Wednesday, June 30, 2010

Keep the Faith, Baby!

Tea Parties. Immigration legislation at a state level. De facto segregation of schools and neighborhoods. But is America slowly becoming tolerant of diversity, notwithstanding these trends? In my May 28th blog, I provided this quote from the May 17th NY Times, suggesting that younger Americans, those less vested in material possessions than their elders, were less likely to support the recent Arizona legislation requiring folks to carry valid residency documents: “This emerging divide has appeared in a handful of surveys taken since the [Arizona] measure was signed into law, including a New York Times/CBS News poll this month that found that Americans 45 and older were more likely than the young to say the Arizona law was ‘about right’ (as opposed to ‘going too far’ or ‘not far e nough’). Boomers were also more likely to say that ‘no newcomers’ should be allowed to enter the country while more young people favored a ‘welcome all’ approach.” The Times. Will these younger folks retrench into exclusionary feelings as they get older or is there something else going on?

We’re seeing a parallel “tolerant” trend in marriage patterns; inter-faith marriages are increasing rapidly: “15 percent of U.S. households were mixed-faith in 1988. That number rose to 25 percent by 2006, and the increase shows no signs of slowing. The American Religious Identification Survey of 2001 reported that 27 percent of Jews, 23 percent of Catholics, 39 percent of Buddhists, 18 percent of Baptists, 21 percent of Muslims and 12 percent of Mormons were then married to a spouse with a different religious identification. If you want to see what the future holds, note this: Less than a quarter of the 18- to 23-year- old respondents in the National Study of Youth and Religion think it's important to marry someone of the same faith.” Washington Post (June 6th).

Love and mobility, heterogeneous colleges/universities and workplaces plus lots of online dating sites (one fifth of recent marriages – including my own – emanate from this social phenomenon) have displaced neighborhoods and places of worship as the “place where you meet your mate.” But bringing up junior is frequently a sticky issue. Some with strong faith marrying someone with less powerful but different beliefs may require a religious conversion as a condition to marriage. Sometimes this works, but frequently, the tug of the original religion often pulls the converted party back after some of the fire and passion subside. Guilt and fear can replace that love and passion. Usually, raising junior is simply and peacefully determined. Sometimes, this decision tears families apart.

For the person marrying into a family where faith is a driving force, the results can be difficult, to say the least: “[T]he effects on the marriages themselves can be tragic -- it is an open secret among academics that tsk-tsking grandmothers may be right. According to calculations based on the American Religious Identification Survey of 2001, people who had been in mixed-religion marriages were three times more likely to be divorced or separated than those who were in same-religion marriages.

“In a paper published in 1993, Evelyn Lehrer, a professor of economics at the University of Illinois at Chicago, found that if members of two mainline Christian denominations marry, they have a one in five chance of being divorced in five years. A Catholic and a member of an evangelical denomination have a one in three chance. And a Jew and a Christian who marry have a greater than 40 percent chance of being divorced in five years… More recent research concludes that even differing degrees of religious belief and observance can cause trouble. For instance, in a 2009 paper, scholars Margaret Vaaler, Christopher Ellison and Daniel Powers of the University of Texas at Austin found higher rates of divorce when a husband attends religious services more frequently than his wife, as well as when a wife is more theologically conservative than her husband.” The Post

Where these marriages hold, tolerance of differences rises, and with a few notable exceptions, most communities are increasingly accepting of interfaith marriages. Yet surprisingly, most couples don’t even talk about religion before they marry; they usually believe that love does conquer all. But given the above statistics, is staying within your faith bigoted or practical? Shared experiences clearly do enhance a marriage, but is it necessary for a family to pray together to stay together?

I’m Peter Dekom, and the complexities of modern living never cease to amaze me.

Tuesday, June 29, 2010

Tight Belts and Broken Promises

It's a story that will be repeated in every corner of the Western world where people were promised social benefits and government workers were pledged fringe benefits: sorry, they will be severely reduced if not eliminated. Economist Paul Krugman calls what is going on in global finance a “third depression,” one that looks more like the one that began in 1873 and dragged on for years (the Long Depression"): “We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression (of the 1930s). But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.” Writing for the New York Times (June 27th). Krugman fears austerity programs of government around the world as a trigger for more deflation and believes, as the Obama administration has recently announced at the G-20 meeting in Toronto, that excessive governmental austerity might backfire and sink the world into a deeper malaise. Unfortunately, Mr. Krugman, austerity is the name of the game, and the G-20 nations even set a three-year timeline for deficit reductions of at least 50% for member nations (including the U.S.).

The impact of the first stages of the weakest European economies imposing austerity has already produced strikes and deadly riots in Greece; Ireland is falling on its face, and Spain is grappling with the lending requirements imposed by the EU Central Bank. Things are looking pretty grim for the locals. "'Europe is in a tough bind,' said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a Harvard professor. 'If you want to escape default, the Irish path is the only way to go. But the Ireland experience points to the profound challenges that the current strategy implies.'… Politicians here have raised taxes and cut salaries for nurses, professors and other public workers by up to 20 percent. About 30 billion euros ($37 billion) is being poured into zombie banks like Anglo Irish, which was nationalized after lavishing loans on developers… [Ireland's] budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultra low debt could rise to 77 percent of G.D.P. this year." New York Times (June 29th).

Spain's no better. Taxes are going up across the board and services have been slashed. Infrastructure projects are freezing in their tracks, spitting off even more jobless souls. Where jobs aren’t being eliminated, government salaries are dropping, fringe benefits contracting, pension benefits are freezing (even where the law requires cost of living increases!) and the retirement age increasing (and it is not entirely clear that there will ever be enough money to support the requirement contributions to fund these retirement pledges). Subsidized day care for civil servants, once a point of pride for the government, is going to cost participants a lot more, and look to interest-free mortgages to qualified government employees to slide into the abyss. The baby bonus, $3,300 per birth, is vaporizing. They took lower-paying government jobs for the stability and the benefits, and both seem to be slipping away.

