Stephen Roach Gets It

Stephen Roach, a senior executive with Morgan Stanley Asia and Yale University lecturer, discusses magic quantitative easing, betting the ranch, policy traps, short-termism, and accountability in a must-see interview from Davos with Tom Keene, host of Bloomberg’s Surveillance Midday.

Roach: “Central bankers right now are trying to pull the wool over our eyes with zero interest rates and this magic called quantitative easing (QE). QE works for economies in crisis. What does it do to sustain economic recovery?”

Old Yellering the Dollar

Kyle Bass from Hayman Capital, the investor who foresaw and capitalized on the 2008 crash, succinctly explains how the US Government intends to resolve its economic conundrum.

We’re All Austrians Now

Update, Jan. 25: ZIRP now through late 2014.

Gideon Rachman confessed on Tuesday’s comment page of the Financial Times that “he’s feeling strangely Austrian.” Sebastian Mallaby, referencing Rachman’s article, confessed a similar sensation when contemplating banks on today’s comment page of the Financial Times. I too must confess that over the past year I have come to find substantial appeal in the explanatory power and reform potential of the Austrian School of economics. Too bad inside the beltway policymakers are busy doing the ostrich.

In the mean time, our treadmill economy awaits its next shot of juice over the coming months, the real deal quantitative easing 3 (QE3): a resumption of large scale asset purchases. Primary Dealer forecasts here. QE3-lite – zero percent interest rates through 2013 and “Operation Twist” – was only a bridging mechanism.

Here’s to sticking it to savers and long-term bond holders via dollar debasement, to perennially bailing out the crony capitalists, and to maintaining the domestic socio-economic hierarchy as the US undergoes relative economic decline.

My neighbors in Westchester thank you Mr. Bernanke.

Choice Words from the Old Man Drowning in a Sea of Debt

For the US today. And the Europeans in a decade or two tomorrow (if they also do the predictable and gorge their voters with debt):

“How did you go bankrupt? Two ways. Gradually, then suddenly.”
― Ernest Hemingway, The Sun Also Rises

Bingo!

There is life after empire.

The Optimist, FP.com, Charles Kenny. – “Three Cheers for Decline

Plugging Zero Hedge

Equities are tanking. QE3 is imminent. More dollar debasement to come.

For a disturbingly on point forecast, and blow-by-blow chronicle of American economic decline collapse, make sure to check out the Austrian School whizzes over at ZeroHedge.com.

Interview with ICC Student Network – Basel

“Impunity? Where?”

ICCSN Basel: What was the position of the US towards the establishment of an International Criminal Court at the Rome Conference in 1998? 

Claudio Guler: It was always unlikely that an international criminal court would emerge from the Rome Conference in 1998 that Washington would find agreeable. The grounds for the aversion are manifold. They largely revolve, however, around questions of sovereignty and state power within the international system.

Among other misgivings, US policymakers are concerned about the potential for politicization of the Court. They also fear the possible legal ramifications for US citizens and members of the US armed forces in particular. The latter, unlike those of any other state today, operate (and have obligations) in almost every corner of the world. In theory, and if working properly, the American military justice system, a system founded on the same law of war principles as the Court, holds its soldiers to the international standard. In practice, accountability for top ranking military and civilian personnel often remains wanting. Lastly and more generally, the US was at the time of the Rome Conference in 1998 and remains today, the sole superpower. Super and great powers guard their sovereignty jealously, because they can. Subscription to a supranational criminal court serves few rational purposes from a power-maximizing strategic point of view.

At the Conference, the US, making use of compromises intended to induce it to join the Court proffered by advocates for an autonomous institution, managed to secure a UN Security Council referral mechanism for non-state parties.1 The US could hence use the Court – unless checked by another permanent member – to target weak adversaries, while protecting itself via its veto.

In contemporary international criminal justice, power relations and understanding their role is paramount. Although execution of the law by international jurists is largely consistent and objective, the essential prerequisite, jurisdiction, is often arbitrary and deferential to power. This is not to suggest that weak actors suspected of committing egregious crimes are not culpable and deserving of prosecution using an objective lens. It simply means that a double standard, upheld by the great powers, exists.

The power calculus aside, the values and principles embodied in the Court and its charter are those of the Western-led liberal international order. So US accession in the long run is not out of the question. Again, the relative political, military and economic decline of the US will likely have to progress substantially though, before accession becomes a viable option.

