Norway or the Highway
What the Nobel Peace Prize tells us about Europe's values--and Obama's.
JAMES TARANTO
It is agreed by all and sundry that the awarding of the Nobel Peace Prize to President Obama was a rebuke of George W. Bush, private citizen. But who are the members of the Norwegian Nobel Committee, what do they stand for, and what does this award tell us about the man who will be America's president for at least the next three years and change?
George Friedman of Stratfor.com analyzes the first two questions. The Norwegian Nobel Committee consists of five current or former members of Norway's Parliament, known as the Storting. We don't know if we like the Storting, as we have never Storted. But each of the committeemen comes from a different political party, and Friedman writes that the panel "faithfully reproduces the full spectrum of Norwegian politics"--although something tells us that that spectrum runs from left to far left.
Norway is an eccentric little country--and we do mean little. With a population roughly equivalent to Alabama's, it makes Sweden look like a superpower. We'll admit this observation is tinged by ethnic pique: As a Swedish-American, we are weary of explaining to ignorant Scandinophobes that, while Stockholm can be blamed for many of the world's problems, the Nobel Peace Prize is not among them.
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Still, Friedman argues that the Peace Prize panelists represent a worldview that has salience beyond the Norwegian frontier. Contrary to myth, they do not represent "the world," or even "Europe." Britain, Eastern Europe and Russia all have their own distinct outlooks, and are not nearly as enamored of Obama. "But on the whole," Friedman writes, "other Europeans west of the former Soviet satellites and south and east of the English Channel think extremely well of him, and the Norwegians are reflecting this admiration."
Despite its pretensions of universality, the outlook of Continental Western Europe, Friedman contends, was shaped by the unique historical circumstances of the 20th century: two devastating wars, followed by nearly half a century of prosperity, yet combined with the constant threat of Soviet invasion and nuclear annihilation. That threat lifted in 1991, but returned in a different form a decade later:
Throughout the Cold War, the European fear was that a U.S. miscalculation would drag the Europeans into another catastrophic war. Bush's approach to the jihadist war terrified them and deepened their resentment. Their hard-earned prosperity was in jeopardy again because of the Americans, this time for what the Europeans saw as an insufficient reason. The Americans were once again seen as overreacting, Europe's greatest Cold War-era dread.
For Europe, prosperity had become an end in itself. It is ironic that the Europeans regard the Americans as obsessed with money when it is the Europeans who put economic considerations over all other things. But the Europeans mean something different when they talk about money. For the Europeans, money isn't about piling it higher and higher. Instead, money is about security. Their economic goal is not to become wealthy but to be comfortable. Today's Europeans value economic comfort above all other considerations. After Sept. 11, the United States seemed willing to take chances with the Europeans' comfortable economic condition that the Europeans themselves didn't want to take. They loathed George W. Bush for doing so.
Conversely, they love Obama because he took office promising to consult with them. They understood this promise in two ways. One was that in consulting the Europeans, Obama would give them veto power. Second, they understood him as being a president like Kennedy, namely, as one unwilling to take imprudent risks.
This helps explain why the Nobel Peace Prize is a domestic political liability for Obama. The argument for Obama-style internationalism and against the Bush foreign policy, here as well as in Europe, has two distinct threads: an appeal to authority and an appeal to pragmatism. The appeal to the authority is the notion America should defer to the views of the so-called world--which really means the views of Continental Western European elites like the Norwegian Nobel Committee. John Kerry, then junior senator from Massachusetts, summed up this view (to his own political detriment) in a debate with President Bush in 2004:
No president, through all of American history, has ever ceded, and nor would I, the right to pre-empt in any way necessary to protect the United States of America. But if and when you do it . . . you have to do it in a way that passes the test, that passes the global test where your countrymen, your people understand fully why you're doing what you're doing and you can prove to the world that you did it for legitimate reasons.
Whatever the merits of this view--and to us, they are not considerable--it is held by only a small minority of Americans. In 2003, U.S. polls showed something like 70% support for the liberation of Iraq. To be sure, that support eventually collapsed--but surely it did so for pragmatic reasons, not because a majority of Americans now believe that Europeans should have veto power over U.S. policy.
To the extent that Americans elected Obama based on his promise to make the so-called world happy, it was because some of us were persuaded that such an approach would be to America's benefit--on the theory that there's strength in numbers, or that the self-imposed restraint of seeking international approval would make the U.S. less likely to make foolish mistakes.
This argument is plausible but unproved. Obama's Nobel underscores that he has nothing except his own aggrandizement to show for his efforts thus far. It also suggests that the Norwegians believe Obama would defer to European elite opinion even if doing so was counter to American interests. Since only Americans vote in U.S. elections, the pressure will be on Obama to prove the Norwegians wrong.
The Nobel and the Affirmative Action Stigma
Yesterday we faulted RedState.com's Erick Erickson for opining that the Norwegian Nobel Committee must have chosen President Obama in order to fill an "affirmative action quota." We see no evidence that race played any role in the decision, and we thought it churlish to raise the suggestion. In fairness, however, we should note that Erickson is not the only commentator to have done so. This is from a column in the San Francisco Chronicle:
Barack Obama won the Nobel Peace Prize for one thing - getting elected president in a country that has never had a woman or a person of color as its leader.
I expect an Oscar, a Tony and a Pulitzer will all follow, and all will be equally deserved.
The Nobel is great news for Obama and for America, but is bad news for the Rev. Al, Jesse and me, as the prize committees have now met their quota.
The author is Willie Brown, former California Assembly speaker and San Francisco mayor. As you might have guessed from that last paragraph, Brown is black, which means, for better or worse, a higher threshold for racial invidiousness. (Incidentally, although Obama has yet to win an Oscar, a Tony or a Pulitzer, he is a two-time Grammy winner. No joke.)
In response to our observation yesterday that at least four recent Peace Prize winners have been chosen in order to rebuke George W. Bush, several readers wrote to us to suggest that former Enron adviser Paul Krugman, who won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel last year, belongs in the same category.
We're not sure we agree. Krugman was a respected economist long before he ever went to work for Enron or the New York Times. But these reader comments suggest that the Nobel Prizes have taken on something of an affirmative-action stigma, albeit based on politics rather than race, so that a leftist cannot win a prize without people doubting it was based on the merits.
Great Moments in Socialized Medicine
Yet another dispatch from the Liverpool Care Pathway, from London's Daily Mail:
A grandfather who beat cancer was wrongly told the disease had returned and left to die at a hospice which pioneered a controversial "death pathway."
Doctors said there was nothing more they could do for 76-year-old Jack Jones, and his family claim he was denied food, water and medication except painkillers.
He died within two weeks. But tests after his death found that his cancer had not come back and he was in fact suffering from pneumonia brought on by a chest infection.
To his family's horror, they were told he could have recovered if he'd been given the correct treatment.
Perhaps it will ease the family's horror to hear the reassuring words of former Enron adviser Paul Krugman, a Nobel Prize winner no less: "In Britain, the government itself runs the hospitals and employs the doctors. We've all heard scare stories about how that works in practice; these stories are false."
Zero-Tolerance Watch
The New York Times reports from Newark, Del.:
Finding character witnesses when you are 6 years old is not easy. But there was Zachary Christie last week at a school disciplinary committee hearing with his karate instructor and his mother's fiancé by his side to vouch for him.
Zachary's offense? Taking a camping utensil that can serve as a knife, fork and spoon to school. He was so excited about recently joining the Cub Scouts that he wanted to use it at lunch. School officials concluded that he had violated their zero-tolerance policy on weapons, and Zachary was suspended and now faces 45 days in the district's reform school. . . .
Some school administrators argue that it is difficult to distinguish innocent pranks and mistakes from more serious threats, and that the policies must be strict to protect students.
"There is no parent who wants to get a phone call where they hear that their child no longer has two good seeing eyes because there was a scuffle and someone pulled out a knife," said George Evans, the president of the Christina district's school board. He defended the decision, but added that the board might adjust the rules when it comes to younger children like Zachary.
