Asia Will Expand Faster This Year, Next, ADB Says (Update1)

By Karl Lester M. Yap

Sept. 22 (Bloomberg) -- The Asian Development Bank raised its economic growth forecast for the region on strengthening expansions in China, India and Indonesia, and said it’s too early for governments to withdraw stimulus policies.

Asia, excluding Japan, will grow 3.9 percent in 2009, faster than a March estimate of 3.4 percent, the Manila-based institution said in a report today. Growth may accelerate in 2010 to 6.4 percent, it said.

The region is leading the world’s emergence from its deepest recession since the 1930s after Asian policy makers cut interest rates to unprecedented lows and governments announced more than $950 billion of stimulus measures, helping the global economy avert a spiral into another Great Depression.

The ADB said withdrawing the measures too soon may derail the “fragile” recovery, echoing comments by the Obama administration and European officials ahead of this week’s Group of 20 nations summit in Pittsburgh.

Asia’s growth “is a result of synchronized expansionary policies” in the region, said Vishnu Varathan, an economist at Forecast Singapore Pte. The expansion doesn’t mean that the region is “decoupling” from the rest of the world, he said.

Asian governments may begin rolling back stimulus programs as early as the first quarter of 2010, Varathan said. “They may not be wrong but the risk is that it could be a tad premature especially if they do it all at the same time,” he added.

World Economy

Confidence in the world economy held at a record high in September after reports suggested the recession is over and officials said they won’t rush to withdraw stimulus, a Bloomberg survey of users on six continents showed Sept. 17.

Recovery in Asia also hinges on the revival of growth in Europe and the U.S., as this will affect the region’s export- dependent economies, the ADB said. Federal Reserve Chairman Ben S. Bernanke said last week the recession in the U.S. has probably ended.

“Any slippage in the major industrial economies’ recovery would delay the region’s return to its long-term growth path,” the ADB said.

Inflation in Asia may average 1.5 percent in 2009 compared with a March forecast of 2.4 percent, the ADB said. It expects inflation to accelerate to 3.4 percent next year as growth strengthens.

Monetary Policies

“Central banks in the region will therefore want to put a tight watch on monetary policies so as not to encourage asset bubbles that would inflate prices to levels that are no longer justified by fundamentals,” the ADB said.

South Korea’s financial regulator said earlier this month it will tighten restrictions on mortgages for people buying homes in the capital and surrounding areas to slow the increase in lending. Loans to households in August climbed 3 trillion won ($2.5 billion) to 405.1 trillion won, according to the Bank of Korea.

China will expand 8.2 percent this year, compared with the March forecast of 7 percent, the ADB said. India’s economy will grow 6 percent this year, up one percentage point from the earlier estimate, it said.

China’s August industrial production rose 12.3 percent from a year earlier, the most since the same month in 2008, while India’s factory output increased for a seventh straight month in July. China’s expansion follows a 4 trillion yuan ($586 billion) stimulus package, record lending and a rebound in property investment and sales that have countered a slump in exports.

Indonesia, South Korea

The ADB forecast Indonesia’s economy will expand 4.3 percent this year, compared with the March estimate of 3.6 percent. South Korea’s economy will shrink 2 percent in 2009, compared with the earlier predicted 3 percent contraction, it said.

In Southeast Asia, the ADB forecasts the economies of Thailand, Malaysia and Singapore will shrink this year, dragging growth in the region to 0.1 percent in 2009. The East Asian economies of Taiwan and Hong Kong will also contract, it said.

Some of the world’s biggest financial companies including Lehman Brothers Holdings Inc. collapsed as banks and other financial institutions reported about $1.6 trillion of writedowns and losses since the start of 2007. Asian banking systems “have not buckled under the strain of the crisis of confidence and there are signs that lending is reviving,” the ADB said.

Bernanke's Challenges for the Next Four Years

How to release the next boom

By George Magnus

In hard times, there is always an economic melancholy about the future. Yet, the periods after the two world wars of the 20th century, the inflationary 1970s, and the Asia and emerging markets crises of 1997-2000 were hardly disappointing. Today, despite some signs of financial and economic stabilisation, most economists expect economic growth over the next few years to be confined to a straitjacket. Could the current consensus about secular stagnation be wrong again?

Economic growth depends on the continuous discovery and expansion of markets, arising, for example, from a growing labour force and lower barriers to trade and capital movements and the interplay between capital investment and technological change. The unexpected boom of the 1920s witnessed a surge in output, manufacturing and productivity, the spread of mass production, and the development of household goods, not to mention a speculative real estate boom in the US that began in Florida, and the nefarious antics of one Charles Ponzi. After 1945, expectations of economic stagnation endured into the 1960s, in spite of more or less continuous expansion that was based on reconstruction, the reduction in trade barriers, a highly elastic labour supply, stronger educational attainment and rapid technological progress.

Today, we feel glum about economic prospects for all the normal reasons, but the most worrisome may be because the crisis has reminded us that we are losing two of the key growth drivers of the last 25 years.

Leverage will be restrained by impaired supply of credit and the repayment or restructuring of debt will have to go much further before private demand for credit expands significantly again. Restoring a viable banking system and unravelling the debt burden, first of households and then of governments, will weigh on the economy for several years.

Meanwhile, the crisis and its impact on pension plans have focused attention on the baby boomers, typically 20-25 per cent of the populations of western economies, who are now starting to head off into retirement. Since the boomers, and baby boomer women especially, were the backbone of the economic expansion of the last 25 years, we may lose a growth driver of great significance. Expected changes in the numbers of people of working age and of those over 65 underlie a unique shift in age structure that may result in weaker economic growth and growing financial stress for individuals and the state.

In spite of the economic implications of a more restrained credit environment and of rapid ageing, it would be as myopic to presume that our destiny is secular economic decline as it would be to believe that, in time, we will revert to the status quo ante. There are new growth drivers, but they need to be managed or facilitated.

Market size will probably continue to expand naturally in emerging markets. Some assertions that China’s economy will surpass the US within 10-15 years seem wide of the mark, but continued catch-up by China and other big emerging markets is hardly in doubt. Their share of world trade will expand, and the poorest countries will benefit if progress is ever made in lowering obstacles to agricultural trade. It is imperative, therefore, that strong and respected institutions accommodate the needs and interests of advanced and emerging economies.

