“They were Cro-Magnon…they were like us…human. They wore jewelry. They drew pictures. They cooked meat. And they used this cave over a period of 30,000 years…”

Yesterday afternoon, we drove up the valley to a limestone cave owned by friends. There, a group of 20 scientists, archeologists and volunteer workers are digging down through 30,000 years of history, about 20 feet worth of dirt, rock and sediment, 5 centimeters at a time.

We’ll come back to the pre-historic world in a minute. First, let’s catch up on what is going on in the world of finance, right now.

Yesterday, most of the news and commentaries concerned either the death of Edward Kennedy or the life of Ben Bernanke. We do not speak ill of dead, not here at The Daily Reckoning. So, we will speak ill of the living.

Long-time Daily Reckoning sufferers will recall why the nation chose George W. Bush to lead the country. Nature abhors a monopoly and detests a void. At the time, America had an almost complete monopoly on power. The Soviet Union had thrown in the towel. China had taken the capitalist road. The US empire had no rivals…and badly needed to be taken down a notch. But how? If a nation has no worthy competitors, how can it be beaten? The answer is obvious: it has to become it’s own worst enemy. George W. Bush was the man history needed…a man who would be putty in the hands of the neo-cons…a man who could be counted on to do the wrong thing…and put the nation on course for destruction.

Ossama bin Laden kindly sent a videotape explaining to him how to do it. The United States would have to spend its way to disaster, he said. The United States would have to undertake costly, futile wars…while actually expanding domestic spending too. GWB signed the single most expensive bill of all time – a health care measure – while simultaneously sinking the empire in its single most expensive war, one that would last longer and cost more than WWII.

But George W. Bush was just the beginning. Now, he’s back in Texas. And the empire is still in business. What can the Fates do to us now? Give us Obama and Bernanke! Obama continues the imperial wars. And, with Bernanke as his sidekick, the two of them now set out to destroy the empire’s finances. When they are finished, the dollar will no longer be the world’s reserve money. US Treasuries will no longer be the safest, surest credit in the world. And Americans will no longer be the planet’s richest people.

That is our prediction. Prove us wrong!

Readers may notice a disjoint between what they find here and what they find in the mainstream press. According to the papers, Ben Bernanke is a hero. He prevented a ‘Second Great Depression.’ Obama rewarded him by giving him another term. The recovery is a done deal.

But it is not so. The noise continues. But the story is the same. We are at the beginning of a long period of adjustment – a depression.

Neither oil, gold or the Dow made any real progress – neither up nor down – yesterday.

Freddie and Fannie are soaring…but the basic housing story remains the same. There is a record number of empty houses. With incomes falling, there is no reason to expect a rebound in prices.

The Post Office says it is cutting 30,000 jobs. USA Today says more and more people can’t pay their utility bills. And one out of three workers has only enough savings to last a week or less.

World trade is not recovering either. The Baltic Dry Index has fallen 45% since June. China is a bubble economy, based on credit, not genuine growth. And America’s stimulus programs – notably ‘Cash for Clunkers’ – have merely made things worse by drawing forward future spending and adding to US total debt while not creating any real economic progress.

In short, Ben Bernanke is no hero. And the economy is not recovering.

When we arrived at the cave a couple of archeologists were at work. They sat on cushions…wearing only socks on their feet. Then, using tiny trowels and small brushes, they loosened a teaspoon of dirt and swept it into a jar. The jar was then dumped into a bucket, which was taken down to the camp about 50 feet away. There, it was put through a strainer in order to filter out small objects – pieces of bone, shell, flint and anything else that might help them understand what went on here.

“This is a very exciting place to be,” the site manager continued. “We are finding the remains of humans…things that humans left behind 30,000 years ago.

“They didn’t live here. They only used this place, probably for a few weeks of the year, in their hunts. The age of sedentary humans – of towns and agriculture – was still thousands of years in the future. These people were hunter-gatherers. And this part of France probably resembled modern day Siberia. It was cold. The ground was permanently frozen. Herds of reindeer, bison, auroch (the forerunner of the cow), and horses roamed this area. That is what these hunters lived on. And they caught fish from the river. This cave is where they spent the night and worked…

“We’ve found hundreds of needles, for example, for sewing clothes. They wore skin clothes, much like people who live in the North of Siberia today. And they made their weapons here too…flaking and heating rocks in order to produce the arrowheads and knives they depended on.”

