Naturally, it’s about Secretary Hillary Clinton. For once, there was a GOOD article, calling out some of the sexism with which she has had to deal, while highlighting the incredible work she has been doing on behalf of the State4 Department, and our country. David Rothkopf had this article, “It’s 3:00 a.m. Do you Know Where Hillary Clinton Is?” I admit, when I first saw the title, I thought he was being snarky, and it was going to be yet another hatchet job on this amazing woman, this bright star. Imagine my delight when I read it, and discovered, far from snark, this was a serious article, about a serious role, and a serious person. All I can say is, it’s about damn time:

When it comes to Hillary Rodham Clinton, we’re missing the forest for the pantsuits.

Clinton is not the first celebrity to become the nation’s top diplomat — that honor goes to her most distant predecessor, Thomas Jefferson, who by the time he took office was one of the most famous and gossiped-about men in America — but she may be the biggest. And during her first seven months in office, the former first lady, erstwhile presidential candidate and eternal lightning rod has drawn more attention for her moods, looks, outtakes and (of course) relationship with her husband than for, well, her work revamping the nation’s foreign policy.

Even venerable publications — such as one to which I regularly contribute, Foreign Policy — have woven into their all-Hillary-all-the-time coverage odd discussions of Clinton’s handbag and scarf choices. Daily Beast editor Tina Brown, while depicting herself as a Clinton supporter, has been scathing and small-minded in discussing such things as Clinton’s weight and hair, while her “defense” of Hillary in her essay “Obama’s Other Wife” was as sexist as the title suggests.

Indeed, sexism has followed Clinton from the campaign trail to Foggy Bottom, as seen most recently in the posturing outrage surrounding the exchange in Congo when Clinton reacted with understandable frustration to the now-infamous question regarding her husband’s views. Major media outlets have joined the gossipfest, whether the New York Times, which covered Clinton’s first big policy speech by discussing whether she was in or out with the White House, or The Washington Post, where a couple of reporters mused about whether a brew called Mad Bitch would be the beer of choice for the secretary of state.

May I just pause here to say, THANK YOU for calling these “news” sources out for these sexist depictions/attacks on Clinton. Thank you.

As to the work of Secretary Clinton, the article continues:

Amid all the distractions, what is Clinton actually doing? Only overseeing what may be the most profound changes in U.S. foreign policy in two decades — a transformation that may render the presidencies of Bill Clinton and George W. Bush mere side notes in a long transition to a meaningful post-Cold War worldview.

The secretary has quietly begun rethinking the very nature of diplomacy and translating that vision into a revitalized State Department, one that approaches U.S. allies and rivals in ways that challenge long-held traditions. And despite the pessimists who invoked the “team of rivals” cliche to predict that President Obama and Clinton would not get along, Hillary has defined a role for herself in the Obamaverse: often bad cop to his good cop, spine stiffener when it comes to tough adversaries and nurturer of new strategies. Recognizing that the 3 a.m. phone calls are going to the White House, she is instead tackling the tough questions that, since the end of the Cold War, have kept America’s leaders awake all night.

In these early days of the new administration, it has been easy to focus on what Clinton has not achieved or on ways in which her power has been supposedly constrained. Indeed, some of her efforts have been frustrated by difficult personnel approvals or disputes with the White House about who should get what jobs. But this is the way of all administrations. More unusual has been the avidity with which the new president has seized the reins of foreign policy — more assertively than either George W. Bush or Bill Clinton before him. Obama’s centrality amplifies the importance of his closest White House staffers, while his penchant for appointing special envoys such as Richard Holbrooke (on Afghanistan and Pakistan) and George Mitchell (on the Middle East) has been interpreted by some as limiting Clinton’s role.

Given the challenges involved, it was perhaps natural that the White House would have a bigger day-to-day hand in some of the nation’s most urgent foreign policy issues. But with Obama, national security adviser Jim Jones, Vice President Joe Biden and Secretary of Defense Robert Gates absorbed by Iraq, Afghanistan and other inherited problems of the recent past, Clinton’s State Department can take on a bigger role in tackling the problems of the future — in particular, how America will lead the world in the century ahead. This approach is both necessary and canny: It recognizes that U.S. policy must change to fulfill Obama’s vision and that many high-profile issues such as those of the Middle East have often swamped the careers and aspirations of secretaries of state past.