The government continues to struggle to find new cuts to make and new taxes and fees to hike: “With each new proposal, the popularity of the Socialist government has plummeted. One recent poll found that more than 50 percent of the population wanted Prime Minister José Luis Rodríguez Zapatero to call early elections, which he would lose by more than 10 percentage points… When Mr. Zapatero announced a move to stimulate the economy last week — an overhaul of the country’s labor laws, which make it virtually impossible to fire older workers — unions, traditionally his allies, called for a general strike in September, the first one in nearly a decade.” The New York Times (June 28th). The “cradle to grave” web of European social benefits – that big safety net in the sky – is no longer sustainable.

A typical impacted government worker reacts: “He would like to see the bankers he considers responsible for the country’s problems taxed and prosecuted. He does not think much of government officials, either. The day the first austerity measures were announced, he saw the mayor of Madrid and his minister of public works on television attending a sporting event in Germany… ‘If we have no money, why are they there?’ he said. ‘I don’t understand why we are making social cuts. Look at the [Spanish] monarchy. What is that worth? Why are we paying for that? And there is a lot in the public service that could be cut — official cars, official trips.’” The Times. Right behind the euro economies of Greece and Spain are Ireland, Italy and Portugal, but all European nations have announced austerity measures, and if this “recession/depression” rolls on for years longer, France and Germany may well join Greece with strikes and riots. Is austerity the right path? How sure are you?

I’m Peter Dekom, and perhaps I can get a job as an aging domestic in a Shanghai household someday.

Monday, June 28, 2010

Hello, Mister Big Shot!

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed. The Second Amendment to the Constitution of the United States of America

Read those few words – without reading anyone else’s opinion about what they mean – and think about what you believe it to say. Done? Add the historical facts that immediately preceded the American Revolution… think British soldiers breaking into a house and terrorizing the occupants. Picture a revolutionary army with no guns. Read the words again. Does it matter that that classes of weapons available at the time were limited to single shot pistols and muskets, swords and knives, spears, bow and arrows, a few explosives and primitive cannon? Did our forefathers believe that the final check and balance on our system of government was violent overthrow? Was it more about having a citizen-soldier to be ready in case of attack? Was it about the rights of individuals to hunt or defend themselves or states’ rights to protect themselves from harm with a civilian militia or both?

Back then, there were armed robbers – highwayman was a popular term in those days – and pistols were a common method of “involuntary wealth extraction” (sounds like taxes, but at least we voted for those who legislated taxation). There weren’t street gangs with Uzis and AK-47s escalating a violent drug trade and depriving lower class urban neighborhoods of the one commodity they really cannot live without: hope. There were ranchers, farmers and hunters – a rifle was simply one more tool of their trade.

People collect guns. Hunters display trophies or cook and eat what they kill. Whatever your feeling about animals, omnivores and carnivores have been killing to eat and survive since life began. And if you have leather shoes or a leather purse, even if you choose a less cruel vegetarian path, you are a source of demand for animals to die. 99% of all animals on earth die violently; only some human beings (and their pets) live long enough to die of old age.

Where am I going with all this? Well, if reading the above stirred any emotions – negative or positive – then you understand the passionate battles that have been fought over the years in the interpretation of a constitutional edict that was created centuries ago. You understand the gang-plagued neighborhoods living in fear every time they step out the door. Should they have guns to defend themselves or is that the reason for the problem? You might understand the seventh generation of a farming family, raised on hunting and marksmanship… a point of pride and history, of family. But when you talk to a European about the United States, when the subject of guns comes up, they usually cringe. Most street cops in London don’t carry guns. While legitimate hunting rifles and shotguns are common, sophisticated anti-personnel weapons and pistols are not. They see us as a violent and dangerous society, and their newspapers often feature sensational reports of grizzly American crimes involving guns.

Back in the 1930s, when violent street crime was on the rise, the federal government imposed a requirement to register sawed-off shotguns (clearly not a hunting weapon!). The individuals arrested for failing to register claimed “individual rights” under the 2nd Amendment, but in 1939 (U.S. vs Miller), the U.S. Supreme Court focused on the word “Militia,” upholding the registration law, “'[w]ith obvious purpose to assure the continuation and render possible the effectiveness of such forces the declaration and guarantee of the Second Amendment were made. It must be interpreted with that end in view.'' Basically “civilians primarily, soldiers on occasion,” called upon and “capable of acting in concert for the common defense.” Two years ago, the Co urt ruled that the Second Amendment allowed citizens to keep firearms in their homes for self-defense (District of Columbia v. Heller), and on June 28th – in a narrow 5-4 decision – the Court ruled that this right to bear arms applied to local and state laws as well (McDonald v. Chicago): “Justice Samuel A. Alito Jr., who wrote the opinion for the court's dominant conservatives, said: ‘It is clear that the Framers . . . counted the right to keep and bear arms among those fundamental rights necessary to our system of ordered liberty.’” The Washington Post (June 28th).

The National Rifle Association was founded in 1871, and while it fosters safety and proper training in the civilian use of firearms, it also has a powerful political mandate: “Its political activity is based on the principle that gun ownership is a civil liberty protected by the Second Amendment of the Bill of Rights, and it claims to be the oldest continuously operating civil rights organization in the United States. According to i ts website, the NRA has nearly four million members.” Wikipedia. Clearly, that view of individual rights, espoused by the NRA, is not really consistent with the holding in Miller, but it is an exceptionally common view of millions of Americans. And as the President discovered during his campaign, it is a very, very hot political button that can kill candidate’s career deader than a rifle shot to the head.

Nice academic stuff, Peter, but why this and why now? Because in a country falling apart because the law seems only to be concerned with those able to lobby the most, contribute to campaigns the most and mount massive public relations offensives the most, a bitterly divided U.S. Supreme court, in a January decision (Citizens United vs Federal Election Commission) that effectively repealed two decades of campaign reform legislation restricting unions and corporations from unbridled political contributions, opened the floodgates for special interests seeking further to influence the political process. And one of the most powerful institutions that has constantly battled against candidates that favor “gun control” is the National Rifle Association.