So confiscate the knife, call the kids' parents to the school to collect it, and tell them never to let him bring it in again. But 45 days in reform school? That's more time than Roman Polanski initially spent in captivity for raping a 13-year-old girl.
From Texas, however, comes some good news on the zero-tolerance front. The Waco Tribune-Herald reports:
"Zero tolerance" is officially a thing of the past as Waco schools make it policy to consider mitigating factors such as self-defense when doling out punishment to students.
The Waco Independent School District board of trustees recently approved the 2009-10 Code of Conduct, which includes the requirement that district staff consider certain factors when issuing out-of-school suspensions and expulsions and when making placements to the disciplinary alternative education program. Those factors include: self-defense, student disability, student's disciplinary history and intent or lack of intent at the time the student engaged in the conduct. Previously, it was a recommendation rather than a requirement to consider these factors.
Time reports that the Waco decision reflects a statewide change in the law:
The new Texas law mandating consideration of mitigating circumstances passed overwhelmingly this spring. The [Texas Education Agency], which sets statewide standards and policies, is welcoming the mandate. "This is a significant step. It gives principals and administrators a tool to say, Give us all the factors surrounding an incident," says Julie Harris-Lawrence, a deputy assistant commissioner. . . "This is a huge tool for the administrators," Harris-Lawrence says. "In the past, there was almost no wiggle room. If a student accidentally brought a butter knife from Grandma's kitchen to cut her apple at school, it was treated the same as a butcher knife."
Joe Biden's state could learn a thing or two from George W. Bush's.
Fox on the Brain
Obama meets the real enemy.
JOHN FUND
White House Communications Director Anita Dunn has decided to effectively declare war on Fox News. She told CNN's "Reliable Sources" on Sunday that the White House views the cable network as "a wing of the Republican Party. . . . [When President Obama] goes on Fox, he understands that he is not going on -- it really is not a news network at this point. He's going to debate the opposition."
But the White House's stepped-up rhetorical attacks -- its Web site rails against "the lies of Fox News" -- carry a potential downside. "It can look a little petty and a little small as it sort of . . . punches down at a cable network," says John Dickerson of Slate.com. "And so they have to make sure that if they're going to take on Fox News, that they don't seem overly obsessed by it."
That no longer seems possible. Brit Hume, the former White House correspondent for ABC News who has been a mainstay on Fox for the last decade, used his commentary time on Monday to address the White House attack. "Every president ends up disgusted with the news media in general and with certain individuals or outlets in particular," he pointed out," but there is an old adage often attributed to Mark Twain that advises against picking fights with people who buy ink by the barrel. He was speaking of the big media of his day, which were newspapers. Most presidents, though, refrain from directly attacking media outlets, perhaps with that adage in mind."
We'll soon see if the Obama White House's decision to treat Fox News as a direct adversary works out for it -- or just makes the White House seem like another antic performer in Washington's political mud-wrestling contests.
The Baucus Bill Is a Tax Bill
Middle-class families would get hit with a double-digit increase in their marginal tax rate.
DOUGLAS HOLTZ-EAKIN
Remember when health-care reform was supposed to make life better for the middle class? That dream began to unravel this past summer when Congress proposed a bill that failed to include any competition-based reforms that would actually bend the curve of health-care costs. It fell apart completely when Democrats began papering over the gaping holes their plan would rip in the federal budget.
As it now stands, the plan proposed by Democrats and the Obama administration would not only fail to reduce the cost burden on middle-class families, it would make that burden significantly worse.
Consider the bill put forward by the Senate Finance Committee. From a budgetary perspective, it is straightforward. The bill creates a new health entitlement program that the Congressional Budget Office (CBO) estimates will grow over the longer term at a rate of 8% annually, which is much faster than the growth rate of the economy or tax revenues. This is the same growth rate as the House bill that Sen. Kent Conrad (D., N.D.) deep-sixed by asking the CBO to tell the truth about its impact on health-care costs.
To avoid the fate of the House bill and achieve a veneer of fiscal sensibility, the Senate did three things: It omitted inconvenient truths, it promised that future Congresses will make tough choices to slow entitlement spending, and it dropped the hammer on the middle class.
One inconvenient truth is the fact that Congress will not allow doctors to suffer a 24% cut in their Medicare reimbursements. Senate Democrats chose to ignore this reality and rely on the promise of a cut to make their bill add up. Taking note of this fact pushes the total cost of the bill well over $1 trillion and destroys any pretense of budget balance.
It is beyond fantastic to promise that future Congresses, for 10 straight years, will allow planned cuts in reimbursements to hospitals, other providers, and Medicare Advantage (thereby reducing the benefits of 25% of seniors in Medicare). The 1997 Balanced Budget Act pursued this strategy and successive Congresses steadily unwound its provisions. The very fact that this Congress is pursuing an expensive new entitlement belies the notion that members would be willing to cut existing ones.
Most astounding of all is what this Congress is willing to do to struggling middle-class families. The bill would impose nearly $400 billion in new taxes and fees. Nearly 90% of that burden will be shouldered by those making $200,000 or less.
It might not appear that way at first, because the dollars are collected via a 40% tax on sales by insurers of "Cadillac" policies, fees on health insurers, drug companies and device manufacturers, and an assortment of odds and ends.
But the economics are clear. These costs will be passed on to consumers by either directly raising insurance premiums, or by fueling higher health-care costs that inevitably lead to higher premiums. Consumers will pay the excise tax on high-cost plans. The Joint Committee on Taxation indicates that 87% of the burden would fall on Americans making less than $200,000, and more than half on those earning under $100,000.
Industry fees are even worse because Democrats chose to make these fees nondeductible. This means that insurance companies will have to raise premiums significantly just to break even. American families will bear a burden even greater than the $130 billion in fees that the bill intends to collect. According to my analysis, premiums will rise by as much as $200 billion over the next 10 years—and 90% will again fall on the middle class.
Senate Democrats are also erecting new barriers to middle-class ascent. A family of four making $54,000 would pay $4,800 for health insurance, with the remainder coming from subsidies. If they work harder and raise their income to $66,000, their cost of insurance rises by $2,800. In other words, earning another $12,000 raises their bill by $2,800—a marginal tax rate of 23%. Double-digit increases in effective tax rates will have detrimental effects on the incentives of millions of Americans.
Why does it make sense to double down on the kinds of entitlements already in crisis, instead of passing medical malpractice reform and allowing greater competition among insurers? Why should middle-class families pay more than $2,000 on average, by my estimate, in taxes in the process?
Middle-class families have it tough enough. There is little reason to believe that the pain of the current recession, housing downturn, and financial crisis will quickly fade away—especially with the administration planning to triple the national debt over the next decade.
The promise of real reform remains. But the reality of the Democrats' current effort is starkly less benign. It will create a dangerous new entitlement that will be paid for by the middle class and their children.
Mr. Holtz-Eakin is a former director of the Congressional Budget Office and a fellow at the Manhattan Institute.
With U.S. debt set to exceed 100% of GDP in 2011, it's no wonder people are looking for alternative ways to preserve wealth.
By JUDY SHELTON
Unprecedented spending, unending fiscal deficits, unconscionable accumulations of government debt: These are the trends that are shaping America's financial future. And since loose monetary policy and a weak U.S. dollar are part of the mix, apparently, it's no wonder people around the world are searching for an alternative form of money in which to calculate and preserve their own wealth.
It may be too soon to dismiss the dollar as an utterly debauched currency. It still is the most used for international transactions and constitutes over 60% of other countries' official foreign-exchange reserves. But the reputation of our nation's money is being severely compromised.
Funny how words normally used to address issues of morality come to the fore when judging the qualities of the dollar. Perhaps it's because the U.S. has long represented the virtues of democratic capitalism. To be "sound as a dollar" is to be deemed trustworthy, dependable, and in good working condition.
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Chad Crowe
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It used to mean all that, anyway. But as the dollar is increasingly perceived as the default mechanism for out-of-control government spending, its role as a reliable standard of value is destined to fade. Who wants to accumulate assets denominated in a shrinking unit of account? Excess government spending leads to inflation, and inflation plays dollar savers for patsies—both at home and abroad.
A return to sound financial principles in Washington, D.C., would signal that America still believes it can restore the integrity of the dollar and provide leadership for the global economy. But for all the talk from the Obama administration about the need to exert fiscal discipline—the president's 10-year federal budget is subtitled "A New Era of Responsibility: Renewing America's Promise"—the projected budget numbers anticipate a permanent pattern of deficit spending and vastly higher levels of outstanding federal debt.
Even with the optimistic economic assumptions implicit in the Obama administration's budget, it's a mathematical impossibility to reduce debt if you continue to spend more than you take in. Mr. Obama promises to lower the deficit from its current 9.9% of gross domestic product to an average 4.8% of GDP for the years 2010-2014, and an average 4% of GDP for the years 2015-2019. All of this presupposes no unforeseen expenditures such as a second "stimulus" package or additional costs related to health-care reform. But even if the deficit shrinks as a percentage of GDP, it's still a deficit. It adds to the amount of our nation's outstanding indebtedness, which reflects the cumulative total of annual budget deficits.
By the end of 2019, according to the administration's budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019.
The U.S. is thus slated to enter the ranks of those countries—Zimbabwe, Japan, Lebanon, Singapore, Jamaica, Italy—with the highest government debt-to-GDP ratio (which measures the debt burden against a nation's capacity to generate sufficient wealth to repay its creditors). In 2008, the U.S. ranked 23rd on the list—crossing the 100% threshold vaults our nation into seventh place.
If you were a foreign government, would you want to increase your holdings of Treasury securities knowing the U.S. government has no plans to balance its budget during the next decade, let alone achieve a surplus?
In the European Union, countries wishing to adopt the euro must first limit government debt to 60% of GDP. It's the reference criterion for demonstrating "soundness and sustainability of public finances." Politicians find it all too tempting to print money—something the Europeans have understood since the days of the Weimar Republic—and excessive government borrowing poses a threat to monetary stability.
Valuable lessons can also be drawn from Japan's unsuccessful experiment with quantitative easing in the aftermath of its ruptured 1980s bubble economy. The Bank of Japan's desperate efforts to fight deflation through a zero-interest rate policy aimed at bailing out zombie companies, along with massive budget deficit spending, only contributed to a lost decade of stagnant growth. Japan's government debt-to-GDP ratio escalated to more than 170% now from 65% in 1990. Over the same period, the yen's use as an international reserve currency—it clings to fourth place behind the dollar, euro and pound sterling—declined from comprising 10.2% of official foreign-exchange reserves to 3.3% today.
The U.S. has long served as the world's "indispensable nation" and the dollar's primary role in the global economy has likewise seemed to testify to American exceptionalism. But the passivity in Washington toward our dismal fiscal future, and its inevitable toll on U.S. economic influence, suggests that American global leadership is no longer a priority and that America's money cannot be trusted.
If money is a moral contract between government and its citizens, we are being violated. The rest of the world, meanwhile, simply wants to avoid being duped. That is why China and Russia—large holders of dollars—are angling to invent some new kind of global currency for denominating reserve assets. It's why oil-producing Gulf States are fretting over whether to continue pricing energy exports in depreciated dollars. It's why central banks around the world are dumping dollars in favor of alternative currencies, even as reduced global demand exacerbates the dollar's decline. Until the U.S. sends convincing signals that it believes in a strong dollar—mere rhetorical assertions ring hollow—the world has little reason to hold dollar-denominated securities.
Sadly, due to our fiscal quagmire, the Federal Reserve may be forced to raise interest rates as a sop to attract foreign capital even if it hurts our domestic economy. Unfortunately, that's the price of having already succumbed to symbiotic fiscal and monetary policy. If we could forge a genuine commitment to private-sector economic growth by reducing taxes, and at the same time significantly cut future spending, it might be possible to turn things around. Under President Reagan in the 1980s, Fed Chairman Paul Volcker slashed inflation and strengthened the dollar by dramatically tightening credit. Though it was a painful process, the economy ultimately boomed.
Whether the U.S. can once more summon the resolve to address its problems is an open question. But the world's growing dollar disdain conveys a message: Issuing more promissory notes is not the way to renew America's promise.
Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).
Stocks Climb on Strong Earnings
PETER A. MCKAY DONNA KARDOS YESALAVICH
The Dow Jones Industrial Average is within 15 points of the 10000 mark as an across-the-board rally fueled by earnings news continued Wednesday.
Investors also welcomed better than expected September U.S. retail sales, which bolstered bulls' case that the U.S. economy is on a firmer recovery ground.
Though the Dow has been in positive territory since Wednesday's opening bell, it has steadily racked up most of its gains since around 10:30 Eastern, when the average was up about 68 points. It recently traded just off an intraday high set around 11:30, when it was less than 10 points from the 10000 mark.
![[Markets Data]](http://s.wsj.net/public/resources/images/MDGpromo_D01222009151210.jpg)
The last time the Dow was at its present level was on the downside, during the full throes of unprecedented crisis on Wall Street. Traders in recent days have eagerly anticipated the average's return to a major round-number benchmark -- this time, on the way higher -- as an important symbol that markets have finally returned to normal. But many participants also remain on guard against potential nasty surprises in the earnings season.
The Dow was recently up 115 points, or 1.2%, trading at 9985.78, just below its high for the day at 11:30 a.m. Eastern. The measure is coming off a 15-point decline in Tuesday's session, which was marked by light volume as traders awaited earnings reports from several of the Dow's components.
The index last traded above 10000 on Oct 7, 2008, and closed above that level on Oct. 3, 2008.
The Dow's first foray above 10000 was in March 1999, and the average's essentially flat performance over the past decade has been testament to the painful busts that have followed speculative booms in technology stocks, credit, and real estate.
Phil Roth, chief technical analyst at Miller Tabak in New York, said that, for now, the Dow's foray back to 10000 territory is an encouraging sign, since other indexes are also flirting with new highs for 2009 on Wednesday, suggesting widespread optimism that could last awhile longer.
But he added: "I think we could spend a good portion of 2010 correcting this year's gain. Part of the reason it's been so intense is that we were so oversold to begin with."
The Dow came into Wednesday's action up nearly 51% from its bear-market lows set March 9.
A pleasant earnings surprise behind the current run came after Tuesday's close, when Intel posted a 6% decline in third-quarter profit and an 8% decline in revenue. Both figures beat expectations, and the chipmaker issued a surprisingly strong revenue forecast for the current period -- at a time when analysts are looking for increases in corporate sales as evidence of a broader economic rebound.
Wednesday morning J.P. Morgan Chase reported better than expected results.
Intel's shares were up 2.7% in recent action, helping to boost the broader technology sector. Both the tech-focused Nasdaq Composite Index was recently up 1.1%
J.P. Morgan Profit Surges, but Loan Losses Stay High
MATTHIAS RIEKER JOAN E. SOLSMAN
NEW YORK -- J.P. Morgan Chase & Co. said its third-quarter earnings soared as strong investment-banking results outweighed another sizable provision for loan losses.
The $2 billion the bank set aside to cover current and future losses from consumer loans reflects the bank's tradition of protecting its balance sheet even as many bankers see a slowdown in the rate delinquencies are increasing.
![[James Dimon]](http://s.wsj.net/public/resources/images/HC-GM387_Dimon_BV_20090311100521.gif)
Jamie Dimon
Chairman and Chief Executive Jamie Dimon said the cost of covering delinquencies and loan losses will remain elevated "for the foreseeable future" in its consumer and credit-card operations.
So despite the strong profit, the quarter doesn't reflect a turnaround yet, but rather stabilization. It is the first time since J.P. Morgan Chase bought the collapsing Washington Mutual Inc. in September last year that assets and deposits didn't shrink. Loan balances continued to shrink as the recession took its toll, but lending became more profitable.
