Friday, September 30, 2011

Putin's Return to the Presidency: Russia's Limited Options

Russia is a vast country, rich in natural resources and energy wealth. But Russia's core population of ethnic Russians is shrinking and aging. The industrial infrastructure of Russia -- including its military infrastructure -- is rusting and losing its human capital via natural loss and out-emigration. Russia's political aristocracy continues shipping the nation's wealth to overseas banks and investments. And the core of Russia's hopes -- the health and optimism of its citizens -- is in decline.

Here are a few other problems that Russia will face under Czar Putin:
For the last ten years, the Russian government's budget has ballooned, from 1.96 trillion rubles in 2000 to 20.4 trillion rubles in 2011 ($63 billion to $680 billion). Much of this spending has come in the form of direct tributes to regional governors, as well as to some ministries and their officials. It will be difficult to maintain this level of expenditure, since today, more than at any other moment in Russia's history, state revenues depend on the price of fossil fuels; oil, gas, and other petroleum products make up 72 percent of exports. If oil prices continue to fall, Putin may have to cut the budget, which could have a dangerous and unpredictable effect.

A new Putin presidency will cause the Russian public's passive dissatisfaction with their country and its rulers to grow and become more active, reflected by an increased outflow of educated professionals to other countries. Some opposition groups will form, perhaps based on Internet communities, brought together by a sharp rejection of bureaucratic arbitrariness and cynicism. _ForeignAffairs

With Putin’s return to the Kremlin, analysts are predicting a new “brain drain”—an exodus of Russia’s educated and creative young professionals who will not see a future with a ruler that plans to remain in power longer than Joseph Stalin (on the current timetable, until 2024). Another likely result is a renewed crackdown on what remains of Russia’s independent media and the already-illusive civic freedoms; a new round of repressions against the regime’s political opponents; continuing corruption; and a more confrontational stance toward the West and the ex-Soviet “near abroad,” especially as Russia’s increasingly shaky economic situation will necessitate diverting people’s attention elsewhere (the government recently admitted that the budget would only balance at an elevated oil price of $116 per barrel—with the current price being $104).

The most dangerous result of Putin’s attempt to cement his power, however, is an increased likelihood of upheavals. Popular discontent is rising: the August surveys by the independent Levada polling agency showed that 54 percent of Russians disapprove of the current government, while 64 percent would like to see the composition of the United Russia–dominated Parliament change “significantly” or “totally.” According to the same polling data, most Russians also believe that the upcoming parliamentary elections on December 4 will be a farce. With nine political parties across the spectrum—from the left-wing United Labor Front to the center-right Popular Freedom Party—denied registration and barred from the ballot, and a strict de facto censorship operating on national television, it is difficult to disagree with them. _WorldAffairs

We have known since 1996 that Russia wasn’t a democracy. We now know that Russia isn’t a dictatorship controlled by one party or one dynasty. It is a regime ruled by one man. “The party doesn’t exist,” said one of Russia’s leading independent economists. “The politics is all about one person.”

That new reality might seem to be a victory for Mr. Putin. But it is a flawed triumph. His resumption of absolute power is also an admission that he and his cronies have failed in the project they set themselves in 2008. That was to create a self-replicating institutional base for the regime he brought to power in 2000, when he took over from Boris Yeltsin and dismantled the fledgling democratic structures.

Russia’s transformation into what political scientists call a sultanistic or neo-patrimonial regime is a break both with Russian history and with the global trend. The Kremlin has been home to plenty of murderous dictators. But the czars drew their legitimacy from their blood and their faith. The general secretaries owed their power to their party and their ideology. Mr. Putin’s rule is based solely on the man himself. _Globe&Mail
As the price of oil fluctuates, the Russian government's hold upon its people's loyalty will likewise fluctuate. Time is working against Putin in this regard, rather than for him as most pundits appear to think. The Arctic, for example, is more likely to freeze a harder thicker ice cap rather than to thaw and create a sea passage, and open drilling zones. The growth of the shale oil & gas industry in Europe threatens to severely reduce one of Russia's most lucrative markets. In addition, substitutions of other feedstocks in place of crude oil in many areas from transportation to plastics, is likely to put a downward pressure on Russia's Ural crude prices.

Putin is seen as the "strong man" president. But if the declining nature of Russia's military technology and power is exposed to the world, inadvertently, Putin will find it all the harder to maintain order. And such an exposure becomes ever more likely with the passage of time, and the increasing bellicosity of Mr. Putin's regional bullying.

