Banking on the West Bank

The rise of modern Islamic fundamentalism can be traced to one overriding concept: betrayal. The militancy that has flowed within this tide has been a gesture of empowerment, power that negates the humiliation of Muslim nations that have slid, first as colonial holdings of the West, and second as undereducated barbarians with too much oil money, as the Western perception goes.

During our “Dark Ages,” the Islamic world preserved the classic books that were being burned in Europe, they invented modern mathematics (try working with Roman numerals; algebra is an Arabic word), advanced modern geography and expanded scientific research. During the Spanish Inquisition, as non-Christians were tortured and slaughtered, Jews fled to Islamic lands where they could live without fear. How times have changed.

The collapse of the decadent Ottoman Empire, described in the 1800s as the “sick man of Europe,” a fate firmly sealed with the loss in World War I, brought the Islamic world, particularly in the Middle East, down into the mire of second and third class citizenship. Even as Muslim nations found “independence” in the years following World War II, it was often in the form of a Western-appointed monarchy (the CIA has its hand it establishing the Pahlavi regime in Iran, a monarchy that was toppled in the 1979 Islamic revolution) or a dictator with a very large Swiss bank account.

As a teenaged step-son of a U.S. diplomat stationed in Beirut, Lebanon during the 1960s, I witnessed firsthand the general belief across most of the Middle East that their standards of living would rise to match those in the West, often depicted in American film and television programs. But educational, health and economic prospects, outside of the big oil-producing regions, were then dimmed. Corrupt leaders fattened their bank accounts. Bribery was a way of life. Anger seeped in. the local leadership need “Israel” to refocus that anger – initially directed at Arab leadership – towards an extrinsic scapegoat. The plan worked brilliantly.

Which brings me to one of the possible longer-term solutions to Islamist fundamentalism and the Palestinian “problem”: prosperity. In American geo-political “speak,” “it’s the economy stupid.” People with nothing to lose are a whole lot more dangerous than people with a genuine sense of economic well-being. There are seeds of a positive economic shift in what was once the hotbed of Palestinian radicalism under one of the most corrupt factions of local government: the West bank – that slot of land still under Israeli control that is home to the more moderate, Fatah-controlled, Palestinian leadership.

Fatah, the party of now-deceased Yasser Arafat and once viewed to be profoundly corrupt, was toppled in recent elections by the profoundly anti-Israeli Islamist Hamas, a party that still rules in that other parcel of Palestinian land wedged at the Egyptian border, Gaza. In January of 2006, the unthinkable happened. A Reuters report at the time: “Hamas's capture of 76 seats in the 132-member parliament against 43 for Fatah was widely seen as a political earthquake in the Middle East, triggered by voter disenchantment with corruption and the failure of peace efforts.” Israel and the West could not support the Hamas victory, and the split of Hamas and Fatah rule (Gaza/West Bank, respectively) came about.

Fatah seemed to understand how far it had fallen, how removed its corrupt leadership had become from the people it claimed to represent. The July 17^th New York Times writes about a different West Bank (from the town of Nablus) today: “The first movie theater to operate in this Palestinian city in two decades opened its doors in late June. Palestinian policemen standing beneath new traffic lights are checking cars for seat belt violations. One-month-old parking meters are filling with the coins of shoppers. Music stores are blasting love songs into the street, and no nationalist or Islamist scold is forcing them to stop…

“The International Monetary Fund is about to issue its first upbeat report in years for the West Bank, forecasting a 7 percent growth rate for 2009. Car sales in 2008 were double those of 2007. Construction on the first new Palestinian town in decades, for 40,000, will begin early next year north of Ramallah. In Jenin, a seven-story store called Herbawi Home Furnishings has opened, containing the latest espresso machines. Two weeks ago, the Israeli military shut its obtrusive nine-year-old checkpoint at the entrance to this city, part of a series of reductions in security measures…

“[A recent opinion poll] in the West Bank and Gaza by the Jerusalem Media and Communications Center, a Palestinian news agency, found that Fatah was seen as far more trustworthy than Hamas — 35 percent versus 19 percent — a significant shift from the organization’s poll in January, when Hamas appeared to be at least as trustworthy.” If there is to be peace and security in the region, it seems obvious that there also must be prosperity… and in the long run, economic support may be considerably less expensive that the vast military machine required for any other solution.

I’m Peter Dekom, and I approve this message.

Re-flation

Exactly what are the barriers that have to be overcome to reemploy the hordes of folks (the government tells us 7.2 million Americans) who have lost their jobs in this “recession”? Mortimer Zukerman (chairman and editor in chief of U.S. News & World Report) tackled that question in his op-ed “The Economy is Even Worse than You Think” piece in the July 14^th Wall Street Journal. He used the government’s own numbers, mostly generated by the Bureau of Labor Statistics, to look at the “slack” in the unemployment picture that has to be taken up before we start seeing people going back to work in the numbers that really matter.

The hard unemployment statistics, sitting at 9.5% across the national level, covers non-seasonal job loss (and excludes farm workers). It also requires that a member in this statistical cohort have actively looked for a job within the prior four weeks (1.2 million people or .78% of the workforce) and not have any occasional or part-time employment (9 million people or 5.8% of the workforce, a number that has doubled during the “recession”). Add those numbers back into the basic number and you have a national statistic of 16.5% representing the government’s own “alternative measurement” for unemployment.

The July 15^th New York Times points out how much worse the numbers can get if you look at this alternative measurement in individual states instead of just the national numbers: “[T]he rate reached 23.5 percent in Oregon this spring, according to a New York Times analysis of state-by-state data. It was 21.5 percent in both Michigan and Rhode Island and 20.3 percent in California. In Tennessee, Nevada and several other states that have relied heavily on manufacturing or housing, the rate was just under 20 percent this spring and may have since surpassed it.” That’s about one in five of the total workforce in these states that would like full time employment and aren’t able to find such jobs!

