Middle East Decision Time?

"Yesterday I had an exchange with someone, formerly associated with an American intelligence agency, who claims to be knowledgable about the Middle East. I offered the following view on the Middle East, to which he later responded: Quite naturally the [US] has important interests in the Arab world, especially in terms of a commitment to protect certain Arab princes in the Gulf region, and to protect 'democracy' in Iraq. At the same time we wish to prevent a second holocaust--a second mass extermination of Jews. Seen by many to be an ally and friend to the Arabs, the [US] is an ally and friend to Israel as well. This is a very uncomfortable position for America, because the conflict between Israel and the Arabs appears to be non-negotiable (especially with the insertion of Islamism into the conflict). We are thus confronted with a dilemma. Either Israel will survive and Islamic power will be broken for centuries to come, or Israel will be destroyed and Europe will come under the same pressure Israel now feels. ... For peace to come about in the Middle East, it is not enough that the Israelis show sympathy for the plight of the Arbas. This is what we would all like to see. But what of Arab sympathy for the plight of the Jews? But no one is sufficently 'insensitive' as to insist on this. ... If Israel is considered an outpost of the West, can the Arabs agree upon a border with Israel? Or must we accept the destruction of Israel? Here the bitter experiences of India, alongside those of Israel, suggest that peace with Islam is always and forever problematic. Do we imagine there is no lesson to be found in the Islamic invasions of the Roman Empire, Europe and India. We are told to be sympathetic to the Islamists, to the plight of the Arabs. What about sympathy for Christians and Jews? ... The ultimate target of the hateful rhetoric in the Middle East is America and not Israel. It is capitalism and the West", JR Nyquist at Financial Sense, 4 June 2010, link:

http://www.financialsense.com/stormwatch/geo/pastanalysis/2010/0604.html.

"What do the following have in common: the piling on Israel after the botched interception of the Hamas relief flotilla, the Chinese military telling the US secretary of defense that he was not welcome in Beijing, and the declaration by Nick Clegg--now deputy prime minister of Great Britain--that his country's special relationship with America is over? Answer: The Obama adminstration has managed to convince most countries around the world that we are worth little as friends and even less as enemies. ... Last week, Israel walked into a trap set by a flotilla of Hamas sypathizers and what Lenin used to call useful idiots. Israeli commandos who were being attacked by burly men trying to throw them overboard or beat them senseless killed a bunch of people whom they would rather not have killed. ... The Israelis have a right to blockade Gaza, from which they withdrew only to soak up several thousand rockets in return, and they did what they could to get the ships to send supplies into Gaza through their ports. Until Vice President Jow Biden plucked up the courage to acknowledge on 'Charlie Rose' that the Israelis are at war with Hamas and have the right to prevent arms from entering Gaza, the Israelis could have been foregiven for thinking that we would hang them out to dry. ... The folly here is to think that leaving the Israelis open to these kinds of diplomatic attacks will buy good will in a Middle East that gets its opinions from Al Jazeera and a venomous media that routinely prints outratgeous lies and hate literature that echoes Nazi Germany. That part of the world, as Osama bin Laden once correctly observed, prefers a strong horse to a weak horse. ... When did the Israelis withdraw from Gaza? When they had a president in the White House upon whom they knew they could count. If, as is the case now, Israel is alone and desperate, is it more or less likely to conclude it has no choice but to attack Iran's nuclear facilities... What precisely have we gained from reaching out to the Syrian government", Eliot Cohen at the WSJ, 7 June 2010, link:

http://online.wsj.com/article/SB10001424052748704875604575280462094012870.html.

Quoted without comment.

It may be decision time for the US: we side with Israel or the Arabs. We'll see.

Mother of All Bubbles

Jesse has a 16 June 2010 post as Jesse's Cafe Americain, calling the US dollar, "The Mother of All Bubbles". No argument here. Here's a link: http://jessescrossroadscafe.blogspot.com/2010/06/us-dollar-last-bubble.html.

China's Nukes

"The commentary in the official Liberation Army Daily also reiterated China's longstanding stated policy that it 'will never be the first to use nuclear weapons at any time and under any circumstances.' Written by a retired general, the piece follows last week's international nuclear-security summit in Washington and comes amid questions in the US, Japan, and elsewhere about the intent behind China's efforts to strengthen its nuclear forces", Gordon Fairclough at the WSJ, 23 April 2010, link:

http://online.wsj.com/article/SB10001424052748704830404575199720063121034.html.

"I first began working on strategic arm control with the Russians in 1970, an effort that led to the first Strategic Arms Limitation Agreement with Moscow two years later. ... The same answer holds true for the new START agreement: The US is far better off with this treaty than without it. It strengthens the security of the US and out allies and promotes strategic stability between the world's two major nuclear powers. ... First, it limits significantly US and Russian strategic nuclear aresenals and establishes an extensive verification regime to ensure that Russia is complying with its treaty obligations. ... Second, the treaty preserves the US nuclear aresenal as a vital pillar of our nation's and our allies security posture. ... Third, abd related, the treaty is buttressed by credible modernization plans and long-term funding for the US nuclear weapons stockpile and the infrastructure that supports it. ... Fourth, the treaty will not constrain the US from developing and deploying defenses against ballistic missioles, as we have made clear to the Russian government. ... The new START treaty has the unanimous support of America's military leadership", my emphasis, Robert Gates at the WSJ, 13 May 2010: http://online.wsj.com/article/SB10001424052748703339304575240164048611360.html.

Can anyone play this game? You may as well look at goat entrails as attempt to ascertain China's "intent". Only capabilities count!

