The Mound of Sound

In today’s New York Times, Frank Rich explains why Hillary Clinton may be the Republicans best hope of keeping the White House.

“Asked by Tim Russert whether the Clinton presidential library and foundation would disclose the identities of its donors during the campaign, Mrs. Clinton said it wasn’t up to her. “What’s your recommendation?” Mr. Russert countered. Mrs. Clinton replied: “Well, I don’t talk about my private conversations with my husband, but I’m sure he’d be happy to consider that.”
Not so happy, as it turns out. The names still have not been made public.

“Just before the holidays, investigative reporters at both The Washington Post and The New York times tried to find out why, with no help from the Clintons. The Post uncovered a plethora of foreign contributors, led by Saudi Arabia. The Times found an overlap between library benefactors and Hillary Clinton campaign donors, some of whom might have an agenda with a new Clinton administration.”

Great, just what America needs, another White House beholden to the House of Saud.

“The Republicans are not going to have any compunctions about asking anybody anything,” Mrs. Clinton lectured Mr. Obama. Maybe so, but Republicans are smart enough not to start asking until after she has secured the nomination.

“Not all Republicans are smart enough, however, to recognize the value of John McCain should Mrs. Clinton emerge as the nominee. He’s a bazooka aimed at most every rationale she’s offered for her candidacy.

“In a McCain vs. Billary race, the Democrats will sacrifice the most highly desired commodity by the entire electorate, change; the party will be mired in déjà 1990s all over again. Mrs. Clinton’s spiel about being “tested” by her “35 years of experience” won’t fly either. The moment she attempts it, Mr. McCain will run an ad about how he was being tested when those 35 years began, in 1973. It was that spring when he emerged from five-plus years of incarceration at the Hanoi Hilton while Billary was still bivouacked at Yale Law School. And can Mrs. Clinton presume to sell herself as best equipped to be commander in chief “on Day One” when opposing an actual commander and war hero? I don’t think so.

“Foreign policy issue No. 1, withdrawal from Iraq, should be a slam-dunk for any Democrat. But Mrs. Clinton’s case is undermined by her record. She voted for the war, just as Mr. McCain did, in 2002 and was still defending it in February 2005, when she announced from the Green Zone that much of Iraq was “functioning quite well. ” Only in November 2005 did she express the serious misgivings long pervasive in her own party. When Mr. McCain accuses her of now advocating “surrender” out of political expediency, her flip-flopping will back him up.

“Rush Limbaugh and Tom Delay hate Mr. McCain as much as they hate the Clintons. And they hate him for the same reasons Mr. McCain wins over independents and occasional Democrats: his sporadic (and often mild) departures from conservative orthodoxy on immigration and campaign finance reform, torture, tax cuts, climate change and the godliness of Pat Robertson. Since Mr. McCain doesn’t kick reporters like dogs, as the Clintons do, he will no doubt continue to enjoy an advantage, however unfair, with the press pack on the Straight Talk Express.

“If Mr. Obama doesn’t fight, no one else will. Few national Democratic leaders have the courage to stand up to the Clintons. Even in defeat, Mr. Obama may at least help wake up a party slipping into denial. “

Democrats also need to get some updated polls. With fully half of potential voters saying they would never vote for Hillary, no matter what, her husband and her popularity within the party are irrelevant. If she’s that divisive to the electorate, she’s toxic to the Democrats.

A fascinating article in the February edition of Harper’s in which veteran venture capitalist Eric Janszen predicts the next bubble for America’s economy, arguing that, in the U.S., “…The bubble cycle has replaced the business cycle.” Here are a few excerpts:

“A financial bubble is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare – one every hundred years or so…”

“…Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being.

“…That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function.”

“A few weeks after D-Day, the allies met at the Mount Washington Hotel in Bretton Woods, New Hampshire, to determine the future of the international monetary system. …The United States, now the dominant economic and military power, successfully pushed to peg the currencies of member nations to the dollar and to make dollars redeemable in American gold.

