2009 - %3, November

The Next Bubble

| Tue Nov. 3, 2009 1:46 AM EST

A year ago, the implosion of the global economy prompted a huge flight to quality.  Nobody wanted risky assets anymore.  All they wanted was nice, safe, United States Treasury bonds.

The economy has stabilized since then, and that means that investors with access to lots of cheap money are once again becoming eager to invest in risky assets.  Pimco's Paul McCulley suggests that this makes perfect sense as long as everyone is convinced that the Fed will hold interest rates at zero for a long time, but then he admits that it's all a bit of a paradox.  After all, the Fed will only hold down interest rates if the economy continues to suck, in which case rising asset prices are just a big bubble.  But if the economy recovers, thus justifying the high current prices of risky assets, then the Fed will raise interest rates and the whole thing will come crashing down.  It's a quandary.  In the end, though, he advises a bit half-heartedly that "the time has come to begin paring exposure to risk assets, and if their prices continue to rise, paring at an accelerated pace."

And Nouriel Roubini?  Well, Roubini doesn't do anything half-heartedly.  He says in no uncertain terms that we are completely and irrevocably fucked:

The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates — as low as negative 10 or 20 per cent annualised — as the fall in the US dollar leads to massive capital gains on short dollar positions.

....Yet, at the same time, the perceived riskiness of individual asset classes is declining as volatility is diminished due to the Fed’s policy of buying everything in sight....So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe — for now — for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

....But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever....A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets — equities, commodities, emerging market asset classes and credit instruments.

....This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

Now that's a cheery thought, isn't it?  Monstrous amounts of leverage are going to be employed bidding up assets of all kinds, and monstrous amounts of money are going to be made.  As usual, everyone will assume they'll be able to get out in time, and about 99% of those people will be wrong.  Then: kaboom.  The yen carry trade took down Iceland and a few hedge funds, but the dollar carry trade is going to take us down.

Well, maybe, maybe not.  Roubini does seem to have some pretty sizable financial mood swings.  But I have to admit that the stock market sure looks overvalued to me too.  Corporate profits may be up for the moment, but belt tightening will only work for just so long.  Eventually revenues need to rise, and it's a little hard to see where that's going to come from in the short term.

But I'm a pessimist.  Even in good times I'm a pessimist.  So who cares what I think?

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Can Copenhagen Save Yosemite?

| Mon Nov. 2, 2009 9:36 PM EST

Climate change is forecast to burn Yosemite National Park violently in coming years. A new study in the International Journal of Wildland Fire finds the dwindling spring snowpack in the Sierra Nevada will exponentially increase the number of lightning-ignited fires.

The increase has two causes:

  • Increasing levels of carbon dioxide in the atmosphere appear to be leading to more lightning strikes.
  • Decreasing winter snowpack—conservative climate models predict a 17-percent fall by 2050—will allow more lightning strikes  to ignite fires in the park.

The BBC quotes lead author James Lutz of the U of Washington Seattle:

"People already expect more ignitions from hotter summers. But this research suggests that declines in snowpack will have an additional effect."

In other words, a warming climate is setting up a nasty positive feedback loop, making a bad situation worse.

Come on, world leaders, lead already.

Fish Change Address as Ocean Warms

| Mon Nov. 2, 2009 8:29 PM EST

For that 9 percent of Americans who keep flip-flopping on the veracity of global warming, here's yet another reason to flop to the "aye" column for good.

According to a new NOAA study about half of 36 fish stocks in the Northwest Atlantic have been shifting northward over the last four decades. Some stocks have nearly disappeared from US waters entirely. Southern Species like the Atlantic croaker are becoming common in New England waters.

The shifting stocks include important commercial species, like Atlantic cod, haddock, yellowtail flounder, winter flounder, spiny dogfish, and Atlantic herring. They also include species less important to us but important in the overall scheme of the ocean, like blackbelly rosefish.

The key findings from the paper in Marine Ecology Progress Series:

  • In the last 40 years many familiar species have been shifting to cooler water to the north where ocean waters are cooler.
  • Other stocks have remained in the same geographic area but migrated to deeper and cooler waters.
  • Ten of 36 examined stocks have had significant range expansion.
  • Twelve have had significant range contraction.
  • Seventeen of the 36 stocks now occupy increasingly greater depths, following their preferred temperature ranges.
  • Three stocks now occupy increasingly shallower waters, following their preferred temperature range.

The researchers analyzed the data in the context of long-term processes (the Atlantic Multidecadal Oscillation and the North Atlantic Oscillation) dating back to 1850, as well in the context of fishing pressures over time. Ocean temperatures have increased since the 1960s (see graph) and the authors found clear evidence of significant changes in species distribution in 24 of the 36 stocks consistent with that warming.