Russia cannot supply its army with a full contingent of ethnic Russians. In Georgia, it was forced to use Muslim mercenaries to do a lot of its dirty work. Putin will be forced to depend upon more and more non-Russians serving within the ranks of the Russian armed forces, and of divided loyalties.

Putin will find it difficult to keep Chinese influence out of Eastern Siberia, as more and more illegal Chinese immigrants move in and occupy the towns and industries there. Russians have never wanted to live in Siberia in large numbers, and the shrinking demographic dynamic is hitting the ethnic Russian population of Siberia very hard.

Looking at the underlying fundamentals, Russia has no alternative to Putin.

Russia's options are limited, after having so many of its non-Kremlin institutions destroyed by the Putin machine. Putin sees anything that he does not directly control as a direct threat to his power, and so he will continue to try to destroy anything new that tries to form an independent existence in Russia.

Any outside entity stupid enough to form an alliance or partnership with Putin's Russia is certain to be badly shafted by the czar, if the opportunity arises.

The best strategy for the rest of the world in dealing with Putin's brave new Russia, is to do everything possible to reduce the international prices of oil & gas. Since Obama's energy starvation policies are oriented toward doing exactly the opposite of that, Obama simply must go.

Thursday, September 29, 2011

China's Overreliance On Government Directed Investment

China's property bubble is set to burst, causing greater damage to the domestic economy than the U.S. suffered after its housing market collapsed in 2008, a government economist warned in comments published Friday. Yi Xianrong, a researcher at the Chinese Academy of Social Sciences with a reputation for speaking out against the government's housing policy, said the U.S. housing bubble was smaller than China's and still burst, despite the country's superior legal and credit systems. _SeekingAlpha

China’s problem, however, is that most of this investment is state-directed and this means China’s investment expansion is arguably more likely to create a financial bubble and be less productive than that of the US, Germany et al before it. Again, past is prologue. Both Korea and Japan’s investment spree ended with a bubble bursting – Korea’s in the Asian financial crisis in 1997 and Japan’s in 1990. _FT
Read both of the articles above in their entirety, for a balanced view of China's predicament.

When China's export markets collapsed in 2008, the CCP government turned to local infrastructure spending to maintain employment and GDP growth. But much of the spending and construction occurred on the basis of government direction, rather than in response to the needs of any market. This type of central economic planning led to the collapse of the old USSR, and is leading to chronic creeping poverty in Cuba, North Korea, and increasingly in Venezuela.

China's regional governments are going further and further out on an economic limb to finance projects which may look good on the balance sheets, but which will not provide enough return to pay back the loans which were extended to finance them. The famous "ghost cities," "ghost shopping malls," "ghost trade centres," and such are but the tip of the iceberg.

When this widespread overextension of banks, governments, state-owned enterprises, and politically well-connected enterprises becomes stressed sufficiently, the painful effects of this misallocation of capital and the "Potemkin economy" will be more difficult to hide.

Wednesday, September 28, 2011

Black Mob Invades Home and Beats Innocent Husband

Mark Lavelle is a Philadelphia area father, and a youth sports league coach, who experienced the raw side of interracial relations in Obama's US. Here is the story from Philly.com:
ABOUT 11 P.M. on Sept. 9, dozens of youths with bats and pipes descended on a tidy residential area of Port Richmond looking for white teens who allegedly had attacked an African-American kid at Stokely Playground a couple of hours earlier.

Two fearful white teens spotted Mark LaVelle on Indiana Avenue near Belgrade Street and asked for help. Suddenly, the mob appeared. LaVelle, who said that he didn't know the two kids, who looked to be 13 or 14, ran with them into his nearby house.

" 'We got you, you white mother-------!' " LaVelle said he heard someone yell in the "mob" of black and Hispanic youths.

Inside his house, LaVelle, 37, called to his wife, Kim, 30, to go to their bedroom with their twin 13-month-old boys, Mark and Mason, and to call police. He also ordered his two other sons, 11 and 17, and his nephew, 7, to stay upstairs.

With the two teens hiding in the house, LaVelle, 5 feet 10, 220 pounds, a well-known sports-league organizer and coach in the community, went outside to try to calm the angry mob.

They were standing on his steps. One shouted, " 'Something's going to happen now!' " LaVelle recalled in an interview Friday at his house. LaVelle got nervous and went back inside, locking his door with a deadbolt.

But the attackers pounded on his front windows and kicked his wooden door so hard, it flew open and some of them entered his house.

