Monday, August 29, 2016

Shinzo Abe's Pork-Stuffed Stimulus Won't Save Japan's Economy

It's big, but it does nothing to address structural problems.

By Milton Ezrati
The National Interest
August 29, 2016

In the heat of summer, Japanese prime minister Shinzo Abe announced yet another set policies to revive Japan’s still failing economy. His program has more flaws than anything else. It not only neglects the structural reforms the country desperately needs to cope with its aging demographics, but what he has proposed is a reprise of the political gamesmanship his Liberal Democratic Party (LDP) has indulged in for decades—since, in fact, it first came to power in the 1950s. These channel pork-barrel projects in the direction of LDP donors and constituents and over the years have done less and less to spark growth. If the prime minister wants to help Japan, he will resist these old and largely corrupt policies and, in their place, give the country ways to deal with its chronic labor shortage and otherwise help it address pressing demographic and competitive realities.

The Japanese economy certainly needs help. After a brief surge last year in response to Abe’s earlier stimulus, it has relapsed into recession and stagnation. Real growth during the last four quarters came in little different from zero. Three of the last five quarters have registered no growth or outright economic declines. The country’s unemployment rate remain relatively low at 3.1 percent of the workforce, but only because decades of low birth rates have slowed the flow of young people into the labor market so completely that even this stagnant economy faces a labor shortage, itself a contributing cause of the economic malaise. Meanwhile, Japan continues to suffer from deflation. Consumer prices fell on balance during the past four quarters, helping to stall growth by prompting both households and businesses to wait for lower prices before consuming or spending on expansion.

To be sure, the package the government just unveiled is impressively large. It amounts to ¥28 trillion ($ 274.4 billion), over 6.5 percent of the economy. It rivals the emergency stimulus Tokyo implemented during the financial crisis of 2008–09. Relative to the economy’s size, it surpasses Washington’s failed stimulus of that time. Still, the impact will come on slowly. Tokyo plans to spend only ¥4 trillion in the current fiscal year ending in March.

The weakness of these latest policy measures, however, lies neither in their size nor in the schedule of disbursements. It resides instead in their composition. For one, the policy distorts itself to answer criticisms of the last stimulus. Because the government’s last effort gave corporate tax breaks and made efforts to promote exports by pushing down the yen’s foreign-exchange value, it was characterized as too pro-business. This latest policy slate tries to avoid such accusations by providing cash handouts of ¥15,000 ($147) each to some twenty-two million low-income Japanese. That benefit may make political points and may cause brief economic surge as these unfortunate people spend their boon, but it hardly provides a basis for ongoing growth. The policy offers a second form of support by reducing premium payments on public pensions and easing admission criteria to the system. These measures may have a more lasting effect but are far from an answer to Japan’s economic needs. Meanwhile, a third provision for more college scholarships can only be described as cosmetic.

The most suspect part of the package lies its emphasis on infrastructure. The bulk of its monies will go, the government says, to dredge harbors for cruise ships and greater agricultural exports. It will provide additional monies for subsidized loans to other infrastructure projects, including new hotels and a magnetic-levitation rail link between Tokyo and Osaka. This is how the LDP has long repaid its donors and constituents, giving the former lucrative government contracts and the latter an improved quality of life at the taxpayers’ expense. It is unlikely to help much. The party has done so much of this for so long that it has all but exhausted promising infrastructure options, while government debt outstanding has risen to some 260 percent of the gross domestic product (GDP). Japanese joke regularly that past largesse has so exhausted potential projects that every river in the country now has a concrete bed. The reference to agricultural exports gives away the game. If it is risible for Japan to look for economic salvation in agriculture, it is hardly surprising to see the LDP give yet another benefit to a sector it has long favored and that has always loyally voted for it.

Meanwhile, these new initiatives all but ignore Japan’s fundamental aging problem. The Japanese have had such low birth rates for so long that the flow of new entrants to the workforce has fallen short of those retiring. The country’s labor force has actually begun to shrink. Meanwhile, because the Japanese are the longest-lived people on earth, the proportion of dependent retirees continues to expand. At present more than one Japanese in five is of retirement age. The economy today has barely over two people of working age for every person over 65. With the number of producing hands and minds falling relative to a growing dependent retired population, it hardly surprise that the economy faces growth impediments. Yet all the new bill can do to address this fundamental problem is make a small provision for more childcare facilities for working parents and provide longer maternity leave, presumably to encourage families to have more children. Though few would criticize such steps, they seem small indeed next to the extent of the problem.

It is hard to believe that Abe is unaware of these policy inadequacies. The needed changes are widely discussed in Japanese business, academic and policy circles. If the country has cultural problems with immigration, other policy measures can enhance its available workforce. Provisions to keep people on the job longer could help, and efforts or to get more women to participate in paid employment certainly would. There is potential, too, since even now Japan has a low average retirement age and also has one of the lowest female work participation rates in the developed world. But these solutions need more robust encouragement than the government has offered to date. Perhaps Abe has little choice. Perhaps his fellow LDP legislators have forced old practices on him. Whatever his problem, until he or someone else can break away from past patterns and address Japan’s demographic imperatives, optimism about that country’s economic prospects will come only with great difficulty.

Article Link To The National Interest:

Hillary Practically Promised A Pay-To-Play State Department

By Betsy McCaughey
The New York Post
August 29, 2016

Unless you’re a high-ranking government official, it’s hard to get a meeting with any secretary of state. But during Hillary Clinton’s tenure, there was another way: pay up.

A staggering 85 of the 154 private citizens who managed to meet or speak with her by phone donated money to the Clinton Foundation. That looks improper — as if the secretary used her position to raise money for her family foundation.

Of course, appearances alone don’t prove anything. The proof of her illicit intent is in what she told the Senate Foreign Relations Committee during her January 2009 confirmation hearing. She rejected any attempts by the senators to prevent her from turning the State Department into a cash machine for the foundation.

The senators suggested that money pouring into the foundation while Clinton was secretary of state would look like US policy was up for sale. Too bad, she shrugged. She said she had worked out an agreement with President-elect Obama’s transition team, and she refused to change it.

The agreement imposed no restrictions on who could give — including foreign governments — or how much.

In response to every request from senators to limit fundraising or disclose the size and timing of gifts to the foundation, she said no. She stonewalled them.

Clinton said that if the State Department or the White House ever had concerns about a proposed gift, the foundation would be willing to hear them out. But under the agreement, the Clinton Foundation, not the White House or State Department ethics officers, would have the final say. Amazing.

The agreement protected the foundation from government oversight, but it didn’t protect the country.

Then-Sen. Richard Lugar (R-Ind.) persistently questioned Clinton, warning that her foundation would be “a temptation for any foreign entity or government that believes it could curry favor through a donation.”

Even foreign companies and individuals pose a risk, he explained, urging that the agreement be tightened.

Clinton refused: “The agreement as written already goes far beyond what any spouse of a Cabinet official has ever done.”

No kidding! No other Cabinet nominee in American history was the wife of a former president — and with a high-profile, big family foundation looking for cash.

Lugar then asked if the agreement could be amended to disclose the timing of gifts and the dollar figure for past and future pledges, not just donors’ names. Clinton used her stock answer: “The agreement already goes far beyond what any spouse of a Cabinet official has ever done.”

She disclosed that if any concerns were raised by the Obama White House or the State Department about foundation fund-raising, the foundation would be the arbiter of what’s “appropriate,” not the US government. Her jaw-dropping reassurance: “In many, if not most cases, it is likely that the foundation or President [Bill] Clinton would not pursue an opportunity that presents a conflict.”

Translation: It’ll depend on the amount of money being dangled in front of the ex-president. Sen. David Vitter (R-La.) cited a foundation donor who appeared to have connections to Iranian terrorism. Clinton dodged the question: “Well again, this is an agreement that has been worked out between all of the parties,” she blathered, noting the concerns “were thoroughly discussed.” But not remedied.

Clinton gave the senators the run-around in 2009 because she knew what she intended to do as secretary of state: sell her influence to raise money for the Clinton Foundation.

Sadly, all but one senator on the committee fawned over Clinton, despite her lack of cooperation, and voted to confirm her. Only Vitter stuck to his principles.

Recently released e-mails between foundation staff and Clinton’s State Department aides confirm that Vitter was right. People who couldn’t get a meeting with the secretary through official channels managed to get it with foundation help once they were donors. They paid, in other words, and they played.

Article Link To The New York Post:

What If Hitler Never Invaded Russia During World War II?

This might be just the ultimate “what-if.”

By Michael Peck
The National Interest
August 29, 2016

One of the most momentous decisions in history was Adolf Hitler's invasion of the Soviet Union on June 22, 1941.