So how does a Democratic Congress deal with re-setting campaign reform back into our legislative process – possibly facing another Supreme Court challenge? How do they challenge the dangerous ascension of special interests in controlling the vectors of our legislative process? By creating a loophole to benefit a special interest! The New York Times (June 18th): “Congressional Democrats are pushing hard for legislation to rein in the power of special interests by requiring more disclosure of their roles in paying for campaign advertising — but as they struggle to find the votes they need to pass it they are carving out loopholes for, yes, special interests… In a deal that left even architects of the legislation squirming with unease, authors of a bill intended to counter a Supreme Court ruling allowing corporations and unions to pour money directly into campaign commercials provided an exception this week for the National Rifle Association, one of the most powerful lobbying groups in Washington.” Of course the NRA should be able to express their political views… but why do they get their own exception to the proposed law? Political pragmatics? Isn’t that the definition of a special interest that we are trying to reel in to protect individual rights? Oy! I want my mommy!

I’m Peter Dekom, and I am watching it all slowly drifting away.

Sunday, June 27, 2010

A Trillion Reasons to Cry

The June 20th Washington Post: “The obligations of state and local governments have doubled in the past decade, to $2.4 trillion, according to a recent Federal Reserve report, a figure that excludes more than $1 trillion in unfunded pension and retiree health-care liabilities.” Back in January of 2008, long before the world’s economy melted, the Government Accountability Office described the pre-crash problem in seemingly gentle terms: “Still, many [state and local] governments have often contributed less than the amount needed to improve or maintain funded ratios [for retiree benefits]. Low contributions raise concerns about the future funded status. For retiree health benefits, studies estimate that the total unfunded actuarial accrued liability for state and local governments lies between $600 billion and $1.6 trillion in present value terms. The unfunded liabilities are large because governments typically have not set aside any funds for the future payment of retiree health benefits as they have for pensions.”

And then the state and local property tax, income tax and sales tax base blew up as home values collapsed forcing many into foreclosure, unemployment and economic contraction pulled back income and people just stopped buying! While some states – like Arizona – have begun changing the retirement benefits for current workers (which will become the rule across the nation in the near term) by extending the retirement age, for those fractured cities and states dealing with workers who have already retired with vested benefits, the only exit may be bankruptcy. And the situation is only getting worse; on April 19th, the Franklin Center for Government & Public Integrity figures that by 2013, that $1 trillion of unfunded state and local benefits pushes out to $1.2 trillion. And when bankruptcy hits, there are a lot of pensioners (happy with the defined benefit retirements plus cost of living escalators) in for a very rude shock, a betrayal on the order of magnitude faced by a Bernie Madoff investor.

We’re going to see cities, towns and states hit walls a few at a time… until there is a flood. The signs are out there. A few have already fallen recently: Pontiac, Michigan, Vallejo, California, Central Falls, Rhode Island and even Jefferson Country, Alabama’s largest county. Since 1980, there have been 245 Chapter 9 (municipal) bankruptcy filings. An example of one more that is about to trickle is the insolvent capital of Pennsylvania, Harrisburg. “The debacle is pushing the 150-year-old state capital toward default. The fiscal crisis has shaken the city, which over the past decade has spruced up its riverfront downtown and created tourist attractions in large part through low-cost financing afforded by municipal bond sales. In one notorious example, former mayor Stephen R. Reed spent nearly $8 million from the public authority tha t owns the incinerator to buy wagon wheels, rifles and other memorabilia for a Wild West museum that never opened. And like a homeowner who binged on cheap financing, this city is underwater financially. ‘The truth is, we are already insolvent,’ City Controller Dan Miller said.” The Post.

They have a $68 million loan due at the end of the year, a sum that exceeds the entire city budget for the year, and no clear path to find a substitute lender. They borrowed to spruce up the city, pay for a new garbage incineration system that went way over-budget… well they acted like lots of Americans who could only see a rising economy as far as the eye could see. Even with massive tax and service fee increases and tons of layoffs and cutbacks, Harrisburg is unlikely to survive without filing for some kind of official bankruptcy or insolvency protection.

But the bigger picture is what happens to municipal bonds in general. Picture a few defaults and how investors, who have always thought tax free munis were safe and efficient, will react. What happens to the ability to place school and infrastructure bonds? What happens to the ability of state and local government to construct new and replacement roads, bridge, dams, mass transit, senior housing, parks, libraries, playgrounds… well the list is endless? Paying off bondholders has been sacred; failure to honor those debt obligations could easily spell the end of a state’s ability to build larger, longer term projects.

Even where cities have gone under, states have stepped in to make the bondholders whole: “In the past, the bond market's importance motivated officials to do all they could -- including raising taxes and cutting services and personnel -- to make payments. If cities miss payments or show severe fiscal stress, their bond ratings are cut, significantly increasing borrowing costs and making it more difficult to emerge from debt. Even when municipalities file for bankruptcy, ‘the tradition is that bondholders get paid in full,’ said James E. Spiotto, a Chicago lawyer specializing in public financing. ‘The reason is that without access to the bond market, cities can't function.’ When municipalities couldn't help themselves, their states usually stepped in. Cleveland defaulted on more than $15 million in bonds in 1978 but was able to refinance them not long after. Also in the 1970s, New York was lifted from a financial hole with state help. More than a decade later, Pennsylvania bailed out Philadelphia.” The Post. But today, there are 39 states with their own deficits to bear; the luxury of paying off the debts of a defaulting city may no longer be in the cards.

As we look out the window and warily eye European defaults and a moribund domestic real estate market, as we watch the unemployment needle staying in place and the future job picture focus on the lower paying end of the employment spectrum, it’s easy to miss the elephant in the room: the rapidly deteriorating state and local economic options. The feds can increase the money supply (print money); the states and local cities just go under. The impact can shatter any hope for a foreseeable recovery, and only the federal government has the tools to begin to deal with this mega-crisis.

And when you read this little ditty on the federal government that appeared in the June 22nd Los Angeles Times, you’ll feel so much better: “As the Senate scrambles to scale back a $140-billion recession relief bill, the poor, the elderly and the unemployed are bearing the brunt of the squeeze. But NASCAR track developers, movie producers and other special interests are likely to escape unscathed… Those businesses stand to gain $32 billion in tax breaks as part of the bill, which has been stalled for weeks because of rising complaints about deficit spending.

