A week or so ago, I mentioned the fact that Russia was lobbying for a new international currency to replace the dollar and opined that it most likely wouldn’t have any legs. By itself, Russia just didn’t have enough clout to bring about such a change. But apparently Russia was only the beginning. Later that same week, the UN came out in favor of a new currency option:
A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.
Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.
Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.
“It is a good moment to move to a shared reserve currency,” he said.
But does the UN have enough leverage to push something like this through? Probably not without some fairly powerful backers of the idea. And speaking strictly of the UN, any such proposal would have to pass through the Security Council, and it’s unlikely the US would sanction such a change.
Today, though, China came out in favor of doing exactly what Russia and the UN recommend:
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.
As was noted last week, China has some concerns about the US economy:
“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.
And that’s a valid concern. With the Fed pumping out trillions of freshly printed dollars, inflation is almost assured.
In case you haven’t noticed, Russia and China are two of the four countries known as BRIC (Brazil, Russia, India, China). These emerging economies feel they deserve more clout than they now enjoy. And they’re meeting in advance of the upcoming G20 meeting in April of this year:
Finance ministers and central bankers from Brazil, Russia, India and China will convene ahead of the Group of 20 finance chiefs’ meeting in London on Friday, a Russian delegation source told Reuters on Thursday.
The source said the four will discuss the reform of international financial organizations such as the International Monetary Fund and the Financial Stability Forum, anti-crisis policies and preparations for the G20 summit in April.
Take a look again at China’s proposal for basing the international reserve currency in the IMF and the topic of their upcoming meeting in advance of the G20. Suddenly Russia’s proposal has some legs.
What clout does BRIC bring to the proposal? Well they are the holders of vast portions of the currency reserves around the world:
China runs the world’s biggest reserves, Russia comes 3rd, India 4th and Brazil 7th, as of last autumn.
Keep an eye out for Brazil and India weighing in on this. Should they come out in favor of such a change, as has China, it could portend some fireworks at the G20.
In the meantime, read this by Mikkel Fishman. It will explain some of the deeper and less evident problems we face. Then take a moment to look around and reflect. In my estimation, this truly is the calm before the storm.
Michael Goodwin at the NY Daily News gives this assessment of Obama in a recent column:
He is the most radical President of our times, far outside the mainstream of our political philosophy.
He is not a reformer who fixes things. He fancies himself “transformative,” a man who reshapes and reorders. It apparently begins with smashing the existing order under the pretext of managing the crisis he inherited.
During the campaign, a fellow journalist confided that “I know Obama is a Manchurian candidate, I just can’t figure out what for.”
I laughed then, but no more. Obama represents a secular religion that believes, no matter the malady, Washington is the antidote. More government is the chicken soup of his tribe.
In those four sentences, Goodwin capsulizes the essence of Obama and the “secular religion” he heads. Apparently we finally have a theocracy in place.
A closer look at the recent problem with Mexico – when the Obama administration, without consultation ended the NAFTA agreement which allowed Mexican trucks the ability to deliver in the US – reveals the answer to the question in the title:
We speak of the Democratic Congress’s recent approval of a law, signed by Mr. Obama, that killed any chance that long-haul freight trucks from Mexico could operate in the United States, as had been promised under the North American Free Trade Agreement. Giving U.S. and Mexican trucks reciprocal access to each other’s markets would save fuel and money. An international arbitration panel has also found that the United States is legally required to let Mexican trucks in.
Yet the Teamsters union bitterly resisted, claiming that poorly regulated trucks from south of the border would be menaces on U.S. highways.
To meet legitimate safety concerns and this country’s legal obligations, the Bush administration promoted a pilot project under which Mexican trucks, screened by U.S. personnel, could operate freely within the United States. The Mexican trucks compiled a safety record comparable to that of American rigs. Almost everyone was happy with the deal — except the Teamsters, for whom economic turf rather than safety has always been paramount.
So we now know that it was a payoff to the Teamsters for their help during the election. Mexican trucks had met the safety concerns of the critics and compiled an excellent safety record in the US. Given that, how else do you explain a move which may end up costing us billions of dollars in agricultural exports to one of our major trading partners for no apparent legitimate reason?
