America the Energy Superpower

New World Coming 

The energy boom upends arguments about the inevitability of U.S. strategic decline

by David J. Karl 

A previous post peered into the crystal ball to argue that America’s strategic prospects are dramatically brightening due to an unexpectedly improving energy outlook and the looming revitalization of its manufacturing base.  This thesis cuts against the reigning anxiety about the nation’s economic course as well as the torrent of prophesying about how China is poised to eat America’s lunch.*  A subsequent post extended this theme to suggest that among the foreign policy implications of the U.S. energy boom would be the denouement of Russia’s great power aspirations and the restoration of U.S. soft power.

No Hell Below Us, Above Us Only Sky

The idea that neither the devil nor evil really exist is a persistent one

By Richard Fernandez 

Art imitates life. But does life imitate art? The superficial similarities between real-life neuroscience Ph.D. student James Holmes, the shooter at the Aurora, Colorado massacre, and the villain of Stephen Hunter’s not-too-well-written thriller Soft Target ^[1] are uncanny. The fictional mastermind in Hunter’s book is a genius-level, upper-middle class white kid who is bored with the world. He recruits some jihadis to attack a mall (loosely modeled after the Mall of America) in a Mumbai-style attack to provide him with a little stimulation. He wants to turn the mall into the ultimate first-person multiplayer shoot-em-up game and commits the act not for money, not even for power, but just to do something way cool.

Stubborn Ignorance

Fixing outcomes to promote Diversity

by Walter E. Williams

Academic intelligentsia, their media, government and corporate enthusiasts worship at the altar of diversity. Despite budget squeezes, universities have created diversity positions, such as director of diversity and inclusion, manager of diversity recruitment, associate dean for diversity, vice president of diversity and perhaps minister of diversity. This is all part of a quest to get college campuses, corporate offices and government agencies to "look like America."

For them, part of looking like America means race proportionality. For example, if blacks are 13 percent of the population, they should be 13 percent of college students and professors, corporate managers and government employees. Law professors, courts and social scientists have long held that gross statistical disparities are evidence of a pattern and practice of discrimination. Behind this vision is the stupid notion that but for the fact of discrimination, we'd be distributed proportionately by race across incomes, education, occupations and other outcomes. There's no evidence from anywhere on earth or any time in human history that shows that but for discrimination, there would be proportional representation and an absence of gross statistical disparities, by race, sex, height or any other human characteristic. Nonetheless, much of our thinking, legislation and public policy is based upon proportionality being the norm. Let's run a few gross disparities by you, and you decide whether they represent what the courts call a pattern and practice of discrimination and, if so, what corrective action you would propose.

Tiger, Cow or Horse ?

Obama's America – and Ours

by Patrick J. Buchanan

"If you've got a business, you didn't build that. Somebody else made that happen." Mitt Romney fell on this Obama quote like an NFL lineman on an end zone fumble during the Super Bowl. And understandably so.

For this was no gaffe, said Romney, this is what Obama believes. This is straight out of the catechism. Obama thinks that had not the government created the preconditions, none of us could succeed. We all depend on government. None of us can make it on our own.

Had Obama been channeling Isaac Newton – "If I have seen further than others it is because I am standing on the shoulders of giants" – or John Donne – "No man is an island, entire of itself" – many would have nodded in agreement.

But what Obama seemed to be saying – indeed, was saying – was that, without government, no business can succeed.

Pavlos Alexiou : "The Engineer"

In Greek crisis, lessons in a shrimp farm's travails

by Dina Kyriakidou

Just over a decade ago, Napoleon Tsanis set out from Sydney with 11 million euros and a dream to build a shrimp farm in his ancestral homeland.

What he got was years of wrestling Greek bureaucracy and a court battle with a civil servant. Tsanis eventually opened his shrimp farm, but even now the Greek-Australian has managed to invest just 2 million euros ($2.5 million), and that thanks to sheer stubbornness and a strong Australian dollar that has kept his venture profitable despite the delays.

Ask him for the root cause of Greece's crisis and his answer is simple: the enormous regulatory burden that he says crushes the country's economy.

The Dodd-Frank’s Protection Racket

The new Consumer Financial Protection Bureau is both irrelevant and dangerous

By Nicole Gelinas

When President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law two summers ago, standing behind him was Andrew Giordano, a retired Baltimore police officer. Giordano had “discovered hundreds of dollars in overdraft fees on his bank statement—fees he had no idea he might face,” Obama said. Looking on, too, was schoolteacher Robin Fox, “hit with a massive rate increase on her credit card even though she paid her bills on time.” Obama promised that it wouldn’t happen again. “A new consumer watchdog,” he announced, would have “just one job: looking out for people as they interact with the financial system.” People could expect an end to complex mortgage, student-loan, and credit-card contracts in which “pages of barely understandable fine print” contained “hidden fees and penalties.”

The new watchdog is called the Bureau of Consumer Financial Protection but is commonly shortened to the CFPB, with the “bureau” at the end. Its director, former Ohio attorney general Richard Cordray, is a savvy politician, and he has worked to fashion an anti-TSA: a government agency that people trust and like. It is busily making and enforcing rules governing everything from mortgage approval to bounced checks, and it has created a website, consumerfinance.gov, full of handy tips—many targeted to young people—and humble requests for comments and complaints. The bureau has held “field hearings” and town-hall meetings far outside the Beltway, listening to regular Americans’ perceptions of the financial industry. A publicity coup came in March, when New York Times columnist Joe Nocera visited the bureau’s offices and came away gushing about his “inspiring day.”

Why Greece can’t match Ireland’s recovery success

For Greece austerity came as a nasty surprise

By Padraic Halpin and Harry Papachristou

Ireland has become the poster boy of international lenders, held up as a model of European austerity to problem child Greece.

But when the two countries sought financial help from the European Union and International Monetary Fund within six months of each other in 2010, they were starting from different points.

Ireland had an efficient public administration, a modern open economy and not much culture of protest in contrast to Greece, making it very difficult to catch up.

“I think our situation was always more manageable than the Greeks’, there’s no doubt about that,” Ireland’s energy minister Pat Rabbitte told Reuters.

“That is not to say the cliff off which we fell wasn’t very steep but we always had the bureaucracy and the experience to make the adjustments if the political will was there.”

Rabbitte and his colleagues are set for another glowing report from their so-called troika of EU, European Central Bank and IMF lenders on Thursday, just as the same group visits Athens for the first time since tumultuous elections.

Too Small to Fail

It was not supposed to end this way

By DERMOT QUINN

In the glory days, when you could get a house with nothing down and almost nothing to pay, anything seemed possible. A new car every year? A trip to the sun? College tuition? Watch the house balloon and let the good times roll. The recipe was simplicity itself. First you find a physicist to tell you that gravity has been abolished on Wall Street. Then you hire a banker to slice and dice your derivatives. Then you promote a political class to bless the baloney before eating it. Finally, you ask China to underwrite the debt, happy to own half your house so that you don’t insist that it get its own house in order. What could go wrong?

No one noticed that when even bankers laugh all the way to the bank, something must be wrong. No one cared that multiplying derivatives is the fiscal equivalent of the miracle of the loaves and fishes. No one doubted the benediction of a political class that had been bought and paid for many times over.

But now that houses and jobs and pensions have disappeared in a puff of smoke, we remain oddly amnesiac as to the cause. The Economic Stimulus plan, the Mortgage Foreclosure Plan, the Bank Rescue Plan, the Debt Until the Crack of Doom Plan: trust me, says the president, they promised this was quite safe in the 12-step program. Then the program director asked me for some more money.

Fecklessness and stupidity are nothing new, but even by American standards of giantism this latest iteration of boom and bust takes some beating. Yet none of it need have happened had we listened to Wilhelm Roepke. Two generations ago, when postwar Germany lay in ruins, Roepke helped to lay the foundation of its extraordinary renewal. To be sure, that postwar “miracle” owed something to American generosity, even to the very statism (in the form of the Marshall Plan) that Roepke otherwise distrusted. But in the Age of Obama, when all our calculations have gone cock-eyed, an economist who seems to know what he is doing is worth a second look. Better than that, he knew the limits of economics itself as the means and measure of human happiness.