We were looking at a layer from about 17,000 years ago. The cave’s entrance has been sealed off, with a cage built around the digging site to keep out amateurs.

“This is no Indiana Jones treasure hunt,” the top archeologist explained. “This is a meticulous, scientific project that will take many years to complete. You don’t want to go too fast. We get thousands of objects out of each 5 centimeters. Each one must be given a chance to tell its story. It means sending it to experts all over the world – experts at dating…experts on extinct fauna…experts at pre-historic plants…climate experts…rock experts…ethnologists, biologists, and so forth.

“It’s like reading a book. But every time we dig down, we not only turn the page…we burn it. We can never recreate those objects in their original setting. We can never read that page again. So we have to make sure we understand what it was telling us.

“And each page tells us more about the people who stayed here…about what they ate…and how they lived…and what they were worried about. When they drew pictures of women, for example, they drew pictures of women who were pregnant. Maybe they just thought pregnant women were beautiful. But maybe they were worried about life itself…about their survival…

“Really, that is all men have ever worried about…getting enough to eat in order to survive…and reproducing, so the race survives. Every thing else is entertainment.”

Here at The Daily Reckoning, entertainment is what we do. Who among our dear readers needs to earn 15% on his money…rather than, say, 5%? Will anyone starve to death if his stocks don’t go up?

Will any of our readers fail to have children if he guesses wrong about the rally? What if it is a real bull market, rather than a bear market rally, as we have thought?

Ah, but there’s the hitch…is it really just idle entertainment?

Our tribe may be deathward marching, but we reach for the stars along the way. We want to be bigger, faster, richer, smarter, righter, funnier, stronger and richer. Why? To entertain ourselves? Yes…but it’s more than that. Every species seems to aim for dominion. For status. For improvement. Because each is in competition with each other. There is only so much grass…so many wild bananas…and so much game. So every species competes with others for resources. And every member of the species competes with every other member too.

It’s a dog-eat-dog world? Not exactly. But the dogs have to fight with the wolves and the hyenas…and the mountain lions and the panthers. They are all predators. And there’s only so much prey. A weak dog is a dead dog. And a weak pack is soon an evolutionary dead end.

Somehow the desire to reproduce is welded to the desire to reproduce many…and good specimens. Without this constant selection…this constant competition to produce more and better specimens…the whole tribe weakens and is eventually exterminated. At least, that’s the theory. So every male member of the tribe aims for as much reproduction as possible. Females on the other hand, aim for quality. They know they can only have a few offspring. So, they aim to produce the best offspring they can. How do they do that? By mating with the best, fittest, fastest, strongest, richest, highest status – most dominant – specimens they can find. In other words, the schmuck never gets a date.

So you see, dear reader, our interest in money is not just an entertainment. It’s about the survival of the human race!

Until tomorrow,

Bill Bonner

Source: Bernanke is No Hero

Yesterday was a holiday in the US. Little news from that quarter.

But while Americans were enjoying their backyard barbecues, the rest of the world turned.

“Obama plans ‘leaner’ car industry,” says the BBC.

While most readers will focus on the last three words of that sentence, we direct your attention to the first two. The subject is the important part… not the predicate.

That the car industry may or may not get ‘leaner’ is of little interest to us. It will do what it needs to do. But that the president of the United States of America is now creating the business plan for an automobile company is surely a sign of something big. The world has already turned… perhaps more than we realize.

It was only a few months ago, we’re almost sure, that a private company figured out for itself how it would compete. If it was well-managed, and lucky, it would grow. If it made a serious mistake, it would go out of business… leaving the premises vacant for another entrepreneur.

Americans not only accepted this model, they applauded it. They thought the “free enterprise” system was the best in the world. They believed it was responsible for their wealth, their progress and their place in the world.

Now, they seem to have come to believe something else: that the president of the United States – an elected politician – should have a direct say in how individual private enterprises are organized and run.

