America’s economic crisis is not over — Paul Craig Roberts

FEB 4 — Is the financial crisis over? Is the recovery for real and, if not, what are Americans’ prospects? The short answer is that the financial crisis is not over, the recovery is not real, and the US faces a far worse crisis than the financial one. Here is the situation as I understand it:

The global crisis is understood as a banking crisis brought on by mindless deregulation of the US financial arena. Investment banks leveraged assets to highly irresponsible levels, issued questionable financial instruments with fraudulent investment grade ratings, and issued the instruments through direct sales to customers rather than through markets.

The crisis was initiated when the US allowed Lehman Brothers to fail, thus threatening money market funds everywhere. The crisis was used by the investment banks, which controlled US economic policy, to secure massive subsidies to their profits from a taxpayer bailout and from the Federal Reserve. How much of the crisis was real and how much was hype is not known at this time.

As most of the derivative instruments had never been priced in the market, and as their exact composition between good and bad loans was unknown (the instruments are based on packages of securitized loans), the mark-to-market rule drove the values very low, thus threatening the solvency of many financial institutions.

Also, the rule prohibiting continuous shorting had been removed, making it possible for hedge funds and speculators to destroy the market capitalization of targeted firms by driving down their share prices.

The obvious solution was to suspend the mark-to-market rule until some better idea of the values of the derivative instruments could be established and to prevent the abuse of shorting that was destroying market capitalization.

Instead, the Goldman Sachs people in charge of the US Treasury and, perhaps, the Federal Reserve as well, used the crisis to secure subsidies for the banks from US taxpayers and from the Federal Reserve. It looks like a manipulated crisis as well as a real one due to greed unleashed by financial deregulation.

The crisis will not be over until financial regulation is restored, but Wall Street has been able to block re-regulation. Moreover, the response to the crisis has planted seeds for new crises.

Government budget deficits have exploded. In the US the fiscal year 2009 federal budget deficit was US$1.4 trillion (RM4.7 trillion), three times higher than the 2008 deficit.

President Obama’s budget deficits for 2010 and 2011, according to the latest report, will total US$2.9 trillion, and this estimate is based on the assumption that the Great Recession is over. Where is the US Treasury to borrow US$4.3 trillion in three years?

This sum greatly exceeds the combined trade surpluses of America’s trading partners, the recycling of which has financed past US budget deficits, and perhaps exceeds total world savings.

It is unclear how the 2009 budget deficit was financed. A likely source was the bank reserves created for financial institutions by the Federal Reserve when it purchased their toxic financial instruments. These reserves were then used to purchase the new Treasury debt.

In other words, the budget deficit was financed by deterioration in the balance sheet of the Federal Reserve. How long can such an exchange of assets continue before the Federal Reserve has to finance the government’s deficit by creating new money?

Similar deficits and financing problems have affected the EU, particularly its financially weaker members. To conclude: the initial crisis has planted seeds for two new crises: rising government debt and inflation.

A third crisis is also in place. This crisis will occur when confidence is lost in the US dollar as world reserve currency. This crisis will disrupt the international payments mechanism. It will be especially difficult for the US as the country will lose the ability to pay for its imports with its own currency.

US living standards will decline as the ability to import declines.

The financial crisis is essentially a US crisis, spread abroad by the sale of toxic financial instruments. The rest of the world got into trouble by trusting Wall Street. The real American crisis is much worse than the financial crisis.

The real American crisis is the off-shoring of US manufacturing, industrial, and professional service jobs such as software engineering and information technology.

Jobs off-shoring was initiated by Wall Street pressures on corporations for higher earnings and by performance-related bonuses becoming the main form of managerial compensation. Corporate executives increased profits and obtained bonuses by substituting cheaper foreign labour for US labour in the production of goods and services marketed in the U.S.