"The first guy hits me with a pipe. The second guy knocks me in the face. All I'm hearing is my wife and kids screaming," said LaVelle, who feared that the next time they saw him, he would be in a casket.

He said that he was able to push the attackers out the door, but then a third man - who had a gun - tried to extend his arm. LaVelle grabbed onto the gunman's lower arm and shoulder so he couldn't raise the weapon. Then, police sirens screamed in the neighborhood, and the mob turned and ran.

LaVelle was able to identify three of the people from the melee. He said he did not know if they had been chasing the white teenagers, or if they were just trying to find someone to attack.

Police arrested Bergson Morin, 21, of Rosehill Street near Wyoming Avenue, Feltonville, as the man with the gun. They arrested Enrique Delgado, 32, of Rockland and C streets, Feltonville, as the man who hit LaVelle with the pipe. And they arrested a 17-year-old juvenile as the one who punched LaVelle in the face, giving him a black eye.

LaVelle said that the next day the mother of the juvenile came back with some other people, banging on his door, screaming. LaVelle, who was at a charity sports event, was called back to the house by one of his sons.

When he got home, LaVelle said, the mother yelled at him, " 'You white mother------, you got my kid locked up! You got my son locked up because he's black, you're white!' " The mother claimed that her son had been "a witness," not an attacker. To that, LaVelle said if that were true, it would come out in court.

But the mother, according to LaVelle, then yelled: " 'If you make it to court! I know where you live!' "

Police public affairs could not confirm yesterday if the mother has been arrested for making threats. _Philly.com
Philadelphia has been the scene of several violent flash mobs this summer, populated almost entirely by black youth. Even Philadelphia's black mayor has lost patience with the violence among the black youth of his city. But he -- and other responsible black adults in the community -- is apparently helpless to put the cork back in the bottle.

Here is the kind of news story that Philadelphians are becoming more accustomed to hearing. Philadelphia is a demographic horror story in the making, an illustration of demographic replacement by a more violent and less productive population group than the group it replaced. It is the same story across many cities in North America, as well as a growing problem in Europe, the UK, and Australia.

Political correctness prevents modern people of good will from calling the phenomenon what it is -- and stops them from taking the necessary steps to put an end to the violence. And so it will continue to get worse for as long as the violent perpetrators are sheltered by politically correct authority and law enforcement. Too bad.

Saturday, September 24, 2011

Which Comes First? Collapse of Commodities Prices, or the Crumbling of BRICs?

Common wisdom assumes that commodity prices, including oil prices, will continue to rise on exponential demand from emerging nations, such as China, India, Brazil, Turkey, Russia, etc. But under the sheen of those rosy projections, exists a growing excremental stench of corruption and decay. If the magical trajectory of the BRICs should falter, how far would commodities prices fall? And what would be the repercussions for already stressed world financial markets, desperate for safe havens and hedged to the hilt?
China's property bubble is set to implode, and when it does, the Chinese economy will cool far more than anyone thinks, taking commodities along for the ride. Commodity producers like Australia and Canada are at extreme risk as well. _Mish
Not just Australia and Canada are at extreme risk. Two BRICs -- notably Russia and Brasil -- are gambling on continued high commodity prices into the indefinite future. Corruption in all of the BRICs is hampering genuine market-based growth, but economic dependence on raw commodities prices is particularly bad in Russia.

When commodity prices dive, Russia may well grow desperate.
Prime Minister Vladimir Putin, the country's uncrowned czar, has linked his legitimacy to the economy's performance by offering the Russian people a grand bargain: submit to his increasingly autocratic rule and the state will compensate with economic goodies like higher incomes and hefty social-welfare spending. Now that the economy is faltering, Putin is under intensifying pressure from a discontented public to restore Russian democracy, potentially destabilizing Russian politics. He has already faced protests in Moscow against his rule amid the economic downturn. There's also a risk that leaders in Moscow will resort to nationalistic appeals to distract the public from problems at home, escalating tension with Russia's neighbors, the rest of Europe and the U.S. _Time

Russia's ongoing demographic collapse, and the threat of losing much of Eastern Siberia to Chinese influence, is not helping the mood in Moscow. But without the clout that comes from high energy prices, Russia becomes an angry dancing toy bear with nuclear weapons.

Venezuela, Iran, the Arab states of MENA, Mexico, and many countries in tribal Africa and Asia, are also pathologically dependent on high commodity prices, due to internal corruption having squeezed natural markets to death. How will their people deal with the many difficulties and hardships they will face when their governments cannot feed, clothe, house, or water them?

