The US is going to win this war, one way or the other: it will either inflate the rest of the world or force their nominal exchange rates up against the dollar. Unfortunately, the impact will also be higgledy piggledy, with the less protected economies (such as Brazil or South Africa) forced to adjust and others, protected by exchange controls (such as China), able to manage the adjustment better.
It would be far better for everybody to seek a co-operative outcome. Maybe the leaders of the group of 20 will even be able to use their “mutual assessment process” to achieve just that. Their November summit in Seoul is the opportunity. Of the need there can be no doubt. Of the will, the doubts are many. In the worst of the crisis, leaders hung together. Now, the Fed is about to hang them all separately.
Category: Politics
Currency Wars
If the world is on the brink of an out-and-out currency war, a variety of battalions has been out on manoeuvres in the past few weeks. The Bank of Japan, after six years off the battlefield, has launched a fusillade of intervention to hold down the yen in foreign exchange markets. Brazil used the guerrilla tactic of doubling taxes on capital inflows to stop the real surging. India and Thailand warned that they too might bring heavy ordnance into play.
The main combatants, the US and China, continued to exchange rhetorical salvos. Washington (and Brussels) identified undervalued currencies such as the renminbi as a prime cause of global macroeconomic imbalances. Beijing retorted that such aggression risked bringing mutual destruction upon the great economic powers.
On Monday Dominique Strauss-Kahn, managing director of the International Monetary Fund, voiced his concern. “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon,” he said. “Translated into action, such an idea would represent a very serious risk to the global recovery.”
Condoleezza Rice on German Reunification
In a SPIEGEL interview, former United States Secretary of State Condoleezza Rice discusses America’s fight for German reunification, Soviet leader Mikhail Gorbachev’s woes at the time, Chancellor Helmut Kohl’s merits and the later mistakes of his successor, Gerhard Schröder.
SPIEGEL: Madame Secretary, when the Berlin Wall fell in 1989, European nations like Great Britain and France were very worried about the prospect of German unification. America was the only country that didn’t appear to be concerned. Why not?
Condoleezza Rice: The United States — and President George H.W. Bush — recognized that Germany had gone through a long democratic transition. It had been a good friend, it was a member of NATO. Any issues that had existed in 1945, it seemed perfectly reasonable to lay them to rest. For us, the question wasn’t should Germany unify? It was how and under what circumstances? We had no concern about a resurgent Germany, unlike the British or French.
SPIEGEL: Because a unified German was in America’s strategic interest?
Rice: If you were going to have a Europe that was whole and free, you couldn’t have a Germany that was divided. So, with the possibility that Soviet power was going to be receding from Europe, it made perfectly good sense to try to achieve reunification on terms that nobody would have thought thinkable, even four or five years before.
Rise of the Online Autocrats
The tweets started arriving in August, and they did not mince words. One of the first accused the South Korean government of being “a prostitute of the United States.” The Twitter account, under the name “uriminzok,” or “our nation,” seemed to be part of a sprawling North Korean digital operation that included a Facebook account (registered as a man interested in “meeting other men,” but solely for “networking purposes”) and a series of YouTube videos meant to celebrate the might of the North Korean military.
A spokesman for the North Korean government quickly denied any involvement with the Facebook and Twitter accounts, but he acknowledged that they were the work of government supporters living in China and Japan. The owner of the Facebook page (which the Palo Alto, Calif., company eventually deleted, citing violation of its terms of service) told a South Korean news agency that it was run by a Pyongyang-based publishing outlet affiliated with the government. Apparently, even the notoriously isolated rulers of North Korea know how to practice what the U.S. State Department calls “21st-century statecraft.”
Currencies clash in new age of beggar-my-neighbour
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.” This complaint by Guido Mantega, Brazil’s finance minister, is entirely understandable. In an era of deficient demand, issuers of reserve currencies adopt monetary expansion and non-issuers respond with currency intervention. Those, like Brazil, who are not among the former and prefer not to copy the latter, find their currencies soaring. They fear the results.
This is not the first time for such currency conflicts.?In September 1985, now 25 years ago, the governments of France, West Germany, Japan, the US and the UK met at the Plaza Hotel in New York and agreed to push for depreciation of the US dollar. Earlier still, in August 1971, the US president Richard Nixon imposed the “Nixon shock”, levying a 10 per cent import surcharge and ending dollar convertibility into gold. Both events reflected the US desire to depreciate the dollar. It has the same desire today. But this time is different: the focus of attention is not a compliant ally, such as Japan, but the world’s next superpower: China. When such elephants fight, bystanders are likely to be trampled.
Here there are three facts, relevant to today’s currency wars.
Bärbel Bohley, artist and toppler of the Berlin Wall, died on September 11th, aged 65
COURAGE rarely failed Bärbel Bohley. Others quailed at the hands of the East German secret police, the Stasi. Frail but steely, she mocked them: an eye for the absurd, she said, helped to keep her mental distance from those “brutal, cold, murderous, contemptuous people”. “I will get out of here; you won’t,” she once snapped at an interrogator.
She was right. Born in the ruins of Berlin in 1945, her early life was shaped by the post-war division of her country into western (soon West) Germany, and a Soviet-occupied zone that claimed to be the “German Democratic Republic”. But in the end it was not the bullying communists who shaped the wiry little painter. It was she who shaped them—and their downfall.
