Thursday, April 29, 2004

Friedman get's it right on Economy, Dan Drezner get's it wrong, Fed see no evil with Housing Bubble

Friedman, who's gotten pretty trashed over his support of the Iraqi venture, returns to his roots as an economic commentator and hits a home run.

As it turns out, the NYT has Friedman's column where he writes that the Japanese economy is picking up. And it's finally being drawn out of the slump why? Exports to China!

So does this mean that commentators like Dan who advocate the benefits of trade with China and feel that trade concessions made by the Chinese currently are sufficient to achieve "free trade" are right? Well not so fast!!! Let's look at the fine print:

***
Because Japan (much more than the U.S.) has been able to hold onto a sophisticated manufacturing base — like high-end steel, machine tools, cutting-edge electronics and industrial robots — it's been exporting like crazy to China's start-up factories. This year, Japan's trade with China surpassed its trade with the U.S.

"Two-thirds of the reason for [Japan's] recovery is China," says the Japanese management consultant Kenichi Ohmae. China, and new Japanese plants in China, are sucking in so many Japanese exports there aren't enough ships to bring them over fast enough. China is literally dragging Japan out of its slump.

"There is [also] much more attention [in Japan] to restructuring than there was in the past," adds Jeffrey Young, Tokyo economist for Nikko Citigroup. "Companies are improving their efficiencies." And Japan's workers have proved more adaptable, in hard times, than commonly believed.
[emphasis added]
***

So it was exactly by rejecting the present "free trade" globalism model of trading in hi-tech manufacturing jobs on the assumption that jobs would be created in return and that a current accounts balance wasn't important that led to the revival of the Japanese economy against all odds.

Remember that "Free trade" advocates here in America have condoned sending away the manufacturing base on the assumption that jobs would be created in return. In addition, they've tended to ignore the glaring Trade Deficit or current accounts balance as being unimportant, since capital flows of debt and security purchases have tended to make up the difference.

The title of the report to Congress? The U.S. Trade Deficit: A Sign of Good Times

Disgusting.

Well every dollar taken away from export industries means less job growth there. Brad Delong has argued that free trade only switches jobs from import affected industries to export industries and therefore increases the synergy/specialization benefits of comparative advantage. This is true only if one of two things occur. One is that there is no current accounts deficit and import and export industries stand on equal footing before the government's eyes in light of currency flows. The other is that the market would correct any policy abberation produced by the Treasury and Federal Reserve banks.

However as it turns out Brad Delong is still mystified by the common fact that the market is often as inefficient as it is efficient, even about terribly obvious things like removing the discount to interest rate premiums for risk, restoring interest rate parity, and devaluing debt notes related to shifts in major currencies like the Greenback.

People in aggregate have irrational systematic biases in their economic decision making. One of these biases is that they're used to treating the US Treasury note as a risk-discounted financial instrument. It will take time for perception to catch up with reality.

When it does, because in the meantime there will have been an "overshoot", the correction will likely be sharp and sudden rather than a gradual adaptation. As Keynes pointed out however, no one knows when that will occur. As he stated, the market can stay irrational longer than you can stay solvent.

But one day it will correct and there will be much weeping and gnashing of teeth!

As it turns out the market is not properly assessing the price and costs of transferring large amounts of capital to the public debt of Treasury bills instead of investing it into export industries which would occur if the purchases were made in current accounts balancing buying from companies exporting abroad. These direct purchases into export companies goods and services would at a much higher ratio go into asset building and business expanding capital investment. Instead they come back as US Treasuries - public debt being the most inefficient investment possible in a given system of capital since it is subject entirely to complete political inefficiency rather than any market efficiency at all. When such capital flows don't go into US Treasures for the most part it will go into the secondary market of mature stocks or junk bonds - chasing speculative asset valuations of the highest returns. Overall this is much less efficient in spurring business investment than just buying a product or service from an export oriented firm!!!

This then creates a growth deficit, which needs to be masked by productivity / GDP growth artificial statistical illusions.

Amusing isn't it?

Well it would be except that it's our country!!! Clearly Friedman's accounting for the Japanese turn around (summary; Federal Reserve article) is putting the lie to the model that Free Trade proponents of the current globalization scheme have promoted. Japan is coming back because of good old-fashioned hi-tech manufacturing exports and significant improvements in employee education and flexibility.

The Federal Reserve page also carries an interesting article on "How Vulnerable Are Housing Prices?" but succumbs to a faulty assumption. Bubbles are never market wide, but focus on some commodity or paper asset that experiences marked valuation speculation compared to the rest of the market. Back in the heyday of the Internet boom for instance, small cap firms were routinely undervalued compared to big blockbuster large cap firms - like Enron, Worldcom, etc. The idea that a bubble has to be uniformyly inflated is ridiculous and not worthy of the intelligence of any person. It was tulips in Holland, tech stocks in the late nineties, and selected urban areas like San Francisco now.

Remember that the Fed routinely under-estimated and underplayed the potential of a stock market valuation bubble in the late nineties despite Greenspan's own remarks about "irrational exuberance", and recently Greenspan's speeches have included bizarrities like promoting Adjustable Rate Mortgages that if anyone had actually taken him up on the matter will pay dearly when as most agree interest rates rise even more - 30 year mortgage yields have already increased notably - latter this year.

On the other hand, US education is lagging in K-12 education (MSNBC) and leaving college with more and more debt on average, while at the same time wages are not keeping pace (EPI) with rising tuition costs meaning that the return for investment in a college education and creating a disincentive to invest so much for so little in return!

Which means that over time we will discourage ourselves from having a highly educated hi-tech labor pool, which is the exact opposite path that the Japanese are taking with high-achievement education of their labor force - or Chinese and Indians growth models (Asia Times) for that matter!

So with our blasted policy of "Free Trade" (TANSTAAFL), ignoring advanced manufacturing for nebulous "creative jobs", and failing to modernize our work force's education and skills we are enacting the exact opposite of how Japan learned to successfully trade with China!!!

Argh! Would only that these ivory tower academics be forced to put their necks on the line, or their own wallets, and then we'd see how many balked and how many could walk their talk!

Market mechanisms of risk discounting - Federal Reserve and interest rates

Brad Delong features an essay about the nature of the ability of the Federal Reserve to act as a market-mover on declarations alone.

However the essay is incorrect when it posits that there is no market mechanism that is creating this response.

It's a meta-credit effect, the credit of credit. If the effective 'credit rating' of a lending institution is high enough - a measurement of its liquidity and price to book value which is a rating of the credit worthiness of its financial evaluations and loans - then it would be natural for a market mechanism to grant a very high meta-credit rating a very high discount.

In the limit where the meta-credit rating approaches a very large ratio to the asset / liquidity ratios of lending institutions and market mover purchasers then you have an approach to an almost complete risk discount - e.g. the most powerful and stable central bank in the world.

In that scenario, the market is going to be moved entirely by the expectation of the cash and capital flows of that market dominant institution. Hence the saying, "don't fight the Fed." Were that expectation of absolute correlations to weaken, uncertainty to increase, and therefore effective risk in trusting in the Federal Reserves pronouncements to increase then the market discount would be erased and you would have to see substantial market movement from Fed intervention in order to see a subsequent yield curve capitulation.

It's really about risk discounts in credit worthiness evaluation. If people believe that you will follow through on your word, no matter what, your word becomes a source of credit itself and can exert financial leverage in any given market situation.

Circling back to where we began, Serpent eats its tail - GDP faked

As a reader on my post below commented, for some reason my economic blogging is more well recieved than my foreign policy blogging. I'm not entirely sure why, since I got my start in logistical, strategic, and tactical applied modeling in security and foreign operations analysis, handling agents, and field work. If I made a mistake, the price was paid in blood, sweat, and tears. Economic analysis is something of a derivative interest, though I have predicted successfully years ahead of time the Asian economic meltdown, the Mexican peso collapse, the failure of export dominated and debt ridden economies like Argentina, and the failure of foreign development models, as well as market timed the Internet bust quite successfully. I was wrong about some details, like I felt that there was no way that Amazon could remain solvent - and I have to admit that surprisingly their market share dominance strategy worked - but it worked because I had misread the willingness of lenders to protect their interest by extending additional credit. It was the "too big to fail" model, and that's one thing I'm not good at predicting is political choices.

That's because political choices are often sub-optimal, to paraphrase Gailbraith they're often a choose between the awful and the truly dreadful. I'm all about optimization. That's why my advice in order to focus on consumer goods companies in China a while back turned out to be good now that the G7 is warning that China could overheat or cause worldwide inflation. It's also why my advice to invest in oil futures would have yielded a handy profit. I also successfully predicted the restoration of the oil market after it's slump in the 90's and the new interest in gold.

However over the years, my economic analysis which kind of started out as a hobby have recieved more and more interest from people interested in obtaining neutral financial analysis. It started out really because of the 90's stock craze which pushed a greater interest in those around me, and whose encouragement increasingly egged me on for advice. Possibly this was because even then it was completely apparent to most knowledgeable observers that the standard fund managers, stock brokerage advice and service, and mutual fund companies were become complacent, greedy, and finally manipulatively abusive.