Operation Barbarossa transformed Nazi Germany's war from a one-front struggle, against a weakened Britain and a still-neutral United States, into a two-front conflict. The Eastern Front absorbed as much as three-quarters of the German army and inflicted two-thirds of German casualties.

So what would have happened if Hitler had not invaded Russia? The dynamics of the Third Reich and Hitler meant that Germany would not remain passive. In fact, it is hard to imagine Nazi Germany and the Soviet Union not at war, though the question is when this would have happened.

One possibility was invading Britain in 1941, and thus either ending the European war or freeing the up the Third Reich to fight a later one-front war in the East. Thus Operation Sealion, the proposed 1940 amphibious assault on southern England, would merely have been postponed a year. The problem is that the Kriegsmarine—the German navy—would still have been badly outnumbered by the Royal Navy, even with the addition of the new battleship Bismarck. The British would have enjoyed an additional year to reinforce the Royal Air Force and to rebuild the divisions battered during the Fall of France. Britain would also have been receiving Lend-Lease from the United States, which by September 1941 was almost a belligerent power that escorted convoys in the North Atlantic. A few months later, America did formally enter the conflict; despite the Japanese advance in the Pacific, the United States would certainly have concentrated its growing strength on keeping Britain unconquered and in the war.

A more likely possibility is that Hitler could have chosen to move south instead of east. With most of Western Europe under his control after the summer of 1940, and Eastern Europe either subdued or allied with Germany, Hitler had a choice by mid-1941. He could either follow his instincts and ideology and move against the Soviet Union, with its rich resources and open spaces for Nazi colonists. Smashing Russia would also be the apocalyptic climax for what Hitler saw as an inevitable showdown with the cradle of communism.

Or, he could have turned towards the Mediterranean and the Middle East, as his naval chief Admiral Erich Raeder preferred. In the real World War Two, Rommel's North African campaign was a sideshow to the main event in Russia. In the alternate scenario, North Africa becomes the main event.

One possibility would be to pressure Franco to drop Spanish neutrality and allow German troops to enter Spain and capture Gibraltar, thus sealing off the direct route from Britain to the Mediterranean (if Franco was stubborn, another possibility would be to invade Spain and then take Gibraltar anyway.) Another option would be to reinforce Rommel's Afrika Korps, drive across Libya and Egypt to capture the Suez Canal (which Rommel almost did in July 1942.) From there the Germans could advance on Middle Eastern oil fields, or should Germany attack Russia in 1942, move through the Caucuses in a pincer operation that would squeeze Russia from the west and south. Meanwhile, steel and other resources would have been switched from building tanks and other land armaments, to building massive numbers of U-boats that would have strangled Britain's maritime lifeline.

Would this alternative German strategy have worked? A German Mediterranean option would have been very different than invading the Soviet Union. Instead of a huge Axis land army of 3 million men, the Mediterranean would have been a contest of ships and aircraft, supporting relatively small numbers of ground troops through the vast distances of the Middle East. With the Soviet Union remaining neutral (and continuing to ship resources to Germany under the Nazi–Soviet Pact,) Germany would have been able to concentrate the Luftwaffe in the Mediterranean. German aircraft mauled the Royal Navy in 1941–42, even while supporting the campaign in Russia. The full weight of the Luftwaffe would have been devastating.

On the other hand, the logistics of a Middle Eastern offensive would have been daunting, due to the great distances and lack of Italian shipping capacity to transport fuel. Germany had an efficient air force and navy, but it was primarily a continental power whose strength rested on its army. Assuming that America entered the war in December 1941, than it is possible that the focal point of the European theater in 1942 would have been German–Italian air and naval forces supporting a reinforced Afrika Korps, versus British and American land, air and naval forces defending or counterattacking in the Near East.

Which in turn raises another question: what if Hitler didn't cancel Operation Barbarossa, but rather postponed it until the summer of 1942? Assuming the Axis were successful in the Middle East, the Soviets would have faced a German–Italian expeditionary force advancing north through the Caucasus (perhaps Turkey would have joined the rising Axis tide.) Another year would also have given Germany more time to loot and exploit the resources of conquered Western Europe.

On the other hand, the Red Army in June of 1941 was caught terribly off-balance, still reeling and reorganizing from Stalin's purges. The extra year would have given the Soviets time to finish regrouping the Red Army as well as absorbing formidable new equipment such as the T-34 tank and Katyusha rocket launcher. Delaying Barbarossa until 1942, assuming Britain hadn't surrendered, would have meant that Germany would begin its attack on Russia while still needing to bolster its western defenses against the inevitable Anglo-American counterattack.

Superior German tactical and operational skills, as well as greater combat experience, would have given the Wehrmacht the edge in the opening days of Barbarossa 1942. Yet the catastrophic losses the Red Army suffered in 1941 would probably have been lower, leading to the possibility that Barbarossa delayed would have been a gift to the Soviets.

Article Link To The National Interest:

Brexit Is Actually Boosting The UK Economy

By Nicole Gelinas
The New York Post
August 29, 2016

Two months ago, the world’s wise men were warning that if UK voters decided to “Brexit” from the European Union, they’d rain down economic crisis. Guess what? Today, Britain is fine — and has even seen a boost from its “Leave” vote.

The International Monetary Fund, central-bank chiefs, academic economists — you know, the people who study the economy for a living — said Brexit would be a disaster.

Then-Prime Minister David Cameron warned that Britons who voted to leave would risk their Social-Security-style pensions. President Obama said Britons would have to “go to the back of the queue” to ink trade deals with the United States.

Now, though, Britain is showing how real free-market economics can correct political mistakes — if, indeed, Brexit was a mistake.

After the vote, the British pound plummeted. Financial traders believed their government’s warnings and ditched the currency.

Before Brexit, one British pound was worth $1.48. Today, it’s worth $1.32. The pound has fallen against other currencies, too. That has meant record visitors to Britain this summer — and tourists spending record amounts of money, too.

In the month before Brexit, airline reservations to Britain were down compared to the previous year, the Guardian reported. After the Brexit vote, they jumped 4.3 percent — and wealthier tourists bought more jewelry and watches.

Other parts of the economy haven’t suffered, either. Consumer confidence and domestic spending are both up. “Retail sales smashed expectations in August,” the Daily Mail noted on Friday. Manufacturing and home-sales reports are well and good.

Of course, Britain hasn’t officially Brexited yet. Whatever trade and immigration agreements Britain eventually signs with Europe and the rest of the world will matter.

But Britain has an advantage: it is a huge buyer of other countries’ goods. Germany sells more stuff to Britain every year than to any other country except one (us).

Were Germany to stop doing business with Britain, it would lose $50 billion of its annual trade surplus — including $18 billion in car sales. The United States, too, is a huge British trade partner. We sell Britain $56 billion in goods and services a year, and buy $58 billion.

Despite Obama’s warning, America isn’t going to cut off trade.

What about migration? Anti-Brexiters are still warning that Britain has harmed its ability to attract top scientists, bankers and the like.

But there’s nothing stopping the United Kingdom from designing a migration policy to attract lots of skilled workers, and as few or as many lower-wage laborers as it likes.

Europe isn’t going to force Britain to take all the low-wage Eastern European workers that apply. France and Germany have too much to lose on trade to stick up quite that much for poorer EU countries’ voters.

Anti-Brexiters also warned of spending cuts, as the country loses EU subsidies on everything from farming to university research. But it’s an indisputable fact that Britain gives more money — $12 billion — than it gets back from the European Union each year.

After Brexit, Britain will be free to spend that money as it likes, including to replace farm and research subsidies.

Voters noticed, too, that being in Europe didn’t save people from Cameron’s illogical budget cuts of the past six years. Despite record-low interest rates, Britain cut back on libraries and raised taxes on consumer goods, adding pain to people who were suffering job and income losses.

Yes, Britain still has problems. Like the United States, it still depends on cheap credit to get people to buy houses and spend money. This — not Brexit — will cause another recession someday.

And workers’ retirement income is at risk — not because of Brexit, as Cameron said, but because private companies and the government have avoided making “required” contributions to pension funds for decades, leaving a $1 trillion-plus gap.

Britain needs better infrastructure. Its commuter trains are a mess — and more expensive — compared to Europe’s.

But these problems have nothing to do with Brexit.

Britain may be dropping out of Europe, but it didn’t drop out of the world. The world still needs Britain, and the airplane parts, pharmaceutical products and theatrical productions it creates.

And Britain still needs the world for the stuff it can’t make or do itself.

The shock of Brexit is that it won’t change much at all — except providing a warning to pols around the world that the voters are at, well, the brexiting point.

