The FED is Lost

Anyone with considerable cache of economic acumen knows that the monetarist school of thought ignores interest rates.  Paying attention to the monetary base line as well as a host of independent variable indices, commodities and short term trends, monetarists know that talk of interest rate ‘hikes‘ bespeaks a profound understatement that traders and other financial professionals wish to avoid, namely that the Federal Reserve is lost and cannot conjure nominal growth.

The Federal Reserve and its legions throughout media and academia are bereft to understand how they lost their mojo.

The answer isn’t just fiscal policy, nor is it the seriousness of the crash of 2008, the canard of secular stagnation is truly an affront to anyone possessing a modicum of Austrian macroeconomic thought.  The Keynesians are exhausted and they will not endeavor to acknowledge failure if Chair Yellen wants to keep her job!  Her political paymasters are willing to dupe themselves and everyone else, if only to sustain expectations; there was no executive engaged policy mix.  There never was. . .

The dominant political class of contemporary Keynesians will do anything to preserve this system.  And to sustain perverted institutional expectations, it will cajole, divert, even lie for the maintenance of effort in sustaining financial repression.

Want some numbers?

For the economy to keep up with population growth, it needs to add about 130,000 jobs a month.  We’re currently doing about 145,000.  That’s great news except that these jobs are part-time.  The unemployment rate is about 5%, but that reflects those dropping out of the work force; how about the labor force participation rate?  It remains 59.6%.  People, these aren’t growth trends, and they aren’t sustainable.

So how is anyone to comprehend the Fed speak dominating the talking wires??

Its an institution that implicitly knows accommodative policy is over.

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What Iraq Taught the U.S. Military

There are legions of think tanks and armed disciplines like the Marine Corps that possess a fine grasp of the deep abiding cultural, institutional challenges The Long War asks of the American regime.  We haven’t answered THIS challenge.  If we’re going to win, the American regime and its institutions responsible for war/statecraft must address several finite, complex problems regarding defense department acquisition reform, civil-military relations, our industrial-military base line, the constitutive missions (culture) of each service, the reform of unelected, monolithic fiefdoms at State Department, foreign aid as well as how we finance those responsible for engaging this conflict.  As the GAO revealed last summer, by 2030 the entire defense department will run out of money given how health care are other benefit packages crowd out addition spending.

We’re at the end of our Keynesian rope, and new thinking about American power, especially its relation to foreign policy and the institutions responsible for its execution were badly mangled in Mesopotamia.  The branch services simply weren’t ready for The Long War.  This is a generational commitment, entire swaths of continents are engaged in this conflict and the American regime must lead.  But as Thomas E. Ricks engagingly wrote in The Generals, there is a growing chasm between the performance of our wartime leadership and accountability.  This growing chasm, if not addressed, will shake our Constitutional Republic to its core.  It happened to other empires.  It has already begun with the American services.

What did our engagement in Mesopotamia teach the American regime.

It taught that a private who loses a rifle suffers far greater consequences than a general who loses a war.

My contention is simple, yet highly contentious.  American war time service leadership has been severely substandard for the last six decades, from Eisenhower to Petraeus.  Without the possibility of relieving generals in the field (the Marshallian approach to leadership), the possibility of a collapse of our threat deterrent remains highly probable.

Two men come to mind:  General Westmoreland and General Tommy Franks.  Other names come to mind, like Ricardo Sanchez, Douglas McArthur, Maxwell Taylor, Colin Powell, Richard Myers, George Casey and even George Patton.

What Thomas Ricks does is provide incalculable insight into why these and other generals failed as well as an examination of outstanding generalship of what was normative for decades of our Republic.

The war for the greater Middle East is on.  How should America fight it?

Given the myriad advances to our technologically advanced civil society, the archaic Carter Doctrine and its incipient belief in the militarization of the Persian Gulf isn’t necessary.  The components of effective statecraft are no longer determined by mass or armed conflict.  Even with the larger purpose of engagement limited to counter-insurgency or liberation, the arsenal at the hands statecraft has grown by magnitudes, but our teaching institutions of warcraft haven’t.

