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AUGUST 7,   2011

SHORT TAKES ON THE DRIFTING WRECKAGE - AT 10:45 P.M. ET:

ASIAN MARKETS - Asian markets are sliding right now, partly as a reaction to the downgrading of America's credit rating.  It is the fifth straight session of loss on the Asian markets.  Everyone, of course, is anticipating the opening of the American stock market tomorrow morning.  At the same time, European bankers are strangling to save the economies of Spain and Italy, which are in desperate trouble.  The current saying is, "Spain is too big to fail, and Italy is too big to save."  You may be sure that there will be attempts in America tomorrow to stabilize the markets and prevent a Dow dive.  We can predict nothing.

INCREDIBLE – Saudi Arabia is withdrawing its ambassador to Syria in protest against the government crackdown on dissenters...just as the United States is sending its ambassador back to Damascus.  Can't we coordinate with our presumed allies?  By sending our ambassador back we once again show weakness in the face of another dictatorship, while even Saudi Arabia, not regularly known as one of the great backers of democracy, is taking a stronger stand against the Syrian regime. 

THE NEXT NIGHTMARE – Some economists are warning that, if we go into a second recession, it could be worse than the Great Recession that President Obama faced when he took office.  Their argument is that the economy is far weaker than it was then, and that we have fewer resources to fight economic decline.  We might also add to that the psychological factor of discouragement.   Our economic crisis began with the collapse of September, 2008.  We live in a fast-moving, impatient age.  If we go down again, the discouragement could be so great that it perpetuates the very problems we're trying to solve.

August 7, 2011       Permalink

BUT WHO ARE THESE DUDES? – AT 11:37 A.M. ET:  Now that "downgrade" is the word of the year, maybe we should introduce readers to the guys who made it so.  From the New York Post:

The Wall Street bean counter who trashed America's global credit reputation is a New Yorker who never studied economics, majored in literature and philosophy, and has a master's in English lit.

Yet John Chambers, 55, who lives with his wife, daughter and two dogs on Riverside Drive, has become the stern public face of Standard & Poor's, the private agency that wreaked havoc Friday night by notching down the nation's credit to double-A from triple-A.

David Beers, S&P's global head of sovereign ratings, Toronto analyst Nikola Swann and Chambers are the downgraders-in-chief who lowered the boom.

Now the trio is the focus of increasing scrutiny.

As economist and money manager Zachary Karabell said last month, their subjective decisions make them "emperors" wearing "very frayed robes."

Chambers grew up outside Kansas City, Kan., and went to liberal Grinnell College in Iowa, where he was a star on the swim team, ranking eighth in school history in the 1,000-meter freestyle.

After graduating in 1977 with a bachelor of arts in literature and philosophy, he went Ivy League, enrolling at Columbia University, where he got a master's degree in English literature.

Yikes.  The Columbia English Department is famous for contentiousness and pettiness.  There was a period, for years, when it couldn't hire professors because no one could agree. 

David Wargin, an S&P spokesman, told The Post that Chambers, a chartered financial analyst, chairs the agency's sovereign-rating committee, made up of "senior sovereign analysts" with various backgrounds.

But Wargin wouldn't say whether the committee was in disagreement over the US downgrade, Chambers declined to be interviewed for this story, and his wife backed her man, telling The Post, "I go on the wisdom of the people involved, including my husband."

Gulp.

Oddly, S&P's US downgrade was a departure from its rivals -- both of whom reaffirmed the triple-A rating last week when President Obama inked the debt-ceiling increase into law.

And...

Warren Buffett, for one, thinks S&P got it wrong. The United States, the billionaire investor yesterday told Bloomberg TV, merits a "quadruple-A" rating. The Oracle of Omaha also predicted that the nation would avoid another recession.

COMMENT:  We hope he's right, but it wouldn't hurt to change presidents next year. 

August 7, 2011       Permalink

THANKS, GUYS – AT 11:03 A.M. ET:   Standard & Poors certainly knows how to ruin a weekend.  From The Politico: 

One day after lowering the nation’s platinum triple-A credit rating, Standard & Poor’s analysts warned Saturday that the U.S. government could face a second downgrade if the economy continues to struggle and the government fails to make the cuts outlined in the debt ceiling agreement.

The ratings agency on Friday downgraded the nation to AA+ for the first time in history, saying partisanship in Washington is preventing dramatic deficit reduction.

S&P managing director John Chambers told reporters on a Saturday conference call that the toxic mix of a listless economy and political infighting will cause government debt to grow.

“Compared to some other highly rated governments, the U.S. government does not have the proactive ability to put public finances on a firm footing,” Chambers said.

His colleague David Beers said the partisan discord increases the risk that Washington will not achieve effective policy remedies.

“For that reason, there’s a lot of uncertainty about the future debt burden,” Beers said.

COMMENT:  I think this should be taken very seriously.  Aside from our international reputation, we are seriously risking major instability in the United States. 

And President Obama has yet to make a major statement on the downgrade. 

No enemy of the United States could have dreamed that we would come to this state, just two decades after our victory in the Cold War. 

August 7, 2011       Permalink

ZOLOFT IS AVAILABLE – AT 10:28 A.M. ET:  Markets overseas are reacting to the downgrading of the U.S. Government's credit rating.  The Israeli stock market is down five percent.  And the beat goes on:

Standard & Poor’s waited until all the stock markets went beddy-bye on Friday before announcing that President Obama’s borrowing of nearly $4 trillion since becoming president cost the nation its AAA credit rating.

While the Asian markets won’t open for a few more hours, Saudi Arabia’s stock market traded on Saturday and experienced a drop of more than 5%.

Most Mideast markets operate Sunday to Thursday. As the others opened on Sunday, they fell nearly as steeply.

And, from The Times of India:

DUBAI: Stocks are tumbling across the Middle East as most of the region's markets open for their first day of business following a historic downgrade of the United States' credit rating.

The main market index in the regional financial hub Dubai led the declines Sunday, plunging over 5 percent before rebounding slightly to a 4.4 per cent drop by midday local time. Other Gulf markets also opened sharply lower.

Mideast markets are the first to react to credit rating agency Standard & Poor's decision late Friday to cut the U.S. level one notch from its top AAA rating.

COMMENT:  The ultimate test will come tomorrow, August 8th, when the American markets open, unless we can figure out a way to declare a national holiday. Wait, wait.  Donny Most was born on August 8th in 1953.  You don't know who he is?  He was one of the cast of "Happy Days."  Ask your kids.  The man deserves a day for making your kids happy.  Take tomorrow off.  Close the markets.  Avoid the pain.  And celebrate Donny Most day properly.

August 7, 2011     Permalink

AUGUST 6,  2011

SHORT TAKES ON THE DRIFTING WRECKAGE - AT 11:54 P.M. ET:

HORROR STORY – There have, in recent days, been two separate flash mob attacks, one in Milwaukee and one in Pittsburgh.  Flash mobs are groups of "youths" who form and suddenly attack bystanders or rob stores, or both.  The participants in the recent spate of attacks around the United States, including several in the president's home city of Chicago, are usually African-American.   Newspapers, often reluctant to mention race, are now doing so more and more, which is correct.  We know, of course, that only a small number of black kids are involved, but they are dangerous and frightening, and something must be done, including faster police response and greater police patrols.  Ultimately, this is a cultural problem within a community.  The White House has chosen not to acknowledge the development.  We wish the president would speak out.

ITALY ON THE BRINK – Italy, a country for which I have unabashed affection, is in serious economic trouble.  As the world's eighth largest economy, trouble in Italy can spread beyond its borders.  A series of measures will be introduced into Italy's parliament soon that looks remarkably like measures recommended by conservatives in the United States.  They include a balanced budget amendment, and cuts in the cost of government, which in Italy also means subsidies to political parties.  It looks like Italy is in the right track.  It has, under most of its post-war governments, been a good ally to the United States and a base for American forces.

EXPLOITATION – As expected – we did a post on this hours ago – today's anniversary of the atomic bombing of Hiroshima is being used in Japan in campaigns against nuclear power for the future.  It's sad to see that.  There is no question that the recent release of radiation from an earthquake-damaged plant in Japan is a matter of the deepest concern, and there is no question that human negligence contributed to the tragedy.  But to try to bar all nuclear power seems to me no answer at all.  It's like trying to ban cars because of accidents.  The idea is to find ways to have nuclear power that is safe, and resistant even to natural catastrophes.  We didn't give up on ocean liners after the Titanic went down, and far more people died in that tragedy than in Japan's nuclear accident. 

