Gleanings II – 477 Compliments of Nick Rost van Tonningen (14/09/2012)) Posted by John on September 14, 2012
Gleanings II – 477 Compliments of Nick Rost van Tonningen September 14, 2012
By bringing in QE 3 at this time Bernanke is seeking to protect his job since many Republicans are after his hide & Romney has made it pretty clear that, if elected President, he intends to sack him. And to paraphrase one analyst’s comment ‘With QE3 in the bag, can QE4 be far behind?’
It is a sign of the times that a big feature on China in a major newspaper starts with the words “The world’s eyes may be focused on the Nov. 6 showdown between Barack Obama and Mitt Romney, but in the larger scheme of things, the U.S. presidential election may not be the most decisive moment for the leadership of a major nation taking place this autumn … This became abundantly clear when it emerged this week that the man widely believed to be the next leader of China, Vice-President Xi Jinping, has not been seen for more than 10 days…” – the most reliable report is that he had a heart attack but one not so serious as to delay the 18th National Congress of the Communist Party of China in mid-October or to prevent him from assuming his country’s leadership.
As to the US Presidential election, one observer just opined that in their heart of hearts Americans seem to have concluded that the economy is what it is, & will do what it will do, regardless of who wins the November 6th election. If this is even remotely correct, it would break the tradition whereby a poor economy dooms an incumbent President by creating an issue his rival can use to unseat him (& come to think of it the economy seems to have been much less of an issue than in past elections & than one might have expected under the circumstances.
According to the US Census Bureau the “typical” (whatever that means) US family saw its income fall in 2011 for the fourth year in a row, by 1.5% to US$50,054. On an inflation-adjusted basis this is down from US$54,932 in 1999 – there are many who believe that the official inflation rate lowballs the reality of the erosion in consumers’ purchasing power; if so, the typical family is even worse off compared to 1999 than these numbers suggest).
Deutsche Bank’s new co-CEOs’ plans to rejig its business model away from its past overdependence on investment banking came with bad news for both its shareholders & high-flying employees. For they told the former that the 10% Tier 1 capital ratio target will require retaining earnings rather than paying them out in dividends. And the latter that the past level of bonuses were inconsistent with current returns on capital & that in the future deferred bonuses will be paid in their entirety after five-, rather than in tranches over three-, years (the old Salomon Brothers formula that makes leaving for greener pastures more difficult).
Recently the Globe and Mail ran an article entitled Feed Stomachs before Gas Tanks. This prompted the “Chief Scientist” of an Ontario-based ethanol producer to write a Letter to the Editor to rebut its bottom line, namely that it doesn’t make sense to use corn to produce fuel at a time that corn supplies are tightening. The reason for putting his title “Chief Scientist” in quotation marks lies in the letter’s opening sentence : “People need to understand that the corn used in ethanol manufacture is coarse ‘cattle corn’, not fit for human consumption.” The man is either a total incompetent & not worthy of the designation “Scientist”, or he thinks his audience is retarded and/or, in the Internet Age, 100% computer illiterate; for a quick search of the latter leads one within seconds to sites noting that “coarse corn” has hundreds, if not thousands, of uses in the human food chain incl., but by no means limited to, corn syrup, corn starch & corn oil, baby food, chewing gum, icing sugar, instant tea & coffee, ketchup, licorice, mayonnaise, prepared mustard, peanut butter, potato chips, salad dressings, soft drinks (via HFCS – High Fructose Corn Syrup), tacos, wheat bread & yogurt and, let’s not forget, whisky, never mind such useful non-food items as adhesives, aspirin, biodegradable plastics, cosmetics, crayons, dry cell batteries & wood coatings.
The latest official USDA forecast for the 2012 US corn crop now stands at 10.4BN bushels, down 4.4BN bushels (i.e. one-third) from its initial forecast in May.