Article Link To The New York Post:

Ground Zero In The New Cold War

The fraught frontier between Russia and the NATO-defended Baltics is full of surprises, not least its natural beauty. But tensions are building fast.

The Daily Beast
August 29, 2016

A bus ride from the last town in the European Union—Nida, Lithuania—across the border into Russia’s Kaliningrad region took less than an hour. The morning sun warmed sandy dunes along the shore of the Baltic Sea. There was hardly any traffic, just a few tourists and mushroom pickers stalking wild fungi in the lush vegetation of a national park. The bus glided quietly under pine trees on the only road in the Curonian Spit, a narrow stretch of land that is divided between two nations and, perhaps more critically at this moment, between two armies.

The northern part of the 98-kilometer-long peninsula belongs to Lithuania and is defended by thousands of North Atlantic Treaty Organization forces, while the rest of the peninsula is Russian, and similarly militarized.

Since the Russian annexation of Crimea in 2014, Lithuanian and Russian residents on both sides of the border in this once peaceful corner of Europe have been witnesses to frequent shows of military force.

This month, both NATO and Russia flexed their muscles. Lithuania’s Flaming Thunder 2016 drills brought together more than 1,000 ground troops to fire artillery and mortars.

On the other side of the frontier, Russia was reinforcing, too, in preparation for September’s large-scale drills by coastal forces. Dwarfing the NATO contingent, at least in numbers, the Russian Baltic Fleet is equipped with at least 75 combat ships, dozens of jet fighters and assault helicopters. Last week, the fleet fired BM-21 Grad multiple rocket launchers.

Little Lithuania (population 2.9 million) has watched in horror as Russia’s form of hybrid warfare, using covert operations, local “insurgencies,” relentless propaganda, and threats of outright invasion, has torn Ukraine apart. But unlike Ukraine, Lithuania is a member of NATO, and Lithuanians are praying they’ll be protected under its wing.

So last month, when U.S. presidential candidate Donald Trump suggested he might not rush to the country’s defense unless he judged it had paid its NATO dues, a collective shiver ran through this country. The evident coziness Trump feels for Russian President Vladimir Putin does not encourage confidence here either.

U.S. Vice President Joe Biden, on a visit to the Baltics this week, told his audience, “Don’t listen to that other fellow,” meaning the unnamed Trump. “He knows not of what he speaks.”

For the moment, the promise NATO has made to its three Baltic members—Lithuania, Latvia, and Estonia—is a deployment of up to 4,000 troops in the region, clearly intended as a tripwire should the Russians make an overt move.

But that, in turn, is spun by Moscow as a provocation and perhaps even a threat to the Kaliningrad enclave: Russian territory that lies between Lithuania and Poland.

So, right now, relations between Moscow and Vilnius look very grim indeed. Lithuania’s foreign minister, Linas Linkevicius, refers to Russia as an “aggressor” using “old KGB methods.” On the ground, meanwhile, people view the return to Cold War rhetoric and war games as a potential disaster.

As we waited in line at Russian customs on the border, the bus passengers discussed the artillery drills Russian forces had started in Kaliningrad a couple of mornings before. A middle-aged Lithuanian woman, Agota Gaurdas, and her husband, Virgilijus Gaurdas, said they were “terribly tired of the increasing threats” causing militarization of the region around their home in city of Klaipeda.

“We hear airplanes over our heads and wonder whether it’s Russian pilots exercising to bring down NATO planes over our roof or it is our forces, which are now NATO, learning to shoot down Russian soldiers?” said Virgilijus, a civil engineer. “We are worried that one day, when they actually decide to fire at each other, there will be nothing left of Lithuania.”

Virgilijus said he did not believe that the Kremlin was serious about invading Lithuania, and blamed politicians for the Cold War games.

While the majority of Lithuanians prefer to live their lives as if nothing dangerous is happening, there are thousands who’ve mobilized into a partisan movement to defend their Baltic state.

Earlier this month about 50 volunteers from the Lithuanian Riflemen’s Union had their own military exercises all over the Lithuanian capital of Vilnius. “It is counter-intelligence training,” said the drill’s coordinator, Haroldas Daublyus, a buff middle-aged man wearing a baseball cap. “Our mission was to identify Russian spies, who were hiding all around Vilnius; we trained to chase the spies, bugged their vehicles, and reported the group to authorities.”

The paramilitary Riflemen’s Union originally was established in 1919 when Lithuania declared independence and went to war against the Bolsheviks, the Western Russian Volunteer Army and the Polish forces.

Soviet authorities banned the movement after they annexed Lithuania and the other Baltics in 1940. At the time it counted up to 50,000 volunteers, including famous writers, poets and scientists.

In the past two decades, since the fall of the Soviet Union and the liberation of the Baltics, the movement has revived its partisan ideology. Today it claims up to 10,000 members, many of whom are current or former military.

Members of the Riflemen’s Union told The Daily Beast that they counted on Washington and NATO, but they also trained together with volunteers of similar partisan movement in Estonia and Latvia and felt ready to join the regular forces and defend their country’s 227 kilometer long border at any moment.

“The idea that we should defend ourselves is common in a lot of people’s heads,” said Daubylus. “We are upset about what Trump says. He is betraying us all.”

“In the last two years we have tried everything from raids in the woods and shooting weapons to learning counter-intelligence tactics,” said Daubylus. “All of us, including 14-year-old members, are ready to unite with our neighbors and Ukraine and fight against the return of Russians.”

At the time Lithuanian partisans were catching Russian “spies” around Vilnius, the Collective Security Treaty Organization uniting six post-Soviet states also mobilized for major military drills in northwest Russia.

During the drills August 16 to 18, Russian forces broadcast a woman’s voice repeating the following message to the supposed enemy: “NATO Soldiers! You are being brainwashed! This is not your territory that you fight on! Give up weapons, stop being puppets in your leaders’ hands!”

Last week the Lithuanian foreign ministry informed The Daily Beast, that a majority of flights conducted by Russian aircraft in the international airspace near the Baltic States were not in compliance with international rules. Lithuanian authorities had to deal with “Russian transponders switched off, no pre-filed flight plans, [and] communication with flight control centers was not maintained.”

In Nida, once home to the German novelist Thomas Mann, residents depend on tourism and hope for peace for their business to flourish.

But in Kaliningrad there’s a certain excitement about the way Putin is pressuring the Baltic Fleet to get in shape. Ilya Stulov, who lives only 7 kilometers away from the military base, knows exactly when Russian forces begin their thunderous drills, and hears through the grapevine how they’re doing.

“At least now Putin punishes commanders for missed targets during the drills,” says Stulov. “He sacked vice Admiral Viktor Kravchuk and chief of staff admiral Sergei Popov after the fleet missed at least one third of their targets earlier this summer.”

All this serves Putin’s strategy of intimidation.

“The Kremlin makes us feel uncomfortable, threatens our security,” says Gintare Narkeviciute, the director for international affairs at the Ronald Reagan House, a think-tank dedicated to promoting democracy and providing consultancy for Lithuanian state institutions. “They are not going to attack, this is psychological pressure.”

To young professionals in Baltic Countries, who lived most of their lives identifying themselves as Europeans, the shadow of the Soviet past once again hanging over their heads is highly frustrating.

“We are worried that instead of peaceful reasonable development, Russia chooses to return to Brezhnev-style of militarization, of putting pressure and getting involved in our internal affairs,” Narkeviciute told The Daily Beast.

As a result of Russian counter-sanctions against goods from the West, Lithuanian exports to Russia have dropped off by 39.2 percent, according to the foreign ministry in Vilnius. Farmers producing milk, cheese and other products have suffered most, and have had to look for other markets.

To some older Lithuanians, whose youth was spent in the Soviet Union, especially to those who frequently travel to Russia for business or leisure, the idea of militarization and potential war with the neighbor simply sounds wild.

“If we do not listen to news about constant war games all around us, it all seems the same peaceful Baltics; but then we visit our friends in St. Petersburg and they tell us that EU propaganda turns us into zombies…,” my fellow passenger on the bus, Agota Virgilijus, told me, letting the words trail off.

She looked outside at families packing their car trunks with baskets full of mushrooms and added: “The sun, the dunes and Baltic Sea are the same on both sides of the border of the Curonian Spit,” she said. “And so are the mushrooms.”

Article Link To The Daily Beast:

Keeping Turkey In The U.S. Orbit

Leaders from Kiev to Jerusalem to Tokyo are familiar with Ankara’s discontent with Obama.