Want to play with numbers a little more? CNNMoney.com (July 18^th): “In the next few weeks, the victims of the mass layoffs that happened six months ago -- when the pace of layoffs was at its zenith -- will start running out of their basic benefits. A total of 4.4 million people are expected to face this fate -- or 65% of the entire filing population… The Labor Department doesn't track anyone who has moved beyond 26 weeks of unemployment in its weekly data on continuing claims (the number of people who request benefits after their first week). And, said Stella Cromartie, spokeswoman for the Bureau of Labor Statistics, said the agency does not currently have plans to begin tracking this population…. As a result, by late summer the government may begin reporting significant declines in continuing filers. But it won't be cause for celebration. Instead of of indicating that the economy is on the rebound, it could mean that more people are falling off the radar.” 650,000 Americans will run out of all unemployment benefit by September.

Back to the national numbers, Zuckerman challenges some of the government’s employment numbers as bordering on fictional: “June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.”

He also noted that the government does not take into account those who have been asked to take “unpaid leave” and notes that most workers who remain in the active workforce have reduced hours: “The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).”

Add these harsh statistics to the fact that re-employment after a recession is a trailing economic indicator; people add jobs only when they are relatively certain that there are buyers of the relevant goods and services waiting in the wings, ready to absorb the extra output. They tend not to spend their elusive dollars hoping there will be buyers.

So when any semblance of an economy quivers with new life, the unpaid leave-takers will come back first, the idle capacity of the existing workforce will be filled (maybe even with some overtime), a few part-timers will transition to full time, and to the extent the jobs that were eliminated during the recession were not a part of a permanent downsizing (like we have seen in both the financial and automotive sectors), we will see a very slow effort to rehire for the remaining jobs and perhaps a few new jobs created in this new economy.

States dealing with budgetary shortfalls and deficits are rolling governmental bureaucrats out the door faster than the federal stimulus budget can fill the void. Strains on their social safety net systems are cracking local governments who are reeling with their eroded income tax base, falling property values and declining sales tax revenues as consumers stay and home and sit on their dwindling cash.

If we are bottoming out or hit that low point in the near term, there is absolutely no reason for any of us to expect our economy to leap and bound with any modicum of joy for quite a while. We have a lot of overt and covert unemployment to absorb before our balloons re-inflate. The July 16^th Washington Post reports that “the Federal Reserve projected that the unemployment rate may surpass 10 percent by year’s end and warned that the economy may not return to full health for at least five years.” The road is long and hard.

I’m Peter Dekom, and I approve this message.

A Community of Interests

For lots of young people in today’s marketplace, the step to a four-year college is an insurmountable financial burden; for others, the path to higher education involves developing and immediately marketable skill-set, one that doesn’t take lots of expensive post-high school training and certification. Enter the unsung hero of our nation’s educational system: the two-year, community college.

With half this country’s college students enrolled in this second tier educational system, community colleges have become the backbone for job-training at higher, more “value-added” levels mandated by a shifting and highly competitive global economy. The Obama administration proposed the American Graduation Initiative to pump $12 billion into community colleges and add 5 million new graduates by 2020. According to thehe July 15^th Washington Post, to achieve that goal, Obama’s new initiative “includes $2.5 billion for construction and renovation at the nation's community colleges, $500 million to develop new online courses and $9 billion for ‘challenge grants’ aimed at spurring innovation at the colleges.”

The achievements of this underrated segment of higher education are equally impressive. The July 20^th edition of Time Magazine: “These institutions are our nation's trade schools, training 59% of our new nurses as well as cranking out wind-farm technicians and video-game designers — jobs that, despite ballooning unemployment overall, abound for adequately skilled workers. Community-college graduates earn up to 30% more than high school grads, a boon that helps state and local governments reap a 16% return on every dollar they invest in community colleges. But our failure to improve graduation rates at these schools is a big part of the achievement gap between the U.S. and other countries. As unfilled jobs continue to head overseas, Obama points to the ‘national-security implication’ of the widening gap. Closing it, according to an April report from McKinsey & Co., would have added as much as $2.3 trillion, or 16%, to our 2008 GDP.”

Community colleges can adapt to changing technologies, provide access to adult education at a reasonable price – essential as obsolescence and a bad economy terminate the value of so many job skills – and are reasonably spread out across the entire nation. The bad news is that many of these schools have had large funding cuts just as enrollments rise, and their graduation rates – a prerequisite to the job-value-creation – are abysmal.

Time: “Only 31% of community-college students who set out to get a degree complete it within six years, whereas 58% of students at four-year schools graduate within that time frame. Students from middle-class or wealthy families are nearly five times more likely to earn a college degree as their poorer peers are. In 2007, 66% of white Americans ages 25 to 29 had completed at least some college, compared with 50% of African Americans and 34% of Hispanics.” And this is where the growth is: “Two-year schools have been growing faster than four-year institutions, with the number of students they educate increasing more than sevenfold since 1963, compared with a near tripling at four-year schools. Yet federal funding has held virtually steady over the past 20 years for community colleges, while four-year schools' funding has increased.”

The emphasis on mentoring, perhaps from local companies, and paying more individual attention to these students are part of the effort that we need. Not having graduates is a waste, not only in human power, but in the educational resources that they consumed towards their personal “bridge to nowhere,” resources that could have been applied towards the other students and the general upgrade of the facilities and teaching staff. Encouragement and community support are as essential as the maintenance of the structures themselves. It’s time to understand the importance of this segment of our educational world to our future as a great nation.

I’m Peter Dekom, and I approve this message.

