Everyone's Missing the Bigger Picture in the Reinhart-Rogoff Debate

The monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else

by George Washington 

You've heard that an incredibly influential economic paper by Reinhart and Rogoff (RR) - widely used to justify austerity - has been "busted" for "excel spreadsheet errors" and other flaws.

As Google Trends shows, there is a raging debate over the errors in RR's report:

Even Colbert is making fun of them.

Liberal economists argue that the "debunking" of RR proves that debt doesn't matter, and that conservative economists who say it does are liars and scoundrels.

Conservative economists argue that the Habsburg, British and French empires crumbled under the weight of high debt, and that many other economists - including Niall Ferguson, the IMF and others - agree that high debt destroys economies.

RR attempted to defend their work yesterday:

Researchers at the Bank of International Settlements and the International Monetary Fund have weighed in with their own independent work. The World Economic Outlook published last October by the International Monetary Fund devoted an entire chapter to debt and growth. The most recent update to that outlook, released in April, states: “Much of the empirical work on debt overhangs seeks to identify the ‘overhang threshold’ beyond which the correlation between debt and growth becomes negative. The results are broadly similar: above a threshold of about 95 percent of G.D.P., a 10 percent increase in the ratio of debt to G.D.P. is identified with a decline in annual growth of about 0.15 to 0.20 percent per year.”

This view generally reflects the state of the art in economic research

***

Back in 2010, we were still sorting inconsistencies in Spanish G.D.P. data from the 1960s from three different sources. Our primary source for real G.D.P. growth was the work of the economic historian Angus Madison. But we also checked his data and, where inconsistencies appeared, refrained from using it. Other sources, including the I.M.F. and Spain’s monumental and scholarly historical statistics, had very different numbers. In our 2010 paper, we omitted Spain for the 1960s entirely. Had we included these observations, it would have strengthened our results, since Spain had very low public debt in the 1960s (under 30 percent of G.D.P.), and yet enjoyed very fast average G.D.P. growth (over 6 percent) over that period.

China 2.0 Is in Trouble

A political/financial system that is incapable of meaningful reform

Despite the many differences between China and the U.S., their basic problems are remarkably similar: an economy that increasingly serves a tiny Elite, and a political/financial system that is incapable of meaningful reform

by Charles Hugh-Smith
Setting aside the latest bird flu outbreak and sagging indicators of growth, China 2.0 is in trouble (with 1.0 being the Communist era of 1949 -1977 and 2.0 being the modernization/globalization era of 1978 - 2013), for it remains overly reliant on unsustainable growth dynamics.

The following is my summary of the excellent talks given by Jim Chanos and Michael Pettis at Mish's insight-packed Wine Country Conference in Sonoma earlier this month. (Any errors in presenting the speakers' views are of course mine.)

Here are Chanos' lecture slides and interviews with Chanos and Pettis:

Jim Chanos On China's 'Edifice Complex'

Jim Chanos on Daily Ticker: Stay Away From U.S. Tech Firms

Michael Pettis Interview with Lauren Lyster: Decade of Slower Growth for China

Michael Pettis observed that he'd spent time in Haiti earlier in his career, and pockets of poverty in China today equal those he'd witnessed in Haiti. Experienced China hands know the central government takes pains to limit media exposure of this level of poverty, as it reflects poorly on China's claim to being a superpower.

He then described in some detail how the Chinese leadership has created a "no-win" policy by encouraging a dependence on fixed investment to fuel rapid growth of GDP. If it shifts income to households to enable more consumer spending, GDP growth will decline. But if it continues borrowing and spending on increasingly marginal fixed investments, growth will also slow.

In effect, China has suppressed wages to fuel GDP growth. Financial repression (low interest rates) has further suppressed household income and encouraged misallocation of capital on a vast scale.

Pettis said the Chinese government is pushing a "go west" campaign. While "go west" worked in America's development, it failed miserably in Soviet Russia and Brazil. The difference, he said, is that in America, the private sector moved west and the government simply followed. In China, Russia and Brazil, the government pushed infrastructure west but without private-sector participation. Pettis reported that private sector contractors go west to build the infrastructure and then return east once the work is done.

In Pettis' view, the key metrics are debt and the ability to service debt: 
if debt is rising but the ability to service that debt (disposable income) is stagnant, then the system is unsustainable. He said this is the case in China: debt is rising but the ability to service that debt is not.

Given the political power of the state-owned enterprises (SOEs), China's political and financial systems do not have self-correcting mechanisms. Such mechanisms require transparency and feedback that is lacking in China.

Pettis flatly stated that the PBoC (China's central bank) is insolvent. Debt levels are high and much of the collateral is impaired.

Russia multiplies gas routes to Europe

This message has many intended audiences

By Vladimir Socor
Russian President Vladimir Putin and Gazprom are announcing colossal plans to expand the capacities of existing gas export pipelines and build new ones, all in Europe beyond Russia's territory.
Gazprom already co-owns and controls export pipeline capacities amounting to some 110 billion cubic meters (bcm) per year in Europe beyond Russia (Nord Stream One and Two, Yamal-Europe, the export pipelines to the Baltic States and Finland, and Blue Stream), including more than 90 bcm per year in pipelines located within the European Union. 

Apart from this, Russia remains the sole user (albeit at decreasing annual usage levels) of Ukraine's state-owned pipeline system with its westbound transit capacity of 140 bcm per year. Moscow now proposes to build new pipelines with capacities amounting to some 130 bcm per year (Nord Stream Three and Four, "Yamal-Europe Two", South Stream), all within EU territory. 

Thanks to the recently completed Nord Stream One and Two (2011–2012), Russia has some 250 bcm per year in export pipeline capacities at its disposal in Europe; and would increase that to a grand total of some 380 bcm per year, if the new projects are completed as proposed. Meanwhile, Gazprom's current sales in Europe are down to some 150 bcm of gas annually in the framework of long-term supply commitments, with only scant hopes to regain Gazprom's pre-crisis export levels of some 180 bcm annually in a post-crisis Europe. Moreover, Russia faces the prospect of a net loss of overall market share due to growing competition from liquefied gas on European markets. 

The Biggest Price-Fixing Scandal Ever - Everything Is Rigged

This is corruption at the molecular level of the economy

The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix

by MATT TAIBBI

Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."

The Collapsing of the American Skull

The parameters in which we allow ourselves to think about vital issues shrink remorselessly

By mark steyn
One of the most ingenious and effective strategies of the Left on any number of topics is to frame the debate and co-opt the language so effectively that it becomes all but impossible even to discuss the subject honestly. Take the brothers Tsarnaev, the incendiary end of a Chechen family that in very short time has settled aunts, uncles, sisters, and more across the map of North America from Massachusetts to New Jersey to my own home town of Toronto. Maybe your town has a Tsarnaev, too: There seems to be no shortage of them, except, oddly, back in Chechnya. The Tsarnaevs’ mom, now relocated from Cambridge to Makhachkala in delightful Dagestan, told a press conference the other day that she regrets ever having gotten mixed up with those crazy Yanks: “I would prefer not to have lived in America,” she said.

Not, I’m sure, as much as the Richard family would have preferred it. Eight-year-old Martin was killed; his sister lost a leg; and his mother suffered serious brain injuries. What did the Richards and some 200 other families do to deserve having a great big hole blown in their lives? Well, according to the New York Times, they and you bear collective responsibility. Writing on the op-ed page, Marcello Suarez-Orozco, dean of the UCLA Graduate School of Education and Information Studies, and Carola Suarez-Orozco, a professor at the same institution, began their ruminations thus:

“The alleged involvement of two ethnic Chechen brothers in the deadly attack at the Boston Marathon last week should prompt Americans to reflect on whether we do an adequate job assimilating immigrants who arrive in the United States as children or teenagers.”

Maybe. Alternatively, the above opening sentence should “prompt Americans to reflect” on whether whoever’s editing America’s newspaper of record these days “does an adequate job” in choosing which pseudo-credentialed experts it farms out its principal analysis on terrorist atrocities to. But, if I follow correctly, these UCLA profs are arguing that, when some guys go all Allahu Akbar on you and blow up your marathon, that just shows that you lazy complacent Americans need to work even harder at “assimilating” “immigrants.” After all, Dzhokhar and Tamerlan were raised in Cambridge, Mass., a notorious swamp of redneck bigotry where the two young Chechens no doubt felt “alienated” and “excluded” at being surrounded by NPR-listening liberals cooing, “Oh, your family’s from Chechnya? That’s the one next to Slovakia, right? Would you like to come round for a play date and help Jeremiah finish his diversity quilt?” Assimilation is hell.

How hard would it be for Americans to be less inadequate when it comes to assimilating otherwise well-adjusted immigrant children? Let us turn once again to Mrs. Tsarnaev:

“They are going to kill him. I don’t care,” she told reporters. “My oldest son is killed, so I don’t care. I don’t care if my youngest son is going to be killed today. . . . I don’t care if I am going to get killed, too . . . and I will say Allahu Akbar!”

You can say it all you want, madam, but everyone knows that “Allahu Akbar” is Arabic for “Nothing to see here.” So, once you’ve cleared the streets of body parts, you inadequate Americans need to redouble your efforts.

There is a stupidity to this, but also a kind of decadence. Until the 1960s, it was assumed by all sovereign states that they had the right to choose which non-nationals were admitted within their borders. Now, to suggest such a thing risks the charge of “nativism” and to propose that, say, Swedes are easier to assimilate than Chechens is to invite cries of “Racist!” So, when the morgues and emergency rooms are piled high, the only discussion acceptable in polite society is to wonder whether those legless Bostonians should have agitated more forcefully for federally mandated after-school assimilationist basketball programs.

Credit Expansion in Europe – Going the Way of Japan?

Banks Battling to Survive

By  Pater Tenebrarum

Yesterday we had the opportunity to attend a presentation by the treasurer of a European bank, which discussed the problems the European banking sector faces since the beginning of the crisis era in 2008.

Many of these problems are obvious, but some of them are perhaps less so. There are on the one hand the regulatory pressure to increase capital, a plethora of new regulations and taxation that refers to the size of a bank's balance sheet, regardless of its profitability. While such taxation only amounts to about 20 basis points, it has to be seen in the context of currently available margins in the banking business, which are dismal – once on does that, the number actually strikes one as quite large.

Regarding the regulatory regime, European bank managers these days apparently spend more time satisfying the demands of a whole horde of regulatory bodies (a bank with a decent pan-European presence can count on having to deal with up to 25 different regulators), all of which continually want to play through stress test scenarios or are demanding data on this or that. Everything has to be done to the perfect satisfaction of the bureaucrats concerned with these oversight activities, down to the color of the paper the presentations are printed on. The problem is of course that this is distracting managers from what they should actually be doing, namely focus on the business.

Given the crisis situation, one should not be surprised at this sudden avalanche of regulatory demands. However, as we have often pointed out here,  in a free banking system with 100% reserved sight deposits, all of this would be completely unnecessary.

The most important problem faced by banks though are their funding costs relative to the interest rates they can charge on loans.

Exploding Funding Costs, Shrinking Interest Rate Margins

As a side effect of the crisis and the reaction of the ECB as well as the Brussels  based eurocracy to it, banks now have to deal with a funding situation that is markedly different from what pertained prior to 2008.

‘I have a bad dream…’

Rights go wrong when there are no wrongs that rights can right

by Jon Holbrook
Fifty years ago this August, Martin Luther King led the historic March on Washington where he delivered his ‘I have a dream’ speech. He called for an end to racism and dreamed that one day people would be judged not ‘by the colour of their skin but by the content of their character’. His address to 250,000 civil-rights supporters, from the steps of the Lincoln Memorial, was a defining moment of the American civil rights movement.

1963 was also the year that the US Congress passed the Equal Pay Act, which prohibited wage differentials based on sex. The following year the Civil Rights Act outlawed major forms of discrimination against racial, ethnic, national and religious minorities, and women. The most significant consequence of this landmark legislation was the outlawing of racial segregation in schools, at the workplace and at public accommodations. The era of Jim Crow laws was coming to an end.

Despite the apparent success of the American civil-rights movement in the 1960s, in Rights Gone Wrong Richard Thompson Ford argues that the civil-rights approach to social justice reached its high-point sometime in the early 1970s and has been in decline ever since.

Today’s civil-rights movement, argues Ford, is a movement that seems incapable of addressing social injustice. Indeed, its modern-day claims are more likely to corrupt the struggle for equality by being either daft or counterproductive. Ford gives many examples, particularly of sex-discrimination claims, where equality laws have produced results bereft of common sense. In 1985, Dennis Koire asserted his civil rights after being excluded from a ladies’ night bar. He was so incensed at being told to come back when he was wearing a skirt that he took his complaint to the Californian Supreme Court, which ruled that his civil rights had been violated. His success marked the beginning of the end for ladies’ nights across the nation as courts in Iowa, Pennsylvania, Connecticut and Hawaii found that ladies’ nights and similar female promotions or discounts constituted unlawful sex discrimination.

It’s the public sector we should reform, not the public

Britain’s bureaucratically endorsed culture of entitlement and dependency

by David Clements 

Public services in the UK cannot be sustained at their current level. They are under unprecedented pressure from the global financial crisis, the slow growth of the UK’s service-based economy, and the ageing society. Consequently, there need to be drastic reductions in what is currently very high but unproductive public spending. One in four working-age adults work for the public sector - councils are often the biggest local employers and the NHS alone employs 1.7million people, making it the largest employer in Europe. Nearly half of GDP (around £700 billion) is spent on public services, including welfare benefits which account for about £200 billion. In a bid to cut public expenditure by £80 billion by 2015, tens of thousands of workers have already been made redundant. But, says Tom Manion, ‘radical’ social landlord and author of The Reward Society, it is the deterioration of our ‘attitudes, values and behaviour’ that is most costly of all.

UK authorities, it seems, spend a ridiculous amount of resources on dealing with a minority of people who are just not behaving as they should. It would be far better, Manion says, to encourage good behaviour: ‘If bad behaviour improved, we as a society would have a lot more resources to spend.’ Putting to one side the childlike simplicity of Manion’s argument, he is perceptive enough to identify a genuinely big problem - one of the defining ones of our age - and its many manifestations. We now accept as normal the ‘dishonesty, idleness and lack of thought for others’ that in the past wouldn’t have been tolerated, he says. Dysfunctional families who ‘run health, police and social services ragged’ place a burden of £8 billion per year on the state. A welfare safety net has ‘become a spider’s web, trapping people in dependency and making poverty comfortable’. There is a crippling ‘contagion’ of absenteeism in the workplace: a ‘sickness sub-culture’ not confined to the public sector but nonetheless identifiable with it. Never mind the ‘yoof of today’, it is not unusual for groups of young adultsto be making an intimidating nuisance of themselves. These ‘screeching, lurching lads and ladettes, peeing in the gutter and falling into fountains’ at the weekend are ‘back behind the building-society counter’ come Monday morning. ‘Their parents would not have behaved like that’, says Manion, ‘so why do they?’. Why indeed?

He answers his own question. Old, ‘decent’ working-class values have been lost and we’re the poorer for it. He explains that, as a ‘bad boy’ himself once, his behaviour completely violated the standards of the working-class culture he grew up in, but ‘I knew that and took the consequences’. While the complaint that rent arrears have gone through the metaphorical roof is made by Manion the landlord, he also remembers how his mother’s generation ‘took pride in paying their rent, or indeed any bill, on time’. He invites us to compare this with the points-based public-housing allocation system that has created an ‘arms race of need’ in which ‘people’s problems become their most valuable assets’. In place of the independence and pride of an earlier generation is a bureaucratically endorsed culture of entitlement. It has ‘infantilised’ tenants and kept them ‘locked into the dependency frame of mind’, unable or unwilling to do anything for themselves. ‘Downloading help and sympathy on to people in perceived need doesn’t improve their situation’, he explains. ‘They’ve got to stand up on their own two feet and find their own way of including themselves in society.’

Field of nightmares

Imperial wars have a way of coming home

By Tom Engelhardt 
Chalmers Johnson's book Blowback: The Costs and Consequences of American Empire was published in March 2000 - and just about no one noticed. Until then, blowback had been an obscure term of CIA tradecraft, which Johnson defined as ''the unintended consequences of policies that were kept secret from the American people''. In his prologue, the former consultant to the CIA and eminent scholar of both Mao Zedong's peasant revolution and modern Japan labeled his Cold War self a ''spear-carrier for empire''. 

After the Soviet Union disappeared in 1991, he was surprised to discover that the essential global structure of that other Cold War colossus, the American superpower, with its vast panoply of military bases, remained obdurately in place as if nothing whatsoever had happened. Almost a decade later, when the Evil Empire was barely a memory, Johnson surveyed the planet and found ''an informal American empire'' of immense reach and power. He also became convinced that, in its global operations, Washington was laying the groundwork ''all around the world... for future forms of blowback.''

Johnson noted ''portents of a twenty-first century crisis'' in the form of, among other things, ''terrorist attacks on American installations and embassies''. In the first chapter of Blowback, he focused in particular on a ''former protege of the United States'' by the name of Osama bin Laden and on the Afghan War against the Soviets from which he and an organization called al-Qaeda had emerged. It had been a war in which Washington backed to the hilt, and the CIA funded and armed, the most extreme Islamic fundamentalists, paving the way years later for the Taliban to take over Afghanistan.

Talk about unintended consequences! The purpose of that war had been to give the Soviet Union a Vietnam-style bloody nose, which it more than did. All of this laid the foundation for... well, in 1999 when Johnson was writing, no one knew what. But he, at least, had an inkling, which on September 12, 2001, made his book look prophetic indeed. He emphasized one other phenomenon: Americans, he believed, had ''freed ourselves of ... any genuine consciousness of how we might look to others on this globe''. 

With Blowback, he aimed to rectify that, to paint a portrait of how that informal empire and its historically unprecedented garrisoning of the world looked to others, and so explain why animosity and blowback were building globally. After September 11, 2001, his book leaped to the center of the 9/11 display tables in bookstores nationwide and became a bestseller, while ''blowback'' and that phrase ''unintended consequences'' made their way into our everyday language. 

Chalmers Johnson was, you might say, our first blowback scholar. Now, more than a decade later, we have a book from our first blowback reporter. His name is Jeremy Scahill. In 2007, he, too, produced a surprise bestseller, Blackwater: The Rise of the World's Most Powerful Mercenary Army. It caught the mood of a moment in which the George W Bush administration, in service to its foreign wars, was working manically to ''privatize'' national security and the US military by hiring rent-a-spies, rent-a-guns, and rent-a-corporations for its proliferating wars. 

A Specter that Haunts the Kremlin

Will Khodorkovsky Be Released?

By Matthias Schepp

Mikhail Khodorkovsky, once Russia's richest man and Putin's strongest adversary, could soon be released from prison. Can the polarizing oil tycoon reinvigorate a beleagered opposition?

Standing in the midst of wool socks from Armenia and hats from Turkey, Anna, the street market vendor, lowers her voice. At the onset of winter, the heat remained off for many weeks in the city's apartments -- the fault, she says, of "this oligarch who has fallen upon us like a meteorite from the sky."

Anna hates Mikhail Khodorkovsky. Before his arrest he was Russia's richest man, while she still remains so poor that she has to supplement her meager monthly pension of less than €100 ($130) by selling cheap clothing.

Her market stall is on the outskirts of Segezha, a cheerless town of 30,000 inhabitants in a desolate part of the country. Moscow is 900 km (600 miles) away, and the Finnish border is nearby. In the 1930s, Stalin sent criminals and political enemies to this remote corner of the country, where over 100,000 of them died.

A gravel road lined with fir trees leads to Correctional Camp Seven. The buses of line number 4 are mired in slush and mud, as they are every spring. At the last bus stop, there are walls with barbed wire, watchtowers and a sign warning visitors: "No photos allowed." A total of 1,300 prisoners live here, including the most prominent inmate, Khodorkovsky, who has been incarcerated at the camp for nearly two years now. Is it possible that he will no longer be among them soon?

There has been a flurry of speculation recently that Moscow may order Khodorkovsky's release. Russia's Supreme Court has sent for the files from the first two trials against the oligarch. Due to evident procedural errors, his 11-year prison sentence could be further reduced and the magnate could soon be a free man again.

A Threat to the Power Structure

On the other hand, the centrist daily newspaper Nezavisimaya Gazeta writes that the Kremlin is currently preparing a third criminal case against Khodorkovsky -- one that could put him behind bars again for two decades, this time for alleged contract killings. Indeed, if Khodorkovsky were freed, he would again pose a threat to President Vladimir Putin's power structure. He could demand the return of his oil empire, which was broken up by Putin's friends, and become a figurehead for the faltering opposition. Its most popular leader, blogger Alexei Navalny, was put on trial just last week. State prosecutors accuse him of embezzlement. Navalny alleges that the indictment was initiated by the Kremlin, which wants to see him disappear behind bars for years just like Khodorkovsky.

Immigration Gambles

Political correctness has replaced self-preservation

By THOMAS SOWELL
Britain’s late Prime Minister Margaret Thatcher said it all when she wrote that the world has “never ceased to be dangerous,” but the West has ”ceased to be vigilant.”

Nothing better illustrates her point than the fact that the West has imported vast numbers of people who hate our guts and would love to slit our throats. Political correctness has replaced self-preservation. The Boston Marathon killer who set a bomb down right next to an eight-year-old child is only the latest in an on-going series of such people.

Senator Patrick Leahy has warned us not to use the Boston Marathon terrorists as an argument against the immigration legislation he advocates. But if we are not to base our laws on facts about realities, what are we to base them on? Fashionable theories and pious rhetoric?

While we cannot condemn all members of any group for what other members of their group have done, that does not mean that we must ignore the fact that the costs and dangers created by some groups are much greater than those created by other groups.

Most members of most groups may be basically decent people. But if 85 percent of group A are decent and 95 percent of group B are decent, this means that there is three times as large a proportion of undesirable people in group A as in group B. Should we willfully ignore that when considering immigration laws?

It is already known that a significant percentage of the immigrants from some countries go on welfare, while practically none from some other countries do. Some children from some countries are eager students in school and, even when they come here knowing little or no English, they go on to master the language better than many native-born Americans.

But other children from other countries drag down educational standards and create many other problems in school, as well as forming gangs that ruin whole neighborhoods with their vandalism and violence, and cost many lives.

Are we to shut our eyes to such differences and just lump all immigrants together, as if we are talking about abstract people in an abstract world?

Understanding German Politics

Political Geography in Germany

Inquiring minds in the US note the upcoming German election and may be wondering about the platforms of the major political parties. Reader Bernd from Germany explains.

Die Linke (The Left): Die Linke is made up of the former SED/PDS (The East German Communist Ruling Party), some former West German Communist and Socialist Parties and a “rebel group” of the SPD. They all have merged and are now called "Die Linke". By and large they have a communist/socialist platform, albeit not Stalinist. Their main requests are: dissolve NATO and replace it with a new organization to include Russia in it, end all wars, control or nationalize all relevant banks and some crucial industries, increase support for the poor, raise taxes for the rich (above income of 60k Euros gradually go to 75%), introduce a stiff wealth and inheritance  tax. They are pro Euro and want the introduction of Eurobonds immediately. To alleviate the economic crisis in Europe they advocate some serious deficit spending for social and work programs. They have voted against ESM; EFSF and Cyprus deal in Parliament.

SPD (Social Democrats): SPD is the grand old Social Democratic Party, with a wonderful and long tradition. SPD originated from the worker's movement. Its first party program is from 1869. It the only party that tried to stop Hitler's power grab by opposing the emergency laws in 1933. Many went to concentration camps for opposing Hitler. In post-World War II Germany SPD provided three Chancellors, Willy Brandt, Helmut Schmidt and Gerhard Schröder. All three Chancellors were major reformers in Germany for one or the other topic.  SPD lost its original power base in the wake of Schröder's reforms in the early 2000s. SPD is a staunch pro Euro party. They also want Eurobonds immediately, as well as a common fiscal policy, a bank union and a quick unification of Europe.

Die Grünen (The Green Party): Die Grünen started as a mix of 1968 communists/socialists and anti-nuclear energy activists in West Germany. The second part is made up of some left over former East German anti SED “rebels” who helped to bring down East Germany.  Today this is the party for so the so-called "politically correct". In Germany we call them the Latte Macchiato Moms/Dads. The typical party member is a well-paid Government official or teacher with a work week of 36 hours. They believe firmly in manmade climate change and want to tax and spend their way to eliminate the CO-2 footprint. No amount of money is too much for preventing climate change. They are staunch pro Euro advocates similar to the SPD.

The Real Risks of Amnesty

American competitiveness and educational achievement are the worry, not an increased threat to national security

By HEATHER MAC DONALD

The proponents of the Senate immigration amnesty bill are right about one thing: The recent Boston mayhem is largely irrelevant to immigration reform. It’s unrealistic to think that immigration officials should have divined the young Tsarnaev brothers’ future homicidal plans when the family’s asylum application was accepted in 2002 or even in 2007, when family members gained legal permanent-resident status. Perhaps the FBI’s interview with Tamerlan Tsarnaev in 2011 for possible connections to Chechen terrorists should have stalled his younger brother Dzhokhar’s receipt of U.S. citizenship in 2012, but at least the Department of Homeland Security put Tamerlan’s own citizenship application on hold for further review, in light of the earlier FBI inquiry. If there was a government failure here, it would appear to have been the FBI’s, not the DHS’s, but more facts need to come out before reaching even that conclusion.

True, the asylum and refugee programs—a relatively small subset of legal immigration—suffer from fraud, but that fraud overwhelmingly consists of faking a basis for asylum, not covering up terrorist intentions. We can expect fraud to be an enormous problem in the proposed amnesty process, as it was in the 1986 amnesty, but it, too, will be largely concerned with manufacturing eligibility rather than with concealing terror plans. There is plenty to scrutinize in the Senate’s bill without alleging an exaggerated risk of terrorism, and it would be a mistake for skeptical senators to make national security a centerpiece of their inquiry. As horrific as every terror attack is, the incidence of domestic terrorism and the percentage of immigrants who commit it remain extremely low. The risks in the proposed amnesty law relate rather to America’s core immigration problem: the mass illegal entry of uneducated, unskilled aliens who pose no terror threat but who have a concrete effect on our educational and economic competitiveness.

Utopian Union Fantasy

California Vs Algebra

By Ed Ring.

“Jennifer Muir, a spokeswoman for the Orange County Employees’ Association, which represents more than 18,000 public employees in Orange County, said the California Public Policy Center’s study was a politically motivated attack on public employees and unions. Aside from promoting the center’s anti-public employee union agenda, Muir said, the reports are misleading and shift focus away from the discussions that matter most. Union leaders have long urged for people to consider the possibility that private-industry employees are being undercompensated and should receive retirement benefits and health coverage.”

Orange County Register, April 19, 2013

The study Muir refers to, entitled “Irvine, California – City Employee Compensation Analysis,” was published on April 8th, 2013, by our parent organization, the California Public Policy Center. To call this study “a politically motivated attack on public employees and unions,” as Muir alleges, is itself a distraction. It’s easy, and necessary, to impugn the motives behind information when the information itself is so embarrassing.

Orwell does America

Everyone still has the right to go out shopping

By Pepe Escobar 

Welcome to the sweet abyss of an Orwellian vortex. 2013 increasingly looks like 1984. 
In two previous articles, for RT RT and for Asia Times Online I have looked into the superimposed levels of blowback implied by the Boston bombing.
With still so many unanswered questions regarding what took place on the ground in Boston after the bombing, it's time to look at an extra, possible Top Ten list of lingering absurdities. And this without sidestepping other unanswered crucial questions, such as why a bomb drill - organized by Craft - was going on during the marathon at which the bombing took place; and why it was vehemently denied that a bomb drill was going on. For this current set of questions, I'm grateful for the help of Asia Times Online's Bostonian readers.

Pick your Mercedes 

1. Will the FBI come clean and admit they knew everything there is to know about Tamerlan Tsarnaev - after five years of monitoring/controlling him - and still lied to public opinion by swearing they knew nothing about his and his brother's identity, posting their photos and asking for the public to act ''as eyes and ears'' to identify those ''suspects''? 

2. Since 9/11, the preferred FBI modus operandi is to use informants to lure ''potential'' terra-rists to act. See for example the Fast and Furious-style Iran cum Mexican cartel plot. There's a strong possibility the Tsarnaev brothers were set up. In this case, is there anyone anywhere among the vast US intel apparatus investigating the FBI investigators?

3. Will the FBI explain a tsunami of false reports by the usual, anonymous ''US officials'' of explosions or ''unexploded bombs'' - at two Boston hotels, a court house, and at the JFK library? 

4. A Saudi student, injured at the bombing, who was in the US via a legal student visa, is suddenly deported on ''national security grounds'', even as investigators found ''unusual burns'' on his hand inconsistent with the injuries of other victims. He may have been a member of a Saudi clan notorious for its al-Qaeda connections. The FBI ''investigation'' is suddenly dropped shortly after the Saudi ambassador in the US held an unscheduled meeting with President Barack Obama. Add to it that even before the smoke had cleared, the Israel Lobby and the notorious disinformation website DEBKA were pointing their fingers at ''domestic terrorists with Middle East connections''. 

5. The description of the car hijacked by the brothers, a Mercedes E350 SUV, matches the description of their car left at a service station in Cambridge for two weeks prior to the bombing. A mechanic in Cambridge said Dzhokhar, Tamerlan's brother, picked up his "black Mercedes SUV" on Tuesday, the day after the marathon. The two cars may be one and the same; that blows up the whole official ''carjacking'' narrative.

6. Additionally, there's a media blackout on the owner of the allegedly hijacked Mercedes, who in theory managed to escape and call the police, who maintains that the brothers went to three ATMs and withdrew US$800 from his account - not before telling him they were the ''marathon bombers and had killed an MIT police''. The driver said he was let off at a gas station on Memorial Drive in Cambridge. But some witnesses saw Dzhokhar at the station's convenience store - without any driver. Then the narrative of the brothers robbing a convenience store was revealed to be false. Police scanners referred to a "black top" person. Still, the official narrative is that the Tsarnaev brothers were at the same place and the same time of the robbery.

Italy Led by Letta Brings Berlusconi Back as Winner

An opportunity for Berlusconi to regroup, catch his breath and prepare for the next round of elections

By Andrew Frye & Alessandra Migliaccio
Silvio Berlusconi, the three-time prime minister and two-time convicted lawbreaker, won a path back to power in Italy by outmaneuvering rivals during an eight- week political stalemate.

A year and a half after resigning in near-disgrace, the 76- year-old billionaire became the key figure in talks that began today to form the next Cabinet after the Democratic Party’s Enrico Letta was appointed prime minister. Berlusconi and his 241 lawmakers, the second-biggest contingent, hold the votes Letta, 46, needs to secure a parliamentary majority.

Berlusconi is one of the last of his generation standing after outgoing Premier Mario Monti, 70, was rejected by voters in February and 61-year-old Pier Luigi Bersani was discarded in a Democratic Party mutiny. Berlusconi’s resilience, even as he battles criminal charges from tax fraud to sexual misconduct, has gained him the admiration of allies and adversaries alike.

