Archive for June, 2013

President Obama in turbulent waters steers a boat without a compass

June 30, 2013

When a president is elected into office on the basis of affirmative action criteria, the nation would be fortunate indeed if the elected official were to be truly competent. The United States has enjoyed no such good fortune. President Obama’s first term clearly demonstrated an exceptional level of incompetence in matters economic and international, the two key functions of any modern presidency.

To achieve re-election, Barack Obama had to run an entirely negative campaign that vilified his Republican opponent, a man of evident success in economic affairs, though inexperienced in matters international. Because he could not run on his record, and would not run on a coherent future policy platform, President Obama returned to the White House bereft of almost any policy program capable of attaining majority support in both houses of Congress.

Six months into his second term, President Obama appears to be completely lost, aimlessly steering the vessel of state in increasingly turbulent waters, without any compass to define his direction. Domestically, his only viable policy is immigration reform and he has abandoned details of any such action to the Congress. His economic policy is in a shambles, unacceptable either to Democrats or Republicans, or any combination of both. His international policies are in ruins, as powers, both great and small, respond to his overtures with varying degrees of open contempt.

If the situation does not change – and effective change appears to be beyond the reach of this diminished administration – President Obama will be remembered only for Obamacare. And Obamacare promises to be the most disastrous program ever unfolded on the United States.

This is what predictably happens when criteria other than past performance and future potential are applied by a majority of an electorate in two successive presidential elections. Eight years of uninterrupted incompetence gives rise to a great deal of ruin in a nation.

Lieutenant Ben (Bligh) Bernanke attempts to round Cape Horn

June 29, 2013

In 1787, Lieutenant William Bligh set sail from England on the cutter Bounty, headed first for Tahiti, where he was to pick up breadfruit trees and ferry them to the Caribbean where they might produce food for the growing slave population. To save time, Bligh steered the Bounty to Cape Horn, rather than taking the calmer passage around the Cape of Good Hope.

After a month of unremitting turbulence, during which the Bounty was tossed like flotsam by the waves and gale-force winds, Lieutenant Bligh recognized that he would never round the Horn. Instead, he was forced to change direction and to steer his vessel to the Cape of Good Hope. Though reaching Tahiti, and loading his ship with bread fruit trees, Bligh never reached the Caribbean. Instead, his crew mutinied and set him loose on a long-boat allowing him plenty of time to rue his initial directional decision.

Chairman Ben Bernanke now confronts the dilemma of Lieutenant Bligh. Having pursued a relentless path of monetary expansion, designed to socialize U.S. financial markets, this week he determined to round Cape Horn in order to speed up the path to monetary stability. Immediately, Bernanke confronted the savage turbulence of dangerous financial waters together with gale-force political winds from the Obama administration and Democrats in Congress.

In an uncanny projection of the fate of Lieutenant Bligh, President Obama has assumed the role of the Master’s Mate, Fletcher Christian, in signaling mutiny. Ben Bernanke now has no chance of reappointment to a third term. 2014 is to be the end of the line for this loyal servant of the President. In the mean-time, Ben Bernanke has already blinked. After one month of unremitting turbulence, Chairman Bernanke will adjust the rudder and follow the compass to the more peaceful waters of continued monetary expansion.

However, have no doubt that Fletcher Christian will take him down well before the 2014 elections.

Morsi’s Egypt totters on the edge of an economic black hole

June 28, 2013

When the Obama administration stabbed U.S. ally, President Mubarak in the back, to curry favor with Egypt’s Muslim Brotherhood, it surely could not have expected any outcome other than a Muslim Brotherhood victory at the polls. In this sense, President Obama owns the political-economic mess that now threatens to take Egypt down an economic black hole.

President Mohamed Morsi is an ill-educated religious bigot, typical of the Muslim Brotherhood that he now leads in the aftermath of Egypt’s Arab Spring. He has forced a Sharia-based constitution down the throats of the Egyptian people. He has demonstrated supreme incompetence in his attempt to lead a nation of 85 million people into a new era of prosperity. His personal support across the country has fallen from 58 per cent at his election in 2012 to 28 per cent in May 2013.

