Interest rates are market prices, and you interfere with them at your peril!

Bernanke’s blind side

by DETLEV SCHLICHTER

The world financial system is skating on thin ice, and that ice can crack at any moment.

The instabilities of the global paper money economy are evident everywhere. In Europe, the debt crisis is picking off one euro-member after another like the protagonists of a teenage horror movie, leaving us in no doubt what the final destination for the core is going to be. Yet – bizarrely and inexplicably – German Bundesanleihen still play the role of safe haven. In the U.S. of A., years of near-zero interest rates and two rounds of unprecedented “quantitative easing” have engineered a suspicious-looking rebound in equity markets and other financial assets, yet the victory of the interventionists over market forces looks hollow. Three years into the recovery, the economy is still sick. Manipulating financial markets seems one thing, generating prosperity quite another – only on Wall Street are the two the same. But according to the central bank’s chairman, if a policy fails it means you simply have to do more of it.

Only the intellectual and institutional inertia of the bloated financial industry, overfed on a rich forty-year diet of cheap money and ever-rising asset prices, is – for now at least – preventing a widespread rush for the exit. The industry is sitting on such a massive pile of inflated paper assets that there seem to be few alternatives to further feeding gluttonous governments and their clueless politicians. Additionally, things have gone from pretty bad to mind-blowingly worse too fast for most portfolio managers to comprehend – leading many to cling to the straws of time-worn investment routines and established asset allocation patterns. Did they not all learn back in money-manger school that government bonds were “safe assets”?

Smart ‘private money’ – nimbler, less consensus-oriented and, importantly, eager to sustain real spending power for the long run rather than beat some nominal index over the short run– is already running for the exit. Just look at the gold price and the prices of certain other real assets.

The tunnel vision of macroeconomics

My prediction is that things will get much worse very rapidly, and one of the reasons why I think this is inevitable is the inability of large sections of the political and financial establishment to even grasp what is going on. Of course, the reason for this is not any lack of intelligence. These are smart people. The reason is the oppressive dominance of an economic belief system that only provides a very narrow perspective on the full effects of an expanding supply of money.

And you want to know what really scares me? That the money-printer-in-chief, the man in charge of the printing press for the world’s dominant paper currency, the chairman of the U.S. Fed, not only shares this limited view of the effects of easy money, he is so completely beholden to the mainstream macro consensus that he is entirely incapable of even comprehending that his policy could do more harm than good.

Just look at this video of last week’s congressional hearings. The exchange between Congressman Ron Paul from Texas – the libertarian, Austrian-schooled Republican who is the only politician who ‘gets it’ – and the Fed chairman has been making the rounds on the web, and provoked already a lot of commentary. But what strikes me is not so much Bernanke’s struggle with explaining the monetary function of gold but something else. Something that indeed scares the living bejeesus out of me whenever I hear a Bernanke testimony.

Before I tell you what it is, let me stress that I don’t much like the widespread demonization of the Fed chairman. I have never met him but I cannot say that he comes across as an unpleasant individual. To the contrary, he seems to be a smart and decent person. Call me naïve, but I do not think that he is part of some conspiracy or any backroom dealing, or that he is in the pockets of the big Wall Street banks. I think he was sincere when he said that he never particularly cared about the management or the shareholders of the Wall Street firms he invariably bailed out and is still generously subsidizing with super-low funding rates and periodic debt monetization. He really believes that what he is doing is helping the U.S. economy and the U.S. people.

Bullishness is terrifically expensive.

Continental Drift

                              “I’m counterfeiting euros. If I’m caught I’ll plead insanity.”

By Tim Price

The latest Greek bail-out changes nothing, other than accelerating the pace at which euro zone tax payers have their funds flushed down the toilet, redirected to the banks, or both.  (They may be the same thing.) European politicians appear to be struggling to accept the underlying reality: Greece is insolvent, so simply throwing €180 billion more of other people’s money at the problem doesn’t improve matters, in the same way that violently injecting ever greater doses of adrenaline into a corpse doesn’t change the outlook for the corpse. The package announced last week was admittedly more dramatic than the markets had anticipated, but its confidence-boosting impact will probably have evaporated by the middle of this  week, not least because other sovereign insolvencies are quietly biding their time on the sidelines, oozing poison into the markets. €180 billion doesn’t buy you much of a rally these days. Bullishness is terrifically expensive.

Sometimes, amid the Sturm und Drang of the market, it’s possible to have a blinding moment of clarity. In one such moment, Nomura’s Bob Janjuah we think clearly  identifies the problem facing Europe, in just three little words: weak trend growth.

Most policymakers and many in the market are still desperately hanging on to the view that trend growth rates in developed markets (and emerging markets too) have not been impacted materially as a result of the financial crisis. To me the evidence is clearly “in”. … The only way developed market (and emerging market) policymakers have been able to deliver even barely acceptable trend growth has been through the use of unsustainable policies which put short term gains first but which clearly create huge long term risks to sovereign credit quality and which leave a deeply negative scar in the minds of the private sector, which is attempting to de-lever and which knows it is facing the mother of all tax liabilities going forward. The reality is that absent a private sector debt binge (the private sector is not that stupid) and assuming we are coming to or are at the end of the line with respect to policy, then developed market trend growth over the next 3 – 5 years will be in the 1% to 1.5% range. Once the market is able to see the limits of policy, and once the market is able to see through the excuses (of ‘soft patches’), then it is inevitable that we see a significant re-price lower of earnings expectations, of incomes, of asset values, and a genuine (rather than hypothetical) acceptance that living standards, especially in the developed market economies, are going to be materially lower over the next 5 – 10 years than current consensus expectations / forecasts.

