Archive for March, 2012

Murder most foul in Chongqing: the dogs that failed to bark in the night.

March 31, 2012

‘Rest assured, Watson, that there is more to Neil Heywood’s hotel death than at first meets your eye. Remember always to follow the facts, wherever they may lead. And the facts concerning this case lead us long distances, my friend:  from Beijing to Chongqing; from Chengdu to Beidaihe, where China’s Great Wall of Silence meets the sea. Remember also, my dear Watson, to look for events that should have happened, but did not.  Remember well Silver Blaze,  the case of the dog that failed to bark in the night. As I shall demonstrate, the failure of  several dogs to bark is central to our understanding of this case ‘

Distances of this magnitude across an autocratic country that has no notion of the rule of law, and that shows every intent to cover up a murder  most foul perpetrated perhaps by two princeling descendants of the so-called ‘Immortals’ who brought communist governance to China, will stretch the ingenuity even of our master-detective.  But Holmes, always resourceful, no doubt will tap into a British intelligence network  known as Hakluyt, that maintained close connections with the deceased British businessman, a healthy teetotaler who allegedly died of excessive alcohol consumption (or alternativcely of heart failure) and who was cremated by government agents within hours of his death.

Let us start, in Beijing, where the solution to this unusual death is surely already fully known. The alleged perpetrators of this crime – Bo Xilai and his second wife Gu Kailai –  have passed through the hands of the Standing Committee of Nine. And let us not under-estimate the ability of Chinese torture to extract the truth, even from the most resistant of  the descendants of the Immortals. We are not talking about mere water-boarding in the People’ s Republic, Watson. China has practised sophisticated torture over the last two millenia, and it is the master of that universe. By comparison, one Richard Cheney is a novice of this ignoble profession.

Two dogs failed to bark in Beijing, Watson, and their silence is truly significant. First, the Standing Committee of Nine removed Bo Xilai, a rising politician tipped for promotion to the Standing  Committee of Nine in 2013, without ever explaining why. This is truly significant, because the bark that did not occur has moved like a virus across China. The Committee has taken a severe blow for failing to bark. Fear to the reputation for communism if two princelings –  a son and  a daughter of two Immortals –  were to be charged with premeditated murder may well explain this silence.

Second, the Chinese wife of Neil Heywood, Lulu, failed to ask for details about her husband’s death, even when the Chinese government advised her husband’s family in England that he had died, not of excessive alcohol consumption, but of simple heart failure. Lulu has maintained her silence over the intervening four months. That failure to bark is surely a response to fear for herself and her two small children, Watson. Threats have been made and silence has been exacted, undoubtely by the Standing Committee of Nine.

Now let us move to Chongqing, the scene where the dastardly deed occurred. Two dogs failed to bark in Chongqing in November 2011 when Neil Heywood expired. First, the Chongqing authorities failed to request an autopsy, despite the fact that Heywood had a history neither of heavy drinking nor of heart problems. Why, Watson did that dog fail to bark?  Second, Bo Xilai and Gu Kailai, supposedly bosom friends and close business acquaintances of Neil Heywood, failed either to query the actions of the authorities or to request an investigation into the circumstances of his death. Bo Xilai was the Mayor of Chongqing. How could it come to pass that he and his wife acquiesced without comment in the early dispatch of such a close friend and highly-valued colleague?

Next, let us move to the U.S. Embassy in Chengdu, located 300 kilometers from Chongquing, where Wang Lijun, the powerful police chief of Chongquing applied for political asylum on February 6, 2012, offering documentary evidence to support his claim that Neil Heywood had been poisoned by Gu Kailai as a consequence of a business deal that had soured. Two dogs failed to bark on that occasion, my dear Watson. First, the U.S. Consulate refused the asylum application and threw Wang Lijun to the waiting Chinese wolves. Mr. Wang has not been seen since then.

Second, the U.S government failed to report this event to the world press and indeed has remained silent as information has begun to leak out. Why would those two non-events occur, I ask?  Could it be that the United States government does not want to irk its primary banker in a presidential election year?