I guess I stopped blogging about the economy because well it all seemed so dreadfully clear to me that for me it wasn't much to say at this point in the cycle. Recent comments however have made me aware that it's not so clear for the average person, so I've decided to return to blogging about that.

It's not as if btw I know for certain the definite outcome of specific financial events. It doesn't work like that. What I focus on is the "inevitables". There are certain factors in every economic analysis that represent inevitable choices to be made. If freedom is money and money is value and value is choice, then financial events can always be described by the constraints of the system. Indeed the more constraints on the system, the more it approaches however many parameters it has a definite end. You don't know exactly how things are going to get there, or who necessarily is going going to be left standing, but when there is a mad scramble for the musical chairs you can pretty easily guess how many are going to be left standing and sitting and from a quick perusal determine the likely winners and losers. Hint: Like Survivor and politics in general, it's usually the people who are the most ruthless while perserving the appearance of morality.

It's quite Machiavellian actually, which explains how I got into the economic end of analysis from private security interests in my less than up-and-up past. Cut-throat competition is pretty much the same on an abstract level, whether or not the long knives are banker's drafts or sharp steel. In both situations, it's usually best to maintain Plausible Deniability while sending out proxies to do the dirty work for you. In reality, the good financial operations guy or the good foreign operations guy is like a chess player. He moves the pieces, he doesn't run around on the board.

So even though I personally consider the outcomes in Fallujah and Najaf to be terribly interesting, let's face it the events there don't effect average ordinary people to a great degree. What does effect them is that we are effectively in a stage of inflation generated money supply shrinkage.

One way to determine this is simply to look at the Money Supply year over year growth versus the present inflation rate. I did this back here in the bottom half of this article.

Interesting this is also the article that notes Nathan Newman's and the Economist's debunking of the GDP figures.

This especially important because it notes the role of trade - or rather offshoring - in distorting GDP figures. To quote:

***
"For example, when American firms outsource call-centre and information-technology-support jobs to India and other Asian countries, the result should be higher imports of services, yet official statistics do not show such an increase. America's recorded imports of software services from India are also much smaller than India's reported exports of such services to America. "
***

This puts the kibosh on unabashed boosting like Dan Drezner's here.

As a matter of fact, this is why this 4.2% GDP number here is truly ominious as reported by MSNBC.

***
The reading on gross domestic product for the January-to-March quarter, reported by the Commerce Department Thursday, marks a slight pickup from the 4.1 percent rate registered in the final quarter of 2003. While the first quarter figure suggests that the recovery is in good shape, it fell short of the strong 5 percent pace that economists were forecasting.

GDP measures the value of goods and services produced within the United States and is considered the most important barometer of the economy’s health.

***

Actually as the Economist article points out, the GDP measures estimates of the values of goods and services. The IP chart measures industrial production measures actual industry reports. So if you rely on the estimates, they're actually overcounting the production of other nations as our own. That's right, the work done by Indian software firms is being recorded as US economic activity and growth because it's been offshored.

But in actually, the actual industrial production number (look here) is clearly trending sidewise or plateaued in normal language. There is of course no reason why we can't break out of this, but the economic indicators from retail sales growth to factory orders - proxies for the service and manufacturing segments of the economy - do not show supporting pickups.

So again, that GDP growth doesn't seem real and is inflated by bogus estimates. What is the actual GDP? Probably slightly higher than 2% - say about 2.2% rather than 4.2%.

How do I get this number? Take a look here at at the total production utilization chart from Econo-magic.

Then scroll down to the bottom and click the option: Percentage change from same period last year and tell it to redraw the graph.

Of course, the total capacity grew as well - a measure of capital investment. More capital investment, more production capacity as well? So we have not only a growth in utilization but a growth in capacity.

Unfortunately if you click on this chart and then go down and do the percentage change from same period of last year you'll see that the percentage change in capacity is slightly more than one percent (1%). So one additional percent growth in capacity should both be a warning sign that this is not a fundamentally business expansion led asset valuation - meaning it's a speculative bubble more or less.

If production capacity (to invoke Say's law) is nearly constant but valuations rise, we must have expanding price-book ratios. What is an asset book ratio? It's the value of the stock divided by the total assets having subtracted the liabilities.

It's showing across the economy in situations like the Real Estate bubble that Brad Delong writes about here.

So once again if we look at the capacity number and the utlization number, then the message is quite clear. The economy is growing at best at about 2.5% rather than 4.2%

If we uncritically accept the popular line that inflation was 2.5% (they're probably discussing core rate subtracting food or energy - hey who buys those anyway? Otherwise it'd be at 5%) then the story is that economic growth is stagnant - zero.

Zero? How can that be? Well if you look at the Fed's own numbers on money supply year over year it's 4.5% for M2 and M3, but if actual inflation is about 5% annualized that means that we're at a -0.5% situation. Net given inflation, we're actually tightening our belts.

Now certainly housing starts are still rising, but given that car sales have fallen 18% I think we can attribute this to a late surge of home buyers trying to lock in the still relatively low rates before they rise too much further. Given all the pressures on the Fed in this financially led financial inflation surge, weakening the dollar and leading to import-driven inflation (Financial Times) will in fact put the nail in the coffin. Inflation will rise - benefits alone are rising at 2.4% for employers - and interest rates will have to rise sooner or later to combat them and stablize the dollar.

The housing market which has always been a lagging indicator, people will sit on their houses hoping for an eventual return of prices, and we'll be stuck with a housing slump which will help turn down the economy into a classic double-dip recession if the downturn lasts long enough to be called a recession. Consumer confidence is rising and jobless claims are still falling, but remember like the housing market these are lagging indicators. They won't fall until the last chips are called in by the House.

So this is pretty characteristic of a "liquidity extraction" phase of an speculative asset valuation bubble and as monetary policy tightens then in the short term money supply will shrink as inflation grows some more before it is checked - once inflation starts going it's hard to rein in - and we'll have the monetary stimulus taken out of the economy which should start slumping hard by late fall to X-mas.

Right now the oldman's advice to everyone's money is to stick in an old fashioned FDIC savings account and wait it out, because even money markets aren't safe anymore.

When interest rates were low and so money market yeilds were low, some managers turned to derivaties which are complex betting instruments that were developed to manage risk but can also greatly increase returns in order to shore up their bottom line. If the market goes belly up with a correction, then a great many of these money market funds could start smelling like ten-day-old rotten fish.

Now I don't know whether or not this particular money market fund uses its derivatives rightly or wrongly, but if you look at the fine print it reads:

may use derivatives to protect against losses from changes in interest rates. For example, the portfolio manager may be concerned about the impact that rising interest rates may have on the fund. The fund will only use derivatives as permitted by Canadian securities regulators.

Yeah, well the problem is that derivatives are so complex that it's easy to accidentally set them up so as to create risk instead of hedge against it - ask Long Term Capital Management which was headed by two Nobel Laureates how easily these things can turn in a bad market.

To quote:
"Long-Term Capital Management [LTCM] was a hedge fund using derivatives so arcane even some of the people at LTCM who created it apparently did not understand it."

A lot of these funds are more exposed than they appear on the surface, and all the more deceptive since money market funds are sold as secure investments to put your money in if there's a storm going on in stock or debt markets. Well they are - as long as you don't put volatile derivatives into the mix unless you extremely careful with them.

More than one company has been breached or wrecked on the shoals of careless or greedy abuse of derivatives already!!!

As Jim Coomes one of the readers here put it so pithily, this is a sucker's rally or as I put it a "late surge in a top-heavy market about to turn over".

So that's another edition of Oldman on the economy, and don't let the banks, brockerages, or government statistics fool ya with slippery numbers. Keep your eye on the bottom line, and you'll always be in plenty of money.

Was 911 a "pocket" of Terrorism? Ridiculous standards edition, Issue 1

Tex over at UnfairWitness blog discusses how the words "pockets of resistance" are being used to describe Fallujah's turmoil while the rest of Fallujah is described as secure.

This "pockets" standard is ridiculous. By that standard 911 was a "pocket of terrorism" because it only affected Manhatten and the rest of the United States could function normally - 96.5% of its population was "unaffected" if you figure 10 million New Yorkers for 280 million Americans. However we all know that the affect was profound.

We can pretty much assume that if one corner of Fallujah is being traumatized, then all of Fallujah is being shocked. We can also pretty much extend that so that if Fallujah suffers, then to a large extent all the Sunni's "feel it".

Just as the hearts of all the Shiites will cry out everytime we blast something in Najaf. Without a native Iraqi response, because of the failure of Rumsfeld to succeed in his Iraqi training program, we may be stuck without any good options. It's also true that we don't have any "dirty tricks" we can pull to get us out of this corner either, because we don't have a functioning wing of Operations directorate in the CIA according to Tenet.

This "pockets" standard is ridiculous. Just as it is ridiculous to assume our actions in Israel won't have a provocative affect elsewhere, or that our failure in Iraq won't have an affect elsewhere.