Roepke was born in Hanover in 1899 and died in Geneva in 1966. In between, he fought in World War I, studied and taught economics in Marburg, Istanbul, and Geneva, befriended Ludwig von Mises and Friedrich Hayek, helped establish the Mont Pelerin Society, and advised Konrad Adenauer on social and monetary policy. Such a life mixed the conventional and the bizarre.

The Theatre of the Absurd

Too late for prayers and useless pity

 Mrs. Ethel Chauvenet: Does Elwood see anybody these days?

 Veta Louise Simmons: Oh, yes, Aunt Ethel, Elwood sees “somebody.”
                                                       -The play, Harvey

by Mark Grant

Andrew Ross Sorkin once speculated that I was the next “Doctor Doom.” Anyone that knows me or that reads my commentary with any frequency would know that this is hardly my personality nor would I stir pots for the pleasure of watching the froth. Sometimes it is just that I can see the rabbit leaning on the light post before others even see the street corner upon which it is standing. Others may also see the lamp post but they are frightened to admit it because their leaders have screamed for so long that it isn’t there and will never be there; never mind any 6’3” pookah. However as the light is beginning to dawn and as the early morning shadows that played tricks with your vision dissipate; more and more people can see the vague outline of Harvey leaning against the lamp post and, startled by his presence or not, they can no longer turn away and pretend him out of existence.

“What can I do for you Mr. Dowd?

 “What did you have in mind?”

The troika arrives in Athens tomorrow. The preliminary estimates of meeting the budgetary targets under the Memorandum of Understanding signed off on by the EU, the IMF and the Greek government indicate an achievement somewhat akin to an Olympian running down the track in the opposite direction. A novel approach, no doubt, but one hardly likely to win any race.

Beware of Greeks bearing gifts

Can Shakespeare illuminate the Greek crisis?

The National Theatre is scouring Ancient Greece, via Timon of Athens, for moral thoughts on the recession.

by Patrick Marmion 

A Shakespeare play about a Greek who takes on too much debt and is then hung out to dry by his friends? It is surely a gift of a play, the very thing which we have been looking for to act as a metaphor not just for the financial crisis in general, but for the Eurozone crisis in particular. The miracle is perhaps that the UK National Theatre’s artistic director, Nicholas Hytner, hadn’t thought of staging Timon of Athens before.

With Simon Russell Beale in the title role, the modern-dress production is certain to be a big hit. It also ticks the social-commentary boxes and maintains the National Theatre’s need to be ‘relevant’. Hytner ensures, moreover, that the play is staged as a thoroughly contemporary parable of consumption, debt and ruin. Timon and the wealthy nobility of Ancient Greece are suited and booted as corporate stiffs in a world hermetically sealed from ordinary people who are here presented as whistle-blasting rioters protesting noisily but at the security gates.

Inside what is surely the Sainsbury Wing of London’s National Gallery, the play kicks off with a champagne reception celebrating a sponsorship deal in ‘The Timon Room’. The room houses what else but El Greco’s painting of Jesus casting out moneylenders from the temple. While Timon bathes in the spectacle of his munificence, the collection of favoured artists and groupies clutching flutes of bubbly fill out a world in which Shakespeare’s vision of Ancient Greece seems to map perfectly on to the twenty-first century.

In a confessional, postmodern world where truth is relative, subjectivity is king

Are Roswell believers really that barmy?

It’s easy to mock the geeks who think aliens crash-landed in New Mexico, but their paranoia is part of a big trend today.

by Patrick West 

’X-Files fans. Create the effect of being abducted by aliens by drinking two bottles of vodka. You’ll invariably wake up in a strange place the following morning, having had your memory mysteriously “erased”.’

So ran a ‘Top Tip’ in Viz comic some years ago. Such advice may be sarcastic, but it does demonstrate that we tend to mistrust tales of alien abduction. There is the suspicion that those who profess to have had one were probably drunk or stoned at the time, or that they’re congenital fantasists, or mentally unstable.

