Tunisia’s 7 Year Itch

Tunisia may be home to the Arab Spring, but the contortions of its political economy mean that most Tunisian’s are giving up on democracy.  If it to remain a deferred model for Muslim governance throughout the Arab world, then Tunisian’s themselves must move in the direction of Poland’s Solidarity movement.  Fixing a moribund economy isn’t easy, but it remains the sine-qua-non for development.

The last seven years have failed to revive the economy; nine government in seven years isn’t stability, but IMF loans totaling $2.9 billion need to be received, these are dependent on domestic reforms that are deeply punishing.  The Tunisian social base is unsettled and seeks comity.  Youssef Chabad, Tunisia’s prime minister has sought subsidy reductions and tax increases to eliminate a crushing deficit the eats away at 6% GDP.  No nation state can survive with these fiscal realities.  For Tunisia to survive, it must realign the sources of its domestic competitive advantages in tourism, the consequent hard foreign currencies tourism brings and union reform.

Previously, it was state oil that hired even when output plummeted.  Over 20% of Tunisia’s public sector employees consume over 14% of its GDP.  Shrinking governments share of the private sector is difficult, especially when alternatives don’t exist.  Rent seeking and strong domestic barriers for entry remain.  Tunisia must open itself up to globalized capital flows for alternatives to emerge.  The Tunisian economy has plenty of revenue from oil, gas and phosphorus.  These need to be economized and exported to meet new arrangements of scale.

Two points to consider going forward:  Tunisia suffers from great social, economic disparities between its interior and littoral regions.  Its commodities are extracted from the interior but require transport toward its littoral for consumption and export. Infrastructure is needed to economize this relation as well as Tunisia’s fine relations with France.

American, the EU and France should accommodate Carthage with loans and market access accelerating Tunisia’s badly needed reform movement.

Tunisian’s acted boldly in choosing a revolution that consummated the Arab Spring, but it is growing weary of democracy and the ballot box.  Its not to late to save the social, political aspirations that made Tunisia’s Arab Spring.

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China Parries US Tax Reform

The single greatest threat China has is US tax reform and the consequential repatriation of hundreds of millions of dollars back to the US.  Although this would damage both the Fed’s and Treasury’s historical mien of demand based inflation, an appreciating currency with greater US petrol output would continue a true American Reaganite expansion.

What is Chinese policy to parry US tax reform and dollar denominated repatriation?

Beijing’s Central Bank re-denominated, readjusted its exposure to US Treasuries.  It re-constructed its portfolio seeking diversification of its foreign exchange reserves.

Here’s what the Chinese Central Bank portfolio looks like now.

This war ain’t over yet!

3b

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A Priestess Called Oprah

We wouldn’t have Trump for President if it weren’t for Obama, and it isn’t possible to entertain Oprah’s bid for the Presidency without all the ideological preening that currently animates American progressives.  From identity politics to victimhood, Oprah’s candidacy will excoriate the Democratic party in a way that will permanently hinder its already dwindling regional status.  The Republican’s are a national party, Democratic trends are going in the opposite direction.

True to form, her name recognition matches the ‘Don’, so does her TV appeal and talking style.  But something tells me she isn’t quite ready to weather the hostile political class that her party has currently become.  Hostile to growth, hostile to Catholics, ad nauseam. Even a short reasoning of her political candidacy should advise those closest to her to advise caution.

An Oprah candidacy may match the flotsam of Trump’s policy detail.  She’d also need to deal with the insurmountable problem of raising local money.  These twin enormities may be a bridge too far, but an Oprah candidacy could run on personality, positive energy and favorable coverage.

Even still, the 10+ democratic contenders won’t lie down for Oprah.  It cannot be another coronation, she’d have to demonstrate a stamina that outmatches Donald.  She’d have to outwit the limited appeal of current progressive statism which could only be done if she commanded the women vote.

The opposition has revealed its hand in pushing out the Wisconsin Senator:  the Dems think they can divide and conquer, and the alter upon this framework is women.

My monies on the American women to favorably discern the limits of an Oprah candidacy.

