Possible cancelling effects in the Fed's MBS policy

A couple of years ago, there was some talk of the Fed unloading its MBS portfolio, which it had purchased with a substantial amount of cash. With QE3, the Fed decided to keep buying more MBSs, driving expected MBS yields down in its efforts to pump money into the housing market. However, as the Fed drives down MBS yields, there is a possibility that potential new entrants to the MBS market will chose other securities over MBSs. In other words, there is a self-defeating element in the Fed's MBS policy also. Whether this effect will prove to be stronger or weaker than the original impetus provided by the Fed through its MBS purchases remains to be decided, especially when the possibility exists of herd mentality playing a role in the housing market.

Other than this possible cancelling effect, efforts by the Fed to change the dynamics of the housing market will face difficulties due also to fundamental market considerations like demand, supply, prices, risk perceptions etc. The fact that the Fed's intervention has not led to any dramatic recovery in the housing market is a confirmation of this fact. Unless there is a large impact on the amount of housing loans, mortgage rates and house prices that can be traced easily to Fed action, as opposed to other factors or natural recovery in the housing market, one should be wary about ascribing any and every change in housing market parameters to Fed action. This is one aspect of the uncertainty that economics is prone to as a subject. And a lot of economic commentary is also prone to carelessness when it comes to ascribing economic dynamics to specific causes. The Fed needs to weigh the pros and cons of its MBS policy initiatives very carefully.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )

Ice-skating in fiscaldom - why the US fiscal scenario is likely to be anything but comfortable in the coming decade

Economics has not been able to achieve the kind of accuracy that characterizes disciplines like, say, engineering. This is regretable, given the kinds of crises that have befallen the US and the global economic systems in recent times. More than crises, persistent weakness and structural problems are likely to mark the US and the world economy in the coming years. Responsible intelligentsia should be honest about the limitations of economics as a subject and also about the seriousness of the problems that face us.

Comforting predictions or projections that try to rely too much on small variations in macroeconomic parameters and that rely on too fine a balancing of small variations in macroeconomic parameters should be viewed with suspicion. A mature economy should be marked by much higher levels of stability and should not be at the mercy of small movements in macroeconomic parameters. However, some attempts to paint optimistic scenarios do rely on calculations that tend to rely on a very delicate balancing of macroeconomic parameters that can not necessarily be guaranteed. Without naming names, one can assert that a lot of superficial analysis about the US and world economy is designed purely to give the impression that things are not really that bad and that the future is going to bring economic recovery and progress. They tend to ignore worst-case scenarios and can be very selective in the kinds of factors they consider. They tend to be analyses that do not take into account radically different economic realities. A lot of it is probably done at the behest of rich interest groups that need the appearance of research, but not actual research. Much of it is probably financed, explicitly or indirectly, by vested interests whose sole purpose is to perpetuate capitalist elitism. Academicians have often churned out dishonest analyses of this kind and have cheapened the public discourse. A lot of the problems faced by the US economy in recent times can be traced to the persistence of elitist policies that serve a particular interest, but pretends to serve the broader public interest. And US public finance is one area where this kind of ostensible expertise is rampant. They tend to perpetuate false and misleading beliefs in the virtues of lower taxes, even though the empirical data of the past several decades shows that the broader economy suffers several negative consequences due to persistence of low-tax policies and that lower taxes have no positive effect on economic output and investment.

The lack of decisive fiscal policy-making in the US and the prevalence of misleading notions and attitudes about the effects of taxes on the economy means that the US fiscal situation will most probably remain very precarious for the next decade. The political establishment in the US, that part of the intellectual establishment in the US that studies economic issues and the parts of the capitalist establishment that try to skew economic policy without regard for accuracy and the interests of US society are responsible for a significant part of this mess. The US public needs to be aware of the kind of apathy that their political establishment has displayed in this matter. It also needs to be aware of the limitations of a system where political opportunism often trumps principles and the public good. And it may well need to come up with new and unprecedented strategies to put pressure on a political establishment that has been this complacent about the fiscal health of the country.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )

Quality of intelligence and Western intervention in Middle Eastern countries

We all know what happened in Iraq with the whole weapons of mass destruction ( WMD ) misinformation thing and what the Western-led invasion of Iraq led to. Several years after US propaganda based on faulty intelligence led to the invasion of the country and in many ways a worsening of the security situation in the country, the world came to know that Iraq did not have WMDs. US military casualties in the thousands and numerous US injuries and enormous number of Iraqi deaths resulted from hasty action inspired by extremist neocon ideology.