Jobs off-shoring is destroying the ladders of upward mobility that made the US an opportunity society and eroding the value of a university education.
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For the first decade of the 21st century, the US economy has been able to create net new jobs only in domestic non-tradable services, such as waitresses, bartenders, sales, health and social assistance and, prior to the real estate collapse, construction. These jobs are lower paid than the jobs were that have been off-shored, and these jobs do not produce goods and services for export.

Jobs off-shoring has increased the US trade deficit, putting more pressure on the dollar’s role as reserve currency. When off-shored goods and services return to the US, they add to imports, thus worsening the trade imbalance.

The policy of jobs off-shoring is insane. It is shifting US GDP growth to the off-shored locations, such as China, thus halting growth in US consumer incomes. For the past decade, US households substituted an increase in indebtedness for the lack of growth in income in order to continue increasing their consumption.

With their home equity refinanced and spent, real estate values down, and credit card debt at unsustainable levels, it is no longer possible for the US economy to base its growth on a rise in consumer debt. This fact is a brake on US economic recovery.

Stimulus packages cannot substitute for the growth in real income. As so many high value-added, high productivity US jobs have been off-shored, there is no way to achieve real growth in U.S. personal incomes. Stimulus spending simply adds to government debt and pressure on the dollar, and sows seeds for high inflation.

The US dollar survives as reserve currency because there is no apparent substitute. The euro has its own problems. Moreover, the euro is the currency of a non-existent political entity. National sovereignty continues despite the existence of a common currency on the continent (but not in Great Britain).

If the dollar is abandoned, then the result is likely to be bilateral settlements in countries’ own currencies, as Brazil and China now are doing. Alternatively, John Maynard Keynes’ bancor scheme could be implemented, as it does not require a reserve currency country.

Keynes’ plan is designed to maintain a country’s trade balance. Only a reserve currency country can get its trade and budget deficits so out of balance as the US has done. The prospect of US default and/or inflation and decline in the dollar’s exchange value is a threat to the reserve system.

The threats to the US economy are extreme. Yet, neither the Obama administration, the Republican opposition, economists, Wall Street, nor the media show any awareness.

Instead, the public is provided with spin about recovery and with higher spending on pointless wars that are hastening America’s economic and financial ruin. — www.counterpunch.org

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Perception and Royal Reality in Malaysia

Asia Sentinel

Malaysia has gone into mourning for the Sultan of Johor, Mahmud Iskandar Almarhum Sultan Ismail, who died Friday at 77. He was buried in an elaborate ceremony on Saturday. In Malaysia's oddball rotating kingship, which allows each of the country's nine sultans to wear the king's hat for five years, Iskandar became Malaysia's Yang Di-Pertuan Agong, or king, in 1984, relinquishing the title in 1989.

Najib Tun Razak, the prime minister, cut short a visit to India to extend his condolences and issue a statement: "On behalf of the government and people. I express sadness and extend condolences to Her Royal Highness Sultanah Zanariah and her children as well as the royal household on the demise of His Royal Highness the Sultan of Johor."

The massive Iskandar development project in Johor across from Singapore was named for him.

Muhyiddin Yassin, the deputy prime minister, said that Iskandar's death "is a big loss to the people of Johor, and also of Malaysia, because of his priceless contributions during his lifetime."

But it is difficult to see just what those priceless contributions were. Despite the encomiums, the Johor sultan embodied just about everything that was ill-starred about Malaysia's system of royalty.

Both The Star, owned by the Malaysian Chinese Association, and the New Straits Times, owned by the United Malays National Organisation, issued respectful obituaries. To most Malaysians, the New Straits Times said, "the Sultan will be remembered for his mercurial ways, as well as his inadvertent role in the constitutional crisis of 1993 which dramatically ended the legal immunity of the country's nine hereditary monarchs."

Iskandar's role was hardly inadvertent but it was certainly mercurial. In fact it was integral to it and it stemmed from his brutal beating, along with members of his staff, of a field hockey coach. And although the end of legal immunity was pushed through 17 years ago, today Malaysian royalty pretty much act any way they want without facing arrest. Several have left huge gambling debts in London casinos to be picked up by Malaysian state governments. Recently there have been incidents reported of fistfights between rival royals in Malaysian night clubs.