Which nations will be our key partners? What do you do when many vital partners — China, for example, and Russia — are rivals as well? How must America’s alliances change as NATO is stretched to the limit? How do we engage with rogue states and old enemies in ways that do not strengthen them and preserve our prerogative to challenge threats? How do we move beyond the diplomacy of men in striped pants speaking only for governments and embrace potent nonstate players and once-disenfranchised peoples?

In searching for answers, Clinton is leaving behind old doctrines and labels. She outlined her new thinking in a recent speech at the Council on Foreign Relations in New York, where she revealed stark differences between the new administration’s worldview and those of its predecessors: The recurring themes include “partnership” and “engagement” and “common interests.” Clearly, Madeleine Albright’s “indispensable nation” has recognized the indispensability of collaborating with others.

Who those “others” are is the area in which change has been greatest and most rapid. “We will put,” Clinton said, “special emphasis on encouraging major and emerging global powers — China, India, Russia and Brazil, as well as Turkey, Indonesia and South Africa — to be full partners in tackling the global agenda.” This is the death knell for the G-8 as the head table of the global community; the administration has an effort underway to determine whether the successor to the G-8 will be the G-20, or perhaps some other grouping. Though the move away from the G-8 began in the waning days of the Bush era, that administration viewed the world through a different lens, a perception that evolved from a traditional great-power view to a pre-Galilean notion that everything revolved around the world’s sole superpower.

Obama and Clinton have both made engaging with emerging powers a priority. Obama visited Russia earlier this year and will host Indian Prime Minister Manmohan Singh in his first state dinner in November. Clinton has made trips to China and India, and she would have been with Obama in Russia had she not injured her elbow. Both have visited Africa and the Middle East, reaching out to women and the Islamic world.

To anyone who has been following Clinton throughout her career, the manner in which she has been pursuing her position should come as no surprise. You may recall a book she wrote some time ago, It Takes A Village, in which these kinds of concepts have been discussed. She works in a collegial manner, holding the bigger picture firmly in hand as she goes about her work. It isn’t about her. It is about the world, the country, and the citizens here and abroad. It is about pulling women and children up out of poverty, having people be educated, allowing people to live their lives, and not just fight to survive. That’s her deal, and it has been for a long, long time. And it is that commitment that leads to this:

On many critical agenda items — from a rollback of nuclear weapons to the climate or trade talks — such emerging powers will be essential to achieving U.S. goals. As a result, we’ve seen a new American willingness to play down old differences, whether with Russia on a missile shield or, as Clinton showed on her China trip, with Beijing on human rights.

At the center of Clinton’s brain trust is Anne-Marie Slaughter, the former dean of Princeton’s Woodrow Wilson School of Public and International Affairs. Now head of policy planning at the State Department, Slaughter elaborated on the ideas in Clinton’s speech. “We envision getting not just a new group of states around a table, but also building networks, coalitions and partnerships of states and nonstate actors to tackle specific problems,” she told me.

“To do that,” Slaughter continued, “our diplomats are going to need to have skills that are closer to community organizing than traditional reporting and analysis. New connecting technologies will be vital tools in this kind of diplomacy.”

A new team has been brought in to make these changes real. Clinton recruited Alec Ross, one of the leaders of Obama’s technology policy team, to the seventh floor of the State Department as her senior adviser for innovation. His mission is to harness new information tools to advance U.S. interests — a task made easier as the Internet and mobile networks have played starring roles in recent incidents, from Iran to the Uighur uprising in western China to Moldova. Whether through a telecommunications program in Congo to protect women from violence or text messaging to raise money for Pakistani refugees in the Swat Valley, technology has been deployed to reach new audiences.

Of course, you need more than new ideas to revitalize the State Department; you need resources, too. The secretary has brought in former Bill Clinton-era budget chief Jack Lew to help her claw back money for statecraft that many in Foggy Bottom feel has been sucked off toward the Pentagon. She has also created special positions to back new priorities, such as Melanne Verveer as ambassador at large for women’s issues, Elizabeth Bagley to handle public-private outreach worldwide and Todd Stern as the chief negotiator on climate.

Even just a few months in, it’s clear that these appointments are far from window dressing. Lew, Slaughter and the acting head of the U.S. Agency for International Development are leading an effort to rethink foreign aid with the new Quadrennial Diplomacy and Development Review, an initiative modeled on the Pentagon’s strategic assessments and designed to review State’s priorities. Stern has conducted high-level discussions on climate change around the world, notably with China. Clinton made women’s issues a centerpiece of her recent 11-day trip to Africa, where she stressed that “the social, political and economic marginalization of women across Africa has left a void in this continent that undermines progress and prosperity.”

Unlike other politicians, I don’t think Clinton appoints people to be “window dressing,” but to get the job done. That is further evidenced with the following appointment:

Clinton has also signaled the importance of private-sector experience by naming former Goldman Sachs International vice chairman Robert Hormats, a respected veteran of four administrations, to handle economic issues at the State Department, as well as Judith McHale, former chief executive of Discovery Communications, to run public diplomacy. In the same vein, she has opened up Cuba to American telecommunications companies and reached out to India’s private sector on energy cooperation — showing that this administration will seek to advance national interests by tapping the self-interests of the business community. As with any new administration, there have been inevitable problems. The old campaign teams — Clinton’s and Obama’s — still eye each other warily, but this feeling is gradually fading. And by most accounts, the administration’s national security team has come together successfully, with Clinton developing strong relationships with national security adviser Jones and Defense Secretary Gates. Her policy deputy, Jim Steinberg, has renewed an old collaboration with deputy national security adviser Tom Donilon; the two of them, working with Obama campaign foreign policy advisers Denis McDonough and Mark Lippert, have formed what one State Department seventh-floor dweller called “a powerful quartet at the heart of real interagency policymaking.” Henry Kissinger may have overstated matters when he said this is the best White House-State relationship in recent memory, but it’s not bad, while the State-Pentagon relationship is in its best shape in decades.

Huh. Well, I’ll be. Who could have seen THAT coming? Oh, I know – the 18 million people who voted for her!

But Clinton is not looking back to what was. Rather, she is looking ahead to see how best she can fulfill her work, As such, again, she looks at the big picture, and how best to accomplish what needs doing, including:

At the heart of things, though, is the relationship between Clinton and Obama. For all the administration’s talk of international partnerships, that may be the most critical partnership of all.

So far, according to multiple high-level officials at State and the White House, the two seem aligned in their views. In addition, they are gradually defining complementary roles. Obama has assumed the role of principal spokesperson on foreign policy, as international audiences welcome his new and improved American brand. Clinton thus far has echoed his points but has also delivered tougher ones. Whether on a missile shield against Iran or North Korean saber-rattling, the continued imprisonment of Aung San Suu Kyi in Burma or rape and corruption in Congo, the secretary of state has spoken bluntly on the world stage — even if it triggered snide comments from North Korea.

It is still early, and a president’s foreign policy legacy is often defined less by big principles than by how one reacts to the unexpected, whether missiles in Cuba or terrorism in New York. Promising ideas fail because of limited attention or reluctant bureaucracies, and some rhetoric eventually rings hollow, as the self-congratulatory “smart power” already does to me.

Nevertheless, there is evidence that, seven months into the job, Obama’s unlikely secretary of state is supporting and augmenting his agenda effectively. Not as Obama’s “other wife,” not as Bill Clinton’s wife, not even as a celebrity or as a former presidential candidate — but in a new role of her own making. (drothkopf@carnegieendowment.org

David Rothkopf is a visiting scholar at the Carnegie Endowment for International Peace and the author of “Superclass: The Global Power Elite and the World They Are Making” and “Running the World: The Inside Story of the NSC and the Architects of American Power.” He will be online to chat with readers Monday at 11 a.m. Submit your questions and comments before or during the discussion.)