The pressure on labour supply can be alleviated by strategies to raise the participation in the labour force of the two groups that are under-represented, namely, the over-55s and women. This is likely to involve extended working lives, changes in the organisation of work, more affordable childcare and family-friendly policies at work. Several large companies are already starting to explore the possibilities. The quality and productivity of the labour supply can be improved greatly by strengthening the education system, including universities, and by developing and expanding learning programmes throughout working lives.

Technological change may redefine the boundaries of future economic growth much as information technology has in the last 20 years. New IT applications are likely to augment production, design and the dissemination of information. Advances in materials will improve electronics, transport, energy systems and medicine. Genetic engineering is expected to lead to new products and processes in medicine, food production, plastics, chemicals and fuels. Nanotechnologies that build products more cheaply and precisely from individual atoms and molecules, could potentially revolutionise automation and robotics; and the fusion of nano, IT and genetic sciences could be as significant as any innovation so far.

Investors will have to use their judgment to identify winners and losers, but new growth drivers will emerge unless we act to suppress them. A better globalisation, in which emerging and advanced nations’ interests can be accommodated with appropriate compromises on all sides, will require effective national and international institutions. Demographic change can be offset through labour market and education policies. New production and work processes will require investment in infrastructure, more inclusive labour markets, possible changes to legal practices and improvements in training and education.

However hard times are, no one should imagine that economic melancholy is pre-ordained. The tricky part is where we come down in the “government versus markets” debate, now that the latter is in the dock. We have Big Government now, whether we like it or not, but the acid test will be if, in addition to picking up the pieces of the last boom, governments can help release the next one.

The writer is senior economic adviser, UBS Investment Bank, and author of ‘The Age of Aging: How Demographics are Changing the Global Economy and Our World’

Is China the Next Real Estate Bubble?

Weak export demand and looming Politburo changes are incentives to keep the monetary spigot wide open.

MICHAEL KURTZ

Chinese policy makers have lately spooked markets into thinking they might soon take away the monetary punch bowl that's been fueling the local asset recovery. Don't be fooled. Beijing is likely to continue priming the monetary pump to support domestic markets.

Exports remain weak despite positive signs from the U.S. and Europe, and domestic consumption has a long way to go to make up the gap. Spending on infrastructure is contributing massively to 2009 growth. Due to the strength of this year's fiscal stimulus, though, such outlays will be hard-pressed to carry GDP forward in 2010.

Thus residential housing construction stands as Chinese leaders' best hope for immediate results. To induce property developers to start new projects, policy makers first had to encourage a rapid drawdown of China's existing unsold housing stock by bolstering shattered sentiment with easy money. This has worked; unsold housing is now equal to roughly nine months of demand, down from more than 14 months at the start of the year. Spurring the property market to this degree is arguably China's most impressive economic feat of 2009.

Seen in this light, stable or rising prices on assets like property, far from being an accidental consequence of loose monetary policy, stand out as the purpose of that policy. The fact that housing construction must carry so much of the growth burden means policy makers likely prefer to err well on the side of too much inflation rather than risk choking off growth too early by mistiming tightening.

Meanwhile, China's political cycle may exacerbate risks of an asset bubble. President and Communist Party Chairman Hu Jintao and other senior leaders are expected to step down at the party's five-year congress in October 2012. Much of the jockeying for appointments to top jobs is already under way, especially for key slots in the Politburo. Mr. Hu will want to secure seats for five of his allies on that body's nine-member standing committee, ensuring his continued influence from the sidelines and allowing him to protect his political legacy.

This requires that Mr. Hu deliver headline GDP growth at or above the 8% level that China's conventional wisdom associates with robust job creation, lest he leave himself open to criticism from ambitious rivals. The related political need to avoid ruffling too many feathers in China's establishment also may incline leaders toward lower-conflict approaches to growth, rather than deep structural reforms that would help rebalance demand toward sustainable private consumption. Easy money is less politically costly than rural land reform or state-enterprise dividend restructuring. This is especially the case given that much of the hangover of a Chinese asset bubble would fall not on the current leadership, but on the next.

Meanwhile, a "bubble coalition" may be building at the economy's ground level. China's banks were initially reluctant to jeopardize their hard-fought internal reforms in the name of inflating a monetary bubble through increased lending. But now that they have lent out massive new sums to home buyers, developers and governments that reap revenues from land sales to developers, the banks have a bigger stake in keeping property prices firm. Homeowners are part of this coalition too, especially the substantial number who are circumventing official downpayment requirements and buying houses with 100% debt.

For all these reasons, China's leaders most likely want to stage-manage asset inflation instead of stopping it. Despite all the talk from Beijing about curtailing excessive credit expansion, policy makers have not taken truly decisive steps, such as raising reserve requirements on banks to sop up liquidity.

Rather, officials seem concerned mainly with injecting occasional reminders that markets are still two-directional, so as to avoid a one-way stampede with more dire inflationary consequences. When their negative rhetoric is too effective, they've proven just as willing to talk markets up again.

All this is at least leading to some accidental reforms as policy makers try to vent monetary pressures. Domestic initial public offering issuance has been restarted, with five companies listing shares worth a total of $7.9 billion just since July 10. The main intent is to absorb errant liquidity, but such listings might also help usher in governance reform via further privatization. China also is increasingly green-lighting capital outflows, such as outbound mergers and acquisitions and portfolio investment through sovereign entities.

A freer capital account is a positive and necessary step on China's long-term path toward economic modernization. Still, a recovery strategy dependent on reinflating an asset bubble is fraught with risks. It could exacerbate politically destabilizing wealth disparities, cause misallocation of savings and physical resources, and create the threat of widespread wealth destruction if policy makers misjudge the exit strategy and have to step hard on the brakes. Inflationary missteps also could spur a return to price controls, as seen in January 2008 when China last fought back inflation. This would reverse admirable recent price liberalization designed to encourage more efficient resource use.

There's a saying that you meet your fate on the road you took to avoid it. If China continues down the road of asset inflation to drive growth, rather than embracing tough structural reforms, that fate may be more troublesome than policy makers expect.

What's Next for A Post-Coup Honduras

THE NEXT OIL SHOCK

THE NEXT OIL SHOCK

Energy Policy: A top expert tells Congress that oil will be around for a long time and high inventories and low prices are no excuse not to find more. Oil shock? How about a no-oil shock?

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Be careful what you wish for, goes the old proverb. Well, as we all had hoped, energy prices have fallen — but only as part of the global decline in economic activity. This has been used as an excuse to further discourage exploration for and development of domestic oil resources. But if the economy does recover, that policy could provoke another recession.