It certainly seems to me that at least in this particular situation, political payback took precedence over what was best for America.
Hope and change.
Here’s an item which, in the midst of the financial crisis, will probably be overlooked and underreported. However, it has the potential to destroy any economic recovery should we ever get one rolling.
The Environmental Protection Agency sent a proposal to the White House on Friday finding that global warming is endangering the public’s health and welfare, according to several sources, a move that could have far-reaching implications for the nation’s economy and environment.
The proposal — which comes in response to a 2007 Supreme Court decision ordering EPA to consider whether carbon dioxide and other greenhouse gases should be regulated under the Clean Air Act — could lay the groundwork for nationwide measures to limit such emissions. It reverses one of the Bush administration’s landmark environmental decisions: In July 2008 then-EPA administrator Stephen Johnson rejected his scientific and technical staff’s recommendation and announced the agency would seek months of further public comment on the threat posed by global warming pollution.
“This is historic news,” said Frank O’Donnell, who heads the public watchdog group Clean Air Watch. “It will set the stage for the first-ever national limits on global warming pollution. And it is likely to help light a fire under Congress to get moving.”
Actually I prefer to think of it as the excuse the Democratic Congress has been looking for to implement cap-and-trade. “The Court has required the EPA to consider whether CO2 is a pollutant and the EPA has so declared – our hands are tied!” And in such a convenient way. Al Gore thanks you.
Naturally business interests are not at all happy with the development.
In December 2007 EPA submitted a written recommendation to the White House urging the Bush administration to allow EPA to state officially that global warming is a threat to human welfare. But senior White House officials refused to open the document and urged Johnson to reconsider, saying such a finding would trigger sweeping regulatory requirements under the 45-year-old Clean Air Act. An EPA analysis had found the move would cost utilities, automakers and others billions of dollars while also bringing benefits to other economic sectors.
Any guess as to which “economic sectors” EPA’s analysis says will “benefit” from sweeping regulatory requirements costing the utilities and automakers billions? My guess is they really don’t exist in any major form at this moment, and what does exist is chasing vaporware. But those millions of “green collar jobs” have to be funded somehow, don’t they?
But can you guess what else is lurking out there?
Our old friend, the “Law of Unintended Consequences”. Not only would every business in our land be effected, so would every “stimulus” project aimed at improving the infrastructure:
“This will mean that all infrastructure projects, including those under the president’s stimulus initiative, will be subject to environmental review for greenhouse gases. Since not one of the projects has been subjected to that review, it is possible that the projects under the stimulus initiative will cease. This will be devastating to the economy.”
Some of the defenders of all of this will try to wave it away by claiming the administration will make exceptions for various industries and it will certainly do so for the infrastructure projects.
But Bill Kovacs, vice president of environment, technology and regulatory affairs at the U.S. Chamber of Commerce knows how this process will end up working, having witnessed similar scenarios over the years:
“Specifically, once the finding is made, no matter how limited, some environmental groups will sue to make sure it is applied to all aspects of the Clean Air Act.
That’s not a threat – that’s a promise. It is precisely how environmental groups have leveraged every environmental ruling and finding in the past. Of course, those who don’t learn from history are doomed to repeat it. And here we go …
Australian and acknowledged counter-insurgency expert David Kilcullen answering a question about the Iraqi surge in an interview with the Washington Post:
Our biggest problem during the surge was a hostile American Congress.
Of course the very same people in Congress who were the “biggest problem during the surge” are all about peace, love and getting along together now.
On April 3-4, President Obama will attend a summit in Strasbourg, France and meet NATO leaders for the first time. One of the promises he made during his campaign for the presidency is he’d improve relations between the US and other countries around the globe. One would assume that means those who we are friendly with as well. Yet since taking office he has managed to humiliate the Brits, piss off the Mexicans (who’ve now applied tariffs on over 2 billion dollars worth of our agricultural exports), see us embarrassed in front of the Russians, and now, treated NATO like a bastard step-child.
On Wednesday afternoon, e-mails circulating between Brussels and Berlin suggesting that, within the course of the day, Washington would name General James N. Mattis as the Supreme Allied Commander in Europe. The commander is in charge of all US troops in Europe as well as NATO deployments, including the ISAF security force in Afghanistan.
Traditionally, the United States appoints the supreme commander and the Europeans pick the NATO secretary general. The decision to appoint Mattis appeared to be a logical one. He has long carried the title “Supreme Allied Commander Transformation.”
In the end, though, Mattis didn’t get the appointment. Instead, Defense Minister Robert Gates announced that Admiral James Stavridis would be nominated for the highly prestigious position. The US Senate and the NATO Council must approve his nomination, but it appears likely he will get through. Gates said Stavridis was “probably one of the best senior military officers” in the US.
In Brussels, though, many felt bluffed. “America treats this like it’s purely an American matter — and they didn’t even give any hints about the appointment,” one NATO employee said. “The conspiratorial manner of the personnel search was almost reminiscent of the way the pope is selected,” Stefani Weiss, a NATO expert at the Bertelsmann Stiftung foundation in Brussels, told SPIEGEL ONLINE.
Not exactly the way NATO should be treated on the eve of a meeting in which it is clear that Obama is going to ask NATO nations to contribute more to the Afghanistan effort. As Ed Morrisey at Hot Air points out:
Democrats accused the Bush administration of “arrogance” in diplomatic efforts, mostly because we chose to bypass the UN and finish the Iraq War with our own coalition of partners. I doubt that Donald Rumsfeld, with all his New/Old Europe talk, would have appointed a Supreme Allied Commander without at least consulting the major partners in NATO. Obama’s decision to do that speaks to his own arrogance and a certain level of disdain for the Western military alliance.
Obama has spoken constantly during the past two years about the critical nature of the fight in Afghanistan, and how the Bush administration allowed themselves to get distracted by Iraq. He also criticized the damage Bush supposedly did to our alliances that hurt the Afghanistan effort. This snub looks a lot more direct and a lot more damaging than anything Bush did.
So, we’ll see what help NATO’s nations decide to offer in early April after this move.
And speaking of Afghanistan, the Obama administration is getting ready to present its strategy for our fight there. One of the first things expressed by Obama is the need for an exit strategy. Naturally that being the first thing mentioned by the new CiC bothers me. Although obviously true, I’m reminded that his “exit strategy” for Iraq was “get out, get out now and that will force the Iraqis to stand up and take charge.” I can’t help but wonder if that’s not going to be something reflected in his “new” Afghanistan strategy.
Then there’s this very strange report:
The US and its European allies are preparing to plant a high-profile figure in the heart of the Kabul government in a direct challenge to the Afghan president, Hamid Karzai, the Guardian has learned.
The creation of a new chief executive or prime ministerial role is aimed at bypassing Karzai. In a further dilution of his power, it is proposed that money be diverted from the Kabul government to the provinces. Many US and European officials have become disillusioned with the extent of the corruption and incompetence in the Karzai government, but most now believe there are no credible alternatives, and predict the Afghan president will win re-election in August.
Now Hamid Karzai may not be the leader of choice in Afghanistan for most of the West, and he may essentially be the “mayor of Kabul” in a real sense. But, like it or not, he is the duly elected president of Afghanistan. What is being talked about here is technically a coup.
The proposal for an alternative chief executive, which originated with the US, is backed by Europeans. “There needs to be a deconcentration of power,” said one senior European official. “We need someone next to Karzai, a sort of chief executive, who can get things done, who will be reliable for us and accountable to the Afghan people.”
Really? And how do these people think those who voted in Karzai will greet such interference in the internal affairs of Afghanistan? Do they suppose this is going to make the fight we have there easier? This is exactly what the Soviets did. Are they freakin’ nuts?
The risk for the US is that the imposition of a technocrat alongside Karzai would be viewed as colonialism, even though that figure would be an Afghan. Karzai declared his intention last week to resist a dilution of his power. Last week he accused an unnamed foreign government of trying to weaken central government in Kabul.
“That is not their job,” the Afghan president said. “Afghanistan will never be a puppet state.”