Get Out of Jail – Free

It costs a lot of money to keep and inmate in jail (averaging around $80/day) and not a whole lot of money to supervise a parolee ($3.50 per day average). Politicians got elected on a “get tough on crime” policy, stiffening sentences, denying leniency and clamping down on those on the wrong side of the tracks. The sentencing reform acts that staggered through the states and the federal government in the last two decades led to the United States having some of the longest sentences on earth, and for a nation with about 5% of the earth’s total population, we have about a quarter of her incarcerated inmates!

The federal criminal justice system doesn’t even have parole, and except for about a 15% reduction for “good behavior,” a felon under the federal system can pretty much rest (pun intended) assured that they will serve the entirety of his/her sentence. When you see absurdly long sentences, like 150 years for Bernie Madoff, it’s all about the kind of prison they will serve in, since even a 20 year sentence would likely exceed Mr. Madoff’s “best case” life expectancy. He’s not doing time in a minimum security facility!

Drugs, directly or indirectly, account for most of those behind bars – dealers, users, folks stealing to get drugs, people committing violent crimes while under the influence of drugs, gangs dedicated to the shipment and distribution of drugs, turf wars over drug routes and “drug territory,” etc. Former Mexican President, Vicente Fox, stopped a measure that would have decriminalized some drug crimes back in 2006, but with the renewed violence in his home country, he recently suggested that the taxation and decriminalization of such crimes are issues that need to be revisited.

Even California’s Republican governor, Arnold Schwarzenegger, called for a review of the State’s position on marijuana: “It's time for a debate... I think all of those ideas of creating extra revenues, I'm always for an open debate on it. And I think we ought to study very carefully what other countries are doing that have legalized marijuana and other drugs,” he said in May of this year. A change of political heart or an economic necessity as states are running out of money to house inmates?

Alternative sentencing structures, the New York “drug courts” (where treatment under threat of incarceration is applied to many cases) and shorter times in prison are all on the table these days. The July 13^th Washington Post: “States have also begun to shorten probation and to reduce the number of people sent to prison for technical violations, such as missing appointments. Some states are also more readily granting parole to prisoners as they become eligible, reversing a trend that kept even parole-eligible inmates locked up longer.

“These trends are showing up almost everywhere as a direct response to governors and state legislatures looking with alarm at prison costs eating up increasing shares of their budgets. According to Adam Gelb, director of the Public Safety Performance Project for the Pew Center on the States, more than half the states and the District are trying to reduce the growth in their prison populations through alternative sentencing and through new probation and parole procedures… ‘The economy is bringing a lot of states to the table,’ Gelb said, ‘and the research has pointed to a path for them to more public safety at less cost.’”

When states are entertaining mass releases of inmates from prison to recue costs, you really have to wonder why we had to spend all that money, build all those prisons, and increase mandatory time in prison for various crimes in the first place. A bandwagon seems to be a very bad place to launch legislation that we will, sooner or later, come to regret.

I’m Peter Dekom, and I approve this message.

Fergetboutit!

So with home sales through the floor, the “American Dream” – a home – having lost most if not all of the “investment” because residential real estate values have fallen below the floor into the basement, you’d think that the government would be doing everything it can to restore the market. Like an $8,000 first time homebuyers federal tax credit? Or having increased the high level loans that Fannie Mae (the effective federal buyer/guarantor of mortgages – the buyer that gives banks comfort) will back to $729,750 (the limit for a “conforming” loan in high cost areas)? That should work, right?

But borrowing is what got us all into this mess in the first place, so we really need to make sure that borrowers buying anything are exceptionally solid. Never again, right?! Banks are turning down buyers right and left, people who would seem to be exceptionally low risks even in this abominable market, to make sure they don’t get stuck with non-performing loans… ever again. Plus, between credit card defaults and new commercial real estate failures, as banks try and “deleverage” (reduce their debt to equity ratios), there isn’t as much money to lend as people – including the government – might believe.

The rules have changed; the pendulum has swung from easy credit to “fergetboutit” rules imposed on borrowers. I mean when you apply for a loan, should you be able to show the full value of stocks and bonds as part of your net worth, right? If you’ve got a job and it looks like you’re gonna keep it, that’s a great sign, right? If your federal tax return shows great in bad times, that is enough, ya think?

Catch-22. OK, let’s look at reality. Terrified banks pretty much won’t lend money in real estate transactions that fall outside of Fannie Mae’s rules. So Fannie Mae seems effectively to have set the regulations for almost all current American residential real estate transactions. And these rules are much tougher than they ever were for obvious reasons.

Fannie Mae requires that lenders allow only 70% of the value of stocks and mutual funds to be included in the applicant’s definition. If you have less than 20% to put down, it’s not happening. If your income rolls up and down (read: self-employed, entrepreneurs, professionals like doctors and lawyers, etc.) – too much risk or variation – prepare for the moment of rejection. Self-employed? Oy! Not happening. If you don’t have enough in the way of past federal income tax returns showing consistent income, well, that’s “bad.” And your credit rating has probably dropped, because the standards have changed.

If you need more than what is an acceptable “conforming loan” for where you live, banks just won’t “go there.” So in areas of the United States where home prices are a lot higher than the national average – coastal urban cities in west, for example – property sales have crawled to about 1/5 of the prior “normal” level of activity. These aren’t the sub-prime borrowers, but that part of the market that most real estate professional feel best about… er… felt. When loans exceed the local Fannie Mae limits, so-called “jumbos” loans have all but disappeared. High end, top-of-the-market “boy are you rich” homes require a whole lot of cash or a loan that simply is based on entirely different relationship between the borrower and the bank.

There are lots of trends that are working against home sales even without these limitations. Even beyond the high unemployment rate and general market uncertainty. For those who were willing to bear horrendous commute times to get a piece of the American Dream – a rapidly-appreciating home – since there is no such appreciation, those properties in the distant urban hinterlands have plunged to levels that suggest that such homes will not be worth even their cost to construct anytime in the foreseeable future. Nobody is buying them.