Incidentally, the problems besieging the greater Middle East are substantially greater now then they were before invasion.  Consequently, team Obama’s approach has exacerbated the social, strategic base from which American power is based; having alienated allies and openly invited rouge regimes, we are limiting our ability to shape the region.  Obama’s preference was to insulate the public from this engagement.  Even still, the prerequisites of freedom for the 21st century are dependent on rapidly changing circumstances that require a reliable hegemon. Geographically, Asia is exploding in importance, while other regions of the world like western Europe and North America are stagnating. In a word:  we’re losing.

How are we to turn this around?

We’ll need to reshape ourselves first.  We need fiscal reform, working American citizens are in need of capital/equity formation, we need to reform our monetary system to reflect the necessity of the supremacy of civil society.  Sustainable and equitable prosperity isn’t about cash transfers, deficit financing, depreciation or other financialized schemes.  We need new streams of capital.

Perpetuating the war on behalf of the Near East means having Gulf Monarchies and China begin liberalization efforts of capital accounts. That would entice regimes in New Delhi to seek comity in Kashmir.

In a word:  we need to open up closed political economies to the glory of capitalism.  But first, we need to do it at home.

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What the Russian Revolution Teaches About Ecumenical Conflict b/t Competing Civilizations

Next year will be the centenary anniversary of the Russian Revolution.  The absolute best study was done by Tibor Szamuely, although one can also place the work of Solzhenitsyn, Robert Conquest and Dominic Lieven as representing the finest scholarly accounts. Given the centenary, I’d suggest The End of Tsarist Russia:  The March to World War I & Revolution if only to highlight the lonely demanding spade work performed in distant archives that this book embodies.

How does it help clarify western policy toward ‘The Long War’.  

It helps place Islamic Civilization within the framework of Russia during the lead up to the Bolshevik coup.  At the time, Slavic civilization was static, its man political regime was monarchy.  The social status of Russian civilization was goaded into receiving new forms of political intercourse a monarchial regime couldn’t handle.  The collapse wasn’t presaged in any one distinct encounter, although World War I brought the entire edifice down where a hardened group of committed fanatics reaped the position of leadership from an exhausted transition out from monarchy toward representative democracy.  We must remember how the Bolshevik coup unfolded; leadership was violently wrought out of the hands of parliamentarians.  The strength of a ‘dark horse’ won and with it, the collapse of Russian society into the hands of ideologues who unleashed The Great Terror in the hope of demoralizing any opposition.  (Read Iraq and the Obama doctrine of strategic patience.)

We learn that social, political institutions matter.  Sound governance matters.  From the challenge embodied in a failed Russian state we learn that civil society matters, hence the relevancy of noting the symmetry between Russia pre-1917 and contemporary Islamic Civilization.

As Toynbee wrote throughout his epic twelve volumes A Study of History, when contact is made between two divergent civilizations, the weaker one is militarized.  This helps explain the rise and mnemonic presentation toward violence as policy with Islamic terror. Nevertheless, given the propensity to seek permanent influence in client states abroad, nation states that seek to dominate the ‘near abroad’ must remain mindful of the social, political impact of their intercourse.

A perfect example of volatile trends is the emergence of multi-party democracy in Africa, although it flourished immediately after the end of the Cold War, it is destabilizing African regimes unfit to manage abstract challenges of governance.

Since 1994, when South Africa held elections ending apartheid electing Nelson Mandela, the rising tide toward social democracy favored the end of autocratic regimes tinged with Marxism.  Many, if not most of Africa’s ‘Big Men’ were swept away.  Mangiest Haile Mariam fled Ethiopia in ’91; Mobutu Sese Seko of Zaire (Democratic Republic of Congo) was gone in ’97; in ’98 Sani Abacha of Nigeria died in office.  It looked as if Africa would be the powerhouse of emerging economies.

What happened?

Currently, democratic transition has stalled throughout the African continent.  Institutions are fragile, rule of law is weak, inflation and economies are tied to weak export lead regimes that cannot withstand permanently weak commodity prices.

Freedom House ranks 59% of sub-Saharan countries ‘partly-free’, although down from 71% in 2008, many nation states are hampered by governance issues that cannot easily be surmounted.

For Africa to thrive it needs statesman and women who embody principles of virtue, who seek to tie their respective output to other nations.  As 2016 has witnessed, the demise of Jacob Zuma and Zambia (one of the first African nations to undergo democratic transition) are failing.

Free societies and free economies reinforce each other; and America needs to lead. Nevertheless, diversification isn’t something the World Bank or the IMF seek as they engage these nations.  This drought of leadership only harms the social base of many African regimes, especially ones composed of multi-ethnic coalitions like Nigeria.  The immediate political need will be for decentralization, variegated polities and federalism.

Africa today is at a crossroads in its growth trajectory.  It can no longer abide by the Keynesian outlook that dominates the professorate of international lending bodies.  We need indigenous, independent institutions that seek to serve emerging nation states, not crony capitalist ventures that seek to surmount progressive tax regimes.

Can the west begin to lead?  Can it rediscover the moral foundations of liberty?

 

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What Adam Smith Taught Beijing

As of this writing, the boys in Beijing are frightened. Their closed political economy was symmetrically ordered to match China’s geography as an island, cut off by vast oceans and an interior unfit for governance.  Prior to Deng’s reversal, Beijing continually turned inward and mastered the art of repression known to autocracies.

The calculus has changed.  Beijing must now consider its interests as global.  This heightened exposure made its political economy fragile beyond historical comparison. This fraught mien usually played out socially inside China’s interior where the State’s apparatus worked unchallenged.

Not so with China’s competitors.

The rare Earth minerals used to foster western innovation was a boon to China’s political leadership.  Given that they weren’t used to operating openly with competition, they never anticipated how to parry market trends whose origin lay outside its frontier.  Prior to 2010, Beijing produced nearly 95% of global rare earth metals.  It sought to hold its customer base hostage by restricting exports.  It cut quotas by nearly 40%, publicly pushing foreign buyers to move factories onto China’s southern littoral region.  Beijing openly blocked shipments to Japan.  Given Beijing’s dominance of over 17 rare minerals used in missiles, cars, turbines, smartphones and electric cars, its customer base sought diversification. Beijing forgot that its foreign competition wasn’t domestic.

Beijing’s mercantile gambit lost and it damaged Beijing badly.  They clearly never heard of Julian Simon.

Dr. Simon taught that monopoly power over natural resource based scarcity would eventually have to reconcile to the flexibility of a market based order.  Hayek’s extended order buckled Sinic monolithic authority.  Adam Smith beat the boys in Beijing.

Remember the warning of peak oil?  We were blindsided to fracking.  This is what happened to the rare-earth doomsayers.  The autocrats failed to acknowledge the moral superiority of capitalism.  They simply failed to foresee how Beijing’s supply squeeze would goad its customer base to invest in new technologies, new suppliers, new substitutes.

Metal firms began recycling dysprosium, lanthanum and numerous other coveted minerals and elements from industrial waste.  Companies like Honda, Samsung and Siemens accelerated indigenous research to field products less dependent on Beijing’s supply base.  All this happened while Beijing sought to consolidate the industry it suffocated.  This is typical of monopolies, and political bases emulating rent-seeking.

There are lessons here for all mercantilist economies.  Either seek out to master the field of competition through overt diversification or fail.

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The Asian Scramble for Africa

My mother attended St. John’s College, Oxford.  She had an aunt who joined a Catholic religious order called the Passionists who specialized in education.  Her order built St. Joseph’s College in Kgali Botswana.  I attended her funeral during the Soweto Uprising and found myself listening to my mother speak of Mapungubwe (pronounced Mak-cuum-good-way), located just outside the Limpopo River in Zimbabwe.  It was the source for the raw materials that fueled the Renaissance.  Even today, the main route of migration in East Africa remains a north-south axis into the Arabian peninsula and Levant.  Mom spoke of the work performed by Gertrude Caton Thompson, a despised, yet world renowned female archeologist who correctly discovered that the region was not discovered by Boers but by ancient Bantu speaking Africans that migrated there from west central Africa.