By Sohrab Ahmari
The Wall Street Journal
August 29, 2016

Turkey is living through a 24/7 state of emergency. The latest alarm came Thursday with an assassination attempt on the leader of the secular opposition. Kemal Kilicdaroglu was traveling the country’s northeast when his convoy came under fire. A member of his security detail was killed in the shootout, but Mr. Kilicdaroglu was unharmed and evacuated by helicopter. The perpetrators escaped, though Mr. Kilicdaroglu’s aides say his bodyguards may have killed one of them.

“Even though we are attacked, we will continue with determination in the path that we believe in,” Mr. Kilicdaroglu said in an interview Friday at the headquarters of the Republican People’s Party, or CHP. The separatist Kurdistan Workers’ Party, or PKK, took credit but said government security forces, not Mr. Kilicdaroglu, were the intended target.

In today’s Turkey such incidents capture headlines only to be overshadowed a few hours later by the next thing to go bang. Sure enough, hours after the Kilicdaroglu attempt, a truck bomb on Friday killed 11 Turkish police officers near the Syrian border. The PKK also claimed responsibility for that attack.

Life goes on. Men and women still gather in outdoor bars to sip raki, watch soccer and shoot the breeze. The margin of personal freedom remains wider than in most of the region. Even so, the mood is dark. With July’s failed coup, nearly three million Syrian refugees, a fresh PKK insurgency in the southeast and the menace of Islamic State, the Turks feel they can’t catch a break.

The Turkey emerging out of these manifold crises is more insular, paranoid and illiberal. This means Ankara may no longer be as solidly anchored in the West as it has been since the Cold War. Washington assigns the blame for this turn to President Recep Tayyip Erdogan, and rightly so in Turkey’s domestic sphere. But the president isn’t alone to blame for Ankara’s troubles abroad.

Mr. Erdogan’s project to concentrate power in the presidency was well under way before the coup attempt on July 15. Most serious observers here believe followers of the Pennsylvania-based cleric Fethullah Gülen organized the ill-fated coup. Few have forgotten that the Gülenists were the authoritarian handmaidens to Mr. Erdogan’s Justice and Development Party, or AKP, before the two Islamist camps turned on each other in 2013. In the mid-2000s, when Messrs. Erdogan and Gülen were still allies, well-placed Gülenists in the judiciary persecuted and sidelined a common enemy: the old secular establishment.

The failed coup has accelerated Mr. Erdogan’s will to power. But it has also rallied much of the country behind his grievance narrative. Turks, secular and pious, feel betrayed. The West lectures them about the post-coup purges, they complain, without acknowledging the deep trauma of the coup itself: the putschist pilots who buzzed their apartments, the tanks that rolled down their streets.

Meanwhile, pro-government media feed the population a steady diet of ever-nuttier propaganda suggesting U.S. involvement in the coup attempt. Mr. Kilicdaroglu, the opposition leader, says the ruling party’s dominance over media leaves little doubt that it is “guiding the public.” A Western diplomat puts it nicely: “The government shapes public opinion and then claims to be constrained by that same opinion.”

Then again, externalizing responsibility for one’s destiny is nothing new in this part of the world. The relevant question for the American national interest is how to prevent this strategically crucial country from drifting further toward Russia’s orbit and away from the U.S.-led security order—or what remains of it after eight years of President Barack Obama.

Here the Turks ought to be listened to. Not all of Ankara’s lashing out at Washington derives from Mr. Erdogan’s cynicism and ideological hubris. Some of it is in reaction to the same sudden shift in U.S. policy under Mr. Obama that has jolted allies world-wide. Leaders from Kiev to Jerusalem to Tokyo are familiar with Ankara’s discontent.

Turkey has felt the jolt most acutely in Syria. Mr. Erdogan took Mr. Obama at his word when the American said in 2011 that Bashar Assad“must go.” He also took seriously Mr. Obama’s red line on chemical weapons. Turkey’s much-maligned early policy in Syria included overt support for moderate rebels and a laissez-faire policy that enabled the movement of more hard-line jihadists into the country. Ankara expected that Washington would favor its traditional allies and disfavor others: namely the Iranian mullahs, Mr. Assad and their various Shiite proxies.

Mr. Obama scrambled that friend-enemy pattern. He awkwardly ignored the red line, and the U.S. carried out secret talks that would culminate in a nuclear deal with Tehran and tie America’s hands against Mr. Assad. Then came a second shock to the Turks. America increasingly relied on Syrian-Kurdish factions with close ties to the Turkish PKK as its main ground forces in the country.

Suddenly an internationally designated terrorist group came to be seen “as defenders of civilization,” a senior Turkish government official says. The Syrian Kurds did defend civilization against Islamic State barbarism, and valiantly. But the Turks believe, not without reason, that the PKK has also been emboldened by the legitimacy that flowed to their factional cousins in Syria.

There is a lesson here about the destabilizing effects that follow when a superpower tires of its leadership role. For the White House, irritating the Turks was a price worth paying for a small American footprint in Syria. But it would behoove the next administration not to humiliate the Turks with the fiction that the PKK and the Syrian-Kurdish question are separate.

Nor should anyone be shocked that Turkey aims with its recent Syrian incursion to check both Islamic State and the growth of a contiguous PKK-friendly Kurdish statelet on its doorstep. Any Turkish government would behave the same way.

Washington should also be forthright with Mr. Erdogan about his own authoritarian drive at home. A Turkey that isn’t beholden to the whims of one man will be better equipped to cope with Syria’s furies.

Article Link To The Wall Street Journal:

Both Trump And Dems Exploit Tragedy

By Jonathan S, Tobin
August 29, 2016

It was typical Donald Trump. The Republican presidential candidate’s decision to highlight the shooting death of basketball star Dwayne Wade’s cousin was crass, egotistical, and tasteless. Whatever one may think of the way Chicago has been run, using a senseless murder like that of Nykea Aldridge, who was an innocent bystander killed in the crossfire between two gunmen while pushing a baby stroller, was an appalling breech of common decency. The reaction to Trump’s tweet, which used Aldridge’s death as proof that “what I’ve been saying” about the problems facing African-Americans is right, was swift and furious. Trump later issued another tweet offering condolences but, of course, no apology.

But while this incident can serve as confirmation of Trump’s bad character, most of those bashing him are hypocrites. That’s because as bad as Trump’s shameless willingness to exploit a random violent crime might be, it’s no different from what President Obama, Hillary Clinton and just about every other Democrat has done many times when something terrible happens that might be used to promote gun control.

Democrats never hesitate to exploit mass shootings, no matter whether the weapon involved was legally purchased or if any of the “common sense” gun laws they support would have prevented the crime. Sometimes this exploitation is supported by survivors or relatives of the victims. Whether that is true or not, or if the motivation for the murders renders the provenance of the weapons irrelevant (such as when Islamist terrorists killed in San Bernardino and Orlando), nothing stops the president and other Democrats from proclaiming that the latest tragedy is just more proof of how right they’ve been all along when it comes to guns.

The only difference is that rather than helping to orchestrate the condemnation of such tasteless behavior, the liberal mainstream media praises and echoes such sentiments. When it comes to promoting more restrictive gun laws, regardless of their efficacy in terms of preventing crime, the same rules of conduct that were correctly used to condemn Trump’s tweets are thrown out the window. In such cases, there is no waiting period during which decent people are constrained to simply mourn the death and condole their families. President Obama’s first reactions are always about gun laws and no one in liberal media or the usual quotable celebrity suspects react to that with anything but applause.

As for Trump, he happens to be right that the social pathologies that afflict our inner cities can be traced in part to decades of liberal policies. Moreover, the ongoing murder spree in Chicago in spite of that city’s draconian gun laws and decades of uninterrupted Democratic rule speak to the moral bankruptcy of American liberalism. But it is hardly a surprise that African-Americans find his condescending commentaries about their communities to be insulting. They deserve better than what they’ve gotten from the Democrats, but the GOP will have to find a better messenger–or at least one that doesn’t dog whistle to his racist supporters or have a record as the country’s leading “truther” who worked to delegitimize the first African-American president–if there are ever to get more black votes. Treating the death of Wade’s cousin in this manner is a gift to Hillary Clinton, who is counting on a huge turnout from minority voters in November.

If Trump was wrong to tweet about this murder, then it is equally wrong for President Obama and every other Democrat to exploit other senseless crimes for their own political purposes. The chorus of condemnation he is getting from the same sources that echo Obama’s all-too-similar behavior in other instances illustrates the depths of liberal media bias.

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Warned Of A Crash, Start-Ups In Silicon Valley Narrow Their Focus

By Katie Benner
The New York Times
August 29, 2016

Evernote, a Silicon Valley start-up that makes a note-taking app, was supposed to be dead by now.

