Shifting Sovereigns...

...One of the primary functions that defines a sovereign is the ability to apply both soft (via diplomacy) and hard (via kinetic conflict) power.  It is obvious, however, that effectiveness of the former is almost exclusively dependent on the credibility of the latter.

What is interesting to me is that current format of nation-states applying soft and hard power is extrapolated into the future as the only conceivable format that serves as an engine to further the aggregate desires of various peoples.  We see this phenomenon being played out in the Middle East currently, but I expect Religion to become a much more important player on the world state in this century.  With just about every developed nation in the world experiencing various economic and political crisis, it is natural that their citizens will prefer something different.

It has not always been this way throughout history, and I note that publishing cycles are leading indicators for a wide variety of subjects.

This is why the following will be required reading for me:

The Pope's Soldiers: A Military History of the Modern Vatican 

The Pope’s Soldiers opens with a reminder that during the Renaissance the Holy See had been a military power with which to reckon, but had then declined rapidly.  During the mid-nineteenth century, however, papal military power revived, becoming a credible force for several decades, though one surprisingly over-looked by historians. 

All the king's horses...

...a continuing series.

With today's release of GDP and deflator numbers, one would think the "QE is inflationary" crowd would capitulate.  However, intellectual dogma more often than not adheres to the rules of emotion, not reason.  Just as the defenders of Greek astronomy invented more and more appendages to explain planetary movements (working within the prevailing doctrine of the day, instead of jettisoning assumptions and starting anew), so do they defend traditional (and hopelessly out of paradigm) Economic trade analysis.  Exception after exception, addendum after addendum to explain events within a framework that does not include the simple observation that fiat currency issuers are by definition monopoly suppliers of their own currency.

One need only look at the map of epicycles created by ancient astronomers to see what a convoluted mess things had become...and unfortunately, William of Ockham's comments on this phenomenon would not be heard until 1700 years later...

Life imitates art...

I have always been a fan of the movie "The Road Warrior", a film Chicago-based critic Roger Ebert claims is  "one of the most relentlessly aggressive movies ever made".  A voice in the beginning (implied to be the future adult version of a feral child who befriends the central protagonist) sets the plot thusly:


"...They'd built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men..."

Now, I am not advocating Apocalypse, quite the opposite in fact given the general themes explored by this blog, but it is always amusing to observe the next political appointee attempting to use rhetoric and speeches to succour the masses into believing the underlying problems are "under control".  In the case of Europe, the below remarks by Mr. Draghi are only yet another attempt to manage the news cycle.  Given multiple downgrades of EU member debt, and the fact that large institutions typically are forbidden to hold anything approaching junk status, there will be plenty of opportunity for the ECB to go on a buying spree.

Mario Draghi, president of the European Central Bank, has promised that it will dowhatever is necessary to preserve the euro. This appears to be a not very veiled promise that the central bank will buy euro-zone sovereign debt.

After days of further market attacks on the single currency through selling of Spanish and Italian sovereign debt, Mr. Draghi has had enough.

The single currency is “irreversible”, he said, adding that the “euro zone has the power to defeat market speculation.”

Distributism

There are always entreaties amongst the intelligensia during difficult social times for a "new" solution to the "problems" of inequality and "injustice".

The doctrine of "Distributism" is another attempt to re-package centuries old ideas into something more palatable and tractable for the contemporary audience.

The debates that follow form a litany of assumptions regarding the human condition and its "progress".

In his book "The Moral Landscape" Sam Harris provides a nice starting point for the assumptions made  with respect to human society:

"All question of value (right and wrong, good and evil) depend upon the possibility of experiencing such value.  Without potential consequences at the level of experience - happiness, suffering, joy, despair, etc.- all talk of value is emtpy.  Therefore, to say that an act is morally necessary, or evil, or blameless is to make (tacit) claims about its consequences in the lives of conscious creatures (wether actual or potential)."

These kinds of doctrines (The origins of the several theories matter not: Harris is an atheist, and Distributism itself is a product of the Catholic Church) seem to correlate well with general peace and stable hyper-powers.  Victorian sensibilities of decency and morality reigned during Britain's height of power, and the current skein of "global progress" continues today under the might of the U.S.A.

