Futures Surge on "Pathetic" Debt Deal; Congress Should be Ashamed; US Deserves Debt Downgrade; Is Boehner Balking Over Cuts to Military Spending?

After spending a day in the garden weeding and transplanting I arrive at my computer to see S&P futures up 20 points, 1.5% on news a compromise was reached. Quite frankly this is ludicrous given that anyone not brain dead knew a deal would be reached.

Let's pick up the action starting with U.S. Stock Futures Advance as Obama, Lawmakers Agree to Raise Debt Limit

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index may rebound from its worst weekly loss in a year, as President Barack Obama announced an agreement to raise the federal debt limit and avoid a default.

Obama said in remarks at the White House that both parties in the U.S. House and Senate had reached an agreement to raise the nation’s borrowing limit and cut the federal deficit.

“A lot of people were short the dollar and U.S. equities into the weekend, betting that we wouldn’t have a deal,” Frederic Dickson, who helps oversee $28 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “Now investors will be reversing those positions as things are looking better than they did on Friday, even though there are still some hurdles to climb in the next 48 hours.”

Let's stop right there and point out genuine BullSweet starting with a US dollar intraday chart.

US$ 15-Mimute Chart



Does anyone see a short covering rally in the dollar? I sure don't.

Had there been an agreement to reduce the deficit by $4 trillion we might have seem one, but this deal changes nothing. Bear in mind this is coming from someone who is currently bullish on the US dollar.

Let's ask another question: Who did not expect a deal?

I accuse Frederic Dickson of genuine BullSweet.

The article continues ...

The framework of the debt agreement would raise the $14.3 trillion debt ceiling through 2012, cut spending by about $1 trillion and call for enactment of a law shaving another $1.5 trillion from long-term debt by 2021 -- or institute punishing reductions across all government areas, including Medicare and defense programs, according to congressional officials.

Senate Majority Leader Harry Reid, a Democrat, endorsed the emerging accord among Republican leaders and the Obama administration even as negotiators were working out the final details. Senate Minority Leader Mitch McConnell told senators tonight that the U.S. will not default on its obligations.

Both S&P and Moody’s Investors Service are weighing a reduction of the U.S. credit rating. The impasse boosted to 50 percent the chance S&P will cut the grade from AAA within three months, the ratings company said last month.

Pathetic Deal

This is a pathetic deal. It's no wonder futures are rallying. My dead grandmother could find more cuts than this. The S&P, Moody's, and Fitch should all downgrade US debt on this deal.

$1 trillion up front and promises to cut another $1.5 trillion is the wimpiest of wimpy deals. The deficit is 1.4 Trillion. The immediate cut is a back loaded $100 billion. Then there is a possibility of another $150 billion back loaded cuts.

Anyone voting for this monstrosity should be ashamed.

Is Boehner Balking?

Here is something I picked up from Zero Hedge.

The Wall Street Journal "Washington Wire" comments on the The U.S. Debt Battle

5:24 pm: House Speaker John Boehner (R., Ohio) appears to be balking at the debt ceiling deal that Senate Democratic Majority Leader Harry Reid of Nevada has signed. Mr. Boehner is concerned about provisions in the deal that could lead to sharp cuts in military spending, say people familiar with the situation. House aides have warned that just because Mr. Reid has signed off on the deal doesn’t mean the deal is done.

Ludicrous Deal Solves Nothing

This deal is ludicrous because it does not cut enough. Congress should be ashamed.

If Boehner is concerned about excessive cuts to military spending in this deal he has truly lost his marbles.

If it was up to me, I would pull all our troops out of Iraq, Afghanistan, Japan, Europe, and 140 countries where we have troops. If we did that, we could concentrate on protecting our borders instead of being the world's policeman. The savings would be enormous.

By the way, it would be fitting if this futures ramp was the mother of all gap-and-craps. This deal solves nothing.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Tyrants Are Cowards

Tyrants make themselves out to be fearless and all-powerful.

But they are really cowards.

For example:

• Virtually all of the neocon warmongers are chickenhawks who dodged service to their country
  

• When the mother of a dead soldier showed up at Bush's ranch, he was too cowardly to even meet her

• Current Attorney General Mukasey - who is stomping on the rule of law and trying to prop up dictatorship as fast as he can - literally collapsed when a judge called him a "tyrant" at a public event
  

• Former AG Alberto Gonzales - who did the same as Mukasey - whines that he can't find a job: “for some reason, I am portrayed as the one who is evil in formulating policies that people disagree with. I consider myself a casualty, one of the many casualties of the war on terror.”

• Hank Paulson - the financial dictator who unilaterally has decided who who is getting trillions in government bailouts, refuses to disclose the names to anyone (including to the Congressional oversight committee for the bailout or in response to media lawsuits), and who arbitrarily changed laws without the consent of Congress - is crying about not having enough tools to work with
  

• Mastermind of many nefarious crimes Karl Rove snivels that Bush-haters were responsible for ruining Bush's reputation
  

• Former Navy Judge Advocate General Admiral John Hutson said of the Bush torture program: "Torture is the technique of choice of the . . . pseudo-tough.”

As R. Eddington wrote:

When I was a young boy, I was always taught "scratch a bully, find a coward". And here we have not one but two cowards at the head of the current administration. One of which - when it was his turn to offer his military service to his country - ran and hid in the Texas Air National Guard (complete military records NOT available upon asking!) and another who got at least FIVE deferments so he wouldn't have to bring his sorry behind to Vietnam.

Scratch a tyrant, find a coward.

On the other hand, real men stand up to tyrants.

Weekend Diversions: "Spectacular" Double Meteor Shower This Week; Space-Time Cloak Could Make Events Disappear; Invisibility Cloaks from Calcite

Had enough of the debt ceiling fiasco? If so here are a few interesting weekend diversions courtesy of National Geographic.

"Spectacular" Double Meteor Shower This Week

One of the best shooting star events of the year is the annual August Perseid meteor shower. However this year's peak, on August 12, happens to coincide with a bright full moon—drastically cutting down the number of meteors visible to the naked eye.



Yet while the main event might be blocked out by the blinding moonlight, the opening act promises to be much better.

This year the lesser known Delta Aquarid meteor shower is expected to peak on Friday night, when the Delta Aquarids' more productive Perseid cousin is just starting to ramp up.

Together the showers will produce anywhere between 15 and 30 shooting stars per hour under clear, dark skies.

On average, the Perseids begin falling at a rate of around five meteors per hour. They're visible for a couple of weeks before mid-August, when they peak at hourly rates of 60 to 120 meteors.

Most people around the world can see the showers, best seen with the naked eye in a dark, rural area away from city lights. Since meteors will be streaking across the overhead skies, lie down on a blanket or recline in a lawn chair and allow your eyes to become adapted to the darkness, Samra suggested.

"Meteor shower activity always increases as the night progresses towards dawn. If you are a night owl, then staying up to catch a more spectacular show might be worth it."

But all may not be lost with the Perseids—observing the sky show a few days before the August 12 peak may work too, noted astronomer Geza Gyuk of the Adler Plaentarium in Chicago.

