By Stella Dawson Sun Jan 1, 2012 8:04am EST
(Reuters) – Dysfunctional politics threatens to deliver a protracted period of slow global growth, possibly lasting well beyond 2012, which will only deepen the political and economic problems for the West.
The global financial crisis that began four years ago has morphed into a political crisis for the United States and Europe. Leaders incapable of wrestling their debt loads to manageable levels or reviving strong economic growth are stoking turmoil in markets and populist unrest among the citizenry.
The political malaise is also hastening the shift of world economic power toward developing countries led by China. At worst, it could cause a second global recession bringing with it political upheaval on a scale not seen since the 1930s.
These unpalatable scenarios are being sketched by a growing number of leading political strategists, academics and economists after an extraordinary year when the once unthinkable came to pass: the United States had its credit rating downgraded while the developing world enjoys upgrades; Europe went cap in hand to Beijing for a financial bailout; and Brazil overtook Britain within the G7 club of major economies.
The shifting international economic order toward developing countries is nothing new. But it has been happening at a faster pace than expected, accelerated by what these analysts have begun describing as Western democracy in crisis.
They see a government credibility problem in the United States and European Union, stemming from a perception that the political elite is too closely tied to the financial elite in the West, and their collusion caused the financial chaos of 2007 and 2008 and its messy aftermath, leaving the average citizen burdened with higher public debt, higher taxes, unemployment and austerity programs.
Left to pay for what voters see as the elite’s mistakes, public confidence in government has been undermined, and political paralysis has set in as Western leaders struggle to pull governmental levers that are not working effectively.
In contrast, developing nations have been modernizing their institutions and markets, delivering growth rates in the past decade triple those of the West. By 2020, the Centre for Economics and Business Research in London estimates that India and Russia will have joined China and Brazil in the G7 ranks as the biggest economies in the world based on total GDP output, ousting Britain and France. Only the United States, Japan and Germany will be left from the old G7 that dominated the international order since World War II.
Niall Ferguson, a prominent economic historian now at Harvard, calls this an historic power shift.
“For the better part of 500 years, it was Westerners on both sides of the Atlantic who could say that they had the best economic system, that they developed the best political system and so forth. And those claims have sounded increasingly hollow in our time,” Ferguson said in an interview.
The breakdown in public confidence caused by the financial crisis has revealed a deeper problem. “What we’re seeing in government is part of a wider crisis of Western institutions,” he said.
The Tea Party movement in the United States, the Occupy Wall Street movement and riots in Europe all are populist expressions of this breakdown of trust. Institutionally, it is reflected in a U.S. Congress deadlocked over taxes and spending with lawmakers so polarized by different narratives on the causes and fixes for the financial crisis that it is nearly impossible to reach decisions, even though both sides recognize that if left unchanged, their policies will bankrupt the nation, he said.
In Europe, leaders lurch from summit to summit, making partial decisions on fixing a debt crisis and trying to save the 17-member monetary union. But in the process the political elite in Brussels and the capitals are losing touch with their democratic base, which is uncertain it wants to pay the price required for monetary union through deep cutbacks.
Heather Conley, a former U.S. Under Secretary of State for European Affairs and now a senior fellow at the Center for Strategic and International Studies, said this near political paralysis seen in the United States and Europe is common when governments are at an inflection point.
“Without decisive direction and leadership, we march in place or attempt to muddle through, uncertain of which path to take. The West is at such a moment,” she said.
“Only an external shock I fear will force us to take the uncertain (new) path. Or we will become so frustrated that the West will choose leaders who will take us in a radically new direction. I’m not sure our frustration level has reached that level, yet. But Europe may be arriving there soon.”
Governments in Greece, Italy and Spain have collapsed or been voted out of power in the past year, and 2012 brings presidential elections in the United States, France and Russia.
ASIA NOT IMMUNE
The fall-out from Europe’s debt crisis is being felt far and wide.
Japan already has endured nearly two decades of lost economic growth and weak political leadership after its financial bubble collapsed in the early 1990s.
George Friedman, geopolitical strategist and chief executive of Stratfor Global Intelligence, sees a distinct risk that China too will join the club of countries in political stalemate, subdued or stalled growth and popular unrest – with potentially serious consequences.