Indeed – she is embracing a “role of her own making.” It is hard not to consider what could have been had she been President instead of Secretary of State. Don’t get me wrong – as I have said a number of times, I am glad that Clinton is in such a crucial role for our country. Clearly, we need her. But the same intelligence; the ability, and vision, to hold the big picture in her grasp while determining the best course to achieve those goals, while finding the people who can affect those goals; the nation-building, yes, the community-building; are all the ingredients necessary for a good presidency. And I am pretty sure that a President Hillary Clinton would not have made any “wee-wee” remarks about the press corp, either. It’s a matter of decorum, the ability to hold things, events, people, in tension. It’s a matter of vision, and the ability to effect change in a real, meaningful way. That’s our Hillary. Thank heavens she is finally starting to get the recognition she so richly deserves.

“Moving forward toward Turkish membership in the EU would be an important signal of your (EU) commitment to this agenda and ensure that we continue to anchor Turkey firmly in Europe,” he told EU leaders.

Obama’s remarks didn’t sit too well with his new BFF, French President Nicolas Sarkozy, who said in an interview “it is up to member-states of the European Union to decide” on whether Turkey should be allowed to join. Sarkozy is opposed to to membership for Turkey.

“I still am and I think I can say that the immense majority of member states shares the position of France,” he said. “Turkey is a very great country, an ally of Europe, an ally of the United States. It will stay a privileged partner. My position hasn’t changed and it won’t change,” he said.

German Chancellor Angela Merkel, who is also leery about admitting a country that would replace Germany as the EU’s biggest member, said EU members were still “wrestling” over whether Ankara should be welcomed as a full member state or have some sort of “privileged partnership” – a German proposal Turkey has flatly rejected in the past.

The Clinton and Bush administrations supported Turkey’s bid for membership, calling it a crucial bridge between the West and Islam. But, this seems a lot easier to support, when you don’t live so nearby, and it doesn’t affect your borders.

Opposition to Turkey joining the EU range from their “human rights record, including their long campaign against Kurdish separatists, fears of being flooded with Turkish immigrants, and an unresolved dispute over Turkish backed Northern Cyprus.”

“For many Europeans, the cultural and religious differences between Turkey and traditionally Christian Europe are a key worry. While constitutionally a secular state, Turkey’s population is 99 percent Muslim.”

Allowing Turkey to join the EU opens all the European borders to Turkey, and there would no longer be any controls over who comes and goes. And this bothers a lot of Europeans.

Italian Prime Minister Silvio Berlusconi said he backed Obama’s support for EU membership for Turkey, telling reporters he was confident that current obstacles holding back Ankara’s talks with Brussels could be solved.

I must say, I agree with Sarkozy. I don’t feel the US should be involved, or pressuring the EU on who to accept. They are not the ones who have to deal with the end results. To me, it would be the equivalant of Europe telling the US to open up the border with Mexico.

Although he rode in on his unity pony, with his campaign speech loaded on the teleprompter (including the yes we can bit), it seems Obama will have his work cut out for him. There are still many who oppose the US, and their involvement around the world. Protestors in Turkey took to the streets protesting Obama’s visit.

See also: Another NoQuarter story about the protests.

Let’s review the objectives and commitments, each followed by questions and/or comments that I have:

1. Address countries providing tax havens.
My question: who will police?

2. Develop a Financial Accounting Stability Board to regulate currently unregulated financial entities, primarily hedge funds.
My questions: how will it be staffed, operated, and judgments adjudicated? (I don’t like FASB as the acronym to be confused with Federal Accounting Standards Board)

3. Develop global policies and outline to address compensation
My questions: who and how will this be implemented? how will it be regulated? will there be punishments for those not participating?

4. Develop a global systemic risk oversight body.
My Question: who and how?

5. Develop a common global approach to address toxic assets within the banks.
My Questions: will this approach be akin to the FASB relaxation of the mark-to-market? How will it be implemented? Will it employ free market principles or manipulate those principles?

6. Utlilize a global growth and recovery stimulus plan of $5 trillion via global central banks.
My Question: will every country and region go along with this?

7. Global central banks will maintain a fiscal expansionary posture.
My Question: what if inflation increases?

8. The IMF and other international agencies will receive $1 trillion. $750 billion directed to the IMF, $250 billion of which will be in the form of Special Drawing Rights. The G-20 will look for these international institutions to strengthen their independence. The G-20 looks for emerging economies and developing countries to get a greater voice in these international institutions.
My Comment: China just won BIG RIGHT HERE!!

