Zakaria says America’s only hope is to kowtow to the Chinese.  As usual, I disagree.  Also as usual, the most interesting words are not his own:

“People often say that China and America are equally dependent on each other,” says Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics. “But that’s no longer true. China has two ways to keep its economy growing. One way is to finance the American consumer. But another way is to finance its own citizens, who are increasingly able to consume in large enough quantities to stimulate economic growth in China. They have options, we don’t. There isn’t really any other country that could finance the American deficit.”

The Chinese are in this position because their labor is far cheaper than ours, and as such they can sell a lot of it. My response to this is essentially this. You won’t see any return to sensible trade and fiscal policy in our country until the Chinese can (or will) no longer purchase our bonds in such large quantities. I’m not saying I don’t want to see foreign investment, I’m just saying I want to see the kind of policies, like balanced budgets, that in a reasonable world would invite foreign investment. Zakaria and the NY Times, and apparently everyone in the media, is saying we desperately need to deleverage….later.

I guess I’d rather a sharp steep recession than an endless one. But no, it’s all spend, spend, spend, more easy money, bail out rotten banks, and go Christmas shopping, for the sake of the economy.

This guy started asking Chris Dodd some tough questions. To be honest he was a total jerk, but he spoke truth to power. Seems like he lost his job at Clear Channel over it. Critics said that Clear Channel will act like fascists in the Bush administration, and they were right, but not in the way you might expect. They replaced his interview with Hannity (’natch).

Democrats need to be careful, putting ethically challenged career politicians like Dodd back in charge is not the change we need.

Dodd received more money from Fannie than any Senator other than Obama…putting him back in charge of the Senate Banking Committee is putting the fox in charge of the henhouse.

The ethical concern is here. How silly of me to assume that the press would report on this more. All the liberals over here know about Ted Stevens’ shameful shananigans (I don’t know how he’ll legislate from federal prison, but details), but no word on Dodd?

My friend replied:

I am, somewhat, coming around to your point of view about some liberal bias in some MSM (e.g. esp. NYTimes & NPR). But what is the alternative? Fox news? Yikes!

If NYTimes & NPR are biased, it is in failing to cover some news stories– silence implies consent. But other venues, like FOX, report opinions as news, instead of trying to remain objective and saving partisan vitriol for the op-ed page.

Me:

The little lady once complained why I read CNN instead of Fox. It was funny she asked me in this accusatory tone like I was betraying the movement or something. I said, ok, let me show you and opened up the front page of Fox and CNN side by side. CNN said something like:

“Stocks drop 10% a new one day record”

The Fox headline was: “Carnage on Wall Street!”

I told her my heart can’t handle that on a daily basis. To be honest I’m picky. I really like Rush Limbaugh because he has a sense of humor. Bill O’ Reilly yells a lot, and Sean Hannity is a complete idiot in my opinion. I don’t listen or watch any of them.

I like Real Clear Politics because it has an equally mixed bag of opinions. Instapundit is great, a law prof who is very tech geekie, and no cheerleader for anyone. I just about lost all faith in the NYTimes and started reading the Washington Post more often now, which is more highbrow and far less condescending. Fareed Zakaria is a complete jerk but I read him b/c Obama is a big fan of his. Newsweek and Washington Post are merged but Newsweek seems to be for the far left Obamamaniacs whereas Washington Post is for the grown up, mature, uh, Obamamaniacs.

In 2003 Steven Strogatz published an incredible book called Sync: The emerging science of spontaneous order, he which he explores the hidden forces that causes phenomena as diverse as pendulum clocks and fireflies to synchronize with each other. In the initial example, the fireflies, Strogatz relays the documentation of 50 years of observations of thousands of fireflies in the tidal rivers of Malaysia. The necessary feature of these synchronizations is that the fireflies oscillated; that is, they shared an on-state and an off-state.

Research on natural biological rhythms leads to very interesting insights into consciousness. For example, in the absence of external cues like sunlight or watches, our sleeping patterns become jagged and eventually line up with our body temperature. Interestingly, body temperature and cortisol levels have a rock solid pattern that is slightly longer than 24 h. Experts in consciousness and neuroscience are currently investigating the contribution of sleep to the encoding of memories, with the broad hypothesis being that the hippocampus, a part of the brain that is involved with learning, replays events of the previous day to the cortex for the storage of long-term memories. It has also been shown that taking a nap immediately after studying improves memory retention, providing further evidence that ideal mental performance requires oscillation in states of consciousness.

Shrewd observers throughout history have noted that these oscillatory states of productivity are by no means isolated to individual organisms. As early as the book of Genesis it was noted that (in chapter 41)

“Seven cows came up out of the river, fine looking and fat; and they fed in the meadow.
Then behold, seven other cows came up after them, poor and very ugly and gaunt, such ugliness as I have never seen in all the land of Egypt.
And the gaunt and ugly cows ate up the first seven, the fat cows.
When they had eaten them up, no one would have known that they had eaten them, for they were just as ugly as at the beginning.”

That is the first description of the business cycle of which I have knowledge, and far more wisdom is in that saying than what is currently in the book of Newsweek.

Consider this whopper by Zakaria:

We just can’t accept the downswings that used to be routine for Western countries in the 19th century, when we saw much less intervention by the government. Can you imagine the political fallout from 20 percent unemployment or 5 percent growth rates? The government must experiment with massive interventions in the market to ensure credit starts flowing smoothly again. These interventions have become part and parcel of modern capitalism.

That “massive” bit of hubris and ignorance aside (remember the first description of business cycles is at least some 40 centuries old now), it isn’t that the professional pundits at Newsweek are ineffective or dishonest, it is just that almost all of their suggestions for long term policy don’t match their support for short term “Massive Government Interventions” Fareed Zakaria’s diagnosis is correct in his article on the silver lining of the crisis.

Every city, county and state has wanted to preserve its
proliferating operations yet not raise taxes. How to square this circle? By
borrowing, using ever more elaborate financial instruments.

***
If there is a lesson to be taken from this crisis, it’s an old rule:
There is no free lunch. Now, debt is not a bad thing. Used responsibly, it
is at the heart of modern capitalism. But hiding mountains of debt in
complex instruments is an invitation to irresponsible behavior.

However, it is Zakaria’s prognosis (and a similar one made by Robert Samuelson), that is dangerous and is only kicking the can down the road, probably only a few months at worst. Newsweek is afraid of deleveraging, that is, that too many people in our society will shift money out of credit and into capital. This is what Samuelson terms the “engine of mayhem”. Both Zakaria and Samuelson treat deleveraging as if it were a republican running for president they way they whip up fear about it. According to them, the only answer to America’s credit problem is extending the credit line (but don’t worry it is only for the short term!), not investing in more capital. Outlets like the NY Times and Newsweek pay lip service to the virtue of saving money while informing us that we could actually be getting paid to take out a loan at these low, low rates. Sadly, the Fed is following this line of thinking, encouraging Americans to save more money while keeping interest rates at near zero.

Early on in this crisis there were many analogies to the emergency room, in which we had to save the patient before we could worry about prevention of the next crisis.

That is the wrong analogy. The American economy is in the emergency room, but because of sleep deprivation. The solution is not several shots of coffee followed by a mainline of norepinephrine. The solution is a nap. Because the longer you sleep deprive a subject the more comatose he is likely to be when he hits the bed.