ALL ABOUT HILLARY
BAM NEEDS HER VOTES AND MORE
DENVER
IT'S Hillary's convention. Not in the way she imagined it when the primary battle began - she's not the nominee making history and bidding to end the dread Bush years. That role has been usurped by Barack Obama.
But the convention narrative revolves around her in important ways.
It's not just because so much drama attaches to the question of how she and embittered husband Bill regard Obama, and not just because she and Bill are getting so much air time. Obama has two major challenges this week - and both are Hillary-centric.
First, Obama has to win over Hillary's voters from the primaries, only 52 percent of whom are now supporting him, according to the latest Wall Street Journal/NBC News poll.
Second, he has to occupy the space on the political spectrum that Hillary carved out in the primaries - identifying himself with mainstream American values, demonstrating a toughness on foreign affairs and connecting with the working class with his economic policies. (If he's at a loss how to do any of it, perhaps Hillary can explain it over a shot and beer chaser.)
That Obama is still performing so poorly among Hillary voters makes the prominence he's given the Clintons look less like an abject capitulation and more like a strategic necessity. If the Clintons can deliver Hillary's voters, every minute devoted to them will have been worth it.
The Clintons, of course, are profoundly conflicted. They've long thought Obama will lose, but they can't betray that belief lest - should Obama actually fail in the fall - they get blamed, engendering the bitterness of half the party.
Yet, no matter how enthusiastic they are (or seem), there's only so much the Clintons can do to deliver Hillary's voters. Some of these people are simply angry that she lost, and can be placated by seeing her treated well. But others were attracted by her characteristics - that she was tougher and more experienced than Obama. That group will be harder to reach.
Obama's pick of Joe Biden as his running mate is an attempt to play for these voters. Problem is, Biden's experience isn't transferable. It doesn't matter that Biden has spent 35 years in the Senate; Obama still has spent less than four.
The Georgia crisis helped tip Obama toward foreign-policy maven Biden as his VP choice. But, as Saturday's rally rolling out the ticket showed, Biden's value is as much his working-class roots as his work on arms control or Iraq (most of which has been terribly misconceived).
Obama portrayed Biden as a politician who came from the working class and never left it - the champion of, as Mark Penn put it in one of his campaign memos for Hillary, the "invisible Americans." Here, too, Biden's utility is probably limited. Most voters will look at him and not see the scrappy kid from Scranton, Pa., but a senator whose love affair with hearing himself talk is ardent even by the self-exalting standards of the breed.
So neither the Clintons nor Biden will be able to make the sale for Obama: He'll have to make it himself - and the convention is one of his best chances to do it.
He'll need to express sympathy with the morés of the middle of the country and blunt the sharp edges of his party's social liberalism, something Clinton did during the primaries in emphasizing her Midwestern roots and with her caution when addressing hot-button social issues. He'll have to sound tougher on foreign affairs, something Hillary did with some well-placed bluster about "obliterating" Iran.
And he'll have to make the connection between his domestic policies - from taxes to health care to energy policy - and the interests of the middle class, a centerpiece of Hillary's campaign.
Assailing John McCain, which will be a favored sport here, doesn't substitute for any of this. In the end, the election is essentially about Obama, and whether he can connect with average voters and meet the standard of commander-in-chief. And the way Obama should go about it is all about Hillary.
Investors Looking To Leave Russia?
The Georgia Invasion: In contrast with the West's otherwise tepid response to Moscow's new nationalism, one group has taken a tough stance — investors, who are leading the march out of Russia's markets.
On Friday, Russia's central bank announced that its foreign currency reserves — a key part of its economic stability and an indicator of foreign investor support — had plunged $16.4 billion in the most recent week, to $581.1 billion (see chart).
Until Russia's move into Georgia, there seemingly had been only massive capital inflows, thanks mainly to the rising price of oil, which makes up 20% of Russia's gross domestic product.
Now, it seems, investors are fed up with the rampant militaristic nationalism, red tape, corruption and anti-investor sentiment in Vladimir Putin's Russia. Some have decided to head for the door and take their money with them.
Last week's decline was the largest since Russia's 1998 currency crisis, which led to a collapse of the ruble and rampant triple-digit inflation. So far this time, there's no major visible impact on Russia's economy. But if the flow of money leaving Russia turns into a flood, it could send Russia's markets into a tailspin, creating massive problems for Prime Minister Putin and his handpicked president, Dmitri Medvedev.
No doubt, foreign investors weren't cheered by another signal sent by Russia's regime last week. Without comment, Russian authorities decided to keep oil tycoon Mikhail Khodorkovsky, whose biggest crime seems to be he became Putin's political foe, in prison — despite his being eligible for release.
Any continued movement of capital out of Russia could prove disastrous. As we noted above, Russia really is a hollow economy, its growth kept afloat by soaring oil prices and a commodity boom which have both boosted investment in Russia and made its overall economy look much better than it is.
In fact, Russia is an economic nightmare in slow motion. Due to poor health care and widespread alcoholism, its population is declining by 500,000 a year — a trend that's expected to accelerate in coming years. Inflation is revving up again, after declining for several years, and now is growing at about a 14% yearly rate — and rising.
Moreover, data from the European Bank for Reconstruction and Development show that, despite the oil-fed boom, Russia's GDP per capita is just 2% above where it was when the Berlin Wall fell.
That means, essentially, there has been no growth at all for 20 years. Of the 15 former Soviet republics that got their freedom after the collapse of communism, 11 are growing faster than Russia.
This is Russia's big vulnerability under Putin. With oil prices falling, Russia's reserves will come under more pressure — and the import boom that has kept the new class of Russian oligarchs happy will come to a screeching halt.
This year, foreign investment is expected to fall for the first time in six years — just as lower oil prices kick in. Russia could be in real trouble, and it couldn't happen to a nicer regime.
Putin needs his hard-currency earnings from oil sales to bolster his military. With grand designs on controlling key choke points in the world economy via a revived Russian military, he'll need lots of money in the coming years.
Can he do it? Without a sustainable economy, it's doubtful. With just twice as many people, the U.S. economy is 29 times as large as Russia's. There isn't an area of technology we're not ahead in. Russia will spend about $31 billion this year on defense, and has planned a $189 billion, 5-year expansion. Even so, that's about what the U.S. spends in five months.
Based on its demographic implosion and lack of a non-oil economy, our guess is Russia is in for a rough couple of decades, not the boom times many have predicted. If foreign investors keep looking for the exits, Russia's good times may be over for good.
Putin may seem menacing now. But he's likely to discover the same thing Mikhail Gorbachev did — no matter what he does, he's still going to be too far behind the U.S., both militarily and economically, to challenge us. He'd be better off worrying about China.
Commentary by Caroline Baum
Aug. 25 (Bloomberg) -- Once a year at the end of August, the notable and quotable from the worlds of business, finance, academia and government trek to, if not up, Wyoming's Teton mountain range to attend the Federal Reserve Bank of Kansas City's Jackson Hole Conference.
Whether it's the elevation that goes to their heads or an elevated sense of importance they get from rubbing shoulders with central bankers in shorts, the attendees treat the event like the annual pilgrimage to Mecca.
The Kansas City Fed adds to the cachet by shrouding the event in secrecy. The agenda isn't posted on the Web site; registered guests and media covering the event have access to a password-protected site. The papers presented at last week's conference won't be accessible until sometime this week, according to the Kansas City Fed's public affairs office. (Academics could perish by the time the Kansas City Fed publishes.)
All this secrecy in the age of transparency left me to ponder conferences past. Perhaps there was something to be gleaned from the topic selected for this once-a-year Fed symposium? Was it a leading, lagging or coincident indicator of the economic times?
After all, the Fed is in the business of setting monetary policy. Because adjustments in interest rates and the money supply operate with a long and variable lag, the Fed is, by definition, in the forecasting business. It has to anticipate tomorrow in determining where to put the overnight benchmark interest rate today.
Last War
So how good is the Fed in anticipating the economic issues facing the U.S. and global economy?
A quick glance at the topics since 1978 suggests, not very.
The 2007 symposium, ``Housing, Housing Finance and Monetary Policy'' was definitely timely. Still -- and even allowing for the lag between the selection of the topic and the event -- it's probably more accurate to say an examination of the interaction among housing, housing finance and monetary policy came well after the horse was out the barn door. In fact, the barn went down in flames.
In 1995, the symposium was devoted to ``Budget Deficits and Debt: Issues and Options.'' The discussions focused on the problems associated with chronic deficits and potential solutions.
In short order, the U.S. government produced a surplus for the first time in 30 years. The surpluses lasted from 1998 through 2001. Deficits are now back. Put the 1995 symposium in either the fighting-the-last war category or long-leading- indicator category.
Global Cooling
The first four years (1978-1981) of the Kansas City Fed's conference were devoted to agricultural issues. Droughts in the Midwest may have inspired 1979's symposium on ``Western Water Resources: Coming Problems and the Policy Alternatives.'' The papers looked at subjects such as ``water policy'' and how to augment supply.
Sound familiar?
``Access to fresh water was a big deal,'' says Michael Aronstein, president of Marketfield Asset Management in New York. ``At the top of a bull market, everything is always `limited.'''
Of course, back in the 1970s global cooling was the rage. The April 28, 1975, edition of Newsweek magazine reported ``ominous signs'' that the earth's weather patterns had begun to change dramatically, portending everything from a ``little ice age'' to food shortages and famine.
Among the more spectacular solutions proposed for global cooling was melting the polar ice cap. Talk about an inconvenient truth ahead of its time.
Serial Bubbles
In 1999, the Jackson Hole conference was devoted to ``New Challenges for Monetary Policy.'' Specifically, the program was focused on the conduct of policy in a low-inflation environment and the proper response to movements in asset prices.
Bingo! For once the Fed was prescient.
In August 1999, the technology and Internet stock bubble was about to embark on its last, monetary-fuel-injected run. The Nasdaq Composite Index almost doubled in value between the Jackson Hole conference and early March.
While the Fed gets a good mark for its timing, it receives an offsetting demerit for its failure to grasp the ``new challenges'' for policy, the most important of which was mitigating the effects of a burst stock-market bubble without inflating a new one in housing. A for conception, F for execution.
Non-Automatic Stabilizers
``Income Inequality Issues and Policy Options'' in 1998 foreshadowed what was to become a big political issue in the 2008 presidential election. In terms of the policy options for the central bank, the achievement of price stability and maximum sustainable growth, along with stabilizing the financial system, are enough for one institution whose main policy tool is a short- term interest rate. The redistribution of income isn't the role of monetary policy. (It's not the role of fiscal policy, either.)
Which brings us to the 2005 symposium, ``The Greenspan Era: Lessons for the Future.'' Alan Greenspan's 18-year tenure as Fed chief was drawing to a close. He was feted as ``the greatest central banker who ever lived'' in a paper presented by Princeton University's Alan Blinder.
Blinder is a discussant this year, not a presenter.
And as for the lessons of the Greenspan era, this year's Jackson Hole symposium, ``Maintaining Stability in a Changing Financial System,'' says it all.
Russian MPs back Georgia's rebels
 Abkhazia used the Ossetia conflict to drive out remaining Georgian troops |
Russia's parliament has backed a motion urging the president to recognise the independence of Georgia's breakaway regions of Abkhazia and South Ossetia.
Both houses voted unanimously in favour of the non-binding motion, which analysts say could help President Dmitry Medvedev in talks with the West.
Meanwhile, Russia says it has not agreed to allow international troops into buffer zones near the two regions.
Russia and Georgia fought a brief war this month over the regions.
Moscow launched a counter-attack after Tbilisi tried to retake South Ossetia by military force.
The US and a number of Western governments have backed Georgia, sending aid and issuing strongly-worded statements.
On Monday the White House announced Vice-President Dick Cheney would visit Tbilisi next month and hold talks with President Mikhail Saakashvili, in a move analysts say will further irritate the Kremlin.
Peacekeeper disagreement
Moscow has once again stepped up its rhetoric on the issue.
Mr Medvedev said Russia could deal with anything Nato could threaten it with - including the severing of all ties.
 |  It's a historic day for Abkhazia... and South Ossetia  Sergei Bagapsh, Abkhazian leader  |
And Prime Minister Vladimir Putin said Russia would consider scrapping some of the trade deals it had made in trying to gain entry to the World Trade Organization (WTO).
On the ground, most of Russia's forces pulled out of Georgia last Friday.
But some troops continue to operate near the Black Sea port of Poti, south of Abkhazia, where Russia says it will carry out regular inspections of cargo, fuelling speculation that Moscow is imposing an economic stranglehold on Georgia.
Troops also continue to operate in buffer zones that Russia controversially set up within undisputed Georgian territory.
France's President Nicolas Sarkozy said at the weekend that, under the terms of the ceasefire he had helped broker, troops from the Organisation for Security and Co-operation in Europe (OSCE) would move into these buffer zones.
But senior Russian officials now say they never agreed to allow international peacekeepers to patrol in the zones, and also say they will not allow aerial reconnaissance over the zones.
Both regions have had de facto independence since breaking away in the early 1990s.
While they have enjoyed Russian economic and diplomatic support, and military protection, no foreign state has yet recognised them as independent states.
'Hitler' comparison
The upper house, Federation Council, voted 130-0 to call on President Medvedev to support the independence of Abkhazia and South Ossetia.
The lower house, the State Duma, approved the same resolution in a 447-0 vote shortly afterwards.
 South Ossetians rallied for independence last week |
The Federation Council speaker, Sergei Mironov, said both Abkhazia and South Ossetia had all the necessary attributes of independent states.
During the debate in the two chambers, several speakers compared Georgia's military action in South Ossetia with Hitler's World War II invasion of the Soviet Union.
Both Abkhaz leader Sergei Bagapsh and his South Ossetian counterpart, Eduard Kokoity, addressed the Russian lawmakers before the votes, urging them to recognise the independence of the two regions.
"It's a historic day for Abkhazia... and South Ossetia," Mr Bagapsh said, adding that Abkhazia would never again be part of Georgia.
Mr Kokoity thanked Russia for supporting South Ossetia during the conflict with Georgia, describing President Medvedev's move to deploy troops as "a courageous, timely and correct" decision.
He said that South Ossetia and Abkhazia had more rights to become recognised nations than Kosovo, which declared independence from Serbia earlier this year with support from the US and much of the European Union.
Both houses of the Russian parliament are dominated by allies of Mr Medvedev and Mr Putin.
 |
The lawmakers interrupted their summer holidays for extraordinary sittings, formally called at the request of separatist leaders in the two Georgian provinces.
Responding to the vote, President Saakashvili said Russia's military actions were illegal.
"This is as unjustified as Stalin's attack against Finland or Nazi occupation of Europe," he said.
While both Abkhazia and South Ossetia have been pushing for formal independence since the break-up of the Soviet Union in the 1990s, Russia's official line at least until now has been similar to that of the West, the BBC's Humphrey Hawksley reports from Moscow.
But in March the State Duma passed a resolution supporting independence should Georgia invade or rush to join Nato.
After Monday's votes, the bill will be sent to the Kremlin for approval.
Analysts say the Kremlin might delay its decision while it carries out wider negotiations with the West on the crisis.
Pakistan coalition in major split
Nawaz Sharif explains the decision to withdraw from the coalition
Former Pakistani Prime Minister Nawaz Sharif has pulled his PML-N party - the country's second biggest - out of the multi-party governing coalition.
He has been in dispute with the country's biggest party, the PPP, on the reinstatement of judges sacked by former President Pervez Musharraf.
The two sides also disagree over who should be the next president.
The move throws Pakistan into further turmoil at a time of economic gloom and growing threats from militants.
The Pakistani rupee closed at a record low on Monday and shares fell a further two per cent.
'Constructive role'
Mr Sharif told journalists in Islamabad that the PPP - led by Benazir Bhutto's widower Asif Zardari - had broken promises, in particular over the issue of the judges. "When written documents are repeatedly flouted, trust cannot remain," he said. "We cannot find a ray of hope."
The PPP fears that if all the judges sacked by Mr Musharraf get their jobs back, they may invalidate an amnesty that paved the way for Mr Zardari and Ms Bhutto to return to the country last year.
That would leave Mr Zardari open to prosecution on long-standing corruption charges.
However, Mr Sharif said his party wanted to play a constructive role in opposition, indicating that he would not try to bring down the government for now.
Uncomfortable
Mr Sharif also said the PML-N was putting forward a 'non-partisan' name forward for the presidential election due on on 6 September, a former Supreme Court chief justice, Saeeduzzaman Siddiqui.
 Last week militants killed nearly 70 people in one attack alone |
The two party leaders had agreed to reduce the powers of the presidency in a country where the president has in the past dismissed democratically elected governments.
Mr Sharif says as long as the presidency remains a powerful post, a non-partisan candidate acceptable to everyone, rather than Mr Zardari, should have been agreed on.
The BBC's Charles Haviland in Islamabad says the PPP has other parties in coalition and the government will not fall. However, the PPP may find Mr Sharif to be an uncomfortably powerful figure to have in opposition at a time when the country lacks a sense of political direction.
Mr Zardari and Mr Sharif worked together to threaten Mr Musharraf with impeachment which led him to resign last week.
The United States gave huge financial backing to Mr Musharraf during his nine years as president as Pakistan became a front line nation in Washington's self-declared 'war on terror'.
US administration officials are concerned that militants are gaining strength in Pakistan and that the coalition's current policy of negotiating with militants is not working.
Last week a double suicide attack at a munitions attack in the town of Wah in Punjab province left nearly 70 people dead.
The Pakistan Taleban claimed responsibility for what was the heaviest attack on a military installation by a militant group in the country's history.
The Denver Democrats
The Democrats arrive in Denver this week flush with confidence. And why not? Yes, their rookie Presidential candidate suddenly finds himself in a tight race with John McCain. The party itself, though, has reason to think its moment to govern has arrived again after a generation of divided government or Republican rule.
![[Nancy Pelosi]](http://s.wsj.net/public/resources/images/HC-GL718_Pelosi_20080327190451.gif)
By most standard measures, the country has soured on the Republicans and the GOP President. Thanks to retirements and the election cycle, Republicans in the Senate must defend 23 seats this year against the Democrats' 12, and there are also more GOP open seats in the House. The economy is dragging.
These are conditions that can produce solid majorities in Congress for a resurgent party. There is no guarantee that will happen. We are in an election cycle with a surprise around every corner. But if the Democrats are on the brink of victory, the country is entitled to ask: How would they govern? To what purpose would the Democrats use their power?
* * *
Two historical years offer clues: 1993 and 1977. These are especially apt as indicators, insofar as many of the most powerful Democrats in the House today have held their seats across three or four decades, a fact that gives a uniquely ironic meaning to the party running on "change."
In 1977 a moderate President, Jimmy Carter, arrived as an outsider from Georgia promising change to lead a Congress controlled by Democratic liberals. Recall that his budget director, the economic centrist Bert Lance, was quickly run out of town. The President's veto of a water projects bill was overturned by his fellow Democrats. Ted Kennedy in 1980 attempted a nomination challenge to Mr. Carter from the unhappy left. In 1981, the Reagan era began.
In 1993, Congress held both houses with another Democratic President named Bill Clinton, who also promised change. Mr. Clinton had campaigned as a moderate New Democrat. The Democratic majorities in Congress promptly rolled the young President to the left, increasing spending and taxes, resisting welfare reform, and pushing such hobby horses as gun control and motor voter laws. Some in the House even fought HillaryCare as insufficiently liberal. In 1994, the Gingrich Republicans swept into power as Americans rejected liberal governance.
Have the Democrats learned anything from this experience? Among the current House committee chairmen who've been riding the Democratic waves through this period are Henry Waxman, John Dingell, John Conyers, David Obey, George Miller, Barney Frank and James Oberstar. Presumably, this should be an ocean of collective wisdom.
Instead, the Democrats of the past several years have shown themselves to be less a party of ideas than a vessel for special interests. Exhibit A: the Colombia Free Trade Agreement.
Privately, Congressional Democrats know this deal is in the nation's interests. Colombia is a primary ally in a rough neighborhood, and the agreement is a win for both sides. Colombia's goods can already enter the U.S. duty free because of the Andean trade preferences act. The AFL-CIO, however, has commanded that no vote can occur on Colombia, and so Democrats have obeyed and the trade deal languishes, frustrating and perhaps embittering a foreign friend of the U.S.
The fight over offshore drilling is playing to the same script. Despite solid public majorities showing a sharp turn in favor of exploiting the nation's oil reserves, a Democratic Congress chained to carbon-phobic environmental groups has refused to allow even a vote on drilling. This fiasco has given House Democrats a black eye. No matter. The party's special interests have the last word. The first word from these interests -- Big Labor, the teachers unions, environmentalists or the trial lawyers -- is: Do our bidding or we will make you pay at the polls.
This is the crowd that will be dancing in Denver. The Congressional Democrats have moved left on taxes and left on trade; they propose a significant federalization of health insurance and propose to resurrect the regulatory state that Jimmy Carter helped bury. On foreign policy, they are to the left of where Bill Clinton was on Kosovo and Bosnia.
The difficulty with interest-group politics, as we saw with the "dinosaurs" of Mexico's PRI party until they were finally run out of power, is that it can become incapable of thinking about national interests. The lockdown on the Colombia deal shows that.
Do the Democrats really believe that the American pubic is ready for this kind of narrow governance? So it appears. Nancy Pelosi has outlined a path to Democratic dominance for a generation. The party builds its majority this year, she argues, wins more seats through redistricting after the 2010 census, and then achieves long-term dominance in 2012.
* * *
For all this optimism about the party's prospects (some might call it arrogance), we think the reality is that the party in large part has been slipstreaming in George Bush's unpopularity. Their agenda in 2006 was de minimis beyond opposition to Iraq and Mr. Bush. It is hard to see real evidence that what the nation wants is a Democratic revival of 1974, the Great Society or even, in the fever swamps of the blogosphere left, the New Deal.
A Pew Research poll recently discovered that, for the first time, more than 50% of Americans know that the Democrats control Congress, no doubt from the publicity in the debate over drilling. Mr. Obama's recent struggles would seem to show that the more voters get to know what the Denver Democrats believe, the more cautious they are about handing them complete control of the government. If the Democrats win big in November, everyone will know which party controls the whole government.
We don't expect any of this reality to intrude on the merriment of the Denver Democrats this week. Their electoral optimism is justified. Their blind ideological optimism could cost them dearly.
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