Gates is our Secretary of Defense. I don't remember the last time I read so many nonsequiters in as short a piece. That our military leadership unanimously supports this only convinces me they are a bunch of ticket-punching cowards. Why START? To give the Obamites a basis for not: moderninzing our nuclear weapons or developing ballistic missile defenses. Why do we need this thing if we have this wonderful piece of paper? Neville Chamberlain lives! How many French generals thought the Maginot Line would protect France?

Mark Faber's Positions

"Central banks will never tighten monetary policy again, merely, print, print, print. ... Americans must re-think what constitutes a safe asset. ... '[T]he Federal Reserve will keep interest rates at 0 precisely 0. ... in real terms.' ... Contrary to what the talking heads are saying, markets are not out of control, central banks are out of control printing money. ... Eventually there will be war and one will want physical commodities 'not paper from UBS or JP Morgan.' ... 'Mugabe is the economic mentor of Ben Bernanke.' ... Sovereign credits in the Western world are all bankrupt, but before bankruptcy governments will print money. ... If deficits didn't matter as many like the Economist James Galbraith argue today, why should citizens even pay taxes?," my emphasis, Andrew Mellon at Big Government, 23 May 2010, link:

http://biggovernment.com/amellon/2010/05/23/faber-nations-will-print-money-go-bust-go-to-war-we-are-doomed/

I agree with Faber. Apparently the notion that he's Zimbabwe Ben is getting around. Why pay taxes indeed?

The New Black?

"'Is white the new black?' ... For after a year of battering as 'un-American,' 'evil-doers' and 'racists, and praise from talk-show hosts and Sarah Palin as 'the real Americans,' Tea-Party America seems to be taking on a new and separate identity. ... Even as [Arthur] Schlesinger was writing his 'Disuniting of America,' Yugoslavia and the Soviet Union were disintegrating into 22 new nations, along the lines of ethnicity. In Dagestan, Ingushetia, Chechnya, Ossetia and Abkhazaia, the process proceeds apace. ... Obama in the campaign of 2008 recognized that 'out there' in Middle America existed another country, far from the one he grew up in, far from the privileged Ivy League community to which he belonged. ... Palin and the tea partiers now repeat Obama's disparaging line about their clinging to Bibles and guns--with defiant pride. ... Now Southerners are proudly commemorating ancestors who fought and fell in the Lost Cause and demanding recognition of Confederate History Month. And state governors are acceding. ... The imputation of racism to tea partiers hads not intimidated or cowed them. ... Why are the tea partiers not intimidated the way Republicans often are? Why is the charge of racism not working", Pat Buchanan at World Net Daily, 19 April 2010, link: http://www.worldnetdaily.com/index.php?pageId=143033.html.

Obama may not realize it yet, but many, perhaps most people in Texas, hold him in contempt. Hillary favored, "The politics of meaning". What did that mean? What policies did she favor? Who knows?

Whose History?

"The State Board of Education's proposed revisions for K-12 social studies curricula have come under fire from the radical left. ... Studies have revealed how unbalanced America's humanities departments are. Democrats outnumber Republicans by a large margin. In the history department at the University of Texas at Austin, out of 50 registered voters, only one is a Republican. Moderate and conservative Democrats are also rare. This political slant is reinforced by the economics of scholarship: Academic historians have been trained and have invested their careers in a profession that counts as legitimate only those subfields that support the leftist orthodoxy. Military history, for example, has almost entirely died off; not a single professor of history at UT-Austin lists military history as a primary speciality, while dozens list sexuality, ethnicity and anti-colonialism. ... Thus, robber barrons, the New Deal and the civil rights movement are in, but the contributuions of inventors and entrepreneurism, the decline of the family and the failures of welfare programs and public education are out. The new standards represent real progress. They don't go far enough in challenging orthodoxy, but they are a step in the right direction. ... This artificallly inflated controversy points to a larger issue: The people must not develp the habit of blind deference to so-called academic experts. ... The fundamental question is this: Shall we continue to have a government ruled by the people, or shall we instead, yield to a self-perpetuating caste of quasi-official experts", Robert Koons (RK) at the Houston Chronicle, 14 May 2010, link:

http://www.chron.com/disp/story.mpl/editorial/outlook/7004327.html.

Henry Ford said "History is bunk". Amen. RK is a UT philosphy professor.

The Coming Pacific War

"The [US] and China are on a collision course in the Western Pacific. Far sooner than once anticipated, China will achieve effective military parity in Asia, general conventional parity, and nuclear parity. Then the short road to superiority will be impossible for it to ignore, as it is already on its way thanks to a brilliant policy borrowed from Japan and Israel. ... To wit, between 1988 and 2007, a tenfold increase in per-capita GDP ($256 to $2,539), but a 21-fold purchasing power parity increase in military expenditures to $122 billion from $5.78 billion. The major constraint has been that an ever increasing rate of technical advance can only be absorbed so fast even by a rapidly modernizing military. ... China is on the cusp of being able to use conventional satellities, swarms of miniature satellities, and networked surface, undersea, and aerial cuing for real-time terminal guidance with which to direct its 1,500 short-range ballistic missiles to the five or six aircraft carriers the [US] (after ceding control of the Panama Canal and reducing the size of its carrier fleeet by one-third since 1987) could dispatch to meet an invasion of Taiwan. ... If [Taiwan capitulates], as it likely will, America's alliances in the Pacific will collapse. Japan, Korea, and countries in Southeast Asia and even Australaisa (when China's power projection forces mature) will strike a bargain so as to avoid pro forma vassalage, and their chief contribution to the new arrangement will be to rid themselves of America bases. ... In the military, economic, and social trajectories of the two principals, the shape of the future comes clear. In 2007, a Chinese admiral suggested to Adm. Timothy J. Keating, chief of the US Pacific Command, that China and the [US] divide the Pacific into two spheres of inflence. Though the American admiral firmly declined the invitation, as things go now, his successors will not have the means to honor his resolution, and by then the offer may seem generous", my emphasis, Mark Helprin (MH) at the WSJ, 17 May 2010, link:

http://online.wsj.com/article/SB10001424052748704342604575222092593622512.html.