This month sees the sixty-fifth anniversary of the Roswell incident of 1947, when, legend has it, a flying saucer crash-landed in New Mexico. The US authorities supposedly removed five humanoid corpses from the wreckage, hid them, and have been trying to cover up the event ever since - although they continue to insist that the wreckage was merely that of a high-altitude weather balloon. Still, the fable persists, and now a former CIA agent, Chase Brandon, has surfaced to endorse it, telling the Huffington Post: ‘It was not a damn weather balloon - it was what it was billed when people first reported it. It was a craft that clearly did not come from this planet, it crashed and I don’t doubt for a second that the use of the word “remains” and “cadavers” was exactly what people were talking about.’

The Cost Of Government Regulation: $1.75 Trillion

The Cost Of "Intervention"

By Bill Buckler

The Competitive Enterprise Institute (CEI) is a small “think tank” in Washington DC which puts out an annual report called: “Ten Thousand Commandments”. The report deals with the regulatory agencies of the US federal government and the cost of the regulations they continually introduce - and enforce. This report would be typical of the regulatory function of pretty well every government in the world.

In all interventionist economies, regulations are not set by the “lawmakers”. The “lawmakers” merely pass the laws, their enforcement is left to the various bureaucratic departments of government. And in order to “enforce” the laws, the bureaucrats see it as their function to impose regulations - countless thousands of them. The cost of complying with these regulations is met by those being regulated. It does NOT show up in the annual budgets (funded or unfunded) of the government.

In their Ten Thousand Commandments 2012 report which was released in June, the CEI estimates the cost of US government regulation at $US 1.75 TRILLION. That is just under half (48 percent) of the budget of the federal government. It is almost ten times the total of all corporate taxes collected and almost double the total collected from individual income taxes. It is also one-third higher than the total of all pre-tax corporate profits. It is the hidden cost of doing business in an interventionist economy. The fact that the cost of complying with these regulations is substantially higher than the total of corporate profits is a stark illustration of the end result of economic intervention. That end result is capital consumption.

In the US, the federal government lists its regulations in what is called the Code of Federal Regulations. These rules of the economic “game” cover 169,000 pages and more than ten new ones are added every day, seven days a week and 365 days a year. In 2011, the US Congress passed a total of 81 new “laws” while government agencies issued 3,807 new regulations. As the CEI points out, if there ever was an example of government without the consent of ANYONE - this is it.

Everything You Love You Owe to Free Markets

The state thrives on an economically ignorant public

By Llewellyn H. Rockwell Jr

I'm sure that you have had this experience before, or something similar to it. You are sitting at lunch in a nice restaurant or perhaps a hotel. Waiters are coming and going. The food is fantastic. The conversation about all things is going well. You talk about the weather, music, movies, health, trivialities in the news, kids, and so on. But then the topic turns to economics, and things change.

You are not the aggressive type so you don't proclaim the merits of the free market immediately. You wait and let the others talk. Their biases against business appear right away in the repetition of the media's latest calumny against the market, such as that gas station owners are causing inflation by jacking up prices to pad their pockets at our expense, or that Walmart is, of course, the worst possible thing that can ever happen to a community.

You begin to offer a corrective, pointing out the other side. Then the truth emerges in the form of a naïve if definitive announcement from one person: "Well, I suppose I'm really a socialist at heart." Others nod in agreement.

On one hand there is nothing to say, really. You are surrounded by the blessings of capitalism. The buffet table, which you and your lunch partners only had to walk into a building to find, has a greater variety of food at a cheaper price than that which was available to any living person — king, lord, duke, plutocrat, or pope — in almost all of the history of the world. Not even 50 years ago would this have been imaginable.

All of history has been defined by the struggle for food. And yet that struggle has been abolished, not just for the rich but for everyone living in developed economies. The ancients, peering into this scene, might have assumed it to be Elysium. Medieval man conjured up such scenes only in visions of Utopia. Even in the late 19th century, the most gilded palace of the richest industrialist required a vast staff and immense trouble to come anywhere near approximating it.