“In the hunt for ways to cut costs, neither party has proposed curbing the panoply of narrow tax preferences, which Congress has routinely extended each year… Instead, Senate leaders have proposed a $25 cut in weekly unemployment benefits; temporarily allowed a 21% cut in Medicare fees for doctors; and are planning to withhold or scale back $24 billion in payments many states expected to help pay for Medicaid for the poor.” Yeah, I didn’t think so!

I’m Peter Dekom, and sometimes the obvious can kill you.

Saturday, June 26, 2010

The War of 1812, Meet the War of 2010

Clearly, the United States and England did not start out on a good note. Between the Revolutionary War and the War of 1812, we were shooting at each other, and I am sure more than a few vituperatives were hurled back and forth in the process. But as the decades swirled by, the common language, culture and ancestry brought our nations back together. Two alliances during the major world wars, joint causes over several conflicts (like Korea, notwithstanding a momentary glitch over a conflict over the Suez Canal in 1956, and later… maybe, Afghanistan) cemented what appeared to be unbreakable ties. Until now.

If crisis is a measure of the reliability of friendship, then a combination of al Qaeda-inspired conflict (and a couple of failing efforts thereafter), a collapsed global economy and an environmental disaster of unprecedented man-made proportions might just have forced a transition from UK-US lockstep friendship to a clear parting of the ways… that isn’t horrible, but it sure isn’t buddy-buddy anymore. The latest rift appears to have been a growing part of Europe’s attempts to aggregate economic power to neutralize the apparent hegemony of the American financial empire with a countervailing force – the European Union (and we know that France and Germany are having serious second thoughts about that, as their relative superior financial status is being dragged down by weakness in other euro economies like Greece and Spain).

But England isolated herself from the collapse of the euro by maintaining its own, and now equally underperforming, currency, the pound sterling. The U.K.’s growing rift with the United States is more than a dissatisfaction with her football (read: “soccer”) team’s abysmal performance in their recent World Cup appearance. With a new Conservative Party government replacing the Blair-Brown Labour Party governments that preceded, newly elected Prime Minister David Cameron seems hell-bent on undoing the perceived lackey status of London’s relationship with Washington on many levels. The June 26th Washington Post: “In supporting President George W. Bush's decision to invade Iraq, then-Prime Minister Tony Blair created the perception that his country was America's ‘poodle.’ The ongoing British inquiry into the Iraq war has kept the perception alive, making it harder for Blair's successors to fully embrace American policy, even when they have wanted to.” Cameron’s new policy on Afghanistan – announced in the wake of a change in senior theater commanders and a growing belief that the war in that region is unwinnable – will withdraw all British forces (the second largest behind the U.S.) from Afghanistan within five years.

But the most recent rift has come in the Obama administration’s justifiable slam on British Petroleum’s massive ignorant and negligent destruction of the environment and the accompanying economies reliant on Gulf resources through its failed and massively leaking Deepwater Horizon rig in the Gulf of Mexico. That the Americans have pressured BP to cease dividends and establish a massive $20 billion escrow to begin to cover the damage has threatened the rather large contingent of U.K. pensioners who have relied on BP dividends and appreciation for the retirement.

The Post provides this typical British reaction: “In a recent column in the Daily Mail, Amanda Platell, a former aide to now British Foreign Secretary William Hague, wrote that ‘the way Tony Hayward has been vilified is a joke,’ referring to the BP chief executive who infamously noted that no one wanted the spill to end sooner than he did because he ‘want[ed his] life back.’… ‘If you don't recognize the special relationship is special to you, and if you don't know loyalty goes both ways and you've never had a better friend than Britain, then send our 10,000 troops home from Helmand immediately,’ Platell wrote, referring to a region of southern Afghanistan where British and American forces are fighting the Taliban.” Funny that notwithstanding al Qaeda attacks in London, the Afghan war effort seems to be perceived as simply an “American” conflict.

A black President is seen as lacking the connective tissue found between former U.S. Presidents and England: “The British press has also written that Obama has a special antipathy toward the country because his paternal grandfather was mistreated by British troops during Kenya's fight for independence. Then along came the oil spill… The polling firm YouGov reported earlier this month that 64 percent of the British people believe Obama's handling of the BP spill has weakened the countries' relationship. The poll was conducted as Hayward faced scolding questions on Capitol Hill.” The Post. But wait folks, there’s more.

Brits blame Wall Street, notwithstanding the clear complicity of U.K-based financial institutions (through which flowed 70% of major European deal traffic), for the global financial collapse. And the Obama administration’s attempt to balance its alliances globally has been met with cold resistance from the U.K. body politic: “But Obama, too, came into office with a foreign policy philosophy that sought to treat all countries equally under a shared set of international ‘rights and responsibilities.’ The approach has left not only the British among U.S. allies feeling less special than they once did… Earlier this year, the House of Commons’ foreign affairs committee issued a report concluding that the special relationship has lost its relevance.” < /SPAN>The Post.

In the G-20 talks in Toronto, the rift grows wider: the Brits want to contract and impose austerity measures to reduce debt; U.S. Treasury Secretary Tim Geithner thinks austerity could derail a nascent recovery and is pressing for more government spending, seeking a middle ground. “We have to find the right balance, and that balance is going to differ across countries. But I think you're going to see a strong commitment again by these major economies to do what is necessary to make sure that we are supporting recovery and getting that balance right,” Geithner said to the gathered world leaders on June 26th.

The British PM’s “on-the-side” meeting with President Obama at the sequential G-20/G-8 meetings may have produced some platitudes about U.S.-U.K. relations, but without the slightest doubt, these two nations no longer have remotely the same global alignment that most Americans have assumed. When PM Cameron makes his first official visit to the United States, currently slated for July 20th, it will be most interesting to see how he addresses that relationship to his own people and the British press. I suspect “warm and fuzzy” is no longer in the cards, replaced by serious pragmatism and a rougher alliance that we have had with England for a very long time.

I’m Peter Dekom, and nothing ever seems to stay the same!

