Are Russia and the United States at War?

I’m talking more than a war of words or the “New Cold War” epithet that journalists are using these days. I’m talking about shooting wars, proxies for the now, but likely to escalate in areas as diverse as Syria and the Arctic. Beyond Crimea and Ukraine. As Russia’s President Putin sidles up to Bashir Assad (above) and his repressive regime in Syria, promising that plagued Arab leader new and improved air support and other military technology in Damascus’ dual battles against both ISIS and Syrian Sunni rebels, the United States is clearly beyond agitated. Time seemed right for a notion of Russia’s and Syria’s using the world’s ISIS threat as a distraction to allow massive Russian reinforcement of the Assad regime. Nasty. Communications between Washington and Moscow proved fruitless, as the Obama administration warned the Russians against escalating their support for the rogue Assad

But to get new modern jets into Syria, Russia has requested the right to use regional airspace to transport its military transports and new jets to its local dictator in Damascus. They know Turkey, which is completely focused on taking down Shiite Assad in a mostly Sunni country, will say no, so they have turned to Greece instead.

“The United States has asked Greece to deny Russia the use of its airspace for supply flights to Syria, a Greek official said on Monday, after Washington told Moscow it was deeply concerned by reports of a Russian military build up in Syria.

“The Greek foreign ministry said the request was being examined. Russian newswire RIA Novosti earlier said Greece had refused the U.S. request, quoting a diplomatic source as saying that Russia was seeking permission to run the flights up to Sept. 24.

“Russia, which has a naval base in the Syrian port of Tartous, has sent regular flights to Latakia, which it has also used to bring home Russian nationals who want to leave.

“U.S. Secretary of State John Kerry told his Russian counterpart Sergei Lavrov on Saturday that if reports of the build-up were accurate, that could further escalate the war and risk confrontation with the U.S.-led alliance that is bombing Islamic State in Syria.” Reuters, September 7^th.

The U.S. is training rebels, albeit so far not able to recruit more than a shameful handful (54) to topple Assad. We’re on one side. Russians on the other. Who knows if those jets are delivered if there will be Russian or Syrian pilots flying those machines, all in the same theater of operations where allied planes are attacking ISIS in the same airspace. What could go wrong?

“‘We have always supplied equipment to them for their struggle against terrorists,’ Maria V. Zakharova, the Foreign Ministry spokeswoman, said in an interview. ‘We are supporting them, we were supporting them and we will be supporting them’ in that fight… The sharp exchanges over Russian military aid to the Syrian government appeared to have dampened a brief spirit of cooperation, starting in early August, when Russia, the United States and Saudi Arabia agreed on a renewed effort to reach a political solution to the Syria crisis.

“Some analysts see any possible Russian move to strengthen military aid now as a maneuver by President Vladimir V. Putin to embarrass the United States.” New York Times, September 7^th. Yup, what could possibly go wrong?

Meanwhile, back at the ice pack, global warming is opening up the Northwest Passage and facilitating access to Arctic resources like never before. As I pointed out in my recent blog, Cold Polarization, Russia is not only staking claims to a good portion of this entire region, including the outcroppings under the North Pole itself but building a substantial fleet of very large and uniquely capable ice breakers, ships well beyond the capability of any other nation on earth, including the United States and its Arctic allies… combined. Both the United States and Russia have been conducting military fleet operations in the area around the Bering Straits. Even Chinese military vessels have crossed into U.S. waters during recent exercises in the area.

Russia can no longer compete head-to-head in a serious conflict with the United States, but Russia also knows that, despite right-wing hawks to the contrary, America’s will to fight has dwindled even as her military capacity still consumes over 40% of the entire world’s military budget. So whether it is via proxy wars, sharp jabs in Crimea and Ukraine with limited meaningful response by the United States and its NATO allies or supporting a brutal Syrian dictator for a battle of surrogates, or perhaps by severe saber-rattling in Arctic areas where specialized weapon-systems present an intimidating show of force, Russia wants the United States to know that Vladimir Putin’s agenda will continue to remain our nemesis for the foreseeable future.

But as Russia’s economic fortunes dwindle, with oil prices hovering around recent record lows, how long Putin’s popularity with the masses will allow him free rein is open to debate. He’s still got that support, but a rapidly declining standard of living in the Motherland will, sooner or later, demand that the piper be paid. Will Putin’s bravado, standing up to the big evil United States, buy more popular support or will there come a time which his machismo just doesn’t work anymore? And how many real bullets will fly from such efforts in the meantime?