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A Persian Spring

Beuel Marc Gerecht remains one of the few credible foreign intelligence officers the CIA had throughout the Near East.  He resides as a senior fellow at the Foundation for the Defense of Democracies and is often on CNN.  His oeuvre remains outstanding in its depth and breadth of applied regional Islam.  The term is mine, if only to distinguish a known fact that Islam isn’t monolithic and often precludes neat categorization.  East African Swahili and Central Asian Islam embody remnants of successor states that preexist modernity and often western attempts to frame into neat categories.

Gerecht’s latest column in the Wall St. Journal reveals a startling summary of Iranian history currently playing out on the streets throughout Iran.  For Gerecht and other notables like Bernard Lewis, the Iranian regime used Islam to coalesce its power internally, even with brutal repression domestically the regime always sought to address its fragile sovereignty.  The contradictory ambitions of democracy cannot be reconciled to theocracy.  How else does one reconcile the ethics of individualism to the ethos of a divine command?  Islam’s very definition of a theology of revelation precludes democracy.  Clerical oversight was to force what couldn’t be joined.

What hails the protesters throughout Iran is simple:  Persian’s have no love for the regime. Iran today resembles the Soviet Union in 1989.

The Persian Spring is nothing less than a protest acknowledging the limits of state autarky.  With empty seminaries in Qom, and vacant mosques throughout Iran, the clerical regimes days are numbered.

Why?

Because their is nothing in the nuclear accord that can sustain the frayed, exhausted and demoralized bond of fraternity that characterized the Iranian revolution.

My monies on the Persian street.

Ayatollah Khomeini

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The Swamp & the Citadel: Pakistan’s Abetted Agitprop

Watching the wheelchair bound Muslim cleric Khadim Rizvi engage his ministry at the Faizabad interchange instructs those unfamiliar with Pakistan that the Army continues to incite public violence for political profit.  The army’s utter refusal to disperse militant Islamists evidenced its broader political convictions to harass Sharif while fortifying Khan.

A change in the oath administered to MP’s and other senior officials from “I solemnly swear” to the simple acknowledgment of ‘I believe‘ drove hordes of Islamists into a Faizabad interchange between Islamabad (the capital), and the nearby city of Rawalpindi (Pakistan’s equivalent of West Point).  Even though the government itself approved the change, 5,000 angry Islamists took to the streets demanding the resignation of Zahid Hamid, the administering law minister.

Pakistan’s army intervened, but only to humiliate and undermine the ruling party of Punjab, the Pakistan Muslim League of Nawaz Sharif (PML-N).

Having been deposed as Pakistan’s prime minster for failing to declare an entitled salary he never received adds to the frantic opacity the army has in dismantling Pakistan’s Muslim League.  This is the third time the army has deposed Sharif from office.  The only person benefiting from this episode is Imran Khan.

Khan is positioning himself for an army cleared path to office.  He openly defends both the mullahs and the military and he stoutly eviscerates anyone advancing policy that would increase civil society or the reform of Pakistani’s political economy.

The stage managing of politics has a long history within Pakistan’s citadel.  What army leadership will never admit is this:  they don’t have the resources to reform Pakistan’s political economy out from autarchy while administering the security needs of the State that remain held by state sponsored jihadi’s.

Pakistan is exhausted, enveloped and isolated.  And its out of time.  It needs policy clarity from functioning institutions loyal to Jinnah’s republican vision.  And it needs normalized relations with India servicing market based goals to strengthen emerging yet suffocated social components of civil society.

Fixing Pakistan means addressing the needs of its varying social base, the truth source of Islamabad’s strength.

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Weakened Case For Higher Interest Rates: the Flattening Yield Curve

The canard of secular stagnation was laughable, especially given the credentialed gnomes belief in demand sided macro thought.  No measure is ever given to the antecedents of our Constitutional Republic, its constitutive bases in civil society, in spheres of autonomy that can’t be controlled by a monolithic state, nor the strengthening of these mystic bonds of memory by digital technologies eccentric impact.  All of this is ignored in the need to evade.  Secular stagnation was the polite way of saving ‘not my responsibility‘, yet it has patrimony with Bernanke’s ‘savings glut‘ and Greenspan’s ‘conundrum‘.