Today, the race linking the African continent to Asia is on, and this time it isn’t the monarchies of Europe seeding the rivalry but Beijing and New Delhi.  This is an old game, and it is worthy of our best efforts.  Sadly, Washington’s political class isn’t paying attention.

The modern gateway to contemporary Africa isn’t the Egyptian Nile but Addis Abbas’s airport in Ethiopia.  It is the African Horn and its access to bases and ports linking the African interior to China and India.  The African political economy isn’t contained to its littoral regions anymore; its trade axis spills out moving East to Kenya, Mozambique pushing north.  The ancient Indo-African trade ports of Zanzibar and Mombosa are open again for business.

Africa now hosts thousands of Chinese infantry in Mali, South Sudan and the African Horn. Chinese flagged vessels now dominate the Gulf of Aden.  Beijing’s strategy here is called “string of pearls” strategy, it seeks secure ports of entry and transport for raw materials into China.  Fearing encirclement, Beijing has sought to double down on its investment abroad.  Africa today is playing out an agenda that harbored medieval Islamic foreign policy, the very albatross that goaded western Christian monarchies to search for a western route to Asia.  It all began in Africa.

Deeply suspicious of Beijing’s strategic intensions, New Delhi has leased land in Djibouti installing naval radar linking 32 surveillance posts throughout the Indian ocean to Seychelles, Madagascar and the Mauritius. Immediately north of Madagascar is Assumption Island, New Delhi is building a naval and air base there to keep watch of Beijing’s intentions.

The entire cost of East Africa is awash today in Asian money and infrastructure projects.

The very region that used to fill the Arabian and Levant with cheap labor and raw materials is now host to nation states in the ‘near abroad’ whose home is Asia.

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Austrian Thomism vs. Tribal Authority

Throughout the last few decades of his life, Hayek was busy remonstrating against the mythical authority of Keynesian ‘collectivist’ thought, this remained his abiding obsession after being confirmed by the Laureate.  But one can find identical musings throughout his earlier work in the 1930’s; his strain of having to develop a Thomist approach to counter the prevailing neo-Kantianism that dominated academic life for centuries prior to the effective mining done by Catholic phenomenologists assaulting the positivist drive harnessing the social sciences, effectively masking a theoretical, humanist foundation.

By the early 1980’s, Hayek’s Thomism would yield a counter to the slavish authority asserted in non-Euclidean math, the language of the collective; Hayek grounded his oeuvre in Thomism, his extended order was nothing less than a view of ordered liberty.  For von Mises and Hayek and what would become the Austrian School, the necessity to expose the moral framework underwriting Adam Smith’s invisible hand was formidable.

We need it today as we grapple to fix destructively contorted capital markets; to fix American finance we must begin with first principals:  the supremacy of civil society as a repository against tyrannical ambition.

Why is this pertinent?

The Federal Reserve along with central banks throughout the globe have embraced coercive measures to secure the confiscation of capital; the sine qua non of a natural right. What the Fed has done is acquiesce to the wiles of a dominant political class.  In so doing, the Fed continues its performance on behalf of a political client.  It is failing.  Miserably.

The distorting role of accommodative policy must be brought to an end.  This may not happen anytime soon.  In light of the spade work done in defense of the moral superiority of capitalism, we’re left with the mythical authority of a flailing institution overwrought from unchecked idealism.

This will not. End well.

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India’s Thatcher: Hated Then, Now Resurrected, the Story of P.V. Narasimha Rao

India’s tenth prime minister, P.V. Narasimha Rao inherited a nation in total collapse. Little did anyone notice, but India’s embrace of a capitalist ethos would only come after she openly failed at socialism.  Identical to Mao’s reversal under Deng, Reagan’s reversal under Carter; India would have its share in turning around a political economy tethered to socialism.  That job fell to P.V. Narasimha Rao.  A story rarely acknowledged, until now.  Half Lion:  How P.V. Narasimha Rao Transformed India by Princeton University scholar Vinay Sitapati.