In recent months, in fact, UMNO, the country's leading political party, has led a charge to report to the police anyone who dares criticize the royalty. Several critics have been charged with sedition.

Iskandar was one of the worst of Malaysia's sultans, a violent, often brutal and impulsive man who seemingly knew no bounds to his behaviour. He was lucky to be a sultan at all. He was ignominiously dismissed as the Tunku Makhota, or prince regent of Johor, by his father, Sultan Ismail Ibrahim, in 1961 after he reportedly chained two policemen into a dog kennel for a day after they displeased him. He was later reported to have attacked a young couple with Mace after they allegedly offended him. In 1972, he was charged for Macing two men because their car had had overtaken his on the highway.

He regularly patrolled Johor roads with a red light and siren on the top of his Rolls Royce and a shotgun strapped to the dashboard, pulling over speeders and ordering them to perform enjut ketampi, the Malay term for squat jumps, until they fell over. Any driver who inadvertently passed the sultan's car on Johor's roads or obstructed him was subject to exorbitant fines. His staff was petrified by him. Once, at a diplomatic reception for example, he was seen to simply hold out his glass when it was empty and drop it as a terrified servant raced across the room to catch it before it shattered on the marble floor.

In 1971, he got into real trouble by shooting and killing a trespasser whom he took to be a smuggler walking near his private helicopter. He was charged with manslaughter but his father intervened, as the sultan did repeatedly at other times, and granted him a pardon despite his disapproval of his actions. Iskandar's family wasn't much better. His eldest son, Tunku Ibrahim Ismail, shot a man dead in a nightclub but was also pardoned.

There was considerable speculation in Kuala Lumpur that despite the fact that the kingship rotated on a set basis, his fellow sultans would block him because of his behaviour. But they elected him Agong in 1983. Prime Minister Mahathir Mohammad promptly fomented a constitutional crisis by ramrodding through a series of actions in the Dewan Rakyat, or Parliament, that removed the power of the royalty to veto legislation, along with closing other loopholes within the Malaysian constitution.

That didn't slow down the sultan much. In 1987, after he became the Agong, he allegedly clubbed a caddy to death at the Cameron Highlands golf club for laughing when the sultan missed a putt. He also was said to have maimed the caddy's brother, who suffered a mental breakdown from seeing the incident and had to be restrained in a mental hospital.

Although the killing was given wide currency among Kuala Lumpur's political and social circles, Iskandar was never arrested. It remained out of the government-controlled press. It so distressed the retired Tunku Abdul Rahman, the country's first leader after independence, that he publicly condemned the assault without naming Iskandar. The Tunku, however, also pointed out that as a sultan, Iskandar was immune from prosecution.

In 1992, following Iskandar's departure from the kingship, his son, Tunku Abdul Majid Idris, assaulted the goalkeeper of the Perak hockey team after Perak won a match with a penalty stroke. The goalkeeper lodged a police report against the son, who ultimately was convicted and sentenced to a year in prison. The charges were dropped on grounds of immunity. Later the sultan himself was involved in the other field hockey controversy that finally made Malaysia say enough. He called a local coach to his palace over a minor dispute. He and his bodyguards assaulted the coach, who had to seek medical attention for injuries to his face and body. The coach also filed charges. This time, the press reported on both incidents.

Despite the fact that the sultan had won Mahathir's approval by firing Mahathir's nemesis, Tun Salleh Abbas, the highly respected lord president of Malaysia's highest court, which brought an end to the independence of the country's judiciary, the assaults were enough for the prime minister. He led a campaign in the parliament to remove legal immunity from prosecution for the royalty that passed resoundingly.