While the sale of distressed properties tends to dominate the market, traditional market-drivers are notably absent. The July 11^th New York Times: “Lately, the continued deep-freeze in the traditional market has to some extent been veiled by the brisk sale of foreclosed houses. In April, distressed transactions made up nearly half of all existing house and condo sales, the National Association of Realtors said. In May, they were a third. .. That means traditional or so-called move-up sales, where the parties at both ends of the transaction are individuals instead of banks, are limping along at an annual rate of about three million, the lowest figure in a quarter-century.”

Bottom line: In the past, if a home lender made a mistake, rapid appreciation would cover up that error relatively quickly. Without appreciation, that backstop is gone. You have to assume that the house will either stay at the same value, or – hate to say this – depreciate a bit below the sales price. Lending mistakes are only amplified in this environment. But won’t we get back to “real estate as usual” in the near term? The Times: “‘Without further action, we’re not going to stabilize,’ said Steve Murray of Real Trends, a Denver research group. ‘The real estate recovery will take 10 or 12 years.’” Oy!

I’m Peter Dekom, and I approve this message.

Political Dick Jokes

I was watching a political commentator discussing the possible decision of the Attorney General, Eric Holder – seemingly defying President Obama’s overall reluctance to prosecute and investigate the any possible sins of the Bush administration as they may relate to “dark ops,” suborning torture or other potentially “illegal” activities associated with “fighting terrorism” – in appointing an independent investigator to ascertain if our intelligence agencies lied to or otherwise misled the Congressional oversight committees and if they were directed to do so by then Vice President Richard Cheney. The commentator remarked that whenever the news of the bad economy escalates – as it did as unemployment numbers, home sales and values and retail sales continue to tank at record levels – a new “horrible” surfaces about the Bush administration.

So is this latest set of “political distractions” meant to pull national attention away from the harsh economy or a legitimate inquiry? Does anyone really think that anything whatsoever would distract the American people from their economic meltdown? Ignore the frozen economy, the vast ranks of the unemployed and the fact that not only is this debacle going to drag on, the notion of a genuine recovery has been replaced with the underlying acceptance that this was a big economic reset to “reality”? And even if somehow we “stupid” Americans are so easily distracted from the most desperate times in their personal lives, is that a reason not to follow an illicit trail?

During his recent speech in Ghana , as the President chastised many African nations where brutality is a way of life, where corruption is a daily necessity and where dictators routinely siphon massive dollars from their people to be placed in numbered Swiss bank accounts, he said: “ Africa doesn’t need strongmen. It needs strong institutions.” But isn’t that exactly what defines the United States ? The institutional separation of the judicial, executive and legislative branches – the brilliant “checks and balances” created by our founders – is at the core of what makes the American form of government great. Any attempt to remove or limit this self-limiting system is a horrific threat to our democratic principles, a challenge to the very survivability of our way of life.

In 1937, President Franklin D. Roosevelt, a Democrat, attempted to dilute the Supreme Court’s power, because they used protection of property rights to reverse many of his programs. Wikipedia: “During Roosevelt's first term in office, the Supreme Court had struck down several prominent New Deal measures designed to bolster economic recovery during the Great Depression, leading to charges that a narrow majority faction of the court was obstructionist and political.”

Shortly after his reelection in 1936, Roosevelt vowed to change the status quo accordingly; he proposed the Judicary Reorganization Bill of 1937: “Although the bill aimed generally to overhaul and modernize all of the federal court system, its most important provision would have granted the President power to appoint an additional Justice to the U.S. Supreme Court for every sitting member over the age of 70½, up to a maximum of six.” Because Roosevelt could add justices to the Supreme Court, diluting the power of the sitting justices accordingly, the move was referred to frequently as his effort to “pack the court.” The move was soundly defeated in the U.S. Senate (70-20), where the system of checks and balances worked quite well obviously.

Vice President Cheney railed at the limitations that Congress has placed on the executive branch of government after the Vietnam War; he believed that in modern times, where threats developed quickly and changed rapidly, Congressional oversight – the system of checks and balances – was ill-suited to deal with extreme crises. He harkened back to ancient Roman times when a single senator was selected by the body politic to lead the country as a virtual dictator during times of dire emergency. More than one such dictator lingered at the top well past the crisis, I might add, and the notion of the Roman Senate seemed to destroy itself accordingly.

This “unitary executive” theory of government, at the heart of Cheney’s passionate belief system, is at profound odds with the system of checks and balances envisioned by our founding fathers. Putting aside the battle of whether or not America defied the Geneva Conventions or the United Nations Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment with its interrogation methods, there is a huge underlying question that rides to the heart of our form of government: did the office of the President or the Vice President of the United States threaten to undermine or destroy the very system of checks and balances that defines our democracy?

AG Holder has pledged to “follow the facts and the law.” He said in an interview with Newsweek: “I hope that whatever decision I make would not have a negative impact on the president's agenda… But that can't be a part of my decision.” Maybe the line was not crossed, but for America to survive as a nation, we need to preserve the underlying and constitutional fundamentals upon which our government is based. Was the “secret information” simply a nascent CIA plan – never finalized or implemented – to assassinate Al Qaeda leaders, as some have claimed, or something more? Is this much ado about nothing or a challenge to our basic form of government?

We need to find out and make sure that the constitution cannot be rewritten by any individual. This is not about protecting Americans from terrorism; it is about protecting our form of government from those who might choose to ignore those aspects of our democracy that might be inconvenient at any given moment. Who is empowered to make such decisions?

I’m Peter Dekom, and I approve this message.

