The Lunatic Mainstream

The lunatic mainstream is determined on a course of profound, existential change for Great Brittain (and Europe), with no popular mandate whatsoever 

By mark steyn

It's all but impossible to launch a new political party under America's electoral arrangements, and extremely easy to do so under Continental proportional representation. The Westminster first-past-the-post system puts the task somewhere in between: tough, but not entirely the realm of fantasy. The Labour party came into being at the dawn of the 20th century, and formed its first government in 1924. The United Kingdom Independence party was born in 1993 and now, a mere two decades later, is on the brink of . . . well, okay, not forming its first government, but it did do eerily well in May's local elections. The Liberals were reduced to their all-time lowest share of the vote, the Tories to their lowest since 1982, and for the first time ever, none of the three "mainstream" parties cracked 30 percent: Labour had a good night with 29, the Conservatives came second at 25, and nipping at their heels was the United Kingdom Independence party with 23 percent.

They achieved this impressive result against not three opponents but also a fourth — a media that have almost universally derided the party as a sinkhole of nutters and cranks. UKIP's leader, the boundlessly affable Nigel Farage, went to P. G. Wodehouse's old high school, Dulwich College, and to a sneering metropolitan press, Farage's party is a déclassé Wodehousean touring company mired in an elysian England that never was, populated only by golf-club duffers, halfwit toffs, rustic simpletons, and hail-fellow-well-met bores from the snug of the village pub. When I shared a platform with him in Toronto a few months back, Mr. Farage explained his party's rise by citing not Wodehouse but another Dulwich old boy, the late British comic Bob Monkhouse: "They all laughed when I said I'd become a comedian. Well, they're not laughing now."

The British media spent 20 years laughing at UKIP. But they're not laughing now — not when one in four electors takes them seriously enough to vote for them. So, having dismissed him as a joke, Fleet Street now warns that Farage uses his famous sense of humor as a sly cover for his dark totalitarian agenda — the same well-trod path to power used by other famous quipsters and gag-merchants such as Adolf Hitler, whose Nuremberg open-mike nights were legendary. "Nigel Farage is easy to laugh at . . . that means he's dangerous," declared the Independent. The Mirror warned of an "unfulfilled capacity for evil." "Stop laughing," ordered Jemma Wayne in the British edition of the Huffington Post. "Farage would lead us back to the dark ages." The more the "mainstream" shriek about how mad, bad, and dangerous UKIP is, the more they sound like the ones who've come unhinged.

The Nightmare of Romantic Idealism

Creature and Creator: Myth-Making and English Romanticism

By Paul Cantor

Frankenstein has as much claim to mythic status as any story ever invented by a single author. The original novel continues to be read by a wide audience, and has of course spawned innumerable adaptations, imitations, and sequels.¹ Through its cinematic incarnations, the Frankenstein story has ingrained itself on the popular imagination. Although no one believes in the literal truth of the story, it has all the other earmarks of a genuine myth, above all, the fact that men keep returning to it to find ways of imagining their deepest fears. But as original as the Frankenstein myth is, Mary Shelley did not create her story out of thin air. Much of the power of her book can be traced to the ways she found of drawing upon traditional mythic patterns. A glance at the title-page shows that in composing the book she had two of the central creation myths in the Western tradition in mind. The subtitle of Frankenstein, "The Modern Prometheus," points to the myth of the Greek Titan. The epigraph from Paradise Lost suggests that the story refers to Milton's creation account, and by extension to Genesis. But if one tries to align the characters in Frankenstein with traditional mythic archetypes, one runs into difficulties. Although Frankenstein at first seems to offer a potentially confusing array of mythic correspondences, by trying to sort out the mythic roles assigned to the central characters, we can approach the thematic heart of the book.

