North Korea rocket puts Barack Obama on nuclear alert
UN in emergency session over rogue state’s ‘provocation’
President Obama faced his first significant test on security yesterday after North Korea launched a long-range missile that could carry a warhead as far as Alaska.
He said that such provocation underscored the need for action against the defiance of a rogue nuclear power and the spread of weapons across the world. The threat of North Korea acquiring nuclear missile technology, he said, “matters to all people, everywhere”.
The United Nations Security Council met in emergency session last night as Western diplomats pushed for a robust response.
Mr Obama set out his vision of a world free of nuclear weapons hours after being woken in the night to be told of the launch. He conceded that it might not be achieved in his lifetime but said that America had a responsibility to work for a world “free from fear” of annihilation.
He told a crowd in Prague: “We cannot succeed in this endeavour alone but we can lead it, we can start it.” The US President promised to seek immediate Senate ratification of the Comprehensive Test Ban Treaty, begin talks with Russia on cutting warheads and call for better controls to prevent terrorists or rogue regimes obtaining fissile material.
North Korea claimed that the rocket had put into orbit a satellite that was broadcasting martial music from hundreds of miles above the Earth. The Pentagon said that the launch was cover for a missile test that had failed, with the rocket breaking up over the Pacific.The US was pressing last night for a formal Security Council resolution demanding compliance with existing UN sanctions and banning North Korea from importing luxury goods. China was expected to veto any effort to impose stronger sanctions. Gordon Brown called the launch completely unacceptable.
Mr Obama, who has spent five days touring Europe, arrived in Turkey last night on a visit designed to reach out to the Muslim country.
However, President Sarkozy struck a sour note by criticising his US counterpart’s call for the European Union to expand to include Turkey. “It is up to the European Union to decide,” the French leader said.
Minsky's moment
Buttonwood
Minsky's moment
From The Economist
A new appraisal of an economist’s theories challenges the blind faith in free markets
STABLE economies sow the seeds of their own destruction. That sounds like Karl Marx but it is the basic insight of Hyman Minsky, an economist of the mid-20th century whose reputation is being revived. Minsky argued that the financial system played a big role in exaggerating the economic cycle, one that was understated by conventional theory.
Investors, banks, companies and consumers all tend to be guilty of the sin of extrapolation; they assume the future will be like the recent past. After several years of steadily growing output and low inflation, people develop a misguided confidence that such benign conditions will continue. They are thus happy to borrow, and lend, more. As they do, the riskiness of the system steadily increases.
Minsky divided the process into three phases. In the first, investors take on little enough debt that they have no trouble meeting their capital and interest payments. In the second, they stretch their finances so they can only afford the interest. In the third, or Ponzi, phase they take on debt levels that require rising prices to be safely financed; the homebuyers who took on 125% mortgages at the peak of the property boom were a classic example.
When markets reach this fantasy land, a small change in the fundamentals or in investor attitudes can be enough to cause the system to unravel. Once prices start to drop, borrowers start to default on their loans, or seek to sell their assets, causing prices to fall further.
The cost of capitalism, to use the title of a new book* that draws heavily on Minsky’s work, is first, that financial bubbles are created and second, that governments are forced to rescue the sector when those bubbles pop. Those who believe blindly in free markets are thus mistaken, in the view of Bob Barbera, a Wall Street economist and the book’s author.
Government action is inevitable. In conventional industries, the demise of companies leads to “creative destruction” with capital being reallocated to more productive areas. But in banking and finance, a crisis leads to “deflationary destruction” as capital is eliminated. Businesses, investors and consumers lose confidence; borrowers are unable to repay their lenders, who suffer as well.
But by stepping in to rescue markets when they wobble, central bankers create asymmetric risk. Hence Mr Barbera rejects the idea, popular in the era of Alan Greenspan, that central banks should do nothing to burst asset bubbles.
Instead, he suggests that central banks should build the level of corporate-bond spreads into their models. When spreads are low, risk appetites are high, as they were in 2005-06. That should lead central banks to tighten monetary policy. When spreads are high, they should ease.
Whether that would have stopped the housing bubble is open to question. The Federal Reserve did indeed raise rates in 2005-06, albeit in a steady and unthreatening manner. Nevertheless, the current crisis suggests that monetary and fiscal policy cannot be driven exclusively by economic fundamentals such as inflation and unemployment. When interest rates are low, consumers and businesses do not just borrow money; they borrow money to buy assets, setting up a feedback loop that can eventually lead to a bubble. When such a bubble is inflating, government revenues (in the form of taxes on capital gains, bonuses, corporate profits and property sales) tend to be strong. As governments are now discovering, such revenues collapse very quickly when the bubble bursts.
