Wednesday, June 30, 2004

In mid-May the Pentagon quietly let it be known that up to 23,000 inactive reservists were eligible for active duty. Well, Rumsfeld announced concrete plans yesterday to call up 5600 of those on Individual Ready Reserve for service in Iraq and Afghanistan.
Amid Congressional concerns that the military is stretched too thin, the Army is preparing to take advantage of a rarely used wartime program that allows it to recall soldiers who have left the service and did not join the reserves. Pentagon officials said Tuesday that 5,600 former soldiers were going to be called up for yearlong tours, mostly assignments in Iraq and Afghanistan. . . .

Most of those called up will perform support and logistical jobs like truck drivers, mechanics, administrative specialists, food service workers and engineers. One Pentagon official said that the military police would also be included.

Members of Congress have been briefed this week on the Army's plans. Defense Secretary Donald H. Rumsfeld gave the Army broad authority in January to reach into the Individual Ready Reserve, although the specifics of the new call-up were approved only in recent days.
Now I thought Don Rumsfeld's genius plan of outsourcing all the non-combat military positions to private contractors was going to take care of most of this kind of stuff. Maybe the prospect of getting beheaded has been keeping the private sector from jumping into Iraq more wholeheartedly?

One particularly interesting aspect of the Army's scrambling for troops is that all the top brass doesn't want a larger military. Army Chief of Staff Gen. Peter J. Schoomaker, like a good neoliberal CEO, is cited in the New York Times as saying -- in private-sector-speak -- he doesn't want to hire more permanent employees because it will hurt his bottom line and saddle him with too large a workforce when desired downsizing comes in the near future. Best to hire temps to get you through a quick business boom and then cast them off as soon as your client base shrinks.

Wow, the talk that walks on Wall Street walks at the Pentagon, too.

Tuesday, June 29, 2004

The General is happy to take his lumps when he deserves them, and this is one of those times. Back just before Ronald Reagan died, I predicted that the Boy King would pick up the Reagan Torch and enjoy a temporary bump in the polls. Well, I was right that Dubya grabbed that Reagan Torch (and then some), but I was sure wrong about that bump in popularity.
President Bush's job approval rating has fallen to the lowest level of his presidency, according to the latest New York Times/CBS News poll. . . .

The 42 percent of Americans who say they approve of the way Mr. Bush is handling his job is the lowest such figure in a Times/CBS News survey since the beginning of Mr. Bush's presidency in January 2001; 51 percent say they disapprove.

Over the past 25 years, according to pollsters, presidents with job approval ratings below 50 percent in the spring of election years have generally gone on to lose. Mr. Bush's father had a 34 percent job approval rating at this time in 1992.

Similarly, 45 percent said they had an unfavorable opinion of Mr. Bush himself, again the most negative measure the Times/CBS Poll has found since he took office. And 57 percent say the country is going in the wrong direction, another measure used by pollsters as a barometer of discontent with an incumbent.
Kerry's numbers are pretty weak, too. For example, a plurality (37%) of those who say they'll vote for him are doing so only because they hate the other guy(s) more. Nonetheless, this election is frankly a referendum on Bush. As long as Kerry is "above the bar" (and he clearly is), he has a chance, a chance that should improve as time goes on.

Ignore the national popularity numbers and get on to what really matters:
In the 18 states viewed by both parties as the most competitive � and thus the subject of the most advertising expenditures and visits by the candidates � the race was equally tight. Forty-five percent of voters in those states said they would support Mr. Kerry, and 43 percent said they would back Mr. Bush. Indeed, on a host of measures, the poll found little difference in public opinion between the nation as a whole and that of voters in the competitive states.
Bush is doing flat-out terribly on Iraq and foreign policy, the very issues that were supposed to be his strong suits for the election. His Iraq approval rating is now just 36%, less than half of his level in April 2003, and his foreign policy approval rating is 39%. He's hanging in there on terrorism at 52%, but that's down from 68% as recently as January.

And how about that Dick Cheney? His personal approval rating is 21%, less than half of his historical high -- which was before the 2000 election!

Yes, I realize this has nothing to do with global political economy, but as a father of three grade school age (and younger) children, I consider it profoundly newsworthy. Plus it shows the importance of 'fan' web sites (too bad WizardNews.com isn't a blog!).
The sixth book in the popular Harry Potter series will be titled "Harry Potter and the Half Blood Prince," the books' author J.K. Rowling has announced.

Rowling made the announcement on her Web site, JKRowling.com, although it took some knowledge of her site by dedicated fans to reveal the title. The path to find the title was explained on a fan's site, WizardNews.com, and was confirmed Tuesday by her literary agent, Christopher Little Agency, which was reached in London by CNN/Money. . . .

On her site's main "Daily News" page Rowling wrote, "Well the door opened at last and I showed you the title of book six -- the genuine title, the title that will appear on the published book, the title I have been using in my head for ages and ages."
Having been to Rowling's official site and having seen the door behind which lay the secret title, I have no idea how some fan cracked that sucker open. I couldn't even click on the stupid bugs running across the screen.

UPDATE: Per Rowling: "There was never anything meaningful behind the door until the 'Do Not Disturb' sign came off!" Well, I don't feel so bad anymore. Now if I can only grab that damned butterfly . . .

Stephen King at The Independent can see the termites eating at the foundation of Global Recovery Estates.
  • the PE ratio of the US equity market is far above its long-term average; "equities today offer the same kind of excellent value that was available in 1929";
  • housing bubbles in the UK and much of the US;
  • the massive US current account deficit;
King continues:
These three oddities suggest that bubbly behaviour still persists. People are still prepared to pay more than before for owning equities. They're prepared to pay a lot more than before to own houses. And they're prepared to carry on borrowing in ways that we've never seen before.

At a pinch, it might be just about possible to justify this behaviour. Those who seek to do so rely on two arguments. First, they point out that we're seeing a supply-side revolution which is transforming the world economy, driven by new technologies and the arrival of new economic powerhouses such as China. If this means stronger long-term growth, that might justify higher asset prices today than in the past.

Their second argument relies on the observation that interest rates are quite a lot lower today than they used to be. A lower discount rate justifies higher asset valuations - hence more expensive shares and houses - and also paves the way for higher sustainable levels of debt.

These arguments are all very well but, in my view, they don't really make an awful lot of sense
Indeed, the first argument is basically a rehash of "New Economy" thinking of the late 1990s. The second is just plain wrong. Indeed nominal short-term interest rates are incredibly low. But real long-term rates which one would think informs purchases of equities, houses, and durable consumer goods are not particularly low at all. King recommends a "weak dollar" policy but fails to show just how weak the USD must get to start chipping away at these imbalances. After all, a 13% decline over the last two years didn't make a dent in the current account deficit. With a global economy still highly dependent on US consumption and East Asian central banks still determined to buy dollars no matter how poor an investment, a weak dollar policy faces one hell of a Sisyphean hill to climb.

You know by now that George W. Bush has no interest in "small government". But did you know that he and the Republican Congress have built a $1.6bn 'crown corporation' (what state-owned businesses are called in Canada, you hoser) since 2001?
From the moment Congress created it after the attacks of Sept. 11, 2001, the government board assigned to help bail out the ailing airline industry has found itself in a political caldron.

It has been courted by companies seeking assistance, besieged by their rivals that want to deny them help, and contacted with regularity by various lawmakers on both sides.

With its denial on Monday of a loan application from United Airlines, the Air Transportation Stabilization Board moves mainly from issuing financial assistance to monitoring its investments: the $1.56 billion in loan guarantees that it has already provided to six other airlines.
Funny how privatization is so selective. Good to privatize NASA (says Lockheed Martin), good to build a massive public corporation (says US Airways). It's all good!

Jihadist Abu Musab al-Zarqawi did a smart thing today. He is more politically sophisticated than I thought after I heard he had kidnapped three Turks in Iraq and threatened to behead them.
three Turkish hostages walked free after their release by a group led by Jordanian militant Abu Musab al-Zarqawi, a suspected al Qaeda ally.

His group had previously threatened to behead the Turks on Tuesday unless their government told companies to stop dealing with U.S. forces in Iraq. Ankara had rejected the demand.

"Jama'at al-Tawhid and Jihad announces the release of the Turkish hostages for the sake of Muslims in Turkey and their demonstrations against (U.S. President George W.) Bush," a masked man said on a video tape aired by Arabic Al Jazeera TV.

A Turkish government official confirmed the three men had been released. Another two Turkish men taken hostage in Iraq three weeks ago have told their families they are well and will return to Turkey within a week, Turkish media reported.
Murdering Muslims would have been an amazingly reckless and politically suicidal move for Zarqawi. By releasing these three men, he has bought himself a little more time. It is hard to imagine that his movement -- if that's even what it is -- could have found any public sympathy of any kind in Iraq or other Middle Eastern countries if it carried out a policy of murder against not only Westerners but all 'collaboraters' -- including Muslims -- as well.

Unfortunately for US marine Wassef Ali Hassoun, being a Muslim doesn't seem to count for anything if you're also an American.

Monday, June 28, 2004

The US dollar's gravity-defying feats seem to be wearing thin.

Agence France Presse reports today that "Dollar sinks against sterling," which in and of itself isn't really newsworthy. Taking a longer-term view of the USD, however, reveals some interesting trends at work.

First a microhistory of the dollar. The USD, as measured by the real broad dollar index, hit its post-Reagan low in July 1995. From that point on to February 2002, the USD rose partly on the back of robust US economic growth compared to the rest of the world, but mostly in two big spurts -- in 1997 as a result of the safe-haven status of the US for capital flight and central bank reserves, and in 2000-01 as a result of the US-centric global boom. The dollar reached its peak in February 2002, rising 34% in real terms over seven years.

From February 2002 to January 2004, however, the USD sank in three waves (Feb-July '02; Oct '02-June '03; Aug '03-Jan '04), giving up all its ill-gotten post-East Asian financial crisis gains. The real broad dollar lost 13% over nearly two years, and the real major currencies index dropped 24% over the same period.

The third swing of the dollar since 1995 was back upwards -- +5% from January-May 2004. Since May 10, however, the fourth wave has taken over with a vengeance. Since May 13 the broad dollar index is down 2.4%; the major currencies index dropped 4%.

Rather than see the trials and travails of the USD since January 2004 as independent "swings", however, perhaps we should instead see it as simply the fourth "wave" in the secular downward trend of the dollar since February 2002. In light of the massive US current account deficit, now back over 5% of GDP, and global interest in US government debt as the main pillar holding the dollar up in face of this deficit, there is every reason for the USD to fall even further in the future.

According to AP, the consumer spending numbers released today means it's all coming up roses.
Consumers -- the lifeblood of the economy -- boosted their spending in May by the largest amount in more than two years, an encouraging sign for the recovery's strength.

The Commerce Department reported Monday that consumer spending rose by a sizable 1 percent, a considerable pickup from the 0.2 percent increase registered in April. The increase in May was the largest since October 2001, when spending rebounded with gusto after being depressed by the Sept. 11 terror attacks.

Americans' incomes, meanwhile, went up by a strong 0.6 percent in May for the second straight month. The growth in incomes in the last two months was especially heartening because that powers spending in the future. The income and spending figures are not adjusted for price changes.
Well, there's a nasty bug on our rose of happy news for the day -- "not adjusted for price changes". If one does adjust for price changes, suddenly things don't look so rosy.

Disposable personal income in May rose 0.6%, but real disposable personal income didn't rise one iota in May -- 0.0% change. Of course stagnant income is not about to stop Super Consumer! Personal consumption expenditures rose 1.0% in nominal and 0.4% in real terms. Durable goods consumption in particular shot up a big 1.7% in real terms. With all the overproduction in this sector, that's good news for the battle against deflation. On the other hand, real durable goods consumption still hasn't recovered to its recent high of December 2003.

More consumption without more income -- it is the American Way!

Friday, June 25, 2004

If John Kerry becomes President of the United States, chances are Senator Joe Biden (D-DE) will have a position in the cabinet, either as Secretary of Defense or Secretary of State. Biden has spent a lot of time during the Bush presidency making himself the national security expert among Democratic hawks. When you listen to him, you can just feel the ambition. Biden in fact ran for president himself in 1988 and strongly considered another run for 2004.

If Biden heads up US foreign policy, watch the hell out. He'll be "progressive internationalism" on crystal meth.

With violence mounting by the day on the ground, next week's Nato summit in Turkey may be a final chance for President Bush to enlist greater international help to restore security in Iraq.

Despite the bomb blasts in Istanbul and Ankara yesterday, the White House insisted that the trip would go ahead, and Mr Bush continued lobbying alliance partners for assistance.

The President admitted a fortnight ago that with 16 of the 26 Nato members already contributing troops to the occupying force, no new Nato peace-keeping forces were likely. The administration is, however, trying to persuade allies to provide training and technical assistance to create a show of international support co-inciding with the formal 30 June handover of sovereignty. . . .

France and Germany have ruled out sending troops to Iraq, the idea pushed by the US, and backed by Poland, which wants, eventually, to scale down its military presence in Iraq. In the meantime, the Pentagon is fine-tuning plans to send more troops to boost the 140,000-strong US force in Iraq, if the security situation continues to worsen. . . .

Despite the refusal of France and Germany to send troops, Democrats are pressing Mr Bush to ask Nato to send a force of its own to Iraq. Joe Biden, the senior Democrat on the Senate Foreign Relations Committee, accused Mr Bush of planning to "pull back" in Iraq after the transfer of sovereignty, leaving a security vacuum.

"We are playing into the hands of the insurgents," Mr Biden said. The Pentagon wanted to get US troops "out of harm's way," he said, while the Bush administration seemed to be "internally paralysed".
Kerry + Biden = more war in 2005 and a military draft to boot.

It appears that irony has become official policy in the Bush administration.
On Tuesday, Cheney, serving in his role as president of the Senate, appeared in the chamber for a photo session. A chance meeting with Sen. Patrick J. Leahy (Vt.), the ranking Democrat on the Judiciary Committee, became an argument about Cheney's ties to Halliburton Co., an international energy services corporation, and President Bush's judicial nominees. The exchange ended when Cheney offered some crass advice.

"Fuck yourself," said the man who is a heartbeat from the presidency.

Leahy's spokesman, David Carle, yesterday confirmed the brief but fierce exchange. "The vice president seemed to be taking personally the criticism that Senator Leahy and others have leveled against Halliburton's sole-source contracts in Iraq," Carle said.

As it happens, the exchange occurred on the same day the Senate passed legislation described as the "Defense of Decency Act" by 99 to 1.


Thursday, June 24, 2004

The party just started and now Paul Erdman at CBS.MarketWatch.com is saying it's almost over.
in 1923 two Americans, W.L Crum and Joseph Kitchin, discovered the shortest cycle of all -- just forty months -- which seemed to recur with almost absolute regularity in both the United States and England, a movement they tracked by observing the rise and fall of interest rates, wholesale prices, the volume of bank clearings and especially inventories. Since World War II we have experienced 10 such recessions. The most current one began just before president George W. Bush took office. The downturn he inherited proved to be of very short duration due to massive fiscal stimulus by his administration and a most accommodating monetary stance by the Fed.

My guess is that this current Kitchin cycle, which usually lasts around 3 years, will end up by being close to typical.

Cracks appear to be rebuilding in the system as evidenced by unexpected slippage in durable goods order reported this week, in addition to a rise in initial claims for jobless benefits.

The party is by no means over, but it could very well be come a year from now.

Jobless recoveries aren't just for Americans anymore. Le Monde today recognizes a strangely similar phenomenon in France. For 2004 French GDP is forecast to grow 2.3%. While that might not sound like much compared to Japan or the US, it's stellar compared to last year's 0.5% or the 1.1% in 2002. France is forecast to grow significantly more than the euro zone as a whole which, according to INSEE, will tick up just 1.8% on the year, dragged down by Germany and Italy.

French investment figures are up as well, but none of this is going to help create jobs. INSEE sees the French unemployment rate being stuck at 9.9%.

Capital nailing labor again.

Durable goods are still a reliable site of deflation and overproduction in the global economy.
U.S. orders for durable goods posted an unexpected drop in May, a government report showed Thursday, as weakness in demand for autos dragged the measure lower for a second straight month.

The Commerce Department said orders for durable goods -- those meant to last at least three years -- fell 1.6 percent in May after a revised 2.6 percent decline in April. Excluding transportation-related orders, however, orders were off a smaller 0.7 percent, Commerce said.

The slide took Wall Street by surprise. Analysts had been looking for a 1.4 percent gain in May.

The declines in May and April were the first back-to-back monthly drops in durables orders since November and December 2002, according to Commerce, and may raise doubts about the U.S. factory sector's recent revival. . . .

May's decline was not limited to transportation. Orders for computers and electronic products, machinery and fabricated metals all fell
Last week the General reported that year-over-year durable goods production in the US was +6.4% while prices shifted -3.1%. In manufacturing outside food (mostly dairy and beef) and energy, its lots more production without lots more consumption, the Betty Crocker recipe for deflation.

This has got to be the present cannibalizing the future.
New home sales rose to a record level in May despite rising mortgage rates, a government report showed Thursday, as the annual rate of sales came in well above Wall Street expectations.

The Census Bureau reported new home sales at an annual rate of 1.37 million for the month, up nearly 15 percent from a revised annual rate of 1.19 million in April. . . .

Mortgage rates have increased steadily since hitting near 40-year lows in March. But rates are still historically low and the improving employment outlook is seen supporting home building and purchases in the face of the mortgage rate climb.

Some of the gains in home purchases may have been people who had planned to buy a home at some point this year rushing to complete a purchase before rates climb any higher.
Yah, no kidding.

Back in June 2003 the rate on conventional fixed-rate first mortgages stood at 5.21%. As recently as March 2004 they were 5.38%, but as of the end of last week they stood at 6.32%, up nearly 100 basis points. Yet the market hasn't even so much as hiccupped. If prices have anything to do with actual economic behavior, we should see a marked drop-off in July after the Fed raises rates next week.