9. The G-20 countries will look to kickstart international trade.
My Question/Comment: Congratulations!! How do they plan on doing this in the face of the global protectionist measures and financial protectionism being enacted everywhere?

10. The G-20 will meet in New York City again in September.
My Comment: is this really a very good idea? Can you imagine the rioting that may ensue there? I wonder if body piercing is optional to get involved in the fun?

In summary, the global equity markets are responding positively to these commitments along with the relaxation of the mark-to- market. I am concerned that free market principles have taken a back seat to potentially excessive political and accounting manipulation. That said, the global economy and global banking system will receive significant hard dollars along with significant accounting cover to help itself heal. My personal opinion is world leaders are trying to buy time but will risk real inflation to heal the global recession.

I will say, though, there will certainly not be a dearth of material for Sense on Cents to address as we navigate the economic landscape!!

LD

1) At BriefingRoom.TheHill.com, Judd Gregg says the U.S. couldn’t even join the E.U. because of the U.S.’s debt levels.

“We won’t even be able to get into the E.U. if we wanted to,” Gregg said this morning on MSNBC, “because our government is so large and so huge.”

The European Union’s Stability and Growth Pact (SGP) adopted in 1997 requires a budget deficit to be less than three percent, and requires a national debt beneath 60 percent of Gross Domestic Product (GDP).

“We’ve been lectured by France on the fact that we’re not fiscally responsible right now,” Gregg, the would-be commerce secretary, noted with incredulity.

That hurts.

2) The Weeklystandard.com notes that Obama’s been indulging in “just words.”

Some of what Obama says is just pablum and isn’t supposed to be taken as serious economic thought. At least I hope not. Rather, it might be called economic morale-boosting. Nothing wrong with that, unless he actually believes what he’s saying.
———-
Nor is Obama up to speed on tax incentives. He dismissed the fear of charities that a proposed reduction in the tax deductibility of donations by upper middle class and wealthy Americans would curb giving. “If it’s really a charitable contribution, I’m assuming that that shouldn’t be a determining factor as to whether you’re giving that $100 to the homeless shelter down the street.”

That’s easy for him to say. Every charity from museums and arts groups to hospitals is terrified by the proposed tax change. And it’s a fair assumption that they know a tax disincentive when they see one. The question is whether Obama does. Perhaps not.

Perhaps charities better front load all they can get from donors now. Obama seems to think a tax deduction doesn’t matter AT ALL. Maybe not for him. Last I heard, his tax returns showed very little charitable giving.

3) The Atlantic has a stunning piece about the financial mess. Here’s the summary:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

I’ve often wondered if oligarchy isn’t the right term for what and/or who is driving U.S. policy.

4) Realclearpolitics has an interesting piece about the current economy and the lessons learned from the 30s.

Anybody who wants to pontificate about the economy, or the budget, or the deficit right now should think about three questions:

1. What changed the Depression from an ordinary recession into a worldwide catastrophe? (And how bad was it, anyway?)

2. Is this crisis the same or different?

3. If there’s risk of another depression, how do we stop it?

Interesting stuff.

I thank our loyal reader in Michigan, Mr. Fiscal Liberal, for sharing with us a piece written by Simon Johnson, the former chief economist of the International Monetary Fund, a professor at the MIT Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.

Mr. Johnson writes about the growing problems in Europe. I am hard pressed to see how the European situation, both in the East and West, can not end badly. There are too many economies that are effectively insolvent or on the brink of insolvency. I believe this is the region of the world which will experience increased economic strife leading to social unrest and political change. Can the problems in Europe be contained given the massively interconnected world of global finance?

Thank you again FL for sharing this very enlightening piece from Simon Johnson!!

G-20s Real Agenda Should be Saving Europe from Itself
By Simon Johnson
Last Updated: 10:28AM GMT 16 Mar 2009

The media coverage of the G20 finance ministers meeting this weekend was dominated by the apparent battle between those who support more fiscal stimulus and those who want to impose more regulations on the financial system.