But these are the same people who elected Bill Clinton and George W. Bush – twice! They’ll believe anything…

“Power Pendulum Swings Toward Washington,” says another paper.

People think capitalism has failed them. They never understood what capitalism was – and wouldn’t have wanted it at all if they had known what it was all about. Still, that doesn’t mean they won’t come up with something worse…

Capitalism is full of what Galbraith called “innocent frauds.” The capitalists try to exploit the workers. The workers try to take advantage of the capitalists. And the managers try to put one over on them both.

But now, the innocent frauds of capitalism are being replaced by the brute force of government. Now, the Obama team is calling the shots itself.

What does Barack Obama know about the car business? Ha… ha… ha…

Oh, you and your silly questions…

The role of government is commonly misunderstood. It is thought to be an impartial judge, an objective arbiter between competing interests, always asserting the common interest over the narrow interests of the competitors themselves. It is nothing of the sort. It has its own interests… its own delusions of competence… its own lusts for power and money. When the pendulum swings towards Washington, it is always bad news.

For no matter how big a mess GM’s owners, managers and workers made of the auto business, Washington is sure to make a bigger one.

More news:

Tom Bulford has been looking closely at the oil sector to find profitable opportunities for investors. He has some observations on the situation in Kurdistan.

“The Oil Ministry of Baghdad recently quit arguing with the Kurdish government and agreed to permit the export of 100,000 barrels of crude oil per day from Kurdistan. While Baghdad has been stalling, the Kurds have got on with the job of granting licenses to bold, foreign oil prospectors. And now, the latter seem to have the upper hand.

“While Baghdad may still be refusing to acknowledge the legality of these arrangements, the awkward truth is that Iraq is seeing its oil revenues fall through a combination of lower world prices and its failure to develop its own industry. In short, it needs the money.”

Editor’s note: Tom has found a small oil company, currently drilling in Kurdistan, which could hit the big time. He remembers it growing from nothing into a significant oil producer in the Gulf of Mexico. As Editor of Red Hot Penny Shares, Tom Bulford also writes a twice weekly free e-letter called Penny Sleuth. Click here to read more about the above-mentioned opportunity that he’s covered in his latest edition.

And more thoughts:

*** A hedge fund manager came by the office yesterday.

“There’s a new theory making its way around Wall Street,” he explained. “Some people think that the government will succeed in reflating the bubble. They’re putting so much money into it that they’re going to be able to create one last super-bubble… a little like the 2004-2007 period.”

Anything is possible. We were surprised the feds were able to inflate the last bubble. Back in 2002, we thought the bubble days were over – instead, the biggest bubble of all was still ahead.

The dot.com bubble had exploded. Stocks were going down. The economy was in recession. But the recession turned out to be very, very mild. Most people seemed unaware that there was a recession at all. Spending never went backwards… not an inch. In fact, all the trends already in place continued… and got much, much larger.

It is very different now.

“There’s a major change going on; most people have not noticed,” said our new friend. “People are spending money differently. First, it is obvious that they are forsaking the higher priced stores. Our fund is taking advantage of this in a very simple way. We’re short the luxury retailers and long the discount stores. Because people are changing their shopping habits. And we expect this to go on for a long, long time.

“They’re also buying different things. Everyone knows that sales of guns and ammunition are going through the roof. There are actual shortages of some items. But people are also stocking up on gardening supplies. They’re planting gardens in order to grow some of their own food. And they’re buying home entertainment systems – videos… sound systems and so forth. Instead of going out to the restaurants or the movies… they’re staying home. So, they’re making their homes more comfortable… and safer.

“Speaking of safer… sales of home safes are also taking off. They want to protect what they’ve got.

“And speaking of restaurants… have you looked at what is happening? Same phenomenon as in the retail sector. The lower priced, fast-food places, such as MacDonalds’ (NYSE:MCD), are doing fine. But just look at the ‘casual’ dining places – the places where middle class people go to eat… places like Appleby’s and Friday’s. They’re losing a lot of business.

“What I think is happening is this: people are reorganizing themselves for a different, less expensive lifestyle. They’re spending less already… but they’re preparing to spend even less in the future. Instead of going out to the mall or to a restaurant… they’re going to stay home.”