We owe this scene to capitalism. To put it differently, we owe this scene to centuries of capital accumulation at the hands of free people who have put capital to work on behalf of economic innovations, at once competing with others for profit and cooperating with millions upon millions of people in an ever-expanding global network of the division of labor. The savings, investments, risks, and work of hundreds of years and uncountable numbers of free people have gone into making this scene possible, thanks to the ever-remarkable capacity for a society developing under conditions of liberty to achieve the highest aspirations of the society's members.

IMF Seeks to Halt Aid to Greece

September Bankruptcy Awaits - Dominoes Will Fall

By Mike "Mish" Shedlock

According to Der Spiegel, the IMF Wants to Stop Aid to Greece as soon as the ESM is up and running in September. At that time Greece would become bankrupt.

This is a translation from German: 

The patience of the International Monetary Fund (IMF) with Greece comes to an end: According to information obtained by SPIEGEL, senior IMF officials told EU leaders in Brussels that the IMF was no longer willing to provide additional funds for Greece.

The Troika estimates that Greece needs between ten and 50 billion € to meet targets, but many governments in the euro zone are no longer willing to shoulder new burdens. In addition, countries like the Netherlands and Finland, have linked their support because the IMF was involved.

Falling Interest Rates Destroy Capital

The Sudden Capital Death Syndrome

by Keith Weiner

Falling interest rates are a feature of our current monetary regime, so central that any look at a graph of 10-year Treasury yields shows that it is a ratchet (and a racket, but that is a topic for another day!).  There are corrections, but over 31 years the rate of interest has been falling too steadily and for too long to be the product of random chance.  It is a salient, if not the central fact, of life in the irredeemable US dollar system, as I have written (http://keithweiner.posterous.com/irredeemable-paper-money-feature-451).

Here is a graph of the interest rate on the 10-year US Treasury bond.  The graph begins in the second half of July 1981.  This was the peak of the parabolic rise interest rates, with the rate at around 16%.  Today, the rate is 1.6%.

Pathological Falling Interest Rates

Professor Antal Fekete introduced the proposition that a falling interest rate (as opposed to a low and stable rate) causes capital destruction.  But all other economists, commentators, and observers miss the point.  It is no less a phenomenon for being unseen.  In early 2008, a question was left begging: how could a company like Bear Stearns which had strong and growing net income collapse so suddenly?

Here is Bear’s five-year net income and total shareholder’s equity

Year	2003	2004	2005	2006	2007
Income	$1.156B	$1.345B	$1.462B	$2.054B	$0.233
Equity	$7.47B	$8.99B	$10.8B	$12.1B	$11.8B

Isn’t that odd?  Even in 2007, Bear shows a profit.  And they show robust growth in shareholder equity, with only a minor setback in 2007.

And yet, by early 2008 Bear experienced what I will call Sudden Capital Death Syndrome.  JP Morgan bought them on Mar 16, for just over $1B.  But the deal hinged on the Fed taking on $29B of Bear’s liabilities, so the real enterprise value was closer to $-19B.

We Have Forgotten What Even the Sumerians and Babylonians Knew About Money

The amount of debts will always surpass the size of the real economy

by WashingtonsBlog

Mike “Mish” Shedlock has repeatedly pointed out that we have reached “peak credit” – and there will not in our lifetimes be as much credit as we saw from 2000-2008.

I noted last year:

Michael Hudson is a highly-regarded economist. He is a Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research. He is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund.

Hudson says that – in every country and throughout history – debt always grows exponentially, while the economy always grows as an S-curve.

Moreover, Hudson says that the ancient Sumerians and Babylonians knew that debts had to be periodically forgiven, because the amount of debts will always surpass the size of the real economy.

For example, Hudson noted in 2004:

Mesopotamian economic thought c. 2000 BC rested on a more realistic mathematical foundation than does today’s orthodoxy. At least the Babylonians appear to have recognized that over time the debt overhead became more and more intrusive as it tended to exceed the ability to pay, culminating in a concentration of property ownership in the hands of creditors.