Getting Really Lubricated

Folks like T. Boone Pickens are telling us that oil will hit its all-time $145/barrel within three years ($75.00 oil by the end of 2009, $80 to $85 per barrel as an average price for 2010). And it sure looked like we were heading there after oil bottomed out at $33/barrel, when in a few short months, the price of oil more than doubled. As the government tried to cast bad news (unemployment was rising to horrible levels) as good news (unemployment is not growing quite as fast as it was a month ago), trying to suggest that we are hitting bottom (even as home sales, home prices, the number of employed Americans, the wages of the employed, retail sales, etc. continue to erode to new depths), speculators bid up the price of oil in anticipation of a “recovery.”

The stock market was soaring (however briefly) in yet another bear rally, when the harsh reality finally struck home: we are nowhere near anything remotely like a recovery. We may be sliding more slowly, but we are sliding. Credit markets are frozen more solidly than when the bank stimulus checks were handed out, commercial real estate is plunging and credit card defaults are soaring. Losing jobs and losing consumer activity in the marketplace (consumer activity is 70% of the economy) is not growth or recovery.

Even Wall Street guru Warren Buffet, in an interview on ABC’s Good Morning America on July 9^th, noted that the balance of 2009 was likely going to be “rough,” and that the U.S. probably needs another large federal stimulus package to finish the job that the first package has barely started. He likened the first stimulus bill to a half a tablet of Viagra and having a bunch of candy mixed in. He might stand to benefit in the decline in the dollar that might accompany such a second hit to our humongous deficit, but he’s clearly not tooting the recovery horn.

True the International Monetary Fund, in their mid-year report, adjusted their prediction of global contraction from 1.4% to 1.3%, that the 2009 contraction for the United States will be 2.8% (versus an average from the advanced economies of 3.8%) and projecting very slight growth for the U.S. in 2010 of 0.8%. But we are still contracting! Look at the IMF’s numbers for China during this turmoil: 7.5% growth in 2009, and 8.5% in 2010. The emerging nations are where the action is; global growth is projected to hit 2.5% but not because of the Western economies.

So we get back to the price of oil. I wouldn’t count on its plunging anytime soon, but it could fall back down to $50/barrel according to some. It seems that OPEC has been pretty effective in keeping its member states at reducing oil supplies to keep prices higher than demand conditions might otherwise dictate, but there are signs that the 80% compliance (to reduced production) of OPEC states might be falling, down to 75% according to a report in the July 9^th New York Times, signs of a potential weakening in the price of oil.

Bottom line: people don’t consume more oil when they don’t drive or travel as much, when factories do not manufacture at the same levels, when shipments of goods are reduced. You may see spikes in the price as speculators think some corner or another is being turned, but use common sense. If you see lighter traffic in your home town, see continuous sales as stores try and dump inventory, take a guess what that means to demand for petroleum-based products.

In a strange way, a bona fide increase in the price of oil based on a bona fide increase in demand is actually a good thing. It means stuff is moving again, folks are driving and traveling, factories are drawing power and making stuff. Until we see these signs for ourselves, we are just being lubricated with political spin about a bottoming out that is still in our future… a bottoming out that must precede any so-called recovery, however snail-like it may become.

I’m Peter Dekom, and I approve this message.

Dying by Your Assumptions

If economists are right, if what this financial meltdown represents is not just a recession/ managed depression (or whatever you want to call it), but a complete value and expectation reset for modern society, exactly what are the assumptions of most Americans about the future? Are we expecting a “recovery” that will slowly bring us back to where we were?

Ask yourself what you think life will be like in the future. You can ask political questions. Like: As the Kurds announce that they are creating their own constitution and claiming oil and gas producing sections of Iraq, was our assumption that Iraq can function as a unified nation just an unrealistic wish? Do we assume that Pakistan will figure out how to keep their 60-70 nuclear weapons free from Islamist militants or that we will bring Afghanistan to heel? Will there be another massive 9/11-like attack on our soil anytime soon?

Or you can ask economic questions (they are nearer and dearer to each of us at this moment, I suspect). Like: Will the dollar hyper-inflate based on excessive borrowings such that foreign travel, muscle cars and chi chi imports will only be accorded to the mega-rich? Or is that an irrational concern? We are watching as the remaining Wall Street firms are slathering once again in high levels of bonuses and perks, pulling away from TARP restrictions where they apply and if they can. Our “too big to fail” structures seems to be lumbering along, still freezing credit and still hardly serving to restabilize the economy as we has hoped.

We have horrifically high unemployment; even the Obama administration predicted the basic unemployment rate wouldn’t top 8%, then 8.5%, but we are heading to 10%+. Exactly what new jobs will open up in the near term to absorb all that excess capacity? What will be people actually do to make a living? Will they earn anywhere close to what was paid in the past? Are those jobs even sustainable in a world of rising global educational standards (as ours fall), capital and value shifts away from the U.S. and towards Asia and an economy hanging on by a stimulus package that carries an expiration date?

We have watched as professional schools (graduate business, law and medical schools) have tripled their costs relative to the cost of living, imposed crushing debt-loads on their students upon graduation, only to find their grads littered in the trash-heaps of unemployment. Can well-paid professors in esteemed institutions continue to dole out expensive educations that cannot generate enough money to repay the tuition burden? We still don’t turn out enough engineers, but West Los Angeles has more lawyers than Japan. As state budgets sequentially fail to balance – some are particularly out of whack like California’s – we are sacrificing education as an expendable discretionary cost.

Folks who work in big companies or are supported by powerful unions, have great benefits and terrific pensions, might want to take a long careful look at companies that just a few years ago were are the top of the food chain, but have failed. The reconfigured General Motors is a new company; it has shed the collective bargaining agreements and benefits packages of old, laid-off thousands of management employees who have been with the company for decades, terminated thousands of car dealerships, shuttered factories everywhere, dropped entire brands of cars, etc. Where is your company in this mix? If you’re still working. Where will your employer be in four years? How complacent can anyone afford to be in a world of hyper-accelerating change? Four years ago, analysts hailed GM as solid as a rock, the largest car manufacturer on earth.

