I was impressed with Ed Crane’s comment in a WSJ op-ed on Ron Paul that the U.S. spends more than the rest of the world on defense–in essence defense of the western world! ”…an overreaching military presence around the world is inconsistent with small, constitutional government at home. The massive cost of these interventions, in treasure and blood, highlights what a mistake they are, as sensible people on the left and right recognized from the beginning. Of course we want a strong military capable of defending the United States, but our current expenditures equal what the rest of the world spends, which makes little sense. It is futile to try to be the world’s policeman…”

My point is that to the extent we overspend on defense, Europe doesn’t need to spend. Their taxes to the extent paid go to increase statist expansions and welfare in countries like Greece, Portugal, Italy and Spain.

To top that off, our Fed seems to think it legitimate to help finance Europe’s profligate ways. Jerry O’Driscoll exposes Bernanke’s covert effort to bail out the ECB in his recent WSJ op-ed highlighted in our blog. This is clearly ultra vires, beyond the legal power of the Fed and against what its chairman has publicly stated.

In effect we have given Europe the leeway to expand its welfare state beyond its capacity to pay for that expansion. Our president who has no concept of economics admires the European model and seeks to expand our own welfare state beyond its capacity to pay for the expansion. His statist stimulus expenditures were nothing more than payments to increase the size and scope of government. His Obamacare takeover of medicine is nothing more than an unsustainable entitlement addition to the already unsustainable entitlements of Medicare, Medicaid, and Social Security.

We have enabled Europe’s welfare/statist addiction at a time when we can’t afford our own addiction. That latter addiction is theft from our grandchildren. Immorality par excellence! It must stop!

So the situation is that export industry expansions and the US jobs that they create will be held up or denied because President Obama wants to appease the union bosses who elect him. Note, the jobs that are sacrificed are not the bosses jobs but the members jobs. Note also the money flows through the union bosses with vigorish and political favoritism as the toll.

So, in the midst of 9+% unemployment, our president sacrifices job creation for political expediency. Shameful!

And, it’s a thin edge at best for only 7% of the private sector workforce is unionized. But the real free-market private sector workforce is hurt in the process. High unemployment will continue as long as this president and his ilk are in power.

Is the State Department again in control of the Defense Department? Seems that we were late, perhaps fatally, entering in this relatively simple action. This because Obama has determined to relinquish U.S. leadership in the world, something this country has had since Bretton Woods. Henceforth under Obama’s non-leadership role, all matters of disagreement, violent or otherwise, will be referred to some super-national body, the UN, NATO, the World Court, even the Commission on Human Rights with all its rogue membership! We now stand for nothing and now defer to others who stand for less! If Peral Harbor were to occur today, to which of these international agencies would he refer the matter?

So now we have a State Department that has left no easy exit to what we have termed an illegitimate dictator responsible for terror, indeed terror against the United States. No country will take him or his henchmen. We have left them no out except to fight and slaughter to the bitter end. This is the height of stupidity. To cap that, we have a Defense Department that will not target him, blow the son-of-a-bitch to smithereens. WHAT’S WRONG WITH THIS PICTURE?

Is there a legal problem, or a moral problem with assassination? If war is the violent societal conflict consequent on the breakdown of diplomacy or alternative dispute resolution, then we must assure ourselves that those methods have been exhausted. Seems that’s the case here and the UN has authorized in broad enough terms, enforcement of the no-fly zone.

In truth, targeting Gaddafi is the most humane method to end the engagement. No command and control, no flying tanks! Sir Thomas Moore, patron saint of attorneys, argued as much as illustrated in this OSU synopsis:

“As early as 1516, Thomas More proposed that the assassination of political leaders could be useful both as a tool of statecraft and “as a means of sparing ordinary citizens the hardships of war for which their leaders were responsible.” This proposal of tyrannicide, while perhaps a bit shocking in its boldness, rightfully deserves consideration in an era in which the traditional state expression of power, war, now threatens to be more catastrophic than ever before.”

So I submit, we should target Gaddafi and company as precisely as morally possible and save innumerable human lives and suffering.

In short he wants to hide behind others. So, it’s not his fault. It never will be his fault because he won’t make a hard decision. He the perfect picture of a Hamlet wringing his hands and unable to decide. What can one expect of a Chicago politician who has never had any responsibility. A community organizer who learned effective rabble rousing but little else. A state legislator who voted “present” more often than Aye or Nay. A senator seldom present for a vote. A president who takes polls before taking a position. No wonder the Democrat powerhouses wanted him, public unions, trial lawyers, Wall Street, all of them know he’s easily controlled.

So our empty suited leader will stand by and watch Gadhafi massacre his own people and while tragic it won’t be his fault. After all he did bluster a bit and went to all those international organizations! Now it can be effectively argued that what happens in Lybia is immaterial to our strategic interest. What’s happening in Bahrain and Saudi is certainly  more critical to our strategic interests. But the humanitarian cost in Lybia will be horrific. He will turn a blind eye and deaf ear. He is the “peace in our time” Neville Chamberlain of today.

Well, what’s the problem with that? After all, we can’t be the world’s policeman. We are bankrupt ourselves. The problem is both moral and practical in nature. Moral in that it is wrong to standby and watch an illegitimate dictator murder his citizens when we have the ability to stop the massacre. It’s the equivalent of watching Hitler freely executing the Holocaust. We are the only nation capable of leading, because before Obama in modern times we have had that position and because of the indecisiveness and ineffectiveness of international organizations. Our abdication is morally wrong.

