IMF Board Sees Biggest Power Shift Reshuffle in Two Decades

Emerging markets remain concerned about the slow pace of reforms of the governance structure of the IMF

By Sandrine Rastello

The International Monetary Fund’s executive board is undergoing the biggest reshuffle in two decades in a shift emerging markets including Brazil say remains insufficient to reflect their rising economic power.

Starting next month, some western European countries are realigning to give nations such as Turkey and Hungary more say under a 2010 pledge to give up two seats on the 24-seat board. Changes are also taking place among emerging markets, with Colombia leaving Brazil’s group to join Mexico’s.

The overhaul reflects “significant economic realignments at the global as well as regional levels,” said Eswar Prasad, a Cornell University professor and a former IMF official. “Small countries are jockeying for position to make sure their voices are heard while some of the larger but less dynamic economies are trying hard to preserve their clout despite their diminishing economic significance.”

Charles Murray’s Fatal Conceit

Belmont's upper class is anything but traditional, and it lacks any sense of noblesse oblige

By PAUL GOTTFRIED

As a European historian specializing in the 19th century, I’ve never been able to figure out what American journalists and politicians (not to mention academic sociologists) mean when they refer to “classes.” This term has two time-tested meanings. Either we’re talking about social groupings with legally recognized statuses which until the 19th century had certain political rights that other groups did not, or else what we mean is what Marx understood as “classes,” socio-economically dominant forces like the medieval aristocracy or the bourgeoisie that replaced them. Classes are not simply people who fall at one point or another into a particular income bracket or who buy SUVs rather than compact sedans or high-definition TVs instead of pick-up models at Kmart. It drives me absolutely nuts when I hear geeky-looking “economic experts” yapping on about how the “middle class,” that is, middle-income families or clusters of co-inhabitants, are hurting for this or that. “Middle class” used to translate as “bourgeois,” which referred to a social class of many centuries, as opposed to those who are moving up and down the income scale. The indiscriminate bandying about of the term shows how culturally ignorant we’ve become.

A former colleague of mine who teaches political theory observed that it’s now impossible to teach students about Aristotle’s conception of the family as a household. The kids get annoyed that an ancient Greek thinker held such a skewed view of family relations. It makes no sense, for example, that an aging dude was put in charge of other family members. After all, women should be wage-earners as well as make their own decision about reproductive rights. One young Brazilian exchange student went ballistic when the instructor failed to scold Aristotle for not discussing gay marriage. Isn’t this about family togetherness, the student asked, an attitude we should be praising instead of ignoring?

How the United States became a superpower of the left

From Kennan to Trotsky

By MARTIN SIEFF

Russia and China today both enjoy the same grand-strategic advantage against the United States that the United States enjoyed through the 44 years of the Cold War.

The Soviet Union was then the superpower of the left, as the left had been globally understood since the French Revolution. It was the state committed to the promotion of revolutionary change across the world.

The United States, by contrast, was the superpower of the right. It was committed to the maintenance of stability and continuity in government systems around the world.

The United States won the Cold War. The craving for stability, peace, and continuity among governments and populations alike proved infinitely stronger than the fleeting flashes of revolutionary fervor. The Soviet Union eventually became physically exhausted and globally isolated by its ideological commitment to revolutionary change.

Today, however, the roles of the two great powers have been reversed. Since the advent of Madeleine Albright as secretary of state in 1997, the United States has become increasingly ideologically committed to the spreading of “instant powdered democracy” in every nation of the world, as defined and approved by the United States. Russia and China have become the main “conservative” or “right-wing” powers committed to preserving the status quo.

The BRIC rescue that wasn’t

What was hoped would happen was wishful thinking

By Robert J. Samuelson

Just in case you didn’t hear it, that was the sound of the BRIC bubble popping.

The acronym stands for Brazil-Russia-India-China. Coined by economist Jim O’Neill of Goldman Sachs, it symbolizes the rise of once-poor countries (“emerging markets”) into economic powerhouses. More recently, the message has been: The rapid expansion of emerging-market countries will help rescue Europe, the United States and Japan — the “old world” — from their economic turmoil. The BRICs will prop up the global demand for industrial goods and commodities (oil, foodstuffs, metals).

Forget it.

For a while, the prospect seemed plausible. During the 2007-09 financial crisis, some BRIC countries — China, most notably — adopted large stimulus programs, and others just grew rapidly. In 2010, China’s economy expanded 10.4 percent, India’s 10.1 percent and Brazil’s 7.5 percent. Today’s outlook is more muted. In 2012, China will grow 7.8 percent, India 4.9 percent and Brazil 1.5 percent, according to the latest projections from the International Monetary Fund. Although the IMF predicts slight pickups in 2013, some economists forecast further declines.

Can Government Create Opportunity?

The state erects obstacles to prosperity; never pathways

by James E. Miller

Last year, the Boston branch of the Federal Reserve put out a working paper which contained detailed data on the declining trend of economic mobility in the United States.  According to the paper, the percentage of Americans who reside in the lowest income quintile and move up either to the middle quintile or higher has been in decline over the past three decades.  This statistic should be alarming as it is indicative of stagnation within an economy that supposedly fosters the entrepreneurial spirit.  Without the opportunity to create and deliver things which enhance the lives of others, society as a whole ends up being denied the work of the most constructive members. To some, it has meant that government at all levels is doing an inadequate job in addressing what appears to be a growing divide between the haves and have-nots.  Calls for higher taxes to pay for programs and schemes of redistribution which would enable the less-fortunate in following their ambitions usually follow.

U.S. Drone Strikes Setting Dangerous Global Precedent

Fuelling terror

A drone launches from the deck of the USS Lassen.
The legality of U.S. drone strikes is coming under
 increasing scrutiny and questioning.

By Isabelle de Grave

U.S. counterterrorism measures are under intense scrutiny from United Nations (U.N.) experts and civil rights groups declaring drone strikes illegal under current frameworks.

During the 20th Session of the U.N. Human Rights Council in Geneva from Jun. 18 to Jul. 6, these experts declared such measures in urgent need of greater accountability and transparency.

Targeted-killing programs, including drone strikes, are “a strongly asserted but ill-defined license to kill without accountability”, wrote former special rapporteur on extrajudicial, summary or arbitrary executions Philip Alston in his 2010 report to the council.

Two years later, strategies that the United States justifies as a necessary response to terrorism remain questionable both in legality and according to humanitarian principles.

Argentina's Debt Picture Looks Increasingly Disastrous

Argentina cannot refinance its obligations as they mature

The Economist

WHEN Argentina proposed a brutal 65% haircut to holders of its defaulted sovereign bonds in a 2005 restructuring, one argument the country’s officials used to justify the offer was that the country could not take on more debt than it could reasonably expect to pay. As painful as the loss might be, the argument went, at least the new bonds the government would issue would be creditworthy.

Just seven years later, that claim now looks harder to support. This month the impoverished northern province of Chaco was unable to pay $263,000 of interest, after Argentina’s Central Bank refused to sell it the necessary dollars. That forced the province to announce it would compensate its creditors in pesos, converting the amount owed at the official exchange rate, which is roughly 25% less than the currency’s value on the black market. It was the first time an arm of the Argentine government had failed to deliver a debt payment in full since the country’s massive 2001 default.

Is Chaco's technical default a canary in the coal mine for Argentine debt in general, or merely an isolated nuisance? In the short run, most bondholders can stay calm. Although the Chaco paper is denominated in dollars, it is governed by Argentine law, which allows borrowers to settle their obligations in local currency. Ever since the Central Bank clamped down on the foreign-exchange market last year in an effort to slow capital flight, its official policy has been that local issuers can only buy dollars to fund infrastructure projects.

How To Spot A Keynesian

Mortgaging your posterity with debt and deficits is somehow “virtuous"

by Gregory Cummings 

According to the great Doctor Gary North, the litmus test of Keynesianism is the attack on austerity. He writes:

Let’s say that you are reading an article on what the Greek government should or should not do. You read that the government’s proposed austerity measures will lead to a reduction of production. This will lower tax revenues. The government-debt-to-GDP ratio will increase. Austerity will therefore not solve Greece’s economic problems.

The article was written by a Keynesian.

In an opinion piece published by The Globe and Mail entitled “Europe must realize austerity doesn’t work,” Pierre Briancon is true to this Keynesian form:

The Greek economy has shrivelled to three quarters of what it was three years ago, before embarking on its successive turnaround-cum-bailout plans. Euro zone governments keep contributing religiously to their own recession by forcing ever higher degrees of pain on their sick economies.

An “Austrian” In China

Zhang Weiying: China’s Anti-Keynesian Insurgent

By Jeff Harding

It’s a rare afternoon in the Chinese capital when smog hasn’t blocked the skies, and one of China’s most famous economists is in a sanguine mood. The economy is in trouble as the Communist Party heads for a once-in-a-decade transfer of power while prosecuting its former golden boy, Bo Xilai, on criminal charges. Worried investors want signs that Beijing remains committed to growth—and the sign they’d most like to see is a big Keynesian stimulus.

Zhang Weiying would say that they’re wrong to panic. The economic slowdown, he calmly says over tea, is actually good news that “makes the government think we need to change”—toward reform and away from priming the pump. We aren’t all Keynesians now in China, he insists.

Three years ago, Keynesianism was official policy. The 2008 financial crisis had Beijing gloating over the failure of the free-market “Washington Consensus” and touting the “China Model” of government intervention. Keynesianism fit the statist zeitgeist and Beijing then suffered an export slump, so the government allocated $3.5 trillion—or about 50% of gross domestic product—in bank loans and direct spending.

Fighting The Terrorists By Terrorizing The Innocent

It's all in your name

Civilian Victims of Drone attack in Pakistan

By Gonzalo Lira

Something I read:

"In the United States, the dominant narrative about the use of drones in Pakistan is of a surgically precise and effective tool that makes the US safer by enabling “targeted killing” of terrorists, with minimal downsides or collateral impacts.

This narrative is false."

These are the first words of a devastating report I have just read, “Living Under Drones: Death, Injury, and Trauma to Civilians from US Drone Practices in Pakistan”.

This thing is required reading. 

This isn’t some half-assed, crazed droolings of some hippy-dippy Lefty twerp who ought to get a bath and a haircut: This was written by Stanford and New York University lawyers—and it shows. It’s clearly and devastatingly written, with the facts, testimony and evidence so scrupulously laid out that it’s almost like the brief for the prosecution of the war crimes trial that we can only pray will one day take place. 

Too big to fail ?

Too big to maintain

By George F. Will

If in four weeks a president-elect Mitt Romney is seeking a Treasury secretary, he should look here, to Richard Fisher, president of the Federal Reserve Bank of Dallas. Candidate Romney can enhance his chance of having this choice to make by embracing a simple proposition from Fisher: Systemically important financial institutions (SIFIs), meaning too-big-to-fail (TBTF) banks, are “too dangerous to permit.”

Romney almost did this in the first debate when he said the Dodd-Frank Act makes TBTF banks “effectively guaranteed by the federal government” and constitutes “the biggest kiss that’s been given to — to New York banks I’ve ever seen.” Fisher, who has a flair for rhetorical pungency, is more crisp:

There are 6,000 American banks, but “half of the entire banking industry’s assets” are concentrated in five institutions whose combined assets amount to almost 60 percent of the gross domestic product. And “the top 10 banks now account for 61 percent of commercial banking assets, substantially more than the 26 percent of only 20 years ago.” The problems posed by “supersized and hypercomplex banks” may, Fisher says, require anti-obesity policies equivalent to “irreversible lap-band or gastric bypass surgery.” The land of TBTFs is “a perverse financial Lake Wobegon” where all crises are “exceptional,” justifying “unique” solutions that are the same — meaning bailouts. This incurs “the wrath of ordinary citizens and smaller entities that resent this favorable treatment, and we plant the seeds of social unrest.”

America in Decline?

It’s a Matter of Choices, Not Fate

By Robert J. Lieber

The notion of American decline, although now pervasive, is not entirely new. Current concerns need to be seen against a history of pessimistic assessments, as for example during the Great Depression, the post–Vietnam War era, and again in the late 1980s when fears of Japanese primacy and the rise of the European Union as a world power were widely held. Once again the United States needs to overcome serious problems, but much of the thinking and writing about the American future reflects a stubborn undervaluation of the country’s resilience, fundamental strengths, and ability to overcome adversity.

Ironically, while much of the current focus has been on the impact of financial and economic crises, a lagging recovery, serious problems of debt and deficit, and competition with a dynamic and rising China, the United States actually continues to possess far greater material strengths than commonly assumed. In any case, decline is not destined by some ineluctable cycle of history. Instead, America’s future is a matter of will and willpower, in the sense of crucial choices to be made about policy and strategy. Willpower in particular involves leadership and well-informed decision making. If the right choices are made in the years ahead, the robustness of American society coupled with its unique capacities for adaptation and adjustment should once again prove decisive.

Despite a lagging recovery from the worst financial and real estate crises in eighty years, the United States still accounts for some twenty-one percent of world GDP (based on market exchange rates, the IMF’s preferred indicator for international comparisons). The rate is only modestly lower than its twenty-six percent of 1980 and, as of 2012, is twice the size of China’s.

John Locke’s Lesson for the Arab World

Intolerance is inconsistent with democratic pluralism

by Richard A. Epstein

This past week saw the murder of U.S. Ambassador Chris Stevens and three other American diplomats in Libya, while a fresh wave of riots and attacks on American embassies and schools took place throughout the Islamic world, from North Africa to South Asia. Clearly, the so-called Arab Spring is in disarray as intolerance rises rapidly throughout the region.

These unnerving events should have come as no surprise. The dangers of fundamentalism were detailed in 1995, when religious scholars Martin Marty and R. Scott Appleby completed their extensive eight-year Fundamentalism Project for the American Academy of Arts and Sciences, which charted the rise of conservative religious movements around the world.

Their writings warned of the serious dangers that fundamentalism posed to democratic institutions around the globe. Fundamentalist movements, they argued, are marked by a strong set of interlocking hierarchical arrangements in which power rests with a single person or group that wields absolute authority over their subject population. On the one hand, husbands can dominate their wives and children; on the other, religious observers must unquestioningly follow a complex set of rules, which prevents their exposure during schooling to intellectual and social influences from the outside that might temper their views.

The Unstoppable March Toward National Bankruptcy

Who's To Blame?

By Mark Hendrickson

The opening line of the Beatles’ iconic “Sergeant Pepper’s” album is echoing in my thought: “It was 20 years ago today…” Well, not quite to the day, but 20 years ago I published an article titled, “$4 Trillion and Counting.” In it, I despaired at the rapid increase in the national debt from its first-ever crossing of the $1 trillion mark during the Reagan presidency to four times that gargantuan amount in only a decade.

Today, a mere two decades later, we have quadrupled the national debt again, to $16 trillion. (That figure represents the official national debt, but if you add the many “off-budget” items and all the liabilities that are conveniently omitted from government “accounting,” then it’s multiples of the official number.)

Who is to blame?

Let’s start by picking the low-hanging fruit: “progressives,” a.k.a, Democrats. The Dems always want more federal spending, higher taxes, more government. Indeed, there is no major area of economic activity over which they want less control. Whether it’s food, energy, housing, health care, retirement, finance, transportation, education, etc., they always want to expand the government’s scope and power.

The Democrats have led the way toward bigger government. They always succeed in getting Republicans to blink every time the debt ceiling is reached, because whereas Republicans are ambivalent and divided about Big Government, progressives are united and utterly committed to it. They do not vacillate; the Republicans do, and so they buckle.

Surely, though, now that we are racing toward a jarring fiscal cliff, the government’s credit rating is at risk, and major entitlement programs are on a collision course with insolvency, Democrats will compromise to fix these problems before it’s too late, won’t they?

The short answer, dear reader, is “No.” On the contrary, the threat of insolvency is something that progressives welcome. They view it as a means to an end.

Utopian Experimental Socialism

Beta testing radical proposals on a small scale with consenting subjects

By Bryan Caplan

Larry White's The Clash of Economic Ideas points to a wonderful short essay by Joshua Muravchik.  In it, Muravchik makes the most original observation about socialism I've encountered in years:

He ["Utopian socialist" Robert Owen] was no obscure crank. When he arrived in the United States in 1824, he was received by a joint session of Congress that met over two separate days with outgoing President Monroe and incoming President John Quincy Adams, among the many luminaries who came to hear him out.

Owen then bought an already developed settlement on the banks of the Wabash River from a religious sect. The members of this group had developed it, and it included not only homes but vast fertile farmlands and more than twenty highly productive workshops that produced goods sold all across the country. Yet within a year after taking it over, Owen and his thousand followers had turned this little Switzerland into an Albania. All the other collective settlements, except for some that were first and foremost religious communities, had similar histories of failure.

Return of the Czech Communists

Vaclav Havel is turning over in his grave

BY JAMES KIRCHICK

The massive, red-stone headquarters of the Communist Party of Bohemia and Moravia (KSCM) -- named after the two main regions of the Czech Republic -- is located on Prague's Street of Political Prisoners, just across from the capital's decayed art nouveau train station. The road was named in 1946 -- the very year that the Communists won a plurality in a democratic election -- in honor of resistance fighters imprisoned by the Nazis during World War II. The Gestapo had located its headquarters on this same street, in a massive building once owned by a prominent Jewish family. So it is that the twin horrors of Nazi and communist oppression continue to haunt this corner of the Czech capital.

When I suggest to Jiri Dolejs, KSCM vice chairman and member of Parliament, that the location of the party's headquarters on a street named after political prisoners is a grim irony, he chuckles and admits that there is an "obvious paradox." The communist regime that ruled Czechoslovakia from 1948 until the peaceful 1989 Velvet Revolution interned more than 250,000 political prisoners. The most famous, playwright Vaclav Havel, was elected the first president of post-communist Czechoslovakia. When Havel passed away last December at age 75, a spontaneous crowd descended upon Prague's central Wenceslas Square to erect an impromptu vigil; the candles would remain there for an entire month. For a brief moment, the world's attention focused on the heroic philosopher king and his legacy of nonviolent resistance to communist totalitarianism.

West blinks at Wahhabism's dark side

Useful Idiots

By Zubair Khan

In Saudi Arabia there is no church, synagogue, Buddhist nor Hindu temple allowed. Wahhabism (pseudo Salafism) is not a religion of tolerance. Wahhabism provides the fundamental base for jihadism which causes unending strife and misery. 

It is not Iran that should be bombed. In Iran there are still Jews living there and praying in their synagogues. Muammar al-Gaddafi respected Christian and Jewish religions and their churches, synagogues in Libya but American, English, French, Saudi and Qatari-financed terrorists have destroyed churches and synagogues recently. Buddhist temples including Bamiyan Buddha statues have survived in Islamic countries for centuries, but they would not survive under the Wahhabism. 

Washington and London are protecting Wahhabi extremists. In Syria, Christians and their churches were safe before the Westerners began sending their Wahhabi fanatics to kill innocent Syrian civilians. 

In Bosnia and Kosovo, under the guise of "reconstruction aid", Saudi Arabia, Kuwaiti, and other Wahhabi organizations have demolished and removed major Islamic monuments which survived attacks by Serb and Croat militias. These were created by Muslims with an Islamic culture and tradition stretching back to 14th century, long before Ibn Abd al-Wahhab made his 18th century alliance with the warlord Ibn Saud who founded the Saudi dynasty - the House of Saud. 

Turkey's 'zero-problem' policy at crossroads

Turkey must now seek a new guiding principle for regional engagement

By Ramzy Baroud 

It seems that media consensus has been conclusively reached: Turkey has been forced into a Middle Eastern mess not of its own making; the "zero problems with neighbors" notion, once the foreign policy centerpiece of the Justice and Development Party (AKP), has been condemned to a romantic notion of no use in realpolitik. 

Turkey's "policy's goal - to build strong economic, political, and social ties with the country's immediate neighbors while decreasing its dependency on the United States - seemed to be within sight," wrote Sinan Ulgen nearly a year ago. "But the Arab Spring exposed the policy's vulnerabilities, and Turkey must now seek a new guiding principle for regional engagement." 

This reading was not entirely unique and was repeated numerous times henceforth. It suggests an air of naiveness in Turkish foreign policy and overlooks the country's barely selfless regional ambitions. It also imagines that Turkey was caught in a series of unfortunate events, forcing its hand to act in ways inconsistent with its genuine policies of yesteryears. This, however, is not entirely true. 

The recent skirmishes of October 4 at the Syrian-Turkish border were reportedly invited by mortar shells fired from the Syrian side. Five people including three children were killed and the incident was Turkey's "last straw". Turkey's Anatolia news agency reported an official Syrian apology through the United Nations soon after the shelling and the Syrian government promised an investigation. Their seriousness remains doubtful. 

Searching for Caligula's Horse

'Politicized' Benghazi distracts from Big Bird

By mark steyn

"The entire reason that this has become the political topic it is, is because of Mitt Romney and Paul Ryan."

Thus, Stephanie Cutter, President Obama's deputy campaign manager, speaking on CNN about an armed attack on the 9/11 anniversary that left a U.S. consulate a smoking ruin and killed four diplomatic staff, including the first American ambassador to be murdered in a third of a century. To discuss this event is apparently to "politicize" it and to distract from the real issues the American people are concerned about. For example, Obama spokesperson Jen Psaki, speaking on board Air Force One on Thursday:

"There's only one candidate in this race who is going to continue to fight for Big Bird and Elmo, and he is riding on this plane."

She's right! The United States is the first nation in history whose democracy has evolved to the point where its leader is provided with a wide-body transatlantic jet in order to campaign on the vital issue of public funding for sock puppets. Sure, Caligula put his horse in the Senate, but it was a real horse. At Ohio State University, the rapper will.i.am introduced the President by playing the Sesame Street theme tune, which, oddly enough, seems more apt presidential walk-on music for the Obama era than "Hail To The Chief."

Mommy will make it all better

I Name The New Baby: "Intervention"

 “Yes, in this immense confusion, one thing alone is clear. We are waiting for Godot to come.”

                  -Samuell Beckett, Waiting for Godot

by Mark J. Grant
It seems these days that we are all waiting. Waiting for some European Moment, waiting for the American elections and waiting for some central bank to propose the next new thing and flood the world, once again, with liquidity. The world seems askew.

There has been the thought, in place for decades, that the greatest danger lay in rapidly escalating Inflation and that governments could ruin the populace and devastate the purses of everyone if Inflation was allowed to run rampant. This was counterbalanced by the fear of Deflation which may have an even worse effect. These two twin evils have been viewed as the mainstay of things that could go wrong and they have each been battled in various ways for the last hundred years. Some missions were successful, some not, but the battle raged on from one administration to another.

Now I wonder if some new infant has not been born to join them. This morning I will name this new baby; “Intervention.” What has become clear to me is that while the worlds’ central bank cannot print money off-world is that we cannot invest money off-world either. They are stuck and we are stuck but the central banks have the advantage. They can print money in an open fashion such as at the Fed or they can do it in some hidden fashion, such as with the ECB and their Euroloans but the world is flooded with liquidity in either case and something must be done with the money. The stuff does not slosh around in giant jars and we are paid to make sure it is put to some kind of useful purpose. Hence the irrational behavior of some markets; they rise because they are forced to by the spigot of liquidity opened by the central banks.