“Americans could now spend as wisely or foolishly as our government policy decreed and, regardless of the needs of other nations holding dollars as reserves, print as any dollars as desired. But by the second quarter of 1971, the U.S. balance of merchandise trade had run up a deficit of $3.8 billion, …until that time the United States had run only surpluses. Members of the Bretton Woods system, most famously French President General Charles de Gaulle, worried that the United States intended to repay the money borrowed to cover its trade gap with depreciated dollars. Opposed to the exercise of such “exorbitant privilege,” de Gaulle demanded payment in gold. With the balance of payments so greatly out of balance, newly elected President Richard Nixon faced a run on the U.S. gold supply, and his solution was novel: unilaterally end the U.S. legal obligation to redeem dollars with gold; in other words, default.”

“…After 1975, the United States would never again post an annual merchandise trade surplus. Such high-value, finished-goods-producing industries as steel and automobiles were no longer dominant. The new economy belonged to finance, insurance and real estate – FIRE.

FIRE is a credit-financed, asset-price-inflation machine organized around one tenet; that the value of one’s assets, which used to fluctuate in response to the business cycle and the financial markets, now goes in only one direction, up, with no more than occasional short-term reversals. With FIRE leading the way, the United States, free of the international gold standard’s limitations, how had great flexibility to finance its deficits with its own currency. This was “exorbitant privilege” on steroids.

“…As FIRE rose in power, so did a new generation of politicians, bankers, economists, and journalists willing to invent creative justifications for the system, as well as for the projects – ranging from the housing bubble to the Iraq war – that it financed. The high-water mark of such truckling might be the publication of the Cato Institute report “America’s Record Trade Deficit: A Symbol of Strength.” Freedom had become slavery, persistent deficits had become economic power.”

“…Deregulation had built the church, and seed money was needed to grow the flock. The mechanics of financing vary with each bubble, but what matters is that the system be able to support astronomical flows of funds and generate trillions of dollars’ worth of new securities.

“…The media stood by cheeering, carrying breathless profiles of wunderkinder in their early twenties who had just made their first hundred million dollars; business publications grew thick with advertisements. The media barely questioned the fine points of the new theology.

“…In a bubble, fictitious value goes away when market participants lose faith in he religion – when their false beliefs are destroyed as quickly as they had been formed. Since the early 1980s, the free-market orthodoxy of the Chicago School has driven policy on the upward slope of an economic boom, but we’re all Keynesians on the way down; rate cuts by the Federal Reserve, tax cuts by Congress, deficit spending, and dollar depreciation are deployed in heroic proportions.

“The Internet boom had been a matter of abstract electrons and monetized eyeballs. …At the bubble’s peak, $12-trillion in fictitious value had been created, a sum greater even than the national debt.”

“…Historically, the price of American homes has risen at a rate similar to the annual rate of inflation. …discounting the housing boom after WWII, that rate has been about 3.3 per cent. Why, then, did housing prices suddenly begin to hyperinflate? Changes in the reserve requirements of U.S. banks, and the creation in 1994 of “sweep” accounts, which link commercial checking and investment accounts, allowed banks greater liquidity – which meant they could offer more credit. this was the formative stage of the bubble. Then, from 2001 to 2002, in the wake of the dot-com crash, the Federal Reserve Funds Rate was reduced from 6 percent to 1.24 percent, leading to similar cuts in the London Interbank Offered Rate that banks use to set some adjustable-rate mortgage (ARM) rates. These drastically lowered ARM rates meant that in the United states the monthly cost of a mortgage on a $500,000 home fell to roughly the monthly cost of a mortgage on a $250,000 home purchased two years earlier. Demand skyrocketed, though home builders would need years to gear up their production.

“…All that was needed for hypergrowth was a supply of new capital. …for the housing bubble, starting around 2003, it came from securitized debt.

“…The U.S. mortgage crisis has been labeled a “subprime mortgage crisis,” but subprime mortgages were only a sideshow that appeared late, as the housing-bubble credit machine ran out of creditworthy borrowers. The main event was the hyperinflation of home prices. Risks are embedded in price and lurk as defaults. Even after the faith that supported a bubble recedes, false beliefs continue to obscure cause and effect as the crisis unfolds.