Think about it, we can't logically on one hand claim that liberating and democratizing Iraq will have a "dominoe" effect helping to modernize the stuffy political regimes of the region without also acknowleging that a failure there will have a massively negative repurcussion. The analogy used is Reagan's withdrawal from Lebanon. However this will be ten times worse. It will be a black-eye like Vietnam was for decades.

Similarly, despite attempts to deny otherwise clearly nakedly one-sided support of Israel is going to be radicalizing in the region.

Dickey describes all of this in the bubbling mood in "Points of No Return".

***
Among students of the region—in government and in think tanks, in the United States and around the world—there’s a rapidly accumulating sense of doom, and I use the word advisedly...

In the meantime, all over the map you can hear the tick-tock of Al-Qaeda-style terrorism counting down to catastrophe. In Britain an attempt to build a chemical bomb was disrupted, then a plot to stage suicide attacks and provoke mass panic in a soccer stadium was stopped. In Jordan, terrorists plotting to set off an enormous toxic explosion were rounded up. Saudi Arabia stopped several bombings earlier in the month, but missed the terrorists who blew up one of the internal security service’s administrative buildings. In Syria, just last night, running gun battles echoed along the streets of embassy row in Damascus. In Thailand, meanwhile, more than 110 people died in what looked like an abortive uprising by Muslim zealots. “The air is too hot,” says Justo Lacunza-Balda, who runs the Vatican’s well-informed Institute for Arab and Islamic Studies. “I have this impression that something very big is being cooked.”
[emphasis added]
***

The best part is the story at the end about the servant, his master, and the Appointment at Samarra.

Whatever you think, clearly "pockets" have no business being in the language of government pronouncements here. Government has to put the best face on things. That's not lying, that's it's job. To reassure and calm people for hard tasks. However, calling the fighting in Fallujah "pockets" is not putting the best face on things, it's gone over the edge into denial.

This is pretty clear from Billmon's exposition of how fast Iraq is falling apart and how quickly people are picking up on it. It may seem like a long time, but remember it took well over a decade for Vietnam to completely fall apart, and it's taking Iraq just over a year.

When nearly half the country says that invading Iraq may have been a mistake, you can't rally them to help fix the problem by talking about "pockets". They want the President to level to them, tell them how it really is, and how to fix it.

Wednesday, April 28, 2004

Another conservative sickened by this Administration's policies ed, Issue 8


Rather than a single apocalyptic shove in Fallujah and Najaf (both in Slate), it seems that we're bringing them to a slow boil according to MSNBC.

Meanwhile, Kevin Drum discusses a conversation with a conservative friend that echoes a lot of conversations that the oldman has had recently.

***
I had lunch today with a longtime friend. He's a Bush supporter and strongly favored invading Iraq.

At least he used to. Today, though, before I could even get a few words out of my mouth, he started shaking his head. There's nothing more we can do in Iraq, he said. Bush's planning was hopelessly bungled. It's a complete mess.

***

The problem with this? Well just like my friends, he won't turn to Kerry to vote. So he might not vote at all or vote for a third party. Given the electoral college setup, the Republican lockdown on the South, and the soft numbers for Kerry this virtually ensures barring a major shift a victory for Bush in November.

The title could be "disgusted with Bush, but dislikes Kerry" on any number of conversations I've had recently.

This positioning is reflected fairly well in the polls as reported by Dan Drezner quite well. Mickey Kaus in Slate has mentioned it as well.

First of all, the election is still many months away. Second of all, we all know Kerry is a finisher. He certainly finished off Dean my preferred Democratic candidate.

However, what we can say is that the general public does not yet view Kerry as a viable alternative to Bush. This is a perception issue and can be changed, however as Buehner notes convincingly on a post that Kerry has a far left flank he has to worry about - Nadar.

Right now Kerry is campaigning about the loss of manufacturing jobs. I'm not saying he should ignore the economy, but I think his campaign is wrong in order to feel it can lay back and let Bush dominate the headlines. If you will remember, it took weeks and weeks of concerted pressure, multiple attacks, focusing press scrutiny on the tiniest verbal errors, and various self-inflicted gaffes in order to weaken Dean sufficiently so that his momentum was stalled and Kerry and Edwards could step in to take over. In a matchup with Bush, Kerry won't have the benefit of several other candidates focusing fire on Bush. He's got to stand up and show that Bush can't just push him around or say anything he wants about him - through proxies of course.

Without a stronger plan on Iraq than simply "talking with foreign countries", he's going to be percieved as a weak leader. Let's face it, while Americans appreciate and like the support of other countries they expect their President to be able to act independently. There are historically good reasons for this expectation. I mean who exactly was backing us up in WWII? Korea? Cuba? Vietnam? Win or lose, we had to basically single-handedly carry that fight almost entirely by ourselves in each case. Yes the Brit's held out against Hitler, and the Soviets bogged down the German army in their Eurasian land-war and Russian winter scenario but it was the United States that toppled Hitler and defeated Japan.

The "go it alone" attitude is a direct extension of several generations living with the simple reality that the United States must be able to carry out and finish off its overseas military commitments by itself with only minimal assistance from allies. This explains why Bush has been so successful in snubbing other nations. The people of the USA don't want a rude President, but they expect one who is able to operate independently of the approbation of other countries.

Tuesday, April 27, 2004

The man behind the curtain, Wizard of Oz edition Issue 1

Today we are at a startling crossroads of history. While some may debate the legitimacy of the policies in Iraq, there is no question that the effect on the sentiment of the people in those regions is inflammatory. "Security and intelligence officials are convinced that further major acts of terrorism are being planned in several countries - especially, but not exclusively, against American, Israeli and British targets."

Meanwhile as the spies all say that they can do the job, the truth is in fact that they can't do the job. I guess it's our fault for not holding their feet to the fire however.

If Condi has lost her perspective, she should step down. Her job is not to protect the President if it means getting in the way of giving him the information that would allow him to protect the country.

The oldman has made his case before for a more robust intelligence operations capacity, and it is showing now more than ever in its lack. What we do not need is to blast our way into Najaf using the blunt instrument of the military. What we need is what one friend of mine said more lessons from the Mafia. Sadr needs to be deposed by a locally funded army, or to be conveniently found floating face-down in his bath one morning. This is something only a truly functional foriegn operations directorate can deliver however.

The thought that like the critiques of the Sopranos we might be sitting back and saying "we need more murder" to make it work better might seem cold-blooded and evil. Let everyone be reminded however that the cost of doing without such a capacity is not a care-bear kind of world, it is kids like this getting shipped back home so that their families can make their peace before pulling the plug.

If there is a choice between Americans dying and foreigners dying, I pick Americans over foreigners. If there is a choice between many dying and a few dying, I pick the few to die. It's a remarkably nationalistic and utilitarian philosophy. What it requires however is a lot of responsibility and personal insight.

Certainly various delusions and johnny come lately confessions of reservations can't however hysterical the accusations argue away the disaster that were predicted well before hand by arguing for more time to follow policies that are equally likely to end in tears.

Meanwhile on the ground, kids pay with their lives and their limbs for the hesitation and waffling at the top.

If the US military and Admin knew what it was doing, it wouldn't be sending in AC-130's to strafe targets in Najaf. They're just working themselves up to invade Najaf because they're afraid to back down and they don't know what else to do.

The oldman has proposed plans on how to both get the Iraqis to handle Najaf, and how we can used a beefed US troop presence to train enough Iraqis to stabilize the country.

While I am amused at Swopa's comment on Needlenose that my plans not foolproof , I will say three things. The first is that (a) It's better than the plan now, even if as Swopa states it's because there is no plan now! (b) I've always acknowledged the need for political concessions to make this deal work and (c) No it's not guarenteed to work but it's a sight better chance than merely muddling through as we are now.

If we are going to make this work, we basically have to take a very different stance on doing things. The truth is that there is no Wizard behind the curtain. There is no kind, benevolent government filled with competent cadres of officers that have some sort of plan behind the scenes to put things right. The word coming out from the inside is that "We've gone off a cliff (in Iraq)" and "We're fucked,". Behind the curtain of propaganda there are just some guys in suits who have soft hands and haven't done a lick of work in a lot of years, just like your bosses out there in corporate land, and just like them making silly decisions can calling it planned.

Well we have a chance to set this straight, but only if somebody up on high will show some sense and hire someone behind the scenes and for God's sake just listen to them long enough to do this right. If there's an opening on Negroponte's team, well I haven't signed any commitments for next year and I'm still available.

I'd like to say one thing and that is that whatever my criticism of Daniel Drezner, he at least is facing up to facts. For this he is being attacked as being pessimistic by certain commentators. Maybe they feel that to express concerns is to be disloyal. I consider it the height of loyalty. I don't condone Mr. Diamond running, even if I can understand it as a human being. I'm sure he felt impotent and incapable of saving what he came to feel was a doomed venture.