The global economy always gives with the right hand and takes with the left.
The yen continued its recent rally in European morning trade on Thursday amid continuing optimism over the scale of the Japanese economic recovery.

Tokyo's Nikkei 225 jumped a further 1.4 per cent overnight, but for once this was a secondary factor with strong economic data providing the main bulwark for Thursday's yen strength.

. . . data from Japan's ministry of finance showed Japanese investors selling a net Y308bn of foreign bonds in the week to June 18, the largest such flow since April.

The data tentatively suggests that sharply rising Japanese government bond yields may discourage Japanese investors from going abroad in the search for yield, and potentially undermines the counter-argument that growing confidence in domestic recovery could encourage the Japanese to invest more overseas, a trend that has occurred in the past.
The General reported last week that the Japanese public was shifting out of Japanese government bonds and into stocks. Now it looks as if they're shifting out of foreign bonds as well. If a growing Japanese economy means more Japanese capital stays home, the dollar may be heading southwards a lot sooner than we think.

The start of the Iraqi Civil War?
Fighting raged in at least five cities in Iraq today as suspected Sunni Muslim insurgents launched coordinated attacks that killed about 70 people and wounded hundreds.

American and Iraqi officials said the attacks � in Falluja, Ramadi, Baquba, Mosul and Baghdad � were mostly aimed at Iraqi security forces, and could be the opening salvo in a violent push to undermine the June 30 transfer of sovereignty. . . .

American officials also began warning foreign workers in Iraq that they were expecting a massive car bomb campaign in an attempt to derail the June 30 handover of power.
The media is getting pretty sloppy with their analysis of Iraqi violence preceding June 30. What exactly does it mean to "derail" the transfer of sovereignty? It seems pretty clear that the goal is not to "derail" the transfer but to undermine public confidence in the new government and its security institutions, particularly the national Iraqi police.

And according to The Guardian today, the police are helping out matters themselves.
Up to 30,000 Iraqi police officers are to be sacked for being incompetent and unreliable and given a $60m payoff before the US hands over to an Iraqi government, senior British military sources said yesterday. Many officers either deserted to the insurgents or simply stayed at home during the recent uprisings in Falluja and across the south.

Fourteen months after the war and just a week before the Iraqis take power on June 30, the sources revealed serious shortfalls of properly trained police and soldiers and vital equipment.
The NYTimes thinks the militants are "Sunni Muslim insurgents", and a map of the attacks today suggests just that. The Guardian offers something more specific: jihadis led by Abu Musab al-Zarqawi in Mosul and former Ba'athists in the Sunni Triangle. If remnants of Saddam's army really are coordinating with the jihadis, it looks like Cheney's twisted nightmare fantasy really has come true -- a prophesy self-fulfilled.

Wednesday, June 23, 2004

Yesterday David Brooks pointed out how profoundly secular the Democratic Party is as well as the campaign of its candidate, John Kerry. In religious America, this is bad news for the left.
A recent Time magazine survey revealed that only 7 percent of Americans feel that Kerry is a man of strong religious faith. That's a catastrophic number. That number should be the first thing Kerry strategists think about when they wake up in the morning and it should be the last thing on their lips when they go to sleep at night. They should be doing everything they can to change that perception, because unless more people get a sense of Kerry's faith, they will feel no bond with him and they will be loath to trust him with their vote.

Yet his campaign does nothing. Kerry talks about jobs one week and the minimum wage the next, going about his wonky way, each day as secular as the last.

It's mind-boggling. Can't the Democratic strategists read the data? Religious involvement is a much, much more powerful predictor of how someone will vote than income, education, gender or any other social and demographic category save race.

Can't the Democratic strategists feel it in their bones how important this is? After all, when you go out among the Democratic rank and file, you find millions of Democrats who are just as religious as Republicans. It's mostly in the land of Democratic elites that you are likely to find yourself among religious illiterates.
As a Christian sojourning in the land of liberal irreligious elites -- aka the American academy -- I can testify that Brooks is for once correct in his analysis. They in fact cannot feel it in their bones; liberal elites quite frankly would rather lose an election than give ground on their own secular creed. The secular left's intolerant position on abortion is the best example of an issue on which Democrats are far more dogmatic than Republicans.

Secular liberal Democrats who don't instinctively hate faith and religion -- Kevin Drum comes immediately to mind -- have been trumpeting the so-called "religious left" as the Democrats answer to Pat Robertson and James Dobson. As someone whose politics resembles that of old-fasioned blue collar Catholics, I've always been skeptical of the credentials as well as the power of such a group. So with the help of adherents.com I did a quick tally of the strength of the religious left and came away duly unimpressed.

Here is my list of the members of the religious left in the United States, together with a rough percentage figure for how many in the denomination can be classified as such, followed by the number of members of the religious left contributed by each denomination.

Reform Judaism -- 100% -- 1.5 million
United Church of Christ -- 100% -- 1.38 million
Unitarian Universalist Association -- 100% -- 0.22 million
Quakers/Friends -- 100% -- 0.1 million
Presbyterian Church USA -- 67% -- 2.4 million
Episcopal Church -- 67% -- 1.6 million
Evangelical Lutheran Church in America -- 50% -- 2.52 million
United Methodist Church -- 33% -- 2.75 million

TOTAL -- 12.47 million

This is an amazingly weak number when you consider there are over 16 million Southern Baptists in the United States. Note also that the core of the "religious left" -- the first four denominations listed -- totals a mere 3.2 million.

In a country as religious as America, you'd better pin your hopes on a lot more than the "religious left" if you want to get elected.

And if Africa doesn't have it bad enough, now it looks like their do-good humanitarian peace-keepers are a major vector for the spread of HIV/AIDS throughout the continent.
HIV/Aids is devastating Africa's armed forces in a wave of HIV infections driven largely by foreign peacekeeping missions, according to new research. . . .

A study into the Nigerian armed forces this week confirmed suspicion that military personnel are far likelier than civilians to be infected with HIV. "Aids is now the leading cause of death in military and police forces in some African countries, accounting for more than half of in-service mortality," it reported.

Most of the Nigerians surveyed knew that HIV could be transmitted through sex but that knowledge was undermined by the false belief that there was a cure for Aids.

Published by BioMed Central, an independent peer-reviewed public health journal, the research put Nigeria's armed forces in the same league as those of Angola, Cameroon, South Africa and Uganda, which separate studies have shown to have high rates of infection.

"Personnel in the military are at increased risk of HIV infection. Naval personnel who have been transferred abroad reported significantly more risky sexual behaviour than others."
Recall that back in the late summer of 2003 the United States refused to get involved in establishing order and stability in Liberia even though, unlike in Iraq, the local population was positively begging the US to land its troops which sat offshore for weeks watching the mayhem. Instead we paved the way for an ECOWAS force manned predominantly by -- you guessed it -- Nigerians.

Pardon my French, but this is totally f***ed up. That such a thing can happen in our world of medical miracles such as HMOs, Botox and stomach stapling makes me want to spit nails.
The largest epidemic of polio in recent years has broken out in Nigeria and is spreading across central and western Africa, threatening 74 million children with the paralysing disease and jeopardising hopes of eradicating it from the world by the end of the year. . . .

"It has spread as far south as the Central African Republic, so it is on the border with the Congo, which has been one of the great successes of the polio eradication programme," said Bruce Aylward, the global coordinator of the WHO-led programme.

"We're seeing five times the number of cases in west and central Africa that we did last year - 301 as opposed to 58. We could see thousands of children paralysed across west and central Africa at a time when the virus should be eradicated. The countries it is spreading into have very weak immunisation programmes, reaching only 50%."

Kul Gautam, deputy director of Unicef, said the Darfur case was "the latest tragedy to hit children in a region beset with multiple tragedies. It is unthinkable that mothers have fled to avoid atrocities only to find their children at danger from a virus that Sudan had eradicated.

"Too many children across the region are defenceless against the disease. We are on the verge of a totally unnecessary public health tragedy. This has all the potential to become a humanitarian crisis."
Believe it or not, back in the 1970s we really thought we were coming upon the end to diseases like polio and tuberculosis forever. The future of medicine was going to be fighting things like cancer and heart disease instead.

Health crises in Africa point up the fact that health is not just -- or even primarily -- medical. It is social and political.

I am all for military assaults on jihadi terrorists in Iraq like Abu Musab Zarqawi, whose group has beheaded a kidnapped American and Korean so far. However, the way the US has gone about it shows how profoundly alienated the Coalition Forces are from Iraqi society.
After the slaying, U.S. forces launched an airstrike on what the Americans said was an Zarqawi hideout in Fallujah. Three people were killed and nine wounded, said Dr. Loai Ali Zeidan at Fallujah Hospital. It was the second U.S. airstrike on Fallujah since Saturday.
This is exactly what the Israelis do in Gaza. Their people can't walk the streets, so they are forced to resort to air strikes from the safety of the skies. Inevitably they kill a lot of innocent bystanders as well, which can't do anything to help your popularity with the local population.

The US is as popular in Iraq as the Israelis are in Gaza? Now that is something to worry about.