Daniel Yergin, chairman of HIS-CERA, testified before the Joint Economic Committee of Congress last week that we have already experienced a "demand shock" with very high prices driven by rising global demand led by the economies of China and India.

We've also experienced what he calls a "recession shock" with flat or falling demand and low prices. But there might be another "long aftershock" in our future with high demand returning with a vengeance along with a global economic recovery, leaving those who buried their heads in the oil sands in the economic lurch.

The current recession has wiped out demand growth for the last four years. Oil prices have tumbled $100 a barrel or more from their high point. Spare production capacity is expected to be 6.5 million barrels per day through 2009. Anticipating a robust future, other countries such as China and Brazil have continued to look for oil while we continue to research . . . switch grass.

Interestingly, as Yergin notes, current spare capacity is equal to the combined total output of Iran and Venezuela — or the combined exports of Iran, Venezuela and Nigeria.

These are three of the most unstable nations on the earth, and two of them are implacably hostile to the U.S. This does not bode well for our economic and energy security.

While low prices and excess capacity sound good, they could vanish like the morning dew. The long lead times, up to a decade for a new field, needed to expand capacity and replenish supplies should compel us to drill like there's no tomorrow — for there might not be.

Oil will continue to be a big player in our energy mix no matter how many windmills we tilt at or how many clown cars we place in front of 18-wheelers on our interstates.

"Today," Yergin notes, "fossil fuels — oil, natural gas, and coal — supply over 80% of our total energy. Oil by itself is about 40%. That alone makes clear the importance of oil — and the evolution of the oil market — to our economy and security in the decade ahead."

America's oil and natural gas energy needs will grow. A study by ICF International, commissioned by the American Petroleum Institute, finds that our domestic energy resources placed off limits by Congress in ANWR, in Rocky Mountain shale and in the Outer Continental Shelf could generate more than $1.7 trillion in government revenue and create thousands of new jobs.

The irony is that in North America we have enough oil to ensure our energy and economic security. The U.S. and Canada together hold 15% of the world's proven reserves, and that's not even including the potential of American oil shale and Canadian oil sands — which are massive.

The current decline in demand has also sparked a decline in investment and added further justification for its deliberate policy of thwarting any expansion in domestic supply.

"As the economy picks up, spare capacity will start to erode, and the oil market could tighten again in the first half of the next decade," Yergin said. "The result could be another adverse shock to the U.S. economy and global energy security."

The result could be another recession where we drive to the unemployment office in our government-designed clown cars.

Who is the next Jack Kemp?

Kempism

Jerry Bowyer

Who is the next Jack Kemp?

We're going to need another Jack Kemp. We're in the same mess now as we were when he rose to prominence in the 1970s: rising taxes, energy rationing, and a misguided belief that we can counter all of that with the printing press. We're going to need someone who can understand the fundamental truth of the Laffer Curve, and still has the charisma to lead men and women in the political sphere.

I owe Jack Kemp a lot--we all do. His supply-side optimism helped supplant the near-universal conservative pan-gloomism of the '70s. George Gilder wrote the book, and Reagan won the White House, but before both of them, Kemp cracked the code. Kemp took the groundbreaking and brilliant work of Art Laffer and Robert Mundell and turned it into a real political movement and real-world legislation (and rescued it from becoming a Jude Wanniski cult). Kemp helped Reagan to convert from Goldwater-root-canal-high-tax-low-deficit economics and gave the GOP a new lease on life.

Kemp should have been the successor, but the Bush dynasty pulled their many strings and won the White House, and the party lost something. The Republicans have wandered in the economic wilderness, to some degree, ever since. Bush Sr. governed as a Keynesian. So did Clinton, in his first term. In his second term, Clinton governed as a supply-sider. Bush Jr. never really had it clear in his mind: demand-side tax cuts in 2001, supply-side tax cuts in 2003, Sarbanes-Oxley financial strangulation, car-crushing CAFE standards, mark-to-market, bailouts--a mixed supply-side legacy at best.

Now, as everybody and their brother tells us that the only way for the GOP to get back on top again is to stop all this tax-cutting and supply-side growth stuff, it is worth asking whether the Kemp/Reagan formula is obsolete.

I, for one, do not believe that it is.

The main thing about Kempism is that it actually worked. What the big-government conservatives can't see from their perches at think tanks and newspapers is reality. Central planning doesn't work. I don't care about the emerging voting patterns of bo-bos (David Brooks' "bohemian bourgeois"). I don't care if the lawyers and nonprofit executives who live in their planned communities hate Sarah Palin and swoon at Barack Obama. I don't care about any of that, because politics is not the final word; reality is. That's what Kemp got, and so many in the party now do not.

The central planning political consensus was at least as strong in the 1970s as it is now. David Frum should know that: He wrote a fine history of that awful decade. I'm sure that if there had been blogs back then, Washington conservatives would have told us how out of touch Kemp (and Reagan) were with the political consensus, and they would have been right. But they would have been wrong, too, because in the end, the political consensus does not rule the land; reality does.

Foreign affairs and terror prevention were incredibly passé in the years leading up to Sept. 11, 2001. No one wanted to talk about that stuff. Books about it did not sell. Then, reality caught up with our Utopian illusion: Indifference didn't work in defending us against the jihadists. More handcuffs on the CIA and the FBI than on the terrorists in the name of civil liberties didn't work, either. Reality won again, and the political consensus lost.

This will happen again--in economics. Bushbamanomics, the new Washington consensus, will fail. Just as Nix-Carternomics did. They violate the iron laws of created human nature--and so, they must fail.

Where is the next Kemp to be found? Not from the big government right. Yes, they'll keep their titles as the holders of the So and So Chair at the D.C. Institute for C-SPAN 2 Appearances, funded by some poor, deceased entrepreneur. They'll still be The New York Times' favorite conservatives. They'll still appear on PBS regularly; but they won't lead the party.

He (or she) won't come from the gloomy right, who love to drone in Spenglerian tones about the inevitable decline of the Republic. I didn't sign on to Reagan/Kemp to "stand athwart history yelling stop." That's the left's job. They were the ones who tried to stop history, to push it back into the bottle, to stifle the whirlwind of creative destruction. I signed up for the Reagan/Kemp program to stand behind history and kick it hard in the butt, yelling "get moving again." "Create microchips and miracle drugs. Get the Soviets into the ash bin of history, quickly. Bring the slums of Calcutta and Soweto into the modern world."

