Friday, January 27, 2012

Newt 'Cry Baby' Gingrich is back

Newt 'Cry Baby' Gingrich is back.

Back in November 1995, before Gingrich-Clinton confrontation over the budget resulted in shutdown of all non-essential services, New York Daily News published its famous 'Cry Baby' cartoon by Ed Murawinski. The cartoon portrayed the government shutdown as a tantrum thrown by Gingrich over a personal slight.

Newt Gingrich's reaction to his poor performance yesterday in a debate in Florida is a stark reminder that Newt cannot handle rejection in a mature fashion.

Gingrich campaign claimed that the audience was stacked for Romney. “They definitely packed the room," Kevin Kellems, a Gingrich adviser, told the Post. Why would CNN, which hosted the debate do such a thing? What proof is there beside a lack of applause for Newt?

Mitt Romney, who has done well by going on the offensive against Newt Gingrich delivered a new zinger at an event in Orlando, mocking Newt's  complaints about this week's debates. "Speaker Gingrich said after [debate on January 23rd]... that the crowd wasn't allowed to cheer so he couldn't do so well, because the crowd was too quiet. Then last night he said the crowd was too loud, he couldn't deal with it. It's like Goldilocks, you know - the porridge is too hot, the porridge is too cold."

Gingrich had another excuse for less than stellar performance in last night's debate by blasting Romney for a ‘dishonest’ debate performance. Newt explained that he couldn't come up with an immediate response, because he was so shocked and “I wanted to fact check. I wanted to make sure he was as totally dishonest as I thought he was."

Newt didn't say which statement were so shockingly dishonest. Meanwhile, his campaign ran another ad, which was blasted as dishonorable by Mike Huckabee - it seems Newt didn't learn the lesson from his two previous ads, which were challenged by Ron Paul, and Marco Rubio for attacking free enterprise and inaccurate and inflammatory rhetoric, respectively.

That new TV ad  from Gingrich campaign is called, “"What kind of man?” It features a quote from former Arkansas governor Mike Huckabee: “If a man’s dishonest to get a job, he’ll be dishonest on the job.” Huckabee disavowed the ad today: “Any use of an out-of-context quote from the Republican presidential primary four years ago in a political ad to advocate for the election or defeat of another candidate is not authorized, approved, or known in advance by me,” he said in a statement. “I have made it clear that I have not and do not anticipate making an endorsement in the GOP primary, but will support the nominee.”

These desperate tactics come as the momentum is slipping from Gingrich.  A new poll from Quinnipiac University showed Romney back on top in Florida’s high-stakes Republican primary.

Newt seems destined to not only lose the nomination, but the good-will and respect of his party, as well.

Another EU downgrade: stop digging already

Less than two weeks after S&P downgraded credit ratings of nine European nations, Fitch just cut the long-term issuer ratings of 5 EU countries:

Belgium:   AA+ to AA
Spain:        AA- to A
Italy:         A+ to A-
Cyprus:     BBB to BBB-
Slovenia:   AA- to A

While Fitch says that it supports EU leaders actions to address the crisis so far, a lot more has to happen before these countries are out of trouble:
In Fitch's opinion, the eurozone crisis will only be resolved as and when there is broad economic recovery. It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration.
The first statement seems tautological. The second suggests that Fitch agrees with the current thinking in EU that the solution lies in greater economic integration. As I have stated on this blog earlier, it is the problem. Increased fiscal integration will only exacerbate matters.

Fitch also suggested that large-scale purchases of sovereign bonds by domestic banks has not helped:
...the divergence in monetary and credit conditions across the eurozone, and near-term economic outlook highlight the greater vulnerability to monetary as well as financing shocks faced by these sovereign governments.
Of course, Fitch knows its proposed solution of greater integration to address 'greater divergence of credit conditions in the EU' means transfers of wealth from the EU core (northern nations) to the periphery (primarily southern nations), and there's little political appetite for it. Fitch is repeating the harebrained mantra of EU bureaucrats. Is Fitch trying to give Eu political room for this action, or does it also not realize that doubling down on the failed tactic and expecting a different outcome is the definition of insanity?

The first thing to do when you find yourself in the hole - stop digging. Instead, Fitch is suggesting EU needs a bigger shovel.

EU sanctions Iran: too little, too late

In response to tough sanctions by EU, Iran said they will 'definitely' be closing the straits of Hormuz, after a meeting of MPs on the 25th of January.

Today Iran announced that it may halt exports to EU next week. The best defense is a good offense - Iran's unexpected action is an attempt to preempt the embarrassing repudiation by Europe, whose sanctions don't fully kick in until July. This move would allow Iran to score politically, despite increased economic difficulties, underscored by Ahmadinejad raising interest on rates of bank deposits to 21% this week. This rate may seem like a fantastic opportunity to make money, but it is merely an attempt to stay ahead of 20% inflation, and was combined with a prohibition to exchange rials for dollars.

