American Economy at Crossroads

1. Bernanke Fed was late last year to reduce interest rates and as a result a potential chance to decrease the pain of credit crisis was lost. It seems same hesitancy is playing this time in increasing interest rates. Unless interest rates go up, there is no hope for Dollar and consequently oil price. Oil price increase has ignited overall inflation and the only text book answer to that is high interest rate. ‘No wage pressure’ is not the solace this time. Or arguments like ‘oil price is not a monetary phenomenon’ are not applicable for the simple reason that the oil trade is denominated in dollar terms and with low interest income for dollar; world has less reason to value the dollar any better. This trashing of Dollar is showing up in ever increasing oil prices.

2. Daniel Dicker makes a solid case in RealMoney (http://www.thestreet.com/p/rmoney/oil/10423562.html) about why ‘liquidation-only’ rules are needed in oil futures market to control the spiraling price of oil. He makes it very clear how many of the other proposed regulations to control ‘speculation’ in oil trade are of less utility. His point is ‘liquidation-only’ will determine once and for all what component is ‘speculation’ in the oil price and that will be knocked off. The oil price increase may not be entirely due to speculation and fundamentals are sure to play the role. But removal of speculative premium from the oil price will be welcome in itself.

3. Even if reduced oil prices may give breathing room for consumers; the mess in American financial system and housing market will not go away quickly. Falling house values, tighter credit norms and higher interests rates; all these things will make any recovery hard and long. This means unless there are meaningful stimuli from Congress (like the bill to provide $300 billion for distressed borrowers); we are not going to get out of this hole.

4. Finally, we all know reduction in oil price is only a temporary and partial solution. The real solution is to go away from carbon fossil energy sources to alternative, renewable energy sources. It is no more long term solution, but the solution which needs actions now.

Essentially relevance of American political and financial establishment will be measured along what action these actors take in next few months. Fed, regulatory institutions and Congress – all eyes will be on these players and unless these players take appropriate actions along above lines; America’s current downturn will turn into potentially permanent down turn. That could be true end of America’s Global Economic (and consequently Political) Leadership.

Classic Move by Bush Administration?

Surprise, surprise of all – Bush Administration is talking about having some diplomatic presence in Tehran. Iran has such a presence in DC and hence it is quite feasible if that is what USA Administration wants.

Such a diplomatic move is intriguing, but not impossible to understand. In classic manner of keeping larger USA interests in mind (at least at the fag end of the term), Bush Administration must have realized that the next Administration is quite likely to have some relationship with Iranians. If the next Administration is Obama Administration, which looks quite possible today; then instead of giving it the political leverage of breaking radically from past; Bush Administration wants to make it look like – progression. Well, whatever is the motive, this is a good policy.

Is this something which Bush meant when he said in Europe that he wants to ‘leave behind a framework’ to deal with Iran knowing that time has run out on his watch to deal with that problem? It seems so and indeed it is a good step. Obama or McCain, any of that Administration would welcome Iranian relations on mending rather than doing everything from scratch.

Emerging Markets

Tom Friedman mentions Egyptian government pays $11 Billion per year as oil fuel subsidy compared to $3 Billion on health and $6 Billion on education. The ‘death’ trap for these emerging markets is clear. In ideal world, the emerging market states would have effective means to distribute more funds for health and education. These two sectors are better compared to oil fuel subsidy because those are much more targeted to needy than well off classes crowding subsidies as like in oil subsidy. But entrenched corruption, skewed development models never make it feasible to have more money channeled to health and education sector.

Chinese oil fuel subsidy is at $27 Billion, at 4% of the central budget. Even though China sits on trillion dollar reserve, from a central government point of view; it is hardly sustainable. As and when government decides to reduce subsidy, it will unleash one more wave of inflation in China. But Chinese story is less draconian because the state has been investing in health and education.

With India things are complicated because Indian government on one hand taxes soaring import bill of oil and refined products; on the other hand continues to provide subsidies of the order of $10 to $15 Billion per year. The muddled picture however cannot hide the trap of ‘oil subsidies’ and with it’s ultra populist polity; there is hardly any chance of going away from this death trap.