"For example, on the night of the ninth, morning of the tenth, there will be a couple hours after the moon has set [about 2 a.m. local time] and before the morning twilight begins when it's close enough to the peak that one might expect 15 per hour."

"They are also known for the occasional nice fireball with a long-lasting 'smoke trail,'" Gyuk said. "If we get more of these than usual, then even moonlight won't spoil the fun."

Perseid Pictures: Meteor Shower Dazzles Every August



One of many images in the link.

Space-Time Cloak Possible, Could Make Events Disappear?

It's no illusion: Science has found a way to make not just objects but entire events disappear, experts say.



According to new research by British physicists, it's theoretically possible to create a material that can hide an entire bank heist from human eyes and surveillance cameras.

"The concepts are basically quite simple," said Paul Kinsler, a physicist at Imperial College London, who created the idea with colleagues Martin McCall and Alberto Favaro.

Unlike invisibility cloaks—some of which have been made to work at very small scales—the event cloak would do more than bend light around an object.

(Also see "Acoustic 'Invisibility' Cloaks Possible, Study Says.")

Instead this cloak would use special materials filled with metallic arrays designed to adjust the speed of light passing through.

In theory, the cloak would slow down light coming into the robbery scene while the safecracker is at work. When the robbery is complete, the process would be reversed, with the slowed light now racing to catch back up.

If the "before" and "after" visions are seamlessly stitched together, there should be no visible trace that anything untoward has happened. One second there's a closed safe, and the next second the safe has been emptied.

Currently, nobody knows how to do that except in fiber optics, in which the speed of a signal can be varied by a few percent by changing the intensity of the light.

There are still a few hitches to address, though, before attempting such an experiment, according to the University of St. Andrews's Leonhardt.

For instance, being able to cloak an event lasting more than a few femtoseconds—one-millionth of a nanosecond—would require light from an immensely powerful laser, he said.

"The experiment is not entirely impossible, but it is at the limit of what one can do with present technology in an ordinary university laboratory," Leonhardt said.

New Invisibility Cloak Closer to Working "Magic"

A pink object seems to vanish behind a chunk of calcite, underwater and illuminated by green light.

Harry Potter and Bilbo Baggins, take note: Scientists are a step closer to conquering the "magic" of invisibility.

Many earlier cloaking systems turned objects "invisible" only under wavelengths of light that the human eye can't see. Others could conceal only microscopic objects. (See "Two New Cloaking Devices Close In on True Invisibility.")

But the new system, developed at Massachusetts Institute of Technology and the Singapore-MIT Alliance for Research and Technology (SMART) Centre, works in visible light and can hide objects big enough to see with the naked eye.

The "cloak" is made from two pieces of calcite crystal—a cheap, easily obtained mineral—stuck together in a certain configuration.

Calcite is highly anisotropic, which means that light coming from one side will exit at a different angle than light entering from another side. By using two different pieces of calcite, the researchers were able to bend light around a solid object placed between the crystals.

"Under the assembly there is a wedge-shaped gap," said MIT's George Barbastathis, who helped develop the new system. "The idea is that whatever you put under this gap, it looks from the outside like it is not there."

It is quite amazing the stuff scientists are working on and the images from National Geographic are spectacular. Inquiring minds will want to give some of those articles a closer look.

My weekend diversion is gardening and golf.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

European Economic Sentiment Falls Again In March

Both the EU Economic Sentiment Indicator (ESI) covering the EU 27 and the eurozone only one declined again in March, though the pace of decline was slower than in the first two months of the year. The indicator fell by 0.6 points in the EU, and by 0.7 points in the euro area, to 60.3 and 64.6 respectively. As a result the indicators for both regions now stand at their lowest levels since the current series was launched in January 1985.



The EU Commission attribute the fall in the ESI to deteriorating sentiment in the industry and services sectors, which both fell by 2 points, and in both regions. In other sectors, the picture was more mixed. Consumer sentiment stabilised in the EU, but fell by 1 point in the euro area. Retail trade increased by 2 points in the EU and by 1 point in the euro area, reinforcing the rebound which started in February. Unfortunately this rebound in sentiment is only reflected in the sales numbers insofar as the rate of contraction (and only in some cases) is declining.



Construction sentiment remained stable at the February level in both regions. Among the largest Member States, Italy saw the most significant decline in sentiment (-4.5 points), while the fall has been more marginal in France and Poland (-1.0), Germany (-0.8) and the UK (-0.4). Economic sentiment recovered slightly in the Netherlands (1.3) and (amazingly) in Spain (0.8).



The financial services confidence indicator – not included in the ESI – improved by 1 point in the EU but deteriorated by 4 points in the euro area, reversing the previous month's gain. Compared to February, managers' expectation of demand for their services worsened in both areas – significantly in the euro area, but to a much lesser extent in the EU.

To a certain extent each country is a "world unto itself" and this can be seen in the shape of the respective index curves.


South Eastern Europe

The economic climate is now deteriorating all over Eastern Europe, but the crisis has set in rather later than in the West. In Romania, for example, the deterioration clearly starts after October.

Central Europe

In central Europe the decline has been a little more muted than elsewhere, as can be seen in the Polish case.

The fall in the Czech Republic has been rather steeper than in Poland, although interestingly both countries "steady up" a bit in February and March, and I wonder to what extent this is a by-product of the German stimulus package, since Germany is a major customer for exports in both cases.

Hungary is, of course, the worst case, and the decline has been unremmiting since late summer. The Hungarian index is now the lowest (32.7) in the entire EU 27.

The Baltics

The Baltic decline is much smoother than the others, for the simple reason that it started much earlier (spring 2007). The end point looks to be not that different though - even if it is unlikely that many will see GDP contractions which are so sharp as the double digit ones which are now looming in the Baltics.

The Eurozone In The East

The two euro area members in the East also have quite an interesting profile. The drop in Slovania is quite dramatic after October (just like Romania) even though the euro in theory gives more protection. This will make an interesting topic for research papers long after the present crisis is over.

Slovakia's drop is much more steady, so there doesn't seem to have been much of a "euro entry" boost, which may, or may not, be a good thing. In any event the decline in sentiment is striking, and gives more food for thought following Moody's recent warning on Slovak competitiveness.

Dave Barry's Year in Review

I may be a few days late with this one, but I think everyone can still appreciate it. In light of the past year perhaps starting out the new one with some humor will help. Columnist Dave Barry has a humours but not completely inaccurate review of 2009. Happy 2010 everyone!

Italian Inflation March 2008

This is not good news at all. According to preliminary data released today by ISTAT Italy's inflation rate in March rose to the highest in more than 11 years, driven by gains in energy prices and a surge in the cost of food and housing. Consumer prices calculated by European Union standards rose 3.6 percent from a year earlier, up from last month's 3.1 percent rate, which had previously been the highest rate since the index was created in January 1997.