The greatest threat to the U.S. Federal Reserve Keynesian gnome is the hypothesis of a natural rate of interest.  The belief that their exists an independent, autonomous, objective reality of personalism that isn’t dependent on central bank wiles threatens Keynes and his cohorts.  Even still, any look at the U.S. equities makes one shrill upon glancing upon our yield curve.

Our yield curve is flattening, and by any measure, reveals a startling fact that cannot be ignored.  We’re at the limit of both credibility and efficacy in monetary policy.  This is why the partisans of monetary reform are correct to admonish Congress for a commission on new standards replacing Humprey Hawkins.

The yield curve is the difference between ten year and two year interest rate.  An inversion of the yield curve in U.S. sovereign bonds means that the interest paid on longterm bonds is below the short term.  This has happened immediately before the past seven U.S. recessions.

Socially, studying the yield reveals where the market believes its going or where policy should be aiming.  The Fed’s dirty secret is its fear of rising wages and prices.

Regarding credibility.  Let me say this:  Q.E. was supposed to have worked by compressing the term premium paid by those who buy U.S. sovereign bonds instead of spending or consuming.  Instead, it drove up the cost and value of hard assets like commercial property and agricultural commodities.

Here’s where partisans of monetary reform win:  we believe that the best explanation of the flattening of the yield curve is that U.S. domestic market participants no longer believe the Federal Reserve has any credibility left.  We’ve lost confidence in the Fed’s ability to handle inflation via its target of interest rates.

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India’s Soft Power Remains Diminished, But Beijing’s Appeal Remains Untested

The politics of the subcontinent are intractable.  That’s because most westerners shape their policy convictions from inside the ideological symmetries of the enlightenment whose apex is Westphalia.  Clearly, whoever continues to teach it this way hasn’t visited the subcontinent where caste, identity, race, religion and nation state all compete for allegiance.  This contorted reality isn’t something that can be taught, it must be experienced and the best way to encounter it is language.

Chinese languages are tonal.  So is english in Briton.  Tonal incantations reveal class, just as they do in Shanghai, London and throughout the subcontinent.  This is a tactile reality that is only partially encapsulated in language.  To experience this as an encounter, one would need to ride the rails of India and witness the barrage of class separated upon ticketed in railways.

Beijing isn’t a credible proxy in the subcontinent.  It barely gains credibility outside of Bhutan, a small Buddhist nation state that it seeks to usurp.  Chinese partisans just recently found out that Bhutanese politico’s are housed in New Delhi, where India’s own address the fleeting concerns of Bhutan.  The heavy hand of Beijing isn’t credible within the social machinations of India and its dependencies.  India has historically dominated its smaller neighbors effortlessly much the same way the U.S. handles the Caribbean.

Beijing has proved to be a fast learner and has sought to envelop India.

Sri Lanka granted Beijing a 99 year lease on its geo-strategically southern cost.  In the recent Nepalese elections, two communist parties swept parliamentary polls having openly campaigned for stronger Chinese dependency.  The southern Maldives became the second south Asian nation state after Pakistan to ratify a free-trade agreement with China.  Chinese cartography dominates its view of the both trans-Indian trade and geopolitics.

What’s different this time around is the scale and speed of China’s incursion on the periphery of the subcontinent.  Beijing continues to test Bhutan’s traditional Indian orbit by openly building a road contested by India and China.

Even though New Delhi suffers from weak institutional constraints in its relations with border states throughout the subcontinent, Beijing continues to openly rely on a heavy approach in its relations with Indian dependencies.  The actual foundation underwriting this approach is racial, nevertheless, Indian consternation will have profound consequences that have yet to unfold.

India’s foreign aid has yet to break through a thicket of poorly reformed public sector companies.  And while Modi may be stumbling, Beijing hasn’t prepared for what is to happen when New Delhi pushes back.  India’s upper political chamber is riddled with oligarchic monopolies that can sustain, even rival the best sovereign intelligence networks in the world.

If China thinks it can openly solicit to dominate New Delhi on its periphery, just wait until its ensconced deep inside India.