Power, interest, greed, envy, and the competitive nature of humans do not simply vanish in this type of environment either.  Searching for the Utopia which "progress" seeks to find is tantamount to reading a Pynchon novel;  there is much thought involved, perhaps you have learned a thing or two, but finding the main theme proves as elusive as the Shangri-La in Against the Day.

Manifest Destiny, v. 2.0

"There are plenty of Pilgrim Fathers among the Anglo Saxon race yet, and when America is filled up with their descendents, who shall say that Africa...shall not be their next resting place?"


Henry Morton Stanley, How I found Livingston: Travels, Adventures and Discovery in Central Africa,   1913.

The new battle for Africa has already begun.  The natural resources and relatively untapped markets present one of the more interesting growth opportunities for the G20.  The problem is, of course, that the current economic conditions presage competition more than cooperation.  It is more like Chess (or Stratego!) now.  Winner take all and devil take the hindmost.

Since civilization has "evolved" into its current manifestation, consumer markets, as opposed to raw territory or industrial capacity, has created the most wealth (and consequently granted the most power) in developed and emerging economies alike.

And so it is that Africa (especially sub-saharan Africa) remains something like central Asia was in the 1800s when large corporations and Empires struggled to extract the wealth of India.

The pieces on the board are all in place.  All that remains is the opening.

You know Krugman...

...is jettisoning any pretension of non-partisan rationality when he rants the below.  Shifting the burden of proof ("has there ever been a president with Swiss bank accounts?***) to the audience he seeks to persuade is bad form.

This, coupled with the usual asymmetrical character assessments (it is "right" for Romney to disclose every financial transaction he has ever been involved with, but "wrong" for Obama to disclose academic records, grades, etc.) destroys this articles credulity.

It is also very interesting that Mr. Krugman believes his political judgement merits serious consideration...at least to his editors.

[***99% likely, and if not Swiss then somewhere else.  Does he not know the history of this country, how it started, the relationships it has enjoyed, and the folks who have been President??  44 Presidents, with the likes of Hoover, Kennedy, Johnson, et al.  In addition, the question should include presidential candidates.  This significantly raises the total pool of people with possible Swiss bank accounts, and would certainly snag at least one unlucky politico who dared to place private assets in non-domestic jurisdictions.]

Put it this way: Has there ever before been a major presidential candidate who had a multimillion-dollar Swiss bank account, plus tens of millions invested in the Cayman Islands, famed as a tax haven?

And then there’s his Individual Retirement Account. I.R.A.’s are supposed to be a tax-advantaged vehicle for middle-class savers, with annual contributions limited to a few thousand dollars a year. Yet somehow Mr. Romney ended up with an account worth between $20 million and $101 million.

There are legitimate ways that could have happened, just as there are potentially legitimate reasons for parking large sums of money in overseas tax havens. But we don’t know which if any of those legitimate reasons apply in Mr. Romney’s case — because he has refused to release any details about his finances. This refusal to come clean suggests that he and his advisers believe that voters would be less likely to support him if they knew the truth about his investments.

And that is precisely why voters have a right to know that truth. Elections are, after all, in part about the perceived character of the candidates — and what a man does with his money is surely a major clue to his character.

Paper making the rounds...

...today regarding Money Market Funds.  If ever a sector of an industry were under attack, it is MMFs considering the recent LIBOR, et al.

The problem with the proposed reforms below is, of course, pricing this new lack of liquidity into an already low-margin business.


This paper introduces a proposal for money market fund (MMF) reform that could 
mitigate systemic risks arising from these funds by protecting shareholders, such as retail 
investors, who do not redeem quickly from distressed funds. Our proposal would require 
that a small fraction of each MMF investor’s recent balances, called the “minimum 
balance at risk” (MBR), be demarcated to absorb losses if the fund is liquidated. Most 
regular transactions in the fund would be unaffected, but redemptions of the MBR 
would be delayed for thirty days. A key feature of the proposal is that large redemptions 
would subordinate a portion of an investor’s MBR, creating a disincentive to redeem 
if the fund is likely to have losses. In normal times, when the risk of MMF losses is 
remote, subordination would have little effect on incentives. We use empirical evidence, 
including new data on MMF losses from the U.S. Treasury and the Securities and 
Exchange Commission, to calibrate an MBR rule that would reduce the vulnerability of 
MMFs to runs and protect investors who do not redeem quickly in crises.