Consumer prices rose 1.6 percent in March from February, which is a very rapid rate indeed (annualised 18%). The rate of price increases has clearly accelerated and Italy - which has very low economic growth at this point (probably near zero, or worse) - could be said to be suffering from some variant of stagflation. This will not make it at all easy for the ECB to bring any kind of early reflief in the form of rate cuts (which could be just as important for their impact on the current high value of the euro which is crimping Italian exports, as for any easing of lending conditions) in the near future.

Italian transportation costs, which include gasoline, rose 1.4 percent from a month ago, and 5.8 percent from a year ago, based on the statistics institute's calculations. No breakdown was given of the EU-harmonized index. Prices of housing, water, electricity and fuel increased 4.4 percent from a year ago.

Food and beverage costs in Italy rose 0.7 percent from February and 5.5 percent from a year ago, led by increases in the prices of bread, cereal and pasta. Cereal costs rose 10 percent, bread was up 13 percent and pasta prices jumped 17 percent from a year ago. Fruit rose 6 percent and milk went up 10.5 percent.

Why Israel is Attacking Gaza Now: “They Want It To Be Over Before The Next Administration Comes In”

Israeli's leading paper, Ha’aretz, writes:

Sources in the defense establishment said Defense Minister Ehud Barak instructed the Israel Defense Forces to prepare for the operation over six months ago, even as Israel was beginning to negotiate a ceasefire agreement with Hamas. According to the sources, Barak maintained that although the lull would allow Hamas to prepare for a showdown with Israel, the Israeli army needed time to prepare, as well.

Therefore, it is certain that Israel's massacre in Gaza is not related to any specific recent rocket attacks by Hamas.

So why did Israel choose this moment to attack Gaza?

Well, the Bush administration will be out in mere weeks. And while Obama has made nice with AIPAC and Israeli interests, Israel isn't sure that he will be as acommodating as the current administration.

As Phyllis Bennis writes:

The Israeli decision to launch the attacks on Gaza was a political, not security, decision. Just a day or two before the airstrikes, it was Israel that rejected Hamas’s diplomatic initiative aimed at extending the six-month-long ceasefire that had frayed but largely stayed together since June, and that expired 26 December. Hamas officials, working through Egyptian mediators, had urged Israel to lift the siege of Gaza as the basis for continuing an extended ceasefire. Israel, including Foreign Minister Tsipi Livni, of the “centrist” (in the Israeli context) Kadima Party, rejected the proposal. Livni, who went to Egypt but refused to seriously consider the Hamas offer, is running in a tight race for prime minister; her top opponent is the further-right Benyamin Netanyahu of the officially hawkish Likud party, who has campaigned against Livni and the Kadima government for their alleged “soft” approach to the Palestinians. With elections looming in February, no candidate can afford to appear anything but super-militaristic.

Further, it is certain that the Israeli government was eager to move militarily while Bush was still in office. The Washington Post quoted a Bush administration official saying that Israel struck in Gaza “because they want it to be over before the next administration comes in. They can’t predict how the next administration will handle it. And this is not the way they want to start with the new administration.”

Down to Earth in Germany

By Claus Vistesen: Copenhagen

(click pictures for better viewing)

It was hard not to sense that part of the IMF's recent inquiry into Germany's economy was also aimed at asking the country to eat a little bit of humble pie in the context of the ongoing difficulties facing the Eurozone. Consequently, Germany has been the poster child for the good pupil in class and an example to follow as the world seemed to have come to a near end in Greece, Spain and elsewhere. Today's hint from the IMF should alert us to the fact that all is not well in the so-called engine room of Germany.

(quote Bloomberg)

The International Monetary Fund cut its growth forecast for Germany after a recovery in Europe’s largest economy came to a halt, and said the government needs a “credible” plan to reduce its deficit. The IMF expects the German economy to expand 1.2 percent this year and 1.7 percent in 2011, the Washington-based lender said in a report published today. In January, the fund forecast growth of 1.5 percent in 2010 and 1.9 percent next year.

(...)

The IMF urged the German government to foster domestic consumer spending. “Strengthening domestic sources of growth will help cushion the German economy against external shocks as well as benefit the euro-area countries and the global economy by reducing trade and payments imbalances,” according to the report.

(...)

Germany mustn’t lose sight of its goal of fiscal consolidation, and policy makers must be careful as they exit from the economic support measures put in place during the global financial turbulence, the IMF said in the report.

“The authorities face the challenge of sustaining recovery while preparing to exit, as part of an international coordinated strategy, from the extraordinary measures introduced during the crisis,” it said. “Over time, fiscal policy will have to transition from support to credible consolidation.”

There are two concrete points of note above the first about how Germany should see to it that it expanded domestic demand has already gotten plenty of air time not least in the context of Merkel's continuing nein to any suggestion that Germany should aid Southern Europe in their plight through giving a little back in terms providing demand for imports.

The problem is of course that Germany is structurally positionend to be a supplier of a excess savings to the global economy through an external surplus. And the reason, well try almost four decades worth of below replacement fertility and next to non net migration, but I guess most of you know my rant here.

More importantly, this points us to the real underlying issue in the context of a global economy. In a recent very astute comment, Martin Wolf coined the concept Chermany to signify the folly of Germany and China in believing that they can demand that hitherto prolifigate deficit nations scale down while they continue ramping up external surpluses. This simply does not add up. Wolf really manages a home run with the following observation;

Behind all this is a fundamental divide. Surplus countries insist on continuing just as before. But they refuse to accept that their reliance on export surpluses must rebound upon themselves, once their customers go broke. Indeed, that is just what is happening. Meanwhile, countries that ran huge external deficits in the past can cut the massive fiscal deficits that result from post-bubble deleveraging by their private sectors only via a big surge in their net exports. If surplus countries fail to offset that shift, through expansion in aggregate demand, the world is inevitably caught in a “beggar-my-neighbour” battle: everybody seeks desperately to foist excess supplies on to their trading partners. That was a big part of the catastrophe of the 1930s, too.

So, Germany suffers from a bit of dillusion here. However, what caught my eye in particular was also the IMF's subtle but firm indication that Germany also has to tend to its public finances and now that growth seems to be less vibrant than initially assumed, it is all the more important that Germany takes proactive action sooner rather than later. And herin lies of course the rub since Germany is only surpassed by Japan when it comes to demographic ageing and thus the future liabilities of Germany are substantial.

True; Germany is moving into this with an overall lower level of debt/gdp and if there is something the Germans take pride in, it is their ability to impose self-inflicted pain and austerity to correct and to increase competitiveness and achieve growth from external sources. Yet, this brings us right back smack into the wall here since this is exactly where we don't want Germany to go, but exactly because of the demographic prospects, it is where Germany must go. In this way, Germany needs an external surplus for the same reason that Japan needs one; the expected return in the German economy and the underlying future government liabilities would not allow Germany to finance an external deficit at "acceptable" yields. This is curious in light of that that the yield on German bonds are used as benchmarks for the obvious reason that Germany is a net external lender, but what if this changed?

Of course, this is not only about Germany, but also about the majority of the Eurozone edifice which leaves, yet again the tricky question of just how we are to find those brave economies willing to stand on the opposite part of the scale as ageing and overleveraged economies crowd the savings surplus side.This is really the question we must answer (c.f. Wolf above) even if it is indeed tempting to rely on Germany to do the heavy lifting. So far, the signals from Germany have suggested that this won't happen with the good will of the German government, but ultimately it won't happen because Germany is fundamentally unable to step up to the plate and provide the capacity for the surplus of others.

One would hope that as Germany slowly wakes up to this reality and the limitations of its own economy, it will hopefully bring the country and her politicians back down to earth.

Deal or No Deal? ABC Says Tentative Deal to Raise Debt Ceiling Reached; White House Aid Denies Report; Does it Matter?

I was just getting ready to make a post titled After "Angry Exchange" Reid Postpones Senate Vote on His Plan; Majority Leader Conrad Hints at Raising Revenue Measures; Compromise in the Air.

Just before I hit enter on posting, word came that a deal was reached. I will continue with my original post (so that you can see sausage in the making) followed by the a description of the alleged yet White House denied deal.

Hints Compromise Amid Feud

Talk of compromise is in the air. House Majority Leader Conrad is surprisingly hinting at revenue raising measures. Meanwhile Senator Kyle suggests more progress is being made than it seems, even though Senator Reid postpones a vote on his proposal after an "angry exchange" with Republicans.

This negotiation smacks of a "don't blame me" effort from both parties that will put off all hard choices until later.

Reid Postpones Vote After Angry Exchange

The New York Times reports Hint of Deal as Congress Wrangles Over Debt Crisis

After a tense day of Congressional floor fights and angry exchanges, Senator Harry Reid, the majority leader, called off a planned showdown vote set for after midnight, but said he would convene the Senate at noon on Sunday for a vote an hour later. He said he wanted to give the new negotiations a chance to produce a plan to raise the federal debt limit in exchange for spending cuts and the creation of a new Congressional committee that would try to assemble a long-range deficit-cutting proposal.

The first indication off a softening of the hard lines that have marked weeks of partisan wrangling over the debt limit came in the afternoon when the two leading Congressional Republicans announced that they had reopened fiscal talks with the White House and expected their last-ditch drive to produce a compromise.

Following the House’s sharp rejection of a proposal by Mr. Reid to raise the debt limit and cut spending, Senator Mitch McConnell of Kentucky, the Republican leader and a linchpin in efforts to reach a deal, said he and Speaker John A. Boehner were “now fully engaged” in efforts with the White House to find a resolution that would tie an increase in the debt limit to spending cuts and other conditions.

The deal they were discussing, this person said, resembled the bill that Mr. Boehner won approval for in the House on Friday more than it did the one that Mr. Reid had proposed.

It would immediately raise the debt ceiling by about $1 trillion, accompanied by a similar range of spending cuts, and set up a new bipartisan committee that would work to find deeper cuts in exchange for a second debt limit increase that would extend through the 2012 election.

A failure of the new committee to win enactment of its proposal could then set off automatic spending cuts across the board, including to entitlement programs.

After Mr. McConnell sounded a hopeful note, Mr. Reid called members of the Senate to the floor to hear him dispute the claims by his Republican counterpart and accuse Republicans of failing to enter into serious negotiations even as the Treasury risked running out of money to pay all its bills after Tuesday.

“The speaker and Republican leader should know that merely saying you have an agreement in front of television cameras doesn’t make it so,” Mr. Reid said after returning from a visit to the White House with Representative Nancy Pelosi of California, the Democratic leader in the House.

The Treasury Department calculates that the government will exhaust its ability to borrow money at the end of Tuesday, forcing the government to pay its bills from a dwindling pile of cash. Independent analysts estimate the government has enough money on hand to pay all of its bills for another week, more or less, before it starts missing payments.

That sounds like more feud than compromise so let's take a look at the viewpoint on Bloomberg posted roughly three hours later at 10:41.

Majority Leader Conrad Hints at Raising Revenue Measures

Bloomberg reports Senate Postpones Vote on Reid Debt Plan as Talks Continue

“There are negotiations going on at the White House now,” Reid said on the Senate floor, and those involved in the talks wanted more time before a vote was held on whether the Senate moved ahead with his measure.

A planned 1 a.m. vote was pushed forward 12 hours, to 1 p.m. Reid said the Senate would convene at noon tomorrow.

“There are many elements to be finalized and there is still a distance to go before any arrangement can be completed,” Reid said of the talks involving Obama and congressional leaders.

Reid’s plan, which the House symbolically rejected earlier today, would lift the $14.3 trillion debt limit by $2.4 trillion.

Conrad, a North Dakota Democrat who is chairman of the Senate Budget Committee, said a few bipartisan groups of senators have drafted three alternative plans to supplement a proposal offered by Reid. The Republican-run House today defeated Reid’s plan.

The alternative plans include possible new revenue as part of their formula for cutting the federal deficit, according to Conrad. Republican leaders have said from the start of negotiations that a net increase in tax revenue is unacceptable.

“All three involve the possibility of revenue,” Conrad said. McConnell wasn’t among the Republicans involved in the alternative bipartisan plans, according to Conrad.

White House, Republicans Strike Tentative Deal To Raise Debt Ceiling

What follows now is breaking news of a deal. Please consider White House, Republicans Strike Tentative Deal To Raise Debt Ceiling

ABC News' Jonathan Karl reports:

ABC News has learned that Republicans and the White House have struck a tenative deal to raise the debt ceiling before the Aug. 2 deadline. It's not done yet, but here is the framework of the tentative deal they have worked out, according to a source familiar with the negotiations:

• Debt ceiling increase of up to $2.8 trillion
• Spending cuts of roughly $1 trillion
• Vote on the Balanced Budget Amendment
• Special committee to recommend cuts of $1.8 trillion (or whatever it takes to add up to the total of the debt ceiling increase)
• Committee must make recommendations before Thanksgiving recess
• If Congress does not approve those cuts by late December, automatic across-the-board cuts go into effect, including cuts to Defense and Medicare.

A senior White House aide pushed back against the idea that a deal was struck.

"Talks continue, but there is no deal to report," the aide said.

Deal or No Deal?

Even if there is a deal, it is no bargain to anyone. A vote on a balance budget will not pass so why bother other than for political finger-pointing purposes?

$1 trillion in presumably back-loaded spending cuts is a farce.

The special committee will not accomplish a thing. Even if by some miracle it achieves another $1.8 trillion in spending cuts, that still only brings the total to a lousy $2.8 trillion, or $280 billion a year in a $1.4 trillion deficit.

This is not even a reasonable down payment on what needs to happen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Is Chinese Steel Hurting the US Economy?

Today the United States International Trade Commission imposed tariffs on Chinese steel pipe, largely used in the oil and gas industry. Urged on by the US steel industry and an associated labor union, the tariff follows an earlier duty imposed on Chinese tires.