After a stratospheric rise over the last few years, during which investors poured about $270 million into the company and valued it at $1 billion, Evernote hit hard times last year. Naysayers said the company had overexpanded, was spending too much money and would be destroyed by competitors. The start-up soon became the poster child of a coming collapse in Silicon Valley.

Twelve months later, Evernote has cut back on staff, eliminated employee perks like free housecleaning services, simplified its product line — and stabilized. The number of customers who pay for its file storage and sharing product is on track to grow as much as 40 percent this year, and the company is hiring again.

“Here we sit, a year after we were supposed to die,” said Chris O’Neill, 43, chief executive of the start-up, which is based in Redwood City, Calif. “It was hard for employees to readjust expectations. They had only known a world where another fund-raise was just around the corner.”

Silicon Valley start-ups were set to face a great reckoning in 2016. Yet the crash hasn’t happened.

Last year, many tech executives, venture capitalists and entrepreneurs were convinced that a multiyear boom that had propelled young companies to great heights could no longer sustain itself. Some said it would end apocalyptically. Michael Moritz, an influential start-up investor at Sequoia Capital, declared many of the companies “the flimsiest of edifices.” Bill Gurley, a venture capitalist at the Silicon Valley firm Benchmark, proclaimed that the start-ups would bite the dust.Winter is coming,” others intoned.

The worst fallout may yet come, but many of the start-ups have hung on. Across Silicon Valley, engineers are still commanding annual salaries that average $136,000, according to Hired, a recruiting firm. Demand is brisk for $4 buttered toast, and office space rents remain near record highs. The biggest start-ups, like Uber and Airbnb, continue to land billions of dollars in funding. And investors are shoveling money into venture capital funds, which raised so much cash in the first half of this year that it rivaled the amount raised in all of 2015.

For all of the hand-wringing, “there just hasn’t been much of a downturn,” said Paul Buchheit, a managing partner at Y Combinator, a prominent start-up incubator that nurtured companies including Dropbox and Airbnb. “I don’t even see many companies going out of business.”

That is not to say there has been no adjustment. Some smaller start-ups, like the live-streaming app Blab and the on-demand private chef company Kitchit, have collapsed into Silicon Valley’s dead pool. Other young companies have laid off staff. And many entrepreneurs are no longer able to demand whatever valuation they please for their companies.

Yet it is precisely these adaptations that have allowed many Silicon Valley start-ups to stick it out — for now, at least.

“The start-up world did heed the warnings,” said Max Levchin, a former employee and a founder of PayPal and the chief executive of Affirm, a lending start-up in San Francisco.

Silicon Valley’s innovation engine continues even with the survival of so many start-ups — and not just the fittest — because of the abundance of venture capital. There has been a proliferation of new enterprises in up-and-coming fields like artificial intelligence, robotics and virtual reality, creating potential areas of growth for Silicon Valley technologists to build on next.

For techies who have been grappling with the not-yet-a-crash environment, the adjustment in their outlook is evident in their speech. Entrepreneurs who once talked about how fast their start-ups were growing are now spouting from a bible of fiscal responsibility.

Sean Behr, the chief executive of the parking service Zirx, epitomizes the change. The company, named after the Ukrainian word for star, was in the “on-demand” space, providing valet parking with the touch of a smartphone button. Mr. Behr said his goal was to make all of Zirx’s consumers feel like stars.

But each customer was so expensive to acquire and serve that Zirx lost money and consumers in all six cities where it operated. By late last year, Zirx, a San Francisco start-up that had raised $36 million, had only about a year’s worth of cash left.

So in January, Mr. Behr, 41, walked his employees through nearly 40 PowerPoint slides detailing the company’s precarious finances and explained that Zirx needed to take drastic actions. That month, he told customers Zirx was shutting down its on-demand businesses where valets would park cars for any customer who asked and would instead focus on more lucrative corporate clients.

“Investors used to say grow, grow, grow and don’t worry about costs,” Mr. Behr said. “Now you’re encouraged to not run out of money and make sure you’ll be around.”

Today, Zirx is profitable in eight of its nine markets, he said. The company has preserved $10 million from its last financing round to keep in the bank for a rainier day.

At Bannerman, a 16-person security guard start-up based in San Francisco, Johnny Chin, the chief executive, also narrowed the company’s focus after warnings of a crash. While the start-up once pursued several types of customers, it began concentrating on serving only medium-size offices and property managers.

The company was losing money last year, but it is now profitable. Start-ups “started to cut their most frivolous spending,” said Mr. Chin, 30. “People are just cautious. It’s healthier.”

Other entrepreneurs have a newfound air of practicality, no longer shooting for their companies to be the next tech behemoth like Facebook.

Ken Denman, chief executive of the artificial intelligence start-up Emotient, was trying to drum up more money for his company last year when he heard the talk about a coming start-up calamity. So to hedge his bets, he started talking to potential buyers, too.

“In 2013, I wouldn’t have thought about selling,” said Mr. Denman, 58. But all the concerns “encouraged folks to behave in whatever way would give them the greatest chance to succeed.”

In January, he sold his four-year-old company for an undisclosed amount to Apple, where most of his team now works. “I looked at all the variables and wanted to do what was the best thing for the employees and the company,” said Mr. Denman, who is taking a break after the sale.

A Silicon Valley start-up crash may still take place, especially if the stock market tanks or if there is a financial shock to the system. And some tech investors like Mr. Gurley, the venture capitalist, are still sounding the alarm. In April, Mr. Gurley wrote a blog post that laid out how venture investors remain overcapitalized to a dangerous degree, which made investing in start-ups more risky.

While there has been no crash since then, he does not regret any prognostications. He said he was glad if young companies had stopped overspending because of his warnings.

“Funding for just anything under the sun has gone away,” Mr. Gurley said. “I spoke out because the longer those things go on, the worse things end up later on. This is the impact I wanted to have.”

Article Link To The New York Times:

Police Investigating Unconfirmed Reports Of Shots Fired At Los Angeles Airport

By Chris Michaud
August 29, 2016

Los Angeles airport police said on Twitter late on Sunday they were investigating unconfirmed reports of shots being fired at Los Angeles International airport, with officials closing the arrival and departures areas of the central terminal.

The police said in a second tweet they were searching the airport and that all precautions were being taken to ensure the public's safety. "Remain calm," the post on Twitter said.

The airport said on Twitter that the departure and arrival levels of the Central Terminal Area were closed and advised passengers to contact airlines to check the status of any flights.

It also said that no confirmation of any shooting could be verified yet.

Los Angeles airport police could not be reached immediately for comment.

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Monday, August 29, Morning Global Market Roundup: Most Asia Stocks Slide On Fed Officials' Rate Comments, Dollar Firms

By Nichola Saminather
August 29, 2016

Most Asian share markets tumbled on Monday while the U.S. dollar added to gains made after Federal Reserve Chair Janet Yellen indicated a U.S. interest rate increase remains on the cards for this year.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS extended losses to 1 percent.

Japan's Nikkei .N225 bucked the trend and climbed 2.3 percent, the biggest one-day gain in three weeks, as the yen weakened against the resurgent dollar.

China's CSI 300 .CSI300 and Shanghai Composite .SSEC indices shed early losses and were fractionally higher. Hong Kong's Hang Seng .HSI pulled back 0.3 percent.

The case for a U.S. rate hike has strengthened in recent months, with a lot of new jobs being created, and economic growth looks likely to continue at a moderate pace, Yellen said in a speech at the Fed's annual monetary policy conference in Jackson Hole, Wyoming, on Friday.

While Yellen did not give guidance on what the central bank needs to see before raising rates, she said the Fed already thinks it is close to meeting its goals of maximum employment and stable prices. She described consumer spending as "solid" but noted that U.S. business investment was weak and exports hurt by a strong dollar.

Comments by the Fed's No. 2 policymaker, Vice Chair Stanley Fischer, following Yellen's speech also bolstered the case for a hike this year.

Asked on CNBC whether a rate hike in September and more than one policy tightening before year-end should be expected, Fischer said Yellen's comments were "consistent with answering yes" to both questions, albeit still data-dependent.

Among the first data to be scrutinized will be U.S. consumer confidence for August, due Tuesday, productivity, manufacturing and construction figures on Thursday, and August non-farm payrolls data rounding out the week on Friday.

Traders, while raising expectations for rate increases this year, remained cautious. The odds of a hike in September rose to 33 percent following the comments, from 21 percent on Thursday, according to CME Group's FedWatch tool. Traders were pricing in a 59.1 percent chance of a hike in December, up from 51.8 percent on Thursday.

"While the move towards another Fed rate hike will likely cause bouts of consternation in investment markets I don’t see the same degree of uncertainty that we saw around last year’s Fed rate hike," Shane Oliver, head of investment strategy at AMP Capital in Sydney, wrote in a note.