Mr. Dimon also said the quarter's strong results reflect "broad-based growth" in several lines of businesses. Revenue in all but one of J.P. Morgan Chase's six lines of businesses improved from the second quarter, though net income was mixed because the bank set aside more money to cover delinquent loans.
Through Tuesday, J.P. Morgan shares are up 45% so far this year.
J.P. Morgan, the first of the major banks to report results, said it saw broad earnings growth across commercial and retail banking as well during the quarter. Overall, banks are expected to post falling earnings in the most-recent period.
J.P. Morgan posted a profit of $3.59 billion, or 82 cents a share, from $527 million, or 9 cents a share, a year earlier. The previous year's results included more than $4 billion in write-downs and losses from taking over Washington Mutual.
Revenue increased 81% to $26.62 billion.
A survey of analysts by Thomson Reuters predicted a profit of 52 cents a share on $24.96 billion in revenue.
Tier 1 capital ratio, a key measure of financial strength, was 10.2%, up from 8.9% a year earlier and 9.7% in the prior quarter.
In investment banking, revenue rose 85% while the segment's profit more than doubled.
Managed credit-loss provisions were $9.8 billion, up $3.1 billion from a year earlier and up $100 million from the previous quarter. The net charge-off rate in J.P. Morgan's consumer business surged to 6.29% from 3.39%.
Tuesday, October 13, 2009
The Benefits of Reserve Diversification
St. Louis, Missouri
Yesterday was an official ‘bank holiday’ but apparently most of the WorldMarkets customers were unaware, as our phones were surprisingly busy. Trading in the currency markets was substantially lighter than usual, and with no data releases in the US, the dollar drifted sideways throughout the day. The European currencies were slightly higher versus the US dollar, the Asian currencies were lower versus the US dollar, and the commodity-based currencies were mixed.
European currencies were helped by good news over the weekend as Poland ratified the drafted EU constitution (referred to as the Lisbon treaty). But one big hurdle still remains: Czech President Klaus is refusing to sign the treaty, even though the Czech government has approved it. The Czech President, who is against the EU, is hoping to stall until after the British election, which must be held by June of next year. David Cameron, the Conservative leader, has pledged to hold a referendum on the treaty if his party is elected. This would throw the EU constitution back into question, so EU leaders are putting major pressure on the Czech President. While the pursuit of this last signature makes for good drama, I believe the EU constitution will be ratified, and the European Union is not in any immediate danger of falling apart.
In fact, the euro (EUR) has quickly become one of the preferred investments for central banks who are looking to diversify out of US dollars. As Chuck wrote in yesterday’s Pfennig, the latest data shows that central banks placed 63% of new reserves into euros and yen (JPY) in April, May, and June. Foreign currency reserves were increased by $413 billion during the last quarter, the most since 2003. In the past, a majority of these reserves would have been invested into US dollars, but central banks are now shying away from the greenback.
Recently, the roles of the dollar and the euro/yen have been reversed. Previously 63% of new reserves were placed into US dollars, but lately that number has fallen to just 37%. As Chuck and I have written in recent Pfennigs, the current administration has no interest in supporting the US dollar, and global central banks seem to be fearing this lack of support. According to the data reported by Bloomberg, the dollar will likely remain under selling pressure for some time to come. Despite last quarter’s move away from the greenback, central banks still hold over 62% of their foreign currency reserves in US dollars, leaving plenty for future sales.
Some of the largest pools of reserves are being held by China, Japan, Russia, and India. Both China and Russia have repeatedly called for the creation of a ‘new’ reserve currency, so their moves out of US dollar come as no surprise. China, which controls $2.1 trillion in foreign reserves is the largest holder of US debt with over $800 billion invested in US treasuries. Investors would be wise to take notice of where these countries are moving their reserves. Pulling reserves away from the dollar will continue to rally the alternative currencies of the euro and yen; and will also put upward pressure on the price of gold, which is another attractive alternative for reserves.
As I mentioned above, leaders in the UK will be forced to call an election by June of next year. Prime Minister Gordon Brown has been trailing Conservative leader David Cameron in opinion polls and the sagging British economy isn’t helping his position. Mr. Cameron has been calling for an end to the ‘quantitative easing’ and a focus on the ballooning deficits. The Treasury expects its deficit to touch £175 billion this year, about 12% of national income and the most in the Group of 20 nations. Brown wants to sell assets including the government’s stake in the Channel Tunnel and increase taxes in order to halve the budget deficit in the next four years. I have to side with the conservatives and Mr. Cameron on this one. I just don’t see how increasing taxes and selling off assets in order to continue to pump money back into the economy is a positive long-term strategy.
What scares me is that Prime Minister Brown’s plan has the stamp of approval of economists at Goldman Sachs. Readers know the influence the folks over at Goldman have on our administration. The US followed the Bank of England down the path of ‘quantitative easing’, and we will pay the price for these inflationary policies in the not-to-distant future. Why jeopardize the long-term health of your economy for short-term growth? But politics leads to some poor decisions, and Brown can’t risk falling back into a ‘double dip’ with elections coming up around the corner. The same can be said of the US administration, with mid-term elections looming in 2010.
The pound sterling (GBP) fell to its lowest level in several months versus both the US dollar and euro yesterday as speculation of an increase in the ‘quantitative easing’ programs ran through the markets. The UK inflation rate dropped in September by more than forecast, to the lowest level in five years. With inflation continuing to run below the radar, pressure will continue for the BOE to pump more newly created money into the markets through asset purchases.
Questions over Brown’s economic policies and the uncertainty of the upcoming election will certainly keep up the selling pressure on the pound. I read a research report over the weekend which predicted the pound sterling would continue to drop, bottoming out as low as $1.45 if Brown’s Labor party were able to hold on in the upcoming election. On the other hand, the report predicted the pound would rise to $1.85 by the end of 2010 under a Conservative Party win.
The Asian currencies were the worst performers yesterday, selling off on speculation central banks would take advantage of the light markets to intervene. This is a perfect example of how ‘jawboning’ can work. Asian central banks have been expressing concern on the recent strength of their currencies as compared to both the US dollar and Chinese renminbi (CNY). Since the Chinese have decided to ‘peg’ their currency to the falling dollar, other Asian nations with free floating currencies have been put at a competitive disadvantage. With many traders in the US gone for the holiday, it was a perfect time for some verbal intervention by Asian central banks. The South Korean government said it would intervene to stop excessive volatility, and Taiwan said it would introduce measures to deter speculators. This verbal intervention had the desired effect, and temporarily reversed the ascent of the Asian currencies versus the US dollar.
But overnight, these currencies surged back as the region continues to be the first to recover. Reports released show growth in Malaysia, South Korea, and Indonesia will be higher than previously predicted. Verbal intervention just can’t compete with strong economic reports. The data doesn’t lie, and it shows Asia will continue to take the lead in this global recovery.
The Indian rupee (INR) moved higher after a report was released which showed a big jump in industrial production in India. Output at factories, utilities, and mines jumped 10.4% in August from a year earlier – the largest jump in almost two years. The larger-than-expected move will increase pressure on India’s central bank to begin to raise rates. Central bank Governor Subbarao said last week that India may need to act ahead of advanced economies due to the ‘incipient’ inflation pressures.
While most have predicted a move up during the first part of next year, some now believe we could see a 50 basis point hike as early as the October 27 monetary policy meeting. India has been overshadowed by the growth story in China, but India’s growth is expected to keep pace with its larger neighbor. India also enjoys a more established economic system, a more educated workforce, and a higher standard of living than China. The central bank has reduced taxes on consumer products and imports, and cut interest rates to provide a stimulus worth more than 12% of India’s GDP. If the Reserve Bank does boost rates later this month, the rupee could enjoy a continued rally versus the US dollar.