Even the US is vulnerable to a fall in commodities prices. The US is the world's third largest oil producer. The recent boom in US shale oil & gas production is one of the few bright lights in an otherwise dim Obama economy. And although the jobs, housing, manufacturing, and other sectors in the US economy continue to sag, Obama has not had enough time to entirely destroy the US private sector.

Few readers of this blog understand the precarious state of China's economic house of cards. That is because almost all of the economic information coming out of China is closely controlled, and coated with a shiny facade. But it is time for readers to begin asking themselves about the global repercussions of a more sustained commodities price slump than they have seen.

Taken from an earlier article at Al Fin

Saturday, September 17, 2011

Warfare Between Generations Still Largely Covert

...young Japanese and Italians pursue increasingly cautious lifestyles. Nearly 80 per cent of unmarried Japanese between the ages of 18 and 35 live with their parents. The ratio is nearly as high in Italy.

Such unadventurous living means people do not grow up, and do not take risks – such as having children or starting a business. _WRM

Italy and Japan are the leading edge of this global demographic transition within developed countries. Russia is experiencing much of the same phenomenon, as is much of Europe, North America, and Oceania.
In Italy and Japan, companies are reluctant to hire young people on what American universities call “tenure track”; unsure about their future needs and resources they don’t want high cost employees that can’t be fired. The older workers are too powerful to dislodge — just as in American universities the tenured professors are too powerful to give up tenure. So younger workers increasingly are hired if at all on temporary contracts, with lower benefits and fewer prospects for promotion. _WRM

The problem is the most dire in countries and regions which have transferred power from the individual and the private sector to the public sector. This willful concentration of power reduces opportunity for newcomers.
To succeed today, many young people need to recognize that no job will be waiting for them when they finish studying. They are going to have to create their own opportunities. It is a good time for creative entrepreneurs. _WRM
Unfortunately, in such aging societies there is little opportunity for entrepreneurial initiative. Paralysing taxes, regulations, and public debt leave little room for meeting the real needs of a healthy population.

The welfare state grows and grows, concentrating on meeting the needs of the weak, the old, the diseased, the dispossessed, and the illegal alien outsider. Meanwhile, the young and gifted are shunted aside, unwelcome. People with new ideas and new ways of solving problems are an unwelcome distraction and threat to the political class, and must be struck down and removed from the public stage.

This is happening routinely in Russia, and other dictatorships. But it is also happening less overtly in Canada, the US, and other developed democracies.

The war between the generations -- and between styles of thinking -- remains mostly covert. But that could change quickly. If you do not want your nation to flare up in outright inter-generational warfare, consider changing the way your government solves problems.

Friday, September 16, 2011

Europe and America: Demographics and Dumbing Down

The gravity of Europe’s demographic situation became clear at a conference I attended in Singapore last year. Dieter Salomon, the green mayor of the environmentally correct Freiburg, Germany, was speaking about the future of cities. When asked what Germany’s future would be like in 30 years, he answered, with a little smile, ”There won’t be a future.”

Herr Mayor was not exaggerating. For decades, Europe has experienced some of the world’s slowest population growth rates. Fertility rates have dropped well below replacement rates, and are roughly 50% lower than those in the U.S. Over time these demographic trends will have catastrophic economic consequences. By 2050, Europe, now home to 730 million people, will shrink by 75 million to 100 million and its workforce will be 25% smaller than in 2000._JoelKotkin_Forbes

When a welfare state is in the throes of a shrinking demographic, the implications are extremely dire. Guarantees of benefits in these nations is based upon a pyramid scheme, with the older pensioners near the apex and the younger taxpayers near the base. If the positions are reversed due to a collapsing demographic, national debt tends to grow to massive proportions rather quickly.
The fiscal costs of this process are already evident. Countries like Spain, Italy and Greece, which rank among the most rapidly aging populations in the world, are teetering on the verge of bankruptcy. One reason has to do with the lack enough productive workers to pay for generous pensions and other welfare-state provisions.

Germany, the ├╝ber-economy of the continent, has little hope of avoiding the demographic winter either. By 2030 Germany will have about 53 retirees for every 100 people in its workforce; by comparison the U.S. ratio will be closer to 30. As a result, Germany will face a giant debt crisis, as social costs for the aging eat away its currently frugal and productive economy. According to the American Enterprise Institute’s Nick Eberstadt, by 2020 Germany debt service compared to GDP will rise to twice that currently suffered by Greece. _Forbes_Kotkin

The United States under Obama has been trying to imitate the European style of government -- a designed expansion of the public sector at the expense of the private sector. Fortunately for Obama -- in one sense -- the US is not suffering the same demographic collapse as Europe. The US is instead still growing demographically, due to immigration and due to higher birthrates among immigrants.
But in another sense, the US population growth is not as fortunate as it appears. The new replacement populations coming into the US are, on average, of lower aptitude in a cognitive sense. Average IQ of the US population is almost certain to drop as a result, and US global comptetiveness will be strained, consequently.