I for one do not believe that Iraq is doomed. However there is a problem. Acknowledging a problem is a step toward fixing it. Denial is a sure road to disaster. In my mind and heart, speaking out about the difficulties in Iraq is the one thing I can do to help make sure that such a crucial venture succeeds. Also I've made sure to lace my criticisms not just with vague proposals (like seeking more troops from allies) but with concrete doable plans for alternative methods of proceeding.

Anybody who thinks these kinds of ideas are liberal or disloyal ought to read these two articles by the Weekly Standard essentially advocating the more Iraqi training and more boots on the ground. These two issues are linked. The only way more of our troops could be effective is with more Iraqis by their sides, and the only way to get more Iraqis trained quickly is with more of our guys. Now we just have to put the weight of the President's full commitment behind them!

I think that anyone now making excuses for Iraq not going well is just being defensive. It's not about blame. It's about fixing the problem. And if people are too afraid to admit a problem might exist because they're afraid of blame, well that's not leadership. That's the way a juvenile acts. Lying about where you were last night doesn't get the car out of the ditch.

There's a phrase that was taught to me young, that many who are still apologists for the Administration's "subtle" genius ought to learn:

Wishing doesn't make it so.

UPDATE:

Remember when the oldman said that the Admin would go back and screw up Najaf and Fallujah? Well, as it turns out the Admin has begun doing just that.

Monday, April 26, 2004

Kerry medal flap - taking back the initiative

Political Animal writer Kevin Drum discusses the failure of Kerry to get traction on foreign policy. He notes that " think that's exactly right. If the war goes poorly, a lot of people are likely to rally around Bush, not toss him out of office. And that means that if John Kerry wants to win, he has to figure out some genuinely bold and popular foreign policy initiative to identify himself with. But what?"

Well this is something that the oldman has been pushing for a while now, that it won't be enough for Kerry to just show up. Democratic sentiments that Kerry just has to show up and it will be Iraq and the economy that will defeat Bush are sadly proving fairy tales liberals tell their kids.

Meanwhile Kerry is on the defensive about his medals (MSNBC) and he's getting tarred by the media (Talking Points Memo). Instead of whining and calling foul, what Kerry needs to do is to seize the initiative and hit back - hard.

How can he do this?

The problem isn't that Bush is stealing Kerry's ideas, it's that Kerry has no ideas. Clinton had more ideas than Kerry, way more. Even Gore had more ideas. People laughed at them, but they were ideas - like the "lockbox" idea for one.

What about one idea for Kerry? How about criticizing Bush for appointing Negroponte - not because of his past misdeeds - but about his lack of expertise. The Bush Admin is appointing someone with no post-war reconstruction or pacification experience. That immediately creates an opportunity for Kerry.

He can say he's serious about Iraq because he'll appoint somebody with experience. It could be anybody with experience - Anthony Zinni or Wesley Clark - that has the kind of know-how and background to get this job done. That'll then put Bush in a bind, he'll either have to stick with Negroponte who clearly has no experience, or he'll have to find a pretext to dump him.

Either way the initiative will be Kerry's, and he won't be on the defensive like this stupid medals flap. Would that GWB have earned a silver star and a bronze star in the first place to throw them away.

March to War ... Chilly Draft in December?

The Administration as Fred Kaplan reports for Slate is on the path of modernizing the nuclear arsenal of the United States of America.

Meanwhile, Phil Carter for Slate asks if our troops have been stretched to the breaking point? You can see Phil Carter's words on the topic also at his blog the Intel Dump.

Meanwhile Wunderdog blog asks if we could scrounge up $87 billion from forgone tax cuts in order to increase incentives for enlistment and re-enlistment to prevent a D-R-A-F-T.

I would argue that this won't happen. To some extent bonuses for renlistment are already being offered. However, it's much more in line for the philosophy of the ruling cabal in order to (a) defer the decision until past the November and then (b) institute a conscription / draft of eligible males in order to escalate their war machine.

Why pay recruits extra when you can just use Selective Service in order to get all the warm bodies that you need?

You think I jest or exaggerate? Dan Froomkin of the WaPo has shown that the Administration has carefully not ruled out a draft in December despite their rhetoric implying that they don't have plans to do so now.

***
It's become a daily question to White House press secretary Scott McClellan: Does the president support a return to the military draft?

And here's what McClellan says: "That is just not something that's under consideration at this time."

Similarly, Defense Secretary Donald H. Rumsfeld told newspaper executives yesterday that a draft "is not useful to do at the present time."

But that doesn't really answer the question that is being asked: Is Bush thinking about reinstating the draft in the future?
[emphasis added]
***

Remember when the word was that the Presiden't hadn't made a plan to attack Iraq, but it turns out in retrospect according to Woodward that just weeks after 911 that he'd ordered Rumsfeld and Tommy Franks to produce a war plan for Iraq as well as transferring hundreds of millions of dollars without Congressional oversight in order to fund the policy.

Well the President similarly has no policy to institute the draft at this time, except that he is going to do it after the November election and say he suddenly made up his mind. Except that he is already planning to and the Selective Service is busily preparing for it.

***
So, at this point, GW is stuck between a rock and a hard place on the draft. He actually needs to call for it now, but it would be political suicide. At the same time, to keep extending the tours of duty of the men in Iraq and Afghanistan is making him more and more unpopular with the service people and with their loved ones back home. Many wives have gone public, as well as parents who are now questioning the war itself because of the extensions of duty being demanded by Bush and Rumsfeld. Though our government says it has all the troops it needs; there is no way we can maintain the 700 plus bases in the 123 countries and continue these two wars, and possible other wars that may be started by Muslim and Arabs in other countries who are objecting more strenuously to Bush’s policies in Iraq and his new policies in Palestine.

There is no doubt in my mind and in the mind of many other military men that as soon as the election is over that Bush will call for a draft to replenish the armed forces—that is, if he wins. If he loses, it’s hard to say what he might do. If the college students vote against him, he may just institute a draft to punish them for their disloyalty to him.
[emphasis added]
***

In my mind, if Bush loses he will likely leave that difficult choice to Kerry. To be fair, I am not sure that Kerry would not call for a draft. However, White House lies aside it is almost assured that Bush will in fact call for a draft. The writing is in fact on the wall. It's as much as a done deal effectively as invading Iraq was.

I am quite bitter about this, because I believe that the right thing to do is to expand the volunteer army and change the kinds of soldiers we're training for so that the deployments wouldn't be as long for the critical specialties. In the short term, if there is a manpower shortage then the conservation of soldiers applies here and we have to call up more Reserves and National Guard. There are of course more soldiers elsewhere, but we'd have to empty our bases in Europe and the Pacific basin, something the generals are already rumbling about, and this may not be a viable option given the tensions over Korea and Taiwan.

However that's not what is going to happen. An increase in the volunteer armed forces model would create a great deal of cost through the uses of incentives in order to recruit and retain personell. Given the increased costs projected already just to maintain the present force structure, and the unpopularity of the draft the decision is likely to be punted down the road.

Oh and that myth that we are meeting or exceeding the recruitment and renlistment goals? Well they did it by lowering the goals from the year previous. Get it? They reset the goal, and then praise themselves for exceeding it?

Well the absolute number of soldiers recruited is down, year over year, based on my info. Weird how you can take a stumble and convert it into a mighty leap forward by just resetting the goal line right?

And the situation is more dire than reported, which is why the draft is going to come back in style - but only after those pesky November elections are underneath the belt and a crisis is left to brew and everyone will be crying out for more soldiers and the Bush administration will so reluctantly say, ah but if only we had a draft!

And then ever so reluctantly and gravely, both parties in Congress will pass it, because nobody will be to blame because everyone will know we need the draft at that point to win in Iraq!!!

I can see it now. Well I'm too old to be drafted, and my youngest male relative I believe will pass the 26 year old bench mark this coming August so I don't probably have to worry about him getting drafted.

However a lot of good old Americans are going to get screwed by this deal, and their kids are gonna be sent to die, and the poor bastards they won't even know why.

I feel bad for my country, that they're being played for chumps, but maybe that will be what it takes to wake them up from this fevered dream that America seems to be wandering about in shambling and disarranged.

The Top 100 Things I'd do if I were NSA edition, Issue 4

This is an edition of "The Top 100 Things I'd do if I were NSA".

As it turns out the NYT has an article out about Europe's Muslim dillemma.

***
The call to jihad is rising in the streets of Europe, and is being answered, counterterrorism officials say.

In this former industrial town north of London, a small group of young Britons whose parents emigrated from Pakistan after World War II have turned against their families' new home. They say they would like to see Prime Minister Tony Blair dead or deposed and an Islamic flag hanging outside No. 10 Downing Street.

They swear allegiance to Osama bin Laden and his goal of toppling Western democracies to establish an Islamic superstate under Shariah law, like Afghanistan under the Taliban. They call the Sept. 11 hijackers the "Magnificent 19" and regard the Madrid train bombings as a clever way to drive a wedge into Europe.