Our recent crop of GOP pretenders has been most un-Kempian. Kemp understood that reality has the power to bring people with very different agendas and concerns together. I remember one of the big media liberal pundits speaking about the GOP convention in 1984, I think, after Kemp spoke. It might have been Sam Donaldson. He said "These Republicans think they can take born-again Christians and combine them with high-tech entrepreneurs. It won't work."

But it did work. It worked because high-tech entrepreneurs needed lower taxes, and Reagan gave it to them. Born-again Christians were right, the sexual revolution didn't liberate the culture; it degraded it. These two groups didn't have a lot of personal chemistry between them, nor either with the foreign policy hawks who were the real "realists" of the cold war. Personal chemistry didn't bring these people together--reality did. All reality needed was a guy who was willing to search for the truth about the way the world works, to disconnect his flinch reactions about how the political culture would react to the truth, and then explain the basic truths of things over and over again with joy. Jack Kemp was that guy.

Now, of course, smaller men divide up the coalition that Kemp conceived and Reagan created. Some of them talk at length about the sanctity of life but then lash out at the "Club for Greed." Some will cut taxes to the bone, but are bored by dead babies. They believe in "divide and conquer," but of their friends, not their opponents.

Let me offer some thoughts on where the next Kemp will (and will not) come from: probably not from the establishment. Washington doesn't grow problem-solvers, it grows power-accumulators. I'm talking about the right and the left. I'm talking about those in the network of think tanks, lobbying firms and advocacy groups, which constitute the government in exile. The first group crowds around the president; the second group crowds around the money. Neither actually face anything like economic reality. The next Kemp will really get economics, but will be an outsider to the profession. Economics is often best learned outside of a graduate school of economics. Kemp learned it while cooking breakfast for Art Laffer and peppering Art with questions. Of course, Kemp really learned his economics by growing up in an entrepreneurial household.

Laffer is still with us, and still a generous teacher. So are Kudlow and Forbes. My guess is that the next Kemp will be a reader of Laffer, a watcher of Kudlow and a subscriber of Forbes. This person will not have to try to remarry faith and entrepreneurship, because the two were never properly divorced. The conservative establishment will say, "who is that? I've never met them at any of our gatherings." But he (or she) will have energy, and enthusiasm, and problem-solving ability, and more ambition for ideas than for power.

History is about to enter another ditch. Someone will need to stand behind it and give it a hard kick in the butt and yell "get moving again." I can hardly wait.

Jerry Bowyer is chairman of Bowyer Media and a CNBC contributor.

WHAT IS NEXT? THE SIZE OF YOUR HOUSE?

U.S. Lawmakers Consider Bair’s Suggestion to Limits Banks’ Size

April 22 (Bloomberg) -- U.S. lawmakers considered and some backed an idea by Federal Deposit Insurance Corp. Chairman Sheila Bair to limit the size of banks and prevent lenders from becoming “too big to fail,” U.S. House Democrats said.

Representative Brad Sherman of California and member of the House Financial Service Committee, said Bair “threw out” as a possibility regulating the growth of companies to prevent any from becoming so big that government is forced to take over the institution. Bair didn’t elaborate on her proposal, he said.

“Maybe there should be limits on the size of institutions,” Sherman said Bair suggested during a meeting yesterday with House Democrats. “There was a positive response from people in attendance.”

Bair has said she wants to “end too-big-to-fail” models that have shaped U.S. policy and wants financial firms to reduce systemic risk by “limiting size” and “complexity.” She said in March that regulators need to impose “higher capital requirements” to ensure banks have enough capital to withstand worsening economic scenarios.

Bair didn’t offer a proposal, suggest how to limit the size or specify the ideal size, said Representative Edolphus Towns, a New York Democrat. “That was the interest, to make certain that we don’t have this problem again, that these institutions get too big to fail, in the interest of consumers.”

Democrats invited Bair to a closed-door Washington meeting for a briefing on the banking industry and discuss a request to expand the FDIC’s borrowing authority from the U.S. Treasury to $100 billion from $30 billion. Bair has said an increase will help instill confidence in depositors that the government stands behind their FDIC-insured accounts after more than two dozen lenders were shut this year, lawmakers said after the meeting.

Depositors Protected

“Her message is the FDIC, even in the midst of everything that’s happened with 25 banks having been closed, not a single depositor has lost money,” said Representative John Larson, a Connecticut Democrat.

Bair said that expanding the FDIC’s borrowing authority would lessen pressure to raise the premiums on banks, especially on smaller institutions, to replenish the deposit insurance fund, said Representative Maxine Waters, a California Democrat and chairman of the Financial Services’ housing panel.

Lawmakers are concerned that “good banks would be penalized” for mistakes by larger banks that became overleveraged and took on too much risk, Waters said after the meeting.

Representative David Wu, an Oregon Democrat, said Bair told the group that “assessments should reflect costs” to insure.

Bair also endorsed an effort, pushed by House Speaker Nancy Pelosi and discussed by Democratic legislators at the meeting, for a comprehensive inquiry into the causes of the financial crisis, Larson said.

“She’s in the same camp as a number of people, that we need to take a thorough look back at what transpired,” Larson said in an interview. “We need to take a look back at how we got into this current fix.”

South Africa's election

Africa's next Big Man

If Jacob Zuma avoids becoming a caricature of African leadership, he could change the whole continent for the better

WITHIN weeks, Jacob Zuma is set to become the most powerful man in Africa, a continent of a billion souls that is still the poorest and, despite recent improvements, the worst governed on the planet. South Africa provides more than a third of the 48 sub-Saharan economies’ total GDP. It is Africa’s sole member of the G20 group of influential countries and packs a punch in global diplomacy. Its emergence from the gruesome era of apartheid is a miracle of reconciliation. Africans across the continent and oppressed peoples elsewhere still look to South Africa’s leader as a beacon of hope.

The country’s president is to be elected by Parliament after a general election on April 22nd which the dominant African National Congress (ANC) is sure to win again. As the party’s candidate, Mr Zuma is unquestionably Africa’s next “Big Man”. But it is a phrase that goes to the heart of the continent’s troubles. Too many African countries have been ruined by political chiefs for whom government is the accumulation of personal power and the dispensation of favours. That the revered Nelson Mandela’s rainbow nation is now turning to a man of Mr Zuma’s stamp may sharpen prejudices about Africa. It is for Mr Zuma to prove these doubters wrong.

