Mish's Global Economic Trend Analysis

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• Time Lapse Image of Growing US Political Polarization; Root Cause of the Shrinking Middle Class
• Ukraine Gas Talks Break Down; Don't Worry Until September
• Tony Blair's Disingenuous, Self-Serving Analysis of Iraq

Time Lapse Image of Growing US Political Polarization; Root Cause of the Shrinking Middle Class Posted: 15 Jun 2014 10:59 PM PDT The above graph is part of a PEW research study on Political Polarization in the American Public. In 2004, only about one-in-ten Americans were uniformly liberal or conservative across most values. Today, the share who are ideologically consistent has doubled: 21% express either consistently liberal or conservative opinions across a range of issues – the size and scope of government, the environment, foreign policy and many others. Looking at 10 political values questions tracked since 1994, more Democrats now give uniformly liberal responses, and more Republicans give uniformly conservative responses than at any point in the last 20 years. To be sure, those with across-the-board liberal or conservative views remain in the minority; most Americans continue to express at least some mix of liberal and conservative attitudes. Yet those who express ideologically consistent views have disproportionate influence on the political process: They are more likely than those with mixed views to vote regularly and far more likely to donate to political campaigns and contact elected officials. As Partisans Move Further Apart, the Middle Shrinks In 2012, the Pew Research Center updated its 25-year study of the public's political values, finding that the partisan gap in opinions on more than 40 separate political values had nearly doubled over the previous quarter century. The new study investigates whether there is greater ideological consistency than in the past; that is, whether more people now have straight-line liberal or conservative attitudes across a range of issues, from homosexuality and immigration to foreign policy, the environment, economic policy and the role of government. Is Polarization Asymmetrical? The ideological consolidation nationwide has happened on both the left and the right of the political spectrum, but the long - term shift among Democrats stands out as particularly noteworthy. The share of Democrats who are liberal on all or most value dimensions has nearly doubled from just 30% in 1994 to 56% today. The share who are consistently liberal has quadrupled from just 5% to 23% over the past 20 years. In absolute terms, the ideological shift among Republicans has been more modest, in 1994, 45% of Republicans were right-of-center, with 13% consistently conservative. Those figures are up to 53% and 20% today. Polarization Among Elected Officials As many congressional scholars have documented, Republicans and Democrats on Capitol Hill are now further apart from one another than at any point in modern history, and that rising polarization among elected officials is asymmetrical, with much of the widening gap between the two parties attributable to a rightward shift among Republicans. As a result, using a widely accepted metric of ideological positioning, there is now no overlap between the two parties; in the last full session of Congress (the 112th Congress, which ran from 2011-12), every Republican senator and representative was more conservative than the most conservative Democrat (or, putting it another way, every Democrat was more liberal than the most liberal Republican). But this was not always the case. Forty years ago, in the 93rd Congress (1973-74), fully 240 representatives and 29 senators were in between the most liberal Republican and most conservative Democrat in their respective chambers. Twenty years ago (the 103rd Congress from 1993-94) had nine representatives and three senators in between the most liberal Republican and most conservative Democrat in their respective chambers. Today, there is no overlap. There is much more in the 121 page PDF including discussion of attitudes regarding Gun Control, the NSA, Health Care, and Social Security. Shrinking Middle Class Rick Newman writing for the Daily Ticker says Empty Wallets Explain New Levels of Partisan Hatred. A new study by Pew Research verifies much we already know about political extremism in America: It's getting worse and interfering with social and economic progress. The big question is: Why? Pew doesn't address that question, but here's a plausible answer: Voters are becoming angrier because living standards are falling and the middle class is shriveling. Prosperity breeds comity, but when it gets harder to get ahead, the natural inclination is for the losers to look for somebody to blame and the winners to feel more threatened. That's been going