Egyptian Collapse

Egypt's military stepped in and removed its President.

My main point of note, is that in spite of all the talk about Muslim-this, and Sharia-law that, it seems pretty obvious why he wasn't allowed to continue on.

Army Ousts Egypt’s President; Morsi Is Taken Into Military Custody
David Kirkpatrick, New York Times, 3 July 2013 (hat tip: Early Warning)

For Mr. Morsi, it was a bitter and ignominious end to a tumultuous year of bruising political battles that ultimately alienated millions of Egyptians. Having won a narrow victory, his critics say, he broke his promises of an inclusive government and repeatedly demonized his opposition as traitors. With the economy crumbling, and with shortages of electricity and fuel, anger at the government mounted.

 

If he had been able to keep the country running, he would still be there.  Arab Spring was a response to population pressures, Middle Class self interests, and an inability to keep subsidizing the lifestyles of people.  When military budgets got cut by former life-time President Hosni Mubarak, the military stepped aside and let things run their course.  It looks like the military has decided to step back int. 

Our economic direction

As we head into the 4th, it is not a bad time to ask just where we are going, at least in economic terms.  I am sure the NSA has listened in on everyone's phone calls and knows where we are headed for the holidays.

 

Are we getting better?

 

There are some signs of it, but the strongest indicator of strength in our current consumer driven economy is per capita growth in real incomes.  It isn't happening in any sort of meaningful way.  From a discussion (U.S: Desperately Seeking Income) by Yves Smith (the quoted section is embedded) at Naked Capitalism:

Notwithstanding these significant signs of improvement, one is left with the feeling that this recovery remains weak and fragile, and hence susceptible to shocks - internal or external.

Annualised real activity growth has averaged a sub-par 2% throughout the recovery and, despite the job gains noted above, the employment-to-population ratio has barely moved off its lows – the discrepancy between this ratio and the unemployment rate being solely due to an ongoing decline in labour force participation rates. The level of payrolls remains 2½ million below the peak. Yes, there has been a degree of healing, but no, the patient is not yet fully cured.

So despite the noted improvement, there is a need for additional momentum. To spur this activity, better outcomes for real household income growth are a necessity; which will require a healthier labour market; which will require a willingness to employ and invest; which will require stronger household demand; which will require heightened consumer confidence; which will require further balance sheet cleansing and a rise in wealth; which will require growth in income. Income is absolutely endogenous, and the chain of logic becomes circular quite quickly. All boats have fallen together, and they must rise in the same fashion.

 

As Yves notes,  real average hourly wages are still 0.5% lower than their June 2009 level, with real weekly wages (inflation-adjusted take-home pay) having grown by only 1.3% over the past four years.   And that's if you buy into the adjustments in the inflation rate as it pertains to a typical household.  In an economy that isn't really doing much in the way of new idea expansionary spending, consumer discretionary spending is the name of the game.  And it can't do much if people are deleveraging, and, in real terms, making less money.

Studen loans: continuing mayhem

Student loan interest rates are set to double soon (my info from WSJ hardcopy) if Congress does not take action.   To which there is an interesting backdrop of information that someone sent me.

Bank Notes: U of Phoenix, Student Loan Debt, Green Dot
Adam Rust, Bank Talk, 26 June 2013

University of Phoenix’s corporate parent reports large drop in enrollments: Apollo Group, the parent of the U of Phoenix and several other for-profit schools, says that new enrollments fell by 25 percent year-over-year.

Interesting comments from Rohit Chopra: Yesterday’s hearing at the Senate Banking Committee produced some interesting commentary on the status of student lending in the United States.

• 81 percent of high debt undergraduate borrowers used private student loans.

• According to the National Association of Home Builders, the share of first time home buyers in today’s market is extraordinarily low relative to historical levels, because student debt is limiting down payment capacity.

• The American Medical Association says that high-debt burdens impact career choices of new doctors.

• 89 percent of veteranian students graduate with more than $100,000 in debt.

1914 redux

redux: brought back —used postpositively

The shadow of 1914 falls over the Pacific (gated)
Gideon Rachman, Financial Times, 4 February 2013 (hat tip: NC)

The flickering black and white films of men going “over the top” in the First World War seem impossibly distant. Yet the idea that the great powers of today could never again stumble into a war, as they did in 1914, is far too complacent. The rising tensions between China, Japan and the US have echoes of the terrible conflict that broke out almost a century ago.

The most obvious potential spark is the unresolved territorial dispute between China and Japan over the islands known as the Diaoyu to the Chinese and the Senkaku to the Japanese. In recent months, the two countries’ aircraft and ships have shadowboxed near the islands.

U.S. emissaries to China have warned the Chinese that an attack on the islands will trigger security guarantees made to the Japanese.  In Ryu Murakami's apocalyptic novel, From the Fatherland, with Love the U.S. backs down on any commitments. That is not happening here. 

The emissaries themselves note the problems of interlocking alliances, and unintended consequences: 

 

The mechanism in 1914 is instructive. Who could imagine that Serbian terrorists could an archduke no had heard of and trigger a great war, at the end of which all contestants were devastated? My view is that the Chinese leadership has no intension of challenging the U.S. military, yet. But what about the hothead nationalists in China or Japan.

They also note that China, much like Germany and Japan earlier, felt barricaded by the existing power structure, and the legacy of history.

What is interesting is what the article does not mention.

The Austrians felt confident that they could go forward with their claims against Serbia because the Germans gave them what is now referred to as the "blank check", in other words, unconditional support.  The Germans appear to have known what they were doing, and were willing to have a war start.  But has not the U.S. given the Japanese a "blank check"?  Is it wise to give such unconditional quarantines when a full blown nuclear war is a possible outcome?  Do the people of Patagonia (remote section of Argentina) merit heavy nuclear fallout because of U.S. commitments?

Perito Moreno Glacier Patagonia (from here)