An Overview of 2013 - Setting the Scene

There were several driving forces affecting market conditions in year 2012. The year opened on a very strong start. In fact much of the overall market gain in 2012 occurred in the first six weeks of 2012. The rest of the year could best be characterized as one finger nail biting financial crisis followed by another, with a measure of election year political uncertainty thrown in for good measure.

The first crisis was the deteriorating economic conditions in Europe and the inability of governmental policy-makers to develop a constructive program to address it. While never really resolved over the course of the year, it was pushed off center stage by our own home grown financial crisis in the United States that came to be known as the fiscal cliff, and similar to their European counterparts, the inability of our own government political leaders to develop a constructive resolution. In each of these crises some sort of gerrymandering solution was developed; but the underlying problems remain not addressed with sustainable policies. The uncertainty of these circumstances created of great deal of volatility in the investment markets. In each case heightened tension increased the fear level of the markets and caused consequent drops in the markets. In each case, as well, the fears gave way to relief rallies in the markets as some policy was cobbled together to at least temporarily address the issues.

While the markets have started the year strongly, it is inevitable that will see these crises reemerge in 2013. In fact, it is highly likely that we will see a return to the same sort of volatility we experienced in 2012. The United States government has already reached the debt limit allowed by law, and while an agreement was reached with respect to taxes, the only agreement with respect to the mandatory budget cuts, known as sequestration, was to defer them for two months. This means that by March we will see the political and economic tensions again escalate, and market fears and uncertainty increase.

The issues at hand are very significant and marginalizing them into just another economic crisis would be poor judgment. The potential consequences mean there is there is not really no one safe harbor. Cash or bonds, the traditional conservative investments have to also be considered as at risk. Considering cash, in US dollar form, to be conservative would be to not recognize the link between the guarantor of the US dollar, the U.S. government, and the intractable financial problems that have brought it to the financial cliff, or are pushing it to have to continually increase its allowable debt ceiling. Bonds are also at risk as interest rates begin to rise from an unsustainable low interest rate environment, bond values, especially those long-term in nature, will decline in value. Indeed, as the markets have started 2013 strongly, many bonds have declined in value because of interest rate pressures.

One thing that seems to be fairly certain is that crises do resolve themselves, one way, or another. At this point we can only speculate on how that will occur. The worst case scenario would be a total global financial collapse and an ongoing subsequent global depression. While this cannot be dismissed as an impossible event, I see the probability of this as being extremely small. There is a great deal of potential economic vigor and potential growth. At present the main problem is the huge overhang of legacy debt. This is putting a damper on economic expansion and its consequent investment potential. Over-indebtedness is always dealt with by some sort of restructuring. That is what I would expect as a resolution in this case as well. What that restructuring will look like remains to be seen. However, as this process unfolds, we will see the economic vigor and investment potential be released. My take is that 2013 will be a pivotal year in beginning that resolution process. While I expect to see heightened volatility, I also expect to see the investment markets becoming more and more attractive as the year unfolds. As the year unfolds, I will be trying to steer a balanced course between the volatility and the potential longer term opportunities through maintaining well diversified portfolios. 

Diversified Investment Strategy

Investment markets over the last quarter have been driven primarily by uncertainties with respect to outcomes in resolving the debt crisis in Europe. As in the United States, Europe has been having its own political gridlock as to its way forward in the face the potential government insolvencies. Most recently, Greece had been the foremost concern. Having been in a severe recession for several years because of budget cuts required per terms of previous financial bailouts by the other countries of the European Union, Greece had called an election to determine whether or not it would stay in the European Union and adhere to the austere budget required by their financial bailout. The alternative was to leave the European Union and default on billions of Euro’s worth of debt. A good portion of this debt was held by major European banks, as well as some major U.S. banks. The fear was that if Greece defaulted, the fallout would be far reaching perhaps undermining the solvency of major global banks and financial institutions. Greece narrowly voted to remain in the Union, but with a significantly divided parliament. No sooner did this occur, than Spain rose to front and center as a problem area. Spain being one of the largest economies in Europe required a new approach to this entire European issue. Germany and France had been forcefully advocating an austere approach to dealing with the over-indebtedness of the countries in the middle of these financial crises. The problem was that the programs of austerity were also damping growth to make it even more difficult for countries like Greece and Spain to deal with their debt problems. Elections in France changed the leadership from Sarkozy to Hollande who was much more sympathetic to relaxing the programs of austerity and do more to stimulate growth. Only Germany’s Angela Merkel remained as the lone, but powerful voice of the austerity programs, and consequently political gridlock. Most recently, Merkel appears to be relaxing her position and the framework of a structural agreement to deal more comprehensively with the issue emerged. Whether the agreement will accomplish this remains to be seen. It did, however briefly, give hope to the investment markets which reacted very favorably to the news.