Trashing Achievements

It's called Envy

by Thomas Sowell

There was a time, within living memory, when the achievements of others were not only admired but were often taken as an inspiration for imitation of the same qualities that had served these achievers well, even if we were not in the same field of endeavor and were not expecting to achieve on the same scale.

The perseverance of Thomas Edison, as he tried scores of materials for the filament of the light bulb he was inventing; the dedication of Abraham Lincoln as he studied law on his own while struggling to make a living – these were things young people were taught to admire, even if they had no intention of becoming inventors or lawyers, much less President of the United States.

Somewhere along the way, all that changed. Today, the very concept of achievement is de-emphasized and sometimes attacked. Following in the footsteps of Barack Obama, Professor Elizabeth Warren of Harvard has made the downgrading of high achievers the centerpiece of her election campaign against Senator Scott Brown.

To cheering audiences, Professor Warren says, "there is nobody in this country who got rich on his own. Nobody. You build a factory out there, good for you, but I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers that the rest of us paid to educate."

Censorship and Greatness

We have to rely on our own sense of limits and boundaries

by Theodore Dalrymple

Nothing infuriates like the truth, especially when it controverts a deeply-held prejudice such as that censorship is bad for great art and even incompatible with its production. Whenever, therefore, I adduce a certain truth that is obvious to the point of truism, namely that the majority of great art in human history has been produced in conditions of censorship, or at least of such severe self-inhibition because of social or political pressure that it amounts to censorship, I find that I am the object of fury, as if I were personally the Chief Inquisitor of the Spanish Inquisition. Here is a truth that, even if it is true, ought never to be uttered: that ought, in fact, to be the object of self-censorship.

The IMF is the leader of the Eurosceptic camp now

IMF loses all faith in the euro project

By Ambrose Evans-Pritchard

The IMF’s latest report on the eurozone is an astonishing document. When the full history of this episode is written, this "Article IV Consultation" will be cited as a key exhibit.

The euro area crisis has reached a new and critical stage. Despite major policy actions, financial markets in parts of the region remain under acute stress, raising questions about the viability of the monetary union itself."

The adverse links between sovereigns, banks, and the real economy are stronger than ever. Financial markets are increasingly fragmenting along national borders.

It said the eurozone is unworkable in its current form, a half-baked currency union that spreads contagion like wildfire without the backup machinery to contain the damage:

The euro area is in an uncomfortable and unsustainable halfway point. While it is sufficiently integrated to allow escalating problems in one country to spill over to others, it lacks the economic flexibility or policy tools to deal with these spillovers.

Crucially, the euro area also lacks essential financial and fiscal policy tools to stabilise the monetary union. As the crisis has illustrated, without a strong common financial stability framework, banking problems are hard to contain and resolve in an integrated market.

Bulgaria in no danger to become Greece

“Southern Europe Does Almost Nothing—Except Complain”

By Wolf Richter   

“While Eastern Europe is largely implementing the necessary reforms, Southern Europe does almost nothing—except complain,” said Bulgarian Finance Minister Simeon Djankov in an interview, a withering blast aimed at neighboring Greece.

And in Greece, “The risk of bankruptcy is still existent,” said Fotis Kouvelis, the leader of Democratic Left, smallest of the three parties in the coalition government. His way of reminding the bailout Troika—the EU, the European Central Bank (ECB), and the IMF—to open the money spigot all the way, or else! The Troika inspectors are scheduled to return to Athens next week to have another look [read.... Greece Flails About, Troika Inspectors Paint “Awful Picture,” Merkel Draws A Line, German Industry & Voters Back Her: It’s Almost Over For Greece].

In September, armed with the inspectors’ final report, the Troika will decide whether or not to make the next bailout payment to Greece. If the decision is no, Greece will default and most likely return to the drachma.

“We demand an extension,” Kouvelis said, summarizing eloquently the strategy since the June elections. Instead of implementing with fiendish dedication the reforms that the prior government had agreed to in exchange for the second bailout package, the new government insists on renegotiating those reforms and then delaying those renegotiated reforms, while insisting on the continuous flow of other people’s billions. He complained about the recession, and that therefore structural reforms couldn’t be implemented.