Clearly, the US steel industry and its workers will enjoy a short-term benefit from this policy. Long-term, it could make the industry less competitive. This would not be the first time. In the early 1800s, British iron producers used an advanced manufacturing process that made British iron superior to American-made iron. Rather than improve their techniques to compete, American iron producers reacted by appealing to Congress for protective tariffs against British iron producers. In 1842, Congress did as they asked, but British iron continued to be imported. In fact, as economic historian Larry Schweikart noted in his book, The Entrepreneurial Adventure, "When tariffs ended and protection was greatly reduced, iron production in America increased. …[B]y 1860 American mills had become fully competitive with the British, in part because the end of protection eliminated the old charcoal smelters and obsolete mills, leaving the newer anthracite smelters in a position to meet the demand for the newer nonrail products."

It's also clear that the consumers of steel pipe will suffer from this policy, including the oil and gas industry and all those who use their products (i.e. every consumer in the US). Each job saved in the steel industry could cost far more than the employee earned. However, in the well-rehearsed story of protectionism, even if the total losses to the victims greatly exceed the total gains to the winners--which is likely--the diffuse nature of those losses means that the victims are politically weak. The concentrated gains to a few provide the political impetus for tariffs.

By itself, this tariff won't spell the end of the US economy. But it is another small injury which, when matched by similar efforts by other protectionists, regulators, and interventionists of various stripes, can produce "a death by a thousand pricks."

Both Jim Rogers and Marc Faber to Short Long-Term Treasuries

Marc Faber says that investors should short long-term U.S. treasury bonds at the appropriate moment:

I think the big trade in 2009 will be to go short Treasurys massively -- I really mean massively -- because we may not have inflation for one, two, three years . . . .

Jim Rogers is saying the same thing. Rogers agrees that long-term treasuries are the last bubble, and is going to short them at the appropriate time.

Note: I am not an investment advisor and this should not be taken as investment advice.

Own-to-Rent with a Twist

I've been tossing this post around in my head for a while, and true to form as a lawyer, I didn't want to post anything until I had a fully developed view of the proposals. But I've decided to put my economist hat back on, throw out my impressions of the proposal, and then let other people tell me how wrong/stupid my impressions are.

Ralph Liu, who apparently created the first yuan-denominated interest-rate swap for Chinese banks, is promoting a financial product called SwapRent to help with the foreclosure crisis. In a SwapRent contract, homeowners facing foreclosure would sell a percentage of the future housing price appreciation to investors in exchange for a monthly subsidy sufficient to keep the homeowner out of default. A homeowner who entered into a SwapRent contract would essentially become a renter, but without giving up legal ownership. The investors would essentially be betting that the value of the house will rise. It's a variation on the shared-appreciation mortgage idea.

Housing prices would be determined by a price index, such as the MSA level of the OFHEO HPI. The duration of the SwapRent contract would vary (e.g. 1, 2, 5, or 10 years), as would the percentage of the price appreciation the investor gets. SwapRent contracts would also work the other way: homeowners could protect against declining housing prices by paying an investor a fixed amount to take on the downside risk. This Business Week article provides a nice summary of the SwapRent proposal (read the comments too, as Liu provides lengthy responses to some good questions). For a one-page summary, see here; for a Los Angeles Times article on Liu's proposal, see here.

Residential real estate futures and options markets are not new ideas, but they've never been able to attract enough buyers and sellers to get off the ground. SwapRent, however, already has at least one large class of potential buyers: investors holding mortgage-backed assets. If SwapRent could attract enough liquidity, it would not only reduce the number of foreclosures, but would also help stabilize the housing market in the future. If there had been a real estate futures market 10 years ago, the housing bubble probably wouldn't be wreaking as much havoc on the economy as it is today.

Ultimately, I'm not sure there are enough homeowners and investors in a position to use SwapRent for the proposal to have a huge impact on the foreclosure crisis. Assume housing prices have to fall another 15% nationally to reach the bottom (a generous assumption, given the most recent data). To make a significant impact on the foreclosure crisis, SwapRent needs investors who are willing to bet on price appreciation. But if housing prices still need to fall 15% to fully correct, then there won't be sufficient price appreciation to attract enough investors for a while. SwapRent would be very beneficial in communities where housing prices have reached the bottom in terms of supply and demand, but are in danger of falling too far due to foreclosures.

If investors think housing prices are declining largely because of foreclosures, then using SwapRent to avoid foreclosures would not only stop housing prices from declining further, but would also increase the chance of future housing price appreciation (and thus profit). I could be wrong about the number of buyers and sellers in a position to use SwapRent, and feel free to correct me if I am indeed wrong.

I do, however, think SwapRent could provide significant benefits beyond the foreclosure crisis. In the next post, I'll discuss the positive externalities generated by separating the legal and economic ownership of housing.

In 100 Years, the Neocons Will Be Recognized as the Tyrants They Are

Neocon John Bolton claims that “in 100 years,” people won’t remember two of the biggest stains on Bush’s record, Guantánamo Bay and Abu Ghraib:

“In the immediate aftermath of 9/11, he was strong and decisive and that was critical for both the country and for the Western world,” believes John Bolton. “In 100 years people aren’t going to remember Guantánamo or Abu Ghraib, they’re going to remember 9/11 and Bush’s reaction to it.”

Is he right?

No.

60 years after Hitler, the exact thing which we most remember are his concentration camps.

Do we remember the false threats he drummed up to scare his people? The fake threat from Poland, for example, which is the exact parallel to the Neocon's fake "war on terror"?

Well, people either understand that Hitler used false flag terror in the same way that the Neocons, or else they don't know anything about Gleiwitz Incident, the Reichstag fire and other precipitating incidents which Hitler used to drum up fear of an imaginary enemy.

One thing is for certain. In 100 years, 9/11 will be seen as an American Gleiwitz Incident, and the Neocons will be recognized as the tyrants they are.

Is India a Good Buy?

Chris Mayer, editor of leading investment advisor Agora Financial, writes:

I think now is a good time to pick up India’s blue chips, if you can sit with them for a while. I like emerging markets still. This is a pause, and not the end, of the emerging market growth story. It’s much bigger than most people think. India has less exposure to exports than China, has a lot of savings, little debt, a very young population (half under the age of 25) and some leading companies dirt-cheap…

Lots of problems, to be sure, as all emerging markets do, but India will come back.

BreakingViews.com writes in its VIEWSFLASH email service:

Japan is the least sick rich economy.

Neither November's export slide, nor Toyota's profit woes, are what they seem. Corrected for yen appreciation, exports were down 8.9%, imports up 6.9%. Japan's recession is mild and its fiscal stimulus modest. The yen's strength is a sign currency markets see underlying health.

In an article entitled How India Avoided a Crisis, the New York Times reports that while India has been severely affected by the economic crisis, it was not nearly as exposed as the U.S. Specifically, the Times reports that Indian regulators largely kept India's banks away from derivatives, securitizations, and other risky investments.

While the Indian economy is slowing, and is in recession, it is still doing better than just about any other economy. As Bloomberg writes:

Indian companies should prepare for economic growth of 7 percent in the year ending March 31, down from 9 percent or more the previous three years, the government said Dec. 23.