The Court and the Rome Statute do enjoy a support-base with deep roots in the US. The largest delegation to the Rome Conference was the American one. It played a largely constructive role. US-based civil society and academic groups and experts made important contributions.2 Ambassador at Large for War Crimes Issues David Scheffer represented the Clinton administration at the Conference, and later signed the Statute on behalf of the President. Citing ‘significant flaws,’ however, President Clinton never submitted the treaty to the US Senate for ratification – a still insurmountable hurdle in its own right.3

ICCSN Basel: In February 2011, the US supported UN Security Council Resolution 1970, which refers the situation in Libya to the International Criminal Court. In 2005, the US supported the Security Council referral of the situation in Sudan to the ICC. However, it still has not ratified the ICC Statute and does not (yet) accept (complementarity) ICC jurisdiction on its territory or over its nationals. Why? 

CG: Ghaddafi in Libya and Bashir in Sudan are the weak actors. Both countries have limited strategic import for the US, and Washington clearly prefers regime change here but does not intend to expend its own resources.

Bashir is a nuisance for Washington. President Bush and Colin Powell, his secretary of state, both characterized the crisis in Darfur as genocide, elevating its profile. Military intervention, with an overstretched force in Afghanistan and Iraq, was off the table. An ICC referral in Bush’s second term, one far more hospitable to international law, was a good way to be seen as ‘doing something’ on an otherwise neglected humanitarian catastrophe.

Ghaddafi is likewise a nuisance for Washington. With the outbreak of civil war in Libya and threats by Ghaddafi to commit systematic violations of human rights, President Obama seized the opportunity to follow the British and French lead to show renewed US support for human rights after the Bush years and to put America ‘on the right side of history’ in the Arab Spring.

Additional, less cynical factors also pushed the US to make use of the Court in these cases. Most significantly, the US has an extensive legacy of backing international criminal tribunals, including at Nuremberg and Tokyo, and for Rwanda, the former Yugoslavia and Sierra Leone.

An insightful question is why China refrained from blocking either referral? One explanation is that notions of human rights and justice are increasingly universal, and as such command respect globally. This sets the stage for the concept of a normative tidal wave. China, notwithstanding its significant oil investments in both countries, likely withheld its veto because doing so would make for bad press that the added benefits of increased short-term stability and slightly easier access to oil could not outweigh. The US is likewise bound by expectations of fair and just behavior, especially in light of its frequent rhetorical appeals to them.

This is the light at the end of the tunnel for international criminal justice advocates. If you build the institutions, find the stakeholders and start the wheels turning, eventually the soft power, normative tidal wave of international justice might just overwhelm the fortifications of the great powers; ending impunity once and for all. An aspiration not to be overstated in my opinion, as great powers are likely to remain very powerful for a long time to come, with momentum accruing, staying outside of the Court does carry risks, and complicates a state’s ability to shape the Court and its actions in the future. As the saying goes, “If you’re not at the table, your probably on the menu.”

ICCSN Basel: A February 2011 report from Amnesty International (USA: See no evil. Government turns the other way as judges make findings about torture and other abuse, available at www.amnesty.org) concludes that “a number of federal and military judges have now made findings in relation to torture or other ill-treatment in the context of habeas corpus or military commission cases of former or current Guantanamo detainees”, but that no ” impartial investigations directed toward prosecutorial action” are taking place to follow up those findings. Is the Obama administration taking action in this regard? 

CG: Not really. He has ordered a stop to the use of ‘enhanced interrogation techniques’ (aka torture). He tried to close Guantanamo Bay prison but failed. He suspended military commissions, hearings in which due process rights are exceedingly pliable. And soon thereafter reintroduced them with tweaks.4 So I guess he’s trying not to make things worse.

As concerns the past, however, based on what I know, the Obama administration has systematically turned a blind eye to allegations of illegal interrogation practices. The US has ratified the Convention against Torture.

Former president Bush and vice president Cheney boasted publicly about their decisions to authorize torture.5 The judicial findings in the Amnesty report are concerning. And coming from a reputable source, they merit closer scrutiny.

President Obama and company do not want to rock the boat, however; highlighting instead the importance of looking forwards, not backwards. A wholesale probe into these and similar allegations would unleash a political firestorm. It’s political suicide. In all likelihood, Obama could not fend off the charges of politicization. And the move would further polarize an already troubled country suffering the steady drumbeat of an economy in secular decline. So politically, it’s just too hot a potato to handle. But fear not, a token gesture has been made: Special Prosecutor John Durham has a mandate from the President to investigate allegations of torture. The catch is, he keeps coming up mostly empty-handed.