We can begin by asking: who is the modern Prometheus referred to in the subtitle? The obvious answer is Victor Frankenstein, and many critics have pointed to the Promethean elements in Frankenstein's character.² Victor wants to be the benefactor of mankind, rebels against the divinely established order, steals, as it were, the spark of life from heaven, and creates a living being. But like Prometheus he ends up bringing disaster and destruction down upon those he was trying to help. In many respects, however, the monster Frankenstein creates is an equally good candidate for the {104} role of Prometheus in the story. It is the monster who literally discovers fire, and in a sense steals it (99-100). Moreover, the monster tantalizes Frankenstein with a mysterious secret concerning what will happen on his wedding night. Frankenstein's blindness to the real meaning of the monster's prophecy (182) associates him with the role of Zeus, particularly if one looks ahead to Percy Shelley's version of the Prometheus myth, in which the story of the secret concerning Jupiter's wedding hour is central to the plot. The fact that both Frankenstein and the monster have their Promethean aspects should not be surprising, since the original Prometheus archetype is ambiguous. With respect to man, he appears as a creator and thus as a divine figure; with respect to Zeus, he takes on the role of a rebel against divine authority and eventually of a tortured creature, thus becoming a symbol of human suffering at the hands of the gods.

The same sort of ambiguity of mythic archetypes is evident when one considers the Miltonic analogues to the Frankenstein story.³ As the creator of a man, Frankenstein plays the role of God. But Frankenstein also compares himself to Satan: "All my speculations and hopes are as nothing, and like the archangel who aspired to omnipotence, I am chained in an eternal hell" (200). The narrator Walton describes Frankenstein in terms that clearly recall the fallen Lucifer of Paradise Lost: "What a glorious creature must he have been in the days of his prosperity, when he is thus noble and godlike in ruin! He seems to feel his own worth and the greatness of his fall" (200).

The monster similarly compares himself to two Miltonic roles. He is both Adam and Satan, as he tells his creator: "Remember that I am thy creature; I ought to be thy Adam, but I am rather the fallen angel, whom thou drivest from joy for no misdeed" (95). Later, while reflecting on his reading of Paradise Lost, the monster develops this idea:

I often referred the several situations, as their similarity struck me, to my own. Like Adam, I was apparently united by no link to any other being in existence; but his state was far different from mine in every other respect. He had come forth from the hands of God a perfect creature, happy and prosperous, guarded by the especial care of his Creator; . . . but I was wretched, helpless, and alone. Many times I considered Satan as the fitter emblem of my condition, for often, like him, when I viewed the bliss of my protectors, the bitter gall of envy rose within me. (114)

Last Tango in Argentina?

Vanishing Dollars

by Pater Tenebrarum

Last time we wrote about Argentina, we discussed the fact that the government had begun to try to entice 'undeclared' dollars that citizens had stashed in foreign bank accounts as well as under their mattresses back into the country and into the coffers of its inflation-prone central bank. Of course only financially suicidal morons could possibly fall for this offer, which we'll repeat here as reminder: 

“Argentines will need to deposit these undeclared dollars at the Central Bank, which will issue CDs for the entire amounts, Central Bank President Mercedes Marco del Pont said.The bonds will pay 4 percent interest through 2017.”

You will notice that it doesn't say 'at the end of the period, citizens will get their dollars back'. That's probably because they won't. However, if they get back pesos, then they could just as well buy Argentine government bonds, which nowadays pay interest in the mid double digits. That by the way is not indicative of their good quality. Rather it is a hint that the government might default again if it isn't careful.

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Argentina's 25 year bond yield has risen to almost 16% recently – click to enlarge.

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Of course there has been a sell-off in emerging market debt more generally, and Argentina has been swept up in that wave of selling as well. However, while other EM bonds have slightly recovered, those of Argentina continue to be under pressure.

It turns out that the government's dollar reserves are beginning to dwindle in accelerated fashion and are close to running worryingly low. This is in a way surprising, as Argentina is exporting a great many raw materials and is getting paid in dollars for them. It has however further come to light that what actually happened is that the government's coercive measures that were meant to keep more dollars in the country had the exact opposite effect. As is usually the case, government intervention brings about unintended consequences, which often take the shape of the precise opposite of what was intended. In addition, Argentina has the dubious distinction of having seen its yield spreads over treasuries increase the most after those of hyper-inflationary Venezuela. According to Bloomberg: 

“Argentina’s supply of dollars it needs to pay bondholders is dwindling at the fastest pace since the depths of the nation’s economic crisis 11 years ago.