To compound the uncertainties and the implications surrounding the European financial crisis, lurking in the background, ready to jump forward at any instant, is the financial and economic situation in the United States. More and more frequently, reports are being aired on the mainstream media of an approaching fiscal cliff the United States will be facing at the end of the year. This refers to the prospect of increased taxes and mandatory federal budgets cuts. The outcome is a result of the political gridlock in the United States and is a default position in the event Congress is not able to reach an alternative agreement. Given the extreme ideological polarization of our Congress, the probabilities seem small that an alternative agreement will be reached. There seems to be a fairly wide economic consensus that this is likely to result in the weakening of the already weak US economy. Moreover, even if an agreement is reached, as in Europe, the fixes seem to do little more than “kick the can down the road” a little further without really developing a sustainable solution to very real structural problems. Needless to say, the situation is very complex, and we could continue for some time to discuss it. All of these uncertainties create a very unstable economic and investment environment. The outward appearance is a great deal of volatility as investors swing from the extremes of fear and hope. The relevant question for us is: what is the best investment strategy in this type of environment? There is no shortage of opinion predicting where the investment markets are headed. They range from catastrophic calamity, to the cusp of a new bull market. For over two decades, on a regular daily basis, I consider countless numbers of these viewpoints. I have come to value some commentary and analysis more than others, and I certainly form my own opinions. I have, however, learned several important lessons over the years. One is that no one has a perfect crystal ball. Another is that the reporting media seems to create its own spin. When things are going relatively well, a general impression is created that happy days will never end, creating a type of euphoria. On the other hand, when events turn toward the negative, it sometimes appears that the end of the world is approaching, creating an atmosphere of fear and panic. It is a well documented that investors over-react to news. For example, Dalbar Inc. is a company which studies investor behavior and analyzes investor market returns. The results of their research consistently show that the average investor earns below average returns. For the twenty years ending 12/31/2010 the S&P 500 Index averaged 9.14% a year. The average equity fund investor earned a market return of only 3.83%. While I cannot absolutely dismiss either of the extreme outcomes from occurring, my observation has been that the fundamental principle of risk management, diversification, should still serve as the foundation for a prudently managed investment portfolio. This does not mean that the portfolio will be resistant to all market downturns, and it does not mean that diversification adjustments should never occur. It does suggest, however, maintaining focus and investment discipline is a critical component of navigating what are sometimes, very stormy seas.

Looking forward, it would be great to say that the worst is behind us. Unfortunately, that does not appear to be the case. It is likely that the global economy and investment environment will get worse before it gets better. It will require patience and fortitude whatever the investment allocation is. The silver lining, however, is that unless you believe the world will be ending as a result of these issues, the foundation of future economic health is being established. Despite the grim shorter term picture, my opinion is that the global economic challenges and issues now being confronted will be worked through and resolved, and that the world will not end.

A Review Primer on the Components of Diversification – if needed

The four broad categories, or asset classes, of investments are cash, bonds, or equities. Included within these categories are such things as real estate, commodities such as energy, food, as well as precious metals. Each has its own particular characteristic strengths and weaknesses, and consequently a prudent risk management approach would not allocate 100% to any one of these asset classes.

If we consider cash, for example money market funds, we recognize that this can provide liquidity and stability, but very little investment gain. It is not without risk. In fact, when interest rates are as low as they are today, the risk is known as purchasing power risk. This means that if you have $100,000 in an account today, and $100,000 in the account one year from now, will the $100,000 one year from now be able to purchase what is can purchase today. If inflation is running at 2.5%, one year from now you will have a guaranteed loss of 2.5% in the purchasing power of your account. Currently, by the government’s statistics, this is around the range inflation is running, other independent analysts believe the real inflation number is higher. And some analysts believe that the future rate of inflation will be significantly higher. This suggests to me that while it makes sense to have a portion of an investment portfolio in cash, or cash-like investments such as a money market, 100% would probably be unbalanced in failing to address the unique risks of cash.

