GEORGIA PULLS OFF A PEACEFUL, FAIR ELECTION:

Sarah,

It’s true, Georgia is also a country.  It is miniature, just south of Russia and was part of the Soviet Union from 1921 to 1991.  It has since struggled to free itself from Russia’s influence and even fought a very one-sided war with Russia in 2008.

 

What Happened?

A billionaire named Bidzina Ivanishvili won an election and ousted the political party that has dominated Georgia since 2003.  His platform is reconciliation with Russia (the 2008 war hurt relations) and to lessen the inequalities brought on by the transition to capitalism. 

Why Is This Interesting?

This is interesting because most of the ex-Soviet states have not fully embraced democracy.  When the Soviet Union dissolved, 15 independent countries were created.  The countries closest to Europe (Estonia, Latvia, Lithuania) transitioned to democracy rather easily.  Others, especially those in Central Asia, are still ruled by Soviet-style dictators.

Even in countries where elections have been held, transitions of power have been very messy.  Ukraine, for example, is very polarized.  The west of the country leans towards Europe, the east leans toward Russia.  The last couple Ukrainian elections have been marred by conflict with neither side admitting defeat.  Georgia’s election was remarkable because the current president readily and gracefully stepped down from power.

Bottom Line: This is seriously good news.  The transition to democracy is always hard, but it is especially hard when you border Russia and share a region with autocratic dictators.

PUTIN’S LATEST MOVE:

Sarah,

This week, Putin supporters expelled an opposition leader named Gennady Gudkov from Parliament.  Although Gudkov supported Putin in the past, he had recently begun to criticize corruption and inefficiency within Putin’s United Russia party.  The official charge against Gudkov was “conducting business while in office” but observers could not help but notice that the expulsion occurred on the eve of a large anti-Putin protest.  This is important because lawmakers have a degree of immunity and the expulsion leaves Gudkov vulnerable to prosecution for any connection to the protests.

So let’s add up Putin’s latest moves:

-expulsion of Gudkov from Parliament

-imprisonment of other opposition leaders

-imprisonment of a female punk band named Pussy Riot for singing a song in a church

-passage of new laws that dramatically increase fines for protesting

-passage of a law criminalizing libel

-passage of laws that increase censorship of the internet

Bottom line: New acts of repression are happening weekly.  Russia is heading in the wrong direction.

ANTI-JAPANESE PROTESTS IN CHINA:

Sarah,

As a result of a territorial dispute between China and Japan over some uninhabited islands, Anti-Japanese protests are raging throughout China.  The LA Times described some ways in which the Chinese are protesting:

1.  Commentators are urging a boycott on all Japanese goods.

2.  One man drove his Honda Civic back to the dealership and set it on fire.  Other Japanese cars have been smashed throughout China.

3.  Tour groups are cancelling visits to Japan.

4.  A couple cancelled a wedding photo shoot because the cameras to be used were Japanese.

5. Citizens are downloading Japanese porn illegally to deprive Japanese porn studios of money.

6. A famous Chinese actress canceled an appearance at the Tokyo premiere of Resident Evil to show support for her country.

(click this article for a better description of the dispute)

Source: LA Times, “Isle Dispute Fuels Offbeat Protests by Chinese”, 9/14/12

THE THIRD LARGEST DRUG CARTEL IN MEXICO IS STRUGGLING:

Sarah,

The top three drug cartels in Mexico are the Gulf Cartel, the Sinaloa Cartel, and the Zetas.  This week, the boss of the Gulf Cartel was arrested.  This event signals major changes ahead.  Here is a breakdown:

Quick History:

In the 1980’s, American authorities shut down drug smuggling routes through the Caribbean and Florida.  This forced Colombian suppliers to use Mexican middlemen to get their drugs into America.  One of these middlemen, the Guadalajara Cartel, began investing in their own operation and soon became the most dominant cartel in Mexico.

When the leader of the Guadalajara Cartel died, the Sinaloa Cartel, the Tijuana Cartel, and the Gulf Cartel split the smuggling routes of the original operation and grew to be their own powerful entities. 

In 1999, elite soldiers in a special unit of the Mexican Army deserted and were hired by the Gulf Cartel as bodyguards and assassins.  In 2010, the soldiers broke away from the Gulf Cartel and started their own operation.  They call themselves the Zetas.

