Letter From The Capitol

Democratic Race: Rove's Take; Barone's Bake

Karl Rove scopes out the Democratic race, and sees a brokered convention "knife-fight" as a real possibility.  With Clinton needing 98 percent of remaining 535 to-be-pledged delegates to clinch the nomination, and Obama needing 76 percent, the nomination will ultimately be decided by the 330 super-delegates who have yet to choose a candidate.  Hill's insistence on resolving the Florida and Michigan votes makes a credentials fight in Denver a real prospect.

Politics ace Michael Barone chimes in with his detailed assessment of the race, including his picks through the end of primary season June 3.  He concludes, based upon a detailed, fascinating analysis I leave to the reader to wade into: (1) After primaries end, Obama will lead in delegates by some 90 out of 3200+ pledged delegates, about 0.3 percent--albeit, he would've lost under GOP winer-take-all rules; (2) Hill will run the table in the remaining primaries, winning Pennsylvania 60-40, and more than 60 percent in every state save North Carolina, giving her a comparable 0.3 percent margin out of some 33 million primary votes cast; (3) Obama's delegate lead would evaporate but for the caucuses, which are least representative of how voters in the general election will choose; (4) Hill's popular vote edge, without Florida & Michigan, would be based upon a huge win in Puerto Rico on June 3; (5) thus, the most likely outcome of the Democratic race is continued stalemate after the primaries.

Rove's convention pointers and Barone's number-gymnastics make for grand political-junkie fare.

Credit Markets: What's Keeping GDP & Jobs Up?

Financial maven John Rutledge's blog posted on March 28 a brief note explaining why GDP growth and jobs have not tanked due to the credit market debacle: because bank commercial & industrial lending still sustains the small business firms who (a) cannot borrow in the public credit markets and (b) sustain more than 50 percent of GDP.  Good to hear.  Also a plus, noted by the WSJ, is the decision by UBS, the Swiss mega-bank, to write down $19 billion of bad credit; the move boosts investor confidence that the worst of the financial mess might be over.

Now, if only, as Stanford professor Ronald McKinnon urges an a Wall Street Journal op-ed, the Fed will stabilize the dollar.  The credit crunch is partly a consequence of a weakening dollar sparking capital flight from the U.S. to overseas, which has been coupled with a flight to quality as the housing and mortgage bubbles collapse.  The Fed cuts interest rates, but given a global economy capital flees.  This brings to mind Wriston's Law, coined by the late Citibank Chairman Walter Wriston: Capital goes to where it is well-treated.  Conversely, capital departs from where its owners feel ill-treated: In a world of instantaneous multi-trillion dollar electronic monetary shifts, a weak dollar invites real trouble.  This is the consequence, I would add, of trying to make the Fed do the work of fiscal policy as well as monetary policy; the former belongs to Congress, but this Congress will not do the right thing by enacting a broad tax cut to fight recession.

Index 4/1/08

4 posts: (1) Hillary's "Samurai Economics"--"It's the Earth Stupid!"; (2) Taiwan's Turn--Weenie Watch; (3) The Hellish Face of Hamas--Us v. Them; (4) Wild, Wild Waziristan--Us v. Them.

Hillary's "Samurai Economics"

It makes sense to begin postings on April Fool's day with a certifiably foolish idea: "Samurai Economics" from Hillary.  The Wall Street Journal informs us that Hill claims our easy money Fed risks triggering a deflation of the kind that paralyzed Japan for the entire 1990s.  As the WSJ notes, Hillary has it bass-ackwards: it is tight money, runaway (Kenyesian) spending and credit crunches that will trigger deflation as they did in Japan.  Jack Kemp used to call those who oppose broad tax cuts practitioners of "Samurai Economics."  Someone should tell Hill that the samurai met their end when Japan modernized during the Meiji Restoration (1868 - 1912).  The Democrats have at least one candidate who knows less about economics than John McCain.  (Surely, Obama also knows less, being to the left of Hill.)