Two lawyers who wrote intellectually dubious legal memorandums in support of the Bush administration’s use of ‘enhanced interrogation techniques,’ John Yoo and Jay Bybee, have gotten off with a slap on the wrist.6 Neither was even disbarred.7 Ditto Major General Geoffrey D. Miller, the man who brought ‘enhanced interrogation techniques’ to Guantanamo, Abu Ghraib and Afghanistan.8 Obviously, former Bush administration officials are immune.

In the US, courts apply the law but do not commence prosecutorial actions. Hence even if they make findings of illegality, it is up to the executive branch to bring charges. As the Amnesty report details, the administration sidesteps argumentation of evidence suggesting

the use of torture wherever possible, invokes the state secrets privilege when necessary and otherwise generally desists from taking action.

Many of these allegations come from military commissions and related habeas corpus cases. The US Supreme Court has attempted to ban military commissions and grant prisoners at Guantanamo Bay due process rights several times.9 Congress, however, simply passes legislation to circumvent the rulings’ effects.10

In sum: The courts can’t prosecute. The executive doesn’t want to. And the legislature fully backs the executive, at least on this one. Impunity? Where?

What advocates of international criminal justice have left as recourse then is stigmatization. Name and shame the perceived offenders. Add on to the normative tidal wave and hope that someday it becomes inescapable. That, in a nutshell, is what Amnesty does.

ICCSN Basel: At the Kampala Review Conference in June 2010, States Parties to the ICC Statute reached a consensus with regard to the crime of aggression. They consented on definition of this crime as well as on the conditions for the exercise of ICC jurisdiction over it. Whether ICC jurisdiction over the crime of aggression is activated is subject to a decision to be taken after 1 January 2017 by at least two-thirds majority of States Parties (art. 121 ICC Statute). Did the US play an active part in this Conference, and does the outcome have an impact on the US position towards the ICC? 

CG: The US was present at the Kampala Review Conference. Following the adversarial Bush years, the Obama administration, represented by Ambassador at Large for War Crimes Issues Stephen J. Rapp, used the opportunity to further reset the US-ICC relationship. The meeting was only the second Assembly of States Parties (ASP), the governmental body that oversees the Court, that the US participated in. The other was the year before. The Bush administration refused to take part in any ASP.

In 2009, Ambassador Rapp led the Obama administration’s policy review on the US-ICC relationship with an eye toward identifying a cooperative way forward. He noted, however, that US accession was unlikely for the “foreseeable future.” Secretary of State Hillary Clinton lamented in 2009 that US absence from the Court was a “great regret.”

Despite its participation as an observer to the Kampala conference, Washington did not achieve its primary objective: blocking adoption of the crime of aggression. The outcome gives rise to some food for thought: Have ASP members given up on seeking to accommodate the US, as they did in Rome twelve years earlier? Is this a sign of declining US influence? Harold Koh, State Department Legal Advisor, framed his concerns in the run-up to Kampala by asking whether adopting the crime of aggression “will truly strengthen the Court at this critical moment in its history?” Other US experts took issue with the definition of or jurisdictional mechanisms for the new crime.11 Others still, encouraged by Benjamin B. Ferencz, the last surviving member of the Nuremberg prosecutorial team, urged adoption.

Although the new crime of aggression is probably a net negative for US public opinion and Congress, it is unlikely to affect substantive US policy much. Even after 2017, the Rome Statute contains an ‘opt out’ clause that may allow the US to join the Court but still remain immune from the new regime.12

Considerable confusion surrounding exactly how this all plays out in practice remains.13 Hence, the Obama administration is likely to maintain a ‘wait and see’ approach. I nevertheless expect it to continue to cooperate with the Court and to provide it with rhetorical support.

Interview: Kathrin Betz 

____

1 Schiff, Ben. Building the International Criminal Court. New York: Cambridge University Press, 2008; page 71, 170.

2 Schiff, Ben. Building the International Criminal Court. New York: Cambridge University Press, 2008; page 71, 170-181.

3 http://www.amicc.org/docs/Clinton_sign.pdf

4 http://www.salon.com/news/opinion/glenn_greenwald/2009/05/15/military_commissions

5 http://www.csmonitor.com/World/terrorism-security/2010/1109/In-interview-about-Decision-Points-memoir-Bush-stands-by-waterboarding | http://abcnews.go.com/Politics/t/story?id=6464697&page=1

6 http://www.salon.com/news/opinion/glenn_greenwald/2008/04/02/yoo | http://fl1.findlaw.com/news.findlaw.com/wp/docs/doj/bybee80102mem.pdf