Well, well, who ever woulda thunk it.
Popular low-carbohydrate diets are leading Americans to poor health and are spawning a rip-off industry of "carb-friendly" products, health experts and consumer advocates said yesterday.

They announced a new group, called the Partnership for Essential Nutrition, to help educate Americans about the need for healthy carbohydrates such as vegetables, fruits, beans and whole grains.

"When unproven science becomes a sales pitch, some people get rich and the rest of us get ripped off," Jeffrey Prince of the American Institute for Cancer Research told a news conference. . . .

Prince said low-carb diets that advocate piling on the animal protein and fat are "increasing the risk of developing cancer, heart disease, stroke, type-2 diabetes and other chronic diseases." . . .

"Losing weight on these extreme low-carb diets can lead to such serious health problems as kidney stress, liver disorders and gout," the group advises.
I'm shocked to learn that eating bacon all day long is somehow bad for my health.

Partnership for Essential Nutrition estimates that around 19% of American adults are on these stupid "low carb" diets. That comes to around 37 million people. Muliply that by the findings of the National Consumer League that these dieters spend on average $85 per month on special "low carb" foods (I wonder how much of that is re-labeled Lite beer?), and you've got a $38 billion a year food scam going.

And that aint small low-starch faux potatoes.

Tuesday, June 22, 2004

I know this kind of stuff is really DailyKos territory, but so what.

According to Election Projection 2004, Kerry will win the national popular vote 50-48, but is tied with Bush in the electoral college, 269-269. That tie is based on three key states being in the Bush column today but which could go either way come November: Ohio, Florida and Missouri.

Since we last consulted Election Projection 2004, Kerry has lost his small lead in OH (now -0.19%), struck a tie in FL (-0.01%) and caught up dramatically in MO (-2.41%; was -11%). Big states Bush is hoping to take from the Dem column -- Michigan and Pennsylvania especially -- are still comfortably going for Kerry. A handful of upper Midwest states might throw a wrench into Kerry's plans, however. Iowa (+2.48%) and Wisconsin (+3.22%) are far too close for Kerry's comfort seeing as these states are stalwart Democratic voters.

I wouldn't be a bit surprised if we had a repeat of the 2000 race -- except without the Supreme Court stepping in to decide the election. Bush is well positioned to lose the popular vote but win the Electoral College, again.

OK, Niall Ferguson is becoming little more than a shrill buffoon by now. He's screaming in the Wall Street Journal yesterday, and here's all you need to read.
What if the world is heading for a period when there is no hegemon? What if, instead of a balance of power, there is an absence of power? Such a situation is not unknown in history. Though the chroniclers of the past have long been preoccupied with the achievements of great powers--whether civilizations, empires or nation states--they have not wholly overlooked eras when power has receded. Unfortunately, the world's experience with power vacuums is hardly encouraging. Anyone who dislikes U.S. hegemony should bear in mind that, instead of a multipolar world of competing great powers, a world with no hegemon at all may be the real alternative to it. This could turn out to mean a new Dark Age of waning empires and religious fanaticism; of endemic rapine in the world's no-go zones; of economic stagnation and a retreat by civilization into a few fortified enclaves.
Ferguson is looking to the 10th century as a model for the 21st, which only shows how profoundly stupid his arguments are getting. As an historian, one would think that Ferguson could recognize the existence of capitalism as a pretty stark difference between now and then giving shape to the global order beyond simple state military power, but then we'd be giving the wunderkind of NYU a little too much credit.

Ferguson has really shacked up with the neocons now that his rhetoric is little different from that of Robert Kaplan. Remember Kaplan's neo-Malthusian misanthropic diatribe "The Coming Anarchy"? Ferguson is more of the same except that the Brit favors Hobbes over the Reverend.

Well, to be fair, there is a real difference between the two in that Kaplan saw no room for human agency whereas Ferguson thinks the only important thing in the world is The Will (Mr. Ferguson, meet M. Sorel. Care for a Myth of the General Strike? Oh, you prefer a Myth of Empire instead? We'll order out. Garcon!)

If Ferguson could see difference and discontinuity as well as he sees similiarity and the eternal "lessons of history" the man might actually be worth reading.

New Angry Bear blogger PGL thinks about the massive US current account deficit today, especially its relationship to US savings and why the Asians love our government securities so much.
This was the old excuse for the Reagan current account deficits � they were allegedly foreigners financing a rise in U.S. investment. Only problem was that the Reagan fiscal stimulus crowded-out investment but lowered national savings even more. For this most recent quarter, gross savings per annum defined as GNP minus consumption minus government purchases was only $1343 billion as compared to $1115 billion in depreciation (private) leaving net savings of only $228 billion or a mere 2% of GNP. So with a current account deficit equal to 5% of GNP, net private investment is only 7% of GNP which is below the levels we enjoyed before the Reagan tax cuts and below the levels we enjoyed in the late 1990�s. Yes � the Bush fiscal stimulus is similar to the Reagan fiscal stimulus: it has lowered national savings reducing U.S. investment and increasing the current account deficit. I�m sure Mr. Moore knows this � so why could not been more honest with his readers?
If PGL had read the General's blog on Friday he would have known that the Bush "fiscal stimulus" is not like the Reagan fiscal stimulus in that under the Boy King foreign capital is interested almost solely in government debt. Under Reagan-era mercantilism the Japanese put car factories in Ohio and Kentucky, but under Bush-era free trade they just facilitate the most massive budget deficits in the history of the world.

Since Friday bits of the blogosphere have been consumed by the question "Why do Asian central banks buy so many dollars?". Marginal Revolution offer "seven hypotheses," but General Glut thinks two important ones were left off the list.
  1. East Asia learned the lessons of 1997 and then some. Caught without enough reserves to defend their currencies at the beginning of the East Asian financial crisis, central banks all across East Asia are stocking the kitty with enough dollars to survive the next financial monsoon. The September 2003 issue of the IMF's World Economic Outlook noted that the biggest holder of reserves is now the Global South, and it's not just countries in East Asia -- Russia, for example, is another big holder of dollar reserves. "Current account vulnerability" is a good indicator of reserve holdings, and the reserves boom begins in 1998.

  2. The massive and ever-ballooning US current account deficit is a central plank in the US-centric global economic order. Emmanuel Todd has called it "an imperial levy" and he is not far from the truth. The US has made itself the indispensable global consumer market of first resort. We get goods and services and seem to give the world purchasing power in return, but in reality that power returns to the US through foreign investment, increasingly in US treasuries. Interpreting the global economy in a Keynesian mode, Todd states
    It is the stagnation of demand on a global scale that allows the United States to justify its role as the regulator and predator of the globalized economy, in effect to claim for itself the lead role in a planetary Keynesian state. . . . In his General Theory Keynes has a kind word for the pharaohs who built the pyramids, big spenders who thereby regulated economic activity. Our pyramid is America -- kept intact by the work of the entire planet.
    The US worked hard throughout the 1980s and 1990s to ensure free global movement of capital, knowing both that [a] such flows would trend toward the United States thanks to its powerful capitalist class, its deep financial markets and its stable currency, and [b] such flows needed to come to the US to finance the massive current account deficits the US has run consistently since the 1970s. The British ran the world in the 19th century thanks to dominance in production. The US hopes to run the 21st century as a empire of consumption.

When oil was at $42/barrel, word on the street was that up to $10 was froth due to speculation and political instability. So $30/barrel for 2005 doesn't seem that surprising at all.
A survey of 14 analysts and consultants conducted by Reuters forecasts that U.S. crude prices will slip to $30.12 a barrel next year, down 18 percent from a $36.77 average so far in 2004, on course to be the highest level since 1980. . . .

"We contend the next four years will be tough given supply pressures from both OPEC and non-OPEC sources that threaten the current market psychology," said Doug Leggate of Citigroup.

This year's gains have fueled speculation of a longer-term shift in energy prices as the higher cost of finding and producing enough oil to meet rising world demand forces a structural shift to higher prices.

"The more one looks beyond 2005, the more difficult it appears for the supply side to be able to catch up in time," the bank's Kevin Norrish and Paul Horsnell says. "This issue alone is enough to suggest that the back end of the oil price curve should stay very robust and still has scope to push up even higher."

So far most price pundits have made only modest upward revisions to their long-term forecasts. The projections are well below existing values on the crude price curve, which is trading at nearly $35 for U.S. crude in 2005 and around $29 for 2010.

The poll reveals a split between equities analysts and energy market specialists, with the latter inclining more to the view that Middle Eastern risks and tight inventories will ensure a stronger long-term oil price.
Note that even if NYMEX prices go as low as $30/barrel next year, this is still above the old OPEC price-band ceiling of $28. And when you're predicting oil prices, would you really choose the equity analysts over the energy market specialists??

If you've been reading the Globblog faithfully these last few weeks, this story shouldn't come as any surprise.
United Nations-mandated auditors have sharply criticised the US occupation authority for the way it has spent more than $11bn in Iraqi oil revenues and say they have faced "resistance" from coalition officials.

