I have never been so worried about the economy in my life
October 23rd, 2008
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Warning: Contains rambling of blog author who is legitimately very gravely worried of what is coming
If you listen to recent news reports, you might believe that everyone seems to agree that laissez-faire economics is dead. Alan Greenspan said that some of his philosophy was wrong when interviewed on Capital Hill today and now the pundits are framing this as an admission of a failure of capitalism, the free market and general lack of regulations.
(No, Greenspan was not wrong in his initial philosophy. The fact that he would even say that is mindboggling. All I can think is that he might be losing it in his later years. He also said he didn’t see the housing bubble coming, which makes him the only one I know who didn’t.)
Given the recent housing crisis, the fall of financial institutions and alike, many seem to have bought into this. This terrifies me. If people like Waxman get their way, we will soon end up with a system crippled by over regulation, red tape, bureaucracy and intervention. This has the potential to destroy the US economy completely and severely impact the world economy.
There is one thing I want politicians to try to understand: BETTER REGULATION IS NOT THE SAME AS MORE REGULATION. In case you missed that, let me rephrase: MORE REGULATION IS NOT THE SAME AS BETTER REGULATION. Also, In case that didn’t get through, let’s try this again: BETTER REGULATION DOES NOT MEAN THAT THERE IS A NET INCREASE IN REGULATION.
Did that make sense to anyone? No. I didn’t think so. Alright… lets try a visual example:
Okay, here are some pictures of the B-36 Peacemarker’s Flight Engineer’s console. Just look at all that regulation and control the flight engineer had. He could control the fuel/air mixture on all six of the piston engines, ajust the four jet engines, turn on and off fuel pumping systems, control the superchargers, the pressure on the hydraulic systems. All kinds of control!
These pictures don’t even show all the controls. In addition to the main panel, the flight engineer had an auxiliary panel to control things with. At lower altitudes, the flight engineer could even work on the engines directly, by using an access tunnel in the wings. This is in addition to the controls of the pilot and copilot.
This may come as a shock to politicians, but despite the fact that there was so much control, so much ability to micromanage all the variables of the machine, the aircraft was not all that successful. It only served about nine years before being retired and after only a few years the Air Force was already looking to phase out the fifteen-crewed beast. This is not only because it was piston engined, but the massively complex aircraft was a maintenance nightmare and while it only had a handful of crashes, engine problems or other major technical headaches occurred frequently.
If you’re a politician you probably are lost here, but there’s a moral to the story: MORE DOES NOT MEAN BETTER. IT FREQUENTLY MEANS WORSE.
There must be regulation of commerce, and there always has been. HOWEVER, you don’t need lots and lots of it. You could easily fit all the regulations necessary to have averted this on an index card. And when you have fewer, you can enforce them better!
Notice how politicians have made a tax code that is as thick as a phone book? Ever notice that rich people who can afford accountants to comb through it looking for loopholes and write-offs get away without paying high taxes? Do you want to guess why????
I know I know… politicians are the same jackasses who gave us the paperwork reduction act.
The only regulations needed are:
1. Insurance companies cannot take on greater responsibility than their liquidity and/or reinsurance can account for. EVER <- Enforce tightly.
2. Sub prime mortgages cannot be made without documentation of income and must always be backed up against losses by insurance or self-insurance by the issuing institution. In other words, no institution can take on sub-prime mortgages at a level beyond the ability it has to absorb their loss.
3. “Affordable housing credit” must be ended forever. This program had given subsidies to companies that took on subprime mortgages for the purpose of promoting housing by lower classes who might not otherwise be able to afford to buy property – It may have been a noble idea to promote more home ownership, but it must stop as it is a major cause of the housing problem.
4. Reasonable restrictions must be placed on trading of unsecured debt-backed bonds, especially within bond funds.
5. Banks and financial institutions must be limited in the amount of unsecured debt that can be issued without verification of funds or backing within the institutions by real assets
6. Limits must be placed on speculation, especially high risk speculation that actively solicits capital. Under no circumstances can entities such as insurance companies, bond issuers or general service bankers invest more than risk capital in speculative ventures.
7. Hedge funds must be held to higher standards, approaching those of standard funds.
These are all you need! Really, this is not an issue of the government needing to regulate every little activity of financial companies. All they need to do is make sure that companies which promise to have the ability to back up bonds, insurance policies or other commitments actually take measures to assure that they can. That’s not interfering with the market, it’s actually very pro-capitalist. When I take out an insurance policy, I get a guarantee that the company will be there to pay for it if needed and that they have taken all the appropriate steps to make sure they will be. This is simply an issue of making companies do what they say they will. It protects the right of the contract holder to have the commitment fulfilled.
If nothing else, this was caused by bad regulations (not lack of them) and government programs that actively encouraged bad investments and risky loans.
One other thing: Deregulation does not mean deregulation. I know, it seems like it would, because you think “Deregulation” means “less regulations.” No. That’s not it. It basically means giving some more freedoms to private entities in some respects but still subjecting them to extreme regulations.
For example: In the case of a utility market, BEFORE deregulation, electricity would be provided by a quasi-government utility company that was run partially by the government and had regulated prices and commitments to service. AFTER deregulation, the service would be provided by a series of private companies, each owned by investors, but heavily, extremely heavily, cripplingly heavily, regulated. This is how it actually worked with the Telecommunications Act of 1986, which was supposed to be a deregulation act but really forced numerous requirements onto telecommunications companies.