Bob  Janjuah is surely almost certainly correct when he concludes that emerging market economies, as a whole, are likely to outperform over the medium term, on account of their “strong balance sheets, huge flexibility in taxation and labour markets, and very low levels of entitlement expectations”.  Or to put it another way: Europe has  –  with the possible exception of Germany  –  gone ex-growth, and faces a future that looks rather similar to the last two decades in Japan. This point is not lost on Merryn Somerset Webb writing for the weekend FT and citing some holiday reading for investors still clinging to a sense of realism. Among her selection is Alex Kerr’s ‘”Dogs and Demons”, which covers Japan;

… for a real insight into how the odd banking crisis can turn into a disaster for public finances, turn to [ironically enough] chapter 11. Here you will learn about how “the ministry of finance‟s support for banks and industry through the manipulation of financial markets has had high costs. Interest rates of 1% or lower have dried up the pools of capital that make up the wealth of ordinary citizens; insurance companies; pension funds; the national health system; savings accounts; universities; and endowed foundations. The prognosis is for skyrocketing taxes and declining social services.

That should have a familiar ring to it – it is a glimpse into our own futures.

And while Europe drifts slowly towards further genteel decline, American politicians wrangle over their own debt  burden, showing, in the process,  an alarming complacency at the prospect of sovereign default, and obvious unfamiliarity with the principle of “risk-free assets” and the capital asset pricing model. Orwell suggested how language would be deployed as the last refuge of the political scoundrel, so we have been treated in recent weeks to concepts such as “restructuring” and “selective default”, as if investors were unaware that huge parts of the sovereign debt structure were buckling under the weight. We take a hugely simplistic view of the global debt landscape: if the (sovereign) borrower is a deadbeat, we don’[t lend to it. In the words of John Badham’s film “War Games”, sometimes the smartest move is not to play.

If it makes sense to be highly selective about bonds, given the risks, it surely makes sense to behave in the same way when assessing equity opportunities. Europe‟s slow decline doesn’t automatically invalidate the shares of European or UK-based companies, for example, but it does suggest that we should be thinking about those businesses with meaningful exposure to faster growing places in the world, and about those businesses whose shares represent deep defensive value. The problem here is nicely expressed by JP Morgan‟s Michael Cembalest. Large cap, blue chip stocks in the UK and Europe trading at single digit price / earnings multiples, with 30% to 50% of their revenues in faster growing economies, and offering 3% to 4% dividend yields, or higher, are surely relatively attractive. But “we don’t expect to get paid in full until (and unless) the world’s largest debtor economies find a way out, which is going to require more leadership than we have seen so far, and perhaps a crisis to bring it about.”  We disagree only on one point: where Michael Cembalest uses the word “perhaps”, we would use the word “certainly”.

Given that the ability to anticipate the macro environment involves a more than ordinary ability to assess just how selfish and stupid politicians are going to be, we feel more uncomfortable than normal allocating capital to macro managers. We favour purely systematic, mechanistic trend-following strategies for our “absolute return” exposure, and we acknowledge that the sector is currently struggling with market headwinds that may be influenced by the extent of political asset price manipulation.

Our fourth asset class commitment in these extraordinary times is to real assets. Observers often complain that we seem to write about little more than gold. Which is wholly unfair. We have often discussed the investment merits of silver.

So we peer into an investment landscape more than usually obscured by uncertainty and with huge prospective tail risks. We draw huge comfort from an investment process that we feel is more genuinely diversified by asset type than those of many of our peers, and that simultaneously benefits, we believe, from a concentration of investments where we have particularly high conviction –  the monetary metals being a special example. There is admittedly not much fun in anticipating what might be years of structural decline in our home markets. But it most certainly takes the edge off when one has a plan.

Greece without the sunshine

Austerity in the U.K.

Britain discovers that shrinking government is a lot harder than expanding it.

BY THEODORE DALRYMPLE

In Britain, government spending is now so high, accounting for more than half of the economy, that it is increasingly difficult to distinguish the private sector from the public. Many supposedly private companies are as dependent on government largesse as welfare recipients are, and much of the money with which the government pays them is borrowed. The nation’s budget deficit in 2010, in the wake of the financial crisis, was 10.4 percent of GDP, after being 12.5 percent in 2009; even before the crisis, the country had managed to balance its budget for only three years out of the previous 30.

Deficits are like smoking: difficult to give up. They can be cut only at the cost of genuine hardship, for many people will have become dependent upon them for their livelihood. Hence withdrawal symptoms are likely to be severe; and hardship is always politically hazardous to inflict, even when it is a necessary corrective to previous excess. This is what Britain faces.

For some politicians, running up deficits is not a problem but a benefit, since doing so creates a population permanently in thrall to them for the favors by which it lives. The politicians are thus like drug dealers, profiting from their clientele’s dependence, yet on a scale incomparably larger. The Swedish Social Democrats understood long ago that if more than half of the population became economically dependent on government, either directly or indirectly, no government of any party could easily change the arrangement. It was not a crude one-party system that the Social Democrats sought but a one-policy system, and they almost succeeded.

For countries that operate such a one-policy system, especially as badly as Britain does, economic reality is apt to administer nasty shocks from time to time, requiring action. When the new coalition government, led by David Cameron of the Conservatives and Nick Clegg of the Liberal Democrats, came into power last year, the economic situation was cataclysmic. The budget deficit was vast; the country had a large trade deficit; the population was among the most heavily indebted in the world; and the savings rate was nil. Room for maneuver was therefore extremely limited.

The previous years of fool’s gold—asset inflation brought by easy credit—had allowed the Labour government to expand public spending enormously without damaging apparent prosperity. Labour’s Gordon Brown, chancellor of the exchequer from 1997 to 2007 and then prime minister for three years, boasted that he had found the elixir of growth: his boom, unlike all others in history, would not be followed by bust. During Brown’s years in office, however, three-quarters of Britain’s new employment was in the public sector, a fifth of it in the National Health Service alone. Educational and health-care spending skyrocketed. The economy of many areas of the country grew so dependent on public expenditure that they became like the Soviet Union with supermarkets.

Britain was living on borrowed money, consuming today what it would have to pay for tomorrow, the day after tomorrow, and the day after that; the national debt increased at a rate unmatched in peacetime; and when the music stopped, the state found itself holding unprecedented obligations, with no means of paying them. Without aggressive reforms, it was clear, Britain would soon have to default on its debt or debauch its currency. Both alternatives were fraught with dire consequences.

In the end, the new government chose to attack the deficit from both ends: by cutting spending and by increasing taxes. As many commentators noted, this approach risked a reduction of aggregate demand so great that short-term growth would be impossible and a prolonged recession, even depression, would be probable. Domestic demand would plummet, and export-led growth, many feared, would not be able to rescue the economy, for two reasons: first, Britain’s industry was so debilitated that its competitiveness in sophisticated markets could not be restored from one day to the next by, say, a favorable change in the exchange rate; and second, the country’s traditional export markets were experiencing difficulties of their own.

But the general economic argument was not what fueled the fierce intellectual and street protests that in recent months have opposed the government’s efforts to reduce the deficit—efforts so far more symbolic than real, for state borrowing requirements have only increased since the coalition’s arrival in power. Nor were the protests directed against the tax increases. Since the end of World War II, the British have grown accustomed to the idea that the money in their pockets is what the government graciously consents to leave them after it has taken its share. When (as rarely happens) the chancellor of the exchequer reduces a tax instead of increasing it, even conservative newspapers say that he has “given money away,” as if all money came from him in the first place. The wealth is the government’s and the fullness thereof: where such a belief is prevalent, no tax increase will seem either illegitimate or oppressive.

Well, what about catastrophic global cooling or something

New NASA Data Blow Gaping Hole In Global Warming AlarmismNew NASA Data Blow Gaping Hole In Global Warming Alarmism

By J. Taylor

NASA satellite data from the years 2000 through 2011 show the Earth’s atmosphere is allowing far more heat to be released into space than alarmist computer models have predicted, reports a new study in the peer-reviewed science journal Remote Sensing. The study indicates far less future global warming will occur than United Nations computer models have predicted, and supports prior studies indicating increases in atmospheric carbon dioxide trap far less heat than alarmists have claimed.

Study co-author Dr. Roy Spencer, a principal research scientist at the University of Alabama in Huntsville and U.S. Science Team Leader for the Advanced Microwave Scanning Radiometer flying on NASA’s Aqua satellite, reports that real-world data from NASA’s Terra satellite contradict multiple assumptions fed into alarmist computer models.

“The satellite observations suggest there is much more energy lost to space during and after warming than the climate models show,” Spencer said in a July 26 University of Alabama press release. “There is a huge discrepancy between the data and the forecasts that is especially big over the oceans.”

In addition to finding that far less heat is being trapped than alarmist computer models have predicted, the NASA satellite data show the atmosphere begins shedding heat into space long before United Nations computer models predicted.

The new findings are extremely important and should dramatically alter the global warming debate.

Scientists on all sides of the global warming debate are in general agreement about how much heat is being directly trapped by human emissions of carbon dioxide (the answer is “not much”). However, the single most important issue in the global warming debate is whether carbon dioxide emissions will indirectly trap far more heat by causing large increases in atmospheric humidity and cirrus clouds. Alarmist computer models assume human carbon dioxide emissions indirectly cause substantial increases in atmospheric humidity and cirrus clouds (each of which are very effective at trapping heat), but real-world data have long shown that carbon dioxide emissions are not causing as much atmospheric humidity and cirrus clouds as the alarmist computer models have predicted.

The new NASA Terra satellite data are consistent with long-term NOAA and NASA data indicating atmospheric humidity and cirrus clouds are not increasing in the manner predicted by alarmist computer models. The Terra satellite data also support data collected by NASA’s ERBS satellite showing far more long wave radiation (and thus, heat) escaped into space between 1985 and 1999 than alarmist computer models had predicted. Together, the NASA ERBS and Terra satellite data show that for 25 years and counting, carbon dioxide emissions have directly and indirectly trapped far less heat than alarmist computer models have predicted.

