Steve Clemons

A number of correspondents checked in with America's biggest financier, the People's Republic of China, after President Obama signed the debt ceiling deal passed by the Senate and House of Representatives.

Xinhua reports that China was generally satisfied that a deal went through -- but China Central Bank Governor Zhou Xiaochuan also promised that China would diversify further its foreign exchange reserves.

From the Xinhua report:

"China hopes the U.S. administration and Congress would take responsible policy measures to handle its debt issue in light with the interests of the whole world including those of the United States," Zhou added.

"China would continue to seek diversification in the management of reserve assets, strengthen risk management, and minimize the negative impacts of the fluctuations in the international financial market on the Chinese economy," Zhou said.

China needing a hedge against the dollar means that the distressed Euro is ultimately safe. 

The yen is strong and stable -- perhaps too strong given the sluggish Japanese economy; its triple disaster of earthquake, tsunami and nuclear calamity; and a declining population -- but the Euro gives China the only other global currency of quality and scale to acquire.

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The debt deal struck by House and Senate Republican and Democratic leaders with the White House last night has key constituents around the country screaming.

Paul Krugman has said that if he had the privilege, he would vote No.  Senator Lindsey Graham will vote No. 

MoveOn has said that it's 5 million members are overwhelmingly opposed to the compromise debt deal package.  The Club for Growth has also reported that it opposes the deal.  Nancy Pelosi's office says she is undecided. 

Mitt Romney, Tim Pawlenty, and Rep. Michele Bachmann have also stated their opposition to the deal.  At least thus far, Senator Jim DeMint (R-SC) -- who I think is the key force of Congressoinal opposition behind the scenes -- has kept his powder dry and not indicated whether he is in the deal or out of it.

The leaders may think that they have the votes in hand to pass this debt ceiling deal and send to the President -- but there is a lot of opposition.  Much could still happen to undermine the appearance of progress announced by President Obama last night.

This may not be over.

Obama may then still get a chance to show that he is a real, FDR-style leader and invoke the Fourteenth Amendment of the Constitution protecting the commitment of the country to resolve past debts and then do so on his own terms -- which should include not throwing the jobless of this country under the bus.

Anne-Marie Slaughter has put out some interesting tidbits from a recent Singapore-based conference foray focused on China's future.

Slaughter, who just left her perch as Director of Policy Planning at the State Department, and is now back teaching at Princeton University, has joined The Atlantic as a correspondent.

The part that I found of most interest was this:

Instead of describing the Chinese political system as an "autocracy," some at the conference argued that we should think of it as a system of "internal pluralism," where the checks and balances are all inside the party and government structure. The Communist Party has 80 million members -- with a collective leadership of nine members, growing local power, and calls for internal party democracy, there is far more pluralism in the Chinese system than first meets the eye. This view of Chinese politics may well be overly sanguine, but it's an interesting perspective.

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Senator Jim DeMint was not one of the major political players whose every move we watched this weekend, but he was the animator of much of the high stakes drama over raising the debt ceiling and cutting the national debt.  DeMint has been the driver of the 'never give up, never surrender' drum beat of the largely freshman class of Tea Party conservatives in both the Senate and the House.  DeMint provided muscle and counsel to Republican Majority Leader Eric Cantor in his posturing during this debate.

House Speaker John Boehner, Senate Republican Majority Leader Mitch McConnell, Senate Majority Leader Harry Reid, and President Obama and Vice President Biden have essentially been negotiating with the DeMint camp through proxies -- making DeMint, for the moment anyway, the most powerful, albeit behind the scenes, political figure in the country next to the President.

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The standoff over the debt ceiling continues.  Back and forth.  Tit for tat.  No progress.  Paralysis.  Stuff is happening in the world -- but there is absolutely no bandwidth for anything other than the debt ceiling debate.

So, I've been scrounging around for off beat social commentary -- and the "Alex & Liam Walmart Experience" is the very best thing to get one's mind off of Boehner and Cantor.

This video captures everything wrong and right about America in about 3 minutes -- not quite de Tocqueville, but you'll get the point.

When the sub-prime loan crisis triggered a global financial meltdown, two issues became very clear.