Whence cometh this desire to stay home? Remember, this is not a recession… and not even a phony recession such as we had in 2001-2002. This is different. It’s a balance-sheet depression. People are cutting back in order to repair balance sheets.

How do your repair a balance sheet? It’s not as easy at taking it in to the Pep Boys… or the muffler shop. Instead, you have to pay down debt and increase equity. You have to become wealthier by saving money, rather than spending it. That’s what companies are doing. That’s what individuals are doing. And that’s what the government ought to do.

Americans were saving almost nothing a couple years ago. But in the first quarter of this year, they saved 4.2% of disposable income – or $453 billion (annualised). That’s up from just $20 billion a year before.

Saving money is the wrench you need to repair a balance sheet. After a very long time, finally, American grease monkeys are getting to work.

“Americans are making big structural changes in the way they live. These changes are going to have a big impact on the economy for many years to come,” our friend concluded.

Source: Washington Will Make a Bigger Mess of the Auto Industry

“Farewell, fair cruelty.”
–
Shakespeare, Twelfth Night

Like the unceremonious dumping of a codependent spouse once a new lover has come of age, America’s mainstream media seems to have stuffed the entire George W. Bush presidency into a shoebox and crammed it into the back of history’s closet…

I guess this should come as no surprise. For better or worse, a new era of American leadership dawns. And it does not serve the architects of an emergent ethos and by “architects,” I mean the mainstream media — to glorify, or even acknowledge, the achievements of past leaders…

Especially when they’re Republican.

The fundamental truth that new power is best served by erasing old power’s legacy transcends politics — and even humanity. It is written in the DNA of life itself. That’s why a young alpha male lion kills the cubs sired by the pride’s former patriarch. It’s simply the brutal nature of things…

However, among supposedly “higher primates” like humans — which (if only barely) includes newspaper and magazine editors, Big 3 network news producers and anchors, and the Sean Penns, Michael Moores, and Al Gores in whose expert opinions we all seem to put so much stock — I’d expect at least a discernible measure of gratitude to an outgoing president, no matter how anathema in their circles.

And I think this is especially appropriate when the new power owes its very existence to the former regime. You’ll see exactly what I mean as you read on here…

Along those lines, I feel an obligation to do something on behalf of my mainstream media cousins. It’s a favor that, owing to my position on publishing’s fringes and status as an unabashed editorialist, I have the freedom to do — but that they cannot, owing to their, uh… objectivity.

So, without further ado, I hereby express what every member of the major American media establishment surely feels — but can’t say…

“Thank You, President Bush.”

Let us remember that before he dethroned Democrat Harry S. Truman (nope, not Richard Nixon) as the least popular president since the Gallup people started keeping track of such things, George W. Bush held the title of most popular president in modern history, with a 92% approval rating in late 2001.

And it was precisely W’s highest-ever approval rating that gave the mainstream media a juicy target — there was nowhere for him to go but down. Kind of like his father, the second highest-rated president in modern history (89% positive approval numbers)…

But I digress: This is about the big, sloppy kiss the mainstream media owes Bush 43 for the last 7+ years of target practice. I think it’s the least they can do, given the fact that The Decider himself gave them all the ammunition they needed to shoot him into oblivion. And I’m not just talking about his butchery of the lingo and vapid, tone-deaf rhetoric. It was his crappy strategery, too.

That’s why I’m offering the following fond farewell to President George Walker Bush on behalf of a grateful mainstream media…

Thank you, Mr. President, for embroiling us in an Iraq war with no clearly articulated purpose except the asinine notion of findable WMDs, no concrete exit strategy, a price tag that has arguably spurred us into national economic free fall — and with no possibility for rewards (we won’t seize the oil, we’ll buy it like everyone else) beyond our collective pride at having spread democracy by force. Oh, and a war that carries the perpetual taint of appearing to be nothing more than therapy. No matter what history reveals to be the real forces driving this action, we in the media will always be able to at least plausibly posit that the whole damned opera was nothing more than an insecure, underachieving son dealing with his Oedipal issues by killing thousands of his own countrymen.