This, we are led to believe, is the big debate facing the full G20 heads of government summit early next month: the US is pushing for a bigger global fiscal stimulus (2pc extra government spending from everyone, to be monitored by the IMF), while the continental Europeans are holding out for greater regulation. Gordon Brown is trying hard to cast himself as the broker for any apparent deal.

However, don’t be fooled by all this sound and fury. The rival agendas of fiscal stimulus and regulation are both red herrings at this point in time.

The reality is much less promising, for three reasons.

First, co-ordinated fiscal expansion made sense early in 2008, when it was first proposed by the IMF. But the severe downturn that followed the onset of financial panic last September means that very few countries can now afford to spend more or tax less.

And while the hard-headed redesign of regulation should be a top priority going forward, the G20 regulation agenda is weak.

Who really believes that establishing an international “college of supervisors” would achieve anything in terms of reigning in the power of major banks? Always a good principle to keep in mind when evaluating international reform proposals: anything that sounds meaningless is meaningless.

Second, while the conventional official reluctance to discuss unpleasant truths is always awkward, during a major global crisis it’s downright dangerous. Across the industrialised world, the financial sector has become too large and too politically powerful.

How do we break this power and move resources into something more productive and less inherently unstable? How do we deal with the failures of risk management, CEO leadership, and corporate governance in our still massive banks? Can we break them up before they break our economies?

There is not even an inkling of these major issues on the G20 agenda.

Third, politicians keep repeating something along the lines of “we face a global problem that needs a global solution” – this was Gordon Brown’s refrain in Washington recently. But the most pressing problems in 2009 are not so much global as European.

Back in the 1990s, much of east central Europe put itself on a high risk debt-fuelled growth path, egged on by Brussels. European Union accession countries were told that they could afford to import far more than they export – and that this difference would be financed by capital coming in from Western Europe. This was true, for a while, but now the crash in Eastern Europe threatens to bring down banks in Austria, Greece, Italy and other places that bet big on Hungary and its neighbours getting rich quick.

As Eastern Europe has plummeted into crisis, the West European response has been further bad advice. Countries with fixed exchange rates, such as Latvia, are told to cut wages and prices by 20-30pc, rather than devalue their currency.

Never mind that this is political suicide and bad economics. Brussels considers it better for the West European banks with capital at risk. Almost all of Eastern Europe is in trouble and will need to borrow from the IMF; the massive over-representation of Western Europe on the IMF’s board suggests that this will end badly.

And that’s not all. The crash of real estate in Ireland, Spain, and the UK worsens bank balance sheets that are already damaged from losses incurred in the crazy casino that was the American mortgage market.

The financial sector globally is shrinking, and this will lead to significant job losses in countries like the UK and Switzerland.

It gets worse. The US has banks that can plausibly claim they are Too Big To Fail, and this is bad enough – because it lets them get big bailouts. But Europe has banks that may be Too Big To Rescue – ask Iceland or, more recently, Ireland.

Far from being able to afford government expansion, European economies with big banks see the prospect of budget cutbacks – to persuade the financial markets that their governments are still good credit risks.

European countries face two types of future. On the one hand, countries that still control their own currencies can engage in creative monetary measures, pushing down the exchange rate and raising inflation; the Bank of England leads the way in this regard. Inflation will reduce debt burdens but of course comes with other costs. Think of it as the worst of all possible policy choices, apart from the alternatives.

And those most unpleasant alternatives are faced by Eurozone countries. Their economies are slowing dramatically, their banks are impaired, their budgets are constrained, and their monetary policy is in the hands of the European Central Bank (ECB).

These countries face the prospect of falling wages and prices. Most central bankers would recoil in horror as this deflation threatens further defaults and a deeper recession, but Jean-Claude Trichet, head of the ECB, is actually welcoming this development in Ireland and elsewhere.

The real agenda of the G20 should be helping save Europe from itself, for example by encouraging the creation of a €2-trillion European emergency economic stabilisation fund, funded primarily by richer Eurozone countries, and a major relaxation of Eurozone monetary policy.

Without such measures, we are likely on the path to a bigger slowdown in global growth and a more difficult recovery.

Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He co-founded and contributes to the economics blog The Baseline Scenario.