I’m Peter Dekom, and lust for power and the desire never to let it go once possessed are a dangerous combination that have seldom served mankind well.

Cold Polarization

On August 2, 2007, A Russian MIR deep submersible dropped to 4,261 meters (almost 14K feet) below the Polar ice cap and planted a 39 inch platinum Russian flag (and a time capsule with a message from Vladimir Putin) directly on the North Pole (pictured above). Claiming that outcroppings from the Russian mainland extended undersea veins of land towards the pole and all along the polar region, Russia had claimed that entire region as Russian territory back in 2001. Russia also claimed the passageway that we call the Northwest Passage in the West, a block of ice that has slowly turned into an occasionally-navigable body of water. A United Nations arbitration failed to support those claims for lack of sufficient substantiating evidence.

Russia, which also claims that the Tsars lacked the right to sell Alaska to the United States (the 1867 “Seward’s Folly”), has hardly given up in claiming massive rights within the polar region, a seabed rich in fish, minerals and oil. On August 4^th, the Russians once again asserted territorial exclusivity to 1.2 million square kilometers (463,000 square miles) of the Arctic sea shelf. The other nations bordering the Arctic – Canada, the United States, Norway and Denmark/Greenland – quickly rejected what they believed to be a preposterous Russian grab at precious resources in one of the world’s most delicately-balanced ecological environments. Environmentalists screamed almost as loudly as did the non-Russian Arctic nations.

Citing new scientific data, Russia claimed that her assertion was now fully sustainable and irrefutable. Global warming has contracted the polar ice caps and opened upon once-inaccessible lands to exploration, exploitation and use as part of new, expected long-range commercial ocean passages. The formal demand was presented by Russia to the UN Commission on the Limits of the Continental Shelf for review.

But Russia was hardly just counting on the good graces of the United Nations to vindicate its claims. Two years ago, Russia began building a new, massive, nuclear powered ice breaker on a scale that the world had never seen before: “Russia has started building the world’s largest universal nuclear-powered icebreaker capable of navigating in the Arctic and in the shallow waters of Siberian rivers. The unique vessel will further increase Russia’s dominance in the region.

“The 173m ship is being built by the Baltiysky Zavod shipyard in St Petersburg, and is planned to be completed by 2017. Once finished the ship will be 14 meters longer and 4 meters wider than the current record holder, ‘50 year Victory’ that is 159 meters [521 feet] long and 30 meters [98 feet] wide.” RT.com, November 6, 2013. It is a huge ship, a record-size for 2013, but more and bigger craft are being added rapidly to the Russian ice breaking fleet all the time.

“The higher the ambitions in the Arctic, the more icebreakers under construction. That appears to be the case, at least, for Russia. The country currently has at least 14 icebreakers under construction and several more under planning… In addition, several other kinds of icebreaking vessels are under construction, among them special LNG tankers.

“The construction of the new vessels is all concentrated on yards located in and around St Petersburg. While the Baltiisky Yard is constructing the new generation nuclear-powered icebreakers, the Admiralty Yard and the Vyborg Yard produce diesel-engined vessels. Also the Yantar Yard in Kaliningrad has been involved in construction processes. In addition, the Russian-owned Arctech Yard in neighboring Finland is delivering icebreaking vessels for Russian stakeholders [vessels that can break ice sideways as well].

“The biggest and most powerful of all the new vessels is under construction at the Baltiisky Yard. The nuclear-powered LK-60 icebreaker (project 22220) will be the world’s most powerful icebreaking vessel -- 568 feet long, 111.5 feet wide and able to sail in ice nearly 10 feet thick. It will be part of the state-owned Rosatomflot fleet of nuclear icebreakers based in Murmansk. Russia intends to build at least two of this class vessel, the first to be ready by the end of 2019, the other by the end of 2020.” Alaskan Dispatch New, May 11^th.

No other nation or group of nations can mirror the expected ice-breaking capacity of this new Russian fleet. And no regional powers, including the United States, have remotely the same sea-going capacity to police and control the polar region as do the Russians. And it’s not just this new fleet that has set Russia’s saber-rattling over the Arctic. “The new move comes a week after the Kremlin said it was strengthening its naval forces in the Arctic as part of a new military doctrine… Earlier this year, Russia's military conducted exercises in the Arctic that involved 38,000 servicemen, more than 50 surface ships and submarines and 110 aircraft.” BBC.com, August 4^th.