Also of interest: The 36 species were chosen because they have been caught in high numbers in the annual spring bottom trawl survey, and because they represent a wide range of taxonomic groups, and because they're part of the world’s longest time-series of standardized fishery populations.

In other words, these are solid data giving a solid picture of the effects of warming temperatures on our liquid world. Though I suppose some people are going to be gasping for breath in the bottom of the lifeboat before they believe that.

BTW, the Pew report on the wobbling American attitudes towards climate change is exhaustively parsed and deblogstructed by Tobin Harshaw at the New York Times Opinionator. It's a fascinating look at the sinew of opinion rubbing up against the T-bones of fact.

 

Corn on "Hardball": Cheney Forgets Plamegate

Mon Nov. 2, 2009 7:18 PM EST

David Corn and Michael Isikoff joined Chris Matthews on MSNBC's Hardball to discuss the latest Plame affair revelations arising from Dick Cheney's newly released FBI interview.

You can follow David Corn's postings and media appearances via Twitter.

Iran: Is Three-Month Investigation of Hikers Enough?

Mon Nov. 2, 2009 6:24 PM EST

It's been more than three months since Mother Jones contributor Shane Bauer, along with his friends Sarah Shourd and Josh Fattal, was arrested by Iranian authorities while hiking near the Iranian-Iraqi border in northern Kurdistan. Though Iranian President Mahmoud Ahmadinejad has said that Iranian courts should treat the threesome with the "maximum possible leniency," Iranian authorities say they are continuing to investigate the hikers' activities. The families of the three are now calling for vigils on the 100-day anniversary of their detention, November 8. Shon Meckfessel, the fourth hiker—he traveled with the three to northern Iraq but didn't join them on their fateful hike because he was sick—has written the following open letter to Ahmadinejad.

H.E. Mr. Mahmoud Ahmadinejad

President of the Islamic Republic of Iran

Tehran, Iran

November 2, 2009

Dear Mr. President,

I am writing to appeal to you to intercede with the appropriate authorities for the immediate release of my friends Shane Bauer, Sarah Shourd, and Josh Fattal from detention in Iran.

I traveled from Damascus to Iraqi Kurdistan on vacation with Shane, Sarah, and Josh in July. Several of our friends in Damascus had previously visited northern Iraq and recommended that we too make the trip to a region they told us was beautiful, peaceful, and safe. We set out the day after celebrating the wedding of local friends at Shane and Sarah's apartment and had planned to be away for one week. That was three months ago.

Had I not had a cold and remained behind at our hotel when my friends hiked to the Ahmed Awa waterfall near your country's border, I would undoubtedly be in detention with them now. I was, in fact, en route to meet them when I received Shane's call that they had been taken into custody.

On August 6, I published a statement about our trip to northern Iraq which I attach to this letter. I had hoped the statement might clarify why we were in the area and help the authorities understand that Shane, Sarah, and Josh had no intention of entering Iran. As I said in that statement, if they did so, it was because of a simple and very regrettable mistake.

Since then, I have maintained silence in deference to the investigation. As much as my friends' absence has been acutely painful, I understood that investigators would want to clarify the circumstances of their trip. I had hoped that the misunderstanding would be resolved quickly. Three months have now passed, and I cannot imagine what more the Iranian authorities might have to learn about my friends or what they were doing in the area. To help put to rest any such questions, I would like to offer to submit a notarized statement to your country's mission to the United Nations vouching for my friends and detailing the circumstances of our trip. If this is not sufficient, I would be willing to come to Tehran to attest to their characters in person.

Mr. President, by continuing to deprive Shane, Sarah, and Josh of their liberty, Iran is working against some of the very causes it supports. Each of these three has a long and public record of contesting injustice in the world and addressing some of the inequities between rich and poor which you have spoken about through their humanitarian work in their own country and overseas.

I first met Shane in October 2005, after we had corresponded about our common interest in the Balkans, where I had lived for a time and where Shane had worked for one year in "Balkan Sunflowers," an independent organization helping Albanian and Roma youth in post-war Kosovo. Back in the United States, Shane continued his work with the underprivileged, as illustrated by his excellent "Hotel Poverty" photographic essay for the San Francisco Chronicle, and his article "Divorcing the US," from a trip we took to the poorest county in our country.