Foreign reserves have plunged 12.2 percent this year to $38 billion, the biggest decrease since 2002. The holdings are now at a six-year low and will equal just 25 percent of Argentina’s $142 billion of foreign debt by the end of 2013, according to Credit Suisse Group AG. The financial strain is adding to the nation’s borrowing costs as the extra interest investors demand to hold Argentina bonds over Treasuries rose 2.3 percentage points this year, the most in emerging markets after Venezuela, to 12.21 percentage points, according to JPMorgan Chase & Co.

Argentina posted the worst deficit in its current account, the broadest measure of trade in goods and services, since its $95 billion default in 2001 in the first quarter as energy imports jumped and Argentines spent more abroad to skirt President Cristina Fernandez de Kirchner’s currency restrictions. After using $5.7 billion of reserves to pay debt last year, the central bank will need to spend $4.7 billion more through year-end to meet obligations, Credit Suisse said.”  (emphasis added)

Our man in Quito

Danger still looms

By Pepe Escobar 

So it's going to be Our Man in Quito. The narrative may not be as elegant as Graham Greene's, but the plot certainly beats the Bourne trilogy - because it's happening live, in real time, right in front of our eyes. 

It takes a former CIA asset to beat US "intelligence" - more like intel deprivation. The story of Edward Snowden's escape from Hong Kong is textbook. This correspondent, at dim sum on Sunday, was alerted by a source; "Get ready for something big; he's leaving soon." That was about 12:30 pm Hong Kong time. In fact Snowden had already flown from Chek Lap Kok on SU 213 bound for Moscow at 11:00 am. But nobody knew it yet. Hong Kong was still digesting the front page of the South China Morning Post displaying yet more devastating evidence of US cyber-spying of China. 

By 2:00 pm there was a first, one-line alert from the South China Morning Post; he was on a plane to Moscow. I talked to RT in Moscow; they were stunned and sprang into action. Still total silence from Western corporate media. Then the Post confirmed the breaking news with more detail. Yet it took ages for Reuters to release its first short dispatch - as I had commented on my Facebook page. When the "international community" started to learn about it Snowden was already five hours into his flight. 

Asia Times Online had also learned from another source close to Snowden's tight circle that a short stint in Hong Kong was always part of Plan A; he never intended to ask for political asylum in either Hong Kong or China. He was already focused on a "third country". What he did was to use Hong Kong as an ideal platform to unveil the inner workings of the Orwellian/Panopticon US surveillance state. 

First a set of general revelations to The Guardian. Then he went underground to prepare his escape - as he knew Washington would come after him with all guns (drones?) blazing. And then, a final set of revelations to the South China Morning Post closely focused on Asia and China. When Washington woke up to it, he was already out of the building. Jason Bourne, eat your heart out. 

Snowden was not "allowed to slip away". It all revolved around a meticulously timed operation involving Snowden, the Hong Kong government and WikiLeaks mediation. 

Rudd v Gillard: the face of things to come

Across the West politics is becoming more oligarchical and bitchy

by Frank Furedi 

The ease with which Labor’s Kevin Rudd deposed party leader and Australia’s prime minister, Julia Gillard, threatens to give the term stab-in-the-back a bad name.

There was something brutally casual about the promiscuous manner in which the Australian Labor Party toppled its own leader. Three years ago, of course, it was Rudd’s turn to face the chop, as Gillard, who was then his young protégé, seized the reins of power. Then, commentators criticised Gillard’s shabby treatment of a rather inept Rudd. It was suggested that her callous behaviour would ruin her party’s chances at the polls. This time, the palace coup has been blamed on the sexism of Australia’s political life, and Rudd has suddenly been transformed into a closet misogynist who has finally decided to come out.

Neither the overthrow of Gillard today, nor the humiliating exit of Rudd in 2010, has any real connection to differences of views and opinions. The Labor Party is a political principle-free zone and is entirely devoted to winning elections. Like many political parties in the Western world, it is little more than a political machine that serves the interests of its individual leaders. The latest bout between Gillard and Rudd is an example of the type of politics that prevails in such parties: ‘It’s all about me.’

