Follow The Money–It’s Going To China

February 19, 2010 by admin | Filed Under Asia, Barack Obama, China, Cold War, Economic issues, George W. Bush, History, International Affairs, Middle East, Money, National Security, Nixon Administration, Obama administration, Presidents, Richard Nixon, U.S. History | 1 Comment 

The other day, President Barack Obama met with the Tibetan Dali Lama in the White House—doing so in the Map Room as opposed to the Oval Office in an apparent attempt to mute any “official” aura for the meeting. It was sort of like trying to kowtow to one audience while powwowing with another. Likely the nuance was lost on the government in Beijing. Of course, past presidents have received the Tibetan leader—a man who has become a symbol for freedom and a persistent reminder of the oppression of his people at the hands of the Chinese regime.

It was 38 years ago this week that President Richard Nixon played the historic China Card—a geopolitical masterstroke during the Cold War. It was all part of a strategic view of the world and effectuated from a position of strength. We were powerful; they were backward—technologically, culturally, and with obvious political deficiencies. That moment remains a high water mark in Nixon’s presidency—a moment in time that even the most determined critics concede positively to his legacy.

But what would Mr. Nixon think now?

These days, admittedly, the whole issue of U.S.-China relations is a sticky one for our current President. It is one of many examples of how different things are when you are governing as opposed to campaigning for office—although it is hard to tell which is which in Washington these days. Mario Cuomo famously talked years ago about politics being “poetry” and governing “prose.”

Dealing with potential adversaries—and even some friends—is always best when you do so from a position of strength. It’s true in military and national defense (“peace through strength”) and it’s true in economics, as well. The scriptures remind us, “The borrower is servant to the lender.” And when one party is deep in financial debt to another a certain measure of leverage is ceded to the lender.

How this dynamic will play out in the immediate future is anyone’s guess, but owing nearly $800 billion to the Chinese should raise a flag—a red one. And it should come as no surprise if and when those to whom we owe such copious amounts of money begin to squeeze us on the international stage.

President Obama has been making great pains to try to change our image before the world, one that he believes George W. Bush perpetuated and that has led to our virtual “blackball” by many nations. But in fact, what he really should be concerned about is not “blackball,” but rather “blackmail.” The Chinese dumped $45 billion of T-bills a couple of months ago—wave of the future? And why shouldn’t one nation operating out of its own interests use such leverage? We would.

In fact, we have.

In 1956, there were two hot spots with the potential of blowing up into World War III, a revolution in Hungary—and a crisis in the Middle East involving the Suez Canal. Seen now in hindsight against the backdrop of the Cold War and as the moment when the last vestiges of old world colonialism gave wave to complete bi-polar hegemony pitting the United States against the Soviets, the Suez Crisis was as much about the exercise of economic clout as it was a diplomatic-military affair.

Gamal Abdel Nassar had emerged as a leader in Egypt as part of a 1952 coup overthrowing King Farouk and by 1954 he was firmly in place as that nation’s maximum leader. He immediately undertook a complete transformation of his country with massive public works and the progressive nationalization of industry. He was enamored of the Soviet system and soon it became clear that his nation would be taking that side in the Cold War. One project near and dear to his heart was the building of the Aswan Dam, which America at first agreed to help fund. But when Nassar sold arms to Soviet satellite Czechoslovakia and then recognized the People’s Republic of China, U.S. Secretary of State John Foster Dulles withdrew our dam dollars.

In reaction to this, Nassar announced on July 26, 1956 a Nationalization Law freezing all the assets of the Suez Canal—in effect, a seizure of that vital passageway.

Opened in 1869, this 119-mile long man-made waterway connects the Mediterranean and Red Seas. Originally financed by the Egyptians and French, Britain became a major stakeholder and stockholder in 1875, and eventually the canal became part of the United Kingdom’s imperial portfolio in the region. Following World War II, and with the decline of the U.K.’s empire, the canal gradually became a diplomatic football—not to mention thorn. And the creation of the nation of Israel in 1948 caused tensions about the vital waterway to further increase.

In the aftermath of Nassar’s July 26 speech, Britain—led by Prime Minister Anthony Eden—and France, represented by Eden’s counterpart, Guy Mollet, began to plot how to ensure their access to the Suez Canal. Eventually, and in an alliance with Israel (a nation with the most to lose if the canal was closed to them), military action was planned and initiated.

Follow the money.

Meanwhile, the American President, Dwight D. Eisenhower, in the midst of a reelection bid, had already had a rough year in 1956—physically and politically. And shortly following election to a second term in the White House, he played some power politics of his own. Now, I should state here that I am not of the number in agreement with what he did in the Suez matter, anymore than I am about how we abandoned the freedom fighters in Budapest earlier that summer. I am simply using this story to describe a reality in all of life and politics—like it or not.

There is a golden rule in geo-politics: He who has the gold makes the rule.