In recent years, Russia has moved on Georgia’s rebel state (South Ossetia), Crimea, Ukraine, the Arctic and even someday… we can expect against Alaska. Russia is increasingly a rogue state, a global pariah that loves to make friends with extremists (North Korea, Syria, Iran, etc.) and seems to be the living paradigm of “might makes right.” As the world is distracted with Islamic turmoil and genocide, disarmament focused on Iran and wars all across Saharan and even Sub-Saharan Africa as well as the Middle East, a dark sinister force is skulking in the Arctic, believing that sooner or later, one way or the other, the Arctic will simply be one more part of the Russian motherland. Are we ready? Willing? And able to resist this land grab?

I’m Peter Dekom, and with a gridlocked and highly polarized government, with Americans tearing at each other’s throats, Russia has to be cackling at what it perceives to be its inevitable control of the entire Arctic region.

The Labor Day News We Don’t Want to Hear

Here’s the official report: “The nation in August added 173,000 jobs, shy of market expectations. The unemployment rate fell from 5.3 percent to 5.1 percent, the lowest mark since April 2008.” Washington Post, September 4^th. Life is good and getting better? Hey, there are other economic signs out there… some good… some not so good. “The U.S. economy has an impressive unemployment rate, but it lacks the wage growth that has historically come at such a level. The number of jobless is quickly falling, but an alarming number of prime-age workers aren’t even hunting for positions. The August jobs number was below the recent monthly average, but growth in the previous two months was revised upward by a combined 44,000 positions.” The Post. Sure it’s about employment numbers. To a point. But it’s also about affordability. The quality of life.

There are other sprinklings of economic news that define our lives. For those who drive, the plunge in gasoline prices has come as an unexpected blessing. For those oil and gas workers, as I have blogged, it has been a disaster of layoffs, shorter hours and tighter work rules. For those who don’t drive because they live in a city where driving isn’t an economical option or live in rural areas where they travel only on work transportation, the fall in the price at the pump is irrelevant.

The explosion of rent costs, particularly in cities, the rise in the cost of foodstuffs – whether due to increased global demand or down and dirty natural disasters – have pushed the quality of life down one giant notch for too many Americans, even harder in the lower half of our economy.

There is a danger in dealing with averages, as I have pointed out before. When you include the massive rises in earning power in the top 5% of our economic world, the United States has made major strides in average per capita income. When you back out those numbers, look at the median or the lower strata, the pattern of economic impairment tells you one severe fact: most Americans continue to see a seemingly never-ending erosion in both their true buying power and their discretionary income (based on that higher cost of living). For the younger set, struggling with the almost $1.3 trillion of aggregate student loan debt, discretionary income has eroded against recent college grads like never before.

The National Employment Law Project trolled government and other available employment data to seek out the kinds of economic pain that those in government like to hide in their presentation of an improving economy for “everyone.” The rising tide is not floating all boats. For too many, precisely the opposite result is now the norm. The resulting report – Occupational Wage Declines since the Great Recession: Low-Wage Occupations See Largest Real Wage Declines – was released on September 2^nd and provides that less-than-the-politicians-tell-us scenario.

Here’s part of their abstract: “Private sector employment has expanded steadily, and the jobless rate has continued to fall. Yet, underlying weaknesses persist, as evidenced by the historically low employment rate of prime-age workers and the stubbornly high number of individuals unemployed for longer than six months. The ‘real’ unemployment rate—which includes those working part time who want full-time work, and those who have stopped searching but if offered a job would take it—remains in excess of 10 percent.

