Reality Check on the State of World Economics and Geo-Politics Part 2

Part 2: The Middle East

The Middle East goes through periods of tranquility and periods of rage. The Middle East is bearing witness to governments toppled by uprisings of the general population and the Western World hopes for a new age of liberty in the troubled region. Such Optimism lacks perspective. Periods of tranquility are not truly peaceful but rather the military suppresses discontent through military dictatorships funded by oil sales to the Western World.

Liberty based societies supporting dictatorships is a contradiction to the ideals of personal liberty. The reason Western populations support such suppressions is that volatility in world economies shakes the confidence of capitalist consumers. The oil in theMiddle Eastis the main reason that the Western World does not support democracy since the transition to a republic is an unpredictable process. In military power the Western World finds reliability and the ability to calm a region, at least it looks serene on the surface.

A regime that forces silence will always be subject to revolt periodically by citizens straining for liberty but without the full support of democratic nations abroad, democratic movements stand almost no chance for success. Instead opposing political parties utilize the revolts towards personal power acquisition and try to topple a regime and take control in a similar fashion. In Egypt, the military was in control the entire time and it redirected public anger towards Mubarak and away from itself. The removal of Mubarak by the citizens allows the military to slowly re-assert its power on the nation. Nothing changed for the citizens of Egypt and the Western World continues to support the military in favor of perceived stability over personal liberty.

The United States decided to experiment with direct military stability by invadingIraq for reasons that are less than opaque. The result was complete civil war for a short duration than replaced by an oppressive military occupation. The Iraqi government is far from being a true democracy and the citizens of the nation have not gained a morsel of additional personal liberty. Once the United States removes its military completely political agents from Iran and Saudi Arabia will battle for control over Iraq's oil and the Western World will be satisfied if this means no visible volatility.

Citizens of Western nations care little for others’ personal liberty regardless of the rhetoric there’re elected representatives spew. In fact, few citizens of republics truly understand the concept of a society cultured in the belief that personal liberty should be held above all other ideals including that of religion. For example, the majority of United States population has never read the Constitution, Common Sense, Articles of Confederacy, The Federalist Papers, or the other works that defined the United States as the first society dedicated to liberty regardless of its flaws. These works recorded the struggle of defining not only personal liberty but also the role of government to protect and enforce liberty.

Systems of government will never be perfect but the pursuit of perfection by a liberty based society will create a superior system of political economy than any other governing process in the world. So until the Western World defines what liberty means for itself, the citizens of the democratic nations will continue to support oppressive regimes across the globe in the name of stability. The "Arab Spring" died before it began and even if governments fall they will be replace by power hungry political parties that will lie and oppress again with the blessing of our Western governments.

Reality Check on the State of World Economics and Geo-Politics

Part 1: Europe

The world markets are volatile, the United States Congress broken, and Europe on the edge of a proverbial financial knife blade. The media loves those soundbites. The current market crisis does not have any new elements just new perceptions facilitated by the media and politicians. The world economy is not at a precipice and improvements have been ignored by investors' panic.

Current market turmoil is certainly blown out of proportion but however illogical the turmoil is it will have an effect on the economic and political structures of nations. The significance of market turmoil is subject to existing and established structural weakness in various world economies. This article will focus on how volatility will interact with the European zone of economic collaboration. The debt crisis in Europe has been evolving since the fall of Lehman Brothers and the focus of the new market upheaval has been directed towards the contagion of debt problems in countries such as Italy and Spain. Although Italy and Spain's debt problems should not be taken lightly there have been several developments towards a solution. In addition the specter of a new mortgage crisis in Central Europe has been entirely ignored by most market participants.

When market participants are infected with fear they will traditionally dump the riskier assets and flock to “safe” assets such as government paper or bank certificates of deposit. However, fixed income products are yielding almost nothing. Investors searching for safety have been storing their wealth by direct purchases of currency or indirectly through Electronically Traded Funds (ETF's). In Europe investors have flocked to the Swiss Franc and subsequently driven the currency much higher than the European Euro.