Her life as an artist started in her 30s, after unhappy early stints in industry and teaching. Her métier was brightly coloured pictures with dark angry lines, part abstract, part-figurative. Her inspiration, she said, came from Käthe Kollwitz, the great radical pacifist painter and print-maker of the Weimar years, venerated in post-war East Germany. The regime liked that, and her work: she won prizes, including a trip to the Soviet Union. But the promised Utopia turned out to be shockingly grim and grey. In 1980 the idealistic socialist convictions of her youth, long undermined by the regime’s hypocrisy, finally crystallised into ardent opposition.
US Tax Reform: How about this for a tax plan: cut most people’s taxes by half, eliminate the need to file returns, and provide the Treasury with a better way to reduce the deficit. Sound impossible? It’s not. Here’s how to get it done.
Keith Libbey & Evan Thomas:
Most Americans spend dozens, if not hundreds, of hours attempting, not always successfully, to do their tax returns. We spend almost $30 billion paying accountants to fill out the complicated forms, and by some estimates we devote $110 billion of our own labor just keeping track of all the necessary records and paperwork. Americans pay about 85 percent of the taxes they owe, better than in most countries, but the shortfall is still a drain on the Treasury (and the rich seem to find a way to avoid taxes legally). Is this costly, demoralizing struggle between the IRS and the rest of us really necessary?
The short answer is no. There is a way to relieve almost all Americans of the annual April 15 nightmare. What’s more, it’s a necessary first step toward a plan to cut the looming federal deficit. The time is right for thoroughgoing tax reform—a true clean slate—that will bring in more revenue while giving the public a greater sense of fairness. The reforms we propose will even allow most people to take home more pay than they do now.
The place to start is to cut almost everyone’s payroll and income taxes by half. Yes, you read that right. Cut most tax rates, which now run from 10 to 39 percent, by half. All individual taxes would be collected through company withholding taxes on compensation (salary, bonus, deferred payments, etc.) and investment income (dividends, interest, capital gains, rents) to individuals. The very rich—those making more than $2 million a year—would still pay a top tax rate of 30 percent on earned income. The rate on investment income would be 15 percent. The result: individuals would not have to file tax returns, most Americans would take home more pay than they do now, the tax base would be broadened, and the AMT—the alternative minimum tax, which sweeps up more taxpayers every year—would be eliminated.
Too good to be true? There’s no free lunch. The revenue lost to the government—roughly half of all personal federal taxes—has to come from someplace else. The best fix is to eliminate all deductions and exemptions for individual taxpayers—all those tax breaks that were intended to promote economic activity or serve worthy social goals but have ended up creating myriad unfair outcomes. It’s true that the wealthiest 1 percent currently pays about 18 percent of all taxes. Still, thanks to clever tax dodges, the top 400 income earners pay an average tax rate of 16.6 percent; megabillionaire Warren Buffett notes that his secretary pays a higher tax rate than he does.
The enduring solitude of combat vets
Retired Army Special Forces Sgt. Maj. Alan Farrell
Retired Army Special Forces Sgt. Maj. Alan Farrell is one of the more interesting people in this country nowadays, a decorated veteran of the Vietnam War who teaches French at VMI, reviews films and writes poetry. Just your typical sergeant major/brigadier general with a Ph.D. in French and a fistful of other degrees.
This is a speech that he gave to vets at the Harvard Business School last Veterans’ Day. I know it is long but a lot of you can’t go outside anyway because of the hurricane:
A Conversation with Jay Rosen on “The Problem With News Media in America Today”
What is the biggest problem with the news media in America today?
Mr Rosen: The cost of changing settled routines seems too high, but the cost of not changing is, in the long term, even higher. A good example is the predicament of the newspaper press: the print edition provides most of the revenues, but it cannot provide a future. I know of no evidence to show that young people are picking up the print habit. So if the cost of abandoning print is too high, the cost of sticking with it may be even higher, though slower to reveal itself. That’s a problem.
Another example is the decline of trust. In the mid-1970s over 70% of Americans told Gallup they had a great deal or fair amount of confidence in the press. Today: 47%. Clearly, something isn’t working. But revisions to the code of conduct that has led to this decline would be seen by most journalists as increasing the risk of mistrust. I’ve tried to argue that the View from Nowhere—also called objectivity—should be replaced by “here’s where we’re coming from.” That strikes most people in the American press as dangerous and unworkable. But the current course is unsustainable: trust continues to decline, with a big acceleration after 2003. When I mention this to journalists, they say: “Trust in all big institutions has declined, Jay.” Which is true (except for the military). But is that really an answer? You’re supposed to be the watchdogs over dubious actors. Why aren’t you an exception?
I could go on, but I think you see the pattern. Change is too expensive; the status quo is unsustainable.
A Tale of Two Cities
“It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness …”
— Charles Dickens, A Tale of Two Cities, 1859
For the past 120 days I have pored over economic reports, commerce data, home sales across America, stats on inflationary trends and sales tax reports by state (when they can be found). I’ve sorted the data by date published, then prioritized it by importance to the economy, and looked for correlations positive or negative. But no matter how many times I read over the data, I can come to only one solid conclusion: We have now finished changing into a two-tiered economy.
This change didn’t start with the downturn of the past two and a half years; instead, the completion of our segregation into two financial classes is what directly caused the downturn. No longer is the belief that “there’s the 20 percent of the population that live in poverty and then there’s the rest” a comfortably distant concept.
The discomfort line now divides those who “feel afraid” that they live in poverty-like circumstances, or soon will – even if they are gainfully employed – from “the rest.” And instead of a 20/80 split, have-nots to haves, today it may well be 60/40.