I agree with MH. We saw this play before. In 1925 Hector Bywater, a journalist wrote The Great Pacific War. Here's a link describing it: http://en.wikipedia.org/wiki/The_Great_Pacific_War. My favorite military historian, Basil Hart wrote about Great Britain's inability to support Poland militarily and how this helped bring about World War II, my 24 February 2008 post: http://skepticaltexascpa.blogspot.com/2008/02/kosovo-and-polish-colonels.html. Don't nobody know nuttin' anymore? As Obama bin-Laden said, "When one sees a strong horse and a weak horse, he is naturally attracted to the strong horse". Indeed. Our carriers will be lucky to survive more than a week in a war with China, see my 10 November and 10 December 2008 posts: http://skepticaltexascpa.blogspot.com/2008/11/us-air-force-rip-2.html. http://skepticaltexascpa.blogspot.com/2008/12/floating-coffins.html.

Atomic Accounting

"The Pentagon has now told the public, for the first time, precisely how many nuclear weapons the [US] has in its arsenal: 5,113. That is exactly 4,802 more than we need. ... The treaty's ceiling of 1,550 warheads deployed on 700 missiles and bombers will leave us with fewer warheads than an any time since John F. Kennedy was president. Yet the [US] could further reduce its reliance on nuclear weapons without sacrificing security. Indeed, we have calculated that the country could address its conceivable national defense and military concerns with only 311 strategic nuclear weapons (While we are civilian Air Force employees, we speak only for ourselves and not the Pentagon.) This may seem a trifling number compared with the arsenals built up in the cold war, but 311 warheads would provide the equivalent of 1,900 megatons of explosive power, or nine-and-a-half times the amount that Secretary of Defense Robert McNamara argued in 1965 could incapacitate the Soviet Union by destroying 'one-quarter to one-third of its population and about two-thirds of its industrial capacity.' ... In addition, should we want to hit an enemy without destroying its society, the 311 weapons would be adequate for taking out a wide range of 'hardened targets' like missile silos or command-and-control bunkers", my emphasis, Gary Schaub & Joseph Forsyth (S&F) at the NYT, 24 May 2010, link: http://www.nytimes.com/2010/05/24/opinion/24schaub.html.

David Deming tells us, "Never Give Up Your Weapons", American Thinker, 31 May 2010, link: http://www.americanthinker.com/2010/05/never_give_up_your_weapons.html. Right on.

Tom Hoffman writes, "A nation that renounces violence, no matter how just the cause, signs its own death certificate--and for a violent death at that", American Thinker, 31 May 2010, link: http://www.americanthinker.com/2010/05/when_masculine_virtues_go_out.html.

What arrogant, ignorant buffoons. Precisely? In the real world: weapons fail to detonate, miss their targets, etc., etc. What do S&F know about Russian targeting strategy and Russia's concept of "nuclear battles within a war"? I almost titled this piece "Megaton Morons". S&F could be financial engineers and work for the Vampire Squid. McNamara was our worst SecDef in my lifetime, see my 20 August 2009 post: http://skepticaltexascpa.blogspot.com/2009/08/mcnamaras-ghost.html. I wonder if S&F realize Russia "hardened" many of its military facilities after 1965? The buffoons "teach" at Air War College and Advanced Air and Space Studies. Wow! What course do they teach? "Road to National Suicide-301"?

Let's do some arithmetic. Would 1,900 megatons be adequate? Would 1,900 megatons have the same war fighting capability on 38 "Tsar Bombas" or 3,800 500 KT warheads? Well? A nuclear weapon's destructive capability is roughly proportional to the 2/3 root of its size. I'll explain. When Little Boy (LB) exploded over Hiroshima, it yielded 15 KT and had a fireball 410 meters in diameter. When Castle Bravo exploded over Bikini Atoll in 1954 with a 15 MT yield it had a 7,000 meter fireball. Whaaaat? 15 MT divided by 15 KT is 1,000. 1,000 x 410 = 410,000 meters, not 7,000. What's going on here? The cube root of 1,000 is: 10 (10 x 10 x 10 = 1,000). Now 10 x 10 = 100. Ergo Castle Bravo only had about 100X LB's destructive capability. 7,000 / 410 = 17.1, not too far from 10. Why square 10? Because the "footprint" an atomic weapon leaves approximates the square of its diameter. See? Two five MT bombs can do more damage than one ten. Similarly, five ones can do more damage than one five.

Tsar Bomba's fireball has been reported at 4,600 and 8,000 meters in diameter. Using 8,000 meters, at least it's larger than Castle Bravo's. Note: neither figure is close to 23,300 meters (7,000 x 3.33). 8,000 / 7,000 = 1.14, close to the cube root of 3.33, 1.49.