on for nearly 30 years. Income inequality began to worsen in the United States starting around the early 1980s. Many voters don't need to be told that the middle class is under stress, yet it's increasingly apparent that political policies may have little to do with it. A recent study by economists at the Federal Reserve Bank of Dallas found that middle-class jobs are, in fact, disappearing, as many workers can attest. Yet the primary cause, they found, was technological change, with computers, robots and other gizmos increasingly replacing human workers in a lot of routine jobs that can be done by machines. The offshoring of jobs to lower-cost countries was also a factor, but not as big a one as some people may think. Role of Political Parties Newman states "it's increasingly apparent that political policies may have little to do with [middle class stress]." I say that's nonsense. We wasted $2 trillion in Iraq and more in Afghanistan fighting wars that did not need to be fought. That was for the direct benefit of those associated with the war machine. Politicians caved into public labor unions hand over fist, time and time again. Wage and benefit disparity between private sector workers and public workers has never been wider than it is now. Student loan programs made debt slave out of kids while dramatically increasing the cost of education. Countless "affordable home" programs and subsidies drove up the price of homes. Democrats and republicans alike passed programs to bail out Wall Street at the expense of Main Street. Role of the Fed The self-serving Fed report Middle-Skill Jobs Lost in U.S. Labor Market Polarization blames technology and robots. While technology changes and creative destruction are a part of the lost jobs picture, the Fed has had a major role in income disparity and polarization.   The Fed fostered bubble after bubble, with increasing amplitude each time, then pressed for bank bailouts when the banks got into trouble. Artificially low interest rates benefit those with first access to money (the banks and the already wealthy), at the expense of savers and those on fixed income. The Fed wants to force up prices but wages did not keep up. Is that the Fed's fault or the fault of corporations? I suggest the former. After all, it's not how much one makes that matters most, it's how far the money goes. Moreover, the Fed's dollar debasement policy and artificially low interest rates makes it easy for corporations to invest in hardware and software robots to replace labor. Politically, Obamacare gave businesses further reasons to replace workers where they could. Closing the Gold Window The roots of this crisis go back to Nixon Shock, "a series of economic measures taken by United States President Richard Nixon in 1971 including unilaterally canceling the direct convertibility of the United States dollar to gold. It helped end the existing Bretton Woods system of international financial exchange, ushering in the era of freely floating currencies that remains to the present day." Please read the Nixon Shock link for the full story. The short version is that the end of gold convertibility let countries run trade deficits and fiscal deficits as big as they wanted. Closing gold convertibility also let central banks print as much money as they wanted. Fractional reserve lending, loose monetary policy, increasingly large budget deficits over time, and Congressional support for numerous wars without having to raise taxes to pay for them all go hand in hand. Is it any wonder that deficits soared, asset bubbles formed, and income disparity rose? Instead of  addressing the real cause of the fiscal crisis and the shrinking middle class, liberals blame corporations and the Fed blames robots. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Ukraine Gas Talks Break Down; Don't Worry Until September Posted: 15 Jun 2014 07:37 PM PDT Ukraine gets  half of the natural gas it uses from Russia. However, it's not an evenly distributed half. Ukraine needs far more gas in winter, and far less in Summer. Ukraine has enough gas now to last until September. Politics being politics, resolution of the dispute could be another two months away before anyone panics. Thus, it should be no surprise that Russian Gas Payment Talks Fail. Ukraine risks the cutoff of natural-gas supplies from Russia after overnight talks to resolve a pricing dispute between the two countries ended without a deal less than eight hours before a payment deadline. Ukraine must pay $1.95 billion to partially settle its debt to the Russian-owned natural gas exporter OAO Gazprom for past deliveries by 10 a.m. Moscow time today, said Sergei Kupriyanov, a company spokesman, by phone. He said the deadline won't be waived. "The Russian side has stated that if there will be no upfront payment, it will