Iskandar reportedly finally calmed down in later years, and lived a life largely out of the public prints. None of his misdeeds made the Malaysian press after his death. One blog cheerily said he would "always be remembered as Malaysia's unconventional King. He preferred to drive his own car or pilot his own helicopter. He also loved sports, especially golf and was not afraid to lose in a game."

Or a caddy. He was called "a King with the common touch."

CORRUPT LEADERS CORRUPT THE NATION

Our country has many aspiring political leaders but how many display admirable leadership ideals? Many political leaders seem to severely lack some of the most important leadership qualities, such as integrity and accountability. To many people, the label “politician” has such negative connotations! All is not lost as there are still a few who come close to the leadership ideals and who are good examples of an effective political leader.

For a nation to progress, we need political leaders who through good governance can legitimately assess and determine the distribution of power and resources in ways that can positively impact the well-being of a nation and its people.

A good leader considers the long-term good of a country, above and ahead of any personal short-term gains. Malaysia needs leaders with charisma and integrity, analytical abilities to assess a situation and the ability to make sound decisions. Leaders must not use tax payers' money for enhancement of self-image or national program. Tax payers MUST object when this happens!

Is it a tall order that leaders display ‘statesmanship’ and demonstrate sincerity, humility and integrity, even if it means admitting faults to show their remorse or by resigning to maintain honor for misdeeds or losing an election? We can only dream on.

Upright leaders have no problems demonstrating integrity and loyalty to all always. Consequently, they can resist the various temptations of the political arena. Communication and inter-personal skills must be evident to achieve the greatest good for the general population and not that of their collaborators!

A leader who is not corrupt is willing to listen to the needs of the common people and to represent them faithfully. Courageously, they can stand up and say what needs to be said – rather than just tell the general public what it wants to hear. Fine leaders are willing to make difficult (and possibly unpopular) decisions for the greater good.

Good leadership builds harmony and unity by being fair to all regardless.

Contrastingly, useless and hopeless leaders are like bandits who use manipulation or corruption instead of inspiration and motivation to get what they want. Corrupt leaders run away from situations or the consequences of their misguided actions. Such leaders, instead, prefer to point their dirty fingers at everyone else. They seldom accept responsibility for their mistakes, admit their political failures and acknowledge their own contribution to a problem!!!

In any situation, accountability is crucial to effective leadership, without which followers will have no respect for them. A good political leader is honest and responsible for their own actions and decisions and is willing to admit when they have made a mistake. They will focus their on representing the people rather than spewing lies and criticizing or condemning others.

The effectiveness of his leadership is assessed via public opinion. He can laud and claim how good he is and how much good he has done for the nation but at the end of the day, it is the people's verdict. Yet, many choose to live in denial and enjoy strutting around in a delusional state because of self-serving tendencies.

Many forget that leaders are not static entities locked within a vacuum. Leaders come and go except many don't know when to go! Worse still, they fight tooth and nail to cling on to their position. It is a reciprocal relationship. He exists in a leader-and- followers scenario. He can only lead if people allow him to lead and will follow his bidding. If he receives a lot of flak, it is testimony of his failed leadership or statesmanship. However, the truth of this statement depends on the thickness of their facial epidermis for a few ignore reality and continue their charade and nonsensical rants! They ignore public perception at their own peril!

Expectations of leadership have not changed over time as many still uphold ideals such as honesty, vision, ability to inspire, and competency. Thus, true and effective leaders are the ones who can meet the people's needs and dreams, not their own.

However, a nation of corrupt leaders corrupts itself absolutely. If leaders don't display high standards of integrity and accountability, many can become corrupt. Ultimately, everyone's pocket $$$ will be affected!

If corrupt leaders with no integrity can remain in power, it is testimony to the world that the nation condones wrongdoing at the highest levels.

No thanks to these leaders, our international repute will suffer. A Catch-22 situation emerges when a corrupt populace produce corrupt leaders.

Democracy allows us to choose the best leaders who can lead and guide the people to honor, integrity, principles and high moral standards.