While I have written twice over the last week about eastern Europe being the weakest link in the world of global finance, Mauldin and his colleague Niels Jensen of Absolute Return Partners provided insights and analysis that is numbing.

Why is George Soros short the euro? Let me provide a synopsis of Mauldin’s and Jensen’s “Europe On the Ropes.” This piece is somewhat lengthy, but a MUST READ!! A link is provided at the end of my review.

Jensen initially provides a backdrop of the collective guilt across all market participants in this global economic meltdown. The U.K. government is targeted by Jensen for their total lack of fiscal discipline in the process. He further adds that the outlandish banking compensation was a direct correlation of the leverage employed. Jensen focuses on the preponderance of supposed AAA rated CLOs (Collateralized Loan Obligations) backed by corporate loans and credit cards. The leverage employed by the European banks dwarfed the leverage employed by U.S. banks.

To this point Jensen’s analysis is enlightening but not earth shattering. He then enters into the rate of expected defaults on the European banks’ balance sheets, the exposures to eastern Europe, and the specifics of mortgage borrowing by eastern European citizens from European banks. I started to get a little queasy.

Jensen’s comparisons of the details in this crisis relative to the Asian crisis experienced in the late 90’s is scary. His focus specifically on Austria and the level of their debt exposure is also daunting. My queasiness increased.

Please read the Mauldin/Jensen report in its entirety so you can gain a further appreciation of the pressure in that part of the world and the implications for these economies, countries, and their political stability. Last Sunday evening on NQR’s Dollars & Sense, I spoke at length about the global government funding needs. On that very topic, Jensen writes:

Public debt to rise and rise

. . . the banking sector cannot, in the current environment at least, raise sufficient capital to stay afloat, so more, possibly a lot more, tax payers’ money will have to be put forward. This can only mean one thing. Public debt will rise and rise. The official estimate for the UK for next year is already approaching 10% of GDP, an estimate which will almost certainly rise further. We probably have to get used to running 10-15% deficits for a few years, a fact which seriously undermines the notion of government bonds being next to risk-free.

BCA Research has calculated the effect on public debt in a number of countries, as a result of further bank losses being underwritten by tax payers. Obviously, those countries with the largest banking industries (as a % of GDP) will be hit the hardest.

Mauldin and Jensen are clearly on the cutting edge of the weakest link in the global economy today. In light of this color, there is no surprise why George Soros is short the Euro.

I would never raise undue anxiety, but this situation is very fluid and needs to be watched daily. I will be doing that as I try to help you navigate the economic landscape!!

LD

The dynamic at work in the weekend’s emergency meeting held in Brussels is a play on beggar-thy-neighbor policies implemented during times of economic stress.

There are actually a number of factors influencing the European Union’s refusal to provide bailout money to these eastern European nations. Included in these factors are the following:

1. lack of coordination even within the eastern European countries themselves. Certain countries, such as Poland, are in better shape than others. Beggar-thy-neighbor within a beggar-thy-neighbor framework!!

2. a desire by some of these eastern European nations to accelerate their formal acceptance into the European Union fell on deaf ears. The acceptance into the EU would have helped them gain the stability of the common currency, the Euro.

3. problems within the EU itself as certain countries, such as Ireland and Portugal, are already massively stressed with their own financial problems.

Where do these eastern European countries go now to get help? They will likely solicit the IMF, International Monetary Fund initially. The IMF is already hard strapped for funding.

While the EU Rejects a Rescue of Faltering Eastern Europe, my concern is that ultimately this stress will cause the eastern European nations to become more isolated from their western European neighbors. In the process of aligning themselves more with their Asian neighbors to the east, we may see heightened political tensions and instability as well. It may be premature to make the assumption that this situation ultimately leads to increased politcal tensions in this part of the world, but that assumption is not a stretch by any means.

Clearly in the German mindset is the desire to maintain strict support for its currency, the Euro. I can never get away from the fact that embedded deep in the German culture is the experience of hyperinflation after the Weimar Republic. That experience was truly the precursor to the German fascist state, which led to WWII.

It is very conceivable that we will see other political changes develop during this time of turmoil. I will be monitoring in an attempt to help us all navigate the economic landscape.