The Democrats who say "nay"

Soros' Recommendations, Extraordinary Renditions, and Funding Abortion

1/29/2009

The Age (Australia)

• Funding Abortion: Jim Wallace, managing director of the Australian Christian Lobby, says foreign aid should not be used to fund abortion services, and says the Australian government should not follow in President Barack Obama's footsteps in lifting the "global gag rule."

Boston Globe

• Extraordinary Rendition: Richard Clarke, counterterrorism adviser to former presidents Bill Clinton and George W. Bush, says President Obama was wise to refrain from banning all extraordinary renditions.

Christian Science Monitor

• Uganda Conflict: Natalie Parke, a research associate at the Century Foundation, says Ugandan President Yoweri Museveni's attack on the Lord's Resistance Army (LRA) is a misguided publicity stunt.

Daily Beast

• Iran's Uranium: Reza Aslan of the University of California says the result of the Bush administration's policy toward Iran is that halting the country's uranium enrichment program is no longer a real possibility. Now, Aslan says, the only way to stop Iran from developing a nuclear weapon is by convincing the country's leaders that they have nothing to fear from the United States, Israel, or other states.

Daily Times (Pakistan)

• Opposition Troubles: In an editorial, the paper says the main opposition party, Pakistan Muslim League-Nawaz's turn away from pragmatism and moderation will likely lead to dangerous instability in the country.

Financial Times

• Soros' Plan: George Soros looks at the conditions that caused September's financial crash, and details a set of recommendations to get the global economy on track.
• Fish Resources: Columnist David Pilling looks at the battle over resources surrounding Japan's fish market, and considers the prospect that humans may irreparably damage the renewable resource of fish.

Globe and Mail (Canada)

• Davos' Future: The Hoover Institution's Timothy Garton Ash says Davos should not be abandoned, as it represents a larger effort for international cooperation and combating economic nationalism.

Gulf Times (Qatar)

• Zimbabwe's Crisis: In an editorial, the paper calls for a return of international attention to the humanitarian crisis in Zimbabwe.

Japan Times

• Pakistan Diplomacy: Brahma Chellaney, a professor at the Center for Policy Research in New Delhi, says President Obama's plan to send 30,000 more troops into Afghanistan is a losing strategy, and says the United States should instead focus on solving the region's problems with high-pressure diplomacy through Pakistan.

Jerusalem Post (Israel)

• Mideast Strategy: In an editorial, the paper says President Obama must eventually commit to defeating Hezbollah, Hamas, and Iran.

New York Times

• Guantanamo Plans: Columnist Nicholas Kristof proposes that President Obama appoint a high-level commission to investigate torture, secret detention, and wiretapping under the Bush administration. He also suggests returning Guantanamo Bay to Cuba, or turning the land into a medical research facility.
• War on Terror: Columnist Roger Cohen says the message of President Obama's interview with Al-Arabiya news on Monday was that the war on terror is over, and that instead, Obama views defeating terrorist organizations as a strategic challenge.

Wall Street Journal

• UN Reform: In an editorial, the paper urges new U.S. Ambassador to the United Nations Susan Rice to live up to her promise to promote reform and transparency at the United Nations.
• Guantanamo's Closure: American Enterprise Institute scholar John Yoo says President Obama's closure of the detention facility at Guantanamo Bay means he is returning the country to a pre-9/11 law enforcement approach. Yoo says Obama's statement in his inaugural speech that Americans should "reject as false the choice between our safety and our ideals" is naïve.

Washington Post

• Pakistan Policy: Columnist David Ignatius says Pakistan presents one of the most complicated problems for President Obama, and interviews Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, on the subject.

• Flawed Stimulus: Harvard economist Martin Feldstein says the economic stimulus package in its current form does not effectively raise national spending and employment.

The Democrats who say "nay"

The Democrats who say "nay"

ELEVEN Democrats voted against the House stimulus bill. John McCormack of the Weekly Standard smells blood in the water: "most are considered vulnerable next cycle."

Unfortunately for the Standard, this isn't true. According to the Cook Political Report, which keeps track of these things, only five of the 11 breakaway Democrats are considered vulnerable in 2010. Bobby Bright of Alabama and Walt Minnick of Idaho are given even odds of being re-elected to their heavily Republican districts. Parker Griffith of Alabama and Frank Kratovil of Maryland are given slight odds at winning re-election; Paul Kanjorski of Pennsylvania, who won the closest race of his career in 2008, is seen as "likely" to return. The other six Democrats are seen to be safe. Four are "Blue Dog" conservatives who've defied their party for years, and two are rising stars, first elected in 2006, in districts that swung dramatically toward their party's presidential candidate in 2008.

The Democrats' situation becomes a bit clearer when you look at what happened in 2001, when the Democratic minority faced a vote on George Bush's first tax cut. Twenty-eight of the then 211 Democratic House members, or 13.3%, voted with the Republicans. Yesterday's gang of 11 Democrats represented only 4.3% of their conference. Another way to look at it: Twenty-four of the 29 freshman Democrats voted for the package, even though several come from districts that voted for John McCain. The failure to win Republican support was an embarrassment for Mr Obama and his party, but no one's losing sleep in the White House about the Democrats who voted "nay".