Mr. Eisenhower did not want Britain, France, and Israel—all stated allies of the United States—creating a situation that might not play well with the Soviets and that had the potential to instigate a larger war. Here was the hero of Normandy putting the pressure on British Prime Minister Eden—a man who had worked closely with Ike while serving in Churchill’s War Cabinet.

“The borrower is servant to the lender.”

To apply pressure on Eden’s government to cease and desist, Eisenhower instructed U.S. Treasury Secretary, George M. Humphrey, to begin to sell off some of our government’s British bonds. Some of these bonds were holdovers from the U.K.’s World War II debt; others had been sold to us to help that nation’s economy rebound after the war. Eden’s Chancellor of the Exchequer, future P.M. Harold Macmillan, told him that the results would be devastating to the British economy.

Checkmate.

Anthony Eden was a broken man. He fled to a vacation-exile in Jamaica, spending time at Ian Fleming’s (of James Bond literary fame) estate there, but his health quickly deteriorated. He was taking amphetamines—had been for years under doctor’s orders after a botched gall bladder operation—and the drugs magnified his problems with insomnia and unraveling mental health. Soon, Mr. Macmillan took over at 10 Downing Street, but by then the Suez episode had hastened the sunset on the British Empire—and the Cold War morphed from a multi-national tag-team match into a virtual two-nation standoff.

Follow the money.

We are potentially in big trouble as a nation. Our security is threatened not only by Islamist terrorism—but also by some who have a lien on our title deed. Certainly, throughout our history we have dealt with nations and regimes in pragmatic and realpolitik ways, even having to hold our collective noses because of the stench of tyranny and oppression on the part of some of our momentary allies in a larger cause. But we have managed, for the most part, to deal with it—ugliness and all—because of the ability to approach everything from a position of strength: morally, militarily, and economically.

Now though, we not only depend on others for much of our energy, but we also owe an astronomical amount of money (the interest alone is unfathomable) to powerful entities. We should not be surprised that other nations no longer dance on cue—nor should we ever be surprised if and when some big bills come due with humiliating strings attached.

Or worse.

Just Another Word For Something Left To Lose

March 26, 2009 by Frank Gannon | Filed Under Money, U.S. History, War on Terror | Leave a Comment 

Back in the day, Kris Kristofferson famously wrote that “Freedom’s just another word for nothing left to lose.”

In 2009 the builders of the 1776 foot high Freedom Tower slated to replace the fallen World Trade Center buildings at Ground Zero in New York, have apparently decided that they have something to lose if “Freedom” in the property’s name has a chilling effect on the property’s leasing prospects.  

When the plans for the Tower were first unveiled, New York Governor George Pataki proclaimed: ”We will build it to show the world that freedom will always triumph over terror.  This is not just a building. This is a symbol of New York. This is a symbol of America. This is a symbol of freedom.”

But then was then and now is now and business is business, and the name One World Trace Center is deemed to have more commercial caché.  

Tom Topousis reported the story in the New York Post:

Freedom is so passé at Ground Zero.

Once hailed as a beacon of rebirth in the aftermath of the Sept. 11 terror attacks, the Freedom Tower’s patriotic name has been swapped out for the more marketable One World Trade Center, officials at the Port Authority conceded today.

But more than seven years after the terror attacks and amid an effort to market the iconic tower to international tenants, sentiment gave way to practicality.

“As we market the building, we will ensure that the building is presented in the best possible way,” said Port Authority Chairman Anthony Coscia.

“One World Trade center is its address. It’s the address that we’re using. Its on the one that’s easiest for people to identify with and frankly we’ve gotten a very interested and warm reception to it.”

Port Authority officials addressed the name change after signing a lease with the Chinese firm, Vantone Industrial, which is the first private tenant to take space in the 2.6 million square foot tower. Vantone will lease 190,000 square feet over six floors.

Ground was broken on Freedom Tower One World Trade Center in 2006.  It is expected to reach roof level next year and top out in 2011.  The opening date is still projected for 9/11/11 — the 10th Anniversary of the 2001 attack. “

Stewart Vs Cramer: The Latest Round

March 14, 2009 by Robert Nedelkoff | Filed Under Economic issues, Media, Money, News media, TV News Personalities, economy | 3 Comments 

Earlier this week, as noted in TNN’s Featured Articles section, Jim Cramer of CNBC wrote a column for Mainstreet.com defending himself from criticisms leveled by The Daily Show’s Jon Stewart regarding the overly rosy economic forecasts he made in the year before the bankruptcy of Lehman Brothers heralded economic collapse across the board – a year which, our leading economists tell us, actually represented the opening phase in the ongoing recession.

Stewart’s response was to have Cramer on his show last Thursday. The host grilled his guest for over 20 brutal minutes, in a performance many have since compared with Mike Wallace in his heyday. Clips from the show have been flooding Youtube and other sites ever since, and Stewart’s skewering of CNBC’s hosts has been getting more media attention by the hour. Here are two representative examples from Washington Post media reporter Howard Kurtz and David Bauder of the Associated Press. The AP story includes two rather telling quotes:

[...] Don Hodges, chairman of Hodges Capital Management in Dallas, said he doesn’t fault CNBC for not seeing the bust coming.