Choose wisely. Make THE RIGHT CHOICE and DO NOT condone any form of corrupt, incapable and insincere leaders!

I'll Be Missing You

Google founders to cut stake by selling $5.5 billion in stock

SAN FRANCISCO (MarketWatch) -- Google Inc. co-founders Sergey Brin and Larry Page, who still own nearly one-fifth of the Internet giant, disclosed Friday that they intend to significantly reduce their stake by selling roughly $5.5 billion worth of stock over five years.

The sales are significant, because they would effectively eliminate Brin and Page's control of their company by cutting their collective voting power below 50%. Still, the 48% voting power that the co-founders' would retain following the sales nonetheless constitutes a formidable position of influence.

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In a regulatory filing with the Securities & Exchange Commission, Brin and Page, who started Google /quotes/comstock/15*!goog/quotes/nls/goog (GOOG 550.01, -32.97, -5.66%) as graduate students at Stanford University, disclosed that under a five-year "diversification plan" adopted in November, they'll be selling 5 million shares each.

Brin and Page currently own roughly 57.7 million shares of common stock in Google, or about 18% of its outstanding capital stock. Their diversification plan is intended "to allow Larry and Sergey to sell a portion of their Google stock over time as part of their respective long-term strategies for individual asset diversification and liquidity," according to the regulatory filing.

At Google's closing stock price of $550.01 on Friday, the co-founders' sale of stock would result in proceeds of roughly $2.75 billion each.

Brin and Page have maintained significant ownership stakes in Google, while also relying on a dual-class stock structure at the company that currently grants them about 59% of the voting power of the company's outstanding capital stock.

After their planned five years of stock sales, their voting power would be reduced to roughly 48%, according to the regulatory filing.

Google shares dipped $6.47 to $545.25 in after-hours trading.

The search giant's stock price has been on a wild ride over the past two years, veering toward $250 in late 2008, before mounting a steady recovery throughout 2009.

Early last year, Google took the unusual step of resetting stock options for employees at lower prices, making it easier for them to cash in on their equity.

Malaysia gets poor marks for human rights

KUALA LUMPUR: To ensure it stays in control and in power, the Malaysian Government has turned its back on promises to protect people’s rights, said Human Rights Watch.

In its report released Thursday, it said that when Datuk Seri Najib Tun Razak took over as prime minister in April 2009, he promised to respect the fundamental rights of the people but his government has failed to undertake the systematic reforms needed to fulfil that pledge.

It said the Government harassed the Opposition, improperly restricted the right to peaceful expression, association, and assembly, and mistreated migrants.

When it comes to human rights, Malaysia is more about rhetoric than reality, it said.

“The Malaysian Government appears to be more interested in pursuing short-term political advantage rather than safeguarding rights,” said Human Rights Watch deputy Asia director Phil Robertson.

The 612-page World Report 2010 reviewed human rights practices around the world over the last year.

It said the release of a number of Internal Security Act (ISA) detainees early in Najib’s term was a positive development, but stressed that Parliament should repeal the ISA and other repressive laws including the Police Act 1967, which it said, was used to justify a “violent crackdown” on a citizens’ march against the ISA.

The report also said that following the impact of the Internet on the last general election, the Government has tried to rein in non-traditional media, putting them and bloggers under closer scrutiny.

It also voiced concern over continued government control of the traditional media and called for the Printing Presses and Publications Act to be rescinded.

The report also criticised the Government for failing to distinguish refugees and asylum seekers from undocumented migrants and for its use of an “ill trained, abusive civilian force” (Rela) to crack down on undocumented migrants.

It said detainees were kept under inhumane conditions causing several of them to die last year while dozens were infected with leptospirosis, a disease spread by animal faeces in unclean water.

“How many more migrants have to die in detention before Malaysian policymakers wake up?” said Robert­son.

The report also criticised Malaysia for continuing to crimininalise adult consensual sexual behaviour including sodomy and said it is about time the government brought its criminal code into the 21st century.