The moral of the story: Calling something “deregulation” and deregulating only some portions of an industry while still maintaining a massive mess of regulatory bureaucracy does not help.
In closing, I’ll issue the following prediction for the US:
After having endured eight years of ineffective leadership from a so-called conservative Republican, which was racked by scandal, aggressive war and other issues, the American people will associate the administration with what it is to be “conservative.” They will thus elect a very very progressive yet inexperienced and very wishy-washy, cowardly leader. This leader will be in the pocket of interests like the greens and anti-business lobby. He will cut back the military and fear any aggression to the point where it will make the United States appear to be a cowardly fool.
The US will be pulled from military commitments and will not reengage them when they flair up again. Instead they will be allowed to be overtaken even at the expense of lives of our allies who we promised to protect. This will be a stain on US history which will show the US is not committed to its word and that it cannot tolerate losses. This, in turn, will encourage further aggression down the road, with the understanding that the US lacks the will to respond. It will become the belief that the US can always be beaten in a war of attrition.
He will appease Iran and refuse to use any kind of force with them. He will allow Iran to get away with absolutely anything and do nothing about it. The Iranians and other nations will engage in outrageous actions that border on acts of war but he’ll just call for “more diplomacy,” which won’t actually mean anything. The world will point and laugh.
He will drive the economy further into the ground.
He will attempt to address high oil prices with worthless measures that do nothing but waste money. He will encourage small steps but ignore the big ones. Energy policy will be in shambles and nuclear energy will generally be opposed. There will be no new nuclear plants and the current ones will not be properly maintained and used.
His health care plan will fail. Furthermore it will drive small business under.
Russia will no longer take the US seriously and it will appear that Russia (or maybe China) has become the single superpower in the world and the US is a has-been. Appeasement of Russia will be constant. The anti-ballistic missile system will be removed from service. Russia will continue aggressive military buildups but he will respond by trying to appease them with cutbacks.
‘”History may not repeat itself, but it does rhyme a lot” –Mark Twain’
This entry was posted on Thursday, October 23rd, 2008 at 8:40 pm and is filed under History, Misc, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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October 23rd, 2008 at 10:33 pm
I cannot address the issue of what the next guy in power in the States will or won’t do, but I will make some remarks on the financial crisis, because as someone depending on a private pension for the larger part of his income, I am more deeply involved in the Market than at any time previously.
Much blame has been put on risky U.S. based mortgages for this crash, because there was where the bubble burst, but as far as I can tell the underlining problem was with an increasingly bizarre variety of financial derivatives, like credit-debt swaps and the like that were then treated as assets to back the purchase of yet more of these instruments and so on. These all held together by computer based investment systems that grew in complexity such that no human was able to make a good evaluation of the true value of these transactions.
What we might be looking at here is the point in time where the current model for the financial market itself may have outlived its usefulness, just as we have seen with the intellectual property model (both more or less born during the reign of the Late Stuarts.) This is not to say that Capitalism is dead, or has failed, just that the current system needs a major overhaul, and probably along with it, the monetary system as well because it too is showing the strain of being subjected to effects of high-speed transactions within fractional reserve banking operations.
The big problem is that as many, or as tight, or as sweeping you make the rules, the nature of these 18th century apparatuses being run with 21st century technology is such that someone will find a legal way to game the system. I’m not even sure that this would not have happened anyway, without deregulation, because the old rules would have been no more effective stopping this from occurring – the only difference would have been how, and when.
We need a radically new system, and we need it now because without we will just lurch from bubble-to-crash with increasing frequency until the breakdown is so complete, that there will be nothing left to build on.
And that is when the political climate gets really scary.
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October 24th, 2008 at 12:02 am
DV82XL said:
I am not simply worried about the next president alone. The president can only do so much in the US. I think the biggest thing the president does is sets the national tone and is the de facto face of the country. The president is a major force when it comes to international relations and has the clout to push through some legislation and is the commander in chief of the military, although congressional approval is needed for extended deployment.
My concern is that both the president, the congressional political leadership and the common citizen have all now become aligned to a mentality that will destroy everything. It is now believed that universal healthcare, provided by the government is a birthright and that it is worth completely destroying the system to insure that everyone has equally poor socialist health and social programs. It is now believed that business is inherently bad and that extremely invasive and very very very complex regulation is needed.
Politicians are incapable of creating a new system. They are only capable of leaving all regulations in place and then piling on more and more of them in addition to those we have.
The system has flaws in that it encourages over-speculation and wild trading of bonds and mortgages. When they are running up toward a bubble burst, it even seems to encourage more speculation. Everyone knows that these securities are a time bomb, so they keep running them up but just try to trade them like a hot potato. Nobody wants to be the one hanging onto it when it explodes.
What is needed is restrictions on speculation of unsecured debt or taking on responsibilities for securities beyond what a body can provide by liquidity or collateral of some type. Better shared risk and management of loans that avoids this practice of trying to hand off time bombs to third parties as quickly as possible.
And subsidies that encourage risk must be stopped immediately.
