Germany Elects Mama – The Real Winner is Socialism

Mrs. Merkel's CDU/CSU Trounces Rivals 

Political scientists in Germany call it the 'Mutti factor' – as German news magazine Der Spiegel writes:

 “Germans like their quiet. Should a couple raise their voices such that they can be heard in the courtyard of a city apartment building, it is a sure bet that before long, the phrase "Ruhe da!" ("Quiet!") will come ringing out of an open window. Even in big metropolises like Berlin, most flat seekers yearn for silence and tranquility, far removed from the chaotic noise emanating from the busy streets.

Angela Merkel, more than any other politician on the campaign trail this year, has understood her flock's desire for calm.

[…]

The chancellor has even gone so far as to directly appeal to the electorate's longing for quiet. As Reuters correspondent Alexandra Hudson noted in a recent article, the election manifesto for Merkel's party includes the assertion: "One in two Germans feels troubled by noise" and suggests that her party would seek to improve the situation.

[…] a chancellor who prefers to wait before making decisions and a leader who is sometimes difficult to pin down. It has also helped propel her popularity to dizzying heights. Her followers have taken to affectionately calling her "Angie." The German press has dubbed her "Mutti," the word children in Germany use to address their mothers.”

 (emphasis added)

 Angela Merkel delivered the biggest victory for her party since Helmuth Kohl's post-reunification heyday, and only barely missed attaining an absolute majority of parliamentary seats (although her party only gathered 42% of the vote, up a respectable 8.2% from the last election according to initial estimates, parties that fail to take the 5% hurdle won't get any seats). 

And herein lies the problem. You may be wondering why we are claiming that 'socialism was the real winner', given that a nominally conservative party clearly won the election. We explain the reason below.  

Sole Voice in Favor of Free Market Capitalism Gone

It would be an exaggeration to equate the FDP with classical liberalism, but as far as German politics goes, it is the party that comes closest to its ideals. It definitely was the sole advocate of free market capitalism in the German political landscape. While it has always been a small party, it was a famed 'kingmaker' through most of the post WW 2 era, managing to influence both social democratic and nominally conservative governments by entering into coalitions with them.

Global Warming and the chilling of Politics

The aim of the IPCC is to freeze political debate

By Tim Black

This Friday, the Intergovernmental Panel on Climate Change (IPCC) is set to publish the first instalment of its three-part, 2,000-page draught-excluder, the memorably titled Fifth Assessment. This, like its predecessor, which was published at the height of climate-change mania in 2007, will tell us ‘unequivocally’ that climate change is happening, that the situation is perilous, and that there is a sliding scale of bad scenarios awaiting us in the warmed-up future.

As such, the prophecies leaked from the draft version sound a comfortably familiar note of terror, like the ever-resurrected bad guy in a tired horror-movie franchise. We’ll be told that the glaciers are melting quicker than thought, that sea levels could rise by three feet and that temperatures could rise up to 4.8 degrees Celsius this century. And, on the back of The Science, the old alarmist lags have once again been demanding that we do something. In the words of Lord Stern, author of the environmentally friendly The Stern Review in 2006, we need to decide what ‘kind of world we want to present to our children and grandchildren’. That is, one scorched by our present greed or saved by our cutting back.

That’s the point of the IPCC’s infrequent assessments. They constitute the Word of a very secular God, the expert, the scientist. They tell us what we ought to do. No questioning. No debate. And therefore, no politics.

But there’s one big fat sceptical fly stuck in the IPCC’s ointment. And that’s the small matter of a distinct absence of global warming over the past 15 years, despite the IPCC’s models insisting otherwise. In December 2012, for instance, the UK Met Office released a forecast suggesting that not only have global temperatures not risen for over a decade but that they are unlikely to rise significantly in the period up to 2017. Likewise, earlier this year, even someone as committed to climate-change alarmism as James Hansen, the recently retired head of NASA’s climate-change research arm, admitted that the ‘five-year-mean global temperature has been flat for the last decade’.

In the draft version of the report, the IPCC does acknowledge that the ‘the rate of warming over the past 15 years is smaller than the trend since 1951’. In fact, the IPCC now admits that the rate of warming between 1998 and 2012 was about half the average rate since 1951. And as it stands, no one is quite certain why this is, with everything from the oceans’ ability to absorb heat to the solar cycle being blamed.

It Has Begun in Italy

Monte Paschi "Bails In" Bondholders, Halts $650 Million In Coupon Payments

by Tyler Durden

Recall that three weeks ago we warned that "Monti Paschi Faces Bail-In As Capital Needs Point To Nationalization" although we left open the question of "who will get the haircut including senior bondholders and depositors.... given the small size of sub-debt in the capital structures." Today, as many expected on the day following the German elections, the dominos are finally starting to wobble, and as we predicted, Monte Paschi, Italy's oldest and according to many, most insolvent bank, quietly commenced a bondholder "bail in" after it said that it suspended interest payments on three hybrid notes following demands by European authorities that bondholders contribute to the restructuring of the bailed out Italian lender. Remember what Diesel-BOOM said about Cyprus - that it is a template? He wasn't joking.