Finally, let us move to Beidaihe, where Bo Xilai is allegely being held under house arrest. Why has Bo Xilai failed to speak out in response to his dismissal from office? Presumably, his slience is not consensual. Either he has been gagged, or he is already dead, executed with customary Chinese silence and efficiency.

The case moves forward Watson. We have many facts and peculiar non-events. I believe that we can close this case expeditiously, although it is no one’s interest that we should succeed except for those who believe in justice.

Congressional votes on the federal budget

March 30, 2012

On March 28, 2012, The House of Representatives put President Obama’s 2012 budget proposal to a floor vote. Talk about dead on arrival!  The President’s budget proposal went down to  unanimous defeat. Fifteen House Democrats did the White House the favor of abstaining on a measure that would raise taxes by $1.9 trillion. The rest simply gave the President the proverbial bird.

Other budget proposals fared better in the House, though none has any chance of passing through the Senate or the President’s veto pen.  Wisconsin Congressman, Paul Ryan’s budget proposal passed 228-191, with a loss of only 10 Republicans, including three conservatives who considered the proposal to be insufficiently stringent. This budget proposal is half-baked only, because Ryan failed to identify the tax exemptions that must be excised to achieve his revenue prognosis. In any event, it has no chance whatsoever in the Senate.

A more stringent budget proposal  designed to balance the budget in six years won a majority of 136-104 among House Republicans, but was trounced overall.  A bipartisan alternative,  that codified the budget proposal from the President’s 2010 Simpson-Bowles deficit commission, was also trounced 382-38 with support from only 16 Republicans and 22 Democrats. The President failed to support his own commission.

So the Ryan plan – leaky-sieve though it clearly is – is the budget proposal that will form the basis for the Republican Party’s campaign  in November 2012. The Democrats pretty much will run without any proposal at all,  given that Harry Reid has already stated that the Senate will not pass a budget prior to the November 2012 elections.

Some way to govern a constitutional republic, you may well say! Yes, but a constitutional republic surely gets the government that it deserves. So much for the citizenry of the United States in the early years of the 21st century. Free bread and circuses, is the popular cry? Was that not the cry that ultimately brought down the Western Roman empire once its African granaries had been seized by barbarians?

Federal Reserve should place itself on auto-pilot

March 29, 2012

A single goal of long-run price stability should be supplemented with a requirement that the Fed establish and report its strategy for setting the interest rate or the money supply to achieve that goal.  If the Fed deviates from its strategy, it should provide a written explanation and testify to Congress.  To further limit discretion, restraints on the composition of the Federal Reserve’s portfolio are also appropriate, as called for in the Sound Dollar Act.” John B. Taylor, ‘The Dangers of an Interventionist Fed’, The Wall Street Journal, March 29, 2012

The history of the Federal Reserve System, since its inception in 1913, has been poor from the standpoint of economic stability. During the 1920s, the money supply grew too quickly, promoting the stock market boom of 1929. Excessive tightening in 1929 induced the Great Crash. Bank failures and a contraction of the money supply through much of the 1930s, played a major role in prolonging the Great Depression in the United States.

Between 1960 and 1980, the Fed intervened unpredictably with stop-go changes in money growth, inducing frequent recessions, high unemployment and fluctuating rates of price inflation. The resulting stagflation of the late 1970s encouraged Paul Volcker to usher in an era of rules-based monetary policy designed to squeeze stagflation out of the U.S. economy.

Between 1980 and 2000, the Fed followed monetary rules that led to low unemployment, low inflation, stable interest rates and stronger economic growth. Unfortunately, after the dot-com collapse of 2000, andthe  September 11, 2001 attack, the Federal Reserve succumbed to populist pressures as Chairman Alan Greenspan seized the controls with uncontrollable zeal. From 2003 through 2012, the Federal Reserve has behaved in a manic fashion, creating the financial crisis of 2008 and plunging the U.S. economy into a 1930s style recession that shows no sign of ending.

The potential stagflation confronting the United States is of immense proportions. Let me focus on reserve balances credited by the Federal Reserve and deposited in  U.S. banks. This is base money,which eventually expands through the money multiplier into the broader M2 money supply (or its equivalent)  that, in turn,  determines the aggregate level of prices across the economy.