As a fluent speaker of Arabic, Shane has focused on injustices in the Arab world, in Iraq and Palestine in particular. The Christian Science Monitor published Shane's January 7 interview with Musa Abu Marzook, the only English-language interview with a Hamas leader during Israel's attack on Gaza. Two of his articles on the American occupation of Iraq were published as cover stories of major magazines just this summer.

Sarah and I met, by coincidence, the month after Shane and I met, when we found ourselves in the same car from San Francisco to New Orleans to help poor people begin to rebuild their homes after Hurricane Katrina. We both appear in a documentary entitled "Solidarity Not Charity" made about our group of volunteers. In Oakland, Sarah worked for one year in "Just Cause," which helped poor people fight evictions from their homes in the U.S.

I met Josh a week before we left on our trip, and was immediately drawn in by his warmth and humor. In the time we spent together, I was struck by his passion for justice, environmental sustainability, and intercultural understanding, as attested by his work with the Aprovecho community in Oregon, and as a teaching fellow on a study abroad program for university students.

I would like to mention one more friend who may be relevant. Earlier in July, Shane and I traveled to an Israeli hospital to spend time with Tristan Anderson, an American peace activist with whom Shane, Sarah and I have been close friends for many years. Tristan was shot in the head and critically wounded by an Israeli soldier after attending a non-violent protest against Israel's separation wall. He continues to fight for recovery. Shane and Sarah also visited Tristan in late March with Sarah's mother Nora, a nurse who counseled Tristan's family. There's a very simple explanation for these trips: We wanted to show solidarity with a dear friend whose support for Palestinian rights has been acknowledged in the Iranian media, throughout the Middle East and beyond.

I hope that this letter will help the Iranian authorities understand the true character of my friends. They have now been in custody for almost 100 days, which I hope you agree is more than sufficient punishment for their mistake. Please do everything you can to ensure that they are immediately released into the arms of their loving friends and families, who miss them more than my words can express.

Please let me know if I can be of further assistance.

Sincerely,

Shon Meckfessel

The Danger of Purging

| Mon Nov. 2, 2009 6:16 PM EST

The Wall Street Journal editorial board is pretty happy that conservative activists have taught the "GOP's backroom boys" a lesson by forcing moderate Republican Dede Scozzafava out of the NY-23 congressional race in favor of right-wing darling Doug Hoffman.  No surprise there.  However, they also offer a warning:

But that lesson will be for naught if conservatives conclude that their victory is reason to challenge any candidate who doesn’t agree with them on every issue....Democrats did themselves no favors by driving Joe Lieberman out of their party, and conservatives will do their cause no good by forcing GOP candidates in Illinois, California and Connecticut to sound like Tom DeLay. If conservatives now revolt against every GOP candidate who disagrees with them on trade, immigration or abortion, Nancy Pelosi and Harry Reid will keep their majorities for a very long time.

I sort of hate to admit this, but they're right about Lieberman.  It would have been great to get rid of him — and it was worth a try in a liberal state like Connecticut — but in the end all it did was make him even more embittered and more estranged from the party than before. As a result, he's now loudly making the rounds of cable news shows promising to vote against cloture on any healthcare bill that includes a public option.  As near as I can tell, this isn't motivated by any ideological objection to the public option at all.  It's motivated mostly by fact that he's still pissed off about how he was treated in 2006.  If he'd been left alone and had won reelection as a Democrat, he'd probably be going along with the Democratic leadership on this with no real complaints.

You can't win 'em all, I guess.  And it was worth a try.  But there's also a price to pay when you don't judge the chances of success with quite enough of a gimlet eye.

(Via James Joyner.)

UPDATE: Sorry, I meant 2006, not 2008.  Time sure flies, doesn't it?  I've corrected the text.

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Why We Need a "Local Energy" movement

| Mon Nov. 2, 2009 6:07 PM EST

When author Michael Pollan spoke at Cal Poly San Luis Obispo in mid-October, it’s a safe bet his hosts didn’t offer fresh cherries to the “local foods” advocate. As a locavore — someone who tries to eat only food grown within a 100-mile radius of them — Pollan would have likely reacted to cherries like a vampire reacts to garlic. At this time of year, any fresh cherries in northern California would most likely have come from orchards in Chile, roughly 6,000 miles to the southeast.

Yet, when Pollan was handed the microphone he probably did not turn to David Wehner, Dean of the college hosting the event, and ask, “By the way, Dean – Where did the electricity electrons  powering this thing come from?”

Maybe he should have.
 