The practical nature of the problem is that our abdication of leadership creates a vacuum. As nature abhors a vacuum, so does human nature. The vacuum will be filled by every two bit dictator with any ambition. In this case Gadhafi. And while Gadhafi is a minor player and really more of a European problem, Kim Jong II isn’t; nor is Mahmoud Ahmadinejad. So the moral wrong begets a major security risk.

As today’s WSJ editorial concludes: “Lybia today is what the world without U.S. leadership looks like.”

“The hot money was caused by the Fed’s low rate easy money policy and consequent dollar depreciation. It flows out of the U.S. seeking higher returns. Foreign central banks intervene buying dollars to prevent their local currencies from appreciating. When central banks issue base money to buy dollars, domestic interest rates are forced down and domestic inflationary pressure is generated. Primary commodity prices go up quickly because speculators can easily bid for long positions in organized commodity futures markets when interest rates are low.”

McKinnon’s three periods:

• The Nixon shock when the U.S. abandoned the gold standard resulted in the surge of dollar prices of primary commodities.
• The Greenspan-Bernanke shock of 2003-2004 when the fed funds rate was reduced to 1% and followed by a falling dollar.
• And, the Bernanke shock starting in 2008 with short term rates at zero and quantitative easing (money printing) resulting in commodity price inflation in 2010 alone of over 30%!

Historically the remedies for this U.S. monetary folly, were not fun. Remember the “stagflation” of the 1970s, with inflation, unemployment, volatile exchange rates and little productivity? Well the cure came with Volcker at the Fed raising the fed funds rates drastically, touching 22% in 1981! And the Greenspan-Bernanke interest rate shock of 2003-2004 sowed the seeds of the weak dollar bubble economy in 2008. The biggest bubble was real estate with 50% increases in average home prices from 2003-2006!

Two lessons according to McKinnon: 1. Sharp price increases in auction-market goods like primary commodities is a warning sign that the Fed’s monetary policy is too easy. In 2010 CPI indexes shot up more than 5% in major emerging markets while only 1.2% in the U.S. 2. General price inflation in the U.S. “only comes with long and variable lags.” After the Nixon shock of 1971 inflation exploded in Japan in the 1972-1973 period but by December 1979 the U.S. CPI and PPI were higher than 13%!

In short, the inflation we ship abroad comes back to bite us where the sun doesn’t shine, and really bad!

In concluding commentary McKinnon points out that the U.S. can basically do what it wants, and since Bretton Woods has had the luxury of managing the world’s exchange and reserve currency. “But by ignoring inflationary early warning signs on the dollar standard’s periphery, which in turn lead to rising domestic prices and asset bubbles, the Fed has made both the world and American economies much less stable.”

Let’s hope Bernanke heeds the obvious. If not, we’re due for a repeat of the Carter years.

John Cochrane, a finance professor at the University of Chicago Booth School of Business, calls a spade a spade in yesterday’s WSJ op-ed, ‘Contagion’ and Other Euro Myths. The EU/IMF bail out facility promises that no sovereign bond holder will lose a cent at least for now. Basically what that says is that those lenders holding EU country debt now have a super guarantee. This is a guarantee to which they are not entitled. They did not bargain for this when they made the loans by buying the bonds. Their credit underwriting said that Spain, Greece, Ireland, and Portugal (the PIGS) were creditworthy at the interest rates charged. In short those lenders made underwriting mistakes.

So what happens when borrowers can’t pay? Normally, they restructure their obligations, sometimes extending maturities, and other times by having the principal balance reduced. In other words the lenders take a haircut. Why can’t this be done in Europe?

Now who are those dumb lenders, the sovereign bond holders, that the EU is so anxious to bail out? Well, they are the European and UK banks, principally those in France and Germany. To bail out dumb lenders or to guarantee them is bad policy. It denies the market discipline necessary for a functioning economy. It promotes moral hazard which simply means that those same lenders will not change their sloppy underwriting, will make more bad loans, and will expect future bailouts. Failure is just as essential to the marketplace as success.

As Cochrane points out the “contagion”  boogyman is a myth: “The bailout is being justified on grounds of containing “contagion.” This is nonsense. The notion is that news of an Irish restructuring would scare investors in Spanish bonds, who would start looking at Spain’s ability to repay its debts and then demand higher interest rates.”

“But haven’t investors in Spanish bonds already noticed that there’s a bit of a problem? And wouldn’t news of a giant bailout make these investors question Spanish finances as much as would news of debt restructuring?”

“Any contagion is entirely self-inflicted. The only way Ireland’s fate affects Spanish investors is by changing the odds that the European Union (EU) will bail out Spain. And Spanish interest rates are rising, suggesting investors now think a Spanish bailout is less, not more, likely.”

On top of that all, U.S. taxpayers are putting money in to the unnecessary bailout facility. Yep, that’s right, the U.S. is the largest national contributor to the International Monetary Fund. So with our current weak economy, continuing deficits, and generation choking debt, we via the IMF are digging our hole deeper. The sad thing is that we have the ability to block the IMF action. But we don’t.

Question, will the United States face the same issues with our spendthrift sovereign states like CA, IL, and NY?  Or will we get smart and (1) enact a state bankruptcy provision and (2) pass a constitutional amendment precluding bailouts? Something to ponder!

Here’s the link: http://www.stratfor.com/analysis/20101129_dispatch_wikileaks_and_irans_nuclear_program