Why did the "Rooskies" stop building bigger warheads in the early 1960s? Does anyone remember the SS-6? It had a 3 MT warhead and a 5,000 meter CEP (circular error probable). Why did the Russians outfit the SS-18 with smaller warheads? Because they were more accurate! The SS-18 typically was fitted with ten 600 KT warheads, each with about a 400 meter CEP and 40 "pendevs", penetration devices to confuse potential defenders as to which were the real warheads. More accurate targeting leads to less destruction. That's why we use JDAMs today. After the Big War in the 1940s, the Army Air Corps, now Air Force, estimated that 97% of the bombs we dropped in WWII did not hit their targets, falling in fields destroying crops, not military installations and factories. That's a lot of wasted ordinance.

Guys like S&F, if working for say a manufacturing company, would look at the company's total inventory and ignore its components. You can have plenty of inventory dollars and still suffer "stockouts" if lacking item 15789 while having 5,000 units of 15788. I can imagine S&F endorsing just in time inventory. Of course, if the factory is located in a place which snows in the winter ... S&F's piece is appalling. It's so bad, I'm sure George Stephanopolous would endorse it.

Obama in Wonderland

"When I was a little girl, at the height of the Cold War, I used to wish, deeply, and fervently, that nuclear weapons had never been invented. An accompanying fantasy placed me at the center of world events. Just as the two superpowers were preparing to launch a devastating exchange of nuclear weapons, I would step between the two. Seeing an innocent child, the hard-boiled men of the world would soften and reconsider their terrible course. In other words, at the age of seven or eight, I was a liberal. As I grew, I came to understand a) that it was not possible to put the nuclear genie back in the bottle, and b) that the way to safety lay not in arms control but in strength prudently pursued. Liberal approaches to foreign policy continue to rely more on wishful thinking than on realism or maturity. But even in the context of liberalism, President Obama's recent policy declarations on the matter of nuclear weapons are juvenile and disturbing. ... Here's a thought experiment: Imagine that all of the existing nuclear powers agreed that their weapons were more of a threat to 'peace and security' than they were worth, and voluntarily destroyed them all. Would the world immediately become a safer place? No. It would become far more dangerous. ... So, one outcome might be that North Korea would instantly become a superpower. ... We have to insist, 'Yes, we can.' That's security policy by bumper sticker. ... So as Iran closes in on a nuclear weapon--a result the adminstration has repeqatedly declared to be 'unacceptable'--the administration is getting really serious by ... setting a good example. ... Underlying all of these naive gestures is the belief that it is the weapons that threaten the peace, not their owners. ... This is a fatuous distraction from the main issue--Iran. It is also a transparent attempt to gang up on Israel. ... But above all, it ignores the glaring fact that the treaty has been a total failure", Mona Charen (MC) at National Review, 11 May 2010, link:

http://article.nationalreview.com/433868/a-world-without-nuclear-weapons/mona-charen.

"Now boys and girls, remember, in case of nuclear attack do not face the windows. You don't want to have your faces hit with flying glass. Duck and cover!". I remember. I never shared MC's fantasy. Arms control? Anyone remember 1922's Washington naval conference? Boy, I must have been a skeptical kid. I made MC's "thought experiment" in 1958! Really!!!!! Concluding the experiment would fail. Now Obama aren't "arms for hugging"?

Greece Today, America Tomorrow

"Are Europe and America headed to where Athens is today? ... Protected by the [US] through a half-century of Cold War, Europe cut back on defense and ratcheted up spending for La Dolce Vita. ... As the cradle-to-grave welfare states rose, an ever-increasing share of the labor force left the private sector for the security of the public sector. ... The fertility rate of Greece and every European nation fell below 2.1 births per woman needed to replace an existing population. Greece's birth rate has been below zero population growth for three decades. ... Were Greece a company, the solution would be bankruptcy. ... Because, should Greece decide not to take a chainsaw to her welfare state, but walk away from her debts and default, she would blow a hole in the balance sheets of the biggest banks in Europe. ... Rather than savage their welfare-state programs, and risk riots in the streets and a massacre at the polls, Madrid and Lisbon, too, might look ageeably at default. ... For how much longer will Greeks work longer, retire later and live on smaller pensions, so holders of Greek bonds can get their interest payments right on time? ... But the crisis will return. For the nations of Europe have made commitments beyond their capacity to keep, given their growing debts and aging population. ... And the unfunded liabilities of Social Security, Medicare and federal pensions rival those of Western Europe. States like California and New York, larger than Greece, look a lot like Greece. ... While the temptation is great for Washington to bail them out again, the [US] government itself has now begun to attract the concerned notice of holders of US debt", my emphasis, Pat Buchanan at World Net Daily, 6 May 2010, link:

http://www.worldnetdaily.com/index.php?pageId=150649.

"Crisis--from the Greek word 'Krisis'--is one of the many English words we owe to the ancient Athenians. Now their modern descendants and reminding us what it really means. ... So serious was the situation that it took a European version of the 2008 TARP bailout of US banks to save the euro. ... If fully implemented, it will be the mother of all bailouts--and one of the biggest admissions of error in modern financial history. The design of the European currency has been fatally flawed from the outset. It just took the Greek crisis to expose it. .... It would end forever the exchange-rate volatility that has bedeviled the continent since the breakdown of the Bretton Woods system of fixed exchange rates in the 1970s. ... A single European currency also seemed to offer a sweet deal. Countries with excessive public debt would get German-style low inflation and interest rates. And the Germans could quietly hope that the euro would be a little weaker than their own super-strong Deutsche mark. ... But the worst defect in the design of the Economic and Monetary Union (EMY), we argued, was that it united Europe's currecies but left its fiscal policies completely uncoordinated. ... The design of the EMU illustrates a profoundly important truth about human institutions. Just because you don't create a formal procedure for something you would rather not happen, that doesn't mean it won't happen. ... Problem solved? Unfortunately not. ... For one thing, it's simply not credible that the Greek government will be able to deliver the fiscal tightening it has promised at a time of deep recession. ... It will surely be at least a year before investors wake up to the fact that the fiscal predicament of the [US] is actually worse than that of the euro zone", Niall Ferguson at Newsweek, 24 May 2010, link:

http://www.newsweek.com/id/237645.

In about 1985 I remember reading a Fortune interview of Barton Biggs (BB). The substance of what BB said was, "The notion of 250 million South Americans slaving away in the hot sun to repay some New York banks does not comport with my notion of political reality". Well said BB Mine neither. Between now and 2017 I expect the "Venezuelanization" of most of Europe and the US. Got bonds? Sell while there's still time.

I disagree with NF. The Greek bailout did not save the euro. It saved banks holding Greek paper. It will kill the euro. There is nothing any European country could have done with respect to taxing and spending before the coming of the euro it couldn't do after. The euro was and is a "whole lotta nuttin". The euro was sold as a piece of financial engineering!

Eisenhower's Warning

"Whatever your views on financial reform--whether you want the government to crack down on bankers or to disentangle itself from financial markets--you should fear Sen. Chris Dodd's financial reform bill. In 1,300-some pages, all it really does is legislate power to the government for fixes to be named later. ... But it sweeps aside more than two centuries of accumulated wisdom: that checks and balances are essential to markets, and that rules must be known in advance. ... We challenge lawmakers to think of any contract or transaction that doesn't meet that definition--from buying detergent with a money-back guarantee to getting a rain-check at the car wash. ... 'Substantial' and 'significant' are never defined. The bill does not say whether they are to be measured relative to the golbal economy, or the financial positions of you and your counterparty, or for that matter to the average humidity of a mid-summer afternoon in Cleveland. All of this is to be named later. ... Regulators will likely start off reasonably. ... And because they have unlimited power to set rules they will be able to outlaw practices as they see fit. This will encourage anyone who loses money for any reason to use political pressure to get redress. ... Regulated institutions will get fat on government-legislated profit, and regulators will look good by getting private firms to throw money at any problem that bothers Congress. People will move back and forth between the private and regulatory sectors. The Dodd bill is perfectly designed to create the largest and most powerful crony system in history. It's not that the people, regulator or regulated, are personally corrupt. It's that the system will select itself for, reward and enforce corruption. ... No regulator can afford to antagonize a potential future employer", my emphasis, Clifford Asness & Aaron Brown (A&B) at the WSJ, 13 May 2010, link:

http://online.wsj.com/article/SB10001424052748704250104575238841836433282.html.

As Yves Smith says, "feature or bug"? The Dodd Bill is just more of the same. A&B are with AQR Capital Management. "Rules must be known in advance"? Look at: Roth IRAs or Australia's recent proposed new mining tax. Governments have no rules. Disagreeing with A&B, I believe the "system" attracts the personally corrupt. The most corrupt: our (In)Justice Department. Phew! We are drowning in "complexes", military-industrial, teacher-educationalist-social worker, etc.

Illegals and the Ottomans

"Throughout history, when an occupying power has wanted to destabilize and destroy a nation, it has settled a foreign people in its midst. The seeds of the Balkan conflict were sown when the Turks planted Albanian Muslims in Kosovo to uproot the Christian Serbs who had long defended the borders of medieval Christendom and had more than once turned back the tide of an expanding Ottoman empire. ... Despite this, Americans did not worry about the massive migration of Mexicans and other third-world immigrants for many years due to their belief in equality and the idea of the American melting pot. Unfortunately, both concepts are complete myths, devoid of any support from logic, history or science. ... There is, quite simply, no such thing as human equality in any material sense. ... As for the myth of the American melting pot, it should suffice to point out that the idea was popularized by a Russian Jew who emigrated to England, never lived in the [US] and was a fervent believer in the cause of establishing a Jewish homeland. ... The reality is that from the mid-17th century to the mid-19th century, the New England states had almost no immigration for 200 years. And it is important to note that when the Irish did finally come to America, they were fewer, more culturally similar, and they came in a more gradual manner from farther away. ... The reality is that America will proceed on one of two paths. The first is to embrace the conflict. If Americans can find the courage to consciously reject the myth of the melting pot and expel the Mexicans from the American Southwest, the Arabs from Detroit and the Somalis from Minneapolis, they can reclaim their traditional white Anglo-Saxon Protestant culture. ... White Americans continue to vote with their feet, retreating slowly but continuously before the inexorable wave of migratory expansion. Encouraged by the frailty of American society and the fragility of myth-based American political culture, what are still currently the fringe views of the Aztlan revolutionaries will rapidly become the mainstream opinion of Mexican irredentists in California, Arizona, New Mexico and Nevada. ... Only Texas, with its unique and exapnsive view of itself, combined wiht its history of violent conflict with Mexico, is likely to take action over time. ... There is no magic assimilation to replace the ruthless mathematics of demographic transformation. Precisely how the Lincoln-forged Union will fragment cannot be foreseen wth perfect clarity at this point, but as recent events suggest, it should begin in the bellwether states of California and Arizona", Vox Day (VD) at World Net Daily, 10 May 2010, link:

http://www.worldnetdaily.com/index.php?pageId=151689.

