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Sunday, June 29, 2008

Can the Dollar be Saved?


Why is Bernanke only using words to help stabilize the dollar? Because he does not have the currency to do it. The Treasury has somehwere around $75 billion in foreign currency reserves with which it could intervene. Turkey, Poland and Libya each have more. China, alone added $75 billion in May.

Look at these headlines:


China's foreign reserves at $1.8 Trillion

THE ASSOCIATED PRESS

China's foreign reserves, already the world's largest, rose to US$1.8 trillion at the end of May but growth slowed, a government newspaper reported Friday.

The reserves grew by US$40.3 billion in May, well below the April increase of US$75 billion, the China Securities Journal said, citing data from the State Administration of Foreign Exchange.
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(Brazil) CENTRAL BANK: Foreign reserves exceed US$200bn for 1st time


SÃO PAULO, 6/27/08 - Brazil's foreign reserves have exceeded US$200 billion for the first time and reached US$200.231 billion.

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Nigeria: Foreign Reserves Rise to $60.84bn

Posted to the web 23 June 2008
Aminu Imam
Abuja

The Central Bank of Nigeria (CBN) on Thursday said that Nigeria's foreign currency reserve rose to $60.84 billion in mid June from $59.16 billion it recorded at the end of May.
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Mumbai,India, June 28: The country’s forex reserves jumped $1.79 billion to $312.48 billion for the week ended June 20 from $310.68 billion in the previous week. Foreign currency assets rose to $302.74 billion, up $1.78 billion, from $300.95 billion a week back. Gold reserves and special drawing rights during the week were static at $9.20 billion and $11 million, respectively. The country’s reserve position in the international monetary fund rose $5 billion to $524 million during the week.
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Russia piling up gold and currency reserves

RBC, 26.06.2008, Moscow

Russia's gold and currency reserves stood at $558.7bn as of June 20, up $7.2bn, or 1.3 percent, from the previous showing. Combined with a $70.5bn rise over the previous 18 weeks, reserves have climbed a total of $77.7bn, or 16 percent, in 95 working days. The rapid increase in reserves can be attributed to the euro's significant advance against the dollar on international exchanges, as well as a stepping-up in the Central Bank's purchases of foreign currency on the domestic market. As a result, Russia has somewhat narrowed the gap separating it from China and Japan, the global leaders in terms of reserves, which exceed $1.75 trillion in China and amount to roughly $1.015 trillion in Japan.


82 comments:

  1. Interestingly, in all of those countries the "People" are poor, and "Inflation" is High.

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  2. Except for Japan, of course. They make a mockery of ALL economic theories. They is, simply, "Inscrutable."

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  3. Then we have an obligation at the EB for "scrutari".

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  4. It points to the economic problems associated with excess savings.

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  5. Add to inscrutable, ironic:

    Kuwait money-supply growth jumps 23% in May
    by Reuters on Sunday, 29 June 2008

    EXCESS LIQUIDITY: Growth in money supply in Kuwait shot up 23 percent in May, led by investments in savings deposits. (Getty Images)
    Growth in Kuwaiti money supply accelerated to almost 23 percent in May from 20.6 percent a month earlier led by investments in savings deposits as the Gulf state contends with record inflation.

    M3, the broadest measure of money circulating in the economy, hit 21.39 billion dinars ($80.78 billion) on May 31 compared with 17.40 billion dinars a year earlier, the central bank said in a statement on its website on Sunday.

    Inflation in Kuwait, the only Gulf oil producer that does not peg its currency to the dollar, jumped to a record 10.14 percent in February. Money supply growth is an indicator of future inflation.

    May's rise in money supply was the fastest since February as quasi-money - which includes savings deposits and time deposits in dinars, as well as foreign currency deposits - grew 21.3 percent to 16.07 billion dinars.

    Currency in circulation climbed 10.8 percent at 727.3 million dinars, the central bank said.