***

Now since there will be some temptation to blame this entirely upon the appeasement of the Spanish or the European coddling of the Palestinians let me share another two paragraphs from the piece as well:

***
Even more worrying, said a senior counterterrorism official, is that the level of "chatter" — communications among people suspected of terrorism and their supporters — has markedly increased since Mr. bin Laden's warning to Europe this month. The spike in chatter has given rise to acute worries that planning for another strike in Europe is advanced.

"Iraq dramatically strengthened their recruitment efforts," one counterterrorism official said. He added that some mosques now display photos of American soldiers fighting in Iraq alongside bloody scenes of bombed out Iraqi neighborhoods. Detecting actual recruitments is almost impossible, he said, because it is typically done face to face.
[emphasis added]
***

So we both screwed up. Europe found out that no compromise with fanatics was possible, because you cannot do business with suicidal absolutists. America found out that you cannot win by fomenting and imposing false democracies and supporting the bloody and pointless tactics of Sharon. The number of terrorists isn't a finite number, and as Rumsfeld himself had enough perception to question we are indeed creating terrorists faster than we can kill them.

The correct policy would have been a mixture of toughness and softness, conquer and divide. Provide hope, prospects for economic prosperity, and an even-handed policy of justness - Machiavelli's expedient morality principle means doing the right thing when it's also doing the smart thing - combined with a tough security and counterterrorism effort mixed in with targeted assassination. One cannot negotiate with fanatics, but one can "drain the swamp" that produces them and then win by exhausting them in a war of attrition. When they die and are not replaced, when their acts win no greater approbation from the targeted public, and when the greviances they claim are given just redress then gradually their threat will diminish over time.

Instead, sentiments of even moderates are turning away from us (CSM).

However a sophisticated two or three prong programme like this is apparently beyond the minds of the Administration, who comfortably decide that they wish control over creativity. No authentic and genuine foreign leadership can arise that is simutaneously beholden and dependent upon us. The only chance for success is to cultivate friends and allies, and to rely upon the "soft power" of economic cooperation and fostering the cultural values of liberal democracy.

A grevious example of a violation of this is the grevious screw-up in Iraq. As it turns out, the Admin according to Needlenose is reversing course and vascillating regarding Najaf and Fallujah again.

SO WHAT WOULD YOU DO DIFFERENTLY?

How to handle Najaf? One way is to exploit the presence of the Tribes. First of all, we dig up that old scarred warrior of the Directorate of Operations former CIA officer Robert Baer. Then we give him a suitcase with a few million dollars and send him in with orders to the CIA handlers for the Ministry of the Interior to take the weapons he's been stockpiling and put a big chunk of them on trucks. Then we instruct Robert Baer to make contact with the Tribal leaders allied with Sistani that have spoken out against Sadr.

These tribesmen then put together a small army, using the funds provided through Robert Baer and the arms provided from the stockpiles of the Ministry of the Interior of the IGC. How do get the support of said Tribes? Well we'll have to cut a deal for definite elections using this plan discussed at Needlenose. Yes, we'll be capitulating to Sistani but we were anyway according to the noises coming from Washington and a good principle in life is that if you are going to have to give something up anyway you might as well cut a deal so that you get something for your concessions instead of coming home with nothing! Sistani will then direct the tribes to cooperate with us.

The tribes will put together this small army and having been armed and funded by us, they will sweep into Najaf. First of all, since they will be Iraqis operating "independently" we'll have Plausible Deniability and Sadr won't be able to claim that they're American agents. Second of all, Sadr won't be able to cry foul politically since we'll make an announcement capitulating to Sistani regarding real elections. Third of all, the Tribal forces will clean out Najaf of all weapons and restore it to a religious neutral zone - part of what they give us - and the second portion of their part of the deal is that they will take Sadr into custody and turn him over to the tender mercies of the Hawaz seminary where they will put him to the task of memorizing the Koran and reciting it until he has mastered all their chants. I figure it'll be the equivalent of a 25 to life sentence of hard labor here in the States.

If people who are reading this have an objection to bribing officials in Iraq and stage managing this sort of political event, let me make it very clear that we are already spending millions bribing Chalabi and the members of the IGC. We just aren't getting anything for our money.

You can pick the pieces out of an excellent Economist article buried in the middle of Col Lounsbury's post here indicating who on the IGC is worth their money - hint they're the ones that gave up on us.

So given the fact that we're already spending millions - as in tens and hundreds of millions bribing people in Iraq - wouldn't it be sensible if we were to actually put together a plan to actually get something in return for that money?

We need somebody who we can do business with, and we need to realize that we have to choose between (a) incompetent and corrupt officials whom we can control but whom cannot deliver and (b) independent autonomous leaders who will only cooperate with us insofar as it serves their interests but who can in fact deliver.

Can we trust them? No. I'm sure they don't trust us either. However if it is in their rational best interests and we pitch it in such a way that they have a reasonable interest in cooperating - if they welched we'd have a good excuse not to implement elections which they want afterall - then they will go along as long as they think they can get ahead and remain independent.

What we get in return is a pacified Iraq, a commitment to a moderate Shiite religious influence, and a way to get back to the bargaining table for a negotiation about the disposition of Iraq's political future.

Right now that's a long sight more than we got at the present. If somebody is out there listening to me in the White House, stovepipe this right away to the NSC because we need to get the gears moving on this right away. In addition, if Robert Baer is drunk we're going to have to have 48 hours to get him dry and up to speed before we send him in-country.

So what are we waiting for? Too bad this plan won't be actually implemented. The White House seems to have a fetish about indecisiveness, reversing themselves, and not having a freaking clue about what to do when the going get's tough. It's easy to make abstract pronouncements, when the rubber hits the road that's what counts.

As a bonus point, read here about the Congressional testimony as reported by Juan Cole and his analysis of the intra-party dynamics of Republican beliefs. As a conservative, I would have to agree. There are concerned Republicans, like Lincoln Chafee willing to stand up to the truth, but the opinion leaders are more like Sanotorum and Brownback. It's an ugly thought. As Max once asked me, did I ever feel like the last of the Mohicans?

Hell yes. More and more I fear that the Republican party of yester-year, the party whom I found intellectually, pragmatically, and morally impossible not to be a part of is slowly disappearing. Instead we have this partisan b.s. that can't get the job done.

Sunday, April 25, 2004

As I was saying ... Showdown in Fallujah and Najaf show Admin really is dumb as critics say

MSNBC reports that US soldiers poised to enter Najaf and Fallujah.

***
U.S. troops will likely enter parts of Najaf soon in a move to clamp down on the rebel militia of a radical Shiite cleric but will stay away from sensitive holy sites in the center of the city to avoid rousing the anger of Shiites, a U.S. general said Sunday.

Shiite leaders have warned of a possible explosion of anger among the country's Shiite majority if U.S. troops enter Najaf, and until now U.S. commanders have been saying troops had will not go in.

***

Well that just about does it. As the oldman said, he retracted any admission of error on the theory that any Administration clueless enough to hire Negroponte is stupid enough to fuck up Najaf and Fallujah. Well here we go, just as the oldman said.

Too bad they don't read the Weekly Standard. It's got a sensible political plan for going forward in Iraq.

Some of its suggestions include... repeat several times each day: "If we lose the Shia, we lose Iraq." ... To add extra clarity, labels could be put on the CDs saying, "We lose Sistani, we lose Iraq." ... Ultimately, however, Sistani and the Hawza must handle Sadr. ... The United States simply cannot afford to engage in siege tactics. ... This means, first and foremost, don't attack the holy city of Najaf.

Interestingly enough, the first and foremost prescription on the list of "must-not-do's" is the exact prescription that the President turns to first - attacking Najaf.

Crazy isn't it? You'd almost think that they were attempting to do the most stupid thing possible?

Sunday meditations, Issue 4

This is immoral.

***
For the Bush administration it has been a mantra, one the president intones repeatedly: America's troops will get whatever they need to do the job. But as Iraq's liberation has turned into a daily grind of low-intensity combat—and Defense Secretary Donald Rumsfeld grudgingly raises troop levels—many soldiers who are there say the Pentagon is failing to protect them with the best technology America has to offer. Especially tanks, Bradleys and other heavy vehicles, even in some cases body armor. That has been the tragic lesson of April, a month in which a record 115 U.S. soldiers have died so far and 879 others have been wounded, 560 of them fairly seriously. Those numbers greatly exceed the tallies in the combat-heavy weeks of the invasion last spring...

...A breakdown of the casualty figures suggests that many U.S. deaths and wounds in Iraq simply did not need to occur. According to an unofficial study by a defense consultant that is now circulating through the Army, of a total of 789 Coalition deaths as of April 15 (686 of them Americans), 142 were killed by land mines or improvised explosive devices, while 48 others died in rocket-propelled-grenade attacks. Almost all those soldiers were killed while in unprotected vehicles, which means that perhaps one in four of those killed in combat in Iraq might be alive if they had had stronger armor around them, the study suggested. Thousands more who were unprotected have suffered grievous wounds, such as the loss of limbs.

***

This is delusional.

