Chavez goes for nukes

Obama needs to assert U.S. interests in our own backyard

By THE WASHINGTON TIMES

The song remains the same. We heard it from North Korea; we heard it from Iran. Now another dictatorship with no love for the United States embarks on a path that leads to nuclear-armed missiles. Venezuelan autocrat Hugo Chavez has announced that he has agreed to purchase some "little rockets" from Russia and also will begin work on a nuclear program, which he insists is for peaceful purposes. Yeah, right.

"We're not going to make an atomic bomb," Mr. Chavez declared in his folksy way, "so don't bother us like with Iran." We would be surprised if Mr. Chavez announced his intention to build a nuclear weapon. Few countries ever have. But recent precedents have not inspired confidence. North Korea reportedly is planning a third nuclear test, and the world waits for Iran soon to conduct its first. If Venezuela can cope with the threat of a few strongly worded letters from an unconvincing State Department, it can have a nuclear weapon too.

These announcements accompanied news that Moscow gave Caracas a $2.2 billion credit line for weapons, including 92 T-72 tanks and a Smerch anti-air system. Mr. Chavez's new "little rockets" reportedly have a 186-mile range and may be variants of the SCUD B, a Soviet missile familiar to Americans for killing U.S. troops during the first Gulf War. Mr. Chavez insists that these are purely defensive weapons, though they easily can be used for offensive purposes. In return for the easy credit, Mr. Chavez's regime extended diplomatic recognition to the Russian-occupied self-declared republics of Abkhazia and South Ossetia, becoming the third country after Russia and Nicaragua to do so and continuing the slow-motion partition of Georgia, a U.S. ally.

Meanwhile, the United States canceled $30 million in aid to Honduras as part of an ongoing effort to return a Chavez surrogate to power. We wonder: Is anyone home in the White House strategy shop? The president believes that all the world's problems can be settled by dialogue but does not seem to understand that what America views as problems other countries see as opportunities.

America's adversaries are changing the global game by taking advantage of the increasing aura of weakness that the United States is emitting on the international stage. Washington has practically begged Tehran to engage in dialogue over its menacing nuclear program and has been smacked back repeatedly. On Friday, the United States caved to the long-standing North Korean demand for bilateral talks. From Venezuela's standpoint, it is the perfect time to embark on a nuclear program because it knows it can do it cost-free. The world's bad actors are not afraid of President Obama, so they will continue to see what they can get away with.

The United States has an opportunity to take a stand. To defend U.S. interests, the Obama administration needs to reassert the Monroe Doctrine prohibiting intervention in Latin American affairs and register a strong objection to any move by Venezuela toward Russian-backed nuclear capability. This position has to be bolstered with a credible threat of action should Moscow and Caracas forge ahead. The threat of force doesn't need to be invoked immediately. Eventually, though, Mr. Obama must somehow establish that he's willing to use military power against more than teenage Somali pirates and the odd Islamic terrorist killed by remote control.

General Motors goes to the garage

General Motors goes to the garage

By John Gapper

“This is the death of an American icon,” I heard a television reporter saying as I got to the General Motors building in Manhattan for the announcement of its Chapter 11 bankruptcy. The only icon in sight, however, was the bitten apple over the glass entrance to Apple’s subterranean Fifth Avenue store.

Steve Jobs’ company located its flagship New York outlet below the plaza of the GM building as if literally to undermine the carmaker and its devalued brands. Up there is the old symbol of American innovation, winks the glass cube, but down here is the new one.

Apple was itself reinvented when Mr Jobs returned in 1997 to the company he founded and turned the iMac into the world’s coolest personal computer, before unveiling the iPhone as an encore. Now Fritz Henderson, GM’s chief executive, must do the same in Detroit.

If he succeeds, Mr Henderson will make Mr Jobs – and Louis Gerstner, Jack Welch and the industrial turnround artists of the past – look pedestrian. He may defy the sceptics but I remain one of them.

Watching Barack Obama before Mr Henderson’s appearance, I was struck by the US president’s oratorical and strategic acumen. “I refused to kick the can down the road,” he said of his decision to push GM into bankruptcy rather than accept the plan presented by Rick Wagoner, Mr Henderson’s predecessor.

