More from Germany - Bad Example This Time

This is an article from Kevin Brekke - a switzerland based editor at Casey Research. Like the previous article stated - So we want to be more like Europe?

As a note for a future post that I will make in a few days, I am reading a great interview regarding The Fourth Turning. I am interested in the book, but this article explains a lot about President Obama and the recent election and upcoming elections for that matter.

There Will Always Be Takers of Free Money
By Kevin Brekke

Well, Sunday was national election day in Germany (why can’t Americans vote on the weekend?), and although the results will produce a decided shift in German coalition government, they also mark the culmination of another story told by the voters that likely will go unnoticed. Bear with me here – this has relevance to an upcoming event in the U.S. Congress.
In 2002, a commission was formed to examine the German social safety net system of programs and make recommendations on how to reform them – kinda like the American Congress putting together a blue-ribbon commission for this or that study. The commission was headed by Peter Hartz, an executive at Volkswagen, and hence was known as the Hartz Commission, and the eventual legislation that was passed by parliament was named Hartz IV (there were four stages of changes phased in over a few years).

One impetus for the commission’s forming was to explore possible changes to the unemployment scheme in Germany. At the time, unemployment benefits were high, at about two-thirds of your previous wage, and lasted 18-24 months. However, there was no minimum benefit guarantee, and for those low-wage earners who lost their jobs the benefit was very small. The German government was under pressure to change the law and implement a lower benefit percentage, a “minimum livable benefit” floor, and to extend the term that benefits could be drawn. And, no surprise, the commission’s recommendations conformed to the government’s concern.
Changes were made to unemployment benefits that included a minimum monthly guarantee, a lowered monthly benefit percentage, and essentially extended the benefits to an unlimited term. Uh-oh.

Nationwide street protests took place in reaction to the lowering of the benefit amount.

Let’s now return to Sunday’s election. The party that pushed hard for the passage of the Hartz IV amendments was the SPD, the Social Democrat Party. And they have been losing voter support and political power since. The SPD’s support fell to 23% from 33% in the last national election, a phenomenal drop in a multi-party system, and they will be replaced by another, far smaller party in the ruling coalition government formed with the CDU/CSU, the biggest party in Deutschland. Voters always want smaller government, just don't touch my sacred benefit. The SPD is a fading party due to its backing of more restrictive government benefits.

And here’s a telling anecdote showing how the jobless game the system. After the last national elections, one of the TV stations was polling voters asking about their choices and their feelings about the elections. One gentleman, after sharing his thoughts, was asked by the interviewer about his personal situation, and his profession.

“I’m a Hartz IV man,” was his reply. My jaw went slack. His chosen profession was unemployed. And under the new rules, he had likely figured out how to work the system and stay on the dole for as long as the gravy flowed. A permanent underclass of long-term unemployed now exists in Germany. When governments opt to give away free money, there will always be takers.
Last week the House voted to pass a third extension in unemployment benefits, and the Senate is expected to do the same as early as this week.

Now, I’m as sensitive as the next guy to the hardship suffered when a job is lost. But the path being trodden by Congress is a dangerous one. The longer the unemployed are subsidized, the more likely it is that the “benefit” will come to be seen as an “entitlement,” and entitlements seldom come with expiration dates.

Like Social Security, the question of unemployment benefits is evolving into a parallel third-rail in politics, where neither party nor politician will touch them for fear of political suicide.
I hope that whatever decision is made by Congress, it comes with clear guidelines and a set term. I fear that neither of these is likely to be on the agenda.

Germany

Great article from Brian Wesbury of First Trust -


Much of the modern social welfare state (which liberals in the US seem intent on expanding) dates back to German Chancellor Otto von Bismark in the late 1800s. But now, even as the US moves toward more government, Germany may be on the verge of a giant leap in the opposite direction.

Angela Merkel, the current premier of Germany won re-election this weekend. Back in 2005, Merkel’s party, the Christian Democratic Union (CDU - a “center-slightly right” group), had gained power by forming a coalition with the “liberal” Social Democrats (SDP). This time, the SDP saw their worst election returns in 60 years. This means that Merkel will form a coalition with the Free Democrat Party (FDP - a “somewhat free-market” group). The FDP was nearly extinct just ten years ago, but won 14.6% of the vote this time around, a record for their party.