A member of the Majlis ("a place of sitting" in Farsi) Energy Committee, Nasser Soudani, said:
“Europe will burn in the fire of Iran’s oil wells,” and sanctions will take their toll on European countries for three reasons. “The first reason is that a number of European countries have no other option besides buying Iran’s oil since the structure of their refineries is compatible with Iran’s oil, and it is difficult for them to replace Iran’s oil. The second reason is that the embargo will cause an increase in oil prices, and the Europeans will be compelled to buy oil at higher prices. The third reason is that the Europeans, due to their need for Iran’s oil, will be compelled to buy Iran’s oil indirectly and through intermediaries, and this will inflict more expenses on them.”
Iran's logic for preemptive action is sound: by the time Europeans have come around to impose real sanctions on Iran their position has changed. The EU froze the assets of the Central Bank of Iran on Monday (January 23rd), but existing contracts will be honored until July 1, in large part because Greece has lucrative contracts with Iran an is unable to afford higher prices. This delay gave Iran a chance to find replacement for it's European contracts, however, they are willing to take an economic hit to score a political blow against EU. The language of Soudani, which is typical of Iran, clearly reveals a desire for some kind of revenge.

The threat to "definitely" close the straits of Hormuz, like Iran's earlier threat to do it, is a bluff. The last time Iran mined the straits of Hormuz, US navy fought in it's heaviest engagement since WWII in Operation Praying Mantis in April 1988, giving Iranian navy such a thrashing that it lost the will to fight, and hobbled back to port. Iran knows that if it initiates hostilities it will not only imperil its navy, but open its nuclear facilities to attack as an "integral part" of US response.

Iranian frigate IS Sahand burning from bow to stern on 18 April 1988
 after being attacked during Operation Praying Mantis.
The hostilities are likely to remain on the economic plane, and be supplemented with covert operations. Two can play this game. US has a special operations team in the area, the Joint Special Operations Task Force-Gulf Cooperation Council (JSOTF-GCC). Although JSOTF-GCC is primarily a training team, it represents another military option for the U.S. in the region during at a time of escalating rhetoric with Iran.

The previous time Iranians threatened to close off the Strait of Hormuz, and warned US warship not to return, US navy did just that sending two U.S. aircraft carrier battle groups through the strait of Hormuz, accompanied by HMS Argyll and one French ship. Despite the Iran threat U.S. aircraft carrier group went through the strait of Hormuz without incident. British defense ministry spokesman, who was not named per policy, said that the "HMS Argyll and a French vessel joined a U.S. carrier group" went through the strait "to underline the unwavering international commitment to maintaining rights of passage under international law."

"Closing Hormuz is a myth. Iran tried to do that for eight years during the (1980s) Iran-Iraq war, and it wasn't successful even for one hour," said Mustafa Alani, head of Security and Terrorism Studies at the Gulf Research Center. US recognizes Iranian bluster for what it is, so the Joint Chiefs of Staff who said the U.S. could reopen the waterway by force have an elite commando team to handle the more probable attempts by Iran to fight back using asymmetric warfare.

Israeli defense minister, Ehud Barak, tried to renew pressure on the elites gathered at World Economic Forum at Davos: ""We are determined to prevent Iran from turning nuclear. It seems to us to be urgent, because the Iranians are deliberately drifting into what we call an immunity zone where practically no surgical operation could block them."

French oil major Total has stopped buying oil from Iran in line with new EU sanctions introduced on Monday, January 23rd. It's chief executive Christophe de Margerie has explained at World Economic Forum at Davos why he is sceptical of the political decision:
I think [Iran's] oil will go somewhere else... Iran may give a discount to make it easier and quicker but nothing will change.
So, while Iran is wisely avoiding overt conflict with US navy, it shows no signs of backing down in the face of EU sanctions. They are too little, too late.

Pussy Riot in Russia

The all-girl punk group Pussy Riot has held an impromptu concert or demonstration in front of Kremlin and Saint Basil Cathedral on January 20th.  Some concerned passer-by babushka told the girls "It's cold - put your clothes on", but others were more enthusiastic about their daring and their message. The girls were allowed to finish a couple of songs, including their new song "Mutiny in Russia", then taken into custody by police. They were fined for holding an unsanctioned meeting and have been released.

"Mutiny in Russia" says that Putin is frightened by expressions of dissent, and demonstrations held in December of last year. 

The group started in 2011 when "after the Arab spring it became clear that Russia is lacking political and sexual freedoms, daring, feminist whip and a female president".

Pussy Riot's performances contrast with seemingly sexist stunts by pro-Kremlin groups, including one with bikini-clad girls washing old Lada cars or another where they posed in lingerie for a Putin birthday calendar.

The girls have put on their performances all over Moscow, including  on tops buses and various structures in the subway . You go girls! Rock on!

Thursday, January 26, 2012

Newt drawing fire from all sides

US has only two major parties, and what is anathema to one is mother's milk to the other. So, it's very common for a politician to draw fire from all sides, but this is where Newt Gingrich finds himself today - under fire from all sides.

Recently, Nancy Pelosi warned for the second time that Gingrich presidency is "not going to happen", because "there's something I know". We expect nothing less from Nancy.