"The Ottomans had an interesting method of assuring political stability. The sprawling empire operated on a system in which 'millets', distinct ethnic and religious groups, were allowed to oversee their own internal affairs while giving absolute loyalty to the sultan and his government. Every now and then a millet would be ordered to pack up and head out for a new home, at times at the opposite end of the imperium, amid new neighbors--sometimes the original residents, sometimes other refugees--of alien origins, ethnicity, and religious belief. ... In short order, the various groups would become so enmeshed in harassing and attacking each other that they could spare no time or energy to defying the staus quo. ... The American left has its own millet system, consisting of ethnic (and other) groups defined in large part by their grievances as victims of America. ... The left prefers Balkanization and permament conflict. ... So how to keep the pot boiling? The answer was to find a new millet--or rather to take advantage of the one next door, of the deperate people fleeing a serial kleptocracy, an uneducated, ignorant, and frightened mass open to all forms of manipulation. ... It explains the insistence that any solution to the immigration problem provide for amnesty and citizenship for the millions of illegal already living within our borders. ... Illegals will become a new protected class, with privileges and entitlements denied the rest of the populace (including, ironically, current members of previous such classes). ... A vast bureaucracy will arise to 'assist' the new citizenry, funded with billions. ... There must be no amnesty. Such an action would simply drop a permanent inassimilable presence in the midst of American society", JR Dunn at the American Thinker, 14 May 2010, link:

http://www.americanthinker.com/2010/05/the_real_reason_the_left_loves.html.

I agree with Michael Panzer's interesting 22 May 2010 post at When Giants Fall about Turkey, Iran and nuclear weapons, link: http://www.economicroadmap.com/2010/05/not-so-positive.html.

Yes VD. At the very least, California, from San Diego to Santa Barbara, looks like it will revert to Mexico. Pancho Villa won!

China has a policy to move Han Chinese into Sinkiang province, which was primarily Uighur, to ensure Beijing's control. We permit let illegaal aliens stay in the US, which will likely cause the US to dissolve. Look at the contrasting policies.

Absent a new "Operation Wetback", I expect the US to break up no later than 2040, see my 11 January 2009 post: http://skepticaltexascpa.blogspot.com/2009/01/usa-rip.html.

Ticking Debt Bombs

"My first lesson in the power of contagion happened in 1997, when I was based on Seoul. ... Why would a problem in Thailand extend to wealthier South Korea? ... On the surface, contagion makes no sense. Just because country A falls into a debt crisis doesn't mean countries, B, C or G should as well. But that's not how investors think in times of uncertainty. Instead, they look for other potential trouble spots, then try to get out of them. ... Europe may be facing a similar contagion effect today. Worries that overindebted Greece could default sent investors scouring for the next ticking debt bomb. ... Not even the unprecedented $145 billion European Union-IMF bailout for Greece announced in early May is guaranteed to stop things from getting worse. In South Korea in 1997, the IMF rescue failed to restore shattered investor confidence. ... Athens must still prove it can implement the brutal tax hikes, public-sector salary cuts and other budget-reduction measures it promised in return for the aid. ... And why stop in Europe? Much of the indistrialized world is emerging from the Great Recession buried in debt, the result of historical profligacy mixed with the costs of stimulus packaages and bank bailouts initiated during the recession. ... No investor should equate Greece's problems with those of the US. But we're not in normal times. .... What makes contagion so scary is that investors respond in a completely rational fashion: they panic. .... Now, with the Greek rescue, Europe has finally shown the backbone to take on contagion. But it needs to do more. This is no longer a Greek crisis; it's a eurozone crisis", my emphasis, Michael Schuman (MS) at Time, 17 May 2010, link:

http://www.time.com/time/magazine/article/0,9171,1987598,00.html.

MS produced a descriptive piece devoid of economic analysis. Contagion means and explains nothing. MS, do you know what a balance sheet is? You are right about this: "it's a eurozone crisis". Instead of confining the cancer to Greece, Germany injected itself with it. Got euros? Poor dear. I'm sure MS will happily take them off your hands. This kind of piece Yves Smith would decry for its dismissive tone, "You sans culottes. Fear nothing. Super ECB-IMF is here. Buy Greek bonds". Why should Greece's $145 billion bailout do any more than spread the problem to Germany and France? MS, how dare you tell me what not to do? I "equate Greece's problems with those of the US". All times are those of "uncertainty". So? What made investors to look less positively on Greece's debt?

Christie Ain't Old Hickory

"With Rush Limbaugh fawning over him on talk radio and Fred Barnes comparing him to Ronald Reagan, New Jersey Republican Gov. Chris Christie [CC] is being hailed as a conservative hero. ... In 1993 Christie Whitman, like [CC] in 2009, won the Republican nomination for governor by tacking to the right in the primary. ... But here the comparison gets interesting. Ms. Whitman actually cut state income taxes across the board--before losing favor with conservatives thanks to her spending policies and judicial picks. ... The most important political issue in New Jersey--the one that drives debates about income taxes, property taxes, and local government power--is education. The core of the problem is a string of state Supreme Court decisions, the most sweeping of which were issued by judges Ms. Whitman put on the court. ... Suburban homeowners pay income taxes to support the urban schools while also paying some of the highest property taxes in the country to support local schools. ... Four years ago, the Abbott districts were receiving 56% of the income tax money that had been meant to relieve local property taxes, while the suburban districts got 44%. Under [CC's] budget for next year, that 56% rises to 60%. The Abbott districts get about $4.8 billion in aid, while the other 500-plus other districts must split up $3.2 billion. Thus Asbury Park will receive $28,232 per-pupil from the state next year, while Mendham, the governor's hometown, will get $2.32 per pupil. ... [CC's] fortunes will rise and fall depending on whether he can take back control of school funding from the courts and give suburban towns an equal share of state aid. But if taxes continue to rise, his prospects will fall--no matter how much he pleases commentators who don't pay New Jersey property taxes", Paul Munshine at the WSJ, 1 May 2010, link:

http://online.wsj.com/article/SB10001424052748704423504575211783113726408.html.