Having inherited a bloated and inefficient bureaucracy from his predecessor, Morsi has charged backwards to make it even worse. During the past two years, the budget deficit has skyrocketed to almost 12 per cent of gross domestic product. Cash injections from Qatar, Libya and Turkey are barely providing enough foreign currency reserves to cover three months of imports. The economic slowdown that he has provoked has increased poverty and unemployment with no sign whatsoever of any turn-around.

Investor confidence has totally evaporated and businesses are widely failing amid this foreign currency crunch. Morsi has failed to conclude a loan agreement with the IMF because he refuses to undertake austerity reforms that would start with a reduction in fuel subsidies. The country owes billions of dollars to oil and gas companies. Its sovereign debt and main banks have been downgraded by rating agencies sending them ever deeper into junk territory.

Morsi is a fourteenth-century throw-back president of a backward ruling party. The now only remaining hope for Egypt sadly is a military coup designed to return Egypt to a secular state and to impose austerity-based reforms that alone will pull Egypt back from the black hole that confronts it.

Hat Tip: Heba Saleh, ‘A revolution betrayed’, Financial times, June 28, 2013

Lady Macbeth ousted by reincarnated Thane of Fife

June 27, 2013

In a continuing drama reminiscent of Shakespeare’s Macbeth, Julia (the Red) Gillard has been forced out of office as Australia’s Labor Prime Minister by Kevin Rudd (Crudd to his many enemies), the man whom she ousted from the same office in June 2010. With political blood on both pairs of hands, Punch and Judy both appear to be headed for the knacker’s yard in the upcoming September 14, 2013 general election. A Newspoll survey this week shows Labor trailing the center-right Liberal Nationals by 43 per cent to 57 per cent.

Julia the Red, inevitably, blames her ousting on sexism, though she surely did not claim her 2010 coup on anti-male prejudice. In reality, the current blood-bath is a natural consequence of socialism. As the Iron Lady, Margaret Thatcher once famously noted: the problem for socialists is that sooner or later they always run out of other people’s money!

Julia Gillard conspicuously achieved this fate failing to balance the nation’s budget this year despite hiking an unpopular carbon tax onto the economy. As always under socialism, Australia’s economy is slowing, leaving her Party vulnerable to voter revenge.

Kevin Rudd’s immediate challenge is to convince voters that he presides over a united political party. Following a recent history with parallels to England’s Wars of the Roses, it is doubtful that this victory for the White Rose over the Red will convince Australian voters to stick with such a divided pair of houses. More likely, the September 14 Battle of Bosworth Field will see the White Rose defeated and governance returned to a Liberal National Tudor Rose.

Britain leads the world in bank reform

June 26, 2013

During the 2008 financial crisis, the governments of Britain and the United States failed the test that confronted them. Many of their largest banks had leveraged themselves excessively in mortgage securities and confronted bankruptcy as the U.S. housing market bubble finally burst.

The rational solution to such mis-behavior was to allow the die to fall where it may, specifically to allow insolvent banks to go under and thereby to cleanse an unhealthy financial sector of its least worthy members. The governments led by Prime Minister Gordon Brown (the Scottish cyclops), and President George W Bush (the compassionate conservative) lacked the moral courage to allow free markets to do their work, and introduced the concept of ‘too big to fail’ into the English language.

Since that policy nadir, Britain has forged ahead of the United States with respect to bank reform, as U.S. politicians, from president down to most lowly congressman, have become corporatists, equating the success of an industry with the interests of large companies.

The British government of Prime Minister David Cameron has not succumbed to this fundamental national socialist error, recognizing that the crucial issues lie in the structure of the banks themselves. The government has led the way by concluding that it is not so much that British banks are too big, but that they are too complex.

“Their combination of activities creates conflicts of values, of interests and of objectives. A culture of investment banking that is dominated by trading is incompatible with the requirements of reliable retail banking Central banks have flooded banks with funds to support domestic lending, but the balance sheets of these bans remain dominated by transactions with other financial institutions.” John Kay, Britain is leading the world when it comes to bank reform’, Financial Times, June 26, 2013

The British government gradually has recognized the need for structural change. The Vickers Commission, which reported in 2011, put forward the crucial reform: the separation of retail and investment banking. The Parliamentary Commission on Banking Standards, which reported in June 2013, has proposed criminal sanctions, including jail-time, for bankers who recklessly pursue their own interests ahead of those of the banks they control. Both bodies demand more competition in banking and the government is moving towards the parking of legacy assets in a bad bank. The Bank of England, under the able leadership of Governor Mervyn King, has been the leading source of skeptical thinking on the future of the British financial sector.