He is undoubtedly a man of remarkable qualities (see article). In contrast to his dour predecessor, Thabo Mbeki, Mr Zuma can charm the birds out of the trees. Unlike the racially twitchy Mr Mbeki, he feels good in his skin, happy to acknowledge, even celebrate, his modest background. He properly educated himself only during his ten years as a prisoner on Robben Island, alongside Mr Mandela. Mr Zuma is charismatic and canny, as you would expect of a guerrilla who rose to be head of intelligence for the now-ruling ANC. He has been a wily negotiator, who magisterially ended the strife between his fellow Zulus in the early post-apartheid era. He connects easily with black slum-dwellers and white tycoons alike.

Big man, big problems

But his flaws are just as patent. He has been entangled for years in a thicket of embarrassing legal cases from which he has only recently been extricated—on a technicality. His financial adviser was sentenced to 15 years in prison for soliciting bribes for Mr Zuma. He has also been tried, and acquitted, on a rape charge. At the least, he has sailed perilously close to the wind. To put the kindest interpretation on his financial dealings, he has been naive and sloppy, not the best qualities for looking after Africa’s biggest economy. During his trial for the rape of an HIV-infected family friend, at the height of the AIDS plague in a country which has the world’s highest recorded rate of rapes, he showed gross chauvinism and staggering ignorance, notoriously explaining that after having sex he had showered to stave off the disease. He is an illiberal populist, sneering at gays and hinting at bringing back the death penalty.

When it comes to policy, Mr Zuma travels light. In the wake of Mr Mbeki’s shameful and lethal denial of the link between HIV and AIDS, he has overseen the appointment of a sensible new health minister. He seems to want the awful Robert Mugabe ousted in Zimbabwe, though his pronouncements have varied. Once a member of the South African Communist Party, which used to fawn on the Kremlin, he shamelessly switched to capitalism after his predecessors, Mr Mandela and Mr Mbeki, had persuaded the ANC to somersault away from socialism. These days he tells the hungry black majority that he has their interests at heart, while reassuring businessmen that he will not switch to high-tax redistribution. No one is sure in which direction he will push the economy, now wobbling after years of steady, commodity-fuelled growth.

As with all the other Big Men, the principal worries revolve around a fatal conflation of party and state. Given South Africa’s racial and tribal mix, robustly independent bodies are vital, from Parliament and the judiciary to human-rights monitors, medical institutions and free media, but the ANC has stuffed all of them with party loyalists to entrench its hegemony. Candidate Zuma has seemed to rate loyalty to the ANC above all else, even the admirable constitution that the party itself was largely responsible for writing. It is not certain he believes in the need to separate powers, letting his fans hurl abuse at judges when they ruled against him.

Confound us all

President Zuma must grab his early chances to reassure the worriers. He should state unequivocally that he will not propose a law to render the head of state immune from criminal prosecution. He needs to resist the temptation to elevate some of his dodgier friends to high judicial posts. Parliament needs more bite to nip the heels of the executive; the present system of election by party lists shrivels the independence of members and needs reform. To curb cronyism, all MPs, ministers and board members of state-funded institutions should register their and their families’ assets. He should also keep the sound Trevor Manuel as finance minister. Finally, Mr Zuma should ask his government to revise, perhaps even phase out, the policy of “black economic empowerment”. This may have been necessary 15 years ago to put a chunk of the economy into black hands. But its main beneficiaries now are a coterie of ANC-linked people, not the poor masses.

Hardest of all for Mr Zuma to accept is that, in the longer run, South African democracy needs a sturdier opposition. The liberal Democratic Alliance, led by a brave white woman, Helen Zille, has good ideas but has failed to expand its appeal beyond a white core. The new Congress of the People, a black-led breakaway from the ANC, has able leaders, yet several are tainted by association with Mr Mbeki. With luck the opposition parties may stop the ANC from getting the two-thirds of parliamentary seats that would let it override the constitution.

Mr Zuma could yet prove to be the right sort of Big Man: big enough to hold his party back from creating something akin to a one-party state, big enough to accept that no one, himself included, is above the law. If that is how he chooses to spend his five years in power, South Africa would indeed serve as a model for the whole continent. But will he?

South Africa's election

Africa's next Big Man

From The Economist

If Jacob Zuma avoids becoming a caricature of African leadership, he could change the whole continent for the better

WITHIN weeks, Jacob Zuma is set to become the most powerful man in Africa, a continent of a billion souls that is still the poorest and, despite recent improvements, the worst governed on the planet. South Africa provides more than a third of the 48 sub-Saharan economies’ total GDP. It is Africa’s sole member of the G20 group of influential countries and packs a punch in global diplomacy. Its emergence from the gruesome era of apartheid is a miracle of reconciliation. Africans across the continent and oppressed peoples elsewhere still look to South Africa’s leader as a beacon of hope.

The country’s president is to be elected by Parliament after a general election on April 22nd which the dominant African National Congress (ANC) is sure to win again. As the party’s candidate, Mr Zuma is unquestionably Africa’s next “Big Man”. But it is a phrase that goes to the heart of the continent’s troubles. Too many African countries have been ruined by political chiefs for whom government is the accumulation of personal power and the dispensation of favours. That the revered Nelson Mandela’s rainbow nation is now turning to a man of Mr Zuma’s stamp may sharpen prejudices about Africa. It is for Mr Zuma to prove these doubters wrong.

He is undoubtedly a man of remarkable qualities (see article). In contrast to his dour predecessor, Thabo Mbeki, Mr Zuma can charm the birds out of the trees. Unlike the racially twitchy Mr Mbeki, he feels good in his skin, happy to acknowledge, even celebrate, his modest background. He properly educated himself only during his ten years as a prisoner on Robben Island, alongside Mr Mandela. Mr Zuma is charismatic and canny, as you would expect of a guerrilla who rose to be head of intelligence for the now-ruling ANC. He has been a wily negotiator, who magisterially ended the strife between his fellow Zulus in the early post-apartheid era. He connects easily with black slum-dwellers and white tycoons alike.