Prior to the 2008 panic, reserve balances held steady at approximately $10 billion. In its own post-2008 panic,  including its mindless initial money injections, followed by QE1 and QE2 stimulus injections, the Federal Reserve has  pumped up those reserve balances to $1,600 billion – a 16-fold increase. 

 So far the impact on M2 has been relatively small. But once the recession eases, the scope for expansion in M2 will be dramatic. In the absence of base money contraction,  M2 money balances will soar, inducing significant inflation. The economy will be severely disrupted, most likely  by inflation, or stagflation, but alternatively by a Fed-induced  major recession.

If the Federal Reserve attempts to claw back base money by selling off its enormous portfolio of mortgage securities, long-term interest rates will soar and the housing market will tank. If it sells short term Treasuries, the credit market will dry up and with it, consumer expenditures. If it leaves base money alone, the U.S. will lurch back to double-digit rates of price inflation.

In essence, the Federal Reserve has replaced the entire interbank money market and large segments of other markets with itself.  It determines the interest rate without regard for the demand and supply of money.  In so doing, it has socialized financial markets, replacing decentralized markets with centralized bureaucratic control. Ben Bernanke has morphed into V.I. Lenin as the  autocratic leader of an increasingly socialist country.

Off with his head!

Asma Assad: ‘chic, chic and still chic’ gushes Elle

March 28, 2012

Asma Assad, the brutal bitch who goads, her husband,  Bashar Assad to murder and torture Syrians who protest his dictatorship, until recently was portrayed as the darling of the Middle East by the naive left-wing media throughout the West.  ‘Chic, chic, and still chic’, gushed Elle in 2008. Now Elle may wish to apologize to its readers for mistaking the third letter for the twentieth letter in the alphabet, when completing each word beginning with ‘chi’.

Asma Assad was born to a prominent Syrian family living in Britain. Before meeting her future husband, Asma had led a privileged life, growing up in the affluent West London suburbs, studying at Kings College, London, graduating in 1996 with a degree in computer science and a diploma in French literature.  Her family originated from Homs, the brutalized city in central Syria that she urges her husband to invest and erase from the landscape of the country.

 No sign that this evil woman will ever feel the need to wash her hands clean of the blood that she has helped to pour across the paving stones of her ancestral city. Asma Assad makes Lady Macbeth look like Santa Maria.

Marrying Bashar Assad, in 2000, with an eye clearly on his assets, Asma quickly learned how to spend extravagantly.  Adopting a Marie Antoinette pose, Asma shops online for Christian Louboutin stilettos, while her country burns. As Syria’s bloodshed worsens, and as leaked emails show her indifference to her people, Asma Assad has become a figure of utter contempt. The remaining issue is now whether her head will be separated from her body when the revolution eventually removes Bashar Assad from his dictatorship.

The European Union has now moved, albeit belatedly, to separate Asma from her assets in Europe. However, she is the sort of ruthless  high-roller who will have shielded wealth in offshore locations. So her lavish outlays on clothes, jewellery, custom-made furniture, chandeliers, and the like will be constrained barely at the margins of extreme indulgence:

“She is one of the regime’s deceptions,’ said Amer Mattar, a 26-year-old Syrian who recently fled the country because of the violence that has killed 8,000 people in the past year. ‘She is definitely part of the ugly formula in Syria.’ Elizabeth E. Kennedy, ‘Syria’s first lady no longer idolized’, The Washington Times, March 28, 2012

Dominique Strauss-Kahn charged with running Lille prostitution ring

March 27, 2012

On March 26, 2012, Dominque Strauss-Kahn, the disgraced former director of the IMF was placed under formal investigation for alleged involvement in the running of a prostitution ring in the northern French city of Lille. He is free on bail in the sum of $135,000.  Let us hope that, for the first time, this world-class socialist sponger, has paid up from his own account, and not that of his cuckolded  wife, Anne Sinclair.

The judges in Lille, presiding over the investigation, have decided to proceed with an investigation into DSK’s  ‘involvement in aggravated procurement by an organized gang.’  Eight other individuals, including senior police and business figures in Lille, all with established links to DSK,  have  been arrested or placed under investigation in the developing case.