“…The housing bubble has left us in dire shape, worse than after the technology-stock bubble, when the Federal Reserve Funds Rate was 6 percent, the dollar was at a multi-decade peak, the federal government was running a surplus, and tax rates were relatively high, making reflation – interest rate cuts, dollar depreciation, increased government spending, and tax cuts – relatively painless. Now the Funds Rate is only 4.5 per cent, the dollar is at multi-decades lows, the federal budget is in deficit, and tax cuts are still in effect. The chronic trade deficit, the sudden depreciation of our currency, and the lack of foreign buyers willing to purchase its debt will require the United States government to print new money simply to fund its own operations and pay its 22 million employees.

“Our economy is in serious trouble. Both the production-consumption sector and the FIRE sector know that a debt-deflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression.”

“..There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes.

“.,..Supporting this alternative-energy bubble will be a boom in infrastructure – transportation and communications systems, water and power.

“…The next bubble must be large enough to recover the losses from the housing bubble collapse. How bad will it be? Some rough calculations: the gross market value of all enterprises need to develop hydroelectric power, geothermal energy, nuclear energy7, wind farms, solar power, and hydrogen-powered fuel-cell technology – and the infrastructure to support it – is somewhere between $2 trillion and $4 trillion; assuming the bubble can get started, the hyperinflated fictitious value could add another $12 trillion. Thus, we can expect to see the creation of another $8 trillion in fictitious value, which gives us an estimate of $20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver “energy security.” When the bubble finally bursts, we will be left to mop up after yet another devastated industry. FIRE, meanwhile, will already be engineering its next opportunity. Given the current state of our economy, the only thing worse than a new bubble would be its absence.”

Poor George w. Bush. Even really bad presidents don’t get kicked into the gutter until they’re out of office. Not so for Shrub. According to Paul Harris writing in The Observer, American pundits are already pronouncing judgment on the frat boy’s dismal legacy:

“…George W Bush – whose successor won’t take office until January 2009 – is …suffering the indignity of having his historical legacy unfavourably examined while still having almost a year left of his second term. A slew of books and a planned major film are all starting to judge Bush’s place in history even as he keeps the seat warm in the Oval Office.”

“And so far, the verdict does not look good.

“The title of Jacob Weisberg’s recent book says it all. The editor of online magazine Slate called his tome The Bush Tragedy. It is an exhaustive look at the Bush years that paints a portrait of disaster. A publicity blurb for the book, ignoring the fact that Bush has 11 months left in power, talks of the president’s ‘historic downfall’.

“To cap it all, film director Oliver Stone has announced plans to rush out a biopic on Bush in time for the November election. Though Bush may take some solace in being played by acclaimed actor Josh Brolin.”

“…Experts say the rush to judge Bush’s legacy in print and celluloid is a sign of the modern media times and also of Bush’s powerlessness. Having lost control of Congress, he is effectively unable to drive any policy forward. Thus his legacy is already in place. ‘Bush fatigue has set in. Part of that is him. Part of that is the nature of the modern presidency,’ said Carl Cannon.“

If Oliver Stone wants to save a few bucks, he should consider using the set of “Pee-Wee’s Playhouse” as a substitute for the Oval Office.

Canadian journalists have generally done an abysmal job of covering the conflict in Afghanistan and events in neighbouring countries. The embedded scribes seem to be the worst. They either turn into a weird sort of Florence Nightingale with a keyboard or they’re reduce to parroting the litany of absurd claims that regularly issue forth from Canadian commanders.

Absurd? I wish I could recall how many times I’ve read some Colonel boast that we have the insurgents trapped here or there, leaving them to choose between surrender and death, only to have them vanish, in good order with their weapons, to come back and fight another day at a time and place of their choosing. According to the boss, the Big Cod, Hillier, there were only a “few dozen” insurgents in Kandahar when we went there. Well those few dozen must have an unlimited supply of lives given the casualties we claim to have inflicted on them.

It’s not surprising then that we are left to wallow in near total ignorance of what is actually going on across the border in Pakistan’s tribal lands. Military and political leaders freely state that this is the key to winning in Afghanistan. Every now and then one of them loudly proclaims the need to go in there and winkle out the terrorists. We regularly blame Islamabad for not doing enough. So just what is going on in the Pakistani border territories?