After nearly a week on the defensive CNN's John King reported that Gingrich's indignant offers to rebut the network's interview with his second wife, were hollow. "Gingrich spokesman R.C. Hammond says the only people the Gingrich campaign offered to ABC were his two daughters from his first marriage." reported John King."After persistent questioning by our staff, the Gingrich campaign concedes now Speaker Gingrich was wrong — both in his debate answer, and in our interview yesterday."

Univision correspondent Jorge Ramos followed up with Gingrich suggesting that his criticism of Bill Clinton's affair was hypocritical. Gingrich fought back saying: “I hwave been deposed both times under oath and both times I have told the truth in the deposition..."

The only problem is that in neither case was Gingrich actually deposed.

Alan Lee, the Carroll County clerk of the court, who released the 1980–81 records of Gingrich’s Georgia divorce from Jackie Battley last week, told The Daily Beast: “There was no deposition". Similarly, the lawyer for Gingrich’s second wife, John Mayoue, said: “Simply put, he was never deposed.”
Superior Court Judge Dorothy Robinson, who oversaw the second case, indicated that if it wasn’t on the docket, it didn’t happen. Another source knowledgeable about the second divorce denied there was a Gingrich deposition: “He never did one. No one did. We never got depositions. It was a load of crap.

What is remarkable (although completely justified, and appropriate) is that Newt is drawing intense fire from conservatives.
Hit from both sides
Marco Rubio, a rising GOP star from Florida, recently scolded Gingrich's camp for an ad bashing 'anti-immigrant' Romney. Rubio described the ad as 'inaccurate, inflammatory'. Gingrich quickly pulled these attacks from running in Florida. Rubio said that Gingrich "made the right choice’. This is reminiscent of the embarrassment Newt suffered from Ron Paul's criticisms of Romney that amounted to attacks on 'free enterprise' a couple weeks ago.

If you read any conservative US press today, it is hard to avoid attacks on Newt - they're coming in fast and thick. Newt better hope that the Republicans in Florida have not read the Drudge Report this morning. Or the National Review. Or the American Spectator. Or Ann Coulter. Or listened to Glenn Beck.

Apparently, a lot of conservatives are terrified by the prospect that Newt Gingrich could actually win the nomination.

Here's a brief summary of various attacks landing on Newt.

Glenn Beck actually defended John King asking Newt the about allegations by made by Gingrich's second ex-wife on ABC a few days before:"I feel bad for him because he had to ask the question". Beck also compared Gingrich's favorable and unfavorable ratings with those of Nancy Pelosi. "He makes Nancy Pelosi look like a superstar to the rest of the country."

Ann Coulter wrote a long piece of New Gingrich today the conclusion of which is apparent from the title: "Re-elect Obama: Vote Newt!".

Drudge report had dug up several criticisms made by Newt Gingrich of Reagan's struggle with the USSR, and George W. Bush's proposed 'surge' in Iraq, making the point that Newt is no conservative or visionary, but an unprincipled opportunist.

Drudge report found devastating comments made by Newt:
NEWT 1983: Reagan responsible for national 'decay'...
NEWT 1986: 'The Reagan administration has failed, is failing...
NEWT 1988: 'If Bush runs as continuation of Reaganism he will lose'...

It linked to article by Elliot Abrams in the National Review entitled "Insider: Gingrich repeatedly Insulted Reagan.” describing Gingrich's long record of criticizing and undermining Reagan’s policies.

Emmett Tyrrell, Jr. entitled his article on Gingrich "Our Bill Clinton" in the American Spectator, referring to Newt's character.

A top deputy to Gingrich during the Republican revolution of the mid-1990s, Tom Delay also compared Newt to Bill Clinton in radio interview with KTRH. “He’s not really a conservative. I mean, he’ll tell you what you want to hear. He has an uncanny ability, sort of like Clinton, to feel your pain and know his audience and speak to his audience and fire them up. But when he was speaker, he was erratic, undisciplined.”

Later today Bob Dole added his voice to the chorus of conservatives critics of Gingrich."Hardly anyone who served with Newt in Congress has endorsed him and that fact speaks for itself. He was a one-man-band who rarely took advice. It was his way or the highway." Dole said in reference to Newt's reputation as a great idea-man: "Gingrich had a new idea every minute and most of them were off the wall". Newt is exactly a reliable colleague, according to Dole: "In my run for the presidency in 1996 the Democrats greeted me with a number of negative TV ads and in every one of them Newt was in the ad. He was very unpopular and I am not only certain that this did not help me, but that it also cost House seats that year."

It remains to be seen what effect these attacks have on the tonight's debate in Florida and the upcoming primary there at the end of this month.

Tuesday, January 24, 2012

Get a clue, or get in line

I just finished reading Mark Levin's new book Ameritopia, and highly recommend it to anyone who is wondering about the confusion of values that plagues the United States.

The essence of the modern collapse confusion has to do with the nature of equality in a modern democratic state. The only true equality lies in liberty; it the the equality of law as applied to all individuals regardless of religious creed, color or income. The alternative, which is promoted by the ignorant and the unscrupulous is that equality means equal outcomes. This is the path to gradual descent into tyranny towards which the statists are taking America. If you want a preview of where our slow-motion train wreck is leading - look at the EU. The only worthwhile equality is equality of means, not outcomes.

The essence of this point is presented in Ameritopia in an eloquent quote from Freidrich Hayer:
Equality of the general rules of law and conduct ... is the only kind of equality conductive to liberty. Not only has liberty nothing to do with any sort of equality, but it is even bound to produce inequality in many respects. This is the necessary result and part of the justification of individual liberty: if the result of individual liberty does not demonstrate that some manners of living are more successful than others, much of the case for it would vanish.
Having been born in a country that was a failed Utopia, which has since ceased to exist (USSR)I feel passionately about this subject. I see America taking a different (gradual as opposed to revolutionary) route to the the inevitable failure of its own Utopia.

One important distinction between a free county, and a fallacious Utopia, is the relationship between the people and the government. In the former they are citizens, competent to make their own choices, while in the latter they are subjects. It's not a coincidence that in his Republic Plato compares the relationship his ideal government as the relationship of parents to children. The ideal government does treat its subjects as competent adults, but as those who cannot be trusted to act in the own rational interest. Get a clue, or get in line.

The Utopian nature of Western politics, makes asocial covenants into a suicide pact. The self-defeating nature of striving for perfection is a crucial insight, without which we're in back in the darkness and confusion of Plato's cave, reacting to shadows without comprehension.

Yet, this is where many of us are. I've had a few reminders in Boston lately - supposedly an educated town. "Obama couldn't have fixed it all in one term". "What has he done wrong? He's been great on foreign politics." And today, taking the train back from Boston, my neighbor was doing a Cash-Crossword puzzle. I've never seen such a thing, but one of the words was Utopia. I wonder if he truly knows that he's living in one. Probably not, considering the stacked nature of the lottery he was playing. I felt he was literally in touch with the essence of Utopia, which in the ultimate analysis amounts to fancy promise in a rigged game.

The root causes of the current collapse are confusing to many, and not just Democrats in liberal city of Boston, and the blue collar workers who like to gamble a bit. Even those in-the-know, who y can sense something significant is happening. It's very common for me to agree with George Soros (in part, because I think he's part of this problem), but he's correct about the seriousness of what's happening and the direction, if the the cause.

George Soros recently opined that Europe is confronting a descent into chaos and conflict. In America he predicts riots on the streets that will lead to a brutal clampdown that will dramatically curtail civil liberties. All true, but the underlying problem is primarily the lies upon which Eutopia and Ameritopia are based. I have started this blog specifically to expose and discuss this point, although I used a term I found even more provocative than Utopia.

To Soros, the underlying cause is the spectacular debunking of the credo of efficient markets—the notion that markets are rational and can regulate themselves to avert disaster—“is comparable to the collapse of Marxism as a political system. The prevailing interpretation has turned out to be very misleading. It assumes perfect knowledge, which is very far removed from reality.”

The elites who will be meeting at the World Economic Forum starting tomorrow, also blame capitalism. As I wrote they are trying to shift the blame, not solve the problem. By parroting their inane attacks, Soros is either promoting the sames falsehoods, or he doesn't truly understand what is happening. It's not capitalism that's failing, but human nature: the corruption of capitalism and the over-reaching of governments that has undermined the economies, by promising everything to everybody. Spreading these lies risks undermining the social contracts of Western nations, when the bills come due.

Soros told Newsweek: "The tragedy of our current situation is the unintended consequence of imperfect understanding." Yes. Sadly, Soros doesn't get the essence of the problem himself. He continued: "Unrestrained competition can drive people into actions that they would otherwise regret." No. What unrestrained competition? Did it give us the 2008 fiscal crisis? Boneheaded derivatives, and green in Lehman Bros and Goldman Sachs did, aided and promoted by Fannie Mae and Freddie Mac. Did unrestrained competition drive the EU into its current fiscal mess, or was it a naive belief that fiscal union could only be a boon? At least that's how it was sold to the European nations. Now Greece and Germany are counting each other's money, rather their own business.

When Soros says: "We are facing now a general retrenchment in the developed world" he is right. Misunderstanding of the underlying reality by elitists like Soros will ensure that the meeting at Davos will merely heap the blame on capitalism and produce another diversion.

When asked whether the financial whizzes behind our economic meltdown were not just wrong, but evil? Soros said: “That’s correct.”He’s now convinced that “if you have a disorderly collapse of the euro, you have the danger of a revival of the political conflicts that have torn Europe apart over the centuries—an extreme form of nationalism, which manifests itself in xenophobia, the exclusion of foreigners and ethnic groups. In Hitler’s time, that was focused on the Jews. Today, you have that with the Gypsies, the Roma, which is a small minority, and also, of course, Muslim immigrants.”

I have also pointed out existence of these risks. Are such risks greater from an orderly dismantling of EUor from a disorderly collapse of confidence and social contract when the underlying economic economic assumptions are proven false? Definitely the latter, especially because these economic difficulties are exacerbated by convenient political lies.

It is “now more likely than not” that Greece will formally default in 2012, Soros will tell leaders in Davos this week. He will castigate European leaders who seem to know only how to “do enough to calm the situation, not to solve the problem” while by agreeing with the 'blame capitalism' premise of the European elites, Soros perpetuates the problem.

The irony gets even thicker. Soros sympathizes with the Occupy movement, which articulates a widespread disillusionment with capitalism that he shares.People “have reason to be frustrated and angry” at the cost of rescuing the banking system, but unbelievably he blames the banks, rather than the government, which failed to properly regulate (see Fannie and Freddie), then used public money to bail out the banks, which were over-relying on the implicit guarantee of these government-sponsored enterprises (GSEs), whose leaders during the 2006-2008 period have been charged by the DoJ with misleading the public and officials. Officials like Barney Franks, and Frank Dodd, who received hundreds of thousands of dollars in donation from these GSEs. Soros gives credit to the Occupy movement because it has “put on the agenda issues that the institutional left has failed to put on the agenda for a quarter of a century.”

Despite his sympathy, Soros acknowledges that the Occupy Wall Street “is an inchoate, leaderless manifestation of protest”Kudos to Ann Coulter and her new book "Demonic', which argues that the Democrat party has all the habits and tactics of a mob. Apparently, Soros likes the mob, despite the fact that it's blind fury offers no solutions and intrusive tactics (he admits) can lead to civil unrest. Note how the Tea Party, which is neither intrusive nor excessively angry, but offers an actual solution - shrinking the government, and giving responsibility back to the people

George Soros hopes Obama will win the election in 2012: "Obama might surprise the public. The main issue facing the electorate is whether the rich should be taxed more. It shouldn’t be a difficult argument for Obama to make." In fact he has; Washington post writes: "In State of the Union address, Obama puts focus on economic inequality".

Here's the response of the GOP. to Obama's State of the Union address. I'm tempted to comment on the conflation of Soros' and Obama's thinking today (on top of Davos). But it requires no comment. Or maybe it is beyond words. Yes - words that are fit to print, anyway.

Following this blog

I realized that email notifications are not automatically sent to the blog followers.

To inform followers of this blog, I installed that option - just enter your email above ''Followers' on the right margin. That will send email notifications to you for every new post. Because I write quite a bit, I would recommend another alternative (although why compromise - use both): set up a google reader, or an equivalent aggregator of news at yahoo, or hoo To set up the former: from the google page the reader is under the pull -down menu "More" (I'm using Chrome). Once you're in the reader click to 'Subscribe' (of the left margin) and paste in the name of the blog (

The minute of cutting and pasting is worth it, because these readers push new content from this blog to a web page, not notification to your email.

Sunday, January 22, 2012

GOP dilemma: to win or not to win

Romney or Gingrich, that is the question.

Romney does not excite conservatives. He's the slow and slow and steady turtle in the race, without flashiness. Here's how challenges Obama's policies:
The path I lay out is not one paved with ever increasing government checks and cradle-to-grave assurances that government will always be the solution. If this election is a bidding war for who can promise more benefits, then I’m not your President. You have that President today.
Ann Coulter said Romney is the most conservative candidate, based on his policies on immigration and the economy. That may be the case, but Romney doesn't come across as the most conservative candidate. Before Ann Coulter decided to go to the bat for Romney as the most conservative GOP candidate, I wrote that his moderation is his greatest strength. It also makes him more electable.

New Gingrich excites conservatives with his red meat rhetoric. For example he called President Obama a Nazi-Commie and a "threat to our way of life." I happen to agree with this, in essence. However, I prefer to call Obama a collectivist, because his brand of socialism is a little different from either communism or Nazis. As a blogger, I could afford to indulge in this kind of rhetoric, but it comes across as hysterical  is not helpful in making a argument. Unlike yours truly, Newt Gingrich is running for president, yet doesn't realize the counter-productive nature of over-the-top rhetoric. Conservatives desperately want to hear Obama lambasted. Do they prefer to have their 'red meat' and be defeated by Obama? That would lead to another four years of 'starvation' - not recapturing the White House, allowing Obamacare to set in, etc.

In addition, Newt is an opportunist. He peddled myths about anthropogenic global warming with Nancy Pelosi, and called Paul Ryan plan's to privatize Medicare using using vouchers: "right-wing social engineering."

Then, there's his lack of character. After cheating on, then abandoning his first wife when she got cancer, then doing the same thing to his second wife when she got MS, Newt has some explaining to do. Instead, hepassed the buckof responding to charges made by his second wife (of 18 years) to daughters from his first marriage. Considering that Newt cheated on their mother, Newt's daughters aren't exactly impartial on this matter.

Ann Coulter was right on with her characterization of Newt's victory in SC this weekend when she said : "Apparently, South Carolinians would rather have the emotional satisfaction of a snotty remark toward the president than to beat Obama in the fall." Let's hope GOP voters get the need to 'stick it' to Obama rhetorically out of their systems soon, otherwise he may well 'stick it' to the GOP in the fall, by making the election focus on Newt Gingrich, rather than his own record.

So, the real question for Republicans in 2012 is: to win or not to win?