When the Americans Withdraw

I have often blogged that Pakistan is one of the most dangerous nations on earth. Politically unstable and ripped apart in an almost feudalistic class war, this seeming democracy has never fulfilled the role of “American ally” in regional peace as the U.S. has claimed. Not only have even the most pro-American factions made unholy “we’ll look the other way while you run militant Islamic madrassa schools and recruit heavily on our college campuses” agreements with the most threatening Islamic fundamentalists, but the military and the intelligence services have always leaned heavily against U.S. anti-terrorism policies in the area. The general consensus of the people – who almost in lockstep continue to see India, followed by Israel and the United States as enemies – is profoundly anti-American.

The military is one of the few ways for impoverished and disenfranchised Pakistanis – the demographic segment where fundamentalist Islam has planted its deepest roots – to move upward into positions of influence and power. And it precisely the military – in control of at least 70 nuclear warheads with the means of delivering them – that is at the core of anti-American policies in the region. The June 24th New York Times: “Washington has watched with some nervousness as [the head of Pakistan’s Army] General [Ashfaq Parvez] Kayani and Pakistan’s spy chief, Lt. Gen. Ahmad Shuja Pasha, shuttle between Islamabad and Kabul, telling [Afghan President] Mr. [hamid] Karzai that they agree with his assessment that the United States cannot win in Afghanistan, and that a postwar Afghanistan should incorporate the Haqqani network, a longtime Pakistani asset.” Karzai and Kayani are pictured above.

There’s a tiny little problem with that “Haqqani network”; it is run by “Sirajuddin Haqqani, an ally of Al Qaeda who runs a major part of the insurgency in Afghanistan.” The Times. And what Pakistan is pushing for is a power-sharing alliance between Haqqani and Karzai that would also involve brokering a deal with the Afghan Taliban and one or two of the other factions in the region. If the entire American mission statement for its recent wars in both Iraq and Afghanistan has been to deny al Qaeda a platform to gather strength and expand its global power base, this result could be catastrophic. Unfortunately, that the Americans cannot even control the few Afghan Taliban strongholds they have been able to capture – like Marja – has led to a general regional feeling the Americans will fare no better in Afghanistan than did the Soviets in their the ill-fated, decade long attempt by in the 1980s. If anything, Taliban forces have never been stronger in Afghanistan than they are today.

For the Americans and their NATO allies to prevail, the military commitment must be elevated well above the 100,000 troops currently involved (some believe that it would require a multiple of that number), willing to remain for decades with the blind hope that some form of economic prosperity (perhaps mining versus opium) will stabilize the region and unify tribes who have fought each other since history recorded their efforts into a functioning nation. We have neither the will nor the financial wherewithal to generate this result. Welcome to the lose-lose. With Karzai having an alternative to his American support system, his corrupt government will be even more difficult to control. Since he “knows” the American cause is long gone, his survival instincts will push him farther into the Pakistani-al Qaeda-leaning nest.< /o:p>

The stage is clearly being set for the Pakistan plan: “Pakistan has already won what it sees as an important concession in Kabul, the resignations this month of the [Afghani] intelligence chief, Amrullah Saleh, and the interior minister, Hanif Atmar. The two officials, favored by Washington, were viewed by Pakistan as major obstacles to its vision of hard-core Taliban fighters’ being part of an Afghanistan settlement, though the circumstances of their resignations did not suggest any connection to Pakistan.” The Times. Is Haqqani willing to sell out his long-time al Qaeda allies – maybe even handing over Osama bin Ladin and Ayman al-Zawahri to the Americans – to garner U.S. support? Is this remotely possible? Or is this a game that might look good on paper but literally will have a longer term effect that is quite the opposite? Does bringing al Qaeda out into the open in a new nation give the U.S. a more clearly-defined geographical target? Welcome to Afghanistan, General David Petraeus. All yours.

I’m Peter Dekom, and wars built on rage without the willingness to do what it takes over a very long run have become an unfortunate American tradition.

Friday, June 25, 2010


In India, “pappu” is a condescending term meaning “nice, if not naïve and not-too-bright, boy.” Occasionally, it can be used as a term of endearment between very good friends. And it is what some senior and entrenched incumbents in one of that nation’s two largest political parties – the once monolithic National Congress Party (Rahul’s party) – call Rahul Gandhi, great-grandson of India’s first prime minister, Jawaharlal Nehru, the grandson of the fourth prime minister, Indira Gandhi, and the son of the seventh prime minister, Rajiv Gandhi. And these incumbents aren’t his very good friends. Others call this younger man – just turning forty – “the Prince of India.” His family history is blessed with accomplishment and scarred by tragedy – both Indira and Rajiv Gandhi were assassinated. Some felt that his younger sister, Priyanka, was the heir apparent, but she has focused more on her family than politics. So it must be with great interest that we in America must watch young Gandhi’s possible ascension to the top of India’s leadership – if he lives long enough.

India is currently the second most populous nation on earth and is eventually destined to pass China to rise to first place. The problems in this South Asian land are gargantuan. From the open hostilities – particularly over the Indian state of Kashmir – with neighboring Muslim Pakistan as well as sporadic and murderous attacks by Maoists hell-bent on toppling the government to the vast dichotomy between India’s 400 million middle and upper classes – productive and educated – to the sprawling poverty of her remaining lower classes, 800 million people who seem to be living in a long-lost century. With over 35% of her population illiterate, India is a long way from economic and political stability. This poverty drives India’s per capita down to around $3100 per annum, making her one of the poorest nations on earth.

If you spend time in the chi chi shops in Delhi or Mumbai, start counting Mercedes as they pass, particularly if you stay in one of the walled chrome and glass industrial/residential areas in India’s technology corridors, you might tell yourself how modern and bright everything is in India… but step outside the walls, and truth will slam you in the face. Battles for power must, of necessity, embrace the seemingly disenfranchised masses – who do cast votes – as well as the well-heeled middle and upper classes who are the engine that drives India to international greatness and economic power (she is currently the 11th largest economy on earth); there are literally two nations layered on top of each other, each eyeing the other with fear and suspicion.