Back in 2010, when news of Gillard’s coup broke, I was travelling in Australia and interviewing people about their attitudes towards political issues. At the time, almost everyone I talked to regarded the conflict between Rudd and Gillard as an example of infighting among professional politicians. Virtually no one even attempted to suggest there might be some important cause or issue at stake. Only one person made even a half-hearted attempt to talk about Labor’s ‘core values’. His response to my question about what these values were was evasive and incoherent. Apart from a few hardened party activists, no one expressed any strong interest in the identity of the Labor Party’s leader. It is likely that the public’s reaction to the displacement of Gillard by Rudd is no less indifferent to the displacement of Rudd by Gillard.

Erdogan’s Majority Rule

It is unwise to rely on the everlasting meekness of mobs

by Theodore Dalrymple   

Recent events in Turkey ought remind us, if we needed reminding, that freedom and parliamentary democracy are not identical, though many people mistake the one for the other. But if by parliamentary democracy we mean merely government legitimated by a majority of the votes every few years, there is no reason why such democracy should not lead to tyranny. Indeed, a democratic tyranny may be among the most insidious, if not necessarily the worst, of tyrannies, for it possesses the simulacrum of a justification for its oppression, namely the will of the majority.

No one can doubt the democratic legitimacy of Mr Erdogan, the Turkish Prime Minister. He has won three genuine elections with many more votes than any other candidate (in this respect, his legitimacy is actually far greater than that of most western leaders). And it is probable that if there were elections tomorrow he would win them without difficulty. Moreover, the reasons for this are not difficult to find. Turkey under his government has thrived; and even his worst enemies could not but admit that the country is far better administered under his rule than it was before he came to power. No doubt some of Turkey’s prosperity is attributable to its good fortune in not being permitted to join the European Union; but there is more to success than the avoidance of catastrophic mistakes. Failing to chain yourself to a corpse does not make you an athlete.

Mr Erdogan has also tamed the army, which has more than once intervened to overthrow a democratically-elected government. Ordinarily, this would seem a step in the right direction; but the army was the ultimate guarantor of Kemalist secularism and it may well prove its emasculation was equivocal from the point of view of individual freedom.

Why Free Will Matters

The idea that without free will there can be no morality is one of those obvious facts that bears repeating

by Tibor R. Machan

Let me once again quote George Orwell, who reportedly noted that “Sometimes the first duty of intelligent men is the restatement of the obvious.”

The idea that without free will there can be no morality is one of those obvious facts that bears repeating. It was Kant who famously insisted on this but others have signed on as well. For instance, it is arguable a point made by Aristotle, too.) In an age that is highly respectful of the opinions of scientists, even opinions that do not arise from their work as scientists, seem to contradict this but even scientists have affirmed the point!

For a simple view of what nearly all scientists believe is that everything that happens in the world has to happen exactly as it does happen. In short, scientist are supposedly committed to determinism which is, at least in its usual meaning, incompatible with free will.

Free will involves being the originator of one’s actions or conduct. Unlike physical objects, plants and most animals, human beings are supposed to have free will in that they normally initiate what they do. Their conduct is not fully explainable by reference to impersonal factors such as their genetic make-up, their history or race or gender, etc., etc. They are, instead, agents of much of what they do, of their behavior.

Now this idea seems incompatible with how scientists view the world, although in fact scientists aren’t supposed to be prejudiced in favor of determinism or free will, for that matter. Whether human beings have free will is something to be discovered, not assumed.

Scandinavian Sorrows

Stigende renter? Hvad er det? Hjælp!

by Pater Tenebrarum

If we're not completely mistaken, then the above is Danish for: “Rising interest rates? What's that? Help!”  The recent bond market swoon has been a global phenomenon, and it has afforded highly indebted consumers in Scandinavian countries a brief glimpse of what could be a melancholic future in a place called  'debt slave hell'.

Bloomberg informs us of a beginning 'rate pain' attack in Denmark:

“Danish consumers, who owe banks more than three times their disposable incomes, are about to find out how sustainable that debt load is as interest rates rise.

Signals from the U.S. Federal Reserve that it’s preparing to scale back monetary stimulus have already sent mortgage costs higher as yields rise across global bond markets. The Nykredit Index of Denmark’s most traded mortgage bonds sank this week to its lowest in more than four months after investors sold assets once coveted for their haven status.

Though the government and central bank have long argued Denmark’s private debt burden is backed by some of the world’s biggest pension savings, record consumer borrowing has prompted warnings from the European Commission and the International Monetary Fund. The Systemic Risk Board in Copenhagen said this week it will investigate private debt growth in response to international concerns.