In short, the central premise of alarmist global warming theory is that carbon dioxide emissions should be directly and indirectly trapping a certain amount of heat in the earth’s atmosphere and preventing it from escaping into space. Real-world measurements, however, show far less heat is being trapped in the earth’s atmosphere than the alarmist computer models predict, and far more heat is escaping into space than the alarmist computer models predict.

When objective NASA satellite data, reported in a peer-reviewed scientific journal, show a “huge discrepancy” between alarmist climate models and real-world facts, climate scientists, the media and our elected officials would be wise to take notice. Whether or not they do so will tell us a great deal about how honest the purveyors of global warming alarmism truly are.

The plan was to kill people, sir

The Banality of Evil

by Wendy McElroy

A headline from the UK Guardian reads "US soldier admits killing unarmed Afghans for sport."

"The plan was to kill people, sir." That is what Jeremy Morlock respectfully told an army judge about his participation in a "kill team" of soldiers in Afghanistan who targeted harmless civilians and then staged the corpses to look like dead insurgents. Members of the kill team took trophy photos of the murdered civilians; some kept body parts as mementos.

The foregoing describes evil. The word is not in fashion, perhaps because it is too closely associated with the evangelical right, or perhaps because it has been overused to the point of exhaustion.

What do I mean when I refer to an act as evil?

When I use the word, it is within the Randian framework of an action that is profoundly antilife and inflicted without just cause. By the word evil, I refer exclusively to human behavior that is intentional — not accidental and not coerced.

I agree with psychiatrists that bad behavior caused by mental conditions, such as schizophrenia, does not qualify; I disagree with those who discount free will and ascribe all malevolent behavior to such mental or emotional disorders. Just as some people make the intentional and uncoerced choice to be dishonest, others choose to destroy innocent life for profit or pleasure. Mankind has a vast range of preferences, and some people will always embrace those at the extremes.

And yet it is difficult to reconcile the photographs of a clean-shaven, all-American Morlock with the Morlock who sat so calmly in a courtroom and respectfully described the vicious murder of innocent people for sport.

For that matter, how can you explain the other soldiers in the kill team, or those who actively covered up for them?

Grappling with the issue of evil is nothing new to me. In that struggle, two authors in particular have been valuable: Hannah Arendt and Henry David Thoreau.

Hannah Arendt

In her book Eichmann in Jerusalem: A Report on the Banality of Evil (1963) the German-American political theorist Hannah Arendt opened a unique window through which to gaze upon evil. Jewish by birth, Arendt escaped Nazi Europe in 1941 and later became a naturalized American citizen. In 1961, on behalf of the New Yorker magazine, Arendt reported on the Jerusalem trial of Adolph Eichmann, a high-level bureaucrat who had been instrumental in administering the Nazi death camps.

She opened the trial's transcript in order to examine a sadistic monster, but she closed it without finding one. Like his fellow Nazi Heinrich Himmler, who went from being a chicken farmer to heading the notoriously brutal SS, Eichmann seemed to be an ordinary man with a talent for carrying out orders. Arendt coined a term — the "banality of evil" — partly as a way to describe Eichmann's demeanor during the trial, in which he denied all responsibility for the mass murders on the grounds that he was just following orders; he was obeying the law.

In page after page, Eichmann evinced no guilt, malice, or insanity. Indeed, as a man on trial, the most remarkable emotion he displayed was a tendency to brag; Arendt called bragging "the vice that was Eichmann's undoing" because it led him to speak of atrocities that he had not been ordered to commit. To Arendt, it seemed Eichmann would rather die as a war criminal than live as a nobody.

Prisoner in Dystopia

Coal Mine Operator Ronnie Bryant Goes Galt

We can have jobs and lights that come on when we flip the switch, or we can have sanctimonious liberal horse crap. We can’t have both forever.

Via The Blaze.

At a recent kangaroo court hearing, Lilliputian bureauweenies and the thuggish cretins who elect our left-wing government raked industry over the coals for the supposed crime of providing Americans with jobs and electricity. At last one of the people holding our world up had had enough. Atlas Shrugged really is coming true — here’s what he told the crowd (transcript via David McElroy):

“My name’s Ronnie Bryant, and I’m a mine operator…. I’ve been issued a [state] permit in the recent past for [waste water] discharge, and after standing in this room today listening to the comments being made by the people…. [pause] Nearly every day without fail — I have a different perspective — men stream to these [mining] operations looking for work in Walker County [Alabama]. They can’t pay their mortgage. They can’t pay their car note. They can’t feed their families. They don’t have health insurance. And as I stand here today, I just … you know … what’s the use? I got a permit to open up an underground coal mine that would employ probably 125 people. They’d be paid wages from $50,000 to $150,000 a year. We would consume probably $50 million to $60 million in consumables a year, putting more men to work. And my only idea today is to go home. What’s the use? I don’t know. I mean, I see these guys — I see them with tears in their eyes — looking for work. And if there’s so much opposition to these guys making a living, I feel like there’s no need in me putting out the effort to provide work for them. So as I stood against the wall here today, basically what I’ve decided is not to open the mine. I’m just quitting. Thank you.” 