This brings us to bonds. Bonds, in general, have traditionally been considered a conservative investment. This is a broad generalization, and it is important to understand some of the unique characteristics of bonds to appreciate their role in an investment portfolio. An attractive characteristic of bonds is that they pay interest on a regular basis, which is of course if the issuer continues to have the ability to pay. The risk that the issuer may not be able to continue paying the interest, as well as the principal at maturity is known as solvency risk. Depending upon the type of bond this risk can be higher or lower. Historically, government of developed economies had been considered low risk, with the United States having the least solvency risk. Municipal bonds have also been considered safe, conservative investments. These days we hear of the developed country bonds being less safe because of over-indebtedness, as well as municipalities in the United States declaring bankruptcy. Another risk of bonds is known as interest rate risk. This is the risk that if interest rates increase, bonds already owned will decline in value. Some investors say this is not a problem because if they do not sell the bonds until they mature, they expect to receive all of their principal back, as well as the promised interest payments. What these investors neglect to consider is that if interest rates increase, it is usually for a good reason, such as higher inflation. They are stuck with lower interest paying bonds they had previously purchased. The bottom line is that bond can also decline in value, sometimes significantly. In historically low interest rate environments, as we currently have, this risk is elevated. These risk management implications imply that while bonds are an important part of an investment portfolio, they also should not represent 100%, and the portion of an investment portfolio that is in bonds should itself be diversified with respect to the types of bonds and the unique risks for each type.

This brings us to equities, or stocks. As with bonds there are a wide range of offerings, as well as a wide range of approaches to investing in them. They have their own unique set of risks, as well as presenting opportunities. Despite regular variations in value, sometime significantly so, they offer income opportunities through dividend payment, and/or growth opportunities through their increase in value. Needless to say they can also decline in value. With a diversified investment position, for example in fund of utility companies, the main risk seems to be primarily psychological. The belief that, for example, that all of the strongest and largest utility companies in a fund will simple become worthless is placing a disproportionate weight on the occurrence of something with an extremely small probability of happening. Despite periodic declines in value, sometimes having nothing to do the real merit of the investment itself, these funds can pay annual dividends of 4% per year or more. In an environment where interest rates are so low, having some component of a portfolio in equities, or stocks, is part of a well diversified portfolio. One way in which the potential volatility can be managed is by having a smaller percentage.

It is interesting to note that some of the same investors in bonds who claim that it does not matter if the bond declines in value because they intend to hold the bond until maturity, will consider it unacceptable to own a utility fund paying 4% or more because of the potential for it to decline in value.

Nonetheless, each type of investment has its own unique set of risks as well as opportunities. There is no one safe harbor. The best overall way to construct and manage a portfolio is with a diversified selection of different types of investments. In some cases, there will be significant declines in value. Some investors believe it to be possible to time when the declines and when the increases are coming, thereby avoiding declines while riding the increases up. Even if this were consistently possible, and there is reason to doubt this, from a prudent investment decision-making perspective, there needs to be some rational decision-making basis, other than an environment of fear and panic driving the markets. With the outcome of so many hugely impactful global issues pending resolution, trying to respond to these unresolved issues offers little other than randomness as a foundation. This is unacceptable, and argues all the more strongly, for holding a well structured portfolio comprised of cash, bonds and equities despite the volatility, and periodic declines.

The Myth of the American Dream

          The United States of America has long been characterized as the land of opportunity. It was founded upon principles recognizing the inherent worth of each individual as embodied in the lines of the Declaration of Independence stating that “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”. It was for the ideals and principles underpinning the foundation of the United States of America that tens of thousands of courageous citizens sacrificed so much, including their lives, and the well-being of their families. The idea that if one worked hard and did the right thing, there was the reasonable possibility of creating better economic circumstances and a fulfilling life had made the United States of America an international star, holding out the achievement of the American Dream as a life aspiration. No doubt there are countless stories of many individuals and families who have, and are, realizing the fruits of these ideals. Unfortunately, as this is being written in late 2011, national polls show a growing number of dark clouds over Camelot. A recent PEW Charitable Trust poll[1] showed the largest number of Americans living in multi-generational households in modern history. This has been fueled by poor economic conditions that make living in a multi-generational household a financial lifeline. Other polls show the majority of Americans viewing their elected representatives in historically low esteem.

