first place. "You gave this president an economy falling off the cliff," he said, finger jabbing, ears turning pink. "Values of American savings have been cut almost in half. Millions of Americans are out of work. We're in the worst financial crisis in generations."

Brady interjected: “Remind me, Mr. Secretary, what post were you holding when President Obama took office?”
“I was the president of the Federal Reserve Bank of New York.”

Right.


Read more: Tim Geithner Throws Stones in a Glass House of Representatives -- Daily Intel http://nymag.com/daily/intel/2009/11/geithner_1.html?mid=daily-intel--20091119#ixzz0XLyzgyEs

This is childish!

What is "childish"? US demanding "clear results" in Afghanistan reforming itself, that's what.

Hilary Clinton went to Kabul to reinforce Obama's public message demanding better public governance. Read this.

I have a naive question. Rather two. First, how do you measure "better"? Second, suppose Kabul failed to pass the hurdle of what constitute minimum acceptable reforms, what then? US will pull out immediately?

Let's not kid ourselves. US presence in Kabul must rest on unambiguous national security interests clearly articulated by Washington DC and understand by the American people.

The notion of "nation building" turning Afghanistan into any resemblance of a democratic society is naive and is a non-starter. If Afghan people's support is essential to US effort there, and if that support is not in place, US should leave irrespective of what "reforms" Kabul could or could not engineer.

Frankly, when the head of state's brother is the largest opium dealer in Afghanistan, talks of meaningful reforms in Kabul are sophomoric.

US must also be clear why it is so paramount to defeat the Taliban. Wasn't the original goal the capture of Osama bin Laden? Remember the Taliban were at one point fighting comrades of the US against the Soviets.

If finding and killing bin Laden could not be achieved by the presence of nearly 70,000 GI's, not counting NATO troops, another 40,000 GI's would find bin Laden?

If Obama were to accept General McChrystal's additional troop request, we would be stationing over 100,000 troops to find one aging terrorist whose location we have failed to find in 8 years.

If a script writer were to write that into a movie proposal, he will never find work again in Hollywood!

France and the rest of Europe, a time bomb?

Samuel Huntington's Clashes of Civilization live? From City Journal Nov 18, 2009

GUY SORMAN
Swimsuit Issue
“Burqinis” notwithstanding, France isn’t being Islamized.

This summer, a woman of Arab descent tried to enter a Paris swimming pool wearing a head-to-toe black swimsuit dubbed a “burqini” and was expelled.

The episode rekindled the “veil controversy” of 2005, when the French Parliament, at President Jacques Chirac’s urging, unanimously passed a law forbidding students to wear any “intrusive religious signs” in schools.

The Jewish yarmulke and the Christian cross were tolerated, if kept small and discreet, but not the Islamic veil—which was the law’s real focus.

The veil law, a not-so-subtle attempt to prevent the Islamization of France, implied that French society had become besieged by its 4 or 5 million Muslims, and observers might draw the same conclusion from the burqini incident.

Global Rankings of Corruption

Transparency International, world's leading NGO on this issue, has just issued its latest ranking here on which are the most and least corrupt countries and all those in between.

Two broad categories do well: Nordic and those that follow the Common Law tradition that began in England. Larger the number the more corrupt.

New Zealand is number 1 followed by Denmark and Singapore is number 3.

United States and the UK, both did worse than previous year. US dropped from 8 to 19, UK dropped from 6 to 17. I suspect the less than squeaky clean handling by DC of Wall Street in the US and the series of ministerial scandals in under-table deals in the UK were a big factor in the downgrade.

I live in 3 countries: Hong Kong ranked 12, higher than US and UK (17); Argentina (106) -- below Zambia and Tonga and Thailand (84) -- higher than Mexico (89). China is 79.

I can say with some confidence that Argentina and Thailand deserve their low ratings and that Thailand should probably in the nineties.

Generally the rankings are reasonable.

Too Big to Fail - the sociology

In the interview Leslie Stahl, famous TV personality, did with Andrew Sorkin, author of runaway best seller, "Too Big to Fail", documenting the near death of Wall Street, there was this gem of an exchange about the top few men running Wall Street including Hank Paulson, then Secretary of Treasury, former Chair of Goldman Sachs:

..."LESLEY: What one really gets out of your book is what a closed little fraternity those guys at the top were.

ANDREW: It’s remarkable. It’s really 10, 20, 30 people who were involved in all of this. I mean … 30 people running the world, and they are all mostly men, with very few exceptions.

LESLEY: And even though they had competed, it’s almost as if they were on a football team together, or something. They’re in close with each other. They can pick up the phone and call each other at home. They can get in a car and go to each other’s houses. I had no idea.

ANDREW: I have to tell you, I found the intimacy among them very surprising. The idea that they were going to each other’s homes and calling each other every ten seconds, and that they all had past histories and relationships"....

IF you out there do not remember what Simon Johnson at MIT said in a controversial article here about the sociology of Wall Street, you may wish to reread it.

In that article he wrote, among many things, about a small group of people sharing similar backgrounds and values and acted as if they had all belong to the same eating clubs at Princeton or fraternities at Dartmouth and Harvard (Paulson). That group would include Geithner (Dartmouth) and Summers (MIT and Harvard). When that article came out, he was criticized widely for being "conspiratorial" which, by definition, should not be taken seriously by serious people.

Sometimes you do not even have to talk to one another all the time to act as if in concert -- if you share the same world outlook. But when you actually do share the same outlook and do talk to one another, then it would be as if one Jesuit priest trained in Rome talking to another trained at another Jesuit monastery even if separated by a generation 20 plus years ago or later.

The entire interview is here. It is a good read.

China Quiz

This is an excerpt from today's NY Times:

..."Most of those who attended the event at the Museum of Science and Technology turned out to be members of the Communist Youth League, an official organization that grooms obedient students for future leadership posts.

Some Chinese bloggers whom the White House had tried to invite were barred from attending. Even then, the Chinese government took no chances, declining to broadcast the event live to a national audience — or even mention it on the main evening newscast of state-run China Central Television.

The scripted interaction underscored the obstacles Mr. Obama faces as he tries to manage the American relationship with an authoritarian China, whose wealth and clout have surged as its economy has weathered the global downturn far better than the United States’ or Europe’s"...

Quiz: Is it true managed to "weather" the global downturn better than the US? If so, give 2 reasons why you think so.

Bernanke, the Oracle?

The following is from Mish's Global Economic Trend Analysis:

..."Bernanke: Why are we still listening to this guy?

The following video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It's a compilation of statements he made from 2005-2007 that will have your head spinning"...

Bernanke Doing the Potomac 2 Steps

Fed Chairman says he supports a "strong dollar" policy as quoted here.

Quiz time: Bernanke has been for some time on record for keeping the near zero interest rate policy because the US economy remains weak and the politically explosive unemployment rate still rising.

Can he talk up the dollars by words? If so, provide 2 reasons. If not, why not?

Second quiz.

China is blaming the US for exporting inflation (here) and here because the zero interest rate policy provides a risk free leveraged currency carry-trade that is all the rage right now. Witness the rise in Aussie, gold, properties and the stock markets.

Give 2 reasons why China's criticisms are correct. And give 2 reasons why China is disingenuous in her criticisms in her own currency policy. Please focus only on the economics, not politics.

After you work through your answers there is money to be made in the currencies market.

Have fun and good luck.

Beggars Can't Be Choosers - 2

..."In a July meeting, Chinese officials asked their American counterparts detailed questions about the health care legislation making its way through Congress. The president’s budget director, Peter R. Orszag, answered most of their questions. But the Chinese were not particularly interested in the public option or universal care for all Americans.

“They wanted to know, in painstaking detail, how the health care plan would affect the deficit,” one participant in the conversation recalled. Chinese officials expect that they will help finance whatever Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back.