Trends in SAT test scores are an early warning of this very phenomenon:
"The scores are disappointing, and it seems to be a trend over the last five to six years, with drops across the board," said Jim Hull, senior policy analyst for the National School Board Association's Center for Public Education.

He called 10 points "a pretty significant change."

"It raises a red flag," he said. _WashingtonExaminer

Test score drops will be blamed on a number of factors, but the studiously ignored central cause of this trend is the lowered cognitive potential of modern students. And it is only likely to get worse. And the repercussions of this cognitive decline will spread throughout society -- and will be magnified tenfold by affirmative action policies.

The SAT has already been "dumbed down," perhaps in anticipation of this very phenomenon, but apparently it was not dumbed down enough. It will probably not be long before the ACT follows suit, in politically correct fashion. More: Steve Sailer takes a closer look at changes in SAT scores over the past several years, with stratification of scores by race.

A dumber population will place greater demands on governmental infrastructure. Law enforcement, welfare, education, housing, food subsidies, etc. will all have to grow more productive to compensate for a population of lower cognitive aptitudes.

National debt will increase even faster than at present, as the underlying society grows less capable of repaying their own debt on top of the debt of previous generations. Economic hardship will increase.

Multicultural societies are low-trust societies, which require much larger police forces to maintain order. As police forces are downsized due to the exponential growth in public sector union pensions and benefits, civil disorder will expand to fill the void.

Youth gangs made up almost entirely of immigrants, children of immigrants, and "minority" populations, will range the landscape virtually unimpeded by a law enforcement infrastructure that will grow more corrupt as it takes on the multi-cultural form of the new dominant populations of society. The initiation ritual for many of these gangs is likely to be an act of violence against the shrinking population of the formerly dominant, European descended people.

Can you and yours find a place of safety in this coming world? That depends upon what you do between now and then.

Hope for the best. Prepare for the worst.

Friday, September 09, 2011

Willpower and Stupidity

Is the ancient virtue of willpower still relevant in the modern age?
We eat, drink, smoke and gamble too much, max out our credit cards, fall into dangerous liaisons and become addicted to heroin, cocaine and e-mail.

...In experiments beginning in the late 1960s, the psychologist Walter Mischel tormented preschoolers with the agonizing choice of one marshmallow now or two marshmallows 15 minutes from now. When he followed up decades later, he found that the 4-year-olds who waited for two marshmallows turned into adults who were better adjusted, were less likely to abuse drugs, had higher self-esteem, had better relationships, were better at handling stress, obtained higher degrees and earned more money. _NYT

A more scientific term for willpower is executive function (EF), coordinated in the prefrontal lobes of the brain. Together with intelligence (IQ), levels of EF powerfully determine life success over the years. EF can be improved by training in children, but such training should occur between the ages of 4 and 7 for maximum benefit.

The interaction of willpower and stupidity is more complex than most people understand. First, what do we mean by "stupidity?"
"A stupid person is a person who causes losses to another person or to a group of persons while himself deriving no gain and even possibly incurring losses."

"Always and inevitably everyone underestimates the number of stupid individuals in circulation."

"Non-stupid people always underestimate the damaging power of stupid individuals. In particular non-stupid people constantly forget that at all times and places and under any circumstances to deal and/or associate with stupid people always turns out to be a costly mistake."

"Our daily life is mostly, made of cases in which we lose money and/or time and/or energy and/or appetite, cheerfulness and good health because of the improbable action of some preposterous creature who has nothing to gain and indeed gains nothing from causing us embarrassment, difficulties or harm. Nobody knows, understands or can possibly explain why that preposterous creature does what he does. In fact there is no explanation - or better there is only one explanation: the person in question is stupid." _Science20

Stupidity arises from multiple causes. Low intelligence, spite, ignorance, laziness (lack of willpower), miscalculation, and unavoidable constraint propagation (bad luck) are just a few of the many causes of stupidity and stupid people.