7 http://balkin.blogspot.com/2010/02/justice-department-will-not-punish-yoo.html

8 http://www.nytimes.com/2006/08/03/opinion/edit-3-thu.html?ref=geoffreydmiller

9 See Rasul v. Bush, Hamdi v. Rumsfeld, Hamdan v. Rumsfeld, Boumediene v. Bush.

10 See Detainee Treatment Act of 2005, Military Commissions Acts of 2006 and 2009; also http://www.fas.org/irp/offdocs/eo/mo-111301.htm

11 http://www.isn.ethz.ch/isn/Current-Affairs/Security-Watch/Detail/?lng=en&id=116618

12 http://www.amicc.org/docs/AggressionQA.pdf

13 http://www.ejiltalk.org/what-exactly-was-agreed-in-kampala-on-the-crime-of-aggression/

____

Original Print: http://www.iccsn-basel.ch/index.php?option=com_rokdownloads&view=file&Itemid=96

Breakdown Maintenance U.S.A.

Two weeks ago, US President Barack Obama proffered his solution to America’s debt problem. The speech came on the heels of several weeks of increasingly bearish sentiment in the US capital markets. It also served as a rebuttal to Republican Congressman Paul Ryan’s welfare state-slaying Path to Prosperity proposal. A political, or fiscal, fix to America’s debt problem is essential, both Obama and Ryan argue. But is it too late? And are America’s politicians simply too divided?

Toward the end of the speech, Obama announced that he has directed his vice president to lead negotiations with the US Congress to save $4 trillion over the next twelve years. The self-imposed deadline for a compromise is the end of June 2011. The US Federal Reserve’s emergency monetary stimulus measure Quantitative Easing 2 (QE2) also ends on 30 June 2011. Coincidence?

So, what happens on 30 June when QE2 ends? Two scenarios are foreseeable.

In the first, America’s politicians come to their senses, devise mechanisms to divvy up a shrinking pie and agree on societally constructive austerity measures; the markets gain confidence that the US will make good on its debts in full. QE2 ends and depending on the underlying health of the private sector interest rates on US debt rise slightly to moderately from their exceptional lows to attract sensible private investors. The US skirts recession or briefly dips back into it.

In the second scenario, America’s politicians don’t come up with a fix and the apolitical end of the system – the Fed and the US Treasury – continues to attempt to keep the ship afloat as the bills inevitably come due. Assuming the private sector has to date not entered a self-sustaining, virtuous circle of economic expansion, once QE2 ends interest rates could spike. Economic contraction would likely ensue and the Fed in the absence of a crisis-induced fiscal solution may feel compelled to launch QE3, QE4, and so on and so forth. How much global investors then hold off before moving to price in US reluctance to bring its books into balance, opting instead to monetize its debt, becomes the $14.3 trillion question.

The latter scenario is unlikely to end the Dollar’s status as world reserve currency for now. It suggests, nevertheless, a continued, secular decline of the Dollar index. And more gloomily, if investors overreact à la Soros reflexivity, a Dollar crash settling at a new lower level. An orderly Dollar devaluation with an eye toward rectifying global imbalances may of course be part of the Fed’s strategy all along.

Because Dollar debasement and rising yields tend to erode the real underlying value of US bonds, Bill Gross, bond guru and long-time manager of PIMCO’s $236 billion Total Return Fund, isn’t sticking around to see how things pan out. On the contrary, lately Mr. Gross thinks he can make money shorting the lot some. The Monday before last’s negative outlook by the Standard & Poors ratings agency on US creditworthiness provides yet another ominous sign.

America’s failure to bring its debt situation under control is resulting in 11th-hour breakdown maintenance. Is it up to the task?

Must-read: Brad Setser’s If the US Dollar Plummets, a contingency memorandum he penned before joining the White House Council of Economic Advisors.

The -isms of American Foreign Policy

To understand the United States’ role in the world, familiarity with the various frames that decision makers in Washington rely on when formulating foreign policy is helpful. Most statecraft blends these, kind of like a color wheel. The basic contours, however, personified by four giants of American history, are as follows:

The Extroverts

Hamiltonianism maintains that the US should pursue a realist foreign policy, balancing interests, especially material ones, and fundamentally seeks to promote an expansionist agenda. Hamiltonians support a robust national security establishment, a strong dollar policy and a muscular industrial base; in effect the US from WWI to the Great Recession. Domestically, these are the establishment Republicans exemplified by figures such as father George H. W. Bush.