That will not happen. We are about to enter a psuedo-socialist system. Waxman, Polocy and all the other congressional leaders have made it crystal clear that they want more regulation on this. They don’t have a shred of liberty or free-marketism in them. They’re pure socialists. They are all for redistribution and governmentalization of the private sector. On top of this they support every eco-stupid policy. They will do absolutely anything to stop things like nuclear energy or increased domestic oil drilling. They use a strawman like offshore habitat risk to justify their opposition to increased energy. They believe the “peak energy” myth. The Democratic plan is to “wait for the wind.” It will never come. There will not be any reactor built in the US.
We’re standing on the brink of Carter energy crisis.
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October 24th, 2008 at 1:27 am
Obama will run the country into the ground. McCain will be more of the bush policy that will mean more international tention and McCain won’t fix anything. HE may run it into the ground too.
We’re screwed either way. Royally screwed. I’m very disheartened and I think the next several years, maybe 20 or more, will be very very very bad for the US and most other western countries. Mostly because of the greens, but because of other reasons, politicians and social liberals versus conservative religious zealots. We’re up **** creek, really.
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October 24th, 2008 at 1:45 am
For someone who’s so rational on the science based issues you’ve sure got some wacky, paranoid political ideas.
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October 24th, 2008 at 2:39 am
Dude. You are obviously a very smart/well informed individual, and I often enjoy reading your posts, but I have a friend who is 1) closed minded and dumb and 2) gets upset when he reads a spelling or grammar error so much so that sometimes he just won’t read the blog. Yes, he’s a elitist jackass, and, no, I don’t know why I’m friends with him, but can you help me out and use spell check on your titles? Sorry, that was a rant, but I’m going to keep it there, secretly hoping my elitist jackass friend will start reading your blog and read this comment and recognize his elitist jackassness…
And I do think you might be a little paranoid
…. What pisses me off so much, is that here we are in the middle of a friggin’ crisis, and no candidate can step up with a trustworthy, straight forward economic plan. Now I *really* want Jed Bartlett as my next president, because he was a friggin’ economist!! You would think it would be fairly easy for these candidates to consult a few people who are smarter than they are when it comes to the economy, and come up with a plan that at least sounds reassuring. I feel as though if one of them did that, that individual would win in a landslide. But no. They are both standing around like jackasses and basically agreeing with each other (and Bush, for god’s sakes!!), and answering dumbass questions posed by Bob Schieffer about dirty ad campaigns! Really Bob Schieffer? You didn’t think that *half an hour* would have been better spent discussing the candidates’ knowledge and/or understanding of economic problems??
The problem, it sounds like, is that no one really knows what’s going on … at any rate, I have a hunch the stock market will do a little dance on November 4th or 5th, and I’m betting it’ll be a dancing of joy–no matter who wins. we’ll see.
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October 24th, 2008 at 9:03 am
In this case more regulation IS better regulation. What we’re going through is not simply the effect of a housing bubble inflated in large part through exotic derivatives such as Mortgage Backed Securites, which repackage toxic debt as a safe investment opportunity with the help of dodgy models and rating agencies; there is a ~$60 trillion time bomb that must be defused before it destroys the world economy.
When you buy Credit Default Swaps you enter into a private deal between yourself and the seller which transfers risk from you to the seller in return for you paying a periodic premium; it is a kind of insurance for loans to other institutions. But it’s more than that, you can insure a loan you don’t even have in what amounts simply to gambling money. If the risk of an institution defaulting on it’s loans increases as the economy worsens after the housing bubble and you happen to have bought a CDS agreement you can fully hedge your position by selling a new CDS agreement to someone else and charging a higher premium. But you’re only fully hedged if the institution that sold you the CDS is able to pay out. This kind of daisy chaining of CDS is rampant.
The CDS market is a ~$60 trillion market; it’s completely unregulated, it’s all private deals, nobody really nows exactly how big this market it, nobody knows who’s been dealing in these CDS. As a result nobody knows who could blow up tomorrow or who will be affected when that happens.
Overnight lending to apparently stable companies, the safest, dullest loans possible almost ground to a complete standstill.
It’s called swaps, not insurance, because calling it insurance would lead to being subject to the same regulation as someone selling insurance; the most important regulation being that the amount of leverage that the seller may take on would be limited by forcing the seller to have a certain amount of reserves to pay out in case the insured loans default. Credit Default Swaps did in Lehman, AIG, and the Icelandic banks and there’s no telling who is next.
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October 24th, 2008 at 9:31 am
soylent said:
This is why I am saying that the current system is passed due for a full overhaul. It’s almost impossible for any regulator to stay ahead of the imagination of the financial community in a world of computer trading and global electronic transfers.
We have run the current paradigm to its logical end. We have to start afresh now because we are going to have to eventually, and it would be best to do it before the system crumbles to the point where there is no foundation to build on.
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October 24th, 2008 at 10:16 am
I am pretty worried about these issued too. Thanks for sharing it with us. I am trying to get rid of as much debt as I can now in preparation for the difficult times. I also think that saving the current system is a wrong thing to do. Its main trait is cheap of free money (if you factor in the inflation) that the US pumped into its economy. The US had these free money because foreigners bought government and commercial paper. When foreigners decided not to buy it anymore (cause deficit became too high) the whole system crumbled. It needs to crumble. Bad bones need to be broken.