Thank you, Mr. President, for bloating the size, scope and expense of government on a scale that exceeds a liberal journalist’s wildest fantasies. Your unprecedented expansion of the federal footprint in the interest of a bipartisan legacy has forever rendered laughable any Republican claim of a “small government” party philosophy. Kudos for effectively taking the conservative movement’s one unsullied trump card off the table for all future elections, and awakening the American public to the reality that anyone they vote for will be a “big government” candidate — so they might as well have the Democrats’ programs and pork here at home, rather than the Republicans’ missiles, wars and spy-cameras abroad. Thanks to your re-invention of the Republican platform from “small government is better than big government” into “our big government is better than their big government,” the only truly conservative threat to Democrat victory in the 2008 Presidential race, Ron Paul, was all but laughed off the stage by his own party.

Thank you, Mr. President, for all but ignoring the one core issue your own party could still get major ideological traction with, an issue that more than 80% of Americans are concerned about even to this day: Illegal immigration. Your party’s strong rhetoric, yet nonexistent action, on this issue has given the Democrats a license to ignore it as well. We salute your lack of initiative in grappling with illegal immigration decisively in the wake of 9/11, when it would have been easy to muster Congressional support for the building of barriers and the institution of stronger anti-hiring and deportation measures in the interest of national security. But because of your poor foresight and utter inaction then, we can now spin any Obama-led immigration policy change whatsoever as a Democrat triumph on a conservative core issue the GOP couldn’t make any progress on. You’ve made us — er, I mean the Democrats — into the party that can reach across the aisle and get things done.

Thank you, Mr. President, for what policies you did enact in the interest of national security after 9/11, some of which are the least popular measures among the American populace since Prohibition. You deserve a hearty “attaboy” for spearheading the Patriot Act, which stands forevermore as a shining beacon of questionably constitutional legislation that has the potential to do more inward harm than outward good. Also, great move on the formation of the Department of Homeland Security, a confused, inefficient, yet huge and deeply funded agency that seems aimed more toward publicly showcasing the U.S. government’s inanity and inefficiency than keeping anyone safe. We left-leaning journalists admire your decision to spend billions and create tens of thousands of low-level government jobs cavity-searching random airline passengers rather than arming pilots with $500 Glocks and frangible, air-safe ammunition. Guns are evil and never save any lives — and pilots are known to be people of erratic judgment. That “Sully” guy who saved 150 people by landing his powerless plane on an icy Hudson River is a fluke. Most pilots would’ve grabbed the gun and started plugging all the passengers instead…

Thank you, Mr. President, for enough sound bites of unscripted idiocy to poison the American public toward any kind of plain-speaking presidential candidate for the rest of time. Your blathering has single-handedly assassinated the historically strong appeal of Presidents of either party with down-home, folksy, straight-talking charm — and programmed Americans to be more receptive to the slickest-tongued and most teleprompter-dependent candidates in any election. Like Barack Obama, our savior.

Thank you, Mr. President, for the thousand small things that transformed our unspoken national motto from the conservative-at-heart Kennedy’s long-enduring “Ask not what your country can do for you — ask what you can do for your country,” to “What has my country done for me lately?” Whether it’s the huge explosion in government make-work jobs, the gross expansion of Medicare and Medicaid benefits, the transparent bribing of Americans with asinine tax refund checks instead of simply cutting taxes and simplifying the tax code, or any number of other things that make this administration more emblematic than any other of the “me state,” we thank you on behalf of the Democrats for doing all their dirty work for them. And finally…

Thank you, Mr. President, for the million other things you did that helped ensure that our new lover, the Big O himself, ascended to his rightful throne. We can’t possibly list them all, but among them are: Your shady Big Oil running-mate, your sketchy Cold-War era appointments, your nonsensical economic policies, your systematic alienation of other leaders of the Free World, and your proud “God first” mentality that soured a nation on qualified Republican candidates like Mitt Romney and positioned the big-tax, soft-on-immigration, long-in-the-tooth John McCain as the only electable 2008 GOP option.