Since 2010, these three major players have dominated the Mexico’s drug trade.  The Sinaloa Cartel is the largest and most powerful.  The Zetas are the newest, most aggressive, and most violent.  The Gulf Cartel is still powerful, but seems to be rapidly disintegrating.

Recent Arrests:

The arrest of the Gulf Cartel’s leader, Jorge Eduardo Costilla Sanchez, signals only the most recent struggle for the organization.  The leadership has been decimated in recent years: one captain is in jail in Texas, one captain was arrested the week before, and one captain was killed in a 2010 shootout with the Mexican Army.

With their top leadership eliminated, it will be tough for the Gulf Cartel to continue fighting off the cartels.

Power Vacuum:

The Gulf Cartel controls prime assets and smuggling routes.  People are definitely going to fight over them.

First, there will likely be infighting among the second tier of Gulf Cartel leadership to obtain the top spots.

Second, the Zetas and the Sinaloa Cartel will be fighting to take over Gulf territory.

The Zetas have been expanding rapidly but lately there has been evidence of dissension in their ranks.  The more organized Sinaloa Cartel might have the advantage.

Politics:

Mexico has recently elected a new President.  There is a question as to how he will handle Mexico’s drug violence.  Mexico’s last administration focused on pursuing the top leadership in each cartel.  This strategy was criticized as ineffective because it did not focus on the source of drug cartel power and merely replaced one drug lord with another.  We will see if Pena Nieto (the new president) does anything different.

(click here for more detailed information on Mexican Drug Cartels)

AMERICANS ARE ATTEMTPING TO BUILD “EUROVEGAS” IN SPAIN:

Sarah,

Casino magnate Sheldon Abelson is planning to build a mega casino on the outskirts of Madrid, Spain.  The project is dubbed EuroVegas and will include 6 casinos and 12 hotels.  If completed, it will be the largest gaming resort in Europe. 

Pros:

Advocates claim the Casino will help Spain’s ailing economy.  Spain’s unemployment stands at 25%. (America’s unemployment rate is 8%)  The project is predicted to create around 200,000 permanent jobs.

The finished project may also increase tourism in Spain.

Cons:

Critics claim the casino will lead to more money laundering operations and prostitution.  They think the economic advantage will be offset by tax breaks and note that most of the new jobs will be low paying.  Lastly, Spain will have to build more roads to accommodate the large complex.

Bottom line: EuroVegas?  Real creative guys.

ISRAEL’S PRIME MINISTER CRITICIZES OBAMA:

Sarah,

This week, Israel’s Prime Minister Benjamin Netanyahu criticized America’s current position on Iran.  Here’s why:

The Dispute:

The dispute revolves around Iran’s nuclear program.  Iran claims it is developing nuclear technology to build civilian power plants.  Western countries think Iran is trying to develop nuclear weapons.

To deter their progress, Obama stresses diplomacy and economic sanctions.  He has not taken the military option “off the table” but hasn’t been very specific.  Israel wants the United States to take a harder line.  Specifically, Israel wants the United States to set “red lines” which if crossed by Iran, would trigger a military strike by American armed forces.  America has not done this.

Israel also condemns Obama for urging Israel not to attack Iran.  In the words of Netanyahu: “They (the U.S. and Europe) don’t have the moral authority to place a red light before Israel.”

Lastly, Netanyahu is mad because he claims Obama refused his request for a meeting at next month’s United Nations assembly in New York.  Obama claims it is merely a scheduling conflict; he will not be in New York at the same time as Netanyahu because he is scheduled elsewhere.

The Political Dimension:

Some observers think Netanyahu’s comments are designed to influence the American election.  Romney’s policies are more in line with Israel’s and Netanyahu may be trying to speak to the crucial Jewish vote.  A majority of Jews voted for Obama in the last election.

Netanyahu’s words put Romney in an interesting position.  On one hand, they may strengthen Romney’s claims that Obama is soft on Iran and is weakening our ties with Israel.  On the other hand, Romney does not want to be forced into promising a military attack.  By and large, American voters are not interested in starting another war.

 

 

SUICIDE BOMBINGS TARGET NEWLY ELECTED PRESIDENT OF SOMALIA:

Sarah,

Last month I gave you an overview of why Somalia is struggling so much.  Read it if you haven’t.