“I’m not sure that anybody had seen it coming,” he said. “I’ve listened to all of the so-called experts, and it’s obvious that everybody is very confused.”

You don’t say. And:

“Stewart’s a comedian and Cramer is a showman,” said Robert Howell, professor at Dartmouth University’s Tuck School of Business. “If anybody takes seriously anything that (Cramer) says, they’re stupid.”

This might be a worthwhile question for opinion polls: what percentage of Americans made their investments in the last few years based on what Jim Cramer said? Or Maria Bartiromo or Carl Quintanilla, the other targets of Stewart’s wrath? Or, Heaven forfend, Suze Orman?

Are Better Angels All Socialists?

February 20, 2009 by David R. Stokes | Filed Under American Politics, Barack Obama, Economic issues, Ethics, Faith, Lifestyle, Money, Religion, economy | Leave a Comment 

G. K. Chesterton used to say that the idea of “original sin” was “a fact as practical as potatoes” and “the only part of Christian theology which can really be proved.”

As the nation-at-large wrestles with monumental problems, there are many who advocate strategies that rely on what is often referred to liberally as “the essential goodness of people.” The idea being that given a fair choice and level playing field people will generally do the right thing.

As Dr. Phil might ask: “How’s that working for you?”

I certainly believe people can rise up and do good things following what President Barack Obama, quoting Abraham Lincoln, is fond of calling our “better angels.” But the truth is that the default position of human behavior actually falls short of the ideal. Various forms of theology explain this propensity in terms of “original sin” or “total depravity” – that we are wired with a spiritual-genetic flaw.

In other words, the very suggestion of the existence of “better angels” in our nature implies other “less-than-better angels” – putting it mildly; or maybe “fallen angels.” The mention of better begs the question: “Better than what?”

Some people will dismiss this kind of thinking as puritanical. But it’s sort of like a paraphrase of that old Marxist line (Groucho, not Karl): Are you going to believe them or your own two eyes? Empirical evidence abounds that people tend to follow paths of least resistance and worse.

We are in this mess now because many people either made unwise choices (rejecting personal responsibility or deferred gratification), or they were manipulated and deceived by predators. Others on a certain street in lower Manhattan exploited everything. All of this while Barney Frank kept an eye on things. Clearly, any angels in attendance weren’t of the “better” variety.

People harm and take advantage of others because it is part of human nature. People pollute the planet because it is part of human nature. People lie, cheat, steal, and commit adultery, because humans (all of us) are sinners. And sometimes a toxic storm is at work in a life and monsters emerge to do despicable things. We are tempted to call them insane, and maybe they are by some psychological standard, but they are also very depraved.

All sins great and small flow from the same polluted human nature stream, whether they are grave and life destroying in our eyes or relatively excusable in today’s “I-did-it-because-I-am-a-victim” world. The lack of integrity that leads some to break a vital covenant and others to commit abhorrent crimes are connected to the same ugly ancestral disorder.

For example, we are witnessing a surge in bank foreclosures and people are losing homes. What is being little noticed though, is that while it is true some have lost jobs and can’t pay, there are cases where some who really could pay have stopped making payments and are deciding to walk away unless the government makes it easier for them. The home is now “less attractive” than it once was as an investment. Some are walking away only because they are upside down – not because they really can’t pay.

Stay tuned taxpayers. Keep your eyes on the funds and mechanisms as they become available to help people catch up on, or renegotiate, mortgages. I predict that some people will still simply choose to walk away, in spite of help available, because their homes just won’t be worth it in their eyes. In many cases, it may be more about the value of a home than the ability to pay.

Won’t it be interesting if money to help some people “stay in their homes” winds up going unused because, when it comes right down to it, they don’t really want to stay after all? Is being behind on payments the big problem (certainly it is for some), or is being upside down the big deal? There is a difference between catching up and getting out from under.

Upside down may be becoming an excuse to move from inside out.

In many places there is a scenario called “buy and bail.” This is where someone buys a new – cheaper – home, while still in the original dwelling. Then once the deal is done – they walk away from the first, more expensive home. Admittedly, this practice is not widespread now, largely because some states have cracked down on it.

What we do know is this, when homes go empty for whatever reason it hurts everyone who is trying to really play by the rules and keep their word. Upside down/walk away homes on an already depressed market contribute to the downward spiral of home values and prices – damaging those who believe that when they signed the mortgage they made not only a financial commitment, but a moral one as well.

If liberal-bail-out-advocates really believe in the “greater good” and “spreading the wealth,” they might want to consider that the wealth they want to redistribute is actually disappearing because of the “help” they are providing. People who made bad choices in the first place are being encouraged to continue doing things that hurt everyone. How is this about the greater good?

While we are trying to figure all this out, we meet a lady named Nadya Suleman. She recently gave birth to eight children. She’s been all over the news and now we hear she is looking at a new million-dollar-plus-pad for her growing family. I haven’t figured out whether she is a caricature or a metaphor. Maybe she’s both.