But it is easy to get carried away during a boom; the strength of financial markets tends to be seen as a signal that the economy is soundly based. Those who work in the financial system are assumed to be the best and the brightest. Even the government seems to be in their thrall.
In a recent article, Simon Johnson, a former chief economist of the IMF, points out the parallels between emerging markets, where governments are dominated by the economic elite, and America, where officials glide easily between Wall Street and the Treasury. What is good for Goldman Sachs might turn out to be good for America, but it might be best if the government could make an independent judgment. If we accept Minsky’s idea that financial markets are not always right, then we might be willing occasionally to act against Wall Street’s interests, however loudly bankers would complain.
Obama trip no 'European Vacation'
Obama trip no 'European Vacation'
PRAGUE – Talking to reporters last week in Washington, White House press secretary Robert Gibbs jokingly called this trip “our European vacation.”
Hardly.
Nary a beer stein has been seen in President Barack Obama’s hands since he crossed the Atlantic and arrived in London Tuesday night.
Instead he’s kept to a grueling schedule of summits, bilateral meetings and public appearances. They've all been carefully choreographed for media consumption but so tightly packed together as to limit any opportunities for him to duck away for a glimpse at Europe outside his cordon.
By day’s end Sunday – and if it’s Sunday it must be the Czech Republic – he’ll have held 11 individual sit-downs with heads of state over five full days. That doesn’t count his meetings with Queen Elizabeth II and opposition leader David Cameron in Great Britain, or his many informal interactions with world leaders who thronged the G-20 in London and the NATO meeting in Strasbourg, France.
Describing only his day one schedule to the Queen and her husband, who know something about diplomatic duties, Obama won some sympathy.
“You’re just trying to stay awake!” said the Queen.
Still, the all-work, no-play itinerary – more reminiscent of George W. Bush than Bill Clinton – comes at a time when Obama is cognizant of the economic problems facing many Americans, and the political threat they pose. It’s one thing to be discussing international finance and Afghanistan with allies, but it may not go over well if he’s seen as checking out castles and nibbling fine food while gallivanting across the continent.
But it’s enough to run somebody ragged, and Obama is fending off a cold. Finishing a town hall meeting with a group of students in Strasbourg Friday, he appeared to muffle a cough.
Mostly, though, he’s risen to the occasion.
Foreign reporters were dazzled by, and applauded, Obama’s hour-long press conference at the end of the G-20 summit.
Friday looked like this: Obama met and had a press conference with French President Nicolas Sarkozy before holding the town hall session, then helicoptered over the Rhine to meet and hold another joint media appearance with German Chancellor Angela Merkel, then attended a concert with her and other NATO leaders in Baden Baden, and then went to a working dinner that night. (And it apparently was “working” – Obama advisers put out word Saturday that the president’s effort to broker a diplomatic compromise between the Danes and the Turks started over supper).
The president is scheduled to soak in this historic city – a favorite among the American backpacker set – for less than 24 hours. And most of those will be filled with a Sunday morning speech on nuclear weapons, another working meal (lunch this time) and individual sessions with yet more world leaders and diplomatic officials.
Which doesn’t leave a lot of time for, say, a Pilsner Urquell and lazy stroll across the Charles Bridge to Old Town.
Obama seems to be packing a lot in in part because he’s focused mostly on substance. His staff called meetings with the Russians and Chinese “business-like” – a description meant to portray Obama’s approach to diplomacy as more issue-oriented and less personal than Bush’s.
But, his pace and schedule bears some similarity to the predecessor this continent is so thrilled to see back in Texas.
Bush famously knocked out a trip to China’s Great Wall in a half-hour, did Senegal’s Goree Island in 15 minutes and altogether missed the Taj Mahal when he visited India.
Asked by Indian reporters why he was missing their country’s iconic building he fired back: “I'll be the president, we've got the scheduler being the scheduler. I'm going to miss a lot of the really interesting parts of your great country. I know that.''
Obama aides say the president will try to put on his tourist hat – if not his camera and fanny pack – before this trip ends next week and break away from the bilats.
But he’s never going to be like the last Tourist In Chief, President Clinton.
If Bush just wanted to do the minimum necessary to avoid being rude, then Clinton had to avoid offending his hosts by accepting too much of their hospitality.
He may not have stayed in hostels, but Clinton resembled a recent college graduate on his first overseas trip, wanting to examine, experience and thoroughly wring the culture out of every stop he made.
But the trips were also, much like the man, sprawling, un-tethered, and often off-schedule.
Who says there is no time for snorkeling in Australia or a round of golf in New Zealand?