Prepare the printing press

Read China’s Lips

By Stephen S. Roach

The Chinese have long admired America’s economic dynamism. But they have lost confidence in America’s government and its dysfunctional economic stewardship. That message came through loud and clear in my recent travels to Beijing, Shanghai, Chongqing, and Hong Kong.

Coming so shortly on the heels of the subprime crisis, the debate over the debt ceiling and the budget deficit is the last straw. Senior Chinese officials are appalled at how the United States allows politics to trump financial stability. One high-ranking policymaker noted in mid-July, “This is truly shocking… We understand politics, but your government’s continued recklessness is astonishing.”

China is no innocent bystander in America’s race to the abyss. In the aftermath of the Asian financial crisis of the late 1990’s, China amassed some $3.2 trillion in foreign-exchange reserves in order to insulate its system from external shocks. Fully two-thirds of that total – around $2 trillion – is invested in dollar-based assets, largely US Treasuries and agency securities (i.e., Fannie Mae and Freddie Mac). As a result, China surpassed Japan in late 2008 as the largest foreign holder of US financial assets.

Not only did China feel secure in placing such a large bet on the once relatively riskless components of the world’s reserve currency, but its exchange-rate policy left it little choice. In order to maintain a tight relationship between the renminbi and the dollar, China had to recycle a disproportionate share of its foreign-exchange reserves into dollar-based assets.

Those days are over. China recognizes that it no longer makes sense to stay with its current growth strategy – one that relies heavily on a combination of exports and a massive buffer of dollar-denominated foreign-exchange reserves. Three key developments led the Chinese leadership to this conclusion:

First, the crisis and Great Recession of 2008-2009 were a wake-up call. While Chinese export industries remain highly competitive, there are understandable doubts about the post-crisis state of foreign demand for Chinese products. From the US to Europe to Japan – crisis-battered developed economies that collectively account for more than 40% of Chinese exports – end-market demand is likely to grow at a slower pace in the years ahead than it did during China’s export boom of the past 30 years. Long the most powerful driver of Chinese growth, there is now considerable downside to an export-led impetus.

Second, the costs of the insurance premium – the outsize, largely dollar-denominated reservoir of China’s foreign-exchange reserves – have been magnified by political risk. With US government debt repayment now in play, the very concept of dollar-based riskless assets is in doubt.

In recent years, Chinese Premier Wen Jiabao and President Hu Jintao have repeatedly expressed concerns about US fiscal policy and the safe-haven status of Treasuries. Like most Americans, China’s leaders believe that the US will ultimately dodge the bullet of an outright default. But that’s not the point. There is now great skepticism as to the substance of any “fix” – especially one that relies on smoke and mirrors to postpone meaningful fiscal adjustment.

All of this spells lasting damage to the credibility of Washington’s commitment to the “full faith and credit” of the US government. And that raises serious questions about the wisdom of China’s massive investments in dollar-denominated assets.

Finally, China’s leadership is mindful of the risks implied by its own macroeconomic imbalances – and of the role that its export-led growth and dollar-based foreign-exchange accumulation plays in perpetuating those imbalances. Moreover, the Chinese understand the political pressure that a growth-starved developed world is putting on its tight management of the renminbi’s exchange rate relative to the dollar – pressure that is strikingly reminiscent of a similar campaign directed at Japan in the mid-1980’s.

However, unlike Japan, China will not accede to calls for a sharp one-off revaluation of the renminbi. At the same time, it recognizes the need to address these geopolitical tensions. But China will do so by providing stimulus to internal demand, thereby weaning itself from relying on dollar-based assets.

With these considerations in mind, China has adopted a very transparent response. Its new 12th Five-Year Plan says it all – a pro-consumption shift in China’s economic structure that addresses head-on China’s unsustainable imbalances. By focusing on job creation in services, massive urbanization, and the broadening of its social safety net, there will be a big boost to labor income and consumer purchasing power. As a result, the consumption share of the Chinese economy could increase by at least five percentage points of GDP by 2015.

Toxic green madness

Keystone ­versus green Keynesianism

Keystone jobs should matter more to Obama than green theology

By Peter Foster

You’d think that a government with an increasingly severe unemployment problem would be desperate to approve a project that would provide 20,000 ­direct jobs, even if that government does have ­bigger — but related — things on its mind this week.

While the alleged Aug. 2 drop-deadline for raising the U.S. government’s US$14.3-trillion debt ceiling is obsessing Washington, the State Department’s final review of TransCanada Corp.’s $7-billion Keystone XL pipeline, which is due two weeks later, is arguably almost as symbolically significant for the direction of the American economy, at least as long as Barack Obama occupies the White House.

There were certainly no references to energy in President Obama’s address to the U.S. nation on Monday night, save for the ritual swipe at oil company executives. Despite talk of compromise, the President effectively reaffirmed his apparently unshakeable belief that government spending is the route to a better society, and that all that’s holding him back from leading the march is those “millionaires and billionaires” who refuse to shoulder their share of the burden.

Mr. Obama portrayed himself as the defender of senior citizens versus owners of corporate jets, and of secretaries who pay higher tax rates than their hedge-fund-managing bosses (class warfare ammunition supplied by Warren Buffett).

