What is the right price of money?

India's Inflation Is a Lesson for Fast-Growing Economies

By Alex Frangos

For many emerging nations that boast enviable rates of growth, there is a cautionary tale in India, which is paying the price for letting inflation infect its economy.

The country's central bank, the Reserve Bank of India, meets this week to decide whether once again to edge up its benchmark interest rate—now 8%—in the continuing tug-of-war between rising inflation and sliding growth.

India's problem of inflation rates approaching double-digit levels is playing out to a lesser degree in other developing economies. Amid easing Western demand for the emerging world's goods, growth is slowing in countries such as China, South Korea and Brazil, where prices are being driven up by food-supply shortages, consumer demand and wage increases.

That puts central banks in a pickle. Policy makers could lift rates to snuff out inflation, but they risk plunging decelerating economies into a serious slowdown. If they don't tighten policy, inflation could get out of hand, requiring sharper rate increases down the road.

Brazil has indicated more concern with slowing growth than with inflation. The country's central bank cut interest rates last month despite inflation accelerating to 7.2% in the year through August, a perilous combination in a country with a history of hyperinflation.

Brazil is acting in the belief that monetary policy needs time to take effect. Once the interest-rate cut works its way through the economy, the thinking goes, slowing growth will have snuffed out inflation. Gauges of future growth, such as manufacturing surveys and export orders, point to a slowdown, and the central bank believes that cutting now will help prevent a downturn from being worse in several months.

China and South Korea are in similar situations. Indexes that measure manufacturing have dropped to their lowest levels since the financial crisis and indicate a slowdown is afoot. Yet inflation in China remains at an uncomfortably high level. Government data Friday showed China's consumer-price index rose 6.2% in August from a year earlier, but decelerated from July's 6.5% increase. In South Korea, consumer prices were 5.3% higher in August than a year earlier, the fastest rate in three years. Its central bank last week left benchmark interest rates steady.

In India, 11 interest-rate increases in 18 months have taken a bite out of the world's 10th-largest economy, with business confidence sinking and growth slowing five quarters in a row. But the increases haven't reduced the inflation rate.

Rising prices have sparked concerns that inflation is deeply embedded in the economy, meaning more inflation-fighting is necessary even as the global recovery slows.

Arguably India's situation is worse than most, putting it in the position of having to lift interest rates when under normal circumstances the prescription would be staying pat or even cutting rates to spur growth.

There's debate about the quality of India's inflation measures. The most closely followed Wholesale Price Index, while down slightly in July, has hovered just below 10% for months, twice the target level that economists and politicians say is healthy. More troubling, inflation expectations—or the view among consumers and businesses of where prices are heading—are above 12%. At that level, economists worry, people alter their behavior and spend their money quickly, because they believe prices will keep rising. That boost in spending itself spurs more inflation, feeding a cycle that can be broken only by an economic slowdown. That is what Paul Volcker's Federal Reserve had to usher the U.S. economy through in the early 1980s.

There are many theories about what caused India's predicament. Some point to bad harvests that sent food prices skyrocketing. Others cite the unintended consequences of the increase in rural school-participation rates, which has reduced the supply of child labor, putting pressure on wages to grow. Rising prices put pressure on employers and government wage regulators to increase pay.

Some blame the central bank.

"There's an excuse, 'Oh, we have a bad harvest' or 'Oh, there's been a global commodities price shock' or 'Oh, it's just the fault of the crude oil.' I think that's a big mistake. This has been a persistent problem, and it reflects a failure of macro policy," said Ajay Shah, an economist at the National Institute for Public Finance and Policy, a government think tank in New Delhi. Inflation has been above the government's informal target since 2006, he said, long before food prices jumped.

Mr. Shah said Duvvuri Subbarao, governor of the Reserve Bank of India, has undermined inflation-fighting efforts by questioning whether rate increases even work. Six days after lifting rates in May, for instance, Mr. Subbarao said monetary policy is "an ineffective instrument for reining in inflation emanating from supply pressures. It is unrealistic, under these circumstances, to expect the Reserve Bank to deliver on an inflation target in the short-term."

The Reserve Bank has gotten more aggressive in recent months, surprising markets with a series of half-percentage-point rate increases. In a Sept. 3 speech, the RBI's executive director, Deepak Mohanty, acknowledged that inflation has become "generalized" in the economy, but predicted the rate increases would begin to bring down inflation later this year and in early 2012.