As Bloomberg reports, Monte Paschi "said in a statement that it won’t pay interest on about 481 million euros ($650 million) of outstanding hybrid notes issued through MPS Capital Trust II and Antonveneta Capital Trusts I and II." Why these notes? Because hybrid bondholders have zero protections and zero recourse. "Under the terms of the undated notes, the Siena, Italy-based lender is allowed to suspend interest without defaulting and doesn’t have to make up the missed coupons when payments resume." Then again hybrids, to quote the Dutchman, are just the template for the balance of the bank's balance sheet.

Why is this happening now? Simple: the Merkel reelection is in the bag, and the EURUSD is too high (recall Adidas' laments from last week). Furthermore, if the ECB proceeds with another LTRO as many believe it will, it will force the EURUSD even higher, surging from even more unwanted liquidity. So what to do? Why stage a small, contained crisis of course. Such as a bail in by a major Italian bank. The good news for now is that depositors are untouched. Unfortunately, with depositor cash on the wrong end of the (un)secured liability continuum it is only a matter of time before those with uninsured deposits share some of the Cypriot pain. After all, in the brave New Normal insolvent world, "it is only fair."

To wit:

“In the new world we’re in, bondholders pick up the tab when they can be forced to,” said John Raymond, an analyst at CreditSights Inc. in London. “State aid rules impose losses where possible.”

European Union Competition Commissioner Joaquin Almunia told reporters on Sept. 7 the bank should receive final approval for its restructuring plan within two months. The lender, which received a 4.1 billion-euro bailout, submitted a revised plan that more than doubles the amount of new capital it intends to raise to 2.5 billion euros as it seeks to repay the aid.

Almunia recommended that “cash outflows from the beneficiary to hybrid capital holders and subordinated debt holders be prevented to the maximum extent possible,” in a letter sent to Italian Finance Minister Fabrizio Saccomanni dated July 16 and seen by Bloomberg News.

More importantly, this is just the start:

Monte Paschi’s 108 million euros of undated, non-cumulative trust preferred stock issued through Antonveneta Capital Trust II fell 5 cents on the euro to 41 cents, according to Bloomberg bond prices. That’s the lowest price since April 23, data compiled by Bloomberg show. 

While the bank is halting payments on the bonds that make up its Tier 1 capital, the most-junior layer of debt capital instruments, it also has the equivalent of about 2.6 billion euros of more-senior Upper Tier 2 debt in three issues in euros and pounds. 

While Monte Paschi is making payments on these notes, it isn’t clear that it will be able to go on doing so, said Raymond.

Expect an update from the bank on Wednesday when it will hold a conference call. 

Failure has been outlawed

By Eliminating Failure, the Government Robs Us Of Success

By Harry Binswanger,

Where does the Left get its power? From one source at root: a wrong standard of morality, of good and evil. Self-sacrifice is said to be the good, self-interest the evil. The Left blames every social and economic disaster on “selfish greed.” What caused the financial meltdown, according to the Left? The selfish greed of Wall Street bankers. Why was Obamacare passed? Because people are in need, and the greedy must serve the needy.

Those on the Right should be pointing out that “selfish greed” is a smear-term: it blackens ambitiousness and the desire to produce wealth, which are virtues, by associating them with mindless gluttony. But Rightists don’t expose the smear because they share the anti-self-morality, or at least fear to challenge it.

So far, most public defenders of capitalism have lacked the courage to say, in the words of John Galt in Atlas Shrugged, “your life belongs to you and the good is to live it.”

But, as a small step in the right direction, pro-capitalists are beginning to answer the absurd leftist claim that greed caused the financial crisis. They are pointing out this obvious fact: “greed”–as the desire to get rich–is a constant. It did not suddenly come into being, or flower, in the period leading up to the financial meltdown.

For instance, a Wall Street Journal editorial (April 25, 2013) observed that “the crisis had several causes other than the greed that is found at all times on Wall Street and every other street.”

Indeed. But something does change, psychologically, in the boom preceding a crash. The change is not an increased desire for wealth. Nor is it that people become fixated on the short range. What changes is people’s assessment of risk. People do not become more greedy, they become over-optimistic. Seeing stocks and real-estate go up and up, they imagine that this is the new normal and that a decline in prices is not in the cards.

By the same token, during the panic and bust phase, people become overly pessimistic. They imagine that there is no bottom, that investments are all super-risky, and that doom is at hand.

As the boom is not an excess of greed, so the bust is not a greed-deficit.

Beneath the psychological swings lies the root cause: the boom-bust cycle is due to government manipulation of the money supply, as the Austrian school of economists have demonstrated. The Fed’s injection of ever-more money into system is what creates the ever-rising prices and thus the over-optimism.