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October 24th, 2008 at 11:00 am
Two main ROOT causes of this problem: 1) Fannie and Freddie buying sub-prime mortgages from banks, thus encouraging this type of lending (and putting US taxpayers on the hook for the losses), 2) the Federal Reserve’s artificial lowering of the cost of money (expansive money supply and low interest rates), creating perverse incentive to malinvest. A third might be the community reinvestment act, which “encouraged” banks to loan to less-than-qualified buyers. Of course, ratings agencies have fault too, but essentially these problems are government-created distortions of the market. If the federal government hadn’t created the conditions where CDSs would be so tantalizing, this run up in housing prices would not have occurred. Every time the government gets involved, it creates a new set of unintended consequences.
Just wait until the latest “bailout” measures really take effect. The fed has injected TRILLIONS of dollars of new (fake) money into the markets. AIG has “borrowed” over a hundred billion dollars (just one example) and now they are wondering how they’re going to pay it back. Guess who is on the hook if they fail?
This is not a failure of the system, but it is (another) failure of government intervention.
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October 24th, 2008 at 11:09 am
Kendall said:
Sorry. I know how to spell “economy” but somehow I typed it wrong and didn’t see it. I didn’t spell check the title because I didn’t think I needed to. This is what happens when I fill in the title last and don’t pay attention. Sorry. My fault. Should have proofread better.
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October 24th, 2008 at 11:45 am
I don’t expect either candidate or either party to have any solution to this mess. The politicians are clueless that it was caused by overly generous interest rates, extremely poor lending standards, low income housing credits, Fannie-May running out of control and being too dependent on the government etc etc.
Both parties got us into this and both are committed to digging the hole as deep as they can. I guess they hope that eventually they’ll make it deep enough to get some geothermal heat out of it. I don’t know, but I have about zero confidence in the leadership.
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October 24th, 2008 at 2:42 pm
Mike said:
I don’t know about that. If that’s the case you can count me as paranoid too. I guess maybe the above is some kind of rambling, at least partially driven by fear and frustration. I’m afraid too and I don’t have high confidence in the government to fix things. I don’t see any reason to think the powers that be have any clue how to get things back on track.
Yes, the system needs an overhaul. I don’t know that it will get one. Do we need more regulations? Perhaps. But we need the right ones. It needs the right kind of an overhaul. I don’t see that happening. The people who understand how this works are not the ones making the plans.
I don’t know if things will get much much worse or if there will be a reasonable recovery or what. I think it’s possible though, that it will continue to degrade. I’m not saying that we need to go into bomb shelters and wait for the end of the world. I’m not saying this is the fall of civilization. I do, however, think that we may be in for some very crappy times, possibly worse than the 1970’s recession.
So yes, I am very worried and not too hopeful of the leadership on either side. Makes me paranoid? Okay, fine. I just know what I see, and it’s not reassuring.
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October 24th, 2008 at 2:56 pm
He won’t appease Iran. He will engage them. For those of us who have been paying attention, Bush undermined any possibility of bringing the American conflict with Iran by lumping them as part of his ‘Axis of Evil.’ At that time, the people of the country had elected a moderate leader who had offered up an olive branch to the US and was willing to begin thawing relations between the two countries. Iran even provided intelligence which helped the US topple the Taliban upon the initial invasion of Afghanistan. Instead, Bush made his idiot comment, angered the extremist elements in the government of Iran, and as a result, Ahmadinejad was elected and we have a continued standoff.
As for Iran being dangerous and a ‘threat to the world’ – methinks you’ve been listening to those notorious liars, the Israelis too much. If anyone should reigned in, it is Israel.
As for the economy, we’re screwed no matter what. The only thing that will fix it is sensible regulation and time.
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October 24th, 2008 at 3:04 pm
drbuzz0 said:
He also thinks that he can convince bloggers to pay him 1$ (or .25$ or something small) to proofread a post for them before they post it … I tried to tell him he was crazy but he just doesn’t get it …
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October 24th, 2008 at 5:23 pm
The whole financial/monetary system has gone through a few major redesigns in the past. At one point any bank could issue paper money in the form of bank notes. This in itself was an innovation in an age where governments only struck coins. This system needed changing when travel by railroads meant that people were passing that had been acquired far enough away that there was a real risk that the issuing bank had failed (or would fail) before the notes could be converted to specie. That’s when central banks became the sole source of legal tender.
In the States there was a major change when bimetallism was dropped in favor of the gold standard, and there was much political fallout over that move, yet it stabilized U.S. currency making the country attractive to foreign investment. The Bretton Woods system came next, and then in my memory at least, the triumph of fiat currency and the complete decoupling of money from its old metal base.
It is hard to see just how sweeping these changes were, by in large because the terminology often stayed the same, and the day-to-day transactions of consumers was little effected at first. But these were major reforms of the system and by in large, they were driven by the threat of, or the need to recover from serious problems.
We are again at this point. It is not enough to try and paper over the cracks with regulation, the dynamic has changed too much for that. We are living is a highly connected world where information travels too fast, and is disseminated too widely for the current system to work. problems can’t be isolated such that a local failure doesn’t spread through the world via markets that never sleep and computer based trading programs that trigger massive buys and sells on numbers alone, regardless of the fundamentals. To continue like this is a recipe for disaster down the road.