Canada’s Prime Minister, Stephen Harper, was recently anointed World Statesman of the Year by the New York-based Appeal of Conscience Foundation (ACF). This body was co-founded by Rabbi Arthur Schneier who, after meeting Harper for the first time ever two weeks ago, said “he impressed me as a man who has vision and doesn’t veer.” By (sheer?) coincidence, this came just a few days after his government cut off diplomatic relations with Iran (which had been at a low ebb already for several years with both missions headed by chargé d’affaires, rather than ambassadors), although Rabbi Schneier maintained that “We’re not one issue” & that, while Harper had first come to the ACF’s attention when he undertook to open an Office of Religious Freedom in Canada’s Foreign Affairs Ministry, his staunch support for Israel & his vocal criticism of Iran had also been factors in his selection. It is proof of Harper’s priorities that he will travel to New York to accept this, not particularly well-known, award during the opening week of the next session of the UN General Assembly while, when he was earlier offered an opportunity to address the General Assembly that same week, he couldn’t be bothered – the problem with ‘having vision & not veering’ is that in the wrong hands it can turn into sheer cussedness & an unwillingness to compromise, even when that may be the optimum option.
The death of former Alberta Premier Peter Lougheed has brought forth the usual eulogies, although in his case, many were more deserved than often the case since Alberta hasn’t been the same since he became Premier in 1971. Two are worth commenting on. That he was ‘greatest Alberta Premier in decades, if not ever’; this is but faint praise since a dumber, more undistinguished lot than his three successors in the two decades since he resigned would be hard to imagine (the jury is still out on the present incumbent). And the references to his vision in creating the Alberta Heritage Savings Trust Fund conveniently overlooks the fact that he also doomed it to growing irrelevance when he started siphoning its income when the going got tough in the mid-80’s, a practice that has continued to this day, as a result of which it is worth less today in inflation-adjusted terms than it was thirty years ago.
GLEANINGS II – 477
Thursday September 13th, 2012
MOODY’S WARNS IT COULD LOWER U.S. TRIPLE-A RATING (WSJ)
- It warned on September 11th the US could lose its triple-A rating if Congress fails to produce a budget that reduces the federal debt burden & “Budget negotiations during the 2013 Congressional legislative session will likely determine the direction of the U.S government’s Aaa rating and negative outlook … If these negotiations were to lead to policies that would stabilize, & then to a downward trend in, the ratio of debt to GDP over the medium term, the rating would likely be affirmed & the outlook returned to stable … (but) If those negotiations fail to produce results … Moody’s would expect to lower the rating, possibly to double A-1.” Furthermore, that it would be unlikely to keep the triple-A rating with a negative outlook into 2014 & that, if lawmakers were unable to find a way around the fiscal cliff, it would need clear evidence that “the economy could rebound from the shock before it would consider returning to a stable outlook.”
As the Romans used to say “in cauda venenum” (the poison is in the tail); in this case this applies to the quite unusual warning that any downgrade might possibly be “to double A-1″ (since the alternative would be double-A2). But this must be a bluff : dropping it two notches would lead to carnage in the US bond market & possibly destabilize the global financial system.
TEACHERS’ STRIKE IN CHICAGO TESTS MAYOR AND UNION (NYT, Monica Davey)
- Teachers’ strikes in major US cities have been rare. There was one in Detroit in 2006 & another one in 2000 in Philadelphia. And there hasn’t been one in New York City for 35-, & in Chicago for 25-, years. So, even though a dispute between the City & its AFT (American Federation of Teachers) local had long been simmering, the strike call in the evening of September 9th for Chicago’ 26,000 teachers at district schools affecting the lives of 350,000 students (& their parents) came as somewhat of a surprise.
- The Head of the AFT local involved says “the teachers feel totally and completely disrespected” & blames Mayor Rahm Emanuel (Obama’s Chief of Staff during his first two years in office) for pushing for longer school days & reneging on a promised raise. And teachers complain about class sizes, a lack of trained social workers, air-conditioned class rooms & reference books, and a proposed new evaluation system that would rely to a significant degree on student test scores.
Teachers will not be less disrespected by going on strike. This may well be another example, generally speaking, of a growing, nation-wide struggle to fight the impact of slow growth on one’s own circumstance and, more specifically, of a rear guard action by public sector unions against governments’ fiscal constraints & a public perception that their members are a cosseted lot. Chicago teachers’ average annual income is US$76,000, plus benefits, & they were offered a 16% raise over four years despite the school district facing a US$1BN operating deficit next year. The studiously ignored elephant in the room are the publicly-funded, but privately-operated charter schools, 96 of them in Chicago with 50,000 students (who were going to school as usual on September 10th), with 19,000 families on waiting lists. They are not required to, & mostly don’t, hire unionized teachers; so their salary scales are US$15,000-US$30,000 lower. But their ‘high grading’ of the student population base (i.e. skimming off the best & brightest) works to the detriment of working conditions in the district schools, 87% of whose students are now from low income families & 80+% non-white. Parents complaining about teachers in district schools spending too much time dealing with problem students may explain why those with a true calling for teaching will work for less in charter schools. But the problem may go much deeper. The number of teachers & students suggests an average student teacher ratio of 14 & yet the article quotes a kindergarten teacher with 43 five year-olds in her class (while research suggests high student-teacher ratios in the pre-school- & early-school years are detrimental to students’ learning abilities later on). And if one were to assume an average student teacher ratio of 25, next year’s operating budget would be accounted for in its entirety by the salaries of the 14,000 teachers actually in class rooms (which raises questions as to what the other 12,000 people classified as teachers might be doing – likely, as elsewhere in the public sector, things with little, if anything, to do with the delivery of service at the ‘sharp-end’.
CARNEY SQUASHES ‘DUTCH DISEASE’ TALK (Saskatoon Star Phoenix, Gordon Isfeld)
- This sobriquet was coined after the Dutch manufacturing sector collapsed following the discovery & development of Holland’s oil & gas resources in the 70’s. And it has been used by some Central Canadian talking heads to denigrate the shift in Canada’s economic centre of gravity from manufacturing in Ontario & Québec to the resource-heavy Western provinces. But at the Spruce Meadows Economic Round table in Calgary Bank of Canada Governor Mark Carney sought to debunk this claim, saying the strength of Canada’s resources sector was “a reflection of success, not a harbinger of failure” & that the logic of Dutch disease “requires that we undo our successes in order to depreciate our currency … most fundamentally, higher commodity prices are unambiguously good for Canada”. Furthermore, that the decline in the importance of its manufacturing sector is “part of a broad, secular trend across the advanced world”. He also said rising commodity prices had accounted for about half of the rise in the value of the Canadian dollar in the past decade, with the rest coming from the decline in the value of the US dollar against a broad range of currencies & from the perception our currency is a “safe haven” one. And he also made a pitch for expanding West-East pipelines & related facilities to share the benefits of the country’s resources more equally with other parts of Canada since “Eastern Canadian consumers are importing oil and paying the global price”, and “for capturing more of the value-added in commodity production, from energy to agriculture.”
Spruce Meadows is a world class equestrian show jumping centre whose founder, Ron Southern, has parlayed it into attracting a remarkably high quality global audience & speakers to its Economic Round Table, a sort of mini Davos Forum (speakers in past years have included the CEOs of Exxon, Fiat & Caterpillar, and the IMF’s Managing Director). As to Carney’s comments, he is whistling in the wind if he expects Albertans to willingly share the benefits of its resource wealth with other parts of Canada, other than by creating more employment opportunities for workers from, & in, other provinces; for while they have outgrown the (in)famous “Let the Eastern bastards freeze in the dark” attitude of the 80’s, they believe to a man & woman, that they are already doing enough of that through Ottawa’s equalization payment scheme.
CHARGED WITH ABUSE, PARENTS WANT GIRL KEPT ON LIFE SUPPORT
(NP, Jen Gerson)
- On May 25th a 911 call emanated from an Edmonton home where, when the authorities arrived, they found a three year-old boy in good-, but his 27 months’-old twin sisters in emaciated-, condition, weighing 13 & 16 pounds respectively, one of whom had a serious head injury & was in cardiac arrest. The children’s parents were subsequently arrested, charged with aggravated assault, negligence causing bodily harm & failing to provide the necessities of life &, having been refused bail, have been in custody ever since. The boy is in good health & one of the twins is expected to fully recover, but her sister remains in hospital in a vegetative state, not quite clinically dead, but close to it. She cannot breathe on her own, has no pupil response, is paralyzed & has little hope of recovery (& even less of any quality of life in the unlikely event she were to recover?).