    Narrow money, or M1, rose 28.2 percent to 5.32 billion dinars.

    Kuwait severed its link to the U.S. dollar in May 2007, saying the weakening greenback was stoking inflation by making some imports more expensive.

    The central bank has been urging lenders to slow down credit growth, tightening bank curbs on consumer lending in late March to try to rein in inflation.

    Private sector lending rose by 29.65 percent to 23.86 billion dinars in May, the data showed

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  6. The "Primary" problem with the dollar is: we are shipping them overseas faster than the oil-producing countries can find investments in the U.S.

    You see, when you are paid in a foreign country's currency there are only a couple of things you can do with it. 1) you can buy something from the country in question. 2) you can put it under your mattress, and sit on it. 3) You can invest it back in the foreign government (treasury notes, etc., or (4 You can invest it back into a business proposition is said country. Or, (5 Sell it to someone who will do one of the above.

    For a variety of reasons more, and more countries are being forced into (2.

    The market is in the early stages of solving this equation, as we speak. The Absolute Worst Idea Imaginable Is to "Attempt Currency Manipulation!" It's like "Communism;" it just can't work in the long run.

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  7. Maybe it's time for the USA to start collecting the debts owed by these large cash rich countries...

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  8. Rufus, it seems that the only market solution is a continued rise in commodities and US assets. It should be the answer to US real estate prices and reversal of stock prices.

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  9. A quasi-free market, semi-capitalist/semi-socialist (re: Brazil) will normally create inflation through high Import Tariffs, and excessive regulation (read: China.)

    Productivity of the populace: ie, employment times efficiency can turn every thing on its head (read: Japan.) Note: ALWAYS leave Japan out of any economic discussions - they is inscrutable. Did I mention that already?

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  10. That's pretty much right, Deuce. The market is telling us it's time to find some alternatives to "foreign" oil, and to keep hammering away at "trade barriers." This is one more time we've been saved from serious recession by TRADE.

    Exports are surging, and almost 85% of our exports go to the 7% of the world with which we have "Free Trade Agreements." Thanks to trade our people are "employed," and they have access to "affordable" goods.

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  11. This is a fine kettle of scrutabbbles. What a revoltin' development. We must save our currency, and to do so we must inflate our currency to worthlessness, so we can pay our debts with worthless money, and not take a loss, very simple really.

    The Japanese have no scrutabbles?.

    We need a Stanley for President, to get us out of this mess.

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  12. Seriously, we may go through some tough times the next few years. Raising taxes seems like the wrong move. We're maybe only beginning to hurt. The older folks are going to start hurting. People stop buying stuff, there goes China. Things spread world wide.

    If I knew what I was talking about I'd know what to do. At some point a team of oxen and a rice paddy may look good.

    If the Israelis should decide to attack Iran, we'll get pulled in whether or no, to keep the Gulf shipping open.

    I wish I was an oil oligarch in Russia. Putin and Friends are now sitting pretty good.

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  13. There's a male decocratic representative from around San Francisco whose name I can't recall--

    Having voted green all his life, he's now saying 'we can't drill for oil, it will take too long to do any good.'

    Dr. Bill was on his case. Course, Dr. Bill is all for drilling, and anything else we can do. Says in the last crisis, we started to drill, and just the threat of it started to collapse the price. May not be quite the same now however.

    Oil going any higher is going to really put the crimp on certain sectors. Hawaii is experiencing a big decline in tourism now. Vegas the same. Didn't we have a guy with a crystal ball around here a little while ago?

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  14. $140 per barrel of oil

    1 barrel of oil = 672 US cups

    140/672 = ¢21 per cup of oil.

    Cheap.

    A $600 billion and growing yearly deficit in balance of trade just on account of this cheap oil is a very expensive economic disaster just waiting to happen.

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  15. Bob, having someone own your currency is NOT exactly the same thing as "Owing" them. (see 1 - 5, again.)