He implied that his opponents want a land without education, new roads or food inspection. Citing slavery, economic justice and Thomas Jefferson, Mr. Obama made that trademark pinch-fingered gesture with which he indicates his grasp of the most minute detail of his own utter rightness.

However, House Speaker John Boehner quickly followed with a brief but devastating deflation of the notion that the President was the Great Compromiser. If there was a crisis, said Mr. Boehner, it was of the President’s own creation. Moreover, he noted, “Balance” in Mr. Obama’s Washington means: “We spend more, you’re taxed more.”

Despite the fact that both tax increases and further Keynesian “stimulus” now appear non-starters, Mr. Obama’s comprehension of where productive jobs originate still seems shaky. This is obvious from his devotion to a globally thermostatic green industrial strategy, which is the main reason for his administration’s foot-dragging over Keystone XL. The line, it is claimed, would not merely entrench the U.S. economy’s dependence on fossil fuels, but its attachment to “dirty” ones at that.

Keystone XL is currently designed to carry 700,000 barrels per day of diluted bitumen from the Alberta oil sands to the refineries of the Gulf coast, thus pushing out oil from less reliable sources, such as Venezuela. The line has been fought every step of the way by well-funded environmental non-governmental organizations, ­ENGOs, who have unleashed a vast campaign of disinformation, and even slapped a fatwa on Alberta tourism. They have been helped by the blanket coverage that recent pipeline spills have received, even though the incidence of such spills has been declining for decades relative to the size of the system. The cost of such spills (the bill for the cleanup of the Enbridge leak in Michigan will be more than US$500-million) is surely more than enough incentive to avoid them. Meanwhile, Keystone XL is the safest and most sophisticated pipeline ever built.

Ultimately, the ENGOs’ target is the oil sands themselves, which the green movement has chosen as a wonderfully anti-photogenic symbol of environmental devastation. The diluted bitumen that would be transported via Keystone XL has been demonized as “toxic sludge” that would eat through steel and pollute the Ogallala aquifer. Such claims are without foundation.

Admittedly, the ENGOs’ job has been made easier by the oil industry’s — not to mention Ottawa’s and Alberta’s — sloth in cranking up their defence, which is still less than stellar. The latest snafu occurred last week, when Canadian Environment Minister Peter Kent announced a new comprehensive environmental monitoring program for the oil sands, but apparently forgot to check who was going to pay for it.

The Harper government is, nevertheless, a stout supporter of Keystone XL, although it is also keen to cut domestic regulatory barriers to projects that would serve other foreign markets for oil-sands oil, such as Enbridge’s proposed Northern Gateway pipeline to the West Coast.

One would imagine that any sensible U.S. administration would be keen to secure as much Canadian oil as possible, even without the promise of pipeline jobs. However, at a time when the U.S. economy is losing the employment battle, the administration is still in thrall to environmental alarmism. Meanwhile, if the U.S. government receives a downgrade from ratings agencies, it will have little or nothing to do with the failure to raise the debt ceiling. Rather, it will be the consequence of an administration devoted to doubly toxic green Keynesianism.

Demanding dependency

From working class to incapacitated class

How radical activists shifted from viewing the working classes as powerful to pitying them as pathetic.

By Patrick Hayes 

Criticisms of the government’s ‘fit for work’ welfare tests betray a view among radical campaigners that, far from having the capacity to forge a living for themselves or even change the world, many working people are only fit for a sickbed.

Official UK government statistics released yesterday showed that, of the 1.3million Employment and Support Allowance (ESA) – formerly Incapacity Benefit – claims made between October 2008 and November 2010, only seven per cent of people attempting to claim incapacity benefits were actually deemed too ill to work. A further 17 per cent were categorised as fit for ‘work-related activities’ and a total of 39 per cent were deemed to be fully capable of working.

Many on the left have reacted strongly to these findings. The general secretary of the Trades Union Congress (TUC) Brendan Barber argued that this ‘much tougher’ test is cynically ‘designed to save the government money by excluding more people… These figures certainly don’t suggest that thousands of disabled people are suddenly “trying it on”’.

The vast majority of claimants probably weren’t ‘trying it on’. Following advice from government officials, many were undoubtedly led to believe they were genuinely incapable of working. And, without question, a proportion of them suffer from conditions that prevent them from doing so. But Barber’s comments assume that the individuals being ‘excluded’ from state support are allgenuinely disabled and unable to work. This fails to explain why, over a period of decades, the number of people claiming incapacity benefits has rocketed in a way that can’t possibly be explained by increasing numbers of people becoming ill.

In the 1980s and 1990s, the numbers of men claiming incapacity benefits rose sharply, increasing almost every single year, from 463,000 in 1981 to 1,276,000 in 1999. Tellingly, a significant proportion of these claims came from areas of the country which had seen a hollowing out of productive industries, and the jobs that they provided. As observed previously on spiked, it’s not feasible that so many people have actually fallen ill. Rather ‘the welfare state was cynically soaking up these people, desperately attempting to offset their potential political anger at being unemployed by inviting them to view their predicament as a health-based problem instead’.

Instead of being seen to be deprived of work by social and economic factors – such as factories closing down and the government lacking a strategy for economic growth - the jobless were instead recast as physically or mentally incapable of working. It’s understandable that some, not least those who have been led to believe they are incapacitated, now find it jarring to hear the government backtrack on this and redefine what it is to be incapacitated. But the extent to which some on the left have reacted to welfare reforms, viewing the unemployed as suffering from health-related problems, incapable of surviving without state help, jars even more.

As Guardian columnist John Harris wrote recently, our ‘flexible labour market and increasingly brutal welfare system are now so constructed that even if you are doing well, it is perfectly possible that you could fall ill’. We are all potentially vulnerable individuals who would face a nasty, brutish and short existence under the new system of welfare support. Riffing on the National Lottery slogan, Harris claims we are all fragile and potentially facing a life of ‘terror’ under the benefits system: ‘it could be you’.

This sense of utter dependency on the state for support is exemplified in the recent protests held against Atos Healthcare, the French-owned private company contracted by the government to carry out tests to see if someone should receive ESA. They carry banners declaring that, by deciding some people on benefits are actually capable of working, Atos is effectively committing murder, undertaking ‘unlawful killings’, ‘making money out of misery’ and depriving people of their ‘freedom’. Atos’ very name, according to one MP, generates a sense of ‘fear and loathing’ among those applying for benefits.

Although there are aspects of Atos’ bureaucratic ‘computer says no’ approach to assessing whether people are deserving of benefits that have been rightly criticised, the hysterical casting of Atos as ‘killers’ reveals an underlying attitude toward the people who are being assessed. Since when did people gain ‘freedom’ by demanding that the state support them? When did it become the role of progressives to emphasise the incapacity of working people?

Historically, working-class people were seen as active, decent, strong and capable of running their lives and of changing society. Now they are instead seen as incapable and in need of defence from harm and harassment. If the state doesn’t offer sufficient support and protection, so the protesters argue, then it’s leaving helpless working people for dead.

In other words, working-class people are weak and are in need of big, strong defenders like the trade unions. Once upon a time, the workers were seen as a force that could seize control of society; now, the working classes are increasingly seen as in need of nursing.

The Taxi Driver

Don’t turn Norway into Europe’s 11 September

Sections of the European liberal elite are trying to make moral mileage out of this rampage just as shamelessly as the right did with 9/11

By Brendan O’Neill 

When it was reported on Friday that there had been an explosion and an horrific mass shooting in Norway, many observers assumed that al-Qaeda or some other radical Islamist group had struck at the heart of peaceful Scandinavia. ‘Norway’s 9/11’, said the front page of the Sun on Saturday, with the subheading: ‘“Al-Qaeda” massacre.’ Yet when it was revealed that the alleged bomber and shooter is a Norway-born, blonde-haired, farm-owning Aryan, observers quickly bought into the idea that we were faced with something very different from an al-Qaeda attack. This wasn’t ‘Norway’s 9/11’ after all, but something more akin to Columbine-on-steroids, a right-wing madman letting off steam in a most barbaric fashion. As one Norwegian police official put it: this was ‘probably more Norway’s Oklahoma than its World Trade Centre’.

Yet this simplistic categorisation of contemporary terror assaults - where violent outbursts get slotted into files marked ‘Radical Islamist Fury’ or ‘Right-Wing Anger’ - makes too fine a distinction between acts that are actually very similar. Just because something like 7/7 in London was executed by men with dark hair and brown skin who claimed to be fighting on behalf of the Muslim ummah, while the bombing of Oslo and massacre on Utoya were carried out by a white guy who claimed to be protecting European Christian culture, that doesn’t mean these are diametrically different actions. What they have in common is far more important than what separates them. And, stripped of their pseudo-political garb, what unites today’s various terror tantrums, what makes these kind of people possible in the first place, is a very powerful culture of estrangement in modern society.

In much of the media, particularly amongst the respectable broadsheet press, there was a palpable sense of relief when it was revealed that the alleged killer is white with far-right tendencies. This means he is the kind of person we can unambiguously hate. Where Islamist terror attacks, from 9/11 to 7/7, induce in some liberal observers torn and tortured feelings, where they want to condemn the violence but also feel the need to explain it as a natural reaction to evil Western foreign policy, Anders Behring Breivik is someone they can despise in an uncomplicated way. This means that while the attacks may not be ‘Norway’s 9/11’, they could well be the cultural elite’s 9/11 - in the sense that this is an act which the influential liberal classes may seek to politicise in an opportunistic fashion, to make moral mileage out of, in the same way that the right did after 11 September 2001.

Indeed, it is striking the extent to which, post-Utoya, left-leaning observers are already adopting the role normally played by the right in the wake of Islamist terror attacks. That is, they’re ratcheting up the politics of fear, only over the rise of far-right violence rather than radical Islam, and are pinning the blame for these actions on ‘backward European attitudes’ in the same way the right pins the blame for Islamist terror on ‘backward Muslim culture’. So one liberal observer said, almost with a sense of glee, certainly relief, that the attacks in Norway show that the threat to modern society comes not from Muslims but from ‘the heart of darkness [that] lies buried deep within ourselves’, within the ‘white Nordic male’. He said the attacks highlighted xenophobic attitudes in Norway, ‘the rage with which Islamophobia is being spread’. Another commentator blamed the violence on Norway’s ‘racist demons’: ‘Many Norwegians don’t want their idyll spoiled, by either joining the EU, or by turning multicultural - and it is this nativist side of the country that has now turned horrifyingly murderous.’

