Opinion

The Great Debate

from Nicholas Wapshott:

The EU-U.S. love-hate relationship

The elaborate gavotte between the American and European economies continues.

While the Federal Reserve has begun to wind down its controversial quantitative easing (QE) program, the European Central Bank (ECB) the federal reserve of the eurozone, has announced it is considering a QE program of its own.

It is a belated acknowledgement, if not an outright admission, from Mario Draghi, president of the ECB, that five years of the European Union’s austerity policy has failed to lift the eurozone nations out of the economic mire. The ECB has presided over a wholly unnecessary triple-dip recession in the eurozone and sparked a bitter rift between the German-dominated European Union bureaucracy and the Mediterranean nations that must endure the rigors imposed from Brussels. All to little avail.

If there are any “austerians” left standing, let them explain this. Ignoring the cries of the unemployed and those pressing for urgent measures to promote growth in Europe, the ECB blithely imposed its punishing creed, arguing that there would be no gain without pain. The result? Little gain, endless pain.

The eurozone economy endured growth at a miserable 0.2 percent year-on-year in the last quarter of 2013 (after an 18-month-long eurozone recession). Unemployment is at a wretched 11.9 percent. The eurozone is suffering from chronic “lowflation,” with inflation at an annual 0.5 percent,  heading toward perhaps the most destructive economic condition of all -- deflation.

In response to this dunce’s report card, Draghi is considering pumping money into the eurozone through quantitative easing. Even then, he has made clear he does not mean what he says. He sees this policy -- which Washington abandoned when it was seen to be ineffective  -- as a last resort to push up inflation and avoid the spiraling collapse of prices and economic activity that threatened the world economy in the fall of 2008. But he hopes the mere threat of QE will be enough to lift prices and save Europe from the deflation that has dogged the Japanese economy for decades.

Liberals are winning the language war

Are conservatives linguistically challenged? Or are they just naïve enough to think they can win the battle of ideas with — ideas?

Okay, and money.

Conservatives, like liberals, will spend huge amounts of money this year to get their ideas across to voters. But what they fail to do is bundle their thoughts into a bright, shiny linguistic package that explodes in the face of their enemies when opened.

The left has assembled a rich lexicon of phrases that serve either as stilettos that can be turned again and again in the guts of their opponents, or shields that obscure their true intentions.

Ryan and the code words of race

It’s official. The House of Representatives has passed the federal budget for fiscal years 2015 through 2023 that was submitted by the House Budget Committee — a.k.a. the Ryan budget, after the Budget Committee’s chairman, Representative Paul Ryan (R-Wis.) — and the troops are on the march.

The subject line of one e-mail from the Democratic Campaign Committee’s rapid response team is: “1,000,000 Strong Against the Ryan Budget.” They are soliciting signatures to demand rejection of “any Paul Ryan budget” that “puts Big Oil and billionaire tax breaks before the 47 percent.”  There will be an “important debate,” says Representative Chris Van Hollen (D-Md.), ranking member on the Budget Committee, about the Ryan budget’s “lopsided set of priorities.”

Van Hollen is right — there will be a debate. But as we saw in the recent eruption over Ryan’s remarks about the absence of a work ethic in the nation’s inner cities, the debate will be obscured and twisted by the issue of race — as it has been for the past 50 years. The conversation will be marked by familiar code words and formulas.  It will do nothing to heal the endlessly searing wound that the Ryan controversy exposed in the individuals who bear it or make the wound more real to those who don’t.

An election Democrats can win

Obamacare versus Ryanomics. That’s the battle line for 2014. It’s also a battle Democrats can win.

Why? Because most Americans are pragmatists. Pragmatists believe that whatever works is right. Ideologues believe that if something is wrong, it can’t possibly work — even if it does work. That’s the Republican view of Obamacare: It’s wrong, so it can’t possibly work.

But it now looks like Obamacare may work. More than 7 million people signed up for health insurance by the March 31 deadline, meeting the Obama administration’s original goal. Senate Majority Leader Harry Reid (D-Nev.) said, “The Affordable Care Act, whether my Republican friends want to admit it or not, is working.”

Massad: Taking the reins on derivative reforms

The Senate Agriculture Committee met Tuesday to approve the nomination of Tim Massad as chairman of the Commodity Futures Trading Commission, even as the agency fumbles over the definition of a “swap.”

When Massad testified at Senate hearings last month, he stated flatly that speculation can affect prices. Then, he hedged. “There are many, many factors that affect prices,” Massad added, “and sometimes it’s difficult to measure what the impact is of any particular factor.”