    If you'll notice, our "interest rates" are reasonable, and, take out the accelerating cost of oil, our inflation is not bad.

    The Major Economy with problems right below the horizon is Europe. The North Sea is "Going Down," they're "stuck of Diesel" (this is really, really bad,) and they've already made most of their possible mitigating moves.

    Add to that the fact that they have a highly-regulated, socialistic system with limited biofuel prospects, and I wouldn't want to trade places.

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  16. Rufus,

    Interesting that they can afford themselves 2 months vacation every year and work on average half the hours that most Americans work.

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  17. On my vacation to the Caribbeans there were no Americans. Plenty of French German Spanish even Russians, though.

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  18. I'm no economist Rufus, I can't recall evern taking one class in it, and gave up reading the WSJ long ago, when they had an article that proved you were as well off throwing darts at a stock list on a board, as reading the WSJ.

    I agree with the following though. The President does not count for much, short term anyway. It's mostly what Congress has done, and other stuff too. If Congress, both parties, haven't done much on energy for the past decades, we pay a price now.

    Nobody really runs America. Each Congressman looking to his own district.


    The President Wiil Fix Things

    If you believe that, I've got some subprime mortgages I'd like to sell you. Does the president really have any effect on the short-term direction and performance of the economy? The answer is no, but with two important "buts."

    Presidential Impotence

    Why Neither McCain Nor Obama Can Fix The Ailing Economy

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  19. Yes, Mat, but they live in little rented apartments, drive itty-bitty cars down itty- bitty streets, to the itty-bitty store to look at the itty-bitty Japanese appliances that they can't afford on their itty bitty "take home."

    They live better than they deserve, I think, based on the fact that WE police the World, and, largely, provide for their "Defense." Overall, I'm not impressed.

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  20. Forever Stamps, where the smart investors parked their money.

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  21. Dubya did One very important thing that he has gotten "zero" credit for. The Conservatives hated it; and the Liberals don't want to give him "Credit" for it.

    In 2001 he started pushing ethanol. This will be looked upon as a very important decision as the years go by.

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  22. At least the Supreme Court, by one measely vote, allowed me to keep my shotgun. For which I'm thankful.

    Even this decision has played to Obama though, taking the issue out of the debate, where he's been so anti-gun then conflicted then conflicted again then pro gun then back the other way to the point where I'm sure he's damned glad he doesn't have to talk about it anymore.

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  23. Rufus,

    Their old cities are much better suited for pedestrian function, because they were designed for the pedestrian, as opposed for the car. They really don't need a car, itty-bitty and otherwise.

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  24. The President Wiil Fix Things

    The honest ones admit that - usually after the election, but they get it. So that raises the peripheral question - Dem exec paired up with Dem-controlled Congress or some friction?

    I have already heard this issue raised by Obama supporters.

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  25. Look at it this way: Even the ethanol critics don't push back too hard to the studies that show ethanol is lowering the price of all gasoline by about $0.50/gal. This translates out to about $10.00/barrel (you get 20 gallons of gasoline from a barrel of oil.)

    We Import about 13 million gallons of oil/day. That translates out to about $130 Million/day that's NOT going to the Middle East. Approx. $50 Billion/yr. "Positive" to our Balance of Trade. Trust me folks; that's a big'un.

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  26. Ah, hell, I cain't hep it. I just don't like'em. As far as I'm concerned, ALL the Good Ones came over here. It's just the way I am.

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  27. :)

    L0L. I agree. But it doesn't mean there's nothing to be learned from them.

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  28. cont. rant

    The Only thing Smart I've seen them do is Drag US into their wars so we'll go in a Rebuild their sorry little countries.

    Rant Off/

    :)

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  29. You'd never believe I'm a Redneck, would you? :)

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  30. So were George Washington and Alexander Hamilton, so you're in good company, Rufus.

    The whiskey insurrection lives on. :)

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  31. Here, Rufus take a little Parisian cafe tour, mon ami, discuss Existentialism, sip a little wine. Then when done, tell 'em all to fuck off. I think they're arses, too, most of them. B. Bardot being an exception.

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  32. From the August 2005 article linked above Is the world suffering from a glut of global savings?

    In short, too much saving can be bad for your health, so it is held. However, what generates instability is not too much savings, but too much money out of “thin air.” Furthermore, what matters for economic growth is not monetary saving, but rather the stock of real savings. This stock, however, cannot be established quantitatively. Most savings countries may not have generated so much real savings as various experts are saying.

    In fact, many of these countries have been engaged in reckless monetary pumping, which we suggest has undermined the pool of real savings. Also, we have shown that it is not valid to look at so-called world global liquidity as the driving force behind the boom in US financial and real estate markets. The US financial bubble is entirely the result of the Fed’s monetary policies and has nothing to do with the mythical glut of world savings.

    How is the the stock of real savings (the extra apples, oranges, and bread) different from inventory? Which can be measured in dollar terms.

    I take it the 2005 financial bubble wasn't related to the structural changes in regulatory code that allowed homebuilders to create their own financial lending divisons and offer the creative mortages that collapsed last year?

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  33. Ah, The "Whiskey Revolution." Told you all needed to know about the future United States of America.

    I bet the New York Bankers shit a brick.

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  34. This should certainly scare them:

    http://krugman.blogs.nytimes.com/2007/12/20/jingle-mail-jingle-mail-jingle-mail-eek


    Krugman!

    /Channeling Seinfeld's Newman

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  35. The Fed has, basically, done a pretty good job. They let the Kudlows of the world jawbone them into taking interest rates a little too high (they should have stopped at 4%, which means they had to take'm down a tad too much; but it's going to work out.

    The market is "sniffing out" future oil shortages, and making us start working on the future. That's good.

    The Main "Problem" right now is: too much money is getting locked up in non-productive spots (think: Saudi Arabia,) by a regressive group of Autocrats, and Royalty. It's not being "Put to work;" and that's distorting the world economy.

    There's nothing to do about this but "ride it out." It'll take a while, and the ride will be "bumpy;" but, it'll work out. If the politicians don't "Panic." (That is, however, an Awfully Big "IF.")

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  36. We might catch a break with oil prices, though. No one in the entire world knows for sure; but, we might be nearing the top, temporarily, in the oil price spike.

    Hopefully, if we do get a one, or two year, respite in price increases, we'll take the opportunity to prepare for the future.

    Then, again, a couple of bad breaks (Hurrican in the Gulf? - War in the Gulf/Iran?) and we might be in for a hell of a mess.

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  37. News reports say that flooding in midewest destroyed so much corn crop that ethanol will be down for a few seasons.

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  38. Panic isn't the P-word - it's populism.

    We'll do it for the poor people, the old people, the disadvantaged, the disenfranchised, the huddled masses yearning to be free.

    No. It won't be a panic. It will be a well prepared road to salvation.

    And the World will love us again.

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  39. If you plan on dying, do it in 2010. We have about 4 different rates for estate taxes bouncing around, but, right now, that's the year to die.

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  40. I think the folks here have reached their collective Peter Principle.

    What I understand about currency markets would fill a comic book but I do know they are lethal weapons in the hands of those who get it.

    I am assuming there is no significance to normalizing the monetary reserve - per capita or per GDP - it's the absolute pool that counts.

    I also question the impact of these new sovereign funds owned by countries like Saudi Arabia - trillions. Bob Rubin helped arrange the LTCM bailout when failure hinged on that order of magnitude.

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  41. "Populism" Yeah, you're right, Slade. It's much, much more likely (and, destructive) than Panic.

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  42. Underwater mortgages :)

    People who might have been reluctant to walk away from underwater mortgages because it seems socially unacceptable may change their minds once they see their neighbors easing their financial burdens by checking out.