That pace is still the second-fastest among the major economies -- behind only China.

So buying some Indian stocks might be smart, as long as you can buy and hold for the long-term (until the worst of the depression is over).

Note: I am not an investment advisor and this should not be taken as investment advice.

Canada GDP Declines .3%, Largest Drop in Two Years - Don't Worry It's "Temporary"; Canadian Apologists Be Warned

Lost in the US deficit battles and the pathetic US GDP statistics comes yet another surprise: Canada’s Economy Shrank 0.3% in May Posting the Largest Drop in Two Years

Canada’s gross domestic product fell in May by the most in two years due to temporary disruptions in the mining and oil and gas sector, government data showed.

Output fell 0.3 percent in May to C$1.26 trillion ($1.32 trillion) on a seasonally adjusted basis, after being little changed in April and gaining 0.3 percent in March, Statistics Canada said today in Ottawa. Economists in a Bloomberg survey forecast the economy would grow 0.1 percent, based on the median of 24 responses.

The Bank of Canada said July 20 the economy’s growth probably slowed to 1.5 percent in the second quarter of this year, its slowest pace since the country emerged from recession in 2009, because of “supply disruptions” related to the earthquake and tsunami in Japan, slowing government spending and the impact of higher food and energy prices. Governor Mark Carney has kept the central bank’s benchmark policy rate at 1 percent since September.

“The weakness is slightly over-stated” in May because of temporary factors, said David Tulk, chief Canada macro strategist at TD Securities, though the numbers highlight how expansion in the second quarter has been a “lost cause.”

Canadian Apologists Be Warned

Canadian apologists say weakness is overstated and temporary. I say it's understated because few realize what is happening and how serious this is.

Global stimulus has faded. It's gone. Kaput. And that stimulus was the only thing holding this global economy together.

Strip out government spending, QE madness in the US, and unsustainable credit growth in China and you have a flatline global economy at best.

It's Not Temporary

Headline be damned, it's not temporary.

Europe is now in austerity-mode, US cities and states are cutting back, the odds of more fiscal stimulus in the US are roughly zero, the US might (and should) lose its AAA rating, Australia is a basket case on the bursting of its property bubble, Canada has the second or third largest property bubble next to China and Australia, the bond market is targeting Italy and Spain, Brazilian defaults are soaring, China is overheating and needs to slow, yet the average economist is looking for a robust second-half. Go figure.

In aggregate, economists are the most optimistic group on the planet.

For a look at the US GDP situation, please consider US GDP on Verge of Contraction in 1st Quarter, Mere 1.3% Annual Rate 2nd Quarter; Summary of Massive Revisions; Second-Half Recovery Nonsense

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

High-Level Officials Warn of Fake Terror

A variety of current and former high-level officials have recently warned that the Bush administration is attempting to instill a dictatorship in America, and will itself carry out a fake terrorist attack in order to obtain one.

Background

FBI agents, Time Magazine, Keith Olbermann and The Washington Post and Rolling Stone have all stated that the administration has issued terror alerts based on scant intelligence in order to rally people around the flag when the administration was suffering in the polls. This implies — as an initial matter only — that the administration will play fast and loose with the facts in order to instill fear for political purposes

More to the point, a former prominent republican congressman stated that the U.S. is close to becoming a totalitarian society and that the Bush administration is using fear to try to ensure that this happens.

General Tommy Franks stated that if another terrorist attack occurs in the United States "the Constitution will likely be discarded in favor of a military form of government".

Current U.S. Congressman Ron Paul stated, the government "is determined to have martial law", and that the government is hoping to get the people "fearful enough that they will accept the man on the white horse"

And Daniel Ellsberg, the famous Pentagon Papers whistleblower, said "if there is another terror attack, "I believe the president will get what he wants", which will include a dictatorship.

Terror on U.S. Citizens by American Government?

But would the government actually kills its own people to instill sufficient fear so that it can get what it wants? Read what the following very smart people are saying, and then judge for yourself:

A retired 27-year CIA analyst who prepared and presented Presidential Daily Briefs and served as a high-level analyst for several presidents, stated that if there was another major attack in the U.S., it would lead to martial law. He went on to say:

"We have to be careful, if somebody does this kind of provocation, big violent explosions of some kind, we have to not take the word of the masters there in Washington that this was some terrorist event because it could well be a provocation allowing them, or seemingly to allow them to get what they want."

The former CIA analyst would not put it past the government to "play fast and loose" with terror alerts and warnings and even events themselves in order to rally people behind the flag

The former assistant secretary of treasury in the Reagan administration, called the "Father of Reaganomics", who is a former editor and columnist for the Wall Street Journal, Business Week, and Scripps Howard News Service, and, said:

"Ask yourself: Would a government that has lied us into two wars and is working to lie us into an attack on Iran shrink from staging "terrorist" attacks in order to remove opposition to its agenda?" He goes on to say:

If the Bush administration wants to continue its wars in the Middle East and to entrench the "unitary executive" at home, it will have to conduct some false flag operations that will both frighten and anger the American people and make them accept Bush's declaration of "national emergency" and the return of the draft. Alternatively, the administration could simply allow any real terrorist plot to proceed without hindrance.

A series of staged or permitted attacks would be spun by the captive media as a vindication of the neoconsevatives' Islamophobic policy, the intention of which is to destroy all Middle Eastern governments that are not American puppet states. Success would give the US control over oil, but the main purpose is to eliminate any resistance to Israel's complete absorption of Palestine into Greater Israel.

Think about it. If another 9/11-type "security failure" were not in the works, why would Homeland Security czar Chertoff go to the trouble of convincing the Chicago Tribune that Americans have become complacent about terrorist threats and that he has "a gut feeling" that America will soon be hit hard?

A member of the British Parliament stated that "there is a very real danger" that the American government will stage a false flag terror attack in order to justify war against Iran and to gain complete control domestically

A former National Security Adviser told the Senate that a terrorist act might be carried out in the U.S. and falsely blamed on Iran to justify war against that nation.

President Carter recently impliedly acknowledged the risk of staged provocation in order to start a war against Iran.

Former Senator Gary Hart warned Americans that the White House might create a "Gulf of Tonkin" or "remember the Maine" type incident to justify war against Iran (starting at 7:15 minutes)

The former UN Weapons Inspector, an American, who stated before the Iraq war started that there were no weapons of mass destruction is now saying that he would not rule out staged government terror by the U.S. government.

And an allegedly-leaked GOP memo touts a new terror attack as a way to reverse the party's decline.

No way, That's Nuts

Sounds nuts, right?

Sorry to have to tell you, but "false flag terror" -- that is, state-sponsored terrorism, blamed on the "bad guys" of choice -- is an age-old trick which has been used by governments around the world for thousands of years to consolidate power and create support from their people. See this article on the Reichstag fire, and this article on the perennial ploy of those grabbing power.

But even recent events provide a glimpse into the world of false flag terror:

The well-respected former Indonesian president believes that the government may have had a role in the Bali bombings (see also this video).