They're trying to collect donations to help the people of Iraq when our soldiers are dying because of the lack of armored humvees and even body armor.

That is deluded. That the Administration wants to play pc politics with this when our guys are dying but they refuse to ask for the money to make things happen is immoral.

I don't think I can possibly bring myself to support an adventure this immoral and this deluded. That's my Sunday meditation.

Sunday Meditations, Issue 3



We are at a unique cross-roads in history. As Americans we have been woefully slow to mentally adapt to the new world. Instead of engaging with it, and changing the way we do things we have instead retreated within the tried and true rhetoric of false nostalgia. The British are often portrayed as being stuffy and traditionalists. How ironic then that it seems more and more likely that the British will have adapted more quickly than us supposedly more innovative Americans.

How can I assert such a thing? Well Britain has already foiled a major Alqueda plot aimed toward them this year. So far by all considerations, the betting money in the oldman's odds is against the US foiling the plot probably being put together this very moment against us. We have wasted the time given us this past two years to reform our intelligence and criminal agencies.

What we wanted was hard hitting effective intelligence agencies capable of getting the job done. Instead Tenet told us that it would take another five years of recruitment and training to rebuild the covert operations wing of the CIA. In addition, Coleen Rowley had a recent Time Magazine article arguing against the creation of a MI-5 like domestic intelligence agency.

Don't get me wrong, like Freeh's comment indicated I view secret police with suspicion. But Rowley's article was also supposed to mention how we could change the culture of the FBI to improve it. Well she ticked off many reasons why the FBI was good as it was, and MI-5 like agency would not be able to surpass it. Then when she got to the point of suggesting what could be done to improve the FBI, she just kind of petered out and had nothing to say.

It was at that moment that I became a believer in creating a MI-5 like agency. The one thing I can smell a mile away is moronic mendacity, and if this was the best the FBI had to offer, well then the FBI as we knew it simply had to go.

She had convinced me in a way that no proponent of the proposal ever could.

Since given the incompetence of our intelligence agencies, a successful terrorist large-scale attack within the borders of the United States is almost assured before the year is out and we've squandered the past three years as an opportunity to reform such agencies let's take it out of the framework of politics for a second.

What as we as Americans have come to? We used to be the can-do people, and all I hear now is the sound of "We did the best we could,". Well Sean Connery's character "James Mason" has some pithy words about terrorism, from the movie "The Rock." by Jerry Bruickheimer and Don Simpson.

You can listen to it at this site.

What he says is:

"Losers always whine about (doing) their best. Winners go home and fuck the prom queen."

Well that's what I have to say. I don't want to hear about our intelligence services "doing their best". I want to hear about them getting the job done. Sometimes being philosophical is cast as being effiminate or unmanly.

Well as it turns out some of the philosophers I most admire - Socrates, Marcus Aurelius, Sun Tzu, etc. - were war heroes. They were war heroes not just because they excelled at the art of war, but that they were able to take something as messed up as war and find a higher purpose in it that transcended the carnage and lead them to lessons about life.

Life is too precious to waste. We should have learned that on 911. Life is also too precious to waste on whining excuses. We are Americans. We could and should have done better by the memory of our dead, and by our precious regard for our own skin, by taking "care of business" and getting the job done as far as fixing our internal problems.

Now Alqueda is going to come along like a leering stalking buggering sodomizer and we are going to get caught bent over with our pants around our ankles.

Well that's just not acceptable. I don't know how things are going to play out, but I do know that if some of the vascillating ass-kissing bastards in power would just get out of the way there are those of us out there that could fix this problem and get the job done.

There is no excuse for this kind of failure.

And that's my meditation. Most of the time my meditative contemplations are more along the lines of enlightened rationalism and how we can all get along and fix things and find sustainable new innovative technologies in order to expand our civilization and change our way of life to one more smart, sensible, and sensitive to the limits of our resource-limited environment which we should share with all the people of the earth.

Today I'm just fucking pissed off because we got a bunch of know-nothing do-nothing numbskulls in charge that couldn't protect themselves from a spitball much less a terrorist attack.

Okay that's my Sunday meditation.

Saturday, April 24, 2004

What the #@$%^*&#!!!? Iraq and Economy, oui vey!!!



Before I explain my reaction, first let me discuss some news from Iraq. MSNBC reports a ratcheting up of violence. The oldman also heard a BBC interview on the radio recently that the attacks on the oil ports there finally has the oil industry in a tizzy and Stirling Newberry has a good post up at the Agonist discussing why such anguish on behalf of the purveyors of black gold.

Next for those who are still saying that the anti-Bush coalition should stay calm about Kerry's current fortunes, they should read two articles. The first is Joshua Marshall's post on why Kerry's strategy is a smart strategy. The next is Ellen at BOP blog wringing her hands about what the oldman would call the painful absence of anything remotely resembling decisive leadership or charisma in Kerry.

As a personal note, the oldman would like to add that he had a depressing phone call with a friend of his who works in New York last night. To put it in perspective, his old buddy and former roomate once upon a time was a rural raised Republican former Illinois farm boy turned scientist. Well the oldman's buddy had before actually registered Democrat in order to vote for a Democratic candidate, but now he called me with sad news.

"I'm sorry but I just can't vote for Kerry." was what my buddy had to say. I told him I couldn't blame him. The oldman while not believing that Bush is better than Kerry, understands that most people need more than a "lesser of two evils" argument to vote a guy into the Presidency. While people may be terribly disappointed in Bush, Kerry's problem is that people don't have much good to say about him besides his former war record in the first place. And this my compadres is a problem. Kerry has no buzz.

Those who suggest that Kerry isn't in trouble ought to take such an anecdote to heart, because it's not the first such sentiment that the oldman has heard along these lines recently.

Depressingly along the lines of Iraq, we have more stories about how our boys in Iraq are getting shafted big time back on the home front (NYT).

"If he doesn't come back soon, we're going to lose it all, and he's going to have to start all over again," said Ms. Johnson, who works full time as an insurance adjustor. "He's proud to serve his country, but the Army doesn't seem to care about him or us."

Not to take anything away from the suffering of military families and with all due respect for the men and women in our armed forces serving overseas, let me take an irreverant moment to note that Mrs. Johnson is in my POV pretty damned attractive as a lady.

Meanwhile in Iraq, we're ticking away the count down to the explosion in Fallujah I've come to resign myself as expecting. This one sentence summarizes the clueness of the Administration "In Washington, officials still describe the fear of uprisings in Iraq as a theory, one they say may be overblown."

When the oldman earlier predicted an explosion in Iraq regarding Najaf and Fallujah, and there seemed to be a last minute reprieve in both cases, the oldman initially made some noises about admitting making a mistake and then retracted such an admission. On the same day if you will recall, the Bush Admin announced the nomination of Negroponte to head the US Embassy to Iraq and the oldman promptly took that as a sign that the Admin was so clueless that they would find a way to go back and totally screw up Fallujah and Najaf. And now, right on cue, they are doing just exactly that.

Right now as the NYT reports the word on the street in Iraq is "Iraqi first; Sunni or Shiite second." This being the case, going back and dealing with Fallujah in a heavy handed way is merely going to cause a rallying point inside Iraq.

Of course they have to go in and do it, but they have to work (a) hand in hand with Iraqi troops (b) work on pincering, cordoning off, and then clearing Fallujah one house at a time (c) use when appropriate non-lethal weapons such as rubber bullets, etc. to minimize collateral civilian damage.

A good example of such methods is the British progress into Basra last year when they took the city despite resistance which turned what could have been a bloodbath into a relatively minor situation that blew-over and whose situation has been one of the more stable cities in Iraq since that time. Calling in artillery or airstrikes and using vehicle weapons is a big no-no. Undoubtedly the Bush Administration will go in shooting first and sorting out the bodies later.

They could learn a great deal from the Astronaut's prayer:

"Dear God, please don't let us screw this one up!"

SO WHAT'S UP WITH THE #@$%^&#!!! REMARK?

Via the Washington Monthly blog of Kevin Drum, we see this chart of a divergence between Industrial Production and GDP. Kevin Drum get's the reference from the premeire economic blogger Nathan Newman who has further analysis from the chart taken from the Economist.

The headline from the Economist is "Grossly Distorted Product: Are official statistics exaggerating America's growth?"

The answer is of course: YES

As the oldman has maintained on this blog and for a long time, official growth numbers are way overstated. This seems to be the final nail in the coffin since as the Economist, hardly a liberal outlet, notes that the Industrial Production numbers are more accurate since they're taken from reports taken from various industries as opposed to estimates made by bureacrats at the offices of the government.

In other words, Greenspan is all hooey and what the oldman and others have been saying all along is correct - the economy was significantly weaker than official numbers indicated the past four years, that jobs numbers were not understated but rather reflected the actual economic state of affairs, and that inflation has been massively understated since it is only by understating inflation and overstating productivity that the bad numbers could have been created. In addition, liberal economists like Brad Delong who essentially buy into the official numbers even if they criticize the Bush Administration still have egg all over their faces.