Identifying the problem to exacerbate it

Some 1,600 economic and political leaders, including 40 heads of states and governments, will be asked to come up with new ideas as they converge at Davos, chic ski station in eastern Switzerland, for the 42nd annual World Economic Forum (WEF), which opens coming Wednesday.

"The main conversation will be about a deficit of leadership in Europe as a prime problem," said John Quelch, the dean of China European International Business School.

There's have been dozens of meetings, initiatives and promises in Europe. So, there is plenty of leadership; what it lacks is coherence, and most importantly, honesty. The leaders seem to admit there exists a credibility gap, but deny their role in bringing it about:

"We have a general morality gap, we are over-leveraged, we have neglected to invest in the future, we have undermined social coherence, and we are in danger of completely losing the confidence of future generations," said Klaus Schwab, host and founder of the WEF. "Solving problems in the context of outdated and crumbling models will only dig us deeper into the hole", he added.

Klaus Schwab. Worried at Davos.
At the upcoming meeting the economic and political elites will seek ways to reform a capitalist system they believe is "outdated and crumbling." EU is crumbling, sure, but to call capitalism outdated is another attempt to avoid responsibility; Europe has given up on capitalism some time ago. Over a decade ago it decided to pursue the so-called "Third way", between capitalism and socialism. (Check out this prescription by Tony Blair and Gerhard Schroeder from 1999).

An article from the semi-official 'Third Way' website published in October 2011 admits the problem: "Ten years ago, Europe faced a looming debt crisis but economically, fiscally, and demographically they buried their heads in the sand, were afraid to confront voters with the truth about their fiscal situation, and now face draconian measures that may not even be enough."

I'm sure blaming the current mess on "outdated, crumbling capitalism" will work out better this time around.

A spark for Sunni-Shiite conflagration

The Iranian Revolutionary Guard announced that Hezbollah responded to Iranian request to 'safeguard Syrian assets'. It is a sign of desperation on the part of Syria and Iran to admit this. Hezbollah is a Shiite terror group. The US State department has officially designated it as a terror group after it carried out the first large-scale suicide bombings with its 1983 attack on US barracks in Beirut that killed over 200 US servicemen, and about 50 Frenchmen. For Syria to admit using these thugs to repress their own people is unseemly. Then again, they don't care very much what the world thinks, only what it does.

The tension between Sunni and Shiites also manifested itself in Egypt, where Sunnis (Salafists) have taken over the patronage of Hamas from Iran. Now, Egypt is becoming an Islamist power itself, with Islamist winning three quarters (!) of seats in the parliament. Hamas no longer needs to follow Shiite Iran, as it did when it was the sole explicitly Islamist power in the Middle East.

Meanwhile, the Arab League is going to ask today for a month-long extension of its ineffectual mission, which has failed to halt the murder of Syrians by their own government. At the same time Saudi Arabia is pulling out its 10 monitors from Syria, citing total failure of the mission. The unusual dissonance between the Arab League and Saudi Arabia is a sign of sharpening of divisions between the Sunni and Shiite blocks. Saudi Arabia has successfully helped Bahrain to repress Shiites incited by Iran, which could only complain at the time. This potential spark for Sunni-Shiite conflict was too small, and was extinguished too quickly to lead to an enlargement of the conflict.

The entry of Hezbollah into Syria for repression of Sunnis is very significant. It has the potential for internationalization of the simmering civil war in Syria into a fully-fledged Sunni-Shiite conflict, involving bigger players. Roughly three quarters of Syrians and Sunnis. They have been ruled by Alawite minority (~ 10% of population) to which the Assad clan belongs. Now, Shiite terrorists from Lebanon and going to start repressing the Sunni majority (74% of population) in Syria at the behest of its Iranian puppet masters.

Modern Nazis
Their flag or advertisement for Kalashnikov rifles?

Mutti of the Fourth Reich

I originally wrote this article back in mid-December of 2011. Perhaps it is for the best that there were some unfinished parts, which delayed my publishing of it, because there are few occasions for retrospection in our fast-paced news cycle.

Comparison of EU rhetoric and actions strongly suggests that the EFSF rescue fund (euphemistically called "stability" fund) Ms. Merkel has only bought some time to handle the euro crisis in the meeting on December 9th in Brussels. This is an expensive delay predicated on wishful thinking - a Pyrrhic victory, in fact.

I wanted to track down sources of the money for propping up the EU, and was immediately confronted with the complexities of multiple financial mechanisms acting concurrently in Europe (in addition to the political layers, which render the regulation of EU unclear at best). This is symptomatic of the larger problem - a patchwork of incongruous choices does not amount to a strategy, but only makes this problem less tractable technically and conceptually.

There are at least three sources of rescue money: the ECB, which bought some sovereign bonds of PIIGS to keep down their borrowing costs, there is the rescue fund, EFSF and finally IMF has gotten involved.

The new EU security fund (EFSF) has supposedly agreed distribution of over €600bn funding to troubled EU nations last week. This is slighty more than it gave out in 2009. To survive in its current form EU needs to redistibute over €300bn per year. Despite these costs, Vítor Constâncio, vice-president of the ECB has blasted any suggestions of break-up of the euro as “absurd” and “unthinkable”.

As the former IMF chief Dominique Strauss-Kahn pointed out the €640 billion rescue fund (about $833 billion) being assembled by the EU and the IMF is "in limbo" because it requires political approvals that may take months to obtain. Europe's political shortcomings are "bleeding away, day by day, the remaining confidence investors may have in politicians being able to solve the crisis," Mr. Strauss-Kahn said. He predicted as many as seven years of sub-par European growth unless the Continent's leaders changed policies.

This money is to be doled out by EFSF bureaucrats based on 'need' of EU members. How is that different from Marx's wish 'To each according to his needs'? This strategy is closer to the central planning of the Russian economy from Moscow, rather than more federal taxation in the US. Spreading wealth is an easy road to popularity. The problem, as Margaret Thatcher so eloquently put it in regards to socialism is that 'eventually you run out of other people's money'.

So, where's the money for EFSF coming from? In essence, the contributions are voluntary. In absence of political unity there are no enforcement mechanisms, as UK highlighted by its refusal to give additional money to the rescue fund. Voluntary contributions are not as reliable as taxation, but wishful thinking masquerading as policy. In the past such wishful thinking has invariable devolved into tyranny, according to the beginning of Marx's quote: "From each according to his ability".

So, where did we stand a month ago?

Fitch said the risk of downgrading EFSF bail-out fund has increased. (The fund's AAA rating depends on France remaining AAA, which is likely to be reduced within a few months. (S&P lowered the rating of EFSF by a notch within a month). French banks hold the most the Greek debt of any EU country. Meanwhile, Greece is trying to set up a deal with creditor banks writing off half their debt by the beginning of January (This has failed, and Greece is likely to default in March). According to the French trade minister, the country's 2011 trade deficit is likely to hit a record of between €70bn and €75bn.

France had "no doubt" that Britain would help boost the resources of the IMF to ward off the eurozone debt crisis. UK has decline to volunteer more money.

Rising unemployment and the high cost of living has left UK consumer confidence close to an all-time low in November. It seems that both UK and France are likely to lose their AAA ratings. (France has.) France already pays a significant premium for borrowing compared with its AAA neighbor Germany. France has to refinance short-term debt exceeding a trillion euros in 2012 alone. French treasury expects the nation will have a budget deficit of €78.7bn corresponding to approximately 8.4% budget deficit (as opposed to almost 14% last year. That's a lot, although US ran over 36% deficit: revenues $2.3T, expenditures $3.6T). The point about the projected deficit, is that 8.4% is much higher than the 0.5% maximum annual deficit which the new EU agreement stipulates.

Finland may have entered a recession, the country's finance ministry said, cutting its forecast for growth in the northernmost euro member’s economy.

Incoming Spanish Prime Minister Mariano Rajoy has said the country needs to cut its deficit by at least €16.5bn in 2012. That corresponds to 3.3% reduction of total expenditures, but would reduce the deficit from over 20% to just under 18%. Nowhere near 0.5% EU is looking for. That means more large transfers of wealth will be required.

Italian exports fell 3.2% month-on-month in October - the biggest fall since 2009. (Italy was downgraded by 2 notches by S&P, and now has the rating equivalent to Kazakhstan.

One of the few brights stops on the continent - Germany. Following good news about German consumer confidence, the country's business confidence marked the second consecutive monthly upswing - gaining 0.6 points to 107.2 in December.

Denmark minister of the economy, Margrethe Vestager, said "contributing through the IMF is how far Denmark should go because because they have the euro opt-out”, referring to Denmark's rejection of euro membership in two referendums.

UK has rejected IMF solicitations for additional funds. IMF is €50bn short of its announced €200bn target. This is separate from the €633bn EFSF.

It's illuminating to compare reality and the rhetoric. Even before this spat there were spreading signs of tension that took a harsh form in the UK: "Welcome to the Fourth Reich", read some signs. The point is that regardless of differences, there result is German dominance on the continent - while the Third Reich achieved its short-lived dominion by manly violence, the Four Reich is taking the road of good intentions to get there.

Financial times wrote a nice exposition of some of the events in Brussels, where UK vetoed changes proposed changes to EU treaties by Merkozy, and was promptly booted from the 'new and improved' union.

Angela Merkel said on several occasions that “if the euro fails, Europe fails.” Despite finding the British reasoning and politics “incomprehensible”, she promised to look for “sweeteners" for Mr. Cameroon. During the meeting she passed him a note "Tell me what you want and I will find a way,” according to the minutes of the meeting. One big question remained - “What about France?” asked Mr Cameron, fearing President Nicolas Sarkozy would have his own ideas. Ms Merkel, Europe’s reluctant paymaster, calmly noted: “Nicolas will agree.”

Merkel, affectionately known as 'Mutti'(Mommy) in Germany is the one wearing pants in this relationship. Intentionally, or not, she's become the 'Mutti of the Fourth Reich'.