It is a long way from the days when President George W. Bush hectored China about currency manipulation, or when President Bill Clinton exhorted the Chinese to improve human rights"...

Source: NY Times, Nov 14, 2009

Nation Building and $$

I have long counseled college bound youngsters to take one semester of "baby" accounting if that's the only course they take that deals with money. Accounting is the lingua franca of global and indeed daily business just as English is for global communication.

Finally, someone in DC is forcing the issue of arithmetics 101 of those 2 wars here.

The $$ issue is not just about domestic budget deficits, the dollar and about winning hearts and minds in the Islamic Middle East. It is also about China, the major challenger to US global position in the 21st century. The headline of this article here so gingerly reminds the new harsh realities of USA still acting the unipolar superpower without a strong balance sheet to support its hubris.

The punch line of this China article is simply this: beggars can't be choosers.

As Tom Friedman, the author columnist, keeps saying without much impact: it's time for "nation building" back home in USA. I say amen. Otherwise, before long, someone else will land on our shores to "nation build" us!

Remember JFK and the Vietnam War?

JFK (circa 1961):

1) Confiding to his special assistant, historian Arthur Schlesinger, Jr:

..."They [Pentagon] want a force of American troops...They say it's necessary....Then we will be told we have to send in more troops. It's like taking a drink. The effect wears off and you have to have another....The war in Vietnam could be won only so long as it was their war. If it were ever converted into a white man's war, we would lose as the French had lost a decade earlier"...

2) At the University of Washington, Seatle:

..."We must face the fact that the United States is neither omnipotent or omniscient...that we are only 6% of the world's population, that we cannot impose our will upon the other 94%, that we cannot fight every wrong or reverse each adversity, and that therefore there cannot be an American solution to every world problem"...

Source: Lessons in Disaster, Gordon Goldstein, pp. 65-66

LBJ later reportedly said "I will not be the first American president to lose a war"....and then he had to send in more and more troops to protect those who had gone in before.

Just as JFK predicted: - It's like taking a drink. Except it's not Pepsi but that of JIm Roger's Kool-Aid brew.

JFK was a student of history. He wrote "Why England Slept" in his hospital bed and won a Pulitzer. While many say Arthur Schlesinger Jr. was the ghost writer, but the more salient point was JFK thought like a historian even if he had not written that book.

How many contemporary US leaders know history? Did Bush know the Brits, masters of empire management, got their royal behinds kicked in Mesopotamia, the ancient name of Iraq? Did he and his Yale/Princeton/West Point educated subordinates know Afghanistan was also known to historians as the "graveyard of empires"?

If they did, what made them think it would be "different this time"?

40,000 troops enough in Afghanistan?

My friend Mark sent me this picture here and had this to say:

..."When you look at the landscape in the attached photo and in the link below, 40k additional soldiers seem like a drop in the bucket"...



The link Mark refers to is this,

Bravo Oxford!

Oxford honors a fallen Iranian in the most appropriate fashion. Read here.

Goldman Sachs Doing God's Work

Ever since Lloyd Blankfein's interview with a British paper describing his work as that of "God's", sarcastic reactions came from all quarters. I posted NY Times columnist Maureen Dowd's piece earlier. Now on Mish's well-known economics blog, we are given 2 versions of "Lloyd's Prayer": -

My [Mish's] Version of "Lloyd's Prayer"

Our chairman who art at Goldman
Blankfein be thy name
Thy rally’s come, God’s work be done
In the Dow as it is in the Nasdaq
Give us this day our daily gain
And forgive us our frontruning, as we punish those who frontrun against us
And bring us not under indictment
But deliver us from regulators
For thine is the cashflow, and the power, and the bonuses, forever and ever. Amen

Anon Version Sent to Mish

OUR CHAIRMAN
WHO ART AT GOLDMAN
HALLOWED BE THY NAME

THE RALLYS COME,GODS WORK BE DONE
WE HAVE NO FEAR OF CORRECTION
GIVE US THIS DAY OUR DAILY GAIN
AND BANKRUPT OUR NEAREST COMPETITORS
LEAVING NO ONE LEFT TO STAND AGAINST US
AND BRING US NOT UNDER INDICTMENT

FOR THINE IS THE TREASURY
AND THE HOUSE AND THE SENATE
FOREVER AND EVER
GOLDMAN

"Who are our friends in Afghanistan"?

Veteren colonels straight from the war zone spoke candidly to Columbia students. Source: Bwog, the popular student blog.

"David Xia [Columbia student reporter] wandered into SIPA [Columbia's School of International and Public Affairs] last night for a Saltzman Institute event on the fate of the American war in Afghanistan.

The United States' war in Afghanistan is not working, and we're not sure how to fix it.

This was the gist of Col. David Gray and Col. Gian Gentile's (both of whom have served in Iraq and Afghanistan) talk last night at SIPA.

"We don't have strategy," Gentile said. "Instead we have commander's talking points, maxims, and catechisms." The prospects of counter-insurgency and nation building have "seduced" army officials to the extent that they lost sight of a bigger strategy.

According to Gray, the army initially wanted to leave a "light footprint" – utilizing strategic raids, advanced technology, special operations forces, intelligence agencies, and native human resources - to avoid attracting Al Qaeda fighters into a chaotic vacuum. And it worked just fine. For two years.

Gray painted a gloomy picture of the many challenges the army faced in creating a viable strategy. These included fighting government corruption, countering the rampant drug trade, and reeling in intractable drug lords, and dealing with the Pashtunwali tribal code to which 70 percent of Afghans subscribe: "In the morning they'll offer you green tea and a goat grab…at night they'll be shooting at you." Moreover, tribal interests do not always align with the Afghan government's interests. "Some guy from Mazari Sharif in the north isn't crazy about going down to Kandahar in the south to fight," he said.

Gray proposes creating an Afghan civil service to staunch corruption and recruit competent officials, but could not offer a strategy addressing the lucrative opium production that fills the Taliban war chest. According to a United Nations report, guerrillas in Afghanistan have secretly stockpiled 10,000 tons of opium. The New York Times said that is enough to satisfy every dope fiend in the world for two years.

Gentile said the current military approach was trying to emulate the Iraq troop surge. In 2007, President Bush deployed 20,000 soldiers into Iraq to secure Baghdad and Al Anbar Province. Violence in Iraq decreased, but it is uncertain whether this was a result of the surge or other reasons.

General Stanley McChrystal, the top commander of American forces in Afghanistan, has requested up to 40,000 troops within the next year. In a confidential report leaked to the Washington Post, McChrystal wrote that without more troops, the conflict in Afghanistan "will likely result in failure."

Invoking the memory of Vietnam, Gentile warned against blindly sending more counter-insurgency troops and stressed the importance of aligning military means with political priorities. Sending troops designed for counter-insurgency, according to Gray, is "like asking a high school football team to go against Super Bowl champions."

Nation-building, said Gentile, takes more than 40,000 troops. And it may take years, if not generations. There will be no swift victory.

When it came time for questions, the colonels were more often than not at a loss for answers.

Gray said people often ask him who the enemy is. "I wish I could [say]…The Hakani network, Hezbi Islami Party, the Islamic Movement of Uzbekistan…probably all and any of these," he said. When a woman asked him who the US' friends are, he responded, "I have no good answer."

One person asked Gentile, "How do you think this will play out in domestic politics?" Gentile shook his head and deferred to Gray. "He's the senior colonel. He gets the harder questions," said Gentile as the audience laughed.

Another man asked about stopping heroin purchases by Western Europeans whose money eventually ends up in the pockets of the Taliban. "We take General McChrystal's 40,000 troops and deploy them in…Amsterdam," mused Gentile as everyone laughed.

The night ended as Gentile posed a question none could answer: "Can we really change Afghan society for the better at the barrel of an American gun?"