Fed Games, Own Home, China Rising, Quebec in Canada, Will's Israel Warning, Capitalism, The God Debate, The Flood

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As we inch summer sweatingly to autumn's cool, fear in global financial markets is building ominously. The tremendous rally in bond markets may portend a savage downturn in equity markets as the developed economies reach a Keynesian end point.

That of course is why the Fed should increase interest rates.

Rethinking home ownership, India's state corruption holds the economy back as China passes Japan, why Quebec will always get a 'better deal', George Will's chilling warning about Israel's determination not to allow Iran to get the bomb, and thoughts about capitalism, God, and the flooding in Pakistan.

When heading up equity research departments (Lehman/Richardson Greenshields) or running economic departments (too many to list ...) I often used a simple two step framework to get analysts to approach their work, description and prescription.

First, describe the present day situation a sector, industry or economy was in. Second, prescribe the right strategy to maximise opportunity.

So it is with the US economy today.

Why the Fed is wrong to keep interest rates so low.

The present day problem is the balance sheet adjustment that follows a classic credit boom and bust not a fall in demand.

A policy of low interest rates is a textbook response of monetary authorities to the economic weakness brought on by deficient aggregate demand.  http://online.wsj.com/article/SB10001424052748704388504575418964014417740.html?mod=rss_opinion_main

Low interest rates discourages savings when savings is what the US economy needs.

The last 15 years in global markets have been marked by one consistent factor: the ready availability, even overabundance of capital.  http://www.prudentbear.com/index.php/thebearslairview?art_id=10426

The unintended consequence of lower interest rates is that they hurt people that require savings as income.

As 2010 began, there was nearly unanimous agreement in financial circles on at least one thing: Interest rates were sure to rise during the year.  http://www.nytimes.com/2010/08/16/business/economy/16rate.html?_r=2&ref=todayspaper

Then there is the modern day example of where the Fed is leading the US economy, Nippon.

These days there’s lots of gloomy news on the American and European economies – Friday’s Wall Street Journal had separate stories featuring polls of economists in the U.S. and Europe predicting continued high unemployment and slow growth. http://www.theglobeandmail.com/globe-investor/investment-ideas/experts-podium/learning-lessons-from-japans-lost-decade/article1674061/

And the dangers imbedded in Japan's two decade long bond market rally.

A recent entry in the popular blog of Harvard University economics professor Greg Mankiw was titled, ‘Are bonds sexy?’.  http://www.eastasiaforum.org/2010/08/16/japans-bond-market-has-become-ticking-bomb/

How America's bias to home ownership has distorted the economy, and always will.

With one child at home and another on the way, Elise and Morgan Richardson of Idaho Falls began looking last spring to buy a home. “You get married, you have kids and you buy a house,” says Mrs Richardson, 26. “That is just the order of things.” http://www.ft.com/cms/s/0/9c6ac4d2-a968-11df-a6f2-00144feabdc0.html

How corruption in India is holding back its economy.

As India enters its 64th year since independence, its economic dynamism presents a paradox.  http://www.ft.com/cms/s/0/abc794aa-a968-11df-a6f2-00144feabdc0.html

When German steel production surpassed the same in the United Kingdom 100 years ago historians had a convenient tool to mark a new era in the norms of the international system.

So it will be with the news that China, this month, is now the world's second largest economy on a nominal basis surpassing Japan.

Get ready for sharp Chinese elbows.

To economists, China overtaking Japan as the world’s second largest economy in nominal terms is almost meaningless. http://www.ft.com/cms/s/0/14299e76-a94b-11df-9e4c-00144feabdc0.html

Back to Canada where moves to increase the number of seats in the House of Commons to reflect growing populations in British Columbia and Ontario is raising the usual hackles in Quebec.

Pay attention to the second of Canada's strategic imperatives, as long as Canada conceives of itself as a country bounded east and west by the Atlantic and Pacific Oceans, then a distinct group -- language, law, culture -- of people that live more less in the middle in a clearly defined geographical area will always have a strong bargaining position. Ever thus.