Can anyone think of a better way to create another class of enemy within the state of Afghanistan than to essentially depose their leader? Can you imagine the propaganda value of such a move to the Taliban who will surely say “we told you so?”
I’m getting a very bad feeling about all of this.
James Joyner wonders:
To my non-economist mind, that sounds eerily remniscient of the Troubled Assets Relief Program (TARP), the $700 billion plan passed last October to prop up the frozen financial system by buying, well, troubled assets. Granting, arguendo, that the Bush administration, which ran the first part of TARP, was evil and incompetent and the Obama administration is all sweetness, light, and omniscience, why would this work any better the second time around?
Paul Krugman, as we noted last week, is not impressed by this plan at all:
This is more than disappointing. In fact, it fills me with a sense of despair.
After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.
And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.
It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.
Krugman goes on to discuss the economics of the situation and a relatively easy way to solve the banking problem. Probably one of the more striking lines in his discussion is:
But the Obama administration, like the Bush administration, apparently wants an easier way out.
This speaks to a theory we’ve all discussed about certain aspects of the job of president in which Barack Obama displays very little interest. From his chuckling though his “punch drunk” interview with Steve Frost yesterday on “60 Minutes” (an invitation to view him as unserious about the crisis) to his seeking an easy and fast solution to the banking crisis, it seems that this is one of those areas which holds little interest for him. He wants it dealt with as quickly as possible (or at least seemingly dealt with so it is at least off of the front pages) so he can move on to his real interest – his costly social agenda.
Anyway, read all of the Krugman critique.
Brad DeLong thinks Krugman may be wrong and lists 3 reasons why:
1. The half empty-half full factor: I see the Geithner Plan as a positive step from where we are. Paul seed it as an embarrassingly inadequate bandaid.
2. Politics: I think Obama has to demonstrate that he has exhausted all other options before he has a prayer of getting Voinovich to vote to close debate on a bank nationalization bill. Paul thinks that the longer Obama delays proposing bank nationalization the lower it’s chances become.
3. I think the private-sector players in financial markets right now are highly risk averse–hence assets are undervalued from the perspective of a society or a government that is less risk averse. Paul judges that assets have low values beceuse they are unlikely to pay out much cash.
While it is nice to be optimistic, it is also important to be realistic. Frankly I think DeLong’s optimism isn’t realistic in the face of this particular crisis and I’m inclined to believe the Krugman critique to be more “spot on”. I have no confidence that this plan will solve the problem.
One of the problems the administration faces which is above and beyond the “workability” of the plan itself is related to the AIG bonus blowup in Congress. Private investors are gunshy about participating – for good reason:
The backlash on Capitol Hill means private firms may think twice about taking part in Geithner’s public-private partnership, even though government financing will limit their risk and increase the potential of earning profits, said David Kotok, chairman and chief investment officer of Cumberland Advisors Inc., in Vineland, New Jersey.
“We expect that the participation in the program to be announced this coming week will be tepid at best” because of “fear that any action which puts them into the federal assistance plan will subject them to the chance of retroactive punishment and taxation,” Kotok said.
A real “chilling effect” given Congressional and adminstration overreaction to the bonus situation. Reports are Obama is cooling to the idea of retroactive taxation, but, right or wrong, there is still going to be a demand for some sort of action. We’ll see what sort of leadership Obama tries to exert concerning those bonuses if any.
In this podcast, Bruce, Michael and Dale talk about the AIG bonus Fiasco, limiting executive pay, and the public’s tolerance for President Obama.
The direct link to the podcast can be found here.
The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.
And a fairly surprising one. Regardless of your opinion of Barack Obama, most people consider him to be a great orator and communicator. Or at least they have until recently:
Of all the pitfalls Barack Obama might face in the presidency, here is one not many people predicted: He is struggling as a public communicator.
Indeed he is – read the whole piece by Jim VandeHei and Mike Allen of Politico.
Yesterday I mentioned Paul Krugman’s trashing of the Geithner plan, now the NYT op-ed page triumvirate of MoDo, Thomas Friedman and Frank Rich take a few shots as well.
Friedman tried mightily to temper his criticism by claiming the that GOP was using this horrible crisis as an opportunity for partisan bashing.