Another government policy fuels the over-optimism: failure has been (almost) outlawed. In a free economy, there are always some firms that are failing. In a regulated economy, the government props up failing firms, thereby creating the moral hazard that adds to the over-optimism.

“Too big to fail” is supplemented by “too small to fail” and “too medium to fail.” Myriad government interventions act to protect businesses, large and small, from failure.

Zombie Apocalypse in a ‘DC’ Comic

Perfect plans usually fail in practice

By Paul Cantor

All my life I have been watching the U.S. federal government steadily increase its power, but I never expected to see it expand into the comic book business. Imagine my surprise, then, when I found a comic book — excuse me, a “graphic novella” — on the official web site of the Centers for Disease Control and Prevention, a minor masterpiece of the horror genre entitled Preparedness 101: Zombie Pandemic. Evidently the political principle “never let a good crisis go to waste” extends even to fictional crises. Perhaps inspired by its appearance in the last two episodes of the first season of AMC’s popular television show The Walking Dead, the C.D.C. decided to make its own contribution to the growing body of apocalyptic zombie narratives, and to score some propaganda points for itself in the process. Unsurprisingly, on its own web site the C.D.C. manages to do what it — or any other government institution — conspicuously fails to do in The Walking Dead, namely to come up with a quick solution to the plague and work to cure it.

The fact that the C.D.C., a unit of the U.S. Department of Health and Human Services, chose to jump on the current zombie bandwagon in American pop culture tells us something: More is at stake in these apocalyptic, “end-of-the-world-as-we-know-it” narratives than their simple shock value. For all their ghoulishness and gore, these zombie narratives raise some fundamental issues, above all the question of the relation of government to social order. Is central planning by government experts the solution to human problems (as the C.D.C.’s comic suggests), or does government intervention in human affairs generally make matters worse (as we will see The Walking Dead implies)?

The proliferation of zombie narratives represents a more general trend toward crisis scenarios in our culture, which strangely turn out to be a measure of people’s attitudes toward the state. The collapse of communism in the late 1980s left central planning discredited. Its proponents have thus been forced to find new ways of arguing for their socialist schemes, for example, disguising them under the banner of environmentalism. Would-be central planners may concede that in the normal course of events, free markets do a better job of allocating scarce economic resources, but, they argue, crises or disasters may occur on such a scale — national or even global — that only central planning by nation-states or international organizations can adequately deal with them. One might call this new phenomenon “socialism with an apocalyptic face.”

Films and television shows over the past two decades have featured stories of comets or asteroids headed for Earth, of catastrophic global warming (or cooling), of invading space aliens, of volcanic eruptions and earthquakes on a planetary scale, or viral plagues of pandemic proportions, and so on.[1] Zombie narratives are only one subset of this genre of global or cosmic catastrophe narrative. Many of these stories portray ordinary people as helpless in the face of disaster. They panic or freeze or despair or in other ways make matters worse for themselves. Ordinary people are shown having to rely on elites to save them, often a combination of scientific experts and military special forces, sponsored and directed by national governments or international organizations such as the U.N.[2] That is the way these apocalyptic narratives in pop culture have contributed to a kind of recuperation of socialist thinking. Individual human beings, dwarfed and overwhelmed by a global or cosmic catastrophe, are forced to turn to government to save them.

Into the Transformational Future

Rich City, Poor City

BY JOHN MAULDIN

"The future is already here," intoned William Gibson, one of my favorite cyberpunk science fiction authors, "it's just not very evenly distributed." Paraphrasing Gibson, the pension crisis is already here; it's just not very evenly distributed. For the past two weeks we've been exploring the problems of state pension funds. This week we will conclude our look at pension plans for the nonce with a 30,000-foot overview of the states and then take a deeper dive into one city: mine. This will give you at least one version of how to do your own homework about your own hometown. But fair warning, depending on your locale, you may need medical help or significant quantities of an adult beverage after you finish your research. Then again you may be pleasantly surprised and congratulate yourself on choosing a particularly adept hometown. And be on notice that, no matter what your personal conclusion and how well-grounded your analysis is, there will be people who live in your neighborhood who think you are utterly full of, well, let's just say "nonsensical matter" and leave it at that. This is a family letter.

I am constantly asked where the future jobs will be, and I think hard about the answer to that very personal question (it's crucial to those of us who have young kids). Will we see Gibson’s dystopian world or Ian Banks' world of abundance? The answer is, of course, that secular growth in employment will come from the new, transformational technologies that are already being created all around us, truly new industries that will change everything and create opportunities for work that we can't even imagine yet, in the same way the automobile or telecommunications or the McCormick reaper both took some jobs away and created even greater opportunities. The transition is the thing, though. It will be filled with opportunities for some and forced change for others, while we wait for the future to become more evenly distributed. In the next few weeks, you are going to get a letter from me that will tell you about the newest addition to Mauldin Economics, the Transformational Technologies Alert, written by my longtime friend Pat Cox, who is no stranger to readers of this letter. Pat and I have long wanted to work together, exploring the future and especially biotech. He is the best, and you will want to join us from the very beginning. We invite you to charge ahead into the future with us, exploring opportunities that will begin to change your own life right now. And now back to pensions…

Through the courtesy of one of your fellow readers I've been given a treasure trove of data on 702 city pension plans. I won't say that I got lost in the data, but the search and rescue teams sent to find me had to go back for extra supplies. There were some very dark alleys that it took a while to find my way back out of. Not to mention some twists and turns that were totally surprising.

So first I need to say a big thank you to Gregg L. Bienstock and Justin Coombs of Lumesis for giving me access to their data. Gregg is a cofounder of Lumesis, and their signature software is called (appropriately enough, given the oceans of data they plumb) DIVER. They've compiled data on 54,000 issuers of municipal and state bonds from over 100 sources. They sent me an Excel file on the major pension plans of every state and the pension plans of cities with populations over 100,000. And Justin was kind enough to create multiple spreadsheets and graphs upon request and patiently explain their data. The bulk of the data in this letter is from http://www.lumesis.com. The opinions are my own and should not be attributed to Lumesis. From time to time we will also look at another fascinating study from the Pew Charitable Trusts on pensions and retiree healthcare in 61 cities.

As we have seen the last two weeks (here and here), the assumptions that states make about their future investment returns are fairly unrealistic and generally nothing like what they've achieved for the last 10 years. This makes their balance sheets look far better than they really are, and for some states the discrepancy is pretty stark. Witness Illinois, where unfunded pension liabilities run north of $280 billion, give or take. That is more than $20,000 for every man, woman, and child in the state. And the bill keeps rising every month as the state plows ever deeper in debt to its own future.

California’s Promethean Past

How a visionary entrepreneur watered and powered Los Angeles

Henry Huntington’s Big Creek Hydroelectric Project
presented incredible logistical, financial, and technological challenges

by Victor Davis Hanson

These days, the few major infrastructure projects that California undertakes routinely run behind schedule and over budget. Seventeen years after the establishment of the California High-Speed Rail Authority, not a foot of track has been laid, thanks to lawsuits over eminent domain, environmental concerns, and labor practices. The official price tag of the proposed rail system reads $68.4 billion, but most observers, remembering the San Francisco–Oakland Bay Bridge’s massive cost overruns, expect the bill to top $100 billion. It’s essentially the same story with the state’s effort to restore the Sacramento–San Joaquin Delta. After decades of bickering and delays, Governor Jerry Brown is pushing a $24.5 billion plan to flood the delta (in order to preserve some 50 threatened or endangered species) and to build tunnels underneath it to ensure that Central Valley farmers and homeowners continue getting northern California water. The plan would require at least a decade to complete under the best of circumstances; opposition from environmentalists, farmers, local residents, and taxpayer groups would almost certainly delay things further.

Envision a California infrastructure project that put tens of thousands of people to work and finished ahead of schedule while using private financing. Suppose that it made a profit without government guarantees or taxpayer liabilities. Imagine, moreover, that this project did little harm to the environment while producing massive quantities of renewable energy. Almost all the project’s machinery would be hidden underground or housed in elegant classical buildings. It would radically reengineer nature, yes, but the most obvious evidence of change would be scenic alpine lakes where dry canyons had previously stood. And instead of facing endless lawsuits from aggrieved parties, the project would enjoy nearly unanimous support.

More than 100 years ago, California entrepreneur Henry Huntington accomplished all that with his Big Creek Hydroelectric Project on the San Joaquin River, high in the central Sierra Nevada Mountains. Today, the project’s six man-made reservoirs, 27 dams, and nine powerhouses generate 1,000 megawatts of clean hydroelectric power for about 11 million southern Californians; provide late-summer irrigation to more than 1 million acres of farmland; and prevent the San Joaquin River from flooding northeast Fresno in the spring. In symphonic fashion, through dams, reservoirs, penstocks, and tunnels, the river’s descent is regulated, stored, divided, and recombined. To the casual observer, the process is imperceptible.

Big Creek is a classic story of American (and Californian) ingenuity and drive, as well as a reminder of a time when political leaders agreed that the needs of humanity trumped the needs of, say, fish. Unfortunately, the project’s bounty has helped create a complacency that not only disallows successor developments but threatens the original purpose of Big Creek itself.

By 1900, Los Angeles was expanding to new suburbs both inland and along the coast. Also growing was its demand for electricity to fuel everything from modern commuter trolleys to such novel household appliances as heaters and washing machines. Without plentiful and affordable electricity, Los Angeles couldn’t grow—a fact not lost on the city’s premier residential developer, Henry Huntington. Henry was the nephew of Collis Huntington, an industrialist who had consolidated the Southern Pacific Railroad Corporation, and he inherited much of his money from his childless uncle. (He even left his wife and four children and married Collis’s widow.)