Recent news exemplifies Somalia’s continuing strife:

Two days ago Somalia elected Hassan Sheik Mohamud to be their new President.  However, the government that elected him only controls part of the country and relies heavily on foreign aid.  Much of the country is still under the control of the Shabab, an Islamist Militia.  Right now, the African Union (a collection of African countries) has peacekeeping troops positioned in the south of the country to protect the Somali capital against attacks from the Islamists.

Yesterday, the Shabab unleashed suicide bombers on the hotel where Mohamud was staying.  He survived, but the attack provided a clear reminder that the Somali government does not control all of Somalia and the Shabab can orchestrate attacks anywhere in the country.

The Shabab claimed responsibility for the attack on Twitter.  Currently, they have 15,500 followers.

 

Bottom line: I'm really curious about the Twitter situation in Somalia because I'm assuming computers are rare.  Do people just go to internet cafes to check on the status of the extremist Islamist militia that controls half the country?

FIRES DESTROY FACTORIES IN PAKISTAN:

Sarah,

Factories in developing countries have helped lift many out of poverty.  They also cause a tremendous amount of problems.  One of these problems is unsafe working conditions. 

This week in Pakistan, two fires, one in a garment factory and one in a shoe factory, killed 314 people.

The buildings lacked fire exits and other safety precautions.  This failure is part of a larger trend in Pakistan and other developing countries in which factory owners routinely bribe local officials instead of installing expensive alarms, emergency exits, and firefighting equipment. 

LATEST FIGURES FROM THE US CENSUS:

Sarah,

Each year the U.S. Census Bureau gives an annual report on America.  Here are the latest findings:

-The poverty rate held steady at 15% after four years of increases.  The poverty rate is defined as a single person making less than $11,702 or a family of four making less than $23,208.

- Median household income fell.  The hardest hit American households were those in the 60^th percentile.  Income for this group fell 23%.

- Average income in the richest households held steady.  The proportion of the nation’s wealth held by the top 20% of earners increased slightly.

- Why did middle class incomes fall while the poverty rate held steady?  Experts think it’s because there are new jobs but they do not pay well.  Thus, people can find work that keeps them above the poverty line but below traditional average incomes for the middle class.

- The proportion of Americans with health insurance rose.

- The South experienced the most economic gain.

-California’s economy continued to deteriorate and their poverty rate increased, bucking the national trend.

Bottom line: Things are not better.

THE SALTON SEA IS ONE STINKY LAKE:

Sarah,

The Salton Sea is a lake in south-central California.  This week, horrible smells emanating from the lake travelled more than 100 miles and reached Los Angeles.  How is this lake so stinky?  Here is what experts believe:

1. The Salton Sea was created in 1905 when the Colorado River flooded and water flowed into the area.

2.  The lake is now replenished by agricultural run-off water.  This water is laden with chemicals that give the Salton Sea its trademark murky color.

3. Fish populations in the lake adhere to a sort of boom and bust cycle.  After rapid population growth, oxygen in the shallow lake is depleted and the depletion causes all the fish to die at the same time.

4. These seasonal die-offs add to a collection of stinky decay of the bottom of the lake.

5.  Last week, thunderstorms and gusty winds churned the shallow waters of the lake.  This allowed all the stinky smells at the bottom of the lake to escape into the air.

6.  Wind then blew these smells into the greater Los Angeles area.

7.  The alternative theory is that the smell is from geysers shooting sulfur dioxide into the air.  In recent years, the lake has receded into the desert and this has uncovered the geysers.

Bottom line: The Salton Sea is one stinky lake.

INDIAN SCHOOLS ARE REALLY HARD TO GET INTO:

Sarah,

This week the LA Times had a fascinating article on the admission process for Engineering Colleges in India.  Here is the breakdown:

1.  Every year over 500,000 applicants compete for 9,647 spots.

2.  To be admitted, students take an engineering entrance exam that has a 98% failure rate.

3.  To study for the test, students flock to the city of Kota, which is famous for its test preparation companies.  The companies are in Kota because the founder of the most successful test prep company started his business in a garage in Kota and an entire industry sprouted around his business.  Further, Kota has very few restaurants or movie theatres so parents feel that their kids will not be distracted.  Lastly, various hotels and host families offer accommodations with strict curfews and rules.  As an example, one hotel recently evicted a student for smoking a cigarette.   