The first was that America had a serious structural corruption problem with co-mingled interests among the financial sector, regulators and politicians.  The US had tilted its economy towards Wall Street and had undermined Main Street in the process.

The other issue was that America had become a nation whose growth flowed from over-consumption and the piling up of debt.  China, on the reverse side and quickly becoming a consequential economic heavyweight, was underconsuming and piling up cash reserves. 

'Global economic rebalancing' became the term of the times -- and Treasury Secretary Tim Geithner and others began talking in earnest about the importance to the global economy of China growing more through its own domestic consumption rather than through exports -- and of the US cutting debt and saving and investing more.

But addiction to consumption is hard to stop.  One way to quickly adjust consumption patterns in the US and to force a different behavior is to default on America's sovereign debt. 

There are huge and nasty consequences that lie ahead if the government does default.  Former National Economic Advisor to President Clinton, Laura Tyson, has estimated that just a 50 basis point rise in basic interest rates will result in about 600,000 Americans losing their jobs.  Some economists, on the far end of the scale, have said that default could trigger a 200 basis point rise in rates.

The key point is that a default will drive up rates and end America's role as a safe bedrock for the most conservative investments.  The US dollar will continue as the reserve currency, but other nations will build bigger hedges against the dollar.  The 'gravity switch' will be turned on -- and the financial sector will have less of a tilt in its benefit vs. the other real parts of the economy.

If default occurs, Americans will have to work harder to overcome the new hurdle put in front of them; they will have to invest more in the economy, will have to save more and grow the economy through a savings and investment strategy that we haven't seen in a long time.  The financial sector will be hit very hard, but America's export-oriented economy will get a boost as a cheaper dollar will put a tail wind behind the rest of the world buying less expensive American products.

I'm not endorsing a default.  I think it would be a terrible blow to American interests.  But there are some potential upsides if we do go into default that should be considered. 

As part of the sub-prime debacle, the US managed to export toxic financial products to the rest of the world -- and failed to protect the interests of its citizens as the financial sector blew up.  That was the point at which the rating agencies should have been moving to cut America's gold-plated investment rating. 

What we are seeing unfold in the debt ceiling crisis and the irresponsible actions of many  legislators is simply the second act of a play on America's decline that began some time ago.  The upside of America shredding its international reputation and responsibilities is that it ultimately will be forced to finally get its own domestic economic house in order.

I realize, of course, that Rupert Murdoch is still very much around. 

In fact, I dined last night with two prominent front-benchers of the British Labor Party who hope Rupert Murdoch is around for a very long time.  One of them called Prime Minister David Cameron "a dead man walking" and said that betting circles placing wagers on whether he will be the next government minister to leave office has narrowed from 50:1 to 4:1.

But going through a pile of notes, I found my scribbles listening to Rupert Murdoch at Richard Attias' excellent New York Forum last year. 

Pumping the political fortunes of Sarah Palin then, Murdoch said:

We didn't buy Alaska to save the moose.

I'm not going to offer an interpretation.  Just a Murdoch-ian line to remember when remembrances of the lead protagonist in his own Shakespearian tragedy are eventually offered.

After the slaughter of scores of innocents by a deranged, self-proclaimed anti-Muslim, pro-Israel (though I view him as anti-Israel) Christian right winger Anders Behring Breivik in Norway, the timing of this news at JTA is just weird, though I realize unintended:

The Israel Chamber Orchestra plans to perform a composition by Richard Wagner in Germany, breaking an Israel taboo against playing the anti-Semitic composer's music.

The ensemble will play "Siegfried's Idyll" in the Bavarian town of Bayreuth at an annual festival devoted to Wagner's work. Wagner, who lived from 1813 to 1883, is buried in Bayreuth, where festivals celebrating his operas have long been held.

Since its founding, Israel has had an unofficial ban against playing music by Wagner, whose anti-Semitism was public. His music and writings were long admired by Hitler and featured in Nazi propaganda.

Back to the future.

(h/t Jim Lobe)

Not surprisingly, Dean Baker -- the economist who loudly and accurately warned of an impending housing asset crash -- has critiqued President Obama's debt ceiling remarks last night, proclaiming that the President doesn't get what actually caused America's massive budget deficit and thus is prescribing the wrong measures -- like Medicare and Social Security cuts -- to fix it.

