Monday Reads

Good Morning!

President Cave-in and the spineless Democrats in congress have handed Republican hostage takers a big win. This is beyond ridiculous. As I’ve said before, President Push-over draws a line on the etcha sketch then goes shake shake shake!

Anything can happen, but it apppears the GOP is on the verge of pulling off a political victory that may be unprecedented in American history. Republicans may succeed in using the threat of a potential outcome that they themselves acknowledged would lead to national catastrophe as leverage to extract enormous concessions from Democrats, without giving up anything of any significance in return.

Not only that, but Republicans — in perhaps the most remarkable example of political up-is-downism in recent memory — cast their willingness to dangle the threat of national crisis as a brave and heroic effort they’d undertaken on behalf of the national interest. Only the threat of national crisis could force the immediate spending cuts supposedly necessary to prevent a far more epic crisis later.

Under the emerging deal, President Obama can hike the debt limit in two stages — the first in exchange for equivalent cuts; the second after a Congressional committee comes up with second round of yet more cuts, including to entitlements. The talks appear close to resolving the spending cut“trigger” that would force the committee to act — without giving the GOP an incentive to deliberately sabotage its work. The remaining question is how to get it through the House. But a deal seems immiment.

Again and again, Dems drew lines in the sand that they promptly erased as the threat of default grew. A clean debt ceiling hike? Dropped. Cuts to Medicare benefits? They’ll likely be in that committee’s crosshairs. The insistence on revenue hikes? Withdrawn.

This is sure to create a recession.  There’s no lack of economists expressing that view point either.

Macroeconomic Advisers, a leading forecaster, said Thursday that a rewritten plan offered by House Speaker John Boehner, R-Ohio, would shave more than a tenth of a percentage point off of growth next year, while the plan being pushed by Senate Majority Leader Harry Reid, D-Nev., would cause an even larger hit on growth in fiscal 2013 — shaving almost half a percentage point.

That view was shared by Thomas Lam, Singapore-based chief economist at OSK-DMG, a joint venture of Malaysian securities firm OSK Holdings Bhd. and Germany’s Deutsche Bank AG.

“Our calculations … suggest that the Senate and House proposals, respectively, could lower economic growth on average by less than 0.5 percentage points, all else equal, over the next five years (from 2012 to 2016),” Lam said in a research note that suggested the Senate Democrat plan would hit the economy harder.

The chief economist for forecaster IHS Global Insight, Nariman Behravesh, warned Friday that “a weak economy will only make the tough decisions on the budget even more difficult and the case for fiscal austerity in the near-term even weaker.”

Some House Republicans backed by tea party groups demand even deeper front-end cuts, perhaps as much as $100 billion, arguing that politicians can’t be trusted to keep their promises further out.

That’d be dangerous, warned Mark Zandi, chief economist for forecaster Moody’s Analytics.

“I think the idea is a very serious policy error,” he said. “This would be the fodder for another recession. The economy may be able to digest $25-30 billion more (in federal spending cuts) … but $100 billion, I don’t think it could digest that.”

Zandi, who’s frequently cited by Republicans and Democrats alike, favors spending cuts “when the economy is off and running,” but he cautions that “to add more fiscal restraint in the latter part of 2011 and 2012 would be a mistake.”

It's a bi-partisan pony!

Obama is choosing to ignore the jobs crisis and expects to win the election on the back of the bi-partisan pony, I guess.  I can’t believe the recession that will be inevitable shortly isn’t going to tank a few political careers.  Also, wait until every one finds out that the programs that no one wants cut are going to be subjected to possible across the board cuts. My guess is that the super committee will deadlock and those triggers will turn in to a bunch of big regrets for every one. This will only create more havoc on the budget also.  It’s really bad policy.  Afterall, did we get anything done from the catfood commission or the gang of six?  These committees are beginning to remind me of the old soviet style planning commissions and their 5 year plans.

The famine in Somalia is deepening.  The Economist has an interesting piece up suggesting ways that the world can respond to the desperate situation there.  It also suggests that we missed all the signs that should’ve told us it would happen.

Famine has a technical meaning these days. It is declared when 30% of children are acutely malnourished, 20% of the population is without food, and deaths are running at two per 10,000 adults or four per 10,000 children every day. Parts of Somalia exceed these dreadful thresholds. In three provinces almost a third of people are acutely malnourished, says the UN’s World Food Programme (WFP). FEWS Net conducted surveys across southern Somalia this month and found that malnutrition exceeded 38% in most areas—a catastrophic rate. Famine is likely to spread all over the south in the next few months (see map). About 2.8m people are thought to need immediate life-saving help.

Yet famine was not declared until July, eight months after the first FEWS Net forecast. The UN did not issue its first appeal until then, though it made a small provision for expected problems in November. The response by donors has been patchy. In a sign of its growing global role, Brazil has pledged more to Somalia than Germany and France have combined. Italy offered nothing. Of the $2 billion the UN says the region needs, it has received less than half. The cash available for food in southern Somalia looks likely to run out well before the next rains.

Outsiders’ caution is linked to the role of the Shabab, an Islamist militia which controls much of southern Somalia and is locked in battle with the internationally recognised but feeble government. The Shabab has banned food aid in most of southern Somalia since 2009, branding Western aid agencies anti-Muslim. The WFP, the biggest provider of food aid, has had 14 staff killed there since 2008. Agencies also worry that militias use food aid to rally their troops—some say this happened in Ethiopia and Eritrea in the 1980s—and do not want to pile into southern Somalia to find they have reinvigorated the Shabab.

Syria’s dictator ushered in a violent start to the Ramadan holy days by upping the level of violence used against democracy protestors.  This is yet another terrible story.

Rights activists said 80 civilians were killed in Sunday’s tank-backed assault on the central Syrian city where Assad’s father crushed an armed Muslim Brotherhood revolt 29 years ago by razing neighbourhoods and killing many thousands of people.

Security forces had besieged the Sunni Muslim city of 700,000 for nearly a month before Sunday’s crackdown on the eve of Ramadan, a holy month when Muslims fast in daylight hours.

Many flock to mosque prayers at night, occasions which may provide opportunities for protests to multiply across Syria.

The Syrian state news agency said the military entered Hama to purge armed groups that were terrorising citizens, an account dismissed as “nonsense” by a U.S. diplomat in Damascus.

The agency said eight police personnel were killed while “confronting armed terrorist groups” in Hama.

U.S. President Barack Obama said he was appalled by the Syrian government’s “horrifying” violence against its people in Hama and promised to work with others to isolate Assad.

“Syria will be a better place when a democratic transition goes forward,” Obama said in a statement

So, it appears that most of today’s news will be that Wall Street and the global financial markets can take a breather.  It also appears to be a sad day for sane fiscal policy and America’s poor and elderly.

What’s on your blogging and reading list today?