India and the US ... updates galore ...

India recently cut its key interest rate to offset a slowdown due to a global recession. The Reserve Bank of India (Indian Fed) announced that it didn't see any signs of a quick turnaround. This seems to make the over 20% rise in the BSE Sensex, from 9000 to 11000, over the last few weeks seem a little premature.

Meanwhile, while Krishna Byre Gowda seems like a case for a genuine Obama-like figure in India, Mayawati is also laying claim to the fame. I read recently that she says her status as a lower caste person rising to the top makes her the Obama of India. Here's the Times of India drawing a similar comparison. Clearly being like Obama is a badge that everyone is going to claim, but this seems a little far fetched.

Finally, I was in a discussion recently about the excessive nature of US debt. As of 2008, US public debt was ~US$ 10.7 trillion, i.e. 74.6% of GDP. India's public debt is 78% of its GDP. Japan's public debt is now 170.4% of its GDP.

What does this mean for the US?

American exceptionalism ...

Is the US the most powerful nation in the world because the US is in some ways special? Clearly, the US must have done some thing right. However, does this make the US exceptional, i.e. culturally or otherwise superior to everyone else?

The idea of American Exceptionalism isn't new as the Wikipedia entry makes clear. In fact, it is almost as old as the US. And, the US isn't even the first country to think of exceptionalism. The German's had a similar idea which ultimately led to the second world war. The Romans did too. As did the Greeks. In fact, the world 'barbarian' as used by the Greeks was meant to imply you couldn't speak proper Greek (equivalent to the Hindi "bur bur" or babble, so barbarians are babblers). The British, to paraphrase George Mikes, didn't actually say they were exceptional. They just fought such dangerous ideas in others while never actually saying who they thought was exceptional. :)

The Romans, in particular, grew powerful by conferring Roman citizenship on the power wielders, scientists, artists, etc. of the people they conquered (sound familiar). If it does, it isn't surprising. It isn't an accident that the National Monuments in DC look Roman or that Roman architecture inspired so much of the Third Reich architecture and motifs.

Does a belief in US exceptionalism matter?

One of the most interesting comments about the holocaust I had ever heard was from a history professor patiently trying to explain how otherwise good people could have let such crimes occur. His point was that if you dehumanize someone or something, you are no longer project your own emotions on them, and so, no longer feel their pain. So, your normal moral compass does not operate. The first step in dehumanization is to believe you are different, or worse, better.

I experienced the downside of a belief in US exceptionalism in a weird way. In 2002, I was in a conversation with a finance professor from a US University about how the US might have drawn lessons from the UK Cadbury Committee's Code of Best Practice in 1992 that may have prevented debacles like Enron. That, in fact, most of the Sarbanes Oxley Act drew on lessons that had been learned many times in many countries, and that the US might have been able to anticipate these issues, if they had assumed that the US is just as prone to these human tendencies as any other country. The professor, despite the evidence, wasn't willing to acknowledge that such lessons can be drawn. He went onto assert that, for instance, the US financial system was so sound and so much superior that debacles like the Japanese asset bubble and subsequent banking collapse could never happen here. :)

The idea of US exceptionalism has cropped its head up in recent times in rather more disturbing ways. It has been alleged that the neoconservatives were driven by the idea of American Exceptionalism, i.e. that the US is somehow special. Unfortunately, this quickly devolved into the belief that rules don't apply to the US. Neoconservatives used this theory to argue for the setting aside of foreign treaties, redefine torture, describe as "collateral damage" the deaths of hundreds of thousands in Iraq, and castigate as unpatriotic anyone who questioned the US.

It became an issue in the 2008 Presidential elections, where, Obama's lack of deference to the theory led to questions about his patriotism as articles like this remind us. Those who were driven to make these arguments seem to conflate exceptionalism with irreproachability.

So, perhaps, it wasn't surprising that Obama was confronted with a question on this very question on his European tour. Here is Obama's answer:




As answers go, this was perhaps one of the more eloquent. Without actually saying so, Obama drew a distinction of being proud of the very laudable and commendable things about the US, and drawing any conclusions about the US' inherent moral superiority or manifest destiny. Good stuff!

Is Obama an American?

This is an old smear that is making the rounds again. It seems Philip J. Berg, Esquire, of Pennsylvania filed a lawsuit recently seeking a Declaratory Judgment and Injunction that Barack Obama does not meet the qualifications to become President of the United States. The fact is that Obama is an American citizen by virtue of his birth, as can be seen from his birth certificate reproduced here. What is interesting is that Mr. Berg goes on to claim that Obama "lied and cheated his way into a fraudulent candidacy and cheated legitimately eligible natural born citizens from competing in a fair process." Fascinating.

Is she qualified?

If you have not seen the Katie Couric interviews of Sarah Palin, then here they are. They speak for themselves.