The Free Democrats ran on a platform that included a significant across-the-board cut in marginal income tax rates – the German equivalent of the Kennedy or Reagan tax cuts. At present, income tax rates range from 14% to 45%. The Free Democrats want three brackets – 10%, 25% and 35%.

Initial news stories suggest the euro will rally and German bond yields rise, as tax cuts would increase economic growth and widen the German budget deficit. We agree that these tax cuts would push up the euro, but don’t think German bond yields will rise much, if at all, and would not worry about the impact on the budget deficit. Lower tax rates would not only accelerate the recovery from the recent economic turmoil but also encourage the work, saving, and investment that Germany needs to raise its long-term growth potential and address its massive Baby Boom-related fiscal imbalance.

Cutting the top income tax rate translates into a healthy 18% increase in the after-tax return to work for those with the highest incomes. (Top-income workers now keep 55% of their income gains; a tax cut would raise this to 65%, an increase of 18%).

Even if the budget deficit did rise – and we doubt it would if the tax cuts are like the Free Democrats want – a larger economy with better incentives would handle a larger deficit better than a weaker economy could handle a smaller one. A 325-pound barbell is always heavier than a 250-pound barbell. But an NFL tackle can lift the first barbell easier than a jockey can lift the second.

These tax cuts would also put pressure on other countries, particularly Germany’s main competitors, to reduce tax rates themselves. After Reagan’s tax cuts in the 1980s, many advanced countries around the world also cut taxes, and not just those with “conservative” governments. Sometimes it was just a defense mechanism to hold onto capital and productive workers.

Given the inclination of many policymakers in the US to look to Europe as a model for where we should head next, the election results in Germany are going to cause a great deal of confusion in Washington, DC.

Hmmmm....

There have been a couple of things this last week that I have heard which scare me a little. I'll post the second one in a few days, but the first has to do with the negotiations(?) taking place in the middle east concerning Iran. If you have not read anything about it then here are some ideas from the STRATFOR, a global intelligence group that, from what I have read so far, is very unbiased and very good at what they do. While reading this article two big things came to mind, first: What happened to our supposedly on top of the news reporters on this one? I mean, I haven't seen a single front page story on these talks and from the sound of things there is war brewing. (I know the answer is that our "top" reporters have been re-assigned to cover celebrities, but...I mean, come on). Second: How much goodwill does the current administration think is going to come from not building the missile shield as was announced this week? I have another great piece from STRATFOR that goes through how Russia views their current world and options versus what the U.S. would like to think Russians want and is trying to give them. Very interesting considering everything in the below.

Misreading the Iranian Situation
By George Friedman September 15, 2009

The Iranians have now agreed to talks with the P-5+1, the five permanent members of the U.N. Security Council (the United States, the United Kingdom, France, Russia and China) plus Germany. These six countries decided in late April to enter into negotiations with Iran over the suspected Iranian nuclear weapons program by Sept. 24, the date of the next U.N. General Assembly meeting. If Iran refused to engage in negotiations by that date, the Western powers in the P-5+1 made clear that they would seriously consider imposing much tougher sanctions on Iran than those that were currently in place. The term “crippling” was mentioned several times.

Obviously, negotiations are not to begin prior to the U.N. General Assembly meeting as previously had been stipulated. The talks are now expected to begin Oct. 1, a week later. This gives the Iranians their first (symbolic) victory: They have defied the P-5+1 on the demand that talks be under way by the time the General Assembly meets. Inevitably, the Iranians would delay, and the P-5+1 would not make a big deal of it.

Talks About Talks and the Sanctions Challenge
Now, we get down to the heart of the matter: The Iranians have officially indicated that they are prepared to discuss a range of strategic and economic issues but are not prepared to discuss the nuclear program — which, of course, is the reason for the talks in the first place. On Sept. 14, they hinted that they might consider talking about the nuclear program if progress were made on other issues, but made no guarantees.