You handed us — damn, I mean the Democrats — the easy win. We’re euphoric, of course. But now we don’t have anyone to crucify anymore, since Democrat-Christian-American-of-multicultural-mixed-race-descent Barack Obama is president, and nothing will ever be wrong under the Stars and Stripes, ever again…

But God, what a ride we had with you, W. We’ll never forget you, Bushie.

Love,
The MSM

A Tragedy of Shakespearean Proportions

Shakespeare’s beloved Twelfth Night is a play about a person born of aristocracy who is freakishly thrust into extraordinary circumstances that dictate the assumption of an unnatural identity. Comedy ensues…

Sound familiar?

To me, it sounds exactly like George W. Bush’s presidency. Except that, aside from the levity of his “Bush-isms” and shoe-bomb attacks at press conferences, the cosmic author of W’s presidential play was clearly writing a tragedy…

And that’s a tough pill to swallow for someone who voted for him.

Now, with 20/20 hindsight, I’m sorry I did. Though I have no regrets about choosing dimwit W over Ketchup King Kerry in 2004, I’m now firmly convinced that my vote would have been much better spent in 2000 on the Tennessee totem pole, Al Gore.

That no doubt surprises those of you who know me well. I’ve made a good chunk of my editorial career out of skewering religions — and none more so than Gore’s militant environmentalism…

In part two of this series, coming in the next 10 days, I’ll explain exactly why this nation of ours would be miles better off right now if Al Gore had been elected president instead of George W. Bush.

I’ll also explain why it would have been the best thing to ever happen to the GOP in America, the mainstream media’s best efforts notwithstanding…

Stay tuned, Taipaners.

Jim Amrhein
Contributing Editor, Taipan Daily

P.S. Before I leave you — and all tongue-in-cheek facetiousness aside — I want to extend a very sincere, personal and public thanks to George W. Bush, the president I helped to elect twice:

Thank you, Mr. President, for putting the “good” in “goodbye.

Source: To George W. Bush, With Love (part one)

Editorial Director’s Note:

In our zeal for speaking truth to power, we are equal opportunity offenders here at the Taipan Publishing Group. You may have noticed that lately we’ve been, shall we say, a tad harsh on the new administration… so it’s only fair that Jim Amrhein, truth-speaker par excellence, now properly roasts the outgoing Prez.

Agree? Disagree? Let your feelings flow, and I’ll pass ‘em along to Jim: justice@taipandaily.com

“Now that President Obama has signed a $787 stimulus package [sic] into law and weighed tens of billions more to aid homeowners and banks,” deadpans a hastily-written New York Times political blogpost, “he will take a break next Monday to consider just how the government can get a grip on its increasingly ugly balance sheet.”

Yes folks, it’s the “fiscal responsibility summit,” not to be confused with the “fiscal wakeup tour” chronicled in I.O.U.S.A.

90 invitees will wring their hands over the prospect of a $2 trillion dollar deficit this year.  No word yet who exactly is on the guest list, but we know the rough makeup of this august panel — 30 House members, 30 senators, and “30 scholars and representatives of advocacy groups such as AARP.”

Well, I guess the irony of inviting habitual big spenders isn’t too thick if George W. Bush isn’t among the invitees.

“After Mr. Obama opens the summit,” the Times continues, “the assemblage will break into six groups. Each will discuss separate topics that encompass the range of fiscal challenges that would exist even without the current recession and will endure once the economy recovers. The topics include health-care costs, Social Security, tax reform, defense procurement and the federal budget process.”

I can give you a rough outline of what these guys are going to come up with right now, before the summit takes place, without even knowing who’s taking part.

• Health care costs: No big solutions will be proposed, but whatever short-term fixes are floated will will further intrude on privacy, further restrict patient choice, and further line the pockets of the insurance companies.  (Memo to everyone who fears “socialized medicine”: Never gonna happen.  What will happen is a further cementing of a system that, if I may borrow from James Grant’s terminology for the financial sector, privatizes profit and socializes cost.  Free-market fee-for-service solutions?  That’s not something Serious People talk about.)
• Social Security: Again, don’t expect any big pronouncements here, but we will get some sort of trial balloon for raising taxes and/or lowering benefits.  The president’s budget chief is on record supporting benefit cuts for everyone under age 55.
• Tax reform: Oh, let me guess.  Maybe a recommendation to fix the alternative minimum tax once and for all.  And said proposal will go nowhere.  Fundamental rethinking of the system will not be open for discussion.
• Defense procurement: Much noise about reining in costs, maybe even lip service to rethinking whether we need Cold War-era ships and aircraft to fight guys in caves.  But as with the health insurance industry, the special interests are simply too well-entrenched.
• The federal budget process: Lip service to fighting “waste, fraud, and abuse.”