In the early twentieth century, the best way for Henry Huntington to generate the electricity he wanted was to use the force of water falling through massive turbines—a method that would soon provide almost half of early industrial America’s electrical power. By 1900, a nationwide scramble was under way to dam rivers and install turbines. (Today, the Chinese are doing the same thing, building a vast array of new dams to produce thousands of megawatts of clean hydroelectric power.) Yet southern California had few rivers with strong enough flows to generate electricity economically. The Sacramento and American River systems to the north were already mostly claimed for hydroelectric power and flood control. Nearer to Los Angeles were the smaller Kern, Kaweah, and Kings Rivers, but they would be hard to dam, and they lacked the volume of the San Joaquin River watershed to the north, the largest in California.

Merkel Wins Easy Re-Election

Absolute Majority Within Reach

by Spiegel

Chancellor Angela Merkel's conservatives won a clear election victory on Sunday, granting her a third term. Results show that she may have won enough votes for an absolute majority, though she has given no indication as to how she will proceed.

Angela Merkel's conservatives won a resounding victory in Sunday's general election, sharply increasing their share of the vote by some eight points to around 42 percent and putting her on track for a third term.

That result, which would be the strongest result for the conservatives since 1990, could be enough to give Merkel an absolute majority on her own. Public broadcaster ARD predicted that her conservatives could have a slim absolute majority of four seats in parliament. But the final outcome is still unclear.

But she may have to form an alliance with the rival center-left Social Democrats. Her junior coalition partner, the pro-business Free Democratic Party, saw its support slump so dramatically that it may not make the five percent threshold needed for parliamentary representation.

"We will do everything to ensure that the next four years will be successful ones for Germany," a beaming Merkel told ecstatic supporters. "We will now wait for the election outcome, it's too early to say how we will proceed. We will discuss all this tomorrow in our leadership meetings. But we can already celebrate today because we did great."

Her SPD rival, Peer Steinbrück, told supporters: "The ball is in Frau Merkel's court, she has to find herself a majority."

An alliance with the SPD, a so-called "grand coalition" of the two biggest parties, would be a repeat of the right-left alliance with which she governed in her first term from 2005 until 2009.

Merkel's conservative Christian Democratic Union party and its Bavarian sister party, the Christian Social Union, were at 42.1 percent, up sharply from 33.8 percent in 2009, an ARD network TV projection based on actual results showed after polling stations closed at 6 p.m. CET.

A TV projection by ZDF showed a similar result with the conservatives at 42.3 percent.

"This is the FDP's bitterest defeat in decades," said Christian Lindner, a senior member of the party leadership.

Record Low for FDP

ARD had the FDP at 4.7 percent, while ZDF had them at 4.5 percent, a disastrous result for the party, a traditional kingmaker in German politics, which has been in parliament continually since 1949.

The SPD was at around 25.8 percent, according to ARD, up slightly from 23.0 percent in 2009. The Greens were at 8.1, compared with 10.7 percent in 2009.

In a significant development, the anti-euro Alternative for Germany (AfD) party, which was formed in February and calls for an "orderly dismantling of the euro zone," came close to five percent. The ARD had them at 4.9 percent and the ZDF at 4.8 percent.

European Partners Favor 'Grand Coalition'

Many of Germany's European partners regard a third term for Merkel with the SPD as her coalition partner as the best possible outcome. It ensures continuity at the helm of Europe's most powerful economy and it will likely force Merkel to put a bigger focus on stimulating economic growth and curbing unemployment in the crisis-ravaged euro zone.

A grand coalition would also, thanks to its overwhelming majority in parliament, strengthen Merkel's hand in managing the euro crisis because it would lessen the threat posed by backbench rebellions against future European rescue measures.

With the SPD in her coalition, she would no longer face a hostile Bundesrat, Germany's upper legislative chamber, and she may even be able to muster two-thirds majorities needed to change the German constitution if future changes to Europe's institutions should warrant that.

Her hands will, however, remain tied by rulings of the Federal Constitutional Court, which will rule next month on the European Central Bank's bond-buying policy, which put a lid on the crisis when it was announced last year. 

Is Italy Set To Become Europe's Japan?

Leaders have no incentive to pursue reform, because voters consistently failed to demand it

by Federico Fubini

Since the global economic crisis began in 2008, Italy’s GDP has declined by about 8%, nearly a million workers have lost their jobs, and real wages have come under increasing pressure. In southern Italy today, a young person – especially a woman – on a permanent work contract, being paid on time and in full, is a statistical oddity. And yet, an uneasy coalition government seems unlikely to address the concerns that drove voters to reject the entrenched ruling elite in the last election. The most striking aspect of Italy’s recent turmoil is what has not happened: citizens have not poured into the streets demanding reform.