Some of the ideals represented by the United States of America as the land of opportunity seem to have been transformed into myths. The Brookings Institution is a nonprofit public policy organization based in Washington, DC. They have consistently ranked as the most influential, most quoted, and most trusted think tank. Their mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations that advance three broad goals:

·      Strengthen American democracy;
·      Foster the economic and social welfare, security and opportunity of all Americans and
·      Secure a more open, safe, prosperous and cooperative international system.
           Two of their Senior Fellows recently wrote an article[2] for the Washington Post in which they highlighted five myths about America. In their article they state that the idea that Americans enjoy more economic opportunity than people in other countries is contradicted by research showing that children born into a lower-income family in the Nordic countries and the United Kingdom have a greater chance than those in the United States of forming a higher income family when they are adults. They also note a myth that each generation does better than the past generation because men in their 30’s earn 12 percent less than the previous generation. If today’s families have a somewhat higher overall income than prior generations, it is because more family members are working to contribute to the overall income. While immigration and trade may serve as political straw men deserving of blame for the poverty and inequality in the United States, it appears that this too is a myth. The real culprit seems to be the increase in single-parent families that is driving the poverty rate. According to the article, the United States would have a poverty rate 30 percent lower than today if the same percent of single-parent households existed today as in 1970. Clearly, there are some significant blemishes on the American Dream causing a growing amount of social discontent.

       When considered along with a recent Associated Press Report that 1 in 2 Americans, a record number, is now classified as low-income[3], the general prevailing sentiment expressed by small business person Jonathon Smucker, participating is the Occupy Wall Street protest, is probably a fairly accurate representation of the feeling of many Americans when he said:
“Like a lot of Americans, I’m pretty ticked off. It’s not that there are rich people, it’s that the people with a lot of money over the past few decades have rigged the system so that there’s not a fair chance for anyone anymore.”[4]
      While the United States may be a glaring representation of the growing polarization between the have and the have-nots, a survey of world events suggests the increasing social and economic malaise is a global phenomenon.  Anyone interested in trying to plan their future must take notice of this state of affairs and ask themselves what might be responsible for this, as well as where this trajectory may be taking us?

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[1] Pew Charitable Trust, Fighting Poverty in a Bad Economy, Americans Move in with Relatives, Kochhar, Rakesh and Chon, D’Vera, October 3, 2011.

[2] Brookings, Five Myths About Our Land of Opportunity,

http://www.brookings.edu/opinions/2009/1101_opportunity_sawhill_haskins.aspx, Sawhill, Isabel, and Haskins, Ron.

[3] Census Shows 1 in 2 People Are Poor Or Low-Income, Associated Press, Yen, Hope, December 15, 2011.

[4] Pay Gap a $740Bn Threat to US Recovery, Financial Times, Harding, Robin, December 15, 2011.

Cronyism and Capitalism

Today I embark on a new project. I am beginning to write a new book investigating the impact of cronyism on capitalism. In part, I am going to take an experimental approach in posting on-going installments of this work. My hope is that my work will generate some interest in providing commentary and discussion that will affect the evolution of this book. Although I welcome constructive input and the sharing of ideas through discussion, realistically my expectations are that because of having received little commentary on past postings, this will be minimal. Nonetheless, I offer the following initial installment.


From media coverage, it appears that the frequency of new instances of financial indiscretions has been increasing. Additionally, the current global financial turmoil in Europe, a present, and globally in general, calls into question whether there is a systemic issue of commonality from which this state of affairs has emerged. If so, there are a number of ensuing questions whose answers would inform anyone interested in making more effective decisions with regard to the future of themselves, and their families. Note that while the intent of policy-makers, economists, and other social engineering types might be to find solutions for these problems, the intent of this work is not to solve to world’s problems, but rather to illuminate what may actually be going on in the hope that any insight which might be offered will serve as a support to the individual empowerment of the decision making which is more relevant to our lives on a personal scale. In the view of this writer, the magnitude of the issues emerging at a macro scale, and represented through the multiplicity of media coverage sources, and with often wide divergence of expert opinion, serve more to obscure and confuse the importance and relevance of these themes on a personal scale. Even in those instances where opinion appears to be rather uniform, a critical view of the consolidation of control of media sources, whether that is by government or business interests, suggest that the individual seeking more solid guidance as to more effective decision making for the present and future seek an independent, well reasoned, narrative which weaves many of the seemingly disparate global issues into a focused, comprehensible view which has bearing and relevance to our individual lives.

The intent of this work is to examine a theme which appears at the heart of many of the current issues being faced by the global financial system and economy. With capitalism serving as the setting for the current global crises, a common thread seems to be the distortion of effective and efficient use of economic resources through favoritism toward interested parties having access to controlling policy makers. As a consequence, the fundamental principal of access to opportunity via a level playing field is corrupted into a continuing consolidation of wealth and power to those established players with access to the levers of power. Notwithstanding examples of individuals and businesses that have successfully negotiated their own form of success, when viewed system wide, many of the global social disturbances represent some form of example. In the United States we have the Occupy movement, whose general identification differentiates the 99% from the more privileged 1%, or the of the Arab Spring in the Middle East initially precipitated by Mohamed Bouazizi, a Tunisian street vendor who set himself on fire December 17, 2010, as a protest of the confiscation of his wares and the harassment and humiliation that he reported was inflicted on him by a municipal official and her aides, or the large demonstrations in Russia against what are perceived to be unfair elections results in favor of Vladimir Putin’s entrenched power regime.

The idea of favoritism reaches its corrupting embodiment in the concept of crony capitalism. Investopedia, an online reference defines crony capitalism as follows:

A description of capitalist society as being based on the close relationships between businessmen and the state. Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.

http://www.investopedia.com/terms/c/cronycapitalism.asp#ixzz1gMQ9GiF7

The Investopedia discussion goes on to describe the difference in viewpoint between those of a capitalist persuasion, and those of a socialist persuasion:

Both socialists and capitalists have been at odds with each other over assigning blame to the opposite group for the rise of crony capitalism. Socialists believe that crony capitalism is the inevitable result of pure capitalism. This belief is supported by their claims that people in power, whether business or government, look to stay in power and the only way to do this is to create networks between government and business that support each other.
On the other hand, capitalists believe that crony capitalism arises from the need of socialist governments to control the state. This requires businesses to operate closely with the government to achieve the greatest success.

For the purpose at hand, the relevant focus appears to be cronyism more than the purported economic operating system chosen. As good arguments can be made for the corrupting effects of cronyism, whether they are grounded in a capitalist, socialist, monarchy, or whatever other economic-social system, we will primarily concern ourselves with examining the effects of cronyism, and its corrosive and destabilizing effects regardless of what system it is based within.

The approach of this work will be to examine specific examples economic malfeasance and crises with an eye toward highlighting potential roots in cronyism. More generally, we will be looking for system wide implications derived from these events, and more specifically, the background question we intend to illuminate is whether or not the individual is facing a “stacked deck” in the outcome of potential decisions they need to be making. If so, are there potential strategic course of action we can elect as individuals if we know we are in a game with a “stacked deck”?

The approach of this work will be to examine specific examples economic malfeasance and crises with an eye toward highlighting potential roots in cronyism. More generally, we will be looking for system wide implications derived from these events, and more specifically, the background question we intend to illuminate is whether or not the individual is facing a “stacked deck” in the outcome of potential decisions they need to be making. If so, are there potential strategic courses of action we can elect as individuals if we know we are in a game with a “stacked deck”?

Creditors of the World Are Not Necessarily Captive to the Debtors

In response to Martin Wolf's article in the Financial Times,  I offer the following commentary.

The conceptual framing of this argument is somewhat misleading. To begin with the phrase indicating a belief by creditors that they will inherit the earth suggests a context for concentrating wealth and power that is more benign than the underlying capitalist and human drive for dominance and control. There are enough examples in human history, and biology, be it modern or ancient, that one does not have to be much an historian to be compelled to believe that a basic survival instinct is to attempt to manage one’s environment so as to better the chances of surviving and thriving. Because of the complex web of relationships there is often some sort of mutual interdependence, sometimes beneficial, sometimes not so much.

The heart of Martin Wolf’s argument seems to suggest that the relationship between creditors and debtors is such that there is some sort of “lock” binding specific sets of creditors and debtors to one another. While perhaps the world cannot trade with Mars, specific parts of the world can rearrange their trading relationships and thier drivers of growth. For example, while no doubt the western developed world does serve an important function in sucking up the exports of China, it is also possible that through a combination of weaning itself from such heavy dependence on an export driven economy by developing its domestic aggregate demand, and shifting its trade relationships to for example Brazil, or even Russia, to meet some of its export needs it can transition from its heavy dependence its current export targets. As to being held captive because of its $3,200bn of currency reserves, it should be keep in mind that it is only held captive as long as the currency reserve exists in its current form. If these reserves begin to be exchanged for foreign equity positions representing control in strategic future resources that China needs, the current foreign reserves cease to be a control on China’s behavior, and rather serve to further concentrate power and wealth in the hands of those with capital.

