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

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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MTV Video Music Awards

I didn’t watch them, but skimming the news I can’t help wondering how many Google hits I’d get if I were to post the words “Madonna”, “Britney Spears”, and “kiss”. Nah, that’s too cheesy.

AB

(Frustrated Googlers, click here to find what you’re looking for. See also here.) But before you leave, check out this table comparing GDP growth under Clinton to the dismal economic performance under Bush. Rock the vote.

Real GDP
Growth
Period
2.65% 92-93
4.04% 93-94
2.67% 94-95
3.57% 95-96
4.43% 96-97
4.28% 97-98
4.11% 98-99
3.75% 99-00
0.25% 00-01

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Kurtz and Franken

Howie Kurtz has a lengthy piece on Franken and his book today; it’s partly a summary of Franken’s charges and partly an interview of Franken (there’s little by way of addressing whether the charges have merit, which is a rather weak showing for a star media analyst). On balance, my fair opinion is that Kurtz’s piece is remarkably fair and balanced. Here’s my favorite tidbit:

Franken doesn’t merely denounce conservatives. He harasses them, provokes them, gets right up in their faces. He once called up National Review Editor Rich Lowry and challenged him to a fight in a parking garage. Lowry declined.

“Comedians who aren’t funny have to try to become political spokesmen — thus Al Franken’s new career,” Lowry said yesterday. “But if I said I was unhappy that such an ill-informed and unpleasant man is emerging as a Democratic Party spokesman, I’d be lying.”

All this time I thought that comedians who aren’t funny were called waiters. Also, I challenge anyone to watch the Stuart Smalley skit with Michael Jordan and not laugh.

AB

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Reasonably Good News

From Reuters,

Gross domestic product, or GDP, grew at a revised 3.1 percent in the second three months of the year, the government said before the open. That was up from the 2.4 percent rise estimated a month ago and slightly above Wall Street expectations for a 3.0 percent gain.

AB

UPDATE: Leave it to Kevin to rain on the parade.

UPDATE: See also General Glut, who ballparks the GDP growth in the absense of the surge in military spending at 2.2%–decent, but not great. For comparison (and a reminder of how good the economy was under Clinton), I grabbed Real GDP growth numbers for 92-93 to 00-01 from the Economic Report of the President:

Real GDP
Growth
Period
2.65% 92-93
4.04% 93-94
2.67% 94-95
3.57% 95-96
4.43% 96-97
4.28% 97-98
4.11% 98-99
3.75% 99-00
0.25% 00-01

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Update on “It’s because they’re stupid, that’s why. That’s why everybody does everything.”

Just click here. As some might say, Jeebus. (For context on the title of this post, click here).

AB

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Leave No Fraudulent Statistics Behind

A while back, Education Secretary Rod Paige made the news because Houston high schools, Sharpstown High School in particular, were caught faking drop out rates. Now, via Susan Nunes, I see that Houston high schools are also lying about how many of their students plan to go to college:

Across town, Davis High School, where students averaged a combined SAT score of 791 out of a possible 1600 in 1998, reported that every last one of its graduates that year planned to go to college.

Now “plan” is a vague, almost Clintonian Rovian word, but even so, the 100% figure is surely a lie:

At Davis High, for instance, comparison with test scores and records from the Higher Education Coordinating Board, which tracks students who enroll in public colleges and universities in Texas, suggested that not 100 percent, but less than half of Davis’s 1998 graduates enrolled in the state’s two- or four-year institutions of higher education, which generally absorb the great majority of college-bound graduates, particularly from poorer high schools.

I can believe that every student answered that “they would like to have a college scholarship,” but that’s not quite the same.

Paige was elevated from Superintendent of the Houston Independent School District to Secretary of the Department of Education based on the allegedly stellar results of Houston schools under his watch. In fact, the Texas system became the model for the No Child Left Behind Act. Like so much else with this administration, upon closer inspection the success morphs into smoke, mirrors, fraud, and lies. Also like much else with this administration, much of the truth was known beforehand, but severely under-publicized.

AB

P.S. Susan also links to this unusual story (though she does say “For those who love conspiracy theories”).

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Angry Bear Traffic Tops 100,000 Per Day

That, of course, is only on a pro forma basis. Ezra Klein at NotGeniuses has an interesting theory:

What I’m trying to get is that in terms of sheer effect, 5 blog readers, due to how specialized and specific the medium is, equal thousands of Washington Post readers in net effect in the political world. You can bet your ass every campaign right now is keeping a watch on the blogs and the CW that emerges from them, and that makes blogs more powerful than they seem.

I agree entirely that blog readers are a self-selected group of political junkies. And I guess any group that consists disproportionately of political junkies probably also includes a few political bigwigs or freinds thereof. So I don’t dismiss Klein’s theory entirely, but I do often feel that blogs are primarily one giant echo chamber, daily ministrations to the choir.

So, assuming my comments work today, some questions for blog readers:

  1. Has reading blogs changed any of your views? If you can pin it down, which blog? If you remember the post, cite and/or explain.
  2. Has blog reading encouraged you to donate time or money that you otherwise would not have? If so, to what and why?
  3. Even if you view each individual blog as insignificant, do they, taken as a whole, have an effect on politics?

If the comments are not working, then send me an email and I’ll write a post or two giving the highlights. My guess at the moment is that #2 is where the best hope for blogs lie.

AB

P.S. Try to keep references to anyone named “Lott” to a minimum.

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