And Americans dressed as Arabs have apparently been setting off car bombs in Iraq (apparently, when it was discovered that some of the cars used in Iraqi bombings recently came from the U.S., the cover story became American cars were involved in car bombings only because they had recently been stolen from the U.S. and then shipped to Iraq -- but does it make sense that Iraqi insurgents would steal cars in the U.S. and ship them all the way to Iraq?)

Similarly, Britain's false flag attacks in Iraq made the news. And the press has acknowledged that the death of the lead investigator into the Basra incident was mysterious.

And the former director of the National Security Agency said "By any measure the US has long used terrorism. In ‘78-79 the Senate was trying to pass a law against international terrorism - in every version they produced, the lawyers said the US would be in violation"(the audio is here)

History proves that the officials' warnings of a terror attack by our own government are well-founded.

Would They Be Planning to Use Troops Against Americans If They WEREN'T Stealing Our Money?

Political science professor at the University of Texas at El Paso Charles Boehmer points out that "The military was not called out during the Great Depression...."

So why is the military planning on how to crush civil protest in regards to the current economic crisis (see this, this, this, this, this and this)?

Is it because the theft - via "bailouts" and other hanky-panky by Treasury, the Fed and others - of hard-earned taxpayer wealth is so obvious that the military expects Americans to revolt?

The other potential explanation is that the military has been told that this financial crisis could be much, much worse than the Great Depression.

So which is it? The obviousness of the theft or the severity of the crisis?

My guess . . . both.

43 Senate Republicans Sign Letter Opposing Reid’s Plan, Impasse Continues; Exchange with a Reader Over Tax Hikes

The impasse continues. Bloomberg reports Senate Republicans Will Reject Reid’s Debt Plan.

Senate Republicans will block Majority Leader Harry Reid’s debt-limit plan this weekend, Minority Leader Mitch McConnell said as a partisan impasse over deficit reduction continued days before a threatened default.

Reid’s bill “will not pass,” McConnell said today as the Senate resumed debate on the measure. He said 43 Senate Republicans signed a letter opposing Reid’s plan.

Reid, a Nevada Democrat, who offered modifications to a Democratic plan that he said are designed to attract Republican support, has accused Republican leaders of rebuffing his efforts to negotiate.

Reid said when he attempted to engage McConnell, a Kentucky Republican, in talks, “we had no one to negotiate with.” The majority leader plans a 3 p.m. news conference today.

Shortly after the Senate rejected Boehner’s plan, the House scheduled a preemptive vote for today on Reid’s proposal -- planning to defeat it even before the Senate takes it up. The House, back in session, plans to vote at about 2 or 2:30 p.m.

The Senate plans a procedural vote on Reid’s plan at about 1 a.m. tomorrow. A Senate vote on the plan then could be held at about 7 a.m. on Aug. 1, allowing the measure to return to the House before the Aug. 2 deadline.

The new plan would yield debt savings of $2.2 trillion -- about the same as the total borrowing authority extended -- and call on a 12-member bipartisan congressional committee to draft legislation to lower the deficit to 3 percent or less of gross domestic product.

Senator Scott Brown, a Massachusetts Republican, said his staff has been working with Reid’s to put “more teeth” in the joint committee plan.

Senator Lisa Murkowski, an Alaska Republican, said “absolutist” lawmakers aligned with the Tea Party have put the U.S. “on the brink.”

“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills -- we do -- but because we didn’t have a AAA political system to match our AAA credit rating,” Obama said earlier yesterday at the White House.

Senate Budget Committee Chairman Kent Conrad expressed confidence that lawmakers will head off a default.

Once again, and as recently noted in Great Divide; Boehner Rams Through Bill that Senate Quickly Rejects; Obama's Idle Threats and Fear Mongering the idea of a default is complete silliness.

Nonetheless, expect both parties and president Obama to crow when a gaseous plan is passed that will allegedly have "saved the US from default"

Fear Mongering

Caroline Baum repeated my message on Friday in Obama, Geithner May Regret Threats of Default

Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.

Toothless Details

Senator Scott Brown wants to put “more teeth” in the joint committee plan. One tooth would suffice because the plan is currently toothless.

Guaranteed Vote is Meaningless

This whole idea of McConnell's about abdicating responsibility to a "powerful" committed with a "guaranteed" vote on proposals is of course ridiculous.

Look at the rejection of Reid's plans in the Senate and House, and the Rejection of the Boehner's plan in the Senate. Look at the whining of Nancy Pelosi about cuts to Medicare and Medicaid, and Social Security.

So what does the "guaranteed vote" do but put lipstick on a turkey?

The "Gang-of-Six" put together a $4 trillion proposal that was a down payment on attacking the deficit and that could not pass. Somehow a "Gang-of-Twelve" is going to do better. Please be serious.

The more people you put into a mix, the harder it will be to get an agreement. Even if by some miracle an agreement from the "Gang-of-Twelve" is reached, you still have a hurdle of passing the "guaranteed vote" in the House and Senate.

This "Gang-of-Twelve" idea is nothing but a plan to put off doing anything about the deficit until after the election. Republicans and Democrats will both have wimped out if that is the "solution".

Exchange with Reader "Grant"

Reader "Grant" responded to my post, and we had the following exchange.

Grant: Why you take Obama at his word when he says he was willing to make "hard choices" continues to elude me, especially given his track record of reneging on pretty much every campaign promise he made (wars, transparency, civil liberties, indefinite detentions, etc.) still mystifies me.

Mish: Nowhere did I say the Democrats would have accepted. Indeed I think and have stated several times before they wouldn't. However, the offer would put Republicans in a No-Lose situation.

Would Democrats have gone along? If not, Obama and the Democrats would have been seen as the deal-killers, not Republicans. If the Democrats accepted, it would have been well worth it.

Republicans win if the deal was accepted, they win if the deal was rejected.

Grant: Except this scenario already played out. Who got the blame? Not Obama. Not the Democrats. Boehner and the GOP did.

Mish: And why is that Grant?

The answer is Republicans would not accept any tax hikes. My deal allowed them.

Some Things Far More Important than Trivial Tax Hikes

Some things are far more important than concession on closing a few loopholes to get $1 trillion in tax hikes. President Obama repeatedly said he was willing to make "hard choices". Republicans could easily have put him to the test.

My proposal was to challenge Obama to accept the tax hikes he asked for on a 3-1 ratio of cuts-to-to hikes in return for these three things Republicans want.

1. Scrapping Davis Bacon
2. Ending collective bargaining of public unions
3. National right-to-work legislation

I would gladly trade $1 trillion in tax hikes for those badly needed measures. Would Democrats have accepted? Probably not but one never knows unless one tries. However, either way the Republicans would have won.

Had Obama backed down it would have been his fault. Had he accepted the bargain would have well worth it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Scalia Tries to Apologize for Torture . . . Fails, Violating the War Crimes Act of 1996 in the Process

Supreme Court Justice Scalia says that torture doesn't constitute “cruel and unusual punishment”, because torture is not meant to punish, but only to get information.