    When has it ever been socially unacceptable to stiff the bank back?

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  43. The son of a friend of my mom's at work got beaten unconscious in Germany at Club this week during a family visit to the country. Danny, that his name, is part white part black. The mother is white, the father's black. They fear Danny might be crippled for life. Not a beep on the news about this. I never met Danny, but my mom says he was a very good looking guy. 29 years old.

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  44. ..beaten unconscious in Germany at ^a Club..

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  45. George only has 7 months left. I can't see that he has enough time left to do anything about Iran. It's 'interesting times' we are living in. Which isn't a blessing, or only a blessing for the unimaginative.

    Sad, Mat. Wonder what part of Germany?

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  46. The one thing about Kudlow - he is doing a good job of trying to talk up the market - remove some of the negative psychology and irrationality from markets with record high volatility.

    Some of it is real, but some of it is manipulation.

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  47. Keep in mind, Slade, that the "Speculators" can't do much permanent damage to a "free-floating" currency. It's only when governments try to "prop up" weak currencies that they leave themselves open to disaster.

    As for the "Sovereign Funds:" They're a "Double-Edged Sword." They can be valuable for funneling that oil money back into the "Productive" economy. On the other hand, Saudi Arabia, now, for all intents, and purposes, OWNS Fox News, and the Wahhabi Street Journal.

    It bears watching.

    The "Weed-Eater" calls. Later.

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  48. SUPREME COURT TO STEP INTO ENERGY CRISIS



    Court to Mull Individual Right to Drill for Oil

    by Scott Ott

    (2008-06-29) — When the U.S. Supreme Court reconvenes on the first Monday in October, the nine Justices may consider whether the Constitutional preamble clause “secure the Blessings of Liberty to ourselves and our Posterity” guarantees an individual right to drill for oil.

    Now that the court, in a 5-4 ruling on the Heller case, has upheld the Second Amendment right of “the people,” not just state-run militias, to keep and bear arms, some scholars say the court may be willing to go the next logical step and recognize the peoples’ right to acquire their own fuel.

    With gasoline around $4 per gallon, the U.S. Congress continues to prevent Americans from drilling and refining, a move that would increase supply, and thus lower prices. However, so-called “Preamble advocates”, argue that the founding document guarantees the right of citizens to drill here and now.

    “The two issues are quite similar,” said Glenn Reynolds, America’s most widely-read Constitutional scholar. “It’s all about throwing off the yoke of tyranny. Whether that’s by arming oneself with a gun as a safeguard against political despots, or building a derrick on one’s own property to secure the blessings of liquid liberty, these are fundamental Constitutional rights.”

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  49. The Chinese currency is still not free-floating yet is it Rufus?

    I recall reading that their phenomenal growth would see some brakes if and when that happened.

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  50. I am sick of Rufus's prejudice.
    Longstanding since childhood, when he was told some "crack" about them really being "oriented" horizontally.
    Rendering them unscrotable to Occidentals.

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  51. What me worry?
    He said, throwing off the Joke of "tyranny"

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  52. The first 6 to 3 decision in weeks occured this morning when the justices decided 6 to 3 to continue voting 5 to 4.

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  53. Bolton figures the time for action would be after the election and before the coronation of King Obama and Queen Michelle.
    ...not that anyone really EXPECTS action.

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  54. Two words Doug: Risk Management.

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  55. I don't know Doug & I'm not going to wade too deep into this one but Americans are routinely sneered at for being cowboys.

    From the cross-section that I've seen in the airports lately, that might be more of an aspiration than a reality.

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  56. Middle East Strategy at Haarvaaard discusses attacking Iran, and have obviously taken their arguments pro and con from us here at the Bar, their advantage being they get paid for publishing opinions and have good looking secretaries.