"It's clear from the Fed's actions this year that it is aware of global risks, the impact of its own actions on those risks and any potential blow back to the U.S. economy and of the impact of a rising U.S. dollar in doing some of its work for it."

The comments from Yellen and Fischer dragged Wall Street lower at the close.

But they proved a boon for the U.S. currency, with the dollar index .DXY, which tracks the greenback against six global peers, jumping 0.8 percent on Friday. It held steady at 95.518 on Monday.

The dollar surged 1.3 percent against the yen JPY=D4 on Friday to a two-week high, its biggest one-day advance in almost seven weeks. It extended those gains by 0.3 percent to 102.20 yen on Monday.

Japanese household spending and retail sales data for July are due on Tuesday. Investors are seeking some sign that Prime Minister Shinzo Abe's massive stimulus programs are having an effect, after figures on Friday showed a decline in consumer prices by the most in three years in July.

The euro EUR=EBS was flat at $1.12010 after tumbling 0.8 percent on Friday, its biggest one-day slide since July 15.

In commodities, the rally in the dollar and concerns about growing output after exports from Iraq in August exceeded July levels drove crude lower.

Iran also said late last week that it would only cooperate in upcoming producer talks in September if other exporters recognized Tehran's right to regain market share lost during international sanctions that were only lifted in January.

U.S. crude futures CLc1 fell 1.1 percent to $47.10.

Global benchmark Brent crude LCOc1 also retreated 1.1 percent to $49.39.

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Oil Prices Fall On Rising Iraq Output, Doubt Over Producer Talk Prospects

By Henning Gloystein
August 29, 2016

Oil prices fell early on Monday as output from Iraq rose and as Iran said it would only cooperate in upcoming producer talks to freeze output if fellow exporters recognized its right to fully regain market share.

International Brent crude oil futures LCOc1 were trading at $49.54 per barrel at 0043 GMT (8.43 p.m. ET), down 38 cents from their previous close.

U.S. West Texas Intermediate (WTI) crude futures were down 43 cents at $47.21 a barrel.

Traders said the price falls were a result of climbing output from the Middle East, where oil exports from Iraq's southern ports have averaged 3.205 million barrels per day (bpd) in August, exceeding the average level seen in July, according to two officials from state-run South Oil Company said. Exports in July averaged 3.202 million bpd.

Also, Iran said late last week that it would only cooperate in upcoming producer talks in September if other exporters recognized Tehran's right to regain market share lost during international sanctions that were only lifted in January.

Analysts said that disagreements within the Organization of the Petroleum Exporting Countries (OPEC), and especially its key members Saudi Arabia and Iran, meant few expected a significant impact on global output from the upcoming talks.

"The market is increasingly likely to discount the outcome of the event, given, even in the instance of a freeze being agreed, compliance will be an issue," Barclays said.

Despite this, the British bank said that it saw "incoming oil market data (both demand and supply) as a source for price strength in Q4".

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More U.S. Counties To See Obamacare Marketplace Monopoly

By Trevor Hunnicutt
August 29, 2016

Nearly a third of U.S. counties will likely be served by only one insurer that participates in an Affordable Care Act (ACA) marketplace in 2017, according to an analysis published Sunday by the Kaiser Family Foundation.

The 31 percent of U.S. counties that will have just a single option of insurers within the ACA's exchanges would represent an increase from 7 percent this year, the nonpartisan group found.

UnitedHealth Group Inc (UNH.N) and Aetna Inc (AET.N) have decided to largely exit government-run online marketplaces in 2017 that sell subsidized plans created under President Barack Obama's national healthcare reform law, citing low enrollment and high service costs.

The bulk of the decrease in counties with a choice of insurers is due to UnitedHealth's pullback, which was announced in April.

The data underscores the degree to which industry retrenchment is curtailing individual's options within the marketplaces. Insurer departures may lead to higher costs within that market, analysts have said.

One county - Pinal County, Arizona - risks having no insurer options at all within the marketplace, the analysis found.

However, the study's authors said another plan offered elsewhere in the state could expand to serve the county. The foundation also said it could take more months and more data for the full impact of the changes for 2017 to become clear.

A spokeswoman for the U.S. Department of Health and Human Services was not immediately available for comment, but the agency has said that the ACA has helped increase the number of options available to individuals.

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As Fed Nears Rate Hikes, Policymakers Plan For 'Brave New World'

By Jason Lange and Ann Saphir 
August 29, 2016

Federal Reserve policymakers are signaling they could raise U.S. interest rates soon but they are already weighing new tools they may need to fight the next recession.

A solid U.S. labor market "has strengthened" the case for the first rate increase since last December, Fed Chair Janet Yellen told a central banking conference in Jackson Hole, Wyoming. Several of her colleagues said the increase could come as soon as next month if the economy does well.

Further rate hikes are expected to be few and far between as the U.S. central bank tries to balance a desire to fuel growth against worries it could overheat the economy.

But Fed officials at three-day conference that ended Saturday also said they need to consider new policy tools for use down the road, such as raising the inflation target or even Fed purchases of non-government-backed assets like corporate debt.

Such ideas would test the limits of political feasibility and some would need congressional approval. The view within the Fed is that it could take effort to win over a public already skeptical of the unconventional policies the Fed undertook during the last crisis.

Policymakers think new tools might be needed in an era of slower economic growth and a potentially giant and long-lasting trove of assets held by the Fed. And they are convinced the time to vet them is now, while rates look to be heading up.

"Central banking is in a brave new world," Atlanta Fed President Dennis Lockhart said in an interview on the sidelines of the conference.

At the center of the Fed's discussions is its $4.5 trillion balance sheet, built up by bond-buying sprees to combat the 2007-09 recession but which has been criticized by many lawmakers.

While policymakers have maintained the Fed should eventually reduce its bond holdings, Lockhart said some officials were closer to accepting that they needed to learn to live with them.

"I suspect there are colleagues who are contemplating at least maybe a statically large balance sheet is just going to be a fact of life and be central to the toolkit," he said.

Officials have said they will slowly let the balance sheet shrink, a process that would take years and would not begin until interest rate increases are well underway. Substantial progress could be made only in a very long-lived economic expansion.

"I am sure everyone in the audience would be happy if this were the reality. I certainly would be," Simon Potter, the New York Fed's markets chief, said during the conference.

Yellen, in her speech on Friday, said balance sheets would likely swell again in future recessions as the Fed snaps up assets to stimulate the economy.

The conference, attended by all but two of the Fed's 17 policymakers as well as central bankers from around the world, also presented a menu of more exotic proposals. This included a Fed takeover of short-term debt markets and abolishing cash in order to charge negative interest rates.

Many of the more radical proposals, including one to abandon monetary policy altogether and focus on urging runaway deficit-spending, were seen as ivory tower musings.

Most policymakers, including Yellen, said it was likely the tools the Fed used to fight the last crisis, including rate cuts, bond purchases and jawboning on rate expectations, will be adequate.

Still, she said, "future policymakers might choose to consider some additional tools that have been employed by other central banks," including buying a wider range of assets or raising the inflation target. She also cited the possibility of targeting the average level of prices in the economy rather than their rate of change.

Notably, her laundry list of possible tools did not include negative rates, an idea that has been nearly universally panned by Fed officials. She said the Fed is not actively considering additional policy tools but participants at the conference suggested the process is already well underway.

"You are seeing an exploration of how are we going to operate in a quite different world than before the crisis," Lockhart said.

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Winners And Losers In The New China

By Christopher Balding
The Bloomberg View
August 29, 2016

Economists too often talk about policy changes in abstract, ignoring the drawbacks that even sensible reforms can bring. For years, analysts have been urging China to shift its economy away from heavy industry and toward services and consumption. Yet now that Beijing is taking heed, the costs are piling up.

Most obvious is a deepening gulf between winners and losers. A recent study from Peking University found that China has become one of the most unequal countries in the world. The richest 1 percent of households own a third of total wealth. As the government tries to transition away from coal and steel and toward tech and finance, this divergence is likely to worsen.

In fact, it's already starting to. Regionally, the differences between China's old and new economies couldn't be starker. The rustbelt province of Liaoning, long reliant on steel mills, is now in recession. In finance-focused, high-tech Shenzhen, real-estate prices have risen by more than 60 percent in a year, the fastest rate in the world.

For workers, the shift has been just as harsh. Low-skilled laborers in fading industries are facing a contracting labor market and stagnant wage growth, even as state-sponsored venture capitalists plow stunning amounts of money into technology and pharmaceutical startups. Last year, China accounted for 90 percent of newly minted billionaires, overtaking the U.S. for the most in the world. This year, 1.8 million coal and steel workers are facing layoffs.