start limiting gas," said Ukraine Energy Minister Yuri Prodan. Russian negotiators rejected a compromise proposal by the European Union, according to EU Energy Commissioner Guenther Oettinger, who has been involved in the trilateral talks since they started in May. The EU, dependent on Russian gas piped through Ukraine for about 15 percent of its supplies, is trying to broker a deal to maintain shipments amid the fuel payments conflict. In Ukraine, government forces and rebels claiming allegiance to Russia continue to clash in the east of the country. "For the moment our Russian partners didn't accept my proposal," Oettinger said. "We have no common understanding." Ukraine was ready to accept the EU proposal of a price range between $300 and $385 per 1,000 cubic meters, still above the $286.5 that the country paid in the first quarter, Kobolyev said today. Gazprom's final offer was $385, the company said last week. Ukraine, which relies on Gazprom (GAZP) for about half its gas, is able to survive without Russian fuel until the middle of September as its current gas consumption almost matches domestic output due to low seasonal demand and the stalling of production at its chemical plants in the east, according to a Concorde Capital, a Kiev, Ukraine-based investment company. The last paragraph above explains all you need to know. The setup in Ukraine is quite like debt ceiling negotiations in the US, typically solved at the last moment with huffing and puffing and overblown reporting of consequences if a deal is not reached. Given that Russia needs the income and Ukraine and Europe needs the gas, the odds of a deal "in due time" are at least 95%. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Tony Blair's Disingenuous, Self-Serving Analysis of Iraq Posted: 15 Jun 2014 04:16 PM PDT When I mentioned names of those who played a role in the current mess in Iraq (see Assessing the Blame for Iraq: Bush, Obama, McCain, Others; Iraq Sunken Costs), I left out one key name, former UK prime minister Tony Blair. Blair is now out to revise history in an attempt to absolve himself of guilt. Blair Defends Iraq Invasion CTV News reports Former British PM Blair defends 2003 invasion of Iraq. Former British Prime Minister Tony Blair says the West's failure to intervene in Syria is to blame for the violent insurgency in neighbouring Iraq -- not the 2003 invasion that toppled Saddam Hussein. In an essay issued Sunday, Blair called for Western countries to intervene in Syria, though he did not specify how. He wrote that extremists "have to be countered hard" wherever they are fighting. Blair led Britain to join the U.S.-led intervention in 2003, and is now a Middle East peace envoy. He rejected as "simply not credible" arguments by critics who claim Iraq would be stable today had the invasion not happened. Former U.K. ambassador Christopher Meyer said Blair was wrong, and that the campaign against Saddam was a significant reason for the sectarian violence in Iraq. Blair's Disingenuous, Self-Serving Analysis On his blog yesterday, Blair went to comical lengths to defend the mission and blame scapegoats. Please consider Iraq, Syria and the Middle East, an essay by Tony Blair. Blair: It is inevitable that events in Mosul have led to a re-run of the arguments over the decision to remove Saddam Hussein in 2003. The key question obviously is what to do now. But because some of the commentary has gone immediately to claim that but for that decision, Iraq would not be facing this challenge; or even more extraordinary, implying that but for the decision, the Middle East would be at peace right now; it is necessary that certain points are made forcefully before putting forward a solution to what is happening now. Mish: That paragraph is the first of many lies by Blair. No one suggests the Mideast would be at peace now had we not invaded Iraq in 2003. We do suggest Iraq would be a better place. Blair: 3/4 years ago Al Qaida in Iraq was a beaten force. The country had massive challenges but had a prospect, at least, of overcoming them. It did not pose a threat to its neighbours. Indeed, since the removal of Saddam, and despite the bloodshed, Iraq had contained its own instability mostly within its own borders. Mish: Al Qaeda did not exist in Iraq to any significant degree before the invasion. A US regime imposed upon Iraq coupled with massive infrastructure damage fostered an environment for Al Qaeda to gather strength. Blair: Though the challenge of terrorism was and is very real, the sectarianism of the Maliki Government snuffed out what was a genuine opportunity to build a cohesive Iraq. Mish: Building a "cohesive" Iraq was difficult at best even before the 2003 invasion. Following WWI, the UK took three distinct cultures, molded them together and called the result Iraq. It was an early exercise in the stupidity of nation building with no regards to culture or history. Blair: However there is also no doubt that a major proximate cause of the takeover of Mosul by ISIS is the situation in Syria.  