And while Bush loathed the formality and self-seriousness involved in state visits, for Clinton, the grander the spectacle the better.
Stumping for his wife during the Democratic primary last year in Texas, he fondly recalled the time he drew a million people for a speech in Ghana (actually, news accounts at the time said the square where he spoke only had room for 200,000 – but, still, he relished the moment).
Evenings were to be spent getting in more sight-seeing – he took in the Prado in Madrid at 11 p.m. and caroused through Prague with Vaclav Havel. (When Obama arrived here Saturday night, he greeted American embassy officials and then headed to his hotel).
Of course, Clinton enjoyed being abroad in part because it was a welcome respite from his political problems at home.
Obama’s political standing is strong but his economic headaches followed him here. Twice since they were released Friday morning in Washington, Obama has mentioned the job losses suffered in March – both times without prompting.
So business it is – and lots of it.
Obama, his staff and the press corps in tow have been operating on little sleep and rarely seem to have a moment’s rest during days bursting with news and activity.
This is a Europe trip the Griswold family wouldn’t recognize, as Gibbs admitted Friday morning when he walked back to the press cabin on Air Force One to meet with reporters after a dawn wake-up call in London.
“How are you, Robert?” asked one journalist.
“Tired,” he replied, “How are you?”
“About the same.”
Obama's Recovery Is Not Your Recovery
Obama's Recovery Is Not Your Recovery Rich Karlgaard
The U.S. economy began its recovery this month. I will address you skeptics in a minute, but this month we’ve witnessed either growth or slowing rates of decline in just about every significant leading indicator, from housing starts to bank loans to retail and travel.
Positive anecdotes are everywhere, if you look. Airline flights are crowded. Airports are crowded. Shopping malls look alive again--not the Potemkin Villages they were only a month ago.
The U.S. will be in positive gross domestic product territory this year … possibly even by the second quarter. No, I wouldn't bet the ranch on it. But it wouldn’t shock me, either. The American people are sick and tired of being sick and tired. We are impatient people. We are bored with this recession.
Now the bad news. The recovery will be less robust than normal recoveries. Check the 1970s as a reference. Inflation marred the recovery from the 1973 to 1974 recession. It will do so again. While inflation is mainly hidden now, it will become apparent by the second of half of this year. Enjoy those $2 gas prices. Lock in your 30-year fixed rate now.
Washington power grabs, new taxes and more regulation will knock a point or two off of normal GDP growth. CEOs will spend the duration of the Obama administration looking over their shoulders. Entrepreneurs will find growth capital hard to come by as the venture capital industry shrivels under higher taxes. Don’t expect to see too many IPOs, either. Sarbanes Oxley smothered the IPO market years ago.
The stock market recovery will be stunted for many reasons. Inflation. Regulation. Higher taxes. Investor fears that Obama and Congress rather enjoy tearing up contracts and changing the rules. Obama himself likes to say that shareholders must sacrifice in this recovery. Hello? Suffering a 55% drubbing in equities has not been sacrifice enough?
This brings us to Obama. How the 44th president defines recovery may be a lot different than any definition we’ve come to expect. Most of us would define recovery as GDP growth, rising employment, higher incomes, and a stock market going up 10% a year. Not so with Obama. Each day it becomes clearer that Obama has far different idea of recovery.
Obama believes America must "recover" from its sin and addiction. According to Obama, the national sin is greed. The national addiction is to big homes, cheap energy and personal ambition.
By the way, Obama might be correct about this. Most of us can examine our hearts and discover we spend far too much time in pursuit of stuff we don’t have and not enough time thankful for what is in front of us. I am prone to dreaming about the next better airplane or that $3,000 bicycle that will propel me up the 3,000-foot hill behind my house. These are sins, really, because in so dreaming (and researching these fantasies on the Internet), I spend less time throwing a baseball around with my son or walking the dog around the block.
But these are my mistakes. The U.S. Constitution guarantees my right to make them as I pursue my happiness. When I get off course, or make bad choices, I can go to church, therapy or a recovery group. I have never looked to the government for redemption. Did Jefferson and Madison have that intent?
Obama sees himself as a redeemer. His radicalism is not that of FDR, a man who despite his economic missteps loved his martinis, women and country--big, rowdy, excessive America. Obama is revealing himself to be more like a Woodrow Wilson or Jimmy Carter, pinched and self-righteous. Carter carried his own luggage. Obama tells bank CEOs he has not redecorated the Oval Office.
Obama is determined to save us from ourselves. That’s his idea of recovery. Unfortunately, Obama's idea of recovery will pinch the potential of a real recovery.
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