I was reading in July 10^th Washington Post that the F-22 fighter jet is costing way more to operate than the military expected – $44,000 per hour to be exact – because maintenance was so high. I was just thinking that every hour of operation of these marvelous machines is about the cost of another U.S. job. We live in a hostile world with lots of nasty people wishing us ill. But how do we meet the expectation that we can actually afford to keep building a military response at these atmospheric costs? Do we just assume that we will?

The problem with this “reset” notion is that America was built on her expectations – and those crazy enough to pursue these dreams. There were a lot fewer rules then and capital was easier to get. I’d like to think that while we die on our assumptions, if your expectations are “right-minded,” our hope for a brighter future relies on new, realistic expectations. But when assumptions about the future look more like complacency, we need to be on red alert. This is definitely not a drill! The one sure thing is that the future will look nothing like the past.

I’m Peter Dekom, and I approve this message.

Better Stimulate than Never?

I’ve blogged about how unpredictable fuel prices and the collapse of the “sub-prime starter home” distant suburban cookie-cutter communities are pushing people back towards the cities. In fact, the vast majority of Americans live in cities (or their immediate environs). And just about anybody in Any-City, USA can tell you about the potholes, failing concrete foundations on bridges and tunnels, the cracked streets and sidewalks. Failing dams, leaking levees, and ancient pipes (particularly on the eastern part of the country) add to this mass of failing infrastructure and deferred maintenance (from contracting state and local budgets) disasters.

So all of the 50 states, given a June 30 deadline to submit projects for the federal American Recovery and Reinvestment Act (the big stimulus bill), were on time to sip at the federal trough, an initial installment of $16.4 billion. Are the states addressing these pressing urban issues, fixing what we have before we lose it or… something else? Yeah, something else. When you have a state, deciding about how to allocate federal money, it seems necessary to spread the wealth around to all of the relevant constituencies… not to solve the obvious and immediate problems.

“Oh no,” you squeal, “the government can’t be sacrificing the greater good for the people simply to appease the political ambitions”? You sound as jaded as I do. Funny, I bet you know where this is going before I get there, and there is shame in that fact. The New York Times (July 8^th) noted that the 100 largest cities, with the greatest infrastructure problem (and with 2/3 of the American population and responsible for 75% of the nation’s economy), are getting around half of the stimulus package in this round of expenditures.

The Times: “‘If we’re trying to recover the nation’s economy, we should be focusing where the economy is, which is in these large areas,’ said Robert Puentes, a senior fellow at the Brookings Institution’s Metropolitan Policy Program, which advocates more targeted spending. ‘But states take this peanut-butter approach, taking the dollars and spreading them around very thinly, rather than taking the dollars and concentrating them where the most complex transportation problems are.’ … [T]he projects [that were approved] … offered vivid evidence that metropolitan areas are losing the struggle for stimulus money. Seattle found itself shut out when lawmakers in the State of Washington divided the first pot of stimulus money. Missouri has directed nearly half its money to 89 small counties which, together, make up only a quarter of the state’s population…

“Cleveland was initially promised $200 million of Ohio’s stimulus money to help build a five-lane bridge to replace the 50-year-old Innerbelt Bridge, which is so deteriorated that officials banned heavy truck traffic on it last fall. But state officials, worried about meeting federal deadlines, took back $115 million in stimulus money and decided to use it on shovel-ready projects elsewhere.” Why are we building new projects when it is clear that without some immediate major retrofitting and repair, we are going to lose the value of billions if not trillions of dollars of earlier infrastructure investments? And why are we spending disproportionate money on rural infrastructural matters when the country clearly needs a different priority?

About half the money is targeted for road repair, one tenth for bridge replacement or repair, but there is this “cart-horse” thing. And if you want quick job-creation, perhaps even sustainable jobs, there is nothing like maintaining and fixing what we already have. Not that there isn’t a place for new infrastructure; it’s just a question of priorities and avoiding satisfying political mandates at the expense of doing what we need to rebuild an ailing nation.

I’m Peter Dekom, and I approve this message.

Who Will “Just Say No”?

How would you like to be told that a medical treatment that could make your life tolerable or might even save your life is simply too expensive to administer? How would you like to know you will die unless you get a certain treatment? Perhaps you would prefer to be confronted with knowing that the injury you have suffered, which prevents you from getting out of bed and going back to work, is insufficiently life-threatening for moving up the date for the required corrective surgery – you’ll have to wait a few months for the new budget year? Does it matter if you are past a certain age? Does it matter if the life-extending procedure will add one more year to your life? Five? Ten? Does it matter if you have platinum insurance or are reliant on the garden-variety provided under a new national healthcare plan?

As Congress and the President grapple with the magnitude of the cost of national healthcare, these are some of the most difficult questions facing our government. Who is going to decide that “enough” is “enough”? We order five times the MRIs that are ordered in Germany. As I have pointed out in a recent blog, a large portion of the $2.5 trillion of healthcare costs in the U.S. (a whopping 16% of our GDP) are directly attributable to habits and practices that often result from individual lifestyle and dietary choices; obesity and smoking are exceptionally heavy contributors to complex and expensive medical problems.

I’ve recently blogged about the results of studies from the Dartmouth Institute for Health Policy and Clinical Practice, which clearly illustrate that “more” does not mean “better.” High cost urban hospitals that order more tests and increase the cost of healthcare surprisingly do not produce healthier people. But who exactly is going to set those standards? Who makes such “life and death” decisions in a world where rationing healthcare to manage costs seems inevitable?

The July 8th Washington Post presents this exchange of views: “‘The questions of who gets what, these difficult choices . . . really are not posed in the current health reform legislation,’ said Drew E. Altman, president of the Kaiser Family Foundation. ‘The challenge,’ he said, ‘is us, the American people: We want the latest and the best, and we want it now.’