So far, the Iranians are playing their traditional hand. They are making the question of whether there would be talks about nuclear weapons the center of diplomacy. Where the West wanted a commitment to end uranium enrichment, the Iranians are trying to shift the discussions to whether they will talk at all. After spending many rounds of discussions on this subject, they expect everyone to go away exhausted. If pressure is coming down on them, they will agree to discussions, acting as if the mere act of talking represents a massive concession. The members of the P-5+1 that don’t want a confrontation with Iran will use Tehran’s agreement merely to talk (absent any guarantees of an outcome) to get themselves off the hook on which they found themselves back in April — namely, of having to impose sanctions if the Iranians don’t change their position on their nuclear program.

Russia, one of the main members of the P-5+1, already has made clear it opposes sanctions under any circumstances. The Russians have no intention of helping solve the American problem with Iran while the United States maintains its stance on NATO expansion and bilateral relations with Ukraine and Georgia. Russia regards the latter two countries as falling within the Russian sphere of influence, a place where the United States has no business meddling.

To this end, Russia is pleased to do anything that keeps the United States bogged down in the Middle East, since this prevents Washington from deploying forces in Poland, the Czech Republic, the Baltics, Georgia or Ukraine. A conflict with Iran not only would bog down the United States even further, it would divide Europe and drive the former Soviet Union and Central Europe into viewing Russia as a source of aid and stability. The Russians thus see Iran as a major thorn in Washington’s side. Obtaining Moscow’s cooperation on removing the thorn would require major U.S. concessions — beyond merely bringing a plastic “reset” button to Moscow. At this point, the Russians have no intention of helping remove the thorn. They like it right where it is.

In discussing crippling sanctions, the sole obvious move would be blocking gasoline exports to Iran. Iran must import 40 percent of its gasoline needs. The United States and others have discussed a plan for preventing major energy companies, shippers and insurers from supplying that gasoline. The subject, of course, becomes moot if Russia (and China) refuses to participate or blocks sanctions. Moscow and Beijing can deliver all the gasoline Tehran wants. The Russians could even deliver gasoline by rail in the event that Iranian ports are blocked. Therefore, if the Russians aren’t participating, the impact of gasoline sanctions is severely diminished, something the Iranians know well.

Tehran and Moscow therefore are of the opinion that this round of threats will end where other rounds ended. The United States, the United Kingdom and France will be on one side; Russia and China will be on the other; and Germany will vacillate, not wanting to be caught on the wrong side of the Russians. In either case, whatever sanctions are announced would lose their punch, and life would go on as before.

There is, however, a dimension that indicates that this crisis might take a different course.
The Israeli Dimension

After the last round of meetings between Israeli Prime Minister Benjamin Netanyahu and U.S. President Barack Obama, the Israelis announced that the United States had agreed that in the event of a failure in negotiations, the United States would demand — and get — crippling sanctions against Iran, code for a gasoline cutoff. In return, the Israelis indicated that any plans for a unilateral Israeli strike on Iran’s nuclear facilities would be put off. The Israelis specifically said that the Americans had agreed on the September U.N. talks as the hard deadline for a decision on — and implementation of — sanctions.

Our view always has been that the Iranians are far from acquiring nuclear weapons. This is, we believe, the Israeli point of view. But the Israeli point of view also is that, however distant, the Iranian acquisition of nuclear weapons represents a mortal danger to Israel — and that, therefore, Israel would have to use military force if diplomacy and sanctions don’t work.
For Israel, the Obama guarantee on sanctions represented the best chance at a nonmilitary settlement. If it fails, it is not clear what could possibly work. Given that Supreme Leader Ayatollah Ali Khamenei has gotten his regime back in line, that Iranian President Mahmoud Ahmadinejad apparently has emerged from the recent Iranian election crisis with expanded clout over Iran’s foreign policy, and that the Iranian nuclear program appears to be popular among Iranian nationalists (of whom there are many), there seems no internal impediment to the program. And given the current state of U.S.-Russian relations and that Washington is unlikely to yield Moscow hegemony in the former Soviet Union in return for help on Iran, a crippling sanctions regime is unlikely.

Obama’s assurances notwithstanding, there accordingly is no evidence of any force or process that would cause the Iranians to change their minds about their nuclear program. With that, the advantage to Israel of delaying a military strike evaporates.

And the question of the quality of intelligence must always be taken into account: The Iranians may be closer to a weapon than is believed. The value of risking delays disappears if nothing is likely to happen in the intervening period that would make a strike unnecessary.

Moreover, the Israelis have Obama in a box. Obama promised them that if Israel did not take a military route, he would deliver them crippling sanctions against Iran. Why Obama made this promise — and he has never denied the Israeli claim that he did — is not fully clear. It did buy him some time, and perhaps he felt he could manage the Russians better than he has. Whatever Obama’s motivations, having failed to deliver, the Israelis can say that they have cooperated with the United States fully, so now they are free by the terms of their understanding with Washington to carry out strikes — something that would necessarily involve the United States.
The calm assumptions in major capitals that this is merely another round in interminable talks with Iran on its weapons revolves around the belief that the Israelis are locked into place by the Americans. From where we sit, the Israelis have more room to maneuver now than they had in the past, or than they might have in the future. If that’s true, then the current crisis is more dangerous than it appears.

Netanyahu appears to have made a secret trip to Moscow (though it didn’t stay secret very long) to meet with the Russian leadership. Based on our own intelligence and this analysis, it is reasonable to assume that Netanyahu was trying to drive home to the Russians the seriousness of the situation and Israel’s intent. Russian-Israeli relations have deteriorated on a number of issues, particularly over Israeli military and intelligence aid to Ukraine and Georgia. Undoubtedly, the Russians demanded that Israel abandon this aid.

As mentioned, the chances of the Russians imposing effective sanctions on Iran are nil. This would get them nothing. And if not cooperating on sanctions triggers an Israeli airstrike, so much the better. This would degrade and potentially even effectively eliminate Iran’s nuclear capability, which in the final analysis is not in Russia’s interest. It would further enrage the Islamic world at Israel. It would put the United States in the even more difficult position of having to support Israel in the face of this hostility. And from the Russian point of view, it would all come for free. (That said, in such a scenario the Russians would lose much of the leverage the Iran card offers Moscow in negotiations with the United States.)
Ramifications of an Israeli Strike

An Israeli airstrike would involve the United States in two ways. First, it would have to pass through Iraqi airspace controlled by the United States, at which point no one would believe that the Americans weren’t complicit. Second, the likely Iranian response to an Israeli airstrike would be to mine the Strait of Hormuz and other key points in the Persian Gulf — something the Iranians have said they would do, and something they have the ability to do.
Some have pointed out that the Iranians would be hurting themselves as much as the West, as this would cripple their energy exports. And it must be remembered that 40 percent of globally traded oil exports pass through Hormuz. The effect of mining the Persian Gulf would be devastating to oil prices and to the global economy at a time when the global economy doesn’t need more grief. But the economic pain Iran would experience from such a move could prove tolerable relative to the pain that would be experienced by the world’s major energy importers. Meanwhile, the Russians would be free to export oil at extraordinarily high prices.
Given the foregoing, the United States would immediately get involved in such a conflict by engaging the Iranian navy, which in this case would consist of small boats with outboard motors dumping mines overboard. Such a conflict would be asymmetric warfare, naval style. Indeed, given that the Iranians would rapidly respond — and that the best way to stop them would be to destroy their vessels no matter how small before they have deployed — the only rational military process would be to strike Iranian boats and ships prior to an Israeli airstrike. Since Israel doesn’t have the ability to do that, the United States would be involved in any such conflict from the beginning. Given that, the United States might as well do the attacking. This would increase the probability of success dramatically, and paradoxically would dampen the regional reaction compared to a unilateral Israeli strike.

When we speak to people in Tehran, Washington and Moscow, we get the sense that they are unaware that the current situation might spin out of control. In Moscow, the scenario is dismissed because the general view is that Obama is weak and inexperienced and is frightened of military confrontation; the assumption is that he will find a way to bring the Israelis under control.

It isn’t clear that Obama can do that, however. The Israelis don’t trust him, and Iran is a core issue for them. The more Obama presses them on settlements the more they are convinced that Washington no longer cares about Israeli interests. And that means they are on their own, but free to act.

It should also be remembered that Obama reads intelligence reports from Moscow, Tehran and Berlin. He knows the consensus about him among foreign leaders, who don’t hold him in high regard. That consensus causes foreign leaders to take risks; it also causes Obama to have an interest in demonstrating that they have misread him.

We are reminded of the 1962 Cuban Missile Crisis only in this sense: We get the sense that everyone is misreading everyone else. In the run-up to the Cuban Missile Crisis, the Americans didn’t believe the Soviets would take the risks they did and the Soviets didn’t believe the Americans would react as they did. In this case, the Iranians believe the United States will play its old game and control the Israelis. Washington doesn’t really understand that Netanyahu may see this as the decisive moment. And the Russians believe Netanyahu will be controlled by an Obama afraid of an even broader conflict than he already has on his hands.
The current situation is not as dangerous as the Cuban Missile Crisis was, but it has this in common: Everyone thinks we are on a known roadmap, when in reality, one of the players — Israel — has the ability and interest to redraw the roadmap. Netanyahu has been signaling in many ways that he intends to do just this. Everyone seems to believe he won’t. We aren’t so sure.

Great Quotes

I read a lot. Sometimes I read an article that really can't be broken down so I post the whole thing. Most of the time I read articles that can easily be broken down into 3 or 4 good ideas and I can expound on them. Then there are sometimes the articles are either too long to share, too poorly written to share, or just plain old stink - yet they have a quote or two that I really like. Here is a compendium of some of those quotes.

"In my experience it takes an expert with a powerful computer to truly foul things up." - John Mauldin (Instant classic)

"The case for free markets never was that markets are perfect. The case for free markets is that government control of markets, especially asset markets, has always been much worse." - John Cochrane (Why couldn't/can't anyone running for office argue this point for free markets this simply?)

"I should now apprise you of the resolution I have formed, to decline being considered among the number of those of whom a choice [in President] is made. I beg you at the same time to do me the justice to be assured that this resolution has not been taken without strict regard to all the considerations appertaining to the relation which binds dutiful citizen to his country - and that, in withdrawing the tender of service which silence in my situation might imply, I am influenced by no diminution of zeal for your future interest, no deficiency of grateful respect for your past kindness, but am supported by a full conviction that the step is compatible with both." - George Washington (This was President Washington's farewell address. Can you imagine any of our current politicians bowing out like this, without some big scandal forcing them to, but doing so because they felt they could no longer physically and mentally do the job necessary?)

"Intensely desired goals, clearly defined with detailed plans for their accomplishment act as a continual stimulus for ideas to achieve them." - Brian Tracy (Think about this quote in terms of our nation as a whole)


"We have a host of members of Congress, but there's one that I have to single out because he is going to be helping to shape the agenda going forward to make sure that we have one of the strongest, most dynamic, and most innovative financial markets in the world for many years to come, and that's my good friend, Barney Frank" - President Obama (I included this one not because the chills I got were the warm and fuzzy goosebumps, but because..well...it scared the heck out of me to hear it stated so bluntly)

What is one misplaced assumption in business today?
"That's a thoughtful question. [For] investors or businesses, that any problem can be quickly solved without a long-term plan. And that's held by business leaders as well as government." - Meredith Whitney (The current Health Care proposals come to mind here.)

Economics

I know that some will find this boring, but I think it is very important. I think that John Mauldin describes very well why it is important to understand the many schools of economic thought. He mentions an analogy of a train. I would expound on that a little. It is supremely important to know where the train is headed. Many reading this blog will know about the time President Hinckley had to find a train car that was supposed to be shipped to a city in the south and found it in the upper north. It was just one little move on the switch that sent the train car way off track. The economic policy that our leaders are following right now is in line with Keneysian in theory, though not strictly applied. I suggest reading up on it a little to decide whether or not you agree with that philosophy as it pertains to our current economic struggles.

From John Mauldin:

"Among the economists and writers I regularly read, there are some who, if they agree with me, I go back and check my assumptions - I must have been wrong. Paul Krugman is one of those thinkers. I admit to his brilliance, but his left-leaning philosophy does not particularly square with mine, and I find that most of the time I disagree.

"That being said, I strongly encourage you to read his essay in the New York Times Magazine, which comes out this weekend. It is worth the high price of the Times to read it, if you can't get it online. It is a very hard critique and analysis of the failure of current macro and financial economic thought, which didn't even come close to predicting the current financial malaise. Indeed, as he points out, most schools of thought said the state we are in could not happen. You can read at the essay if you are a member, or register for free if you are not. http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1.

"Krugman writes, as I have in repeated columns, that we have taught two generations of economists and financial practitioners faulty theories. Even now, believers in the Efficient Market Hypothesis and CAPM hold to their beliefs in the face of clearly contrary evidence. It is a very thought-provoking piece and worthy of a long weekend read. He names specific names and pulls no punches. This is as close to starting a barroom brawl as you get in economic circles.

"He calls for a return to and fresh analysis of Keynesianism. Sigh. I would go further. A plague on all their houses. Whether Keynes or Friedman (monetarism) or von Mises (the Austrian school of economics) or the rather new school of behavioral economics, they all have deficiencies and (sometimes gaping) holes in their logic. At the same time, they all contribute to our general understanding of the world, and there are benefits to studying them.

"Let me risk an analogy. It is like reading about some religious scheme for interpreting the world and then becoming a true believer, arguing for that point of view as received wisdom - it's your belief system. Five Nobel laureates say this and seven say that. My guru is smarter than your guru. Look at how the math proves this point. And so on...

"Krugman concludes: "So here's what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit - and this will be very hard for the people who giggled and whispered over Keynes - that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they'll have to do their best to incorporate the realities of finance into macroeconomics.

"'Many economists will find these changes deeply disturbing. It will be a long time, if ever, before the new, more realistic approaches to finance and macroeconomics offer the same kind of clarity, completeness and sheer beauty that characterizes the full neoclassical approach. To some economists that will be a reason to cling to neoclassicism, despite its utter failure to make sense of the greatest economic crisis in three generations. This seems, however, like a good time to recall the words of H. L. Mencken: 'There is always an easy solution to every human problem - neat, plausible and wrong.'"

"I agree we need to examine our assumptions. I am not sure that makes me want to unreservedly embrace Keynes. Keynesians missed as badly as anyone else in this crisis. Yes, the Austrians generally called some of the problem, but their solutions call for 25% unemployment and an unworkable global economy and a serious depression. Not sure that I want to sign up for that, either. And, they totally discount the concept of the velocity of money, which we will look at next week.

"We need a new and better economic understanding, not some semireligious adherence to dogma laid down by men who were in no way familiar with current world conditions. Keynes, von Mises, Fisher, Schumpeter, Minsky, Hayek, Smith, et al. were giants. They absolutely must be read and understood. But a real science builds on the work of the former generations and does not hold onto theories as if they were scripture.

"As much as many economists would like to think so, economics is not a precise science. A global economy cannot yield to hard math in the way that one can model a protein, at least not with any model that has yet been offered. At best, the models let us see through a glass darkly, suggesting the potential for connections between a few variables, while assuming that all others are held constant. It is precisely the illusion that we can model the economy that got us into the current mess.

"(By the way, good friend Paul McCulley has written a very interesting essay on why the Fed has to change their models on inflation targeting - the Taylor Rule is not up to the task - and whether or not to deal with bubbles before the fact, rather than mopping up after they burst. What was assumed has clearly not worked. You can read it at www.pimco.com.)

"I am often asked what school of economic thought I adhere to, and the answer is, none. I would rather try to get it right. And rather than argue for one policy or another (which admittedly I sometimes do), it is more important to figure out what those who actually will effect policy will do, and then make sure we are not in the way of the train they are sending down the tracks. Agree with Krugman or not, he is one of the principal conductors on the train."

It's Not All Bad

I have posted a lot of negative, and lengthy, stuff lately so I wanted to keep this somewhat short and sweet. These are the closing remarks on a Summer-End commentary made by a group of money managers that I really like. George Shipp is credited as being the author.

"We are aware that a great political debate is ongoing, and admit that it can sometimes complicate the task of fundamental securities analysis. We agree with many who feel that our country is 'at a crossroads.' We worry sometimes that we are tipping toward becoming a 'bailout nation' (cash for washing machines, puh-leeze?!), or that it has become more fashionable to walk away from financial obligations than to meet them. We are embarrassed at the national debt we are handing our children. We wish more stimulus monies [and only what had been necessary] had been applied toward long-term productive investments like infrastructure and education, less toward wealth transfer.

"...We believe in market discipline, AND we believe in appropriate regulation. Let's enforce existing laws. We all need to pay our fair share of taxes.

"This country has survived many crises, and we are confident we will not waste this one [to pull ahead and come out on top], to borrow a phrase. if our collective problem is too much debt (and it is), then it's just common sense that more borrowing is unlikely to be the answer. That din you hear in the background is the formerly silent majority, exercising their power to 'encourage' our political leaders to find that common sense middle ground for the greater good. Have you ever heard such political passion in your lives, as during the last several months? All that gnashing of teeth is not a symptom of weakness or sign of the apocalypse, it's a beacon of strength - democracy in action. The road to recovery will not be straight up, but we believe we're on it, and slowly, but surely, appear to be making progress."

I Want Some Comments on This One

Okay, I know some of you were probably not even done reading the last monster post of mine, but I read this article and I had so many thoughts while reading it that by the time I got to the end I was so overloaded that all thoughts disappeared and I was left with nothing. Have you ever had that happen? Anyway, this is an article written by the new Japanese President prior to his becoming President. I want to hear some comments and thoughts on this.

TOKYO - In the post-cold War period, Japan has been continually buffeted by the winds of market fundamentalism in a U.S.-led movement that is more usually called clobalization. In the fundamentalist pursuit of captialism people are treated not as an end but as a means. Consequently, human dignity is lost.

How can we put an end to unrestrained market fundamentalism and financial capitalism, that are void of morals or moderation, in order to protect the finances and the livelihoods of our citizens? That is the issue we are now facing.

In these times, we must return to the idea of fraternity - as in the French slogan "liberte, egalite, fraternite" - as a force for moderating the dangeer inherent within freedom. Fraternity as I mean it can be described as a principle that aims to adjust to the excesses of the current clobalized brand of capitalism and accommodate the local economic practices that have been fostered through our traditions.

The recent economic crisis resulted from a way of thinking based on the idea that American-style free-market economics represents a universal and ideal economic order, and that all countries should modify the traditions and regulations governing their economies in line with global (or rather American) standards.

In Japan, opinion was divided on how far the trend toward globalization should go. Some advocated the active embrace of globalism and leaving everything up to the dictates of the market. Others favored a more reticent approach, believing that efforts should be made to expand the social saftey net and protect our traditional economic activities. Since the administration of Prime Minister Junichiro Koizumi (2001-2006), the Liberal Democratic Party has stressed the former, while we in the Democratic Party of Japan have tended toward the latter position.

The economic order in any country is built up over long years and reflects the influence of traditions, habits and national lifestyles. but globalism has progressed without any regard for the non-economic values, or for environmental issues or problems of resource restriction.

If we look back on the changes in Japanese society since the end of the Cold War, I believe it is no exaggeration to say that the global economy has damaged traditional economic activities and destroyed local communities. In terms of market theory, people are simply personnel expenses. But in the real world people support the fabric of the local community and are the physical embodiment of its lifestyle, traditions and culture. An individual gains respect as a person by acquiring a job and a role within the local community and being able to maintain his family’s livelihood. Under the principle of fraternity, we would not implement policies that leave areas relating to human lives and safety — such as agriculture, the environment and medicine — to the mercy of globalism.

Our responsibility as politicians is to refocus our attention on those non-economic values that have been thrown aside by the march of globalism. We must work on policies that regenerate the ties that bring people together, that take greater account of nature and the environment, that rebuild welfare and medical systems,
that provide better education and child-rearing support, and that address wealth disparities.

Another national goal that emerges from the concept of fraternity is the creation of an East Asian community. Of course, the Japan-U.S. security pact will continue to be the cornerstone of Japanese diplomatic policy.

But at the same time, we must not forget our identity as a nation located in Asia. I believe that the East Asian region, which is showing increasing vitality, must be recognized as Japan’s basic sphere of being. So we must continue to build frameworks for stable economic cooperation and security across the region. The financial crisis has suggested to many that the era of U.S. unilateralism may come to an end. It has also raised doubts about the permanence of the dollar as the key global currency.

I also feel that as a result of the failure of the Iraq war and the financial crisis, the era of U.S.-led globalism is coming to an end and that we are moving toward an era of multipolarity. But at present no one country is ready to replace the United States as the dominant country. Nor is there a currency ready to replace the dollar as the world’s key currency. Although the influence of the U.S. is declining, it will remain the world’s leading military and economic power for the next two to three decades.

Current developments show clearly that China will become one of the world’s leading economic nations while also continuing to expand its military power. The size of China’s economy will surpass that of Japan in the not-too-distant future. How should Japan maintain its political and economic independence and protect its national interest when caught between the United States, which is fighting to retain its position as the world’s dominant power, and China, which is seeking ways to become dominant? This is a question of concern not only to Japan but also to the small and medium-sized nations in Asia. They want the military power of the U.S. to function effectively for the stability of the region but want to restrain U.S. political and economic excesses. They also want to reduce the military threat posed by our neighbor China while ensuring that China’s expanding economy develops in an orderly fashion. These are major factors accelerating regional integration.
Today, as the supranational political and economic philosophies of Marxism and globalism have, for better or for worse, stagnated, nationalism is once again starting to have a major influence in various countries. As we seek to build new structures for international cooperation, we must overcome excessive nationalism
and go down a path toward rule-based economic cooperation and security.
Unlike Europe, the countries of this region differ in size, development stage and political system, so economic integration cannot be achieved over the short term. However, we should nonetheless aspire to move toward regional currency integration as a natural extension of the rapid economic growth begun by Japan, followed by South Korea, Taiwan and Hong Kong, and then achieved by the Association of Southeast
Asian Nations (ASEAN) and China. We must spare no effort to build the permanent security frameworks essential to underpinning currency integration.

Establishing a common Asian currency will likely take more than 10 years. For such a single currency to bring about political integration will surely take longer still.

ASEAN, Japan, China (including Hong Kong), South Korea and Taiwan now account for one quarter of the world’s gross domestic product. The economic power of the East Asian region and the interdependent relationships within the region have grown wider and deeper. So the structures required for the formation of a regional economic bloc are already in place. On the other hand, due to historical and cultural conflicts as well as conflicting national security interests, we must recognize that there are numerous difficult political issues. The problems of increased militarization and territorial disputes cannot be resolved by bilateral negotiations between, for example, Japan and South Korea, or Japan and China. The more these problems are discussed bilaterally, the greater the risk that emotions become inflamed and nationalism intensified. Therefore, I would suggest, somewhat paradoxically, that the issues that stand in the way of regional integration can only be truly resolved by moving toward greater integration. The experience of the E.U. shows us how regional integration can defuse territorial disputes.

I believe that regional integration and collective security is the path we should follow toward realizing the principles of pacifism and multilateral cooperation advocated by the Japanese Constitution. It is also the appropriate path for protecting Japan’s political and economic independence and pursuing our interests in
our position between the United States and China.

Let me conclude by quoting the words of Count Coudenhove-Kalergi, founder of the first popular movement for a united Europe, written 85 years ago in “Pan-Europa” (my grandfather, Ichiro Hatoyama, translated his book, “The Totalitarian State Against Man,” into Japanese): “All great historical ideas started as a utopian
dream and ended with reality. Whether a particular idea remains as a utopian dream or becomes a reality depends on the number of people who believe in the ideal and their ability to act upon it."



After reading this again I did have one thought and that is, Why can't anyone seem to understand what a free market system is and that the U.S. hasn't had one of those for a while? Yes we have a free-er market, but not a free market. Someone please point out to these people Milton Friedman's writings on the subject. Anyway, please comment.