Wilsonianism also subscribes to the furtherance of the Pax Americana. But whereas Hamiltonians favor material interests, Wilsonians emphasize the normative, touchy-feely moral aspects of foreign policymaking. Wilsonians are frequently labeled idealists, like to set up international institutions, are bleeding-heart humanitarian interventionists, prefer to co-opt other states rather than impose their will on them, and ultimately seek to consolidate a global society defined by liberal American values. Recently, Presidents Obama (Libya), more cynically George W. Bush (Iraq after WMD failed to materialize) and Clinton (Bosnia) have all incorporated elements of Wilsonianism in their prosecution of US foreign affairs.

The Introverts

Jeffersonianism boils down to super-sizing pre-industrial Switzerland; trade but focus on the domestic, set a – but don’t strive to lead by a – moral example, keep the national security state at a minimum (the ideal is none whatsoever), don’t pick fights abroad with the army you don’t have. The hitch with Jeffersonianism is that it’s hard to square with America’s post-WWII superpower status and easily derided back home as pusillanimous.

Jacksonianism is Palinesque populist and like Jeffersonianism isolationist at heart. Jacksonians are equally suspicious of the moneyed, power-centralizing Hamiltonians. But they depart from the Jeffersonians when it comes to the use of force. A Jeffersonian will almost always turn the other cheek. A Jacksonian is almost always up for a fight against an enemy he perceives as intrinsically menacing the national interest. And once blood and treasure are committed, surrender, or for that matter showing mercy, is no longer an option. Chest thumping is welcome. Both Jacksonians and Hamiltonians, but the former more forcefully so, tend to shun international institutions and view them as constraints on US freedom of action. The knee-jerk, outraged and ultimately fabulously expensive neoconservatives’ reaction to 9/11 under George W. Bush was Jacksonian through and through.

So, what’s President Obama? My guess is something approximating a longing Jeffersonian with a Wilsonian bent operating in a Hamiltonian world inexorably in relative decline.

Original Print: http://isnblog.ethz.ch/government/the-isms-of-american-foreign-policy

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Indecision and Justice in Kenya

As the International Criminal Court (ICC) starts an investigation into its most high-profile suspect yet – Libya’s “Brother Leader” Muammar Gaddafi – politicians in a far more democratic country, 2,700 miles to the southeast, are also looking to evade the long arm of the law.

Kenya became the 98th member of the International Criminal Court in March 2005, when it ratified the Rome Statute. Over the past three months, the ICC has issued Kenya with summonses for the ‘Ocampo Six’: six individuals, both in and out of government, deemed by Chief Prosecutor Louis Moreno Ocampo to be those most responsible for the post-electoral violence that unfolded in 2007-08, leaving an estimated 1,500 people dead.

Is it really necessary for the ICC to be involved? Could Kenya not prosecute those involved on a purely domestic level? Yes, it could: but only with an adequate institutional framework in place. The Rome Statute provides for the legal principle of complementarity; that is, legitimate local efforts at justice enjoy primacy over international efforts. Politicians in Nairobi, however, have botched various attempts to establish a local tribunal, or to reform their judicial system. Imenti Central MP Gitobu Imanyara has spearheaded the campaign to establish a local tribunal that would meet international standards – in essence, removing the need for ICC involvement. A copy of his bill can be found here. Three attempts to pass the legislative text – February 2009, August 2009 and February 2011 – were, however, defeated as a result of parliamentary infighting.

As a result, the Ocampo Six have all but assured themselves lengthy sojourns behind bars, if brought to trial and convicted by the ICC instead of domestically. The upside for Kenya and its people, who, thanks to a remarkably vocal and independent press, have access to quality reporting – and broadly back the ICC as they don’t trust many of their own leaders’ commitment to justice – is that the intervention stands to seriously curb impunity.

Now, astonished that Mr Ocampo hasn’t given up, some Kenyan politicians from the PNU faction have taken to lobbying the US and the UN for an Article 16 one-year deferral of the investigation. The Parliament also passed a conspicuously desperate vote calling on the country to withdraw from the ICC. This would not halt the ongoing investigation though, even if enacted into law. Indecision has cost the ‘Ocampo 6’ any hope, however slight, of bending the administration of justice.

On a tangential note, it is worth briefly comparing Washington’s supportive stance (however morally justified) on the Kenya, Libya (a potentially significant precedent-setter) and Darfur dossiers with its own arms-length conduct presently, and downright hostility under President Bush, vis-à-vis the ICC, as the exercise exposes its application of double standards. For that matter, so do Beijing and Moscow’s positions on Darfur and Libya. But great powers don’t subject themselves to the rule of law; they mostly impose it.

Original Print: http://isnblog.ethz.ch/government/indecision-and-justice-in-kenya

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