Wednesday Night #1521

Written by  //  April 27, 2011  //  Guy Stanley, Herb Bercovitz, Reports, Wednesday Nights  //  No comments

A relatively small, but very lively, Wednesday Night was enhanced by the presence of Liam McHugh Russell, Sauvé Scholar alumnus and currently studying for his Master’s in Law at McGill, and Maureen Farrow, who, as usual, gave a tour de force overview of the world economy.

Ben Bernanke, the Fed and the world economy
At a generally well received press conference today, Chairman of the U.S. Federal Reserve has announced that it will henceforth be more open and will release information on a quarterly basis.  Some believe that becoming more transparent offsets any potential damage done by Wikileaks-type revelations (although inadvertent leaks from within the Fed are deemed more likely), but risks disclosing information that might cause speculation or allow individuals to profit from it.  However, the European Central Bank has been doing this for some time, apparently without adverse effect.   Bernanke does not see inflation rising in response to rising oil prices, but sees the continuation of a declining housing market.

This is seen by many as America’s last effort – the end of an empire.   There is no coordinated international monetary policy, so Australia, China and India are way ahead of the curve. Interest rates will be normalized over the next 2-3 years, unless the world suffers another big recession   The competitive advantage has shifted to China, India and Brazil.  The U.S. has for many years grown through exports, and has in fact,  been thus funded by the rest of the world. During the last half of the twentieth century, the United States was creative, innovative but has been losing its edge in productivity. Japan  owns American debt, but is very unlikely to be buying more treasuries after the recent disaster, nor is China likely to. G-7 debt is the biggest worry and needs restructuring. The problem of the accumulated debt is exacerbated by off-the-balance-sheet debt arising from the cost of health care and pay-as-you-go pension plans.

Whenever the topic of gold is raised, the name of Fort Knox usually follows along with questions about how much gold is there.   Some have suggested that Fort Knox appears to be holds a vast amount of gold, affording the U.S. a means of at least partially, settling their debt. The best we can ascertain, with the help of Google, is “According to the United States Mint, there is presently 147.3 (Wikipedia says 147.2) million ounces of gold at Fort Knox. With today’s price of $1,131 per ounce of gold, that is $166.5 Billion worth of gold.”  And let us not forget that even more is held at the  Federal Reserve Bank of New York’s underground vault in Manhattan, which holds 7,000 metric tons (7716 tons) of gold bullion (160.8 million oz. troy), some of it in trust for foreign nations, central banks and official international organizations.
Returning to the gold standard, however would reintroduce inequalities between gold-producing countries such as Canada and  insolvent countries. [Update for gold bugs: The Economist tells us that Mexico’s central bank bought 93.3 tonnes of gold worth $4.3 billion during February and March, one of the largest official purchases of the precious metal in recent years. The central banks of big developing economies have been increasingly turning to bullion to diversify their assets away from currencies.]

Some suggest that deflation is the answer for countries like the U.S. and U.K. in order to increase exports.  This has not been a normal period of monetary policy.  Never before have interest rates remained virtually at zero percent, a policy that has proven incapable of leading to debt reduction.  Interest rates are expected to be normalized over the next two to three years unless there is a recession.  The only rational solution appears to be inflation.

On the stock markets, every index hit a new recovery high except in Canada, where the indices have not kept pace with the those in the U.S. It has been suggested that Americans prefer to invest in securities rather than hold cash.  We are in a bull market, where surprises happen on the upside at the rate of two upsides for each decliner.  This is considered good and occurred in 1974, 1990 and 2009, usually accompanied by a 25% to 30%  rise in the indices.

The economy, however is not detached from the real world which appears to be imploding, e.g.  Syria, and civil wars/uprisings throughout the Middle East.

China may have to use repressive measures unheard of in North America, although some Wednesday Nighters, believe that country’s one-child family policy will enable it to escape the worst of the problem.   Others point to a superb civil service in China and China’s possession of a large portion of the world economy, with the exception of live animals and oil.  As is true of every communist country, China enjoys full employment.  Despite these advantages, the Chinese population is said to be dissatisfied, wanting to upgrade and expressing their dissatisfaction in any way possible.  The large number of attempted and successful suicides is said to be an indicator of increasing dissatisfaction.
The sudden action regarding corruption in India in almost every domain is noted.