One of the currencies with the biggest gains versus the US dollar overnight was the kiwi (NZD). Chuck noticed the currency rallying late last night and sent me this from home: New Zealand’s retail sales rose in August at more than twice the pace expected by economists, adding to signs the economy’s recovery from recession is gathering pace in the second half of this year. Sales increased 1.1% from July, seasonally adjusted – statistics New Zealand said in Wellington today. Core retail sales, which exclude car yards, fuel outlets and workshops, rose 1.2%.
I think this just may move RBNZ Governor Bollard to move rates earlier than he had wanted to… But like I said last week in my rant and memo to Bollard, who is known as someone who likes to talk down his currency… “Don’t you want your currency to move higher versus the dollar? Then don’t raise interest rates!” Unfortunately for Mr. Bollard, he’s trying to paddle against the current right now… So, unless he wants to face the music that comes from soaring inflation in the future, he’ll have to raise rates… And suffer through a rising kiwi!
The Biggest Bust Will Follow the Biggest Bubble
London, England
Our ‘Crash Alert’ flag goes back up the pole…
October is almost half over. Will we get through the month without a major sell-off?
Dear reader, if you think we know the answer to that you’ve got us mixed up with someone else. Someone who is crazy.
No one with his wits about him thinks he knows what the stock market is going to do.
Still, here at The Daily Reckoning, we have our hunches. We think it’s time for a major pull back. Frankly, we’ll be disappointed if we don’t get one soon. Because, once again stocks are too expensive.
Too expensive for what? Too expensive for the circumstances.
The Dow rose another 20 points yesterday to a new bounce record. Oil rose to over $73. Gold didn’t budge.
Of course, everyone now knows that the recession is over. NABE interviewed 44 economic forecasters. Four-fifths of them said the recession was over.
But we don’t care what they said. These are the same seers who missed the biggest single event in financial history. There are many banking crises, recessions, panics and defaults in the record books. But none were as great as the one that hit September a year ago. Most economists didn’t see it coming; why should we trust them to tell us when it is going?
Besides they’ve got the whole thing wrong. It isn’t a recession; it’s a depression. There is no recovery from a depression; instead, the economy has to re-invent itself in another form. Things aren’t going ‘back to normal,’ in other words. Because the period leading up to the crisis was not ‘normal;’ it was a bubble. After a bubble explodes, you have a lot of debris to clean up. The bigger the bubble, the more damage it does when it blows up.
“The force of a correction is equal and opposite to the deception that preceded it.”
You’ve heard our dictum before. In fact, you’ve heard our explanations for all these points before.
We just lived through the biggest bubble in history. Get ready for the biggest bust. Not just two years of falling stock prices and news-making bailouts. Not just 10% unemployment. Not just 100 bank failures and 30% off housing prices.
Noooo… We’re talking about a worthy correction…a real correction…a noble and distinguished correction…a correction that can hold its head up in public.
This is a correction that will take many years…one that will knock housing prices down for at least five years…and stock prices down to the point where people no longer want to buy them. It’s a correction that goes deep enough and continues long enough to do its work – wiping out the bad investments and mistakes of the Bubble Era, while allowing the survivors to pay down their debts and build up their savings.
Now, here’s a confusing little item. Yesterday’s news tells us that consumer spending as a percentage of the entire economy has edged up to 71%. Now wait just one cotton-pickin’ minute. How could consumer spending be going up?
Hold on, cupcake. It’s not going up. It’s going down. It’s just that the other components of the economy are going down even more.
In the second quarter consumers spent $195 billion less than they did the year before – a 1.9% drop. In the 20 years before that, consumer spending increased at an average rate of 3.3%. So, you do the math… that’s an about-face of more than 5% of GDP – a loss to the economy of about $700 billion!
Consumer credit is going down (we reported the figures earlier in the week)…unemployment is going up…consumer spending is going down…
…those are not the circumstances in which stocks sell for 27 times earnings…and move higher. Those are the circumstances in which stocks crash.
David Rosenberg:
“By some measures, the S&P 500 is already trading at valuation levels that would ordinarily be consistent with an economic expansion that is five-years old as opposed to a recovery that, at best, is in its infancy stages.
“On an operating (‘scrubbed’) basis, the trailing P/E multiple on the S&P 500 has expanded a massive 10 points from the March lows, to stand at 27.6x. Historically, when the economy is taking the turn away from contraction towards expansion, which indeed was the case in Q3, the trailing P/E multiple is 15x or half what it is… While we will not belabor the point, when all the write-downs are included, the trailing P/E on ‘reported’ earnings just widened to its highest levels in recorded history of nearly 140x, which is three times the levels prevailing during the height of the tech bubble.”
So, here goes…yes…today, we are officially running our “Crash Alert” flag up the pole here at the London headquarters of The Daily Reckoning. Cross Blackfriars Bridge and you might see if flapping in the wind, between the two huge gold balls on the roof.
Our Crash Alert flag is out because stocks have become too expensive…and because this bounce should be reaching its apogee by now. Already, central banks are talking about cutting back on their efforts to sustain the bounce with easy credit. Australia led the way last week with a rate hike.
It is also becoming clearer and clearer that the feds’ efforts aren’t really working. They can give money to their friends in the banking industry. They can give money to speculators who then make bets on the stock market, among other things. They can bailout major companies. But they can’t really get much money into the real economy.
Au contraire; they take money OUT of the real economy. The feds will absorb $700 billion of private savings this year alone…to finance their deficit. They expect $1 trillion deficits at least for another 10 years. That won’t leave much money for the private sector.
Naturally, Washington, DC, is doing well. While unemployment is near 10% in the rest of the nation, it’s only about 6% in the Washington area.
But let’s face it… What’s good for Washington is bad for the rest of the nation. The feds have used this correction to increase their power…and add to their wealth. The average federal employee now earns twice as much as his counterpart in the private sector – if the fellow in the private sector has a job at all.
A news item tells us that TARP recipients spent $114 million lobbying for their bailout money – most of it going into Washington, of course.
And the feds now own major stakes in what used to be the private sector – insurance, automobiles, and banking industries.
This has been a great period for government. Money, power…it is all floating down the Potomac like raw sewage…and coming to rest in the capitol city.
Our advice to the feds: enjoy it while you can. When stocks fall again…and people figure out what a mess you’ve made of the economy…you’ll be lucky if you aren’t tarred, feathered and run out of town on a rail.
Barack Obama has won the Nobel Peace Prize. Everyone is talking about it. They want to know what they put in the water in Stockholm. Why would the Nobel committee give the prize to someone who hadn’t really done much for world peace? Of course, the committee spokesmen had their lame answers. Now, they’re just hoping Obama doesn’t make fools of them.
It is as if the Pulitzer committee had given the prize to someone whose book had just one chapter; “We hope this will encourage him to finish it well,” says the committee.
But the Nobel committee might have done worse. Barack Obama is not the first American president to win the award. Woodrow Wilson got it before him. Obama seems ready to continue unnecessary wars. But at least he didn’t start them. Wilson sent American troops into the Europea in 1917. He transformed the European war into a World War and drew it out for another 2 years…at a cost of millions of lives, not to mention trillions in expenses.
Wilson was a fool and a humbug, no more deserving of the Nobel Peace Prize than Kaiser Wilhelm. As for Obama, we haven’t quite gotten his measure yet. Fool? Fraud? It’s still too early to say.
But if he had been smart, he would have followed the example of another US president – Millard Fillmore. Go to Washington. You will find no monuments to Fillmore. ’Tis a pity. Fillmore actually kept the peace. Not only that, he made improvements; he installed running water in the White House. Then, when Oxford University offered him an honorary degree, he turned it down. The degree was written in Latin. Fillmore said he didn’t want a degree he couldn’t understand.
Chris Mayer, currently in Dubai with Addison Wiggin, sends us this note:
“The real boom in Dubai really only kicked off recently. After spending some time here and chatting with those who live here, I would boil down the more important ingredients to these:
- Low regulations, low tax. This has probably been a Dubai advantage for a hundred years, but people here told us repeatedly how easy it is to set up shop in Dubai and how your privacy is protected. There are also no income, property or corporate taxes. Zero.