Mr. Scalia's argument fails for several reasons.

Torture Does not Generate Useful Information

Initially, torture is a notoriously inaccurate way to obtain information. Indeed, it is well-known by professional interrogators that torture doesn't work. Experts on interrogation say that torture actually interferes with the ability to gather useful information.

So if torture is not an information-gathering technique, its only purpose must be punishment and/or intimidation.

Torturing People Who Can't Give Useful Information is Cruel and Unusual Punishment

Moreover, most of the people tortured in the "war on terror" were innocent farmers, villagers, who those against whom the neighbors who turned them in for a cash reward had a grudge against. And children were tortured.

Many of these people did not have any useful information. And since the U.S. military stressed quantity over quality (not actually demanding hard intelligence or probable cause to suspect that someone was a bad guy), this did not constitute a useful intelligence-gathering exercise, but simply horrific punishment.

Indeed, some of the people tortured as part of the "war on terror" were literally crazy, and no amount of interrogation or torture would generate any useful intelligence.

This was illustrated by an article in the Washington Post:

Retired FBI agent Daniel Coleman, who led an examination of documents after Abu Zubaida's capture in early 2002 and worked on the case, said the CIA's harsh tactics cast doubt on the credibility of Abu Zubaida's information.

"I don't have confidence in anything he says, because once you go down that road, everything you say is tainted," Coleman said, referring to the harsh measures. "He was talking before they did that to him, but they didn't believe him. The problem is they didn't realize he didn't know all that much."

***

"They said, 'You've got to be kidding me,' " said Coleman, recalling accounts from FBI employees who were there. " 'This guy's a Muslim. That's not going to win his confidence. Are you trying to get information out of him or just belittle him?'" Coleman helped lead the bureau's efforts against Osama bin Laden for a decade, ending in 2004.

Coleman goes on to say:

Abu Zubaida ... was a "safehouse keeper" with mental problems who claimed to know more about al-Qaeda and its inner workings than he really did.

***
Looking at other evidence, including a serious head injury that Abu Zubaida had suffered years earlier, Coleman and others at the FBI believed that he had severe mental problems that called his credibility into question. "They all knew he was crazy, and they knew he was always on the damn phone," Coleman said, referring to al-Qaeda operatives. "You think they're going to tell him anything?"

The article also says that Abu Zubaida might have been tortured for months.

(Indeed, even prisoners who were not previously crazy ended up that way after being severely tortured.)

Sorry, Mr. Scalia. Torture is not a valid information-gathering technique. It is, in fact, the cruelest and most unusual punishment there is.

By the way, anyone, no matter how high and mighty, who helps create, promote, or justify policies that violate the Geneva Convention is guilty of violating the War Crimes Act of 1996. See this, this, this, this, and this.

So you have not only failed to justify torture, sir, you have also opened yourself up to very serious charges. And see this.

Declining Oil Production = Rising Inventories?

Somehow, when I was writing the post about whether oil producers are keeping oil in the ground rather than storing it in inventories, I missed this story in the WSJ:

The world's top oil producers are proving unable to put more barrels on thirsty world markets despite sky-high prices, a shift that defies traditional market logic and looks set to continue.

Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world's top oil exporters fell 2.5% last year, despite a 57% increase in prices, a trend that appears to be holding true this year as well.

There are several reasons behind the net-export decline. Soaring profits from high-price crude have fueled a boom in oil demand in Saudi Arabia and across the Middle East, leaving less oil for export. At the same time, aging fields and sluggish investments have caused exports to drop significantly in Mexico, Norway and, most recently, Russia. The Organization of Petroleum Exporting Countries also cut production early last year and didn't move to boost supplies again until last fall.

In all, according to the Energy Department figures, net exports by the world's top 15 suppliers, which account for 45% of all production, fell by nearly a million barrels to 38.7 million barrels a day last year. The drop would have been steeper if not for heightened output in less-developed countries such as Angola and Libya, whose economies have yet to become big energy consumers.

The Fed has been cutting interest rates for 9 months now, so a year-over-year drop in oil production comports with Jeff Frankel's theory that interest rates are driving up oil prices by encouraging producers to keep oil in the ground. The drop in production does prove Frankel's theory, but it's a good data point.

The WSJ story also has this great chart:



UPDATE: I praised The Economist earlier today, but this week's cover story on oil prices is a clunker. Among other mistakes and omissions, it fails to recognize that keeping oil in the ground can be the same as hoarding oil in inventories:

The oil price is set in a market. For Shell, Exxon et al to hoard oil underground would be to leave billions of dollars of investment languishing unused.

This is true only if the price of oil isn't exptected to rise. If, however, the price of oil is expected to rise, then oil companies would hoard oil underground because they could extract it and sell it for a higher price later. I personally don't think this is happening on a large enough scale to affect oil prices, but I wish The Economist would make sure the author understands the argument before dismissing it in a cover story.

Eurozone Retail Sales Contract For the Tenth Month In Succession

The Bloomberg Euro-Zone Retail Purchasing Managers' Index - based on a mid-month survey of more than 1,000 executives in the euro area retail sector - rose marginally in March - to 44.1, up from 42.3 in February to 44.1 in March. This was the smallest monthly drop in the value of sales in five months, but it was still a drop, and quite a significant one, since the neutral point between contraction and expansion is 50. Still first quarter retail sales have seen an average monthly decline which is smaller than in the fourth quarter of last year (an effect of all those stimulus programmes), however sales have now fallen for ten consecutive months.

The German Sales Contraction Accelerates

Retail sales in Germany, the zone's largest economy, dropped for a 10th month in March as unemployment rose and manufacturing industry continued to grapple with a slump in export orders. The retail PMI dropped to 44.4 from 45.4 in February.

German households are cutting spending as a deepening economic slump forces companies to eliminate jobs, pushing up unemployment. The fall comes despite the decision of German Chancellor Angela Merkel to spend about 82 billion euros in measures to stimulate growth, including tax breaks and incentives to buy new cars.

“Consumers were generally unwilling to spend, while evidence of shorter working hours at local companies reportedly curtailed their buying power,” Markit said in the statement. “The overall decline may have been greater were it not for government incentives to scrap old motor vehicles, which continued to support sales in the automobile sector.”

The Italian Sales Contraction Enters Its 25th Month

Italian retail sales contracted for a 25th month in March as the country's worst recession in more than 30 years prompts companies to cut jobs, in the process eating away at consumer demand. The index was up slightly at 41.9, from 38.2 in February.

Italy slipped into its fourth recession since 2001 last year, sending the unemployment rate to a two-year high. The government has adopted around 40 billion euros in stimulus measures, but is constrained from spending more due to the high level of prior government debt. As a result the OECD forecast the economy will likely contract by 4.2 percent this year.

French Sales Hold Up A Little Better

France also saw a moderation in the rate of sales decline, with the pace easing from February's record but remaining steep. Month-on-month the index rose from 42.6 to 45.7, rounding off a first quarter that has seen the weakest sales performance in the history of the French survey. French retailers have reported falling sales in five of the past six months.