As it turned out, those who have had to make real decisions regarding the market have had to cobble together our own numbers and estimates and in retrospect these now seem to have been completely vindicated.

One of my more regular readers, Jim Coomes, asked below how I come to the conclusion that this is a late surge in a top-heavy economy about to undergo a turnover. Or as he put it so colorfully, the last "sucker's rally". Well Jim, the answer is that you have to look at a variety of indicators and believe the ones that agree with your own experiences, and you have to widely sample people of different backgrounds and businesses.

Most people choose to congregate narrowly with people from one background or one area. The oldman attempts to associate widely with people from many career interests and backgrounds. One must always believe the reality of one's empirical experiences, if carefully spread out so as to be fully representative.

Putting together the trail of evidence this time, most of the positive economic indicators are associated with real estate development. However as commentators have written, interest rates are under pressures that will move them upwards by at least two and a half and possibly more percent in the upcoming months. Mortgage rates are already rising, up a percent or so for the 30 year mortgage yields already.

Also in my practical experience, costs are rising much higher than the government is reporting - a measy 2.5% for the core inflation rate and a 5% overall including energy and food is understating things.

Given that rising interest rates will cause the real estate development, which everyone practically agrees is at bubble like price speculation levels, to rein itself in considerably then this part of the economic engine will knock off. In addition debt levels at individual levels are quite high, and defaults and bankruptcies are up despite Congress having tightened conditions for declaring bankruptcy last year.

The real economy then is in a final stage liquidity extraction scenario, as can be seen in reports of the money supply. As this Quicken article explains, money supply is a measurement of economic activity or deposits made to put it more crudely.

***
It may be intuitive to suppose that the money supply grows when the government prints currency. But in fact any money held in a bank or Federal Reserve vault that isn't in a customer's name is not included in money supply. So when currency is printed, it doesn't get added to the money supply until it's needed. (This will be important when we talk about the Y2K issue next week).

However, at any given time, there is a finite and an approximately calculable amount of money circulating in the economy. This is the money supply.

Still with me? Good. ... the effect of a shrinking money supply is to choke off the stimulus necessary to keep an economy expanding. The Fed tries to allow for enough money growth to sustain economic prosperity, but not so much as to cultivate inflation.
[emphasis added]
***

Well the Federal Reserve Statistical Release indicates that money supply last year at about the same time grew year over year at 6.5% and this year it grew at 4.5%.

Still with me? But as Krugman wrote in the NYT about recently about inflation that "...in the first three months of 2004, prices rose at an annual rate of more than 5 percent. That number included soaring gasoline prices, but even the "core" price index, which excludes food and energy, rose at a 2.9 percent rate."

Got that? So if money supply only grew at 4.5% and inflation grew at 5%, that means that the real economy shrank by 0.5%.

Where is the money going? Well as the Quicken article points out "in fact any money held in a bank or Federal Reserve vault that isn't in a customer's name is not included in money supply."

So the money is going into higher price increases and since the higher price increases include asset valuations ... we have the money supply getting sucked into large real estate and stock market asset valuation bubbles. When those "correct" due to higher interest rates, and we've established that higher interest rates are coming then the "liquidity extraction" phase of the economy will occur as those bubbles are pricked and the released money is "extracted" in the form of rapid asset devaluations - firesales in other words. Not everything will go into firesales, just the most interest rate sensitive assets like junk bonds, speculative real estate development, etc.

Another sign of liquidity extraction? How about good old-fashioned capital flows.

A lot of individual people will probably be rolled up since the number of people who are unable to service their debt will be at an all time high due to the expansion of consumer lending throughout the recession and the racking up of consumer debt.

It isn't helping that tens of thousands of families throughout the United States are being affected by our ongoing deployment. Remember each of those deployed soldiers have families and the number of families being disproportionately punished by the extended deployment is increased because the National Guard and Reserve Families don't expect such long deployments.

The most recent word is that some of those "weekend warriors" may end up serving 22 months in Iraq. Twenty two months! No wonder why their families are going under. Given that most families are two income households and have to take quite a hit in income since their military pay is much lower than their average civilian income ... and you have a recipe for bankrupting tens of thousands of families in the next year or so.

If Bush expands the call-up to include the rest of the National Guard and Reserves, this could be amplified many times over. If he wins the election, still a gloomy possibility to consider, he's likely to call for a draft in December - which the Administration all B.S. aside has not ruled out. What would he have to lose at that point really?

Think about the economic carnage that would result in, a D-R-A-F-T. To be fair, I'm not sure Kerry wouldn't do it either, but it just shows how the average American is pretty much screwed from the get-go here.

We also should consider that two-thirds of Americans according to a recent poll believe that there will be a major terrorist attack before the Election. I wrote in the aftermath of Madrid 11-M that this would likely be looked back upon as period of escalation leading up to a major US terrorist strike.

Well since then, there has been a foiled terrorist attack in Britian where they stopped a plot to blow up a soccer stadium on live TV meaning possibly hundreds of deaths there. Also Jordan stopped a major chemical bomb attack that by their estimates could have easily killed many thousands. Finally Saudi Arabia had a successful attack performed upon them by terrorists.

Remember that Alqueda tends to attack in streaks. The pattern of the attacks also picked up after an announcement to that regard by Al-Zawahiri. We could see an attack on the 4th of July or maybe 7-11-04 this summer, perhaps a big dirty bomb attack in Chicago, something requiring a major urban evacuation exodus.

So as an economic event that would probably be major, and with a top-heavy stock market looking for an excuse to plunge beneath 10,000 ... well let's just say that the oldman's money is in his savings account right now and it's staying there for a bit.

Friday, April 23, 2004

Another conservative sickened by this Administration's policies edition, Issue 7



FIRST THE GOOD NEWS

Thanks to this outraged poster Guy at Atrios' blog, I've stumbled over some great Republicans against Bush websites!

Here is the National Republicans Against Bush Meetup page, where you can scan for similar minded fighting mad Republicans who won't take it laying down in 634 cities across the United States!

Here is one person's Republicans Against Bush page.

Here is a Republicans for Kerry page with a database of registered members. Here is a Republicans for Kerry blog dedicated to shifting conservative or swing voters to vote for Kerry. And here is the Republicans for Kerry Yahoo Group and as of April so far it seems that it had about 1500 messages in it. Even given repeat posters, it's nothing to sniff. It's certainly more than the number of votes that GWB skinned his teeth by in Florida to obtain victory and tip the electoral college in his favor.

THEN THE BAD

Needlenose blog which is moving its site today has a post analyzing some news stories that indicate that GWB supporters seem to have their minds up whatever the evidence says. Also Billmon's analysis indicates that Bush is rebounding in the polls due to weakness on Kerry's part in the public perception department.

So apparently a lot of people have their minds stuck on supporting Bush or at least dissing Kerry, and Bush is winning out in the lesser of two evils ethics contest. Since the President's favorability and approval numbers are falling, we can only assume that his demonization campaign of John Kerry is in fact paying returns despite costing tens of millions. In addition, let's not underestimate that the the economy is in fact picking up even if its a late surge in a top heavy cycle about to get turned over.

Being a "I told you so," kind of person, the oldman would like to point out to Democrats that indeed he had "told you so." Back when GWB's numbers were getting shakey, a lot of Democrats were saying that all John Kerry had to do was just show up and the old one-two punch of the economy and Iraq would K.O. the master of disaster Bush himself.

Well as it turns out, that was rather wishful thinking, if well intentioned. People still want leadership. (MSNBC)If Kerry won't provide it, even us Republicans who've crossed the party lines won't be able to help his sorry arse.

If Kerry is out there reading this blog, get your head our of your arse and start leading. You were better when you were angry. This snotty sniping stuff is not making the cut. If you can't defeat Bush while he's got this Iraq albatross around his neck and half of America believes that the terrorists are winning while two thirds expect a major attack before November, then we are going to get stuck with GWB for another four years.

It's bad when Charles Krauthammer is having to give Kerry (good) advice. Doesn't that guy need blood transfusions? Or does he just suck it out of his victims fresh like my hero Kissinger? Talk about an old vampire!

Sorry, the Republican instincts showing there a second.

If GWB wins, I hope Democrats will finally admit that their party needs a major overhaul from top to bottom because they are in danger of extinction. If a Democratic candidate with a pulse and a high school diploma and no felony record can't beat beat GWB under these conditions, I'd have to ask under what conditions could a Democrat expect victory? Let's not go there.

Casual Friday Philosophy edition, Issue 1

I.
Oldman prediction review


Well, as it turns out USA Today has some spiffy articles out that agree with the oldman. First there's an article about whether or not there's a Housing Bubble, and then right next to is a "your money" article reciting all the reasons why interest rates are going up soon.

In fact, mortgage rates according to USA Today are already going up. With mortgage rates rising and prices already high, there's nowhere for them to go but down. I don't subscribe to a view of a mass bankruptcy scenario at this point, but the industry is going to get bogged down in a slump as people have paid high prices on low fixed interest rate mortgages and can't recover the costs at market prices and so will be loathe to sell unless forced. With the fifth straight rise in 30-year interest rate yields I think it's safe to call it a trend.