“When the United States, Europe and China go into a crisis of this sort, it can reasonably be said that the center of gravity of the world’s economy and most of its military power is in crisis. It is not a trivial moment,” Friedman wrote in “Dominoes of Doom” on the website EconomyWatch.com.
China’s economy, heavily dependent on exports, is slowing fast. Officials described the global economic outlook as “extremely grim” last month after its annual work conference, signaling deep concern as China enters a year of leadership change.
The Chinese government responded to the global recession spawned by the 2007-2008 financial meltdown with a massive credit expansion that has stoked inflation and fed a property boom. It also increased controls on the economy through state-owned companies, further concentrating state power, which Friedman sees as politically destabilizing as growth slows down.
Witness the past month villagers in southern China in a 10-day standoff with public officials over land expropriation, thousands marching in Haimen city to protest a power plant and a worker sit-in in Dongguan city demanding back pay after their paper plant closed.
The best that can be hoped for in 2012 is a muddling through, where economic growth in the United States averages around 2 percent compared with zero in the euro zone, analysts said. World growth, buoyed by emerging markets, looks set to average around 3 percent.
Martin Sass, founder of the New York based hedge fund M.D. Sass with $7.5 billion under management, is among those pinning his hopes on the elections breaking the stalemate. “I never expected the level of dysfunction in the U.S. and European lawmaking … and I never saw fundamentals count for so little in the stock market. Politics and contagion were the drivers of this underperforming market, not balance sheets and earnings.”
“It is going to take a new election in November (in the United States) to get any legislation through to deal with our problems,” Sass said.
If the political system starts functioning effectively again, Mohamed El-Erian, chief executive officer at PIMCO, the world’s largest bond fund, said it’s not too late for policymakers to catch up and avert serious economic downturn.
But elections alone may not prove the answer. To break the paralysis, political leaders need to offer a new vision, one that rebalances the cozy linkage between finance and politics, otherwise the credibility of the political system will remain compromised, said Scheherazade Rehman, professor of international affairs and finance at George Washington University.
“There has to be a shifting of our institutions. The banking system is at the heart of our economic system and with it extraordinary ties to the political system. We have to rethink the close relationship that caused the breakage,” she said.
The political crisis shot to the foreground this year as voters lost confidence in how governments responded to the 2007-2008 financial crisis, global recession and the resulting explosion in sovereign debt levels. Two narratives have emerged of what went wrong. The left casts the banker as the prime villain, unpunished by the political elite who allowed CEOs to violate all the principles of fiduciary and moral responsibility in pursuit of personal gain, which fuels the perception of a political system in collusion with a criminal financial elite it is unwilling to punish.
The right-wing narrative casts big government as the villain for exploiting the crisis to expand its regulatory powers that intrude on free markets, and to spend money on huge bailouts and social welfare programs that have only exploded the budget deficit.
In both narratives, the victim is the average citizen who is left paying a gigantic bill – through high unemployment, higher taxes and lost economic opportunity. Either way, the compact between political governance and economic life has broken.
“The political reaction, whether big government is seen at fault or big business, the reaction is that the system is tainted and there is too much crony capitalism at work,” said Raghuram Rajan, finance professor at the University of Chicago and former International Monetary Fund chief economist.
There is a distinct possibility that political dysfunction will continue well after the 2012 elections – held in May for France and November for the United States, while China completes its leadership handover by the spring of 2013.
In the United States, voters could return a divided and polarized Congress again, continuing the legislative standoff. One-party rule may prove little better, if the path chosen toward budgetary discipline is excessive taxation or ultra-steep budget cuts. In France, the election winner’s relationship with Germany and fellow EU leaders will prove critical.
Although Western democracy has demonstrated the flexibility to reform when facing severe challenges, the shadow of the 1930s looms large. This uncertainty over whether strong political leadership can emerge in 2012 is haunting markets.
John Browne, senior economic consultant to Euro Pacific Capital, is among the pessimists. He told clients in his year end note that American and European Union politicians have shown utter unwillingness to take tough decisions they know should be enacted to avoid looming global economic disaster.