4.  The tuition for the best test prep schools is around $1400.  India’s GDP per capita is only $3,693.  As a point of reference, America’s GDP per capita is $48,000.  So based on a proportion of tuition to GDP per capita, that is like a test prep company in America charging $18,000.  Accordingly, many Indian families take out mortgages on their property to pay for the test prep.

UPDATES IN THE CHINA-JAPAN CONTROVERSY:

Sarah,

Last week I gave some background on a dispute dispute between China and Japan over a chain of uninhabited islands.

Here are the latest developments:

1. Last week, the Japanese government bought the islands from the Japanese family that supposedly owned them for $26 million.  The deal was spearheaded by Tokyo’s Governor, a strident nationalist.

2.  Today, China announced that it is sending paramilitary ships to the island for “surveillance”.  China also announced that it has plans for safeguarding the islands and that it considers the sale of the islands to the Japanese government illegal and invalid. (because China owns the islands)

DEATH OF A DIPLOMAT RAISES CONCERNS:

Sarah,

A United States diplomat was killed in Libya after protesters attacked and set fire to the U.S. Embassy.  Our Embassy in Egypt was also attacked.  The attacks raise several more general concerns:

1.  The precipitating event was a video posted on YouTube that insults Islam.  Supposedly the video was posted by people in America and depicts Muhammad and his followers as “child lovers” and questions whether he loves women.  This is concerning because anyone can post videos on YouTube at any time.  Does this mean that anyone in the world can start an anti-American riot by simply posting a YouTube video attacking Islam and claiming to be an American?

2.  Florida preacher Terry Jones promoted the video.  This preacher is famous for publicly burning Korans in 2011, an event that set off riots in Afghanistan.  Now it seems he is able to effectuate riots in Egypt and Libya too.  This guy does not seem to be slowing down.

3.  Both Egypt and Libya recently underwent revolutions and these protests serve as evidence that both countries are still very volatile.

4.  Protesters in Egypt accuse Coptic Christians in America with creating the video.  Coptic Christians follow a branch of Christianity based in Alexandria, Egypt.  Coptic Christians amount to 10% of Egypt’s population.  In recent years, tensions between Muslims and Coptic Christians have risen.  Accusations that Coptic Christians created the video highlights this troubling trend.

BASIC DETAILS ABOUT NEW ORLEANS’ FLOOD CONTROL SYSTEM:

Sarah,

As I’m sure you remember, the levee system in New Orleans failed in 2005 and catastrophic flooding resulted.  After the disaster, the government rebuilt the flood control system.  Last month the new system faced a test against Hurricane Isaac and passed.  Here is a description of the system currently in place:

Levees:

The easiest way to think of levees is to think of city walls.  Just like a fortified ancient city, New Orleans is surrounded by 130 miles of walls.  The newer walls are 30 feet high.  Instead of repelling invaders, these walls protect against rising water levels.  During a storm, the water level on the outside of the walls may be higher than the water level inside the walls.  When one of the walls fails or the water level exceeds the height of the wall, water flows into the city.  New Orleans has walls on all sides because it is completely surrounded by water and it is below sea level.  On one side of the city is the Mississippi River.  On the other side of the city is an enormous lake called Lake Pontchartain.

 

 

 

 

 

 

 

Pumps, Canals, and Floodgates:

Walls are useless if the enemy is already inside.  In a hurricane, enough rain can fall on New Orleans itself to cause flooding.  Accordingly, a system is in place to pump water out of the city as well. 

The system relies on a series of canals that run through the city.  At the end of each canal is a floodgate that moves up and down to control water from coming in and out of the city.  In a storm, water collects in these canals and is then pumped outside the city.  The new pumps installed after Katrina can fill an Olympic size swimming pool in four seconds.

These canals are also bordered by levees.  In a storm, the water level in the canals is higher than the water level in the rest of the city.  During Katrina, these canal levees broke.  This failure was particular upsetting because the water level was not above capacity; the walls simply failed.  The water locked inside the canal that cut through the city rushed through the breach in the wall and flooded New Orleans.  You could argue that the city was flooded from within.

Bottom line: I did not know that much of the water flooding New Orleans came from a canal inside the city.  I was picturing a huge wave going over an outside wall and entering the city like an invading army.  The canal breach is much more terrifying.  It’s like having a huge shark tank in your living room that could break at any second.

POSSIBLE TRUCE IN THE WESTERN HEMISPHERE’S LONGEST RUNNING WAR:

Sarah,

Colombia may be close to ending its 50 year civil war.  The war itself is pretty interesting.  Here is a breakdown:

Colombia’s Geography:

Colombia is the country on the northern tip of South America.  It is on the equator so it is tropical.  It is also home to the northernmost extent of the Andes mountain chain and huge swathes of Amazon rainforest.  Basically Colombia's geography is incredibly diverse and many areas are completely inaccessible.

Quick History Of FARC (FARC is the rebel army):

During the first half of the 1900’s, violence plagued Colombia.  This violence revolved around tension between the land-owning conservative party and the reform minded liberal party.  In league with the liberals were the disenfranchised peasants who agitated for more land and increased political rights.

By the 1950’s, many of these peasant groups had formed local communist armies. 

With aid from the United States, the Colombian Army defeated these communist armies and pushed them into the more remote mountain regions of Colombia.

After a conservative victory, the Colombian government pushed land reforms that allowed companies and foreign investors to buy up large tracts of farmland throughout the country.  According to liberals, this further marginalized the peasant population.

In 1964, a wing of the communist party responded to these conditions and founded the Revolutionary Armed Forces of Colombia.  Since then, the Colombian government has been fighting this army in varying levels of intensity. This army traditionally operates in the rural and remote areas of the country.

FARC Tactics:

FARC claims to represent to poor agrarian peasants against capitalists and foreigners.  They attempt to build support in rural communities by offering free medical care and other services.

At their height, FARC (Fuerzas Armadas Revolucionarios de Colombia) maintained a force of around 20,000 soldiers.  Today the number is around 7,000.

They have stuck around so long because it is difficult to completely defeat them.  Whenever they suffer losses they retreat into the jungle to regroup.  This jungle is not only dense- it’s mountainous.  This makes pursuit difficult.

Because of their small numbers, FARC often has the advantage of surprise.  They usually pick when and where they will fight. 

They also continue to use landmines.  Conversely, the Colombian government and most other countries (except the United States) have agreed to stop using landmines.

Lastly, they operate in neighboring Venezuelan territory.  Hugo Chavez, Venezuela’s president, has been accused of allowing rebels a sanctuary.  Supposedly this is because Chavez is a self-proclaimed socialist who holds strongly anti-American views.

FARC Funding:

FARC funds its operation in a number of ways. 

First, they sell drugs.  They have strong ties to Colombian drug lords and cocaine producers.  In fact, it is argued that the drug dealers are the main obstacle to peace because the drug dealers enjoy a degree of protection in FARC dominated areas.  If the FARC completely disarms, they will lose this advantage.  Accordingly, they have an interest in disrupting peace negotiations. 

Second, they kidnap and ransom wealthy Colombians.

Third, and most recently, they mine gold.  In the area where they operate, gold is plentiful and the rebels run illegal mining operations.

Why Peace Now?

Peace is closer because the rebels have suffered serious losses over the last decade.  During the 2000’s President Bush increased the amount of military aid to Colombia.  Specifically, American supplied Blackhawk Helicopters have been extremely effective at pursuing rebels in remote areas and keeping them on the run.

The Colombian and American governments have also stepped up the aerial spraying of cocaine fields deep in the jungle and this has decreased FARC’s revenue.

This last year, FARC’s top commander was also killed.  This is important because he was hesitant to negotiate.  FARC’s new leaders seem more amenable to peaceful resolution.

In response to these developments, the new Colombia president, Juan Santos, has declared he is open to peace talks but requires a cease fire as a prerequisite.  The last round of peace talks were held in 2002 and were deeply criticized because when the army withdrew, it gave the rebels an opportunity to regroup and rearm.  This time, the president vows to keep an overwhelming military presence in FARC territory to prevent this from happening.  The rebels are willing to negotiate because they desire legal protection.  In return, the government desires peace, a better position against drug lords, and a return of prisoners held by FARC.

Hopefully, the negotiations can begin soon and the conflict can finally be resolved.

BAHRAIN PUTS THE UNITED STATES IN AN AWKWARD POSITION:

Sarah,

Sometimes the United States has to choose between promoting human rights and promoting its geopolitical interests.  Their relationship with Bahrain provides an excellent example of this quandary.

Geopolitical Interests:

Bahrain is a small country in the Persian Gulf.  It has a ton of oil and it allows the United States to base an entire naval fleet in its territory.  This fleet (the 5^th fleet) is essential to United States’ interests because it is our main fleet in the Middle East.  If we fought a war with Iran, Bahrain’s support would be absolutely critical.

Human Rights Interests:

One of the reasons the Bahrain supports us against Iran is that Bahrain is ruled by a Sunni Islam Monarchy.  The monarchy does not trust the Shia Islam government of Iran.

Unfortunately, they also distrust their own Shia Islam minority.

When the Arab spring started (remember the rebellions Egypt, Libya, Tunisia) the Shia minority agitated for more political rights.  Protests were crushed and activists were jailed.  Currently, international observers report that Bahrain uses its court system to prosecute political enemies and that Bahrain’s police use unacceptable amounts of force.  Being that the country is officially a monarchy (ruled by a king), democratic institutions are lacking.  The United States lightly condemned the action but hasn’t really done anything about it.  Bahrain promised reforms but hasn’t made any.

The situation is best summed up by Michael Posner, our Assistant Secretary of State.  The LA Times quoted him as saying:

“I think our best role is to be a quiet supportive voice on the outside.”

In other words- please be better, but if you don’t get better, no worries.

APPLE CRUSHES SAMSUNG IN COURT:

Sarah,

This year, Apple sued Samsung for infringing on patents held by Apple and won.  Apple is an enormous American company.  Samsung is an enormous South Korean company.

What Is A Patent?

A patent is when a country grants a company a monopoly on certain technology for a certain time in return for describing how the technology works.  The technology has to be novel, useful and non-obvious.  In theory this encourages innovation because it provides inventors with a hefty incentive to create. 

What Is The Technology Apple Claims To Own?

Usually the technology in high tech patent cases is difficult to understand.  This case was an exception.  Here, Apple claimed that Samsung infringed on patents that protected general touch screen technology such as pinching, zooming, scrolling, and selecting.  Additionally, Apple successfully argued that Samsung had copied the IPhone’s overall aesthetic design.

 What Did Apple Win?   

A billion dollars.

Are People Pissed?

Yes.  Even people that don’t work at Samsung.  These people believe that the touchscreen technology is too general to patent and that aesthetic design should not qualify as invention.  They argue that by granting such broad patents, the government moves competition between companies into the courtrooms.  Further, so many broad patents hinder innovation because restricting a company’s ability to work with basic touch screen technology stops them from inventing.

Bottom line: Apple is dominating everybody.

WHAT THE HELL IS THE DEBT CEILING?

Sarah,

The US debt ceiling is always in the news.  What the hell is it?  Further, what is debt?  Who owns our debt?  Here is a breakdown:

US Government 101:

The Constitution of the United States divides our government into three sections: the legislature (congress), the executive (the President), and the judiciary (the courts).  Congress makes the laws, the President and his agencies enforce the laws, and the courts interpret the laws.

Each branch is given specific powers.  Congress is explicitly given the power “to borrow money on the credit of the United States”.  Therefore, the theory goes, if part of the government needs to borrow money, congress has to approve that borrowing.  The Environmental Protection Agency, for example, falls under the executive branch because it is tasked with enforcing the laws of the United States.  If it needs to borrow money, congress has to authorize that loan.

Quick History:

Before 1917, congress had to approve each individual act of borrowing separately.  When the United States entered World War I, this system became untenable and was replaced with a new system in which congress merely “set a ceiling” on the amount of debt that could be raised.

Since then, the celling has been raised dozens of times.  In 2011 there was a standoff in congress because the debt ceiling of $14.29 trillion had been reached.  To raise the ceiling both parties had to work together; something they aren’t really into.  Democrats demanded tax increases along with cuts to government programs.  The Republicans refused to raise taxes on the theory that such a move would endanger the fledgling economic recovery. 

Predictably, congress failed to reach any sort of long term compromise and instead came to a last minute deal that raised the debt ceiling another 2.4 billion dollars.

The next standoff is due to occur in January of 2013, after the upcoming election.

How Much Debt Are We In?

The word “trillion” sounds made-up and it is hard to conceptualize just how large a trillion is.  It’s easier to think of the debt in relation to our Gross Domestic Product. (GDP)  America’s GDP is the accumulation of all goods and services produced within America in a given year.  Currently America’s GDP stands around $15 trillion.  Our debt is also around $15 trillion.  Thus our debt is about 100% of our GDP.  In other words, our debt is equal to the value of all the goods and services produced by America in one year.  This is the highest level of debt in proportion to our GDP since World War II.  The recent debt is largely due to the wars in Afghanistan and Iraq and Obama’s stimulus program. 

What Is Debt?  Why Is Paying It Back Important?

Our most common form of debt comes in the form of securities issued by the United States Treasury.  Basically, if you buy a security, you get a promise from the government that they will pay you back with interest.  The United States is able to borrow at a very low interest rate because it has never defaulted on any debt.  In other words, buying treasury securities is a very safe investment.

For this reason, it was a big deal when we reached our debt ceiling.  If we passed our debt ceiling, we would have defaulted on some of our loans because we constantly borrow money to service our current debts.  Theoretically this would raise the interest rates on our securities because they would be viewed as “less reliable”.  Further, because most investment portfolios carry treasury securities, a downgrade could cause a financial panic. 

During this crisis of 2011, a credit agency downgraded us from AAA to AA but it did not affect our interest rate because demand for US treasury securities remained strong (in a crisis people want a safe place to invest their money).

Other countries are not so fortunate.  Greece is in a financial crisis and people doubt that they will be able to repay their loans.  Accordingly, it is very expensive for Greece to borrow money.  In the news, you will constantly see headlines about bond sales in Ireland, Spain, or Greece.  The rate at which these countries can sell bonds (debt) indicates how investors view their financial health.  Recently Ireland surprised markets by selling bonds at a lower rate than expected.  This was favorable news for the Irish economy.

Does China Own Us?

You could argue it.

However, it’s not just China; other countries own us too.  50% of our debt is held by other countries.  Both Japan and China hold about a trillion dollars of American debt.

The proportion of our debt owned by foreigners has risen steadily in the last decades.  In 1988, foreigners held 13% of our debt.  In 2007, foreigners held 25% of our debt.  Now the number is around 50%. 

I honestly don’t know if this matters.

Is There In An End In Sight?

I’m not very optimistic.  Congress is incredibly polarized.  The Democrats seem unable to raise taxes.  The Republicans seem unable to effectuate major budget cuts.  Obama has been unsuccessful in cutting the deficit.  Romney promises to cut, but declares that there will be no new taxes and he will increase military spending.  I don’t really understand either party’s math.

Bottom line:  I’m more confused now than when I started writing this post.  We owe also owe Japan a trillion dollars?  What does that even mean?

SOME RESPONSES FROM CHINA:

Sarah,

I recently started reading the China Daily; a state-controlled daily newspaper from China.  It is interesting because it states the Chinese government’s opinions about world events.  Today there was an editorial responding to criticism from America.  I’ve listed three American accusations and China’s responses:

Accusation: China engages in unfair trade practices.

Response: China buys American goods.  Last year, in 420 out of 435 US congressional districts, exports to China rose faster than exports to any other country on Earth.

 

Accusation: China is escalating conflict in Syria by blocking UN resolutions to place sanctions on the Assad regime.

Response: Proposals that would help arm the rebels will only lead to more bloodshed.  More aggressive steps in Syria will lead to invasions like the ones in Afghanistan and Iraq.  The U.S. “failed miserably” in both of those campaigns. (The editorial states that there is “conflict in Syria” but does not call it a civil war)

 

Accusation: China is a warmonger that is aggressively building its military.

Response: China has not been involved in a war since the one with Vietnam in 1979.  In contrast, America has been fighting wars continuously for the last three decades.

The rest of the article accused Republicans of trying to sow the seeds of hostility when there is no actual reason for hostility.

