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Archive for February 2009

China, hold my hair back: In Defense of Recession.

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Recession is a nasty word. It means sacifice and pain to many. It touches everyone, rich and poor. However, it is simply the economy`s way of screaming `last call` at the end of a good party. A recession is the economic equivalent of a hangover.

The last decade saw an unprecedented economic boom for the entire world. It was a boom built on cheap credit and a consumer driven US economy. A series of must-have consumer items paid for by mortgage equity withdrawals  placed flat screen tv’s in many homes and new cars in many driveways. The house became an ATM and China turned into world distributor of all goods and credit the equity in your house could buy. Global wealth appeared to be increasing. It was a no money down miracle!

However, nothing comes for free. There is always a price to pay. Growth was accumulated up front.  And that’s where a recession comes into play. The hangover after binging on fast food and cheap beer (it tasted good at the time, didn`t it?).

Recessions tend to bring things back to normal. It is a purge of excess. A return to normalcy.

Global policies must recognize that a recession is a nasty, but natural part of the business cycle that is exacerbated by excess. A managed recession is the best case scenario that will rationalize businesses (i.e. those which are built on cheap credit and a consumer that has no limit on spending need to be shuttered or diminished) and set the stage for future growth.

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February 18, 2009 at 4:29 am

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Anti-Stimulus

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Part of the process of going through a recession is rationalization. Old businesses fail and new businesses emerge. As Obama steps up his attacks on the excesses of the past decade, we will see more and more businesses complain about  “Anti-Stimulus”.

Las Vegas has recently become target number one, as many businesses cancel retreats or conferences in the city of sin. It has become unfashionable or unwise for corporations to plan trips to the city, as the increased scrutiny on spending leads to less business travel. The travel industry is really going to take it on the chin with many layoffs and reduced wages. These casino heads do have a point that recent Obama speak has been populist and damaging to their industries.

It is unfortunate that many companies are simply wasting money by canceling and rebooking trips closer to home, as the cancellation charges can be hefty (Goldman Sachs reportedly canceled a conference in Las Vegas by paying a 600,000 USD cancellation fee and then having the same conference closer to home just to avoid the evening news).

Two thoughts: will the waitress who survives on tip revenue find these developments helpful in taking care of her family, or is Las Vegas just an exaggerated example of what is wrong with America?

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February 17, 2009 at 11:26 pm

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Lost Path?

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Find Andrew Coyne`s lament on the death of conservatism in Canada here. It is an interesting piece of writing in political fantasy, as most of the policies of the old Reform / Alliance have either been resoundly rejected by voters or the ideas were best suited for opposition and not government.

“ Think back to the late 1990s, and what the Reform party then stood for. Not just balanced budgets, but balanced budget laws. Referendums—on tax increases, on constitutional amendments, on citizens’ initiatives. Tight controls on spending. A flat tax. Abolition of corporate subsidies, and of their “regional development” dispensaries. Reform of employment insurance, of the Canada Pension Plan, of the CBC. A federation of equal provinces and citizens. An elected Senate. Free votes in Parliament. More power for ordinary MPs. Open nomination races at the riding level, free of interference by the leader’s office. Fixed election dates.“ 

The Conservatives have grown up since their days of the Old Reform. They have found the middle and have shifted the entire political spectrum left.  They have found that opposition is much different than governing. It is easy to promise balanced budgets from opposition, but find the facts do not allow for a hard and fast law against deficits. Many of the Reform ideas that Coyne refers to are policies that effectively shrink the government or reduce the power of the government. Instituting checks and balances into the system should be applauded, but any force that tends to reduce government power/efficacy leads to a weakened federation. In summary, most of these points about the death of conservatism are opposition ideas, not government ideas.

Keynes sums up changing policies as the situation dictates by saying “When the facts change, I change my mind.  What do you do, sir?”  I think Coyne should do the same.

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February 16, 2009 at 9:40 pm

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The Company Formerly Known as Blackwater

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Blackwater, the infamous private army, has changed their name to Xe (pronounced “Zee”).  The company is undergoing massive change as they adapt to the new reality of a more sovereign Iraq and a Democrat running the White House. A corporate rebranding is a clear way to try to break free of past misdeeds. However, is this a sign that private mercenaries will have little role in foreign conflicts, and if so, how will the Obama administration rebuild a broken military among other competing priorities (economy, economy, economy, etc)?

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February 15, 2009 at 5:38 pm

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Now what?

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The Executive Order to shut down Guantanamo Bay was the right thing to do. It will go a long way in separating Obama’s policies from the Bush Administrationand hopefully restore America’s standing in the world. I have long believed that the War on Terror must be won through discreet military action, but also through wining the hearts and minds of Islamic extremists. Without a cause to fight, extremism will always simmer to a non-issue. Any provocation of mistreatment only gives cause to violence. The closing of gitmo will serve to remove an issue that extremists can rally around. However, the issue is not as simple as shutting down the prison. The Obama Administration must choose very carefully what they will now do with the detainees.

Where there is not sufficient evidence to prosecute, the detainees must be freed. However, this is easier said than done. The main questions I ask are where will they go, and are the detainees still dangerous?