Of course, the Suleman story is objectionable and infuriating to us on so many levels because she clearly seems to be deranged. Or maybe she is just depraved. Maybe she is a manipulative, scheming, deceiver, who is thinking only of self. I am not trying to bash the lady – that line is really too long.

After all, if OctoMom, as she has been dubbed, is indeed trying to “work the system” with the mother of all scams (literally), is she really all that different from many others right now? I’m talking about those who are already slowing down on the personal responsibility side of things because we have a cool new government in place ready to stimulate all of us. Nadya Suleman may be more like the not-too-distant future of America than we might care or dare to admit.

Here’s where “original sin” comes in. Like it or not, we all bear a moral-DNA similarity to OctoMom, in the sense that we have this natural propensity to be selfish and deceitful. It is only as this part of us is restrained (by law, fear, inspiration, or love) or transformed (by grace – or, if you prefer, “a higher power”), that we can function in any effective social-contract sense.

Russian novelist Fyodor Dostoevsky said, “If there is no God, everything is permissible.”

There is a lot of talk these days about America becoming socialist and more like Europe. What needs to be noticed is that these trends not only have to do with the size and role of government, but also speak about a culture moving toward dominant secularism and sterile religion.

I ate at a restaurant the other day in Manhattan. It was in a beautiful building that had once been a thriving church. It was a church; now it is an eatery. Then I thought about how so many of the churches in Europe function basically as museums, if at all. Is this where we are headed?

One of the basic differences between socialism and capitalism as they manifest themselves in social, cultural, political, and even religious senses, is that the former believes in the essential goodness of humanity. On the other hand, capitalism tends to be more realistic about basic human nature and works to channel that “self-interest” in ways that can lead to something better for everyone.

Of course, human nature is at fault in runaway capitalism and the excesses of a few can be detrimental to many. This is why very few conservatives these days advocate a radical form of laissez-faire capitalism. Human nature will take advantage and there have to be times of balance, judgment, adjustment, and reckoning.

Somebody does have to watch the store. But the store should be privately owned.

The thing Americans need to be thinking through these days is, however, what system has a better overall record? Is it really better in France, Sweden, or Denmark than America today? Do we really want to admire nations where people surrender significantly more than half of what they earn to a government in exchange for state-run services that are chronically insufficient, incompetent, and impersonal?

If so, then we need to be fair and concede that, as Pogo might have put it, we have met Nadya Suleman and she is our future.

The Stimulus: Yes We Can’t

February 13, 2009 by David R. Stokes | Filed Under American Politics, Barack Obama, Democratic Party, Economic issues, History, Money, Republican Party, U.S. History, economy | 5 Comments 

Addressing the Democratic Party faithful last week in Williamsburg, Virginia, President Barack Obama brought the house down with a now-famous bit of political sarcasm about the stimulus package now emerging from the congressional laws-and-sausages-making mill. He mocked some who have been characterizing it as merely a “spending bill” with the question, “What do you think a stimulus is? That’s the whole point.” Then as the audience burst into laughter and applause (one could almost hear a Ralph Kramden-like “Har Har Hardy Har Har”), he added, “No, seriously, that’s the point.”

Seriously? Really?

These days it is accepted as gospel that government spending, spending, and more spending is the cure for America’s economic ills. Accordingly, still basking in the glow of an impressive victory last November, Democrats are gleefully using the cover of the current crisis to exact generational revenge on the politics and policies of those who decried big government in the past. Leaders such as Ronald Reagan and even, ironically, Bill Clinton who famously said the “era of big government is over” during his days in the Oval Office.

The president himself talked during his inaugural address about no longer wanting to define government as too big or small. He promoted a new standard; that being simply: “Does it work?” Well, if more is inherently better, then we are on the threshold of a golden age promising 17 chickens in every pot, with the pot itself made of gold, and a colorful rainbow not too far away. Of course, rainbows are all image with no substance.

Is unleashed and unprecedented government spending a stimulus to the economy as a whole, or does it just grow the government? Is the real plan for all of us to become more and more addicted to the toxic drug of statism? When Gerald Ford traveled around the country giving speeches as a congressman, vice-president, and ultimately president, one of his few memorable lines (he was not known for his oratory) was that “a government big enough to give you everything you want is a government big enough to take from you everything you have.”

Okay, so Ford was no Lincoln – but he did have a point. We all know the phrase “it comes with strings attached,” meaning that there are times when receiving something can have dire, if sometimes deferred, consequences. Well, those stimulus strings are beginning to look a lot like piano wire.

I think all the talk of “doom and gloom” is not misguided; it’s misdirected. A catastrophe will not result from a failure to inject a trillion dollars of government spending into a struggling economy. The thing we should really fear is the fallout from a toxic overdose of federal dollars. If our economy actually survives the euphoric rush of a stimulus-driven high, it will just be a matter of time before an emerging majority of strung out neo-socialist junkies will be clamoring for another fix.