Hey, Gov. Perry, my Gov. Perry. You want to win 2012's presidential election? Kick Texas Supreme Court in the keesta and refuse to enforce our "Robin Hood" funding rules. The problem is not New Jersey's judges. It's the governor not telling the judges loudly and clearly, "You do not set tax or spending policies. They are politicial decisions. I will ignore your rulings and begin impeachment proceedings against all of you who supported this. I am addressing a joint session of New Jersey's legislature 9:00 AM tomorrow morning. And have a nice day". Support a VAT? Do you believe a VAT will lower your income taxes? Do you want to buy this nice bridge I have over the East River? It's just $10 billion. Cheap. See also my 22 November 2009 post: http://skepticaltexascpa.blogspot.com/2009/11/christies-potential-andrew-jackson.html.

Hawking in the Twilight Zone

"The famous astrophysicist Stephen Hawking believes that the only rational response to 'Are we alone' is a resounding 'No.' ... 'But he warned that aliens might simply raid Earth for resources, then move on.' ... 'Prof Hawking thinks that, rather than actively trying to communicte with extra-terrestrials, humans should do everything possible to avoid contract.' ... In fact, even if the aliens had the best of intentions, it is still likely they would end up destroying us. ... It would be infinitely safer to assume that aliens want to destroy us than that they would greet us with open arms. if the latter, it's a mistake that we can't take back if the former turns out to be true", Rick Moran at the American Thinker, 26 April 2010, link:

http://www.americanthinker.com/blog/2010/04/scientist_stephen_hawking_thin.html.

As long as I can remember, I have thought it a mistake to try to contact other life forms. I remember 2 March 1962's Twilight Zone episode, "To Serve Man". Here's a link:

http://en.wikipedia.org/wiki/To_Serve_Man_(The_Twilight_Zone.

CPAs and the F-22

"The debate over the F-22 Raptor has been carried out at the customary level of simplemindedness we've become used to with Congress handling military questions. Since the early 60s, the favored method of killing a military program has been to come up with an argument easily expressed in a sound bite and stick with it. This time, the sound bite was, 'Why do we need two fighter planes, anyway?' The answer is even simpler: we need two fighters because we need two fighters. The historical record clearly reveals this: every air campaign carried out with two distinct and particularly formulated fighter designs has been a success, and every attempt to do otherwise has resulted in disaster. US Air Force doctrine on fighter procurement is known as the high/low mix. The 'high' component consists of a dedicated air superiority fighter, utlizing the latest aeronautical technology, fitted with state-of-the-art electronics, and carrying the most advanced air-to-air weapons. These aircraft have one mission--to kill enemy airplanes. This is the paramount goal of a fighter force. Without it, nothing else can be accomplished. That being the case, the high-end fighter is the more expensive and complex part of the mix. They are rare assets, to be utlized accordingly. ... The swing-role fighter is cheaper and more easily and quickly constructed than its haughtier brother, so there tend to be larger numbers of them. The high-low mix was pioneered in WW II. ... Following the war, the high/low mix was carried on into the jet age. .... Together, the F-15 and F-16 stand as the most effective fighter team on record. ... To the battle cry of who needs two fighters anyway!' the US is dropping the high end of the equation--the F-22 Raptor--in the mistaken conviction that the low end--the F-35 Lightning II--can cover all the bases. ... Even as the F-22 debate winds down, Sukhoi, Russia's premier aircraft company, is preparing to produce its own fifth-generation fighter, the PAK-FA. ... The Russians and the Chinese, on the other hand, have a slaphappy habit of making more weapons than they actually need. Suppose, if things get hot, our 120 planes are facing 500, 1,000, or even more fifth-generation enemy fighters? ... American voters and politicians simply cannot grasp that actions taken today can have consequences years and decades down the line, and that, in a majority of cases, there will be no second chances", my emphasis, JR Dunn at American Thinker, 4 March 2010, link:

http://www.americanthinker.com/2010/03/vanishing_american_air_superio.html.

I agree with Dunn. What's most shocking is our SecDef's role in this. President Bush squandered real American assets in Iraq and Afghanistan, places of no strategic significance, as opposed to spending money to procure modern weapons and update our strategic forces. What stupidity. Analysis of military affairs is carried out at such a low level, even George Stephanapolous should be able to understand it. Or does he think it's not important enough to understand?

Fat Tails and America

Harvard history professor, Niall Ferguson has a wonderful post about America's potential and sudden demise at the 28 February 2010 LA Times, link: http://www.latimes.com/news/opinion/commentary/la-oe-ferguson28-2010feb28,0,7706980.story. Damn he's sharp!

Crony Capitalism's Foundation

"Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides to entrepeneurs allocating capital across time; and a firm's accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars. The cause is straightforward: crony capitalism. ... Classical liberals, whose modern counterparts are libertarians and small-government conservatives, believed that the state's duties should be limited to (1) to provide for the national defense; (2) to protect persons and property against force and fraud; and (3) to provide public goods that markets cannot. ... Why has this happened? Financial services regulators failed to enforce laws and regulations against fraud. Bernie Madoff is the paradigmatic case and the [SEC] the paradigmatic failed regulator. Fraud is famously difficult to uncover, but as we now know, not Madoff's. ... Are we to believe that regualtors were unaware? ... The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. ... Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated... In a paper for [Fed's] Jackson Hole Conference in 2008, economist William Buiter described 'cognitive capture,' by which regulators become incapable of thinking in terms other than that of the industry. ... Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. ... We call that system not the free market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith. ... Hayek's mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources. He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct. ... Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates. ... If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets", my emphasis, Gerald O'Driscoll (GO) at the WSJ, 20 April 2010, link:

http://online.wsj.com/article/SB10001424052748704508904575192430373566758.html.