There, that was easy.  There’s your “fiscal responsibility summit.”  Everyone can slap each other on the back when it’s over and feel really good about themselves when they go home.  And we’ll fall even further into a multi-trillion-dollar hole.

Source: Fiscal Responsibility Follies

This from Money Morning:

The leaders of 20 of the world’s most developed nations, the G20, will convene in Washington D.C. on Nov. 15 for an emergency financial summit considered by many to be the 21st century version of the Bretton Woods initiative of 1944. This will be the first chance for European leaders – many of whom blame the current financial contagion on U.S. free market capitalism run – to press for an overhaul of a global financial system the United States has dominated for more than 60 years.

The summit will “seek agreement on principles of reform needed to avoid a repetition of the problems and assure global prosperity in the future,” U.S. President George W. Bush, European Commission President Jose Manuel Barroso and French President Nicolas Sarkozy said in a joint statement.

However, Barroso was more explicit – and less diplomatic – earlier this week when he said that  “we need a new global financial order.”

President Sarkozy has also expressed his desire for a more dramatic remaking of the current financial system, which he says “has distanced itself from the most fundamental values of capitalism.” It was the French president who earlier this week pressed President Bush to call a summit of the G8 and include the developing nations of India and China.

Sarkozy, over the past week, outlined some of the broad principles of reform he hopes to achieve. Specifically he argued that “no bank that works with government money should be allowed to work with tax havens” such as the Cayman Islands. He also raised the issue of curbing executive pay.

“No financial institution should escape regulation,” the French president said, referring to hedge funds and private equity firms. And the world’s most prominent credit agencies – dominated by such U.S. institutions as Moody’s Corp. (MCO), Fitch Ratings Inc., and Standard & Poor’s – should have their role in the global credit market reduced after their “scandalous” behavior.

Sarkozy isn’t alone either. The European Union (EU) is also on board with tougher regulations on hedge funds, limits on executive pay, and new rules for credit rating agencies. And British Prime Minister Gordon Brown, who has been instrumental in pushing for reform, has called for 30 cross-border “colleges of supervisors” to be established by the end of the year to monitor the activities of the world’s 30 biggest banks.

Indeed, the recent rash of criticism from leading politicians is indicative of the prevailing sentiment in Europe that the failure of U.S.-style free market capitalism is most to blame for the credit crisis that has put the world economy at risk of a recession. For Sarkozy, Brown and others, reform will not end with increased oversight of financial institutions but extend to the fabric of the global financial system, as well as the U.S. dominance that lies at its heart.

“Europe wants it. Europe demands it. Europe will get it,” Sarkozy said in reference to global financial reform last Saturday.

And while President Bush has insisted that the United States will seek to preserve the foundations of democratic capitalism – a commitment to free markets, free enterprise, and free trade,” Sarkozy has branded the lax regulation that has become the hallmark of the U.S. economic philosophy as a “betrayal of the spirit of capitalism.”

To Europe, the capital excess that is behind the global financial meltdown epitomizes the behavior of an America that has essentially squandered its role as the standard bearer of global finance.

“We cannot continue accepting the increasing deficit of the world power,” Sarkozy said. “Americans for three decades have been living over their limits.”

Bretton Woods – Then and Now

In 1944, the United Nations Monetary and Financial Conference – a collection of 740 delegates from 44 Allied nations – convened in Bretton Woods, N.H. The goals were to prevent a repeat of the Great Depression and facilitate the reconstruction of Europe following World War II.

After three weeks of deliberation, delegates agreed to a number of principles that established the rules for commercial relations among the world’s major industrial states and served as the foundation for today’s financial system. To this day, that complex plan is known as the “Bretton Woods system of monetary management.”