With durable good purchases rising, Greenspan will soon have no excuse but to raise the Fed Funds or short term interest rate for overnight bank loans. Estimates vary but they will likely rise to 3.5%-4.5% from about 1% currently. The rest of the rates including savings and mortgage prices will probably rise as well following that. This will push the DJIA below 10,000 if it doesn't beat that watermark all by itself.

Meanwhile the US plans to deploy deathsquads, or in Pentagon speak elite military native counter-insurgency units.

That's not the right way to do things. The right way to do things is to set up a regular army, build barracks with family housing units, embed US units with the Iraqi units, and do joint patrols and check-points. Only by building unit cohesion, allying them through daily cooperation, and using them to bridge the language and cultural barrier in field operations can we successfully help the Iraqis and save ourselves from grief.

The kind of people who are going to sign up for these elite squads don't come from nowhere. They're the same kind of guys who did the bully work for Saddam when he was in power. Ditto for their intelligence side. So it's official. The United States of America is getting back into the deathsquad business. "The U.S.-led coalition is recruiting Iraqis for an elite volunteer unit that would fight fellow Iraqis resisting the occupation of the country." That'll do wonders for morale and local sentiment toward us.

Actually in my scheme of joint patrols, we would eventually send in military videocamera guys to do a "COPS": IRAQ version to show how nice and civilized we can be using joint patrols. I can just hear the music now ... "Bad boys, Bay boys, whatcha gonna do? ... When the Cops come for you!!!"

But I get tired of screaming at the idjits in the White House. They are going to have to find out the hard way. Just like the best way to take Fallujah is to send in large numbers of ground forces, pincer off, cordon, sweep, and search building by building and using scanners, sniffers, and non-lethal tech like tear-gas to flush insurgents or rubber bullets in hostage situations. However they'll probably just roll in there and level the place. And then try to bribe the locales with $77 million in reconstruction money afterwards. Really. That's their plan now, to spend that money in Fallujah to buy off the people after they level the place.

Clueless gits.

II.
A FRIEND IN NEED IS A FRIEND INDEED,


A blogger whose been friendly toward me is Akim of Empty Days blog but recently he's posted some rather depressed writings.

***
Perhaps I am not in my right mind after all. When the whole world says one thing and your mind says something else, that's alienation - classical.

The failure of imagination to extricate oneself from an over-powering nightmare otherwise known as the picture of the world. I certainly did not paint that picture - yet at the same time it is all distinctly mine and there is nothing to suggest that it is shared by anyone else on the entire globe. Interesting. I'd like to know how the mind is supposed to overcome its own creation.

***

Hopefully the writing itself is therapeutic but as it turns out Col Lounsbury is in a foul mood as well.

Well I can't really do anything to fix their problems directly, but I would like to offer a meditation.

Recently a friend of mine, Beth a school teacher in Des Moines, asked me do whether I think money and power really matter in the end? It would have been easy to dismiss the question. I mean clearly wealth and influence can improve one's health and institute social policies that one believes in. On the other hand, I was struck by the images of average Iraqis either looting archeological dig sites or enjoying the splendour of the artifacts in museums.

Indeed as the Romans used to say, all is vanity and as Shelley put it so poetically in 'Ozymandius' the mighty become dust as everyone else and empires that once loomed tall crumble into dust.

Sting also has lyrics in 'Mad about you,' that tell of

"...a city in the desert lies
The vanity of an ancient king
But the city lies in broken pieces
Where the wind howls and the vultures sing
These are the works of man
This is the sum of our ambition
"

So is that all there is, fatalism and the passing away of all we know in time?

I think judging our works by far future events isn't the right standard however. Indeed, as GWB so succintly put it, we don't know how history will judge us since we'll all be dead. Yet something else is as profoundly true. It is that the everyman, the ordinary guy whether raiding ancient digs for artifacts or the Iraqi citizens standing before the splendour of the restored artifacts on display is the inheiritor from the past. Montuzuma's descendents and the kith and kindred of his descendants all live everyday with the consequences of his choices, good and bad. The everyday life of people is shaped by the choices of the past, and the common folk are the heir good or bad of the results produced by previous choices.

Today in America, who is the true benefactor of the Founding Fathers? Isn't it the average guy, especially the Rush Limbaugh loving guy who get's to live in a free and prosperous country that at least struggles to be just and preserve individual rights? That is their legacy, that each and every American great or small can enjoy the works of those superlative as well as very human men who achieved something quite profound and left a historical legacy that has endured well over two centuries now.

In the present moment in Iran and North Korea, there is an entire generation who has come to live their everyday life shaped in either restriction or dire famine in the latter's case by the choices made by their father's and their grandfather's. The forces that made the present day political structure were one's made in the 60's, 70's, 80's, and 90's. In the United States it is still the Baby Boomer and Vietnam War generations created by post-WWII conjugal procreation that enjoy unchallenged political power.

In this struggle is the hidden and not-so hidden hands of many intellectuals in many fields, many politicians, many leaders, businessmen, and ordinary people whose sometimes clashing and sometimes chorusing cacaphony has brought about our present day with all its warts and flaws. The attitudes of the American public toward politics were shaped in the curriculums of high-school history classes in the 1970's and the 1980's. It is not an easy thread to follow, and it is not a simple or entirely beneficial one.

III.
THE TIME THAT WE HAVE BEEN GIVEN


However the story of history is the story of big messy clusterf*cks. In the words of Billy Joel's song "We didn't set the world on fire,"

"...We didn't start the fire
It was always burning,
Since the world's been turning.
We didn't start the fire
Well we didn't light it,
But we tried to fight it.
"

In the words of Gandalf the Grey, we might indeed wish that great burdens had not fallen upon us but then again "... so do all who live to see such times. But that is not for us to decide. All we have to decide is what to do with the time that is given us."

Every generation has its challenges, and the greatest challenges of the 21st Century have only begun to reveal their true forms. The quest is not for a perfect world, or even a perfect understanding of the world. The quest is for a perfect peace with how we have lived within the world. We are the heirs of yesterday, and our deeds the endowment of tomorrow. They will have their own cares, and look back and wonder how we muddled through our messes. Even as we look back and wonder how the past generations muddled through theirs.

This is not an argument for fatalism, rather the reverse. This is not the best of all possible worlds to recall the criticism of Voltaire, it is the world that has been fashioned for us by the past. If we would fashion a better one for tomorrow, then it is up to us and no other. "All we have to decide is what to do with the time that is given us." Every decision counts, and I am not the least among the shirkers.

Long have I walked strange paths, and studied odd wisdom, hiding myself away from a world I did not care to frustrate myself upon and did not believe could be convinced to see sense. All things spring from the consciousness, from the fundamental qualities of character and the aptitude of the psyche, that each person cultivates and encourages within themselves and others. Give a wastrel a fortune and he will waste it or worse than waste it - destroy everything about him with it. Give a wiseman a mere mote, and he will build that tiny gift into a legacy to endure for many generations or touch the lives of many.

I think I've been a little bit of both. Let me share a dream I had a few nights ago.

In this dream, I was sitting on the pews of the Calavinist church that I'd attended as a youth. During my fidgiting during the sermon the shoe on my right foot came off. Well I couldn't find it as I turned around and about. Well finally I had to stop looking for it, putting it off until later when I could get down and look beneath the pew. Then the congregation passed the collection plate and I put nothing in it because I thought I didn't have anything to put in, not even a quarter. A bit later after the song, they passed the plate again. This is something they actually did once in a while, passing the kitty twice especially if there was a special cause that they were taking collections for. Well this time as the collection plate came to me, I reviewed my dressing myself that morning and passed on the plate absolutely convinced that I had nothing to offer at all. Then one of my hands snaked down to check my pockets, just in case. As it so turns out there was a big roll of quarters in that pocket and a wad of some cash as well. Then I looked down and realized that somewhere along the way the shoe had gotten back on my right foot.

There's a bit more, but to get psychological about it the theme of the dream seems to be that I didn't feel that I fit in - the missing right shoe in a sort of reverse Cinderella archetypal theme - and because of that I felt that I didn't have anything to share with the community despite my presence. Then in the dream I find out that I have my shoe on after all, indicating as the old saying goes "if the shoe fits..." that I had found my place, and in addition to that I had more to give and share with others than my earlier thoughts had indicated.

So we can all do things differently, and do them better. I guess it's the oldman's turn to chip in with the kitty instead of being a tight-wad cheap-skate miser. ;-) In turn, those who have already given or given up should take hope. The fat lady ain't sung yet.

There are still choices and paths, and while some ends are not as good as others, there are things that can be accomplished within our lifetimes.

So we struggle and we try to come together and we do the best we can, because that's all we have and because there is still a sweetness in life and for all the difficulties there are still triumphs and for all the impermanence of things some choices still matter. So that's what we live for, because if we want to we can still find real joy in life even fully knowing all the shadows that sorround us.