DSK has already admitted to participating regularly in sex parties, dubbed soirees libertines by his lawyers, organized by the group in Paris and in Washington, DC, when he directed the IMF, including one such sex party just days before he was arrested in New York on charges of alleged rape of a chambermaid in his hotel suite.

DSK still faces a civil action suit brought against him in New York by Nafissatou Diallo, the hotel chambermaid. A hearing in that case is due on March 28, 2012.  DSK’s travel opportunities are  strictly curtailed by the Lille bail ruling. In any event, it seems unlikely that DSK would ever willingly set foot in the United States again, following his taste of American justice in May 2011.

Meanwhile, Anne Sinclair’s bank account appears to remain open to further depredations  by the avaricious,  disgraced, socialist reprobate with whom she still, amazingly, continues to associate.

The mystery of China’s Bo Xilai deepens: somethings afoot, Watson

March 26, 2012

Let’s follow the facts, Dr. Watson:

November 2011 Neil Heywood, a British businessman who claimed to have close links with Communist leader Bo Xilai and his second wife, Gu Kailai is found dead in his hotel room in Chongqing.  Mr. Heywood was a teetotaler. Nevertheless, the local authorities declared that he died  of  ‘excessive alcohol consumption’. His body was immediately cremated without an autopsy.

February 6, 2012 Wang Lijun, Vice Mayor and former police chief of Chongqing enters the U.S. Consulate in the nearby city of Chengdu seeking political refuge from Bo Xilai. Wang Lijun claims that he feared for his life after discussing with Bo Xilai his belief that Neil Heywood had been poisoned as a result of a business dispute with Bo’s wife. Wang Lijun provides documentary evidence for his claim and  requests political asylum. This is denied by the Consulate – no doubt on direct orders from President Obama – because of a cowardly fear that relations with China would be damaged by such a worthy decision.

February 7, 2012 Wang Lijun is ejected from the U.S. Consulate and is detained by waiting Chinese security agents. Wang Lijun disappears – most likely forever. The Chongqing government announces that Mr. Wang is suffering from stress and undergoing ‘vacation-style treatment’. No doubt that is occurring six feet underground.

March 9, 2012 Bo Xilai, Chongqing party chief, admits ‘negligent supervision’ of Wang Lijun, but denies that he has offered to resign from the Politburo or that he is under investigation in relation to the scandal.

March 15, 2012  China announces dismissal of Bo Xilai as Chongqing party chief.

March 25, 2012  The British government asks China to open an investigation into the circumstances surrounding Neil Heywood’s suspicious death. A U.S. Embassy spokesman – surprise surprise –  declines to comment on the situation.

Fat chance that China will respond in any way, except further to shut down the entire episode. My best guess is that Bo Xilai and his wife Gu Kailai will never be seen again. That is one effective way in which to close down a homicide mystery. Eliminate every person concerned and cremate their remains. That seemingly is the Communist China model.

Not exactly the rule of law  terrain that Sherlock Holmes and Dr. Watson inhabited in late 19th century Britain.  The People’s Republic of China has yet to emerge from the Dark Ages in terms of such niceties as the rule of law and respect for individual liberty.


Why not nominate a ballet dancer to head the World Bank?

March 25, 2012

President Obama’s nomination of Jim Yong Kim to lead the World Bank is irresponsible in the extreme. Not perhaps as irresponsible as his 2009 appointments  of the two dynosaur hydraulic Keynesian economists, Lawrence Summers and Christina Romer, to key economic positions in 2009;  but still reflective of  major incompetence.

The World Bank is, well, a major  bank. It is not a hospital nor is it a university college.  Jim Yong Kim is a health expert and president of Dartmouth College.  He lacks significant diplomatic and financial experience and he has absolutely no training in economics. His only real qualifications for the job is that he was born in a once developing country – South Korea – and that he has shown a commitment to development.  But one could pull many such individuals off the streets of any major United States city.

President Obama’s nomination is cynical in the extreme. It signals a fundamental contempt for the mission of the World Bank. It garnishes the President’s reputation for pandering to Asia; and it signals a lack of any interest in having the United States chart the future for the Bank in a rapidly changing world.