In fact, kicking the can down the road is exactly what Mr Obama has done. But Chapter 11, and $30bn (€21bn, £18bn) of taxpayers’ money, have enabled him to boot it far enough into the distance that he will not come across it again for a long time, if ever.

I take Mr Obama at his word that he does not want to run GM day-to-day – not many people would. The US government is to take a 60 per cent stake in the “New GM” but this was unavoidable if it wanted to get some return on its investment while cutting GM’s debt.

The White House seems equally wary of Republicans branding the GM bankruptcy as “nationalisation” and of its Democratic allies in Congress using public ownership as a tool to impose crowd-pleasing restrictions on Detroit, such as limits on foreign parts and raw materials.

That is why it accompanied its GM plan with “four core principles” of equity ownership, which boil down to keeping as distant – and selling as quickly – as possible. Lawrence Summers, director of the National Economic Council, insists that the White House intends to “stay out of GM’s day-to-day operations”.

The beauty of Chapter 11 is that Mr Obama has no need to interfere. It allows GM to strip down its balance sheet, curb its healthcare and pension liabilities and close reluctant dealers. Mr Henderson will have the financial and operational room for manoeuvre that was always denied to Mr Wagoner.

That should keep it going for a bit. In fact, the latest in Detroit’s tradition of phoenix-like revivals (followed two years later by let-downs) is already occurring. New GM should make a profit when the industry’s US annual sales exceed 10m, the run-rate in May.

The real question is whether Mr Henderson can remould GM for the long-term, rather than foster a cyclical revival. Given its culture, and the soft spots in New GM, that is still improbable.

Ray Young, chief financial officer, lauded GM’s preparations for Chapter 11: “It’s actually amazing what has happened in the last 60 days and this tells us that when we set our objectives high ... we can achieve a lot at the new GM,” he said. As slogans go, it leaves something to be desired: “GM – very good at going bust.”

I am being unfair but Mr Young’s remark was an admission of GM’s biggest obstacle to remaking itself – its slow and cautious culture. It is no accident that Mr Henderson keeps talking of “going faster”.

His revival plan is sensible – fewer brands, more capital investment and marketing in each one, a less haphazard and duplicative approach to product development, and so on. He is known as one of GM’s most aggressive managers, with a low tolerance for failure.

But he does not have much to work with. GM sells a lot of cars in the US but, of the four brands it is keeping, only Chevrolet and Cadillac are clearly worth it.

GMC is a venerable truck brand but it overlaps heavily with Chevrolet, which sold 72,000 trucks, vans and sport utility vehicles in May compared with GMC’s 24,000. This is not only confusing but detracts from Mr Henderson’s wish to plant New GM in consumers’ minds as lean and green.

Buick, which is supposed to be a premium brand sitting between Chevrolet and Cadillac, is doing fine in China but is on its last legs at home. According to J.D. Power & Associates, the median Buick driver is 68 years old and earns less than the median Chevrolet driver, which suggests the brand is slowly dying.

Buick has started to make well-reviewed and high-quality vehicles but many younger drivers have lost interest. Ken Favaro, an industry consultant, says some GM brands in effect have negative value as vehicles will only sell at discounts to rivals of equivalent quality.

Mr Obama can now watch Mr Henderson’s effort to reform GM’s culture and reverse history from a safe distance. Either the latter pulls off the revival of the century or Chevrolet and Cadillac will eventually get absorbed by a global rival. New GM has one good quality: it is small enough to fail.

Chrysler Goes to Court

Bankruptcy – not Treasury – is the fairest venue for all parties.

President Obama's broadside against bankers yesterday illustrates better than any argument ever could that bankruptcy court, and not the political arena, is where Chrysler belongs. Yesterday's filing isn't the end of the U.S. auto industry, or even necessarily of Chrysler, and it offers the best chance to protect all parties under the rule of law.

