Ruminations, May 30, 2010

The Gulf Oil spill; who’s driving the bus?

During WorldWar II, U.S.President Franklin Delano Roosevelt managed the American war effort. Yet, ofthe Big Three, (Roosevelt, Churchill and Stalin) Rooseveltwas number three in military strategic experience. How did he manage withoutmaking a shambles of everything?

He drove the bus. That is, he maintained thedirection while filling the bus with team members who were experts and couldprovide him with ideas, strategies and who could work together toward victory.Need a military strategist, how about General George Marshall? Need to financethe war, how about Henry Morgenthau? Need to focusindustry on war production rather than peace time needs? How about DonaldNelson and Julius Krug? Need someone to coordinate films and put out theAmerican message? How about RoyEmerson Stryker? But the key point to remember is that Rooseveltnot only had competent team members, he was in charge and made sure that allefforts were coordinated and moved in the same direction.

Roosevelt, who was unprepared to run a war, wasnevertheless successful because he maintained a cooperative effort with aminimum of bickering. Contrast Roosevelt’s modeof operations with President Barack Obama’s on the Gulf oil spill. In stead ofconcentrating on the problem at hand (containing and stopping the spill,providing consistent direction and providing aid to those directly affected),Obama seems determined to absolve his administration of blame.

• Consider that one of the key players is BP. They have the formidable task of stopping an oil leak one mile below the surface of the ocean. Instead of working with them, the President’s Democratic Party holds Congressional hearings asking BP to defend itself. Granted, BP has a lot for which it must answer, but shouldn’t the answering take place after the leak is sealed when BP has completed its most pressing priority?

• When Louisiana Governor Bobby Jindal requested immediate cleanup help, why was he kept waiting with no explanation for weeks? Shouldn’t he be part of the team on the bus? If parts of his request are, as Obama claimed, “counterproductive,” shouldn’t an explanation or alternative be made immediately available to him as a team member?

• If everyone is working as a team toward a common goal, why does the Secretary of the Interior, Ken Salazar, say that he will keep “our boot on their [BP’s] neck until the job gets done?” Does this sound like team play? Does it make sense for him to threaten to “push them [BP] out of the way?”

• Why is BP using one dispersion agent and the Environmental Protection Agency publicly recommending another? Shouldn’t this have been decided in advance as part of a coordinated team effort?

Last week, Obama was purported to angrily say, "Plug the damn hole." One wonderswhat the outcome of World War II would have been if, on December 8, 1941,Roosevelt had turned to Marshalland said, "Win the damn war" and then went off to a fund-raiser.

In a press conference last week, Obama stated “the federal government hasbeen in charge of the response effort” and that may be true; but is anyonecompetently directing the effort? It seems as if everyone is driving his ownbus. And, if that is the modus operandiof the Obama Administration in response to this situation, is that how theywill operate in response to all other situations?

The ArizonaImmigration law (SB 1070)

“It’s 10 pages,” saidRepresentative Ted Poe (R, TX). Poe was speaking of the now well-known Arizonaimmigration bill which is actually 16 pages with amendments. If you haven’tread it yet and want to sound authoritative when you debate it, go here: http://www.azleg.gov/legtext/49leg/2r/bills/sb1070s.pdf

A strong currency

A country that wantslong-term financial strength needs to maintain a strong currency. Then, why isthe United Statesmaintaining a path that weakens the dollar?

The record deficit spendinglevels not only weaken the dollar but cause other nations to anticipate thatthe U.S.will, in the future, intentionally embark on inflationary program in order topay down its debt with cheaper dollars. And the more that the U.S.ignores its deficit (i.e., avoids taking steps to correct the problem not justtalking about it) the more likely that inflation will become policy.

But the UnitedStates is not the only country in a jam. Theworld’s budget deficit as a percentage of gross domestic product (GDP) has goneup from 0.3 percent just before the current financial crisis to 6 percent.Granted, the U.S.is a big contributor to that rise but we seem to be doing little to correct it.And the longer the deficits remain, the bigger the drag on the GDP. And this isa process that feeds on itself; the bigger the drag on the GDP, the harder itbecomes to reduce the deficit which creates a bigger drag on the GDP.

The financial problem with the Club Medcountries (Greece, Spain,Portugal and Italy)has put pressure on the euro and made that a weaker currency – weaker than thedollar. The difficulty facing the European Union Central Bank is that, whiletheir goal is price stability of the euro, they have little control over thefiscal policies of the 16 member nations. The 1992 Maastricht Treaty set limitson spending and deficits but provided no tools for enforcing those rules – thatis why Club Med was able to ignore the rules and create a financial brouhahafor the European Union. Thinking long term, German Chancellor Angela Merklewants to revise the treaty (a problem in itself; it needs unanimity) and makecompliance enforceable.

Merkle’s idea makes sense – to some people,anyway. It makes sense to those who want a stable currency and to the Germanswho have looked skeptically at the euro and have distaste for bailing outtroubled nations like Club Med. However, to the president of the EuropeanCommission, Jose Manuel Barroso of Portugal,Merkle’s proposal is "naive." Last week Barroso told the FrankfurterAllgemeine Zeitung, "Wewill not propose treaty modifications even though we are open to goodideas." Hmmm. He’s “open to good ideas,” just not ideas to stabilizing theeuro.

Former German Foreign Minister Joschka Fischer told Der Spiegel, “There is only one way out of the euro crisis: Theeuro-zone countries must regain the confidence of the financial markets. Butthat is only possible if they clean up their budgets.” Well, it seems that theGermans are all on the same page.

Poland, the only European country tohave a positive GDP in 2009 and not yet a member of the euro zone, hasnominated monetarist (favors currency stability) Marek Belka to be president ofthe National Bank of Poland.At least Merkle will have a neighbor in Polandwho maybe sympathetic with her goals. But not everyone agrees with Belka.Polish Economic Minister Waldemar Pawlak told Polsat News, “The United States and European countries areabandoning such policies.”

The UnitedStates is abandoning such policies? Sure enough.U.S. Treasury Secretary Timothy Geithner was in Europemeeting with his German and British counterparts last week. His message wassimple and straightforward: Keep the deficits rolling.

IsGeithner out of his mind? Well, no. Geithner and the Obama Administrationbelieve that continued deficit spending will stimulate the European (andAmerican) economies by promoting growth and resulting in higher revenues; andhigher revenues mean a larger tax base and that would increase tax revenues anddecrease the deficits. Will that work? Maybe. But without fiscal discipline, itwill also bring inflation and a weakening of the participating currencies (seeClub Med). In addition, when you stretch spending to its limit, there is noroom for emergencies – and then an emergency itself could precipitate afinancial crisis.

So howdo we get to a strong dollar and strong euro? Geithner thinks that it isthrough increased deficits. Merkle thinks it’s more through reduction ofdeficits. They both can’t be right. And yet, both seem to be pursuing their ownstrategies. Hmmm. Maybe a miracle will happen.

Quote without comment

German Chancellor AngelaMerkel, on May 13 regarding the future of the euro: “We have a common currency,but no common political and economic union. And this is exactly what we mustchange. To achieve this — therein lies the opportunity of the crisis."