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An Autocratic Bear; An Idealist Eagle

It has become frankly apparent that major news media throughout the United States have absolutely no interest in reporting the news, they wish to shape the news to damage any sitting Republican at the White House.  I think the vast majority of working American’s already know and accept this as fact.  What they may not know is team Trump’s implicit appeal to Putin’s rule is more than just an open solicitation to detente.  Its a paternalistic view that Russia’s development as a nation state has petered out.  Russian polity isn’t on autocratic autopilot, but its governing institutions don’t easily or readily accept the demands of an open, transparent market based system.

Let me put the matter frankly:  the vast majority of working Asians know and believe that they must produce something of value to participate in market based economies.  Every working Asian implicitly know this, it governs the public behavior of their citizens, their bureaucracies and universities.  This ethos of active participation in an extended order of cooperation has no history nor appeal to Russians.  It is this insight that dominates most of team Trump’s security detail in any emerging relation with Moscow.

Put simply:  U.S. and Russian interests diverge too profoundly to underwrite any cooperative framework.  But this insight propelled Flynn and hosts of others at the National Security Council to work ever harder to appease and openly promote an easing of relations outside of denunciating sanctions that continue to damage Putin’s oligarchic circle.

Russia has entered a cul-de-sac, in having openly abandoned market based reform of its polity, Moscow now resides in a second time-of-troubles; on opaque time absent any cohesive governing polity or dynasty.  Putin’s rule is based on an assertive foreign policy, replacing economic progress with a mythos of achievement abroad in service of Byzantine Holy Russia.

Putin has blunted the impact of U.S. sanctions by restructuring the states share of the Russian economy, while actively reducing deficits.  Inflation remains unanchored as commodity prices continue to soar.  Putin cannot ignore the dominant role his central bank plays in ameliorating the impact of sanctions; placing more emphasis on purchasing safe sovereign treasuries abroad, while usurping oil output in dollar denominated agencies in Venezuela and Libya.  Putin seeks more predictable business conditions domestically to replace lost foreign investment.  By any measure he cannot continue to hold out from U.S. sanctions, hence the horrific bombing of Aleppo as a means of punishing Obama.

The open hand to Russia hasn’t paid any dividend to either Obama or Trump.  Given Russia’s willingness to openly solicit and play nuclear brinkmanship with Iran and Riyadh while providing cover for Assad’s Quod’s force places Putin favorably in regions where Russian power has diminished.

At $40 a barrel for oil, he can’t stay anywhere long.

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Polygamy: the Passions of Pan-African Jihad

Paul Malong is South Sudan’s former army chief of staff with over 100 wives.  One recently ran off in hiding after remarrying a teacher.  Jane Austen’s admonition that we’re all fools in love never mentioned how to manage a cuckold warlord in a dangerous neighborhood. By any measure, the allure of conspicuous wealth throughout the trans-Sahel offers insight into the propaganda of jihadi’s as they openly seek new recruits.

It isn’t just Nigeria that has skyrocketing demography, South Sudan, Ethiopia, Somalia, Yemen and dozens of other Sunni dominated cultures are immune from the wiles of any secular vision of autonomy; for the larger one’s family, the more respect you command.

This isn’t confined to agriculturally based political economies, but those who trade on the littoral, even islands throughout the Philippines and Indonesia demonstrate the appeal of polygamy, especially as a recruiting tool for jihadi’s.

What Africom combatant commanders are learning is that weak governing institutions cannot explain the rise of jihadism in Africa.  African Islam is only recently associated with violence, (Algeria aside), having traditionally been associated with the east African Swahili or west African nation states nominally allied to the French enlightenment.  The new nation state of South Sudan has been rent by decades of civil war, tribalism, weak governing institutions and oil; not to mention Iran’s opening of Khartoum.  The de-stabalization of Sudanese matrimonial customs embodies greater upheaval throughout Islamic pan-Africa.