(The city funds itself with taxes on hotel occupancy, liquor sales and restaurant meals, as well as permits for roads and such. Part of the budget also comes from the Sheikh’s business interests – such as Emirates Airlines and the aluminum smelters.)
- The introduction of freeholds. In 2002, Dubai allowed foreigners to own property in so-called freeholds. That was a big milestone that kicked off a wave of immigration. So now there are these freeholds where the Penthouse Gypsies live in high style and in very nice communities.
- The backlash of 9/11. Before 9/11, Middle-Eastern exporting countries re-invested $25 billion a year in the US. After 9/11, that slowed to about $1.2 billion a year. Arabs no longer felt welcome and feared what might happen to their wealth. So guess where the money went?
Arab wealth started flowing back to their own countries. The economies of the eight states of the Gulf Coast grew 60% between 2001-08, compared to 18% for the US. ‘Cash poured into Dubai,’ Krane writes. And Dubai’s growth rate topped China’s, averaging 13% per year.
Essentially, the repatriation of Arab wealth in the US was a big driver and still continues to today. As the Middle East region gets wealthier, a good chunk of that wealth will flow through Dubai.
- Finally, the UAE fixes the value of its currency to the dollar – at least for now. What this means is that as the US printed dollars the effects were exported to Dubai, too. That is where Dubai got into trouble. Lots of speculative capital flowed to building islands in the shape of date palms or creating residential communities with robotic dinosaurs from Japan. Now Dubai is suffering through a massive real estate bust as a result.
“Still, Dubai’s important position in world trade is many layered, like a wedding cake.”
“What happened to global warming?” asks a headline at the BBC.
Folks in the Rockies are shivering. “Western Montana breaks records,” says a report. Missoula reported a low of 8 degrees yesterday…14 degrees lower than the previous record for this early in the season.
Nearby Idaho had heavy snow last week too. Same thing in New Zealand, where roads were blocked by heavy snow.
In New Zealand, two major North Island highways remain closed after unseasonal heavy snow days stranded motorists for two nights. “Even if this was the middle of winter this is extreme,” said an analyst.
And right now, it’s spring in NZ. They had a spring snowstorm that put their winter snowstorms to shame.
“Forget global warming,” says old friend Jim Davidson. “Get ready for another ice age.” Buy Brazil, he advises; the cold will drive down farm output in North America and Europe.
As the BBC reports, worldwide temperatures are not increasing; they’ve been falling for the last 10 years. No one knows why. Global warming enthusiasts say the trend is still towards higher temperatures. Their opponents say the world is actually beginning a major period of cooling – driven by solar activity, not by man-made carbon emissions.
Who’s right? We get out our mittens and wait to find out.
Until tomorrow,
Juicy Details on the US Gold Reserves
10/13/09 Stockholm, Sweden – With the spot price of gold hovering around another all-time record high today, at $1,068 an ounce, one starts to wonder if the US gold reserves could in fact help provide for the nation as its financial reckoning day gets underway.
It’s doubtful but, without knowing exactly where gold is headed, it’s impossible to know. Either way, a good place to start is by examining exactly how much gold the US currently has on hand. It’s well known that US has the biggest gold reserves of any individual country, but beyond the main figures it’s not necessarily easy to track down a more detailed assessment.
Tackling the task head on, Jesse’s Café Américain examines the issue and finds several key points:
“The US currently holds 261,499,000 fine troy ounces in its reserves. US International Reserve Position, US Treasury
“The gold is valued on the books at $42.2222 per fine troy ounce.
“This represents a total value of $11,041,063,078.
“This value appears on the Treasury’s International Reserve Position US Treasury on Line 4.
“Since there are 32150.7466 troy ounces in a tonne, the US Treasury is holding 8,133.528072 tonnes of fine gold.”
The complete information provided by Jesse’s Café Américain is an insightful start for considering the present value of the reserves, and it also includes details on the Federal Reserve Gold Certificates.
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
Special Report: From Hulbert’s No 1-Ranked Advisory Letter Over 5 Years, GOLD $2000 REPORT : Five entirely new ways to play the gold trend and a hidden way to snap up gold- for less than one penny per ounce!
Trade With China Explains Dollar Weakness
Trade With China Explains Dollar Weakness
By Peter MoriciAs the dollar falls against the euro, yen and other major currencies, China and other emerging economic powers holding lots of dollars and U.S. securities are crying foul, and for an end to the dollar's central status in global commerce.
If they are truly disgusted, they should look to themselves for answers.
Since the end of World War II, the dollar has largely replaced gold as the reserve asset central banks hold to back up national currencies. The supply of mineable gold is too limited, and efforts to back up currency with gold would result in chronic shortages of liquidity and global deflation.
When a merchant moves goods, for example, from Thailand to Mexico, the market for pesos into bahts is thin or nonexistent, and the merchant sells pesos for dollars to buy bahts. Similarly, many other cross-boarder trades, financial contracts and debts are denominated in dollars, although the euro is coming into greater use.
Over the years, governments and traders gravitated to the dollar, because the United States has the largest and most diversified economy. Virtually anything made or grown around the world is made or traded in the United States, and money invested in dollars is secure from political upheaval and state confiscation.
Until recently, the dollar has been a well managed currency. The U.S. government resisted the temptation to borrow too much and flood the world with too many dollars and Treasury securities, which provide liquidity the same as do dollars.
The current market determined system of exchange rates emerged by default in the early 1970s, when the Bretton Woods system of government-enforced fixed exchange rates failed, and the United States ended the convertibility of the dollar into gold.
This system has no rules or effective governing structure. Consequently, some governments seized opportunities to manipulate the system to gain competitive advantages in trade. For example, since 1995 China has maintained an undervalued currency by selling huge amounts of yuan for dollars to merchants and currency traders.
The undervalued yuan makes Chinese exports artificially cheap and foreign products too expensive in Chinese markets. China enjoys huge trade surpluses that create millions of jobs and double-digit growth in China. Japan and others have pursued similar strategies.
These policies impose huge trade deficits and unemployment on the United States, create enormous imbalances in the global economy, and contribute importantly to the Great Recession.
The U.S. trade deficit grew from about one percent of GDP in 2001 to more than five percent from 2005 to 2008, and this should have created a shortage of demand for U.S. goods and services and a recession.
However, China invested the dollars obtained suppressing the value of the yuan to purchase U.S. securities. U.S. consumers borrowed those dollars, against their homes and on credit cards, and kept the U.S. economy going.
Finally, the credit bubble burst and an even bigger recession resulted. Huge federal borrowing is now required to finance massive U.S. stimulus spending, bailout banks and otherwise rescue the U.S. economy.
All this borrowing floods capital markets with Treasury securities, which provide the same liquidity as dollars, and pushes down exchange rates for the dollar against every major currency except the Chinese yuan. This reduces the value of the dollars, as expressed in euro and yen, held by China, Russia, Saudi Arabia and others.
Hoisted on the consequences of their own mercantilism, China and others would like to see the dollar replaced by a basket of currencies.
A global currency poses enormous diplomatic and technical challenges, including creating an international body to control its supply and persuading governments to issue debt denominated in this global currency. Without those, private merchants and financiers would still seek a central national currency to facilitate trade and denominate private cross-border contracts and debts.
Even with a global currency, China could still buy dollars with yuan to keep its value suppressed against the dollar and boost exports into the United States. The United States would still have to run large federal deficits to avoid economic meltdown.
China would still be stuck holding dollars that chronically fall in value against other currencies.
If China and others want that problem fixed, they need to abandon currency manipulation and let their populations purchase more U.S. goods and services.
The U.S. economy would grow robustly, federal borrowing would subside and the threat of too many dollars compromising the dollar's role in international finance would vanish.
Weak dollar isn't helping company earnings
In theory, when the U.S. dollar is weak, as it is now, U.S. companies benefit because U.S. goods should appear cheaper to overseas consumers and U.S. companies should get a boost converting foreign sales back into dollars.
But so far, very early in earnings season, U.S.-based companies that do a lot of business overseas, including Alcoa (AA), Yum Brands (YUM), Levi Strauss and Biomet, have reported taking hits on currency fluctuations even as the greenback plummets.
Investors counting on a weak-dollar boost could be disappointed, says Marc Chandler, a currency expert at Brown Bros. Harriman. "Just because there's a weak dollar and you buy (stock in U.S.) multinationals, it might not work out," he says. "There's no shortcut to investing."
Some companies say currency issues have hurt earnings because of:
•Timing. Most of the dollar's weakness occurred late in the third quarter and in the beginning of the fourth. In fact, the dollar's average value vs. other major currencies during the entire quarter was 3% higher than the third quarter of 2008, Federal Reserve data show. That was in part why Yum Brands took a 2 cents a share currency hit in its fiscal third quarter ended on Sept. 5, the company said in an e-mailed response.
•Accounting effects. Many U.S.-based multinational companies, including Levi Strauss, may use financial contracts, or hedges, to mitigate the impact of foreign currency moves. Those contracts, though, can cause earnings volatility if the dollar moves after the hedges are put in place, says Roger Fleischmann, Levi's treasurer.
Various currency factors hurt Levi's quarterly operating income by $16 million during the fiscal quarter ended in August, according to the company's regulatory filing.
•Exposure to many currencies. While the dollar has been weak vs. most major currencies, those aren't necessarily the currencies in countries where U.S. companies do business. Two of Alcoa's key units reported a total quarterly currency hit of $57 million. Spokesman Kevin Lowery wouldn't say which currencies caused the hit, noting that Alcoa operates in 31 different countries.
And while exporters are waiting for the earnings benefits of a weak dollar, those that import heavily could see their profits hurt.
Still, U.S. companies overall will benefit if the dollar stays weak. "The (positive) effect should be bigger in the fourth quarter," says Dirk Van Dijk of Zacks Investment Research.
Three Decades of Global Cooling
Three Decades of Global Cooling
By Investor's Business Daily
Climate Change: As a Colorado Rockies playoff game is snowed out, scientists report that Arctic sea ice is thickening and Antarctic snow melt is the lowest in three decades. Whatever happened to global warming?
Al Gore wasn't there to throw out the first snowball, er, baseball, so he might not have noticed that Saturday's playoff game between the Colorado Rockies and the Philadelphia Phillies was snowed out - in early October. The field should have been snow-free just as the North Pole was to be ice-free this year.
It seems that ice at both poles hasn't been paying attention to the computer models. The National Snow and Ice Data Center released its summary of summer sea-ice conditions in the Arctic last week and reported a substantial expansion of "second-year ice" - ice thick enough to have persisted through two summers of seasonal melting.
According to the NSIDC, second-year ice this summer made up 32% of the total ice cover on the Arctic Ocean, compared with 21% in 2007 and 9% in 2008. Clearly, Arctic sea ice is not following the consensus touted by Gore and the warm-mongers.
This news coincides with a finding published in the journal Geophysical Research Letters last month by Marco Tedesco, a research scientist at the Joint Center for Earth Systems Technology. He reported that ice melt on Antarctica was the lowest in three decades during the ice-melt season.
Each year, millions of square miles of sea ice melt and refreeze. The amount varies from season to season. Despite pictures taken in summer of floating polar bears, data reported by the University of Illinois' Arctic Climate Research Center at the beginning of this year showed global sea ice levels the same as they were in 1979, when satellite observations began.
At the 2008 International Conference on Climate Change, hosted by the Heartland Institute, the keynote speaker, Dr. Patrick Michaels of the Cato Institute and the University of Virginia, debunked claims of "unprecedented" melting of Arctic ice. He showed how Arctic temperatures were warmer during the 1930s and that most of Antarctica is indeed cooling.
At the other end of the earth, we are told the Larsen B ice shelf on the western side of Antarctica is collapsing. That part is warming and has been for decades. But it comprises just 2% of the continent. The rest of the continent is cooling.
A report prepared by the Scientific Committee on Antarctic Research for last April's meeting of the Antarctic Treaty nations in Washington notes that the South Pole has in fact shown "significant cooling in recent decades."
Australian Antarctic Division glaciology program head Ian Allison says sea ice losses in west Antarctica over the past 30 years have been more than offset by increases in the Ross Sea region, just one sector of East Antarctica. "Sea ice conditions have remained stable in Antarctica generally," Allison says.
So what gives? Earth's climate is influenced by many things, the least of which is the internal combustion engine. We and reputable scientists have noted the earth has cooled during the last decade, a period in which the sun has grown very quiet with little or no sunspot activity.
According to research conducted by Professor Don Easterbrook from Western Washington University, the oceans and global temperatures are closely related. They have, he says, a natural cycle of warming and cooling that affects the planet.
The most important ocean cycle is the Pacific Decadal Oscillation (PDO). Easterbrook notes that in the 1980s and '90s it was in a warming cycle, as was the earth. The global cooling from 1940 to 1975, which had some experts warning of an ice age, coincided with a Pacific cooling cycle.
Professor Easterbrook says: "The PDO cool mode has replaced the warm mode in the Pacific Ocean, virtually assuring us of three decades of global cooling." Such solar and ocean cycles explain why the earth can cool and polar ice thicken even as carbon dioxide levels can continue to increase.
Will any of this be brought up at the climate conference in Copenhagen this December? Not unless hell freezes over. Then again ...
The Unknown War
The defeat of communism 20 years ago was the most liberating moment in history. So why don't we talk about it more?
Twenty years later, the anniversary of that historic border crossing was noted in exactly four American newspapers, according to the Nexis database, and all four mentions were in reprints of a single syndicated column. August anniversaries receiving more media play in the U.S. included the 400th anniversary of Galileo building his telescope, the 150th anniversary of the first oil well, and the 25th anniversary of Teenage Mutant Ninja Turtles. A Google News search of “anniversary” and “freedom” on August 23, 2009, turned up scores of Woodstock references before the first mention of Hungary.
Get used to it, if you haven’t already. November 1989 was the most liberating month of arguably the most liberating year in human history, yet two decades later the country that led the Cold War coalition against communism seems less interested than ever in commemorating, let alone processing the lessons from, the collapse of its longtime foe. At a time that fairly cries out for historical perspective about the follies of central planning, Americans are ignoring the fundamental conflict of the postwar world, and instead leapfrogging back to what Steve Forbes describes in this issue as the “Jurassic Park statism” of the 1930s (see “ ‘The Last Gasp of the Dinosaurs,’ ” page 42). There have been more Hollywood hagiographies of the revolutionary communist Che Guevara in the last five years than there have been studio pictures in the last two decades about the revolutionary anti-communists who dramatically toppled totalitarians from Tallin to Prague (see Tim Cavanaugh’s “Hollywood Comrades,” page 62). And what little general-nonfiction interest there is in the superpower struggle, as Michael C. Moynihan details on page 48 (“The Cold War Never Ended”), remains stuck in the same Reagan vs. Gorby frame that made the 1980s so intellectually shallow the first time around.
The consensus Year of Revolution for most of our lifetimes has been 1968, with its political assassinations, its Parisian protests, and a youth-culture rebellion that the baby boomers will never tire of telling us about. But as the preeminent modern Central European historian Timothy Garton Ash wrote in a 2008 essay, 1989 “ended communism in Europe, the Soviet empire, the division of Germany, and an ideological and geopolitical struggle…that had shaped world politics for half a century. It was, in its geopolitical results, as big as 1945 or 1914. By comparison, ’68 was a molehill.”
I recently asked Simon Panek, one of the student leaders of Czechoslovakia’s Velvet Revolution, why he thought 1968 still gets all the headlines. He gave a typically Czech shrug: “Probably 1968 happened to more people in the West.” But even that droll formulation understates the globe-altering impact of 1989.
Without the superpower conflict to animate and arm scores of proxy civil wars and brutal governments, authoritarians gave way to democrats in Johannesburg and Santiago, endless war was replaced by enduring peace in Central America, and nations that had never enjoyed self-determination found themselves independent, prosperous, and integrated into the West.
In 1988, according to the global liberty watchdog Freedom House, just 36 percent of the world’s 167 independent countries were “free,” 23 percent were “partly free,” and 41 percent were “not free.” By 2008, not only were there 26 additional countries (including such new “free” entities as Croatia, Estonia, Latvia, Lithuania, Serbia, Slovakia, and Slovenia), but the ratios had reversed: 46 percent were “free,” 32 percent were “partly free,” and just 22 percent were “not free.” There were only 69 electoral democracies in 1989; by 2008 their ranks had swelled to 119.
And even these numbers only begin to capture the magnitude of the change. The abject failure of top-down central planning as an economic organizing model had a profound impact even on the few communist governments that survived the ’90s. Vietnam, while maintaining a one-party grip on power, launched radical market reforms in 1990, resulting in some of the world’s highest economic growth in the last two decades. Cuba, economically desperate after the Soviet spigot was cut off, legalized foreign investment and private commerce. And in perhaps the single most dramatic geopolitical story in recent years, the country that most symbolized state repression in 1989 has used capitalism to pull off history’s most successful anti-poverty campaign. Although Chinese market reforms began in the late ’70s, and were temporarily stalled by the Tiananmen Square massacre (which, counterintuitively, emboldened anti-communists in Europe), China’s post-Soviet recognition that private enterprise should trump the state sector helped lift hundreds of millions out of poverty. (For a celebration of how markets have liberated Chinese women from cultural repression, see Kerry Howley’s “Are Property Rights Enough?,” page 30.)
Perhaps the least appreciated benefits of the Cold War’s end have been those enjoyed (if not always consciously) by the side that won. Up until 1989, mainstream Western European political thought included a large and unhealthy appetite for governments owning the means of production. The original Marshall Plan was an almost desperate attempt to prevent the kind of domestically popular (if externally manipulated) communist takeover that would submerge Czechoslovakia in 1948. Socialist French President Francois Mitterand nationalized wide swaths of France’s economy upon taking office in 1981. By the time the Berlin Wall fell, it was the rule, not the exception, that Western European governments would own all their country’s major airlines, phone companies, television stations, gas companies, and much more.
No longer. In the long fight between Karl Marx and Milton Friedman, even the democratic socialists of Europe had to admit that Friedman won in a landslide. Although media attention was rightly focused on the dramatic economic changes transforming Asia and the former East Bloc, fully half of the world’s privatization in the first dozen years after the Cold War, as measured by revenue, took place in Western Europe. European political and monetary integration, widely derided as statist by the Anglo-American right, has turned out to be one of the biggest engines for economic liberty in modern history. It was no accident that, in the midst of Washington’s illegal and ill-fated bailout of U.S. automakers, Swedish Enterprise Minister Maud Olofsson, when asked about the fate of struggling Saab, tersely announced, “The Swedish state is not prepared to own car factories.”
When Western Europeans are giving lectures to Americans about the dangers of economic intervention, as they have repeatedly since Barack Obama took office, it’s a good time to take stock of how drastically geopolitical arguments have pivoted during the last two decades. The United States, at least as represented by its elected officials and their economic policies, is no longer leading the global fight for democratic capitalism as the most proven path to human liberation. You are more likely to see entitlement reform in Rome than in Washington (where, against the global grain, the federal government is trying to extend its role). Even the much-ballyhooed and well-earned U.S. peace dividend proved to be as temporary as Bill Clinton’s claim that “the era of big government is over.”
Ironically, the one consistent lesson U.S. officials claim to have learned about the Cold War is the one that has the least applicability outside the East Bloc: that aggressive and even violent confrontation with evil regimes will lead to various springtimes for democracy. It is telling that the victors of an epic economic and spiritual struggle take away conclusions that are primarily military. Telling, and tragic.
Matt Welch (matt.welch@reason.com) is editor in chief of reason.
Obama must start punching harder
By Gideon Rachman
Just five years ago, Barack Obama was still a local politician in Illinois, preparing for a run for the US Senate. His office wall in Chicago at the time was decorated with the famous picture of Muhammad Ali standing over Sonny Liston, after knocking him out in a heavyweight title fight. Ali famously boasted that he could “float like a butterfly and sting like a bee.” But now that Mr Obama is president, he seems to float like a butterfly – and sting like one as well.
The notion that Mr Obama is a weak leader is now spreading in ways that are dangerous to his presidency. The fact that he won the Nobel Peace Prize last Friday will not change this impression. Peace is all very well. But Mr Obama now needs to pick a fight in public – and win it with a clean knock-out.
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In truth, the Norwegians did the US president no favours by giving him the peace prize after less than a year in office. The award will only embellish a portrait of the president that has been painted in ever more vivid colours by his political enemies. The right argues that Mr Obama is a man who has been wildly applauded and promoted for not doing terribly much. Now the Nobel committee seems to be making their point for them.
The rightwing assault on the president is based around a number of slogans that are hammered home with damaging frequency: Obama the false Messiah; Obama, the president who apologises for America; Obama, the man who is more loved abroad than at home; Obama, the man who never gets anything done; Obama the hesitant; Obama the weak.
Of course, this is the kind of stuff that was always going to be hurled at a liberal, Democratic president by the Republicans. The danger for Mr Obama is that you are beginning to hear echoes of these charges from people who should be the president’s natural supporters.
One leading European politician warns that Mr Obama is looking weak on the Middle East: “If he says to the Israelis ‘no more settlements’, there have got to be no more settlements.” And yet it is the White House, not the Israeli government, that has backed down.
Even before the Nobel announcement, liberal American columnists were sounding increasingly sceptical about the man they once supported with such enthusiasm. Richard Cohen wrote in the Washington Post that the president “inspires a lot of affection but not a lot of awe. It is the latter, though, that matters most in international affairs where the greatest and most gut-wrenching tests await Obama”. Now Saturday Night Live – the slayer of Sarah Palin – has turned its fire on President Obama, portraying him a do-nothing president.
How has this impression built up? The promise of bold changes of policy on the Middle East and Iran – without much to show for it – has not helped. The public agonising over policy towards Afghanistan has been damaging. The slow pace of progress on healthcare has hurt.
Even the president’s strengths can begin to look like weaknesses. His eloquence from a public platform has begun to contrast nastily with his failure to get things done behind the scenes. I winced when I heard him proclaim from the dais at the United Nations that “speeches alone will not solve our problems”. This, from a man who was due to give three high-profile speeches in 24 hours in New York. I winced again, when Muammer Gaddafi of Libya told the UN that he would be happy “if Obama can stay forever as the president”.
Obviously, the gloom can be overdone. Mr Obama has been dealt a very difficult hand. He arrived in office when the entire global financial system was still shaking. The American economy remains in deep trouble. The president inherited two wars that were going badly and a deep well of international resentment towards the US. The Nobel committee’s decision was silly, but it reflected something real – the global sense of relief that the US now has a thoughtful, articulate president, who has some empathy for the world outside America. Mr Obama’s conservative critics might deride him as “Hamlet” because of his indecision over Afghanistan. But President Hamlet is still preferable to President George W. Bush. At least Mr Obama makes decisions with his head, rather than his gut.
It is worth remembering that the presidency of Bill Clinton also got off to a very rocky start. Mr Clinton failed over healthcare, blundered around over gays in the military (an issue that President Obama is now revisiting) and suffered military debacles in Somalia and Haiti. And yet he went on to be a successful president. Mr Obama has not yet suffered setbacks comparable to the early Clinton years – and he still has plenty of time to turn things around.
But momentum matters. The president badly needs a quick victory or a lucky break. He also needs to show that, at least sometimes, he can inspire fear as well as affection. Mr Obama can charm the birds off the trees. He can inspire crowds in Berlin and committees in Oslo. But – sad to say – he also needs to show that he can pack a punch.
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