Baker quotes the President's remarks:

For the last decade, we have spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation's credit card.

As a result, the deficit was on track to top $1 trillion the year I took office.

Baker then points out that Obama's version of history is wrong.  He reminds that the Congressional Budget Office projections in early 2008 projected a deficit of $198 billion in 2009, when Obama took office.  The country was not then on track to have a trillion dollar deficit.

What caused the deficit, according to Baker, were the policies responding to the economic downturn triggered by the collapse of housing prices -- not entitlement program spending, or the wars, or tax cuts.

Paul Krugman seems to have laid the track for Obama's argument in an essay in May of this year arguing that there were three drivers that undermined America's economic solvency thus wiping out the budget surplus of 2000. 

Krugman writes:

What happened to the budget surplus the federal government had in 2000?

The answer is, three main things. First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade. Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so. And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs.

The unpaid for wars.  The 'temporary' Bush tax cuts for the rich.  And the subprime-triggered global financial crisis and recession.

I understand that the downturn in receipts to the government triggered by the housing bubble-triggered recession and the massive spending in response were a huge contributor to America's fiscal hole at the moment.  Baker is right about that.

But I think Baker is too quick to discount the impact of unpaid for wars -- and of the significant revenue impact of the 'not so temporary' Bush tax cuts.

When the economic crisis hit -- these other factors compounded the deficit hole-digging that the country has been in.  One wonders then why President Obama hasn't been more aggressive in drawing down excessive defense spending on challenges that were not at the forefront of America's most serious strategic problems.

Furthermore, the Congressional Budget Office has been wildly inaccurate in recent years in its projections. Former Congressman and Verizon government affairs chief Tom Tauke has been doing some interesting blogging of late about the CBO's rose-colored glasses and that legislators need to compensate for the consistently mistaken projections of the budget forecast unit. 

Dean Baker's assessments always deserve careful consideration -- and I imagine that he will stick to his guns on this latest argument.  But the debate here is not between Obama and Baker, it's really between Paul Krugman and Dean Baker.

I agree with Krugman that the financial crisis, unpaid for wars, and reckless tax cuts undermined the budget surplus of 2000 and left the country ill-prepared to deal with a fiscal shock.  I also agree with Dean Baker, however, that the White House has been seduced into a battle over entitlement spending and cuts that has little to do with America's economic morass -- and this is a serious problem.

President Obama should get back to explaining to the country what the drivers of our fiscal condition are -- and not only blow holes in the arguments being made by his political rivals about large scale entitlement cuts but also explain why he and his team have been as slow as they have been to extract themselves from costly, low strategic return wars as well as unable to end the corrosive effects and socio-economic stress caused by the Bush tax cuts for America's richest citizens.

Friends who have been battling a series of really bad fires that forced evacuations from homes in central Colorado -- near Westcliffe, Colorado -- have been sending me pictures of what has been going on as I have some land in the Rockies near them.

The picture above is of a beautiful, young, wild Arabian horse that is just hanging out in a meadow next to and around my property.  I'm guessing it was displaced in the fires.

I don't know horses at all -- but this one looks to me like quite a great creature.  I hope she does well and continues to like our neighborhood.

President Obama, who turns 50 on August 4th, has said that he will skip a big ticket birthday party fundraiser if the debt ceiling deal doesn't go through.  That's the only reasonable, smart move.

What is not a smart move are the nearly daily emails I am getting from various Democratic Party institutions asking for donations of just $5.00, or today from DCCC Chairman Steve Israel groveling for $3.00 if people are outraged by Republican intransigence on the debt ceiling talks.

Sorry -- this is just too important an issue to exploit for party fundraising.  It cheapens the seriousness of this standoff.

Here is Steve Israel's fundraising appeal:

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Twice at the helm California Governor Edmund G. "Jerry" Brown has called for Californians to get 12,000 MW of their energy from local power distribution grids by 2020. 

This is a tough target -- and whether its a significant bump up in deployment of solar, wind, and other locally deployable resources -- there are going to be hurdles hitting this target, but clearly the effort is to push communities to pick up their own energy needs by their own bootstraps.