We’re in a once-a-century financial crisis, and yet we’ve actually descended into politics worse than usual. There don’t seem to be any adults at the top — nobody acting larger than the moment, nobody being impelled by anything deeper than the last news cycle. Instead, Congress is slapping together punitive tax laws overnight like some Banana Republic, our president is getting in trouble cracking jokes on Jay Leno comparing his bowling skills to a Special Olympian, and the opposition party is behaving as if its only priority is to deflate President Obama’s popularity.
Interesting. Friedman was no where in sight, of course, when Democrats were engaged in precisely what he accuses the Republicans of doing during the war in Iraq. As with many on the left, apparently history started on January 20th of this year.
OTOH, deflating Obama’s popularity is politically important to the GOP, because anyone who watches politics knows full well that Obama plans to trade on his popularity to pass the economy killing legislation he want to see passed. This ain’t bean bag, Mr. Friedman.
Frank Rich likens this crisis to “Bush’s Katrina moment”:
A charming visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: “President Obama may not realize it yet, but his Katrina moment has arrived.”
Rich implies that Obama doesn’t recognize the depth of political risk this crisis carries for him. And I agree. Obama, it appears, thinks he can lay this all off on “inherited” problems. But he can’t. It’s his now. While it may have been right to say New Orleans Mayor Ray Nagin and Louisiana Governor Kathleen Blanco were the real reason Katrina was a fiasco, that’s not who much of the public ended up blaming. Bush too seemed not to understand the depth and breadth of the anger (whether right or not) that Katrina spawned. Obama seems even less aware of the risk, jetting around the country having moved on to defending his budget and appearing on comedy shows while the financial crisis lingers and deepens. As I’ve said a number of times on this blog, it is all about leadership, or the lack thereof. In reality, it is the “lack thereof” on which both Rich and Friedman are actually commenting.
Maureen Dowd wonders if, after watching Michelle Obama talk about the White House garden, perhaps the wrong Obama is in the Oval Office. She then let’s the male Obama have it with both barrels:
It’s a time in America’s history where we need less smooth jazz and more martial brass.
Barack Obama prides himself on consensus, soothing warring sides into agreement. But the fury directed at the robber barons by the robbed blind in America has been getting hotter, not cooler. And that’s because the president and his Treasury secretary have been coddling the Wall Street elite, fretting that if they curtail executives’ pay and perks too much, if they make the negotiations with those who siphoned our 401(k)’s too tough, the spoiled Sherman McCoys will run away, the rescue plan will fail and the markets will wither. (Now that Mr. Obama has made $8,605,429 on his books — including $500,000 for letting his memoir be condensed into a kids’ book — maybe he’s lost touch with his hole-in-the-shoe, hole-in-the-Datsun, have-not roots.)
Despite all the appeals to class warfare, what is at the base of her criticism?
Lack. Of. Leadership.
The nation elected someone who has never once been in a position in which he had to lead. Mr. Obama is a charmer and someone who knows what to say to please his audiences. But he’s never had to translate what he says into action. He’s never had to really take full ownership of his agenda, at whatever level, and implement it. He has never had to ‘make it happen’.
Where does one learn to do those sorts of things? From experience. Take a new lieutenant and make him a battalion commander and I can promise one poorly led battalion which will fail at its first leadership test. That’s because the LT isn’t a leader yet. He first had to serve as a platoon leader and learn leadership skills. Then if he does well there and is advanced in rank, he’ll eventually get a chance to become a company commander and fine tune those skills with a larger organization. Again, if he shines and is further advanced in rank and responsibility, he may get a shot at a battalion command. But he will first prove himself to everyone’s satisfaction at the lower level leadership positions before he is even considered for that job.
Anyone – what lower level position held by Barack Obama did he demonstrate the leadership necessary to do the job he now holds? Why is charm more important politically than experience and leadership abilities?
Apparently Krugman, Dowd, Rich and Friedman are suddenly discovering what many of us have understood from the beginning – Obama is completely unqualified for the job he holds.
Unfortunately for all of us, if ever there was a worst time for such a man to be President of the United States, this is probably it.