The Swiss banking system has long been held in high regards and Central European nations, namely Poland and Hungary, have taken home mortgages denominated by the Swiss-Franc. These mortgages have much lower rates and were very attractive to borrowers in the old Soviet-Bloc. Currently, 53 percent of mortgages in Poland and 60 percent of those in Hungary are denominated in Swiss-Francs. If the Franc continues to rise in value compared to the neighboring Euro the effect is essentially the same as a sharp interest increase of debts in Poland and Hungary. Because Poland and Hungary are part of the Euro-Zone they are at the mercy of how markets will value the Euro in relation to the Franc.

The Swiss Banking system has been buying Euro debt in an effort to stop the sharp increase in the value of its currency but it has had little effect on stopping the upward trend. On August 11th, the Swiss national bank made an announcement that they were considering a directive to peg the the Franc to the Euro. Shortly after the announcement the Franc fell 600 blips compared to the Euro but quickly regained most of that loss by the end of Friday. The Swiss find themselves in a difficult spot, if the Euro-zone continues to struggle with the debt crisis than Switzerland can not afford to attach its independent currency to a sinking ship. On the other hand, if it does not find a way to decrease its currency than its banks will surely suffer large losses due to waves of mortgage defaults in Central Europe.

The underlying issue is that the Euro-zone is at a debt crossroads but a solution has been signed that has escaped the markets. On July 24th the German Government agreed to sign as the underwriter for the newly reformed European Financial Security Facility (EFSF). The purpose of the EFSF was to provide loans to the indebted Mediterranean nations as a form of refinance. The issue the EFTF immediately faced was that the organization relied on funds from the northern and wealthier members of the Euro-zone to donate funds. Germany has the assets but giving money directly to the EFSF is politically unpalatable to German politicians who do not want to be viewed as bailing out member nations. Instead, the Germans have signed in a fashion that allows the organization to raise funds through the sale of bonds on Germany's credit rating.

This has accomplished two objectives. First, the EFSF can raise unlimited amounts of money to lend to the peripheral Euro-Zone nations at a rate far lower and on longer terms than could be issued otherwise. Second, The German population has not seen this move as a direct bailout, although that could change in the future. The catch to this whole EFSF deal is that Germany and Germany alone has the right to decide who can tap the EFSF for money. The EFSF has in effect created a central financial monetary leader and the leader of the Euro is the German State. Member nations do no have to gain permission from the European Central Bank to tap into the capital of the EFSF but member nations will have to understand that the Germans now hold the purse strings.

In all reality Germany is the only nation with the resources to save the Euro-Zone and Germany owes its economic success to the creation of the Euro-Zone. Germany decided to take responsibility and become the economic leader of Europe. The question becomes, is Europe ready to rally around Germany as it's leader?

Can T.V comedy explain politics better than other mass media?

The world is filled with political experts and annalists that flash shinny degrees on the underscore of news headlines in an attempt to justify their remarks as truth. The lens of history never provides a clear picture of what was right and what was wrong. In fact, it could be argued that the important events in the past are picked by the persons trying the most to influence events in the future. This scenario would explain many of the dirty secrets that are suddenly unveiled before elections.

So if the voting population is going to rely on mass media to pick and chose important events, which source should we pick?A logical approach is to take a three question quiz.

1. Are you a Liberal?
2. Are you a Conservative?
3. Am I an Idiot?

If you answered yes or no to the above three questions, you are and idiot. To be completely honest with readers, I failed this questionnaire at least 3000 times.

Everyone in the world has a bias, we pick what we like and ignore what does not agree with our prideful selves. How then, can we let a media source bent on the more ratings and less balance dictate the political sphere? Hence, if we watch Fox or listen to NPR for political guidance, we are all equally stupid.

But their is still hope, a beacon of shinning light in a dark political world. Comedy effectively mocks humans bias. It does not matter if the conversation is conservative or liberal, comedy will equally mock the most outrages bias we as humans can provide. It is in mocking our own idiocracy, humans find humor. For reasons unknown to science, logical human thoughts can only stem from openly making fun of the work and decisions of our fellow man.

So, in closing and finishing the original titled thesis “can T.V comedy explain politics better than other mass media?” The answer has to be a resounding yes, but in supplemental fashion. Jon Stewart, Steven Colbert, Jay Leno, and Coco (when he gets back) find the biases of every mass media belief and mock those pundits. The crowd laughs not only at the pundits, but at themselves for understanding the illogical behavior of the human race and it is in that contradiction between bias and logic, we find things funny; and humor finds the answer.

Against Democracy: How America Created a Radical Iran Part 1

This week United Nations started to squeeze the Iranian Republic just a little more and further increasing the control of President Mahmoud Ahmadinejad over the people of Iran. The reason for the newest wave of sanctions is centered on the disputed Iranian nuclear program and the inability for Iran or its western opponents to come to a consensus. Fiery rhetoric has been the weapon of choice for American politicians towards the defiant Middle Eastern country and most American probably agree that the Iran is a danger to peace. However, only President Obama has briefly hinted that the monster that has become Iran was created by the United States. At some point the U.S. public is going to have to reap what its leaders sowed so many years ago and hopefully it will be a lesson how our empire is almost never a defender of democracy.

The battle for Iranian democracy is one of the most heroic and tragic histories in the 20th century. In 1906 a rebellion outside of the British Embassy was able to persuade the middle and trading class of Tehran to form a Parliament. The aging Shah had tried to stop the constitution rebellion in 1905 but had become sick and was near death when the first Iranian parliament was formed. The parliament moved quickly and modeled their new constitutional monarchy after Belgium. The Shah signed the constitution into law and died five days later. However, the new democracy was short lived and in 1907 exiled royalty swayed the Russian and British Empires to invade and control Iran for its oil reserves. Russian and British control would remain in place until 1950.

Mohammad Mosaddegh was an aristocrat from Iran that passionately opposed the interventions by the Russian and British powers. In 1951 he was elected prime minister by a new Iranian parliament and quickly nationalized the oil industry in Iran. The main reason for British and Russian interventions had been oil and the puppet shah government gave extremely favorable terms to a British oil company that would later become British Petroleum. Mosaddegh wanted to use the oil to increase the Iranian budget to modernize the impoverished nation. When the British government refused to accept the terms of the new Iranian democracy it blockaded oil exports from Iran.

Mosaddegh cut the Shah’s powers drastically and assumed control of the military after a protest in Tehran. However, his democratic actions were being drastically undercut due to the British oil blockade and the country was suffering severe economic depression due to the lack of oil sales. Britain was extremely bitter over their loss of control of the Iran oil industry and the oil blockade was not bringing the crisis to a quick conclusion. The United States had been in favor of Iranian democracy because of Mosaddegh’s open hate of socialism and communism but as Britain became increasingly desperate to regain control of Iran Winston Churchill appealed to the new President of the United States, Dwight D Eisenhower.

Winston Churchill told his old war ally General Eisenhower that Mosaddegh was moving towards communism. Being the height of the cold war that was all the United States needed to reverse its support of Iran and denounced Iran’s policies. The CIA was given almost unlimited monetary backing to bribe the Shah and the Iranian military to create a coup d’etat. The CIA hired criminals and tribal strongmen to stage massive protests in Tehran and over 300 people died in these fake revolts. The bribed military leaders than deployed to ensure peace and arrested Mosaddegh and held him accountable for the revolt. Mosaddegh was found guilty buy the CIA agents and was held under house arrest for the rest of his life. The unpopular and oppressive Shah returned in 1953 and quickly made deals with American and British oil companies with the urging of CIA agents. In trade for almost all of Iran’s oil the CIA funded the Shah’s oppressive military and secret police force. The CIA had single handedly crushed the only democracy in Asia Minor, for oil.

As for the 1979 Iranian revolution we all know about the hostage of the American embassy workers. The new Iranian republic was democratically elected but much more aggressive and radical compared to Mosaddegh. The chance to support a real and peaceful democracy in Iran was supplanted for oil. We now have to face a radical Iranian Republic that hates America more than it hated the Shah and is trying to create nuclear weapons. Who knows how much more peaceful the Middle East could have been if we had supported Mosaddegh?

Americas should be ashamed of our governments dealings with Iran, because like it or not, we gave and continue to give President Mahmoud Ahmadinejad an enemy that threatens the Iranian people which he uses to oppress the people of Iran. Instead of recognizing our mistakes Americans iclaim the reason Iran hates us is because we are a democracy, that Iran hates our freedom, that Iran hates Christians. No, Iran hates us because we killed their democracy single handedly. In part two, I will describe how America helped kill millions of Iranians in retaliation to the 1979 revolution.

Sometimes America makes me sick and I am ashamed to be part of this “great democratic nation.”



Sources:

A Concise history of Iran, Saeed Shirazi

The Devil We Know: Dealing with the New Iranian Superpower, Robert Baer.

Mohammad Mosaddegh and the 1953 coup in Iran, Mark J. Gasiorowski and Malcolm Byrne

A Solution to the Federal Government Debt: End Income and Payroll Tax

American’s have become uneasy about the amount of Federal Debt that is stacking up in Washington and for good reason. This month the debt total topped $13 trillion and will reach $14 trillion within six months. Although these numbers are impressively large and hard to accept, the path to reverse them is not terribly hard.

To demonstrate that the debt problem could have been easily handled during the height of the crisis lets crunch some numbers. The cost of the government bailouts and guarantees the federal government granted was $7.7 trillion dollars. That’s what I said, $7.7 trillion and that does not include the $16.3 trillion of federal government guarantees that were made by many government agencies. After all that money was spent our economy is still weak and unemployment is still high.

Instead with that money the government could have protected the credit system with the $ 700 billion TARP fund and then canceled income and payroll taxes for two years. Sound crazy?

The world operates on incentives, especially the economy. If underlying economic indicators are weak than there is little incentive for investors to invest, for businesses to expand, and for creation of new jobs. However, if income taxes were canceled people would be able to spend and save much more rather than having to pick wither to save or to spend. If payroll taxes were cancelled corporations would be willing to risk expansion and hire more workers. Demand would grow due to increased savings rates and consumer spending. The country would experience an economic boom almost overnight.

To pay for the 50% decrease in federal government revenue a very small nationwide sales tax could be implemented and spending could be cut drastically. Ending the wars and cutting military spending, create a means test for social security and increase retirement age to 70, and deregulate healthcare which would make healthcare cost decrease. Those three tasks would cut the projected 2010 $3.7 trillion budget by 50 percent.

Alas that is not what happened, instead we received a stimulus package that has done little and spent a lot, bailouts of corrupt and greedy bankers, and no major decrease in unemployment. Since hindsight is 20/20 what could be done now? The answer is still the same one as above but just a little different.

Use the $700 billion TARP funds, use the remaining 45 percent of the stimulus package, end the wars and cut military spending, cancel the $800 billion dollar healthcare reform, and cut social security spending. Take all of that money and cancel the income tax and payroll taxes.

I am 100 percent confident that there would be unintended consequences but this plan would create positive incentives on the individual level rather than a trickledown effect. In a complex organization such as the economy solutions have to be regulated to the individuals in the free markets. With less federal government spending and nationwide sales tax there would be no real reason to bring back the income tax but if we did, it would be much lower and go directly to paying off the debt. America would once again become the greatest economic power in the world instead of coming in second to the social European Union.


Sources:

http://www.usfederalbailout.com/
http://usgovernmentspending.com/#usgs302a
http://www.usgovernmentrevenue.com/#usgs302a
Think Twice, Michael J Mauboussin

Apathy in America: Part One

Politics seems to have frozen the ability for America to react to any situation ranging from the bigwigs in Washington to the people sitting in front of their TV watching Glen Beck or Keith Olbermann. This general sense of apathy towards local and national issues has resulted in bad situations getting worse and although it is scary to see America slip into this indifferent state, it is not surprising. Be assured, there will be no ranting and repeating main stream political trash in this article, this will only be a thread of personal opinion regarding the negative system of incentives that exists in this nation.

The BP oil spill will serve as a starter and foundation to this thesis of apathy in America. The spill at the Deepwater Horizon drill site started about two months ago and it is projected that the relief wells being drilled will take another month to complete. Although this situation is a tragedy and future care must be taken to prevent such a large spill, the right thing for America as a nation right now is to clean up the oil as fast as possible. However, the very opposite has happened and now the entire country is thoroughly frustrated with; well, everyone. Republicans are blaming and bashing President Obama while Democrats and Obama are bashing BP. Meanwhile, the big media is breeding anger and hate at every possible level to insure people continue to watch the oil leaking on streaming video feeds. Every pundit has a solution in their own mind but none of the solutions are being implemented. Why?

The answer is not a one sentence solution as is the norm per the big media nor is it 100 percent accurate due to massive complexities of the oil spill. Instead, this answer does allow an explanation of why this spill has not been handled efficiently. It is all about the incentives.

In an Article by Paul H. Rubin (Wall Street Journal, 7/2/2010, opinion) he clearly lays out the many contributing factors of why the cleanup is progressing at such a slow pace but he fails to explain why these solutions are not being implemented. First, the EPA could temporarily relax restrictions on the amount of oil in discharge water which is currently at 15 parts per million. This law is used to clean up small spills in clean water, however, this is a very large spill and focusing so much on 15 parts per million is a colossal waste of time. What is stopping the EPA from temporarily easing regulations? Their incentives as an agency have been to increase the environmental responsibility of both the government and the privet sector. Easing restrictions on clean up laws would be seen as a loss of face in the political world and could inspire companies to challenge many of their hard earned laws. In addition, the agency would lose many of the environmental lobby groups that provide so much money to EPA. Easing restrictions would be political suicide for many of the EPA head leaders. The incentive to keep regulations outweighs the benefit of a faster clean up.

The second point made by Mr. Rubin is the failure of the President to issue an executive order to waive the Jones Act, which keeps foreign ships from operating in U.S coastal waters. Many nations have offered their ships and services to help clean up the oil and such experienced assistance would boost the cleanup dramatically. Incentives once again help explain why that on day 70 of the oil spill America has not accepted foreign help.

Obama has a very large support base from union labor which viciously defends the Jones Act regardless of the oil spill. Any temporary halt of the Jones Act would be considered a slap in the face to organized labor and Obama would lose money and support from union lobbyist. This would be a devastating blow to the Democratic Party right before important mid-term elections. Obama might commit political suicide if he waived the Jones Act. These incentives outweigh allowing the world’s largest oil skimmer from Taiwan to enter the Gulf of Mexico even though it can process nearly 500,000 barrels of oil a day out of the water.

The last point made by Mr. Rubin is why only 400 oil skimmers are operating in the Gulf out of the fleet of nearly 2000 in the United States. Bureaucracy and regulations are keeping these ships stationed at home ports in case of an oil spill. As a senator from Florida pointed out, “It is the equivalent of not sending fire trucks to the scene of a fire for fear that a fire could start.” If congress were to order ships to the oil spill from other areas of the country and a spill happened in those areas the ships had just left, the local anger at such an action would lose a voting congressman his next election. Although the chance of another major spill in another area of the country is astronomically high, the incentive to avoid losing an upcoming election is too high for a bill to find the floor of congress.

These were just three easy solutions pointed out by Mr. Rubin and there are thousands more ways to speed the oil clean up. The problem is that misplaced incentives in politics have kept actions from taking place. There is also a plethora of reasons that big media has not pointed out these easy solutions but incentives keep them from informing the public. An entire book could be written on misplaced incentives in the oil spill but that is a task for a smarter person with time on his hands.

The lesson to learn here is that incentives rule people’s actions and politics is no different. To find answers to issues, do some research and critical thinking on what could be preventing a solution to a situation. This can be done on every level of society, from individual day to day tasks all the way to geo-politics. Just remember, it’s all about the incentives.

The False Concept of Tax Cuts

There seems to be a rule of thumb among many Republicans lately that has caused me large amounts of confusion. Apparently, cutting taxes will increase government revenue when the economy improves due to the tax cuts. Republicans hold Ronald Regan up as a shining example of the success tax cuts have as economic stimulus. However, this simple explanation of success falls short of historical accuracy.

This belief of tax cuts to encourage economic growth is known as “supply side economics”. The economic theory postulates an increase of government revenue at a lower tax percentage due to a growing economy. This theory is dependent on economic expansion resulting from new tax cuts yet if an economic contraction occurs, government deficits increase drastically. This risky maneuver has backfired every time since 1980 but the belief tax cuts help the economy stems from false concepts of what has caused economic recoveries in the past thirty years.

Ronald Regan implemented supply side economics during his first year in office by cutting $39 billion from the federal budget; created a 25% tax cut over three years, and faster write-offs for capital investments. The gamble was that such a huge tax cut would shock the economy from its stagnant state and the result would be a growing economy which would cover the cost of the government tax cuts. Instead of economic expansion the country fell into a recession and a mounting federal deficit forced Regan to increase budget cuts and increase taxes.

During the recession in 1982 the Federal Reserve Chairmen Paul Volker had worked to decrease the double digit inflation and lower the double digit interest rates that were crippling the economy. When Volker’s many painful reforms started to lower inflation and interest rates the economy boomed while Regan was increasing taxes and cutting spending to handle the federal deficit. The economy flourished during Regan’s Presidency but the federal debt was growing at a frightening pace. The promised increased government revenue was not materializing.

Republicans claimed that supply side economics had created the economic boom of the 1980’s although lower inflation and lower interest rates were the real drivers of the economic expansion. This Republican propaganda spin allowed George H.W Bush to win the election in 1988, fortunately, Bush did not hold to the “Voodoo” economic policies of Regan.

President Bush felt that America could not grow and prosper with the growing federal debt. Bush pushed for more federal spending cuts but the Republican congress also wanted to cut taxes again which would have increased the deficit in 1989 to $500 billion. Instead of increasing the debt levels, Bush signed a Democratic bill that raised taxes to battle the deficit left by Regan. The Republican voters felt betrayed by Bush who had promised “no new taxes.” Bush’s political career was killed when he signed the bill. Although Bush’s broken promise cost the Republican Party the election in 1992, the tax increases halted the budget deficit and helped Bill Clinton and the conservative congress to create a large federal surplus in the 1990’s. The 1990’s saw a long economic expansion with no tax cuts, instead, low interest rates and low inflation once again spurred economic growth.

This decade of prosperity came to an end when George W. Bush won the election in 1999 and returned the political agenda to supply side economics. In his first year Bush passed a slew of new tax cuts and championed many new financial reforms focused on easing the accounting standards of large corporations. At the same time he increased welfare programs with no balancing tax increase to cover the spending. The country entered the Tec and Telecom recession which reversed the federal surplus in two years. By 2005 the country was engaged in two military conflicts while more tax cuts took place.

During this period of increasing debt levels the US economy recovered from the 2001 recession but this success was not due to the many Bush tax cuts. The new fed chairman Alan Greenspan kept interest rates artificially low to stimulate economic recovery and this was mixed with Bush’s increased mortgage spending through Fannie and Freddie Mac. The mixture led to an economic recovery which eventually caused the housing bubble burst in October of 2008. Faced with economic depression due to his tax cuts and increased mortgage borrowing, Bush passed the $700 billion TARP bill to rescue the nation’s credit markets further increasing the national debt.
By looking at the historical timeline since 1980 it seems that cutting taxes did little to stimulate the economy and increased the federal debt levels astronomically. In addition, entitlement programs such as social security, welfare, and Medicare were expanded with no tax increases to balance the new entitlement spending. Every major tax cut since 1980 happened before or during an economic contraction. Each recovery was due to a combination of lower inflation or low interest rates and not from large tax cuts.

For me to say that lower tax rates are bad for the economy would be a false statement. Lower tax rates over long time periods encourage less government spending and increases a strong and vibrant economy. That said, large tax cuts in short periods of time while increasing spending has led the large debt America has created.

America has to decide if we will pay off our debt and cut spending or cut taxes in political retaliation to a liberal president which will place a tombstone over our fiscal grave. When will America put aside our political differences and realize we have a responsibility right now to pay for our borrowing? I guarantee if we cut taxes more our nation will be forced to default before end of the decade. The discussion should not be about taxes but about entitlement spending that is bankrupting this nation. I personally choose responsible taxes and spending cuts rather than a second great depression.



Some Sources:

http://www.reagan.utexas.edu/archives/reference/reference.html
http://www.reagan.utexas.edu/archives/reference/pressketch.html
http://www.investopedia.com/terms/v/voodooeconomics.asp
http://yellowroad.wallstreetexaminer.com/blogs/files/2008/06/inflation.gif