    Unscrotable inscrutables, I just don't understand those people

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  57. Since the Supreme Court has ruled that the jihadis have the same Constitutional rights as Americans, and that Americans can own guns, does that mean the jihadis can buy weapons at Wal-Mart, while awaiting trial?

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  58. My favorite remains the father shooting the (armed) rapist of his 6 yr old girl.
    Followed by his execution for murder.

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  59. Our evolving standards of decency.

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  60. Ok, Bob, here's my opinion:


    6 mika.
    Your comment is awaiting moderation.

    I disagree with the assessments so far provided. The Iranian situation is no different than that presented by Iraq and no different than that presented by Syria. The Farsi speaking Islamic Imperialists know full well, or at least they should, that any military counteraction in the Gulf will result in certain death to their regime and their little empire. They will take their lumps, swallow, and that will be that.

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  61. Iraq: Death Comes for the Archbishop

    Christians are being systematically run out of Iraq.
    Those who are left are being forced to pay ransom on their own lives.

    Open your throat and submit to the Jizya, Christians.

    From Andrew Bostom

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  62. Moderation:
    Wretch has a policy where if you try to make two posts in a row, the second is held for "moderation."

    ...I should know first.

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  63. Compassionate Conservatism meets Creative Capitalism.

    [via Maggies Farm]

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  64. In (4) Kennedy [no relation to the justice] v. Louisianna, the same Justice Kennedy, and the same four liberals, overturned the death penalty of a man convicted of brutally raping an eight-year-old girl.


    "Brutal" is not nearly a strong enough word. This is taken from the Court's opinion:


    A laceration to the left wall of the vagina had separated her cervix from the back of her vagina, causing her rectum to protrude into the vaginal structure. Her entire perineum was torn from the posterior fourchette to the anus. The injuries required emergency surgery.


    But, according to Kennedy, the death penalty would have been unreasonable in this case. Justice Alito summed up the majority's reasoning in his dissent. (Kennedy's words are in quotation marks.):


    First, the Court claims to have identified "a national consensus" that the death penalty is never acceptable for the rape of a child; second, the Court concludes, based on its "independent judgment," that imposing the death penalty for child rape is inconsistent with "‘the evolving standards of decency that mark the progress of a maturing society.'"


    Make no mistake, Justice Kennedy is running the Supreme Court. It is his vote and his decisions that are making or breaking (mostly breaking) our constitutional rights and our protection as citizens under the law.


    What is driving Kennedy's reasoning in these cases? It is not the meaning of the Constitution; it is not an effort to enforce the law and protect Americans; it is his one-man attempt to ensure that the Constitution and the law conform to his "evolving standards of decency."

    American thinker.

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  65. Ah, jeez, I can't stand Wesley Clark.

    Since McCain doesn't have enough military experience, we need to elect Obama, who has zero, and may not even be a citizen.

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  66. Gallup has just given the Republicans another gift

    The numbers in this poll are staggering. Overall, Americans are against the core principle behind Barack Obama's domestic economic policy -- income redistribution -- by an astounding 84% to 13%. Republicans oppose it 90%-9%, Independents oppose it 85% to 13%, and even Democrats oppose it 77% to 19%.


    [Maggie's Farm]

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  67. Great cartoon, Bob. I'm still chuckling.

    No Slade, but they are steadily letting it strengthen. It started at 8.30/$1.00, and, the last I saw they had it up to 6.90/$1.00.

    Personally, I think they were very smart doing it the way they did. It could have led to "Chaos" in their economy to let it float all at once.

    This is having the serendipitous effect of giving them a little hedge against oil prices, also. As oil prices increase they can gradually let their currency strengthen.

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  68. This comment has been removed by the author.

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  69. The Chinese are *managing* the transition into free market capitalism.

    They get both credit and criticism depending on the point of view.

    Will the U.S. *manage* the transition away from oil?

    I would say the two are about equal in magnitude.

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  70. Not going to happen with this congress, Slade. These fellows need to be voted out. The whole lot of them, left and right.

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