It is grotesque to depict Breivik as some kind of inevitable product of Norwegian culture, of the Norwegian people’s apparently ‘nativist’ and selfish attitudes. Such collective guilt-mongering, where one cold-blooded killer is seen as an expression of an entire people’s warped national traits, is just as objectionable as when elements on the right claim that something like 9/11 or 7/7 are the logical end results of backward Islam and the outlook of its billion-odd barmy adherents. What we are witnessing post-Norway is a PC exploitation of an act of terror. The prejudices of the right following Islamist terror attacks have been replaced by the equally problematic prejudices of the cultural elite. So all the chattering classes’ pet fears - from their belief that a great number of ordinary people in Europe are xenophobic to their hatred of anyone who is anti-EU (Norway has been slated for ‘not wanting to join the EU’) - are starting to get an airing on the back of these violent assaults. Where the right blames isolated acts of al-Qaeda terror on Islam, the cultural elite blames an isolated act of right-wing terror on ‘raging’ Islamophobia. But is it really any more progressive to locate the origins of modern terrorism in the apparently backward beliefs of the white European hordes than it is to find it in the strange habits of the brown Muslim mob?

The speedy moralisation of the Norway attacks, the shameless liberal aping of what the right does after Islamist assaults, suggests that the political classes’ primary instinct post-terror is to score points. Because if they were to put aside their already-existing prejudices and look at modern-day terror tantrums in a cool-headed fashion, they would surely note that there is not that much difference between what Breivik did in Norway on Friday and what Mohamed Atta did in New York on 9/11 or what Mohammad Sidique Khan did in London on 7/7. All of these terror attacks, executed by educated and not poor young men, seem driven by an extreme sense of estrangement. Indeed, for all of Breivik’s rambling complaints about multiculturalism, where he allegedly declared war against that political ideology and its ‘cultural Marxist’ cheerleaders, the most striking thing is how much his outlook, like that of the 7/7 attackers, seems to have been moulded by the estrangement-inducing politics of multiculturalism.

Some commentators, including us at spiked, have argued that acts such as 7/7 are more an extreme expression of the multicultural outlook than they are a traditional form of Islamic fundamentalism. Multiculturalism’s celebration of identity over solidarity, its promotion of the politics of self-pity and victimhood, of a perception that minority identities are continually under threat from the post-colonial and xenophobic attitudes of both society’s rulers and its native masses, found its most fanatical expression in the London bombings. In the bombers’ extraordinary levels of self-pity, combined with their arrogant belief that their Muslim identity gave them the right to hector the British throng, we got a glimpse of how far the multicultural ethos can be pushed. Breivik, for all his anti-multicultural pretensions, is not that different. Indeed, it is remarkable how much his so-called critique of multiculturalism seems bound by the parameters of multiculturalism itself.

In his claim that he wanted to protect ‘white Christian identity’ from being overrun and crushed by an external powerful force - in this case Muslim immigrants - Breivik is merely indulging in an alternative form of multiculturalism. In different ways, both the 7/7 bombers and Breivik express the same sense of cultural paranoia, of cultural siege and victimhood. In recent years the right-wing critique of multiculturalism has ironically been shaped by the ethos of multiculturalism itself. From the English Defence League (which Breivik apparently had contact with) to authors who fret about Muslim immigration into Europe, there has been an attempt by right-wing elements to transform whiteness and Christianess into threatened identities, under siege from an almost colonialist tidal wave of Otherness. This sounds remarkably similar to the outlook of radical Islamists. Both groups accentuate and advertise their victim status and effectively compete for the respect of the overlords of identity-management in the multiculturalist elite. Where right-wingers warn of the rise of ‘Eurabia’, Islamists fret about the return of Christian crusaders; where right-wing activists claim their ‘white identity’ is not being accorded respect, Islamists claim their ‘Muslim identity’ is treated badly. The outlook of both groups is informed very powerfully by the victimology and craving for recognition inherent in multiculturalism.

Breivik’s alleged hatred of multiculturalism actually seems to be driven by a belief that it does not sufficiently respect his cultural identity; his violent act can be seen as a crazy, barbaric attempt to expand the remit of the politics of multiculturalism. (This is not to argue, by the way, that the EDL or anti-immigration thinkers bear any responsibility for Breivik’s violence. They do not.)

What ties something like 7/7 to the Norway attacks is today’s specific culture of estrangement. The nurturing of cultural particularism, the promotion of self-obsession over socialisation, of individual identity over collective citizenship, can create a sometimes volatile atmosphere. It can give rise to social envy, identity-based competition, a profound sense of cultural disconnection. Modern terrorism looks like the most extreme expression of these problems. Indeed, for all their grand political talk, it is notable that both the 7/7 cell and Breivik launched attacks, not against their alleged enemies (Western imperialists and Muslim crusaders respectively), but against the everyday inhabitants of their own societies. Theirs is a haughty violence of estranged rage, rather than anything to do with traditional political outlooks. Their tantrums have more in common with the outlook of Travis Bickle of Taxi Driver, though on a far more terrifying scale, than they do with the politics of the past.