The fact is, there is no empirical evidence that massive government spending stimulates anything except massive government growth. Is anyone noticing that while unemployment nationwide is now at well over 7% – with some of the harder hit areas at twice that – that the bedroom counties around Washington, D.C. report jobless rates ranging from 1.9% in Arlington County to 2.1% in Fairfax County?

Guess what the big industry is in the area? Really, can you guess?

As Mitt Romney has been talking a lot about recently, the Obama spending bill would stimulate the government, not the economy. No matter how you view economics, it is simply true that funding for new and exponential government spending has to come from somewhere.

It can come via taxation. In the best-case scenario, the gain to the taxpayer is theoretically equal to the tax paid – which begs the question, why take it just to give it back? Of course, most taxpayers won’t get it back dollar for dollar because of “overhead” (or in the government’s case “big giant head”) and the fact that so many really nifty programs will be funded. Not to mention, the earth will cool down dramatically.

Awesome.

Additionally, in a “we’ll get the money from taxation” model, it’s hard to envision an expense so unprecedented to even be possible without tax increases coming from somewhere (better: someone). And there seems to be near universal agreement that raising taxes in a recession is just plain dumb. Therefore, congress will probably raise our taxes in the near future.

Another way to finance the mother of all stimulus packages is to borrow the money. But this would dramatically increase the demand on the lending mechanisms in the country; this at a time when credit is already pretty much paralyzed. One result of this could be a return to rising interest rates – certainly no stimulus there. The Japanese government tried this in the 1990s, yet the economy did not recover.

The third way for government to find a trillion or so dollars to save us all would be to create money. They could do so “ex nihilo” – from the Latin meaning “out of nothing” (often used by those of us who believe God created all things, pardon this awkward insertion at a time when all amoebas mark Darwin’s 200th birthday). However, absent any U.S. department of alchemy (wait – that would be making something out of something – oh well, you get my drift), the best the government could do is to print more money, possibly finding a place to put “yes we can” on the new currency.

Most economists admit that just printing money would be dramatically inflationary. No stimulus there, either.

Here’s a better idea – one that I know would really help working people in this country, as well as stimulating businesses to hire new workers. Simply declare a 90-day moratorium on the payroll tax, thus putting real money into the hands of those who earned it in the first place. Don’t take it away and then try to find clever ways to trickle it back. Leave it with “we the people.”

Someone might argue, “But what will government do? How will they fund all the programs?” Well, they were going to have to borrow money in the first place for the stimulus. Three months won’t break the bank – heck, the government has wasted that much of our money on wacky ideas before. But it might just be enough time for American workers to start really stimulating the economy themselves. Novel idea, huh?

It would save trees (no government checks), cut down on electricity (for electronic fund transfers), save money for the post office, and create real jobs the way real jobs are created – by private businesses. And if it meant that some federal employees would have little to do during the duration of this experiment, maybe they could work on the nation’s infrastructure – or the area around the Jefferson Memorial.

There might be a downside, though. If it worked too well, many current members of congress might find themselves out of work in two years. That would be just sad.

Speaking of Thomas Jefferson, I am sure some reading this are preparing to correct me about that Gerald Ford quote – thinking it goes back to Jefferson. But it really doesn’t. Here’s one that does, though, from his inaugural address on March 4, 1801:

Still one thing more, fellow citizens: a wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government…

One thing for sure – the number of Democrats in America using this Jeffersonian nugget during recent Jefferson-Jackson Day festivities was less than the number of Republicans voting for the so-called stimulus package.

Ill Winds Blow No Good

January 28, 2009 by Frank Gannon | Filed Under Culture, Ethics, Faith, History, In Memoriam, Money, Music, Perfect Songs | Leave a Comment 

OK — the Co-operative Group has a long, distinguished, and principled history since its founding in 1863. Sure — it’s green and enlightened. No doubt — it can see you sustainably through from cradle to grave.

But it is now complicit in an indignity of almost unimaginable proportions — in which it will be aided and abetted by the most unlikely co-conspirator.

The bad news is reported in today’s Daily Telegraph.  Read it and weep:

In a commercial tie-up that might shock Dylan fans almost as much as his famous switch from acoustic to electric, he has agreed the use of the track in a new ad for the Co-operative Group.

The ad campaign is the culmination of a two-year rebranding exercise by the group, which runs funeral, travel and legal services as well as a chain of supermarkets.

It is the first time Dylan has allowed one of his recordings to be used for an advert in the UK.

The philosophical questions the 1960s protest anthem poses about war, peace and freedom and the fuzzy, vaguely optimistic refrain it gives in response – “the answer is blowin’ in the wind” – made it a favourite of civil rights and anti-Vietnam war protests in the 1960s and 70s.

Blowin’ In The Wind was originally released in 1963 on the album The Freewheelin’ Bob Dylan, and Rolling Stone magazine put it 14th on its list of the 500 greatest songs of all time.

The Co-op runs its business according to ethical guidelines on environmental impact, fair trade and social responsibility, and a spokesman for Dylan’s record label, Columbia, said this influenced his decision to approve the use of the song.

As of today, 28 January 2009, we have the answer to the age old question: Is nothing sacred?

The answer is: No.

Now is the time for your tears.

FDR and the Great Deflation

October 4, 2008 by David R. Stokes | Filed Under American Politics, Book Review, Democratic Party, Domestic issues, Economic issues, History, Money, Political Philosophy, Presidents, Republican Party, U.S. History | Leave a Comment 

The period between late 1929 and the beginning of the 1940s is, of course, known as the Great Depression. But in a real sense, it could be called the Great Depressions. There was more than one massive downturn in all things economic during those days of deprivation.

Five years after Franklin Delano Roosevelt spoke so eloquently about “fear itself” – and then began to fulfill his promise of “experimentation” (as opposed to an actual plan), things were really no better than the day he took office. His “hundred days” of frenetic legislation gave way to years of false starts and faded hopes.

In early 1938, unemployment was at the 1931 level of 17.4 % and the Dow Industrial Average – at 121 – was still less than half of its 1929 high. The Dow would not actually return to pre-crash levels until Dwight D. Eisenhower was well into his first presidential term.

Amity Shlaes, in her fascinating book – a must read these days – The Forgotten Man: A New History of the Great Depression, gives us a snapshot of the situation half a decade into the politics, policies, and promises of the New Deal:

The country was now at an odd moment. There was a new sense of permanence about the Depression. Being poor was no longer a passing event – it was beginning to seem like a way of life.

What started as a panic in 1929 soon morphed into something more sinister, deadly, and often overlooked: deflation. As money became scarcer, prices fell. Declining prices, if allowed to continue for long, tend to lead to a dangerous downward spiral of negatives – things like falling profits, closing businesses and factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals.

Deflation is the monster – the category 5 economic storm – to watch out for and guard against.

Early on during the Great Depression, housing values, though not starting the problem, became a leading indicator of the severity of the crisis. As prices moved down, homeowners found themselves with homes worth less than the mortgage amount. This led to a deflationary meltdown.

Sound familiar?

There are two knee-jerk things that both Herbert Hoover and Franklin Roosevelt did that actually ensured that the Depression would have a long run. First, Hoover stifled free trade when he, against the advice of many economists and business leaders, signed a protectionist tariff (Smoot-Hawley) bill. He ignored doomsday warnings that this “would spell economic isolation” and lead to the “most severe depression ever experienced.” Sadly, those warnings came true.

And both Hoover and Roosevelt fought the Depression by raising taxes.

Mr. Hoover gave us the Revenue Act of 1932, which burdened people already having a hard time holding on to homes and making ends meet. With deflation, dollars were worth more, so the government was taking these increasingly rare and more valuable dollars out of the hands of the people, in many cases sealing their financial doom.

Franklin Roosevelt wanted to change society through tax policy. He seldom met a tax he didn’t like. The president clearly cultivated his image as an enemy of the “great accumulation of wealth” and the protector of the “people” from corporations, utilities, and other usual suspects who become convenient rhetorical targets during times of economic crisis and confusion.

As the Great Depression lingered, Americans languished. Washington tended to do the wrong thing at the wrong time. As people watched the president, with a complicit Congress, raise taxes they wondered: “With business so hard, why make it harder?”

Conventional historical wisdom – the legend and lore of days gone by – suggests that Hoover was a “do-nothing” president who fiddled (better: fished) while the country burned. Then came Roosevelt on his white horse – a man of action (like his distant relative who also served as president). He saved the nation – and everyone lived happily ever after until he had to save us again – from the Nazis.

But, as Shlaes points out, the two men actually had much in common:

Hoover and Roosevelt were alike in several regards. Both preferred to control events and people. Both underestimated the strength of the American economy. Both doubted its ability to right itself in a storm. Hoover mistrusted the stock market. Roosevelt mistrusted it more.

Both presidents overestimated the value of government planning.

And both men doctored the economy habitually. Hoover was a constitutionalist and took pains to intervene within the rules – but his interventions were substantial. Roosevelt cared little for constitutional niceties and believed they blocked progress. His remedies were on a greater scale and often inspired by socialist or fascist models abroad.

Deflation impacted the American worker the hardest. In times of even moderate inflation wages increase (along with prices). But during a deflationary cycle, wages either remain the same, or drop, or worse – disappear entirely. It brings to mind one of the more morbid sayings from those days: “The Depression isn’t that bad if you have a job.”

The fact is that the crash of 1929 did not cause the Great Depression – at least, not right away. The precipitating force triggering the cascading crisis that gripped the world back then was deflation, something that Hoover overlooked – and Roosevelt missed completely.

So – why, then, was FDR elected four times? Well, in 1932 he was just plain better at campaigning than President Hoover – and people were upset and wanted change.

In 1940, the storm clouds of war certainly worked in Roosevelt’s favor. And by 1944, the people were not going to vote a sitting president out of office during a time of war (bearing in mind that an overwhelming number of Americans supported the war effort).

