Wednesday, February 9, 2005

The Richard Sternberg Affair

Readers may recall the contretemps surrounding the Richard Sternberg affair and his alleged mistreatment at the Smithsonian Institute, which he attributes to his having published a paper written by Intelligent Design theorist Stephen Meyer. There are conflicting accounts of exactly what has happened to Dr. Sternberg, but Joe Carter at Evangelical Outpost offers the following as to why he thinks Sternberg is more credible than the gentleman from the Smithsonian who denies Sternberg's charges:

While there is no way for us to know exactly who is telling the truth, let's look at how each side's point of view was presented:

Sternberg filed a formal complaint with the U.S. Office of Special Counsel (OSC), an independent federal investigative and prosecutorial agency. By making the claims and signing Form OSC-11 (2-05) , Sternberg acknowledged that he was aware that making a false statement or concealing material fact would be committing a criminal offense punishable by a fine of up to $250,000, imprisonment for up to five years, or both. He also agreed to speak on record with a columnist who was writing an editorial for the Wall Street Journal, ensuring that his claims would be on public record in a national newspaper.

Jonathan Coddington was offered a chance to present his side of the story in the WSJ article but chose not to do so. Instead, he thought it would be more appropriate to present his rebuttal in the comments section of a blog.

This is not dispositive, of course, but Carter's argument is persuasive. Why would Sternberg place himself in serious legal jeopardy if his charges were false, and why wouldn't Coddington, if he were going to deny Sternberg's allegations of mistreatment, use the same venue that Sternberg used? Why announce your denials in a blog? Stay tuned.

Making Them Talk

Power Line has some good news on the war against Iraqi terrorists:

The latest top al Qaeda operative to fall is Zarqawi's military advisor, Adnan Muhamed Hamed Alqeisi. Haider Ajina sends us this translation of an article that appeared today in the Iraqi Arabic newspaper "Nahrein":

"Iraqi security forces arrested Adnan Muhamed Hamed Alqeisi also known as Abu Walied, during surprise operation in southern Baghdad. Abu Walied, and Iraqi of 41 years of age, was a facilitator for the terrorist group led by Alzarqawy who is tied to Alqaida. He was also in contact with Abu Omar, Hassan and Abu Seif who Zarqawy named commander of Baghdad; those were arrested earlier last month."

"The Iraqi vice president Dr. Berhem Saleh said that Abu Walied was working as a military advisor to the top leaders in Zarqawy's terror group, and he also supplied terrorist activities in Baghdad. The vice president also said that Zarqawy is loosing his battle against the Iraqi people and his organization of terrorists and criminals is loosing its main leaders over the last few weeks. This is to the credit of the Iraqi security forces and tips from the population."

A few weeks ago there was speculation that Zarqawi himself may have been captured--not, of course, for the first time. But the continued roll-up of the gang members closest to him suggests that either he has been captured and is giving up his colleagues, or, more likely, the net is steadily closing on him.

This latest arrest raises some troubling questions, actually. Obviously these guys are ratting on each other and giving each other up to the Iraqi police, which causes us to wonder what sort of interrogation techniques are being employed there. Are the Iraqis resorting to torture to extract their information? Are they, for instance, saying mean things to these thugs about their mothers to get them to give up their secrets? Are they using stressful methods like raising their voices and making them sleep in single instead of queen-sized beds? Are they subjecting them to excruciating ordeals like forcing them to listen to AC/DC albums? Just wondering. Maybe should look into this.

State of the Union...

Ughh...I'm reeling from the recent price drop in gold...all the way to my favorite gold dealer to buy more! Why? Simply because gold serves as the ultimate barometer of the "perceived" value of a country's currency even though there can be short-term events that cause things to appear to be otherwise. In the '90s, when the NASDAQ went from 500 to 5000, the common expression was "buy the dips". People that did that made out handsomely...until the year 2000.

Briton's Chancellor Gordon Brown has come out from under his rock, once again, to suggest that the IMF sell some of its gold to alleviate the debt of third-world countries. The possibility of this event has made a huge contribution to the recent decline in the gold price (even though such sales would only be to central banks meaning the gold would not appear on the open market). While appearing to be a champion of people of low economic status, consider this article

So I interpret such news as efforts to distort economic reality. If you look at a long term graph of the price of gold, you can see that it's not uncommon for it to pull back anywhere from 50% to 100% of its previous rise. Then it turns around and goes to new highs. The important thing to keep in mind is that the fundamentals (trade and budget deficits) that have caused the price to be where it is from its low of $260 in the year 2000 are still firmly in place and as long as they are, the price over the longer term will continue to trend upward. Any short term moves are temporary anomalies.

Now let's look at another component of the economy that motivates me to "go for the gold"...

From Stephen Roach of Morgan Stanley:

The Federal Reserve is trapped in a moral-hazard dilemma of its own making. It dates back to the Great Bubble of the late 1990s and the central bank's unwillingness to take away the proverbial punch bowl just when the party was getting good. The close brush with deflation that then ensued was a painfully classic post-bubble aftershock. That experience underscores the greatest shortcoming of modern-day central banking -- the inability of monetary policy to cope successfully with asset bubbles and the deflationary perils they engender. The history of the 1930s and Japan in the 1990s are grim reminders of that shortcoming. Alan Greenspan's confession finally sets the record straight on how he got us into this mess.

And for you odds players out there, this link from his article in November where he says:

The chance we'll get through OK: one in 10. Maybe.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy.

Today the figure is 85 percent.

Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

The U.S. has become the consumer of last resort for the world's goods brought to you by 40 year low rates of interest from the Federal Reserve and, as a result, the typical U.S. consumer has been refinancing their mortgages and financing their consumption by borrowing against the equity in their homes. Stephen Roach says:

"through home income extraction [home equity loans] income-short households pushed the consumption share of US GDP up to a record 71.1% in early 2003 (and still 70.7% in 4Q04) -- an unprecedented breakout from the 67% norm that had prevailed over the 1975 to 2000 period."

This will end and it will end badly and this is why. Today, the engine of consumption is enabled by the lowest interest rates in 40 years. Interest rates are a tool that is used by the Fed to control the flow of dollars into the economy. When rates go up, it chokes the supply of new dollars into the economy, decreasing inflation. Remember that dollars are "borrowed" into existence. The Fed could print a billion dollars but that has no impact on the economy until someone borrows them. So if rates don't rise people and businesses are more inclined to borrow.

The bigger issue is that the Fed doesn't have total control of interest rates. There comes a time when they are forced to raise them because too many dollars are being pumped into the economy. That's what happened in the '70s when Paul Volker raised rates to 18%. He had to do this because inflation was showing up in the general economy in terms of higher prices of consumer goods. Today it's showing up in the stock market and housing.

On the other hand, with the dollar dropping in value against other currencies, the U.S. is forced to raise interest rates to make the Treasury bonds foreign countries buy more attractive so they continue to buy them. Those Treasuries are how the U.S. finances it's trade deficit. In other words, the Fed is in a no win situation. If they raise rates, they might continue the trade deficit but tank the economy.

Just the other day, the latest employment numbers were disappointing yet the stock market surged. Why? Because this was perceived as an indicator that interest rates would stay low to help a still-struggling economy. But if the Fed keep rates low, inflation will go out of control.

If anyone finds fault with my reasoning I sure would appreciate hearing from you for an alternative interpretation of what is going on. But in the mean time, it's "Katie, bar (as in gold bar) the door."

As always, thanks for reading.

The President's Numbers

We're not big on public opinion polls unless they confirm our prejudices, of course, and this one by Gallup does just that so we'll share it with you:

A new CNN/USA Today/Gallup survey shows that President George W. Bush's approval rating has increased to 57%, up from 51% three weeks ago. The approval increase appears to be related to the recent Iraqi elections, which the poll shows went better than most Americans expected. In general, the public is more positive now than it was before the elections about the way Bush has handled the situation in Iraq, as well as how the war is faring for the United States. At the same time, the poll shows little change in Bush's job approval rating on the economy or on Social Security.

By almost a two-to-one majority (61% to 31%), Americans said the elections in Iraq went better than expected. This perception appears to have led Americans to a generally more positive view about Iraq and about Bush.

The poll shows that 55% of Americans now say the war in Iraq was not a mistake, while just last month 52% of Americans felt it was a mistake.

Also, there is a 13-point increase in the percentage of Americans who say things are going well for the United States in Iraq -- 53% say either "very" or "moderately" well now, compared with 40% prior to the Iraqi elections.

We'd like to know what it is that has changed in Iraq in the last three weeks, or the last three months, that has caused people to give the president higher marks now than previously. The elections occured in Iraq, of course, but they weren't a surprise. They had been scheduled since last year. Nor should their success have been a surprise except perhaps to those whose only news source is the MSM or Left-wing journals and blogs.

The fact is that things are going about as well in Iraq now as they have been for the last year or so. The difference is that the MSM, having very few blown up cars and shredded bodies to report about on election day, focused instead on something which they had ignored ever since the fall of Saddam - the joy and hope of the Iraqi people. Evidently, when a lot of average Americans saw Iraqi jubilation on their television screens it jolted them into changing their minds about the quality of the job that Bush is doing there.

Unfortunately, if that's the reaction that positive news coverage is going to produce, then we fear we shouldn't look for too many more upbeat stories from Iraq for awhile. The last thing the MSM wants is to be responsible for continued improvement in Bush's approval numbers, and they're probably aghast that they've precipitated this recent spike.