“Silvio Berlusconi is the real winner,” Nichi Vendola, an opponent and head of the Left, Ecology and Freedom party, said April 20 after the owner of broadcaster Mediaset SpA (MS)laid the groundwork to be part of the governing alliance. Vendola, a Bersani ally, said today he won’t support Letta.

Hizbollah's strategy in Syria will accelerate sectarian war

Lebanese clerics calling for jihad in Syria is only the tip of the iceberg

By Hassan Hassan

Fears that the Syrian conflict may spill over the country's borders are being realised, but in reverse: the Lebanese conflict is coming to Syria.

Ahmed Al Aseer, an influential Lebanese Sunni cleric, declared on Monday that jihad in Syria is now mandatory for all capable Muslims. Sheikh Al Aseer said that the decision was taken after Hizbollah's involvement in Syria became clear.

"We felt that [Hizbollah] was militarily involved and everyone was denying," he said in a video statement posted on YouTube on Monday. "But now that has become clear."

Hizbollah's initial denial of involvement in Syria appears to have changed to justification, primarily because it has become difficult for the group to continue denying reports as an increasing number of dead fighters are sent back from Syria. Although the party's leader, Hassan Nasrallah, admitted in October that party members were fighting alongside the Assad regime, he said those fighters were acting as individuals and not under his orders.

This escalation should not be played down as part of traditional Lebanese sectarian bickering. Hizbollah's decision to openly support the Syrian regime is a serious move that merits a closer look.

The obvious question is, why now?

According to accounts, the party's fighters in Syria are numerous and well-trained. Additionally, the structure of Hizbollah allows it to order the fighters to withdraw if needed.

But why would the party opt to wage war against the people of a neighbouring country that is far larger than Lebanon, offers access to its allies in Iraq and Iran, and most of all, has a vast number of supporters inside Lebanon?

The escalation of Hizbollah's involvement in Homs follows a series of media reports that suggests the party, in coordination with Tehran, has moved aggressively and openly to back the regime of Bashar Al Assad. According to the Kuwaiti newspaper Al Rai, Nasrallah visited Tehran this week and met with Supreme Leader Ayatollah Ali Khamenei and the commander of the Al Quds Brigades, General Qasim Sulaimani.

On Monday, Mr Al Assad expressed resentment towards Lebanon's "dissociation policy" during a meeting with a pro-Hizbollah Lebanese delegation. The Syrian president said: "A person cannot dissociate himself if that person is within a circle of fire and that fire is getting closer to him."

Also on Monday, the interim leader of the Syrian opposition's National Coalition, George Sabra, accused Hizbollah of declaring war against the Syrian people; as proof he said party members have fought against the rebels in the town of Qusayr, near the Lebanese border.

The obvious fragility of British credit

Moody’s Doesn’t Rate

By THEODORE DALRYMPLE

If the incompetence of the credit-rating agencies needed further proof, Moody’s recent downgrading of Britain would have provided it. It was not the downgrading that showed Moody’s incompetence, however; it was the high ranking that it had accorded Britain in the first place. Britain has been a bad long-term bet for years now. Anyone with the slightest instinct for economic affairs would long ago have foreseen the country’s poor outlook.

Indeed, a single speech in 2004 by Anthony Blair, the prime minister at the time, should have been sufficient to alert observers to the dangers. In the speech, Blair boasted that, after seven years in office, he had nearly doubled spending on public education and more than doubled spending on the National Health Service, Britain’s Soviet-style health-care system. He also promised that NHS spending would rise by another 50 percent over the next four years (a promise that, atypically, he kept). Though most of the money paid the wages of a growing number of government workers, Blair repeatedly referred to the spending increases as “investments.” So did Gordon Brown, his chief economics minister. Blair felt it unnecessary to provide evidence that this spending brought actual benefit, economic or otherwise, or to consider its possible costs. He spoke as if the money came from a generous extraterrestrial donor and not from higher taxes and government borrowing. A country with a government that cannot tell the difference between investment and expenditure is one from which lenders would best steer clear.

Three things might have alerted Moody’s, were it minimally competent. First, the government’s tax receipts did not cover its spending; even at the height of the booming 2000s, borrowing became necessary to make up the difference. Second, the boom itself was clearly the product of cheap credit, which led to asset inflation and overconfident private spending and borrowing. Finally, while taking on legions of new employees is easy for government, nothing is harder politically than to sack them when the money runs out. The means of meeting obligations disappear, but the obligations remain.

In other words, in an economic downturn—of the kind that Brown absurdly claimed to have banished forever—the whole house of cards would collapse. How could a company dedicated to evaluating credit not understand that?