Ignore the polls, ignore the census and ignore Quebec. Nothing will change the Harper government’s minority status until legislation passes creating more seats in the House of Commons, Ipsos pollster John Wright says. http://www.theglobeandmail.com/news/politics/ottawa-notebook/should-tories-liberals-and-new-democrats-give-up-on-quebec/article1674396/

George Will on what lies ahead between Iran and Israel.

When Israel declared independence in 1948, it had to use mostly small arms to repel attacks by six Arab armies. Today, however, Israel feels, and is, more menaced than it was then or has been since. Hence the potentially world-shaking decision that will be made here, probably within two years. http://www.washingtonpost.com/wp-dyn/content/article/2010/08/13/AR2010081304474.html?wprss=rss_opinions

Related.

With Russia's ever-helpful policy of assisting Iran to accelerate its reactor program, allied to the millimetrical progress of sanctions on the Ahmadinejad regime and the increasingly hopeless state of negotiations with the Palestinians, there is likely to be no let-up in the speculation about an Israeli "first strike" on Iran's covert but ever-more-flagrant nuclear weapons installations. http://www.slate.com/id/2264064?wpisrc=xs_wp_0001

Thinking about capitalism post-Lehman.

Many people have wondered, in the two years since Lehman Brothers collapsed, what will remain of global capitalism as it existed before the fall. http://www.ft.com/cms/s/0/ae0eeb40-a70c-11df-90e5-00144feabdc0.html?ftcamp=rss

The case against Dawkins.

My August 1 essay, “Philosophy and Faith,” was primarily addressed to religious believers. http://opinionator.blogs.nytimes.com/2010/08/11/on-dawkinss-atheism-a-response/?partner=rss&emc=rss

* editor's note: Dawkins has always said he was an agnostic not an atheist.

Related.

Dawkins at the TED podium.

In this talk, titled, "Queerer Than We Suppose: The strangeness of science," he suggests that the true nature of the universe eludes us, because the human mind evolved only to understand the "middle-sized" world we can observe.   http://video.google.com/videoplay?docid=-4471435322910215458#docid=6308228560462155344

Why the response to helping Pakistan has been so different than Haiti or the Great 2004 Tsunami. It isn't about Islam. It is about human imagination.

One week after launching a fundraising effort to help victims of Pakistan’s devastating floods, a coalition of Canadian charities has raised just $200,000 for the region. A week after they began a similar campaign following January’s Haitian earthquake, more than $3.5-million had been raised.  http://www.theglobeandmail.com/news/world/why-western-donors-are-snubbing-pakistan-after-giving-to-haiti/article1675172/

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Twin Virtues: Inequality of Outcomes & Equality of Opportunity┬ę

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Twin Virtues

Ultimately, the most successful societies find the balance between the twin virtues of inequality of outcomes and equality of opportunity.

The new politics must marry the twin virtues of unequal outcomes and equality of opportunity.

When too few get too much everybody loses.

Feminism is about women living their lives on their own terms, marshaling the resources of the society to make that possible, and men embracing this as vital to a successful society and their own liberation.

Can it be that striving for equality of opportunity however imperfect the process not only benefits the individual but also creates benefits for the society that are unintended but wonderful?

Economics must be a 'moral enterprise' as much as politics claims to be. Economic outcomes need to be framed in terms of right and wrong not just efficiency if only because these often align in surprising ways that are good for society and the economy.

My vision of Canada is that any Canadian child from a family of limited circumstance can expect to have a chance at lifetime of unlimited opportunities.

Tax policy should be founded on the principle of generating steady tax revenues sufficient to maximise environmentally sustainable economic growth in order to fund fair government.

Public policy should be designed to decrease inequality before the law and increase equality of opportunity.

Capitalism is not the problem; the problem is what we do with capitalism.

Content is always more difficult to argue than conspiracy.

Let the state regulate and the market operate (most things).

Welfare strategies are best designed as a hand up, not as a hand out.

Political debate should not be fact free fighting.

Explanation lasts longer than eloquence.

Always favour empowerment over dependency.

The most enduring public figures are embraced for the causes they fought for and not the concept of themselves they hoped others would remember them by.

Find your voice and don't be the echo of somebody else.

It is possible to operate on two different levels: the practical, cautious and conservative; and the realm of ideas, open, free, and radical.