Once again, we are confronted with a similar situation with the US administration issuing a warning to Syria not to use chemical weapons against internal opponents ( the Bashar Al-Assad government has stated that it does not intend to use chemical weapons against internal opponents ). What kind of intelligence underlies US statements on this issue ? How credible is the intelligence that the US administration is using, given the fact that US military personnel and NATO military personnel may have to risk their lives if the US alone or if NATO initiates military action against the Bashar Al-Assad regime ? US political discourse must hold its political establishment to higher standards of intelligence and due diligence than were followed in the case of Iraq. And the international community must be that much more alert against possible mistakes on this issue based on faulty intelligence.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )

Al-Qaeda in Syria, the Saudis and US dilemmas

With Al-Qaeda activity against the Bashar Al-Assad regime on the rise in Syria, with backing from some Saudi and Qatari quarters, US policy framers should be aware of strategic and moral dilemmas when it comes to backing rebel groups against Bashar Al-Assad. Assuming, of course, that morality is indeed a factor that matters in addition to realpolitik in the minds of those US policy framers who have the most say on this issue. While the US has limited its backing to non-al-Qaeda rebel groups in Syria, how sure is the US administration that money and arms provided by the US will not fall into the hands of Al-Qaeda groups ? The US will probably ignore this fine point at the moment because of how complex the situation is in Syria and because of the geostrategic aims of the US establishment.

But there is a possibility that weakening Bashar Al-Assad will strengthen Al-Qaeda in Syria. If this happens, and if Al-Qaeda groups happen to gain control over territory inside Syria, we will be in the ridiculous situation where the US would have enabled Al-Qaeda control inside a country through its own geostrategic designs, if not blunders. This should be a major worry for a US establishment that seems eager to bypass or ignore UN mechanisms. And it should be a matter of concern for European countries too. The lack of clarity in US approach to the Syria question does not inspire confidence in its ability to prevent, counter or contain groups that it considers inimical to itself. US foreign policy does not have a clear vision for the kind of dispensation it wants in Syria. There is a high chance that the kind of approach the US is taking on the Syrian issue will make things worse than they already are.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )

Law and order problems in Iraq and sectarian divisions

Iraq continues to experience violent attacks, similar to what it experienced when US forces were present in the country. It is difficult to tell whether the reason behind these attacks is ideological Islamic militancy, sectarian differences between Shias and Sunnis or a combination of the two. In other words, do they constitute a law and order problem or are they due to some kind of full-blown sectarian strife ? The answer to this question is crucial for any kind of policy-making that aims to end these conflicts. Despite its global vision, the exact shape and form that ideological Islam takes differs from country to country since the specific local political and socio-economic conditions can vary a lot.

If one considers Sunni militancy in Iraq, those Al-Qaeda groups who are active in Iraq will have to decide what exactly their goal is in Iraq after US troop withdrawal. If it is Al-Qaeda activity inspired by a desire to impose a specific brand of ultra-conservative Islam on Iraqi society, it will have to come face to face with several crucial questions. One is the level of popular support that these Al-Qaeda groups command, or expect to command, inside Iraq. Another question that they have to contend with is - since Al-Qaeda is based on Sunni ideology, is there not a possibility that their militant activities in Iraq can contribute to a broader Shia-Sunni split ?

A lot will depend on the intentions of the Nouri Al-Maliki government, on the kind of vision Mr. Nouri Al-Maliki has for Iraq and how well the political process is able to counter sectarian divisions and to respond to the needs of different groups in the country. No one should be under the illusion that the conflicts within Iraq will be easy to put an end to. The need of the hour in Iraq is mature leadership that can build on its economic strengths and that can prevent the existing violence from spiraling out of control.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )

NATO stance on conflicts within nations - Cold War and post-Cold War modes in European foreign policy

Europe's recent foreign policy stances on internal conflicts within nation states is marked by a strange combination of Cold War modes and post-Cold War modes. If one follows Europe's policy stances, actions and attitudes on this question from 2000 onwards, one can discern a kind of schizophrenia. Not always very comfortable with US efforts to " police " global political morality, it has nevertheless extended military support for the US " policing " agenda. While neoconservative elements have been exceedingly vocal inside the US, at least until very recently, it is not clear how far the US neoconservatives have been able to plant their ideas and their worldviews on European policy framers and European opinion makers.

It is the US that has been the most enthusiastic proponent and executor of the neocon agenda and several European countries have extended support, sometimes half-hearted, possibly due to compulsions having to do with overall security perceptions. Both the Afghanistan war and the Iraq war started by George W. Bush were primarily wars of the US establishment and in many ways, wars for the US establishment. Europe did not experience anything approaching the Sept 11, 2001 events in scale and European countries did take this fact into consideration while deciding the extent to which they would support the US-led initiatives in Iraq and Afghanistan. The European participation in the Iraq and Afghanistan wars stemmed from a combination of security concerns and idealism, although the idealism may have been misinformed and was most probably based on misleading and highly faulty intelligence.