To argue otherwise is wilful. The operation in Mosul was planned and organised from Raqqa across the Syria border. Mish: No doubt. And who were the fools who supported giving weapons to Syrian terrorists fighting Assad? Blair: As for how these events reflect on the original decision to remove Saddam, if we want to have this debate, we have to do something that is rarely done: put the counterfactual i.e. suppose in 2003, Saddam had been left running Iraq. Now take each of the arguments against the decision in turn. The first is there was no WMD risk from Saddam and therefore the casus belli was wrong. Mish: That is the second major lie. The biggest holders and users of weapons of mass destruction are the US and UK. We bombed Iraq to smithereens using bunker-busting bombs and white phosphorous, a banned substance. The chemical weapons Hussein one had, came from the US.    Blair: What we now know from Syria is that Assad, without any detection from the West, was manufacturing chemical weapons. We only discovered this when he used them. Mish: That is lie number three. I wrote about this in September of 2013, in U.S. Going to Kill Syrians to Show Syria that Killing Syrians is Wrong. Quote of the day goes to Abby Martin who says "We're killing Syrians to Show Syria that Killing Syrians is Wrong. I just cannot wrap my head around that". George Galloway responded along the lines of "The next time you see President Obama happy clapping in a Christian church, tell him that Al Qaeda slaughtered the Christian people of Syria literally, their necks and throats cut, heads sawed off, the Christian churches on fire at the hands of Al Qaeda, paid for and armed by the United States of America." Galloway was discussing this: Village 'liberated' by rebels... who then forced Christians to convert to Islam Yes, the US is literally funding Al Qaeda rebels to fight an insane war on trumped up evidence that Assad used chemical weapons on Syrians. The evidence is in dispute and if chemicals were used, it is equally likely the rebels used them to goad the US into action: Syrians In Ghouta Claim Saudi-Supplied Rebels Behind Chemical Attack Still More Hypocrisy To top off the hypocrisy, the US is the biggest user of chemical weapons and other weapons of mass destruction, in the entire world. Please read about the use of White Phosphorus by the US military in violation of the convention on chemical weapons. Blair: We also know, from the final weapons inspectors reports, that though it is true that Saddam got rid of the physical weapons, he retained the expertise and capability to manufacture them. Mish: Blair admits Hussein did not have weapons. Thus the US wasted $2 trillion dollars on trumped up charges Hussein had weapons. How much did the UK waste? As for expertise, it's like baking cookies or riding a bike. Once you do something you retain the expertise to do it again. Blair: Is it likely that, knowing what we now know about Assad, Saddam, who had used chemical weapons against both the Iranians in the 1980s war that resulted in over 1m casualties and against his own people, would have refrained from returning to his old ways? Mish: Knowing what we know about Assad, means we know something about Hussein? Really? Mixed in with that absurd notion, Blair states Hussein caused "1m casualties and against his own people." That statement is at best debatable, and most likely a proven lie. See Did Saddam Hussein Gas His Own People? Here is a key line: "The former CIA official revealed that immediately after the battle the U.S. Defense Intelligence Agency investigated and produced a classified report that said it was Iranian gas that killed the Kurds." Blair: The second argument is that but for the invasion of 2003, Iraq would be a stable country today. Leave aside the treatment Saddam meted out to the majority of his people whether Kurds, Shia or marsh Arabs, whose position of 'stability' was that of appalling oppression. Mish: It would be nearly impossible for Iraq to be less stable than it is today. Under Hussein there was religious freedom. Women and Catholics were not openly oppressed. Today there is no religious freedom, no political freedom, no cultural freedom, mass beheadings, and no stability of any kind. Only an idiot (or self-serving politician) would use the argument Blair just made. Blair:  Is it seriously being said that the revolution sweeping the Arab world would have hit Tunisia, Libya, Egypt, Yemen, Bahrain, Syria, to say nothing of the smaller upheavals all over the region, but miraculously Iraq, under the most brutal and tyrannical of all the regimes, would