In the United States, stupidity has become concentrated near seats of power such as Washington DC, New York City, Los Angeles, Chicago, etc. Government is one obvious host and purveyor of mass stupidity, along with all other institutions which are closely involved with government -- such as labour unions, news media, education, financial and economic institutions, law enforcement, the courts etc. Even the military -- which believe it or not is the most competent branch of government -- has been infiltrated by politically correct stupidity via social promotion of PC-favoured officers and the enforcement of politically correct policies.

Labour unions have become the seat of stupidity in a particular way recently, thanks to the union-friendly Obama regime. A violent storming, vandalism, and assault of a port in Washington state goes unpunished by government officials. While warming up a crowd for President Obama, Jimmy Hoffa Jr. tells Obama to "take out the son of a bitches," referring to Tea Party members and Republicans, and neither Hoffa nor the Obama White House will apologise for this rather blatant lapse of civility in the midst of an official Obama event. AFL-CIO head Richard Trumka dictates to Obama what he needs to say in his jobs speech before a joint session of congress -- encouraging the president to "go to the mat" -- and is rewarded for his presumption by being seated next to Michelle Obama for the president's speech.

These are all examples of stupidity by labour union officials and thugs. But many more similar examples occur on a regular basis. If the general public were to become widely aware of this stupidity, the political fortunes of Mr. Obama and those close to him would deteriorate even more quickly than at present. But for now, the news media continues to overlook and cover up the mistakes of Obama and his friends.

Mr. Obama's stupidity is not only in his friends and hangers on, but is engrained in every policy that he has pursued since being inaugurated. His war against the private sector, his war against energy, his promotion of a bankrupting "green jobs agenda," his vilifying of national allies and his cozying up with national antagonists, his diverting of scarce national assets into the purses of political cronies, his irreversible expansion of government mandate and government debt, his unprecedentedly divisive effect on society -- all of these evidences of stupidity and more should be enough to portray Obama's administration as "the stupid regime."

It should be obvious that willpower is not a simple antidote to stupidity. In fact, stupid people often pursue their stupid agendas with the utmost will.

It is true that if the masses had exerted more willpower in their oversight of government and government officials, that this massive clusterfuck could have never grown so bad so quickly. But that was then, and this is now. What do we do now?

Can the example problem -- the rise of stupidity in US government and society -- be solved within the political and societal structure, or will entirely new structures and forms of organisation be necessary?

This question will be explored in future articles.

Cross-posted from Al Fin blog

Monday, September 05, 2011

Vladimir Putin's Russia a KGB State: What Does it Mean?

The Russian economy is dependent upon the world markets for oil & gas. As long as world oil & gas prices are high, the Russian economy will do well, and the Russian government will be able to buy the grudging obedience of its people.

Why cannot Russia grow a prosperous economy that is more independent of its massive oil & gas reserves, and mineral resources? The answer to that question rests in the way Putin's government controls Russian industry and resources: like a KGB state.
Under Putin's direction, a "state mafia" has replaced the street mafias of the chaotic Yeltsin years. At the bottom of this mafia's pecking order, armies of corrupt tax, fire and health inspectors have taken the place of the brawny young street thugs and racketeers of the Yeltsin era. They can ruin any small or medium-sized business that does not cooperate with them. At higher levels, municipal and regional officials allocate contracts, receive bribes from local businesses, wipe out fines or indictments, and look the other way in the case of unsafe cruise ships. At the top of the ladder, ministers and deputy prime ministers have replaced private oligarchs as heads of gigantic energy and mineral concerns. They deal with their victims politely in fancy hotels and modern offices, but the result is a classic shakedown worthy of the New Jersey mafia. _econlib
In other words, companies do not prosper on the basis of good products, services, and customer relations. Rather, companies in Russia prosper on the basis of whose palm is greased, and whose political interests are not being threatened.
The KGB state has created a thug economy. Its directors use businesses as personal wealth-generating machines; they quash potential competitors and take over legitimate businesses once they become big enough to attract their interest. The directors of the KGB economy have accumulated incredible wealth. Putin himself is said to be the richest of the bunch, with a fortune likely in excess of $30 billion.5 There are more Russian than American billionaires on the Forbes lists, although private wealth in Russia is a tiny fraction of that in the United States.

Many praise China's state capitalism and use high Chinese growth rates to justify its one-party state and political repression. Can we make similar claims about Russia's KGB economy? Does it yield returns that somehow justify its negative aspects?

The directors of the KGB state praise their economy as an example of state capitalism that nurtures "national champions" (a term Putin introduced in 1997) like Gazprom, Rosneft, and Aeroflot. They remind the public of the "wild capitalism" of the Yeltsin years, when pensions were not paid and inflation was rampant. They point to the crises of the United States and Greece. They claim that wise leaders like Putin and Medvedev, as well as their ministers and civic-minded oligarchs, protect and promote the economic interests of society.