The problem of oil and oil subsidies is going drag down emerging markets and global economic stability.

Hillary – Leaving in Grace

Fundamental lesson of power politics is ‘sacrifice’. Today, Hillary sacrificed her ambition and the personal end goal of decade’s worth of politics. Needless to say, this one single act can in essence ‘wipe out’ all misgivings about her. Hillary is now the ‘towering’ figure of Progressive forces at large; in some sense in the league of Al Gore because the fact is Obama could never electorally defeat her totally. In a way, indeed she is the back up leader of Democrats - the leader who has shown that she does not hold power for personal sake; the leader who has the capacity to make sacrifices and the leader who will work hard in the end for the party and common goal. In our hearts Democrats will know that, it is she who we can fall back in our times of need.

Hats off to Hillary, long live Hillary and Democrats.

To many in India it can be pleasant to know that Sonia’s political act of sacrificing PM post for the good of party and country is ‘trend setter’. First it was the neighboring Pakistan where Asif Zardari openly desired to emulate her. Now, that political innovation has landed in the oldest Democracy of the world. Exactly, that is how we want the 21st century politics – constellation of democracies sharing and exchanging political ideas, innovations and set pieces.

While America has been facing tremendous challenges to her leadership in most fields; there is one human discourse where Americans have shown enormous amount of vitality and dynamism - that is electoral politics. Democratic primary has been the hot bed of these political innovations and at the core of today’s political advances. With Hillary bowing out gracefully, Democrats have done their part in quite superlative manner. It is so pleasing and fulfilling to see a leader like Hillary on the right side of these mass efforts. She got tremendous response and backing in the primaries and today she is ready to offer that to Obama campaign. Obama campaign and their supporters now owe to her, her supporters and the party to bring unity and win the general election. With morally uplifting electoral performance by Obama and the party unity based on the bed rock of Hillary’s sacrifices; foundation for Democratic victory to turn a page on the regressive politics of Bush era is all set.

Today, the Democratic Party of America looks like one of the most potent and righteous political forces on planet earth.

Oil Crisis

When oil price rises from the high base of $128 by around $11 in one single day along with dire predictions of $5 per gallon at the gas station; it will be foolish not to characterize this as ‘Oil Crisis’. If Israeli minster’s comment about inevitability of an attack on Iranian nuclear installation is the reason for this oil price spike, may be the USA presidential election should be all about how to deal with Iran. Unfortunately, instead of addressing this grave situation we have America’s newly minted political rock star – Barack Obama – making way too presumptuous statements about possible 2016 Chicago Olympics. Our Congress is no better too – all hot air about global warming, but total inaction for gas prices. The problem with the Congress is it is always preoccupied with issues quite late and in essence at wrong time. Besides, the Congress relegates both prudence and future maneuverability to revert a policy gone hay wire (e.g. ethanol for fuel!) while crafting any policy responses to emerging challenges. But the Congress and the incoming president (oh yes, Americans have given up long back to count the incumbent president to help them in any practical ways) can ill afford the neglect of high gas prices. Already it is looking like another Katrina – rulers are at sleep when a challenge is developing making common people to suffer due to the inaction of these rulers. There is enormous disconnect between ‘reality of people’s daily life’ and highly dramatized politics of VP stakes which is unfolding in American Media. The polity which is supposed to represent ‘people’s will’ should not be so insensitive to grave consequences of high oil prices and concomitant inflation. So the question is what can Congress and incoming president do? It turns out it can do quite a lot:

1. First and foremost we need clarity regarding what all these Congressional investigations about speculation in oil prices find. We hear lot about these hearings and usual show of hauling CEOs of oil companies on Capitol Hill; but then what is the policy response? How about President or top leadership of Congress ‘certify’ the Congressional investigation report that categorically says that indeed there is no ‘oil price manipulation and speculation’ by participants of oil futures markets? Such investigation and certification should be continued as long as oil prices are detrimental to our economy (till either oil dependency is removed or the actual price is quite low). It is imperative and extremely important to know what action, if any is applicable, Congress has taken to the Congressional hearings by Mike Masters of Masters Capital and issues raised by Daniel Dicker in TheStreet.com. The essential point of these investigations is - indeed the way oil trade goes, structurally it has a great scope for speculation. What is needed is accountability in this regard by our rulers. We want to know whether Congress is doing all that is possible by way regulations via CFTC and is not engaged in the gimmicks of passing bills against OPEC. There is a strong suspicion that Congress is not doing what it can but farcically going after things which it has no business to venture. Oh, by the way why not have a ‘web site’ where Congress and White House congregate all of their responses and their investigations together so that citizenry has one single point to know how our rulers are responding to ‘hostage to oil price’ situation?

2. Next, what is the rationale for continuing any kind of tax breaks for oil companies when these companies are part of the coalition (other partners are crude oil producing countries) which is holding the entire economy at ransom? Not only should these tax breaks need to go immediately, oil companies be subjected to ‘windfall taxes’ too. Democrats and progressives must overcome the oilman – President Bush and pro oil cartel GOP.

3. What things can be done ‘now’ to address price pressure faced by common people? Wherever possible, employers should be required to allow employees to work from home for at least one day in a week. That will reduce commuting for employed ones. Federal dollars could be applied to ‘donate’ gas saving buses to public transport organizations all over the country, in proportion to population in a designated area. At $200K for a top of the line green bus, a Billion dollars can buy 5,000 such buses; around 15+ per 1 million population. If Congress intends, it can solicit hundreds of such suggestions from people all over the country. The goal should be to address needs of common Joe on day to day basis NOW. Spending around $50 to $100 Billion to address high oil prices in meaningful manners will go a long way rather than bribes of ‘tax refunds’.

4. Beyond short term measures, we need Federal Government to increase the budgetary outlay for public transport infrastructure all over the country. It was ‘war bonds’ in past, now it could be ‘oil freedom bonds’ to raise necessary cash to augment public transport infrastructure in coming five years.

5. Finally, as a long term measure; we need the Federal Government to pump money into alternative energy sources and distribution. America’s portion of the sum of $45 Trillion (as estimated by IEA to half green house gases by 2050) is too high even for the $13 Trillion Economy over decades. Hence the need for a multi decade spanning concrete plan to move from fossil based economy (civilization?) to renewable energy based economy.

History Made

Many in America and quite a few in rest of the world would think, humanity’s political progression has attained one important mile post – Barack Obama became the presidential nominee of Democrats.

Try saying the name slowly and loudly – BARACK HUSSIEN OBAMA – and then slowly the reality will start sinking home what has happened. The uncommonness starts from the name, the skin color sets it apart and then the intellect and the person’s morality uplifts you. This is what happened in American Democracy on Tuesday.

Stunning and quite uplifting.

There is nothing to hide about it, but large portion of voters feel the satisfaction of ‘doing right’ when they back Barack Obama’s campaign, it is not just electing someone who delivers you some favors. That is a sure sign of a leadership. Substantial social and policy changes have occurred when people at large are ready to make necessary changes, howsoever hard, when they feel they belong to a larger cause. The leadership which articulates and carries this larger cause does not get narcissistic but rather concentrates on helping and shaping this mass movement to the desired goal.

Barack Obama campaign has opened that possibility for many Americans.

Now the next question – whether majority of Americans feel the same way or not, comes on November. That is the journey which will be travelled in coming days and for many such a voyage with similar minded people will be the privilege and experience of life time.

Clinton and Feminism

There is quite a bit raucous going on about this issue. The meme is Clinton lost because basically Americans are not ready to see a woman as President and many liberals are in the end male chauvinistic pigs that look, contrary to their liberal responsibilities, to other side when MSM attacks on Clinton are sexist attacks.