In an interim report, obtained by the Financial Times, KPMG says the Development Fund for Iraq, which is managed by the US-led Coalition Provisional Authority and channels oil revenue into reconstruction projects, is "open to fraudulent acts". . . .

One adviser to a member of the recently disbanded Iraqi Governing Council said the report raised the fear that no audit of the CPA's work would ever be completed. "If the auditors don't finish by June 30, they never will, because the CPA staff are going home," he said. "I lament the lack of transparency and lack of involvement by Iraqis."
Even though the Development Fund for Iraq was established by Resolution 1483 (2003) "to meet the humanitarian needs of the Iraqi people, for the economic reconstruction and repair of Iraq's infrastructure, for the continued disarmament of Iraq, and for the costs of Iraqi civilian administration, and for other purposes benefitting the people of Iraq", it has been under the control of the US occupation authority since it was created. So it's no surprise that the colonial power doesn't really have the colony's best interests at heart.

The outside "watchdogs" from the IMF, World Bank, etc. couldn't get going until April 2004 even though 1483 passed in May 2003. Stonewalling by the CPA means that the 13 months of US control over this multibillion dollar pot of gold -- aka "corporate slush fund for Iraq" -- may never be audited.

How conveeeeeeeeenient.

Monday, June 21, 2004

Thanks to Pfizer, the sustained erection-on-demand is taking its place alongside whiter teeth and smooth transparent toenails in the pantheon of advertising banality.
Do half of American men over 40 need a pill to make their sex lives complete?

About six million American men have taken Viagra for erectile dysfunction since it was introduced by Pfizer in 1998, and about a million have taken its newer competitors, Levitra and Cialis, according to the makers of the drugs. But the companies have a grander vision: 30 million potential customers, mostly among the roughly 60 million men over age 40.

Even as the companies battle ever more fiercely over the existing market, they are all promoting the idea that the consumer base can extend well beyond men who have the classic symptom of the disorder formerly known as impotence, a persistent and complete inability to have or sustain an erection sufficient for sexual intercourse. . . .

The drive to redefine erectile dysfunction, also known as E.D., as a quality-of-life issue for significantly younger men facing normal age-related changes is as plain as the shift to the younger celebrities and models now being used to advertise the drugs.

The response of the drug makers is, essentially, what's wrong with that? . . .

Critics say that the drug companies are trying to advance the idea that anything less than erectile perfection is unacceptable.

"Just because someone can't always have an erection on demand doesn't necessarily mean it's a problem," said Dr. Leonore Tiefer, an associate professor of psychiatry at the New York University School of Medicine, who has been a vocal critic of the way the drugs are marketed. "The advertising and promotion have become disengaged from any notion of a medical condition or a disease. Now you take these drugs because you're less perfect than you want to be. It's like teeth whitener."
This all makes complete sense, of course, when one sees pharmaceutical corporations as profit-interested capitalists rather than "miracle makers of wonder drugs that make my life worth living". If only seven million of your target base of sixty million are consuming your product, there's a lot of room for expansion (pardon the pun).

Convincing people they are unhappy without your product is the second step of advertising. The first is convincing them they are unhappy in the first place.

I'm really sick of all the Reagan recap media frenzy by now, but this letter to the Washington Post from its former managing editor for national news Bill Greider (and currently one of the best left journalists writing on globalization) really takes the cake.
My condolences to the staff and management of The Post. I had no idea you felt so deeply about Ronald Reagan. I was a reporter and editor at The Post during the launch of Reagan's "revolution," and we had a somewhat different take on his presidency then.

Reagan nurtured the strong and punished the weak. He fostered the great regressive shift in economic rewards that continues to this day, while ignoring a visible deteriora- tion in the middle class and manufacturing.

His economic theory was cockeyed and did not add up (both parties spent 20 years cleaning up Reagan's deficit mess). But Reaganomics did deliver the boodle to the appropriate interests, the same ones who financed his rise in politics.

A disturbing meanness lurked at the core of Reagan's political agenda and was quite tangible at the time, though evidently forgotten now. We wrote tough stories about that and other contentious questions; I remain proud of the coverage. I would rank Reagan's place in history right up there with Warren G. Harding's. You want to put him in the company of FDR, maybe even Lincoln. Future historians will decide who's right. Meanwhile, I read your funeral coverage as a lengthy, lugubrious correction.

-- William Greider

From yesterday's Los Angeles Times, somebody else who's figured out that "Progressive Internationalism" -- John Kerry's tag for his foreign policy strategy -- is virtually identical to that of George W. Bush.
Not only has Kerry firmly surrounded himself with Clinton standard-bearers on foreign policy and defense, but he has espoused his own brand of warmongering.

I would love nothing better than to see Bush out of office, but Kerry is a gloomy alternative. Worse yet, in the short term, his "me too, only better" approach to the war on terrorism could actually serve to make the United States less safe.

Kerry's defense plans might be a slam-dunk for the atherosclerotic set in the national security community, but here is the alternative that the senator offers to Democrats and people of liberal values in November:

� no plan to withdraw from Iraq, not even the kind of "secret plan" the late President Nixon offered on Vietnam, and no change in Afghanistan;

� continuation of Bush's preemption policy;

� a larger military with many more special operations units, plus accelerated spending on "transformation," which in today's defense jargon means creation of greater capability to intervene around the world on short notice;

� a new domestic intelligence agency and a vastly beefed-up homeland security program.
Kevin Drum complains that the author provides no alternative to Bush Lite -- and seems to think there isn't one out there. Well, here's the General's take. Kerry's biggest problem is his fundamental agreement with Bush that the #1 security threat to the United States is from terrorists with WMDs.

As the LA Times article continues,
when Kerry describes the contemporary world, and the challenges that the U.S. faces, he sounds just like the president, the vice president and Defense Secretary Donald H. Rumsfeld. Terrorism, he says, "present[s] the central national security challenge of our generation." Preventing terrorists from "gaining weapons of mass murder" is his No. 1 security goal, and Kerry says he would strike first if any attack "appears imminent."
How about some alternatives for #1?
climate change;
� oil dependency;
� destabilized nuclear powers, especially Pakistan and North Korea;
� non-WMD foreign terrorism (i.e. the only kind that ever really happens);

According to the CIA, there are 14.4 million Iraqis between the ages of 15 and 64 years. Only 8 million of them have formal sector jobs, and millions of those are working only part-time.

No wonder the US can't keep a lid on the Iraqi militias. Millions of young men out of work holding more guns per capita than even Americans do is a pretty clear recipe for disaster.

According to United Nations Security Council Resolution 1483 (2003) paragraph 14, recapitulated by the most recent UNSC Resolution 1546 (2004) on Iraq, the Development Fund for Iraq is established "to meet the humanitarian needs of the Iraqi people, for the economic reconstruction and repair of Iraq's infrastructure, for the continued disarmament of Iraq, and for the costs of Iraqi civilian administration, and for other purposes benefitting the people of Iraq".

They also should have added "for buying friends of the United States military" as well.
Struggling with bureaucratic problems in spending the money appropriated by Congress to rebuild Iraq, American authorities are moving quietly and quickly to spend $2.5 billion from a different source, Iraqi oil revenue, for projects employing tens of thousands of Iraqis, especially in the country's hot spots, Bush administration officials say. . . .

Some of the money has gone to American military teams operating since the beginning of the occupation 14 months ago. The teams have become famous in Iraq for the way they have spread across the country, commissioning repairs and paying for them from satchels bulging with $100 bills shipped by plane from a Federal Reserve vault in East Rutherford, N.J. Much of that money came from Iraqi assets frozen in the United States during the Persian Gulf war in 1991.

At least $1 billion has been distributed in this fashion � by some estimates more than $2 billion.

"The military commanders love that program, because it buys them friends," said an administration official, referring to the cash distribution. "You want to hire everybody on the street, put money in their pockets and make them like you. We have always spent Iraqi money on that."
Considering that some $2bn has been disbursed in this way, you'd think that the US would have bought the friendship of more than 1% of the Iraqi population by now.

John Dizard at the Financial Times (sub. only) thinks the world may have had its fill of Japanese government debt.

the BOJ does face a real problem. It has only been an independent central bank for a few years, but if the economy continues into recovery, it could be forced into serving as a receptacle for Japan Government Bonds. . . .

The Japanese city banks have been cutting back on the average duration of their JGB holdings, from nearly 3.6 years last year to just over 3 years as of March 31. Also, "real money" foreign investors, as distinct from those cynical, nasty speculators, have been selling off their JGB holdings.

The Japanese public has been shifting back into the stock market.

This lack of interest in the Japanese government's paper is disturbing to the officials at the Ministry of Finance, who have to issue 36.6 trillion yen of new bonds before next March 31. . . .

Talk has been going around, unauthorised talk, that the BOJ has been concerned that it could be required, informally, to effectively peg JGB rates at something like 2 per cent or 2.5 per cent; in other words, some level not far from today's rates. Informal requirements in Japan are taken very seriously. . . .