“Moreover, most workers have failed to see improvements in their paychecks... In fact, taking into account cost-of-living increases since the recession officially ended in 2009, wages have actually declined for most U.S. workers. Inflation-adjusted or ‘real’ wages reflect workers’ true purchasing power; as real wages decline, so too does the amount of goods and services workers can buy with those wages. The failure of wages to merely keep pace with the cost of living is not a recent phenomenon. The declines in real wages since the Great Recession continue a decades-long trend of wage stagnation for workers in the United States...” The report contains the detailed statistical data to support these conclusions:

 http://www.nelp.org/content/uploads/Occupational-Wage-Declines-Since-the-Great-Recession.pdf

The numbers are sobering, a reminder that for most Americans, if they truly understood the magnitude of the problems, there are two massive issues that confront us today: security in an increasingly dangerous and hostile world and a dramatic and continuing downward “reset” in our average standard living. The red herrings of immigration reform and religious freedom make great political soundbites, but they hardly impact our daily lives like the two biggies above. Today’s blog is only about the latter issue, often buried under the mantra of increasing income inequality.

“The past year has been the best for the job market since the end of the recession. Employers have added, on average, 243,000 people to their payrolls each month. That would normally constitute a ‘hot’ job market, said Torsten Slok, chief international economist for Deutsche Bank Securities in New York… ‘When you see all those jobs being added per month, you think, ‘Come on, how can this be bad?,’ ’ Mr. Slok said. ‘But there has been a lot of pain and suffering, and people have been losing their skills or have not been able to re-skill.’… The roots of wage stagnation are deep, according to Mr. Slok.

“Some of it is linked to what he calls the ‘glacial changes’ wrought by macroeconomic forces like automation, demographics and globalization… Other factors are specific to the American economy, including the real estate boom and bust, consumer debt levels and continuing slack in the labor market because of relatively low demand compared with the still-large numbers of people who are looking for work or would return to the labor force if they had a better chance of finding a worthwhile job.” New York Times, September 2^nd.

That the tax code clearly favors those who invest over those who earn, even discriminating in favor of those who earn by representing investors (the so-called “carried interest” tax rates), that access to business capital (loans and equity) is cheap and easy for those at the top and almost impossible to get for those in the middle and at the bottom and that the rates of return attributed to productivity increases have moved away from labor and into the hands of the owners of the equipment that generates automated efficiencies… all aggregate to move the earnings gains to those at the top of the economic ladder while slowly eating away at the earning power for the majority of the rest of us.

We’re either going to solve these issues to the betterment of most of us or we are going to continue in our meaningless quest to find scape goats and simplistic slogans to avoid facing the bigger issues necessary to solve the problem. Polarization will only amplify. And in a world where money can buy more influence legally than at any time in our history, it is clear that most of those paying for these new Citizens United-empowered SuperPac ads are completely and totally dedicated to make sure those entitlements at the top stay just the way they are and that Americans continue to obsess about red herrings, ineffective and distorted slogans and scapegoats instead.

I’m Peter Dekom, and history teaches us that a society based on such obsessive falsehoods simply will not survive… that political polarization eventually results in a fracturing of the nation that does not deal with reality.

Shooting Ourselves in the Foot and Other Low Places

The U.S. Chamber of Commerce – a GOP stalwart – gets it some of the time. If stupid U.S. policies catering to special interests with an axe to grind have enough money (or enough financing to buy influence from well-heeled billionaires), they will endure. We had over 111 thousand “killed or missing” in the Japanese theater during World War II. We had over 47 thousand combat deaths during the Vietnam War. The Emperor of Japan still rules Japan (although under a democratic government). The same Communist Party still rules Vietnam. We have full diplomatic relations with both nations, lots of mutual tourism and trade, no sanctions and friendly relations. U.S. trade seriously opened freedoms and standards of livings in both countries.

We lost 4 soldiers in the Bay of Pigs invasion (1 during the Cuban Missile Crisis) in Cuban conflicts. We just created diplomatic ties with Cuba after half a century, but there are inane idiots in Congress who think that we need to continue to press that impoverished Caribbean nation with continued sanctions to bring them to heel, purportedly on human rights matters, while we continue to recognize dictatorships with brutal track records all over the rest of the world. Even Putin’s Russia! Oh, Cuba only has nice beaches, sugarcane, and no oil or other valuable mineral rights. Screw them, right?

Meanwhile, as trade opens up in Cuba, Canadians, Europeans, folks from other Latin American nations, China, etc., etc., etc. have no restrictions from their governments in investing, traveling and general trade. The U.S. Chamber of Commerce gets it and opposes the stupid limitations that continue to impede Americans operating with and within Cuba, while the rest of the world is laying their stakes in that tiny island nation. So you can pretty much label as an idiot anyone in Congress who thinks continuing a boycott against Cuba is in our best interests, just because some very old families, mostly in and around Florida, want their pound of flesh from the Castro regime. Who cares?! Or should we break ties with Japan and Vietnam too, lands where Americans suffered a whole lot more casualties than we have in Cuba.