Why dealing with the huge debt overhang is so hard

Why dealing with the huge debt overhang is so hard

By Martin Wolf

How much debt is too much? Nobody knows. But the governments of highly indebted high-income economies – such as the US and UK – think they know the answer: more than today. They want even more credit to flow to their struggling private sectors. Is that an attainable ambition and, if so, how might it be achieved?

Let us start with some facts. The ratio of US public and private debt to gross domestic product reached 358 per cent in the third quarter of 2008. This was much the highest in US history (see charts). The previous peak of 300 per cent was reached in 1933, during the Great Depression.

Nearly all of this debt is private. That reached an all-time high of 294 per cent of GDP in 2007, a rise of 105 percentage points over the previous decade. The same thing happened to the UK, on a yet more impressive scale. This has been a gigantic debt and credit expansion.

Particularly remarkable is the composition of the increased debt. In the early 1930s, most US private debt was owed by non-financial companies: so balance-sheet deflation occurred in companies, as was also the case in Japan in the 1990s. This time, however, the big increase in debt was in the financial and household sectors.

Over the past three decades the debt of the US financial sector grew six times faster than nominal GDP. The consequent increases in its scale and leverage explain why, at the peak, the financial sector allegedly generated 40 per cent of US corporate profits. Something decidedly unhealthy was going on: instead of being a servant, finance had become the economy’s master. In a superb brief account of today’s calamity, Lord Turner, chairman of the UK’s Financial Services Authority, refers explicitly to “illusory profits”*.

Moreover, household debt – much of it associated with housing – also rose rapidly: from 66 per cent of US GDP in 1997 to 100 per cent in 2007. A slightly bigger jump in household indebtedness can be seen in the UK.

What do such rises in indebtedness portend? The answer might be: nothing. After all, over the world, debt nets to zero. In principle, the ability to transfer purchasing power from lenders to borrowers is highly desirable: as a British advertising campaign once claimed, credit “takes the waiting out of wanting”. Yet people can also make big mistakes, particularly if they confuse bubbles with permanently high prices. The financial sector is particularly prone to such blunders. As Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard comment: “Systemic banking crises are typically preceded by asset price bubbles, large capital inflows and credit booms, in rich and poor countries alike”**.

Once such asset bubbles burst, it becomes hard to find borrowers and lenders who are either willing or creditworthy. The over-indebted start paying down their debts, instead, as now. Desired savings also soar. Realised savings may not rise, however: incomes may collapse, instead. This is what John Maynard Keynes called “the paradox of thrift”. The result will be a slump caused by balance sheet collapse rather than attempts to control high inflation.

What then might be done?

Some recommend a “liquidation”. A chain of bankruptcy would indeed eliminate a debt overhang, as happened in the 1930s. But, with much of the economy enmeshed in bankruptcy and the financial sector imploding, a depression would result. To choose that option must be insane.

Less unappealing is organised mass bankruptcy. Proposals for an organised debt-for-equity swap in failed or enfeebled financial institutions fall into this category. So, too, does allowing courts to modify mortgage contracts. Executed efficiently and expeditiously, such ideas are attractive. Costs would fall on shareholders and creditors, not taxpayers, and so sustain the principle of private responsibility.

An opposite approach is to sustain existing levels of debt, by slashing its cost to borrowers and trying to grow out of it over many years. This is what current monetary policies seek to achieve. It is a good idea, however unpleasant to creditors. But this would not generate much additional borrowing or fresh spending; it would not stop the indebted from trying to lower their debt; and it would not restore the financial sector to health.

Yet another approach is to replace private debt with public debt. That is what recapitalisation of banks now means. Over time, private-sector debt should fall, while public-sector debt, explicit and implicit, rises. Socialising debt increases the chances of growing out of it. That has happened before, notably in the case of UK public debt over the course of the 19th century.

Finally, there is inflation. If central banks and governments are aggressive enough, they can generate inflation, which will lower the debt burden. But they will imperil – if not terminate – the experiment with unbacked fiat (or man-made) money that started in 1971.

So which is the best approach?

At the overall level, it must largely be to grow out of the debt overhang, with socialisation of a part of it an essential element. Relapse into inflation would be a huge policy failure. A plan is also needed to deal with the plight of many households and with the overextended and undercapitalised financial sector.

The financial sector, as a whole, cannot deleverage by selling assets. It would be helpful if claims of global financial institutions could be netted out, instead, though that would require international co-operation. The Obama administration must also soon launch a recapitalisation of US banking, but not by buying the “toxic assets” at above-market prices. A debt-equity swap would be preferable. If that is politically impossible or too destabilising, publicly financed recapitalisation is inevitable. Just do not dare to call it nationalisation.

Whatever is done, one compelling truth cannot be evaded. It is going to be very hard to generate substantial net borrowing by households and non-financial corporations in the high-income countries with high internal debt. It is unimaginable that they will return to levels of private-sector borrowing, spending and increases in debt that characterised these countries for so long. Countries with large current account surpluses have long demanded an end to the profligate borrowing and spending of the customers upon whom they depended. They should have been careful what they wished for: they have now got it. Enjoy!