The enthusiasm with which some European governments ( the French administration of Sarkozy, in particular ) decided to adopt military means, along with the US, to intervene in the internal conflicts in Libya during the Arab Spring revolts meant that like the US, some influential parts of the European establishment had begun thinking and acting like the US in that they were militarily intervening in foreign countries not based on security concerns, but based on an imprecise and possibly naive notion of idealism, an idealism of the kind that misses the complexity that constitutes the real world and tends to oversimplify matters to fit certain theoretical frameworks. With the recent conflicts in Syria, this imprecise and naive notion of idealism ( that can easily lead to ridiculously non-ideal consequences unless used with caution and unless based on a very careful assessments of the facts ) has once again surfaced, for example, through the statements of Mr. Anders Fogh Rasmussen, the NATO Secretary General. The problem with Syria, as with other cases in the Middle East ( although it is not acknowledged in a whole lot of the conformist discourse that permeates Western and US media and intelligent opinion ), is that the justification for intervening in a civil war is not very apparent. Even when the fear of possible use of chemical weapons is used by the likes of Mr. Rasmussen to talk about non-UN-sanctioned intervention in Syria, it is not clear what exact moral argument is being used, or if there is any moral argument. Since both sides in the Syrian Civil War have resorted to violence to achieve their aims, what is the exact moral argument being used when the bogey of chemical weapons is being used as a justification ? Surely, if the US establishment and significant parts of the European establishment are publicly subscribing to the view that chemical weapons use can be a triggering point for non-UN sanctioned-NATO-intervention in Syria, there must be other triggering points too, if one starts using the destructive power of arsenals as the criterion for intervention. Since national security is not a justification for intervening in Syria ( Syria does not pose a national security threat to the US or to European nations ) and since the validity of arguments based on things like chemical weapons is questionable, one is led to wonder if there are parts of the establishment in the US and in Europe who are trying to push the US and European militaries as well as the US and European political systems into new international paradigms. Recent history is replete with instances where those who shout loudest about freedom have often done significant damage to the cause of freedom. All too often, superficial public discourse has been the basis of the deployment of military forces inside countries. It is time for the international community to take note of the tenuous nature of the arguments underlying the public statements of the establishment in US and in Europe and to come up with solutions to the Syrian crisis that have a truly international flavor and that do justice to the causes of freedom, international rules and international harmony and that take the existing complexities of disputes into consideration.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )

The question of chemical weapons in Syria - the cases of internal conflicts and external aggression

Syrian government officials have stated that they do not intend to use chemical weapons inside the country. However, one statement hinted that Syria reserves the right to use chemical weapons against external aggression. When the George Herbert Walker Bush ( or Bush Sr. ) administration led the attack against Iraq in the early 1990s, it was in response to the Iraqi invasion of Kuwait. The alleged use of chemical weapons by Saddam Hussain against Kurds in the late 1980s did not lead to any military action against Iraq. When the George W. Bush ( son of George Herbert Walker Bush ) administration attacked Iraq for allegedly possessing weapons of mass destruction ( later proved to be false ) and for allegedly having contacts with al-Qaeda , the use of chemical weapons in the late 1980s against the Kurds was used as an additional justification by some commentators and analysts. But the fact is that in the 1980s, when Saddam Hussein was in the good books of the Reagan administration, the alleged use of chemical weapons by Saddam Hussein against Kurds in Iraq did not lead to any military response against Iraq by the Reagan administration. Of course, more than twenty years have passed since then. New Democratic foreign policy and neo-conservative foreign policy have tried to sell the idea of " nation-building " to the world, with questionable results. While the current White House is trying to continue the New Democrat-neocon flavor of foreign policy when it comes to internal conflicts in other countries, the US administration would do well to clarify its exact intended policy on chemical weapons use by Syria, internal or external. Will an internal use of chemical weapons in Syria ( the Syrian administration seems to have vehemently denied intending to use chemical weapons for internal conflicts ) lead to unilalteral non-UN-sanctioned US military action or non-UN-sanctioned NATO military action against Syria ? As for Syria's not ruling out the use of chemical weapons against external aggressors, the legality and the morality become very murky. Syria is not a signatory to the Chemical Weapons Convention. While the US has ratified the Chemical Weapons Convention, there is confusion about whether US foreign policy has been made consistent with this ratification, at least based on the information that this writer has been able to gather. It seems that technically, Syria is right when it reserves the right to chemical weapons use against external aggression.

The morality of chemical weapons use is complicated. The use of chemical weapons by the US in Vietnam, the continuation of the use of other deadly forms of weapons etc mean that chemical weapon use becomes a difficult moral subject. It would be nice to rid the world of chemical weapons, but then it would be nice to rid the world of other deadly weapons as well. And of tyrannical governments and insensitive governments and of dangerous warmongers and war criminals. Using UN frameworks seems to be the safest option for such cases. The lack of evidence of weapons of mass destruction in Iraq and allegations of criminality against some western leaders are examples of how hasty military action in such cases leads to a tangle of moral and legal complications. The " policing " actions of the US become that much more difficult to justify given the lack of due diligence and a tendency to disregard UN mechanisms.

by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )