Everybody is in a panic over Europe

From the New York Times….

Worries about the deteriorating financial situation in countries like Romania and Hungary led to a huge sell-off on Tuesday that began overseas and crashed ashore on Wall Street.

Every sector sank, with financial stocks leading the way and energy companies falling on tumbling oil prices. Rattled investors rushed to buy safer investments like gold and Treasury debt.

The losses on Wall Street were part of a global wave of selling that dragged down stock markets from Tokyo to London and Frankfurt to Brazil, highlighting fears about how banks, automakers — entire countries — will fare in a deepening global downturn.

The news helped send the Dow Jones industrial average to nearly the same low that it hit amid the credit crisis last fall. The Dow fell 297.81 points, or 3.8 percent, to 7,552.60, which was almost the same as the 7,552.29 close for the Dow on Nov. 20.

I will post more after I read through the stories that are swirling around today. Sufficient to note that what I said a while ago is coming true. We are done with major private failures and we are now entering into the era of sovereign failures.

I wish this was a joke

From Felix Salmon……

I have to say I like the look of Obama’s housing-bailout plan. It’s quite elegant, and makes full use of the fact that Fannie and Freddie are now owned by the US government — which means they can be forced to offer 105% loan-to-value mortgages even when the borrower isn’t creditworthy at all.

This would be a great use of irony if Mr. Salmon had said this with his tongue firmly planted in his cheek. Unfortunately, he is being entirely serious. He really thinks that lending money to people who are not creditworthy is a good idea.

They live in the Congo and they are just now discovering that they are on their own?

From the AP…

Rebels from the Lord’s Resistance Army sent torture victims — including a man whose back was sliced with a machete — to warn the people of this Congolese town they would be next.

The town’s three policemen fled and there was no response from the military and U.N. peacekeepers to the increasingly panicked pleas for help. That’s when residents realized they were on their own.

“We were sending warnings and begging for help practically every day for two weeks. And nothing happened,” said community leader Nicolas Akoyo Efudha. “We finally understood that we were abandoned — in danger and without protection.”

So Akoyo called a town meeting and told everyone to bring whatever weapons they had: pre-World War II rifles, homemade shotguns, lances, swords, machetes, hunting knives, bows with sheaths of poisoned arrows.

The women came armed with kitchen knives and log-sized wooden pestles used to pound yams into flour.

Since then, the residents of Bangadi have successfully driven off two attacks by the Ugandan rebels, who have killed at least 900 people in this remote northeastern corner of Congo over the past seven weeks.

It is commonly said that Africa suffers from too much tribalism. But the truth is that Africa don’t have enough tribalism. What passes for tribalism in Africa is really nothing more then racism.

A racist looks down on another ethnic group and favors his own when the cost of doing so are not all that great. A tribalist will fight for his tribe and listen to his tribal leaders. He will consider his own life as being worth little compared to the greater good of his tribe. A tribalist can be a racist, but just because one is a racist does not make you a tribalist.

The more you read about current African affairs, the more you will realize that there are plenty of racists in Africa and not many tribalist. An ethnic group that actually sticks together and helps each other out when the times gets tough is a rare thing in Africa. And when one does, they wield power all out of proportion to their numbers. Look at Rwanda for example.

Coming soon to a country near you

From the Telegraph….

More than three million people are having to help their parents financially as the savings crisis engulfs a generation of Britons, research has revealed.

A Daily Telegraph survey – the first of its kind since the recession began – highlights the heavy toll being taken on Britain’s so-called “Babygloomers”.

Almost one in ten adults are having to contribute to their parents’ upkeep, the research found. The Norwich Union research suggests more than 1.3 million adults aged between 17 and 65 are paying their parents more than £250 each month, with some paying up to £1,000.

Many pensioners have found themselves struggling as their income from savings has virtually disappeared following the drop in interest rates. As a result, they have been forced to turn to their children for help.

If the UK is anything like America, I would bet that there are more parents helping their adult kids than there are kids helping their parents.

Still, this demonstrates the costs of trying to lower interest rates in order to stimulate the economy. This is one of the reasons why lowering the interest rates can actually increase the savings rate as I explained in this post.

A union is only truly tested in times of trouble.

From the Telegraph…..

The European Central Bank’s refusal to follow the lead of the US, Japan, Britain, Canada, Switzerland and Sweden in slashing rates shows how destructive Europe’s monetary union has become. German orders fells 25pc year-on-year in December. French house prices collapsed 9.9pc in the fourth quarter, the steepest since data began in 1936. “We’re dealing with truly appalling data, the likes of which have never been seen before in post-War Europe,” said Julian Callow, Europe economist at Barclays Capital.

Spain’s unemployment has jumped to 3.3m – or 14.4pc – and will hit 19pc next year, on Brussels data. The labour minister said yesterday that Spain’s economy could not “tolerate” immigrants any longer after suffering “hurricane devastation”. You can see where this is going.

Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3m in the US. As the budget deficit surges to 12pc of GDP, Dublin is cutting wages, disguised as a pension levy. It has announced “Rooseveltian measures” to rescue the foundering companies.

The ECB’s obduracy has nothing to do with economics. It fears zero rates as a vampire fears daylight, because that brings the purchase of eurozone bonds ever closer into play. Any such action would usher in an EMU “debt union” by the back door, leaving Germany’s taxpayers on the hook for Club Med liabilties. This is Europe’s taboo.

This is why I don’t think the EU will survive the current economic crisis intact. The various economic interests are just too divergent. It is possible that northern Europe will hang together. But there is no way they will be willing to hang with Club Med in the long term.

Losing The Mandate From Heaven?

From the Times….

The worst drought in half a century has parched fields across eight provinces in northern China and left nearly four million people without proper drinking water.

Not a drop of rain has fallen on Beijing for more than 100 days, the longest dry spell for 38 years in a city known for its arid climate.

And from later on in the article….

The drought could hardly have come at a worse time for the leadership, which is already gearing for possible social instability with some 20 million rural migrants now out of work after losing their jobs in coastal factories and in cities. Many have returned to work their farms while they wait for the economic climate to improve but may now find they are unable to grow a harvest with no water for irrigation.

“The duration, scope and impact of the drought are rare,” said Zheng Guoguang, chief of the China Meteorological Administration.

Among the worst hit provinces is central Henan, the most populous in China and source of the highest number of migrant workers. No rain has fallen in the province for 105 days, state media said today.

If you don’t know what the Mandate From Heaven is read about it here. Drought was one of the tradtional ways in which it became apparent that the Mandate From Heaven was lost. But I will bet that economic depressions help the idea along as well.

If I was a Chinese ruler I would be on my best behavior just in case. It has a better chance of working than their weather control technology.

I don't understand this

From Macro Man….

At the same time, US sovereign 5 year CDS surged 15 bps yesterday to 86 bps. To put that in perspective…..it’s where Citigroup CDS was trading exactly one year ago. Remarkably, Macro Man could only find two other countries with double-digit CDS ratings: Japan (58), Germany (59), and France (69). Was it really only a decade or so ago that Japan’s loss of a AAA rating amidst massive borrowing made waves? Now markets are essentially saying that the Japanese government (facing a massive demographic challenge) is the best creditor in the world.

CDS = Credit Default Protection.

To be honest, I don’t really understand this. As I understand it, the CDS contracts don’t cover inflation. Do people really believe that the US will default rather then inflate? I suppose it could happen.

The Battle of Midway

One of the most dangerous things about human nature is its tendency towards complacency. We tend to take what happened yesterday as a guide to what is going to happen tomorrow. As we are one of the most powerful nations in the world, we tend to take that as being the natural order of things. Even those who gleefully predict the ending of American power fail to really understand what that would mean.

But every time I read up on the Battle of Midway, I am always struck by the fact that less than 70 years ago America was fighting for its life. If Japan had hit America carriers at the American carriers at Pearl Harbor, there would have been no battle of Midway. If the American’s had failed to break Japan’s naval code, the Japanese might have succeeded in luring American carriers into a trap at the the battle of Midway. And with both of those facts being true, the Americans still could have easily lost the Battle of Midway.

In some circles is it is common to argue that this would not matter because American industrial power was so great that its victory was bound to happen regardless. But this is an iffy proposition. The war in Europe and the war in the Pacific were closely connected in terms of supplies and materials. If America had faced a series of defeats in the Pacific, they would have been unwilling to send troops and resources over to Europe to the degree that they did. And without American help through opening up a second front and with lead lease who knows if Russia could have held out. And if Russia had fallen who knows what could have happened?

So watch this documentary on Midway and be amazed at the miracles that brought about the peace and security that we know today. And do not be so confident that the western way of life is predestined to always be sustained by those miracles.

I have provided links to the first three parts of the documentary below. But they not really necessary to understanding what a close run thing Midway was. Watching the last three embedded clips is sufficient.

The First Part

The Second Part

The Third Part

For Real?

From the Telegraph….

The protests, which began on Dec 14, rapidly took on a political hue and Mr Putin, who is intolerant of dissent, ordered the Kremlin’s top officials in the far east to use force next time. But senior adminstrators refused to intervene and a week later the government was forced to send a special detachment of riot police from Moscow to break up a second protest in Valdivostok.

Furious that he had again been disobeyed, Mr Putin directed Vladislav Surkov, his top ideologue, to sack the newly appointed head of internal affairs in Primorye, the region surrounding Vladivostok.

But the official, Maj Gen Andrei Nikolayev, flatly refused to leave his post. Sources say he threatened to expose corruption linked to the Kremln in the Russian far east if Mr Putin pressed ahead.

Such a gesture of defiance is almost unheard of in Russia. Gen Nikolayev was supposed to be the man entrusted by the Kremlin to keep regional officials under control.

But he quickly found a powerful champion in the form of President Dmitry Medvedev, who is said to have countermanded his dismissal. “The fight between Medvedev and Putin started over this issue and has been getting worse ever since,” the source close to the Kremlin said.

If this is true I don’t think that Medvedev has long to live. I am pretty sure that the men who know how to kill are still loyal Putin.

Unforgivable

The Israeli newspaper Haaretz has a blow by blow account of Israel’s diplomatic moves. But all you really need to know comes from the first line…

The political goals of Operation Cast Lead were not formulated until a few days after the fighting in Gaza began.

If the word “war crime” had any real meaning, the above would be grounds for prosecution. It reveals a criminal level of incompetence that would be punished by death if Israel was not so much stronger than Hamas. War is always a horrible thing, but to engage in it without even knowing what you want to accomplish is no better then random killing.

It would be one thing if the operation had been a fast reaction to a sudden attack. But Israel endured the increased rocket attacks for weeks without doing anything. For the political leadership to have no idea of what they wanted to accomplish after waiting all that time is inexcusable.

Edit: A different article from Haaretz has the military perspective….

An officer who was in contact with the political echelon during the Gaza operation says he now understands what went so horribly wrong in Lebanon: “It was weird, to put it mildly.” Another senior figure adds: “It is difficult to conduct a war when an election campaign is under way. Two of the ‘kitchen cabinet’ members were interested in the operation’s implications for the elections. The third [Olmert] was busy with the question of what it would all mean for his legacy.”