In the meantime, under the left-liberal influence of President Barack Obama and the hydraulic Keynesian influence of Ben Bernanke at the Federal Reserve, the American financial sector is returning to its old bad, bonus-boosting habit of excessive leverage, now secure in the knowledge that ‘too big to fail’ is the post-2008 nirvana.

A new dawn of American impotence

June 25, 2013

Since January 2009, President Obama has pursued a foreign policy designed to remove the United States from nettlesome foreign entanglements. The world has watched and understood. President Obama now discovers that the United States is running out of foreign influence. Any realpolitik analyst would anticipate such an outcome. For Obama, the unfocused dreamer, reality has come as a complete shock.

Reality has finally dawned because of Obama’s inability to bring back Edward Snowden to so-called American ‘justice’. Foreign powers, great and small, evidence schadenfreude, as they watch the United States president slowly twisting in a biting wind of his own creation.

But much more is awash for Obama’s America than Edward Snowden. Afghanistan’s understated debacle is a spectacular example. Last week, the Taliban opened an office in Doha for the Islamic Emirate of Afghanistan – the name that Mullah Omar gave to his regime before its 2001 downfall at the hands of President George W Bush. In response to this office opening, President Hamid Kharzai shut down negotiations with the United States over post-2014 security cooperation.

So what has really happened? Merely to get the Taliban to the table for a bogus peace process, Obama and Kerry agreed, at the urging of Pakistan, to allow Mullah Omar to access the negotiations on his own terms: no acceptance of the Afghan Constitution, no ceasefire with international forces, not even a pledge never again to allow Afghanistan to become a haven for international terrorism. Worse still, Obama and Kerry are to allow the terrorist Haqqani network – whose exploits include the 2011 siege of the U.S. Embassy in Kabul – a seat at the table.

So, having legitimized Haqqani and given the Taliban everything it wanted, in exchange for nothing, the U.S. now finds itself dumped by its own client government in Kabul. That government can always turn to Iran as a substitute patron. No peace, no peace process, no ally, no leverage and no moral standing, all in a single stroke.

Well done, Barack Obama and John Kerry! You truly have shown British Prime Minister, Neville Chamberlain, how far appeasement can really go when genuine pacifists come to power.

As for the American electorate, well this is what happens when you twice elect a president into office on the principle of affirmative action.

Hat Tip: Bret Stephens, ‘The Age of American Impotence’, The Wall Street Journal, June 25, 2013

Xi and Putin flip Obama and Holder the bird

June 24, 2013

In 1956, the United Kingdom confronted the reality that its days of Empire were finally over. In collaboration with France and Israel, the United Kingdom had asserted its authority over the Suez Canal overwhelming the Egyptian forces of Colonel Abdul Nasser. Britain took this action, as an imperial power, without consulting Washington.

U.S. president, Dwight D Eisenhower, was highly displeased with this autonomous action, that coincided with the USSR invading Hungary to put down a potential uprising, right in the middle of his re-election campaign. The British government was served with a warning that if the Allies failed to withdraw immediately from the Canal Zone, the United States would apply downward pressure on sterling. Sir Anthony Eden, the conservative Prime Minister, a great statesman who had served as Foreign Secretary to Prime Minister Winston Churchill from 1940 to Victory in Europe, and who had developed a close personal relationship with then General Eisenhower, reluctantly ordered withdrawal, thereby signaling the end of his own illustrious career, and, effectively, withdrawal of Britain’s imperial role, at least, East of Suez.

These past few days, President Obama must be reflecting on a similarsequence of events that have occurred under his weak and corrupt administration. No nation on earth now respects the political authority of the United States. U.S.influence in the Middle East is negligible, with the governments of Iran, Syria, Afghanistan, Iraq, Egypt and Pakistan openly flexing their independence from the Stars and Stripes. China and the Russian Federation clearly signal that the United States is a paper tiger led by an incompetent President.