“We have decided to initiate an analysis to see if there is a risk to the systemic stability,” central bank Governor Lars Rohde, who heads the board, said in an interview. Though recent studies suggest a “significant level of robustness,” the board has “noted that others outside the country have a different understanding.” (emphasis added)

Let's see: Denmark's consumers have debt amounting to more than 300% of their income (that sounds like a world record…even Carneyfied Canada is positively thrifty by comparison). Some people say that this debt load just mightbecome a problem (not only for said consumers, but also for their creditors). The solution: we'll let a committee look into it. In that case, obviously nothing can possibly go wrong. Dodged a bullet there!

In Denmark it's Different …

Let us take a look at what arguments are forwarded in terms of 'it's different in Denmark'- as that is indeed the argument made by the central bank. 

“Mortgage holders in Denmark relied on the government’s stable AAA credit grade to finance debt at record-low rates during the fiscal crisis in Europe. While the Organization for Economic Cooperation and Development estimates Danish households owed 310 percent of disposable incomes in 2010, government debt is less than half the euro-zone average at only 45 percent of gross domestic product this year, the European Commission estimates. [….]

The yield on Denmark’s benchmark 10-year government bond soared to 1.96 percent on Monday, its highest since March last year. The yield on the Nykredit Realkredit A/S 3.5 percent mortgage bond due October 2044 soared 10 basis points on Monday to 3.72 percent, according to generic price data compiled by Bloomberg. That yield was as low as 3.33 percent last month.

Is Egypt on the verge of civil war?

If no one can rule effectively, civil war and the fragmentation of Egypt into several mini-states may become a distinct possibility

By Monte Palmer 

As the US struggles to cope with the civil wars in Syria, Libya, the Sudan and Iraq, it must also ponder the prospect of a civil war in Egypt. 

Egypt has been in a state of chaos since the Arab Spring Revolution of January 2011 and there is no end in sight. 

In addition to destroying the center of stability in in the Arab world for the past five decades, a civil war in Egypt would fuel existing civil conflicts in Libya, Yemen, Syria, the Sudan, and Iraq. 

Civil wars in Tunisia, Algeria, Lebanon, and Jordan might not be far behind. All are linked to Egypt by a vast network of Islamic fundamentalist groups ranging from the moderate Muslim Brotherhood to the ultra violent salafi-jihadists. 

The broader ramifications of an Egyptian civil war would certainly include the rekindling of a long dormant Arab-Israeli conflict and a deepening of the Muslim wars of religion being played out in Syria, Iraq, Yemen, Lebanon, and the Persian Gulf. 

Is Egypt on the verge of civil war? General Fua'd Al'lam, a general in the Egyptian Security Services and former Director of Security in Port Said, believes that it is. 

In an interview entitled, "Civil War on the Doorstep Followed by the Revolution of the Hungry," General Al'lam warns that continued chaos will result in civil war and the splintering of Egypt into several mini-states. He goes on to warn, "Civil war is very close, the revolution of hunger very, very close." [1] 

The General's warning was not without foundation. Egypt clearly possesses the preconditions for civil war. The ability of the Egyptian government to meet the basic needs of its population for food, shelter, work, and security fades by the day. Public services have followed suit as shortages of fuel and electricity have become endemic. Religious and class tensions have increased apace, as have political riots and demonstrations. All reflect an economy on the verge of collapse. 

Kierkegaard is needed more than ever

The commitment to the sanctity of the individual undergirds the institutions we inherited from the Revolution and Civil War

By Spengler 

The bicentennial of Soren Kierkegaard's birth passed on May 5 unremarked by the political caste, although a dozen scholarly festivals quietly honored his anniversary. That is a hallmark of our intellectual poverty. The casual reader knows the Danish philosopher as the midnight reading of angst-ridden undergraduates and the stuff of existential pop psychology. 

That is a sad outcome, for Kierkegaard is one of most rigorous philosophers, despite his exhortative style. He asserted the primary of passion, not in the vulgar sense of aroused emotions, but as the primary ontological substance from which our world is built. In a passion-torn world, we should ignore the pop versions and read him more closely. 

If asked, "Who is your favorite political philosopher?," as were the Republican candidates in the 1980 presidential primary, I would have answered, "Kierkegaard." (Actually, it's Franz Rosenzweig, but no-one has heard of him). 

Of course, I would have lost. Passion is passé. Kierkegaard's outlook is close to that of the radical Protestants who fought the American Revolution and the Civil War, but at odds with the main currents of modern conservative thought, that is, classical political rationalism and Catholic natural law theory. Kierkegaard still has a redoubt at St Olaf's College in Minnesota, which sponsors translations and maintains a library of scholarly materials, and a few other Protestant institutions. But one never hears his name in a political context. 

Closer to the conservative mainstream is my friend Peter Berkowitz in his 2012 book Constitutional Conservatism: Liberty, Self-Government, and Political Moderation. As Stanley Kurtz summarized his view at National Review, "By moderation Berkowitz means something a bit different than the everyday use of the word, otherwise Buckley and Reagan wouldn't qualify. Political moderation, says Berkowitz, "doesn't mean selling out causes or making a principle of pragmatism." A true understanding of moderation can even dictate strong stances and bold opposition to popular movements. Real political moderation, Berkowitz explains, means balancing worthy yet competing principles and putting them effectively into practice." As a matter of practice, Berkowitz "calls on conservatives to make a peace of sorts with both the sexual revolution and the fundamentals of the New Deal welfare state, without, on the other hand, surrendering either their fundamental principles or their core battles." 

There is much wisdom in Berkowitz's view. Still, I disagree with him on two grounds. 

Milton Friedman: Freshwater Keynesian

When Professor Friedman Opened Pandora’s Box: Open Market Operations

by David Stockman

At the end of the day, Friedman jettisoned the gold standard for a remarkable statist reason. Just as Keynes had been, he was afflicted with the economist’s ambition to prescribe the route to higher national income and prosperity and the intervention tools and recipes that would deliver it. The only difference was that Keynes was originally and primarily a fiscalist, whereas Friedman had seized upon open market operations by the central bank as the route to optimum aggregate demand and national income.

There were massive and multiple ironies in that stance. It put the central bank in the proactive and morally sanctioned business of buying the government’s debt in the conduct of its open market operations. Friedman said, of course, that the FOMC should buy bonds and bills at a rate no greater than 3 percent per annum, but that limit was a thin reed.

Indeed, it cannot be gainsaid that it was Professor Friedman, the scourge of Big Government, who showed the way for Republican central bankers to foster that very thing. Under their auspices, the Fed was soon gorging on the Treasury’s debt emissions, thereby alleviating the inconvenience of funding more government with more taxes.

Friedman also said democracy would thrive better under a régime of free markets, and he was entirely correct. Yet his preferred tool of prosperity promotion, Fed management of the money supply, was far more anti-democratic than Keynes’s methods. Fiscal policy activism was at least subject to the deliberations of the legislature and, in some vague sense, electoral review by the citizenry.

By contrast, the twelve-member FOMC is about as close to an unelected politburo as is obtainable under American governance. When in the fullness of time, the FOMC lined up squarely on the side of debtors, real estate owners, and leveraged financial speculators—and against savers, wage earners, and equity financed businessmen—the latter had no recourse from its policy actions.

The greatest untoward consequence of the closet statism implicit in Friedman’s monetary theories, however, is that it put him squarely in opposition to the vision of the Fed’s founders. As has been seen, Carter Glass and Professor Willis assigned to the Federal Reserve System the humble mission of passively liquefying the good collateral of commercial banks when they presented it.

Consequently, the difference between a “banker’s bank” running a discount window service and a central bank engaged in continuous open market operations was fundamental and monumental, not merely a question of technique. By facilitating a better alignment of liquidity between the asset and liability side of the balance sheets of fractional reserve deposit banks, the original “reserve banks” of the 1913 act would, arguably, improve banking efficiency, stability, and utilization of systemwide reserves.

The Fog That’s Yet to Lift

QE Must End, But Bernanke's Plan May Be Too Hasty

By William H. Gross

June Gloom, the fog and clouds that often linger here over the Southern California coast this time of year, appears to have spread to the Federal Reserve. At his press conference last week, Fed Chairman Ben Bernanke said the central bank may begin to let up on the gas pedal of monetary stimulus by tapering its asset purchases later this year and ending them in 2014. 