Indeed, throughout the crisis, Italian society has remained uncharacteristically stable. The subdued nature of the few public protests that have occurred contrasts sharply with uprisings in Europe’s other struggling economies – such as Greece, Spain, Portugal, and Ireland – not to mention those that have roiled the Arab world in recent years. Even Sweden faced riots this year, as did the United Kingdom in 2011.

The absence of such outbursts of popular anger in Italy can be explained partly by the savings cushion built by previous generations. But there are also deeper social and political forces at play – forces that threaten to push Italy, like Japan after its asset-price bubble burst in 1990, toward silent decline.

Japan’s experience – characterized by more than 20 years of economic stagnation – offers important lessons for crisis-stricken democratic countries with aging populations. During Japan’s “lost decades,” successive Japanese governments allowed public debt to skyrocket and refused to confront the economy’s deep-rooted problems, allowing sclerosis to take hold.

In fact, Japan’s leaders had little incentive to pursue bold reform, because voters consistently failed to demand it. This quiescence was at least partly rooted in demographics. Japanese society is one of the world’s oldest, with roughly 40% of the population older than 54 and a median age of 45.8.

Next stop, banana republic

A banana republic doesn’t happen overnight

By mark steyn

“This is the United States of America,” declared President Obama to the burghers of Liberty, Missouri, on Friday. “We’re not some banana republic.”

He was talking about the Annual Raising of the Debt Ceiling, which glorious American tradition seems to come round earlier every year. “This is not a deadbeat nation,” President Obama continued. “We don’t run out on our tab.” True. But we don’t pay it off, either. We just keep running it up, ever higher. And every time the bartender says, “Mebbe you’ve had enough, pal,” we protest, “Jush another couple trillion for the road. Set ’em up, Joe.” And he gives you that look that kinda says he wishes you’d run out on your tab back when it was $23.68.

President Barack Obama speaks to workers at the Ford Kansas City Stamping Plant on Sept. 20, in Liberty, Missouri. Obama spoke at the plant after the Republican-controlled U.S. House passed a stop-gap funding measure, but also defunding the presidents health care legislation, which may lead to a government shutdown.

Still, Obama is right. We’re not a banana republic, if only because the debt of banana republics is denominated in a currency other than their own – i.e., the U.S. dollar. When you’re the guys who print the global currency, you can run up debts undreamt of by your average generalissimo. As Obama explained in another of his recent speeches, “Raising the debt ceiling, which has been done over a hundred times, does not increase our debt.” I won’t even pretend to know what he and his speechwriters meant by that one, but the fact that raising the debt ceiling “has been done over a hundred times” does suggest that spending more than it takes in is now a permanent feature of American government. And no one has plans to do anything about it. Which is certainly banana republic-esque.

Is all this spending necessary? Every day, the foot-of-page-37 news stories reveal government programs it would never occur to your dime-store caudillo to blow money on. On Thursday, it was the Food and Drug Administration blowing just shy of $200 grand to find out whether its Twitter and Facebook presence is “well-received.” A fifth of a million dollars isn’t even a rounding error in most departmental budgets, so nobody cares. But the FDA is one of those sclerotic American institutions that has near to entirely seized up. In October 1920, it occurred to an Ontario doctor, Frederick Banting, that insulin might be isolated and purified and used to treat diabetes; by January 1923, Eli Lilly & Co. was selling insulin to American pharmacies: A little over two years from concept to market. Now, the FDA adds at least a half-decade to the process, and your chances of making it through are far slimmer: As recently as the late Nineties, they were approving 157 new drugs per half-decade. Today it’s less than half that.

But they’ve got $182,000 to splash around on finding out whether people really like them on Facebook, or they’re just saying that. So they’ve given the dough to a company run by Dan Beckmann, a former “new media aide” to President Obama. That has the whiff of the banana republic about it, too.

The National Parks Service, which I had carelessly assumed was the service responsible for running national parks, has been making videos on Muslim women’s rights: “Islam gave women a whole bunch of rights that Western women acquired later in the 19th and 20th centuries, and we’ve had these rights since the seventh century,” explains a lady from AnNur Islamic School in Schenectady, N.Y., at the National Park Service website, nps.gov. Fascinating stuff, no doubt. But what’s it to do with national parks? Maybe the rangers could pay Dan Beckmann a quarter-million bucks to look into whether the National Parks’ Islamic outreach is using social media as effectively as it might.

Che, Macaulay and other anti-fascists

Meet Univ. of Florida Professor Emeritus Neill Macaulay, who gloated louder about murdering innocent Cubans

 By Humberto Fontova

From Che Guevara Feb. 1957:

"I fired a .32 calibre bullet into the right hemisphere of his (peasant Eutemio Guerra's) brain which came out through his left temple. He moaned for a few moments, then died. His belongings were now mine.”

From Univ. of Florida Professor Emeritus Neill Macaulay's, A Rebel in Cuba, 1970:

"The first Batistiano was a tall handsome mulatto. He stood blindfolded before the paredon'. his hands bound in front of him. "Muchachos," he said calmly, "The only crime you are going to commit is to kill me, because I am innocent."

I stepped into the field shouted: "Ready!..Aim!--FIRE!"...the man went down and I went up to him immediately, commanding the firing squad to order arms as I walked. There were bullet holes in his shirt and he seemed dead, but I wasted no time in putting the automatic to his head and pulled the trigger. It made a neat round hole.

Next Batistiano to die was a Negro who was hauled kicking and screaming to the paredon'..I told the jailers to throw him up against the wall and get out of the way...the condemned man froze in terror when he saw his executioners arrayed before him."

"READY!" My command jolted him out of his trance.

"NO!--NO!" he cried. "Do NOT Get ready." He tried to climb the wall.

"NO!" he yelled while trying to hide behind one of the execution stakes, but the gun muzzles tracked him relentlessly.

"FIRE!" He turned his head and ducked just as the guns went off. Most of the bullets struck him in profile, tearing his nose, lips, chin and most of his cheeks. His face was transformed into a raw, red mass of flesh and bone that contrasted sharply to the smooth black skin bordering it. He lay on his back with what was left of his face turned to the firing squad. Anyone that hideously blasted , I thought, had to be dead...well" I commented to the firing squad, "it is not necessary to give to give him the tiro de gracia.

"Yes, Americano!" shouted one of my men. "He still lives! Give him the shot!" His arms and legs were twitching. His movement ceased only when a bullet from my pistol entered his skull.

Other fascinating items from professor Macaulay's memoirs:

"Escalona introduced me to Fidel as "the man who is training the firing squads." Fidel threw his head back and roared with laughter. As I stretched out my hand, he grabbed me by my shoulders and gave me a bear hug. Everybody was happy. At the University he was known as Bola de Churre. To me, however, he was very attractive."

Fidel says to give the Americano what he wants. So I selected a plot of about sixty-five acres from an immense plantation that had been jointly owned by some friends of Batista. The INRA (Instituto Nacional de Reforma Agraria) gave me virtually unlimited credit...there was no house on my land so I chose as a residence the former country home of Pepe Fraga, Batista's former chief of parking meters in Havana. Late in Jul my wife and infant son joined me there.

Folks, these items are not from a novel. An American mercenary joins Castro's criminal band, executes (murders, actually) Cubans without trial, steals the property of Cubans at gunpoint. Then he serves for decades as Professor Emeritus of Latin American Studies at University of Florida, apparently with nobody batting an eye.

UF is a state college, so there's a good chance his salary was paid partly by his victims families. And again apparently nobody bats an eye.

Upon Macaulay's death in 2007 (some suspect from suicide) Leftist professor and documentarian Glenn Gebhard wrote: "He (Macaulay) was not a socialist or a communist, and he left (Cuba) after he realized he couldn't make a living...He was a man of action and really smart."

Che, whatever else we can say about him, seemed to actually believe in the Communist holy book. Macaulay apparently murdered Cubans for fun and profit.

You will be interested to learn that among Professor Neil Macaulay's final academic duties was to hail a book by Julia Sweig as: "the best book ever written about Fidel Castro's revolutionary movement."

Didn't prof. Macaulay have any Cubans in his classes during 20 years teaching Latin American Studies at UF?! Didn't any of them object??!!!

Can you imagine, say, a professor of Ukranian ancestry who was discovered to have served as an auxiliary Nazi executioner in 41-42, or, say, a professor of Chilean background who was affiliated with the Pinochet regime, or a professor of South African ancestry who....Oh you know what I'm getting at!

The Trouble With Asset Bubbles: If You Stop Pumping, They Pop

Asset bubbles are like super-nova stars: once they reach a critical extreme, they implode

by Charles Hugh-Smith

The trouble with inflating asset bubbles is that you have to keep inflating them or they pop. Unfortunately for the bubble-blowing central banks, asset bubbles are a double-bind: you cannot inflate assets forever. At some unpredictable point, the risk and moral hazard that are part and parcel of all asset bubbles trigger an avalanche of selling that pops the bubble.

This is another facet of The Fed's Double-Bind: if you stop pumping asset bubbles, they pop as participants realize the music has stopped, and if you keep pumping them, they expand to super-nova criticality and implode.

There are several dynamics at play in this double-bind.

1. The process of inflating a bubble (for example, the current bubbles in stocks and real estate) requires pushing investors and speculators alike into risky asset classes. This puts the market at increasing risk as everyone is pushed to one side of the boat.

2. Those on the other side of the boat (i.e. shorts) are slowly but surely eradicated as the pumping keeps inflating the bubble. When the bubble finally bursts, there are no shorts left to cover, i.e. buy stocks at lower prices to reap their profits.