Shortly before the 1991 election, India’s political economy resembled England immediately before Thatcher or better yet, India’s dire position resembled London immediately before Partition; riots across the country side, unmanageable inflation, dwindling foreign reserves.  With the assassination of Rajiv Gandhi, India’s Congress Party installed what they believed was a caretaker, what they got was the most consequential Indian political leader since Jawaharlal Nehru.  Rao, with little open public support and virtually no institutional patronage, would openly confront and turn around India’s collectivist political economy.

Upon taking office,Rao devalued the Indian dollar, liberalize trade policies inviting foreign direct investment which helped relieve India’s Central Bank by financing fiscal reform with sound money.  He openly confronted indigenous unions that serviced barriers to foreign capital and competition.  Resistance was formidable and openly dangerous with multiple no-confidence motions in parliament.

Yet he succeeded.

Rao openly met resistance with deft tactical maneuvering, sending India’s intelligence agencies to monitor recalcitrant politico’s, he succeeded in parrying the dominance of India’s political class.

Mastering nearly a dozen languages, he addressed foreign leaders in the vernacular.  He openly courted Southeast Asian nation states to counteract Beijing’s growing dominance while moving India closer to American diplomatic orbit.  He openly serviced New Delhi’s bilateral relations with Israel over Kashmir while publicly having Yasser Arafat’s imprimatur, a deft maneuvering worthy of any study of statesmanship.

By the time he left office, India would be radically changed; Indian consciousness was no longer tied to the gordian knot of the collective.  The impact, however, was dire for India’s dominant political class and Rao’s personal image.  Witnessing the public destruction of the Babri mosque in 1992 heralded a near fascist drive that has yet to subside.

Rao, a devout Brahmin, helped unleash a rapid rise of Hindu nationalism.  Despite his personal aversion to it, his legacy will forever be tied to a dominant muscular Hinduism at odds with India’s indigenous ecumenical outlook.  His deft handling of India’s rise openly promoted an oligarchic class that continues to dominate New Delhi’s upper chamber of parliament.

After being thrown out of office he openly repudiated the social consequences of India’s rise.

Why is he hated today in India?

Rao committed the sin of exposing the vacuity of socialism.  The Gandhi-Nehu dynasty of social democracy was permanently ingrained upon Indian political consciousness, even though he saved India, the consequence of growth was profound.

Rao spent his final days as a social pariah.  His name was scrubbed from the Congress Party, credit for his achievements were given over to Manmohan Singh.

When Rao died in 2004, Sonia Gandhi, refused to allow his body to be cremated in Delhi or displayed in party headquarters.  His funeral was humiliating.  Thinly guarded, his corpse was reportedly tore apart by dogs.

Princeton’s doctoral candidate Mr. Sitapati has written a lovely account of an Indian Thatcher, Reagan or Churchill.  Condemned by his party’s proprietors, he succeeded in managing India’s role reversal out of the abyss.

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How Beijing Breaks U.S. Containment Strategy

How Beijing Breaks U.S. Containment Strategy, published in India’s Diplomacy & Beyond hagueruling.

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Kill ‘Em and Leave: James Brown, the Gestalt of Tribal Black American Music

In 1996 James McBride published his memoir The Color of Water, in it he describes a painful childhood moment in the 1960’s; raised in Queens by a black stepfather and Polish-Jewish mother, all eleven siblings were sent to predominantly Jewish schools, however, every evening upon disembarking the bus he entered a tribal non-literate world of the black underclass, McBride writes:

As a kid, I preferred the black side, and often wished my Mommy had sent me to black schools like my friends.  Instead I was stuck at that white school, P.S. 138, with white classmates who were convinced I could dance like James Brown.  

They constantly badgered me to do “the James Brown” for them, a squiggling of the feet made famous by the “Godfather of Soul” himself, who back in the sixties was bigger than life.  I tried to explain to them that I couldn’t dance. 