Practically every county in California has a different 'normal' in the permitting and regulatory process for local energy deployment.  Financing for larger scale solar and wind projects is getting easier -- but still not equal to other energy projects.  And costs overall still are higher than other traditional coal and other fossil fuel driven energy plants.

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The best places to meet the world's most interesting national security and foreign policy personalities are no longer Washington or London or Paris.  Rather, highest on the list are Beijing, Dubai, Abu Dhabi, and Doha.

Many years ago, I met Lt. General Asad Durrani in Beijing thanks to a conference organized by Australia's Monash University.  We have been acquainted and communicating since. I remember arriving late to the conference and rushing in as the brash, younger-than-I-am-now upstart and sitting down at one of the lunch tables of ten.  I quickly met everyone and heard that Durrani was a general from Pakistan.  That's all I knew. 

I asked him quickly not having known that he was essentially Pakistan's Karla, or George Smiley, depending on your perspective, "Do you think President Musharraf really doesn't control the ISI?"  Several faces went white at the table.  A jaw dropped.  Durrani's eyes narrowed and he slowly said, "It may be in General Musharraf's interests to pretend he has little control over the ISI."  This is pure Durrani -- layers, meaningful, informed, and no one's flack.  

Then I realized looking at bios that he was the former chief of the ISI -- and our accidental bluntness and candor has glued us together since.

Tonight, General Durrani sent me an essay he wrote, with very light editing by me.  These are his words, his insights into how Pakistan sees the Taliban and Afghanistan -- as well as its competition with the US in the region.

I have permission to post the entire essay which I am doing.  I think that those interested in understanding the other side of the complex and stressed US-Pakistan relationship need to read a bit about the history of the ISI in the words of one of their own.

When I last met General Durrani at a conference organized by Al Jazeera in Doha, he said to me:

Steve, it is very hard for me to overstate to you the enthusiasm for which Pakistan's generals have for the Taliban.

Durrani is not a booster for the Taliban; he is a hard core realist -- and his view is that Pakistan's generals prize the Taliban for its ability to give them "strategic depth".  Whether you agree or not, his assessments are very much worth reading in full.

So, the rest from Lt. General and former ISI Chief Assad Durrani:

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The U.S. Helsinki Commission, co-chaired by Representative Chris Smith (R-NJ) and Senator Ben Cardin (D-MD), has been quiet about the bashings of gay people and their family and friends at gay pride marches in eastern Europe and the Baltics, according to the Council for Global Equality.

From CGE's interesting note on the increasing harassment of gays and lesbians in these rights-oriented pride events:

This as in past years, Pride events were a source of controversy, even hostility, in much of the east European region. In Poland and Croatia, anti-gay protesters disrupted parades - and while police generally sought to protect Pride participants, many observers saw the response in Croatia as inadequate to the task. Permits were denied in St. Petersburg. In Moscow, Russian security forces detained Pride marchers, ignoring the right of free assembly that the Russian constitution ostensibly protects.

While the State Department rightly protested Russian actions, the U.S. Helsinki Commission was silent.  A bipartisan Congressional panel, the Commission traditionally has been a fierce advocate of protecting and advancing what we see as fundamental freedoms, including the rights to free speech, peaceable assembly and freedom of expression. However, the Commission took no public stand against the abuses witnessed in this year's Pride season, nor did it publicly commend those governments that properly sought to protect these basic rights.

A quick review of the Commission's work shows that they pretty much look into every dimension of potential human rights abuses other than GLBT harrassment, detention, and other human rights violations.

What's the deal here Senator Cardin?

I love Los Angeles (I know -- few seem to want to admit it), but I love Washington, DC more. 

I love DC's intrigue and policy banter -- the passionate debates about Israel and Palestine, about nuclear vs. renewables, about Grover Norquist vs. big government Republicans (& MoveOn), about whether we should be making a deep dive in rewiring American infrastructure rather than bailing out too-big-to-fail banks.

One of the most memorable DC high sizzle nights I've enjoyed was at Maureen Dowd's home during Obama's inauguration weekend chatting with David Geffen and his partner, Jeremy Lingvall, as well as Rahm Emanuel, economic policy chronicler Michael Hirsh, Larry David, Ron Howard, Helene Cooper, and a slew of others.

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Unbelievable.  The scripting of this high stakes drama between House Speaker John Boehner balancing the White House on one side and the never compromise, never surrender Tea Party on the other keeps getting better and better.

Reports have emerged that House Speaker Boehner told his caucus that their team needs to "provide a positive signal on a plan to avert a U.S. default by tomorrow." 

That's right, by the time markets in Asia open tomorrow.  That's right, Sunday in DC is pretty much Monday in Asia -- and the roller coaster of financial shocks could start if Boehner doesn't get his act together.

Instead of August 2nd being the debt default deadline, Boehner's tactics and now his statement to his own troops have created market expectations that will either be met -- or be disappointed, possibly creating a real sell-off in American treasuries.

Perhaps he should have thought about that before he stormed off.  In John Boehner's verbal duel with Obama yesterday, he said that he had taken the same oath of office as the President and had the same responsibilities as the President.  But the powder keg he is flirting with -- and I believe it is all misguided theater designed to keep the GOP on the evening, morning and mid-day news -- could blow up because his management of his own caucus seems amateurish and weak.

If Boehner was worried at any point about sending "positive market signals", he might have started a lot sooner than this weekend.

Given that I could be wrong about this being well-orchestrated kabuki and that it all really could blow up, Boehner would demonstrate he had some political statecraft if he leaves the fuse with Eric Cantor when the economy goes off the rails.

I love Andrew Sullivan's Daily Dish feature, The View From Your Window, which I occasionally copied (with his permission) at The Washington Note.  (click image above for larger version)

But now at Andrew's former home among The Atlantic's "Voices", I am going to post occasional photos that intrigue me as "The Other View".  I'm always interested in the other view -- whether in an argument or from your window.

This shot sent in by reader Lucien Zeigler from a Park Hyatt window in Tokyo.  Love the profile of Mt. Fuji against a pastel sunset, or is that nuclear glow?

White House Press Secretary Jay Carney just released this statement:

Statement from the Press Secretary

The President and Vice President met with Speaker Boehner, Leader Pelosi, Leader Reid and Leader McConnell in the Cabinet Room to discuss options for ensuring that the debt ceiling is raised and the United States does not default on its obligations for the first time in its history.

The President restated his opposition to a short-term extension of the debt ceiling, explaining that a short-term extension could cause our country's credit rating to be downgraded, causing harm to our economy and causing every American to pay higher credit cards rates and more for home and car loans. 

As the current situation makes clear, it would be irresponsible to put our country and economy at risk again in just a few short months with another battle over raising the debt ceiling. Congress should refrain from playing reckless political games with our economy. Instead, it should be responsible and do its job, avoiding default and cutting the deficit. The meeting lasted approximately one hour. 

The leaders agreed to return to Capitol Hill to talk to their members and discuss a way forward, and conversations will continue throughout the day.

The game goes on. 

This debate is keeping us from thinking through the challenges on jobs, on infrastructure, on bringing the Afghanistan War to a constructive close, on the important developments in Egypt, Syria and Libya; on next generation energy needs; on uncertainties in the health care arena; on just about every subject.

The Washington Post's Jennifer Rubin jumped to the conclusion that radical Islamists and/or al Qaeda had a hand in Norway's double tragedy yesterday.  This is not a crime; what was out of line was that she exploited the incident before we knew more to pound legislators for flipping the gravity switch on the Pentagon's budget.

Yesterday's event had one element that made this look like a possible al Qaeda terrorist incident -- complexity.  A bomb in Oslo and a linked shooting and mass slaughter at a youth camp had the appearance of planning, a hallmark of al Qaeda's terrorism.  A friend of James Fallows suggests that some fanatical, right wing groups may be adopting the techniques of al Qaeda.

Many others jumped in the direction that this 'might' be an al Qaeda-linked event, including my colleague Max Fisher -- who nonetheless properly and cautiously wrote in his piece: "So far, the cause of the explosion is unknown, as is the culprit."

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