Source: China Daily, “An end to the revival of hostilities”, August 31, 2012

THREE RECENT EXAMPLES OF MEXICO’S POLICE FORCE COMMITTING HORRIBLE ACTS:

Sarah,

For the last 6 years Felipe Calderon, Mexico’s outgoing president, spent most of his time trying to clean up Mexico’s police force.  Unfortunately, drug cartels still pay better than the state and corruption remains omnipresent.  Here are three recent incidents in which the “Federales” have committed horrible acts:

1.  This month, an SUV with a United States diplomatic license plate was attacked by plain clothes policemen wielding machine guns.  The car was traveling to a Mexican army base south of Mexico City.  Inside the SUV were two CIA agents; both were injured but survived.  The Mexican Police maintain that the SUV did not stop at a police checkpoint.  Even if that were true, it is unclear if police procedure is to pursue the car and riddle it with bullets from an AK-47, which coincidentally, is not even the gun the Mexican Police use.  Further, ambushing cars at police checkpoints is a common gangland strategy in Mexico. Supposedly, the driver, A CIA agent, saved his passenger’s lives with impressive evasive maneuvers.

2.  Two months ago, two different groups of Mexican police officers engaged in a running shootout against each other in Mexico City’s airport.  One group of officers was trying to arrest the other group of officers for their involvement in a cocaine smuggling operation.  Three officers were killed and after a subsequent investigation revealed the level of corruption at the airport, the entire police unit attached to the airport was fired.

3.  Last September, a businessman in Ciudad Juarez accused police officers of kidnapping him and extorting money from him.  Recently, he was stabbed to death and his corpse was covered with gasoline and set aflame.

In a recent poll, only 8% of Mexicans said they felt confident in the police.

Bottom line: The airport story is blowing my mind.  I just imagine waiting for my Southwest flight and seeing a gunfight erupt between rival airport police in front of a CPK Express.

AMERICA’S WEAPONS EXPORTS ARE FALLING:

Sarah,

Let’s talk about guns.  America has the largest military on Earth.  It is also the largest exporter of weapons.  However, that title is fading.  This week, Foreign Affairs magazine gave an interesting account of why:

Background:

After the fall of the Soviet Union, America became the undisputed leader in arms exports.  This reputation was further enhanced by America’s performance during its first war against Iraq. (can you believe that war happened 22 years ago?)

Since then, America’s market share has dropped from 60% of the world’s weapons sales to 30%.

Why the Drop?

1. Our Weapons Cost Too Much:

America still produces the best weapons available.  The problem is that they are extremely expensive.  After the attacks of 9/11, Congress poured money into the military and cost efficiency went out the window.  America’s newest fighter, the F-35, costs 75% more than its original estimate.

Although some countries still pay for the best weapons money can buy, others are having second thoughts.  Recently, India decided to buy its fighter jets from France instead of America.  Asa result, American contractors lost out on a billion dollar contract.  Even our most reliable buyer, Saudi Arabia, recently chose to buy some of its planes from Great Britain.

Other countries simply can’t afford what we have to offer. 

2. The Competition Is Growing:

Other countries understand that there is a market for cheaper weapons and are cashing in.  Here are some examples of recent arms sales:

-Sweden sold fighter jets to Hungary and Thailand.

-Russia sold fighter jets to Indonesia and Malaysia.

-France sold battleships to Singapore.

Additionally, China is now Pakistan’s largest arms supplier and South Korea has transitioned away from buying our weapons and is producing more of its own. 

Does This Matter?

You could argue it.

Selling weapons to your allies is a win-win.  Your allies grow stronger and you get paid.  The American defense industry employs hundreds of thousands of Americans and more contracts means more business. 

Retaining a monopoly on arms sales also gives America a strategic edge.  Countries are more amenable to our suggestions if they rely on us for their weapons.  In 2005, America threatened to cut off Israel’s supply of jet fighters if Israel continued to sell certain aerospace parts to China.  Additionally, we have used our leverage over Spain and Brazil to stop them from selling weapons to Venezuela.

Bottom line: I’m really curious if these “cheap” but modern jet fighters that are made in Sweden could beat the “expensive” but older fighter planes made in America from Top Gun.  Leave your opinion in the comment section below.

Source: Foreign Affairs, “Arms Away”, September/ October 2012