have been an oasis of calm? Mish: Who precisely said "oasis of calm?" Did anyone say that or is Blair making up a strawman that does not even exist? Regardless, it is indeed likely that Iraq would have been far more stable than those other countries for the simple reason it had more oil revenues than those countries. Blair: Easily the most likely scenario is that Iraq would have been engulfed by precisely the same convulsion. Mish: Once again, Blair jumps to extremely self-serving conclusions based on faulty analysis. The amusing thing is that even if some of Blair's assumptions are correct, Iraq would be better off under Hussein than it is now. Blair's lies, distortions and self-serving analysis goes on and on. At one point in his self-serving rant, Blair stated "At its simplest, the jihadist groups are never going to leave us alone. 9/11 happened for a reason." Yes Tony! 911 happened for a reason. The US meddled in the region, and the CIA overthrew Iran's Prime Minister Mossadegh because he was going to nationalize Iran's oil, in 1953. The US put in a government friendly to US oil interests and it backfired, just like countless other US meddling operations backfired. Osama Bin Laden's stated reasons for 911 was the US had troops on sacred Arab soil. That does not condone Bin Laden's actions, but the simple fact of the matter is US meddling led to 911. In the wake of 911, 90% of Pakistanis were sympathetic to the US. Now it is something like 15%. What happened? The US drone policy killed so many innocent civilian men, women, and children they despise the US. And who can blame them? And how many of them are sympathetic to Al Qaeda now? So what did Blair learn from history? The answer is nothing. And having learned nothing from failure, Blair devotes at least 22 concluding paragraphs making the case for more war and more intervention. Tony Blair, you are pathetic. Addendum Reader Brindu writes: "Fascinating recap. Puzzling that so many of the commentators defend Bush et. al despite history. In the UK, the Chilcot commission basically nailed it saying Blair lied and the UK participation was illegal. Please check out Informed Comment article Blair-Bush & Iraq: It's not just the quagmire but the Lawbreaking & Deception." I did. Here are a couple snips ... Former British Prime Minister Tony Blair is complaining that he is unfairly blamed for causing the current mess in Iraq and that if Saddam had still been in power it would be just as unstable. He is, perhaps deliberately, missing the point. His invasion of Iraq was illegal and based on deception and propaganda. That was what was wrong with it. A quagmire that is the fruit of illegality and fraud is the worst. The UN Charter allows of only two legitimate grounds for war. One is self-defense. Blair was not defending Britain from Iraq when he invaded and captured Basra. Blair gave the opposite impression to the public. He delivered a bizarre speech in which he said that Saddam Hussein could deploy weapons of mass destruction against Europe in as little as 45 minutes. It is not even clear what that assertion could possibly have meant. Iraq had no delivery system for getting chemical weapons to Europe. The other grounds for war is a resolution of the UN Security Council designating a regime a threat to world peace. The UNSC declined to so vote with regard to Iraq. Some argue that a third grounds for war should be added, prevention of an obvious genocide. This principle can be debated, but there was no genocide going on in Iraq in 2002, and the Bush-Blair invasion and occupation significantly increased mortality rates. The Saddam Hussein regime did kill people. But many of those died in the Iran-Iraq War, in which Reagan and Thatcher backed Iraq, the clear aggressor. To then use the casualties of that war as a basis for invading Iraq in 2003 is Orwellian. Blair denied that petroleum was a motivation in the war. But we now know that BP vigorously lobbied him in fall 2002 to make sure it got oil bids after Saddam was gotten rid of, afraid that two Texas oil men in the White House would cut them out of the deal. One may be able to nitpick over some details in that article. However, one cannot dispute the simple truth that the WOMD case was an outright lie and the invasion was based on deception and propaganda. Eventually the lies convinced Democrats like Hillary Clinton (assuming they needed any convincing). To Hillary's extreme discredit, she never admitted her mistake. I believe her arrogance cost her the Democratic nomination. Hopefully it sends her down in flames in 2016. Finally, I suggest that anyone who supported the war in 2003 is unqualified to lead this country. That rules out a lot of candidates.   Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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