- Doctors have recommended all artificial life support be withdrawn (& end her life). But citing love & religious convictions, the parents are, from jail, opposing this, with the father filing an affidavit with the court claiming it would violate his religion, & his lawyer telling the court “He spoke of his daughter’s soul and that when the soul was gone, that was when his daughter would be gone.” But several Muslim groups say Islam doesn’t forbid ending life support when the brain is dead & there is little hope for recovery, and Amin Elshorbagy, the President of the Canadian Islamic Congress “You cannot really say that Islam is requiring to keep her forever in these kinds of conditions, absolutely not.”
- Alberta Court of Queen’s Bench Justice June Ross is expected to rule on September 14th on this case for which, according to Tim Cauldfield, Canada Research Chair in Health Law and Policy, ‘the case law is a little bit all over the place…” even though in 1997 the Manitoba Court of Appeal ruled that decisions such as this should be made by medical experts in cases in which parents were facing abuse charges.
Presumably the parents are playing for time, hoping they can get out on bail & skedaddle to a more sympathetic jurisdiction before murder charges are laid against them.
STOP! GO! THE GREAT ISRAELI DEBATE (G&M, Shira Herzog)
- The breadth & scope of the debate in Israel over an attack on Iran are unprecedented. While others are pre-occupied with its strategic ramifications, among Israelis it is focused on four long-unresolved issues that have always been at the core of Israeli reality :
governance – Israel’s Commander-in-Chief is not a person but a coalition whose members often disagree. And to go to war the Prime Minister needs a consensus within the public and within his cabinet, especially since many see this as a “a war of choice”, i.e. not a response to an attack, and both the population & the cabinet are split on whether a nuclear Iran is an existential threat right now;
military accountability – the military has always been involved in national security decisions, even if it always deferred to the government on the ultimate decision. But on Iran former military & security chiefs have made no bones about their doubt as to the wisdom of attacking Iran without Washington being unequivocally on board;
the limits of media coverage of national security issues – the generals believe the media are too open while the media defend their duty to bring out the facts (especially since their reports are ‘screened’ by the military censor). And on Iran both politicians & the military seek to use the media to promote their ideas, thereby placing journalists in the role of arbiters as to what, or what not, to report on; and
Israel’s relationship with the US – Every Israeli leader has had to strike a balance between the right to make independent decisions & the force of US pressure, and in 1956, 1967 & 1991 Ben-Gurion, Levi Eshkol & Yitzhak Shamir gave in to the latter. Obama has made it clear he won’t tolerate a nuclear Iran but Netanyahu doesn’t agree with his choice of an alternative to military action & hugely irritated him, when he told the world “those in the international community who refuse to put red lines before Iran don’t have a moral right to place a red light before Israel.” And since Iran & support for Israel have become US election issues, tension between the two governments has been ratcheted up further.
- Netanyahu has convinced Israelis they have never faced a greater threat than Iran’s nuclear one, but he has yet to convince them that benefits of “going it alone” outweigh the risks & that some of the damage from doing so won’t be irreversible.
The one thing that can safely be said about those who have initiated wars in modern times is that they seldom, if ever, ended up achieving what they sought to achieve (as Netanyahu should have learnt from the IDF experience in Lebanon in 2006).
PALESTINIANS ERUPT IN ANGER AT GOVERNMENT (AP, Diaa Hadid)
- On September 10th Palestinians across the West Bank, fed up with high prices & unpaid salaries (PA employees haven’t received their full salaries since June), clashed with riot police in the largest show of popular discontent in the Palestinian Authority’s 18-year existence. The most heated clashes occurred in Hebron where protesters smashed the windows of a municipal building with rocks & tried to storm the police station. While usually the Palestinians reserve their anger for the Israelis, this time it targeted Prime Minister Salam Fayyad, probably engineered by Fayyad’s rivals in Fatah, incl. President Mahmoud Abbas himself. The PA is in a box because the US & the Arab countries that financially sustain it, have fallen short of their promises & now owe it US$1.2BN, over 25% of its annual budget, as a result of which the largest employer on the West Bank hasn’t had the money to pay full salaries for months. And donor money is of critical importance because Israel’s control over-, & the limits it imposes on the movement by Palestinians within, the West Bank hampers normal economic activity.