Is this so different than when the Native Americans in New York sold Manhattan Island for the equivalent of $24 in baubles, or when the Soviet Union dissolved, dispersed shares of ownership of formerly state owned enterprises among the people, only to have aspiring oligarchs acquire and concentrate these assets for controlling interests in exchange for perhaps teh equivalent of a supply of vodka for a short period of time. There are innumerous other examples which can be given wherein the exchange of future earnings capacity (read indebtedness) for a more immediate gratification leads to servitude.

To suggest that because we are all on the same planet, as Martin Wolf does in his argument, the fix to the current capital imbalances are compelled by some notion of constraint by reciprocity is to have blinders hindering one’s vision as to the fuller range of feasible alternatives.

Recapitalize the Banks?

The concern about a Greek default is really more about the contagion effect. The central question is how does one contain the impact arising from a disorderly Greek default. From this follows the discussion about potential bank recapitalization. There are all sorts of sub-plots in the recapitalization schemes, from the moral hazard issue, to the inequity inflicted on those who have been fiscally responsible, to whether or not an effective scheme can really be created to many more. Politicians have been receiving the brunt of criticism because of the perceived lack of leadership in dealing with an extremely complex, and perhaps insoluble by mere mortals problem. I would be one of the last ones to come to the defense of the politicians, however, the political posture of the “deer in the headlights” when facing public outcry to “do something, do anything”, is understandable giving the mutually check-mated position the global financial situation has emerged into.

The idea of recapitalization is lacking unless one can quantify with some reasonable degree of confidence the extent of recapitalization that would be needed to effectively resolve the issues. I have heard plausible figures of up to $2 trillion dollars worth. I have not, however, seen much discussion of potential derivative exposure, and counter party risks which might amplify the amount of fiscal deficiencies,  and the number of systemically important institutions which may be impacted. If there is one thing that the institutional failures of 2008 should have taught us, it is that with the degree and scale of economic and financial integration that currently exists, it is all but impossible to see where the chips may fall, or the ensuing consequences. Moreover, when talking recapitalization, ultimately one is talking about using public money to enable those who, either directly or indirectly, were responsible for egregiously imprudent financial behaviors to retain their private ownership interest with minimal risk of loss. The backlash from this sort of thinking is emerging at the main street level that potentially will threaten governments if it continues. As evidence witness the emerging demonstrations in Greece and on Wall Street, and the rising pervasive discontent among so many of the affected citizenry. Perhaps a more honest and equitable approach to allowing Greece to default, and stabilizing the banking system would be an outright state takeover of those systemically important institutions to give the funding public an equity stake rather than a debt holders stake in future recovery. When looking at the impact of the US TARP program the argument is made that the US actually made money from many of its bailouts. I think, however, that this misses the point, if governments are going to use public money to bailout out private institutions, it should be done with the focus of maximizing the return of the investing public, as well as a policy measure to provide a consequence to those who have acting so financially imprudent, directly, or through agency. It really is time to start acting like responsible adults.

George Soros' European Crisis Solution

If one accepts George Soro’s solution to preventing a second Great Depression, the prognosis is indeed grim. His solution, while in itself conceptually problematic, appears in a pragmatic context to reside in never-never land. The bold steps he presents as necessary conditions to prevent a second Great Depression require the cooperation and coordination which would transcend the polarization and fractionalization of regional narrow self-interest at such a scale that defies observable reality. Moreover, while the conditions he proposes may or may not be necessary, he has not presented a convincing argument that they are sufficient conditions.

A nebulous foundation block of his strategy is to provide time for “Europe to develop a growth strategy, without which the debt problem cannot be solved”. The development of a growth strategy is central to every economic and business interest, as he well knows. The question which must be asked is what the potential drivers would be of any effective growth strategy, what are the competitive and comparative advantages that Europe could bring forth, and what the time frame for implementation would be? If this proposed growth strategy would be a palliative to the “debt problem”, one is assuming a sufficient rate of growth to offset the burden of debt service. Even assuming a growth strategy could be developed; getting a realistic idea of whether the growth rate would be sufficient to counter the demands of debt servicing takes us into the unquantifiable speculative realm. While George Soros is a demonstrably recognized master in the realm of speculation, a no small part has been his ability to be adaptable and flexible as changing conditions warrant. Unfortunately governmental and national policies rarely show the same nimbleness in response to changing realities.

http://blogs.ft.com/the-a-list/2011/09/29/how-to-stop-a-second-great-depression/#axzz1ZHNkRk4j