So now we come to Iran, which is much more malevolent that mini-Cuba, and most of the developed world knows that. Switzerland has already lifted sanctions against Iran – opening up their incredibly important banking system to Tehran – and tons of European nations have given pretty clear signals that if Iran accepts the new nuclear containment accord, no matter what the United States does, they will lift their sanctions against this rogue nation. I have read stupid editorials how Iran will then have enough new money to fund a Hezbollah attack on Israel, so war with Israel is inevitable if the sanctions are released, or that when the accord expires (if not before) Iran will immediately unleash their nukes on Israel.

If we are worried about trigger-happy regional players, you only have to look at the Israeli PM, Benjamin Netanyahu, who has been actively lobbying the US to reject the Iran accord: “Israel's political leaders pushed to attack Iran at least three times in the past few years but had to back down on the advice of the military and due to concerns about its ally the United States, former defense minister Ehud Barak said… In interviews to his biographers aired late on [August 21^st] by Israel's Channel Two, Barak said he and Prime Minister Benjamin Netanyahu had wanted military operations against Iranian nuclear facilities in 2010, 2011 and 2012.” Huffington Post, August 22^nd. War may be their priority, but it shouldn’t be ours.

I am never going to tell you we should trust Iran. They are self-declared enemies of the United States. Verbal barbs fly back and forth all the time. I will never suggest that Iran does not foment global terrorism, although they now have their own terrorist group with Tehran’s destruction high on the priority list (even before turning on either the U.S. or Israel): ISIS. But since the sanctions we have driven the world to impose on Iran have failed to change their ways, knowing that most of the world is going to lift those sanctions no matter what we do, and unless we are willing to go to war unless we get 100% of what we have demanded from Iran – which demands will never be conceded without a complete and total military victory and regime change – exactly what is in it for us by going it alone against Iran?

Meanwhile, what would happen if Iran grew in economic stature? Would it be exempt in the rather dramatic changes have tamed rogue attackers of the United States over the years? Look at China, Vietnam, Germany, and Japan. Their economic success has given them too much to lose by drawing the United States into another massive war. Think if Cuba makes a pile of money through international trade, will they get more or less repressive? Precisely. Wouldn’t be a bad experiment in Palestine… if and when the ISIS threat is contained.

Forces inside Iran – powerful interests that will create jobs and stability for the country – are looking towards a brighter future. “When Iran’s Revolutionary Guards Corps took over the nation’s telecommunications monopoly in 2009, the move was denounced as another dark step in the hard-line military group’s seizure of the levers of power.

“‘It’s not just a matter of the Guards dominating the economy, but of controlling the state,’ Alireza Nader, an expert on Iran and the co-author of a comprehensive RAND Corporation report on the Revolutionary Guards, said at the time.

“Last month, however, the company, the Telecommunication Company of Iran, was put up for sale, as the Revolutionary Guards now seem more interested in cashing in on what Iranian leaders are hoping will be a flood of foreign investment if a nuclear deal with world powers gains final approval and sanctions are lifted.           

“And it is not just the Revolutionary Guards. During the past decade, well-connected Iranian investors amassed undervalued assets in poorly executed and frequently corrupt rounds of privatization, buying insurance companies, hospitals, refineries and public utilities, among other things previously run — usually poorly — by the state.” New York Times, August 21^st. So if we are trying to tame the extremists in Iran, it would seem a really good idea to (i) raise the stakes of what Iran could lose by fomenting global aggression and (ii) to elevate a new class of economic power brokers able to challenge and perhaps tame the Revolutionary Guards and their religious leaders. How subversive! Cackle cackle.

The horse is contemplating leaving the barn: “But with Western sanctions putting an ever-tightening stranglehold on the Iranian economy, finding buyers for the assets became next to impossible, especially in recent years. In the absence of outside investors, and no deep-pocketed private buyers in the country, Iranian investment companies fronting for state pension funds, military cooperatives and religious foundations bounced shares back and forth on the Tehran Stock Exchange just to make small profits.

“‘They had no one to sell to inside Iran but now, with the nuclear deal done, everything is falling into place,’ said one well-established Iranian-American consultant who asked to remain anonymous because his business activities are punishable under United States law as long as sanctions remain in place. ‘A lot of people here have started pulling out their calculators.’

“The potential sell-off began to take shape in July, as the nuclear agreement began to move toward a conclusion, economists say. That was when the Etemad-e-Mobin investment company, part of a cooperative fund belonging to the Revolutionary Guards Corps, put the Telecommunication Company of Iran on the selling block.” NY Times.

What is supremely lacking among American policy-makers, particularly in Congress, is pragmatism. We have so created an American electorate that passionately believes that they should elect politicians with slogans that sound good, ignore facts and the truth, and then complain vigorously when these politicians actually make things worse, much, much worse, by adhering to their inane slogans. Until Americans stop being repulsed by facts and truth, they will continue to unravel one of the greatest nations in the history of the earth.

I’m Peter Dekom, and leadership is not about following the polls or trying to “out-extreme” your opponent; it is doing what needs to be done for the betterment of the nation and convincing the American people that facts and truth are the real playing field… not meaningless and impractical slogans that make you feel good without a prayer of working.

Fund, Fund, Fund till Her Daddy Takes Her T-Bill Away

Global stock markets crashed, a sudden panic based on pent-up fears that have been festering long before the market peaked. Logic could not allow otherwise. Here in the United States, for example, we have experienced 12 consecutive years of contracting levels of average discretionary income, the money stuff consumers use to buy stuff. And while consumers have benefited from falling prices at the pump, a whole lot of companies have watched their underlying values erode. A contracting middle class is not a good bet for solid market growth.

There was only so much value-growing that could increase from laying people off, increasing the productivity of those who remain, financial restructuring, etc. There may have been bursts in pent-up consumer demand, like in the car marketplace, but remember that while Americans replaced their vehicles every two years in the 1960s; today it’s every eleven years. If people have less money to spend, then the companies they buy from will make less topline revenue! Duh! But the bond market has had its own special piece of this suffering.

Globally, economies from Europe (with its Greek crisis) saw the euro tank, China’s watching its manufacturing sector slip, Russia, Brazil and the Middle East (not to mention Canada and the United States) have witnessed a drop in oil and gas prices… and signs that bonds were everywhere slip-sliding away. Particularly government debt – look at our own Territory of Puerto Rico, our version of Greece – or debt based on governmental-supported commodities producers.

If bonds are priced in local currencies, and those currencies devalue voluntarily (China) or involuntarily (Europe), bond-holders from countries with stronger currencies lose. They could lose twice: once if the currency is worth less, but maybe again if that devaluation suggests a failing economy and perhaps an inability to honor the bond itself. For those nations who have borrowed (via bonds) from a nation with a strong currency (and in that stronger currency as their local currency falls), the bond debt has effectively skyrocketed by the amount of the devaluation. With a global malaise clearly returned, risks in the bond world are increasing… and risk means bond yields have to go up.

So much of American invested capital, maybe even money from your own pension plan, is socked away in this bond debt. It may not be directly obvious to you… it might be buried in that mutual fund that hides in the corner of your portfolio (if you even have a portfolio anymore) or in the investment portfolio of a corporate investment that supports the company’s retirement commitment to you. And the yields of bonds from emerging markets have been particularly hot in the last few years… but it is precisely in those emerging markets, or markets that are heavily based on the assumption of endless commodities growth, where the biggest issues have grown fast.

And trust me, whatever negativity Americans might feel about the countries from which many of these money emanate, American funds have been buying bonds from companies and governments all over the world. “Brazil, China, Malaysia, Russia, Turkey and others have sold more than $2 trillion in bonds, mostly to American mutual fund companies, since 2009. As this money flowed into their countries, financing skyscrapers in Istanbul and oil exploration in Brazil, economies and currencies strengthened… Now the reverse is occurring, led by a slowing Chinese economy, and as that money heads for safety, local currencies are plunging…

“Among the many beneficiaries of this largess were commodity-driven borrowers such as the state-owned oil companies Petrobras in Brazil and Pemex in Mexico [scandal land!], the Russian state-owned natural gas exporter Gazprom, and real estate developers in China.