And therein lies the relevance of Rahul Gandhi’s position in the future of India. Is he a uniter? Can he bring hope to the masses while still allowing the middle class economic engine to push India to ever-increasing prosperity? Can he find peaceful solutions to the hatred of neighboring Pakistan? Who is he? What does he stand for? Will he be the “voice,” remain a “pappu” as some believe or will he succumb to his family’s legacy, falling to an assassin’s bullet before his time?

Rahul Gandhi’s persona resonates with particular power among the nation’s youth, who follow him with unparalleled zeal, particularly as he tries to mold large youth organizations into Congress Party stalwarts. The June 5th New York Times: “Most Indian political parties are internally undemocratic and often dominated by political dynasties, none more famous the Gandhi clan. But Mr. Gandhi has also insisted that the party’s youth organizations hold internal elections for posts and operate as meritocracies… He also has succeeded far more than other Indian politicians in tapping into the hunger for generational change in India, analysts say, and has positioned himself as a change agent for the future, despite his obvious debts to India’s political past. He is trying to bypass the identity politics of caste and appeal to young people of all backgrounds. ‘We youth are with Rahul!’ said Manonit Garharabari, 23, at [a recent] rally. ‘The whole youth is with Rahul. We see an internal strength in him.’

“Mr. Gandhi is omnipresent in the media, and his face is plastered on untold numbers of billboards and political posters. His public image is as a humble, serious man, if somewhat shy, even as his name invariably tops polls ranking the country’s ‘hottest’ or ‘most eligible’ bachelors. Yet he almost never grants interviews, including for this article, and only occasionally conducts news conferences. Reporters are often tipped to his appearances at one village or another but often all they get is a photograph — which inevitably appears in newspapers around India.”

Even though Gandhi is a member of Parliament (Congress Party, of course, from Utter Pradesh), what we really don’t know is specifically what he stands for. Security around this young legislator is tight of necessity, and he plays his politics close to the vest, preferring to ride on his cult of personality instead of passionate campaigns on the issues. What we do know is his family and his educational and work history. His undergraduate education was in the United States, starting at Harvard but transferring to Florida’s Rollins College for security reasons. He followed up with a masters degree (development) from England’s Cambridge University, worked for a while as a management consultant in London before returning to India after his mother, Italian-born Sonja Gandhi, took over leadership of the Congress Party. Oh, in 2004, he did confirm – at the time – that he was dating a Spanish woman.

Sooner or later, young Gandhi is going to have to make his positions clear, alienating some who currently support him and perhaps making friends he didn’t expect… making tough decisions and probably more than a few mistakes. We call that leadership.

I’m Peter Dekom, and Rahul is just one piece of the global puzzle that will determine the future of our world.

Thursday, June 24, 2010

Insurgency, Corruption, A War with Rules

Un-uniformed insurgents who know the terrain like the back of their hands, who can withdraw to safe havens, who have intelligence networks at the village level and who face an enemy far from home, stretched thin by economic and impatient political reality, have a massive advantage, especially as time passes, year by year. Add a nation that has never really functioned at a national level, is defined by tribalism, and where those in power immediately and completely soak their corrupt hands into public coffers and give themselves the juiciest plums of economic development. Spin plays a factor too: when the big bully uses technology with a killing radius that always inflicts civilian collateral damage, make sure the people – hell, the world – knows about it. And without that technology, the badly outnumbered foreigners don’t stand a chance of prevailing. But shame them into curtailing using the only tools they have… let them cut off technology under the guise of “winning the hearts and minds” of the locals, and sit back and wait. This land is yours.

Generals hate announcing time lines for withdrawal for obvious strategic reasons, but that was official Obama policy. General Stanley McChrystal was dumb enough to criticize the civilian leadership openly, most recently in a June 25th Rolling Stone article, where McChystal’s past statements were followed up by words which his Commander-in-Chief found to be insubordinate. Bye-bye General McC – relieved of command. Try these excerpts on for size:

Last fall, during the question-and-answer session following a speech he gave in London, McChrystal dismissed the counterterrorism strategy being advocated by Vice President Joe Biden as "shortsighted," saying it would lead to a state of "Chaos-istan."…

Now, flipping through printout cards of his speech in Paris, McChrystal wonders aloud what Biden question he might get today, and how he should respond. "I never know what's going to pop out until I'm up there, that's the problem," he says. Then, unable to help themselves, he and his staff imagine the general dismissing the vice president with a good one-liner.

"Are you asking about Vice President Biden?" McChrystal says with a laugh. "Who's that?"

"Biden?" suggests a top adviser. "Did you say: Bite Me?"…

Even though he had voted for Obama, McChrystal and his new commander in chief failed from the outset to connect. The general first encountered Obama a week after he took office, when the president met with a dozen senior military officials in a room at the Pentagon known as the Tank. According to sources familiar with the meeting, McChrystal thought Obama looked "uncomfortable and intimidated" by the roomful of military brass. Their first one-on-one meeting took place in the Oval Office four months later, after McChrystal got the Afghanistan job, and it didn't go much better.

The rules of engagement promulgated by McChrystal in the year he has led the Afghan campaign – an effort to stem the bad publicity that negated the U.S. efforts in that theater of war by curtailing civilian casualties – have also come back to undermine his leadership. The June 22nd New York Times illustrates: “Riding shotgun in an armored vehicle as it passed through the heat and confusion of southern Afghanistan this month, an Army sergeant spoke into his headset, summarizing a sentiment often heard in the field this year… ‘I wish we had generals who remembered what it was like when they were down in a platoon,’ he said to a reporter in the back. ‘Either they never have been in real fighting, or they forgot what it’s like.’ … The sergeant was speaking of Gen. Stanley A. McChrystal and the circle of counterinsurgents who since last year have been running the Afghan war, and who have, as a matter of both policy and practice, made it much more difficult for troops to use airstrikes and artillery in the fight against the Taliban.”