Calculus Meets Khamenei

| Mon Nov. 2, 2009 5:36 PM EST

Via Andrew Sullivan, here's a story that got a lot of play among Iranophiles over the weekend:

In a stunning move, Mahmoud Vahidnia (pictured right), a student from the prestigious Sharif university and winner of the International Math Olympics, directly confronted Supreme Leader Ali Khamenei during the question-and-answer portion of a conference that was being held. When Khamenei asked if the audience had any questions, Vahidnia stood up and answered, "Yes, I have some words with you.”

....Khamenei dodged the questions and instead called Vahidnia dishonest. He claimed that he receives (and is receptive to) criticism every day, and that he always adjusts his behavior to account for errors. Soon thereafter, Khamenei departed behind a curtain before first receiving praise from a Basiji student in attendance. The prayer that Khamenei was scheduled to lead at the end of the ceremony did not occur amid his hasty departure.

Actually, Vahidnia doesn't even seem to have been on Iran's IMO team, let alone a winner, but whatever.  Apparently he really did deliver a 20-minute critique of Khamenei and his administration in front of a considerable audience.  Why Khamenei allowed something like this to happen is a little hard to fathom, but it goes to show that the shockwaves from this summer's demonstrations still haven't died away.

Rushing Things

| Mon Nov. 2, 2009 3:37 PM EST

The emerging favorite Republican tactic for killing reform measures without actually admitting that they want to kill reform is to complain that Democrats are "rushing things."  They're not against reform, they just want enough time to do it right.1

This was the pitch on healthcare reform from the GOP members of the Senate Finance committee, even after hundreds of hours of meeting.  It's the pitch from George Voinovich on climate legislation.  And now it's the pitch from Bob Corker on financial regulation.  Tim Fernholz shakes his head in dismay:

What in the world does he want to talk about? It's not like Corker is pushing some specific agenda or has offered any major ideas, at least publicly. These issues have been at the forefront of the policy debate for a year now, and certainly have been bubbling underneath for a long time. If he doesn't have any specific concerns, its hard to conceive of this as anything but a delaying tactic that simply substitutes vague delays for substantive engagement.

....There's a pretty big argument going on in the Democratic party between those who want to reshape the financial sector fundamentally and those who want to nudge it towards responsibility, which I talk about in my article today. Sometimes, though, it's easy to forget that there is also an opposition party out there that believes we should do virtually nothing.

Well, it's not really that easy to forget.  After all, Republicans remind us of it pretty much every day.  Which is OK!  They're Republicans.  They're the opposition.  They don't support things like providing healthcare for everyone, reducing greenhouse gas emissions, and regulating the financial industry.  The only question is why an opposition that controls 40% of the Senate and represents about a third of the population should be allowed to routinely stop all this stuff in its tracks.

1Unless, of course, the subject is Afghanistan.  In that case, taking the time to do things right is "dithering" and "playing Hamlet."

GOP Still Blocking Climate Bill

| Mon Nov. 2, 2009 3:19 PM EST

Barbara Boxer (D-Calif.) says she will move forward on climate legislation tomorrow, with or without Republicans, who have pledged to boycott the markup.

Republican leaders sent a letter to Boxer on Monday afternoon saying they want more  analysis before participating in a markup. George Voinovich (R-Ohio), a member of Boxer's Environment and Public Works committee, made the initial request. He's since been joined by a number of GOP ranking members of key committees: Lisa Murkowski (Energy and Natural Resources), Saxby Chambliss of Georgia (Agriculture), Chuck Grassley (Finance), James Inhofe (Environment and Public Works) and Kay Bailey Hutchison (Commerce, Science and Transportation).

The big problem with the senators' claim is that there's already plenty of analysis available about the climate bill. The proposal largely mirrors the Waxman-Markey legislation that passed the House in June, which has been scrutinized by the EPA, the Congressional Budget Office, and the Energy Information Administration. The Environmental Protection Agency released a preliminary study of the Senate bill, along with the chairman's mark, on Friday, Oct. 23. And if that wasn't enough, Boxer's committee held nine different panels with 54 expert witnesses last week. For months, Voinovich has been asking for new studies from the EPA, presumably ones that produce doom and gloom predictions that the bill will devastate the American economy. But the raft of studies completed so far show just the opposite.

Although the GOP is trying to hide behind relative moderates like Voinovich—who at least admits that climate change is a problem—in its latest gambit, they're really aligning with the denialists like Inhofe. The goal is to mire the process in bitter partisan fights until the climate bill stalls indefinitely in the Senate.

EPW committee rules require that at least two Republicans be present to begin markup. In a statement on Monday, Boxer urged Inhofe to call the Republicans back to work and announced that she plans to proceed on Tuesday whether or not her GOP colleagues show up. The markup is slated to begin at 9 a.m. What will happen is anybody's guess.