Big man, big problems

But his flaws are just as patent. He has been entangled for years in a thicket of embarrassing legal cases from which he has only recently been extricated—on a technicality. His financial adviser was sentenced to 15 years in prison for soliciting bribes for Mr Zuma. He has also been tried, and acquitted, on a rape charge. At the least, he has sailed perilously close to the wind. To put the kindest interpretation on his financial dealings, he has been naive and sloppy, not the best qualities for looking after Africa’s biggest economy. During his trial for the rape of an HIV-infected family friend, at the height of the AIDS plague in a country which has the world’s highest recorded rate of rapes, he showed gross chauvinism and staggering ignorance, notoriously explaining that after having sex he had showered to stave off the disease. He is an illiberal populist, sneering at gays and hinting at bringing back the death penalty.

When it comes to policy, Mr Zuma travels light. In the wake of Mr Mbeki’s shameful and lethal denial of the link between HIV and AIDS, he has overseen the appointment of a sensible new health minister. He seems to want the awful Robert Mugabe ousted in Zimbabwe, though his pronouncements have varied. Once a member of the South African Communist Party, which used to fawn on the Kremlin, he shamelessly switched to capitalism after his predecessors, Mr Mandela and Mr Mbeki, had persuaded the ANC to somersault away from socialism. These days he tells the hungry black majority that he has their interests at heart, while reassuring businessmen that he will not switch to high-tax redistribution. No one is sure in which direction he will push the economy, now wobbling after years of steady, commodity-fuelled growth.

As with all the other Big Men, the principal worries revolve around a fatal conflation of party and state. Given South Africa’s racial and tribal mix, robustly independent bodies are vital, from Parliament and the judiciary to human-rights monitors, medical institutions and free media, but the ANC has stuffed all of them with party loyalists to entrench its hegemony. Candidate Zuma has seemed to rate loyalty to the ANC above all else, even the admirable constitution that the party itself was largely responsible for writing. It is not certain he believes in the need to separate powers, letting his fans hurl abuse at judges when they ruled against him.

Confound us all

President Zuma must grab his early chances to reassure the worriers. He should state unequivocally that he will not propose a law to render the head of state immune from criminal prosecution. He needs to resist the temptation to elevate some of his dodgier friends to high judicial posts. Parliament needs more bite to nip the heels of the executive; the present system of election by party lists shrivels the independence of members and needs reform. To curb cronyism, all MPs, ministers and board members of state-funded institutions should register their and their families’ assets. He should also keep the sound Trevor Manuel as finance minister. Finally, Mr Zuma should ask his government to revise, perhaps even phase out, the policy of “black economic empowerment”. This may have been necessary 15 years ago to put a chunk of the economy into black hands. But its main beneficiaries now are a coterie of ANC-linked people, not the poor masses.

Hardest of all for Mr Zuma to accept is that, in the longer run, South African democracy needs a sturdier opposition. The liberal Democratic Alliance, led by a brave white woman, Helen Zille, has good ideas but has failed to expand its appeal beyond a white core. The new Congress of the People, a black-led breakaway from the ANC, has able leaders, yet several are tainted by association with Mr Mbeki. With luck the opposition parties may stop the ANC from getting the two-thirds of parliamentary seats that would let it override the constitution.

Mr Zuma could yet prove to be the right sort of Big Man: big enough to hold his party back from creating something akin to a one-party state, big enough to accept that no one, himself included, is above the law. If that is how he chooses to spend his five years in power, South Africa would indeed serve as a model for the whole continent. But will he?

Obama's Next Hostage Crisis

Pirates are flourishing because the world is letting them.

President Obama may have dodged a hostage crisis on the high seas yesterday, thanks to the bravery, quick thinking and good fortune of the 20-man American crew of the Maersk Alabama. But unless his Administration moves quickly to show that pirates, rogue states -- and even a few rogue judges -- will pay a fearsome price for taking U.S. citizens hostage, a similar drama can't be far off.

AP

As we went to press, the crew of the Maersk Alabama had regained control of their U.S.-flagged, 17,000-ton unarmed merchant ship, though its seems Captain Richard Phillips was still being held by Somali pirates. The ship had been bound for Mombasa, Kenya, carrying a cargo of emergency food when it came within 300 miles of Somalia's coastline. It is one of at least 50 ships to have been attacked by Somali-based pirates in the past three months. But it is the first U.S.-flagged vessel to have been hijacked in years, and perhaps decades.

Why has Somalia become the 21st-century version of the 17th-century West Indies? The usual answer is that it's a failed state, unhappily situated near a major shipping lane where all kinds of criminality can thrive.

In fact, piracy is making a comeback because the world has largely allowed it. The owners of captured vessels have been willing to pay multimillion dollar ransoms to recover the ships, 16 of which and 200 crew members are currently in pirate hands. Restrictive or ambiguous rules of engagement -- a bequest of the Law of the Sea Treaty -- create further difficulties for navies trying to prevent piracy. Western states have also been wary of trying captured pirates in their own courts, choosing instead to remand them to Kenya's jurisdiction.

As for the U.S., too often the operative language in dealing with pirates has been "no controlling legal authority," in part because, until now, all of the hijacked ships have operated under foreign flags. The case of the Maersk Alabama was (or would have been) clearly different. Still, the price the civilized world has paid for dispensing with the old Ciceronian wisdom that pirates were hostis humani generis -- enemies of the human race -- can probably now be counted in billions of dollars.

We don't advocate reverting to Roman methods (e.g., crucifixion) for dealing with pirates, though the Administration could apply the Stephen Decatur standard by bombing the Somali pirate city of Eyl. U.S. law is clear that pirates who attack U.S. flag ships deserve at least 10 years in prison. But treating captured pirates as enemy combatants unworthy of Geneva Convention protections would help in cases where pirates attack foreign-flagged ships and international law is now more ambiguous.

A similar attitude might guide the Obama Administration in its dealings with other states that have, or seek, to take Americans captives. North Korea seized two American journalists, Euna Lee and Laura Ling, last month on the Chinese border and says it intends to put them on trial for "espionage." Iran also uses hostage-taking as an instrument of state policy, including the British sailors seized in Iraqi waters in 2007, American academic Haleh Esfandiari the same year and, most recently, American journalist Roxana Saberi, whom the Iranians also accuse of espionage and who is now being held in Tehran's notorious Evin prison.

REVIEW & OUTLOOK

The World According to Garzon — 04/08/09

Then again, why look so far afield? As we wrote yesterday, a Spanish judge may soon order arrest warrants for six Bush Administration officials on dubious charges under the preposterous theory of "universal jurisdiction." So far, however, the Obama Administration hasn't spoken a word in their defense. If the U.S. government won't protect American citizens from the legal anarchy of postmodern Europe, how can we expect it to protect American sailors from the premodern anarchy of Somalia, much less the tyrannies of Tehran and Pyongyang?