“With an estimated $6 trillion plus solvency shortfall of the euro zone banks, and $16 trillion in U.S. public debt, it will take leadership of far greater caliber to avert a disaster. Such leadership is nowhere in sight,” he said.
(Reporting By Stella Dawson; editing by Claudia Parsons)
- Independence illusion (business.financialpost.com)
- Europe’s Far-Right Are Blaming This Minority For A Financial Crisis Again (businessinsider.com)
- Nation nervous as 2012 begins (mysanantonio.com)
- We are all Keynesians now (stimuluscapitalideas.wordpress.com)
- UK economy will be biggest in Europe in 4 decades, say experts (dailymail.co.uk)
Soros-Rockefeller-Rhodes protégé – tried to allay a default by engineering a new sovereign debt bond mega-swap.
Exactly ten years ago Argentina suffered a full-scale financial and governmental collapse. That was the end-result of over a decade of doing exactly what the IMF, international bankers, rating agencies and global “experts” told us to do.
Then President Fernando de la Rúa kept applying all IMF recipes to the very last minute, making us swallow their poisonous “remedies”.
It all began getting really ugly in early 2001 when De la Rúa could no longer service Argentina’s “sovereign debt” even after driving the country into full “deficit zero” mode, slashing public spending, jobs, health, education and key public services.
By March 2011, he had brought back Domingo Cavallo as finance minister, a post Cavallo had already held for six years in the nineties under then-President Carlos Menem, imposing outrageous IMF deregulation and privatization policies that weakened the state and led straight to the 2001 collapse.
Well, it wasn’t really De la Rúa who brought back Cavallo but rather David Rockefeller (JPMorgan Chase) and William Rhodes (CitiCorp), who personally came to Buenos Aires to tell/order President De la Rúa to name Cavallo… or else!
So, by June 2001, Cavallo – a Trilateral Commission member and Soros-Rockefeller-Rhodes protégé – tried to allay a default by engineering a new sovereign debt bond mega-swap which increased public debt by $51 billion, but did not avert total collapse that December.
What then? De la Rúa and Cavallo protected the bankers, avoiding a massive run on all banks by freezing all bank deposits. “Corralito” they called it – “the crib” – whereby account holders could only withdraw 250 pesos per week (at the time, equivalent to $250; after the 2002 devaluation, equal to $75).
Argentina’s economy all but collapsed; people took to the streets banging pots and pans, screaming and yelling, calling all bankers ‘thieves, criminals, crooks, swindlers and robbers’ but… the big mega-bank bronze gates all remained tightly shut. No one got their money back.
Half of bank deposits were in dollars. Again, no one got their dollars back, but just as pesos at a fraudulent rate of exchange after devaluation had been imposed and Argentina’s so-called “convertibility” Currency Board that Cavallo had imposed a decade earlier pegging the peso to the dollar at an unrealisticone-to-one parity, was dropped.
Clearly,this was a massive banker-orchestrated, government-backed robbery of the assets and savings of 40 million Argentinians.Half our population quickly fell below the poverty line, GDP contracted by almost 40% in 2002, millions lost their jobs, their savings, their homes to foreclosures, their livelihoods and yet… not one single bank folded or collapsed!
Amid rioting in Buenos Aires and major cities and brutal police repression that left 30 dead on the streets, De la Rúa boarded his helicopter on the rooftop of the “Casa Rosada” presidential palace and abandoned ship. That last week of December 2001, four presidents successively went by until finally the bankers, the media, and the US State and Treasury Departments accepted Eduardo Duhalde as provisional president. He finally named finance minister Roberto Lavagna, a founding member of the local CARI, the Argentine Council on Foreign Relations, which is the local New York CFR branch.
Argentina was used as a testing ground by the global power elite to learn how a full-scale financial, monetary, banking and economic collapse can be controlled and its social consequences suitably engineered to ensure that, with time: (a) the bankers came out unharmed, (b) “democratic order” is re-instated and the new government imposes another sovereign debt mega-swap, balance their numbers, and calm the people down (or else!), and (c) put big smiles back on bankster faces…Business as usual!
The lessons learned in Argentina in 2001/3 are today being used in Greece, Ireland, Spain, Italy, Iceland, the UK and the US.