1936, though, is an enigma. Amity Shlaes suggests that FDR invented a “new kind of interest-group politics.” Many Americans became part of a movement that “demanded something from government.” Also, the initiatives developed during Roosevelt’s first term increased federal spending. For the first time in our nation’s history the national government spent more than all the states combined.

And 1936 was really the first election year where federally driven entitlements – a persistent challenge ever since – were part of the national experience. Enter the politics of the trough.

In other words, Franklin Delano Roosevelt was successful because he convinced enough people he was trying to do something for them. The record shows that he did not really do all that much, but such facts tend to fall short when countered by a compelling narrative.

“Bold, persistent, experimentation,” that’s what Mr. Roosevelt promised on day one of his presidency. One wonders if anyone could be elected today by saying, in effect, “I will keep making stuff up until something works.” But FDR was actually that good at politics.

As an example of FDR’s experimental economic savvy, one day he announced to his staff that he was considering raising the price of an ounce of gold by twenty-one cents. When someone inquired as to the rational behind that figure the president replied: “because it’s three times seven. It’s a lucky number.”

Imagine what Oliver Stone could do with Franklin D. Roosevelt if he gave it a try.

TNN Weekly Weekend Reward

September 20, 2008 by Frank Gannon | Filed Under Money, Music, Weekly Weekend Reward | Leave a Comment 

This weekend’s Weekly Reward will explore some variations on a theme very much in the news and on our minds these days.

And that theme is: Money.

The best things in life are free
But you can keep them for the birds and bees
Give me money
That’s what I want.

Your lovin gives me a thrill
But your lovin don’t pay my bills
Give me money
That’s what I want.

Money don’t get everything its true
But what it don’t get I can’t use
Give me money
Lotsa money
That’s what I want.

This 1979 video (long enough ago for the typewriter to be used, along with the toaster and the teapot, as part of the household’s percussion session) is the work of a sadly long-defunct British techno new wave band called The Flying Lizards.  At one point they produced an album of deadpan covers of rock classics,in including James Brown’s “Sex Machine“, Jimi Hendrix’ “Purple Haze” and Barrett Strong’s “Money”. It’s reminiscent of Nico and the Velvet Underground — except, of course, Nico wasn’t kidding around — and who doesn’t love Nico?

I discovered the Lizards several months ago thanks to a dreadful movie that had worked its way to the top of my long Netflix queue.  By the time Lord of War staring Nicholas Cage as the Tony Montana of international arms dealers arrived in my mail box, I had long since forgotten how I heard of it or why I wanted to see it.   But it’s an ill flick that blows no good, and at least I discovered the Lizards’ “Money” on the soundtrack, and their albums are now in heavy rotation here on the Western Shore.

The song “Money” was written by Motown founder Berry Gordy and Janie Bradford, who was the record company’s receptionist, who was in high school at the time.  It was recorded in 1959 by one of Bradford’s classmates, Barrett Strong.  (Mr. Strong would become a Motown legend and the frequent lyricist for composer Norman Whitfield, who died last week.  Mr. Strong is now recovering from a stroke, and our warmest wishes go to him.)

Here’s Mr. Strong’s Ur-version of the song:

“Money” (from 1963’s With The Beatles) was one of the rock classics recorded by the Beatles on their early albums.

Money as the true international language was appreciated by Monty Python……….

……….and by John Kander and Fred Ebb in their song “Money Makes the World Go Round” written for the score of Cabaret — the musical based on Christopher Isherwood’s Berlin stories.  The film starred Liza Minelli as Sally Bowles and Joel Gray as the creepy Emcee of the Weimar-decadent Kit Kat Klub.

 

A more modern style of Cabaret (although the costuming remained pure Weimar) was represented by Cyndi Lauper in this performance of her 1984 hit “Money Changes Everything”. One thing Mlle. Lauper gave these Parisian concertgoers was their money’s worth.

 

She said, “I’m sorry baby, I’m leaving you tonight.
I found someone new — he’s waiting in the car outside.”
“Ah honey how could you do it?
We swore each other everlasting love.”
She said, “ Well yeah I know but when
We did–there was one thing we weren’t
Really thinking of and thats money–

Money changes everything
Money, money changes everything
We think we know what were doing
That don’t mean a thing
It’s all in the past now.
Money changes everything.”

They shake your hand and they smile
And they buy you a drink.
They say, “ We’ll be your friends.
We’ll stick with you till the end.”
Ah but everybody’s only
Looking out for themselves.
And you say, “Well, who can you trust?
Ill tell you its just
Nobody else’s money–

Money changes everything
Money changes everything
We think we know what were doing
We don’t pull the strings.
It’s all in the past now.
Money changes everything.

The song, written by Tom Gray, actually has a plaintive melody underneath the mercenary lyrics.  It received a more sedate and melodic countrified treatment when Ms. Lauder revisited it twenty-two years later on her 2006 unplugged album The Body Acoustic.