Getty Images

"I don't stand with those who held out when everyone else is making sacrifices," Mr. Obama nonetheless declared, blaming what he called "a small group of speculators" for the car maker's Chapter 11 filing. To hear the President tell it, you'd never know that Chrysler had borrowed, and since frittered away, the $6.9 billion that it owes to those "speculators." The Administration had only offered $2 billion to those secured creditors as part of its proposed restructuring for the car maker. So it's hardly a surprise that many lenders would rather take their chances in bankruptcy court.

Chrysler's finances can now be restructured in a less political atmosphere in the New York courtroom of federal Judge Arthur Gonzalez. This is how the Chrysler collapse should have been worked out last December, when the auto maker first went looking for taxpayer cash. Treasury could have saved the $4 billion it lent the car maker at that time, to which we can now add another $8 billion that Mr. Obama promised yesterday to keep the company going.

The Administration is hoping the judge will do little more than rubber stamp the restructuring deal it has worked out among the Treasury, the United Auto Workers and the Italian car maker, Fiat. It could play out that way, if Judge Gonzalez determines that $2 billion is the highest and best value that can be obtained for Chrysler's assets.

But that is now the legal test that the Administration's plan must satisfy, not the political standard of whether the creditors "worked constructively" in a spirit of "shared sacrifice" that Mr. Obama set out yesterday. And let's hope Judge Gonzalez ignores Michigan Representative John Dingell, who yesterday called the investors "vultures" and warned darkly that they "will now be dealt with accordingly in court." Someone should tell Mr. Dingell that the debt-holders aren't on trial in a bankruptcy proceeding.

It's especially rich for Mr. Obama to blast the creditors for seeking "an unjustified taxpayer-funded bailout" while offering the UAW a 55% majority stake in Chrysler. He also praised the large banks that hold most of the Chrysler debt and supported the government plan. But of course J.P. Morgan and the other big banks are also recipients of billions of dollars in taxpayer cash and have a strong interest in playing nice with their creditor, Uncle Sam Obama.

The Chrysler creditors at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW's retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar.

A senior Treasury official described the decision to give majority ownership to the union's health-care trust as simple pragmatism -- that keeping the union happy is essential to the long-term health of the car maker. A skeptic might respond that this is precisely the kind of political-business calculation that helped to drive Detroit's auto makers into this ditch.

Meanwhile, over at Detroit's other ward of the state, General Motors, the Treasury was dismissive of a counter-offer that GM's private creditors made Thursday. Earlier this week, the Administration (via GM) made an offer to give those creditors about five cents on the dollar while taking 50% of the equity for the government. And it justified that offer by saying taxpayers needed to be protected for the $16.2 billion Treasury has already lent to GM.

So GM's creditors offered to take 50% ownership themselves in exchange for canceling their $27 billion in debt. The UAW would still get about 40% of GM, but the new private owners would control the firm. And the Treasury's own loans would be kept whole, helping to ensure that taxpayers get all their money back.

"The company can't sustain all that debt," a senior Treasury official told us, explaining why the government's share of the debt load needs to be reduced. That could well be true, but if the Treasury knew that $16.2 billion was too much debt for GM to carry, it had no business lending the company that much in the first place.

The GM drama will play out in the coming weeks before an end-of-May deadline, and it may also end up in bankruptcy court if Treasury doesn't make a better offer to creditors. That would be painful, but an independent judiciary is also the place where the rule of law and sound financial judgment can best prevail. That will ultimately serve taxpayers best as well.

Who Knows Where the Cash Goes?

Who Knows Where the Cash Goes?

Brian Doherty

Not them, GOP congresspersons are complaining. As Byron York reports in today's D.C. Examiner:

During the stimulus debate, the bill's supporters stressed that it included strong oversight safeguards. But audits and reports are months, if not years, away. Oversight will be after the fact; right now, with the money actually beginning to flow, members of Congress have little or no idea where it is going. What, for example, is the Department of Housing and Urban Development doing with the $1.5 billion Congress approved for a new program called the Homeless Prevention Fund?.... So Rep. Eric Cantor, the Republican Whip in the House, and GOP Sen. John Thune have set up a working group to track spending as best they can.......