So, “Occupy Wall Street” demonstrators, lend me your ears! You haven’t got a chance! The global money masters already made their financial war game exercise in Argentina.
At one point it got so bad that New York Times journalist Larry Rohter (later alleged by the Brazilian government to have ties with the CIA) had the gall to suggest the territorial break-up of Argentina to “solve” our debt crisis. The title of his perverse article, published on 27 August 2002, said it all: “Some in Argentina see secession as the answer to economic peril”, specifically targeting our natural resources-rich Patagonian region…
Then, the global power elite finally got their man when Néstor Kirchner became president in May 2003. Kirchner retained the finance minister, Lavagna, engineered yet another sovereign debt mega-swap running 42 years into the future (!); he paid the IMF the full amount they claimed of $10 billion (in cash, in dollars and with no deductions; i.e. absolutely most-favored creditor status!) getting nothing in return; he further weakened Argentina’s military, dumbed-down education, media and culture, and ended up imposing his wife Cristina as successor.
Clearly, lots of lessons were learned from the “Argentine experience,” which come in so handy when dealing with those rowdy, poorer Europeans today.
So, one decade on…. anyone for a tango? Adrian Salbuchi
- Ten years after economic collapse, Argentina is still in recovery | Vicky Baker (guardian.co.uk)
- Strange bedfellows: Argentina helped in unpaid debts case by Federal Reserve … – Edmonton Journal (edmontonjournal.com)
- US banks turn heat on Argentina for debt default (thehimalayantimes.com)
- Argentina Must Pay $1.33 Billion to Owners of Bonds – Bloomberg (bloomberg.com)
- US banks, funds file against Argentina remedy (kansascity.com)
- US banks, funds file against Argentina remedy (foxnews.com)
Posted 12/02/2011 07:05 PM ET
Economic Systems: The former head of the Service Employees International Union says capitalism is on the ash heap of history and sees China as our role model. We have seen his future, however, and it doesn’t work.
President Obama once reportedly told aides, according to the New York Times, that things would be easier if he were president of China. Presumably he meant there would be no pesky things like a Congress, free elections and a free press to deal with.
Former SEIU chief Andy Stern, who may still hold the record for visits to the White House under this administration, would agree with that assessment. Stern, in an op-ed in the Wall Street Journal, writes of China’s “superior economic model,” a command-and-control economy unimpeded by such anachronisms as democracy and a truly free market. Stern writes that the “conservative-preferred free-market fundamentalist shareholder-only model” of capitalism “is being thrown onto the trash heap of history in the 21st century.”
We should, he says, “rethink” our economic model rather than “double down on an empirically failing free-market extremism.” He speaks glowingly of China’s 12th five-year plan and “Deng Xiaoping‘s government-led growth-oriented reforms (that) have created the planet’s second-largest economy” soon to replace us as No. 1.
Stern is wrong on at least two counts. The first is that what we have been practicing of late can hardly be called unfettered capitalism. We labor under the burden of ever-restrictive regulation and the highest corporate tax burden in the world. The administration has embraced industrial policy to dictate where factories can be built and what energy can be developed. It, not the free market, picks the winners and losers.
If we were practicing capitalism, Boeing would be allowed to make its Dreamliner passenger jet in South Carolina without the commissars at the National Labor Relations Board interfering. We’d be building the Keystone XL pipeline to bring Canadian tar sands oil to American markets. We’d be drilling offshore and in ANWR.
If we were practicing capitalism, there would be no such thing as too big to fail. There would be no bailouts, no nationalization of health care or buying of car companies. There would be no Solyndras or government “investments” in failed alternative energy. We wouldn’t shoot ourselves in the foot building high-speed trains.
The second is that China is hardly the worker’s paradise Stern portrays. Its progress has been built on the corpses of millions sacrificed for this or that great leap forward. China has perhaps the worst distribution of wealth on the planet.
Special Reports — 10 November 2011
Reports indicate that, Soros has since last year been pumping millions of dollars into the opposition to defeat Museveni.
However, sources say, after spending a lot of money on the Uganda opposition, which had assured him an outright win over Museveni in the March 2011 election, the loaded American has now changed tactics.