Throughout this memoir, McBride learns the hidden life of his mother and the consequences of elusive, conflicting identities fused seamlessly by the music of James Brown.  Nothing quite captured the essence of this profound ambient identity than the exclamation “Say it Loud, I’m Black and I’m Proud”.

Twenty years after that memoir, McBride returns to a deft proleptic earnest that is James Brown in Kill ‘Em and Leave:  Searching for James Brown & the American Soul.

By way of drawing upon the earnest of James Brown, we learn of McBrides home where food was scarce and attention scarcer, but ownership of Brown’s 45 rpm was like owning the Holy Grail.  This was the time when the album Live at the Apollo (1963) debuted “Papa’s Got a Brand New Bag” launched Brown as something more than another pop phenomenon.  In days dominated by the Beatles, Rolling Stones and Bob Dylan, James Brown sought to dominate every act performing.  He did just that and more.  Live at the Apollo would stay on the charts for sixty-six weeks; a hypnotically involved ritual event without breaks or divisions, beginning indelibly with Fats Gonder’s roll call of epithets culminating in the famous scream.  The act was the embodiment of a perpetual beginning.  It was pure show business and the closest thing to a religious experience any performer could conjure.

It wasn’t the magic.  It was the power summoned and asserted.  A movement of passion as total restraint.  Something even Marvin Gaye or Otis Redding acknowledged, but could never address formally in their respective styles.

With McBride, we see Brown’s repeated arrests for domestic violence, the troubled relationships with children acknowledged and unacknowledged, the byzantine business deals and concealed caches of money, the peremptory mistreatment of fellow musicians, addiction and imprisonment.

What do we learn?

We glimpse a man who didn’t really want to be known.  We begin to accept that James Brown as a boy spent eons of time alone in a pine forrest starring aimlessly out a windowless shack; all before harvesting turpentine.  What turns up is a Brown who confirms a stolid solitariness, paradoxically discovered only in dance.

A performance generating self-immolation.  

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India’s Public Intellectual Leaves Parting Advice

Now that they’ve gotten rid of Rajan, India’s former central banker has some parting advice for his fellow economists:  be wary of low interest rates and exhausted, depleted institutional capital in an age as threatening as ours.

Modi’s recovery in replacing Rajan with a deputy was sound maneuvering, but I’m afraid the damage was done and it was permanent damage!  In my view, Modi’s regime has begun its terminal decline evidenced in Modi’s unwillingness to openly confront powerful Indian oligarchies, the very clique that sought to hurt Rajan hasn’t been cornered.

Here’s a little history.

India’s bicameral structure of its legislative house is identical to England’s.  Its upper Senatorial chamber is identical to England’s House of Lord’s, except it is business interests not hereditary titles that underwrites its social cache.  Rajan’s reformation of the central banks business relation to this chamber threatened entrenched interests.  He simply had to go.

India’s new central banker has sought to alleviate this seemingly permanent albatross by implementing or openly reforming India’s moribund bond markets.  If this parry fails, both India’s democracy and its turn toward free market reform is irreparably damaged.

By servicing a permanent upper-class with direct loans from the central bank damaged the credibility of the RBI.  Rajan openly confronted this cronyism by having these titians of industry openly fix failing loans.  His successor seeks to have monies raised from investors through open bond auctions.  This challenges the state owned banking sector that owns over 70% India’s banks. It means this new arrangement will threaten struggling companies seeking capital; it also means an end to the nepotism between the RBI & this oligarchy.

Rajan and his cohorts knew something these industry tycoon’s didn’t:  price discovery and stability requires a sound secondary market.  As of August 25, business seeking capital at the RBI’s repo facility can use corporate bonds as collateral.  Favoring the buying and selling of bonds by institutional clients removes the RBI from crony political relations while servicing an interest India badly needs; functioning capital/bond markets.

Let’s hope India’s tycoon class has the temerity to seek its own interests:  openly and with confidence.  Something it never had to do.

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Review of Rajan’s Tenure at India’s Central Bank, from Hindustan Times.

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