"Right now we have very little access to information as to what the agencies are up to, prior to the money actually being spent," Cantor says. "Agencies will give you information in very broad terms, without many specifics."

That's where local news reports, dug up on the Internet, come in. When a city or county official learns that he will receive a pile of federal money, he usually tells the nearby newspaper or TV station.....

Such searches led the Cantor-Thune group to the Binghamton, New York Press & News-Bulletin for a glimpse into how HUD is spending that $1.5 billion in the Homeless Prevention Fund. In early March, the paper reported that the small town of Union, New York would receive $578,661 from the Fund, even though "Union did not request the money and does not currently have homeless programs in place in the town to administer such funds."

An article in the Altoona Mirror reported that the small central Pennsylvania town was going to receive $819,000 from the Fund even though Altoona officials "may not have enough of a homelessness problem to use it." And a Google search turned up a report from WHP-TV in Harrisburg, Pennsylvania saying the city would receive $855,478 from the Fund, but does not know what to do with it.

Oh, Republicans--so predictably playing into the all-too-common linking of any sense that government should be frugal with taxpayers money to these Scrooge-like kicks in the shins to the homeless, but, well, that's what they like to do (and I'm sure they'd argue that this is a matter of bureaucrats lining their own pockets in fanciful ways and not about helping the homeless at all; still, the symbolism is rotten and there are a plethora of other places they could look for fiscal malfeasance).

That couple of million these eagle-eyes are complaining about here is extremely small change in Obama's era of Big Change. But the larger question of how any of our elected representatives can represent us when it comes to how this flood of cash bombards the land remains. And the answer is, they can't, and that's exactly how the sultans of stimulus want it.

Corning Goes Prime Time

The Bailout Goes Global

The Group of 20 gets a trillion-dollar headline and the markets get a boost. Another ugly jobs report.

THE GANG OF 20 MET IN LONDON LAST WEEK to cope with the global economic crisis. To some extent, the powwow of the big chiefs was a bit anticlimactic, since the global stock markets had already decided the crisis was over. But grandees love summits not for what they accomplish but for the opportunity it affords them to take a break from the serious business of keeping the natives happy back home. And especially these days, when the living isn't easy, those natives can get pretty ugly.

Besides, it gives the beloved leaders a chance to size up the other potentates and eyeball any special behavioral warts and tics that can be exploited should it become necessary to doff the phony smiles and get down and dirty in dealing with their opposite numbers. And of course, in contrast to the old gangs, this one, in addition to the usual suspects, embraces a whole new and unfamiliar bunch.

Old and new members alike repeated the mantra that this meeting, designed to roll back the powerful tides of recession, would not repeat the mistakes of the last such London summit held back in 1933, in the shadow of the Great Depression. We took that to mean that, come hell or high water, the group was determined to make its own mistakes.

How successful they are in that admirable endeavor, it's too early to say, except to hazard that they're off to a promising start by planning to spend $1.1 trillion on they know-not-exactly-what. The U.S., frugal as always, tried to whittle down the final figure to $750 billion, and the Europeans, notorious tightwads, thought $500 billion was more than enough. But, happily, airier heads prevailed.

For, as the astute policy parsers at ISI Group observe, "It looked to us like the G-20 leaders were looking for a trillion-dollar headline to impress markets, and it worked." For the most part, they reckon, the results of the lavishly ballyhooed confab were a tad disappointing, but the G-20 headlines served as " a match dropped on technical kindling," providing fresh fuel for a spirited global stock-market rally already under way.

The biggest chunk of that trillion-plus bequest, or $750 billion, is ticketed for the IMF (its formal moniker, in case it has slipped from memory, is the International Monetary Fund), which like the rest of us in these straitened times can use a few extra hundred billion. As ISI points out, of the $500-billion boost in the IMF's current lending capacity, only half is now funded and the remaining $250 billion "has not been secured."

Even if the final tally comes up a bit shy of a trillion, the infusion of dough should provide needed balm to struggling, lesser-developed economies, especially in Eastern Europe, where the abyss yawns especially large. But in concentrating on virtuous action to the exclusion of facing up to the financial mess in which the world economy is mired, the summiteers reverted to evasive form.