The nations participating agreed to fix their exchange rates to the dollar. The dollar was, in turn, fixed to gold at a value of $35 per ounce of gold bullion.  The conference also led to the formation of the Bank for Reconstruction and Development, the General Agreement on Tariffs and Trade, and the International Monetary Fund (IMF).

The Bretton Woods system met its demise in 1971 when U.S. President Richard M. Nixon severed the link between the dollar and gold. Most major world economies now float their currencies. However, such Bretton Woods institutions as the Bank for Reconstruction and Development and the General Agreement on Tariffs and Trade (GATT) live on in the form of the World Bank and the World Trade Organization (WTO), respectively. The IMF, meanwhile, is currently negotiating broad-based bailouts for Iceland, Ukraine, Hungary, and Pakistan.

And analysts aren’t confident that the upcoming round of dialogue will produce the “very large and very radical changes,” that British Prime Minister Gordon Brown has called for and Sarkozy has seconded.

The original Bretton Woods conference took years of coordination and planning. It was also a three-week gathering of the world’s foremost economists, including John Maynard Keynes – not an impromptu political salon for world leaders to pontificate on the obvious shortcomings of the current financial system. And as the IMF’s continued intervention in many struggling world economies illustrates, many of the old Bretton Woods Institutions still have value.

“Things like this that produce real results for the world are planned years in advance,” Edwin M. Truman, who was an assistant secretary of the Treasury under U.S. President Bill Clinton, told The New York Times. “The notion that you’re going to have something come out of this in three months is probably naïve.”

The timing of the conference is also precarious, as it will come just 11 days after a new U.S. president is elected and just a few days before President Bush takes his last official trip abroad. The U.S. president will be joining an annual summit of Asian-Pacific leaders in Peru.

The meeting is being planned in such haste that the White House was not yet certain where it will actually be held. And with so many nations participating – not to mention a lame duck U.S. president – it unlikely the November summit will achieve anything substantive.

Still, there remains the hope that at least a framework of discussion – and perhaps even an outline for reform – can be established.

Instead the leaders who attend will be challenged to “agree on a common set of principles for reform,” White House Press Secretary Dana Perino told The Times. It will then be up to financial experts “to put meat on the bones when it comes to fleshing out the principles.”

Source: Will Calls for a “New Global Financial Order” Result in a Second Bretton Woods and the End of U.S. Dominance?

Rising food prices are prompting second thoughts about corn-based ethanol — even from the candidate representing the home state of Archer Daniels Midland:

Democrat Barack Obama said Sunday the federal government might need to rethink its support for corn ethanol because of rising food prices, a stance similar to Republican John McCain’s but at odds with farm states considered important to the November election.

“What I’ve said is my top priority is making sure people are able to get enough to eat. If it turns out we need to make changes in our ethanol policy to help people get something to eat, that has got to be the step we take,”said Obama, D-Ill., on NBC’s “Meet the Press”.

Sen. Hillary Rodham Clinton, D-N.Y., speaking on ABC’s “This Week,” agreed the issue needs closer review.

“What we need to do is accelerate the research into farm waste and into other cellulosic plant materials…”

Kevin Kerr of Resource Trader Alert figures the political tide will turn decisively against corn-based ethanol by next year, with the departed George W. Bush taking the rap for the food fallout.

Still, if the ethanol lobby is destined to lose its sway, the sugar lobby is another matter.
The ethanol giants of southeastern Brazil have transformed how 185 million residents of this South American nation power their cars and trucks. Now, they say they’re ready to start the same ethanol revolution in the rest of the world, if only the world will let them.

That, however, is where Brazil’s ethanol leaders are hitting problems. They already churn out what many consider to be the world’s cheapest and most efficient mass-produced biofuel and say they can export billions of gallons more.

Yet the rest of the world doesn’t seem to want what the Brazilians have. In the United States, a 54 cent-per-gallon tax blocks most Brazilian ethanol from reaching U.S. consumers.

And that’s a function of U.S. sugar growers who also manage to keep much imported sugar from reaching U.S. shores — forcing Americans to pay at least twice as much for sugar as the rest of the world (and wrecking the ecology of the Everglades, to boot).