I have said things like GO for decades.

Woodrow Wilson II

"But few have noted his interesting parallels with Woodron Wilson [WW]. Historical comparisons have their limits. But Wilson-Obama similarities abound, starting with both men's use of the label 'progressive.' Wilson was no 'community organizer,' but like Obama, he was an academic--among the most prominent political scientists of his day. ... Here the comparisons diverge: Wilson spends key years as president of Princeton, while Obama sojourns in the Illinois State Senate voting present. ... Both register reputations as orators. Both challenge highly regarded congressional front-runners in hotly-run contests for the nominations. Wilson bests House Speaker Champ Clark in 1912. Obama triumphs over Hillary Clinton. ... Both appoint high-profile secretaries of state: the aformentioned Clinton by Obama; the aging party warhorse William Jennings Bryan by Wilson. ... Wilson cherishes the Soth's Lost Cause and segregates federal offices. He praises D.W. Griffith's controversial Birth of a Nation as being 'like writing history and lightning.' Obama allies himself with black liberation theology advocate Jeremiah Wright. Only political necessity induces him to break with Wright. Nothing keeps him from embracing the execrable Al Sharpton. ... Both Wilson and Obama receive tumultuous receptions in Europe: Obama in his tumultuous pre-coronation visit to Berlin and Wilson in his unprecedents 1919 European tour. Tumultuous crowds greeted Wilson throughout Europe. ... Yet, there remains in Wilson--and resides in Obama--a strange academic coldness that stiff-arms natural foreign allies. ... In 1916 [WW] campaigned as the 'peace candidate.' Supporters praised him for keeping 'us out of war.' By April 1917, however, Wilson demanded that Congress declare war on Berlin. In 2008 Obama derided George Bush's Iraqi surge and vowed a quick exit from that nation. He not only remains in Iraq, reluctantly, he has implanted his own surge in Afghanistan. ... Rather than compromise, Wilson--and Obama, his fellow Noble Peace Prize laureate--attempted rather to orate their dreams into reality", David Petrusza at American Thinker, 31 March 2010, link:

http://www.americanthinker.com/2010/03/obama_and_wilson.html.

I warned you. See my 14 September 2008 post: http://skepticaltexascpa.blogspot.com/2008/08/which-is-war-party.html. This post drew more flak than anything else I've written.

What's Gold in the Ground Worth?

"This March two of the world's biggest investors became believers in a company with next to no revenues and $352 million in losses over three years. ... Both Soros and [John] Paulson are seriously bullish on gold, but why did they bet on a Vancouver mining company with an unimpressive history? ... An Oxford-trained historian, [Thomas] Kaplan believes that the last 40 years, when gold was not the world's reserve currency, were an aberration and that gold will revert to the top of the store of value as it was for 5,000 years. He means it: Kaplan's family office, Tigris Financial Group, manages close to $2 billion in gold assets. ... Billionaires, big money managers and Wall Streeters are jumping in, even as few ways remain to play this game. ... But then, if you believe that government spending run amok and easy money will result in the decline of Western civilization, you don't need any multiples to look at. ... Kaplan's NovaGold deal started in January 2009, when his New York investment outfit, Electrum Strategic Resources, made a $70 million investment for a 28% stake and warrants for more. ... One, called Donlin Creek, is in Alaska. NovaGold says it has 29.3 million ounces of gold. The other is British Columbia's Galore Creek, with 7.3 million ounces of gold and 8.9 billion pounds of copper. But investors may be getting ahead of themselves. Both properties are remote and tough to develop. ... NovaGold's annual-return estimate on [Donlin] at $1,000 gold is 12.3%, which is marginal for a big mining project", Nathan Vardi at Forbes, 12 April 2010, link:

http://www.forbes.com/forbes/2010/0412/outfront-gold-kaplan-novagold-soros-paulson-golden-boy.html.

I think and have thought for about 30 years, gold bullion coins are the world's most conservative investment. What about gold stocks? For more leverage, why not? See my 1 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/gold-mines-and-operating-leverage.html. Look at NovaGold (NG-AMEX). Now at $7.79, NG has a $1.47 billion market cap (MC). What's NG worth? With 36.6 million ounces of gold and 8.9 billion pounds of copper "in situ" I get gross revenues of $74.8 billion for NG (36.6 million x $1,161 = $42.5 billion; 8.9 billion x $3.63 = $32.3 billion; $42.5 + $32.3 = $74.8). So NG will have $74.8 billion in gross revenues over the next say, 20 years. Assuming 50% operating costs, we have net cash inflows of $37.4 billion ($74.8 x 50%). Now, assume a 35% tax rate, we get $24.3 billion in net after tax cash flows ($37.4 billion x 65%). If coming in evenly over 20 years that's $101 million per month ($24.3 billion / 240 = $101 million). Discounting this at a 7% real rate, per Kenneth Arrow, I get a $13.03 billion value for NG. With NG's $1.47 billion MC. that means the market assumes NG has an 11.3% chance of developing these projects ($1.47 / $13.03 = .113). NG appears to be fairly priced to me. Eugene Fama, take a bow.