America's Excellent Past

This may be the week that historians mark as the defining point of America's fall from grace.

The combination of a viciously divided national political debate with Constitutional checks and balances that make legislative gridlock an organising principle, and the Federal Reserve's trillion dollar money print are threatening to confirm that America's future will be anything but excellent.

A host of articles about America at a dangerous point in its history.

(ed's note -- please note the URL links to the posted articles are now accessed from the bolded article titles, a little technological upgrade)

Ambrose Evans-Pritchard on the risk to global financial stability from the Federal Reserve's policy of quantitative easing. The death of the dollar's special status.

The Fed's "QE2" risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal "bancor" along lines proposed by John Maynard Keynes in the 1940s.   QE2 risks currency wars and the end of dollar hegemony

The Brookings Institution on the tragic rise of 'fragile families'  -- read unwed mothers and single parents -- in the United States and the catastrophic consequences .

The rise of fragile families—families that begin when a child is born outside of marriage—is one of the nation’s most vexing social problems. In the first place, these families suffer high poverty rates and poor child outcomes. Even more problematic, the very groups of Americans who traditionally experience poverty, impaired child development, and poor school achievement have the highest rates of nonmarital parenthood—thus intensifying the disadvantages faced by these families and extending them into the next generation.  Strengthening Fragile Families

The old problem.

The impact of new production and information technologies and their dissemination through transportation and communication linkages is what has driven globalisation for hundreds of years. The challenge that this has always posed for countries is how to manage the social consequences from the big set of winners and the big set of losers that globalisation inevitably produces.

The evidence is building that economic orthodoxy that overwhelmly favoured capital over labour and a political culture rooted in the belief in heroic individualism has ill prepared the United States for the challenges brought on by the most recent -- read 30 years -- episode of globalisation.

This is not unlike China between 1865 and 1895 in its tragic relationship with Japan.

The United States with its inflection to protecting individual rights is discovering that this makes competing in the 21st century more not less difficult.

Ironically, individual rights are best protected by a political culture based not on an explicit attempt to protect them but on societal fairness as measured by inter-generational mobility.

The keys to a fair society are the rule of law, world class education and health outcomes, and a well functioning market, not it is turning out, laws that specifically protect the rights of the individual to, for example, keep the bulk of their income, send their kids to taxpayer funded private schools, reserve the science of good health for the wealthy, create special racial categories for advancement, and justice that is a function of what can be bought, not argued.

This may turn out to be the critical point of differetiation for Canada with the United States for guaranteeing an excellent future.

Canada’s inflection to fairness in social policy, the rule of law, and a well functioning well regulated market economy has created the perfect conditions for a high degree of intergenerational mobility including the first born generation of Canadians.  Explaining Canada's Excellent Future

Bob Herbert explains.

The clearest explanation yet of the forces that converged over the past three decades or so to undermine the economic well-being of ordinary Americans is contained in the new book, “Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class.”  Fast Track to Inequality

Fareed Zakaria understands the historical moment that the United States has come to and is optimistic that the country can make the right choices to help guarantee an excellent future. Thanks to David of Victoria for sending this in.

Pdf below, 'How To Restore the American Dream'

Great imperial decline is always accompanied by countries withdrawing into themselves. Gideon Rachman on the Obama interlude and America's turn to isolation. This does not tend to bring out the best people.

How’s that hopey-changey thing working out for you?” jeered Sarah Palin earlier this year – in a dig at the soaring rhetoric that helped Barack Obama win the presidency in 2008.  Obama May Just Be An Interlude

Quote worth quoting.

"Now a nasty thought is occurring to the foreigners who invested so much hope in the new president. Perhaps Mr Obama represented not a new beginning in American relations with the rest of the world, but a temporary aberration? Maybe, after a brief stab at internationalism and engagement with the rest of the world, the US will revert to a more unilateralist and nationalist foreign policy?" -- Gideon Rachman

The power shift.

A conservative wave roared across the American political landscape last night, humbling President Barack Obama and instantly redrawing the landscape in Washington with a new place on the high perches of power for the flag-bearers of the ultra-conservative Tea Party movement.   Obama Humbled By Conservative Wave

One of the oldest tricks of leaders is to start or take advantage of a war to solidify domestic support. The coming war on Iran?

When the midterm election cycle began, the prevailing opinion was that Barack Obama was cleverer and more inspirational than anyone else on the scene. As it ends, nothing appears to have changed.  The War Recovery?

Edward Luce's 3-minute video on the Obama's fall from grace.

Edward Luce, Financial Times Washington bureau chief, gives his analysis of the future of the Obama presidency at the end of a historic US midterm elections that swept Republicans into power in the House of Representatives.  Obama's Worst Night 

Meanwhile, Martin Wolf argues that the G20 should grab the Tim Geithner's current account balance proposal with both hands, and fast.

The debate on “global imbalances” has gone back to the future.  Current Account Targets Are A Way Back to the Future

 

 

It really is a plea for help argues Ken Rogoff.

G-20 leaders who scoff at the United States’ proposal for numerical trade-balance limits should know that they are playing with fire. The US is not making a demand as much as it is issuing a plea for help.  Beware of Wounded Lions

America's policy mix is a disastor.  

Countless column inches are devoted to the supposed wickedness of China’s currency policy (Bergsten 2010, Krugman 2010, Wolf 2010, Yiping 2010). But the biggest threat to the world economy comes from the US. Its policy mix – fiscally passive, monetarily aggressive – is ineffective domestically and dangerous for everyone.  America's Policy Mix is a Threat to the World

And it is about to get worse.

Martin Feldstein explains the dangers of QE2.

The Federal Reserve’s proposed policy of quantitative easing is a dangerous gamble with only a small potential upside benefit and substantial risks of creating asset bubbles that could destabilise the global economy. Although the US economy is weak and the outlook uncertain, QE is not the right remedy.  QE2 is Risky and Should Be Limited

And more. Those unintended consequences.

The Federal Reserve's Open Market Committee seems poised today to make a historic decision to expand its balance sheet by as much as $1 trillion or more to boost inflation and reduce unemployment. We've said before that we think this is a monetary mistake, but the public and Congress should also be aware that it increasingly carries fiscal risks.  High Rollers at the Fed

The old line about 'not fighting the Fed' has so far turned out to quite correct. The question for investors is whether or not the market has discounted QE2 Part I.

The precise effects of quantitative easing on the US economy may be clear as mud, but the impact on market psychology has been abundantly clear. The prospect of more market rigging by the Federal Reserve has ensured that the past month has been a joyous “risk on” affair; the dollar has been a dog; long-term Treasury yields are back up above 4 per cent; and short-dated Treasury Inflation Protected Securities have been selling like hot cakes on negative yields.   Cheques and Balances as the Fed Muddles Through

And finally.

 

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