And now, Xi Jinping and Vladimir Putin have publicly flipped President Obama and Attorney General Holder the bird, much in the same manner that Eisenhower flipped Eden the bird in 1956. By allowing Edward Snowden safe passage from their countries, as he flees American snoops without a passport and with felony charges hanging over his head, Xi and Putin clearly indicate that the so-called Pax Americana is over. It has collapsed in a web of lies, corruption and deceit, not least of the People who elected it into office.

Unfortunately, the American political system does not provide for the People to force its president prematurely out of elected office. So American will have to wait some 40 months before they can take their revenge on the betrayal from within.

Edward Snowden runs for freedom from Obama’s hounds from Hell

June 23, 2013

Earlier this week, the Obama administration filed a charge of espionage against Edward Snowden for revealing details of its secret extensive spying on American citizens. The net looked like closing tightly around Snowden’s neck, as Obama’s snoops sought vengeance for the shame that the freedom-lover has heaped upon them.

Fortunately, there are still some islands of freedom left as Obama attempts to blanket the planet with his coercive surveillance. Hong Kong provided a vital two-day window of opportunity by finding clauses in the U.S. indictment that failed to comply with their laws. Given that the indictment had not been properly filed, the Hong Kong government allowed Snowden access to commercial flights out of the still freedom-loving former British colony.

Wikileaks then assumed responsibility for spiriting Snowden to freedom. Using their international network and their legal support staff, Wikileaks arranged for Snowden to board a commercial flight to Russia, where he will be welcomed and assisted by President Putin. From Moscow, Snowden will fly to Havana, where he will be welcomed with open arms by a communist government that openly despises the Obama administration. From Havana he will fly to Caracas, where he will finally settle down, supported by a Venezuelan government that will never extradite him to the hated Yankees.

Well done Wikileaks and the several governments that have conspired with them to prevent a ruthless, coercive government from imprisoning, if not executing, a good man who dared to expose a debauched and corrupt U.S. administration.

Bernanke has now burst price bubble in long-term Treasuries

June 21, 2013

When socialist bureaucrats are finally done with meddling in financial markets, turbulence is inevitable, as Vladimir Bernanke is now discovering.

Investors who do not understand the nature of a Federal Reserve-driven Treasury price bubble will have experienced severe headaches last night. Those who do not understand the herd instinct, and who hold on to their long-term bond portfolios in coming weeks, in the expectation that the bond market will recover, will wake up six months from now with more than severe headaches.

Inevitably, Bernanke’s signal that the socialist experiment is coming to an end, has hit stocks significantly, with the Dow down 4 per cent or so from its peak in May 2013. However, as long as the real economy does not take a hit – and that is to be determined – stock prices will return. Investors may hold on to their stock portfolios with a degree of confidence.

However, Treasuries are an entirely different matter. Yields on long-term Treasuries will now rise significantly, albeit with a degree of volatility, as QE3 tapers and eventually disappears. If 10-year Treasuries show yields of 5 per cent, say in one year’s time, an investor who bought say $100,000 of those Treasuries at 1.6 percent some months ago, will wake up to find that portfolio valued at $32,000. Only by holding those bonds for ten long years to maturity can such investors avoid that huge loss of capital. And if they do so, they will live in a 1.6 percent per annum yield environment while those who come after them earn 5 per cent per annum.

Suffice it to say that Vladimir Bernanke will not walk the streets safely at night when large-scale government bondholders wake up to the harm that he has wrought.

The bull is throwing Bernanke around like a piece of flotsam

June 20, 2013

I predicted that Ben Bernanke would have a tough time dismounting the market bull. Well, as things go, Bernanke may be quickly thrown by the bull and gored to a nasty exit.

The Dow has lost 500 points in two days.Ten year Treasury yields have risen from 1.6 per cent at the end of May to 2.46 per cent today. Bond prices have fallen accordingly.If this goes on, just watch for the political fall-out. After all the 2014 elections are getting closer by the day.

Thus always ends the fatal conceit. Bernanke may act as though he is the master of the universe. In reality, he is just a piece of helpless flotsam in the rodeo arena.