Post-Global liberalism of Zakaria variety has out grown Feminism. Every enlightened individual is fighting differing political struggles for variety of oppressed types. Today’s liberal politics cannot be simply tied to one single fight – fight of gender equality. It is one of the many struggles and it so happens that a member of ‘post-global’ world would identify one or some such struggles; quite probably not all at the same time. This means those we are working or whose world view is predominantly defined by Feminism would take the responsibility of fighting sexist attacks in MSM. Media coverage of Clinton campaign could be one such manifestation, but in general such things are only marginal factors while winnowing down political leadership of Democratic Party.

Hence, the arrogance of Geraldine Ferraro to define every liberal political discourse exclusively in terms of Feminism is outdated and useless. Obama and his campaign have been wise enough in not making racism as the single most defining issue of the campaign. We got to understand that the totality of political discourse is far larger than narrow minded definitions of feminism or racism. Let us face it, if tomorrow racism goes away, will there be peace in the world? That does not address the hideous violence against immigrants in South Africa. Will it reduce gas price below $4 per gallon? Will it address America’s health care crisis? Nope. Similarly, the fight with Bin Laden is completely orthogonal to racism and feminism. In short, the canvass for leadership is far broader and deeper than one dimensional issues like feminism or racism and the leadership of Democratic Party needs to take ownership of this vast political canvass with all it’s multidimensional scope.

This has been the problem with traditional feminists. It is like how Rev. Wright is wrong to define all American struggles through the prism of racism; Ferraro and Malcolm of Emily List are wrong to ignore the true failures of Hillary and to back her simply for the reasons of gender. How on earth any thinking person can ignore the callousness Hillary showed in backing Iraq war to start with and total hubris in ignoring calls to revisit that political decision? Yes, all of those male Senators and female Senators like Feinstein who backed the war were wrong too. But there were female Senators like Boxer who opposed the war and there were male Senators like Edwards who had sanity to regret that vote and apologize for the same. Hillary had none of these.

Her claims about her involvement in Balkan peace process were exaggerated and wrong. For weeks, even after frequent prompting to correct her story, she continued lying on stump. It does not matter to argue that this is how politics run; but who would believe in the sanity of Ferraros and Malcolms of this world when they ignore such colossal failures of Hillary? Who cares for what the gender is? Just get the basics right and Hillary failed miserably in that; she lies with impunity.

I am from a country where frequently women have been, and still today are, in power – Indira Gandhi, Sonia Gandhi, Pratibha Patil, Vasundhara Raje, and the true star of them, Mayawati. American Feminists need to go and understand why routinely otherwise male chauvinistic Indian society easily accepts female leaders. Female losers in Indian elections do not cry for the sexist attitude. For too long Malcolms of the world have been focused on abortion rights. No wonder Conservatives have visceral reactions towards such monochromatic feminists as murders of fetuses.

Also it is so convenient for feminists to forget American female leaders like Nancy Pelosi, Janet Napolitano, Kathleen Sebelius, Jennifer Granholm, top female officials like Condoleezza Rice and Justice Sandra Day O’Connor. There will be female American President; just that it is not Hillary in 2009. In the end Hillary Clinton is the case of ‘failed leadership’. Not to recognize this reality is political blindness. To claim sexism is as the reason for Hillary’s defeat is hypocrisy. Those who claim so will go and sit along with Rev. Wright.

David Brooks – Cool Cultural Commentator

“Barack Obama has become the Prince Caspian of the iPhone hordes.” This is what David Brooks writes in NYT.

(http://www.nytimes.com/2008/05/23/opinion/23brooks.html?hp)

David Brook is cool and if this blogger had the power of ‘the Force’; he would grant the ‘Order of Merit of the Geekdom’ to Brooks.

It is not often that the culture of blogs and Geekdom is covered in favorable terms in Main Stream Media. So folks, while the sun shines for us in the Conservative land of David Brooks; enjoy it.

Clearly, David Brooks is in not writing in an academic journal where he has to put test his argument to a rigorous analysis based on in-depth study. He is writing in MSM Gray lady – NYT – which is in for profit pursuit; though that pursuit is challenged by Googles of the world is a different story. Hence, this light touch and rare praise for geekdom.