Watch her extraordinary confidence and ease when she gets a question which she (or her handlers) anticipated and what happens whenever she's asked for a deeper explanations on unexpected subjects.

(In case you don't have the time here are some short summaries:

This is a quick (somewhat biased) summary of the highlights:




This is SNL's take some of her more interesting answers (there are more such versions on youtube):



)


Here are the longer clips.

These are clips on the economics:







In case you missed it, here's Cafferty on one of the more lucid bits. I mean talk about liberal bias:




Did you get all that? I mean, I studied this stuff for years and even I didn't follow what she said about why the $700 Billion is necessary! What an intellectual!


This is her on foreign policy:




Here, among other things, she tries to remember newspapers she reads. Remember she's a journalism major:




This is what she said on Supreme court cases:




Here's the transcript of what she said on her foreign policy credentials:

COURIC: You've cited Alaska's proximity to Russia as part of your foreign policy experience. What did you mean by that?


PALIN: That Alaska has a very narrow maritime border between a foreign country, Russia, and on our other side, the land-- boundary that we have with-- Canada. It-- it's funny that a comment like that was-- kind of made to-- cari-- I don't know, you know? Reporters--

COURIC: Mock?

PALIN: Yeah, mocked, I guess that's the word, yeah.

COURIC: Explain to me why that enhances your foreign policy credentials.

PALIN: Well, it certainly does because our-- our next door neighbors are foreign countries. They're in the state that I am the executive of. And there in Russia--

COURIC: Have you ever been involved with any negotiations, for example, with the Russians?

PALIN: We have trade missions back and forth. We-- we do-- it's very important when you consider even national security issues with Russia as Putin rears his head and comes into the air space of the United States of America, where-- where do they go? It's Alaska. It's just right over the border. It is-- from Alaska that we send those out to make sure that an eye is being kept on this very powerful nation, Russia, because they are right there. They are right next to-- to our state.


Here is CNN's attempt to verify whether she can see Russia from Alaska:

You wouldn't know it if you watched the news!

I couldn't agree with you more, Dhakks.

How is free market economics supposed to correct market imbalances if the government bails out corporations every time they mess up? This is socialism for corporations! We either believe in free markets, or not.

Two interesting revelations I came across in NPR:

• The first is that a significant part of Fannie and Freddie's capital is deferred tax credit, i.e. the present value of taxes that won't need to be paid as a result of losses that are carried forward. The problem is that these don't constitute assets that can be drawn upon in case of a crisis like this. Which basically means that the crisis was much more dire than imagined at first.
  

• The second is that the combined outstanding debt of Fannie and Freddie is roughly $5 Trillion. Yes that's trillion, not billion. That is more debt at stake than any company in history. It's more than the debt of every country in the world except the US. Hell, its more than the GDP of every country in the world except the US. In fact, the crash of the Japanese economy would arguably be less of a strain on the world economy than Fannie and Freddie.
  

The aggregate cost of this debacle to the tax payers depends on how much of the loans will actually prove to be bad. Estimates range from $25BN to $200BN.

What has astonished me today is that effectively the US government has taken on $5 trillion in credit exposure upending a fundamental argument made by Reagan when privatizing these behemoths. The world, by general consensus, just avoided what is possibly the closest it has come to a global financial meltdown since the Great Depression, and the news has focused on lippygate and Lou Dobbs spent an hour on a tirade against illegal immigrants. This is surreal!

Fannie Freddie Sammie

I didn't think of it but I couldn't have said it better.

I am a little perplexed by the common perception (media, public) that capitalism is somehow supposed to be painless.

I don't know enough (the scale of numbers is beyond grasp) to say that these firms, as others before, "had to be saved" or not.

But any time you mess with the principles of risk and reward, specifically how "you earn it", you get a few possible outcomes (1) you're setting bad precedents (2) you typically postpone the problem (for another generation) rather than solve it (3) it comes back to bite you in some other form, sometimes even worsened in magnitude.

The common refrain is that a gradual pain is better than a severe shock for the economy. I buy that. And I don't.

Oh, by the way, Warren bought it. I don't think the alternative (letting them collapse) was ever on the table. Just not possible.

Also, interesting article on Warren's concern with potentially more bank failures here.

Fannie and Freddie, what do you think?

The Government took over Fannie Mae and Freddie Mac over the weekend. Paul Krugman argues in his column that this signifies the failure of the Fed intervention. What do you think? Is this a failure of the Fed strategy? What does it say about the economy?

Progress or regress

What is a sign of a nation headed toward a greater destiny?

One of the thinkers I admire wrote recently about the difference in attitudes in the 60s or 70s.

When the English factory worker sees the boss drive out in his Rolls Royce, he says, “I’d like to put a bomb under that car.” But when the American worker sees the boss drive out in his Cadillac, he says, “I’m going to own a car like that some day.”

I trust we haven't lost out on the positive attitude - the hallmark of the American Dream and the state of the 'optimism economies' of India and China.