Signs of a growing divide are everywhere. Although reliable wage data is hard to come by, some consumption patterns are suggestive. Highway transportation, preferred by the Chinese everyman, is down 19 percent on the year. Air travel, still mostly for the rich, is up 11 percent. International flights are increasingly popular: Chinese flying to Japan to buy toilets, Thailand for beach holidays or Europe for luxury goods are faring quite well.

Yet in many ways, China remains a developing country. More than 600 million Chinese -- some 44 percent of the population -- are classified as rural residents, with an average nominal yearly income of $1,620. An urban worker earns nearly three times as much, enjoys better public benefits like schooling, and gets an enormous wealth boost from real-estate appreciation.

As bureaucrats in Beijing continue creating jobs for bankers and subsidizing startups, this is creating some alarming tensions: The number of strikes and workplace protests surged to a record 2,774 last year, double the amount in 2014.

China needs to address this divergence quickly. Although the government is offering cash to laid-off workers, the bigger problem is helping them make the transition to new jobs and new lives. Coal miners don't become medical technicians without training, or move to new cities without incentives.

The first step should be relaxing rules that prevent workers from moving. Successful economic transitions require letting labor flow freely, and restrictions on where migrants can work, and where their kids can go to school, only inhibit this process. Retraining programs are also crucial. Many rural towns in China have become magnets for online retailers, as small-time shop-owners enter the digital age; local residents need to have the wherewithal to capitalize on such changes.

Finally, Beijing must address housing costs. In most major cities, and especially those with flourishing economies, low-skilled and migrant workers have been largely priced out. One result is that rural-to-urban migration, once an unstoppable growth engine, has effectively ceased. A program to sell empty housing held by state-owned developers to migrants at affordable prices would help. So would easing restrictions on housing investment for lower-income groups.

China isn't alone in facing such problems. Yet its challenges are enormous. The yawning gap between winners and losers is making life much harder for a government seeking to boost growth and maintain stability. Without changes, China may very well end up with neither.

Article Link To The Bloomberg View:

Inside The Secret U.S.-North Korea ‘Track 2’ Diplomacy

By Josh Rogin
The Washington Post
August 29, 2016

U.S. experts and former officials secretly met several times with top North Korean officials this year, and some of them have emerged believing the regime of Kim Jong Un is ready to restart talks about its nuclear program.

There has been no official dialogue between the U.S. government and North Korea since Kim assumed power following his father’s death in 2011. But Pyongyang has quietly maintained contact with Washington through a series of “Track 2” dialogues. Pyongyang often sends senior diplomats to attend these sessions. The Americans who take part are former officials and top Korea and nuclear experts. The meetings have taken place in Berlin, Singapore and Beijing.

North Korea has drastically increased the pace of its nuclear and ballistic missile tests since the young Kim came to power, including with a successful submarine missile launch last week. Conventional wisdom in Washington is that there’s no chance for real dialogue with the regime. But that is a source of dispute among the Americans who are talking to North Korean officials.

“The main thing they are interested in is replacing the current armistice with a peace treaty. In that context, they are willing to talk about denuclearization,” Joel Wit, a nuclear expert with the U.S.-Korea Institute, told me. “They made it fairly clear that they were willing to discuss their nuclear weapons program, that it would be on the table in the context of the peace treaty.”

Wit traveled to Berlin in February with other U.S. experts and met with Ri Yong Ho, who in May was promoted to North Korea’s foreign minister. He said the Pyongyang delegation sent signals that the door was open for resumed negotiations.

Robert Carlin, a former U.S. official and North Korea negotiator, was on the Berlin trip. In July, he wrote an article analyzing a new statement from North Korea in which Pyongyang also talked about denuclearization of the entire Korean Peninsula as part of a grand bargain with the United States.

Other Americans who have met recently with the North Koreans are skeptical that real signals are being sent or any real opening for negotiations has emerged. Victor Cha, the top Asia official at the National Security Council during the George W. Bush administration, was at the same meetings as Wit and Carlin but came away with the opposite conclusion.

“They don’t seem like they are speaking in a leaning-forward quasi-official capacity,” he said. “They seem to be just spouting talking points.”

Cha said the latest North Korean rhetoric is not substantively different from what the regime was saying before and that those who see signals of a new, more open stance from Pyongyang are engaged in wishful thinking. “In the past, you didn’t have to work as hard to find those signals,” he said.

The closest U.S. officials came to actually meeting directly with North Korean officials was in June, during a private conference in Beijing called the Northeast Asian Security Dialogue. Sung Kim, the State Department’s special representative for North Korea policy, was there, while Choe Son Hui, deputy director general of the North Korean foreign ministry’s U.S. affairs department, led Pyongyang’s delegation.

The State Department has said no formal meeting took place, but one participant told me Kim and Choe may have talked on the sidelines. During the conference, Choe laid out terms for a resumption of dialogue, according to that participant. Choe said Pyongyang will no longer discuss giving up existing nuclear assets but could strike a deal stopping a future buildup.

“To me, they were saying, ‘We’re here to send a message that the door is not closed to negotiations, we’re ready to talk, but don’t expect us to give up what we have,’” the participant said.

For many in Washington, including the White House, that position is a non-starter, because it means North Korea has no intention of living up to its previous commitments to denuclearize. This summer, the Obama administration has drastically increased sanctions on Pyongyang in response to Kim’s continued testing of nuclear bombs and ballistic missiles.

There’s probably no time for a new dialogue with Pyongyang to yield progress before the Obama administration departs. If Hillary Clinton is elected, her top aides have said they will also focus on increasing pressure on Kim through new sanctions before pursuing talks. That’s the playbook that was used with Iran.

But North Korea is not Iran. It already has enough material for perhaps a dozen bombs and could have enough for 79 weapons by the end of Clinton or Donald Trump’s first term, according to the Institute for Science and International Security. Multilateral sanctions with Pyongyang are less effective because the country only really depends on China, which is unlikely to economically strangle its problematic client state.

If the North Koreans are sending signals to Americans that they want to talk, the U.S. government has a responsibility to explore that possibility. But if North Korea is serious, it must send a clearer message and show greater willingness to end its belligerence.

Article Link To The Washington Post:

An Internet Giveaway To The U.N.

If the U.S. abdicates internet stewardship, the United Nations might take control.

By L. Gordon Crovitz
The Wall Street Journal
August 29, 2016

When the Obama administration announced its plan to give up U.S. protection of the internet, it promised the United Nations would never take control. But because of the administration’s naiveté or arrogance, U.N. control is the likely result if the U.S. gives up internet stewardship as planned at midnight on Sept. 30.

On Friday Americans for Limited Government received a response to its Freedom of Information Act request for “all records relating to legal and policy analysis...concerning antitrust issues for the Internet Corporation for Assigned Names and Numbers” if the U.S. gives up oversight. The administration replied it had “conducted a thorough search for responsive records within its possession and control and found no records responsive to your request.”

It’s shocking the administration admits it has no plan for how Icann retains its antitrust exemption. The reason Icann can operate the entire World Wide Web root zone is that it has the status of a legal monopolist, stemming from its contract with the Commerce Department that makes Icann an “instrumentality” of government.

Antitrust rules don’t apply to governments or organizations operating under government control. In a 1999 case, the Second U.S. Circuit Court of Appeals upheld the monopoly on internet domains because the Commerce Department had set “explicit terms” of the contract relating to the “government’s policies regarding the proper administration” of the domain system.

Without the U.S. contract, Icann would seek to be overseen by another governmental group so as to keep its antitrust exemption. Authoritarian regimes have already proposed Icann become part of the U.N. to make it easier for them to censor the internet globally. So much for the Obama pledge that the U.S. would never be replaced by a “government-led or an inter-governmental organization solution.”

Rick Manning, president of Americans for Limited Government, called it “simply stunning” that the “politically blinded Obama administration missed the obvious point that Icann loses its antitrust shield should the government relinquish control.”

The administration might not have considered the antitrust issue, which would have been naive. Or perhaps in its arrogance the administration knew all along Icann would lose its antitrust immunity and look to the U.N. as an alternative. Congress could have voted to give Icann an antitrust exemption, but the internet giveaway plan is too flawed for legislative approval.

As the administration spent the past two years preparing to give up the contract with Icann, it also stopped actively overseeing the group. That allowed Icann to abuse its monopoly over internet domains, which earns it hundreds of millions of dollars a year.