The fact remains that absent an American willingness to commit to decades of a vastly larger military presence in Afghanistan – while attempting to create a new economy built on the region’s vast mineral resources at the expense of opium farms – the military effort in Afghanistan is doomed to failure, as it has been since the first day President Obama took office and inherited this debacle. The Taliban harbored our enemies, the al Qaeda operatives who took down the Twin Towers and almost destroyed our Pentagon. They ruled in Afghanistan, and our attacks crippled their government and toppled them from office. We could have stayed to clean up the mess and withdrawn, but instead we withdrew most of our troops and sent them to fight the false war in Iraq long before the clean-up was completed. And this gave the Taliban and other insurgents the time they needed to replant the insurgency that we cannot topple with any form of military activity that the American people will tolerate. We blew it, plain and simple.

It’s not about McChrystal – a general who seemed to lack the good judgment not to criticize his bosses in public – it’s about a war that we simply cannot afford to win, that is draining our coffers to the delight of our enemies at a time when that money is desperately needed for domestic issues. Americans have a bad habit in believing in miracles, that people who have behaved in a particular way for centuries will suddenly change and do what we think is best for them. When that doesn’t happen, and when there is truly no hope that our efforts will succeed along the lines we hoped for, Americans just don’t know how to stop and withdraw. The Afghan theater cannot be stabilized along the lines that two administrations have attempted to implement. And since the patience of decades of additional troop deployment is politically unsustainable, Mr. Obama, it’s truly time to leave Afghanistan. If the Taliban mount another offensive against our cities and towns, you will know what to do… and it isn’t occupying a land recent history has shown cannot be subdued by outsiders with short-term goals.

I’m Peter Dekom, and I am trying to keep it real.

Wednesday, June 23, 2010

Jolly Old England Isn’t

For countries like Greece, austerity is about putting into place structures that really have never existed – like actually taxing rich people – even as the wealthy make sure their assets are well-ensconced far from the Aegean shores. For more entrenched economies, countries struggling with unmanageable debt face profoundly different choices. The litany of alternatives runs the gamut of higher taxes, fewer social benefits, higher retirement ages, deferred maintenance and the elimination or reduction of hitherto “meat and potatoes” government programs and public services… or increasing borrowings and M-1 (money supply – the governmental way of “printing money”) and face accelerating inflation.

England just elected a new government, and it is looking at its own crisis with a conservative approach. The pain that is about to be inflicted on everyday life in the U.K., now and for the foreseeable future, threatens to erode the social safety nets created in better times and impose new levels of taxation that will impact every soul in the country. It is interesting to watch our British friends, since their experiment and the results and consequences of their austerity efforts may well portend how the United States would do if it elected to apply the same measures. Some argue that Britain will kill what little spark of growth may exist by tightening the economic yoke and resulting in a resurgence of unemployment; others maintain that without debt reduction, the ability to achieve real growth over a longer period is not possible.

Let’s see what the new government is proposing, if they get their way. Taxes would be going up. Europe uses a value added tax (a giant sales tax - VAT) assessed at the central governmental level. England’s VAT, already a whopping 17.5%, would be raised to 20%. Capital gains rates would climb, and noting that the financial crisis was born in the financial sector, the new government is proposing a $2.9 billion assessment against the balance sheets of UK banks. While retirees would see increases in their pensions to mirror the cost of living, everyone else would be paying for the change.

The cuts that would run deepest, consistent with the new right-of-center Conservative Party government’s philosophy, are in social programs: “[Chancellor of the Exchequer George Osborne, the equivalent of a finance minister,] said Britain’s welfare costs had risen over the last 10 years to £192 billion from £132 billion (to $284 billion from $195.3 billion), an increase of 45 percent. He announced a three-year freeze on benefits received by parents for raising children, limits on subsidies for public housing and a new way of screening people receiving state benefits for disabilities. Promising accelerated efforts to raise the retirement age to 66, he said the measures would save £11 billion ($16.3 billion) in welfare spending by 2015.” New York Times (June 22nd)

England hasn’t really faced cuts of this order of magnitude since the Margaret Thatcher government in the early 1980s, but times have changed. Critics have their doubts: “‘I think it will be a very hard sell,’ said David Kynaston, author of a recent social history of Britain in the austere 1940s. ‘It will only work if people see that the pain is equally inflicted. We are a very different society now — more individualistic and less willing to listen to exhortations.’”… ‘This is just right wing orthodoxy,’ said David Blanchflower, an economist at Dartmouth and a former member of the Bank of England’s monetary policy committee. ‘The patient is on life support now and if you take it off now you kill firms off and create a million unemployed workers. It is a classical policy mistake.’” The Times. Certainly, this will be a battle royal in Parliament, but whatever the results, undoubtedly, there are those in the United States ready to follow the same line. Our mid-term elections approach.

I’m Peter Dekom, and whatever the plan, in the U.K. or the U.S., there will be changes in governmental fiscal policies… big, big changes.

Tuesday, June 22, 2010

Who Wants to be a Millionairrrrrrre?!

Don't ya just love lists? And piles of facts that can make you feel really small? Well sit back and enjoy these loving results from the Boston Consulting Group in a June report entitled Global Wealth 2010: Regaining Lost Ground: Resurgent Markets and New Opportunities. Basically, it tells you where all the rich folks live and what they own. Here are some of the results:

· Global wealth staged a remarkable comeback in 2009 after its steep decline in 2008. [Assets under management] increased by 11.5% to $111.5 trillion, just shy of the year end peak in 2007.

· North America posted its greatest absolute gain in wealth at $4.6 trillion, but the largest percentage increase occurred in Asia-Pacific (ex-Japan), where wealth increased by 22%, or $3.1 trillion.

· Millionaire households represented less than 1 percent of all households but owned about 38% of the worlds wealth, up from about 36% in 2008. In North America, Africa and the Middle East, millionaire households represented more than half of the wealth in those regions.

· The United States had by far the most millionaire households (4.7 million), followed by Japan,
China, Switzerland and the Middle East.

· Switzerland remained the largest off-shore center; it accounted for $2.0 trillion, or about 27 percent, of all off-shore wealth.

· Women control about 27 percent of global wealth, meaning that they decide where it is invested. North America had the highest proportion at 33 percent.

· Latin American household asset growth rose by 16% to $3.4 billion, and Europe, despite the massive debt problems it now faces, was the wealthiest region with more than $37 trillion in assets under management, an increase of 8.8% from 2008.