The KGB state controls the commanding heights (Lenin's term) of energy, commerce, minerals, media, and transportation. Small and medium-sized businesses can operate if they keep their noses clean and heads down and buy off the lower levels of the state mafia. _Paul Gregory_econlib
By controlling the upper echelons of important Russian industries, Putin's Russia prevents significant improvements in management, technology, and services, from upsetting the carefully balanced apple cart. Such control also assures a quasi-permanent dependency on world commodities markets, and an exquisite vulnerability to outside technology breakthroughs or resource discoveries.

By preventing the growth of a healthy private sector, Russia's KGB state maintains solid control over a permanently stunted economy. Better to rule in hell than to serve in paradise, as the head demons tend to say.

This cozy little cesspool is doomed, of course. Demographic decline at both ends of the lifespan insure an ever-shrinking population. The abysmal state of Russian medicine and public health continues to worsen. Massive quantities of capital are being rushed out of the country every week. And anyone with any talent or appeal to outside interests is pushing her case for foreign employment, marriage, or just plain emigration out of the doomed KGB state that Putin has built.

Again, we have to ask the question: Will a country with such a massive stockpile of nuclear weapons go quietly into the dark night of failed states, when the time comes to exit the stage? Not likely. Expect Russia to resurrect the role of global troublemaker which it performed so well when the USSR had its KGB state.

How Could a US President Be So Abysmally Ignorant of the Nature of a Market Economy?

Mr. Obama has increased the US national debt by $4 trillion with very little to show for it in the way of employment or jobs. Obama's jobs program has become a program of political payoffs to cronies and supporters, while drowning the private sector under more and more layers of taxes and regulations. How could a US president be so utterly stupid as to how market economies work?
The heart of the problem is that Obama's idea of job creation largely revolves around public works projects that are rooted in Keynesian economics and driven by government funding and political payoffs.
What's needed now is a blood transfusion of self-funding jobs in the private sector that will enlarge the tax base and begin shrinking the deficit. Fortunately, there are four initiatives already in motion that could quickly create jobs and have a ripple effect throughout the economy.

First, the president could support the Freedom to Invest Act of 2011 (HR 1834), which would allow American multinational corporations to bring back to the U. S. some of the $1 trillion in cash they are hoarding offshore to avoid onerous U.S. corporate tax rates.

Why not allow those funds to be repatriated at greatly reduced tax rates, provided the money is invested in jobs, plants and equipment in the U.S.?

Second, the president can ask his appointees at the National Labor Relations Board to fast-track the hearings and decision-making that would allow Boeing to open its 787 Dreamliner assembly plant in South Carolina....

Third, President Obama can direct his Interior Department to cut through the red tape and renew the permit granted to ExxonMobil to develop the largest oil discovery in a decade located in the Julia field in the Gulf of Mexico. That discovery -- a deep reservoir of some 1 billion barrels of oil -- would reduce America's dependence on foreign oil and create thousands of jobs.

According to the American Petroleum Institute, by 2013 the ripple effects of this discovery and the lifting of the drilling moratorium imposed after the BP oil spill would cause "total employment supported by the Gulf of Mexico oil and natural gas industry to (approach) 430,000 jobs or a 77 percent increase."

Fourth, jobs are just waiting to be created by American companies eager to help tap the third largest proven oil reserve in the world, located in Alberta, Canada. These oil sands are now technologically and economically viable, provided the heavy crude oil can be transported by a new pipeline to refineries on the Texas Gulf coast.

Eighty percent of that 1,660-mile pipeline would be in the U.S. and put 20,000 people to work in construction and manufacturing. Most of the planning and permitting for the proposed Keystone XL pipeline has been done.

The major holdup now is President Obama. He needs to approve the project and shepherd it through final State Department formalities.

So far, President Obama's jobs initiatives have relied on stimulus spending of public money that is largely borrowed. The debt ceiling debate and S&P downgrade shocked the nation into facing the fact that we must reduce the trajectory of borrowing and spending. The virtue of private sector job creation is that it is largely self-funding and that it provides a return on investment, which in turn generates new tax revenues. _MercuryNews
Mr. Obama knows how to read from a teleprompter, and look down his nose at his royal subjects. He can also put in a lot of time on the golf course, and puts on some impressive taxpayer-supported vacations and parties.