The Next Oil Shock

by Richard W. Rahn

The price of oil soon will soar again. The present price of a barrel of oil, $50 or so, is below the price needed to meet current demand for a sustained period of time, and it is well below the price needed to meet global demand as the world economy rebounds.

In addition, with the U.S. Federal Reserve System greatly expanding the money supply - which will continue because of the explosion in government spending - the dollar is falling against other currencies; and given that global oil is priced in dollars, the price of oil will rise in dollar terms, just as it did two years ago.

About 65 percent of the demand for global oil can be supplied at a price of $35 per barrel. Another 20 percent of demand can be supplied at a price of $35 to $60 per barrel, but the remaining 15 percent will only be supplied over the long run at prices of $60 to perhaps $130 per barrel. Oil, like all commodities, is priced at the margin, which means the price of all oil demanded by the market is equal to the price that producers can get for the last barrel of oil they sell.

It takes considerable time to greatly increase oil production, and it also takes time to reduce production. Despite the global recession, oil production capacity is only slightly above demand, so that any significant supply disruption - a war in an oil-producing area, pipelines being blown up or tankers sunk, etc. - will almost immediately create a supply shock, causing the oil price to soar again.

Because of the drop in oil prices during the last eight months, high-cost production facilities are being shut down, including low-output wells, some offshore production, Canadian oil sands, etc. When the oil price shoots back up, it will take time to get these production facilities back on line.

Oil prices will almost certainly be much higher in real terms (inflation adjusted) during the next 15 years because world energy demand is expected to increase at an average annual rate of 1.6 percent between now and 2030. More than 80 percent of the increase in energy demand during the next two decades is expected to come from China, India and the Middle East.

Low-cost oil production is declining sharply, as the old easy-to-produce fields are being rapidly depleted. There are still huge potential oil supplies, but most of it will be in very expensive, deep-sea areas, or in oil sands (Canada) or oil shale (Colorado, Wyoming, Utah), all of which are much more costly to produce. Biofuels are also expensive and compete with food for land on which to produce them.

If suddenly it were announced that a miracle electric battery - one that could power a full-sized automobile at high speed for more than 300 miles and could be quickly recharged - had been developed, what impact do you think it would have on the price of gasoline next week? The answer is probably none because it would take several years for the manufacturers of automobiles to switch over completely to battery-powered ones, and then another decade or so before most of the existing stock of automobiles would be battery powered.

In the long run, improved battery technology will probably reduce the demand for liquid fossil fuels, but even under the most optimistic scenario, the dependence on oil will last a couple or more decades.

As vehicles eventually move from liquid fossil fuels to electricity, the demand for liquid petroleum will drop, but the demand for electricity will greatly increase. The environmentalists and many in the political class like to talk about "renewables" meeting the demand. A nice notion, but at best it is not going to happen for decades. As the chart shows, wind, solar and geothermal are less than 3 percent of total energy supply. They all still need to be heavily subsidized because they are not economical and probably will not be for many years.

Hence, even at high-growth rates, they will only supply a small percentage of total energy needs in the next two decades.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

More by Richard W. Rahn

When oil prices soared a couple of years ago, the Bush administration moved to open up government lands and certain offshore areas for more oil exploration and production. Officials in the new Obama administration are now in the process of again locking up these areas to prevent oil production.

If the Obama administration is right in its forecast that the economy will be growing again by the end of this year - which is probably even more true for the world economy - the demand for oil will be rising rapidly again. Yet much production has been shut down because of the recession, and potential future supply inside the U.S. is being restricted by government action.

The result should be obvious - gasoline at the pump will be at least $3, if not $4 or more. Americans will still be hurting as a result of the recession, so many of them will be most unhappy to see the prices soar again.

Given that many in the political class seem to think the long run is the next five minutes, they do not see or want to see this tsunami coming. Many politicos will try to blame the high prices on "greedy oil companies" or laggard automobile executives rather than to look in the mirror and see the shortsighted demagogues whose policies led to the mess.

End of Wall Street: What Happens Next

Credit Cards Are the Next Credit Crunch

Washington shouldn't exacerbate the looming problem in consumer credit lines.

MEREDITH WHITNEY

Few doubt the importance of consumer spending to the U.S. economy and its multiplier effect on the global economy, but what is underappreciated is the role of credit-card availability in that spending. Currently, there is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon. While those numbers look small relative to total mortgage debt of over $10.5 trillion, credit-card debt is revolving and accordingly being paid off and drawn down over and over, creating a critical role in commerce in America.

Martin Kozlowski

Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010. However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone. My revised estimates are that over $2 trillion of credit-card lines will be cut inside of 2009, and $2.7 trillion by the end of 2010.

Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy. Lenders, regulators and politicians need to show thoughtful leadership now on this issue in order to derail what I believe will be at least a 57% contraction in credit-card lines.

There are several factors that are playing into this swift contraction in credit well beyond the scope of the current credit market disruption. First, the very foundation of credit-card lending over the past 15 years has been misguided. In order to facilitate national expansion and vast pools of consumer loans, lenders became overly reliant on FICO scores that have borne out to be simply unreliable. Further, the bulk of credit lines were extended during a time when unemployment averaged well below 6%. Overly optimistic underwriting standards made more borrowers appear creditworthy. As we return to more realistic underwriting standards, certain borrowers will no longer appear worth the risk, and therefore lines will continue to be pulled from those borrowers.

Second, home price depreciation has been a more reliable determinant of consumer behavior than FICO scores. Hence, lenders have reduced credit lines based upon "zip codes," or where home price depreciation has been most acute. Such a strategy carries the obvious hazard of putting good customers in more vulnerable liquidity positions simply because they live in a higher risk zip code. With this, frequency of default is increased. In other words, as lines are pulled and borrowing capacity is reduced, paying borrowers are pushed into vulnerable financial positions along with nonpaying borrowers, and therefore a greater number of defaults in fact occur.

Third, credit-card lenders are currently playing a game of "hot potato," in which no one wants to be the last one holding an open credit-card line to an individual or business. While a mortgage loan is largely a "monogamous" relationship between borrower and lender, an individual has multiple relationships with credit-card providers. Thus, as lines are cut, risk exposure increases to the remaining lender with the biggest line outstanding.