While he pledged to pass limits on the number of contracts that commodities speculators can hold, this hazy testimony reflects how little is really known about how the new CFTC chairman, if confirmed, will shape the derivatives market.

from Breakingviews:

Rob Cox: Crazy valuations not only sign of bubble

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Crazy valuations – even after a recent dip – are not the only signal that parts of the U.S. stock market, particularly internet companies, are in bubble territory. The willingness of investors in hot initial public offerings to accept second-class stock and governance that favors insiders suggests an imbalance between providers of capital and its consumers. Add head-scratching market caps based on contorted metrics, and this risks storing up trouble when the inevitable headwinds arrive.

The best description of the stock being hawked in this way is “coattails equity.” It offers little beyond a chance to tag along with entrepreneurs from Wall Street, Silicon Valley and China. Buyers of shares in IPOs such as those of Box, GrubHub, Moelis & Co, Virtu Financial and Weibo – and probably $100 billion-plus giant Alibaba – must give up rights that have traditionally accompanied the ownership of common shares, like a representative voice in corporate decisions.

Revising Obama’s ‘deporter in chief’ policy

In response to angry complaints from the Latino community about the administration’s deportation policies, President Barack Obama ordered a review in March “to see how to conduct enforcement more humanely.” At the same time, however, White House officials said the administration would neither suspend deportations nor expand the opportunities to stay for illegal immigrants who came to the United States as children.

That will not mollify his critics. Nor should it.

In a February speech, Obama had spoken movingly and from personal experience about the damage done to black and Latino young men by the loss of a father and the appallingly high number of fatherless homes.  Yet a month earlier, immigration officials had deported Josue Noe Sandoval-Perez. He “had been in the country for 16 years,” according to the New York Times,had no criminal record, paid taxes and was the primary breadwinner for his children – one an American citizen, the other [son] an immigrant who is here legally.”

In Obama’s five years in office, his administration has deported nearly 2 million undocumented immigrants, largely Latinos — reaching a new high of nearly 420,000 in fiscal year 2012. It took President George W. Bush his entire two terms to deport as many people as Obama has in five.

Cuba’s uneasy Internet connection

Last week, an Associated Press article, “US Secretly Created ‘Cuban Twitter’ to Stir Unrest,” sparked an uproar. The U.S. Agency for International Development had funded a Cuban version of Twitter called ZunZuneo , the AP reported, that attracted more than 40,000 users before ending in 2012, according to the story.

Commentators have derided the program as boneheaded, dangerously absurd and disrespectful to Cubans. Analysts have discussed its pros and cons. The White House maintains that the program was not “covert.” USAID contests aspects of the AP story.

The article, however, is a propaganda windfall for the Cuban government, which tends to label bloggers critical of it as U.S.-funded mercenaries. Cuba’s media has been having a field day, running gleeful headlines like “ZunZuneo: the Sound of Subversion.”

Opening the political money chutes

The headline about a new Supreme Court opinion rarely tells the whole story.  Rather, the detailed reasoning of the ruling often reveals whether a decision is a blockbuster or a dud.

When the court writes broadly, it can eventually remake entire industries, government practices or areas of the law. Lawyers and lower courts scrutinize an opinion’s every line and footnote, pouring over the legal reasoning and noting subtle changes from the court’s earlier decisions in the same area.

This is why it is fair to call last week’s Supreme Court ruling in the campaign finance case McCutcheon v. Federal Election Commission a blockbuster case. In McCutcheon, the court struck down limits on the total amount that an individual could give to federal candidates, parties and certain political committees in an election cycle.

Stress and the Citi

Markets are still absorbing the Federal Reserve’s surprising smack-down of Citigroup. Under its chief executive officer, Michael Corbat, Citi had greatly strengthened its capital base — indeed, it had one of the best capital ratios of all the big banks — and had proposed modest dividend increases and stock buybacks.  Instead, City was the only big American bank that failed its review.

The Fed announcement, perhaps harking back to the Alan Greenspan tradition, was gnomic, to say the least. The Citi bombshell was buried in a few lines in both the press release and the much longer official statement.

While acknowledging Citi’s stronger capital position, the Fed stated that the rejection was based on “qualitative” weaknesses, including the bank’s “[in]ability to develop scenarios … that adequately reflect and stress its full range of business activities and exposures.” The bank will eventually be handed a detailed bill of particulars, perhaps in a week or so.

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