“One of the more extreme cases of this bond market frenzy was Mongolia. In 2012, with expectations high that the relatively tiny economy would reap the benefits from China’s ceaseless appetite for raw materials, the government sold $1.5 billion worth of bonds, with demand from investors reaching $10 billion… That meant, in effect, that the country was in a position to borrow an amount twice the size of its $4 billion gross domestic product.

“Three years later, the International Monetary Fund is warning that Mongolia may not be able to make good on these loans — 14 percent of which are owned by Franklin Templeton, according to Bloomberg data — and the yields have shot up to about 9 percent from 4 percent… Of course, a Mongolian bond deal gone bust does not spell disaster. But it illustrates the risks global mutual fund investors were willing to take on in their desire to load up on high-yielding securities.” Landon Thomas, Jr. in Deal B%K.com, New York Times, August 22^nd.

This bond feeding frenzy has been massive, and U.S. trading companies are heavily invested. But today there are new risks, elevated to a “red alert” level. “In January, economists at the Bank for International Settlements, or B.I.S., a clearinghouse for global central banks, published a study that highlighted how fast dollar-based lending to companies and countries outside the United States had increased since the financial crisis — doubling to over $9 trillion.

“What struck the authors most was that this growth was coming not from global banks but from American mutual funds buying the bonds of emerging-market issuers… Large fund companies like BlackRock, Franklin Templeton and Pimco and have been inundated with money from investors eager to invest in the high-yielding bonds of emerging-market corporations and countries.

“For example, Pimco’s Total Return bond fund, which last year suffered the loss of its star manager, William H. Gross, and is a mainstay for investors with fairly conservative investment goals, has 21 percent of its $101 billion in assets invested in emerging-market bonds and derivatives…

“‘The growth rates for many of these countries were vastly overstated,’ said Dani Rodrik, a professor at the Harvard Kennedy School of Government who has studied the impact of foreign capital flows in developing economies. ‘It was all very unsustainable.’

“The selling spree has raised concerns among regulators and economists about a broader contagion that could make it difficult for individual investors to withdraw money from their mutual funds… While these funds do not use borrowed money, as did the banks that failed during the mortgage crisis, they have invested large sums in a wide variety of high-yielding bonds and bank loans that are not easy to sell — especially in a bear market.

“If investors ask to be repaid all at once — as happened in 2008 — a run-on-the-bank scenario could unfold because funds would have difficulty meeting the demands of people wanting their cash back.

“During previous global investment booms and busts, large commercial banks were the dominant overseas lenders. These institutions were just as prone to making bad lending decisions as bond investors, but they also tended to have longer-term relationships with their borrowers and were less likely to cut and run… Because large global banks suffered significant losses during the financial crisis and were forced to rein in their lending, more nimble — and fickle — bond investors stepped in.” NY Times.

You can picture what happens when a market begins to level trading expectations with hard economic reality. Not pretty, but it has happened and it is going to continue to happen. For emerging markets already under heavy debt loads, effective costs will grow, and God help them if they need more. But if panic sets in and buyers want their money…

I’m Peter Dekom, and what you don’t know can kill your or break your bank!

Subpoena Envy Long Gone

Hey, my son is married to a Jewish doctor, and what’s more, he’s not a lawyer! Wow! I must have done something right. He’s an investment banker, and the way to explain why being a lawyer wasn’t the smartest move, I summarized it for him this way (when he was making his career choices): it’s a personal service business based on constant confrontation with long hours and no exit strategy. You stop working, the income stops right there, and you can’t even take a successful law practice into the capital markets to cash in on your success. Because of state bar rules, you cannot sell a law practice to a non-lawyer. That was enough for him. But today, there are even more reasons why you “don’t let your children to grow up to be lawyers.”

With self-help forms online, lots of legal information just a Web-search away, even access to practicing lawyer for a low fee to get an answer to a specific question out there in the Worldwide Web, too many clients do their own simple legal work. Corporations are bringing tons of legal work in-house, often performed by paralegals with highly focused, if somewhat limited, expertise. They are capping fees, demanding benchmark performance billing or simple flat rate charges. Some won’t even pay for “lawyer training,” by refusing to pay for any legal work done by anyone with fewer than two years of experience. And fee renegotiation is now constant. Bottom-line, demand for lawyers has dropped like stone tossed off the Empire State Building.