According to our sources, the High Command of UPDF is having sleepless nights after learning that the deadly American has penetrated the pinnacle of the military with a view of engineering a mutiny against the Commander-in-Chief and topples him from power.
“Most of this money is shipped into Uganda through a myriad of NGO’s and civil societies funded by the Open Society Institute owned by Soros,” a source said.
Soros who is in close working relationship with some pronounced opposition figures is trying to recruit UPDF officers to indoctrinate them on how they can execute the anti Museveni plot.
Reliable Sources confirmed that several senior army officers are frequently meeting Soros’ agents and diplomats for private conversations aimed at recruiting them to cause an implosion within the rank and file of UPDF.
The agents according to sources are usually meeting senior officers at places like Quality Cuts Restaurant in Nsambya, Common Wealth Resort Munyonyo,Lake Victoria Serena Hotel, Emin Pasha among others.
“The funded NGOs / civil society organizations have since realized that it will be impossible to remove Museveni from power if the UPDF is still loyal to him hence the plan to create turmoil within its rank and file,” Sources say.
The hugely funded NGOs/ Civil societies are also investigating any grievances some Men and officers of the UPDF could be having so that they may exploit them for enticement.
Those targeted include senior officers from Army, Intelligence Services and Police.
The funded NGO’s have also been profiling key senior officers to study their strengths and weakness, sources added.
- Why U.S. military in Uganda? Soros fingerprints all over it (mb50.wordpress.com)
- Scramble for Africa (mb50.wordpress.com)
- Uganda: Minister aims to present oil bills this year (mb50.wordpress.com)
- Uganda and North Africa (sahelblog.wordpress.com)
Illustration: Congressional run around by Alexander Hunter for The Washington Times
By Phil Kerpen The Washington Times
On Oct. 11, after Senate Majority Leader Harry Reid had taken extraordinary measures to stall an embarrassing vote as long as possible, the Senate decisively rejected President Obama’s “jobs” plan. The same day, in Pittsburgh, Mr. Obama explained to his union allies that he would move forward regardless. “We’re not gonna wait for Congress,” Mr. Obama explained. “We can act administratively without additional congressional authorization and just get it done.” Now we know that part of what he meant was yet another mortgage bailout – one that will cost bond investors billions – via subsidized refinancing.
This remarkable disregard for the rule of law and proper constitutional procedures fit a familiar pattern in this administration: What it cannot achieve legislatively it will attempt to do by regulatory fiat. Congress must actively assert its legislative prerogative or be relegated to the sidelines.
One year ago, the American people decisively rejected Mr. Obama’s big-government agenda in a landslide election. Surely, most voters thought that election would at least halt, if not reverse, the country’s profound lurch toward a larger, more intrusive and more expensive federal government.
Unfortunately, Mr. Obama has chosen to moderate his rhetoric only somewhat and his actual policies not at all. And Congress, institutionally weakened by decades of delegating legislative power, capped by two massive new grants of regulatory power to the executive branch in Mr. Obama’s health care and financial regulation bills, has thus far proven unwilling – at least on the Senate side – to stand up to him.
Consider that the day after last year’s election, Mr. Obama explained to the press corps that his signature cap-and-trade energy rationing legislation – which cost dozens of House Democrats their seats in Congress and was decisively rejected by the American people – was “one way of skinning the cat; it was not the only way. It was a means, not an end.” He clearly instructed his Environmental Protection Agency to go ahead and act as if the cap-and-trade law had been passed, even writing its emissions abatement schedule into the EPA budget.
The month after the 2010 election, the Federal Communications Commission, chaired by Mr. Obama’s close friend and fundraiser Julius Genachowski, voted on a 3-2 party-line vote to impose net-neutrality regulations, the first economic regulation of the Internet in nearly a decade. It did this even though legislation for net neutrality had failed to gain any significant support in Congress and despite the fact that the decisive Comcastv. FCC court ruling had already made clear that the FCC lacked jurisdiction. What’s more, all 95 congressional candidates in last year’s election who pledged to support net neutrality lost. Zero for 95.