“The Democrats’ caution has not kept Republicans from accusing them of embracing rationing. They raise the specter of the British agency, which goes by the acronym NICE, that decides whether that country's nationalized health-care system will pay for items such as costly cancer drugs that extend lives a few months on average… ‘You're going to be saying to people, ‘We're not going to care for you, because we've decided it's too expensive to care for you,”’ said Robert E. Moffit of the right-leaning Heritage Foundation. … Others retort that the United States already has rationing: The uninsured and under-insured do not get the care they need. ‘We're already doing it,’ said Stanford University epidemiologist Randall Stafford. ‘We're just doing it in such way that it doesn't service societal interests.’”

You’re lying in a hospital bed, you know with the right treatment, you will get back to your life in a few months and without it, well, you won’t make it more than a few more months. You’re feeling vulnerable and helpless. And then somebody “just says no.”

I’m Peter Dekom, and I am worried too.

Legacy of China’s One Child Policy

American politicians constantly warn us that our Social Security system is underfunded and will squeeze itself out of money as our population grays. The benefits are meager, and the notion of support for the elderly from the extended family is no longer an American tradition. But the system staggers along. The Peoples Republic of China, where only one-third of its workforce is covered by pension benefits, has heavily relied on extended families to fill in the gaps in elderly care. Yet changing times and demographic shifts have created new problems for this rapidly-growing nation.

Since China has long maintained the “one child per couple” rule (formalized in1979 during the post-Mao era, with exceptions for rural communities and certain ethnic groups), there are insufficient younger people to either contribute to the pension plans for a rapidly aging population or to sustain the traditional notion of care for the elderly by the extended family. The July 6^th Los Angeles Times: “By the middle of this century, fully a third of China's population will be age 60 or older, compared with 26% in the United States. China's projected 438 million senior citizens will outnumber the entire U.S. population.”

The PRC has added 32 years to the life expectancy (now 73) of its average citizen since the country was founded in 1949. While the per capital gross domestic product is still fairly low ($5,000 – one ninth of that of the U.S.), the cost of caring for the elderly is accelerating. It’s odd how a policy aimed at keeping the most populous nation on earth from exploding at the seams has such side effects. And since families prefer male children, the population has also skewed in that direction, constricting marital choices (or even the possibility of marriage) for men at the bottom of the Chinese socio-economic ladder; there are reportedly 32 million more Chinese males under the age of 20 than females.

Alternatives to extended family care for the elderly, once thought to be culturally unacceptable, are now are becoming necessities, particularly as parents and grandparents often remain behind in farms and villages as younger workers migrate to urban areas to expand their employment opportunities. The Times: “To ward off social catastrophe, China's central government has pledged to introduce a national pension system. The challenge will be crafting a plan that's generous enough to keep seniors from poverty but doesn't unduly burden the young. Today in China there are 5.4 working-age adults for every elderly person, according to the Center for Strategic and International Studies. That ratio will plummet to 2.5 by 2030 and to 1.6 by 2050…”

“‘The momentum makes the problem difficult to see,’ said Baochang Gu, a demographer at Renmin University of China. ‘It creates an illusion that we won't need to do anything. But it may be too late.’ … China's shrinking working-age population is projected to shave 0.7 percentage points annually off China's GDP starting in 2030. But the sick and aged will require an increasing share of resources.” The answer doesn’t seem to be to repeal the “one child” rule, since Chinese have grown comfortable with the reduced financial stress of supporting larger families, but with the fertility rate hitting 1.8 per couple, clearly China is not currently sustaining even a replacement rate, a factor that will only increase the longer-term reality of a rapidly graying population.

The face of China has changed dramatically over the last decade, particularly in the eyes of the industrialized and computerized West. We watch her struggle with modern challenges to her Maoist roots, hitting technological walls that challenge governmental traditionalists – from social security issues to Internet communications – yet what has occurred within her borders is staggering as anyone who has traveled through China over the past two or three decades can attest.

I’m Peter Dekom, and I thought you might like to know.

Isolating the Isolated

While Pakistan’s internal civil wars, conflicts that will only escalate as the United States accelerates its efforts in Afghanistan and pushes more Taliban and their sympathizers into Pakistan’s ungovernable “safe havens,” making that country the most dangerous nation on earth, there is another nuclear power that seems to have made a pact with the devil. No, it’s not Iran. It’s North Korea.

Reading North Korean tea leaves is exceptionally difficult, and even Western intelligence agencies fall way short of providing accurate information about this dark and cruel place. We know the leadership is well supplied with luxury goods and access to various forms of Western decadence. We understand that significant profits are generated from land, desperately needed to grow food for this starving nation, turned to growing high-profit crops that feed narcotics addicts globally, enhancing the coffers of the privileged permitted to run these drug farms. Force labor and harsh conditions abound as local residents are denied access to information about the rest of the world. They see and hear only what Dear Leader – Kim Jong-il (and soon his son, Kim Jong-un) – want them to see and hear.

But Kim Jong-il’s health has forced him to prepare for a transition, one that required the consent of a powerful military. Kim embarrassingly wanted his “line of succession” – a “communist crown” he inherited from his father – to pass on to his son, Kim Jong-un. This oxymoronic lineal communist dictatorship did not have sufficient power, in my opinion, for simply ordering the young scion of this “il” family to take power. Instead, Dear Leader had to make significant concessions to his generals.

It’s hard not to make this conclusion when all of the nuclear and missile tests, the open hostility to the United States and the rest of the world, are taking place at precisely the time when the transition of power is being implemented. It seems as if the generals got Kim Jong-il to grant their requests to push their military hardware/supremacy program to the max, at the expense of near uniform global condemnation and the inevitable escalation of “sanctions” further denying North Korea from access to needed food and medical supplies – all to secure the generals’ consent to the ascension of Kim Jong-un to take his father’s place.