If the BOJ had to sit there and buy a whole bunch of bonds, the yen would be under deeper liquidity than the Titanic. Or it would as long as there were no capital controls to keep Japanese investors from fleeing the country in a disorderly manner.
In the US, over half of all treasuries are owned by foreigners, and recently Asians are about the only ones in the market for US government debt. In Japan, however, some 97% of Japanese Government Bonds are held domestically. Thus Dizard sees no overseas white night to save the Japanese bond market.

Friday, June 18, 2004

The Los Angeles Times has an interesting little story today on San Juan, Mexico, "the town that NAFTA sent north".
The official population of San Juan, four hours south of Mexico City, is 6,000. But the only work here is in the cornfields, and locally grown corn is worth next to nothing. In the country that introduced corn to the world, campesinos can't compete with cheap U.S. imports.

So they go north, or they go hungry.

The San Juan mayor told me as much as 70% of the money in town is sent home by displaced sons in Los Angeles. I was also told that the church, a gleaming white beacon in a town that's rough around the edges, was lovingly restored with money sent back from L.A.

Unfortunately, the padre wasn't around the first time I knocked, so I began exploring the town, asking people if they had relatives in Los Angeles. Many said yes. Others said, "No, in Culver City," or, "No, in San Fernando."

"In the fields here, I made $6 a day," said Misael Gomez, 23, who recently returned home from several months in Santa Monica, where he worked as a gardener. "In the United States, I made $6 an hour."
And remember, back in 1993 NAFTA was supposed to reduce migration by creating new manufacturing jobs in Mexico.
The Mexican government deserves much of the blame for that. Farmers get no price supports and scant government aid. Bank credit is nonexistent, so farmers work the fields with primitive tools and no tractors.
This comment is just plain idiotic. Farmers in Mexico get no price supports or government aid because they contravene the entire neoliberal logic upon which NAFTA is built! And how is a peasant on a handful of acres going to get a bank loan? The goal of NAFTA was to destroy "inefficient" Mexican agriculture, after all -- Salinas revised the Mexican Constitution to do away with the small-scale ejidos as a precursor to the agreement -- and it's done a bang-up job of that.
But if Mexican ineptitude has staggered the campesinos, American policy has delivered the knockout punch. The U.S. government paid more than $34 billion in subsidies to American corn growers between 1995 and 2002, according to the Environmental Working Group.

An estimated 1.3 million Mexican farm jobs have been lost since the beginning of free trade in 1994, according to a Carnegie Endowment report. They couldn't compete with American farmers propped up with U.S. tax dollars doled out by vote-chasing politicians.
This is not the whole story, however. Where did all the promised Mexican manufacturing jobs go? The ones that were supposed to employ all the peasants fleeing the countryside? It turns out there is labor out there far cheaper even than Mexico's and with market access just as good and a rock-steady currency. And with an authoritarian government that won't tolerate any crap like indigenous uprisings or labor strikes.

Give me a C. Give me an H. Give me an I . . .

Remember that Democratic presidential hopeful John Kerry asked this guy seven times to be his vice-presidential candidate. After this, there's only two words to describe Kerry: damned pathetic.
President Bush and Sen. John McCain (Ariz.) put aside their animosity Friday and hugged onstage at a rally for 6,000 troops, ending any hopes of some Democrats that the maverick Republican would form a cross-party ticket with John F. Kerry (D-Mass). . . .

Bush has a strict rule that his introductions last only one minute. McCain went on for eight, but no one from the White House was complaining. "The man I introduce to you today understands all this and understands it very, very well," McCain said. "He heard the call to action on that terrible morning in September and summoned the rest of us to this long and difficult task. He has led this country with moral clarity about the stakes involved and with firm resolve to achieve unconditional victory."

Noting "ups and downs, as there are in any war" and never saying Bush's name, McCain called it "a great privilege to introduce to you your commander in chief." . . .

McCain also introduced Bush several hours later at a rally in Reno, Nev., a state that Bush won in 2000 but will have to fight for this time because he endorsed a plan to located a nuclear dump there.

"Both candidates in this race are honored to be the friend of John McCain," Bush said at the rally. "Only one of us gets his vote And I am proud that it is me."
This is Bush's first -- and a big -- step toward trying to repair relations with the national security state. Considering the Plame affair as well as Abu Ghraib plus constantly screwing the CIA, Bush has a long way to go. But this is a bold, bold move. And did you really expect anything different from McCain? If you did, shame on you.

I bet Denny Hastert remembers who McCain is now.

You could see this one coming a mile away. Two miles on a clear day.
The U.S. current account deficit widened more than expected in the first three months of 2004 to a new record, pushed by the growing gap between imports and exports, government data showed on Friday.

The gap in the current account balance, the broadest measure of the nation's trade with the rest of the world, increased to $144.9 billion in the first quarter from a revised $127.0 billion in the last three months of 2003, the Commerce Department said.

Economists polled by Reuters had expected the funding gap to widen to $141.0 billion in the first quarter. Fourth quarter 2003 was initially reported at $127.5 billion.
A billion here, a billion there, it gets confusing. So let's cut to the chase. The US current account deficit is back up over 5% of GDP.

During the first quarter of 2003 the current account deficit ran at 5.15% of GDP, but improved markedly to 4.51% of GDP in 2003:IV. Only the naive would have assumed that the magical mystical "self-correcting market" was doing its job, however. Now the deficit turns back the other direction, sitting at 5.06% of GDP.

That big fat current account deficit needs to be balanced by big fat capital inflows, and flow it in did. But not in a way that should give anyone comfort.

Official foreign purchases of U.S. assets rose $125.2 billion in the first quarter following an increase of $83.7 billion in the fourth. Total foreign-owned assets jumped $447.6 billion in the first quarter, after a $230.3 billion rise in the fourth.
Yes, those Asian central banks are loving the dollar once again. In just the first three months of 2004, foreign central banks bought more Treasury securities than they did in all of 2001 and 2002 combined. Of the net $125.2bn brought into the US by central banks in 2004:I, $117.2 was from Asia. And it's not just central banks. Private foreign capital bought net $59.8bn in US treasuries in 2004:I, the second highest quarterly total since records began in 1982!

If purchases of US government securities were way up, most everything else was down. Net foreign purchases of US corporate bonds fell to its lowest point since 2002:IV. Net purchases of US stocks were an anemic $4.1bn, down from last quarter's $22.8bn and still way below where they were in 2002 and before. Foreigners don't seem so keen on investing in US productive capital, either; net direct equity capital investment was at its lowest level since 1994.

Americans really are borrowing from tomorrow to consume today. When dim bulbs at the Cato Institute say there is nothing to worry about because the current account deficit is a sign of how much foreigners see the US as a great investment, they're off the mark by a long shot. Foreign capital doesn't like US stocks, bonds and FDI opportunities. It likes US government debt. If you think the $500bn budget deficit is being profitably invested for future returns, let me tell you about some real estate in Florida I could sell you. It's eat the hamburger today, but pay higher taxes and higher interest rates on Tuesday.

Thursday, June 17, 2004

Gordon Brown tries a little Greenspanian obfuscation of his own, but he's no Maestro.
Gordon Brown has stepped up Government efforts to dispel fears of an imminent crash in property prices after the Governor of the Bank of England suggested it might be the wrong time to buy a home.

The Chancellor promised to maintain "stability" in the face of the risks facing the global economy, as he sought to clear up comments by Mervyn King earlier this week that sent shock waves through the housing market. . . .

Mr Brown attempted to play down signs that interest rates are on an upward path by claiming that they remained "relatively low".

He said: "That's a matter for the Bank of England, but remember that interest rates now are relatively low compared with what they were in the past and compared to what they were 10, 20, 30, 40 years ago."
Of course, what matters is real interest rates. If interest rates are low but so is inflation, then interest rates really aren't that low.

Currently British CPI is running at 1.5%. That's low, especially compared to the 8.5% rate in June 1991. Today British mortgate rates are at 5.75%. That's a fair bit below 12.95%, where they were in June 1991.

A little math shows that the real current mortgage rate in the UK today is 4.25%; in mid-1991, 4.45%. Suddenly, interest rates don't look so stunningly low.

This one needs no commentary. The numbers speak for themselves.
Major corporations, prominent New Yorkers and President Bush's regular backers are among the donors behind the $64 million raised for the Republican National Convention, the host committee said Thursday. . . .

The GOP effort is on track to nearly double the record $36 million raised for the 2000 Democratic convention in Los Angeles.
Now that's what I call inflation -- a 19% annual rate! (sorry, I couldn't resist)

Yesterday the inflation chicken littles were kept under wraps by an "expected" rate of core consumer price increase for May. Today after the release of the long-awaited May producer price index, they're running loose all around the chicken coop.
Last month's producer price index for finished goods rose 0.8 percent, the largest increase since March 2003. Core producer prices, excluding food and energy goods, rose 0.3 percent.

Over the past year ended in May, the PPI has risen 5 percent, the largest 12-month increase since December 1990. The core PPI has risen 1.7 percent over the past 12 months, the greatest increase since January 2001.