Earlier this month, an independent review within Icann called the organization “simply not credible” in how it handled the application for the .inc, .llc and .llp domains. The independent review found Icann staffers were “intimately involved” in evaluating their own work. A company called Dot Registry had worked with officials of U.S. states to create a system ensuring anyone using these Web addresses was a legitimate registered company. Icann rejected Dot Registry’s application as a community, which would have resulted in lowered fees to Icann.

Delaware’s secretary of state objected: “Legitimate policy concerns have been systematically brushed to the curb by Icann staffers well-skilled at manufacturing bureaucratic processes to disguise pre-determined decisions.” Dot Registry’s lawyer, Arif Ali of the Dechert firm, told me last week his experience made clear “Icann is not ready to govern itself.”

Icann also refuses to award the .gay domain to community groups representing gay people around the world. Icann’s ombudsman recently urged his group to “put an end to this long and difficult issue” by granting the domain. Icann prefers to earn larger fees by putting the .gay domain up for auction among for-profit domain companies.

And Icann rejects the community application for the .cpa domain made by the American Institute of CPAs, which along with other accounting groups argues consumers should expect the .cpa address only to be used by legitimate accountants, not by the highest bidder. An AICPA spokesman told me he has a pile of paperwork three feet high on the five-year quest for the .cpa domain. The professional group objected in a recent appeal: “The process seems skewed toward a financial outcome that benefits Icann itself.”

The only thing worse than a monopoly overseen by the U.S. government is a monopoly overseen by no one—or by a Web-censoring U.N. Congress still has time to extend its ban on the Obama administration giving up protection of the internet. Icann has given it every reason to do so.

Article Link To The Wall Street Journal:

Will 2016 Come Down To The Electoral Map?

By Albert R. Hunt
The Bloomberg View
August 29, 2016

Any American political strategist or reporter -- I've been one for more than four decades -- loves the map: That's the electoral map that decides the presidential election every four years.

Each of the 50 states is awarded electors based on its members of Congress, essentially by population; Washington, D.C., for example, gets three votes. In almost all states it's a winner-take-all system; there are 538 votes nationally, it takes 270 to win.

For about two-thirds of the states, including the biggest, California and Texas, the outcome is a near-certainty. Thus the battle is over no more than 15 states with fewer than 200 electoral votes.

That's what makes it fun, or serious, if you're a campaign manager trying to figure out who will take Florida's 29 votes or Ohio's 18, North Carolina's 15 or even Iowa's six.

Usually, the drama is exaggerated. The map follows the votes. Thus it only matters in a close contest, say within a two-point margin.

Over the past 14 elections, there have been four such contests: 1960, 1968, 1976 and 2000. The last one (Al Gore versus George W. Bush) was the only contest in more than a century in which the popular vote winner lost the Electoral College under circumstances that remain disputed.

Some Republicans still claim that John F. Kennedy won the presidency in 1960 -- the nationwide popular vote margin was only 118,000 -- because of vote fraud in Illinois. Yet if Kennedy had lost that state, he still would have won the electoral vote. So critics then throw in Texas, which had a razor tight election. But multiple election boards, some with Republican majorities, and judicial reviews have upheld the results.

The 1976 Jimmy Carter-Gerald Ford contest and especially the 1968 race, in which Richard Nixon defeated Hubert Humphrey by about 500,000 votes, were close, too, but the Electoral College outcome was clear. (Some Democrats point to 2004, when John Kerry would have won the electoral vote if he'd carried Ohio. True, but he lost the state by 118,000 votes.)

Academics and politicians continuously debate the merits of the Electoral College. Defenders say it enhances the role of smaller states and retail campaigning and can produce a more conclusive verdict. Critics say voters in most states are ignored and a popular vote is more consistent with democratic values.

Still, campaign strategists and reporters have to assume it will be close this year and thus emphasize the map in setting priorities and coverage.

"Two or three points gives you comfort," says Jefrey Pollock, a Democratic pollster who works with the Hillary Clinton super-PAC. "But you have to allocate resources where the electoral votes are."

If the race, where Clinton currently holds about a five-point advantage, closes to within a point or two, it will still be an uphill climb for Donald Trump. The starting point is the 2012 election, when Barack Obama defeated Mitt Romney by four points in the popular vote and 332-206 in the Electoral College. To win this time, the Republican nominee would have to hold all the Romney states and pick up an additional 64 electoral votes.

Florida and Ohio are must-wins. Even in a close race, it appears that three states once considered competitive -- Virginia, Colorado and Pennsylvania -- may be beyond Trump's reach.

That means the Republican would have to win three smaller states, Nevada, Iowa and New Hampshire, where some polls show a tight race. These states have a total of 16 electoral votes, which would produce a 269-269 tie that would send the election to the House, where chaos would reign.

More likely, the final margin will be beyond a couple points. Then we'll have to put aside our map for four years.

Article Link To The Bloomberg View:

Why Clinton Republicans Matter

By E.J. Dionne Jr.
The Washington Post
August 29, 2016

Not since Barry Goldwater’s 1964 campaign has there been such widespread public disavowal by Republicans of their party’s nominee. The Hillary Clinton Republicans will be one of the most important legacies of the 2016 campaigns.

The question is whether they will constitute the forward end of a political realignment, or just a one-time reaction to the unsuitability of Donald Trump for the presidency.

Reasons for skepticism about long-term change are rooted in the differences between today’s polarized politics and the more tempered partisanship surrounding the big-bang elections of 1964 and 1980.

In 1964, there was a lively liberal wing of the Republican Party. GOP figures such as Jacob Javits, Clifford Case, Edward Brooke and John Lindsay had far more in common philosophically with Lyndon B. Johnson than they did with Goldwater.

Thus, 1964 was genuinely realigning, setting off the flight of conservative white Southerners from the Democratic Party but also a defection of liberals from the Republican Party. Many (including Lindsay, Javits and Case) were pushed aside in primaries.

The celebrated Reagan Democrats of 1980, in the meantime, came in several varieties. Many were the same white Southerners who began voting Republican in 1964 but didn’t abandon their old party label. Others were Northern working-class whites who started voting Republican in Richard Nixon’s 1968 and 1972 elections. And some were neoconservatives who disliked President Jimmy Carter’s foreign policy. Here again, there was philosophical coherence.

The Never Trump Republicans, including those who have endorsed Clinton, are a far more complicated group. Many of them are devout philosophical conservatives who have little in common with Clinton on either policy or ideology. They see Trump as unacceptable largely because of who he is: his tendency toward cruelty and viciousness, his racial attitudes and his lack of seriousness about policy. Many Republicans are praying the Trump episode will be an interlude and that they will be able to resume control of their party after it ends.

Others are a part of an unusual alliance between hawkish neoconservatives and Republican foreign policy realists who often disagree with each other but are joined in the view that Trump’s foreign policy, such as it is, is entirely outside the internationalist traditions their party has broadly upheld since World War II. Both ends of this anti-Trump alliance are especially suspicious of his friendly views of Russian President Vladimir Putin and his support of policies (on NATO and the European Union) that would advance Russia’s interests.

On foreign policy, there is some coming together between Clinton and her Republican allies. Dovish liberals worry about this aspect of the anti-Trump right. They suspect — partly on the basis of her history — that Clinton’s instincts are more hawkish than President Obama’s.

Her allies on international issues cast the issue somewhat differently — and more positively: that Clinton’s election could restore something close to an older consensus on foreign policy that was blown apart by the Iraq War. They argue that she occupies a middle ground between Obama and his hawkish critics. She is less interventionist than the neoconservatives but would, on some issues, be tougher in her approach to diplomacy than Obama has been.

Any long-term electoral effect of the rise of Clinton Republicans is likely to be felt among the white college-educated voters whom Trump has so alienated. Trump’s turn to the hard right, reinforced by his hiring of Breitbart’s Stephen Bannon as his campaign chief executive, could further aggravate the GOP’s problem with such voters. Trump muddled his position on immigration to try to win some of them back.

Clinton’s hope if she wins is that the existence of Clinton Republicans will make her relations with the GOP in Congress easier. Especially if Democrats take the Senate, Republicans in the House — even if they keep their majority — might give her some room to win legislative victories, particularly on immigration reform and large-scale infrastructure investment. On the other hand, GOP politicians who opposed Trump or were lukewarm about him might seek to restore their bona fides with Trump’s constituency by being especially ferocious in their opposition to Clinton.

All this, however, is premised on a Clinton victory. If the race tightens, Republicans who know that Trump should not be president will have to be less grudging about lending their full support to Clinton. She tried to encourage them last week by declaring that Trump’s extremism represented neither “conservatism as we have known it” or “Republicanism as we have known it.” Her unspoken message: The stakes for the party’s dissenters are too high for halfway measures and bet hedging.

Article Link To The Washington Post: