There is a symmetry in the heavy-handed behavior of the Feds and the reporters in mainstream media, especially given the budgetary cutbacks in the latter. First, foreign affairs.
By all accounts, al-Qaeda is in Pakistan more than Afghanistan. The U. S. has provided aid to the former to engage in civil war against its "militants" in the traditionally independent mountainous areas near Afghanistan who are sympathetic to and presumably harboring al-Qaeda leadership. The authorities provide a statement that makes for a good headline: South Waziristan offensive very successful, says Qureshi.
But read on . . .
Foreign Minister Shah Mehmood Qureshi said the military has made significant headway in the region, part of the tribal belt where United States officials say Al-Qaeda is plotting attacks on the west.
‘The operation so far has been very successful. The resistance that we were expecting initially did not come with the same stiffness as we expected,’ he said on the sidelines of a conference of developing nations in Kuala Lumpur.
The resistance was less than expected. Hmmm . . .
Think guerrilla warfare might be in the offing?
At home, the negligent/uninformed and incoherent response to the evolving financial crisis by the Bush administration, the Fed, and Congress-- that is, the Government, continues under a new administration. Thus I call it the Bushbama Continuity from a Big Finance perspective. The powerful against the people; look at the unemployment rate vs. Goldman Sachs' bonus pool to guess who's winning.
Just as mortgage-holders are doing with many mortgagees, it's an "extend and pretend" strategy on the economy. Pump Q3 up with a CARS/cash-for-clunkers clunker of a program-- one which would not accept a literally clunker for trade-in if when it was purchased new was fuel efficient-- annualize the pitiful growth including this sham-- and declare victory. The stock market cheered for a day on low volume and dropped more the next day than it rose the day of the announcement.
As stated here many times, and as supported by Bill Gross' analysis at PIMCO of long-term asset prices, the prices of financial assets has gotten well above that which is supportable by real incomes of actual human beings. The happy end will be for real incomes to rise while real asset prices stay roughly stable. The truly unhappy trajectory will be for real incomes to not rise, or even fall, while asset prices drop to be in line with or even below trend in relation to incomes. Perhaps there will be a meeting in the middle, or incomes and asset prices will both rise. No one knows, but this relationship is so basic that the prudent course is to expect a reversion to a more traditional, sensible and sustainable relationship. From a social standpoint, it's a no-brainer: people trump prices of financial assets.
The U. S. is borrowing from relatively poor Chinese and OPEC members to fund a bankrupt Pakistan's war in the mountains and its own war in Afghanistan. Similar but larger borrowings from abroad are funding a senseless propping up of financial institutions and the stock- and bond-holders thereof.
Whatever the national security merits of the war activities, the best we will get out of them will be terrorism averted. There are no known important natural resources in Pak-ghanistan. So the borrowed money is a drag on the economy in that regard. Domestically, I'm all in favor of finance in theory, but I'm more in favor of borrowing money when there is a projected positive return on capital that exceeds the cost and risk of taking on debt.
The markets know all this. They too have been pretending that there is a strong durable recovery underway.
Let us hope that it occurs. It is not here yet, however, and markets can swing from ebullience about a brilliant hoped-for future to pessimism about a horrible future despite the arrival of that brilliant future; thus they can decline below today's level even after the economy turns up strongly (if that occurs). The government should turn its attention away from propping up industries that were hot in the past such as autos, finance and the military and work on accelerating America's transition to clean growth industries. It's a small thing but indicative of the wrong trend to see the House leadership come up with a healthcare proposal that taxes medical device makers for any reason. The U. S. is the world leader in medical devices. That field already provides positive cash flow to America in its trade with other countries and has huge secular growth potential. It would be far better to tax old polluting industries in which we have a negative external balance of trade, such as petroleum products and autos, which have no real growth potential and pollute the world, and also to withdraw the gigantic subsidies on homes--which cannot be exported.
Until there is true change I can believe in--which historically takes crisis or passage of time to bring on-- I thus remain fundamentally bearish on American financial assets, even if economic activity picks up as it likely will for at least a while after a lostt decade of no private job growth.
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