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October 24th, 2008 at 5:36 pm
scorch said:
There are some regimes you can’t reason with and shouldn’t even try to. Iran is one of them. They’re the kind of country and leadership that simply has no good reason for being and is entirely unjust, unpeaceful, incapable of being just or peaceful and otherwise simply not going to provide anything good to the world ever.
The others include Nazi Germany, Stalinist Russia, the Barbary pirates, the European crusaders, especially the later ones that were just looking for revenge, Henry VIII, The Mussolini Regime, etc etc.
Just replace “Iran” with “Nazi Germany” since that is the classic example to realize why you can’t negotiate with them. Every time any kind of concession or diplomatic envoy was handed to Hitler before the war it was useless. The Nazis used it for their own purposes and it never gained anything. The same with Mussolini.
Iran helped with Afghanistan? So? Stalin helped with Nazi Germany. Sorry, but that doesn’t win him any brownie points.
Iran is, for lack of a better word “evil.” If you can come up with a way of describing them that is more logical and less loaded then you can try. They call them a ‘rogue state’ or something. Basically they’re just like Nazi Germany: They have no honor and their goals are never compatible with justice or peace.
Look, am I saying invade them? Bomb them? No. At least hopefully not. Hopefully they can be muscled into a corner and kept there by cutting them off from any kind of weaponry capability. I’m not saying violence is the best way to do it, just that Iran is the kind of country you can never trust or deal with. You can keep them in check by keeping them weak and in submission.
scorch said:
Israel? They’re the only country in the middle east that can be even slightly trusted. The question of who to listen to between Israel and Iran is like wondering who should be trusted between one of your good friends and someone like Charlie Manson. Israel is the only true democracy in the Middle East. They have things in Israel like trails before jury with defense representation and protection for basic rights. Do you know any other middleeastern country with that?
Israel is not evil. Overly aggressive at times? Perhaps.
The founding principle of Israel is not the destruction of the United States and it’s not the wiping out of all infidels. They are not all about chopping off hands and teaching their children to be suicide bombers.
When they kill civilians in a war action, it’s an outrage. When other countries do, it’s to be expected and their basic operating principle in all things.
Iran is the sworn enemy of the west. Israel is not.
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October 24th, 2008 at 6:02 pm
I don’t know about Iran. I really would prefer not to invade them or have any major military action, but if that is what it takes to keep them from developing a full nuclear capability, then what else can be done? This is why I think Iraq was such a step in the wrong direction. We’re so stuck there and they know it. It’s a bad situation. Even if Iran were invaded what would that do? It would be like Iraq because all the population is indoctrinated with the extreme Islamic mindset.
I don’t think you can reason with Iran or try to use a carrot. You might be able to get them to keep them from doing certain things if they see some real concequences, but they’re just not the kind of country you can expect to respond rationally and not aggressively.
North Korea is the same way, it is run on the whims of a very strange and possibly mentally unhealthy man who has command of the entire country. This is a different situation from Iran, but the result is the same: the country can’t be expected to be a productive diplomatic player and to be predictable in any way.
I think our best policy is to treat Iran like we do North Korea. North Korea is so cut off from the world that after years of effort their one nuclear test was a fissile and their military could never overcome the presence of South Korea, Japan, the US and other forces which are surrounded them and keeping the situation in check.
That’s probably the best we can hope for Iran. Keep them from gaining the ability to cause harm to the world, because once acquired there’s no reason to think they won’t use it.
Mutually Assured Destruction does not work with religious fanatics. For them, it is an honor to die in war.
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October 24th, 2008 at 8:03 pm
More on Iran
http://www.vueweekly.com/article.php?id=8924
Describing a whole nation as evil is patently absurd. Every Persian I’ve ever met has been pleasant, understanding, and in no way a religious fanatic. They aren’t fond of their government for the most part and that is a common theme amongst all classes in Iranian society. Labeling them all as religious fanatics smacks of ignorance. The government of Iran isn’t that fanatical that they would launch a bomb at anyone.
More on Israel
http://www.antiwar.com/roberts/?articleid=13193
http://www.veoh.com/videos/v552406rYaXEFgw
Israel are not to be trusted or supported. They regularly spy on the US (Jonathan Pollard), have sold military secrets to the Chinese, commit massive human rights violations in the West Bank and Gaza, and regularly violate international law. Israeli behaviour in the West Bank also stokes the fires of Islamic fundamentalists and gives them ammunition with which to draw followers. Isn’t that what we’re trying to eradicate here?
Cutting them off from American support would be a good way to help the economy too.
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October 24th, 2008 at 8:07 pm
Iran is indeed a no-good country that you can’t trust anymore than Nazi Germany, but unfortunately most of the middle east is like that. Syria, Lebanon, Libya, etc: they’re all evil by the conventional definition: tyrannical, violent, islamo-fascist etc.
Those which don’t cause trouble to the US directly are Saudi Arabia, the UAE and so on. It’s not that they’re any better but just the fact that they’re (currently) playing the role of friend to get support and cash. They’re the same places that cut off hands on accusations and stone to death women who get raped.
The only answer is to just stop dealing with them. Stop depending on this countries for oil and then do what we should have all along: Quarantine that part of the world. Treat them all like we do North Korea: no imports, no exports, no travel, no immigration, no emigration.
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October 24th, 2008 at 8:47 pm
scorch said:
Iran is not a threat to the world as long as it does not have military might or the enormous stockpiles of chemical or nuclear weapons to threaten the world. The reason they have not blown the US, Israel and much of Europe off the face of the earth is because they lack the capability, not because that’s not what they want.
I’d take the word of Israel over the word of Iran on any day. I can actually go to Israel and know I’m going to probably come home safe and that the government there will work to avoid getting me killed. If I went to Iran and accidentally broke a cultural taboo or said the wrong thing, I’d be beheaded.
Maybe it’s not appropriate to call an entire country evil, because you can’t qualify or define evil, but if Iran is not evil, what country possibly could be?
I don’t see why we should negotiate with Iran. They’re a sworn enemy ruled by a group of very anti-us anti-Israel clerics. There;’s only one thing that might ever get them to accept a deal and that’s the dissolving of Israel.
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October 24th, 2008 at 9:56 pm
DrBuzz0 – I am interested in your opinions of Pakistan and Saudi Arabia. Do you see any danger that could possibly arise based on our current relationships with them?
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October 24th, 2008 at 10:38 pm
David said:
This is not my area of expertise, but in general: Pakistan, not really. We’re not dependent on them. They’re a useful ally in keeping Afghanistan under control and allowing for actions when Taliban forces flea into their territory, but if they turned on the US, it would not necessarily be a disaster. Luckilly Pakistan is something of a semi-moderate Islamic country. One of the few. They are dependent on the US for military support and are in perpetual need of it from always being in fear of India. Pakistan is nuclear armed, but barely, they only have a handful of basic fission weapons and limited delivery means. IF they were to use them they would use them on India anyway, which is why India is armed to the teeth. Of course, Pakistan is far from being a stable friendly place in all respects. It does have some tribal areas that may support the Taliban and there and several deadly attacks by militant islamic extremists like the assassination of Benazir Bhutto.
Saudi Arabia – LOTS AND LOTS OF PROBLEMS. In the future. In the past. NOW. The Saudi Royal family is the definition of islamic extremists. They believe they are entitled to the country and are devinely selected to run it as they see fit. Bin Laden is Saudi. Most of the 9/11 hijackers were Saudi. The Saudis are raking it in from oil. They are the biggest force in OPEC. They can cut off the supply easily and at any time.
The country gets away with human rights abuses and lack of a decent legal system as well as extreme punishments, practices that can only be described as slavery and other atrocities for one and only one reason: OIL.
Their relationship with the US and much of the rest of the world is as follows: Keep kissing our ass and maybe we won’t turn off the oil on you.
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October 25th, 2008 at 10:09 am
Well actually I suspect the Saudi royals are moderate compared to the population they rule! They wouldn’t last a week if their Western support was withdrawn, but the West can’t do that because it needs their oil.
Anyway, isn’t oil (not Islam) the main reason why the Middle East is so backward – politically backward because “No taxation without representation” also workse in reverse, and economically backward because the Dutch disease makes non-oil industries uncompetitive?
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October 25th, 2008 at 10:53 am
George Carty said:
I think you mean the ‘resource curse’, George, not the Dutch disease, because the Middle East never had a manufacturing base to begin with. However I do think you have touched on an importaint point.
Single product economies do create a sharp class divide and this is bound to provide fertile ground for extremism, so these are not incompatible ideas. It’s easy under these condition to set up a boogie-man in the form of a powerful West that is systematically screwing you over, than it is to see the problem for what it is. Keep in mind that the rise of militant Islam is more a product of the imams filling a political vacuum left by corrupt and ineffectual civil power structures, than it is a deep belief in the spiritual message of the Koran. Shari’ah law and Shari’ah courts may not be ideal, but they are a damned sight better than dysfunctional civil ones.
At present the Christian Fundamentalist forces in the West are a demographic that wields a certain amount of political influence, (although not necessarily decisive for the moment) should this economic collapse get very bad, and last a long time we might find ourselves with a similar problem from this sector on our hands.
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October 25th, 2008 at 2:14 pm
scorch said:
Describing a nation as evil is probably not accurate. Describing the government as evil and the society as generally evil could be accurate, depending on your definition of “evil.”
However the word “evil” is loaded and invokes images of James Bond villains and demons and religious terms. It’s not necessarily the best term.
Better terms to describe Iran would be: Fanatical, Tyrannical, Unjust, Lacking any concept of values of Justice by any recognized standards, Aggressive, Unrestrained, Rogue, hate-promoting, inherently war-like, destructive, unstable, lacking any regard for the values of peace, justice, human rights, diplomatic law and order, etc etc.
It’s not like Iran is the only entity that has such qualities. Al Queda, The Mafia, the KKK, The Nazi Party and many other groups are/were equally reprehensible and with no redeeming qualities.
This is not ignorance. It is an unfortunate reality based on history.
Lets face it. Iran is the country that screams “death to Israel” and “death to America” and alike: http://www.youtube.com/watch?v=FckLO8HcNyo
Their very society is so warped and built on the concept of bloody conflict that they have a memorial fountain that is filled with simulated blood to glorify the sacrifice. By any standard, that’s warped and sick.
Now I’m sure that there are plenty of Palestinians who are nice people and don’t constantly blow stuff up. Unfortunately it only takes a small percentage to ruin everything. Having 95% of the population NOT blow stuff up constantly is not good enough. The other 5% are more than enough to ruin your day.
If they want to be treated better and have more freedom with Israel then they ought to consider rooting out the violent ones in their midst. Every time Israel has backed down the attacks start again and they are forced to suppress them. Finally they have gotten some relief by building a wall. They say the wall is discrimination and not humane. The fact is: It works. Israel has no choice but to do something when Palestinians are so motivated to cause death and destruction at all costs.
It’s like asking why do you kill innocent civilians in cities during a war? Because sometimes you have to. If bombing a city is the only way to stop your enemy from winning and killing your people, then you do it. You *have* to do it. You don’t slaughter innocents for the hell of it, but if there’s an airbase next to a residential neighborhood and you are being attacked from that airbase, then you bomb it, even if it means a few bombs might hit the neighborhood.
scorch said:
I could address these links, but first I want to just ask two questions:
Who do you think was behind 9/11?
Do you believe that Nazi Germany killed millions of jews or do you think that was fabricated by Israel?
As for drawing followers.. There’s a false belief that being nice to them and and trying to get along will reduce tentions. The whole “hearts and minds” argument. That never works. It never did. You have to show the opposit. First you must demonstrate that the terrorists fail. For every bomb they throw at Israel, israel hurts them ten times more. What does this show? that the effort is futile and a failure. People do not like to join movements that are a failure.
You also show that the terrorists are not to be supported. Just as people turned on the faciest government of Itally and Germany, you want them to think “Look! See what you have done? you said you would fight for our freedom but all you do is cause retaliation! You say you will win, but every time you go to fight you only hurt us more! We cannot endure this any longer. We must accept that our fight is lost and that those who provoke more attacks are the reason we are suffering”
It’s a tough way to do things. There’s nothing gentle about it, but historically it is how it has worked and how peace is achieved in the end.
The message we need to send to the Muslim world is not “We’re your friend.” But rather “He who awakens the sleeping giant shall endure his wrath.”
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October 25th, 2008 at 4:17 pm
Islam isn’t like Nazism or Communism though.
Nazism was a pure ideology of conquest – you can’t have a “master race” without one or more “slave races”. This meant that military defeat in and of itself fatally discredited it, although having the Soviets for allies certainly helped (post-war West Germans sucked up to Uncle Sam out of fear of Uncle Joe).
For most of the Cold War (and possibly since as far back as the 1930s), Soviet Communism was an illegitimate ideology, ruling an unwilling population by force. All that was needed was to contain the Soviets’ military forces until the system’s inevitable collapse. The only places where Communism was genuinely popular were countries like Cuba and Vietnam where it piggybacked onto anti-imperialist struggles.
By contrast Islam is the most tenacious belief system in all of history (only the other two Abrahamic faiths even come close). It has never been rolled back except by outright ethnic cleansing.
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October 25th, 2008 at 4:34 pm
drbuzz0 said:
Why should Palestinians be punished for a crime perpetrated by Germans?
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October 25th, 2008 at 7:13 pm
George Carty said:
They shouldn’t. I’m not saying that at all. I was directing the question at “scorch” because some of the links he provided made me wonder what kind of an individual I’m dealing with. That is a good bellwether to see if someone is party to some of the further out theories over Israel and modern history in general.
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October 25th, 2008 at 10:20 pm
Depleted Cranium,
You forgot the most important regulation of all, one which obviates the need for several of the ones you proposed: monetary discipline when it comes to expansion of money and credit. Greenspan’s Fed kept the monetary spigots on after the dot-com crash and 9/11, creating the easy credit conditions that encouraged speculation and blew up the real estate bubble. No easy credit at cheat short-term rates, no leveraged speculation. No leveraged speculation, no crisis. It’s just that simple. When the dust from the current deleveraging environment has settled, when all debt that can never be repaid has finally been defaulted on, we can start over, with monetary discipline, and eventually a gold standard, to prevent inflation in the future. In the process, we will go from a society that borrows to consume more than we produce, to a society of people who save money. That is where Barack really frightens me — it’s the anti-savings nature of his tax and trade policies.
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October 25th, 2008 at 11:39 pm
David Herr said:
A gold standard? That’s going to be very very very difficult to ever go back to, almost bordering on impossible. The current US holdings of gold bullion at the Fort Knox Repository is valued at under $200 billion. That is just not nearly enough to back the monetary system at the current GDP – it’s not even close.
That’s not to say the monetary system doesn’t need to change. I’d prefer it did. For one thing, the constant federal debt is worrisome. I’d rather have a monetary system which didn’t use the fed’s lending practices so much as a means of economic stimulation. My preference would be to have the government also withdraw more excess cash from circulation at times basically by spending less than it taxes and putting aside the surplus to be used during times of economic downturns, at which point the reserve funds set aside from surplus could be pumped back into the economy – generally resulting in equilibrium and keeping things from swinging in either way too much.
I just don’t think this is possible. I don’t think that politicians are capable of making the changes necessary. I don’t think it can be done. I think the government is just plain too incompetent to do it. My whole life I’ve had one major worry about society: That eventually the government bureaucracy would collapse under its own weight. Politicians never clear house – they never repeal regulations, it’s not in the nature of the government to do so. They only create new ones. Thus it compounds.
The “bailout” bill that passed the senate and house was full of crap it didn’t need. It had provisions to govern how insurance companies pay out over mental illness. It had all manner of clauses and unnecessary crap.
Think of Windows Vista and now imagine it clogged with so much scumware that you can’t even open a browser window. That’s the government. Now imagine that you are trying to re-write the operating system code but the only computer you have to do it with is the messed-up one. You’re fighting your own system to try to rebuild it better. It’s a loosing battle.
I am just amazed that the government works at all, even slightly. The fact that social security checks get sent in the mail and that the mail is delivered and that the postal workers actually get a paycheck and that mail trucks are bought or that the heating bill for the capital building is paid… that just amazes me. It’s a damn mirical that this ridiculously incompetent system even works that well.
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October 26th, 2008 at 11:10 am
Lost in all the excitement and worry in the equity markets, and the attempts of governments around the world to stop the hemorrhaging in the last few weeks, the currency market is where the real action has been; all of this is a prelude to some sort of currency crisis. There has been an all out assault on commodity prices and emerging market currencies. Latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect as commodity prices tank. Iceland was just a foretaste of the nightmare to come.
Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play, and nowhere is this more apparent than with the ex-Soviet bloc. The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. But that’s not all, Spanish banks alone have lent to South American countries almost twice the amount heldby all US banks combined; Austria’s bank exposure to emerging markets is equal to 85% of its GDP. Of course the impact of this will not be restricted to the Continent, many of these loan were denominated in U.S. dollars, so the splatter from this will hit everyone.
Bretton Woods is all but consigned to the dustbin of history at this point and, like it or not, we are going to need a new global monetary system. That or pray that China will take up the slack by buying euros, pounds, rubles, and every other currency that overextended. Mind you that will make Beijing the financial capitol of the world, and give them the same power that the U.S. was able to exercise on world affairs when it took financial control of the world after WWII. These are really the only two choices.
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October 27th, 2008 at 10:19 am
Doc,
Why worry? It is unlikely that you will starve. The sun will continue to rise every morning. The birds will still sing in the trees.
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October 27th, 2008 at 10:33 am
The McGlashan said:
You’re enjoying this whole mess are you McGlashan?
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October 27th, 2008 at 10:55 am
DV82XL said:
Not at all, but neither am I alarmed. The things which I most value cannot be affected by financial or political crises.
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October 28th, 2008 at 11:48 am
Doc’s prescription for financial regulation is laudably well-meaning and coherent, but treats one of the symptoms of the crisis rather than the root cause.
“The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years. However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.”
George Soros, Financial Times, January 23, 2008
(Looks like Soros knows his Kondratiev)
To extend and deepen Soros’ analysis with reference to Ben Bernanke’s identification of the ‘Asian savings glut’, the conversion of Asian savings into Anglo-saxon debt is undoubtedly the most significant contribution to Soros’ ‘era of credit expansion’. For a time, it was a symbiotic relationship that seemed almost perfect – one half did the saving and the other half did the spending. US savings declined from about 5% of GDP in the mid 90’s to zero by 2005, while Chinese savings surged from below 30% to nearly 45%.
The housing bubble (and household indebtedness in general) throughout the anglosphere was fuelled by the Asian savings glut – footloose savings looking for a home – made it much cheaper for households (and governments) to borrow money than would otherwise have been the case. Some economists hailed a “stable disequilibrium”. What?! They should read up on Aleksandr Lyapunov’s work on stability and equilibrium. A great deal of work has been done on the dynamics of complex systems since the 1890’s.
IMHO, (and that of others) the sub-prime bust was just one of may potential sources of turbulence for the global financial system. It could have been credit-card defaults (expect to hear a great deal about this in February), it could have been some emerging economy crisis (as unfolding in the former iron curtain countries right now). Turbulence is now the prominent regime in just about all asset and commodity markets: volatility reigns, and any attempt to drive or dampen the oscillations will, inevitably, make the fluctuations worse. Locking the stable door after the sub-prime horse has bolted is as futile as treating the mosquito-bite when the patient is close to death from malaria. The markets will return to stability of their own volition, however, it is inherently impossible to predict with certainty when that stability will come and what that stability will look like.
Doc trumpets his prescience of the housing bubble bust, very good; I predict that autumn will turn to winter. Sorry, that’s a bit mean, but the point is valid. Predicting cycles is easy – you’re bound to be right eventually – it’s picking the point of inflection in financial markets that’ll make you a millionaire – one can place bets, but it’ll be luck and not any special insight or genius on the gambler’s part which determines the outcome.
But what of Soros’ and Kondratiev’s 60-year super-cycle, dating from the end of WW2? All the current talk of Neo-Keynesian stimulus packages to mitigate the worst effects of the onrushing debt deflation automatically makes one think of FDR’s New Deal. The New Deal did not work. As late as 1938, one in five American workers was still unemployed. Genuine recovery came only with the advent of WW2, with its vast arms budgets and deficit spending. I feel uneasy that the ‘engine’ that finally pulled us out of the Great Depression may have been WW2 and then the permanent war economy of the United States; this impression does chime with some of the more bellicose comments from Doc and others above.
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November 3rd, 2008 at 4:25 pm
Great post DrBuzz!
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