The union agenda, as expected, shifted to the National Labor Relations Board, the National Mediation Board and the Department of Labor. Via rulemakings by unelected and unaccountable federal bureaucrats, these agencies are now implementing nearly every aspect of the card-check legislation rejected by the last Congress. The NLRB is especially egregious, relying on a recess-appointed former union lawyer, Craig Becker, and an unconfirmed acting general counsel, Lafe Solomon. Mr. Solomon not only issued the now-infamous unfair labor practice complaint against Boeing for building a nonunion factory in South Carolina but is also suing four states for adopting state-level secret ballot protections.
Our Congress-optional president has been surprisingly open about his approach. Last month, at a gala for the Congressional Hispanic Caucus Institute, he said, “Until Nancy Pelosi is speaker again, I’d like to work my way around Congress.”
The sad irony in all this is that Mr. Obama campaigned against President George W. Bush’s executive excesses, promising a return to a constitutionally limited executive branch. Once elected, however, Mr. Obama discovered that presidential power is only a problem when someone you don’t like is the president.
Even that symbol of Bush-era executive power – the signing statement – has reached a new level of abuse under Mr. Obama. In April, Mr. Obama and House Republican leadership concluded tense negotiations on a funding bill to avert a government shutdown. Part of the deal the president specifically agreed to was language blocking funding for four of the president’s policy advisers – czars, colloquially. Mr. Obama agreed to the language but after the bill’s passage, he used a signing statement to explain that he would simply disregard it.
Now our Congress-optional president is moving forward on his latest bailout-and-stimulus scheme without congressional authorization. Enough is enough. Congress must assert its responsibility under Article I, Section 1 of the U.S. Constitution. It is Congress, not the president, that is vested by the people with legislative power. The Senate must do what the House has repeatedly done and stand up to this administration – or voters must elect a Senate that will.
- Obama’s 2012 Opponent: The ‘Republican Congress’ (michellemalkin.com)
“There is no justification for targeted assassination,” Chomsky said in an interview with PublicServiceEurope.com which was published on Friday.
“There were things going on before, under the last president, but the Obama administration has extended earlier procedures to a global assassination campaign directed at people suspected of encouraging others to carry out what the U.S. calls terrorist acts. What are called ‘terrorist acts’ also raises rather serious questions — and that’s an understatement,” he said.
Asked if he believed Obama’s foreign policy in relation to drone strikes had been worse than that of his predecessor George W Bush, Chomsky said: “In terms of state terror and that’s what I would call this, I have to say yes — and that has already been pointed out by military analysts.”
“The Bush administration policy was to kidnap suspects and send them to secret prisons where they were not treated very nicely, as we know. But the Obama administration has escalated that policy to you don’t kidnap them, but you kill them. Now remember, these are suspects — even in the case of Osama bin Laden.” defencemanagement.com
FACTS & FIGURES
Since 2001, the U.S. government is known to have used drones to mount lethal attacks in at least six countries: Afghanistan, Iraq, Libya, Pakistan, Somalia and Yemen. commondreams.org
The Washington Post has reported that the Obama administration is building a constellation of secret drone bases in the Arabian Peninsula and the Horn of Africa, including one site in Ethiopia. Antiwar
Bombing raids by robotic unmanned U.S. aircraft dramatically increased under President Barack Obama. Dawn
Human rights groups have raised concerns that the use of drones by the CIA has allowed the conduct of a secret assassination campaign abroad without public scrutiny and little oversight by lawmakers in Congress. AFP
The U.S. drone campaign is deeply unpopular among anti-American Pakistani public and the government has publicly demanded an end to the attacks. AFP
Barack Obama’s administration authorized the assassination of the radical cleric, Anwar al-Awlaki, a rare move against an American citizen. Al-Awlaki was killed by a U.S. drone strike in Yemen on October 14.
- U.S. Drone Strike Kills 16 Year-Old American Citizen (outsidethebeltway.com)
- White House confirms US has drones in Ethiopia (sfgate.com)
- New US Drone Base in Ethiopia is Operational (colonel6.com)
- White House confirms US has drones in Ethiopia (seattletimes.nwsource.com)
- Chomsky takes Obama to task | Cian Murphy (guardian.co.uk)
- Obama Administration Murders 16 year old American Boy: Irish Media Ignores Story (politics.ie)
- An American Teenager in Yemen: Paying for the Sins of His Father? (time.com)