Physician heal thyself, will be the likely response of bankers, financiers and economists worldwide when they find themselves dealing with an out-of-his-depth Dr. Kim on issues of immense importance for the world economy.

Next, the President may nominate  a ballet dancer or a basketball player, or whoever else takes his personal fancy,  to key roles in the global economy. Now surely such nominees might perform better than Summers or Romer ever could. But that is the lowest bar available for measuring success or failure in an increasingly complex world economy.

The tax breaks that Paul Ryan will have to eliminate

March 24, 2012

Paul Ryan claims that he has proposed a neutral federal tax reform by replacing a system based on six tax rates by one based on only two: 10 percent and 25 percent.  Ryan claims that he can raise $1 trillion per annum to finance these tax cuts simply by eliminating ‘special interest’ credits and deductions.

Unwilling to face the political backlash, Congressman Ryan refuses to name the tax break credits and deductions that he must eliminate in order to achieve such revenue neutrality. So let me say what he will not. If he disagrees, he has plenty of opportunity to explain his alternative scenario. Alternatively, Paul Ryan may choose to follow the usual cowardly politician’s path and say nothing about the bad news for many voters implicit in his proposal.

The non partizan Congressional Research Service, this week, released a report which identifies 20 top tax breaks, each as a percentage of the total  loss to federal revenues projected for fiscal year 2014. This  is as good a basis as any to confront Congressman Ryan with the opportunity cost of his proposed tax reforms.

1.  Tax breaks that are technically difficult to remove

Some 40 per cent of the lost revenue would be difficult to capture under any circumstances because they take the form of  in-kind benefits that cannot easily be enumerated on individual tax forms. Prominent among these are employer-provided health insurance and employer pension benefits, jointly accounting for some 30 percent of the total. These are not tallied in employee paychecks and would be very difficult to enumerate for purposes of federal income taxes.

2. Tax breaks that would have to go

Paul Ryan would have to eliminate virtually all other tax breaks in order to achieve fiscal neutrality for his reform proposal. These include all mortgage interest deductions (8.4 percent of the total), medicare exclusions (6.4 percent), earned income credit (4.9 percent) , state and local income tax deductions (4.5 percent), charitable contributions deductions (4.3 percent), tax exempt/tax credit bonds (3.6 percent), social security benefit exclusions (3.6 percent), capital gains on housing exclusions (2.3 percent), property tax deductions (1.4 percent), medical expenditure deductions (1.4 percent), individual retirement accounts (1.3 percent), and child credit (1.3 percent).  In addition, personal allowances would have to be severely paired down in order to achieve full revenue neutrality against the 2012 expiration of the Bush tax cuts standard.

Now such a recommendation has a great deal going for it. It would eliminate a lot of tax distortions, especially those that exaggerate the demand for home ownership and stimulate healthcare cost bloating. It would restore incentives to create wealth and promote economic growth.

But the tax credits are highly specific and favored by large identifiable groups of voters. The tax rate deductions are dispersed across the population as a whole and, as such, are less salient in the political market-place.

As a vote-seeking politician, Paul Ryan seemingly favors the provision of concentrated over diverse benefits. If he can get away with both, then he is in the political paradise enjoyed by Republicans during the early noughties, a paradise that  turned into hell in 2008, when the electorate  finally caught on to the evil of  spend and borrow Republicanism.

So which way will you twist, Mr Ryan, in the 2012 poilitical winds? Will it be a return to the naughty noughties? Or will you show more political courage than you have so far been able to muster and become a statesman rather than a politician? Come on, Mr. Ryan, you can steel yourself to take the plunge. There are plenty of opportunities outside of politics for a young man like you, should you be voted out of the Congress in 2012.

Three issues that divide China’s communist elite

March 23, 2012

As with any autocracy, the words emanating from Beijing during the spring 2012 struggle for dominance are opaque and rhetorical in composition. They are designed to avoid any suggestion of political panic and to emoliate a population that largely fears and  despises them all.

Unquestionably, however, three major economic  issues identify the battle-field over which internecine war rages  for the so-called ‘purity’ of the communist party.  The future prosperity of China depends completely on how these three issues are resolved.

The first issue is the current dominance in the economy of state-owned enterprises (SOEs). These economic dinosaurs still account for approximately 50 percent of China’s gross domestic product. They are stifling China’s private sector and its entrepreneurial family enterprises.

The second issue is the use of state-owned banking and financial institutions to subsidize the SOEs.

The third issue is the corrupt mishandling of land rights and land usage for the benefit of state bureaucrats, a severe form of corruption that was at the heart of the recent troubles in the village of Wukan.

The reformers, led by outgoing premier Wen Jiabao and by Wang Yang, the governor of Guangzou, are on the correct side of each of these issues. They would like to introduce reforms designed to significantly reduce the role of the SOEs, to privatize the banking and financial sector, and to create land rights for peasant communities who are threatening revolution against communist party predations on such rights.

The far-leftists – I shall refrain from referring to them as conservatives – are anxious to preserve the central power of the elite through the power provided by the SOEs, the state banks and the availability of land seizures to provide wealth to provincial bureaucrats.

The princelings, who now expect to transition into power along with their leader, Xi Jinping, are more than reluctant to disclose their hands publicly in this momentous struggle, knowing the powerful vested interests that are weighing in against market reforms. All of them have lived lives of privilege under the leftist model. None of them has displayed the courage and leadership qualities of Deng Xiaoping.

Whether China’s market miracle will falter and fail, or whether it will accelerate and take China into the upper reaches of the wealth of nations, depends entirely on the outcome of this struggle. With weakness at the top, one must expect that the forces in favor of the status quo will prevail, and that China will stagnate as a middle income nation, until a capitalist revolution eventually sweeps the world’s last major communist party into the trash can of history

Rumors of coup d’etat go viral across China

March 22, 2012

 One week ago, Bo Xilai. one of China’s most powerful and far-leftist leaders, was summarily removed from office and placed under house arrest. His wife has been spirited away, again under house arrest, on charges of corruption. Such is the way in which 21st century China disposes of supposed enemies of the state. 

China’s heavily censored media has not mentioned the name of either party since Bo’s descent.  But China cannot effectively block all the micro-blogs that now move like a virus through the barriers erected by its bureaucracy.

In one rumor, that spread rapidly on March 19, Zhou Yongkang, a close ally of Bo Xilai, and the head of China’s state security apparatus, had launched a military coup and gun battles had erupted in Zhongnanhei, the top leadership compound in the heart of Beijing.  By March 21, all seems to be calm in that crucial compound.

A second rumor, however, suggests that Zhou indeed mounted an attempted coup, but that the ruling committee had stamped it out. This rumor suggests that Zhou Yongkang is now under close house arrest. Of course, China’s government-controlled media is silent regarding both rumors.

 True or not, the transfer of power in China scheduled for 2013 is exposing internal tensions and divisions that have been largely hidden since 1989.  This should not surprise any outside observer. For this is the first remotely contested transfer of power in China since Deng Xiaoping rid China of an all-powerful head following the death of Mao Zedong in 1976 and the upheaval that followed his death.

Deng fought hard against the cult of personality built up by Chairman Mao. So wary was he of this dangerous cult, that he actively fought against busts or likenesses in his own image.  Jiang Zemin, Deng’s immediate successor, was less colorful even than Deng, and far less powerful as the standing committee of nine increasingly exerted its oligarchic dominance. Jiang’s successor, the colorless Hu Jintao, completely lacks charisma and is the weakest leader to date.

Enter Bo Xilai, a princeling son of one of Mao’s eight ‘immortals’.  Bo’s crime against the standing committee, does not truly lie in allegations of corruption. The standing committee itself is rife with corruption – indeed it is the fuel that drives the system.  Bo’s crime is that he derived his power not from the party, but from his own popularity. With his red songs and populists slogans, he was a constant reminder of Maoist charisma politics.

China’s standing committee is not popular. In open elections it would be buried in the trash can of history. So those who appeal to the public – for good reasons or for bad – must disappear. That is the consistent lesson of the history of autocracy.

 As the  Chinese are wont to say as a curse: ‘May you live in interesting times.’ Well, 2012 is one of those times, not least for China’s petrified standing committee of nine!