Steven Harper’s Op-Ed in the August 25^th New York Times provides the ugly statistics: “TEN months after graduation, only 60 percent of the law school class of 2014 had found full-time long-term jobs that required them to pass the bar exam… Even that improvement over the class of 2013 (a 57 percent employment rate) came with three asterisks: Last year, the American Bar Association [disclosure: Dekom is a member] changed the job-reporting rules to give law schools an extra month for the class of 2014 to find jobs; graduates employed in law-school-funded positions count in the employment rate; and the number of jobs that require bar passage fell from 2013 to 2014.

“Amazingly (and perversely), law schools have been able to continue to raise tuition while producing nearly twice as many graduates as the job market has been able to absorb. How is this possible? Why hasn’t the market corrected itself? The answer is that, for a given school, the availability of federal loans for law students has no connection to their poor post-graduation employment outcomes.

“Students now amass law school loans averaging $127,000 for private schools and $88,000 for public ones. Since 2006 alone, law student debt has surged at inflation-adjusted rates of 25 percent for private schools and 34 percent for public schools.

“In May 2014, the A.B.A. created a task force to tackle this problem. According to its recent report, 25 percent of law schools obtain at least 88 percent of their total revenues from tuition. The average for all law schools is 69 percent. So law schools have a powerful incentive to maintain or increase enrollment, even if the employment outcomes are dismal for their graduates, especially at marginal schools.”

Doctors have to live with “managed care,” and face those early non-earning years of residency and fellowship where pay levels hover between $50-60,000/year while trying to manage six figure debt. But at least a medical school grad probably isn’t worried about getting a job. Most engineers and folks who are proficient writing computer code can find solid work as well. But among the once-highly-paid fields, lawyers are facing false employment promises, high tuition, and massive debt with limited ability for most to pay it back.

Law school enrollments are down, and many marginal law schools are disappearing. “Total enrollment in JD programs (including both full-time and part-time students) at the nation’s 204 ABA-approved law schools fell to 119,775 in 2014, down nearly 7 percent from 2013 and about 18.5 percent from its historic high of 147,525 in 2010, according to the data collected by the legal education section [of the American Bar Association].

“Enrollment data is included in the information reports that schools are required to file annually with the section, which is recognized by the U.S. Department of Education as the accrediting agency for JD programs in the United States… The last time total enrollment was so low, states a Dec. 16 [2014] news release announcing the enrollment numbers, was 1987—when there were 29 fewer ABA-approved law schools than there are today.” ABA Journal, March 1^st. For those third level, non-ABA-approved law schools, enrollments are abysmal and true post-graduating jobs requiring a legal degree are even more elusive. The staggering, six figure debt, however, is horribly real.

Where you go to law school and where you rank in your graduating class do matter. But unlike many other degrees, getting J.D. generally means that the student is in fact paying for (including borrowing) most of their tuition. Harper continues with some harsh words for the ABA legal biz watchdog: “In May 2014, the A.B.A. created a task force to tackle this problem. According to its recent report, 25 percent of law schools obtain at least 88 percent of their total revenues from tuition. The average for all law schools is 69 percent. So law schools have a powerful incentive to maintain or increase enrollment, even if the employment outcomes are dismal for their graduates, especially at marginal schools…

“The task force report said that some witnesses proposed ‘capping law student loans, requiring law schools to have ‘skin in the game’ by being responsible for loan repayment in certain situations, and even scrapping the current federal student loan program altogether.’ It characterized proponents of such measures as hoping ‘that a kind of fiscal tough love will force schools to become more financially responsible and reduce cost.’

“But the task force argued that ‘there seems to be little need to impose the kind of tough love some want because the market is already doing it.'.. Except that the market is doing no such thing. While enrollment did decline to about 38,000 last year from 52,000 in 2010, it has not been falling at the pace necessary to reach equilibrium in a stagnant legal job market. Too many incoming law school students still believe they will be among the lucky few who get decent jobs.

“[The ABA] task force, having dodged the issues that should have been the focus of its work, offered four suggestions: law schools should offer students better debt counseling; the Department of Education should develop ‘plain English’ disclosure information about student loans; the A.B.A. should collect and disseminate information about how law schools spend their money; and the A.B.A. should encourage law schools to experiment on curriculums and programs.” And before young men and women apply to law school, someone better tell them exactly what risks they are about to assume.

I’m Peter Dekom, and economic transitions require a shift in underlying educational policies and decision criteria.