Brooks is right to chronicle the ascend of ‘geeks’ in American culture. There is obviously some truth in how ‘iPod’ generation overwhelmingly supports Obama. It is the flip side of how ‘Harley Davidson’ riding Rock Star sipping white male, well past his sexual prime, is a supporter of Hillary.

So if one keeps aside the strict yardstick of science and facts; Brooks writing does offer some insights in what is going on. Portraying ‘geeks’ in positive manner is one such manifestation.

Oil Shock

As per the ‘super spike’ price speculated by Goldman Sachs Oil Analyst Murti, we are only little past half the distance in terms of a barrel of crude oil costing $200. Today we are around $130, still $70 to go at which point the sticker shock at the pump will be around $6 per gallon.

Will that be a strong enough shock for Americans to start going away from their ‘oil addiction’ and SUVs? Well, Americans are gullible but not that fool. If any recent reports of auto sales and gasoline sales are to be believed, slowly ‘oil demand’ is morphing from an ‘inelastic demand’ to an ‘elastic demand’ – people are reducing their oil consumption.

Part of the vindication of Zakaria’s ‘post-American’ world is despite oil demand weakness in America, high global demand (read China and India) will not dampen the oil price that much. Meaning, during earlier Oil Shock, Americans went into the hole and the whole price edifice came down; there were no other prolific oil consumers than Americans then. Today it is different. This means reduction in American demand is unlikely to have immediate, meaningful drag on Oil price. Decreasing demand / consumption will not necessarily make life easy for Americans in short term.

Rest of the world will consume less oil eventually unless Chinese and India economies withstand the loss of American market due to weakening economy by increasing domestic demand. Despite assertions by Zakaria and other folks about the strength of emerging markets, it is not clear whether those economies will be fully decoupled from the American slow down.

Case in point is Dollar Rupee ratio. Indian Rupee is one of the few currencies which still do not appreciate against Dollar despite the beating Dollar has received against other currencies. Deprecating Dollar increases dollar denominated oil price and with the weak Rupee, Indians land up in importing solid ‘oil inflation’.

But then is slowing down of emerging markets the only solution to control Oil price? Why not, as the Goldman Sachs Analyst Murti hopes; we humans migrate to alternative energy sources? Of course, many economies are making that change (including American), but what is needed is the help from their respective governments. Alas, the idea for American Congress in addressing this ‘oil shock’ is to ‘sue OPEC’! As if that organization is subject to American laws and Americans are fool enough in not understanding the uselessness of such politically gimmickry.

Oil shock is one thing which is making people’s life measurable (and by the way most are not farmers to qualify for largesse of Agriculture Bill passed by the Congress). But inaction and lack of vision by Congress is exasperating this challenge. (President Bush – nah, he does not have anything to do with lives of Americans)

What Congress needs to do is ‘rein’ in the speculation, if any, in oil markets instead of drama of suing OPEC. It also needs to actively promote alternative energy sources. We are missing those actions and it is business as usual.

Drama in Balkan

There is something with Balkans, for centuries those small nations in that area managed to hold European political stability in balance. Not just WWI, but even now those nations straddle European stability.

Conventional Wisdom was that Radicals would win the election in Serbia by igniting so-called Serbian anger for Kosovo independence. But as the early results are coming, President Tadic’s pro-European party is the largest vote getter and seems like a surprise winner. The win may not be sufficient to form a government or a stable government; but it indicates clearly people’s fatigue with Ultra Nationalistic politics as well as limits of how far Kosovo can be exploited in Serbia. Also looks like nifty ‘political carrots’ (and some serious actual concessions to Serbia) by EU bureaucrats were sufficient enough to seduce larger Serbian population. In any case, aligning with EU is where Serbian future is. There is only so much one can run day to day life by past glories – as the wont of Ultra Nationalists is. More people understand that, the world be a better place. Serbian voters are showing this desire and ready to question the ‘sale’ by Ultra Nationalists. That is welcome.