There is too much democracy within Europe for technocratic-minded schemes (see the article here). In that article Gabriel Kolko writes: "Abstractly, this means that national parliaments and key legislative bodies can no longer make economic policy." There's nothing abstract about it. Not any more - the European Commission has launched a challenge against the new Hungarian constitution. They have good intentions - to protect democratic rights, etc. Perhaps a harder line is needed in Hungary to fix its troubled economy, or maybe it is a power grab. Regardless, it sets a troubling precedent about Brussels overriding national constitution.

The agreement reached on the 9th of December in Brussels is just a return to the fiscal rules agreed upon at Maastricht in 1991. These rules were never enforced in the first place–and are not being applied now(ECB recently complained that the 'watering down' of new rules is rendering them pointless). For political reasons — too much democracy — these rules at not viable. The governments that implemented austerity measures have fallen in Greece, Italy and Portugal. How many European political leaders are ready to lose power just to attempt to implement the draconian economic rules, which Merkel thinks can solve everything?

The opportunity-cost of this experiment is great. For example, in December the chairman of the U.S. Joint Chiefs of Staff said there's a risk of “civil unrest and the breakup of the union".

Even before the Brussels summit, politicians in Berlin knew that there would be no compromise with the Tory government in London. When Cameron visited Berlin in mid-November, he told his German counterpart that as much firepower as possible had to be used to combat the euro crisis (just not their money). To which the German chancellor responded coolly: "One shouldn't pretend to have power that one doesn't actually have." Champions of EU should take this bit of advice to heart, before their wishful thinking imperils the social contracts Europe.

The legal mess in EU

I December of last year I wrote a blog stating how UK is fortunate to be out of EU. The British demands demanded special treatment for the city of London that could start an open season on egalitarianism and was a non-starter. One senior Nordic official involved in negotiations said: “When we saw their list, our experts said: ‘They’re not serious. It’s just too much.’ ”

Financial times wrote and article about miscalculations of the British in negotiations with UK. FT has pieced together the evens of the crucial two weeks leading up to the vote in Brussels. This means that not only was the strategy of the British flawed, but so were their tactics.

UK is doubly lucky to be out of the new EU.

The new IMF chief,  Christine Lagarde, (who started after the her predecessor's scandalous rendezvous with a maid in NY hotel, who alleged rape) has recently scared a lot of folks by mentioned similarity of current events with those of Europe in 1930's. A number of commentators found comfort in the fact that the bogeymen of 20th century Europe: communism and nazism are not politically viable leaders. This may prove to be wishful thinking - political extremists could use a mixture of old ideas, or invent something new. Stability founded on public apathy in a rotting political system lasts only until a clear alternative emerges, which draws very sharp contrasts with the existing (moderate) status quo, resulting in a move to one or another extreme. Inability to imagine a specific extreme outcome, offers false comfort of apparent stability.

I have also expressed the view that bonds of three treaties in Europe could also imperil stability. First, all of them take sovereign rights from nations and vesting them in pan-European institutions. These ties have already requires large transfers of wealth from the core of EU to its periphery. Third, these layers of treaties are a potential legal nightmare today, and political nightmare tomorrow.

Furthermore Cameron said: '“Clearly, the institutions of the European Union belong to the union, they belong to the 27.” A “treaty within a treaty” would improperly force the Commission and ECJ into “serving two masters at the same time”.

Sounds reasonable, but this implies nothing less than a scorched-earth tactic. Britain’s rejection of treaty changes means that its 26 EU partners must do without the European institutions.

Herman Van Rompuy, the European Council president who brokered Friday’s deal admitted: "This formula has some handicaps but we will try to overcome them. We will need a large interpretation of the roles of institutions.” What happens when British and French lawyers disagree about this re-interpretations of the roles of EU institutions? Could British enforce their rights?

Guy Verhofstadt, the former Belgian prime minister who is the European Parliament’s most outspoken advocate of a United States of Europe, said non-EU treaty would set a dangerous precedent, potentially leading to a splintering of the bloc into subgroups of member states who decide on their own when EU institutions can apply, and threatened to take EU leaders to court if they proceeded with a treaty outside EU strictures. “ It’s not just the UK in or out: it’s mostly about the nature of the union. There are a growing number of countries . . . which will not accept the use of this treaty to execute a coup.”

Meanwhile, the European Commission officials are insisting that the new treaty can rely on EU institutions even if they are not formally included in the new pact. This is a very hypocritical position, consider that the new EU solution was premised on members legal obligation to live within their means. Even if re-interpretation succeeds, allowing the use of EU intuitions by the 26 countries, the precedent undermines credibility in all EU promises, and rules. How can European Commission's authority to enforce the new “fiscal compact” after this? Talk about sawing off the branch you sit upon!

Officials said the treaty was likely to bind all signatories to abide by Commission recommendations on how they should get unbalanced budgets back in line, but this measure that would not formally pull the Commission into the treaty. The promises could be enforced under rules, which regulate bilateral trade relations that have been on the used only 10 times since 1958 treaty of Rome. Let me restate the above, because it's so illogical: enforcement is proposed to come from European commission which is not a part of new treaty, and be enforced by archaic rules which are also no part of either the old or new EU treaties, but predate both. So, recommendations for compliance, and enforcement both is supposed to from institutions outside of EU treaties.