Taiwan's Turn

Former UN Ambassador John Bolton rejects the "closer to China" interpretation of last week's Taiwan elections.  He sees a confirmation of the view held by 4 out of 5 Taiwanese: a continuation of Taiwan's autonomous status, without formal declaration of independence from the Mainland.  Bolton advocates that the U.S. formally upgrade the diplomatic status of Taipei to one of full recognition.  Far from emboldening China to take action, it would send a clear message to Beijing not to try anything rash.  This is especially appropriate for America to do, in light of Beijing's refusal to help us with North Korea.  But appeasing China has a strong constituency inside the Beltway and in the media.

The Hellish Face of Hamas

Gregg Sheridan writes in The Australian that Western commentators remain ignorant of the extremist religiosity of Islamist terror organizations.  A prime example is the Hamas Charter (1988), which explicitly calls for destruction of Jewish and Christian faiths, affirming Tsarist and Nazi fever-swamp conspiratorialist views of the world.  Read the charter and weep.

Wild, Wild Waziristan

An article in the Washington Post presents a vivid portrait of life in the untamed Pakistani Federally Administered Tribal Areas (FATAs); the author, aptly, likens it to America's wild, wild West.  Except that Waziristan seems to lack the abundant virtues that existed alongside the lawlessness of America's Western Frontier.  It makes for an excellent read.  Also of note is former Ambassador Richard Holbrooke's estimate that the war in Afghanistan will prove to be America's longest-ever war, exceeding the 11 years of Vietnam.  A sobering read, RH's op-d recounts a local success for US-Afghan troops, working with the governor of Khost.

Index 3/31/08

6 posts: (1) Iraq: Basra Blues--Us v. Them; (2) Germany's Intel Curveball--Weenie Watch: (3) Can Asset Balances Weather Credit Quakes?--"It's the Economy Stupid!; (4) Islamism Takes UN By Storm!--Turtle Bay Tortoise; (5) Hillary in Bosnia: Another "Eyewitness" "Recalls"--The Home Front (6) A Great Star Passes On--Class & Crass.

Iraq: Basra Blues

Anthony Cordesman, a superb Mideast analyst with the Georgetown Center for Strategic & International Studies, fears that a widening war in the south may undo the gains in security over the past year.  The Brits, it seems, governed Basra with what AC calls a "not-so-benign neglect," essentially parceling out political plums to local mafias.  Also, the provincial elections set for the fall throughout Iraq may fail, due to lack of indigenous political parties and candidates.  The wages of premature elections may prove grim again.  American officials are aware of the problem, but whether they can fix it remains to be seen.  In an example of what concerns Cordesman, the Washington Times reported Sunday that thug-cleric Moqtada al-Sadr had rejected a call for his Mahdi Army to surrender arms, as American jets carried out air-strikes around Basra, in support of Iraqi government actions on the ground.  But the Los Angeles Times reported today that yesterday Sadr ordered his troops to lay down their arms.  The Wall Street Journal editors worry that the Iraqi government is stopping short of what Iraqis will perceive as victory, and thus letting Sadr off the hook yet again.  A complementary British perspective is offered by Con Coughlin of the Daily Telegraph.  In for a dime, in for a dollar.  Stay tuned.

Germany's Intel Curveball

The Wall Street Journal reviews that infamous "Curveball" intelligence controversy, based upon a major article in the high-profile magazine Der Spiegel, and finds that Germany, and not Ahmad Chalabi, was the culprit.  The mendacious Iraqi whose intel proved phony was held by the Germans since 1999.  The CIA was denied direct access to him, even after 9/11, and despite Gerhard Schroeder's equally phony promise of "infinite solidarity" with America after 9/11.  Germany believed Curveball enough to stock 35 million doses of anthraz vaccine, fearing an attack by Saddam.  David Kay, who headed the Iraq Survey Group that searched for WMD inside Iraq after the fall of Baghdad, told Der Spiegel, of access denied: "It was a blockade that made it impossible for any other service to validate his information."