The Canadian election campaign
A surprise to many has been the current rise in popularity of the N.D.P., especially in Québec where it has eaten into the popularity of the Bloc. Some explain its popularity by the similarity of its policies is close to those of Réné Lévesque.  Others attribute it to Jack Layton’s courageous fight to overcome his severe health problems and others to his  fluent, colloquial French linguistic skills compared to those of the leaders of other parties.  Another hypothesis is that most Quebeckers would like be rid of the Bloc.   For whatever reason, the NDP appears to be doing unexpectedly well throughout the country with three polls predicting that the party will win over one hundred seats in Parliament.  Unlike the other leaders, Jack/Jacques Layton is is universally perceived as highly likeable to voters nationally. But there is some doubt regarding the qualifications of some of the NDP candidates.
The unanticipated surge of support for the NDP is at least in part, the result of hitherto unexpressed anger on the part of younger voters.  Voting according to party platforms is difficult if not impossible as these have proven impossibly complex [and or boring], making them difficult to read and understand. The anticipated impressively large first-time youth vote is expected to have an important impact on the makeup of the next Parliament. Should a coalition government result from the current election, it is not expected to be catastrophic.  The U.K. has been governed by a coalition since its last election, at first cause for concern, now considered very favourably.
Regardless of the results, it is expected that the Liberals will lose ground, leading to the resignation of Michael Ignatieff immediately following the election. According to tradition, he would be succeeded by a Francophone. As an interesting twist on minority government, a theory has been advanced that – according to the Eugene Forsey School of Constitutional Law – if a government has not succeeded in forming a majority on its third attempt, the Governor General may ask the leader of the opposition to form a government. In the unlikely event of this occurring, it might lead to a Liberal – NDP coalition with Jack Layton as Prime Minister. This scenario would be problematic if the Liberals were to have not forgiven the NDP for having brought down the Paul Martin-led Liberal government – would the Liberals consider an alliance with Stephen Harper’s Conservatives? It seems unlikely – but then, everything about the final weeks of this election seems unlikely! Both Wednesday Nighters and editorialists have expressed doubts about the ability of the NDP to solve our economic problems. The Medicare situation is considered untenable, our productivity zero, suggesting that we are being sustained by the God-given gift of commodities.
One of the Liberals’ greatest assets is Marc Garneau, Naval Officer, Astronaut and one of Canada’s most credible experts on science and technology. In the unlikely event that he is not elected to Commons or is not in the governing party, it is suggested that he would be a superb Senator, an asset to all Canadians.

The Prologue

While the election campaign (see below) continues to dominate our every waking hour (well, at least many of them), we have some other items as well and the first is to congratulate Sheila Arnopoulos whose book “Saris on Scooters” has been nominated for the Canadian National Business Book award
Sheila writes:
Many of the women I met are Dalits (formerly called Untouchables) that have started cooperatives and producer companies that are taking them way beyond the small mini-businesses typical of the first stages of microcredit. Examples include a bank, a full-fledged dairy, and an embroidery company, with the women as shareholders.
The women are making sure their girls are in school and not working as child labourers in the fields. Now thousands of their young people are graduating from village high schools, expanding into post-secondary programs, and moving into good jobs.
Though barely literate, some women in microcredit groups have banded together to start community newspapers that are telling poignant stories about rural life. They are detailing the situation of bonded labour, dowry harassment, and child labour. But they are also reporting on how marginal women farmers have reverted to organic agriculture to make arid desert-land bloom, and how women have organized to promote community development and social change. And now some of these women have mainstream jobs in the media.
We are thrilled for Sheila and can only hope that the powers-that-be will have the wisdom to choose her over Ezra (Mr. “Ethical Oil”) Levant.
Congratulations are also overdue to Karl Moore who has secured a niche at Forbes writing on Rethinking Leadership. The latest “What American Executives Can Learn From Indian CEOs About Great Management” offers a nice segue from Sheila’s news. Karl will not be with us this week, but Wednesday Night’s loss is the West Wing’s gain, as he will be in Vancouver with our sibling salon for its 37th iteration (it is held monthly, not weekly) and we look forward to his return with first-hand news of Alexandra, James and the B.C. contingent.