As Harvard's Kenneth Rogoff acidly observed (we're quoting from a piece in the New York Times): "The rich countries are in denial about the depth of the problems remaining in their financial sectors. They want to congratulate themselves for taking all the right steps already, as if the only problem now is how to help emerging markets."

To be charitable (one of our gravest faults), our gallant leaders are only human. Their motto, regardless of the particular language they express it in, is "No blame, no pain." Which explains why they unfailingly leave the politically disagreeable heavy lifting to their minions.

Unfinished business, moreover -- no matter how critical to the state of the world -- has its uses as well: It's a great excuse for another summit.

STOKING THE STOCK-MARKET RALLY, along with all the hoopla heralding the bailout's going global, was the unsurprising news that the Financial Accounting Standards Board, which no one has ever accused of exhibiting a profile in courage, caved to Congress and aggrieved bankers -- a motley combo if ever there was one -- and changed the rules on how banks should treat troubled loans (the polite term for toxic assets).

Fearful of inducing your eyes to glaze over, we'll spare you the fine points of the switch. Essentially, it allows the banks to avoid valuing those distressed assets at what they might fetch on the market -- so-called marking to market -- and, instead, permits them to value the sour loans by (as cynics not unjustifiably describe it) marking to make-believe.

As it happens, such assets in the aggregate run into the megabillions, constituting a huge and seemingly indelible stain on the banks' balance sheets that can be cleansed only by write-offs and write-downs and fire sales. The trouble with the last is that demand has all but evaporated -- and so too, for all intents and purposes, has any semblance of a market for soiled assets.

Presumably, thanks to the grace extended by the FASB, heavily burdened banks will no longer be pressed to write off their toxic assets and, in the process, decimate their earnings. Which, of course, is not the least of the reasons that bank and kindred sectors have bounced so vigorously in anticipation of the shift.

As we intimated, the actual change is a bit more complex than our recounting suggests, but we think we've captured its basic intent and thrust, and our bare-bones recapitulation certainly squares with investor response.

What we find deliciously ironic is a possible unintended consequence of the FASB action. As several sharp-eyed Street hands have noted, the banks, no longer under the gun to account for their sins, might well cool to Tim Geithner's ambitious plan to form a private-public posse that would ride to the banks' rescue by scooping up those toxic assets.

Since, as we appraised it in last week's scribblings, under the plan, the privateers get the lion's share of the potential reward and the taxpayers (a.k.a. "the public") bear all but a sliver of the risk, we can only say, thank heavens for unintended consequences.

VAMPIRES AND PEOPLE-CHEWING monsters are all the cinematic and video rage among the younger set, or so a lot of our tut-tutting and purportedly adult friends complain these days. So far as we're concerned, there's nothing like a blood-curling DVD to pass the time on a dark and stormy night.

So we have no compunction in offering some gratuitous advice to the guys and gals at the Bureau of Labor Statistics: If you're hungering for fame and fortune (especially fortune), try your hand at working up a scary script for Hollywood or even an indie. Gosh knows, you've a wealth of experience, churning out those chilling horrors that pass for monthly employment reports.

For working stiffs, as we got official confirmation on Friday, March was a lousy month, extending the long string of lugubrious months that preceded it. Payrolls shrank by 663,000 jobs -- and the total further swells if you toss in the 86,000 jobs missed in the initial count for January and February and the 114,000 additions conjured up out of the thin air by the BLS with the aid of its magical birth/death model.

The unemployment rate shot up to 8.5%, from 8.1% in February, the highest in more than a quarter of a century. Moreover, if you include folks working part time because they can't find full-time jobs, along with those miserable, discouraged souls who gave up even looking for a slot, the percentage mounts to a formidable 15.6%, a new high since the bureau began keeping track in 1994.

Since the onset of recession in December '07, 5.1 million jobs have gone up in smoke, nearly two-thirds of them in the past five months alone. There are now more than 13 million workers involuntarily idled, while another nine million are part-time because they've either had their hours slashed or can't land a full-time spot. Obviously, we're talking big numbers here.