Feeling all warm and fuzzy inside? I want it; I want it; I want it….. Oh well… Level playing field anyone?

I'm Peter Dekom, and sometimes I'll admit to being a tad jealous.

Monday, June 21, 2010

Baby Steps

For the last several years, the U.S. has been pressuring the Peoples Republic of China to allow her currency to appreciate against the dollar. The plea has been delivered personally and repeatedly by the President, our Secretary of State and the Treasury Secretary. It has been rejected by every Chinese leader – out of hand – at every level, sometimes with responses that countries whose economies are in turmoil shouldn’t be telling countries with longer term sustainable growth what to do (and I’m being polite in my paraphrase). China’s renminbi (also called the yuan) has floated in lockstep with the dollar, assuring local Chinese manufacturers that dollar devaluation wouldn’t reduce the level of exports to the United States; the balance of payments – although slightly moderated in the meltdown – still tilt very heavily towards China ($227 billion in 2009 but accelerated in the first half of this year; we also have a huge imbalance with Germany, Japan and Saudi Arabia). Foreign leaders have also pushed China to allow its currency to appreciate, requests that have fallen on deaf ears.

The dollar has been appreciating against the battered “Greece is collapsing and Spain is right behind” euro, which has trimmed the margins America exporters were expecting from selling their products overseas. But please do not mistake that appreciation for a positive sign on the stability of the dollar. It’s like two drunks at a bar, an American who is clearly soused but a European who cannot even stand up, and the American thinking he is sober by comparison! The giant BRIC countries (Brazil, Russia, India and China) are the real economic powerhouses in the world today; two, Brazil and Russia, have massive natural resources (particularly oil) with relatively educated populations, and the other two have built up massive currency reserves from cheap manufactures or massive service outsourcing.

The massive debt created in both Europe and the United States – both public and private – combined with the staggering fall in the value of the assets supporting that debt, has crippled those economies. And sooner or later, inflation is going to hit, even as the governments of the debtor nations struggle to maintain lower interest rates in order not to trigger a further economic collapse in the marginal signs of recovery that have surfaced of late. It will not take much to plunge our economies back down the slope of additional severe contraction. At some point, governments with humongous debt are going to have to attract lenders by raising interest rates or fall into the old world Latin American habit of increasing money supply (so-called “M-1”… most folks call that “printing money”). While inflation at that level may create a false appreciation of assets (like homes) that could push markets from being deep underwater and generate unjustified taxable appreciation for the government, people on fixed incomes and companies trying to raise capital for growth will really be slammed.

But the U.S. government has a vested interest in stemming the flow of money outside of the U.S. to pay for imports. We’ve already seen how just the price of oil is impairing growth – and we are going to be drilling in fragile ecosystems because most of the easy oil has already been tapped (the catastrophe in the Gulf isn’t the first such tragedy nor will it be the last) – but reducing imports in general is a priority, just as making U.S. exports more attractive to international buyers is a vital part of any hope of near-term recovery. The Los Angeles Times (June 20th): “If U.S. consumers can abstain from a "shop till you drop" lifestyle, their savings rate will grow and their debt loads will shrink. Those trends could strengthen the country's long-term economic health but also could cause more short-term pain in the form of slower job and wage growth.”

At the heart of reform has been the refusal of the Peoples Republic to allow its currency to float. But that position has always been viewed as unsustainable for the Chinese, making them completely reliant on overseas markets for growth. The PRC has had its share of economic woes – primarily in the oversold real estate market (see my Breaking China blog) – but what is developing within its borders – a growing middle class with a rising standard of living and rapidly expanding consumer buying power – offers a market to continue China’s growth while creating a more stable and satisfied constituency; Chinese consumers are the new hot market for Chinese goods.

Back 2005, China allowed its currency to appreciate over three years against the dollar (21%), and as world leaders prepared to gather at the end of June in Canada (for the Group of 8 and the Group of 20 summit meetings) to consider economic issues, China has finally signaled a willingness to allow the renminbi to appreciate: “China’s central bank announced on [June 19th] that it would allow greater flexibility in the value of the country’s currency, in the clearest sign yet that China will allow the renminbi to appreciate gradually against the dollar… The central bank, the People’s Bank of China, said that the Chinese economy was strengthening after the global financial crisis and that it was ‘desirable to proceed further with reform’ of the currency...” New York Times (June 19th).

But China is also pressuring the world to get off of the dollar as the global reserve currency, substituting instead a “special drawing right” currency blended bundle (reflecting the major currencies of the world including the dollar, euro and renminbi). This would naturally place further downward pressures on the value of the dollar as it would no longer be the sole reference currency in global pricing. China holds over two trillion dollars of U.S. national debt; this puts us in the role of supplicants and China in the driver’s seat. Our main bargaining power over China is how we impact the value of their dollar holdings (but think what would happen to the dollar if China decided to dump its dollar holdings!), the dependence of China on American consumer demand and the level of China’s investments and holdings in American assets and corporations. Being on your knees for longer periods of time is painful.

Don’t forget, however, to many, especially those in Europe where the falling currency value makes their products appear cheaper to us, Americans are the consumers of last resort. They’re looking to our bad spending habits to get them on the road to recovery, just as we are looking to global consumers to help us. And if we put up trade barriers to stem this trade imbalance (or use taxes to incentivize consumption of local manufactures), the resulting trade wars and retaliations will decimate our export business – present and future. The LA Times: “Mark Weisbrot, co-director of the Center for Economic and Policy Research, sees an overvalued dollar as a central cause of America's economic woes…In theory, he said, the administration can take aggressive steps to drive down the value of the dollar. But Weisbrot doesn't expect that to happen, because of resistance from Wall Street, U.S.-based multinational companies and White House economic advisors.” Whether we adjust now or simply allow the markets to correct over time as the U.S. standard of living plummets for most Americans, time will re-balance it all; I’d rather take the more obvious and easier road, but… there are a whole lot of special interests who will fight that tooth and nail.

I’m Peter Dekom, and while all this stuff is complicated, it has a profound impact on the way we live.