I’m very partial to Donna Summer’s 1983 disco-with-a-social-conscience feminist blue collar anthem “She Works Hard For The Money”, which she co-wrote with Michael Omartian.

 

The trove of money-related tunes is almost as inexhaustible as the Fed’s coffers.  Whatever your taste, there’s music to match it.

There’s Pink Floyd’s now-classic “Money” from 1973’s The Dark Side of the Moon; and Puff Daddy’s “It’s All About the Benjamins” from his 1996 album No Way Out.  Mr. Combs coopted the street slang for $100 bills (“”Benjamins” from the Founder’s portrait on the face) and created a pop culture-wide phrase.

And who could fail to be moved by former former British Tory Party Leader William Hague’s rendition of “If I Were A Rich Man” from Fiddler On The Roof. If only Mr. Hague (who was, I believe, Shadow Foreign Secretary at the time this recording was made) had been able to transfer his manifold musical and literary talents to his putative prime ministry — how different history might have been.  For some reason, Mr. Hague appears to channel Yogi Bear as he changes  Sheldon Harnick’s lyrics —”Yubby dibby dibby dibby dibby dibby dibby dum”  — to “Ya ba daba ya ba daba daba do”.  I assume it’s some kind of British thing and therefore best not to ask too many questions.

 

 

Debt Therapy

July 22, 2008 by David R. Stokes | Filed Under Lifestyle, Money | 1 Comment 

David Brooks has a great op-ed piece in this morning’s New York Times called The Culture of Debt. He discusses the tension between our desire to place blame during this current credit mess on predatory lenders on the one hand, and individuals making poor choices on the other. And he talks about how much our individual decisions are influence by “the patterns and norms of the world around them.”

Here are a couple of thoughts from the column:

“And now the reckoning has come. The turn in the market punishes many of those seduced by financial temptations. (Sometimes capitalism undermines the Puritan virtues, but sometimes it reinforces them.)”

And…

“After the Depression, a savings mentality set in. After the dot-com bubble, a bit of sobriety hit Silicon Valley. Now it’s the borrowers’ and lenders’ turn. As the saying goes: People don’t change when they see the light. They change when they feel the heat.”

Happy and Credulous — a Double Whammy

May 12, 2008 by Frank Gannon | Filed Under Money | Leave a Comment 

Alex J. Pollock, the AEI guru who deals with financial policy issues, has written (and very nicely) an interesting treatise on “The Human Foundations of Financial Risk”.

Mr. Pollock points out that the post-mortems conducted on financial bubbles usually focus on figuring out how the financial models that aided and abetted them turned out to be wrong or misleading. But such analyses ignore or overlook the purely human element —“the cumulative human forces of optimism, gullibility, short-term focus, genuine belief in momentum, extrapolation, of so-far-profitable speculations, group psychology, and increasing fraud”— that underpin economic activity. Such factors play their parts in the bubbles — so they must play their parts in the busts.

And it turns out that brainpower is no defense against human folly:

Although bubble behavior looks stupid in retrospect, many intelligent people get caught up in it–and later by it……Brilliant mathematical modelers and shrewd Wall Street bankers helped inflate the bubble of the early twenty-first century. Three hundred years before, among those entangled in the South Sea Bubble of 1720 was Isaac Newton, possibly the greatest genius in history. Newton sold his original investment in the South Sea Company for a 100 percent profit, but when the price continued to rise, he bought back in–and was stuck with a huge loss when the bubble turned to panic. Newton wrote in disgust, “I can calculate the motions of the heavenly bodies, but not the madness of people.”

It is both reassuring and depressing that Mr. Pollock’s bottom line is that there has neither been, nor is there likely soon to be, anything new under the sun. We can expect there to be bubbles and busts until human nature is repealed or perfected. But in the meantime at least two mistakes can be avoided. First, we can keep reminding ourselves to factor in the human element. Second, we can draw on past wisdom for present improvement.

Two paragraphs of Walter Bagehot’s great Lombard Street cannot be reread too often by financial actors and policymakers:

The mercantile community will have been unusually fortunate if during the period of rising prices it has not made great mistakes. Such a period naturally excites the sanguine and the ardent; they fancy that the prosperity they see will last always, that it is only the beginning of a greater prosperity. They altogether [and all together] over-estimate the demand. . . . They all in their degree–and the ablest and cleverest the most–work much more than they should, and trade far above their means. Every great crisis reveals the excessive speculations of many houses which no one before suspected, and which commonly indeed had not begun or carried very far those speculations, till they were tempted by the daily rise of price and the surrounding fever.

The good times of too high price almost always engender much fraud. All people are most credulous when they are most happy; and when much money has just been made, when some people are really making it, when most people think they are making it, there is a happy opportunity for ingenious mendacity. Almost everything will be believed for a little while.

This was true when published in 1873, is true in 2008, and will be true in the future. Bagehot’s insights should have to be signed each year by all officers of financial firms before they sign their annual ethics statements. For, as Bagehot also pointed out, “[t]he mistakes of a sanguine manager are far more to be dreaded than the theft of a dishonest manager.”