Relevant and even prescient commentary on news, politics and the economy.

Sunset Magic

An editorial in the Washington Post’s business section, by Newsweek’s Wall Street editor Allan Sloan, compares the purported $1.4 trillion 10-year deficit (which assumes that all sunsets actually do sunset) to the much more likely outcome in which Congress extends or makes permanent the various tax cuts currently scheduled to expire between 2008 and 2012. The result of this calculation is a bit sobering:

By law, the budget office has to assume that existing laws expire as planned, and that no new programs are added or subtracted. This report, however, includes numbers that you can use to adjust for political reality. Which I did. First, I counted the $2.4 trillion Social Security surplus, which the Treasury uses to offset its cash shortfall. Then I figured that the last three years of tax cuts will become permanent and that Congress will pass a Medicare prescription-drug package and stop the dreaded alternative minimum tax from hitting 30 million taxpayers. These changes add $3.6 trillion to the deficit. So by the time you’re done, the total projected deficit is more than five times the aforementioned $1.4 trillion. Call it $7.4 trillion. And I’m being generous, assuming we spend nothing in Iraq starting Oct. 1, 2005.

AB

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John Kerry

I didn’t hear the whole speech, but CNN played excerpts from the parts of Kerry’s speech where he scathingly attacked Bush’s execution of the war in Iraq. At least in the excerpts, Kerry didn’t pull any punches. At one point, Kerry said that half of the names on the Vietnam Memorial were there because of the misguided pride of America’s leaders and that Bush, Rumsfeld, and Wolfowitz are repeating the same mistakes. Kerry’s proposal: we should go back to the U.N. and go international in Iraq as soon as possible. There’s no transcript on his website, but presumably one will be available soon at http://www.johnkerry.com/news/#speeches.

Kerry’s attacks are almost surely good for any candidate that emerges, other than Kerry himself. Non-Kerry candidates can say “Kerry makes many valid and important points,” effectively attacking Bush, but without actually doing so. Whether Kerry’s U.N.-heavy message will resonate in his favor among swing voters remains to be seen.

AB

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Bad News?

I just overhead a reporter on CNN citing poll results indicating that 2/3 of Americans polled could not name a single Democratic presidential candidate. I’m not sure I believe that figure, but that’s what they said. If true, it’s moderately bad news I suppose.

However, a larger portion of the half of Americans who vote presumably can name a candidate. For example, if all respondents among the 1/3 who could name a Democratic candidate were also among the half that vote, then the stat would change to “2/3 of likely voters can name a Democratic presidential candidate.”

AB

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Rice Watch Day 42

It’s been a while, so long that I almost abandoned the watch. Friday’s Slate has an interesting piece, Condi’s Phony History: Sorry, Dr. Rice, postwar Germany was nothing like Iraq, attacking the credibility of Rice’s comparison of Germany and Japan’s reconstruction to Iraq’s (“The Rice-Rumsfeld depiction of the Allied occupation of Germanyis a farrago of fiction and a few meager facts…).

AB

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Bush Quotes

Forbes has a collection of Bush quotes about September 11th, starting on 9/11 and continuing to last week. For example, this quote:

Sept 17, 2001 – “When I was a kid I remember … the ‘wanted’ poster. It said, ‘Wanted, Dead or Alive.’ All I want and America wants is to see them brought to justice.” (comments to reporters about bin Laden).

At the time, I agreed with the president’s sentiments, if not his manner of expressing them. Of course, that was before the administration forgot that OBL was not in Iraq.

AB

P.S. Here’s another, less serious, collection of Bush quotes.

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Open Source Politics

Kevin A. Hayden of ReachM High emailed me about a new 44 blogger blog called Open Source Politics. I’m traveling, so I haven’t had time to check it out yet, but with 44 bloggers there should be a steady stream of new content. It sounds like an interesting project, though there does seem to be some risk that it will be tough to manage.

AB

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A Warning, Not a Manual

Someone in the Office of Presidential Infallibility apparently doesn’t grasp the point of Orwell’s 1984. To wit, the revisionist insertion of “major” before the phrase “combat operations”; Rice’s incessant statement of facts that were known to be true before 1991 as if they were true in 2003; the “Program” program to change, after the fact, the reasons for war; and probably a few more I can’t think of right now.

The Party said that Oceania had never been in alliance with Eurasia. He, Winston Smith, knew that Oceania had been in alliance with Eurasia as short a time as four years ago. But where did that knowledge exist? Only in his own consciousness, which in any case must soon be annihilated. And if all others accepted the lie which the Party imposed—if all records told the same tale—then the lie passed into history and became truth. “Who controls the past,” ran the Party slogan, “controls the future: who controls the present controls the past.”

AB

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Only a matter of time…

I almost missed this little detail from the Washington Post:

North Korea startled international diplomats yesterday by threatening to test a nuclear weapon in response to perceived hostility from the Bush administration, a U.S. official said after the second day of six-nation talks in Beijing on North Korea’s nuclear program.

The Bush administration is currently (and very reluctantly) engaged in negotiations with North Korea to try to avert exactly this. Of course, this means that it won’t be long before we formally welcome North Korea into the nuclear club…

Anyone want to try to guess who in the US will benefit when North Korea openly goes nuclear?

Kash

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Uh Oh…

An article in this week’s Economist (subscription required to read the entire article) suggests that China may actually be getting closer to the point of revaluing the yuan than I thought when I wrote about this issue last week:

Time to worry about China’s strong economy, not just its weak currency

WHEN John Snow visits Beijing on September 2nd and 3rd he will ride into town on a Harley-Davidson—in spirit, if not reality. As America’s Treasury secretary promised workers at the motorcycle maker’s Milwaukee factory earlier this month, the main purpose of his trip is to talk tough with his hosts about China’s currency. In the eyes of America, as well as Japan, South Korea and a host of other nations, an undervalued yuan is unfairly boosting Chinese exports and leading to lost jobs at home.

America’s attempted strong-arm tactics over the exchange rate are proving a nuisance for the Chinese government by encouraging inflows of “hot money” that are a bet that the yuan will soon be revalued…

The broad money supply surged by 21% in the year to July, the fastest rate of growth for five years (see chart), causing the PBOC to give warning of “an excessive increase” in lending. Total loans by financial institutions hit 525 billion yuan, up 71% year on year. Investment in fixed assets was nearly a third higher in the first seven months of 2003 than in the same period of 2002.

A booming money supply can indicate that higher inflation is on the way. That may seem odd in China, which spent much of last year struggling against deflation and where the consumer-price inflation rate is still only 0.5%. For the time being, likelier problems are roaring asset prices and a further increase in China’s already enormous bad-debt problems, fuelled by ill-considered lending. The signs are already there. Car sales [are] up 82% in the first half of the year and prices of luxury properties in Shanghai [have soared] 172% over the same period…

Policymakers are reacting. Verbal admonishments to rein in lending, especially to property developers, proved ineffective. So on August 23rd the central bank raised its reserve requirements for financial institutions from 6% to 7%, forcing banks to keep more money on deposit with it. The PBOC estimates that this move will drain 150 billion yuan from the banking system, checking lending and thus preventing another build-up of bad loans. In China’s financial system, says Nicholas Lardy of the Institute for International Economics in Washington, DC, 31.4% of loans—equivalent to 44.6% of GDP—were non-performing at the end of 2002.

This is a lose-lose situation. If the Chinese gov’t is serious about cooling their economy, a next logical step is to revalue the yuan against the dollar (i.e. make the yuan stronger/dollar weaker). This will have serious economic repercussions, a lot of them negative, especially if the revaluation isn’t managed extremely well. My prediction is that a revaluation that’s even slightly sloppy will usher in a period of significant volatility in the international financial world, as well as in US asset (i.e. stock and bond) markets.

On the other hand, if there is a banking-sector meltdown in China, then the Chinese gov’t will not want to revalue (the cheap yuan keeps exports growing), but the Chinese economy could then be in for some serious trouble more generally. China is now the world’s third largest economy after the U.S. and Japan, so if China’s economy goes, the rest of Asia will go, and this will be a big problem for the world economy.

One bit of history: the last time the Chinese changed their exchange rate was in 1994. Within three years this had lead, more or less directly, to the East Asian financial crisis. I’m not saying that the sky is falling… but I would definitely advise you to keep your eyes on this issue over the next year. By the way, when the Chinese DO revalue the yuan, expect interest rates in the U.S. to take a pretty serious step up.

Kash

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Iraq WMD Exaggerations: Casualty #1

It looks like Tony Blair’s right hand man (people call him Blair’s Karl Rove) is the first major political casualty of the Bush/Blair WMD exaggerations:

LONDON (AP) — Prime Minister Tony Blair’s powerful communications chief, Alastair Campbell, a central figure in the controversy over whether Britain exaggerated Iraq’s weapons threat to justify war, will resign, Blair’s office said Friday.

No date was set for Campbell’s departure and his successor was not named, the prime minister’s office said. Campbell said in his resignation statement he intended to step down in “a few weeks” for family reasons.

Campbell was at the center of media allegations that Blair’s office exaggerated the threat posed by Iraqi weapons in an intelligence dossier used to win support for military action against Iraq.

Of course, David Kelley was a much more serious and tragic casualty in this mess, but it’s nice to see at least one deserving head rolling over this. So far.

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