The top 20 most chaotic states in the Fragile States Index all possess the feature of polygamy. Nigeria and most of west Africa have long pre-colonial histories of women being married to more than one man, and even though plural marriages are plentiful throughout the Arab world, the custom of polygyny is ingrained throughout Southeast Asia, the Caribbean and Indonesia.  Two traits sustain an ecumenical pan-islamic view of custody of wives:  the nation states mentioned are all patrilineal, identity flows from the father. They’re also patrilocal, the new wife leaves her family to join her husband’s polymerous bonds.

Perhaps the strangest custom Africom combatant commanders face when discerning key social features of jihadi societies is the overwhelming price for brides.  It remains a critical factor predisposing young men to devote themselves to jihadi violence.  Muhammed Kasab was a Pakistani terrorist who joined Lashkar-e-Taiba and participated in the Mumbai terror attacks of 2008.  When asked about the origins of he predisposition toward jihadi violence, he said:  “LT promised to pay for his siblings marriage.”  Throughout Egypt and Nigeria, Boko Haram arranges marriages for its recruits and $1,500 towards a starter home with a free honeymoon in Raqqa.

The west cannot compete with this and by consequence cannot build functioning governments to address what is essentially a moral problem bordering on the nature of polity itself.

A reformation of Islam is a prerequisite to addressing the consequences of failed states throughout pan-African Islamic societies.  This can only happen within functioning Islamic societies in alliance with the west.  It should begin in Riyadh, Amman, Alexandria, London and D.C.  It should not ignore the role of sound money in a new Bretton Woods agreement, nor should the west ignore the appeal the west has among women throughout Islamic polities.

The west has wiles to apply in its political war with Islamism.  Ground zero in this engagement is rediscovering and tying East African Islamic polities to its Mughal past throughout the Indian Ocean.

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Why Taxes Matter: Growth vs. Redistribution

My father often said:  sometimes its who’s talking not what’s said.  Leadership matters, that’s why its important to find the right person to listen to about taxation, because its a dangerous form of social engineering.  An overt ideological pretext isn’t useful either, the kind often used in Europe and among Keynesians.  Gone is any notion of equity or capital formation.  Its all about the demand side of the equation, that’s because Keynesian technocrats view working folk as chattel and the state as monolithic.

But Chicago & Vienna have more in common that often acknowledged; more Hayek less Keynes is the solution to our Republic’s fiscal worries.  But to achieve this, we’re going to need stronger families, sound money, smaller government and surging equity, capital markets.  Growth matters more than redistribution.

This isn’t a world of fixed exchange rates and static social classes, we’ve got plenty of disruption that welcomes challenges that are fit for America.  The ‘Goldilocks’ economy of strong growth and low inflation matched by currency accords is long over.  But so is secular stagnation, the canard used by Keynesian types to evade the very responsibility to assume during upticks.

The real worry isn’t just diverging government yield curves, but stagnant corporate bond markets that aren’t liquid anymore.  The massive loss of IPO’s is matched by unwilling consumers underwriting failing monetary policies and redistribution masquerading as social engineering.  The working person knows a thing or two about getting screwed. What no progressive ever acknowledges are trends in the social base line of empty malls and surging corporate buy-backs.

This is why people flock to Robert Shiller’s CAPE index.  His cyclically adjusted price earnings ratio averages corporate profits over ten year periods.  It remains a standard bearer measuring valuation.  Shiller’s CAPE index finds that today’s exceedingly high valuations match those of 1929.  Don’t panic though, there’s sound reasoning why this is occurring.

Profits are high relative to GDP at the moment, but most of this is explained by a shift favoring capital at the expense of labor during the great recession of 2008.  It also reflects a greater concentration of monopoly like wealth at the margin.  Such short term views don’t appreciate the fusion of labor and capital under digitization that occurred after the end of the Cold War.  It is this shift that is permanent, evidenced in surging education programs, podcasts, TED video’s and other forms of irregular education.

We should remember that future equity returns are dependent on two sources:  growth in profits or the market’s placing a higher valuation on future profits.  Likewise, GDP growth is dependent on surging employment matched to productivity enhancing technology. This is why corporate tax cuts matter.

Currently, the longterm CAPE trend is 16.8; today it is 30.

Next summer will tell if team Trump has delivered on growth.  My monies on the working American.

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