Here, such a negative spiral strategy necessitates immediate action. Currently five lenders dominate two thirds of the market. These lenders need to work together to protect one another and preserve credit lines to able paying borrowers by setting consortium guidelines on credit. We, as Americans, are all in the same soup here, and desperate times are requiring of radical and cooperative measures.

And fourth, along with many important and necessary mandates regarding fairness to consumers, impending changes to Unfair and Deceptive Acts or Practices (UDAP) regulations risk the very real unintended consequence of cutting off vast amounts of credit to consumers. Specifically, the new UDAP provisions would restrict repricing of risk, which could in turn restrict the availability of credit. If a lender cannot reprice for changing risk on an unsecured loan, the lender simply will not make the loan. This proposal is set to be effective by mid-2010, but talk now is of accelerating its adoption date. Politicians and regulators need to seriously consider what unintended consequences could occur from the implementation of this proposal in current form. Short of the U.S. government becoming a direct credit-card lender, invariably credit will come out of the system.

Over the past 20 years, Americans have also grown to use their credit card as a cash-flow management tool. For example, 90% of credit-card users revolve a balance (i.e., don't pay it off in full) at least once a year, and over 45% of credit-card users revolve every month. Undeniably, consumers look at their unused credit balances as a "what if" reserve. "What if" my kid needs braces? "What if" my dog gets sick? "What if" I lose one of my jobs? This unused credit portion has grown to be relied on as a source of liquidity and a liquidity management tool for many U.S. consumers. In fact, a relatively small portion of U.S. consumers have actually maxed out their credit cards, and most currently have ample room to spare on their unused credit lines. For example, the industry credit line utilization rate (or percentage of total credit lines outstanding drawn upon) was just 17% at the end of 2008. However, this is in the process of changing dramatically.

Without doubt, credit was extended too freely over the past 15 years, and a rationalization of lending is unavoidable. What is avoidable, however, is taking credit away from people who have the ability to pay their bills. If credit is taken away from what otherwise is an able borrower, that borrower's financial position weakens considerably. With two-thirds of the U.S. economy dependent upon consumer spending, we should tread carefully and act collectively.

And Now … A Newspaper Bailout !?

And Now … A Newspaper Bailout !?

The Philadelphia Inquirer is asking the governor for $10 million. And they're not the only ones with their hands out.

- by Laura Goldman

When the doors to the Federal Reserve’s money vault swung wide open and the bailouts started, my fear was that the doors would never be able to close again. Although I stopped believing in the tooth fairy at the age of six, everyone else seems to expect to find free money under their pillow. Corporations, in their effort to secure welfare, remind me of the crowd in front of the Walmart store that trampled a man to death on Black Friday. It is all about greed and nothing about consequence

I was still surprised to see someone in the newspaper industry asking for a handout from the government. Brian Tierney, publisher of the Philadelphia Inquirer and Daily News, has asked Pennsylvania Governor Edward Rendell for a $10 million bailout for his Philadelphia Media Holdings. Tierney is currently in a tight spot because the bonds of his holding company missed their June interest payment.

The newspapers of Philadelphia are not the only newspapers with their hands out. Connecticut Assemblyman Frank Nicastro is petitioning the state government to provide funds to save the Bristol Press, covering the city of Bristol with a population of 61,000. Maybe my loyalties to Philadelphia are showing, but I do not understand the necessity of a paper serving a community of 61,000 people.

Although they have brought this cataclysm on themselves, I do have some sympathy for the newspaper industry. The internet, the invention of which nobody could have predicted, has decimated the newspaper industry. Like many others, I prefer to read by pointing and clicking for free rather than paying to get my hands dirty with newsprint so that I can read the same material. I also hate the clutter of newspapers in my house.

Although many bloggers disparage the mainstream media, I think that they are essential to preserving our democracy. Someone has to actually go out and report the news that bloggers sit home and carp about.

Newspapers seem to be deliberately going out of their way to make themselves irrelevant. I do not actually have to read Maureen Dowd’s column in the New York Times to predict her opinion on most matters. It is a mystery to me why the Washington Post would pick up William Kristol after the New York Times dropped him. Couldn’t they find another conservative columnist that did not make so many factual errors? The Wall Street Journal was chasing the inconsequential backdating options story while missing the gargantuan Madoff fraud that was handed to them on a silver platter by Harry Markoplos. The New York Times should be embarrassed for running the story on John McCain’s unproven extramarital romance. All newspapers should be given a spanking for spilling so much ink on the inconsequential relationship between former terrorist William Ayers and Barack Obama.

Nothing except for Obama’s inauguration seems to be able to save newspapers. Even the most adroit businessman experienced in reviving companies in dying industries — Sam “the grave dancer” Zell — has failed at saving newspapers. His Tribune Company, which owns the Chicago Tribune and the Los Angeles Times, filed for bankruptcy last year. The venerable New York Times was forced into a sale leaseback of the New York headquarters and to borrow $250 million from a Mexican billionaire at a steep 14% interest rate to stay afloat.

Newspapers already receive some kind of help from the government. The postal service subsidizes the cost of mailing newspapers and magazines. Some cities’ newspapers are organized under joint operating agreements of the Newspaper Preservation Act of 1970.

I do not know how to save print newspapers, but I am sure that newspapers taking money from the very government which they must report on is a titanically bad idea. I would rather see newspapers go to an internet only edition than install the government as their partner. Government funding the free press cracks the foundations of our democracy to its core. Osama Bin Laden must be smiling in Afghanistan at the thought of this chip in the sacrosanct principle of freedom of the press.

Regardless of what happens to the bailout request, the Philadelphia Inquirer and Daily News’ reporting on government will always be suspect from this day forth. The public can no longer expect a critical eye on the government from these newspapers because it would go against human nature and the instinct of self preservation for anyone to bite the hand that either feeds it or may someday.

Their reputation is permanently sullied. The editorial board would look hypocritical if they railed against bailouts for the auto part industry or the retail chain Boscov’s when they have their own hand in the till. If their publisher’s request was not untoward, it should have been first reported in the Inquirer’s own pages rather than in its competitor, the Philadelphia Bulletin.

It is understandable that Governor Rendell or any politician would consider buying the press, especially when they do not have to use their own money. Just by meeting with the publisher, he transformed the press from a watch dog into a lap dog.

As Thomas Jefferson said, “Were it left to me to decide whether we should have a government without newspapers or newspapers without a government, I should not hesitate a moment to prefer the latter.”