India's economy is paying the price. Growth in the country's recently booming auto sales has tailed off. Politicians who counted on 10% annual growth to rival China are confronting an economy growing below 8%. While a robust pace in global terms, that is too slow to deliver on promises of poverty reduction and job creation.

"You have to pay a painful short-term decline in business-cycle conditions to be able to exorcise this inflation," Mr. Shah said.

The winter of discontent

Unrest on Rise as China Booms

By TOM ORLIK

China's massive economic-stimulus program has supported near double-digit growth, but also stoked inflation, piled up debt and fueled another unwelcome development: social unrest.

In 2010, the world's second-largest economy was rocked by 180,000 protests, riots and other mass incidents—more than four times the tally from a decade earlier. That figure, reported by Sun Liping, a professor at Tsinghua University, rather than official sources, doesn't tell the whole story on China's turmoil.

But what is clear is that the level of social tension and number of protests against the government is rising. That is a sensitive subject as the ruling Communist Party prepares to mark the 62nd anniversary of the founding of the People's Republic of China on Oct. 1.

As worrying to the Communist Party as the increase in protests is the fact that many of them stem from everyday economic injustice. Unrest isn't confined to the ethnic minority areas of Tibet and Xinjiang. Most protests target land grabs by developers and abuses of power by local officials, or unpaid wages by construction firms.

Last week in Lufeng, a city in Guangdong province in southeast China, hundreds participated in violent protests over the alleged seizure of villagers' land for development. In June, migrant workers in Zengcheng, also in Guangdong, torched government offices after security personnel pushed to the ground a pregnant migrant worker who had been working as a street vendor there.

Rising prices might not figure as a direct trigger of unrest, but inflation remains a key source of discontent. In an annual survey of social attitudes published by the Chinese Academy of Social Sciences, inflation shot to the top of the list of problems in 2010, up from fifth place in 2009.

There is a reason for that move up the ranks. A sweeping monetary stimulus in 2009 and 2010—with the banks issuing 17.5 trillion yuan ($2.7 trillion) in new loans—translated into higher levels of inflation, reflected largely in food prices. In 2011, the problem has become more severe. The latest data show food prices rose 13.4% year-to-year in August. Prices for pork, China's favorite meat, rose 52.3% to a record level. The urban poor, who spend a large share of their income on food, are hardest hit by food costs.

Rapid increases in the cost of living can take a toll on social stability, as illustrated by the 1989 protests that ended bloodily in Beijing's Tiananmen Square. A yearning for political reform triggered those demonstrations, but anger over increasing food prices was a factor. Political posters on walls around the city criticized the sumptuous meals enjoyed by China's ruling elite at a time when ordinary workers were struggling to make ends meet.

More than two decades later, a lot has changed. In 1989, panic buying spurred by the transition from government-controlled prices to market ones played a part in pushing up costs of everyday essentials. The government doesn't have that to worry about this time around.

But some things have stayed the same. Murray Scot Tanner, a China security analyst at CNA, says "you won't find food riots anymore, but scratch the surface of any number of disturbances, and you will find discontent over inflation is one of the factors." The data support that analysis. For the past decade, the rise in cases of "disturbing public order" tracks with the increase in food prices, surging just as food prices spiked in 2004 and 2007.

If inflation provides the powder keg, the spark that ignites social unrest is likely to come from land grabs. A decade-long real-estate boom has made land a valuable commodity. Weak legal protections for property rights and alliances between government officials and developers mean that land often is seized without adequate compensation for residents.

Take Xianghe County in Hebei, a province bordering Beijing. Local media report that since 2008 local officials have defrauded farmers of hundreds of acres, which has been sold to developers to build luxury villas.

Mr. Li, who gave only his family name for fear of reprisals, said his parents had been kicked out of their Xianghe home with compensation of 3,000 yuan per square meter, compared with a market price above 6,000 yuan. Transactions like that add hundreds of millions of yuan to local government revenue, but only at the expense of the farmers' land and livelihood. Officials in the Xianghe government referred questions to a public-relations office, where the telephone wasn't answered.

The Xianghe case isn't an isolated incident. Yu Jianrong, an expert on civil unrest at the Chinese Academy of Social Sciences, wrote in 2010 that disputes over land were behind 65% of social disturbances in China's countryside.

That number could climb. China's local governments have spent the past three years amassing debt—10.7 trillion yuan according to a June estimate by the National Audit Office. Concerns are mounting about whether local governments can repay that debt. This month, local media reported that 85% of local-government borrowers in Liaoning, a province in North East China, didn't have sufficient revenue to make interest payments.

Why did the banks make so many loans to projects with little hope of repayment? One word: land. According to the National Audit Office, 2.5 trillion yuan of loans to local government—23% of the total—depend on sales of land for repayment. Some analysts say the real percentage is much higher.

In 2010, China's local government raised 2.9 trillion yuan in revenue from land sales. Repaying debts will mean selling almost the same amount of land over again. If town halls want to continue paying for hospitals, schools, and other services, the implication is a massive increase in land sales. Even worse, as local governments bring more land to market to pay their debts, excess supply pushes prices down, and the area of land that has to be sold increases.

Not all the farmers about to be removed from their land or residents about to be turned out of their apartments will go quietly. With land grabs already the main cause of social instability, and inflation heightening the strain, China's government may not be able to repay its financial debts without breaking the social contract.

Turning point for Russia

Russia's Kudrin Eyes Exit, Citing Policy Differences

By IRA IOSEBASHVILI

WASHINGTON—Russian Finance Minister Alexei Kudrin, a darling of investors and one of the country's longest-serving officials, said Saturday he would decline a post in Russia's next government, just hours after Vladimir Putin announced he would stand for president in 2012 elections.

Mr. Kudrin cited differences with current President Dmitry Medvedev—who is expected to lead the next government as prime minister—on plans for ramped up military spending and other issues, saying Mr. Medvedev's policies carried "significant budget and macroeconomic risks" for the country.

Messrs. Putin and Medvedev on Saturday ended months of intense speculation over which of them would run for president in March, disclosing in back-to-back speeches at a congress of the ruling United Russia party that they had agreed to switch jobs.

"I don't see myself in the new government. Nobody has offered me a position, but I think that the disagreements I have will not allow me to be a part of the new government," Mr. Kudrin told journalists at a briefing on the sidelines of the International Monetary Fund and World Bank meetings here.

When asked if he would take a position if one were offered, Mr. Kudrin said: "I would definitely refuse."

The move is likely to be a major concern for investors, who have gotten used to Mr. Kudrin as a steady hand on Russia's finances over the past decade.

More:

Putin to Return to Presidency

Mr. Kudrin, the longest-serving finance minister in the Group of Eight leading economies, came to the job in 2000, shortly after Mr. Putin took over Russia's presidency. The two men have been seen as close allies, with both of them having served in the administration of former St Petersburg mayor Anatoly Sobchak.

His relationship with Mr. Putin led many investors and analysts to speculate that Mr. Kudrin was a likely candidate for prime minister, should Mr. Putin choose to stand for president.

Mr. Kudrin, 50 years old, oversaw a period of booming oil prices, which helped Russia's economy bounce back after the turbulent reforms of the post-Soviet 1990s. When oil prices plummeted in the wake of the 2008 financial crisis, Mr. Kudrin's decision to save the country's excess oil revenues in a rainy-day fund—for which he had been roundly criticized by many in the government—helped Russia avert economic catastrophe and possible social unrest.

A fiscal hawk who kept Russia's sovereign debt at below 10% amid growing borrowing in other countries, Mr. Kudrin often butted heads with those in the government pushing for growth through spending, including Mr. Medvedev. At an economic forum in St Petersburg earlier this year, Mr. Kudrin openly criticized Mr. Medvedev for urging Russia to live within its means on one hand while simultaneously raising defense spending.

Russia last week passed an amended budget where military spending triples to 3% of gross domestic product in 2014 from just over 1% this year.

"This is very significant growth," Mr. Kudrin said. "It won't allow us to cut the deficit during high oil prices, it will maintain our dependence on oil."

Russia—the world's largest oil producer—needs an ever-growing oil price in order to balance its budget, and cash from energy sales account for half of the country's federal budget revenues.

Mr. Kudrin said that Mr. Putin, as president, would be more active in carrying out reforms necessary to modernize Russia's economy and cut its dependency on oil and other commodities.

"Putin very seriously feels problems and reacts to them. Because of this, I hope he will feel that it is necessary to carry out reforms in order to raise Russia's economic potential, including structural reforms," Mr. Kudrin said.

He said that the makeup of Russia's current government could see "significant changes" under the new leadership. "I heard this morning there will be a team of young, effective managers," Mr. Kudrin said, laughing.

The never ending tragedy of Socialism

Argentina to Press: Don’t Ask, Don’t Tell

By W Russell

Argentina is a textbook case of a country telling foreign investors to stay away.  That isn’t the official message, of course, but it is the only possible way to interpret recent events. According to theNew York Times:

A judge has subpoenaed six newspapers for the names and telephone numbers of all reporters and editors who have covered the economy in the past five years, so they can be called as witnesses against their sources. News organizations called it an attempt to censor and intimidate the news media from accurately reporting on inflation, which many economists say is above 20 percent annually, more than twice what the government says. Judge Alejandro Catania also issued subpoenas on Thursday for the office of the International Monetary Fund in Argentina, the tax ministry and the central bank, seeking information about their consultants and clients, according to the state news agency Telam.

After a signal like that, stockholders should be able to sue the management of any company which puts money into Argentina.  It is hard to think of measures which send a more unmistakable warning of dishonesty and impending crisis.  Nothing and no one can be safe in a country where such things are done.

Markets behave strangely and the Argentines are past masters of manipulation, so it is impossible to predict exactly how or when the disaster will strike.  But it could not be more clear that this is a government without scruple or dignity and that there is something going on there that it desperately wants to conceal.  When it comes to Argentina, the only sound investment advice is to avoid this country like the plague.

Capitalism gone wild? Really?

Fannie, Freddie and the House of Cards

By MARY MARTELL

Fannie Mae and Freddie Mac (collectively the two largest “GSEs”, or government-sponsored enterprises) have engaged in a broad range of residential mortgage activities for many years. The economic disaster of recent times has drawn considerable attention to Freddie and Fannie, which is not surprising considering the role that the mortgage sector of the U.S. banking system played in that debacle. Together the two institutions hold or pool about $5 trillion worth of mortgages, and so sketchy were their operations that in September 2008 the U.S. government had to bail them out and place them in conservatorship to keep the entire mortgage market from imploding. While the U.S. government has by now been made whole by TARP-assisted banks, it is not clear whether the billions of dollars provided to keep Fannie Mae and Freddie Mac afloat will ever be returned to the U.S. Treasury.

It has not been easy for even well-educated observers to understand the role that Fannie Mae and Freddie Mac have played in our recent economic distress, and how to make sure they never become part of such problems again. By almost any measure, the operation of these GSEs is complex, just as the system in which it operates is fully comprehensible only to those who are experts in knowledge of its inner workings. That is why proposals to reform Freddie and Fannie seem so difficult to construct, explain and implement. Clearly, the Congress has not made much progress in the effort so far.

The Obama Administration provided some clarity by offering policy options in a position paper released in February 2011, Reforming America’s Housing Finance Market: A Report to Congress (the “White House Report”). On August 16, the Washington Post carried a front-page article by Zachary A. Goldfarb that reviewed Obama Administration efforts, revealing that, while the Administration’s economic wizards have not yet decided what plan to put before the President, they are leaning toward a larger role for the Federal government than had been suggested by the February White House Report. According to the article, the approach being pursued by the Administration “could even preserve Fannie Mae and Freddie Mac . . . although under different names and with significant new constraints.”

Names matter, but the character of those constraints matter a great deal more. As the Washington Post article notes, conservatives in general, as well as many economists, believe that any significant government role in the mortgage market is distortionary and likely to contribute to further financial dislocation. It also notes that the Administration has not yet decided whether to pursue this policy development to its final course before the 2012 presidential election, suggesting that it is well aware of the political volatility of the issue.

As detailed as this Washington Post account is, it cannot begin to describe the almost Byzantine complexity of Federal intervention in the housing market. The possibility of coherent thought about the reform of our mortgage GSEs requires one to understand why Fannie and Freddy were established in the first place, how their functions have changed since then, and why they changed. It is not even obvious that we still need these institutions at all. Perhaps whatever useful functions Freddie and Fannie perform could be handled more effectively by other government institutions. If we want effective new policies, we must not shirk from the task of governmental design and redesign. The Administration needs to be bold. Its trajectory so far, unfortunately, suggests retreat.

A Pocket History

Around the time of the Great Depression, mortgages on residential properties were typically short-term loans, with little if any principal paid until maturity. The flaw in this approach to mortgage finance became evident when property values declined precipitously in the 1930s. For many, home loans that were due and payable at maturity could not be refinanced because the amount of mortgage debt exceeded the value of the property. The Great Depression confirmed that Americans needed a more stable system of home mortgage finance.

They won't be satisfied until we're choking to death in the dark

Obama Administration Set to Ban Asthma Inhalers over Environmental Concerns

You are getting what you asked for, good and hard

By Mark Hemingway

Ozon Layer Criminal in action

Remember how Obama recently waived new ozone regulations at the EPA because they were too costly? Well, it seems that the Obama administration would rather make people with Asthma cough up money than let them make a surely inconsequential contribution to depleting the ozone layer:

Asthma patients who rely on over-the-counter inhalers will need to switch to prescription-only alternatives as part of the federal government's latest attempt to protect the Earth's atmosphere.

The Food and Drug Administration said Thursday patients who use the epinephrine inhalers to treat mild asthma will need to switch by Dec. 31 to other types that do not contain chlorofluorocarbons, an aerosol substance once found in a variety of spray products.

The action is part of an agreement signed by the U.S. and other nations to stop using substances that deplete the ozone layer, a region in the atmosphere that helps block harmful ultraviolet rays from the Sun.

But the switch to a greener inhaler will cost consumers more. Epinephrine inhalers are available via online retailers for around $20, whereas the alternatives, which contain the drug albuterol, range from $30 to $60.

The Atlantic's Megan McArdle, an asthma sufferer, noted a while back that when consumers are forced to use environmentally friendly products they are almost always worse:

Er, industry also knew how to make low-flow toilets, which is why every toilet in my recently renovated rental house clogs at least once a week.  They knew how to make more energy efficient dryers, which is why even on high, I have to run every load through the dryer in said house twice.  And they knew how to make inexpensive compact flourescent bulbs, which is why my head hurts from the glare emitting from my bedroom lamp.    They also knew how to make asthma inhalers without CFCs, which is why I am hoarding old albuterol inhalers that, unlike the new ones, a) significantly improve my breathing and b) do not make me gag.  Etc.

Well, tough cookies asthma sufferers! You should have written bigger checks to the Democratic party while you had the chance.

Socialist Republic of Kenya in action

Enter the Kiambu Municipal Fire Brigade to the rescue…" 


Oh dear.

Socialism is Heaven on Earth

The Good Life, Greek Style

 You maybe thought Greece was reformable?

By Douglas Murray

Back in the 1980s, pop singer Belinda Carlisle topped the charts singing that heaven was in fact a place on Earth. Prophets are often ahead of their time, and notoriously underappreciated in their own land. But Miss Carlisle ended up being proved right. Heaven is indeed a place on Earth. It is called Greece.

It is possible, amid the recent footage of riots, tear gas, burning buildings, and pepper spray, to get the wrong idea. But if you have lived and worked there over recent decades, you know Greece is the only place to be. You are one of the blessed, a lotus-eater, a dweller in the happy isles.

Let's say that you're in your fifties, and have worked for 30-odd years in one of the world's toughest professions -- something sweat-inducing, a real ball-buster -- on the front lines defending civilization as we know it. Hairdressing, for instance. If every weekday since leaving coiffure school you have been in the salon, providing first aid to split ends and sun-damaged hair, then from the age of 50 you could put your feet up. The state would support you for the rest of your natural life. And it’s not just hairdressers who enjoy this privilege.

Other hazardous occupations that the Greek government decided deserved decades in retirement clover included street peddling, radio broadcasting, and nightclub singing. I don't doubt those nightclub crowds in a seaside resort like Faliraki can be tough, but why should belting out the hits to sunburned tourists for 35 years single you out for four or five decades of the good life on a full state pension? The answer is that you’re not singled out. Nearly 600 jobs are similarly rewarded by the Greek authorities. Pastry chefs and trombone players are also deemed at risk, the former from breathing all that flour dust, the latter from gastric reflux. Radio announcers are considered to be vulnerable to microphone bacteria, while the toilers in Greece's hair salons deserve compensation for handling the lethal chemicals used in hair products.

It all makes Greece sound like a mighty dangerous place. Except that it's not. It's wonderful. Life expectancy is higher than in many other European countries, including Denmark and Great Britain. The average retirement age nationwide last year was 61, compared to 65 in Britain and 67 in Germany and Holland. What’s more, when they do retire, Greek citizens can expect to receive 80 percent of their final salary -- not average or median, but final. So Greek retirees can live the rest of their lives in the manner to which they most recently became accustomed.

In Greece recently I took the opportunity to hang around with the locals. It was a mind-altering experience. The government's first round of so-called "austerity measures" was going through, but hadn't made any palpable difference to the high life. It wasn’t just the easy talk of yachts and holidays I heard, but the everyday talk of endless entitlements. Civil servants employed to begin work at 9:30 in the morning and finish at 2:30 in the afternoon don't pick up the phone after 2 o'clock. And even this is not as onerous as it sounds. Because these civil servants don’t actually have to be at work at 9:30. In fact there is a bonus scheme rewarding those who actually do turn up on time. And after that optional early start, the lunch break is certainly deserved. It’s all a foretaste of the civil service early retirement package.

The more you listen and the more you look into it, the more it becomes clear that Greece is a social first, the fulfillment of an elemental human dream: the Greeks have created a country with no consequences. When they entered the eurozone they simply lied, concealing the truth of their woeful financial situation from Eurocrats too excited about extending their base to bother with due diligence on the cooked Greek books. When, at the end of this year, Greek debt hits 160 percent of its GDP, it will still have almost no impact on the majority of Greeks. Having had one bailout already from the European Union, they now await another.

Since being saved from the precipice of financial catastrophe, the Greek government has finally been forced to rein in some of its worst excesses. So it has finally stopped paying final-status pensions at the rate of 14 months a year. That’s right: state pensions counted 14 months in a year, or rather two months a year which acted as double months -- special pensioner bonus months. But even that’s assuming you’re one of the four out of 10 Greek citizens who actually pay any income tax. Considerably more than half the population find the whole tax business beneath them, or claim to be beneath it. So alongside the virtual and unreal real economy is a shadow, unreal, unofficial economy. And perhaps it’s this that keeps the whole party boat afloat.

BUT WHATEVER the reason: this is the place. The weather is beautiful. The scenery is magnificent, and if you’re one of those smart Greeks who have found a way to live the high life at the expense of others, then there’s nowhere better in the world.

The country is often talked about by doom-mongers as a foretaste, a warning, of what could happen to Spain, Italy, Britain -- even America. But the truth is that as cautionary tales go, it's not very scary. Because anyone who actually tries the Greek life will love it and do anything to get a piece of it. What is happening in Greece is the culmination of the European welfare dream.

As if to prove it, the United Nations' independent expert on foreign debt and human rights just consoled the dreamers by warning the Greek government that its belated austerity measures may be impermissible. The "basic human rights" of the Greek populace must be protected, said Cephas Lumina, particularly "their economic, social and cultural rights." The reality suspension seems endless. It’s not only a basic right to live the high life -- it’s against your human rights to be denied it.

Heaven is a place on earth where you get to spend not only beyond your own means, but beyond the means of all your neighbors as well. You run up tabs you’ll never pay. And then you do it again. It is a country where no failure -- either governmental or personal -- is punished. And when the money runs out, it doesn’t. There are simply new ways to invent more. And on it goes. And nothing has consequences. The money grows on foreign trees. The party rolls on. And nobody will permit the music to stop. Because if it does then the lights will come up. And the aging Greek nightclub singer won’t be the only one looking ugly in the ensuing glare. 

A bridge to nowhere

Global Bust-Up

 

                   It’s the end of the world as we know it. You shouldn’t feel fine.

By Mark Steyn
‘It’s the end of the world as we know it,” sang the popular musical artistes R.E.M. many years ago. And it is. R.E.M. has announced that they’re splitting up after almost a third of a century. But these days who isn’t? The eurozone, the world’s first geriatric boy band, is on the verge of busting apart. Chimerica (Prof. Niall Ferguson’s amusing name for the Chinese-American economic partnership that started around the same time R.E.M. did) is going the way of Wham!, with Beijing figuring it’s the George Michael of the relationship and that it’s tired of wossname, the other fellow, who gets equal billing but doesn’t really do anything. The deeper problem may be that this is a double act with two wossnames.

Still, it’s the end of the world as we know it. Headline from CNBC: “Global Meltdown: Investors Are Dumping Nearly Everything.” I assumed “Nearly Everything” was the cute name of a bankrupt, worthless, planet-saving green-jobs start-up backed by Obama bundlers and funded with a gazillion dollars of stimulus payback. But apparently it’s “Nearly Everything” in the sense of the entire global economy. Headline from the Daily Telegraph of London: “David Cameron: Euro Debt ‘Threatens World Stability.’” But, if you’re not in the general vicinity of the world, you should be okay. Headline from the Wall Street Journal: “World Bank’s Zoellick: World In ‘Danger Zone.’” But, if you’re not in the general vicinity of . . . no, wait, I did that gag with the last headline.

I mentioned in this space a few weeks ago the IMF’s calculation that China will become the planet’s leading economic power by the year 2016. And I added that, if that proves correct, it means the fellow elected next November will be the last president of the United States to preside over the world’s dominant economy. I thought that line might catch on. After all, we’re always told that every election is the most critical consequential watershed election of all time, but this one actually would be: For the first time since Grover Cleveland’s first term, America would be electing a global also-ran. But there’s not a lot of sense of America’s looming date with destiny in these presidential debates. I don’t mean so much from the candidates as from their media interrogators — which is more revealing of where the meter on our political conversation is likely to be during the general election. On Thursday night, there was a question on gays in the military but none on the accelerating European debt crisis. It is certainly important to establish whether a would-be president is sufficiently non-homophobic to authorize a crack team of lesbian paratroopers to rappel into the Chinese treasury, break the safe, and burn all our IOUs. But the curious complacency about the bigger questions is disturbing.

Greece is reported to be within weeks if not days of default. There are two likely outcomes to this scenario: 1) Greece will default. 2) Germany and the Eurocrats will decide that default would be too embarrassing for the EU’s pretentions and will throw whatever sum of money is necessary into the great sucking maw of toxic ouzo to stave it off a while longer.

But Option Two doesn’t alter the underlying reality — that, if words have any meaning, Greece is insolvent, and given its rapidly aging population (100 grandparents have 42 grandchildren) is unlikely to be non-insolvent under any conceivable scenario, no matter how tightly German taxpayers are squeezed to pay for it. By the same measure, so are many other Western nations.

On the other hand, attempting to postpone the Club Med welfare junkies’ rendezvous with self-extinction will destabilize internal German politics (which always adds to the gaiety of nations) and strain to breaking point what’s left of the European banking system. BNP Paribas, formerly Saddam’s favorite banker and Gallicly insouciant about who it climbs into bed with, was reported in recent days to be cruising the flusher sheikhdoms and emirates in search of a new sugar daddy. Delivering French banks into the hands of Islamic imperialists seems a high price to pay for bailing out Athenian deadbeats.

The question to ask is: What’s holding the joint up? In the case of the global economy, the answer is: Not much. The developed world’s combined economic-growth rate for 2012 is projected to be under 2 percent — and that’s a best-case scenario in times that don’t warrant much optimism. As its own contribution to the end of the world as we know it, the Obama administration has just released a document called “Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction.” If you’re curious about the first part of the title — “Living Within Our Means” — Veronique de Rugy pointed out at National Review that under this plan debt held by the public will grow from just over $10 trillion to $17.7 trillion by 2021. In other words, the president’s definition of “Living Within Our Means” is to burn through the equivalent of the entire German, French, and British economies in new debt between now and the end of the decade. You can try this yourself next time your bank manager politely suggests you should try “living within your means”: Tell him you’ve got an ingenious plan to get your spending under control by near doubling your present debt in the course of a mere decade. He’s sure to be impressed.

As for the “Investing in the Future” part of the president’s plan, that means lots more government, lots more half-billion-dollar payoffs to pseudo-businesses cooked up by cronies, lots more $4.8 million–per–job taxpayer subsidies paid for with money borrowed from our unborn grandchildren. In a perfect snapshot of this administration’s witless banality, the president traveled last week to the Brent Spence Bridge across the Ohio River and claimed that, despite the fact that the structure connects the home states of the Republican House leader and the Republican Senate leader, the mean spirited GOP is going to kill the jobs bill and thus all prospects for a new bridge between their two states.

The bridge has nothing to do with the jobs bill. Work on a new bridge is not scheduled to begin for four years and wouldn’t be completed until 2022 at the earliest. Because in the Republic at twilight you can run up another seven-and-a-half-trillion dollars of new debt in less time than it takes to put up a bridge. Even as cheap political showboating the president’s photo op was a pathetic joke, with the laugh on you.

If this is the best America can do, there won’t be a 2022, not for the United States, or anything that would be recognizable as such. Like R.E.M. says, it’s the end of the world as we know it. And, as their split suggests, they no longer feel fine. And nor should you.

Fabian Socialist Intellectual George Bernard Shaw

Addendum to Intellectual Roots of Terror