While maintaining that the crisis was beyond his control & that Israel’s occupation of the West bank is the “major reason” for the problem, Prime Minister Fayyad the next day, after there had been a peaceful demonstration outside his office in Ramallah, nevertheless announced he would cancel a series of price increases for fuel & cooking gas, was planning to lower a sales tax & would pay for it all by cutting the salaries of top officials (which may make him even more unpopular with senior Fatah officials than he already is). Maybe the best thing to come out of it all was that the spectre of a possible Third Intifada concerned Israeli Prime Minister Netanyahu enough to announce late in the day on the 11th that he had ordered the US$63MM Israel had collected from Palestinians would be paid out to the PA in advance of the date provided for.
IRAN SENDS ELITE TROOPS TP AID ASSAD REGIME (DT, Con Coughlin)
- One senior Western security official says “Iran has taken a strategic decision to deepen its involvement in the Syrian crisis” & others that President Ahmadinejad himself had approved the despatch of 150 senior Revolutionary Guard commanders to Syria to help repel efforts to overthrow the al-Assad regime, Iran’s most important regional ally. They also say that Iran recently shipped hundreds of tonnes of military gear to Syria, incl. guns, rockets & artillery shells, with both men & materiel having been flown to their destination through Iraqi air space with permission from the Iraqi government. And a spokesman for the (opposition) National Council of Resistance in Iran claims that some of the 48 Iranians taken hostage by Syrian rebels last month were part of that 150-strong contingent, incl. several brigadier-generals & colonels with many years service in the Revolutionary Guards.
What al-Assad really needs are some rank & file fighting men because the longer the struggle lasts, the less effective his, mostly conscript, army becomes due to desertions & battle fatigue.
CHINESE PATROL SHIPS APPROACH DISPUTED ISLANDS (AP, Louise Watt)
- Both China & Japan (& Taiwan) claim a cluster of a half dozen uninhibited islands in the East China Sea the Japanese call Senkaku & the Chinese Diaoyu. Some of them have long been privately owned & last week Tokyo announced plans to purchase these for 2.06BN yen (after having long leased them for 25MM yen/year) after the nationalist governor of Tokyo announced he was going to buy & develop them (presumably for tourism purposes).
- If intended as a way to keep the dispute with Beijing on the back burner by pre-empting their development, it certainly backfired. Beijing’s reaction was to dispatch two patrol vessels of the paramilitary China Marine Surveillance Force to ‘safeguard’ China’s souvereignty over the islands, with Geng Yansheng, a Chinese Defence Ministry spokesman saying “The determination and the will of the Chinese government and military to safeguard their territorial integrity are firm” & the People’s Liberation Army Daily calling Japan’s move “the most blatant challenge to China’s sovereignty since the end of World War II.”
The islands are roughly 150-200 miles equidistant from China’s East Coast, the Northern tip of Taiwan & in a Southwesterly direction from the biggest in the Ryukyu island chain, Okinawa (which, in turn, is 400+ miles South of Japan’s Southern-most main island Kyushu). In & by themselves the islands aren’t worth the powder to blow them to Hell. Between them they have a very rocky land mass of less than three square miles, two thirds of it on the main island Uotsuri Jima & they are uninhabited (although a century ago they had a population of over 200 Japanese). But what makes them worth the hassle is what’s around them (fish) & what’s supposedly under them & under the sea around them (oil & gas). This is only one of four territorial claims by China on islands groups in the East China Sea (the others being the Spratly & Paracel Islands and the Scarborough Shoal) & the one where, distance-wise at least, its claim is least ridiculous.
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