In the January 28th edition of The New Yorker, journalist Steve Coll has an excellent article on Benazir Bhutto which provides a fascinating window into the state of the “Tribal Lands.” Here are a few excerpts:

“…During 2004 and 2005, as the Taliban and Al Qaeda increased in strength in Pakistan, they carried out attacks on American and NATO forces in Afghanistan. The bush Administration urged President Musharraf to dispatch the Pakistani Army into South Waziristan to disrupt them, and Musharraf agreed to do so. The Army had never before entered the Tribal Areas to subdue them by force’ after British troops were defeated there, during the late imperial period, colonial and Pakistani governments had favored a system premised upon local autonomy. The invasion began poorly and has been deteriorating ever since; the Army has taken significant casualties, and, while its forces have killed or captured some Taliban leaders, they have also set off popular resentment.”

“…By late 2006, after sporadic battles that received little international attention, the Army had been, in essence, “militarily defeated” by the Taliban and Al qadea, as a US Defence Department official put it.”

“…Tariq Waseem Ghazi, a retired three-star general who served as Pakistan’s Defense secretary between 2005 and 2007, told me that, among Pakistan’s top commanders, ‘everybody felt there was a need for a political accommodation’ in the Tribal Areas. ‘I think it was unreasonable at any time that we should go into the Tribal Areas with the same kind of motivation and fervor with which the coalition went into Afghanistan or into Iraq’ he said. ‘…I kept telling them, Shock and Awe is fine for you if you fly in from the U.S. or Canada, but shock and awe is no good for us when we have to live with the Tribal Areas as a part and parcel of Pakistan.'”

“…Pakistan could have several motives in undertaking a covert program to aid or protect the Taliban: appeasing Pakistan’s radicalized Pashtun population; pressuring Afghanistan’s government into political concessions favorable to Pakistan; or preserving a historically friendly militia as a hedge against an eventual American withdrawal from Afghanistan.”

“…Shuja Nawaz, the military historian, said he doesn’t think that among the senior generals and intelligence officers ‘there’s any consensus that the Taliban are the enemy.; He explained, ‘so long as the Taliban don’t attack the Army, it sees them as perfectly fine. And, potentially, if they take over Afghanistan, it sees them as a group that would have at least some sympathies with Pakistan and vice versa.”

The good/bad news is that the Taliban and al Qaeda appear to be turning their attention, this year at least, away from Afghanistan and onto Islamabad instead. There is always some hope that this may shatter their support within the ranks of the Pakistani Army and its intelligence service. That, however, remains to be seen. Pakistan seems to be descending into a state of political, religious and military turmoil. Rather than pressuring Musharraf we may be better off doing everything we can to support him.

As for fanciful notions of going into the Tribal Lands and North West Frontier to clean out the Taliban and al-Qaeda, we’d better be prepared to go in with a much bigger force than we have in Afghanistan today and we’d better be ready, before we set foot in there, to accept very heavy losses for a very doubtful outcome.

Fresh on the heels of his massive win in South Carolina, Barack Obama can add Caroline Kennedy’s endorsement.

Writing in the New York Times Kennedy said Obama has the measure of her own father, John F. Kennedy:

“All my life, people have told me that my father changed their lives, that they got involved in public service or politics because he asked them to. And the generation he inspired has passed that spirit on to its children. I meet young people who were born long after John F. Kennedy was president, yet who ask me how to live out his ideals.

Sometimes it takes a while to recognize that someone has a special ability to get us to believe in ourselves, to tie that belief to our highest ideals and imagine that together we can do great things. In those rare moments, when such a person comes along, we need to put aside our plans and reach for what we know is possible.

We have that kind of opportunity with Senator Obama. It isn’t that the other candidates are not experienced or knowledgeable. But this year, that may not be enough. We need a change in the leadership of this country — just as we did in 1960.

I want a president who understands that his responsibility is to articulate a vision and encourage others to achieve it; who holds himself, and those around him, to the highest ethical standards; who appeals to the hopes of those who still believe in the American Dream, and those around the world who still believe in the American ideal; and who can lift our spirits, and make us believe again that our country needs every one of us to get involved.
I have never had a president who inspired me the way people tell me that my father inspired them. But for the first time, I believe I have found the man who could be that president — not just for me, but for a new generation of Americans.”

I’m not sure this isn’t a bigger win for Obama than South Carolina itself.