The election campaign dominates the Canadian media (and even pops up in such august publications as the WSJ – Canada’s Felled Leader Has Chance for Big Win – remember that is Mr. Murdoch speaking); we attempt to keep an eye on the most intelligent and/or egregious items and commentary. Latest to attract our attention is the marvelous juxtaposition of these two headlines  Why many Bloc supporters are looking elsewhere Maybe because Parizeau to issue Bloc rallying cry? The former PQ leader will join Bloc leader Gilles Duceppe Monday in St. Lambert, where he is expected to issue a rallying cry to Quebec voters to resist the temptation to shift allegiances to … [the] New Democratic Party. Which flies in the face of Chantal Hébert’s conclusions Why Quebec is loving Jack, leaving Gilles. Great analysis by one of our favorite commentators The soft nationalists who are flocking to the NDP are not so much embracing Layton’s promise to find the so-called winning conditions for reopening the Constitution as bolting from the stifling embrace of the sovereignist leadership. Andrew Coyne and Paul Wells have interesting comments (dreadful quality video); we especially were interested by Andrew Coyne’s comment that the nature of Easter family gatherings and conversations can directly influence voting intentions.
Meantime, you have presumably all seen the one-on-one Leader interviews with Peter Mansbridge, but how many saw the photo-op of Mr. Harper jamming at 24 Sussex on Good Friday? While we were not thrilled to see our PM drinking beer out of the bottle in that rather formal setting – we frankly don’t find the image of the PM as “one of the boys” appealing (but then, we cheerfully admit that we are elitist) – at least one highly committed Tory has commented that his unforgivable sin is that he sang off key (also placed his bottle carelessly on the grand piano). Image is everything.
At the local level, on Wednesday, there are All Candidates debates back-to-back at McGill and Concordia, organized by the respective student unions, and on Thursday, the Montreal Citizens’ Forum presents a panel discussion on the Conservative government’s Crime Bills at the Atwater Library (7-9PM).

One – possibly the only – bright spark in this election is the enthusiasm of many young people working with organizations like Leadnow.ca to participate in the dialogue and get out the vote. They deserve our encouragement and support.

But there is news elsewhere. The world has not stopped turning just because we are in campaign mode. Last Wednesday was the 1st anniversary of the Deepwater Horizon explosion and was marked by a highly undignified Flurry of lawsuits filed on anniversary of Deepwater Horizon explosion continues among the villains of the piece. On the other hand, there was some relatively good news about both economic and ecological recovery; as the Economist notes signs of revival are everywhere: although scientists caution that it is too early to forecast long-term results. The BBC’s BP oil spill: The environmental impact one year on offers good analysis.

The oil spill topic leads us quite naturally to environmental issues in the context of Earth Day (April 22nd). Here’s a really nice local initiative Un grand jardin sur le toit du marché Jean-Talon Interestingly, we have been unable to find any English-language media coverage.

The Middle East continues to be in turmoil – Syria (the Globe & Mail proposes Turkey to solve that problem), Yemen and of course, Libya. Even the Pope devoted his Easter message to the region and it is reported that Russia has offered to mediate in Libya

Corruption is always a hot topic and we commend to you Corruption: The biggest threat to developing economiesnote the reference to “Singapore and Hong Kong virtually eradicated corruption in a generation”. We think that there’s a good case to be made that it is not only developing economies that are threatened.

We can always count on Guy Stanley to send along a thought-provoking item. In a long adaptation of a speech, which contains his usual criticism of the U.S. and its Western allies, Noam Chomsky asks “Is the World Too Big to Fail? The Contours of Global Order – good fodder for discussion. Somehow, we don’t feel that he answered his own question, but manages, as always to be controversial. Guy comments: The ideological angle, I think, is less interesting that the reality it describes, and the questions it raises — especially for countries like Canada, the Scandinavians, and others, who had hoped to see multilateral organizations at least mitigate the harshness of imperial competition in the world. See what you think. As usual, we agree with Guy, but you may have other thoughts.
Given that Professor Chomsky cites Joseph Stiglitz, it seems appropriate to segue to the latter’s piece in the current issue of Vanity Fair: Of the 1%, by the 1%, for the 1%
Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income-an inequality even the wealthy will come to regret.
For more thoughts on the U.S. economy, we offer
FAREED ZAKARIA: For U.S. Economy, Short-Term Good News Is Bad News
and US default could be disastrous choice for economy ; one more item on the U.S. economy is http://fedupusa.org/2011/04/19/healthcare-cuts-loom-for-130000-vets/  Then scroll down to the ‘bear’ video – how accurate we aren’t sure, but definitely offers a clear view of all the ills. Guy Stanley comments: Leaving aside the appalling discussion about cuts in VA medical services, the Bear video is quite funny but seems to miss the point, namely that the economy no longer performs as it should. Maybe because we are not an economist, we thought that was the whole point of the video. In any event, we will bow to the collective wisdom of Wednesday Night.
Our last item on the subject of the U.S. is this, certainly one of the more bizarre – and to us appalling – items of news. A provision in the new 9/11 health bill requires all 9/11 responders to be screened through the FBI’s Terrorism Watch List in order to receive treatment – has the U.S. gone mad?

Ending on a more cheerful note – are you geared up for THE WEDDING on Friday? Will you be up bright and early to watch every minute? Will you be listening to John Curtin offering color commentary?  Have you purchased a particularly tasteless collectible? Do come share your thoughts.

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