The pink slips handed out last month were prominent throughout the broad sweep of commerce and industry. Construction continued to take some painful lumps, as 126,000 jobs were lost in the building trades. And, note Philippa Dunne and Doug Henwood of the Liscio Report, nonresidential construction took a bigger hit than its residential counterpart. Manufacturing, despite all the murmurings to the contrary on Wall Street, continues very much on the rocks, as evidenced by the 161,000 layoffs in that amorphous sector.

Even someone with a job might have reason for rue, Philippa and Doug observe, as the slack labor market shows up in the truncating of the work week to an all-time low and in the feeble uptick in average hourly earnings. And they add that "it wouldn't surprise us at all to see wage gains erode further in the coming months."

On that score, Sung Won Sohn, at Cal State's Smith School of Business, expects that humongous stimulus being injected into the economy and the Fed's open spigot to provide a lift to the economy (how could they not?). But, he cautions, that won't prevent businesses from continuing to slash jobs in an effort to weather the still-harsh going likely ahead. And by his reckoning, that blessed day when corporations begin to hire instead of fire won't dawn until sometime next year.

In sum, keep those hatches battened down.

The Gordon Brown Takedown Goes Viral

The Gordon Brown Takedown Goes Viral

Desperate times call for great leaders like Daniel Hannan.

- by Andrew Ian Dodge

Unless you have been living under a rock or only have access to left-wing media, you might have heard about Dan Hannan. He is the MEP from Southern England who has become an internet sensation for his polite but pugilistic takedown of British Prime Minister Gordon Brown while he was visiting the European Parliament.

Completely ignored by the British media for almost 48 hours after it first appeared on UK blogs and trans-Atlantic ones like mine, the video of Hannan’s takedown is finally starting to get noticed by the British media. Upset by getting beat to the story by Fox News, Drudge, and quite a few other right-of-center blogs in the U.S., the British media is in full trashing mode. The most egregious effort so far is this biased trashing of Hannan by Channel 4 in the UK. Most amusing to those in the know about the YouTube sensation caused by the video is the fact that Channel 4 manages to get the amount of views the clip has been getting wrong by a factor of 50% x 10. Instead of mentioning that it was up to over 800,000 views at the time of the broadcast, Peter Snow said it had slightly more than 40,000. It has today broken the million views barrier. Was it a complete cock-up or a deliberately misleading comment? You take a look and be the judge.

Meanwhile, the BBC has barely managed to mention it at all. The network has been keen to stress the rather pathetic attempts by Labor’s Derek Draper, who appears on the Channel 4 piece, and MP Tom Harris, who has this to say:

What was truly repugnant about his speech was the total absence of any sense of patriotism. … Gordon Brown isn’t just Labour’s prime minister; he’s Britain’s prime minister, and for any UK politician to launch such a disgraceful, personal attack on his country’s leader — in a foreign country — is nothing short of disgraceful.

It has become rather clear that both the standard press and the Labor Party are feeling threatened by the sensation that Dan Hannan’s broadside against Gordon Brown MP has caused. He speaks for many Britons fed up with a prime minister who was not even elected to lead the country but appointed by the leadership of the Labor Party.

Hannan used a nautical theme for part of the speech:

Other ships used the good years to caulk their hulls and clear up their rigging — in other words, to pay off debt — but you used the good years to raise borrowing yet further. As a consequence, under your captaincy, our hull is pressed deep into the water line, under the accumulated weight of your debt.

What is most interesting, and should be a worry to both President Obama and the Republican Party, is the fact that Hannan’s words struck a deep chord with many Americans as well. Twitter and the Internet have been alight with people praising Dan Hannan’s appearance on Neil Cavuto’s show, even forgiving him his kind words about Obama’s candidacy. He also appeared on Sean Hannity’s show and several other U.S. programs.

This was something that many of us on the right, both in the UK and the U.S., took Hannan to task for during the lead up to the election. I was dumbfounded that such an ardent opponent of socialism and someone hewn from the same rock as Thatcher could be praising Obama.

I consider him a friend from the heady days of young adult, right-of-center politics in the UK. He, like me, is one of Thatcher’s children who spent much of the early 90s trying to get the Conservative Party to remain Thatcherite and not drift off toward the limp middle as it did under Major and subsequent leaders (sound familiar?). After his graduation from Oxford, Hannan was a regular at meetings, dinners of varying sizes, and social events in London sponsored by groups like the National Association of Conservative Graduates and the Conservative Way Forward. Young Conservatives in London lost a great talent when he went off to Brussels as an MEP. In Hannan, the European Parliament gained a permanent anti-federalist burr who would oppose its desires for continued encroachment on national powers and for micro-managing control.

We have to console ourselves that Douglas Carswell, a good friend of his and co-author of Hannan’s recent book The Plan, managed to get by the “wets” (British RINOs) and get elected to Parliament. In the book, Hannan & Carswell set out a vision for what a Conservative government should look like.

Rest assured that there are many conservatives in the UK who would like to see the next Conservative government led by Dan Hannan with Dougles Carswell as his chancellor, rather than the current lot that leads the centrist Conservative Party.

Needless to say, to hear Hannan described as “unknown,” “obscure,” or “up and coming” by the media on both sides of the Atlantic causes a bit of a snicker. Those who closely observed Hannan over the last decade or more saw him as a highflier yet to achieve his potential. Even those in the Conservative Party who did not share his Thatcherite/libertarian views knew he was going places from the first time they heard him speak.

His style reminds us of Disreali, Churchill, and Reagan — speakers greatly missed by lovers of good rhetoric. This is apt, as Hannan is as likely to quote from Reagan, Goldwater, Lincoln, or Jefferson as he is from great British leaders of the past.

The speech — which was heartfelt and passionate yet polite and dignified — reminded all of us what a great leader, rhetorician, and parliamentarian Dan Hannan is. There were calls from some for him to be leader during the last leadership election. On the basis of this latest episode, the clamor next time will be even greater.

And if the British Conservatives continue to fail to appreciate the man, I am sure that there are plenty of desperate conservative Americans who would welcome him with open arms as a new American citizen.

Desperate times call for great leaders. Dan Hannan is one such man.

Obama Goes for It All in Budget

• By GERALD F. SEIB

In poker, there's a maneuver called "all-in," in which a player pushes all his chips to the center of the table in one big bet.

By that standard, President Barack Obama is conducting an all-in presidency.

The big bet is Mr. Obama's first budget, which he has spent this week selling hard, from closed rooms on Capitol Hill to open forums on the Internet. It's an all-in policy statement.

The budget attempts to launch at the outset most of the big policy initiatives the president has in mind for his term. It has money for a new health plan, envisions a cap-and-trade system for limiting so-called greenhouse gases, invests big money in alternative energy, and continues the flow of dollars into education started in the economic-stimulus package.

Its sweep is striking, which cheers Obama partisans who want bold strokes. But it also is a real gamble. It has scared some important constituencies, including moderate Democrats who fear the deficits it could create, and business backers such as Warren Buffett, who worry its broad ambitions will divert attention from core economic problems. It has drawn new attention to deficits, united Republicans in opposition, and made it easier for critics to paint the president as a traditional big-spending liberal.

The Obama team could have made another choice; it could have been incremental, seeding in some items now, while promising to launch others over time. The trillion-dollar deficit already created by war costs, economic bailouts and stimulus spending would have been reason enough for caution.

But that isn't the path taken. So why run the risks inherent in this approach?

To understand the answer, it's necessary to understand how the president and his team see this moment in history, and their place in it. Their strategy is to shock the system at the outset, much as Ronald Reagan did in 1981 with his first budget, which sharply increased defense spending and squeezed budgets elsewhere. This administration's goal is to use the budget as an instrument to alter the very shape of the economy that emerges from recession. Details can sort themselves out later; the goal now is to put down markers.

In this view, the economic crisis has so shaken the nation that it has opened the door for a big change of economic direction. The administration is simply walking through.

"We have fundamentally shifted the center of gravity in this budget, in the same way Reagan did," Rahm Emanuel, the president's chief of staff, said in an interview. "We are going to use this time and this moment to do what needs to be done."

Mr. Obama himself summarized his thinking at an appearance Wednesday night: "It's more than just a budget; it's a blueprint for our economic future. It's a vision of what the Democratic Party stands for -- that boldly and wisely makes the choices we as a nation have been putting off for too long."

What are the choices he is talking about? There are three big ones.

The first is a big federal push, rather than smaller incentives, behind the search for alternative energy sources. The second is to follow on the education-testing culture the Bush administration created with an aggressive federal role in rewarding teachers, wiring and revamping schools and helping pay for college.

And the third is to put many billions of federal dollars into spreading health coverage, while hoping that spending a few billion of them improving the system's efficiency will keep down the ultimate price tag. The president has made it clear he is willing to raise taxes on upper-income Americans to do that.

It's an article of faith within the Obama team that movement in these three areas actually will create new energy jobs and a health system that isn't such a drag on the economy. "Anyone who thinks we view these things as separate and apart from our economic policy doesn't get our thinking," says one senior Obama adviser.

So the initial Obama budget is an attempt to push the envelope on all those fronts, knowing that Congress is likely to pull back somewhat. And pulling back is exactly what the House and Senate budget committees are doing as they craft their budget bills, trimming the spending Mr. Obama sought in such areas as health, putting aside for now his cap-and-trade system, and leaving in doubt the future of his middle-class tax credits.

Actually, this scenario turns the usual Washington game on its head. The more traditional approach by a White House is to low-ball its programs, knowing that Congress's inclination usually is to pump in more money and add programs. This president has created the opposite dynamic; Congress's role, which it played in the debate this week, will be to pull back.

The risks for Mr. Obama are that there will be no way to pay for it all without taxing the 95% of American taxpayers he has vowed to protect, and that the budget will open a lasting split with his own party's moderates. More broadly, if the economy doesn't start growing as soon and as fast as the administration expects, deficits could rise up and consume the very agenda the budget is meant to launch.

THE FED GOES CRAZY

The FOMC's Plan to Buy $1.1+ Trillion of T-bonds, Mortgage Debt, and "Other Financial Assets"

Gary North

The financial media is a-buzz over the Federal Open Market Committees decision yesterday to buy over a trillion dollars in assets. Here is an example. Another is here.

Let me parse the text of the FOMC's press release.

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

The facts point to a continuing decline in the economy. On the other hand, the Committee anticipates that the decisions of the Committee will slowly restore the economy. This is reassuring. Think of what the Committee would have had to say if the Committee believed that it was the decisions of the Committee, 2000 to 2007, that got us into this mess.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued.

Subdued. I like that. It conveys an image of a guy in a straight-jacket who is on Valium.

Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

Here it is, folks: inflation fosters economic growth. We just don't have enough inflation. The Committee will remedy that!

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.

Got that? We need more inflation in order to promote price stability. You read it here first!

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will maintain a rate that says that capital is a zero-price resource. Scarcity has been repealed "for an extended period of time."

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.

There will be an additional $750 billion in the monetary base, meaning high-powered money. This will support the housing market. We wouldn't want affordable housing. The job of the Federal Reserve System is to keep housing prices higher than the free market would maintain. This policy is consistent with the present policy of increasing inflation in order to attain price stability.

Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

The Interest rate on 10-year T-bonds was 2.5% yesterday. This is the longest maturity in the plan. This rate is above 0%, the rate for federal funds -- overnight loans, bank to bank. The Treasury would prefer T-bond rates closer to 0%. So, the FOMC will add an additional $300 billion in high-powered money to achieve this.

The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.

The FOMC will extend credit -- more high-powered money -- with collateral based on "other financial assets." What might these be? And how much money will be involved? Silence.

The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.

The Committee will monitor what the Committee is buying. This is good. What if the Committee did not monitor what the Committee is buying?

Developments are evolving. Developments have a tendency to do this.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Unanimous!