Florida’s highly popular governor, Charlie Crist, has endorsed John McCain in advance of Tuesday’s primary in that state.

Crist’s move is a blow to rival Mitt Romney and quite possibly a death knell for former frontrunner Count Rudy Giuliani who has been campaigning in Florida for weeks and is relying on that state to legitimize his nomination run.

Some pundits are now speculating that a crushing defeat in Florida could spell the end of Giuliani’s “9/11” gravy train. As the New York Times put it, “Goodbye Rudy Tuesday.”

There’s now speculation that, if he wins the nomination, McCain may chose Crist as his running mate. From Associated Press:

Hamid Karzai is turning into a royal pain in the ass and a useless one at that. Maybe it’s come to the point where either NATO goes or he does.

Karzai has just blocked the appointment of UN super envoy, Paddy Ashdown. Lord Ashdown had made clear he wanted far-reaching powers to serve as overall co-ordinator for international aid and political efforts in Afghanistan. Now his candidacy is up in Afghan smoke.

From the Times Online:

“The latest snub came as British officials were already fuming over Mr Karzai’s criticism of the role of British troops in Afghanistan. In an outburst to journalists on Thursday, the Afghan leader claimed that British forces had failed in their mission in Helmand province.

“Without British troops in Helmand province there would be no control over the influence of the Taleban in the south, and no control over the Taleban’s exploitation of the poppy,” said one senior army officer who has served in Helmand.

The Afghan leader claimed that Helmand had been under Kabul’s control before the British troops arrived on the scene, and that the province was now overrun with Taleban.

The new tension has been caused by differences between the Kabul Government and the British troops on the ground over Mr Karzai’s choice of local officials to run the Helmand administration and the security forces.

President Karzai expressed particular frustration at the way he claimed the British had forced him to get rid of Sher Muhammad Akhunzada, his chosen and trusted governor in Helmand.
His deployment is yet another signal of Mr Karzai’s lack of faith in British policy in southern Afghanistan and his belief that warlords can succeed where governance fails.”

In 2006, the Brits forced the ouster of Sher Muhammad Akhunzada and his replacement by Mohammed Daud. The Brits felt Akhunzada was a corrupt warlord with ties to the opium industry and considered Daud, by conrast, honest and reliable. Maybe Daud was but that didn’t stop Karzai from sacking him in December, 2006. And Karzai has blamed the Brits ever since.

From The Telgraph:

“There was one part of the country where we suffered after the arrival of the British forces,” Mr Karzai told journalists on the margins of the Davos Economic Forum.

“Before that, we were fully in charge of Helmand. When our governor was there, we were fully in charge. They came and said ‘your governor is no good’. I said ‘allright, do we have a replacement for this governor, do you have enough forces?’

“Both the American and the British forces guaranteed to me they knew what they were doing and I made the mistake of listening to them. And when they came in, the Taliban came.”
Mr Karzai added: “The mistake was that we removed a local arrangement without having a replacement. We removed the police force. That was not good. The security forces were not in sufficient numbers or information about the province. That is why the Taliban came back in.”

Karzai is up for re-election next year and this may be time a real leader for Afghanistan came forward. Karzai has just been too ineffective and his government too susceptible to warlords and drug lords to have done any good. According to a new book just released, Koran, Kalashnikov and Laptop by Antonio Giustozzi, reviewed in Asia Times, Karzai has contributed to the resurgence of the Taliban:

“Giustozzi partially attributes the re-entry of the Taliban to the feebleness of President Hamid Karzai’s administration, which is geared to accommodating tribal strongmen and warlords rather than to building a professional bureaucracy. Corruption, infighting and arrogance among provincial authorities delegitimize the government and open space for the Taliban to re-emerge. For instance, the abuses of Helmand’s governor, Sher Mohammed Akhundzada, turned an uncommitted population into Taliban sympathizers by 2006. Harsh methods of the government’s intelligence service drive many into the lap of the insurgency. The general weakness of the provincial administration alienates tribal elders who otherwise resent the Taliban’s impudence. “

Trying to salvage Afghanistan from its insurgency is hard enough without being undermined by a hapless, corrupt central government. Next year’s Afghan elections may be our best, last chance to sort out the Kabul conundrum.