We agree that QE must end. It has distorted incentives and inflated asset prices to artificial levels. But we think the Fed’s plan may be too hasty.

Fog may be obscuring the Fed’s view of the economy – in particular, the structural impediments that will inhibit its ability to achieve higher growth and inflation. Mr. Bernanke said the Fed expects the unemployment rate to fall to about 7% by the middle of next year. However, we think this is a long shot.

Mr. Bernanke’s remarks indicated that the Fed is taking a cyclical view of the economy. He blamed lower growth on fiscal austerity, for example, suggesting that should it be removed from the equation the economy would suddenly be growing at 3%. He similarly attributed rising housing prices to homeowners who simply like or anticipate higher home prices, as opposed to emphasizing the mortgage rate, which is really what provided the lift in the first place. 

Our view of the economy places greater emphasis on structural factors. Wages continue to be dampened by globalization. Demographic trends, notably the aging of our society and the retirement of the Baby Boomers, will lead to a lower level of consumer demand. And then there’s the race against the machine; technology continues to eliminate jobs as opposed to provide them. 

Mr. Bernanke made no mention of these factors, which we think are significant forces that will prevent unemployment from reaching the 7% threshold during the next year. Falling below “NAIRU” (the non-accelerating inflation rate of unemployment – usually estimated between 5% and 6%) is an even more distant goal.

The End of the American Dream

How rising inequality and social stagnation are reshaping us for the worst

At the ages of 4 to 5, children from the poorest fifth of homes in the U.S. are already 21.6 months mathematically behind children from the richest homes.

By Niall Ferguson

“The United States is where great things are possible.” 

Those are the words of Elon Musk, whose astonishing career illustrates that the American dream can still come true.

Musk was born in South Africa but emigrated to the United States via Canada in the 1990s. After completing degrees in economics and physics at the University of Pennsylvania, he moved to Silicon Valley, intent on addressing three of the most “important problems that would most affect the future of humanity”: the Internet, clean energy, and space. Having founded PayPal, Tesla Motors, and SpaceX, he has pulled off an astonishing trifecta. At the age of 42, he is worth an estimated $2.4 billion. Way to go!

But for every Musk, how many talented young people are out there who never get those crucial lucky breaks? Everyone knows that the United States has become more unequal in recent decades. Indeed, the last presidential election campaign was dominated by what turned out to be an unequal contest between “the 1 percent” and the “47 percent” whose votes Mitt Romney notoriously wrote off.

But the real problem may be more insidious than the figures about income and wealth distribution imply. Even more disturbing is the growing evidence that social mobility is also declining in America.

The distinction is an important one. For many years, surveys have revealed a fundamental difference between Americans and Europeans. Americans have a much higher toleration for inequality. But that toleration is implicitly conditional on there being more social mobility in the United States than in Europe.

But what if that tradeoff no longer exists? What if the United States now offers the worst of both worlds: high inequality with low social mobility? And what if this is one of the hidden structural obstacles to economic recovery? Indeed, what if current monetary policy is making the problem of social immobility even worse?

This ought to be grist for the mill for American conservatives. But Republicans have flunked the challenge. By failing to distinguish between inequality and mobility, they have allowed Democrats, in effect, to equate the two, leaving the GOP looking like the party of the 1 percent—hardly an election-winning strategy.

To their cost, American conservatives have forgotten Winston Churchill’s famous distinction between left and right—that the left favors the line, the right the ladder. Democrats do indeed support policies that encourage voters to line up for entitlements—policies that often have the unintended consequence of trapping recipients in dependency on the state. Republicans need to start reminding people that conservatism is about more than just cutting benefits. It’s supposed to be about getting people to climb the ladder of opportunity.

Inequality and social immobility are, of course, related. But they’re not the same, as liberals often claim.

Let’s start with inequality. It’s now well known that in the mid-2000s the share of income going to the top 1 percent of the population returned to where it was in the days of F. Scott Fitzgerald’s Great Gatsby. The average income of the 1 percent was roughly 30 times higher than the average income of everyone else. The financial crisis reduced the gap, but only slightly—and temporarily. That is because the primary (and avowed) aim of the Federal Reserve’s monetary policy since 2008 has been to push up the price of assets. Guess what? The rich own most of these. To be precise, the top 1 percent owns around 35 percent of the total net worth of the United States—and 42 percent of the financial wealth. (Note that in only one other developed economy does the 1 percent own such a large share of wealth: Switzerland.)