Obama has already begun a review to see which ones should be prosecuted and which should be sent to other countries. The remaining detainees that have committed crimes must be swiftly brought to justice.  If there are more than one charge against them, prosecute them quickly and then worry about the other charges later. This will help buy time to fully prosecute the individuals in question.

It is clear that the method of justice employed by Bush was a disgrace. He failed to uphold the laws that make America a role model for the rest of the world.   The unintended consequences of the Guantanamo debacle has made America less safe. A suspect with scant evidence against them could be held indefinitely. Also, there is the issue of a history of torture at Guantanamo. These detainees, when released, will no doubt harbour terrible feelings for the United States.  An individual that held little danger for the US, could now be a person so filled with hate that they have become dangerous to the US.  

With the prospect of freedom for some detainees very close, there is confusion as to where they will find this freedom. Many claim that they cannot return to their home countries for fear of torture or a poor human rights record.  I believe this should be the first option for detainees on the grounds that there may be legitimate reasons for the detainee to be tried in their home country. The US should see if there are legitimate reasons for the person to be put on trial in their home state. If there is a risk for arbitrary torture or imprisonment, the detainee should be sent to another country.

There have been a couple of instances where detainees have sought refuge in another country with mixed results. Albania took in 5 detainees and granted the men asylum. They are attempting to find work and make a living in that country. However, they must adapt to a country that speaks a different language and requires this language for work permits. It is unclear how these detainees will live a productive life in that country. There is also the possibility of the detainees finding a h0me in Europe or Canada. I would feel unsafe knowing that a former detainee was my next door neighbor. These detainees have certainly been stigmatized as the “worst of the worst” . But there is also the lingering question of why they were detained in the first place. Why would non-afghan nationals be roaming the “bucolic hills” of Tora Bora? Perhaps the Afgan Tourism Board doesn`t advertise over here….

The solution to the detainee problem resides in a pathway to freedom. Simply letting the detainees start anew in  another country poses too much danger to the population given the history of violence at Guantanamo. A system of rehabilitation with training and monitoring of activities (similar to a half-way house) is probably the only option that will serve to escape the horrors of Guantanamo, while reassuring local populations.

The number of years that gitmo detainees have languished in legal limbo has done harm to America’s reputation. It has also created a more dangerous detainee through torture. Obama has done the easy part in shutting down this horrendous operation, but `now what` is the more serious and difficult question.

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February 15, 2009 at 4:37 pm

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True North, Strong?

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Many have argued that the recession in Canada will be milder compared to the rest of the world. The head of Canada’s Central Bank went so far as to claim that the recovery will be “V” shaped. A steep decline followed by a quick climb out of the economic malaise. There is no shortage of pundits championing the resiliency of the Canadian economic order. However, there are reasons for deep concern that these predictions are  far off base and Canada will be in serious trouble over the next couple of years.

Canada has been able to appear more stable than our neighbors for a couple of reasons. First, the high price of oil in the summer was a boon to the economy whereas, it hurt non-producing nations. This gave a period of insulation from the collapse elsewhere. However, it will become clear over the next couple of months that this has only served to delay the recession. It appears as though we are 6 to 12 months behind the downturn in other economies.

Second, the banking system in Canada will help insulate Canadian businesses from a severe credit crunch. Well capitalized banks will allow deserving businesses access to credit. Tighter regulation and a less-fragmented `big bank` approach will become the standard across modern finance.

The job numbers are the most telling sign that Canada is lagging other economies by 6 months and the economy will not have the hoped for V-shaped recovery. 129,000 jobs were lost in the month of January.  The manufacturing sector in Canada is in a dire state and the outlook is bleak. Ontario produces more cars than any other region in North America.  Although this fact was championed 2 years ago, the reliance on manufacturing and the auto industry is a scary prospect for Ontario.

In the West, the commodity producers will have to cancel or scale back the capital projects planned last year. The commodity contagion effect will serve to hurt construction and service industries alike.

 With this in mind, it doesn`t seem like the political response has matched up with the problems that will be faced in Canada (I will have to cover this in another posting). You have to wonder when they will face the economic reality that Canada is not as immune as they claim.

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February 14, 2009 at 5:05 pm

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Bipartisanship is dead.

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Bipartisanship is dead. With Judd Gregg withdrawing from the role of Commerce Secretary, Obama`s experiment in post-partisan Washington is officially dead. Bipartisanship only makes sense with shared ideology.

A case in point is Robert Gates. Both Obama and Gates believe that the real front on the war on terrorism is Afghanistan and both are to be commended on sharing views on this important battle. When there is a shared vision, it does not matter if you fall under the label of Democrat or Republican.  However, it is clear that there is nothing to be gained by appointing Republicans to the cabinet or compromising on legislation to try to gain “bipartisan support” if there is not a similar mindset. It simply becomes a farce for no benefit.

Obama has attempted to create a post-partisan Washington without any support to his agenda. If he were to receive votes or consensus to his mandate it would make sense. However, in receiving nothing in return, he weakens his mandate. Obama has received an overwhelming public mandate to implement new policies. He should act correspondingly.

In fact, bipartisanism makes no sense in a Republic where all three branches of government are controlled by one party. There is simply no point. The incentives are stacked against all involved.

Without shared ideology, there is no such thing as a bipartisan world. Nor should there be. Partisan politics isn`t something to be derided. It is democracy at its finest.

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February 13, 2009 at 7:25 am

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