The increases in the PPI and the core rate were above expectations. Economists surveyed by CBS MarketWatch had forecast a 0.6 percent rise in overall PPI and a 0.2 percent increase in core prices. Treasury prices fell and yields rose in response to the PPI report.
Now to be fair, economists interviewed think this is all much ado about nothing, and while it's not quite nothing, it's pretty close to it.

For example, since May of last year seasonally-adjusted core finished goods prices are up just 1.7%, and that after more than two years of price stability -- 0% inflation. Over the last three months the rate has been steeper, but annualized it is still only 2.9%.

Jump over to intermediate goods and the core price rises are higher -- 5.1% since May 2003 (seasonally-adjusted) and over the last three months, 10.7% annualized. That's a pretty steep climb, but not unusually so. For six months in late 1994 and early 1995 core producer prices on intermediate goods ran up at a 9.9% annualized rate. Over the same period CPI was running at just a third of that.

The continuing lack of pricing leverage for manufactured goods means that profits will get squeezed more than consumer prices will rise. For now, the underlying story is still about disinflation/deflation rather than inflation.

Wednesday, June 16, 2004

Things just keep getting curiouser and curiouser when it comes to the global oil economy.
OPEC said Wednesday it will ask producers outside the cartel to raise output to help cool high prices, but it received a quick reply from Russia, which said it has no slack in its system to boost exports.

OPEC president Purnomo Yusgiantoro said he will write to Russia, Angola, Mexico and Oman to request they pump more crude after Iraqi exports were knocked out by sabotage. Prices have stayed above $35 a barrel, despite an injection of extra OPEC barrels.

"They have spare capacity to increase production," Purnomo, also the Indonesian oil minister, told reporters. He did not give any details or a timeframe.

The Interfax news agency quoted Moscow's No. 2 oil official as saying that Russia had no spare capacity.

"We don't have a tap that we can just turn on and off. We are producing exactly as much as we can," said Sergei Oganesyan. . . .

Tanker tracking consultancy Petrologistics estimates OPEC's 10 core members, excluding Iraq, will lift supplies by 800,000 bpd in June, before the increase of formal limits next month.

Petrologistics estimates OPEC 10 output for June at 27.4 million bpd, just 500,000 bpd short of what the International Energy Agency says is the group's sustainable capacity.
Well, well, we have an OPEC which is producing just under maximum capacity, a Russia which is at maximum capacity, and a Mexico which can inject just 70,000 more barrels per day into the market.

It is interesting that OPEC is going begging door to door rather than have Saudi Arabia turn the spigot wide open. It seems that OPEC -- or rather the Saudis -- want to have it both ways. They want to preserve quotas and thus the rationale for OPEC's existence as well as meet extremely high and rising global oil demand.

I would be surprised if OPEC and the other producers weren't happy with NYMEX prices of $35/barrel. Of course, with all the instability in Iraq and Saudi Arabia, it might be impossible to hold down prices to that level for any length of time, leading to the belief that lower 'fundamentals' are better so as to provide a bigger cushion for 'non-fundamental' price spikes.

The global supply and the global demand trains still seem to be headed for one another this winter, however. I'm buying my forward contract with my fuel oil dealer as soon as I can!

If you want to see labor militancy and solidarity these days, South Korea is probably your best bet.


Riot police block striking nurses and
taxi drivers from reaching the ruling
Uri Party's headquarters in S Korea

Newsweek has a must-read exclusive this week on Iraqi public opinion. Now, assuming there is such a thing as "Iraqi public opinion" can be a dicy adventure in and of itself, but when you get these kinds of numbers, the only response is "landslide".

Confidence in selected institutions ("fair amount" or "great deal" of confidence)
Iraqi police: 76%
Iraqi army: 62% [ed -- is there an Iraqi army?]
Coalition Provisional Authority: 11%
Coalition Forces: 10%

Compared to three months ago, my opinion of Moqtada al-Sadr is:
Much better or better: 81%
Much worse or worse: 19%

Support of or Opposition to the Following Individuals ("strongly support" or "somewhat support")
Ali Sistani: 70%
Moqtada al-Sadr: 67%
Ayad Allawi: 23% [ed -- this guy is, of course, the Interim Prime Minister of Iraq]

If you could vote for any living Iraqi for President, who would it be?
Ibrahim Jafari: 16.8% [ed -- first President of the IGC]
Saddam Hussein: 3.4%
Moqtada al-Sadr: 2.0%
Ali Sistani: 1.8%
Ahmed Chalabi: 0.5%
None or Don't Know: 54%

What powers should the unelected, interim government have for its 7 months in office?
Make economic changes, like adjusting prices: 84%
Take responsibility for prisoners held by Coalition Forces: 83%
Order Coalition Forces to leave Iraq: 77%

Which of the following contributes most to your sense of security?
Neighbors and friends: 45%
Family: 26%
Local police: 18%
Coalition Forces: 1%

What kind of violence do you think is most dangerous to your family?
Street crimes: 40.4%
IEDs along roads: 16.7%
Large vehicle bombs: 15.2%
Armed encounters between Coalition Forces and others: 10.8%
Violence by militias: 1.6%

The Coalition Forces are . . .
Occupiers: 92%
Peacekeepers: 3%
Liberators: 2%

How long should Coalition Forces stay in Iraq?
Leave after a permanent government is elected: 45% [ed -- that's in 7 months]
Leave immediately: 41%
As long as Coalition Forces think necessary for stability: 6%

If Coalition Forces left Iraq immediately would you feel . . . ?
More safe: 55%
Less safe: 32%
No difference: 10%

Some of the most devastating responses came from answers to questions concerning Abu Ghraib. On its face, 71% of respondents saying "yes" when asked whether they were surprised by the abuse at Abu Ghraib is comforting to the US government. However, when asked why they said "yes", 48% said it was because "It humiliates Iraqis". Only 24% of all respondents (34% of 71%) suggested it was because they didn't expect such a thing from Americans. Of the 22% which said "no" they were not surprised, 64% said "I expect the worst from Americans" and another 31% said things nearly as unkind. In sum, 24% of Iraqis thought Abu Ghraib was out of character for the US, but 21% thought Abu Ghraib was pretty much what Americans are all about.

Yet it's not really even that rosy (as if one can be comforted by a 50-50 split on whether your national character is or is not "sadism"). When asked "Do you believe that the abuse of prisonsers at Abu Ghraib represents fewer than 100 people or that all Americans behave this way?", 54% said the latter, only 38% the former. More significantly, 61% thought no one would be punished for the torture, while another 15% thought only the "little people" involved would be brought to justice. A mere 11% thought "everyone responsible" would be punished -- I wonder what a US public opinion poll would say to that question!

What can we conclude from this poll?
  1. There is no functioning state in Iraq -- not even close
  2. Coalition Forces contribute virtually nothing to the daily security needs of the population
  3. Coalition Forces are at rock bottom in terms of public support or goodwill
  4. Anyone associated with the Coalition is just a tick above rock bottom in terms of public support or goodwill
  5. Roadside mines and car bombs are having exactly the desired effect of destabilizing the political situation in Iraq and discrediting Coalition Forces
  6. Anybody standing up militarily against the Coalition becomes popular
  7. Iraqis are strongly nationalistic and see the Coalition's primary interests as stealing Iraqi resources and humiliating Iraqi national pride
  8. Bush is up shit crick without a paddle



According to the headline in the New York Times today, "Industrial production surges in May". Or should that be "industrial overproduction"?
Big industry production surged by 1.1 percent in May, the strongest showing in nearly six years, a fresh sign that manufacturers are on a firm recovery path and the national economy possesses good momentum.

The sizable increase reported Wednesday by the Federal Reserve came after a strong 0.8 percent rise in April. The 1.1 percent advance -- better than the 0.6 percent rise that some economists were expecting -- represented the biggest gain since August 1998.

Factory production -- the biggest slice of industrial activity tracked by the Fed -- rose by 0.9 percent in May, up from a 0.7 percent increase the month before.

``They say beauty is only skin deep, but this manufacturing recovery looks better and better the deeper you look at it,'' said Jerry Jasinowski, president of the National Association of Manufacturers. ``There is no doubt that the manufacturing recovery is durable, deep and diffuse,'' he said.
The Federal Reserve report shows that manufacturing production is up 6.4% y-o-y, slightly above the annual gain of the entire industrial sector of 6.3%. Manufacturing capacity growth is far more slack, up just 1.1% on the year, not to mention manufacturing employment which is at -1.2% since last May. So, lots more stuff, with lots less people making it.

It turns out there are lots less people buying it, too. Durable goods production is +6.4% while prices are -3.1%; nondurable non-energy commodity production is +3.2% while prices are -1.1% (price change includes non-food commodities as well; the BLS doesn't provide stats for nondurable non-energy commodities).

Phew! I was briefly seduced by the stagflationistas. Thankfully I've returned to my deflationista senses.

Tuesday, June 15, 2004

Thanks to everybody who visited the Globblog yesterday. You helped set a new daily record for this blog: 185 page views! The General is especially appreciative of the traffic visiting via his comments over at AngryBear on Tuesday.

Now I'm solidly in the Top 1000 Weblogs by average daily traffic and have an intimidating 1.3% of the daily traffic of Brad DeLong. Watch out, Top 900 -- keep hope alive!

If this is not evidence of how crazed the global economy is now, I don't know what is. The US sets five monthly trade deficit records in a row. The current account deficit as a percentage of GDP never even approached 'correction' during the 2001-03 recession and now seems surely to pass the 5% mark again for 2004:I (look to Friday's numbers). And yet we hear from Morgan Stanley that the US dollar is undervalued!
Our global currency team has revisited its G7 currency forecasts. The team now believes that the multi-year structural correction in the USD is over and that the risk of a significant undershoot in the US dollar index is minimal. One of the primary justifications for this call is valuation. The team's latest calculations indicate that the USD index (against the majors) is no longer overvalued; it is actually undervalued, for the first time since 2000Q1. The global team has revised its forecasts for the euro/US$ to 1.13 and for the US$/JPY to 115 by end 2005 compared with our earlier forecasts of 1.20 and 93.
The dollar's 26% slide against major currencies from February 2002 to January 2004 (only 14% per the broad dollar index, however) has already been reversed by one-fourth during the first half of this year and per Morgan Stanley is going nowhere but up.

Current account deficits become 'adjusted' via falling currencies and/or global economic growth. Since there seems now no chance of #1 happening and what we have of #2 is mostly export-led to the United States (on top of the fact that no amount of global growth is going to let the US export its way out of this corner), the US could begin seeing Australia- and New Zealand-like current account deficits (>6% of GDP) by next year. And after that we'll really be into uncharted territory.

Christopher Hitchens thinks the Abu Ghraib scandal is about to get much much uglier. If you have been following Sy Hersh's oral commentary on the matter (which has not yet made it into print format), you'll know there is every reason to believe this is true.
In a recent public debate, so I was told, an American officer referred to the Abu Ghraib scandal as a "moral Chernobyl." You might think that this was overstating matters, even if in one important sense�because Chernobyl was morally an accident, albeit in some ways a "systemic" one�it is actually understating them.

But get ready. It is going to get much worse. The graphic videos and photographs that have so far been shown only to Congress are, I have been persuaded by someone who has seen them, not likely to remain secret for very long. And, if you wonder why formerly gung-ho rightist congressmen like James Inhofe ("I'm outraged more by the outrage") have gone so quiet, it is because they have seen the stuff and you have not. There will probably be a slight difficulty about showing these scenes in prime time, but they will emerge, never fear. We may have to start using blunt words like murder and rape to describe what we see.
I'm not sure that Inhofe and the other idiots went silent because they had 'seen too much,' but rather that they realized they had badly overplayed their hand. Even Rush Limbaugh has largely stopped trying to defend torture.

Who knows when the worst of this scandal -- which appears to be the raping of children in order to extract information from their parents -- will break fully. But when it does, it is hard to imagine Bush will be able to survive it.

UPDATE: Evidence that Senators have seen a lot more than we have so far:

Senator Lindsey Graham (R-SC): "We�re talking about rape and murder here, we�re not just talking abut giving people a humiliating experience, we�re talking about rape and murder and some very serious charges."

To support the General's basic deflationista sentiments, I also offer the decline in global commodity prices over the last two months.
Beginning last year, strong demand for raw materials in China, the United States and elsewhere drove commodity prices through the roof, to multi-decade highs in many cases, and helped fuel some of Wall Street's fears that inflation was about to make an unwelcome return.

But since peaking in early April, the Commodity Research Bureau's broad commodities index has fallen 5 percent, while gold futures on the New York Mercantile Exchange have fallen more than 10 percent.

Copper peaked earlier, on March 1, and has since dropped more than 15 percent. Soybean prices are down about 18 percent since peaking in late March. Cotton prices have fallen some 9 percent since their early May top.

Some analysts believe the lower prices are here to stay, saying some of the earlier gains were a little bubblicious, driven by some trader speculation that's since been squashed.

Meanwhile, the U.S. dollar has strengthened and in the process it has driven commodity prices lower by increasing the amount of stuff a dollar can buy. And the Chinese government has apparently succeeded in tapping the brakes on its economy's mammoth growth, cooling global demand somewhat.

"I don't know that we'll see those high prices again for the foreseeable future, and we're into a sideways price trend now," said Frank Lesh, commodities trader at Rand Financial Services in Chicago. "Though prices are higher than in early 2003, they're definitely down to much more manageable levels."
If China's cooldown is for real, we should see a return to sanity in raw materials markets and a return to the general global logic of deflation as well.

The big bad wolf has scared all the little pigs today with the latest CPI report.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in May, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The May level of 189.1 (1982-84=100) was 3.1 percent higher than in May 2003.
Not only is the annual rate now over 3%, but the inflation rate over the last three months (annualized) is at a remarkable 5.5%. Of course, big surges in fuel costs are at the root of the latest price hikes. Over the past three months, energy prices are up an amazing 29.7%, with especially big jumps in January and May.

Most reporting on inflation today, however, sees the real underlying story. Inflation is restricted to a very limited number of sectors: energy, food and (as always) medical care and education. Food inflation, in fact, is mostly limited to meat and dairy, even further narrowing the inflation profile. And when it comes to manufactured goods, it's still all about overproduction.

Year-over-year, apparel prices are up a mere 0.7%; household furnishings, -0.7%; motor vehicles, -3.5%; information technology, -9.1%. Overall, durable goods prices are at -3.1% since last May, and all commodities minus food and energy commodities are -1.1%. The underlying logic of globalization is deflationary, and that logic continues to make itself felt despite all the froth on top.

Monday, June 14, 2004

The only thing that can beat a record US trade deficit is -- you guessed it, an even bigger US trade deficit!
The nation's trade deficit widened in April to a record $48.3 billion, the Commerce Department reported this morning, as America's appetite for imported goods and services continued to grow.

The trade gap comes after a $46.6 billion deficit in March. . . .

Many analysts had expected that the decline in the value of the dollar on foreign exchange markets over the last 18 months to two years would lead to a narrowing of the trade gap. In fact, until the past few months, the deficit appeared to have stabilized, although at a very high level.

Now, however, economists said it very much looks like the deficit picture has worsened further.

"I was not convinced there was a renewed deterioration under way," said David Hendley, an international economist at JP Morgan Securities. "It is getting harder to say that now. Despite pretty decent export growth over the last year, import demand is running faster. That is not the recipe to even stabilize the deficit."
Let's see, the trade deficit has increased each of the last five months, setting a new record each and every time. So far the 2004 trade deficit is running 10% over the 2003 pace and 45% over the 2002 pace. All of this is also in the face of a falling dollar -- the nominal broad dollar index is down 10.5% since February 2002 -- which has had absolutely no effect on the trade deficit (thanks, economists). Don't give me some song and dance about 'delayed effects,' either. Twenty-seven months should be enough.

The 2004:I Federal Flow of Funds report shows that the federal government is both increasing its debt dramatically -- in 2004:I, the second highest quarterly total ($466bn) and the third fastest quartely growth rate (11.6%) under the Boy King -- and completely dependent on foreign purchases of its securities. How much longer until the rest of the world says "enough"? Forever??

The current account figures for 2004:I are coming out Friday. A return to deficits over 5% of GDP seems unavoidable.

The Great American debt machine completes another turn of the screw.
Demand for US government bonds at foreign central banks has for the first time lifted overseas holdings to more than half the paper in circulation.

Figures from the Federal Reserve reveal that $1,653bn, or 50.6 per cent of liquid Treasuries, were held by foreign investors at the end of the first quarter. . . .

The surge in foreign central bank holdings has defied a sharp fall in Treasury prices, and a concomitant rise in yields, raising fears the market could fall if buying by the small number of official sector buyers slows.

Ian Douglas, fixed income analyst at UBS, said: "If they weren't there, yields would be a lot higher."

Ten-year Treasury bond yields have jumped 1 percentage point since the beginning of May to 4.81 per cent on Friday. But yields remain low compared with US economic growth, driving expectations of more losses. A further threat to the Treasury market comes from the surge in oil prices, which puts upward pressure on inflation and interest rates. Tuesday's US consumer price data for May are expected to show the annual inflation rate rising towards 3 per cent.

Such an outcome would increase the likelihood of a sharp rise in US interest rates. The Fed is expected to begin tightening monetary policy at its next meeting on June 30. Interest rate futures last week implied a significant chance that the Fed will raise US rates by 50 basis points to 1.5 per cent this month.
According to the 2004:I Flow of Funds report, net purchases of US treasury securities in the first three months of this year totaled $465bn; non-US purchasers bought net 146% of them! The US household sector has been sloughing off treasuries like there's no tomorrow, down from $798.7bn outstanding in 1999 to $446.4bn outstanding in 2004:I (annualized). While the US commercial banking sector is still buying, they only purchased net 6.5% of issues in the quarter.

We in the US desperately depend on foreigners buying our t-bills, and our debt requirements are going through the roof, up already 17% this year over last. We don't want the damned things, but we're hoping you will!

Say, come on over here, I've got a great 2004 security I think you're gonna like. Automatic transmission, low mileage, roomy . . . did I mention insulated cup holders?