But how do you isolate an already-isolated land? How do you punish a nation – deprive it of food and medical supplies – when the leadership doesn’t remotely care about its people and can supply the hedonistic requirements of the top leadership with occasional flights to secure those luxuries? As an American task force follows a suspicious North Korean cargo ship across the seas, you have to wonder if the North simply loaded the boat with an innocuous cargo simply to make the Americans look foolish.

To underscore the futility of an enhanced blockade to prevent the delivery of goods to the impoverished North, the leadership just banned a number of imports – including Chinese foodstuffs and products – and severely limited the rights of the locals to conduct open-air markets (particularly in the north, near the Chinese border) that had been sanctioned in 2002 after a period of extreme food shortages and mass starvation. In effect, the North Korean government has imposed effective “sanctions” on itself to show the world the absolute futility of imposing genuine sanctions in response to the nuclear and missile tests. They are slapping the rest of the world in the face and taking a great step backward to make a point.

The July 5^th Los Angeles Times: “Farmers markets that had been permitted to sell homegrown vegetables, usually laid out on tarpaulins on the ground, gradually expanded. Traders (many crossing the border illegally) started importing Chinese goods, including children's sneakers, bananas and DVD players. North Koreans brightened up their famously drab landscape a bit by wearing pinks, polka dots and paisleys, occasionally sporting T-shirts with English writing….

“[But now] many Chinese goods are now taboo that markets stock only about 35% of the merchandise previously available, some say. ‘They want to promote our own products made in North Korea, but since everything is ‘made in China,’ there is nothing to buy,’ said Kim Young Chul, a civilian working for the North Korean military who had come to China to sell wild ginseng on behalf of his employer.

“The open-air markets where people do most of their buying and selling are now open only from 2 p.m. to 6 p.m. The only people permitted to sell at the markets are women older than 50; everybody else is required to spend their days at their official jobs at government-run businesses. …‘They're telling us that we don't need markets and that socialism provides everything we need,’ said an unemployed factory worker in her 50s, who gave her name as Lee Myong Hee…” Kim Jong-il betrayed his own people, accepted the will of the hardliners in the military, just to seal the “legitimacy” of his family’s rule.

The Times: “‘The North Koreans want to close off their country so they will not be hurt by sanctions. They think everybody is out to ruin their country and they are getting rid of anything that could be a threat,’ said Cho Myong-chol, a former economics professor at Pyongyang's Kim Il Sung University who defected to South Korea in 1994.” As much as we despise the North Korean leadership, it is hard to feel anything but pity for the average isolated, under-nourished and exceptionally impoverished citizen of this inhumane nation of power-hungry and vain leaders.

I’m Peter Dekom, and I approve this message.

The Uighur Sanction

In the People’s Republic of China , there is one time zone, even though the country is big enough to have three or even four such zones. Makes life tough when people still like to abide by noon at the time when the sun is highest in the sky, and dusk and dawn falling in the rationally expected evening and morning periods. But that’s the way Chairman Mao designed it, and that’s t he way “one China ” is today. Unless you are not ethnically “Han” Chinese (92% of mainland is Han), and particularly if you are of Muslim (Turkic-speaking) ethnicity and live in the distant and western (oil rich) province of Xinjiang . There are about 8 million Uighurs (that Muslim minority, pronounced “wee-ghurr”) in China today.

The Uighurs and the Han don’t mix much in Xinjiang, and they can see which way your sensibilities lie by just looking at your watch. If you are on Beijing time, you are clearly pro-Han, and if you are two hours earlier, you observe the unofficial time followed by the Uighurs. They don’t like each other much; the PRC kind of looks at the Uighurs as part of the Muslim world they really don’t trust… actually they don’t trust much of any religious group. If you happen to be setting a meeting at that rare moment where a Han and a Uighur might join in, you literally have to give two times – two hours apart. If you ask a Uighur what time it is, you will get Uighur time, and the opposite is true if you ask an ethnic Han.

It all sounds pretty silly, except for one little tiny detail. The riots. The killings. Militant Uighur separatists have always played hob with the PRC authorities (four of the U.S. detainees at the U.S. prison at Guantanamo Bay in Cuba are Uighurs), and the locals truly do not like being treated like second class citizens under Han rule. It got ugly when a brawl took hold on June 25^th in a local toy factory that employed both Han and Uighur personnel. Reports that at least two Uighurs died in that mêlée were officially recorded, but skeptics suspect more victims; over 100 were reportedly injured.

What started out as a peaceful protest in the provincial capital Urumqi , 300 Uighurs seeking a greater governmental inquiry into the deadly fight, rapidly spiraled out of control. The casualty reports are staggering for China : 156 killed (which could be higher, depending on the source of the information) and 846 injured according to official reports; the statistics significantly eclipse the death toll (19) among Han Chinese from an uprising in Tibet last year.

The July 5^th New York Times: “Nearly 1,000 protesters from a Muslim ethnic group rioted in China's far west, overturning barricades, attacking bystanders and clashing with police in violence that killed at least three people, including a policeman, state media and witnesses said.” The clashes have apparently erupted in nearby Kashgar as well. Needless to say, the PRC authorities have clearly stated that the situation is very much under control. What a surprise?!

Until the next time. China has heterogeneity working for it; imagine the U.S. with 92% anything. But the vision of the iron hand, always under control, falters under such moments of violent insurrection. So maybe your vision of China changes a little bit. Like the Watt riots in the 60s here in the U.S…. or different somehow? And maybe a people who just don’t fit in with the Chinese vision of themselves… well, it’s a part of China ’s own struggle with her identity.

I’m Peter Dekom, and I thought you might want to know.