3. As the bubble continues to expand, the money available to enter the market and keep prices rising declines. The very success of the pumping process strips the markets of new sources of new money, leading to a point where normal selling exceeds new-money buying and the bubble collapses.

4. Money pumping by central banks and governments follows a curve of diminishing return. One analogy is insulin insensitivity: as the systemic distortions build, markets become increasingly insensitive to money pumping. Authorities respond to this intrinsic process of increasing insensitivity by pumping even more money into the system.

But as with insulin insensitivity, at some point the system loses all sensitivity to money pumping: no matter how much money central authorities inject, the markets refuse to go higher. At this point, the stick-slip nature of bubbles manifests and modest selling triggers a collapse as participants all rush for the exits. Buyers have vanished and there is no longer a bid at any price.

5. Having pumped the assets higher with ever-greater injections of speculative risk and pumping, central banks and states have exhausted their ability to re-inflate assets as they collapse.

This growing insensitivity to money pumping is visible in the stock market's response to each new QE program: each market advance is of shorter duration, and each rise is less robust than the last one.

This degradation of response to pumping has forced the Fed to pursue a policy of infinite QE, with no time or pumping limits.

The fantasy that authorities can massage their pumping to keep asset bubbles inflated at a permanently high plateau is about to be tested. The Fed is implicitly suggesting that it can adjust the dial of QE with such control that a few billion dollars withdrawn or added can keep the bubble inflated at current levels.

Systems cannot be controlled once risk and moral hazard have been raised to levels where instability is an intrinsic feature of the system. Those who actually believe the Fed can keep asset bubbles inflated at a permanently high plateau will discover their error in dramatic fashion, as the bigger the bubble, the more violent the implosion.

This is the super-nova nature of asset bubbles: if you try to deflate the bubble slowly, it pops, but if you keep inflating the bubble it eventually pops from its internal extremes. 

Let Greece Get What It Deserves

Greece can make an uncompromised test bed for Marxist theories

By Bill Frezza

Once in a great while an opportunity comes along to deliver justice to a people, giving them what they truly deserve. Greece’s time has come.

It must be dawning on all but the most obtuse member of the banking elite that they can’t possibly steal enough money from German taxpayers to save the Greek government from default. Put it off, maybe, but collapse is inevitable.

Once this happens, what is the purpose of casting Greece into some selective temporary financial purgatory where the irrelevant Greek economy can continue embarrassing anyone foolish enough to lend their dysfunctional government a dime? Why not go all the way and give the country what many of its people have been violently demanding for almost a century?

Let them have Communism.

Hard as it is for young people to believe, Communism was once a major historical force holding billions of people in thrall. Outside the halls of elite universities, who still takes it seriously? Sure we have Cuba, where the Castro deathwatch is the last thing standing between that benighted penal colony and an inevitable makeover by Club Med. Then there is Venezuela, though hope is fading that Meduro will carry the Bolivarian banner much longer. And frankly, a psychopathic family dynasty ruling a nation of stunted zombies hardly makes North Korea a proper Communist exemplar.

What the world needs, lest we forget, is a contemporary example of Communism in action. What better candidate than Greece? They’ve been pining for it for years, exhibiting a level of anti-capitalist vitriol unmatched in any developed country. They are temperamentally attuned to it, having driven all hard working Greeks abroad in search of opportunity. They pose no military threat to their neighbors, unless you quake at the sight of soldiers marching around in white skirts. And they have all the trappings of a modern Western nation, making them an uncompromised test bed for Marxist theories. Just toss them out of the European Union, cut off the flow of free Euros, and hand them back the printing plates for their old drachmas. Then stand back for a generation and watch.

The land that invented democracy used it to perfect the art of living at the expense of others, an example all Western democracies appear intent on emulating. Being the first to run out of other people’s money makes Greece truly ripe to take the next logical step beyond socialism.

As wrenching as it will be we can take comfort in the fact that Greece doesn’t have much of an economy to disrupt. The only Greek industry that’s worth a damn is tourism, rapidly collapsing as travelers get tired of being stranded by strikes while dodging Molotov cocktails. The rest of us can find plenty of other sources of lamb chops, yogurt, and olive oil. They crushed the concept of private property long ago under the burden of environmental, cultural, and social regulations that govern land use. Wouldn’t it be instructive to let them have a go at building a workers’ paradise to remind us what state enforced equality looks like?

Unlike neighboring Balkan nations that got to experience the joys of Communism after the Second World War, Greece was brought back from the brink by massive western intervention as well as a Churchillian side deal that obliged Stalin to butt out. The nasty civil war between the Greek Communist Party (the KKE) and government forces backed by Britain and the U.S. set the stage for decades of struggle between communist sympathizers who never gave up the dream, and right wing juntas determined to rule by force. The uneasy peace that has existed since the colonels were booted merely masks underlying tensions as every Greek worries, is someone else working fewer hours than I am?