August 6, 2011       Permalink 

LECTURE FROM CHINA – AT 11:47 A.M. ET:  For years many have warned that China holds too much of our debt, and could start demanding things of us in a financial crisis.  Well, the financial crisis is here, and China is demanding things. 

NEW YORK/SHANGHAI (Reuters) - China bluntly criticized the United States on Saturday one day after the superpower's credit rating was downgraded, saying the "good old days" of borrowing were over.

Standard & Poor's cut the U.S. long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation's budget deficits and climbing debt burden.

China -- the United States' biggest creditor -- said Washington only had itself to blame for its plight and called for a new stable global reserve currency.

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency said in a commentary...

...In the Xinhua commentary, China scorned the United States for its "debt addiction" and "short sighted" political wrangling.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," it said.

It urged the United States to cut military and social welfare expenditure. Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.

COMMENT:  Welcome to the new world.   China, not exactly a friend of the United States, now demands that we reduce our defense budget.  Gee, I wonder why.  Next it may well demand that we remove military assets from Asia.  And believe me, many Americans would be willing to go along, and not all of them will be liberals.

It is absolutely true that we got ourselves into this.  Both parties are to blame.  Now we have to get out of it, and it will be painful.  If we don't get out of it, there is risk of a further downgrade to the level of financially troubled nations like Spain. 

Financial observers differe as to whether the downgrade will have an immediate effect (Monday) on the stock market.  Some argue that the market had already taken into consideration the probability of a downgrade.  Others suggest that the stock market doesn't seem to have any connection with reality anyway.

August 6, 2011       Permalink

A DATE TO REMEMBER – AT 10:49 A.M. ET:  This is one of the most famous dates in American history.  It was on this date in 1945 that the United States dropped the atomic bomb on Hiroshima, Japan, in an attempt to bring World War II to a quick close.  Three days later we dropped a second bomb on Nagasaki.  The Pacific war that began with the Japanese invasion of Manchuria in 1931, and which escalated dramatically with the Japanese attack on Pearl Harbor in 1941, ended within a week.

There will be the usual hand-wringing today.  Of course, no moral person rejoiced in the terrible casualties suffered by the Japanese at Hiroshima and Nagasaki.  But the bombings, by bringing the war to a quick close, undoubtedly saved the lives of far more human beings than were taken.   Had the bombs not been used, the United States would have invaded Japan within months.  One can only contemplate the human carnage.

Since 1945 some on the political left have used the nuclear attacks to condemn America.  The Soviet Union was our ally in World War II, however, and such condemnations were not heard when the bombs were dropped.

Today we contemplate the possibility that nuclear weapons might fall into the hands of, or be developed by, terrorist groups and rogue states like Iran.  It is a horrible prospect because two nuclear devices set off in American cities would produce more casualties than have been suffered in all of America's wars combined.  And yet, as Iran moves forward with its nuclear program, our reaction is ineffective sanctions, and little more.

August 6, 2011      Permalink

TRAGEDY IN AFGHANISTAN – AT 10:29 A.M. ET:  The United States has suffered its single greatest loss in the history of the Afghan war:

KABUL, Afghanistan (AP) -- A military helicopter crashed in eastern Afghanistan, killing 31 U.S. special operation troops and seven Afghan commandos, the country's president said Saturday. An American official said it was apparently shot down, in the deadliest single incident for American forces in the decade-long war.

The Taliban claimed they downed the helicopter with rocket fire while it was taking part in a raid on a house where insurgents were gathered in the province of Wardak late Friday.

Americans have forgotten about Afghanistan.  This will remind them that Americans are still dying there, and it brings home once again the impact of the war on military families.  America is not at war.  The military is at war, and most Americans have no contact with the military. 

Cynics and propagandists will use this loss to advance their political platform on Afghanistan.  They always do.  We should do what is strategically wise.

Let us also remember that casualties in Iraq are increasing, just as we are pulling out.  The two are probably related, with attempts by Iran-backed insurgents to make life as miserable for our troops as possible, while destabilizing the country once we leave.

Once again, foreign policy goes to the front page, having been relegated to the sports section as we face our financial crisis.

August 6, 2011     Permalink