By restoring the stock market to where it was back before the crisis, the Fed has not achieved much of an economic recovery. But it has brilliantly succeeded in making the rich richer. And their kids.

The Secret Sauce Of Iceland's Success Story

Debt Liquidation?

by Tyler Durden

That Iceland is so far the only success story in the continent of Europe, which continues sliding into an ever deeper depressionary black hole, as a result of the complete destruction of its financial sector and its subsequent rise from the ashes, is by known to most. What is still not exactly clear is what conditions have allowed success and growth to flourish in a barren wasteland where 60% youth unemployment is increasingly the norm, and where economic "outperformance" is measured in shades of red. As it turns out, perhaps the biggest jolt to Icelandic economic growth is what we said was the correct prescription for resolving not only the US but global growth malaise that struck in 2008: debt liquidation.

Of course, instead the powers that be opted for merely masking unsustainable debt with more debt in the hope of preserving the global financial equity tranche, where some $50 trillion, or two-thirds of total, in US household wealth is concentrated, by drowning out hundreds of trillions in global debt through controlled debt inflation - which four years later still has yet to take hold, and which  with every incremental dollar, yen, franc or pound printed threatens to spillover into uncontrolled hyperinflation, i.e., loss of fiat.

Alas, no debt liquidation is possible without making the equity below it worthless: a fact of restructuring known all to well to most which is precisely why it will not happen as long as the status quo is in control. Yet in those places which dared to bite the bullet and do the right thing - namely liquidate untenable debt - growth is back, and the future is truly bright without everyone asking "just how much longer will a few Keynesian voodoo acolytes provide a reprieve from the poverty effect?."

From Bloomberg:

Iceland’s lenders have forgiven household debt equal to about 12.4 percent of gross domestic product since the island’s 2008 financial collapse.

Lenders had written off 212.2 billion kronur ($1.7 billion) in household debt through the end of 2012, the Icelandic Financial Services Association said in a letter to parliament. The group estimated a further 35.3 billion kronur will be forgiven this year after they recalculate loan agreements to meet a Supreme Court ruling.

About 141.2 billion kronur of that follows a ruling from the island’s top court stating that mortgage loans indexed to foreign exchange rates were illegal, it said.

Where Are We Now? - A World View

Entropy never sleeps

by James Howard Kunstler

Wondering why the money world got its knickers in a twist last week? The answer is simple: the global economy is breaking apart and its constituent major players are doing face-plants on the downhill slope of a no-longer-cheap-oil way of life.  Let’s look at them case by case.

     The USA slogs deeper into paralysis and decay in a collective mental fog of disbelief that its own exceptionalism can’t overcome the laws of thermodynamics. This general malaise precipitates into a range of specific quandaries. The so-called economy depends on financialization, since it is no longer based on manufacturing things of value. The financialization depends on housing, that is, a particular kind of housing: suburban sprawl housing (and its commercial accessories, the strip malls, the box stores, the burger shacks, etc.). Gasoline is now too expensive to run the suburban living arrangement. It will remain marginally unaffordable. Even if the price of oil goes down, it will be because citizens of the USA will not have enough money to buy it. Lesson: the suburban project is over, along with the economy it drove in on.

     But so is the mega-city project, the giant metroplex of skyscrapers. So, don’t suppose that we can transform the production house-building industry into an apartment-building industry. The end of cheap oil also means we can’t run cities at the 20^th century scale. That includes the scale of the buildings as well as the aggregate scale of the whole urban organism. Nobody gets this. For one thing, there will be far fewer jobs in anything connected to financialization because that “industry” is imploding. The recent action around the Federal Reserve illustrates this. When chairman Bernanke’s lips quivered last week, the financial markets had a grand mal seizure. He floated the notion that his organization might “taper” their purchases of US government issued debt and mortgage-backed securities — the latter being mostly bundled debt originated by government-sponsored entities and agencies. That’s the “money” that supports the suburban sprawl industry.