But if you ask Obama voters why they voted for him, it is unlikely that they would say "to play golf," or "to go on long and expensive vacations."

Most of us knew that Obama could only be a figurehead, all along. His real world experience is completely lacking of any ingredients for making a strong, competent, practical leader for the world's only superpower and largest economy. What we didn't understand was just how disastrously poor Mr. Obama is at choosing advisors and decision makers. Too late now.

But if anyone within 100 miles of Washington DC does have any idea how a market economy can be allowed to thrive, perhaps he could try to get a message through into the "DC dead zone" that things need to be done in a more competent way, more in accordance with the needs of market economies. Otherwise, the ugliness is apt to get completely out of control.

Saturday, September 03, 2011

Out of Control Debt An Important Sign of Global Instability

...leading economies, the U.S., Japan, and the E.U. are declining. That is, about one-sixth of the world's population is losing ground. These big economies are the ones that lead the rest of the world, including China. Countries like China, India, and Brazil, depend on the health of the big economies to keep buying their products and commodities so they can grow and generate wealth for their citizens. _ZeroHedge
Who will be the last man standing? In the coming clash over debt, both within and between nations, what country -- or portion of a country -- will survive and prosper? Difficult to say, given the ubiquity of the deadly duo: debt and demographic decline.
In Europe, one can locate particular problem points, where endebted nations are reaching the end of their borrowing capacity. These nations are coming flashpoints for a fire of unrest that could explode out of control with incomprehensible haste.
A visit to Spain the prior week demonstrated that Greece's financial woes were just the tip of an iceberg on a continent of debt -- the Greek national debt crisis seemed like the first card in a flimsy house. To be in a nation as it is unraveling has an eerie, surreal, mostly indescribable feeling. The storefronts in Athens outside of the tourist areas looked like they'd been through several rounds of a boxing fight, and were just waiting for the knockout punch. Other than the lights being on, the difference between shops closed indefinitely and those currently operating were hard to distinguish. Unless they were pushing merchandise, people wore saddened expressions as they walked by decaying and graffiti-covered buildings. _thetyee
In such environemnts, deadly, destructive riots are always just a spark away. There is no telling where the next upsurge of violence and mayhem would end.
The situation can only get worse, since nobody's interests align. The Greeks want more time to meet their budget targets without having to make more cuts that would cause more public angst. The Germans, whose opinions arguably matter the most since they have the financial ammo, are already in a huff with German Chancellor Angela Merkel about expanding the eurozone's bailout fund. More pushback from Greece about meeting its current austerity measures only fuels the fire. _Time

Towards the end of the last decade, it was popular to proclaim Europe as an example of what we in North America could achieve. This notion was led by books such as Jeremy Rifkin's The European Dream, which described the difference between North American and European values. He argued that on the other side of the Atlantic, citizens found security not through individual accumulations of wealth but through connectedness, respect for human rights and sustainability. _the tyee
But now, as Europe's demographics collapses in on itself, we can see that not even utopia can escape the twin demons of debt and demographic decline and collapse. Europe's states are like teetering dominos, as long as they are coupled together economically. But if Europe is smart enough to decouple, still only a portion can survive the coming wildfire.

In the third world, we will have "The Coming Anarchy." In the developed world, the anarchy will focus on the third world enclaves, the multicultural cities and non-assimilating banlieus, and spread out from there.

Consider the relative places of safety, where you might find a place for yourself and your families. Hope for the best, prepare for the worst.

Thursday, September 01, 2011

Two Strikes Against China, Europe; Global Economy Deterioriates

China's two strikes for today are:

1. China's aging population: a demographic time bomb. China is not ready for the demographic sledge hammer rapidly descending upon its head.

2. Massive overcapacity: the limits to government dictate. China's economy was unable to adjust properly to the radical drop in export income dating from 2008, 2009. Bubble trouble in spades.

Europe's daily double:

1. The birth of gangland: Unwise immigration policies lead to societal fragmentation and rising crime

2. Crash of the nanny state: Welfare state economics confronts the shrinking taxpayer demographic collapse. Welfare states are pyramid schemes. They do not work in aging populations. Hence Europe's rapidly growing economic problems.

The US is facing many of the same problems as Europe, and is also burdened with the Obama administration -- arguably the most destructive US presidential administration ever.

Globally, the economic situation is even worse, since the world economy needs for the US and Europe to thrive, to have someone to buy the emerging world's exports. Mish has more about the economic problems from the BRICS to Canada to Asia. There is very little in the global economic picture about which to feel encouraged.